<PAGE>
Filed Pursuant to
Rule 424(b)(2)
Registration No. 333-56249
Prospectus Supplement
(To Prospectus dated June 19, 1998)
8,918,395 SHARES
[LOGO]
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
All the shares of Class A Common Stock, $.01 par value per share (the "Class A
Common Stock"), of Travelers Property Casualty Corp., a Delaware corporation
(the "Company"), being offered hereby are being sold by certain stockholders of
the Company. The Class A Common Stock is listed on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "TAP." On June 18, 1998, the last sale price
of the Class A Common Stock as reported on the NYSE was $41 3/8 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares of Class A Common Stock will be purchased from the Selling
Stockholders by J.P. Morgan Securities Inc. (the "Underwriter") at a price of
$40.60 per share (resulting in $362,086,837 aggregate net proceeds (before
expenses) to the Selling Stockholders). The Company will not receive any
proceeds from the sale of the Class A Common Stock. The Company will pay certain
expenses of the offering estimated at $230,000.
The shares of Class A Common Stock may be offered by the Underwriter from time
to time in one or more transactions (which may involve block transactions) on
the NYSE, in the over-the-counter market, through negotiated transactions or
otherwise at market prices prevailing at the time of the sale or at prices
otherwise negotiated, subject to prior sale, when, as and if delivered to and
accepted by the Underwriter. See "Underwriting."
The Company and the Selling Stockholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The shares are offered, subject to prior sale, when, as and if accepted by the
Underwriter and subject to approval of certain legal matters by counsel for the
Underwriter. It is expected that delivery of the shares
<PAGE>
of Class A Common Stock will be made against payment therefor in immediately
available funds on or by June 24, 1998 at the office of J.P. Morgan Securities
Inc., 60 Wall Street, New York, New York.
J.P. Morgan & Co.
June 19, 1998
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN OR THEREIN MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS RELATE SOLELY TO THE CLASS
A COMMON STOCK AND MAY NOT BE USED OR RELIED ON IN CONNECTION WITH ANY OTHER
OFFER OR SALE OF SECURITIES OF THE COMPANY. NEITHER THIS PROSPECTUS SUPPLEMENT
NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS AT ANY TIME NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Selling Stockholders........................... S-2
Underwriting................................... S-2
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Information by
Reference.................................... 3
The Company.................................... 4
<CAPTION>
PAGE
---------
<S> <C>
Recent Developments............................ 5
Risk Factors................................... 6
Use of Proceeds................................ 13
Selling Stockholders........................... 14
Plan of Distribution........................... 15
Legal Matters.................................. 16
Experts........................................ 17
</TABLE>
SELLING STOCKHOLDERS
The shares of Class A Common Stock being offered hereby are being sold by
Aetna Services, Inc. ("Aetna"), J.P. Morgan Capital Corporation ("J.P. Morgan
Capital") and Sixty Wall Street Fund, L.P. ("Sixty Wall Street") (collectively,
the "Selling Stockholders"). The following table sets forth information with
respect to the ownership of the Class A Common Stock by each Selling Stockholder
as of June 17, 1998. Information with respect to stock ownership (other than
percentage calculation) has been furnished to the Company by the respective
Selling Stockholders.
<TABLE>
<CAPTION>
SHARES OWNED NUMBER OF PERCENTAGE OF
PRIOR TO SHARES OWNED CLASS OWNED
STOCKHOLDER OFFERING SHARES TO BE SOLD AFTER OFFERING AFTER OFFERING
- ----------- ------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
Aetna Services, Inc. ...................... 4,270,697 4,270,697 0 *
J.P. Morgan Capital Corporation............ 4,598,410(2) 4,596,701 1,709(2) *
Sixty Wall Street Fund, L.P.(1)............ 50,997 50,997 0 *
------------- ------------------ ----- ---
Total.................................. 8,920,104 8,918,395 1,709 *
------------- ------------------ ----- ---
------------- ------------------ ----- ---
</TABLE>
- ------------------------------
* Less than 1%.
(1) Sixty Wall Street is an affiliate of J.P. Morgan Capital.
(2) Includes 1,709 shares acquired by Roberto G. Mendoza, a director of the
Company and a Vice Chairman and director of J.P. Morgan & Co. Incorporated,
the parent of J.P. Morgan Capital, Sixty Wall Street and J.P. Morgan
Securities Inc., and transferred to J.P. Morgan Capital.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus Supplement (the "Underwriting
Agreement"), the Underwriter has agreed to purchase, and the Selling
Stockholders have agreed to sell to it, the shares of Class A Common Stock.
Under the terms and conditions of the Underwriting Agreement, the Underwriter is
obliged to take and pay for all such shares, if any are taken.
S-2
<PAGE>
It is expected that all or a substantial portion of the shares of Class A
Common Stock offered hereby may be sold by the Underwriter to purchasers in one
or more transactions (which may involve block transactions) on the NYSE or on
other national securities exchanges on which the shares of Class A Common Stock
are traded or otherwise. The distribution of the shares may also be effected
from time to time in special offerings, exchange distributions and/or secondary
distributions pursuant to and in accordance with the rules of the NYSE or such
other exchanges, in the over-the-counter market, in negotiated transactions
through the writing of options on the shares (whether such options are listed on
an options exchange or otherwise), or in a combination of such methods at
prevailing market prices or at negotiated prices. The Underwriter may effect
such transactions by selling shares to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the Underwriter and/or the purchasers of such shares for whom they may act as
agents or to whom they may sell as principal.
In connection with the sale of the shares of Class A Common Stock the
Underwriter may receive compensation from purchasers of the shares for whom it
may act as agent or to whom it may sell as principal in the form of commissions
or discounts, in each case in amounts which will not exceed those customary in
the types of transactions involved. The Underwriter and any dealers that
participate in the distribution of the shares may be deemed to be underwriters,
and any discounts received by them from the Selling Stockholders and any
compensation received by them on resale of the shares by them may be deemed to
be discounts and commissions, under the Securities Act.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
The Underwriter, a member of the National Association of Securities Dealers,
Inc. (the "NASD") and an affiliate of J.P. Morgan Capital, one of the Selling
Stockholders, will participate in the distribution of the Class A Common Stock
offered hereby. Since J.P. Morgan Capital will receive in excess of 10% of the
net proceeds of the offering, the offering will conform with the requirements of
Rule 2710(c)(8) of the Conduct Rules of the NASD.
From time to time in the ordinary course of its business, the Underwriter
and its affiliates have engaged in and may in the future engage in commercial
and/or investment banking transactions with the Company and its affiliates.
Roberto G. Mendoza, a director of the Company, is a director of J.P. Morgan
& Co. Incorporated, the parent of J.P. Morgan Capital and Sixty Wall Street, two
of the Selling Stockholders, and J.P. Morgan Securities Inc. See "Selling
Stockholders" in the accompanying Prospectus.
S-3
<PAGE>
P R O S P E C T U S
8,918,395 SHARES
[LOGO]
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------
This Prospectus relates to the offering for resale of up to 8,918,395 shares of
Class A Common Stock, $.01 par value per share (the "Class A Common Stock"), of
Travelers Property Casualty Corp., a Delaware corporation (the "Company"). All
of the shares being registered may be offered for sale and sold from time to
time by certain stockholders of the Company named in this Prospectus. See
"Selling Stockholders." The Company will not receive any of the proceeds from
the sale of the Class A Common Stock. For information regarding the manner of
offering the Class A Common Stock, see "Plan of Distribution." No Class A Common
Stock may be sold without delivery of a Prospectus Supplement describing the
method and terms of the offering thereof.
The Class A Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "TAP." On June 18, 1998, the last sale price of the
Class A Common Stock as reported on the NYSE was $41 3/8 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
June 19, 1998
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY OTHER REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
--------------
The Company owns, directly or indirectly, all of the outstanding voting
securities of certain property and casualty insurance companies domiciled in the
States of California, Connecticut, Florida, Illinois, Indiana, Massachusetts,
Missouri, New Jersey and Texas. State insurance regulatory laws require prior
approval by state insurance departments of any acquisition of control of a
domestic insurance company or of any company which controls a domestic insurance
company. "Control" is generally presumed to exist through the ownership of 10%
or more of the voting securities of a domestic insurance company or of any
company which controls a domestic insurance company. Any purchaser of shares of
Class A Common Stock representing 10% or more of the voting power of the Company
will be presumed to have acquired control of the domestic insurance subsidiaries
unless the relevant Insurance Commissioner, following application by such
purchaser in each insurance subsidiary's state of domicile, determines
otherwise. Accordingly, any purchase of shares of Class A Common Stock that
would result in a purchaser owning 10% or more of the voting power of the
Company would require prior action by all or some of the Insurance Commissioners
of the above-referenced states and certain jurisdictions outside of the United
States.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A
COMMON STOCK, INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
--------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549,
and at the Commission's regional offices at Seven World Trade Center, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549 at prescribed rates. The Commission also maintains a site
on the World Wide Web, the address of which is http://www.sec.gov, that contains
reports, proxy and information statements and other information regarding
issuers, such as the Company, that file electronically with the Commission. The
Class A Common Stock is listed on the NYSE and such reports, proxy statements
and other information may also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
This Prospectus constitutes a part of the Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
2
<PAGE>
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to such
Registration Statement for further information with respect to the Company and
the securities offered hereby. Any statement contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission or incorporated by reference herein are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed for a more complete description of the matter involved. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act:
1. Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1997.
2. Quarterly Report on Form 10-Q of the Company for the quarterly
period ended March 31, 1998.
3. Current Report on Form 8-K of the Company dated April 21, 1998.
4. The description of the Class A Common Stock contained in the
Company's Registration Statement on Form 8-A, dated April 22, 1996 (File No.
1-14328), including any amendment or reports filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities offered hereby shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents referred to above which have been or may
be incorporated by reference herein, other than exhibits thereto (unless such
exhibits are specifically incorporated by reference in such documents). Requests
for such documents should be directed to Corporate Communications, Travelers
Property Casualty Corp., One Tower Square, Hartford, Connecticut 06183;
telephone number: (860) 277-0111. Unless otherwise indicated, the Company's
financial information set forth in this Prospectus is based on generally
accepted accounting principles ("GAAP").
3
<PAGE>
THE COMPANY
The Company is the seventh largest property and casualty group and the
fourth largest publicly owned property and casualty group in the United States
based on 1996 net written premiums published by A.M. Best Company ("A.M. Best").
The Company provides a wide range of commercial and personal property and
casualty insurance products ("Commercial Lines" and "Personal Lines,"
respectively) and services to businesses, government units, associations and
individuals. The Company's strategic objectives are to be a consistently
profitable market leader and a low-cost provider of property and casualty
insurance in the United States through disciplined underwriting and expense
management. Commercial Lines, which accounted for 60.7% of net written premiums
in 1997, includes workers' compensation, general liability, commercial
multi-peril, commercial automobile, property (including fire and allied lines),
fidelity and surety and several specialty lines. Personal Lines, which accounted
for the remaining 39.3% of net written premiums in 1997, includes primarily
personal automobile and homeowners insurance sold to individuals. At March 31,
1998, the Company had total assets and stockholders' equity of $51.9 billion and
$8.1 billion, respectively.
On April 2, 1996, the Company acquired all of the outstanding capital stock
of the property and casualty insurance subsidiaries of Aetna Services, Inc.
(formerly Aetna Life and Casualty Company) ("Aetna") for approximately $4.2
billion in cash (the "Acquisition"). At the time of the Acquisition, the Company
identified $300 million in projected annual pre-tax cost savings which it
targeted to be achieved by the end of 1997. During the second quarter of 1997,
the Company announced it had achieved its stated goal of $300 million in pre-tax
annualized expense savings. The Company will continue to concentrate on expense
savings as an important part of its operating strategy.
The Company believes it is well positioned in the property and casualty
insurance industry through its broadly recognized brand name and strong
financial position. As a result of its skilled management team, improved cost
structure and enhanced distribution and cross-selling capabilities, the Company
generated a return on equity of 17.2% for the year ended December 31, 1997 and
an annualized return on equity of 16.9% for the three months ended March 31,
1998.
The Company is the third largest writer of commercial lines insurance in the
United States based on 1996 net written premiums published by A.M. Best. The
Company's commercial lines strategy is to focus on its core product lines and
markets, with particular emphasis on industry and product specialization,
control of operating expenses to improve competitiveness and profitability and
development of new products and services. Industry specialties include
manufacturing, construction, transportation and financial services, and product
specialties include boiler and machinery insurance, inland and ocean marine
insurance and managed workers' compensation insurance.
The Company is the second largest writer of personal lines insurance through
independent agents and the eighth largest writer of personal lines insurance
overall in the United States based on 1996 net written premiums published by
A.M. Best. The Company's personal lines strategy includes the growth in sales
through independent agents in target markets, control of operating expenses to
improve competitiveness and profitability, continued expansion of alternative
marketing channels to broaden the distribution of personal lines products, and
management of exposure to catastrophe losses. The Company has expended resources
in both its independent agency and other distribution channels for personal
lines auto and homeowners products. Over the last year, the Company has
introduced new incentive programs for its independent agents, invested in an
agent direct mail marketing program to support their businesses and continued to
expand its alternative distribution channels, which include affinity group
sales, TRAVELERS SECURE-Registered Trademark- brand products sold through the
independent sales force of Primerica Financial Services, a unit of Travelers
Group Inc. ("Travelers Group"), and joint marketing arrangements with other
insurers. The Company's alternative distribution channels accounted for
approximately 35% of the new Personal Lines policies written in the three month
period ended March 31, 1998.
4
<PAGE>
Travelers Group, through The Travelers Insurance Group Inc., its indirect
wholly owned subsidiary ("TIGI"), owns approximately 83.3% of the Company's
outstanding shares of Common Stock (as defined herein) and controls
approximately 98.0% of the combined voting power of the Common Stock. Travelers
Group is a financial services holding company engaged, through its subsidiaries,
principally in four business segments: (i) Investment Services, including Asset
Management; (ii) Consumer Finance Services; (iii) Property & Casualty Insurance
Services (primarily through the Company); and (iv) Life Insurance Services. TIGI
is not a Selling Stockholder in the offering being made hereby.
The principal executive offices of the Company are located at One Tower
Square, Hartford, Connecticut 06183 and its telephone number is (860) 277-0111.
RECENT DEVELOPMENTS
On April 6, 1998, Travelers Group announced that it had entered into a
Merger Agreement with Citicorp. Pursuant to the Merger Agreement, Citicorp will
be merged with and into a newly formed wholly owned subsidiary of Travelers
Group (the "Merger"). Following the Merger, Travelers Group will change its name
to Citigroup Inc. ("Citigroup").
In order to consummate the Merger, Travelers Group has applied to the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board") to
become a bank holding company under the provisions of the Bank Holding Company
Act of 1956 (the "BHCA"). A bank holding company and its affiliates may not
engage in activities that are not permissible under the BHCA, including,
generally, insurance underwriting. However, under present rules, the Company's
existing businesses can be retained for at least a two-year period after the
Merger (the "BHCA Compliance Period"), which may be extended for three
additional one-year periods by the Federal Reserve Board if, in its judgment, an
extension would not 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 a prohibition on acquisitions
of property and casualty 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 with
applicable law by Travelers Group as a result of its being a bank holding
company 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. One
such proposal, H.R. 10, passed the House of Representatives on May 14, 1998.
That bill would amend the BHCA to make insurance underwriting a permissible
business for a bank holding company. There is no assurance that any such
legislation will be enacted. At the expiration of the BHCA Compliance Period,
Citigroup, together with the Company, will evaluate available alternatives in
order to comply with whatever laws are then applicable. Those alternatives may
include Citigroup divesting itself of certain insurance underwriting businesses,
including those of the Company, or ceasing to be a bank holding company subject
to the BHCA.
The Company and Travelers Group have announced that, upon consummation of
the Merger, Robert I. Lipp, currently Chairman and Chief Executive Officer of
the Company, would remain as Chairman of the Company and become Co-Chief
Executive Officer of Citigroup's Global Consumer Business, and Jay S. Fishman,
currently a Vice Chairman of the Company and Chief Executive Officer of
Commercial Lines, would be nominated to become Chief Executive Officer and
President of the Company, subject to approval of the Company's Board of
Directors.
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS BEFORE
PURCHASING SHARES OF THE CLASS A COMMON STOCK OFFERED HEREBY.
IN THIS DOCUMENT (AND IN CERTAIN DOCUMENTS THAT ARE INCORPORATED BY
REFERENCE IN THIS PROSPECTUS), THE COMPANY HAS MADE FORWARD-LOOKING STATEMENTS
REGARDING EVENTS AND CIRCUMSTANCES THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES.
FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING POSSIBLE OR
ASSUMED FUTURE RESULTS OF OPERATIONS OF THE COMPANY. ALSO, WORDS SUCH AS
"BELIEVES," "EXPECTS," "ANTICIPATES" OR SIMILAR EXPRESSIONS ARE FORWARD-LOOKING
STATEMENTS. PROSPECTIVE INVESTORS SHOULD NOTE THAT MANY FACTORS, SOME OF WHICH
ARE DISCUSSED IN THIS DOCUMENT AND IN THE DOCUMENTS WHICH ARE INCORPORATED
HEREIN BY REFERENCE, COULD AFFECT THE FUTURE FINANCIAL RESULTS OF THE COMPANY
AND COULD CAUSE THOSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THIS
DOCUMENT. AMONG OTHERS, THESE FACTORS INCLUDE THE "RISK FACTORS" DESCRIBED
HEREIN.
FLUCTUATION AND UNCERTAINTY OF PROPERTY AND CASUALTY INSURANCE INDUSTRY RESULTS
The results of companies in the property and casualty insurance industry
historically have been subject to significant fluctuations and uncertainties.
The industry's profitability can be affected significantly by volatile and
unpredictable developments (including catastrophes); changes in reserves
resulting from general claims and legal environments as different types of
claims arise and judicial interpretations relating to the scope of insurers'
liability develop; fluctuations in interest rates and other changes in the
investment environment, which affect returns on invested capital; and
inflationary pressures that affect the size of losses. The demand for property
and casualty insurance can also vary significantly, generally rising as the
overall level of economic activity increases and falling as such activity
decreases. The property and casualty insurance industry historically has been
cyclical, and since the late 1980s premium rate competition has been a
significant cause of lower underwriting profitability. The Company's results of
operations may be adversely affected by these fluctuations.
CATASTROPHE LOSSES
Property and casualty insurers are subject to claims arising out of
catastrophes, which may have a significant effect on their results of operations
and financial condition. The Company has experienced, and can be expected in the
future to experience, catastrophe losses which may have a material adverse
effect on the Company's results of operations and financial condition.
Catastrophes can be caused by various events including hurricanes, windstorms,
earthquakes, hail, explosions, severe winter weather and fires, and the
incidence and severity of catastrophes are inherently unpredictable. The extent
of losses from a catastrophe is a function of both the total amount of insured
exposure in the area affected by the event and the severity of the event. Most
catastrophes are restricted to small geographic areas; however, hurricanes and
earthquakes may produce significant damage in large, heavily populated areas.
Although catastrophes can cause losses in a variety of the Company's property
and casualty lines, most of the Company's catastrophe-related claims in the past
have related to homeowners and commercial property coverages.
The Company generally seeks to reduce its exposure to catastrophe losses
through its selective underwriting practices and the purchase of catastrophe
reinsurance. There can be no assurance that the reinsurance purchased by the
Company will be adequate to protect the Company against material catastrophe
losses or that such reinsurance will continue to be available to the Company in
the future at commercially reasonable rates. States have from time to time
passed legislation that has the effect of limiting the ability of insurers to
manage risk, such as legislation prohibiting an insurer from withdrawing from
catastrophe-prone areas. While the Company attempts to limit its exposure to
acceptable levels, subject to restrictions imposed by insurance regulatory
authorities, it is possible that a catastrophic event or multiple catastrophic
events could have a material adverse effect on the Company. The Company also
participates in the Florida Hurricane Catastrophe Fund ("FHCF"), which is a
state-mandated catastrophe reinsurance fund. See "--Reinsurance Considerations."
6
<PAGE>
UNCERTAINTY REGARDING ADEQUACY OF PROPERTY AND CASUALTY LOSS RESERVES
The Company maintains property and casualty loss reserves to cover its
estimated ultimate liability for losses and loss adjustment expenses ("LAE")
with respect to reported and unreported claims incurred as of the end of each
accounting period. Reserves do not represent an exact calculation of liability,
but instead represent estimates, generally involving actuarial projections at a
given time, of what the Company expects the ultimate settlement and
administration of claims will cost based on its assessment of facts and
circumstances then known, estimates of future trends in claims severity,
frequency, judicial theories of liability and other factors. These variables are
affected by both internal and external events, such as changes in claims
handling procedures, economic inflation, judicial trends and legislative
changes. Many of these items are not directly quantifiable, particularly on a
prospective basis. Additionally, there may be significant reporting lags between
the occurrence of the insured event and the time it is actually reported to the
insurer. Reserve estimates are continually refined in a regular ongoing process
as experience develops and further claims are reported and settled. Adjustments
to reserves are reflected in the results of the periods in which such estimates
are changed. Because establishment of reserves is an inherently uncertain
process involving estimates of future losses, there can be no certainty that
currently established reserves will prove adequate in light of subsequent actual
experience.
The inherent uncertainties of estimating insurance reserves are generally
greater for casualty coverages (particularly reserves for asbestos losses), than
for property coverages, due primarily to the longer period of time that
typically elapses before a definitive determination of ultimate loss can be
made, changing theories of legal liability involving certain types of claims and
changing political climates.
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS LOSS 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.
For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the individual underlying claims. The unique facts presented in
each claim are evaluated individually and collectively. Due consideration is
given to the many variables presented in each claim, as discussed above.
The following factors are evaluated in projecting the ultimate reserve for
asbestos-related claims: available insurance coverage; limits and deductibles;
an analysis of each policyholder's potential liability; jurisdictional
involvement; past and projected future claim activity; past settlement values of
similar claims; allocated claim adjustment expense; potential role of other
insurance, and applicable coverage defenses, if any. Once the gross ultimate
exposure for indemnity and allocated claim adjustment expense is determined for
a policyholder by policy year, a ceded projection is calculated based on any
applicable facultative and treaty reinsurance and past ceded experience. In
addition, a similar review is conducted for asbestos property damage claims.
However, due to the relatively minor claim volume, these reserves have remained
at a constant level.
As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at March 31, 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.
7
<PAGE>
REINSURANCE CONSIDERATIONS
The Company uses reinsurance to help manage its exposure to property and
casualty risks. The availability and cost of reinsurance are subject to
prevailing market conditions, both in terms of price and available capacity,
which can affect the Company's business volume and profitability. Although the
reinsurer is liable to the Company to the extent of the reinsurance ceded, the
Company remains primarily liable as the direct insurer on all risks reinsured.
As a result, reinsurance ceded arrangements do not eliminate the Company's
obligation to pay all claims regardless of whether they have been ceded to
reinsurers. The Company is subject to credit risk with respect to its ability to
recover amounts due from reinsurers. The Company believes, based upon its review
of its reinsurers' financial statements and reputations in the reinsurance
marketplace, that the financial condition of its reinsurers is generally sound.
However, there can be no assurance that such reinsurers will remain sound until
they are called upon to pay amounts due, which may not occur for many years,
particularly in respect of environmental and asbestos claims, or that
reinsurance will be adequate to protect the Company against losses or that
reinsurance will continue to be available to the Company in the future at
commercially reasonable rates.
The Company also participates in FHCF, which is a state-mandated catastrophe
reinsurance fund. FHCF is primarily funded by premiums from the insurance
companies that write residential property business in Florida and, if
insufficient, by assessments on insurance companies that write other property
and casualty insurance in Florida, excluding workers' compensation. FHCF's
resources are limited to these contributions and to its borrowing capacity at
the time of a significant catastrophe. There can be no assurance that these
resources will be sufficient to meet the obligations of FHCF. The Company's
recovery of less than contracted amounts could have a material adverse effect on
the Company's results of operations in the event of a significant catastrophe in
Florida. However, the Company believes that it is not likely that the Company's
recovery of less than contracted amounts from FHCF would have a material adverse
effect on the Company's financial condition or liquidity.
As of December 31, 1997, the Company had ceded insurance losses and loss
adjustment expenses to Lloyd's of London ("Lloyd's"), one of the Company's
largest reinsurers, of $352 million. In 1996, Lloyd's restructured its
operations with respect to claims for years prior to 1993 and reinsured these
into Equitas Limited ("Equitas"). Approximately $266 million of the Company's
Lloyd's reinsurance recoverable at December 31, 1997 relates to Equitas
liabilities and is currently unrated. The remaining recoverable of $86 million
is from Lloyd's continuing market which was recently rated A (third highest of
fifteen ratings) by A.M. Best.
The impact of the Lloyd's restructuring on the collectibility of amounts
recoverable by the Company from Lloyd's cannot be quantified at this time. The
Company believes that an unfavorable impact on collectibility could have a
material adverse effect on the Company's operating results. However, the Company
believes that it is not likely that the outcome of these matters could have a
material adverse effect on the Company's financial condition or liquidity.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
The Company is a holding company and has no direct operations. The Company's
principal asset is the capital stock of its insurance subsidiaries. The Company
relies primarily on dividends from its subsidiaries to meet its obligations for
payment of interest and principal on outstanding debt obligations, dividends to
stockholders and corporate expenses. The ability of the insurance subsidiaries
to pay dividends to the Company in the future will depend on their statutory
surplus, on earnings and on regulatory restrictions. The Company's principal
insurance subsidiaries are domiciled in the State of Connecticut. Connecticut
law governing the payment of dividends by domestic insurance companies provides
that an insurer domiciled in Connecticut must obtain the prior approval of the
Connecticut Insurance Department for the declaration or payment of any dividend
that together with other distributions made within the preceding twelve months
exceeds the greater of (i) 10% of the insurer's surplus or (ii) the insurer's
net income for the twelve-month period ending the preceding December 31st, in
each case
8
<PAGE>
determined in accordance with statutory accounting practices. Such declaration
or payment is further limited by adjusted unassigned funds (surplus), as
determined in accordance with statutory accounting practices. The insurance
holding company laws of other states in which the Company's subsidiaries are
domiciled generally contain similar (although in certain instances somewhat more
restrictive) limitations on the payment of dividends. Dividend payments to the
Company from its insurance subsidiaries are limited to $805 million in 1998
without prior approval of the Connecticut Insurance Department. The inability of
a significant subsidiary to pay dividends to the Company in an amount sufficient
to meet debt service obligations would have a material adverse effect on the
Company. The ability of the Company to pay dividends on the Common Stock is also
subject to restrictions contained in the Company's revolving credit facility
and, subject to minimum ownership requirements, to the prior approval of
Travelers Group. See "--Control By and Relationship with Travelers Group;
Conflicts of Interest."
COMPLIANCE BY TRAVELERS GROUP WITH APPLICABLE LAW FOLLOWING MERGER WITH CITICORP
As a result of the Merger, Travelers Group will become a bank holding
company subject to regulation under the BHCA. In general, the activities of bank
holding companies are limited to banking, managing or controlling banks and
other activities that the Federal Reserve Board determines to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Section 4 of the BHCA provides that, with certain exceptions, insurance
underwriting is not closely related to banking or managing or controlling banks.
Under the BHCA in its current form, after two years from the date as of which it
becomes a bank holding company, Citigroup will be required to conform any
activities that are not considered to be closely related to banking under the
BHCA. This two-year period may be extended by the Federal Reserve Board for
three additional one-year periods, upon finding that such an extension would not
be detrimental to the public interest. Therefore, while the Merger is permitted
under current law, if the BHCA is not amended before the end of this period
(including any extensions), Citigroup may, among other things, be required to
divest itself of certain insurance underwriting businesses, including those of
the Company, or cease being a bank holding company subject to the BHCA. In
addition, 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 a prohibition on
acquisitions of property and casualty insurance underwriters.
Various legislation, including proposals to overhaul the bank regulatory
system and expand the powers of bank holding companies, is from time to time
introduced in Congress. One such proposal, H.R. 10, passed the House of
Representatives on May 14, 1998. That bill would amend the BHCA to make
insurance underwriting a permissible business for a bank holding company.
Consequently, if H.R. 10 is enacted in its present form, Travelers Group would
not be under any obligation to conform its business to the current limitations
of the BHCA. However, there is no assurance that such legislation as currently
drafted, or any other similar legislation, will ultimately be enacted.
CONTROL BY AND RELATIONSHIP WITH TRAVELERS GROUP; CONFLICTS OF INTEREST
The Company's voting stock has been divided into two classes with different
voting rights that enable TIGI (the holder of all of the outstanding Class B
Common Stock, $.01 par value per share (the "Class B Common Stock")) to control
the Company. On all matters submitted to a vote of stockholders, holders of
Class A Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to ten votes per share. Both classes vote together as
a single class on all matters, subject to certain exceptions. Upon any transfer
of shares of Class B Common Stock to a person other than Travelers Group or its
subsidiaries (other than the Company or its subsidiaries), such shares will
automatically convert into shares of Class A Common Stock, except if shares of
Class B Common Stock representing more than a 50% economic interest in the
Company are so transferred and except in certain other limited circumstances.
The Class A Common Stock and the Class B Common Stock are collectively referred
to herein as the "Common Stock."
9
<PAGE>
For so long as Travelers Group and its subsidiaries (excluding the Company
and its subsidiaries) continue beneficially to own shares of Common Stock
representing more than 50% of the combined voting power of the Common Stock,
Travelers Group, through TIGI, will control the Company and will be able to
elect all of the Company's directors and to determine the outcome of corporate
actions requiring stockholder approval, including, among other things, approving
or preventing a change of control of the Company, a business combination
involving the Company, the incurrence of certain indebtedness, the issuance of
additional Common Stock or other equity securities, subject to certain limited
exceptions, and the payment of dividends with respect to the Common Stock,
except as otherwise described herein. Pursuant to an Intercompany Agreement
between the Company and Travelers Group (the "Intercompany Agreement"), the
prior written consent of Travelers Group is required in connection with these
and other corporate actions by the Company until such time as Travelers Group
and its subsidiaries (except the Company and its subsidiaries) no longer control
at least 20% of the combined voting power of the outstanding Common Stock or
cease beneficially to own at least 20% of the outstanding shares of Common
Stock.
Pursuant to the Intercompany Agreement, the Company has agreed that to the
extent permitted by the principal national securities exchange in the United
States upon which the Common Stock is listed and so long as Travelers Group
controls at least 20% of the combined voting power of the outstanding Common
Stock or at least 50% of the issued and outstanding Common Stock, Travelers
Group or one of its affiliates (other than the Company and its subsidiaries) may
purchase its pro rata share (based on its then current percentage equity
interest in the Company) of any voting equity security issued by the Company
(excluding any such securities offered the Company pursuant to employee stock
options or other benefit plans, dividend reinvestment plans and other offerings
other than for cash). The exercise of such rights is currently prohibited by the
NYSE.
The Company has engaged in certain transactions, and is party to
arrangements, with Travelers Group and its affiliates, including the
Intercompany Agreement which governs certain relationships and transactions
between or among the Company, on the one hand, and Travelers Group and its
subsidiaries (other than the Company and its subsidiaries), on the other hand.
Certain of these arrangements required the approval of the Connecticut Insurance
Department. Pursuant to the Intercompany Agreement, among other things,
Travelers Group has granted to the Company and certain of its subsidiaries a
non-exclusive revocable license to use the "Travelers" name and certain
trademarks. Subject to Travelers Group's ability to revoke the license in
certain circumstances and to regulatory approval, the Intercompany Agreement
provides that: (i) within a limited time from the date on which Travelers Group
and its subsidiaries (excluding the Company and its subsidiaries) cease to
control more than 20% of the combined voting power of the outstanding Common
Stock, if the Company's name or any of its subsidiaries' names at such time
include the "Travelers" name, the Company and such subsidiaries are required to
change their names and will be required to discontinue the use of certain
related marks and (ii) after such date, the Company and its subsidiaries will
continue to have the right to use the "Travelers" name in connection with the
identification of property and casualty products for an initial five-year period
with an option to renew for an additional five years.
The Company may enter into other agreements with Travelers Group and its
other affiliates, which will not be the result of arms-length negotiations
between independent parties. Future arrangements and agreements with Travelers
Group and its affiliates to which the Company and its subsidiaries may become
party may be subject to the approval of the Connecticut Insurance Department or
other regulatory bodies. Conflicts of interest could arise in the future with
respect to material transactions involving Travelers Group or its affiliates
(other than the Company), on the one hand, and the Company, on the other hand.
Seven of the eight persons who are members of the Company's Board of Directors
also serve as directors of Travelers Group and certain members of the Company's
management who are full-time employees of the Company also hold certain offices
at Travelers Group and its other affiliates. Ownership interests of directors or
officers of the Company in common stock of Travelers Group or service as a
director or officer of both the Company and Travelers Group could create or
appear to create potential conflicts of interest
10
<PAGE>
when directors and officers are faced with decisions that could have different
implications for the Company and Travelers Group.
The Company's Restated Certificate of Incorporation (the "Charter") provides
that Travelers Group shall have no duty to refrain from (i) engaging in the same
or similar business activities or lines of business as the Company, (ii) doing
business with any client or customer of the Company, subject to any contractual
provision to the contrary, or (iii) employing or otherwise engaging any officer
or employee of the Company. Accordingly, neither Travelers Group nor any officer
or director of Travelers Group (except as provided in the Charter) will be
liable to the Company or to its stockholders for breach of any fiduciary duty by
reason of any such activities.
The failure of Travelers Group and its affiliates to maintain beneficial
ownership of more than 50% of the combined voting power of the Company's
outstanding voting stock would be an event of default under the Company's
revolving credit facility.
By virtue of its ownership of approximately 98.0% of the combined voting
power of the outstanding Common Stock and approximately 83.3% of the outstanding
shares of Common Stock, Travelers Group includes the Company in its consolidated
tax return for federal income tax purposes. Under applicable law, each member of
the Travelers Group consolidated group, which includes Travelers Group, the
Company and certain of Travelers Group's other subsidiaries, is jointly and
severally liable for the federal income tax liability of each other member of
the group and is also jointly and severally liable for pension and benefit
funding and termination liabilities of other group members, as well as certain
benefit plan taxes. If the Company were no longer to be included in Travelers
Group's consolidated group for federal tax purposes, there is no assurance that
the Company's tax position would be as favorable as it is at present.
In addition, by virtue of its controlling beneficial ownership of the
Company and the terms of a tax sharing agreement among the Company, TIGI and
Travelers Group (the "Tax Sharing Agreement"), Travelers Group will effectively
control all of the Company's tax decisions. Under the Tax Sharing Agreement,
Travelers Group will have sole authority to respond to and conduct all tax
proceedings (including tax audits) relating to the Company, to file all returns
on behalf of the Company and to determine the amount of the Company's liability
to (or entitlement to payment from) TIGI under the Tax Sharing Agreement. This
arrangement may result in conflicts of interests between the Company and
Travelers Group. For example, under the Tax Sharing Agreement, Travelers Group
may choose to contest, compromise or settle any adjustment or deficiency
proposed by the relevant taxing authority in a manner that may be beneficial to
Travelers Group and detrimental to the Company. In connection therewith,
however, Travelers Group is obligated under the Tax Sharing Agreement to act in
good faith with regard to all members included in the applicable returns.
REGULATION
The Company is subject to extensive regulation and supervision in the
jurisdictions in which it does business. Such regulation is generally designed
to protect the interests of policyholders, as opposed to stockholders and other
investors. Such regulation relates to authorized lines of business, capital and
surplus requirements, investment parameters, underwriting limitations,
transactions with affiliates, dividend limitations, changes in control, premium
rates and a variety of other financial and nonfinancial components of an
insurance company's business. The Company is also subject to regulatory and
legal proceedings that involve specific aspects of the conduct of the Company's
business.
The capacity for an insurance company's growth in premiums is in part a
function of its statutory surplus. Maintaining appropriate levels of statutory
surplus, as measured by statutory accounting practices and procedures, is
considered important by state insurance regulatory authorities and the private
agencies that rate insurers' claims-paying abilities and financial strength.
Failure to maintain certain levels of statutory surplus could result in
increased regulatory scrutiny, action by state regulatory authorities or a
downgrade by rating agencies.
11
<PAGE>
The National Association of Insurance Commissioners ("NAIC") has adopted a
system of assessing minimum capital adequacy, which system is applicable to the
Company's insurance subsidiaries. This system, known as risk-based capital
("RBC"), is used to identify companies that merit further regulatory action by
comparing adjusted surplus to the required surplus, which reflects the risk
profile of the insurer. At December 31, 1997, the RBC ratios of the Company's
insurance subsidiaries were in excess of levels that would require regulatory
action.
In recent years the state insurance regulatory framework has come under
increased federal scrutiny, and certain state legislatures have considered or
enacted laws that altered and, in many cases, increased state authority to
regulate insurance companies and insurance holding companies. Further, the NAIC
and state insurance regulators are reexamining existing laws and regulations,
specifically focusing on investment laws for insurers, modifications to holding
company regulations, codification of statutory accounting practices, RBC
guidelines, interpretations of existing laws and the development of new laws. In
addition, Congress and certain federal agencies are investigating the current
condition of the insurance industry in the United States to determine whether to
impose federal regulation. The Company cannot predict with certainty the effect
any proposed or future legislation or NAIC initiatives may have on the conduct
of the Company's business or the financial condition or results of operations of
the Company.
Congress has considered and continues to consider several proposals to
revise the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA" or "Superfund"). It is not possible to predict whether such proposed
legislation will be enacted, what form such legislation might take, or the
potential effects such legislation may have on the Company and its competitors.
COMPETITION
The property and casualty insurance business is highly competitive and the
Company believes that it will remain highly competitive with little prospect for
periods of dramatically improved pricing in the foreseeable future. The residual
effects of the recession in the early 1990s, coupled with a demand for low-cost,
high quality service, have created difficult conditions in the domestic property
and casualty market, as is evidenced by a leveling or reduction in premium rates
in certain lines of business in which the Company competes. The Company competes
with domestic and foreign insurers, some of which have greater financial
resources than the Company. Competition is based on many factors, including the
perceived overall financial strength of the insurer, pricing and other terms and
conditions of products offered, levels of customer service (including the speed
with which claims are paid) and experience in the business. The Company competes
with insurance companies that use captive agents or salaried employees to sell
their products. Because these companies generally do not pay commissions, they
may be able to obtain business at a lower cost than the Company, which sells its
products primarily through independent agents and brokers.
Several property and casualty insurers writing commercial lines of business,
including the Company, now offer products for alternative forms of risk
protection in addition to traditional insurance products. These products,
including large deductible programs and various forms of self-insurance that
utilize captive insurance companies and risk retention groups, have been
instituted in reaction to the escalating cost of insurance caused in part by
increased jury awards in third-party liability and workers' compensation cases.
It is not possible to predict how continued growth in alternative forms of risk
protection will affect the Company's future operations.
RATINGS
Claims-paying and financial strength ratings have become an increasingly
important factor in establishing the competitive position of insurance
companies. Each of the rating agencies reviews its ratings periodically, and
there can be no assurance that current ratings will be maintained in the future.
A significant downgrade in such ratings could have a material adverse effect on
the results of operations and financial condition of the Company. The ratings
are not in any way a measure of protection offered to investors in the Class A
Common Stock and should not be relied upon with respect to making an
12
<PAGE>
investment in the Class A Common Stock. The following table summarizes the
current claims-paying and financial strength ratings of the Company's
property-casualty insurance pools and Travelers Casualty and Surety Company of
America ("Travelers C&S of America") by A. M. Best, Duff & Phelps Corp. ("Duff &
Phelps"), Moody's Investor's Service Inc. ("Moody's") and Standard & Poor's
Ratings Group ("Standard & Poor's"). The table also presents the position of
each rating in the applicable agency's rating scale.
<TABLE>
<CAPTION>
STANDARD &
A. M. BEST DUFF & PHELPS MOODY'S POOR'S
------------------- -------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
Travelers Property Casualty
pool(1).................. A (3rd of 15) AA- (4th of 18) Aa3 (4th of 19) A+ (5th of 18)
Gulf pool(2)............... A+ (2nd of 15) -- -- AA (3rd of 18)
Travelers C&S of America... A+ (2nd of 15) AA- (4th of 18) Aa3 (4th of 19) A+ (5th of 18)
</TABLE>
- ------------------------------
(1) The Travelers Property Casualty pool consists of The Travelers Indemnity
Company, Travelers Casualty and Surety Company, The Phoenix Insurance
Company, The Standard Fire Insurance Company, Travelers Casualty and Surety
Company of Illinois, Farmington Casualty Company, The Travelers Indemnity
Company of Connecticut, The Automobile Insurance Company of Hartford,
Connecticut, The Charter Oak Fire Insurance Company, The Travelers Indemnity
Company of America, The Travelers Indemnity Company of Missouri, Travelers
Casualty Company of Connecticut, Travelers Commercial Insurance Company, The
Travelers Indemnity Company of Illinois, Travelers Property Casualty
Insurance Company, TravCo Insurance Company, The Travelers Home and Marine
Insurance Company, Travelers Personal Security Insurance Company, Travelers
Property Casualty Insurance Company of Illinois and Travelers Excess and
Surplus Lines Company.
(2) The Gulf pool consists of Gulf Insurance Company, Gulf Insurance Company
U.K. Limited, Gulf Underwriters Insurance Company, Select Insurance Company,
Atlantic Insurance Company and Gulf Group Lloyds.
EFFECT ON PUBLIC MARKET OF STOCK ELIGIBLE FOR FUTURE SALE
All of the shares of Class A Common Stock sold hereby will be freely
tradeable without restrictions by persons other than "affiliates" of the
Company. All of the outstanding shares of Class B Common Stock held by TIGI will
continue to be "restricted securities" as defined in Rule 144 under the
Securities Act. Shares of Class B Common Stock will automatically convert into
shares of Class A Common Stock upon their transfer to any person other than
Travelers Group or any of its subsidiaries (other than the Company and its
subsidiaries), except if shares of Class B Common Stock representing more than a
50% economic interest in the Company are transferred and except in certain other
limited circumstances. To the extent such shares of Class B Common Stock are
"restricted securities" at the time of such transfer, the shares of Class A
Common Stock delivered upon such transfer will also be "restricted securities."
TIGI has registration rights with respect to its shares of Class B Common
Stock. Fund American Enterprises Holdings Inc. ("Fund American") and The Trident
Partnership, L.P. ("Trident"), which acquired shares of Class A Common Stock in
connection with the Acquisition (as defined herein), have registration rights
with respect to their remaining holdings of such shares, although such shares
are no longer "restricted securities" as defined in Rule 144 under the
Securities Act. See "Selling Stockholders." Travelers Group has indicated that
it does not currently intend to sell its shares of Class B Common Stock in the
near future. No prediction can be made as to the effect, if any, that future
sales of shares of Common Stock, or the availability of shares of Common Stock
for future sales, will have on the market price of the shares of Class A Common
Stock prevailing from time to time. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Class A Common Stock or the
ability of the Company to raise capital through public offerings of its equity
securities. See "Plan of Distribution."
USE OF PROCEEDS
All of the shares of Class A Common Stock being offered hereby are being
offered by the Selling Stockholders. The Company will not receive any of the
proceeds from the sale of such Class A Common Stock by the Selling Stockholders.
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<PAGE>
SELLING STOCKHOLDERS
The shares of Class A Common Stock which may be offered from time to time
hereby are being sold by Aetna Services, Inc. ("Aetna"), J.P. Morgan Capital
Corporation ("J.P. Morgan Capital") and Sixty Wall Street Fund, L.P. ("Sixty
Wall Street") (collectively, the "Selling Stockholders"). The following table
sets forth information with respect to the ownership of the Class A Common Stock
by each Selling Stockholder as of June 4, 1998. Information with respect to
stock ownership has been furnished to the Company by the respective Selling
Stockholders.
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF SHARES TO BE
STOCKHOLDER SHARES OWNED SOLD
- ----------- --------------- -------------------
<S> <C> <C>
Aetna Services, Inc. ................... 4,270,697 4,270,697
J.P. Morgan Capital Corporation......... 4,598,410(2) 4,596,701
Sixty Wall Street Fund, L.P.(1)......... 50,997 50,997
--------------- -------------------
Total............................... 8,920,104 8,918,395
--------------- -------------------
--------------- -------------------
</TABLE>
- ------------------------------
(1) Sixty Wall Street is an affiliate of J.P. Morgan Capital.
(2) Includes 1,709 shares acquired by Roberto G. Mendoza, a director of the
Company and a Vice Chairman and a director of J.P. Morgan & Co.
Incorporated, the parent of J.P. Morgan Capital and Sixty Wall Street, and
transferred to J.P. Morgan Capital. These shares are not subject to the
Shareholders Agreement referred to below.
The Selling Stockholders acquired the Class A Common Stock being offered
hereby in connection with the Acquisition. As part of the financing of the
Acquisition and pursuant to separate stock purchase agreements, the Company sold
an aggregate of 33,000,515 shares of Class A Common Stock (representing
approximately 9% of its outstanding common stock at that time) to Aetna, J.P.
Morgan Capital, Trident and Fund American (collectively, the "Private
Investors") for an aggregate of $525 million. On June 23, 1997, the Company
repurchased in the aggregate 6,600,102 shares of Class A Common Stock held by
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. On
November 19, 1997, the Private Investors sold in the aggregate 14,200,207 shares
of Class A Common Stock for total proceeds to the Private Investors of
approximately $486.5 million in an underwritten public offering conducted
pursuant to the provisions of the Shareholders Agreement described in the
following paragraph (the "November 1997 Offering").
Pursuant to the Shareholders Agreement, dated as of April 2, 1996, and
amended as of June 20, 1997 and November 5, 1997, by and among the Company,
TIGI, Aetna, J.P. Morgan Capital, Trident and Fund American (the "Shareholders
Agreement"), the Private Investors have certain rights with respect to the
ownership of Class A Common Stock and the management of the Company. The Private
Investors are collectively entitled to a total of four demand registrations with
respect to their shares of Class A Common Stock and an unlimited number of
"piggy back" registrations. Private Investors owning more than 50% of the shares
of Class A Common Stock then owned in the aggregate by the Private Investors may
demand by written notice that the Company register no less than a number of
shares the sale of which is reasonably expected to yield gross proceeds of at
least $60 million. The Company has agreed to indemnify the Private Investors for
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Private Investors may be required to make in respect
thereof, in connection with sales by the Private Investors of shares of Class A
Common Stock pursuant to a registration statement prepared by the Company.
Pursuant to the Shareholders Agreement, the Company has agreed to pay all
expenses of the Private Investors in connection with each such registration,
except underwriting discounts and commissions applicable to the shares of Class
A Common Stock sold by the Private Investors. The offering hereby is as a result
of a demand delivered by Aetna, J.P. Morgan Capital and Sixty Wall Street on May
22, 1998 in accordance with the terms of the Shareholders Agreement. After the
offerings contemplated hereby, the Private Investors will be entitled to two
remaining demand registrations, although Aetna, J.P. Morgan
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<PAGE>
Capital and Sixty Wall Street will no longer be entitled to any demand
registrations if they sell all of their shares which may be offered hereby.
The nature of any position, office or other material relationship which the
Selling Stockholders have had within the past three years with the Company or
any of its predecessors or affiliates is set forth below.
Roberto G. Mendoza, a Vice Chairman and a director of J.P. Morgan & Co.
Incorporated, has been a director of the Company since 1996. J.P. Morgan & Co.
Incorporated is the parent of J.P. Morgan Capital and Sixty Wall Street. Mr.
Mendoza was initially appointed to the Board of Directors of the Company by
Trident pursuant to its rights under the Shareholders Agreement, and served on
the Board as Trident's nominee until April 1998. Trident's right to nominate a
member of the Board of Directors expired upon consummation of the November 1997
Offering. Mr. Mendoza has since been renominated to the Board, and he continues
to serve as a director. Mr. Mendoza's current term expires in 1999.
In connection with the Acquisition, Aetna agreed for a period of five years
not to compete with any of the businesses of Travelers Casualty and Surety
Company (formerly The Aetna Casualty and Surety Company) and The Standard Fire
Insurance Company (collectively, "Aetna P&C") as conducted in certain countries,
with certain limited exceptions. Aetna entered into a license agreement with
Aetna P&C that permits those companies and their subsidiaries to use the "Aetna"
name in connection with their operations through December 31, 1998. Aetna also
agreed not to license the Aetna name to anyone else for use in a property and
casualty insurance business until after December 31, 2001.
Aetna Inc. and its subsidiaries continue to provide certain
telecommunications services to the Company and arrangements for the lease of
real property, among other things. During 1997, the Company paid to Aetna Inc.
approximately $4 million in respect of these and other administrative services
provided. From time to time, the Company has engaged and may in the future
engage in transactions with the Selling Stockholders and their affiliates in the
ordinary course of business.
The Selling Stockholders and their affiliates have made and may make
investments in or provide financial advisory and other services to insurance
enterprises and ventures or other entities that may compete with the Company. As
a result, there may currently exist, or may develop in the future, perceived or
actual conflicts of interest between the Selling Stockholders or their
affiliates, on the one hand, and the Company, on the other hand.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell shares of Class A Common Stock registered
hereunder from time to time in one or more transactions on or after the date
hereof. The aggregate proceeds to the Selling Stockholders from sales of shares
of Class A Common Stock offered hereby will be the purchase price of such shares
less any commissions, discounts or other compensation of any Broker-Dealer (as
defined below).
Sales of shares of Class A Common Stock by the Selling Stockholders may be
made from time to time, as market conditions permit, by any of the following
means, or any combination thereof, using such broker-dealer or broker-dealers as
may enter into arrangements with the Selling Stockholders from time to time
(each such broker-dealer being herein referred to as a "Broker-Dealer"): (i)
ordinary brokerage transactions on the NYSE and transactions in which a
Broker-Dealer solicits purchasers; (ii) block trades in accordance with the
rules of the NYSE in which a Broker-Dealer may attempt to sell the shares as
agent but may position and resell all or a portion of the block as principal to
facilitate the transactions; (iii) "off-board" secondary distributions, exchange
distributions or special offerings in accordance with the rules of the NYSE in
which a Broker-Dealer may act as principal or agent; (iv) sales to a
Broker-Dealer in which such Broker-Dealer purchases the shares as principal and
resells such shares for its own account pursuant to a Prospectus Supplement; (v)
sales "at the market" or to or through a market maker or into an existing
trading market, on an exchange or otherwise for such shares; and (vi) sales in
other ways not involving
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market makers or established trading markets, including direct sales to
institutions or individual purchasers.
The shares of Class A Common Stock are expected to be sold at prices
prevailing at the time of sale, and it is anticipated that the offering prices
will not exceed the last reported sale price for the Class A Common Stock on the
NYSE immediately prior to the determination thereof. Each Broker-Dealer will
receive such brokerage commissions or other compensation as may be negotiated
with the Selling Stockholders immediately prior to the sale. Such commissions or
other compensation are not expected to exceed those customary in the types of
transactions involved. Each Broker-Dealer may also receive compensation from
purchasers of the shares of Class A Common Stock which is not expected to exceed
that which is customary in the types of transactions involved.
In connection with the sale of the shares of Class A Common Stock offered
hereby, each Broker-Dealer may be deemed to be an underwriter within the meaning
of the Securities Act, in which event the brokerage commissions or discounts
received by it may be deemed to be underwriting compensation. To the extent
required by the Securities Act, additional information relating to the specific
shares of Class A Common Stock offered, the price at which such shares are
offered and the particular selling arrangements, if any, made with any
Broker-Dealer in connection therewith (including any applicable commissions or
discounts) will be set forth in an accompanying Prospectus Supplement or, if
appropriate, a post-effective amendment to the Registration Statement of which
this Prospectus is a part. The Company or the Selling Stockholders, under
arrangements which they may enter into with any Broker-Dealer, may agree to
indemnify such Broker-Dealer against certain liabilities under the Securities
Act or to contribute to payments that such Broker-Dealer may be required to make
in respect thereof.
In connection with the sale of the shares of Class A Common Stock offered
hereby and in compliance with applicable law, any Broker-Dealer may over-allot
and may effect transactions which stabilize, maintain or otherwise affect the
market price of the Class A Common Stock at levels above those which might
otherwise prevail in the open market. Such transactions may include placing bids
for the Class A Common Stock or effecting purchases of the Class A Common Stock
for the purpose of pegging, fixing or maintaining the price of the Class A
Common Stock or for the purpose of reducing a syndicate short position created
in connection with the offering. A syndicate short position may be covered by
exercise of any over-allotment option granted to any Broker-Dealer in lieu of or
in addition to open market purchases. In addition, the particular selling
arrangements made with any Broker-Dealer may include a provision whereby, if
such Broker-Dealer purchases Class A Common Stock in the open market for the
account of an underwriting syndicate and the securities purchased can be traced
to a particular member of such syndicate or member of the selling group, the
underwriting syndicate may require the syndicate or selling group member in
question to purchase the Class A Common Stock in question at the cost price to
the syndicate or may recover from (or decline to pay to) the syndicate or
selling group member in question the selling concession applicable to the
securities in question. Such Broker-Dealer would not be required to engage in
any of these activities and any such activities, if commenced, could be
discontinued at any time.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by James M. Michener, Esq., General Counsel of the Company and
for any Broker-Dealers by Dewey Ballantine LLP, 1301 Avenue of the Americas, New
York, New York. Mr. Michener, Senior Vice President, General Counsel and
Secretary of the Company, beneficially owns, or has rights to acquire under the
Company's employee benefit plans, an aggregate of less than 1% of the Common
Stock. Dewey Ballantine LLP has from time to time acted as counsel for Travelers
Group and certain of its subsidiaries and may do so in the future. A member of
Dewey Ballantine LLP participating in this matter beneficially owns an aggregate
of less than 1% of the common stock of Travelers Group.
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EXPERTS
The consolidated financial statements and financial statement schedules of
Travelers Property Casualty Corp. and its subsidiaries as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, included or incorporated by reference in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, have been incorporated by
reference herein, in reliance upon the reports (also incorporated by reference
herein) of KPMG Peat Marwick LLP, independent certified public accountants, and
upon the authority of said firm as experts in accounting and auditing.
The combined financial statements of Travelers Casualty and Surety Company
(formerly The Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company and their subsidiaries as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995, incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been incorporated by reference herein, in reliance upon
the reports (also incorporated by reference herein) of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
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