<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 APRIL 30, 1998:
CLASS A 65,928,011
CLASS B 328,020,170
<PAGE> 2
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information
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Page No.
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Item 1. Financial Statements:
Condensed Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheet - March 31, 1998 (Unaudited)
and December 31, 1997 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Unaudited) -
Three Months Ended March 31, 1998 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 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 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Exhibit Index 22
Signatures 23
</TABLE>
2
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TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
==============================================================================
For the Three Months Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Premiums $1,898 $1,800
Net investment income 508 500
Fee income 82 97
Realized investment gains 66 8
Other revenues 40 26
- ------------------------------------------------------------------------------
Total revenues 2,594 2,431
- ------------------------------------------------------------------------------
CLAIMS AND EXPENSES
Claims and claim adjustment expenses 1,441 1,373
Amortization of deferred acquisition costs 286 283
Interest expense 41 40
General and administrative expenses 340 345
- ------------------------------------------------------------------------------
Total claims and expenses 2,108 2,041
- ------------------------------------------------------------------------------
Income before federal income taxes 486 390
- ------------------------------------------------------------------------------
Federal income taxes 139 117
- ------------------------------------------------------------------------------
Net income $ 347 $ 273
==============================================================================
BASIC EARNINGS PER SHARE
Net income $ 0.88 $ 0.68
Weighted average number of common shares outstanding 392.2 399.4
- ------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Net income $ 0.88 $ 0.68
Weighted average number of common shares outstanding
and common stock equivalents 392.6 399.4
==============================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
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TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except shares)
<TABLE>
<CAPTION>
===============================================================================================================
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $26,492 and $26,127) $ 27,509 $ 27,188
Equity securities, at fair value (cost, $898 and $977) 968 1,037
Mortgage loans 633 691
Real estate held for sale 65 95
Short-term securities 2,013 1,446
Other investments 622 574
- ---------------------------------------------------------------------------------------------------------------
Total investments 31,810 31,031
- ---------------------------------------------------------------------------------------------------------------
Cash 66 47
Investment income accrued 408 387
Premium balances receivable 2,915 2,897
Reinsurance recoverables 9,248 9,188
Deferred acquisition costs 509 501
Deferred federal income taxes 1,319 1,316
Contractholder receivables 1,978 1,923
Goodwill 1,487 1,497
Other assets 2,125 1,895
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 51,865 $ 50,682
===============================================================================================================
LIABILITIES
Claims and claim adjustment expense reserves $ 30,208 $ 30,324
Unearned premium reserves 4,029 3,867
Contractholder payables 1,978 1,923
Commercial paper 28 108
Long-term debt 1,250 1,249
Other liabilities 5,407 4,534
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 42,900 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 2,174 1,866
Accumulated other changes in equity from nonowner sources 698 722
Treasury stock, at cost (shares, 6,583,987 and 7,314,688) (240) (266)
Unearned compensation (50) (22)
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 8,065 7,777
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 51,865 $ 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 Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
DOLLARS SHARES
------- ------------------------------
CLASS A CLASS B
<S> <C> <C> <C>
COMMON STOCK AND ADDITIONAL
PAID-IN CAPITAL
Balance, beginning of period $ 5,477 72,393,407 328,020,170
Capital Accumulation Plan grant 6 -- --
- ----------------------------------------------------------------- ----------- -----------
Balance, end of period 5,483 72,393,407 328,020,170
- ----------------------------------------------------------------- ----------- -----------
RETAINED EARNINGS
Balance, beginning of period 1,866
Net income 347
Dividends (39)
- -----------------------------------------------------------------
Balance, end of period 2,174
- -----------------------------------------------------------------
ACCUMULATED OTHER
CHANGES IN EQUITY FROM NONOWNER SOURCES (1)
Balance, beginning of period 722
Net unrealized loss on securities (22)
Foreign currency translation adjustments (2)
- -----------------------------------------------------------------
Balance, end of period 698
- -----------------------------------------------------------------
TREASURY STOCK (AT COST)
Balance, beginning of period (266) (7,314,688) --
Capital Accumulation Plan grant, net of forfeitures 26 730,287 --
Other -- 414 --
- ----------------------------------------------------------------- ----------- -----------
Balance, end of period (240) (6,583,987) --
- ----------------------------------------------------------------- ----------- -----------
UNEARNED COMPENSATION
Balance, beginning of period (22)
Issuance of restricted stock under Capital
Accumulation Plan, net of forfeitures (32)
Restricted stock amortization 4
- -----------------------------------------------------------------
Balance, end of period (50)
- ----------------------------------------------------------------- ----------- -----------
Total stockholders' equity and shares outstanding $ 8,065 65,809,420 328,020,170
================================================================= =========== ===========
</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
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TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
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<CAPTION>
==============================================================================
For the Three Months Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 340 $ 256
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 382 419
Mortgage loans 70 46
Proceeds from sales of investments
Fixed maturities 2,388 3,968
Equity securities 167 152
Mortgage loans -- 27
Real estate held for sale 33 3
Purchase of investments
Fixed maturities (3,089) (4,540)
Equity securities (59) (148)
Mortgage loans (10) --
Short-term securities, (purchases) sales, net (566) (539)
Other investments, net (42) 40
Securities transactions in course of settlement 523 387
- ------------------------------------------------------------------------------
Net cash used in investing activities (203) (185)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of commercial paper, net (79) (25)
Purchase of treasury stock -- (16)
Dividend to TIGI (33) (25)
Dividend to minority shareholders (6) (5)
- ------------------------------------------------------------------------------
Net cash used in financing activities (118) (71)
- ------------------------------------------------------------------------------
Net increase in cash 19 --
- ------------------------------------------------------------------------------
Cash at beginning of period 47 106
- ------------------------------------------------------------------------------
Cash at end of period $ 66 $ 106
==============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid (refunded) $ (10) $ 169
Interest paid $ 26 $ 25
==============================================================================
</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:
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(for the three months ended March 31, in millions) 1998 1997
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<S> <C> <C>
Net income $ 347 $ 273
Other changes in equity from nonowner sources (24) (343)
------------------------------------------------------------------------------
Total changes in equity from nonowner sources $ 323 $ (70)
==============================================================================
</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 March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC of the AICPA) 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
Company has not yet determined the impact that SOP 98-1 will have on its
consolidated financial statements or when it will be implemented.
In December 1997, the AcSEC of the AICPA issued Statement of Position 97-3,
"Accounting by Insurance and other Enterprises for Insurance-Related
Assessments" (SOP 97-3). SOP 97-3 provides guidance for determining when an
entity should recognize a liability for guaranty-fund and other
insurance-related assessments, how to measure that liability, and when an
asset may be recognized for the recovery of such assessments through premium
tax offsets or policy surcharges. SOP 97-3 is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company has not yet determined the impact that SOP 97-3 will have on its
consolidated financial statements or when it will be implemented.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). FAS 131 establishes standards for the way that public enterprises
report information about operating segments in annual financial statements
and requires that selected information about those operating segments be
reported in interim financial statements. This statement supersedes Statement
of Financial Accounting Standards No. 14, "Financial Reporting for Segments
of a Business Enterprise." FAS 131 requires that all public enterprises
report financial and descriptive information about its reportable operating
segments. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources
and in assessing performance. This statement is effective for fiscal years
beginning after December 15, 1997. The Company's reportable operating
segments are not expected to change as a result of the adoption of FAS 131.
3. Earnings per Share
For the three months ended March 31, 1998 and 1997, there was no effect from
dilutive securities on earnings per share.
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 March 31, 1998, this requirement was
exceeded by approximately $3.6 billion. In addition, this facility places
restrictions on the amount of consolidated debt TAP can incur. At March 31,
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 March 31, 1998, TAP had $28 million of commercial paper
outstanding. TAP also currently has available a $200 million line of credit
for working capital and other general corporate purposes from a subsidiary of
Travelers Group Inc. The lender has no obligation to make any loan to TAP
under this line of credit.
8
<PAGE> 9
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Capital and Debt, Continued
The Company's insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid
to their parent without prior approval of insurance regulatory authorities.
Dividend payments to TAP from its insurance subsidiaries are limited to $805
million in 1998 without prior approval of the Connecticut Insurance
Department. TAP received $110 million of dividends from its insurance
subsidiaries during the first quarter of 1998.
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 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.
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. Subsequent Event
On April 6, 1998, Travelers Group, the indirect owner of approximately 83% of
the outstanding common stock of TAP, announced that it had entered into a
Merger Agreement with Citicorp, pursuant to which Citicorp will be merged
with and into a newly formed wholly owned subsidiary of Travelers Group (the
"Merger").
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,
TAP's existing businesses can be retained and operated by Travelers Group 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
TAP's operations going forward, including the ability to make acquisitions of
certain insurance underwriters. It is not expected that such restrictions
will impede TAP's existing businesses in any material respect or preclude TAP
from expanding its existing insurance underwriting activities (other than by
acquisition of certain insurance underwriters). At this time, TAP believes
that its compliance with applicable law following the Merger will not have a
material adverse effect on TAP'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. At the
expiration of the BHCA Compliance Period, TAP and Travelers Group will
evaluate their alternatives in order to comply with whatever laws are then
applicable.
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.
<TABLE>
<CAPTION>
=====================================================================================================
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
(in millions, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 2,594 $ 2,431
- -----------------------------------------------------------------------------------------------------
Net income (1) $ 347 $ 273
- -----------------------------------------------------------------------------------------------------
Net income per share - assuming dilution $ 0.88 $ 0.68
- -----------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding and common stock equivalents - assuming dilution 392.6 399.4
=====================================================================================================
</TABLE>
(1) Net income includes $43 million and $5 million of realized investment
gains in the three months ended March 31, 1998 and 1997, respectively.
Consolidated Results of Operations for the Three Months Ended March 31, 1998 and
1997
Operating earnings, which exclude realized investment gains, were $304 million
or $0.77 per share in the first quarter of 1998, an increase of $36 million or
$0.10 per share from $268 million or $0.67 per share in the first quarter of
1997. The increase in operating earnings was primarily the result of increased
after-tax net investment income and continued productivity improvements.
Revenues of $2.594 billion in the first quarter of 1998 increased $163 million
from $2.431 billion in the first quarter of 1997. This increase was primarily
attributable to a $98 million increase in earned premiums and a $58 million
increase in realized investment gains, partially offset by a $15 million
reduction in fee income.
Net investment income was $508 million in the first quarter of 1998, an increase
of $8 million from the first quarter of 1997, reflecting the higher level of
invested assets in the first quarter of 1998, partially offset by an increase in
tax-exempt securities in the first quarter of 1998.
Fee income in the first quarter of 1998 was $82 million, a $15 million decrease
from the first 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 and
the Company's continued success in lowering workers' compensation losses of
service customers, partially offset by National Accounts writing more service
fee-based product versus premium-based product.
Claims and expenses of $2.108 billion in the first quarter of 1998 increased $67
million from the first quarter of 1997. The increase was primarily the result of
claims related to the growth in premiums.
11
<PAGE> 12
The Company's effective tax rate was 29% in the first quarter of 1998 compared
to 30% in the first quarter of 1997. These rates were lower than the statutory
tax rate in both periods primarily due to non-taxable investment income.
The statutory and GAAP combined ratios were as follows:
<TABLE>
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=========================================================================================
Three Months Ended March 31, 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
STATUTORY:
Loss and loss adjustment expense (LAE) ratio ...... 72.9% 73.7%
Underwriting expense ratio ........................ 28.3 28.0
Combined ratio before policyholder dividends....... 101.2 101.7
Combined ratio..................................... 101.9 101.9
- -----------------------------------------------------------------------------------------
GAAP:
Loss and LAE ratio ................................ 72.7% 73.0%
Underwriting expense ratio ........................ 28.9 27.0
Combined ratio before policyholder dividends....... 101.6 100.0
Combined ratio..................................... 102.3 100.4
=========================================================================================
</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 1997 first quarter 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 and its subsidiaries (Travelers P&C) method of recording
certain net written premiums, and an adjustment in Personal Lines associated
with a change in its quota share reinsurance arrangement. Excluding these
adjustments, the statutory and GAAP combined ratios before policyholder
dividends for the first quarter of 1997 would have been 102.5% and 102.9%,
respectively. The decrease in the first quarter of 1998 statutory and GAAP
combined ratios compared to the first quarter of 1997 statutory and GAAP
combined ratios excluding these adjustments was due to favorable loss experience
and continued productivity improvements in Commercial Lines, offset in part by
an increase in catastrophe losses in Personal Lines and a decrease in favorable
prior year reserve development in the Personal Lines automobile bodily injury
line.
SEGMENT RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Commercial Lines
<TABLE>
<CAPTION>
==============================================================================
Three Months Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Revenues.............................................. $1,697 $1,624
Net income (1)........................................ $ 260 $ 201
==============================================================================
</TABLE>
(1) Commercial Lines net income includes $35 million and $8 million of
realized investment gains in the three months ended March 31, 1998 and
1997, respectively.
Commercial Lines operating income, which excludes realized investment gains, was
$225 million in the first quarter of 1998 compared to $193 million in the first
quarter of 1997. This increase was due to continued expense savings, no
catastrophe losses and favorable loss experience.
Revenues were $1.697 billion in the first quarter of 1998 compared to $1.624
billion in the first quarter of 1997. This increase primarily reflected higher
realized investment gains and higher earned premiums, partially offset by a
decline in fee income.
12
<PAGE> 13
Commercial Lines net written premiums in the first quarter of 1998 totaled
$1.212 billion, down $126 million from $1.338 billion in the first quarter 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. Excluding this
adjustment, net written premiums increased slightly. Net written premium levels
continue to be unfavorably impacted by the difficult pricing environment and
also reflect the Company's disciplined approach to underwriting and risk
management.
Fee income in the first quarter of 1998 was $82 million, a $15 million decrease
from the first 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 and the Company's continued success in
lowering workers' compensation losses of service customers, partially offset by
National Accounts writing more service fee-based product versus premium-based
product.
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 $186 million in the first quarter of 1998 decreased $35 million from
the first 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, National Accounts writing less
premium-based product versus service fee-based product and the Company's
continued disciplined approach to underwriting and risk management. National
Accounts new business and the business retention ratio were moderately higher in
the first quarter of 1998 than in the first quarter of 1997, reflecting an
increase in claim service-only business as well as continued product development
efforts, especially in workers' compensation managed care programs.
Commercial Accounts serves mid-sized businesses through a network of independent
agents and brokers. Commercial Accounts net written premiums were $463 million
in the 1998 first quarter, down $97 million from $560 million a year ago. In the
first quarter of 1997, net written premiums included a $127 million adjustment
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 reflecting the continued growth through programs
designed to leverage underwriting experience in specific industries, partially
offset by pricing declines due to the highly competitive marketplace and the
Company's continued disciplined approach to underwriting and risk management.
Commercial Accounts new business in the first quarter of 1998 was moderately
lower than in the first quarter of 1997, reflecting the Company's focus on
obtaining new accounts where it can maintain its selective underwriting policy.
Commercial Accounts business retention ratio was moderately higher in the first
quarter of 1998 than in the first quarter of 1997. Commercial Accounts continues
to focus on the retention of existing business while maintaining its product
pricing standards and its selective underwriting policy.
Select Accounts serves small businesses through a network of independent agents.
Select Accounts net written premiums were $379 million in the first quarter of
1998 compared to $364 million in the first quarter of 1997. In the first quarter
of 1997 net written premiums included a $15 million adjustment 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 the continued benefit from the broader
industry and product line expertise of the combined company, 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 significantly higher in the first quarter of 1998 compared to the
first quarter of 1997. Select Accounts business retention ratio remained strong
in the first quarter of 1998 and was virtually the same as that in the first
quarter of 1997.
13
<PAGE> 14
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 $184 million in the first quarter of 1998 compared to $193
million in the first 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 $1.338 billion in the first quarter of
1998 were down slightly from $1.342 billion in the first quarter of 1997. This
decrease was due to continued expense savings, cost efficiencies in operations
and in competitive workers' compensation managed care programs and no
catastrophe losses in the first quarter of 1998, offset by increased commission
expense due to changes in mix of business.
There were no catastrophe losses in the first quarter of 1998 compared to $5
million, net of taxes and reinsurance, in the first quarter of 1997. The 1997
catastrophe losses were primarily due to tornadoes in the Midwest.
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
============================================================================
Three Months Ended March 31, 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
STATUTORY:
Loss and LAE ratio ......................... 78.2% 81.7%
Underwriting expense ratio ................. 28.6 27.4
Combined ratio before policyholder dividends 106.8 109.1
Combined ratio ............................. 108.0 109.4
- ----------------------------------------------------------------------------
GAAP:
Loss and LAE ratio ......................... 77.9% 80.7%
Underwriting expense ratio ................. 30.2 26.7
Combined ratio before policyholder dividends 108.1 107.4
Combined ratio ............................. 109.3 108.1
============================================================================
</TABLE>
GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
The 1997 first quarter statutory and GAAP combined ratios for Commercial Lines
include an adjustment due to a change to conform the Aetna P&C method with the
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 quarter of 1997 would have been 110.5% and 110.6%, respectively.
The decrease in the first quarter of 1998 statutory and GAAP combined ratios
compared to the first quarter of 1997 statutory and GAAP combined ratios
excluding this adjustment was due to lower catastrophe losses, continued
productivity improvements and favorable loss experience, partially offset by
lower fee income.
Personal Lines
<TABLE>
<CAPTION>
================================================================================
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Revenues.............................................. $893 $ 805
Net income (1)........................................ $116 $ 105
================================================================================
</TABLE>
(1) Personal Lines net income includes $8 million of realized investment gains
in the three months ended March 31, 1998 and $3 million of realized
investment losses in the three months ended March 31, 1997.
14
<PAGE> 15
Personal Lines operating income, which excludes realized investment gains and
losses, was $108 million in the first quarter of both 1998 and 1997. The 1998
results include an increase in premium income and in net investment income
compared to the first quarter of 1997, offset by $9 million in catastrophe
losses in the first quarter of 1998 versus none in 1997 and an increase in
investments in service centers and market expansions.
Revenues were $893 million in the first quarter of 1998 compared to $805 million
in the first quarter of 1997. This increase primarily reflected an increase in
earned premiums of $61 million, higher realized investment gains and higher net
investment income.
Net written premiums in the first quarter of 1998 were $806 million, compared to
$706 million (excluding a one-time adjustment of $69 million due to a change in
the quota share reinsurance arrangement) in the first 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 $721 million in the 1998 first quarter
increased $74 million from the 1997 first quarter. This increase was primarily
the result of higher losses associated with the growth in premiums and higher
catastrophe losses.
Catastrophe losses, net of taxes and reinsurance, were $9 million in the first
quarter of 1998. There were no catastrophe losses in the 1997 first quarter. The
1998 catastrophe losses were due to ice storms in northern New York and New
England and windstorms on the East Coast.
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
==============================================================================
Three Months Ended March 31, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
STATUTORY:
Loss and LAE ratio................................. 65.2% 61.2%
Underwriting expense ratio......................... 28.0 28.9
Combined ratio..................................... 93.2 90.1
- -----------------------------------------------------------------------------
GAAP:
Loss and LAE ratio................................. 65.2% 61.2%
Underwriting expense ratio......................... 27.1 27.4
Combined ratio..................................... 92.3 88.6
==============================================================================
</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 1997 first quarter 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 quarter of 1997 would have been 89.8% and 91.2%, respectively. The
increase in the first quarter of 1998 statutory and GAAP combined ratios
compared to the first quarter of 1997 statutory and GAAP combined ratios
excluding this adjustment 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.
15
<PAGE> 16
Corporate and Other
<TABLE>
<CAPTION>
================================================================================
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Revenues.............................................. $ 4 $ 2
Net income (loss)..................................... $(29) $ (33)
================================================================================
</TABLE>
The primary component of net income (loss) for the 1998 and 1997 first quarter
was after-tax interest expense of $27 million and $26 million, respectively,
reflecting financing costs associated with the 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 March 31, 1998, approximately 18% of the
net aggregate reserve (i.e., approximately $193 million) consists of case
reserve for resolved claims. The balance, approximately 82% of the net aggregate
reserve (i.e., approximately $887 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 three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
===============================================================
Environmental Losses
Three Months Ended March 31, 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 ......................... 20 18
Ceded .......................... (6) (1)
Losses paid:
Direct ......................... 75 50
Ceded .......................... (22) (4)
- ---------------------------------------------------------------
Ending reserves:
Direct ......................... 1,138 1,337
Ceded .......................... (58) (124)
- ---------------------------------------------------------------
Net ........................... $ 1,080 $ 1,213
===============================================================
</TABLE>
ASBESTOS CLAIMS
At March 31, 1998, approximately 24% of the net aggregate reserve (i.e.,
approximately $261 million) is for pending asbestos claims. The balance,
approximately 76% (i.e., approximately $848 million) of the net aggregate
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
16
<PAGE> 17
The following table displays activity for asbestos losses and loss expenses and
reserves for the three months ended March 31, 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
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Beginning reserves:
Direct................................................ $1,363 $1,443
Ceded................................................. (249) (370)
- --------------------------------------------------------------------------------
Net.................................................. 1,114 1,073
Incurred losses and loss expenses:
Direct................................................ 29 20
Ceded................................................. (12) (7)
Losses paid:
Direct ............................................... 52 52
Ceded................................................. (30) (23)
- --------------------------------------------------------------------------------
Ending reserves:
Direct................................................ 1,340 1,411
Ceded................................................. (231) (354)
- --------------------------------------------------------------------------------
Net.................................................. $1,109 $1,057
================================================================================
</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 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.
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 March 31, 1998, approximately 18% of the net aggregate reserve (i.e.,
approximately $188 million) is for pending CIOTA claims. The balance,
approximately 82% (i.e., approximately $888 million) of the net aggregate
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
17
<PAGE> 18
The following table displays activity for CIOTA losses and loss expenses and
reserves for the three months ended March 31, 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
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Beginning reserves:
Direct................................................ $1,520 $1,560
Ceded................................................. (432) (446)
- --------------------------------------------------------------------------------
Net.................................................. 1,088 1,114
Incurred losses and loss expenses:
Direct................................................ (3) 6
Ceded................................................. 7 -
Losses paid:
Direct................................................ 17 8
Ceded................................................. (1) (5)
Ending reserves:
Direct................................................ 1,500 1,558
Ceded................................................. (424) (441)
- --------------------------------------------------------------------------------
Net.................................................. $1,076 $1,117
================================================================================
</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 March 31, 1998 totaled $31.8 billion, of which
86.5% was invested in fixed maturity investments, 3.0% in common stocks and
other equity securities, 2.2% in mortgage loans and real estate held for sale
and 8.3% 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 $919 million, representing 3.3% of the Company's fixed maturity
investments as of March 31, 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
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Average Yield (Annualized) 7.0% 7.0%
</TABLE>
18
<PAGE> 19
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 March 31, 1998, this requirement was exceeded
by approximately $3.6 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 March 31, 1998,
TAP had $28 million outstanding under its commercial paper program.
At March 31, 1998, TAP had issued a total of $1.25 billion of, and had $750
million available for, debt offerings under its shelf registration statement.
The Company's insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid to
their parent without prior approval of insurance regulatory authorities.
Dividend payments to TAP from its insurance subsidiaries are limited to $805
million in 1998 without prior approval of the Connecticut Insurance Department.
The Company has received $110 million of dividends from its insurance
subsidiaries during the first quarter of 1998.
On June 23, 1997, the Company 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, the Company 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, the Company 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. The Company 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.
19
<PAGE> 20
On January 28, 1998, the Company, 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, the Company issued 413,578 shares of the
Company'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 the Company's common stock at the date of grant and is
recognized as a charge to income ratably over the vesting period. At March 31,
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.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on April 22, 1998. At the
meeting, (i) 8 persons were elected as directors of the Company, and (ii) the
selection of KPMG Peat Marwick LLP to serve as the independent auditors of the
Company for 1998 was ratified. The number of votes cast for, against or
withheld, and the number of abstentions with respect to each such matter is set
forth below, as are the number of broker non-votes, where applicable:
<TABLE>
<CAPTION>
For Against/Withheld Abstained Broker Non-Votes
--- ---------------- --------- ----------------
Election of Directors:
NOMINEE
-------
<S> <C> <C> <C> <C>
Kenneth J. Bialkin 3,337,276,222 1,690,706
James Dimon 3,337,376,901 1,590,027
Robert I. Lipp 3,337,740,926 1,226,002
Dudley C. Mecum 3,337,381,012 1,585,916
Roberto G. Mendoza 3,337,755,546 1,211,382
Frank J. Tasco 3,337,745,724 1,221,204
Sanford I. Weill 3,337,371,203 1,595,725
Arthur Zankel 3,337,753,780 1,213,148
Ratification of Auditors: 3,338,803,861 98,908 64,159 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31, 1998;
however, on April 22, 1998, the Company filed a Current Report on Form 8-K,
dated April 21, 1998, reporting under Item 5 thereof certain 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.
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
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.
</TABLE>
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Securities and Exchange Commission
upon request.
+ Filed herewith.
22
<PAGE> 23
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: May 13, 1998 By /s/ William P. Hannon
----------------------
William P. Hannon
Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 1998 By /s/ Thomas P. Shugrue
----------------------
Thomas P. Shugrue
Chief Accounting Officer
(Principal Accounting Officer)
23
<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
------------------
March 31,
---------
1998 1997
-------- --------
<S> <C> <C>
Earnings:
Net income $ 347 $ 273
======== ========
Average shares:
Basic 392.2 399.4
======== ========
Diluted 392.6 399.4
======== ========
Earnings per share (EPS):
Net income per common share $ 0.88 $ 0.68
======== ========
Net income per common share - assuming dilution $ 0.88 $ 0.68
======== ========
</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
------------------
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Income before income taxes $ 486 $ 390
Interest 41 40
Portion of rentals deemed to be interest 12 9
----- -----
Earnings available for fixed charges $ 539 $ 439
===== =====
Fixed charges:
Interest $ 41 $ 40
Portion of rentals deemed to be interest 12 9
----- -----
Total fixed charges $ 53 $ 49
===== =====
Ratio of earnings to fixed charges 10.17x 8.96x
===== ====
</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 MARCH 31, 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> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 27,509
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 968
<MORTGAGE> 633
<REAL-ESTATE> 65
<TOTAL-INVEST> 31,810
<CASH> 66
<RECOVER-REINSURE> 9,248
<DEFERRED-ACQUISITION> 509
<TOTAL-ASSETS> 51,865
<POLICY-LOSSES> 30,208
<UNEARNED-PREMIUMS> 4,029
<POLICY-OTHER> 1,978
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,278
900
0
<COMMON> 4
<OTHER-SE> 8,061
<TOTAL-LIABILITY-AND-EQUITY> 51,865
1,898
<INVESTMENT-INCOME> 508
<INVESTMENT-GAINS> 66
<OTHER-INCOME> 122
<BENEFITS> 1,441
<UNDERWRITING-AMORTIZATION> 286
<UNDERWRITING-OTHER> 381
<INCOME-PRETAX> 486
<INCOME-TAX> 139
<INCOME-CONTINUING> 347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347
<EPS-PRIMARY> 0.88<F1>
<EPS-DILUTED> 0.88<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 MARCH 31, 1997 USING THE FAS 128 GUIDELINES WERE AS FOLLOWS:
THREE MONTHS ENDED
MARCH 31, 1997
EPS:
BASIC $0.68
DILUTED $0.68
</FN>
</TABLE>
