<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, 1999
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, 1999:
CLASS A 63,343,586
CLASS B 328,020,170
<PAGE> 2
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page No.
--------
<S> <C>
Condensed Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1999 and 1998 3
Condensed Consolidated Balance Sheet - March 31, 1999 (Unaudited)
and December 31, 1998 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Unaudited) -
Three Months Ended March 31, 1999 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Exhibit Index 24
Signatures 25
</TABLE>
2
<PAGE> 3
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, 1999 1998
- ------------------------------------ ---- ----
<S> <C> <C>
REVENUES
Premiums $ 1,965 $ 1,898
Net investment income 503 508
Fee income 67 82
Realized investment gains 16 66
Other revenues 22 40
------- -------
Total revenues 2,573 2,594
------- -------
CLAIMS AND EXPENSES
Claims and claim adjustment expenses 1,459 1,441
Amortization of deferred acquisition costs 315 286
Interest expense 40 41
General and administrative expenses 308 340
------- -------
Total claims and expenses 2,122 2,108
------- -------
Income before federal income taxes and cumulative effect
of changes in accounting principles 451 486
Federal income taxes 117 139
------- -------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 334 347
Cumulative effect of change in accounting for insurance-related
assessments, net of tax (160) --
Cumulative effect of change in accounting for insurance and
reinsurance contracts that do not transfer insurance risk, net of tax 27 --
------- -------
NET INCOME $ 201 $ 347
======= =======
BASIC EARNINGS PER SHARE
Income before cumulative effect of changes in accounting principles $ 0.85 $ 0.88
Cumulative effect of changes in accounting principles (0.34) --
------- -------
Net income $ 0.51 $ 0.88
======= =======
Weighted average number of common shares outstanding 389.6 392.2
------- -------
DILUTED EARNINGS PER SHARE
Income before cumulative effect of changes in accounting principles $ 0.85 $ 0.88
Cumulative effect of changes in accounting principles (0.34) --
------- -------
Net income $ 0.51 $ 0.88
======= =======
Weighted average number of common shares outstanding
and common stock equivalents 390.5 392.6
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except shares)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
--------- ------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $26,499 and $26,580) $ 27,543 $ 27,977
Equity securities, at fair value (cost, $995 and $796) 1,018 828
Mortgage loans 550 574
Real estate held for sale 81 83
Short-term securities 1,872 1,597
Other investments 892 827
-------- --------
Total investments 31,956 31,886
-------- --------
Cash 51 62
Investment income accrued 403 409
Premium balances receivable 2,894 2,901
Reinsurance recoverables 9,286 9,153
Deferred acquisition costs 527 518
Deferred federal income taxes 1,294 1,109
Contractholder receivables 2,064 2,019
Goodwill 1,447 1,457
Other assets 2,031 1,760
-------- --------
Total assets $ 51,953 $ 51,274
======== ========
LIABILITIES
Claims and claim adjustment expense reserves $ 29,554 $ 29,589
Unearned premium reserves 4,266 4,166
Contractholder payables 2,064 2,019
Long-term debt 1,250 1,250
Other liabilities 4,898 4,225
-------- --------
Total liabilities 42,032 41,249
-------- --------
TAP - obligated mandatorily redeemable 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 5,479
Retained earnings 3,204 3,052
Accumulated other changes in equity from nonowner sources 688 921
Treasury stock, at cost (shares, 9,018,533 and 8,544,687) (313) (298)
Unearned compensation (41) (33)
-------- --------
Total stockholders' equity 9,021 9,125
-------- --------
Total liabilities and stockholders' equity $ 51,953 $ 51,274
======== ========
</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, 1999
<TABLE>
<CAPTION>
DOLLARS SHARES
------- ------
<S> <C> <C> <C>
COMMON STOCK AND ADDITIONAL
PAID-IN CAPITAL CLASS A CLASS B
----------- -----------
Balance, beginning and end of period $ 5,483 72,393,407 328,020,170
---------
RETAINED EARNINGS
Balance, beginning of period 3,052
Net income 201
Dividends (49)
---------
Balance, end of period 3,204
---------
ACCUMULATED OTHER CHANGES IN EQUITY
FROM NONOWNER SOURCES, NET OF TAX
Balance, beginning of period 921
Net unrealized loss on securities (235)
Foreign currency translation adjustments 2
---------
Balance, end of period 688
---------
TREASURY STOCK (AT COST)
Balance, beginning of period (298) (8,544,687) -
Net Capital Accumulation Plan grants 14 472,654 -
Treasury stock acquired (29) (946,500) -
--------- ----------- -----------
Balance, end of period (313) (9,018,533) -
--------- ----------- -----------
UNEARNED COMPENSATION
Balance, beginning of period (33)
Net issuance of restricted stock under
Capital Accumulation Plan (14)
Restricted stock amortization 6
---------
Balance, end of period (41)
--------- ----------- -----------
Total stockholders' equity and shares outstanding $ 9,021 63,374,874 328,020,170
========= =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999 1998
- ------------------------------------ ---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 129 $ 340
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 345 382
Mortgage loans 45 70
Proceeds from sales of investments
Fixed maturities 1,833 2,388
Equity securities 148 167
Real estate held for sale 5 33
Purchase of investments
Fixed maturities (2,061) (3,089)
Equity securities (210) (59)
Mortgage loans (1) (10)
Short-term securities, net (275) (566)
Other investments, net (186) (42)
Securities transactions in course of settlement 295 523
------- -------
Net cash used in investing activities (62) (203)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of commercial paper, net -- (79)
Purchase of treasury stock (29) --
Dividend to TIGI (41) (33)
Dividend to minority shareholders (8) (6)
------- -------
Net cash used in financing activities (78) (118)
------- -------
Net increase (decrease) in cash (11) 19
Cash at beginning of period 62 47
------- -------
Cash at end of period $ 51 $ 66
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid (refunded) $ 14 $ (10)
Interest paid $ 25 $ 26
======= =======
</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 Citigroup Inc. (Citigroup) (see
note 8)) 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, 1998.
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, 1999, the Company adopted the Accounting Standards
Executive Committee of the American Institute of Certified Public
Accountants' (AcSEC) Statement of Position 98-7, "Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not Transfer
Insurance Risk" (SOP 98-7). SOP 98-7 provides guidance on how to account
for insurance and reinsurance contracts that do not transfer insurance risk
and applies to all entities and all such contracts, except for
long-duration life and health insurance contracts. The method used to
account for such contracts is referred to as deposit accounting. This SOP
does not address when deposit accounting should be applied. SOP 98-7
identifies several methods of deposit accounting for insurance and
reinsurance contracts that do not transfer insurance risk and provides
guidance on the application of each method. The effect of initially
adopting SOP 98-7 is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not permitted. As
a result of adopting SOP 98-7, the Company recorded a benefit of $27
million after tax, reflected as a cumulative catch-up adjustment. Aside
from the initial impact at adoption, this SOP is not expected to have a
significant impact on results of operations, financial condition or
liquidity.
Effective January 1, 1999, the Company adopted the AcSEC 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. The effect of the initial
adoption of this SOP is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not permitted. As
a result of adopting SOP 97-3, the Company recorded a charge of $160
million after tax, reflected as a cumulative catch-up adjustment. Aside
from the initial impact at adoption, this SOP is not expected to have a
significant impact on results of operations, financial condition or
liquidity.
7
<PAGE> 8
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
2. Changes in Accounting Principles and Accounting Standards not yet Adopted,
Continued
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Upon initial application of FAS 133, hedging
relationships must be designated anew and documented pursuant to the
provisions of this statement. The Company has not yet determined the impact
that FAS 133 will have on its consolidated financial statements.
3. Segment Information
<TABLE>
<CAPTION>
TOTAL
COMMERCIAL PERSONAL REPORTABLE
(at and for the quarter ended March 31, in millions) LINES LINES SEGMENTS
- ---------------------------------------------------- ---------- -------- ----------
<S> <C> <C> <C>
1999
Revenues
Premiums $ 1,073 $ 892 $ 1,965
Net investment income 413 90 503
Fee income 67 -- 67
Realized investment gains (losses) 18 (2) 16
Other 8 14 22
------- ------- -------
Total revenues $ 1,579 $ 994 $ 2,573
======= ======= =======
Operating income (1) $ 245 $ 109 $ 354
Assets 44,130 7,564 51,694
------- ------- -------
1998
Revenues
Premiums $ 1,127 $ 771 $ 1,898
Net investment income 413 95 508
Fee income 82 -- 82
Realized investment gains 54 12 66
Other 21 15 36
------- ------- -------
Total revenues $ 1,697 $ 893 $ 2,590
======= ======= =======
Operating income (1) $ 225 $ 108 $ 333
Assets 44,375 7,162 51,537
======= ======= =======
</TABLE>
(1) Operating income excludes realized investment gains (losses) and the
cumulative effect of changes in accounting principles, and is reflected net
of tax.
8
<PAGE> 9
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
3. Segment Information, Continued
BUSINESS SEGMENT RECONCILIATION
<TABLE>
<CAPTION>
(for the quarter ended March 31, in millions) 1999 1998
- -------------------------------------------- ---- ----
<S> <C> <C>
INCOME RECONCILIATION, NET OF TAX
Total operating income for reportable segments $ 354 $ 333
Other operating loss (1) (30) (29)
Realized investment gains 10 43
Cumulative effect of changes in accounting for:
Insurance-related assessments (160) --
Insurance and reinsurance contracts that do not transfer
insurance risk 27 --
----- -----
Total consolidated net income $ 201 $ 347
===== =====
</TABLE>
(1) The primary component of the other operating loss is after-tax interest
expense of $26 million and $27 million for 1999 and 1998, respectively.
4. Changes in Equity from Nonowner Sources
The Company's total changes in equity from nonowner sources are as follows:
<TABLE>
<CAPTION>
(for the three months ended March 31, in millions) 1999 1998
- -------------------------------------------------- ---- ----
<S> <C> <C>
Net income $ 201 $ 347
Net unrealized loss on securities (235) (22)
Foreign currency translation adjustments 2 (2)
----- -----
Total changes in equity from nonowner sources $ (32) $ 323
===== =====
</TABLE>
5. Earnings per Share (EPS)
Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the effect of potentially dilutive securities,
principally the incremental shares assumed issued under the Company's
Capital Accumulation Plan and other restricted stock plans. For the three
months ended March 31, 1999 and 1998, there was no significant effect on
EPS from dilutive securities issued.
9
<PAGE> 10
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Capital and Debt
TAP has a five-year revolving credit facility in the amount of $250 million
with a syndicate of banks (the Credit Facility). Under the Credit Facility,
which expires in December 2001, TAP is required to maintain a certain level
of consolidated stockholders' equity (as defined in the agreement). At
March 31, 1999, this requirement was exceeded by approximately $4.3
billion. In addition, the Credit Facility places restrictions on the amount
of consolidated debt TAP can incur. At March 31, 1999, there were no
borrowings outstanding under the Credit Facility. If TAP 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, 1999, TAP had no commercial paper outstanding. TAP also currently
has available a $200 million line of credit for working capital and other
general corporate purposes from a subsidiary of Citigroup. The lender has
no obligation to make any loan to TAP under this line of credit.
TAP's insurance subsidiaries are subject to various regulatory restrictions
that limit the maximum amount of dividends available to be paid to their
parent without prior approval of insurance regulatory authorities. Dividend
payments to TAP from its insurance subsidiaries are limited to $1.0 billion
in 1999 without prior approval of the Connecticut Insurance Department. TAP
received $150 million of dividends from its insurance subsidiaries during
the first three months of 1999.
7. 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,
1999 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 as well as changes in
legislation applicable to such claims. 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.
10
<PAGE> 11
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
7. Commitments and Contingencies, Continued
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.
8. Bank Holding Company Act of 1956 Restrictions
Citigroup is a bank holding company subject to the provisions of the Bank
Holding Company Act of 1956 (the BHCA). The BHCA precludes a bank holding
company and its affiliates from engaging in certain activities, generally
including insurance underwriting. Under the BHCA in its current form,
Citigroup has two years from the date it became a bank holding company
(October 8, 1998) to comply with all applicable provisions (the BHCA
Compliance Period). The BHCA Compliance Period may be extended, at the
discretion of the Federal Reserve Board, for three additional one-year
periods so long as the extension is not deemed to be detrimental to the
public interest.
It is not expected that the restrictions of the BHCA will impede the
Company's existing businesses in any significant respect, although the
Company may be limited in its ability to make certain acquisitions. At this
time, the Company believes that its compliance with the BHCA or other
applicable laws will not have a significant adverse effect on its 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, the Company and Citigroup each
will evaluate its alternatives in order to comply with whatever laws are
then applicable.
11
<PAGE> 12
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Results of Operations reflect the consolidated results of operations of
Travelers Property Casualty Corp. (TAP) and its subsidiaries (the Company). 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.
On October 8, 1998, Citicorp merged with and into a newly formed wholly-owned
subsidiary of Travelers Group Inc. (Travelers Group) (the Merger), the indirect
owner of approximately 84% of the outstanding common stock of TAP. Following the
Merger, Travelers Group changed its name to Citigroup Inc. (Citigroup).
Upon consummation of the Merger, Citigroup became a bank holding company subject
to the provisions of the Bank Holding Company Act of 1956 (the BHCA). The BHCA
precludes a bank holding company and its affiliates from engaging in certain
activities, generally including insurance underwriting. Under the BHCA in its
current form, Citigroup has two years from the date it became a bank holding
company to comply with all applicable provisions (the BHCA Compliance Period).
The BHCA Compliance Period may be extended, at the discretion of the Federal
Reserve Board, for three additional one-year periods so long as the extension is
not deemed to be detrimental to the public interest.
It is not expected that the restrictions of the BHCA will impede the Company's
existing businesses in any significant respect, although the Company may be
limited in its ability to make certain acquisitions. At this time, the Company
believes that its compliance with applicable laws associated with the Merger
will not have a significant adverse effect on its 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, the Company and Citigroup each will evaluate its
alternatives in order to comply with whatever laws are then applicable.
<TABLE>
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
(in millions, except per share data) 1999 1998
------------------------------------ ---- ----
<S> <C> <C>
Revenues ............................................................ $ 2,573 $ 2,594
-------- -------
Income before cumulative effect of changes in accounting principles . $ 334 $ 347
Cumulative effect of changes in accounting principles ............... (133) --
-------- -------
Net income (1) ...................................................... $ 201 $ 347
-------- -------
BASIC EARNINGS PER SHARE
Income before cumulative effect of changes in accounting principles $ 0.85 $ 0.88
Cumulative effect of changes in accounting principles ............. (0.34) --
-------- -------
Net income ........................................................ $ 0.51 $ 0.88
-------- -------
Weighted average number of common shares outstanding .............. 389.6 392.2
-------- -------
DILUTED EARNINGS PER SHARE
Income before cumulative effect of changes in accounting principles $ 0.85 $ 0.88
Cumulative effect of changes in accounting principles ............. (0.34) --
-------- -------
Net income ........................................................ $ 0.51 $ 0.88
-------- -------
Weighted average number of common
shares outstanding and common stock equivalents ................ 390.5 392.6
-------- -------
</TABLE>
(1) Net income includes $10 million and $43 million of realized investment
gains in the three months ended March 31, 1999 and 1998, respectively.
12
<PAGE> 13
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998
Net income was $201 million in the first quarter of 1999 compared to $347
million in the first quarter of 1998. Net income in 1999 included a charge of
$160 million related to the initial adoption of the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants'
(AcSEC) Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" (SOP 97-3) and a benefit of $27
million related to the initial adoption of AcSEC Statement of Position 98-7,
"Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk" (SOP 98-7). The net charge of $133 million due to
the initial adoption of these Statements of Position has been accounted for as a
cumulative effect of a change in accounting principles.
Operating earnings, which exclude realized investment gains and the cumulative
effect of changes in accounting principles in the first quarter of 1999
described above, were $324 million or $0.83 per share in the first quarter of
1999, an increase of $20 million or $0.06 per share from $304 million or $0.77
per share in the first quarter of 1998. The increase in operating earnings was
primarily the result of favorable prior-year reserve development in Commercial
Lines and continued expense reductions, partially offset by increased
weather-related losses.
Revenues of $2.573 billion in the first quarter of 1999 decreased $21 million
from $2.594 billion in the first quarter of 1998. This decrease was primarily
attributable to a $50 million decrease in realized investment gains, an $18
million decrease in other revenues and a $15 million decrease in fee income,
mostly offset by a $67 million increase in earned premiums, due to increased
production in Personal Lines.
Net investment income was $503 million in the first quarter of 1999, a decrease
of $5 million from the first quarter of 1998, reflecting an increase in
tax-exempt securities, partially offset by a higher level of invested assets in
the first quarter of 1999.
Fee income in the first quarter of 1999 was $67 million, a $15 million decrease
from the first quarter of 1998. National Accounts within Commercial Lines is the
primary source of fee income due to its service business. This decrease in fee
income was primarily due to the depopulation of involuntary pools serviced by
the Company.
Claims and expenses of $2.122 billion in the first quarter of 1999 increased $14
million from the first quarter of 1998. The increase was primarily the result of
increased claims related to the growth in premiums, partially offset by a
reduction in general and administrative expenses and favorable prior-year
reserve development in Commercial Lines.
Excluding the cumulative effect of changes in accounting principles, the
Company's effective federal tax rate was 26% in the first quarter of 1999
compared to 29% in the first quarter of 1998. These rates were lower than the
statutory tax rate in both periods primarily due to non-taxable investment
income. The rate in the first quarter of 1999 was less than the rate in the
first quarter of 1998 primarily due to the Company's decision to invest more
heavily in tax-exempt securities.
13
<PAGE> 14
The statutory and GAAP combined ratios were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
STATUTORY:
Loss and loss adjustment expense (LAE) ratio .... 71.9% 72.9%
Underwriting expense ratio ...................... 28.0 28.3
Combined ratio before policyholder dividends .... 99.9 101.2
Combined ratio .................................. 100.4 101.9
----- -----
GAAP:
Loss and LAE ratio .............................. 71.7% 72.7%
Underwriting expense ratio ...................... 28.2 28.9
Combined ratio before policyholder dividends .... 99.9 101.6
Combined ratio .................................. 100.4 102.3
----- -----
</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 1999 first quarter statutory and GAAP combined ratios include an adjustment
in Personal Lines associated with the termination of a quota share reinsurance
arrangement. Excluding this adjustment, the statutory and GAAP combined ratios
before policyholder dividends for the first quarter of 1999 would have been
99.6% and 100.9%, respectively. The decrease in the first quarter of 1999
statutory and GAAP combined ratios before policyholder dividends excluding this
adjustment compared to the first quarter of 1998 statutory and GAAP combined
ratios before policyholder dividends was due to favorable prior-year reserve
development, lower cumulative injury incurred losses and continued expense
reductions in Commercial Lines, offset in part by higher weather-related losses
and lower fee income in Commercial Lines, and a modest increase in medical costs
and a decrease in favorable prior-year reserve development in Personal Lines.
SEGMENT RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
COMMERCIAL LINES
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
(in millions)
Revenues .......................................................... $ 1,579 $ 1,697
------- -------
Income before cumulative effect of changes in accounting principles $ 257 $ 260
Cumulative effect of changes in accounting principles ............. (133) --
------- -------
Net income (1) .................................................... $ 124 $ 260
======= =======
</TABLE>
(1) Commercial Lines net income includes $12 million and $35 million of
realized investment gains in the three months ended March 31, 1999 and
1998, respectively.
Net income was $124 million in the first quarter of 1999 compared to $260
million in 1998. Net income in 1999 included a charge of $160 million related to
the initial adoption of SOP 97-3 and a benefit of $27 million related to the
initial adoption of SOP 98-7. The net charge of $133 million due to the initial
adoption of these Statements of Position has been accounted for as a cumulative
effect of a change in accounting principles.
14
<PAGE> 15
Commercial Lines operating income, which excludes realized investment gains and
the cumulative effect of changes in accounting principles in the first quarter
of 1999 described above, was $245 million in the first quarter of 1999 compared
to $225 million in the first quarter of 1998. This increase was due to favorable
prior-year reserve development, continued expense savings and lower cumulative
injury incurred losses, partially offset by higher weather-related losses and a
decrease in fee income. Operating results reflected the Company's long-standing
insistence on maintaining discipline in the highly competitive commercial lines
marketplace and on growing business only where market conditions warrant.
Revenues were $1.579 billion in the first quarter of 1999 compared to $1.697
billion in the first quarter of 1998. This decrease primarily reflected lower
earned premiums, lower realized investment gains and lower fee income.
Commercial Lines net written premiums in the first quarter of 1999 totaled
$1.114 billion, down $98 million from $1.212 billion in the first quarter of
1998. This decrease reflected the highly competitive marketplace and the
Company's continued disciplined approach to underwriting and risk management.
Fee income in the first quarter of 1999 was $67 million compared to $82 million
in the first quarter of 1998. The $15 million decrease in fee income was
primarily due to the depopulation of involuntary pools serviced by the Company.
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 and to self-insurance pools
throughout the United States. National Accounts net written premiums were $150
million in the first quarter of 1999 compared to $186 million in the first
quarter of 1998. The $36 million decrease was primarily due to a decrease in the
Company's level of involuntary pool participation and the Company's continued
disciplined approach to underwriting and risk management.
National Accounts new business was significantly lower in the first quarter of
1999 than in the first quarter of 1998. National Accounts business retention
ratio was moderately lower in the first quarter of 1999 than in the first
quarter of 1998. These decreases reflected the Company's continued disciplined
approach to the highly competitive marketplace.
Commercial Accounts serves mid-sized businesses for casualty products and both
large and mid-sized businesses for property products through a network of
independent agents and brokers. Commercial Accounts net written premiums were
$444 million in the first quarter of 1999 compared to $463 million in the first
quarter of 1998. The $19 million decrease reflected the Company's continued
disciplined approach to underwriting and risk management, partially offset by
the continued growth through programs designed to leverage underwriting
experience in specific industries.
Commercial Accounts new business in the first quarter of 1999 was significantly
lower than in the first quarter of 1998, reflecting the Company's focus on
obtaining new accounts only where it can maintain its selective underwriting
policy. Commercial Accounts business retention ratio was moderately lower in the
first quarter of 1999 than in the first quarter of 1998. Commercial Accounts
continues to focus on maintaining its product pricing standards and its
selective underwriting policy in the renewal of accounts.
Select Accounts serves small businesses through a network of independent agents.
Select Accounts net written premiums were $372 million in the first quarter of
1999 compared to $379 million in the first quarter of 1998. The decrease in
Select Accounts net written premiums reflected the highly competitive
marketplace and the Company's continued disciplined approach to underwriting and
risk management.
15
<PAGE> 16
New premium business in Select Accounts was significantly lower in the first
quarter of 1999 compared to the first quarter of 1998 reflecting its selective
underwriting policy in the highly competitive marketplace. Select Accounts
business retention ratio remained strong in the first quarter of 1999 and was
virtually the same as that in the first quarter of 1998.
Specialty Accounts markets products to national, mid-sized and small customers
and distributes them through both wholesale brokers and retail agents and
brokers throughout the United States. Specialty Accounts net written premiums
were $148 million in the first quarter of 1999 compared to $184 million in the
first quarter of 1998. 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 $1.237 billion in the first quarter of
1999 were down from $1.338 billion in the first quarter of 1998. This decrease
was due to favorable prior-year reserve development and continued expense
savings in operations and in workers' compensation managed care delivery
programs, partially offset by higher weather-related losses.
There were no catastrophe losses in the first quarter of 1999 and 1998.
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 1998
----- -----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio .............................. 76.2% 78.2%
Underwriting expense ratio ...................... 28.5 28.6
Combined ratio before policyholder dividends .... 104.7 106.8
Combined ratio .................................. 105.7 108.0
----- -----
GAAP:
Loss and LAE ratio .............................. 75.8% 77.9%
Underwriting expense ratio ...................... 31.1 30.2
Combined ratio before policyholder dividends .... 106.9 108.1
Combined ratio .................................. 107.9 109.3
----- -----
</TABLE>
GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
The decrease in the first quarter of 1999 statutory and GAAP combined ratios
before policyholder dividends compared to the first quarter of 1998 statutory
and GAAP combined ratios before policyholder dividends was due to favorable
prior-year reserve development and lower cumulative injury incurred losses,
partially offset by higher weather-related losses and lower fee income.
PERSONAL LINES
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
(in millions)
Revenues ............................... $994 $893
Net income (1) ......................... $107 $116
---- ----
</TABLE>
(1) Personal Lines net income includes $2 million of realized investment losses
in the three months ended March 31, 1999 and $8 million of realized
investment gains in the three months ended March 31, 1998.
16
<PAGE> 17
Personal Lines operating income, which excludes realized investment gains and
losses, was $109 million in the first quarter of 1999 compared to $108 million
in the first quarter of 1998. The 1999 results include an increase in income due
to the growth in earned premiums, offset by higher losses due to a modest
increase in medical costs and a decrease in favorable prior-year reserve
development.
Revenues were $994 million in the first quarter of 1999 compared to $893 million
in the first quarter of 1998. This increase primarily reflected an increase in
earned premiums of $121 million, partially offset by lower realized investment
gains (losses) and lower net investment income.
Net written premiums in the first quarter of 1999 were $912 million (excluding a
one-time increase of $72 million due to the termination of a quota share
reinsurance arrangement), compared to $806 million in the first quarter of 1998.
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 Citigroup. Business retention continued to be strong.
Personal Lines claims and expenses of $839 million in the first quarter of 1999
increased $118 million from the first quarter of 1998. This increase was
primarily the result of higher losses associated with the growth in premiums and
a modest increase in medical costs and a decrease in favorable prior-year
reserve development.
Catastrophe losses, net of taxes and reinsurance, were $8 million in the first
quarter of 1999, compared to $9 million in the first quarter of 1998. The 1999
catastrophe losses were due to a wind and ice storm in the Midwest and the
Northeast. 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, 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio......................................................... 66.6% 65.2%
Underwriting expense ratio................................................. 27.4 28.0
Combined ratio............................................................. 94.0 93.2
---- ----
GAAP:
Loss and LAE ratio......................................................... 66.6% 65.2%
Underwriting expense ratio................................................. 24.8 27.1
Combined ratio............................................................. 91.4 92.3
==== ====
</TABLE>
GAAP combined ratios for Personal Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
The 1999 first quarter statutory and GAAP combined ratios for Personal Lines
include an adjustment associated with the termination of a quota share
reinsurance arrangement. Excluding this adjustment, the statutory and GAAP
combined ratios for the first quarter of 1999 would have been 93.2% and 93.4%,
respectively. The increase in the first quarter of 1999 statutory and GAAP Loss
and LAE ratio compared to the first quarter of 1998 was primarily due to a
modest increase in medical costs and a decrease in favorable prior-year reserve
development in the automobile bodily injury line. The decrease in the statutory
and GAAP underwriting expense ratio in the first quarter of 1999 compared to the
first quarter of 1998 reflects greater efficiency through the leveraging of the
Company's expense base as premiums grow.
17
<PAGE> 18
INTEREST EXPENSE AND OTHER
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
(in millions)
<S> <C> <C>
Revenues........................................................................ $ 0 $ 4
Net loss........................................................................ $ (30) $ (29)
====== ======
</TABLE>
The primary component of net loss for the first quarter of 1999 and 1998 was
after-tax interest expense of $26 million and $27 million, respectively.
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, 1999, approximately 18% of the
net aggregate reserve (i.e., approximately $143 million) consists of case
reserve for resolved claims. The balance, approximately 82% of the net aggregate
reserve (i.e., approximately $655 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, 1999 and 1998.
<TABLE>
<CAPTION>
Environmental Losses
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
(in millions)
<S> <C> <C>
Beginning reserves:
Direct....................................................................... $ 928 $ 1,193
Ceded........................................................................ (96) (74)
-------- ---------
Net........................................................................ 832 1,119
Incurred losses and loss expenses:
Direct....................................................................... 26 20
Ceded........................................................................ (12) (6)
Losses paid:
Direct ...................................................................... 69 75
Ceded........................................................................ (21) (22)
-------- ---------
Ending reserves:
Direct....................................................................... 885 1,138
Ceded........................................................................ (87) (58)
-------- ---------
Net........................................................................ $ 798 $ 1,080
======== =========
</TABLE>
ASBESTOS CLAIMS
At March 31, 1999, approximately 22% of the net aggregate reserve (i.e.,
approximately $225 million) is for pending asbestos claims. The balance,
approximately 78% (i.e., approximately $797 million) of the net aggregate
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
18
<PAGE> 19
In general, the Company posts case reserves for pending asbestos claims within
approximately 30 business days of receipt of such claims. The following table
displays activity for asbestos losses and loss expenses and reserves for the
three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Asbestos Losses
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
(in millions)
<S> <C> <C>
Beginning reserves:
Direct....................................................................... $ 1,252 $ 1,363
Ceded........................................................................ (266) (249)
-------- --------
Net........................................................................ 986 1,114
Incurred losses and loss expenses:
Direct....................................................................... 54 29
Ceded........................................................................ (39) (12)
Losses paid:
Direct ...................................................................... 58 52
Ceded........................................................................ (79) (30)
-------- --------
Ending reserves:
Direct....................................................................... 1,248 1,340
Ceded........................................................................ (226) (231)
-------- --------
Net........................................................................ $ 1,022 $ 1,109
======== ========
</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, 1999 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 as
well as changes in legislation applicable to such claims. 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, 1999, approximately 20% of the net aggregate reserve (i.e.,
approximately $193 million) is for pending CIOTA claims. The balance,
approximately 80% (i.e., approximately $754 million) of the net aggregate
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
19
<PAGE> 20
In general, the Company posts case reserves for pending CIOTA claims within
approximately 30 business days of receipt of such claims. The following table
displays activity for CIOTA losses and loss expenses and reserves for the three
months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
CIOTA Losses
Three Months Ended March 31, 1999 1998
- ---------------------------- ---- ----
(in millions)
<S> <C> <C>
Beginning reserves:
Direct....................................................................... $ 1,346 $ 1,520
Ceded........................................................................ (392) (432)
-------- ---------
Net........................................................................ 954 1,088
Incurred losses and loss expenses:
Direct....................................................................... (16) (3)
Ceded........................................................................ 15 7
Losses paid:
Direct....................................................................... 32 17
Ceded........................................................................ (26) (1)
Ending reserves:
Direct....................................................................... 1,298 1,500
Ceded........................................................................ (351) (424)
-------- ---------
Net........................................................................ $ 947 $ 1,076
======== =========
</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, 1999 totaled $32.0 billion, of which
86.2% was invested in fixed maturity investments, 3.2% in common stocks and
other equity securities, 2.0% in mortgage loans and real estate held for sale
and 8.6% 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 $1.3 billion, representing 4.6% of the Company's fixed maturity
investments as of March 31, 1999. 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,
---------
Average Yield (Annualized) 1999 1998
-------------------------- ---- ----
<S> <C> <C>
Before tax 6.77% 6.97%
After tax 4.95% 5.00%
</TABLE>
20
<PAGE> 21
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 Citigroup. 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 from a syndicate of banks
under a Credit Facility, which it has reduced to $250 million. The Credit
Facility 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, 1999, this
requirement was exceeded by approximately $4.3 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, 1999, TAP had no commercial paper outstanding.
At March 31, 1999, TAP had issued a total of $1.25 billion of, and had $750
million available for, debt offerings under its shelf registration statement.
TAP's insurance subsidiaries are subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. Dividend payments to
TAP from its insurance subsidiaries are limited to $1.0 billion in 1999 without
prior approval of the Connecticut Insurance Department. TAP has received $150
million of dividends from its insurance subsidiaries during the first quarter of
1999.
On January 19, 1999 and January 28, 1998, the Company, through the Travelers
Property Casualty Corp. Capital Accumulation Plan, reissued 476,189 and 763,654
shares, respectively, of treasury stock in the form of restricted Class A Common
Stock to participating officers and other key employees. The fair market values
per share of the 1999 and 1998 restricted stock awards at the grant date were
$31.88 and $43.71, respectively. The restricted stock generally vests after a
three-year period. Except under limited circumstances, the stock cannot be sold
or transferred during the restricted period by the participant, who is required
to render service to the Company during the restricted period. Unearned
compensation expense associated with the restricted stock grant represents the
market value of TAP's common stock at the date of grant and is recognized as a
charge to income ratably over the vesting period. The after-tax compensation
cost charged to earnings for these restricted Class A Common Stock awards, as
well as previous awards, was $6 million and $4 million for the three months
ended March 31, 1999 and 1998, respectively. At March 31, 1999, there were
1,844,149 shares available for future grants under TAP's restricted stock plan.
YEAR 2000 DATE CONVERSION
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, evaluating and implementing changes to computer programs
necessary to address the Year 2000 issue. This issue involves the ability of
computer systems that have time sensitive programs to recognize properly the
year 2000. The inability to do so could result in major failures or
miscalculations that would disrupt the Company's ability to meet its customer
and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for the third and fourth quarter of 1999 to ensure all systems
and products remain compliant.
21
<PAGE> 22
The total pre-tax cost associated with the required modifications and
conversions is expected to be approximately $52 million and is being expensed as
incurred in the period 1996 through 1999. As of March 31, 1999, the Company has
incurred approximately $45 million to date on these efforts. The Company also
has third party customers, financial institutions, vendors and others with whom
it conducts business and has confirmed their plans to address and resolve Year
2000 issues on a timely basis. While it is likely that these efforts by third
party vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function January
1, 2000 in the event of an unexpected failure. Business resumption contingency
plans are expected to be finalized by June 30, 1999. Preparations for the
management of the date change will continue through 1999.
An additional Year 2000 issue for the Company is the potential future impact of
claims for insurance coverage from customers who suffer Year 2000 business
losses or claim coverage for their potential liability to third parties. The
Company has taken certain initiatives to mitigate this potential risk, including
addressing Year 2000 issues, where applicable, in the underwriting of insurance
policies. Losses for Year 2000 insurance claims and litigation costs related to
such claims are not reasonably estimable at this time.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may affect," and similar expressions. These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following: the resolution of legal proceedings and related matters; the conduct
of the Company's businesses following the Merger; customer responsiveness to
both new products and distribution channels; and the ability of the Company and
third party vendors to modify computer systems for the Year 2000 date conversion
in a timely manner. Readers are also directed to other risks and uncertainties
discussed in documents filed by the Company with the Securities and Exchange
Commission.
22
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning sixteen purported class actions and one multi-party
suit, with substantially the same allegations, commenced in various courts
against certain subsidiaries of the Company, dozens of other insurers and the
National Council on Compensation Insurance ("NCCI"), see the description that
appears in the second paragraph under the caption "Legal Proceedings" beginning
on page 43 of the Annual Report on Form 10-K of TAP for the year ended December
31, 1998 (File No. 1-14328), which description is incorporated by reference
herein. A copy of the foregoing description is included as an exhibit to this
Form 10-Q. In March 1999, the Missouri court partially dismissed the complaint.
In April 1999, the New Jersey court dismissed all claims against the Company,
the California court sustained defendants' demurrers and the Texas federal
court denied defendants' motions to dismiss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on April 20, 1999. At the
meeting, (i) 8 persons were elected as directors of the Company, (ii) the
selection of KPMG LLP to serve as the independent auditors of the Company for
1999 was ratified, (iii) the Travelers Property Casualty Corp. 1999 Stock
Incentive Plan was approved and adopted, and (iv) an amendment to the Travelers
Property Casualty Corp. 1996 Executive Option Plan was approved and adopted. 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>
Broker
For Against/Withheld Abstained Non-Votes
--- ---------------- --------- ---------
Election of Directors:
NOMINEE
-------
<S> <C> <C> <C> <C>
Kenneth J. Bialkin 3,327,144,416 702,389
Leslie B. Disharoon 3,327,325,378 521,427
Jay S. Fishman 3,327,332,070 514,735
Robert I. Lipp 3,327,332,164 514,641
Dudley C. Mecum 3,327,333,954 512,851
Frank J. Tasco 3,327,325,026 521,779
Sanford I. Weill 3,327,329,816 516,989
Arthur Zankel 3,327,331,789 515,016
Ratification of Auditors: 3,327,609,701 150,812 86,292
Approval of 1999
Stock Incentive Plan: 3,318,955,214 2,483,831 120,507 6,287,253
Approval of Amendment
to 1996 Executive Option Plan: 3,325,430,094 2,156,656 260,055
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
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.
10.01+ Travelers Property Casualty Corp. Compensation Plan for
Non-Employee Directors (as amended through April 1, 1999).
12.01+ Computation of Ratio of Earnings to Fixed Charges.
27.01+ Financial Data Schedule.
99.01+ The second paragraph under the caption "Legal Proceedings"
beginning on page 43 of the Annual Report on Form 10-K of the
Company for the year ended December 31, 1998 (File No. 1-14328).
</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.
24
<PAGE> 25
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 12, 1999 By /s/ William P. Hannon
-------------------------------------
William P. Hannon
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1999 By /s/ Thomas P. Shugrue
-------------------------------------
Thomas P. Shugrue
Chief Accounting Officer
(Principal Accounting Officer)
25
<PAGE> 1
Exhibit 10.01
TRAVELERS PROPERTY CASUALTY CORP.
AMENDED AND RESTATED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS (THE "PLAN")
(WITH AMENDMENTS EFFECTIVE APRIL 1, 1999)
Section 1. ELIGIBILITY. Each member of the Board of Directors of
Travelers Property Casualty Corp. (the "Company") or one of its subsidiaries, if
so designated by the Board of Directors, who is not an employee of the Company
or any of its subsidiaries (an "Eligible Director") is eligible to participate
in the Plan.
Section 2. ADMINISTRATION. The Plan shall be administered, construed
and interpreted by the Board of Directors of the Company. Pursuant to such
authorization, the Board of Directors shall have the responsibility for carrying
out the terms of the Plan, including but not limited to the determination of the
annual retainer to be paid to all Eligible Directors (the "Annual Fixed Director
Compensation"). To the extent permitted under the securities laws applicable to
compensation plans including, without limitation, the requirements of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
under the Internal Revenue Code of 1986, as amended (the "Code"), the
Nominations, Compensation, and Corporate Governance Committee of the Board of
Directors, or a subcommittee of the Nominations, Compensation and Corporate
Governance Committee, may exercise the discretion granted to the Board under the
Plan, provided that the composition of such Committee or subcommittee shall
satisfy the requirements of Rule 16b-3 under the Exchange Act, or any successor
rule or regulation. The Board of Directors may also designate a plan
administrator to manage the record keeping and other routine administrative
duties under the Plan.
Section 3. ANNUAL FIXED DIRECTOR COMPENSATION. Payment of Annual Fixed
Director Compensation shall be made quarterly, on the first business day
following the end of the quarter for which the compensation is payable, to each
Eligible Director who served as a director during at least one-half of such
quarter and who was a director on the last day of such quarter.
Each Eligible Director may elect to receive up to fifty percent (50%)
of each quarterly payment of Annual Fixed Director Compensation in cash. The
balance of each quarterly payment shall be paid in shares of Class A common
stock, par value $.01 of the Company ("Common Stock"). If an Eligible Director
does not elect to receive a percentage of his or her Annual Fixed Director
Compensation in cash, such compensation shall be paid entirely in Common Stock.
The number of shares of the Company's Common Stock to be transferred to
the Eligible Director in respect of each quarterly installment of Annual Fixed
Director Compensation shall be determined in the manner set forth in paragraph
5(a), and such shares shall not be transferred or sold by such Eligible Director
for a period of six months following the date of grant.
1
<PAGE> 2
Section 4. ELECTION TO DEFER.
(a) TIME OF ELECTION. As soon as practicable prior to the
beginning of a calendar year, an Eligible Director may elect to defer the Common
Stock component of Annual Fixed Director Compensation pursuant to the Plan by
directing that such Common Stock which otherwise would have been payable in
accordance with paragraph 3 above during such calendar year and succeeding
calendar years shall be credited to a deferred compensation account (the
"Director's Account"). Under a valid election, such deferred compensation shall
be payable in accordance with paragraph 5(a) below. Any person who shall become
an Eligible Director during any calendar year, and who was not an Eligible
Director of the Company prior to the beginning of such calendar year, may elect,
within thirty (30) days after his or her term begins, to defer payment of the
Common Stock component of his or her Annual Fixed Director Compensation earned
during the remainder of such calendar year and for succeeding calendar years.
The cash component of Annual Fixed Director Compensation may not be deferred.
(b) FORM AND DURATION OF ELECTION. An election to defer the
Common Stock component of Annual Fixed Director Compensation shall be made by
written notice executed by the Eligible Director and filed with the Secretary of
the Company. Such election shall continue until the Eligible Director terminates
such election by subsequent written notice filed with the Secretary of the
Company. Any such election to terminate deferral shall become effective for the
calendar quarter following receipt of the election form by the Company and shall
only be effective with respect to the Common Stock component of Annual Fixed
Director Compensation payable for services rendered as an Eligible Director
thereafter. Amounts credited to the Director's Account prior to the effective
date of termination shall not be affected by such termination and shall be
distributed only in accordance with the terms of the Plan.
(c) CHANGE OF ELECTION. An Eligible Director who has
terminated his or her election to defer the Common Stock component of Annual
Fixed Director Compensation hereunder may thereafter make another election in
accordance with paragraph 4(a) to defer such compensation for the calendar year
subsequent to the filing of such election and succeeding calendar years.
Section 5. THE DIRECTOR'S ACCOUNT. Shares of Common Stock that an
Eligible Director has elected to defer under the Plan shall be credited to the
Director's Account as follows:
(a) As of each date that a quarterly installment of the Annual
Fixed Director Compensation would otherwise be payable, there shall be credited
to the Director's Account the number of full shares of the Company's Common
Stock obtained by multiplying the percentage such Eligible Director has elected
to receive in shares of Common Stock by the total amount of Annual Fixed
Director Compensation allocable to such calendar quarter, and then by dividing
the result by the average of the closing price of the Company's Common Stock on
the Composite Tape of the New York Stock Exchange Inc. on the last ten (10)
trading days of the calendar quarter for which such Common Stock would otherwise
be payable. If the applicable percentage
2
<PAGE> 3
of Annual Fixed Director Compensation for the calendar quarter is not evenly
divisible by such average closing price of the Company's Common Stock, the
balance shall be credited to the Director's Account in cash.
(b) At the end of each calendar quarter, there shall be
credited to the Director's Account an amount equal to the cash dividends that
would have been paid on the number of shares of Common Stock credited to the
Director's Account as of the dividend record date, if any, occurring during such
calendar quarter as if such shares had been shares of issued and outstanding
Common Stock on such record date, and such amount shall be treated as reinvested
in additional shares of Common Stock on the dividend payment date.
(c) Cash amounts credited to the Director's Account pursuant
to subparagraphs (a) and (b) above shall accrue interest commencing from the
date the cash amounts are credited to the Director's Account at a rate per annum
to be determined from time to time by the Company. Amounts credited to the
Director's Account shall continue to accrue interest until distributed in
accordance with the Plan. An Eligible Director may be given the opportunity make
a written election to treat the existing cash balance and interest accrued
thereon as invested in additional shares of Common Stock. The timing of the
effectiveness of such election shall be subject to the Company's discretion.
(d) An Eligible Director shall not have any interest in the
cash or Common Stock in his or her Director's Account until such cash or Common
Stock is distributed in accordance with the Plan.
Section 6. DISTRIBUTION FROM ACCOUNTS.
(a) FORM OF ELECTION. At the time an Eligible Director makes
an election to defer receipt of Annual Fixed Director Compensation pursuant to
paragraphs 5(a) or 5(c), such Director shall also file with the Secretary of the
Company a written election with respect to the distribution of the aggregate
amount of cash and shares credited to the Director's Account pursuant to such
election. An Eligible Director may elect to receive such amount in one lump-sum
payment or in a number of approximately equal annual installments (provided the
payout period does not exceed 15 years). The lump-sum payment or the first
installment shall be paid as of (i) the first business day of any calendar year
subsequent to the date the Annual Fixed Director Compensation would otherwise be
payable, as specified by the Director, (ii) the first business day of the
calendar quarter immediately following the cessation of the Eligible Director's
service as a director of the Company or (iii) the earlier of (i) or (ii), as the
Eligible Director may elect. Subsequent installments shall be paid as of the
first business day of each succeeding annual installment period until the entire
amount credited to the Director's Account shall have been paid. A cash payment
will be made with the final installment for any fraction of a share of Common
Stock credited to the Director's Account.
(b) ADJUSTMENT OF METHOD OF DISTRIBUTION. An Eligible Director
participating in the Plan may, prior to the beginning of any calendar year, file
another written election with the
3
<PAGE> 4
Secretary of the Company electing to change the date and/or method of
distribution of the aggregate amount of cash and shares of Common Stock credited
to the Director's Account for services rendered as a director commencing with
such calendar year. Amounts credited to the Director's Account prior to the
effective date of such change (the "Prior Amounts") shall not be affected by
such change and shall be distributed only in accordance with the election in
effect at the time the Prior Amounts were credited to the Director's Account;
provided, however, that an Eligible Director may elect to change the time at
which Prior Amounts are to be paid, if (i) a written election to effect such
change is filed with the Secretary of the Company before the earliest scheduled
payment of the Prior Amounts and (ii) such change would not accelerate the
Eligible Director's receipt of the Prior Amounts. Notwithstanding the foregoing,
in the event an Eligible Director suffers a severe financial hardship outside
the control of such Director, as determined by the Company, the Eligible
Director may elect to advance or defer the date of distribution of his or her
Director's Account or change the method of distribution thereof.
(c) CHANGE OF CONTROL. Notwithstanding anything to the
contrary contained herein, upon a "Change of Control" (as defined below), the
full number of shares of Common Stock and cash in each Director's Account shall
be immediately funded and be distributable on the later of the date six months
and one day following the "Change of Control" or the distribution date(s)
previously elected by an Eligible Director. For purposes of this Plan, a "Change
of Control" shall mean the occurrence of any of the following, unless such
occurrence shall have been approved or ratified by at least a two-thirds (2/3)
vote of the Continuing Directors (defined below): (i) any person within the
meaning of Sections 13(d) and 14(d) of the Exchange Act, shall have become the
beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of
shares of stock of the Company having twenty-five percent (25%) or more of the
total number of votes that may be cast for election of the directors of the
Company; or (ii) there shall have been a change in the composition of the Board
of Directors such that at any time a majority of the Board of Directors shall
have been members of the Board for less than twenty-four (24) months, unless the
election of each new director who was not a director at the beginning of the
period was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of such period, or who were
approved as directors pursuant to the provisions of this paragraph (the
"Continuing Directors").
Section 7. DISTRIBUTION ON DEATH. If an Eligible Director should die
before all amounts credited to the Director's Account shall have been paid in
accordance with the election referred to in paragraph 6, the balance in such
Director's Account as of the date of such Director's death shall be paid
promptly following such Director's death, to the beneficiary designated in
writing by such Director. Such balance shall be paid to the estate of the
Eligible Director if (a) no such designation has been made or (b) the designated
beneficiary shall have predeceased the Director and no further beneficiary
designation has been made.
Section 8. MISCELLANEOUS.
(a) The right of an Eligible Director to receive any amount in
the Director's Account shall not be transferable or assignable by such Director,
except by will or by the laws of
4
<PAGE> 5
descent and distribution, and no part of such amount shall be subject to
attachment or other legal process.
(b) Except as otherwise set forth herein, the Company shall
not be required to reserve or otherwise set aside funds or shares of Common
Stock for the payment of its obligations hereunder. The Company shall make
available as and when required a sufficient number of shares of Common Stock to
meet the requirements arising under the Plan.
(c) The establishment and maintenance of, or allocation and
credits to, the Director's Account shall not vest in the Eligible Director or
his beneficiary any right, title or interest in and to any specific assets of
the Company. An Eligible Director shall not have any dividend or voting rights
or any other rights of a stockholder (except as expressly set forth in paragraph
5(b) with respect to dividends and as provided in subparagraph (f) below) until
the shares of Common Stock credited to a Director's Account are distributed. The
rights of an Eligible Director to receive payments under this Plan shall be no
greater than the right of an unsecured general creditor of the Company.
(d) The Plan shall continue in effect until terminated by the
Board of Directors. The Board of Directors may at any time amend or terminate
the Plan; provided, however, that (i) no amendment or termination shall impair
the rights of an Eligible Director with respect to amounts then credited to the
Director's Account; (ii) the provisions of the Plan relating to eligibility, the
amount and price of securities to be awarded, the timing of and the amount of
Annual Fixed Director Compensation awards shall not be amended more than once
every six months, other than to comport with changes in the Internal Revenue
Code of 1986, as amended, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder; and (iii) no amendment shall become
effective without approval of the stockholders of the Company if such
stockholder approval is required to enable the Plan to satisfy applicable state
or Federal statutory or regulatory requirements.
(e) Each Eligible Director participating in the Plan will
receive an annual statement indicating the amount of cash and number of shares
of Common Stock credited to the Director's Account as of the end of the
preceding calendar year.
(f) If adjustments are made to outstanding shares of Common
Stock as a result of stock dividends, stock splits, recapitalizations, mergers,
consolidations and similar transactions, an appropriate adjustment shall be made
in the number of shares of Common Stock credited to the Director's Account.
(g) Shares of Common Stock that may be granted under the Plan
shall be subject to adjustment upon the occurrence of adjustments to the
outstanding Common Stock described in paragraph 8(f) hereof.
5
<PAGE> 6
(h) The validity, construction, interpretation, administration
and effect of the Plan and of its rules and regulations, and rights relating to
the Plan, shall be determined solely in accordance with the laws of the State of
Delaware.
(i) All claims and disputes between an Eligible Director and
the Company arising out of the Plan shall be submitted to arbitration in
accordance with the then current arbitration policy of the Company. Notice of
demand for arbitration shall be given in writing to the other party and shall be
made within a reasonable time after the claim or dispute has arisen. The award
rendered by the arbitrator shall be final, and judgment may be entered upon it
in accordance with applicable law in any court having jurisdiction thereof. The
provisions of this Section 8(i) shall be specifically enforceable under
applicable law in any court having jurisdiction thereof.
(j) If any term or provision of this Plan or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, then the remainder of the Plan, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision hereof shall be valid and be enforced to the fullest extent permitted
by applicable law.
6
<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,
1999 1998
---- ----
<S> <C> <C>
Income before federal income taxes and cumulative
effect of changes in accounting principles $ 451 $ 486
Interest 40 41
Portion of rentals deemed to be interest 11 12
-------- --------
Earnings available for fixed charges $ 502 $ 539
======== ========
Fixed charges:
Interest $ 40 $ 41
Portion of rentals deemed to be interest 11 12
-------- --------
Total fixed charges $ 51 $ 53
======== ========
Ratio of earnings to fixed charges 9.84x 10.17x
======== ========
</TABLE>
The ratio of earnings to fixed charges is computed by dividing income before
federal income taxes and cumulative effect of changes in accounting principles
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, 1999
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 27,543
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,018
<MORTGAGE> 550
<REAL-ESTATE> 81
<TOTAL-INVEST> 31,956
<CASH> 51
<RECOVER-REINSURE> 9,286
<DEFERRED-ACQUISITION> 527
<TOTAL-ASSETS> 51,953
<POLICY-LOSSES> 29,554
<UNEARNED-PREMIUMS> 4,266
<POLICY-OTHER> 2,064
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,250
900
0
<COMMON> 4
<OTHER-SE> 9,017
<TOTAL-LIABILITY-AND-EQUITY> 51,953
1,965
<INVESTMENT-INCOME> 503
<INVESTMENT-GAINS> 16
<OTHER-INCOME> 89
<BENEFITS> 1,459
<UNDERWRITING-AMORTIZATION> 315
<UNDERWRITING-OTHER> 348
<INCOME-PRETAX> 451
<INCOME-TAX> 117
<INCOME-CONTINUING> 334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (133)
<NET-INCOME> 201
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
Exhibit 99.01
TAP's Form 10-K
December 31, 1998
Page 43
Beginning in January 1997, sixteen purported class actions and one
multi-party suit were commenced in various courts against certain subsidiaries
of the Company, dozens of other insurers and the National Council on
Compensation Insurance ("NCCI"). The allegations in the actions are
substantially similar. The plaintiffs generally allege that the defendants
conspired to collect excessive or improper premiums on certain loss-sensitive
workers' compensation insurance policies in violation of state insurance laws,
antitrust laws, and state unfair trade practices laws. Plaintiffs seek
unspecified monetary damages. Actions have been commenced in the following
jurisdictions: Georgia (El Chico Restaurants, Inc. v. The Aetna Casualty and
Surety Company, et al. and FFE Transportation Services, Inc. et al. v. NCCI, et
al.); Tennessee (El Chico Restaurants, Inc. v. The Aetna Casualty and Surety
Company, et al.); Florida (Bristol Hotel Management Corp., et al. v. The Aetna
Casualty and Surety Company, et al.); New Jersey (Foodarama Supermarkets, Inc.,
et al. v. The Aetna Casualty and Surety Company, et al.); Illinois (Hill-Behan
Lumber Co v. Hartford Insurance Co. et al. and CR/PL Management Co., et al. v.
Allianz Insurance Company Group, et al.); Pennsylvania (Foodarama Supermarkets,
Inc. v. The Aetna Casualty and Surety Company, et al.); Missouri (Hill-Behan
Lumber Corp., et al. v. Hartford Insurance Co., et al.); California (Dal-Tile
Corp., et al. v. NCCI, et al.); Texas (Sandwich Chef of Texas, Inc., et al. v.
Reliance National Insurance Company, et al.); Alabama (Alumax Inc., et al. v.
Allianz Insurance Company, et al.); Michigan (American Association of Retired
Persons, et al. v. National Surety Corp., et al.); Kentucky (Payless Cashways,
Inc., et al. v. National Surety Corp., et al.); New York (Burnham Service Corp.
v. NCCI, et al.); and Arizona (Albany International Corp. v. American National
Fire Insurance Company, et al.). The Company has vigorously defended all of the
above-mentioned cases, and intends to continue doing so.
