<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
--
OF 1934
For the fiscal year ended December 31, 1994
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 33-33691
_______________________
THE TRAVELERS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0566090
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Tower Square, Hartford, Connecticut 06183
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 277-0111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X].
Because the registrant is a wholly owned subsidiary of The Travelers Inc., none
of the registrant's outstanding voting stock is held by nonaffiliates of the
registrant. As of the date, hereof, 40,000,000 shares of the registrant's
common stock, $2.50 par value, were issued and outstanding.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
<PAGE> 2
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 1994
Table of Contents
<TABLE>
<CAPTION>
Form 10-K
Item Number PART I Page
<S> <C>
1. Business.................................................................... 1
A. General............................................................ 1
B. Business by Product Line
Life and Annuities............................................ 3
Corporate and Other Operations................................ 4
MetraHealth................................................... 4
2. Properties............................................................... 5
3. Legal Proceedings........................................................ 6
4. Submission of Matters to a Vote of Security Holders...................... 6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................................. 6
6. Selected Financial Data.................................................. 6
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 6
8. Financial Statements and Supplementary Data.............................. 15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. 58
PART III
10. Directors and Executive Officers of the Registrant....................... 58
11. Executive Compensation................................................... 58
12. Security Ownership of Certain Beneficial Owners and Management........... 58
13. Certain Relationships and Related Transactions........................... 58
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 59
</TABLE>
<PAGE> 3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
PART I
Item 1. Business.
GENERAL
The Travelers Insurance Company and its subsidiaries (the "Company") write
principally individual life insurance, annuities and accident and health
insurance, and pension programs. The Company was incorporated in 1863. With
$40.5 billion of assets at December 31, 1994, the Company believes that it is
one of the largest stock life insurance groups in the United States as measured
by assets at December 31, 1994.
The Company principally operates through one major business segment: Life and
Annuities, which offers individual life, long-term care, annuities and
investment products to individuals and small businesses, and investment products
to employer-sponsored retirement and savings plans. The Company's Corporate and
Other Operations segment manages the investment portfolio of the Company.
On January 3, 1995, the Company and its affiliates completed the sale of its
group life and related businesses to Metropolitan Life Insurance Company
("MetLife"). The Company agreed to cede to MetLife 100% of its risks in the
businesses sold on an indemnity reinsurance basis, effective January 1, 1995.
Also on January 3, 1995, the Company and MetLife, including certain of their
affiliates, each contributed its medical businesses to The MetraHealth
Companies, Inc. ("MetraHealth"), a newly formed joint venture, in exchange for
common stock of MetraHealth. The Company's total contribution to MetraHealth
amounted to approximately $336 million, at carrying value. The Company now owns
41.1% of MetraHealth's capital stock. The Company and its affiliates and
MetLife and its affiliates are equal partners in the joint venture. The
Company's interest in MetraHealth will be accounted for on the equity method.
See Note 3 of Notes to Consolidated Financial Statements.
Substantially all of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's Managed Care and Employee Benefits
Operations (MCEBO), which marketed group health insurance, managed health care
programs and administrative services associated with employee benefit plans.
In December 1992, Primerica Corporation ("Primerica") acquired approximately 27%
of the common stock of the Company's then parent, The Travelers Corporation (the
"Acquisition"). The Acquisition was accounted for as a purchase. In connection
with the Acquisition, Primerica transferred 100% of the preferred provider
organization and third party administrator networks of Transport Life Insurance
Company (a wholly owned subsidiary of Primerica) to The Travelers Corporation,
which contributed them to the Company. The Company realized an increase to
shareholder's equity of $23 million related to this contribution.
Effective December 31, 1993, Primerica acquired the approximately 73% of The
Travelers Corporation common stock which it did not already own, and The
Travelers Corporation was merged into Primerica, which was renamed The Travelers
Inc. This was effected through the exchange of .80423 shares of The Travelers
Inc. common stock for each share of The Travelers Corporation common stock then
outstanding (the "Merger"). All subsidiaries of The Travelers Corporation were
contributed to The Travelers Insurance Group Inc. ("TIG"), an indirect
subsidiary of The Travelers Inc. In conjunction with the Merger, The Travelers
Inc. contributed Travelers Insurance Holdings Inc. (formerly Primerica
Insurance Holdings, Inc.) and its subsidiaries ("TIHI") to TIG, which in turn
contributed TIHI to the Company.
1
<PAGE> 4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
TIHI is an intermediate holding company whose primary subsidiaries are Primerica
Life Insurance Company ("Primerica Life") and its subsidiary National Benefit
Life Insurance Company ("NBL"), and Transport Life Insurance Company
("Transport"). Through its subsidiaries, TIHI principally offers individual
life insurance and specialty accident and health insurance. The Company
realized an increase to shareholder's equity of $2.1 billion at December 31,
1993 related to the contribution of this subsidiary. TIHI is included in the
Life and Annuities segment.
The consolidated financial statements and the accompanying notes included in
this Annual Report on Form 10-K reflect the historical operations of the Company
for the years ended December 31, 1993 and 1992; the results of operations of
TIHI are not included for the years ended December 31, 1993 and 1992. The
Company's consolidated balance sheet and related data at December 31, 1994 and
1993 include TIHI on a fully consolidated basis. The assets and liabilities of
the Company (except TIHI) are reflected in the consolidated balance sheet at
December 31, 1993 on a fully consolidated basis at management's then best
estimate of their fair values. Evaluation and appraisal of assets and
liabilities, including investments, the value of insurance in force,
reinsurance recoverable, other insurance assets and liabilities and related
deferred income tax was completed during 1994.
The Acquisition and the Merger are being accounted for as a "step acquisition."
The step acquisition method of purchase accounting requires that the Company's
assets and liabilities be recorded at the fair values determined at each
acquisition date (i.e., 27% of values at December 31, 1992 as carried forward
and 73% of values at December 31, 1993). The excess of the 27% share of
assigned value of identifiable net assets over cost at December 31, 1992, which
was allocated to the Company through the "pushdown" basis of accounting, was
approximately $56 million and is being amortized over ten years on a
straight-line basis. The excess of the purchase price of the common stock over
the estimated fair value of the 73% of net assets acquired at December 31, 1993,
which was allocated to the Company through the "pushdown" basis of accounting,
was approximately $340 million and is being amortized over 40 years on a
straight-line basis. Under purchase accounting, the total purchase price is
allocated to the Company's assets and liabilities based on their relative fair
values.
The Company is an indirect wholly owned subsidiary of The Travelers Inc.
(formerly Primerica Corporation), a financial services holding company engaged,
through its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Life Insurance Services (through
the Company); and (iv) Property & Casualty Insurance Services. The periodic
reports of The Travelers Inc. provide additional business and financial
information concerning that company and its consolidated subsidiaries.
Revenues, income before federal income taxes, net income and identifiable assets
for each reporting segment are presented in Note 7 of Notes to Consolidated
Financial Statements.
2
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
BUSINESS BY PRODUCT LINE
Life and Annuities
Life and Annuities offers individual life insurance, accident and health
insurance, annuities and investment products and services to individuals and
small businesses. It also provides guaranteed investment products and annuities
to employer-sponsored retirement and savings plans, and provides short-term
domestic equity and balanced investment management services on a pooled basis to
present clients through its separate accounts. The Company views market
specialization as a critical component of profitability and has updated its
individual product portfolio with a range of competitively priced life,
long-term care and fixed and variable annuity products for its customers.
TIHI became a subsidiary of the Company on December 31, 1993, in connection with
the Merger. It is an intermediate holding company whose primary subsidiaries
include Primerica Life and its subsidiary NBL, and Transport. Primerica Life
offers individual term life insurance. NBL provides statutory disability
benefits in New York, as well as direct response student term life insurance
nationwide. Transport specializes in accident and health insurance including
cancer, heart/stroke and long-term care coverage.
Individual life and accident and health insurance provide protection against
financial loss due to death, illness or disability. Life insurance is also used
to meet estate, business planning and retirement needs. Individual accumulation
fixed and variable annuities are used for retirement funding purposes. Variable
annuities allow the policyholder to choose to direct deposits into a number of
separate accounts, each of which has a different investment strategy. Individual
immediate annuities are used for structuring settlements of certain indemnity
claims and making other payments to policyholders over a period of time. In
recent years, Life and Annuities has increased the amount of individual variable
annuities that it sells.
Life and Annuities is licensed to sell and market its individual products in all
50 states, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands,
British Virgin Islands and the Bahamas.
Individual products are primarily marketed through three distribution channels:
independent agents, H.C. Copeland and Associates, Inc. ("Copeland") and the
financial consultants of Smith Barney Inc. Both Copeland and Smith Barney Inc.
are subsidiaries of The Travelers Inc. The independent agents sell the majority
of the individual life and accident and health insurance and, in 1994, sold 39%
of individual annuity premiums and deposits. Copeland accounted for 49% of
1994's individual annuity premiums and deposits. In June 1994, Smith Barney
Inc. began distributing the Company's individual products, primarily variable
annuities. Smith Barney Inc. accounted for 12% of total 1994 individual
annuity premiums and deposits. The price of individual products is affected by
long-term assumptions as to interest, expenses and rates of mortality, morbidity
and persistency, as well as competitive and regulatory considerations.
Life and Annuities has significantly reduced its writing of group pension
contracts by adopting a more selective approach to the issuance of guaranteed
investment contracts. Group pension products and annuities are marketed by the
Company's salaried staff directly to plan sponsors and is also placed through
independent consultants and investment advisers. The major factors affecting
the pricing of these contracts are the economics of the capital markets,
primarily the interest rate environment, the availability of appropriate
investments and surplus required to support this business due to risk-adjusted
capital standards. The pricing of products and services also reflects charges
for expenses, mortality, profit and other relevant financial factors such as
credit risk. The group pension market reflects product pricing that is
sensitive to interest rates, financial strength ratings and the quality and
relative investment risk of the assets supporting those products.
3
<PAGE> 6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
Corporate and Other Operations
The Corporate and Other Operations segment manages the investment portfolio of
the Company. Corporate and Other Operations results are primarily related to
residual investment activity that is not a part of the operations of any
segment.
MetraHealth
MetraHealth provides group health insurance, health maintenance organizations,
managed care and ancillary services throughout the United States, in Puerto Rico
and in the U.S. Virgin Islands. The range of services provided by these
products includes programs to maintain health and wellness, as well as to
promote patient education and to manage health care through networks of
providers of medical/surgical, mental health and pharmaceutical services.
MetraHealth network products rely on contractual arrangements between it and
providers of health care to deliver services to covered individuals at
negotiated reimbursement levels as well as to participate in utilization and
quality management programs.
As of December 1994, the businesses acquired by MetraHealth included health
maintenance organizations in 29 network areas, with approximately 400,000
members; point-of-service operations in 72 network areas, with approximately 1.7
million members; and preferred provider organizations in 90 network areas, with
approximately 2.8 million members. Covered lives using the managed care
networks and covered by indemnity products, in the aggregate at December 31,
1994, were approximately 11.3 million. MetraHealth expects some decline in
covered lives during 1995.
In March 1995, MetraHealth acquired HealthSpring, Inc. for common stock of
MetraHealth. HealthSpring, Inc. builds and manages primary care physician
practices and serves approximately 32,000 patients through seven sites in
Pennsylvania, Ohio and Illinois. This acquisition resulted in a reduction in
the ownership percentage of the Company in the MetraHealth venture to 41.1%.
Insurance Regulations
The National Association of Insurance Commissioners (the "NAIC") adopted
risk-based capital ("RBC") requirements for life insurance companies in 1992,
effective with reporting for 1993. The RBC requirements are to be used as early
warning tools by the NAIC and states to identify companies that merit further
regulatory action.
For these purposes, an insurer's surplus is measured in relation to its specific
asset and liability profiles. A company's risk-based capital is calculated by
applying factors to various asset, premium and reserve items, where the factor
is higher for those items with greater underlying risk and lower for less risky
items.
The life formula calculates baseline life risk-based capital ("LRBC") as a
mathematical combination of amounts for the following four categories of risk:
asset risk (i.e., the risk of asset default), insurance risk (i.e., the risk of
adverse mortality and morbidity experience), interest rate risk (i.e., the risk
of loss due to changes in interest rates) and business risk (i.e., normal
business and management risk). Fifty percent of the baseline LRBC calculation
is defined as Authorized Control Level RBC. The insurer's ratio of adjusted
capital to Authorized Control Level RBC (the "RBC ratio") can then be calculated
from data contained in the annual statement. Adjusted capital is defined as the
sum of statutory capital, statutory surplus, asset valuation reserve, voluntary
investment reserves and one-half the policyholder dividend liability.
4
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
Within certain ratio ranges, regulators have increasing authority to take action
as the RBC ratio decreases. There are four levels of regulatory action. The
first of these levels is the "company action level". The RBC ratio for this
level is less than 200% but greater than 150%. Insurers within this level must
submit a comprehensive plan (an RBC plan) to the commissioner. The next level
is the "regulatory action level". The RBC ratio for this level is less than
150% but greater than 100%. An insurer within this level must submit an RBC
plan, is subject to an examination of assets, liabilities and operations by the
commissioner, and is subject to provisions of any corrective order subsequently
issued by the commissioner. The third level is the "authorized control level".
The RBC ratio for this level is less than 100% but greater than 70%. At this
level, the commissioner takes action as described under "regulatory action
level" and may cause the insurer to be placed under regulatory control if such
action is deemed to be in the best interests of policyholders. The fourth level
is the "mandatory control level". The RBC ratio for this level is less than
70%, and the commissioner takes actions necessary to place the insurer under
regulatory control.
The RBC formula has not been designed to differentiate among adequately
capitalized companies which operate with higher levels of capital. Therefore,
it is inappropriate and ineffective to use the formulas to rate or to rank such
companies. At December 31, 1994 the Company and its insurance subsidiaries had
adjusted capital in excess of amounts requiring any regulatory action at any of
the four levels.
As part of the process of accreditation by the NAIC, the Connecticut General
Assembly passed legislation to require prior approval by the Connecticut
Insurance Commissioner for any dividend distributions during a twelve-month
period that are in excess of the greater of (i) ten percent of an insurer's
surplus limited by unassigned funds-surplus, or (ii) net gain from operations
(for life companies) measured as of the preceding December 31. Under the
legislation, statutory surplus would not be available in 1995 for dividends to
the Company's shareholder without prior approval of the Connecticut Insurance
Department.
Item 2. Properties.
The Company owns buildings containing approximately 1,535,000 square feet of
office space located in Hartford, Connecticut and vicinity, serving as the home
office of The Travelers Insurance Group Inc. and subsidiaries ("TIG").
The Company also owns a building in Norcross, Georgia which is occupied by TIG's
information systems department. TIG occupies a total of approximately 147,000
square feet in this building.
In addition, as of December 31, 1994, the Company, including TIHI, leases a
total of approximately 5,700,000 square feet of office space at 284 locations
throughout the United States under both operating and capital leases. The
Company is reimbursed by affiliates for their use of this space.
Management believes that these facilities are suitable and adequate for the
Company's current needs.
The foregoing discussion does not include information on investment properties.
5
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
Item 3. Legal Proceedings.
In April 1989, a lawsuit was filed against the Company by the federal government
alleging the Company improperly handled health benefit claims for individuals
who are actively employed and eligible for Medicare coverage. In November 1992,
the court ruled on cross motions for summary judgment. The court found that the
Company had no liability when acting in the capacity of an administrator of
claims. However, the court also recognized that, while the government's right
of recovery with respect to insured claims is governed by the substantive terms
of our customers' health benefit plan, the right of recovery is independent of
procedural limitations in the Company's contracts.
The Company is a defendant or co-defendant in various litigation matters.
Although there can be no assurances, as of December 31, 1994, 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.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company has 40,000,000 authorized shares of common stock, all of which are
issued and outstanding as of December 31, 1994. All shares are held by The
Travelers Insurance Group Inc., and there exists no established public trading
market for the common equity of the Company. The Company paid dividends to its
parent of $0 in 1994 and $14,200,000 in 1993. See Note 6 of Notes to
Consolidated Financial Statements for dividend restrictions.
Item 6. Selected Financial Data.
Omitted pursuant to General Instruction J(2)(a) of Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction J(2)(a) of Form 10-K.
RESULTS OF OPERATIONS
CONSOLIDATED OVERVIEW:
<TABLE>
<CAPTION>
For the year ended December 31, 1994 | 1993
(in millions) ---- | ----
|
<S> <C> | <C>
Revenues $6,747 | $5,447
====== | ======
|
Net income $ 545 | $ 141
====== | ======
</TABLE>
6
<PAGE> 9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
The Company writes principally individual life insurance, annuities, accident
and health insurance, and pension programs. The Company was incorporated in
1863. With $40.5 billion of assets at December 31, 1994, the Company believes
that it is one of the largest stock life insurance groups in the United States
as measured by assets at December 31, 1994.
The Company principally operates through one major business segment: Life and
Annuities, which offers individual life, long-term care, annuities and
investment products to individuals and small businesses, and investment products
and services to employer-sponsored retirement and savings plans. The Company's
Corporate and Other Operations segment manages the investment portfolio of the
Company.
On January 3, 1995, the Company and its affiliates completed the sale of its
group life and related businesses to Metropolitan Life Insurance Company
("MetLife"). The Company agreed to cede to MetLife 100% of its risks in the
businesses sold on an indemnity reinsurance basis, effective January 1, 1995.
Also, on January 3, 1995, the Company and MetLife, and certain of their
affiliates, contributed their medical businesses to The MetraHealth Companies,
Inc. ("MetraHealth"), a newly formed joint venture, in exchange for shares of
common stock of MetraHealth. The Company's total contribution to MetraHealth
amounted to approximately $336 million at carrying value. The Company now owns
41.1% of MetraHealth's capital stock. The Company and its affiliates and
MetLife and its affiliates are equal partners in the joint venture. The
Company's interest in MetraHealth will be accounted for on the equity method.
See Note 3 of Notes to Consolidated Financial Statements.
Substantially all of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's Managed Care and Employee Benefits
Operations (MCEBO) which marketed group health insurance, managed health care
programs and administrative services associated with employee benefit plans.
In December 1992, Primerica Corporation ("Primerica") acquired approximately 27%
of the common stock of the Company's then parent The Travelers Corporation (the
"Acquisition"). The Acquisition was accounted for as a purchase. In connection
with the Acquisition, Primerica transferred 100% of the preferred provider
organization and third party administrator networks of Transport Life Insurance
Company (a wholly owned subsidiary of Primerica) to The Travelers Corporation,
which contributed them to the Company. The Company realized an increase to
shareholder's equity of $23 million related to this contribution.
Effective December 31, 1993, Primerica acquired the approximately 73% of The
Travelers Corporation common stock which it did not already own, and The
Travelers Corporation was merged into Primerica, which was renamed The Travelers
Inc. This was effected through the exchange of .80423 shares of The Travelers
Inc. common stock for each share of The Travelers Corporation common stock then
outstanding (the "Merger"). All subsidiaries of The Travelers Corporation were
contributed to The Travelers Insurance Group Inc. ("TIG"), an indirect
subsidiary of The Travelers Inc. In conjunction with the Merger, The Travelers
Inc. contributed Travelers Insurance Holdings Inc. (formerly Primerica
Insurance Holdings, Inc.) and its subsidiaries ("TIHI") to TIG, which in turn
contributed TIHI to the Company.
TIHI is an intermediate holding company whose primary subsidiaries are Primerica
Life Insurance Company ("Primerica Life") and its subsidiary National Benefit
Life Insurance Company ("NBL"), and Transport Life Insurance Company
("Transport"). Through its subsidiaries, TIHI principally offers individual
life insurance and specialty accident and health insurance. The Company
realized an increase to shareholder's equity of $2.1 billion at December 31,
1993 related to the contribution of this subsidiary. TIHI is included in the
Life and Annuities segment.
7
<PAGE> 10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
Evaluation and appraisal of assets and liabilities, including investments, the
value of insurance in force, reinsurance recoverable, other insurance assets and
liabilities and related deferred income tax was completed during 1994. The
Acquisition and the Merger are being accounted for as a "step acquisition." The
step acquisition method of purchase accounting requires that the Company's
assets and liabilities be recorded at the fair values determined at each
acquisition date (i.e., 27% of values at December 31, 1992 as carried forward
and 73% of values at December 31, 1993). The excess of the 27% share of
assigned value of identifiable net assets over cost at December 31, 1992, which
was allocated to the Company through the "pushdown" basis of accounting, was
approximately $56 million and is being amortized over ten years on a
straight-line basis. The excess of the purchase price of the common stock over
the estimated fair value of the 73% of net assets acquired at December 31, 1993,
which was allocated to the Company through the "pushdown" basis of accounting,
was approximately $340 million and is being amortized over 40 years on a
straight-line basis. Under purchase accounting, the total purchase price is
allocated to the Company's assets and liabilities based on their relative fair
values.
This management's narrative analysis of the results of operations reflects the
historical operations of the Company for the year ended December 31, 1993. The
results of operations of TIHI and its subsidiaries are not included for the year
ended December 31, 1993. Balance sheet related data since December 31, 1993
includes TIHI. The Acquisition and the Merger have been accounted for as a
"step acquisition." The consolidated balance sheet and related data at December
31, 1993 reflect adjustments of assets and liabilities of the Company (except
TIHI) to their fair values determined at each acquisition date (purchase
accounting value, i.e., 27% of values at December 31, 1992 as carried forward
and 73% of the values at December 31, 1993).
Premiums of $3.9 billion in 1994 increased $1.1 billion from 1993. The 1994
total includes premiums of $1.2 billion related to TIHI. Premium revenues
continue to be replaced by service fee income as more corporate clients are
selecting fee-for-service products. The related revenues are lower from these
service contracts than comparable insurance products because the Company has
decreased the traditional insurance risks it assumes.
Net investment income was $1.8 billion in 1994, which decreased $35 million from
1993. The 1994 total includes $189 million related to TIHI which was more than
offset by the amortization of purchase accounting adjustments and reductions in
the asset base due to decreased group annuity business.
Net income for 1994 was $545 million, an increase of $404 million when compared
to 1993. This increase results from the addition in 1994 of net income related
to TIHI of $215 million, higher retained investment income and underwriting
margins in the Life and Annuities segment and reduced operating expenses, which
have been partially offset by lower realized investment gains. Excluding the
after-tax impacts of a $103 million addition to reserves for foreclosed
properties held for sale and a $25 million benefit relating to the increase in
the tax rate on corporations from 34% to 35%, net income would have been $219
million for 1993.
8
<PAGE> 11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
During 1993, the Company added $158 million to its real estate valuation
reserves for foreclosed properties held for sale, which resulted in an after-tax
charge of $103 million. This addition was based on a review of properties in
the held for sale portfolio in light of actual experience on properties already
sold and in the process of being sold.
In 1994 and 1993, the Company disposed of approximately $1.9 and $1.8 billion,
respectively, of primarily foreclosed real estate and underperforming commercial
mortgage loans.
At December 31, 1994 and 1993, the Company had real estate and mortgage loan
investments totaling $5.3 billion and $7.8 billion, respectively. The Company
is continuing its strategy to dispose of these real estate assets and some of
the mortgage loans and to reinvest the proceeds to obtain current market yields.
Underperforming assets include delinquent mortgage loans, loans in the process
of foreclosure, foreclosed loans and loans modified at interest rates below
market.
Other revenues include mortality, surrender and administrative charges on
universal life and investment contracts, administrative fees on employee benefit
and other contracts and revenues of noninsurance subsidiaries.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (the "Act") raised
the tax rate on corporations from 34% to 35%. Under current generally accepted
accounting principles, the Company was required to restate its deferred tax
asset using the new 35% rate as of the enactment date of the legislation. This
restatement produced a $25 million increase to the deferred tax asset (prior to
adjustment to purchase accounting value) and a corresponding increase to
earnings in 1993.
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the net deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized.
Reversal of the valuation allowance is contingent upon the recognition of future
capital gains in the Company's consolidated life insurance company federal
income tax return through 1998, and the consolidated federal income tax return
of The Travelers Inc. commencing in 1999 or a change in circumstances which
causes the recognition of the benefits to become more likely than not. There was
no net change in the valuation allowance during 1994.
The Company has a net deferred tax asset which relates to temporary differences
that are expected to reverse as net ordinary deductions except for a deferred
tax asset of $319 million (after reduction by the valuation allowance) which
relates to the unrealized loss on fixed maturity investments. Management does
not intend to realize the unrealized loss on the fixed maturity investments
except to the extent of offsetting capital gains. The Company will have to
generate approximately $1.8 billion of taxable income, before reversal of these
temporary differences, primarily over the next 10 to 15 years, to realize the
remainder of the deferred tax asset, exclusive of the unrealized loss on fixed
maturity investments. Management expects to realize the remainder of the
deferred tax asset based upon its expectation of future positive taxable income,
after the reversal of these deductible temporary differences, in the
consolidated life insurance company federal income tax return through 1998, and
the consolidated federal income tax return of The Travelers Inc. commencing in
1999. The taxable income of The Travelers Inc. consolidated return, after
reversal of the deductible temporary differences, is expected to be at least $1
billion annually.
9
<PAGE> 12
LIFE AND ANNUITIES:
<TABLE>
<CAPTION>
For the year ended December 31, 1994 | 1993
(in millions) ------- | --------
|
<S> <C> | <C>
Revenues $ 3,281 | $ 2,021
======= | ========
|
Net income $ 392 | $ 19
======= | ========
</TABLE>
The Life & Annuities segment includes the results of the Travelers Life &
Annuities segment of the old Travelers for all periods presented and, for 1994
only, the results of TIHI, which was contributed to the Company on December 31,
1993. Certain 1993 production statistics related to TIHI are included for
comparison purposes only and are not reflected in 1993 revenues or operating
results.
During 1994, $9.2 billion of face amount of individual life insurance was issued
in old Travelers bringing total life insurance in force to $49 billion.
Individual life insurance net premiums and deposits totaled $287 million in 1994
compared to $279 million in 1993. Deposits are estimates of premiums that
fee-based customers would have been charged under a fully insured arrangement
and do not represent actual revenues.
Primerica Life Insurance Company, a subsidiary of TIHI, issued 299,400 term life
insurance policies totaling $57.4 billion in face amount during 1994, an
increase from 260,300 policies totaling $49.3 billion in face amount in 1993.
The increase in face amount issued has contributed to an increase in insurance
in force, which was $335 billion at December 31, 1994 compared to $317 billion
at December 31, 1993. The increase was a result of improved life insurance
sales and persistency (i.e. the percentage of policies that continue in force).
Individual annuity production was strong during 1994 compared to 1993 primarily
reflecting increased sales of variable annuities. In late June a variable
annuity product was introduced for distribution by Smith Barney financial
consultants and is expected to contribute to annuity production in future
periods. Sales of this product amounted to $158 million in 1994. Net written
premiums and deposits for individual annuities totaled $1,309 million in 1994,
up from $1,023 million in 1993.
In the group annuity business, net written premiums and deposits for 1994 were
$1,284 million, down significantly from $2,092 million in 1993. The decline
reflects the Company's more selective approach to issuance of guaranteed
investment contracts and a decision in the third quarter of 1993 to no longer
market index funds, partially offset by a transfer of $512 million of TIG's
pension plan assets which were previously managed externally. Policyholder
account balances and benefit reserves totaled $12.2 billion at December 31,
1994, down from $13.6 billion at December 31, 1993.
Net written premiums for individual accident and health products, primarily
long-term care and supplementary products, totaled $334 million in 1994, about
even with 1993.
Net investment income remained constant at $1.6 billion in 1994 compared with
1993. Net investment income for 1994 includes net investment income from PIHI
of $189 million offset by a reduced asset base reflecting decreases in group
annuity business, as well as the amortization of purchase accounting
adjustments. Life and Annuities' emphasis on separate account and variable
deferred annuity production has also contributed to the decline in net
investment income in recent years. Separate accounts and variable deferred
annuities primarily represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
contractholders. Deposits, net investment income and realized investment gains
and losses for all separate accounts and variable deferred annuities are
excluded from revenue.
10
<PAGE> 13
Life and Annuities' net income increased $373 million in 1994, compared with
1993, to $392 million. This increase is attributable to net income from PIHI of
$215 million for 1994, higher retained investment income, improved underwriting
margins and reduced operating expenses, all of which have been partially offset
by lower realized investment gains and an increase in the effective tax rate.
Life and Annuities' profit margins are relatively thin, reflecting a highly
competitive environment. As a result, market specialization is a critical
factor in achieving profitability. The Company continually updates its product
portfolio by designing competitively priced products for target customers. The
Company's strategy for individual annuities is to increase sales by providing
high-quality customer service and to distribute products through Smith Barney
financial consultants, The Copeland Companies (a wholly owned subsidiary of
TIG), and other annuity specialists. Life and health products are targeted to
meet the needs of small business owners and other affluent individuals, accessed
by Smith Barney financial consultants and a sales force of independent agents.
This strategy is supplemented by marketing term life insurance to middle-income
families through other specialized distribution channels.
Scheduled maturities for guaranteed investment contracts ("GICs") for 1995,
1996, 1997, 1998 and 1999 are $1,443 million, $963 million, $279 million, $256
million and $200 million, respectively. At December 31, 1994, the interest
rates credited on GICs had a weighted average of 5.96%.
Policyholder account balances and benefit reserves related to individual life,
annuity and group pension business of old Travelers decreased by approximately
2% to $25.2 billion at December 31, 1994 from $25.7 billion at December 31,
1993. This decline reflects the maturing of certain group pension general
account business sold in prior years, predominantly GICs, which is not being
fully replaced with new business. These decreases have been partially offset by
continued growth in individual annuity, individual term life and universal life
businesses. Production levels and the retention of in-force contracts have been
helped by the rating upgrades that accompanied the Merger.
11
<PAGE> 14
MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS:
<TABLE>
<CAPTION>
For the year ended December 31, 1994 | 1993
(in millions) -------- | --------
|
<S> <C> | <C>
Revenues $ 3,465 | $ 3,417
======== | ========
|
Net income $ 157 | $ 123
======== | ========
</TABLE>
As discussed in Note 3 of Notes to Consolidated Financial Statements, on
January 3, 1995, the Company and its affiliates completed the sale of its group
life and related businesses to Metropolitan Life Insurance Company (MetLife),
and completed the formation of The MetraHealth Insurance Companies, Inc.
(MetraHealth), a joint venture of the medical businesses of the Company and
MetLife and their affiliates.
In connection with the formation of the joint venture, the transfer of the
fee-based medical business (Administrative Services Only) and other noninsurance
business to MetraHealth was completed on January 3, 1995. As the medical
insurance business of the Company comes due for renewal, and after obtaining
regulatory approvals, the risks will be transferred to MetraHealth. In the
interim, the operating results for this medical business will be reported by the
Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
("MCEBO"). Beginning in 1995, the Company's results will reflect the runoff
medical insurance business, plus its equity interest in the earnings of
MetraHealth.
MCEBO written premiums decreased $41 million in 1994 to $2.4 billion. MCEBO
written premiums, deposits and equivalents in 1994 decreased $515 million to
$9.7 billion. Deposits and equivalents are included with premiums to allow for
more appropriate comparisons of business volumes from year to year but do not
represent actual revenues to the Company. Instead they represent estimates of
the amount that fee-based customers would have been charged if their group
health plans had been fully insured. Deposits and equivalents consist of cash
value deposits and charges for mortality risk, expenses and taxes associated
with group universal life insurance. Fees associated with these products are
reflected in other revenues.
Group life written premiums, deposits and equivalents decreased $71 million in
1994 from $662 million in 1993 to $591 million in 1994. Total group life
insurance in force amounted to $143.1 billion at December 31, 1994, down from
$147.6 billion at December 31, 1993. Face amount of group life insurance issued
during 1994 was $11.4 billion versus $13.4 billion in 1993. Group health
written premiums and equivalents decreased $444 million in 1994 from $9.6
billion in 1993 to $9.1 billion in 1994. The total lives covered by medical
plans declined to 4.9 million at December 31, 1994 from 5.8 million at December
31, 1993, although participation in the managed care component rose 21%. New
sales revenues of life and health business were $453 million in 1994, down 34%
from 1993.
The declines in 1994 reflect the Company's emphasis on increasing margins to
improve profitability; improvements in underwriting designed to reduce financial
risk rather than emphasize growth; and uncertainties during the period relating
to proposed healthcare legislation.
Net investment income declined $19 million in 1994 to $246 million as a result
of the Company's current investment strategy, a lower asset base and the
amortization of purchase accounting adjustments.
12
<PAGE> 15
Excluding the after-tax gain of $9 million from the sale of the group dental
insurance business of the Company to MetLife (in conjunction with the sale of
the group life and non-medical group business as mentioned above), earnings were
$148 million for 1994. Likewise, excluding the after-tax impacts of a $23
million addition to reserves for foreclosed properties held for sale and a $9
million benefit relating to the 1% tax rate change on the deferred tax asset,
earnings were $137 million for 1993. The increase in 1994 was attributable to
reduced operating expenses resulting from cost reduction initiatives and
improved underwriting. The 1994 increase in earnings was partially offset by
lower realized investment gains.
CORPORATE AND OTHER OPERATIONS:
<TABLE>
<CAPTION>
For the year ended December 31, 1994 | 1993
(in millions) -------- | ---------
|
<S> <C> | <C>
Net income (loss) $ (4) | $ (1)
========= | =========
</TABLE>
OUTLOOK - LIFE AND ANNUITIES
The insurance industry is extremely competitive on both price and service and no
single issuer is dominant. Consolidations are occurring in the life insurance
industry and other financial services organizations are becoming involved in the
sale and/or distribution of life insurance products. This increases the
pressure on the Company to remain current as to market trends. Also, the
annuities business is interest sensitive and swings in interest rates could
impact sales and retention of in force policies.
On January 18, 1995, the U.S. Supreme Court in Nationsbank of North Carolina,
NA. et. al. v. Variable Annuity Life Insurance Co., et. al. ruled unanimously
that national banks may sell annuities. At this time, it is not clear what
impact, if any, this will have on the Company's annuity sales. Currently, the
Company's methods of distribution of annuities are primarily through Copeland,
independent insurance agents and financial consultants of Smith Barney.
OUTLOOK - METRAHEALTH
Upon formation of MetraHealth, the joint venture created by the combinaton of
the medical businesses of the Company and MetLife, the Company owned 42.6% of
MetraHealth's common stock. The Company and its affiliates and MetLife and its
affiliates are equal partners in the joint venture. The Company's interest in
MetraHealth will be accounted for on the equity method. See Note 3 of Notes to
Consolidated Financial Statements.
MetraHealth will provide group health insurance, health maintenance
organizations, managed care and ancillary services throughout the United States,
in Puerto Rico and in the U.S. Virgin Islands. The range of services provided
by these products includes programs to maintain health and wellness, as well as
to promote patient education and to manage health care through networks of
providers of medical/surgical, mental health and pharmaceutical services.
MetraHealth network products rely on contractual arrangements between it and
providers of health care to deliver services to covered individuals at
negotiated reimbursement levels as well as to participate in utilization and
quality management programs.
13
<PAGE> 16
As of December 31, 1994, the businesses acquired by MetraHealth included health
maintenance organizations in 29 network areas, with approximately 400,000
members; point-of-service operations in 72 network areas, with approximately 1.7
million members; and preferred provider organizations in 90 network areas, with
approximately 2.8 million members. Covered lives using the managed care
networks and covered by indemnity products, in the aggregate at December 31,
1994, were approximately 11.3 million. MetraHealth expects some decline in
covered lives during 1995.
In March 1995, MetraHealth acquired HealthSpring, Inc. for common stock of
MetraHealth. HealthSpring, Inc. builds and manages primary care physician
practices and serves approximately 32,000 patients through seven sites in
Pennsylvania, Ohio and Illinois. This acquisition resulted in a reduction in
the ownership percentage of the Company in the MetraHealth venture to 41.1%.
OUTLOOK - INDUSTRY
As required by various state laws and regulations, the Company is required to
participate in state-administered guaranty associations established for the
benefit of the policyholders of insolvent insurance companies. Management
believes that payments to such associations will not have a material impact on
financial condition or results of operations.
Several legislative proposals regarding health care reforms have recently been
promulgated. It is not possible to determine which, if any, of these proposals
may be adopted or what effect, if any, such legislation may have on the Company.
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards ("FAS") No. 114, "Accounting by
Creditors for Impairment of a Loan", and FAS No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures", describe how
impaired loans should be measured when determining the amount of a loan loss
accrual. These statements also amend existing guidance on the measurement of
restructured loans in a troubled debt restructuring involving a modification of
terms. The adoption of these statements effective January 1, 1995 will not have
a material effect on the Company's results of operations or financial position.
14
<PAGE> 17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-K
For the fiscal year ended December 31, 1994
Item 8. Financial Statements and Supplementary Data
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Reports 16-18
Consolidated Financial Statements:
Consolidated Statement of Operations and Retained Earnings
for the years ended December 31, 1994, 1993 and 1992 19
Consolidated Balance Sheet - December 31, 1994 and 1993 20
Consolidated Statement of Cash Flows
for the years ended December 31, 1994, 1993 and 1992 21
Notes to Consolidated Financial Statements 22-54
Glossary of Insurance Terms 55-57
</TABLE>
15
<PAGE> 18
Independent Auditors' Report
The Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations and retained earnings and cash
flows for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994.
/s/KPMG PEAT MARWICK LLP
Hartford, Connecticut
January 17, 1995
16
<PAGE> 19
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
January 24, 1994
17
<PAGE> 20
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows for The Travelers Insurance Company and Subsidiaries for the
year ended December 31, 1992. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of The Travelers Insurance Company and Subsidiaries
for the year ended December 31, 1992 in conformity with generally accepted
accounting principles.
As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements,
the Company changed its method of accounting for postretirement benefits other
than pensions, accounting for income taxes and accounting for foreclosed assets
in 1992.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
February 9, 1993, except for Notes 2 and 5,
as to which the date is January 24, 1994
18
<PAGE> 21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------|------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
--------------------------------------------------------------------------|------------------------------
|
<S> <C> | <C> <C>
REVENUES |
Premiums $ 3,861 | $ 2,725 $ 2,686
Net investment income 1,849 | 1,884 2,101
Realized investment gains (losses) 14 | (21) (747)
Other 1,023 | 859 785
--------------------------------------------------------------------------|------------------------------
6,747 | 5,447 4,825
--------------------------------------------------------------------------|------------------------------
BENEFITS AND EXPENSES |
Current and future insurance benefits 3,421 | 3,121 3,000
Interest credited to contractholders 967 | 1,206 1,456
Claim settlement expenses 193 | 231 264
Amortization of deferred acquisition costs and value of |
insurance in force 284 | 55 61
General and administrative expenses 1,025 | 751 987
--------------------------------------------------------------------------|------------------------------
5,890 | 5,364 5,768
--------------------------------------------------------------------------|------------------------------
|
Income (loss) before federal income taxes |
and cumulative effects |
of changes in accounting principles 857 | 83 (943)
--------------------------------------------------------------------------|------------------------------
|
Federal income taxes: |
Current 36 | 20 2
Deferred 276 | (78) (340)
--------------------------------------------------------------------------|------------------------------
312 | (58) (338)
--------------------------------------------------------------------------|------------------------------
|
Income (loss) before cumulative effects of changes |
in accounting principles 545 | 141 (605)
Cumulative effect of change in accounting |
for postretirement benefits other than |
pensions, net of tax - | - (126)
Cumulative effect of change in accounting |
for income taxes - | - 350
--------------------------------------------------------------------------|------------------------------
|
Net income (loss) 545 | 141 (381)
Retained earnings beginning of year 1,017 | 888 1,281
Dividends to parent company - | (14) (14)
Preference stock tax benefit allocated by parent - | 2 2
--------------------------------------------------------------------------|------------------------------
Retained earnings end of year $ 1,562 | $ 1,017 $ 888
--------------------------------------------------------------------------|------------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market in 1994 (cost, $18,579);
at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045
Bonds, held for investment (market, $18) - 18
Equity securities, at market (cost, $173; $199) 169 220
Mortgage loans 4,938 6,845
Real estate held for sale, net of accumulated depreciation of $9; $0 383 954
Policy loans 1,581 1,366
Short-term securities 2,279 1,376
Other investments 885 687
---------------------------------------------------------------------------------------------------------
Total investments 27,495 29,511
---------------------------------------------------------------------------------------------------------
Cash 102 50
Investment income accrued 362 379
Premium balances receivable 215 224
Reinsurance recoverable 2,915 2,883
Deferred acquisition costs and value of insurance in force 1,939 1,794
Deferred federal income taxes 950 855
Separate and variable accounts 5,160 4,666
Other assets 1,397 979
---------------------------------------------------------------------------------------------------------
Total assets $40,535 $41,341
---------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,354 $17,850
Future policy benefits 11,480 11,263
Policy and contract claims 1,222 1,274
Separate and variable accounts 5,128 4,644
Short-term debt 74 -
Other liabilities 1,923 2,007
---------------------------------------------------------------------------------------------------------
Total liabilities 36,181 37,038
---------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,179
Unrealized investment gains (losses), net of taxes (760) 7
Retained earnings 1,562 1,017
---------------------------------------------------------------------------------------------------------
Total shareholder's equity 4,354 4,303
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $40,535 $41,341
---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
----------------------------------------------------------------------------|--------------------------------
<S> <C> | <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 3,722 | $ 2,530 $ 2,594
Net investment income received 1,895 | 1,794 2,134
Other revenues received 734 | 568 568
Benefits and claims paid (3,572) | (2,902) (3,123)
Interest credited to contractholders (922) | (1,154) (1,404)
Operating expenses paid (972) | (859) (869)
Income taxes (paid) refunded (27) | 25 (2)
Trading account investments, (purchases) sales, net - | (1,576) (364)
Other (141) | 202 522
----------------------------------------------------------------------------|--------------------------------
Net cash provided by (used in) operating activities 717 | (1,372) 56
----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 2,783 | 2,624 2,084
Mortgage loans 1,337 | 1,210 1,063
Proceeds from investments sold |
Fixed maturities 1,370 | 102 175
Equity securities 359 | 75 173
Mortgage loans 557 | 310 254
Real estate 728 | 949 235
Investments in |
Fixed maturities (4,767) | (3,269) (2,471)
Equity securities (340) | (51) (119)
Mortgage loans (94) | (246) (63)
Policy loans, net (215) | (2) (184)
Short-term securities, (purchases) sales, net (903) | 860 (615)
Other investments, (purchases) sales, net (50) | 53 191
Securities sold under repurchase agreement (209) | - -
Cash from disposition of operations 53 | - 5
----------------------------------------------------------------------------|--------------------------------
Net cash provided by investing activities 609 | 2,615 728
----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES |
Issuance (redemption) of short-term debt, net 74 | - -
Contractholder fund deposits 2,197 | 3,159 3,047
Contractholder fund withdrawals (3,529) | (4,418) (5,003)
Dividends to parent company - | (14) (14)
Return of capital to parent company (23) | - -
Contributions from parent company - | - 500
Other 7 | 6 2
----------------------------------------------------------------------------|--------------------------------
Net cash used in financing activities (1,274) | (1,267) (1,468)
----------------------------------------------------------------------------|--------------------------------
Net increase (decrease) in cash $ 52 | $ (24) $ (684)
----------------------------------------------------------------------------|--------------------------------
|
Cash at December 31 $ 102 | $ 50 $ 74
-------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Travelers Insurance Company and its subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG).
TIG is an indirect wholly owned subsidiary of The Travelers Inc.
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of the common stock of the Company's then parent, The
Travelers Corporation (the Acquisition). The Acquisition was accounted
for as a purchase. In connection with the Acquisition, Primerica
transferred 100% of the preferred provider organization and third party
administrator networks of Transport Life Insurance Company (a wholly
owned subsidiary of Primerica) to The Travelers Corporation, which
contributed them to the Company. The Company realized an increase to
shareholder's equity of $23 million related to this contribution.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
The Travelers Inc. This was effected through the exchange of .80423
shares of The Travelers Inc. common stock for each share of The
Travelers Corporation common stock (the Merger). All subsidiaries of
The Travelers Corporation were contributed to TIG. In conjunction with
the Merger, The Travelers Inc. contributed Travelers Insurance Holdings
Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries
(TIHI) to TIG, which in turn contributed TIHI to the Company.
TIHI is an intermediate holding company whose primary subsidiaries are
Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL), and Transport Life
Insurance Company (Transport). Through its subsidiaries, TIHI primarily
offers individual insurance and specialty accident and health insurance.
The Company realized an increase to shareholder's equity of $2.1 billion
at December 31, 1993 related to the contribution of TIHI. At December
31, 1993 and subsequent, TIHI is included in the Life and Annuities
segment.
The consolidated financial statements and the accompanying notes reflect
the historical operations of the Company for the years ended December 31,
1993 and 1992. The results of operations of TIHI and its subsidiaries
are not included in the 1993 and 1992 financial statements. The
Company's consolidated balance sheet and related data at December 31,
1994 and 1993 include TIHI on a fully consolidated basis. The
Acquisition and the Merger are being accounted for as a "step
acquisition." The consolidated balance sheet and related data at
December 31, 1993 reflect adjustments of assets and liabilities of the
Company (except TIHI) to their fair values determined at each acquisition
date (i.e., 27% of values at December 31, 1992 as carried forward and 73%
of the values at December 31, 1993). These assets and liabilities are
reflected in the consolidated balance sheet at December 31, 1993 based
upon management's then best estimate of their fair values. Evaluation and
appraisal of assets and liabilities, including investments, the value of
insurance in force, reinsurance recoverable, other insurance assets and
liabilities and related deferred income taxes were completed during 1994.
22
<PAGE> 25
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The excess of the 27% share of assigned value of identifiable net assets
over cost at December 31, 1992, which was allocated to the Company
through the "pushdown" basis of accounting, was approximately $56
million and is being amortized over ten years on a straight-line basis.
The excess of the purchase price of the common stock over the fair value
of the 73% of net assets acquired at December 31, 1993, which was
allocated to the Company through the "pushdown" basis of accounting, was
approximately $340 million and is being amortized over 40 years on a
straight-line basis.
The consolidated statement of operations and retained earnings, the
consolidated statement of cash flows and the related accompanying notes
for the year ended December 31, 1994, which are presented on a purchase
accounting basis, are separated from the corresponding 1993 and 1992
information, which is presented on a historical accounting basis, to
indicate the difference in valuation bases.
Principles of Consolidation
The financial statements have been prepared in conformity with generally
accepted accounting principles and include the Company and its
significant insurance and noninsurance subsidiaries. Certain prior
year amounts have been reclassified to conform with the 1994
presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Securities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity. As of December 31, 1993, in conjunction with the Merger, the
majority of fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value. Fixed
maturities classified as "held for investment" were carried at amortized
cost.
Equity securities, which include common and nonredeemable preferred
stocks, are available for sale and carried at fair value based primarily
on quoted market prices. Changes in fair values of equity securities
are charged or credited directly to shareholder's equity, net of income
taxes.
Mortgage loans are carried at amortized cost. Real estate held for sale
is carried at the lower of cost or fair value less estimated costs to
sell. Fair value was established at time of foreclosure by appraisers,
both internal and external, using discounted cash flow analyses and
other acceptable techniques.
23
<PAGE> 26
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income is suspended on fixed maturities or mortgage loans
that are in default, or on which it is likely that future interest
payments will not be made as scheduled. Interest income on investments
in default is recognized only as payment is received.
Gains or losses arising from futures contracts used to hedge investments
are treated as basis adjustments and are recognized in income over the
life of the hedged investments.
Gains and losses arising from forward contracts used to hedge foreign
investments in the Company's U.S. portfolios are a component of realized
investment gains and losses. Gains and losses arising from forward
contracts used to hedge investments in foreign operations (primarily
Canadian) are reflected directly in shareholder's equity, net of income
taxes.
Interest rate swaps are used to manage interest rate risk in the
investment portfolio and are marked to market with unrealized gains and
losses recorded as a component of shareholder's equity, net of income
taxes. Rate differentials on interest rate swap agreements are accrued
between settlement dates and are recognized as an adjustment to interest
income from the related investment.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
investment valuation reserves. These adjustments reflected changes
considered to be other than temporary in the net realizable value of
investments. Also included are gains and losses arising from the
translation of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs
Costs of acquiring individual life insurance, annuities, and health
business, principally commissions and certain expenses related to policy
issuance, underwriting and marketing, all of which vary with and are
primarily related to the production of new business, are deferred.
Acquisition costs relating to traditional life insurance and guaranteed
renewable health contracts are amortized over the period of anticipated
premiums; universal life in relation to estimated gross profits; and
annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for guaranteed renewable
health, a 10-year period, and a 10- to 15-year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
24
<PAGE> 27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Value of Insurance In Force
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from life insurance,
annuities and health contracts at the date of the Merger using the same
assumptions that were used for computing related liabilities where
appropriate. The value of insurance in force was the actuarially
determined present value of the projected future profits discounted at
interest rates ranging from 14% to 18% for the business acquired. The
value of the business in force is amortized over the contract period
using current interest crediting rates to accrete interest and using
amortization methods based on the specified products. Traditional life
insurance and guaranteed renewable health policies are amortized over
the period of anticipated premiums; universal life is amortized in
relation to estimated gross profits; and annuity contracts are amortized
employing a level yield method. The value of insurance in force is
reviewed periodically for recoverability to determine if any adjustment
is required.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to,
and investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are carried at
amortized cost, except at December 31, 1993 the assets and liabilities
of these accounts were recorded at the value assigned at the acquisition
dates. Amounts assessed to the contractholders for management services
are included in revenues. Deposits, net investment income and realized
investment gains and losses for these accounts are excluded from
revenues, and related liability increases are excluded from benefits and
expenses.
Goodwill
The excess of the 27% share of assigned value of identifiable assets
over cost at December 31, 1992 allocated to the Company as a result of
the Acquisition amounted to approximately $56 million and is being
amortized over 10 years on a straight-line basis. Goodwill resulting
from the excess of the purchase price over the fair value of the 73% of
net assets acquired related to the Merger amounted to approximately $340
million at December 31, 1993 and is being amortized over 40 years on a
straight-line basis. TIHI has goodwill of $246 million.
25
<PAGE> 28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain individual annuity contracts. Such
receipts are considered deposits on investment contracts that do not
have substantial mortality or morbidity risk. Account balances are also
increased by interest credited and reduced by withdrawals, mortality
charges and administrative expenses charged to the contractholders.
Calculations of contractholder account balances for investment contracts
reflect lapse, withdrawal and interest rate assumptions based on
contract provisions, the Company's experience and industry standards.
Interest rates credited to contractholder funds range from 3.4% to 8.0%.
Contractholder funds also include other funds that policyholders leave
on deposit with the Company.
Benefit Reserves
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for traditional life insurance, annuities,
and accident and health policies have been computed based upon
mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 12.0%, including adverse
deviation. These assumptions consider Company experience and industry
standards and may be revised if it is determined that the future
experience will differ substantially from that previously assumed. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and
reinsurance.
Operating Leases
At December 31, 1993, operating leases were recorded at the value
assigned at the acquisition dates and included in the consolidated
balance sheet as a component of other liabilities. This liability is
being amortized over the average lease period.
Permitted Statutory Accounting Practices
The Company, domiciled principally in Connecticut and Massachusetts,
prepares statutory financial statements in accordance with the
accounting practices prescribed or permitted by the insurance
departments of those states. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The impact of any
permitted accounting practices on statutory surplus of the Company is
not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods and
for deferred profits on limited-payment policies that are being
recognized in income over the policy term. At December 31, 1993, the
deferred profits on limited-payment policies were recorded at the values
assigned at the acquisition dates.
26
<PAGE> 29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment, universal life and other insurance
contracts. Other revenues also include gains and losses on dispositions
of assets and operations other than realized investment gains and
losses, revenues of noninsurance subsidiaries, and the pretax operating
results of real estate joint ventures.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain individual annuity
contracts in accordance with contract provisions.
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes in the Company's deferred federal income tax
asset during the year. The deferred federal income tax asset is
recognized to the extent that future realization of the tax benefit is
more likely than not, with a valuation allowance for the portion that is
not likely to be recognized.
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(FAS 118), and Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), describe
how impaired loans should be measured when determining the amount of a
loan loss accrual. These statements also amend existing guidance on the
measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. The adoption of these statements,
effective January 1, 1995, will not have a material effect on results of
operations or financial position.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are
reported at fair value, with unrealized gains and losses, net of income
taxes, charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower
of aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $232 million (net of taxes) to
net unrealized gains which is included in shareholder's equity. This
increase included an unrealized gain of $133 million (net of income
taxes) on TIHI's investment in the common stock of The Travelers Inc.
See note 15 for additional disclosures.
27
<PAGE> 30
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Offsetting of Amounts Related to Certain Contracts
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts" (Interpretation 39). The general principle of
Interpretation 39 states that amounts due from and due to another party
may not be offset in the consolidated balance sheet unless a right of
setoff exists and the parties intend to exercise the right of setoff.
Implementation of Interpretation 39 did not have a material impact on the
Company's financial position; however, assets and liabilities were both
increased by $68 million as of December 31, 1994.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113).
FAS 113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition
of gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113 did not
have an impact on the Company's earnings, however, assets and
liabilities increased by like amounts. See note 5 for additional
reinsurance disclosures.
Postretirement Benefits Other Than Pensions
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required, the Company changed its method of
accounting for retiree benefit plans effective January 1, 1992, to
accrue for the Company's share of the costs of postretirement benefits
over the service period rendered by employees. Previously these
benefits were charged to expense when paid. The Company elected
to recognize immediately the liability for postretirement benefits as
the cumulative effect of a change in accounting principle. This
resulted in a noncash after-tax charge to net income of $126 million.
See note 10 for additional information relating to FAS 106.
Accounting for Income Taxes
In the third quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
with retroactive application to January 1, 1992. FAS 109 establishes new
principles for calculating and reporting the effects of federal income
taxes in financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard with a
balance sheet approach. Under the new approach, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. FAS 109 allows recognition of deferred tax assets
if future realization of the tax benefit is more likely than not, with a
valuation allowance for the portion that is not likely to be recognized.
28
<PAGE> 31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
The implementation of FAS 109 resulted in a one time increase to
earnings of $350 million in the first quarter of 1992. This increase in
earnings was principally due to tax rate differences and the recognition
of a portion of previously unrecognized deferred tax assets. See note
13 for further discussion of FAS 109.
Accounting for Foreclosed Assets
In February 1993, The Travelers Corporation announced its intent to
accelerate the sale of foreclosed real estate and, effective December
31, 1992, changed its method of accounting for foreclosed assets in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP
92-3). This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost or
fair value less estimated costs to sell. Previously, all foreclosed
assets were carried at cost less accumulated depreciation. This
accounting change resulted in a pretax charge of $412 million to
realized investment losses in 1992.
3. ACQUISITIONS AND DISPOSITIONS
In December 1994, the Company and its affiliates sold its group dental
insurance business to Metropolitan Life Insurance Company (MetLife) and
realized a gain on the sale of $9 million (aftertax).
On January 3, 1995, the Company and its affiliates completed the sale of
its group life and related businesses to MetLife, and completed the
formation of The MetraHealth Companies, Inc. (MetraHealth), a joint
venture of the medical businesses of the Company and its affiliates and
MetLife.
The Company and its affiliates sold its group life business as well as
related non-medical group insurance businesses to MetLife for $350
million. The assets transferred included customer lists, books and
records, and furniture and equipment. In connection with the sale, the
Company and its affiliates agreed to cede 100% of its risks in the
group life and related businesses to MetLife on an indemnity reinsurance
basis, effective January 1, 1995. In connection with the reinsurance
transaction, the Company and its affiliates transferred assets with a
fair market value of approximately $1.5 billion to MetLife, equal to the
statutory reserves and other liabilities transferred.
On January 3, 1995, the Company and MetLife and certain of their
affiliates formed the MetraHealth joint venture by contributing their
group medical businesses to MetraHealth, in exchange for shares of
common stock of MetraHealth. The assets transferred included cash,
fixed assets, customer lists, books and records, certain trademarks and
other assets used exclusively or primarily in the medical businesses.
The Company also contributed all of the capital stock of its wholly
owned subsidiary, The Travelers Employee Benefits Company, to
MetraHealth. The total contribution by the Company amounted to $336
million at carrying value on the date of contribution. No gain was
recognized upon the formation of the joint venture. Upon formation of
the joint venture the Company owned 42.6% of the outstanding capital
stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by
MetLife and its affiliates.
29
<PAGE> 32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. ACQUISITIONS AND DISPOSITIONS, Continued
In connection with the formation of the joint venture, the transfer of
the fee based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995.
As the medical insurance business of the Company comes due for renewal
and after obtaining regulatory approvals, the risks will be transferred
to MetraHealth. In the interim the related operating results for this
medical insurance business will be reported by the Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
(MCEBO). Revenues and net income from MCEBO for the year ended 1994
amounted to $3.5 billion and $157 million, respectively. Beginning in
1995 the Company's results will reflect the runoff medical insurance
business, plus its equity interest in the earnings of MetraHealth.
On December 31, 1993, in conjunction with the Merger, The Travelers Inc.
contributed TIHI to TIG, which TIG then contributed to the Company at a
carrying value of $2.1 billion. Through its subsidiaries TIHI primarily
offers individual life insurance and specialty accident and health
insurance.
In December 1992, in conjunction with the Acquisition, The Travelers
Corporation acquired Transport Life Insurance Company's preferred
provider and third party administrator organizations from Primerica
Corporation (see note 1), and on December 30, 1992 contributed these
businesses to the Company.
4. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $74
million outstanding at December 31, 1994. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper.
In 1994, The Travelers Inc., Commercial Credit Company (an indirect
wholly owned subsidiary of The Travelers Inc.) and the Company entered
into an agreement with a syndicate of banks to provide $1.5 billion of
revolving credit, to be allocated to any of the above-indicated
companies. The revolving credit facility consists of a 364-day
revolving credit in the amount of $300 million and a 5-year revolving
credit in the amount of $1.2 billion. The participation of the Company
in this facility is limited to $300 million, and at December 31, 1994,
the Company's allocation was $200 million, all of which was unused.
30
<PAGE> 33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide additional capacity for future
growth and to effect business-sharing arrangements. Reinsurance is
accomplished through various plans of reinsurance, primarily
coinsurance, modified coinsurance and yearly renewable term. The
Company remains primarily liable as the direct insurer on all risks
reinsured. It is the policy of the Company to obtain reinsurance for
amounts above certain retention limits on individual life policies which
vary with age and underwriting classification. Generally, the maximum
retention on an ordinary life risk is $1.5 million. The Company writes
workers' compensation business through its Accident Department. This
business is ceded 100% to the Travelers Indemnity Company.
A summary of reinsurance financial data reflected within the
consolidated statement of operations and retained earnings is presented
below (in millions):
<TABLE>
<CAPTION>
-----------------------------------------------------------------|------------------------------
1994 | 1993 1992
-----------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Written Premiums: |
Direct $ 4,529 | $ 3,308 $ 3,163
|
Assumed from: |
Affiliated companies 59 | 31 15
Non-affiliated companies 33 | 60 115
|
Ceded to: |
Affiliated companies (358) | (496) (522)
Non-affiliated companies (341) | (98) (62)
-----------------------------------------------------------------|------------------------------
|
Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709
=================================================================|==============================
|
Earned Premiums: |
Direct $ 4,475 | $ 3,256 $ 3,124
|
Assumed from: |
Affiliated companies 65 | 32 15
Non-affiliated companies 30 | 32 110
|
Ceded to: |
Affiliated companies (384) | (512) (491)
Non-affiliated companies (333) | (87) (64)
-----------------------------------------------------------------|------------------------------
|
Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694
=================================================================|==============================
</TABLE>
31
<PAGE> 34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REINSURANCE, Continued
Reinsurance recoverables at December 31 include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Affiliated companies $ 3 $ 3
Non-affiliated companies 661 689
Property-casualty business:
Affiliated companies 2,251 2,191
------------------------------------------------------------------------------
Total Reinsurance Recoverables $ 2,915 $ 2,883
==============================================================================
</TABLE>
6. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $273 million in additional paid-in capital during 1994
is due primarily to the finalization of the evaluations and appraisals
used to assign fair values to assets and liabilities under purchase
accounting.
The increase of $1.7 billion in additional paid-in capital during 1993
arose from a contribution of $400 million from The Travelers Corporation
and the contribution of TIHI (see notes 1 and 3). This was partially
offset by the impact of the initial evaluations and appraisals used to
assign fair values to assets and liabilities under purchase accounting.
The increase in additional paid-in capital during December 31, 1992
arose from a contribution of $500 million in 1992 from The Travelers
Corporation and the contribution of Transport Life Insurance Company's
preferred provider and third party administrator organizations in 1992
(see note 3).
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 15.
32
<PAGE> 35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. SHAREHOLDER'S EQUITY, Continued
Shareholder's Equity and Dividend Availability
The statutory net income, including TIHI, was $100 million for the year
ended December 31, 1994. The statutory net loss, excluding TIHI, was
$648 million and $346 million for the years ended December 31, 1993 and
1992, respectively.
Statutory capital and surplus was $2.1 billion and $1.8 billion at
December 31, 1994 and 1993, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to TIG without prior
approval of insurance regulatory authorities. Under statutory
accounting practices, there is no statutory surplus available in 1995
for dividends to TIG without prior approval of the Connecticut Insurance
Department.
Dividend payments to the Company from its insurance subsidiaries are
subject to similar restrictions and statutory surplus of the
subsidiaries is not available in 1995 for dividends to the Company
without prior approval of insurance regulatory authorities.
7. ADDITIONAL OPERATING INFORMATION
The Company has segmented its business by major product lines. TIHI was
contributed to the Company on December 31, 1993, and its assets at that
date and subsequent and its operations for the year ended December 31,
1994 are included in the following table in the Life and Annuities
segment. Transport Life Insurance Company's preferred provider and
third party administrator organizations were contributed to the Company
in December 1992 and are included in the Managed Care and Employee
Benefits segment.
33
<PAGE> 36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. ADDITIONAL OPERATING INFORMATION, continued
Results included in the table below reflect 1993 fourth quarter
after-tax charges of $103 million for an addition to reserves for
foreclosed properties held for sale and 1992 fourth quarter after-tax
charges of $272 million for implementation of SOP 92-3 and $193 million
for an addition to mortgage loan valuation reserves.
<TABLE>
<CAPTION>
Managed Care Corporate
Travelers Life and Employee and Other
(in millions) and Annuities Benefits Operations Consolidated
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
----
Revenues
Premiums $ 1,492 $ 2,369 $ - $ 3,861
Net investment income 1,603 246 - 1,849
Realized investment gains 13 - 1 14
Other 173 850 - 1,023
------------------------------------------------------------------------------------------------------------------------
Total $ 3,281 $ 3,465 $ 1 $ 6,747
------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857
Net income (loss) 392 157 (4) 545
Assets 33,078 5,131 2,326 40,535
------------------------------------------------------------------------------------------------------------------------
1993
----
Revenues
Premiums $ 330 $ 2,395 $ - $ 2,725
Net investment income 1,616 265 3 1,884
Realized investment gains (losses) (45) 24 - (21)
Other 120 737 2 859
------------------------------------------------------------------------------------------------------------------------
Total $ 2,021 $ 3,421 $ 5 $ 5,447
------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83
Net income (loss) 19 123 (1) 141
Assets (purchase accounting value) 34,155 4,744 2,442 41,341
------------------------------------------------------------------------------------------------------------------------
1992
----
Revenues
Premiums $ 278 $ 2,408 $ - $ 2,686
Net investment income 1,799 290 12 2,101
Realized investment gains (losses) (725) (22) - (747)
Other 140 645 - 785
------------------------------------------------------------------------------------------------------------------------
Total $ 1,492 $ 3,321 $ 12 $ 4,825
------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal
income taxes and cumulative effects of
changes in accounting principles $ (844) $ (100) $ 1 $ (943)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax (25) (101) - (126)
Cumulative effect of change in
accounting for income taxes 223 124 3 350
Net income (loss) (343) (42) 4 (381)
Assets 31,378 4,498 2,191 38,067
------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, interest rate swaps and forward contracts, as a means of
prudently hedging exposure to price, foreign currency and/or interest
rate risk on anticipated investment purchases or existing assets and
liabilities. Also, in the normal course of business, the Company has
fixed and variable rate loan commitments and unfunded commitments to
partnerships. The Company does not hold or issue derivative instruments
for trading purposes.
These derivative financial instruments have off-balance-sheet risk.
Financial instruments with off-balance-sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the consolidated balance sheet. The contract or notional
amounts of these instruments reflect the extent of involvement the
Company has in a particular class of financial instrument. However, the
maximum credit loss or cash flow associated with these instruments can be
less than these amounts. For forward contracts and interest rate swaps,
credit risk is limited to the amounts calculated to be due the Company on
such contracts. For unfunded commitments to partnerships, credit
exposure is the amount of the unfunded commitments. For fixed and
variable rate loan commitments, credit exposure is represented by the
contractual amount of these instruments.
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance-sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures. Many
transactions include the use of collateral to minimize credit risk and
lower the effective cost to the borrower.
The Company may occasionally enter into interest rate swaps in
connection with other financial instruments to provide greater risk
diversification and better match an asset with a corresponding
liability. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between
fixed-rate and floating rate interest amounts calculated by reference to
an agreed notional principal amount. Generally, no cash is exchanged at
the outset of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty at each
due date. Swap agreements are not exchange traded so they are subject
to the risk of default by the counterparty. In all cases,
counterparties under these agreements are major financial institutions
with the risk of non-performance considered remote. At December 31,
1994 and 1993, the Company had entered into interest rate swaps with
contract values of $145 million and $153 million, respectively. At both
December 31, 1994 and 1993, the fair value of interest rate swaps was $1
million (loss position) which is determined using a discounted cash flow
method.
The off-balance-sheet risks of financial futures contracts, forward
contracts, fixed and variable rate loan commitments and unfunded
commitments to partnerships were not considered significant at December
31, 1994 and 1993.
35
<PAGE> 38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1994 and 1993, investments in fixed maturities have a
fair value of $17.3 billion and $18.3 billion, respectively. See note
15.
At December 31, 1994, mortgage loans have a carrying value of $4.9
billion, which approximates fair value, compared with a carrying value
and a fair value of $6.8 billion at December 31, 1993. In estimating
fair value, the Company used interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $417 million and $320 million of financial
instruments classified as other assets approximates fair values at
December 31, 1994 and 1993, respectively. The carrying value of $1.2
billion and $878 million of financial instruments classified as other
liabilities also approximates their fair values at December 31, 1994 and
1993, respectively. Fair value is determined using various methods
including discounted cash flows and carrying value, as appropriate for
the various financial instruments.
At December 31, 1994, contractholder funds with defined maturities have
a carrying value of $4.2 billion and a fair value of $4.0 billion,
compared with a carrying value and a fair value of $5.0 billion at
December 31, 1993. The fair value of these contracts is determined by
discounting expected cash flows at an interest rate commensurate with
the Company's credit risk and the expected timing of cash flows.
Contractholder funds without defined maturities have a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1994,
compared with a carrying value of $13.0 billion and a fair value of
$12.7 billion at December 31, 1993. These contracts generally are
valued at surrender value.
The assets of separate accounts providing a guaranteed return have a
carrying value and a fair value of $1.5 billion and $1.4 billion,
respectively, at December 31, 1994, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1993. The liabilities of separate accounts providing a guaranteed
return have a carrying value and a fair value of $1.5 billion and $1.3
billion, respectively, at December 31, 1994, compared with a carrying
value and a fair value of $1.5 billion and $1.7 billion, respectively,
at December 31, 1993.
36
<PAGE> 39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The carrying values of cash, short-term securities and investment income
accrued approximate their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 8 for a discussion of financial instruments with
off-balance-sheet risk.
Litigation
In April 1989, a lawsuit was filed against the Company by the federal
government alleging the Company improperly handled health benefit claims
for individuals who are actively employed and eligible for Medicare
coverage. In November 1992, the court ruled on cross motions for
summary judgment. The court found that the Company had no liability
when acting in the capacity of an administrator of claims. However, the
court also recognized that, while the government's right of recovery
with respect to insured claims is governed by the substantive terms of
our customers' health benefit plan, the right of recovery is independent
of procedural limitations in the Company's contracts.
The Company is a defendant or codefendant in various litigation matters.
Although there can be no assurances, as of December 31, 1994, 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.
10. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans covering the majority of the Company's
U.S. employees. Benefits for the qualified plan are based on an account
balance formula. Under this formula, each employee's accrued benefit
can be expressed as an account that is credited with amounts based upon
the employee's pay, length of service and a specified interest rate, all
subject to a minimum benefit level. This plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. For the nonqualified plan, contributions are
based on benefits paid.
Certain subsidiaries of TIHI participate in a noncontributory defined
benefit plan sponsored by their ultimate parent, The Travelers Inc.
37
<PAGE> 40
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
The Company's share of net pension expense was $6 million, $8 million
and $22 million for 1994, 1993 and 1992, respectively.
Through plans sponsored by TIG, the Company also provides defined
contribution pension plans for certain agents. Company contributions
are primarily a function of production. The expense for these plans was
$2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI
are covered by noncontributory defined benefit plans. These plans are
funded based upon local laws.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health
care and life insurance benefits for retired employees through a plan
sponsored by TIG. This plan does not include employees of TIHI.
Covered employees may become eligible for these benefits if they reach
retirement age while working for the Company. These retirees may elect
certain prepaid health care benefit plans. Life insurance benefits
generally are set at a fixed amount. The cost recognized by the Company
for these benefits represents its allocated share of the total costs of
the plan, net of employee contributions.
In the third quarter of 1992, TIG adopted FAS 106 and elected to
recognize the accumulated postretirement benefit obligation (i.e., the
transition obligation) as a change in accounting principle retroactive
to January 1, 1992. The Company's pretax share of the total cost of the
plan for 1994, 1993 and 1992 was $14 million, $29 million and $26
million, respectively.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. The
costs related to these changes have been assumed by TIG.
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIG (except TIHI), the Company matches a
portion of employee contributions. Effective April 1, 1993, the match
decreased from 100% to 50% of an employee's first 5% contribution and a
variable match based on TIG's profitability was added. The Company's
matching obligations were $7 million, $10 million and $16 million in
1994, 1993 and 1992, respectively.
38
<PAGE> 41
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates
of TIG, and salaries and expenses for TIG and its insurance subsidiaries
(excluding TIHI), are handled by the Company. Settlements for these
functions between the Company and its affiliates are made regularly.
The Company provides various insurance coverages, principally life and
health, to employees of certain subsidiaries of TIG. The premiums for
these coverages were charged in accordance with normal cost allocation
procedures. In addition, investment advisory and management services,
data processing services and claims processing services are provided by
affiliated companies.
TIG and its subsidiaries maintain short-term investment pools in which
the Company participates. The positions of each company participating
in the pools are calculated and adjusted daily. At December 31, 1994
and 1993, the pools totaled approximately $1.5 billion and $1.3 billion,
respectively. The Company's share of the pools amounted to $1.1 billion
and $439 million at December 31, 1994 and 1993, respectively, and is
included in short-term securities in the consolidated balance sheet.
The Company markets a variable annuity product through its affiliate,
Smith Barney. Sales of this product were $158 million in 1994.
The Company leases new furniture and equipment from a noninsurance
subsidiary of TIG. The rental expense charged to the Company for this
furniture and equipment was $9 million, $10 million and $9 million in
1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, TIC has an investment of $23 million and
$27 million, respectively, in bonds of its affiliate, Commercial Credit
Company. This is included in fixed maturities in the consolidated
balance sheet.
TIHI has an investment of $231 million and $110 million in common stock
of The Travelers Inc. at December 31, 1994 and 1993, respectively.
This is carried at fair value at December 31, 1994 and at cost at
December 31, 1993. At December 31, 1994, TIHI has an investment of $35
million in redeemable preferred stock of The Travelers Inc. which is
carried at fair value. TIHI has notes receivable from The Travelers
Inc. of $30 million at December 31, 1994 and 1993, which are carried at
cost. These assets are included in other investments in the
consolidated balance sheet.
39
<PAGE> 42
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. LEASES
The Company has entered into various operating and capital lease
agreements for office space and data processing and certain other
equipment. Rental expense under operating leases was $99 million, $113
million and $122 million in 1994, 1993 and 1992, respectively. Future
net minimum rental and lease payments are estimated as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Minimum operating Minimum capital
------------------------------------------------------------------------------------------
(in millions) rental payments lease payments
------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31,
1995 $ 112 $ 7
1996 85 7
1997 69 4
1998 54 4
1999 47 4
Thereafter 36 64
------------------------------------------------------------------------------------------
$ 403 $ 90
------------------------------------------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIG for utilization of space
and equipment.
The following is a summary of assets under capital leases:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(in millions) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Buildings $ 25 $ 25
Equipment 14 14
-------------------------------------------------------------------------
39 39
Less accumulated depreciation 17 14
-------------------------------------------------------------------------
Net $ 22 $ 25
-------------------------------------------------------------------------
</TABLE>
The net carrying value of the assets is recorded at amortized cost and
at the value assigned at the acquisition dates at December 31, 1994 and
1993, respectively.
40
<PAGE> 43
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Effective tax rate |
|
Income (loss) before federal |
income taxes $ 857 | $ 83 $ (943)
------------------------------------------------------------|------------------------------
Statutory tax rate 35% | 35% 34%
------------------------------------------------------------|------------------------------
|
Expected federal income taxes $ 300 | $ 29 $ (321)
Tax effect of: |
Nontaxable investment income (4) | (1) (1)
Adjustments to benefit and other reserves - | (46) (18)
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - | (25) -
Goodwill 12 | - -
Other 4 | (15) 2
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
------------------------------------------------------------|------------------------------
|
Effective tax rate 36% | (70%) 36%
------------------------------------------------------------|------------------------------
|
Composition of federal income taxes |
Current: |
United States $ 22 | $ 17 $ (3)
Foreign 14 | 3 5
------------------------------------------------------------|------------------------------
Total 36 | 20 2
------------------------------------------------------------|------------------------------
|
Deferred: |
United States 271 | (78) (340)
Foreign 5 | - -
------------------------------------------------------------|------------------------------
Total 276 | (78) (340)
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
-------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 44
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1994 and 1993 were comprised
of the tax effects of the temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 453 $ 575
Contractholder funds 158 184
Investments 690 492
Other employee benefits 87 65
Other 257 146
----------------------------------------------------------------------------------------------
Total 1,645 1,462
----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 529 504
Prepaid pension expense 5 3
Other 61 -
----------------------------------------------------------------------------------------------
Total 595 507
----------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,050 955
Valuation allowance for deferred tax assets (100) (100)
----------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 950 $ 855
----------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, the Company and
its life insurance subsidiaries will file a consolidated federal income
tax return. Federal income taxes are allocated to each member of the
consolidated return on a separate return basis adjusted for credits and
other amounts required by the consolidation process. Any resulting
liability will be paid currently to the Company. Any credits for losses
will be paid by the Company to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return. The Company has no receivable for unreimbursed credits from its
previous allocation agreement with The Travelers Corporation.
42
<PAGE> 45
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the net deferred tax asset on investment losses to
the amount that, based upon available evidence, is more likely than not
to be realized. Reversal of the valuation allowance is contingent upon
the recognition of future capital gains in the Company's consolidated
life insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999 or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no net change in the
valuation allowance during 1994. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized
by reducing goodwill.
The Company has a net deferred tax asset, after the valuation allowance
of $100 million, which relates to temporary differences that are
expected to reverse as net ordinary deductions except for a deferred tax
asset of $319 million which relates to the unrealized loss on fixed
maturity investments. Management does not intend to realize the
unrealized loss on the fixed maturity investments except to the extent
of offsetting capital gains. The Company will have to generate
approximately $1.8 billion of taxable income, before reversal of these
temporary differences, primarily over the next 10 to 15 years, to
realize the remainder of the deferred tax asset, exclusive of the
unrealized loss on fixed maturity investments. Management expects to
realize the remainder of the deferred tax asset based upon its
expectation of future positive taxable income, after the reversal of
these deductible temporary differences, in the consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999. The taxable income of The Travelers Inc. consolidated return,
after reversal of the deductible temporary differences, is expected to
be at least $1 billion annually. At December 31, 1994, the Company has
no ordinary or capital loss carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for
which no provision has been made in the financial statements) is
approximately $326 million.
See note 2 for a discussion of the implementation of new principles for
accounting for income taxes.
43
<PAGE> 46
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------|------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Gross investment income |
Fixed maturities $ 1,253 | $ 1,221 $ 1,242
Mortgage loans 534 | 692 868
Real estate 177 | 383 384
Policy loans 112 | 106 109
Other 7 | (23) -
------------------------------------------------------------------|------------------------------
2,083 | 2,379 2,603
------------------------------------------------------------------|------------------------------
|
Investment expenses 234 | 495 502
------------------------------------------------------------------|------------------------------
Net investment income $ 1,849 | $ 1,884 $ 2,101
------------------------------------------------------------------|------------------------------
</TABLE>
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------|-----------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Realized |
|
Fixed maturities $ (3) | $ 182 $ (11)
Equity securities 19 | 14 9
Mortgage loans - | (32) (386)
Real estate - | (222) (400)
Other (2) | 37 41
-------------------------------------------------------------------|-----------------------------
Realized investment gains (losses) $ 14 | $ (21) $ (747)
-------------------------------------------------------------------|-----------------------------
</TABLE>
44
<PAGE> 47
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Unrealized |
|
Fixed maturities $ (1,319) | $ (235) $ 146
Equity securities (25) | (17) 6
Other 165 | 28 4
-------------------------------------------------------------------|-----------------------------
(1,179) | (224) 156
Related taxes (412) | (83) 53
-------------------------------------------------------------------|-----------------------------
|
Net unrealized investment gains (losses) (767) | (141) 103
Contribution of TIHI - 5 | -
Balance beginning of year 7 143 | 40
--------------------------------------------------------------------------------------|----------
Balance end of year $ (760) $ 7 | $ 143
-------------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$232 million (net of taxes) to net unrealized gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.4 billion in 1994, resulting in gross realized gains of $15
million and gross realized losses of $27 million. There were no sales
of fixed maturities classified as available for sale in 1993 or 1992 as,
in conjunction with the Merger, fixed maturities were first classified
as "available for sale" effective December 31, 1993.
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Sales from the amortized cost portfolios have been made
periodically. Such sales were $97 million and $195 million in 1993 and
1992, respectively. Gross gains of $7 million and $10 million in 1993
and 1992, respectively, and gross losses of $1 million and $6 million in
1993 and 1992, respectively, were realized on those sales.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. At December 31, 1992, these fixed
maturities had market values of $4.8 billion. Sales of trading
portfolio fixed maturities were $4.0 billion and $642 million in 1993
and 1992, respectively. Gross gains of $165 million and $24 million in
1993 and 1992, respectively, and gross losses of $2 million and $4
million in 1993 and 1992, respectively, were realized on those sales.
45
<PAGE> 48
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and market value of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in millions) cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,779 $ 3 $ 304 $ 3,478
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 3,080 3 306 2,777
Obligations of states,
municipalities and
political subdivisions 87 - 7 80
Debt securities issued by
foreign governments 398 - 26 372
All other corporate bonds 11,225 14 696 10,543
Redeemable preferred stock 10 - - 10
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 20 $ 1,339 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 49
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in millions) value gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,219 $ 18 $ 18 $ 4,219
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 2,807 67 6 2,868
Obligations of states,
municipalities and
political subdivisions 259 9 - 268
Debt securities issued by
foreign governments 333 6 - 339
All other corporate bonds 10,474* 125 29 10,570
Redeemable preferred stock 20 - - 20
Held for investment 18 - - 18
------------------------------------------------------------------------------------------------
Total $ 18,130 $ 225 $ 53 $ 18,302
------------------------------------------------------------------------------------------------
</TABLE>
* Before valuation reserves of $67 million.
The amortized cost and market value of fixed maturities at December 31,
1994, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Maturity Amortized Market
(in millions) cost value
------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,217 $ 1,197
Due after 1 year through 5 years 4,691 4,434
Due after 5 years through 10 years 5,731 5,310
Due after 10 years 3,161 2,841
------------------------------------------------------------------------------------------------
14,800 13,782
Mortgage-backed securities 3,779 3,478
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 50
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of scenarios. The Company does invest in other types of
CMO tranches if a careful assessment indicates a favorable risk/return
tradeoff. The Company does not purchase residual interests in CMOs.
At December 31, 1994 and 1993, the Company held CMOs with a market value
of $2.2 billion and $2.5 billion, respectively. Approximately 88% of
the Company's CMO holdings are fully collateralized by GNMA, FNMA or
FHLMC securities at December 31, 1994 and 1993. The majority of these
are GNMA-backed securities. In addition, the Company held $1.3 billion
and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at
December 31, 1994 and 1993, respectively. Virtually all of these
securities are rated AAA. The Company also held $927 million and $899
million of securities that are backed primarily by credit card or car
loan receivables at December 31, 1994 and 1993, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 133 $ 19 $ 21 $ 131
Nonredeemable preferred stocks 40 - 2 38
------------------------------------------------------------------------------------------------
Total $ 173 $ 19 $ 23 $ 169
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Common stocks $ 129 $ 22 $ 3 $ 148
Nonredeemable preferred stocks 70 3 1 72
------------------------------------------------------------------------------------------------
Total $ 199 $ 25 $ 4 $ 220
------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $359 million in 1994,
resulting in gross realized gains of $24 million and gross realized
losses of $6 million.
48
<PAGE> 51
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Mortgage loans and real estate
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain
current market yields.
At December 31, 1994 and 1993, the Company's mortgage loan and real
estate held for sale portfolios consisted of the following (in
millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 4,467 $ 5,680
Underperforming mortgage loans 471 1,165
------------------------------------------------------------------------------
Total mortgage loans 4,938 6,845
------------------------------------------------------------------------------
Real estate held for sale 383 954
------------------------------------------------------------------------------
Total mortgage loans and real estate $ 5,321 $ 7,799
------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
(in millions)
-----------------------------------------------------
<S> <C>
Past maturity $ 196
1995 708
1996 517
1997 550
1998 614
1999 611
Thereafter 1,742
-----------------------------------------------------
Total $ 4,938
-----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1994 and 1993, the Company had no concentration of
credit risk in a single investee exceeding 10% of consolidated
shareholder's equity.
The Company participates in two short-term investment pools maintained by
TIG and its subsidiaries. These pools are discussed in note 11.
49
<PAGE> 52
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Included in fixed maturities are below investment grade assets totaling
$922 million and $814 million at December 31, 1994 and 1993,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or
the equivalent by the internal analysts when a public rating does not
exist. Such assets include publicly traded below investment grade
bonds, highly leveraged transactions and certain other privately issued
bonds that are classified as below investment grade loans.
The Company also has significant concentrations of investments in the
following industries:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 1,241 $ 1,442
Electric utilities 1,222 1,348
Banking 953 743
Oil and gas 859 651
------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 75 $ 45
Electric utilities 32 47
Banking 21 21
Oil and gas 33 38
------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, significant concentrations of mortgage
loans were for properties located in highly populated areas in the
states listed below. The amounts are shown below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 929 $ 1,174
New York 558 780
Florida 432 588
Texas 380 584
Illinois 347 485
------------------------------------------------------------------------------------------------
</TABLE>
Other mortgage loan investments are fairly evenly dispersed throughout
the United States, with no holdings in any state exceeding $273 million
and $324 million at December 31, 1994 and 1993, respectively.
50
<PAGE> 53
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations of mortgage loans by property type at December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $ 2,065 $ 2,769
Apartment 1,029 1,635
Retail 606 891
Agricultural 540 643
Hotel 402 547
-----------------------------------------------------------------------------------------------
</TABLE>
Real estate investments are dispersed throughout the United States, with
no holdings in any state exceeding $111 million or $191 million at
December 31, 1994 or 1993, respectively.
Real estate assets at December 31, 1994 and 1993 included office
properties with carrying values of $205 million and $568 million,
respectively.
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with
respect to new mortgage loans generally require loan to value ratios of
75% or less at the time of mortgage origination.
Investment Valuation Reserves
At December 31, 1994, 1993 and 1992, total investment valuation
reserves, which are deducted from the applicable investment carrying
values in the consolidated balance sheet, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Beginning of year $ 67 | $ 1,417 $ 864
Increase - | 195 821
Impairments, net of gains/recoveries - | (602) (268)
FAS 115/Purchase accounting adjustment (67) | (943) -
-------------------------------------------------------------------------------------------------
End of year $ - $ 67 | $ 1,417
-------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, investment valuation reserves were comprised of
$67 million for securities. Increases in the investment valuation
reserves are reflected as realized investment losses.
51
<PAGE> 54
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Nonincome Producing
Investments included in the consolidated balance sheets that were
nonincome producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 127 $ 249
Real estate 73 147
Fixed maturities 6 24
-----------------------------------------------------------------------------------------------
Total $ 206 $ 420
-----------------------------------------------------------------------------------------------
</TABLE>
Restructured
The Company has mortgage loans and debt securities which were
restructured at below market terms totaling approximately $259 million
and $796 million at December 31, 1994 and 1993, respectively. At
December 31, 1993, the Company's restructured assets are recorded at
purchase accounting value. The new terms typically defer a portion of
contract interest payments to varying future periods. The accrual of
interest is suspended on all restructured assets, and interest income is
reported only as payment is received. Gross interest income on
restructured assets that would have been recorded in accordance with the
original terms of such loans amounted to $52 million in 1994 and $121
million in 1993. Interest on these assets, included in net investment
income, aggregated $17 million and $52 million in 1994 and 1993,
respectively.
16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1994, the Company has $23.2 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion are not
subject to discretionary withdrawal based on contract terms and related
market conditions. The remaining $11.6 billion are for life and annuity
products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal are $1.9 billion of liabilities that are surrenderable with
market value adjustments. An additional $5.7 billion of the life
insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 5.5%.
Another $1.4 billion of liabilities are surrenderable at book value over
5 to 10 years. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $2.6 billion of
liabilities are surrenderable without charge. Approximately 30% of
these liabilities relate to individual life products. These risks would
have to be underwritten again if transferred to another carrier, which
is considered a significant deterrent for long-term policyholders.
Insurance liabilities that are surrendered or withdrawn from the Company
are reduced by outstanding policy loans and related accrued interest
prior to payout.
52
<PAGE> 55
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
17. RESTRUCTURING COSTS
During 1992, the Company announced a series of organizational
restructuring initiatives associated with its plan to streamline its
business and corporate operations. These initiatives have been
substantially completed. These initiatives resulted in a pretax charge
in 1992 of $151 million, consisting of $96 million for severance,
benefits, accrued vacation and outplacement costs, $5 million for
relocation costs due to consolidation efforts, $19 million for lease
costs, $15 million for writeoff of goodwill related to identified
divestitures and $16 million of miscellaneous other costs.
18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
In the first quarter of 1992, the Company changed its presentation of
cash flows from operating activities from the indirect method to the
direct method. The following table reconciles net income (loss) to net
cash provided by operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
----------------------------------------------------------------|-------------------------------
<S> <C> | <C> <C>
Net income (loss) $ 545 | $ 141 $ (381)
Reconciling adjustments |
Realized gains (losses) (14) | 21 747
Deferred federal income taxes 276 | (78) (340)
Amortization of deferred policy acquisition |
costs and value of insurance in force 284 | 55 61
Additions to deferred policy acquisition costs (429) | 5 (2)
Trading account investments, |
(purchases) sales, net - | (1,576) (364)
Investment income accrued 17 | 1 29
Premium balances receivable 9 | 41 3
Insurance reserves and accrued expenses 165 | 542 (81)
Restructuring reserves - | (79) 121
Cumulative effects of changes in |
accounting principles - | - (224)
Other, including investment valuation reserves |
in 1993 and 1992 (136) | (445) 487
----------------------------------------------------------------|-------------------------------
|
Net cash provided by (used in) |
operating activities $ 717 | $ (1,372) $ 56
------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 56
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
19. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1994 exchange of $23 million of TIHI's investment in The Travelers Inc.
common stock for $35 million of The Travelers Inc. nonredeemable
preferred stock; b) the acquisition of real estate through foreclosures
of mortgage loans amounting to $229 million, $563 million and $753
million in 1994, 1993 and 1992, respectively; c) the acceptance of
purchase money mortgages for sales of real estate aggregating $96
million, $190 million and $72 million in 1994, 1993 and 1992,
respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see
note 3); e) the 1993 contribution of $400 million of bond investments by
The Travelers Corporation (see note 6); f) increases in investment
valuation reserves in 1993 and 1992 for securities, mortgage loans and/or
investment real estate (see note 15); g) the 1993 transfer of $352
million of mortgage loans and bonds from the Company's general account to
two separate accounts; and h) the contribution in 1992 of Transport Life
Insurance Company's preferred provider and third party administrator
organizations by The Travelers Corporation (see note 3).
54
<PAGE> 57
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
GLOSSARY OF INSURANCE TERMS
ANNUITY - A contract that pays a periodic income benefit for the life of
a person (the annuitant), the lives of two or more persons or for a specified
period of time.
ASSUMED REINSURANCE - Business received as reinsurance from another
company. See "Reinsurance".
ASSUMPTION REINSURANCE - A transaction whereby the ceding company
transfers its entire obligation under the policy to the reinsurer, who becomes
directly liable to the policyholder in all respects, including collecting
premiums and paying benefits. See "Reinsurance."
BENEFITS UNDER ADMINISTRATION, INCLUDING FEES - Estimates of amounts that
fee-based Managed Care and Employee Benefits customers would have been charged
if their group health plans had been fully insured.
CEDED REINSURANCE - Risks transferred to another company as reinsurance.
See "Reinsurance".
CLAIM - Request by an insured for indemnification by an insurance company
for loss incurred from an insured peril.
CONTRACTHOLDER FUNDS - Receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risks.
DEDUCTIBLE - The amount of loss that an insured retains.
DEFERRED ACQUISITION COSTS - Commissions and other selling expenses which
vary with and are directly related to the production of business. These
acquisition costs are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in conformity with
GAAP.
DEFINED BENEFIT PLANS - Type of pension plan under which benefits are
fixed in advance by formula, and contributions vary.
DEPOSITS AND OTHER CONSIDERATIONS - Consist of cash value deposits and
charges for mortality risk and expenses associated with universal life
insurance, annuities and group pensions.
EXPERIENCE RATED CONTRACTS - Insurance contracts in which future rates
and/or commissions are compiled from past experience, that is, total premiums
earned and losses incurred. This can be applied by certain risk
classifications or to an individual risk.
FIDUCIARY ACCOUNTS - Accounts held on behalf of others.
GENERAL ACCOUNT - All of an insurer's assets other than those allocated
to separate accounts.
55
<PAGE> 58
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
GLOSSARY OF INSURANCE TERMS, CONTINUED
GUARANTEED INVESTMENT CONTRACTS (GICs) - Group contracts sold to pension
plans, profit sharing plans and funding agreements that guarantee a stated
interest rate for a specified period of time.
HEALTH MAINTENANCE ORGANIZATION (HMO) - A group of medical care entities
organized to provide defined health care services to members in return for
fixed periodic premiums paid in advance (usually monthly).
INDEMNITY REINSURANCE - A transaction whereby the reinsurer agrees to
indemnify the ceding company against all or part of the loss that the latter
may sustain under the policies it issued that are being reinsured. The ceding
company remains primarily liable as the direct insurer on all risks ceded. See
"Reinsurance."
INSURANCE - Mechanism for contractually shifting burdens of a number of
risks by pooling them.
LIFE CONTINGENCIES - Contingencies affecting the duration of life of an
individual or a group of individuals.
LONG-TERM CARE - Coverage for extended stays in a nursing home or home
health services.
MANAGED HEALTH CARE PROGRAMS - A method to curb rising medical costs by
favorably influencing provider practice patterns and making employees
knowledgeable health care consumers by identifying inappropriate care,
providing a managed structure in which medical services are offered, and
maintaining integrated management information systems to encourage quality and
cost-effective use of medical care.
MORBIDITY - The rate at which people become diseased, mentally or
physically, or physically impaired.
MORTALITY - The rate at which people die.
POLICY LOAN - A loan made by an insurance company to a policyholder on
the security of the cash value of the policy. Policy loans offset benefits
payable to policyholders.
REINSURANCE - The acceptance by one or more insurers, called reinsurers,
of all or a portion of the risk underwritten by another insurer who has
directly written the coverage. However, the legal rights of the insured
generally are not affected by the reinsurance transaction and the insurance
enterprise issuing the insurance contract remains liable to the insured for
payment of policy benefits.
RETENTION - The amount of exposure an insurance company retains on any
one risk or group of risks.
SEPARATE ACCOUNTS - Funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
contractholders. The assets of these separate accounts are legally segregated
and not subject to claims that arise out of any other business of the insurance
company.
56
<PAGE> 59
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
GLOSSARY OF INSURANCE TERMS, CONTINUED
STATUTORY ACCOUNTING PRACTICES - Those accounting practices prescribed or
permitted by the National Association of Insurance Commissioners or an
insurer's domiciliary state insurance regulator for purposes of financial
reporting to regulators.
STATUTORY CAPITAL AND SURPLUS - The excess of statutory admitted assets
over statutory liabilities as shown on an insurer's statutory financial
statements.
STRUCTURED SETTLEMENTS - Periodic payments to an injured person or
survivor for a determined number of years or for life, typically in settlement
of a claim under a liability policy.
SURRENDER VALUE - The amount of money, usually the legal reserve under
the policy, less sometimes a surrender charge, which an insurance company will
pay to a policyholder who cancels a policy. This value may be used as
collateral for a loan.
UNDERWRITING - The assumption of risk for designated loss or damage in
consideration of receiving a premium. Also includes the process of examining,
accepting or rejecting insurance risks, and determining the proper premium.
57
<PAGE> 60
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 11. Executive Compensation.
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 13. Certain Relationships and Related Transactions.
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
58
<PAGE> 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed
(1) Financial Statements. See index on page 62 of this report.
(2) Financial Statement Schedules. See index on page 62 of this
report.
(3) Exhibits
3. Articles of Incorporation and By-laws
a. Charter of The Travelers Insurance Company (the "Company"), as
effective October 19, 1994, incorporated by reference to Exhibit
3.01 to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1994 (File No. 33-33691)(the "Company's
September 30, 1994 10-Q").
b. By-laws of the Company as effective October 20, 1994, incorporated
by reference to Exhibit 3.02 to the Company's September 30, 1994
10-Q.
10. Material Contracts
a. Restated Second Amended General Agency Agreement (SAGAA) dated as
of November 1, 1989 by and among Primerica Life Insurance Company
(formerly Massachusetts Indemnity Life Insurance Company;
hereinafter "Primerica Life"), A.L. Williams & Associates, Inc.
and Arthur L. Williams, Jr., incorporated by reference to Exhibit
10.15 to the Annual Report on Form 10-K of The Travelers Inc.
(formerly Primerica Corporation) for the fiscal year ended
December 31, 1990 (File No. 1-9924) (the "Primerica 1990 10-K").
b. Restated First Amendment to SAGAA dated as of November 1, 1989, by
and among Primerica Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by reference to Exhibit 10.16
to the Primerica 1990 10-K.
c. Master Agreement, dated as of September 1, 1994, between the Company
and Metropolitan Life Insurance Company ("MetLife"), incorporated by
reference to Exhibit 10.03 to the Company's September 30, 1994
10-Q.
d. Group Life Insurance and Related Businesses Acquisition Agreement,
dated as of September 1, 1994, among MetLife, the Company, The
Travelers Indemnity Company of Rhode Island and The Travelers
Insurance Company of Illinois, incorporated by reference to Exhibit
10.04 to the Company's September 30, 1994 10-Q.
21. Subsidiaries of the Registrant
Omitted pursuant to General Instruction J(2)(b) of Form 10-K.
27. Financial Data Schedule
(b) Reports on Form 8-K:
On October 7, 1994, the Company filed a Current Report on Form 8-K, dated
September 1, 1994, reporting under Item 5 thereof that the Company and
Metropolitan Life Insurance Company (MetLife) had signed definitive agreements
(i) to combine their medical businesses into a new joint venture and (ii) for
MetLife to purchase the Company's group life and related group insurance
businesses.
59
<PAGE> 62
No other reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report; however, on January 18, 1995, the Company
filed a Current Report on Form 8-K, dated January 3, 1995, reporting under Item
2 thereof the consummation of the sale of its group life and related group
insurance businesses to MetLife and the formation of The MetraHealth Companies,
Inc., a joint venture of the medical businesses of the Company and MetLife, and
filing under Item 7 thereof certain pro forma financial information related to
those dispositions.
60
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on the 30th day of
March, 1995.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
By: /s/Jay S. Fishman By: /s/James L. Morgan
----------------- ------------------
Jay S. Fishman James L. Morgan
Chief Financial Officer Senior Vice President - Finance
and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on the 30th day of March, 1995.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/Robert I. Lipp Director and Chairman of the Board
------------------------------- (Principal Executive Officer)
(Robert I. Lipp)
/s/Jay S. Fishman Director and Chief Financial Officer
------------------------------- (Principal Financial Officer)
(Jay S. Fishman)
/s/James L. Morgan Senior Vice President - Finance and Chief Accounting Officer
------------------------------- (Principal Accounting Officer)
(James L. Morgan)
/s/James F. Calvano Director
-------------------------------
(James F. Calvano)
/s/Michael A. Carpenter Director
-------------------------------
(Michael A. Carpenter)
/s/Irwin R. Ettinger Director
-------------------------------
(Irwin R. Ettinger)
/s/Charles O. Prince, III Director
-------------------------------
(Charles O. Prince, III)
/s/Marc P. Weill Director
-------------------------------
(Marc P. Weill)
</TABLE>
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities pursuant
to Section 12 of the Act: NONE
No Annual Report to Security Holders covering the registrant's last fiscal year
or proxy material with respect to any meeting of security holders has been
sent, or will be sent, to security holders.
61
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
The Travelers Insurance Company and Subsidiaries
Consolidated Statement of Operations and Retained Earnings *
Consolidated Balance Sheet *
Consolidated Statement of Cash Flows *
Notes to Consolidated Financial Statements *
Independent Auditors' Reports *
Reports of Independent Accountants 63-65
Schedule I -Summary of Investments - Other than Investments in Related Parties 1994 66
Schedule III -Supplementary Insurance Information 1992-1994 67-69
Schedule IV -Reinsurance 1992-1994 70
Schedule V -Valuation and Qualifying Accounts 1992-1994 71
All other schedules are inapplicable for this filing.
</TABLE>
* See index on page 15
62
<PAGE> 65
Independent Auditors' Report
The Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
Under date of January 17, 1995, we reported on the consolidated balance sheets
of The Travelers Insurance Company and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations and retained
earnings and cash flows for the year ended December 31, 1994, as contained in
this Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules appearing on pages 66, 67, 68, 70 and 71 in this
Form 10-K. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statement schedules based on our
audits.
In our opinion, such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994.
/s/KPMG PEAT MARWICK LLP
Hartford, Connecticut
January 17, 1995
63
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
In connection with our audit of the consolidated statements of operations and
retained earnings and cash flows of The Travelers Insurance Company and
Subsidiaries (the "Company") for the year ended December 31, 1993, which
financial statements are included in this Form 10-K, we have also audited those
portions, of the financial statement schedules listed in the index on page 62
of this Form 10-K which pertain to the operations of the Company for the year
ended December 31, 1993.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
January 24, 1994
64
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
of The Travelers Insurance Company and Subsidiaries:
In connection with our audits of the consolidated financial statements of The
Travelers Insurance Company and Subsidiaries as of December 31, 1992, and for
the year then ended, which financial statements are included in this Form 10-K,
we have also audited the financial statement schedules (pertaining to this
period) listed in the index on page 62 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Notes 2, 5, 10 and 13 to the consolidated financial
statements on pages 27, 31, 37 and 41, the Company changed its method of
accounting for postretirement benefits other than pensions, accounting for
income taxes and accounting for foreclosed assets in 1992 and in 1993
retroactively restated 1992 and prior year balance sheet accounts related to a
change in its method of accounting and reporting for reinsurance.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
February 9, 1993 except for Notes 2 and 5,
as to which the date is January 24, 1994
65
<PAGE> 68
SCHEDULE I
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Summary of Investments - Other Than
Investments in Related Parties
December 31, 1994
(in millions)
<TABLE>
<CAPTION>
Amount at which
shown in the
Type of Investment Cost Value balance sheet(1)
------------------ ---- ----- ----------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government and government agencies and
authorities $ 5,836 $ 5,305 $ 5,305
States, municipalities and political subdivisions 87 80 80
Foreign governments 398 372 372
Public utilities 2,276 2,104 2,104
Convertibles and bonds with warrants attached 164 156 156
All other corporate bonds (2) 9,784 9,210 9,210
------- ------- -------
Total bonds 18,545 17,227 17,227
Redeemable preferred stocks 10 10 10
------- ------- -------
Total fixed maturities 18,555 17,237 17,237
------- ------- -------
Equity securities:
Common stock
Banks, trust and insurance companies 7 7 7
Industrial, miscellaneous and all other 126 124 124
------- ------- -------
Total common stocks 133 131 131
Nonredeemable preferred stocks 40 38 38
------- ------- -------
Total equity securities 173 169 169
------- ------- -------
Mortgage loans on real estate (3) 4,938 4,938
------- -------
Real estate held for sale 383 383
------- -------
Policy loans 1,581 1,581
------- -------
Short-term securities 2,279 2,279
------- -------
Other loans and investments (4) (5) 745 589
------- -------
Total investments $28,654 $27,176
======= =======
</TABLE>
(1) Determined in accordance with methods described in notes 1 and 15 on pages
22 and 44 of the notes to the consolidated financial statements.
(2) Excludes $24 million cost and $23 million fair value of Commercial Credit
Company bonds.
(3) Includes $18 million loaned to unconsolidated affiliates and real estate
joint ventures accounted for by the equity method.
(4) Includes equity of $186 million in real estate joint ventures.
(5) Excludes $30 million (cost and carrying value) of notes receivable from The
Travelers Inc. and $110 million cost and $266 million fair value of The
Travelers Inc. common stock and preferred stock.
66
<PAGE> 69
SCHEDULE III
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Supplementary Insurance Information
1994
(In millions)
<TABLE>
<CAPTION>
Segment Deferred policy Future policy Unearned Other Premium Net Benefits,
acquisition costs benefits, premiums policy revenue investment claims,
and value of losses, claims claims & income losses &
insurance & loss expenses benefits (b) settlement
inforce (a) payable expenses (c)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life and
Annuities $ 1,898 $ 22,374 $ - $ 458 $ 1,492 $ 1,603 $ 2,070
Managed Care
and Employee
Benefits 41 3,133 - 764 2,369 246 2,511
Corporate
and Other
Operations - 2,327 - - - - -
----------- ------------- -------- -------- ------- -------- --------
Consolidated $ 1,939 $ 27,834 $ - $ 1,222 $ 3,861 $ 1,849 $ 4,581
=========== ============= ======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Amortization
of deferred
Segment policy Other Premiums
acquisition operating written
costs and value expenses
of insurance (d)
inforce
------------------------------------------------------------------------
<S> <C> <C> <C>
Life and
Annuities $ 278 $ 329 $ 1,488
Managed Care
and Employee
Benefits 6 690 2,434
Corporate
and Other
Operations - 6 -
----------- -------- -------
Consolidated $ 284 $ 1,025 $ 3,922
=========== ======== =======
</TABLE>
(a) Includes contractholder funds.
(b) Net investment income for each segment is accounted for separately, except
for the portion earned on the investment of shareholder's equity which is
allocated based on assigned capital.
(c) Includes interest credited to contractholders.
(d) Expense allocations are determined in accordance with the guidelines and
principles published in Regulation 30 from the Insurance Department of the
State of New York. This regulation makes a reasonable allocation of all
expenses to those product lines with which they are associated.
67
<PAGE> 70
SCHEDULE III
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Supplementary Insurance Information
1993
(In millions)
<TABLE>
<CAPTION>
Segment Deferred policy Future policy Unearned Other Premium Net Benefits,
acquisition costs benefits, premiums policy revenue investment claims,
and value of losses, claims claims & income losses &
insurance & loss expenses benefits (b) settlement
inforce (a) payable expenses (c)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life and
Annuities $ 1,748 $ 23,841 $ - $ 418 $ 330 $ 1,616 $ 1,875
Managed Care
and Employee
Benefits 46 2,981 - 856 2,395 265 2,683
Corporate
and Other
Operations - 2,291 - - - 3 -
----------- ------------- -------- ------- --------- -------- --------
Consolidated $ 1,794 $ 29,113 $ - $ 1,274 $ 2,725 $ 1,884 $ 4,558
=========== ============= ======== ======= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Amortization
of deferred
Segment policy Other Premiums
acquisition operating written
costs and value expenses
of insurance (d)
inforce
----------------------------------------------------------------
<S> <C> <C> <C>
Life and
Annuities $ 55 $ 178 $ 330
Managed Care
and Employee
Benefits - 565 2,475
Corporate
and Other
Operations - 8 -
----------- -------- -------
Consolidated $ 55 $ 751 $ 2,805
=========== ======== =======
</TABLE>
(a) Includes contractholder funds.
(b) Net investment income for each segment is accounted for separately, except
for the portion earned on the investment of shareholder's equity which is
allocated based on assigned capital.
(c) Includes interest credited to contractholders.
(d) Expense allocations are determined in accordance with the guidelines and
principles published in Regulation 30 from the Insurance Department of the
State of New York. This regulation makes a reasonable allocation of all
expenses to those product lines with which they are associated.
68
<PAGE> 71
SCHEDULE III
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Supplementary Insurance Information
1992
(In millions)
<TABLE>
<CAPTION>
Segment Deferred policy Future policy Unearned Other Premium Net Benefits,
acquisition costs benefits, premiums policy revenue investment claims,
and value of losses, claims claims & income losses &
insurance & loss expenses benefits (b) settlement
inforce (a) payable expenses (c)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life and
Annuities $ 572 $ 22,581 $ - $ 290 $ 278 $ 1,799 $ 2,060
Managed Care
and Employee
Benefits - 2,753 - 920 2,408 290 2,660
Corporate
and Other
Operations - 2,019 - - - 12 -
----------- ------------- ----------- -------- --------- -------- --------
Consolidated $ 572 $ 27,353 $ - $ 1,210 $ 2,686 $ 2,101 $ 4,720
=========== ============= =========== ======== ========= ======== ========
<CAPTION>
Amortization
of deferred
Segment policy Other Premiums
acquisition operating written
costs and value expenses
of insurance (d)
inforce
---------------------------------------------------------
<S> <C> <C> <C>
Life and
Annuities $ 61 $ 213 $ 278
Managed Care
and Employee
Benefits - 762 2,431
Corporate
and Other
Operations - 12 -
----------- -------- ---------
Consolidated $ 61 $ 987 $ 2,709
=========== ======== =========
</TABLE>
(a) Includes contractholder funds.
(b) Net investment income for each segment is accounted for separately, except
for the portion earned on the investment of shareholder's equity which is
allocated based on assigned capital.
(c) Includes interest credited to contractholders.
(d) Expense allocations are determined in accordance with the guidelines and
principles published in Regulation 30 from the Insurance Department of the
State of New York. This regulation makes a reasonable allocation of all
expenses to those product lines with which they are associated.
69
<PAGE> 72
SCHEDULE IV
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
(In millions)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
------ --------- ---------- ------ ----------
1994
----
<S> <C> <C> <C> <C> <C>
Life insurance in force $523,750 $ 105,396 $ 4,205 $ 422,559 1.0%
Premiums
Life insurance $ 1,774 $ 271 $ 8 $ 1,511 0.5
Accident and health insurance 2,324 61 87 2,350 3.7
Property-casualty 358 358 - - -
-------- ----------- ----------- ----------
Total premiums $ 4,456 $ 690 $ 95 $ 3,861 2.5
======== =========== =========== ==========
<CAPTION>
1993
----
<S> <C> <C> <C> <C> <C>
Life insurance in force $498,731 $ 92,603 $ 5,032 $ 411,160 1.2%
------------------------------------------------------------------------------------------------------------------------------------
Premiums
Life insurance $ 674 $ 46 $ 18 $ 646 2.8
Accident and health insurance 2,141 108 46 2,079 2.2
Property-casualty 444 444 - - -
-------- ----------- ----------- ----------
Total premiums $ 3,259 $ 598 $ 64 $ 2,725 2.3
======== =========== =========== ==========
<CAPTION>
1992
----
<S> <C> <C> <C> <C> <C>
Life insurance in force $172,444 $ 10,840 $ 20,300 $ 181,904 11.2%
Premiums
Life insurance $ 588 $ 16 $ 80 $ 652 12.3
Accident and health insurance 2,121 117 30 2,034 1.5
Property-casualty 428 428 - - -
-------- ----------- ----------- ----------
Total premiums $ 3,137 $ 561 $ 110 $ 2,686 4.1
======== =========== =========== ==========
</TABLE>
70
<PAGE> 73
SCHEDULE V
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In millions)
<TABLE>
<CAPTION>
Balance at Balance at
beginning Additions- Deductions- end of
Description of period describe describe Other period
------------------------------------------------------------------------------------------------------------------------------
1994
----
<S> <C> <C> <C> <C> <C>
Asset valuation reserves
Securities $ 67 $ - $ - $ (67)(1) -
Mortgage loans - - - - -
Real estate - - - - -
----------- ----------- ---------- ----------- -----------
$ 67 $ - $ - $ (67) $ -
=========== =========== ========== =========== ===========
Tax valuation reserve $ 100 $ - $ - $ - $ 100
=========== =========== ========== =========== ===========
Investment income accrued $ - $ - $ - $ - $ -
=========== =========== ========== =========== ===========
</TABLE>
(1) Investment valuation reserve eliminated in conjunction with the adoption
of FAS 115. See note 2 on page 27 of the notes to consolidated financial
statements.
<TABLE>
<CAPTION>
1993
----
<S> <C> <C> <C> <C> <C>
Asset valuation reserves
Securities $ 95 $ - $ 21 $ (7) $ 67
Mortgage loans 849 - 372 (477) -
Real estate 473 195 209 (459) -
----------- ----------- ---------- ----------- -----------
$ 1,417 $ 195(1) $ 602(2) $ (943)(4) $ 67
=========== =========== ========== =========== ===========
Tax valuation reserve $ 100 $ - $ - $ - $ 100
=========== =========== ========== =========== ===========
Investment income accrued $ 58 $ - $ 14(3) $ (44)(4) $ -
=========== =========== ========== =========== ===========
</TABLE>
(1) Charged to realized investment losses in the consolidated statement of
operations and retained earnings.
(2) Credited to the related asset account.
(3) Credited to investment income accrued in the consolidated balance sheet.
(4) Purchase accounting adjustment made in connection with recording related
assets at fair value as determined at December 31, 1993, the date of the
Merger. See note 1 on page 22 of the notes to consolidated financial
statements.
<TABLE>
<CAPTION>
1992
----
<S> <C> <C> <C> <C> <C>
Asset valuation reserves
Securities $ 79 $ 35 $ 19 N/A $ 95
Mortgage loans 689 386(1) 226 849
Real estate 96 400(1) 23 473
----------- ----------- ---------- -----------
$ 864 $ 821(2) $ 268(3) $ 1,417
=========== =========== ========== ===========
Tax valuation reserve $ - $ 100(4) $ - $ 100
=========== =========== ========== ===========
Investment income accrued $ 72 $ - $ 14(5) $ 58
=========== =========== ========== ===========
</TABLE>
(1) Included implementation of SOP 92-3. See note 2 on page 27 of the notes to
consolidated financial statements.
(2) Charged to realized investment losses in the consolidated statement of
operations and retained earnings.
(3) Credited to the related asset account.
(4) Related to implementation of FAS 109. See note 13 on page 41 of the notes
to consolidated financial statements.
(5) Credited to investment income accrued in the consolidated balance sheet.
71
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Filing Method
-----------------------------------------------------------------------------------------------------------
<S> <C>
3. Articles of Incorporation and By-laws
a. Charter of The Travelers Insurance Company (the "Company"),
as effective October 19, 1994, incorporated by reference
to Exhibit 3.01 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1994 (File No. 33-33691)
(the "Company's September 30, 1994 10-Q").
b. By-laws of the Company as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the Company's
September 30, 1994 10-Q.
10. Material Contracts
a. Restated Second Amended General Agency Agreement
(SAGAA) dated as of November 1, 1989 by and among
Primerica Life Insurance Company (formerly Massachusetts
Indemnity Life Insurance Company; hereinafter "Primerica
Life"), A.L. Williams & Associates, Inc. and Arthur L.
Williams, Jr., incorporated by reference to Exhibit 10.15 to the
Annual Report on Form 10-K of The Travelers Inc. (formerly
Primerica Corporation) for the fiscal year ended December 31,
1990 (File No. 1-9924) (the "Primerica 1990 10-K").
b. Restated First Amendment to SAGAA dated as of November 1,
1989, by and among Primerica Life, A.L. Williams &
Associates, Inc. and Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Primerica 1990 10-K.
c. Master Agreement, dated as of September 1, 1994, between the
Company and Metropolitan Life Insurance Company ("MetLife"),
incorporated by reference to Exhibit 10.03 to the Company's
September 30, 1994 10-Q.
d. Group Life Insurance and Related Businesses Acquisition Agreement,
dated as of September 1, 1994, among MetLife, the Company, The
Travelers Indemnity Company of Rhode Island and The Travelers
Insurance Company of Illinois, incorporated by reference to Exhibit
10.04 to the Company's September 30, 1994 10-Q.
21. Subsidiaries of the Registrant
Omitted pursuant to General Instruction J(2)(b) of Form 10-K.
27. Financial Data Schedule Electronic
</TABLE>
72
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TRAVELERS INSURANCE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000733076
<NAME> TRAVELERS INSURANCE COMPANY
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 169
<MORTGAGE> 4,938
<REAL-ESTATE> 383
<TOTAL-INVEST> 27,495
<CASH> 102
<RECOVER-REINSURE> 2,915
<DEFERRED-ACQUISITION> 1,939
<TOTAL-ASSETS> 40,535
<POLICY-LOSSES> 11,480
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,222
<POLICY-HOLDER-FUNDS> 16,354
<NOTES-PAYABLE> 74
<COMMON> 100
0
0
<OTHER-SE> 4,254
<TOTAL-LIABILITY-AND-EQUITY> 40,535
3,861
<INVESTMENT-INCOME> 1,849
<INVESTMENT-GAINS> 14
<OTHER-INCOME> 1,023
<BENEFITS> 3,614
<UNDERWRITING-AMORTIZATION> 284
<UNDERWRITING-OTHER> 1,992
<INCOME-PRETAX> 857
<INCOME-TAX> 312
<INCOME-CONTINUING> 545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 545
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
