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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ -----------
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Commission file number 33-33691
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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
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of the date hereof, there were outstanding 40,000,000 shares of common
stock, par value $2.50 per share, of the registrant, all of which were owned by
The Travelers Insurance Group Inc., an indirect, wholly owned subsidiary of
Travelers Group Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 1996
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations and Retained Earnings for the
Three Months Ended March 31, 1996 and 1995 (unaudited).........................................3
Condensed Consolidated Balance Sheet as of March 31, 1996 (unaudited) and
December 31, 1995..............................................................................4
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 (unaudited).........................................5
Notes to Condensed Consolidated Financial Statements (unaudited)...............................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................................................12
SIGNATURES....................................................................................13
</TABLE>
2
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
REVENUES
Premiums $ 339 $ 386
Net investment income 455 450
Realized investment gains (losses) 16 (23)
Other revenues 80 59
------ ------
890 872
------ ------
BENEFITS AND EXPENSES
Current and future insurance benefits 285 286
Interest credited to contractholders 209 259
Amortization of deferred acquisition costs
and value of insurance in force 67 71
Other operating expenses 103 94
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664 710
------ ------
Income from continuing operations
before federal income taxes 226 162
Federal income taxes 78 56
------ ------
Income from continuing operations 148 106
Discontinued operations, net of income taxes
Income from operations -- 13
Gain on disposition -- 20
------ ------
Income from discontinued operations -- 33
------ ------
Net income 148 139
Dividends to parent (175) --
Retained earnings at beginning of period 2,312 1,562
------ ------
Retained earnings at end of period $2,285 $1,701
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
3
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Investments, including real estate held for sale $26,553 $27,301
Separate and variable accounts 7,349 6,949
Reinsurance recoverable 3,880 4,107
Other assets 4,209 3,944
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Total assets $41,991 $42,301
======= =======
LIABILITIES
Contractholder funds $14,282 $14,525
Benefit and other insurance reserves 12,070 12,354
Separate and variable accounts 7,307 6,916
Other liabilities 2,452 2,278
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Total liabilities 36,111 36,073
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SHAREHOLDER'S EQUITY
Capital stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,160 3,134
Retained earnings 2,285 2,312
Unrealized investment gains, net of taxes 335 682
------- -------
Total shareholder's equity 5,880 6,228
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Total liabilities and shareholder's equity $41,991 $42,301
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net cash provided by operating activities $ 259 $ 51
Net cash used in discontinued operations (209) (253)
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Net cash provided by (used in) operations 50 (202)
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Cash flows from investing activities
Investment repayments
Fixed maturities 384 562
Mortgage loans 194 87
Proceeds from sales of investments, including
real estate held for sale
Fixed maturities 2,881 958
Equity securities 52 93
Mortgage loans 62 165
Real estate held for sale 54 92
Investments in
Fixed maturities (3,661) (1,517)
Equity securities (86) (100)
Mortgage loans (51) (47)
Policy loans, net (15) (15)
Short-term securities (purchases) sales, net 184 61
Other investments, net 110 (149)
Securities transactions in course of settlement -- 32
Net cash provided by investing activities of
discontinued operations 209 327
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Net cash provided by investing activities 317 549
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Cash flows from financing activities
Issuance (redemption) of short-term debt, net (10) (4)
Contractholder fund deposits 802 875
Contractholder fund withdrawals (1,000) (1,283)
Dividends paid to parent company (175) --
Other 8 --
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Net cash used in financing activities (375) (412)
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Net decrease in cash (8) (65)
Cash at beginning of period 73 102
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Cash at end of period $ 65 $ 37
======== =======
Supplemental disclosure of cash flow information
Interest paid $ 1 $ 1
======= =======
Income taxes paid $ 123 $ 29
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1996
1. General
The interim financial statements of The Travelers Insurance Company and
Subsidiaries (the Company), an indirect, wholly owned subsidiary of
Travelers Group Inc. (Travelers Group), have been prepared in conformity
with generally accepted accounting principles (GAAP) and are unaudited.
They reflect all adjustments (none of which were other than normal
recurring adjustments) necessary, in the opinion of management, for a fair
statement of results for the periods reported. The accompanying condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the
Company's Form 10-K for the year ended December 31, 1995.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. Discontinued operations
In January 1995, the group life and related businesses of the Company were
sold to Metropolitan Life Insurance Company (MetLife) and also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and through that date has been
accounted for on the equity method. The Company's discontinued operations
reflect the results of the medical insurance business not transferred, the
equity interest in the earnings of MetraHealth through October 2, 1995
(date of sale) and the gains from the sales of these businesses. Revenues
from the discontinued operations for the three months ended March 31, 1996
and 1995 amounted to $35 million and $350 million, respectively.
3. Changes in Accounting Principles
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." This statement
establishes accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed of. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed of (e.g. real estate held for sale) to be carried at the lower of
cost or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
4. Capital and Debt
The Company issues commercial paper directly to investors and had $63
million and $73 million outstanding at March 31, 1996 and December 31,
1995, respectively. Commercial paper is included in other liabilities in
the condensed consolidated balance sheet. The Company maintains unused
credit available under bank lines of credit at least equal to the amount of
the outstanding commercial paper.
Travelers Group, Commercial Credit Company (CCC) (an indirect, wholly owned
subsidiary of Travelers Group) and the Company have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility which
expires in 1999. At March 31, 1996, $125 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At March 31, 1996, the
Company was in compliance with these provisions.
Statutory capital and surplus of the Company was $3.2 billion at December
31, 1995. The Company is subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $506 million is available in 1996 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
5. Commitments and Contingencies
The Company is a defendant or co-defendant in various litigation matters.
Although there can be no assurances, as of March 31, 1996, 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.
7
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. 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 H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW
<TABLE>
<CAPTION>
For the three months ended March 31, 1996 1995
(in millions) ---- ----
<S> <C> <C>
Revenues $890 $881
==== ====
Income from continuing operations $148 $106
Income from discontinued operations - 33
---- ----
Net income $148 $139
==== ====
</TABLE>
OVERVIEW
The Travelers Insurance Company and its subsidiaries (the Company) operates
through two major business units within its Life Insurance Services segment:
- TRAVELERS LIFE AND ANNUITY offers individual life and long-term care
insurance, payout annuities and fixed and variable deferred annuities to
individuals and small businesses. It also provides group pension deposit
products, including guaranteed investment contracts and annuities for
employer-sponsored retirement and savings plans.
- PRIMERICA LIFE INSURANCE offers individual life products, primarily term
insurance, to consumers through a nationwide sales force of approximately
100,000 full and part-time independent representatives.
The Corporate and Other Operations segment consists of certain corporate staff
operations. The income and expenses associated with these ffunctions have not
been allocated to the major business units.
RESULTS OF OPERATIONS
Income from continuing operations for the three months ended March 31, 1996 was
$148 million, compared to $106 million for the three months ended March 31,
1995. Included in income from continuing operations are net after-tax portfolio
gains (losses) of $10 million in 1996 and $(15) million in 1995. Excluding these
items, income from continuing operations for the three months ended March 31,
1996 increased 14% to $138 million, reflecting improved performance at both
business units, partially offset by a modest increase in corporate expenses.
DISCONTINUED OPERATIONS
In January 1995, the group life and related businesses of the Company were
sold to Metropolitan Life Insurance Company (MetLife) and also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and through that date has been
accounted for on the equity method. The Company's discontinued operations
reflect the results of the medical insurance business not transferred, the
equity interest in the earnings of MetraHealth through October 2, 1995
(date of sale) and the gains from the sales of these
8
<PAGE> 9
businesses. Revenues from the discontinued operations for the three months ended
March 31, 1996 and 1995 amounted to $35 million and $350 million, respectively.
The following discussion presents in more detail each segment's performance.
LIFE INSURANCE SERVICES
TRAVELERS LIFE AND ANNUITY
<TABLE>
<CAPTION>
For the three months ended March 31, 1996 1995
(in millions) ----- -----
<S> <C> <C>
Revenues $570 $567
==== ====
Net income $ 86 $ 48
==== ====
</TABLE>
Earnings before portfolio gains increased 20% to $82 million in the first
quarter of 1996, compared to $68 million in the first quarter of 1995. This
earnings growth was driven by strong investment portfolio performance and a
higher capital base which benefited from reinvestment of proceeds from the sale
of MetraHealth in the fourth quarter of 1995, offset somewhat by the loss of
earnings from Transport Life Insurance Company, which was spun-off to Travelers
Group shareholders in September 1995.
For deferred annuities, net written premiums and deposits were $488 million in
the first quarter of 1996, up 37% from $355 million in the first quarter of
1995. Total deferred annuity policyholder account balances and benefit reserves
at March 31, 1996 were $11.7 billion compared to $9.9 billion at March 31, 1995.
Sales continue to be strengthened by the success of Vintage, the variable
annuity product distributed exclusively by Smith Barney Financial Consultants,
now accounting for nearly 40% of all deferred annuity production at Travelers
Life and Annuity. Annuity sales were also helped in part by rating agency
upgrades for claims-paying ability that occurred during 1995 including, in April
1995, A.M. Best Company's upgrade of the Company to an "A" rating. This rating
is not a recommendation to buy, sell or hold securities, and it may be revised
or withdrawn at any time.
In the guaranteed investment contract and other group annuity business, net
written premiums and deposits were $445 million in the first quarter of 1996,
compared to $329 million in the first quarter of 1995 (which excludes deposits
of $200 million related to the first quarter 1995 transfer in-house of an
affiliate's pension fund assets previously managed externally). A management
decision not to renew low margin guaranteed investment contracts written in
prior years accounted for a reduction in group annuity policyholder account
balances and benefit reserves of $7.3 billion at March 31, 1996, down from $8.6
billion at March 31, 1995.
Payout annuity policyholder account balances and reserves totaled $4.4 billion
at March 31, 1996, level with the prior year's balance. Similarly, net premiums
and deposits of $16.9 million for the first quarter of 1996 approximated the
1995 amount.
Face amount of individual life insurance issued during the first quarter of 1996
was $1.5 billion, level with the first quarter of 1995, excluding Transport
Life, bringing total life insurance in force to $49.2 billion at March 31, 1996.
Net written premiums and deposits for individual life insurance were $74.5
million, up 25%, in the first quarter of 1995, compared to $59.3 million in the
first quarter of 1995, excluding Transport Life. This increase reflects sales of
Vintage Life, a new single premium product introduced to Smith Barney Financial
Consultants in September 1995.
9
<PAGE> 10
Net written premiums for the growing long-term care insurance line, excluding
Transport Life, were $27.7 million in the first quarter of 1996, compared to
$18.6 million in the first quarter of 1995, largely as a result of a 68%
increase in sales of new policies.
PRIMERICA LIFE INSURANCE
<TABLE>
<CAPTION>
For the three months ended March 31, 1996 1995
(in millions) ---- ----
<S> <C> <C>
Revenues $319 $305
==== ====
Net income $ 63 $ 54
==== ====
</TABLE>
Earnings before portfolio gains for the first quarter of 1996 increased 16% to
$58 million, compared to $50 million in the first quarter of 1995, reflecting
continued growth in life insurance in force, as well as favorable mortality
experience.
Face amount of new term life insurance sales was $12.3 billion in the first
quarter of 1996, down from $13.4 billion in the prior year period. Life
insurance in force reached $350.4 billion at March 31, 1996, up from $337.9
billion at March 31, 1995, and continued to reflect good policy persistency.
CORPORATE AND OTHER OPERATIONS
<TABLE>
<CAPTION>
For the three months ended March 31, 1996 1995
(in millions) ---- ----
<S> <C> <C>
Revenues $ 1 $ -
==== ====
Net income (loss) $ (1) $ 4
==== ====
</TABLE>
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS
For the three months ended March 31, 1996 1995
(in millions) ----- -----
<S> <C> <C>
Income from discontinued operations $ - $ 13
Gain on disposition - 20
----- ----
Income from discontinued operations $ - $ 33
===== ====
</TABLE>
Income from discontinued operations reflect the results of the medical insurance
business not transferred to MetraHealth, plus the Company's equity interest in
the earnings of MetraHealth in 1995. The after-tax gain on disposition of $20
million represents the gain from the sale in January 1995 of the group life and
related businesses to MetLife.
10
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INSURANCE REGULATIONS
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
merit further regulatory action. At March 31, 1996, the Company and its
insurance subsidiaries had adjusted capital in excess of amounts requiring any
regulatory action.
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to be paid to its parent without prior approval of
insurance regulatory authorities in the state of domicile. The maximum amount of
dividends available to be paid to the Company's shareholder in 1996 without
prior approval of the Connecticut Insurance Department is $506 million.
ACCOUNTING STANDARDS NOT YET ADOPTED
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), is effective for 1996 reporting. This statement addresses the
accounting for the cost of stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured
at the grant date based upon estimated fair value, using option pricing models.
The Company, along with affiliated companies, participates in stock option and
other stock based incentive plans sponsored by its ultimate parent. The Company
has selected the disclosure alternative that requires such pro forma
disclosures to be included in annual financial statements.
11
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description Filing Method
- --- ----------- -------------
<S> <C> <C>
27 Financial Data Schedule Electronic
</TABLE>
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter ended March 31,
1996.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
Date May 14, 1996 /s/ Ian R. Stuart
-------------------------------
Ian R. Stuart
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 FINANCIAL STATEMENTS OF THE TRAVELERS INSURANCE COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000733076
<NAME> THE TRAVELERS INSURANCE COMPANY
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
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<TOTAL-INVEST> 26553
<CASH> 65
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0
0
<COMMON> 100
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339
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</TABLE>
