<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
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
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income and Retained Earnings for the Three
Months Ended March 31, 1997 and 1996 (unaudited)...................................... 3
Condensed Consolidated Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996..................................................................... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 (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 ............................................ 11
SIGNATURES............................................................................ 12
</TABLE>
2
<PAGE> 3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
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<S> <C> <C>
REVENUES
Premiums $ 359 $ 339
Net investment income 472 455
Realized investment gains 8 16
Other revenues 90 80
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Total revenues 929 890
------- -------
BENEFITS AND EXPENSES
Current and future insurance benefits 300 285
Interest credited to contractholders 193 209
Amortization of deferred acquisition costs
and value of insurance in force 72 67
General and administrative expenses 100 103
------- -------
Total benefits and expenses 665 664
------- -------
Income from operations
before federal income taxes 264 226
Federal income taxes 91 78
------- -------
Net income 173 148
Dividends to parent (100) (175)
Retained earnings beginning of period 2,471 2,312
------- -------
Retained earnings end of period $ 2,544 $ 2,285
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS
Investments $26,472 $26,394
Separate and variable accounts 9,354 9,023
Reinsurance recoverable 3,823 3,805
Other assets 3,838 3,695
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Total assets $43,487 $42,917
======= =======
LIABILITIES
Contractholder funds $13,758 $13,693
Benefit and other insurance reserves 11,924 11,986
Separate and variable accounts 9,309 8,949
Other liabilities 2,359 1,961
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Total liabilities 37,350 36,589
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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 3,174 3,170
Retained earnings 2,544 2,471
Unrealized investment gains, net of taxes 319 587
------- -------
Total shareholder's equity 6,137 6,328
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Total liabilities and shareholder's equity $43,487 $42,917
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net cash provided by operating activities $ 319 $ 259
Net cash used in discontinued operations -- (209)
------- -------
Net cash provided by operations 319 50
------- -------
Cash flows from investing activities
Proceeds from maturities of investments
Fixed maturities 452 384
Mortgage loans 97 194
Proceeds from sales of investments
Fixed maturities 2,389 2,881
Equity securities 106 52
Mortgage loans -- 62
Real estate held for sale 9 54
Purchases of investments
Fixed maturities (2,878) (3,661)
Equity securities (78) (86)
Mortgage loans (115) (51)
Policy loans, net 8 (15)
Short-term securities (purchases) sales, net (418) 184
Other investments, net 45 110
Securities transactions in course of settlement 131 --
Net cash provided by investing activities of
discontinued operations -- 209
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Net cash provided by (used in) investing activities (252) 317
------- -------
Cash flows from financing activities
Redemption of short-term debt, net (50) (10)
Contractholder fund deposits 798 802
Contractholder fund withdrawals (727) (1,000)
Dividends to parent company (100) (175)
Other -- 8
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Net cash used in financing activities (79) (375)
------- -------
Net decrease in cash (12) (8)
Cash at beginning of period 74 73
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Cash at end of period $ 62 $ 65
======= =======
Supplemental disclosure of cash flow information
Interest paid $ 1 $ 1
======= =======
Income taxes paid $ 10 $ 123
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1997
1. Basis of Presentation
The interim financial statements of The Travelers Insurance Company and its
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 Annual Report on Form 10-K for the year ended December 31, 1996.
Effective January 1, 1997 the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS No. 125). This
Statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. FAS No. 125 provides
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. The requirements of FAS No. 125
are effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and are
to be applied prospectively. However, in December 1996 the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125," which delays until January 1, 1998 the effective
date for certain provisions. Earlier or retroactive application is not
permitted. The adoption of the provisions of this statement effective
January 1, 1997 did not have a material impact on results of operations,
financial condition or liquidity, and the Company is currently evaluating
the impact of the provisions whose effective date has been delayed until
January 1, 1998.
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. The Company's discontinued
operations reflect the results of the medical insurance business not
transferred and the gains from the sales of these businesses. Revenues from
discontinued operations for the three months ended March 31, 1996 were
insignificant.
6
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
March 31, 1997
3. Commercial Paper and Lines of Credit
The Company issues commercial paper directly to investors, and had $50
million outstanding at December 31, 1996. No commercial paper was
outstanding at March 31, 1997. 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. Interest expense was not
significant in the first quarter of 1997 or 1996.
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 June 2001. At March 31, 1997, $50 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, 1997, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at March 31, 1997 and December 31, 1996.
4. Shareholder's Equity
Statutory capital and surplus of the Company was $3,442 million at December
31, 1996. 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. The maximum
amount of dividends available to be paid to the Company's shareholder in
1997 without prior approval of the Connecticut Insurance Department is $507
million. The Company paid $100 million in dividends to its parent during
the three months ended March 31, 1997.
5. Commitments and Contingencies
The Company is a defendant or co-defendant in various litigation matters in
the normal course of business. Although there can be no assurances, as of
March 31, 1997, 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
<PAGE> 8
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>
Three Months Ended
March 31,
----------------------
1997 1996
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(in millions)
<S> <C> <C>
Revenues $ 929 $ 890
=========== ==========
Net income $ 173 $ 148
=========== ==========
</TABLE>
OVERVIEW
The Travelers Insurance Company and its subsidiaries (the Company) operate
through two major business units within its Life Insurance Services Segment:
- - TRAVELERS LIFE AND ANNUITY offers fixed and variable deferred annuities,
payout annuities and term, universal and variable life and long-term care
insurance to individuals and small businesses. It also provides group
pension products, including guaranteed investment contracts and group
annuities for employer-sponsored retirement and savings plans. These
products are primarily marketed through The Copeland Companies (Copeland),
an indirect wholly owned subsidiary of the Company, the Financial
Consultants of Smith Barney Inc., an affiliate of the Company, and a
nationwide network of independent agents.
- - PRIMERICA LIFE INSURANCE offers individual life products, primarily term
insurance, to consumers through a nationwide sales force of more than 86,000
full and part-time independent representatives.
RESULTS OF OPERATIONS
Income from operations for the three months ended March 31, 1997 and 1996 was
$173 million and $148 million, respectively. Included in income from operations
are net after-tax investment portfolio gains of $5 million in the first quarter
of 1997 and $10 million in the first quarter of 1996. Excluding these items,
income from operations for the three months ended March 31, 1997 increased 22%
to $168 million, reflecting improved performance at both business units.
8
<PAGE> 9
The following discussion presents in more detail each unit's performance.
LIFE INSURANCE SERVICES
TRAVELERS LIFE AND ANNUITY
<TABLE>
<CAPTION>
For the three months ended March 31, 1997 1996
- ------------------------------------ --------- ---------
(in millions)
- -------------
<S> <C> <C>
Revenues $ 602 $ 571
========= =========
Net income (1) $ 104 $ 85
========= =========
</TABLE>
(1) Net income includes $3 million and $5 million of reported investment
portfolio gains in 1997 and 1996, respectively.
Earnings before investment portfolio gains increased 26% to $101 million in the
first quarter of 1997 from $80 million in the first quarter of 1996. Improved
earnings were largely driven by strong investment income, reflecting
repositioning of the investment portfolio over the past year. Earnings growth
attributable to strong sales of recently introduced products, including less
capital-intensive variable life insurance and annuities, was partially offset by
the gradual decline in the amount of higher margin business written several
years ago. The majority of the annuity business and a substantial portion of the
life business written by Travelers Life and Annuity is accounted for as
investment contracts, with the result that the deposits collected are not
included in revenues.
For deferred annuities, net written premiums and deposits were $574 million in
the first quarter of 1997, up 18% from $488 million in the first quarter of
1996. Total deferred annuity policyholder account balances and benefit reserves
at March 31, 1997 were $13.5 billion, compared to $11.7 billion at March 31,
1996.
Strong sales through Copeland, the Financial Consultants of Smith Barney, and
the nationwide network of independent agents, reflect the Company's ongoing
effort to build market share by strengthening relationships in key distribution
channels. Future sales may also benefit from Moody's recently announced
upgrade of Travelers Insurance Company's financial strength rating to Aa3. This
rating is not a recommendation to buy, sell or hold securities, and it may be
revised or withdrawn at any time.
Payout and group annuity net premiums and deposits (excluding those of
affiliates) grew 35% to $647 million in the three months of 1997 from $477
million in the prior year period, reflecting significantly higher sales of
variable rate guaranteed investment contracts. Reserves and policyholder account
balances declined to $11.1 billion at March 31, 1997 from $11.7 billion at March
31, 1996 while up $.2 billion from December 31, 1996, reflecting the run-off of
low margin guaranteed investment contracts written in prior years offset by the
strong sales of new variable rate guaranteed investment contracts in the first
quarter of 1997.
For individual life insurance, direct premiums and deposits (excluding single
premium policies) were $73.1 million in the first quarter of 1997, up 5% from
the $69.9 million in the first quarter of 1996. Face amount of individual life
insurance issued during the first quarter of 1997 was $1.5 billion, level with
the prior year, bringing total life insurance in force to $50.5 billion at March
31, 1997, compared to $49.2 billion a year ago.
Net written premiums for the growing long-term care insurance line reached $43.9
million in the three months of 1997, up from $27.7 million in the comparable
period of 1996, largely as a result of record sales during the quarter which
improved 55% over the 1996 period.
9
<PAGE> 10
PRIMERICA LIFE INSURANCE
<TABLE>
<CAPTION>
For the three months ended March 31, 1997 1996
- ------------------------------------- --------- ---------
(in millions)
- -------------
<S> <C> <C>
Revenues $ 327 $ 319
========= =========
Net income (1) $ 69 $ 63
========= =========
</TABLE>
(1) 1997 and 1996 net income includes $2 million and $5 million of reported
investment portfolio gains, respectively.
Earnings before portfolio gains increased 15% to $67 million in the first
quarter of 1997 from $58 million in the first quarter of 1996. Increases in
premium income and investment income of $4 million and $4 million, respectively,
contributed to the growth in earnings.
Life insurance in force reached a record $361.5 billion, up from $350.4 billion
at March 31, 1996, and continued to reflect good policy persistency. New term
life sales were $12.0 billion, relatively even with the $12.3 billion for the
prior year period.
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, 1997, the Company 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 1997 without
prior approval of the Connecticut Insurance Department is $507 million. The
Company has paid $100 million in dividends to its parent during the three months
ended March 31, 1997.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
Effective January 1, 1997 the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (FAS No. 125). This Statement establishes
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. These standards are based on an
approach that focuses on control. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished. FAS
No. 125 provides standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. The requirements of FAS
No. 125 are effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and are to be
applied prospectively. However, in December 1996 the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125," which delays until January 1, 1998 the effective date for certain
provisions. Earlier or retroactive application is not permitted. The adoption of
the provisions of this statement effective January 1, 1997 did not have a
material impact on results of operations, financial condition or liquidity, and
the Company is currently evaluating the impact of the provisions whose effective
date has been delayed until January 1, 1998.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
- ------ ---------------------- ------
<S> <C> <C>
3.01 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 fiscal quarter ended September
30, 1994 (File No. 33-33691) (the "Company's
September 30, 1994 10-Q").
3.02 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.
27.01 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,
1997.
11
<PAGE> 12
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 13, 1997 /s/ Ian R. Stuart
--------------------------------
Ian R. Stuart
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
- ------ ---------------------- ------
<S> <C> <C>
3.01 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 fiscal quarter ended September
30, 1994 (File No. 33-33691) (the "Company's
September 30, 1994 10-Q").
3.02 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.
27.01 Financial Data Schedule Electronic
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary of financial information extracted from the
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
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
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<REAL-ESTATE> 0
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0
0
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