<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 JUNE 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM___________ TO __________
COMMISSION FILE NUMBER 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 $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Travelers
Group Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE> 2
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Statements of Income and Retained Earnings for the
Three and Six Months Ended June 30, 1998 and 1997 (unaudited)................................................ 3
Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997............................................................................................ 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 (unaudited).......................................................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)............................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................. 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................... 14
SIGNATURES.................................................................................................... 15
</TABLE>
2
<PAGE> 3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Premiums $442 $ 377 $833 $ 740
Net investment income 553 510 1,088 998
Realized investment gains 34 14 112 22
Other revenues 112 87 217 173
- -------------------------------------------------------------------------------------------------------------------------
Total Revenues 1,141 988 2,250 1,933
- -------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 376 323 697 634
Interest credited to contractholders 210 205 425 402
Amortization of deferred acquisition costs and value
of insurance in force 76 75 153 146
General and administrative expenses 116 100 232 202
- -------------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 778 703 1,507 1,384
- -------------------------------------------------------------------------------------------------------------------------
Income from operations before federal income taxes 363 285 743 549
Federal income taxes 126 99 259 190
- -------------------------------------------------------------------------------------------------------------------------
Net income 237 186 484 359
Dividends to parent - (100) (110) (200)
Retained earnings at beginning of period 2,947 2,544 2,810 2,471
- -------------------------------------------------------------------------------------------------------------------------
Retained earnings at end of period $3,184 $2,630 $3,184 $2,630
=========================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Investments $32,359 $30,502
Separate and variable accounts 13,878 11,319
Reinsurance recoverable 3,714 3,753
Other assets 4,194 3,866
- --------------------------------------------------------------------------------------------------------------
Total Assets $54,145 $49,440
- --------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $15,627 $14,913
Benefit and other insurance reserves 12,440 12,361
Separate and variable accounts 13,868 11,309
Other liabilities 4,342 3,532
- --------------------------------------------------------------------------------------------------------------
Total Liabilities 46,277 42,115
- --------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Capital stock, par value $2.50; 40 million shares authorized, issued
and outstanding 100 100
Additional paid-in capital 3,193 3,187
Retained earnings 3,184 2,810
Accumulated other changes in equity from nonowner sources 604 535
Unrealized gain on Travelers Group Inc. stock, net of tax 787 693
- --------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 7,868 7,325
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $54,145 $49,440
==============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 320 $ 424
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,218 845
Mortgage loans 509 217
Proceeds from sales of investments
Fixed maturities 5,005 3,942
Equity securities 167 181
Mortgage loans - 45
Real estate held for sale 45 21
Purchases of investments
Fixed maturities (7,362) (5,090)
Equity securities (126) (164)
Mortgage loans (295) (298)
Policy loans, net 7 37
Short-term securities purchases, net (230) (206)
Other investments, net (121) (136)
Securities transactions in course of settlement, net 289 (70)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (894) (676)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of short-term debt, net - (50)
Contractholder fund deposits 2,480 1,805
Contractholder fund withdrawals (1,788) (1,310)
Dividends to parent company (110) (200)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 582 245
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 8 (7)
Cash at beginning of period 58 74
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 66 $ 67
======================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ - $ 1
Income taxes paid $ 331 $ 92
======================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of The Travelers Insurance
Company (TIC) and, collectively with 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. In the opinion of management, the
interim financial statements reflect all adjustments necessary (all of
which were normal recurring adjustments) for a fair presentation 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, 1997.
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective Date of Certain
Provisions of SFAS 125" (FAS 127), which was effective for transfers and
pledges of certain financial assets and collateral made after December 31,
1997. The adoption of FAS 127 created additional assets and liabilities on
the Company's condensed consolidated statement of financial position
related to the recognition of securities provided and received as
collateral. At June 30, 1998, the impact of FAS 127 on the Company's
condensed consolidated statement of financial position was not significant.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130).
FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are required to
be reported in an annual financial statement that is displayed with the
same prominence as other financial statements. FAS 130 stipulates that
comprehensive income reflect the change in equity of an enterprise during a
period from transactions and other events and circumstances from nonowner
sources. Comprehensive income will thus represent the sum of net income and
other changes in stockholder's equity from nonowner sources. The
accumulated balance of changes in equity from nonowner sources is required
to be displayed separately from retained earnings and additional paid-in
capital in the consolidated balance sheet. The adoption of FAS 130 resulted
primarily in the reporting of unrealized gains and losses on investments in
debt and equity securities (other than those unrealized gains or losses
related to Travelers Group stock) in changes in equity from nonowner
sources. The Company's total changes in equity from nonowner sources are as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
($ in millions) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $237 $186 $484 $359
Other changes in equity from nonowner sources 83 263 69 (30)
---- ---- ---- ----
Total Changes in Equity from Nonowner Sources $320 $449 $553 $329
==== ==== ==== ====
</TABLE>
6
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(FAS 133), which will become effective for the Company on January 1, 2000.
FAS 133 will significantly change the accounting treatment of end-user
derivative and foreign exchange contracts by the Company and its customers.
Depending on the underlying risk management strategy, these accounting
changes could affect reported earnings, assets, liabilities, and
stockholders' equity. As a result, the Company and the customers to which
it provides derivatives and foreign exchange products will have to
reconsider their risk management strategies, since the new standard will
not reflect the results of many of those strategies in the same manner as
current accounting practice. The Company is in the process of evaluating
the potential impacts of the new accounting standard.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC of the AICPA) issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidance on accounting for the costs of computer software developed or
obtained for internal use and for determining when specific costs should be
capitalized or expensed. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998 and the effect of the
initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company is currently determining what impact, if any, SOP 98-1 will have on
its consolidated financial statements or when it will be implemented.
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.
7
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. COMMERCIAL PAPER AND LINES OF CREDIT
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at June 30, 1998 or December 31, 1997. TIC maintains unused
credit available under bank lines of credit at least equal to the amount of
the outstanding commercial paper. No interest was paid in 1998 and interest
expense was not significant in the first six months of 1997.
Travelers Group, Commercial Credit Company (CCC) (an indirect, wholly owned
subsidiary of Travelers Group) and TIC 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 TIC. TIC's participation in this agreement
is limited to $250 million. The agreement consists of a five-year revolving
credit facility that expires in 2001. At August 6, 1998, $700 million was
allocated to Travelers Group, $300 million was allocated to CCC and $0 was
allocated to TIC. Under this facility the Company is required to maintain
certain minimum equity and risk-based capital levels. At June 30, 1998, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at June 30, 1998 or December 31, 1997. If
the Company had borrowings outstanding under this facility, the interest
rate would be based upon LIBOR plus a negotiated margin.
3. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $4.1 billion at December
31, 1997. 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
1998 without prior approval of the Connecticut Insurance Department is $551
million. The Company paid $110 million in dividends to its parent during
the six months ended June 30, 1998.
4. COMMITMENTS AND CONTINGENCIES
Litigation
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
June 30, 1998, 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.
In March 1997, a purported class action entitled Patterman v. The
Travelers, Inc. was commenced in the Superior Court of Richmond County,
Georgia, alleging, among other things, violations of the Georgia RICO
statute and other state laws by an affiliate of the Company, Primerica
Financial Services, Inc. and certain of its affiliates. Plaintiffs seek
unspecified compensatory and punitive damages and other relief. The Company
intends to vigorously contest the litigation.
8
<PAGE> 9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. PENDING MERGER
On April 6, 1998, Travelers Group announced that it had entered into a
merger agreement with Citicorp, pursuant to which Citicorp will be merged
with and into a newly formed, wholly owned subsidiary of Travelers Group
(the Merger). On July 22, 1998, the stockholders of Travelers Group and
Citicorp approved the Merger.
In order to consummate the Merger, Travelers Group has applied to the Board
of Governors of the Federal Reserve System (the Federal Reserve Board) to
become a bank holding company under the provisions of the Bank Holding
Company Act of 1956 (the BHCA). A bank holding company and its affiliates
may not engage in activities that are not permissible under the BHCA,
including, generally, insurance underwriting. However, under current law,
the Company's existing businesses can be retained and operated by Travelers
Group for at least a two-year period after the Merger (the BHCA Compliance
Period), which may be extended for three additional one-year periods by the
Federal Reserve Board, if, in its judgment, an extension would not be
detrimental to the public interest.
Upon consummation of the Merger, and as a direct result of Travelers Group
becoming a bank holding company, the BHCA will impose certain restrictions
on Travelers Group's operations going forward, including the ability to
make acquisitions of certain insurance underwriters domesticated in the
United States. It is not expected that such restrictions will impede the
Company's existing businesses in any material respect or preclude Travelers
Group from expanding its existing insurance underwriting activities (other
than by acquisition of certain insurance underwriters). At this time, the
Company believes that compliance with applicable law by Travelers Group and
the Company following the Merger will not have a material adverse effect on
the Company's financial condition or results of operations.
There is pending federal legislation that would, if enacted, amend the BHCA
to authorize a bank holding company to own certain insurance underwriters.
There is no assurance that such legislation will be enacted. Before the
expiration of the BHCA Compliance Period, each of the Company and Travelers
Group will evaluate its alternatives in order to comply with whatever laws
are then applicable.
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 ($ in millions)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,141 $988 $2,250 $1,933
====== ==== ====== ======
Net income $237 $186 $484 $359
====== ==== ====== ======
</TABLE>
9
<PAGE> 10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
OVERVIEW
The Travelers Insurance Company and its subsidiaries (the Company) operate
through two major business units:
- - TRAVELERS LIFE & 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 Salomon Smith Barney, 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 80,000 full and part-time independent agents.
RESULTS OF OPERATIONS
Income from operations for the three months ended June 30, 1998 and 1997 was
$237 million and $186 million, respectively. Included in income from operations
are net after-tax investment portfolio gains of $22 million in the second
quarter of 1998 and $9 million in the second quarter of 1997. Excluding these
items, income from operations for the three months ended June 30, 1998 increased
21% to $215 million, reflecting improved performance at both business units.
The following discussion presents in more detail each unit's performance.
TRAVELERS LIFE & ANNUITY
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997
---- ----
<S> <C> <C>
($ in millions)
Revenues $800 $666
==== ====
Net income (1) $153 $117
==== ====
</TABLE>
(1) Net income includes $22 million and $11 million of reported net
after-tax investment portfolio gains in 1998 and 1997, respectively.
Earnings before investment portfolio gains increased 24% to $131 million in the
second quarter of 1998 from $106 million in the second quarter of 1997. Improved
earnings were largely driven by strong investment income, as well as by
double-digit growth in business volume across all business lines. The
substantial increase in investment income for the quarter resulted primarily
from participation in partnership investments. The majority of the annuity
business and a substantial portion of the life business written is accounted for
as investment contracts, with the result that the deposits collected are not
included in revenues.
Significant sales through the Financial Consultants of Salomon Smith Barney and
Copeland reflect the Company's ongoing effort to build market share by
strengthening relationships in key distribution channels. These sales, combined
with favorable market returns from variable annuities, drove deferred annuity
policyholder account balances and benefit reserves at June 30, 1998 to $18.2
billion, compared to $14.7 billion at June 30, 1997. Net written premiums and
deposits were $774 million in the second quarter of 1998, up 23% from $628
million in the second quarter of 1997. More than 75% of the premiums and
deposits were generated by cross-selling through the Financial Consultants of
Salomon Smith Barney and through Copeland.
10
<PAGE> 11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Payout and group annuity reserves and policyholder account balances were $12.7
billion at June 30, 1998, up by $1.2 billion from the prior year. The
revitalization of this business line is evidenced by the 63% increase in net
premiums and deposits to $1.0 billion in the second quarter of 1998 from $632
million in the prior year period, reflecting significantly higher sales of
guaranteed investment contracts, which resulted primarily from favorable
upgrades from major rating agencies in the past year. Such ratings are neither a
rating of securities, nor a recommendation to buy, hold or sell any security and
may be revised or withdrawn at any time.
For individual life insurance, net premiums and deposits were $82.7 million in
the second quarter of 1998, up 22% from $68 million in the second quarter of
1997. Single deposits increased by nearly 50% to $20.5 million, and new periodic
premium sales increased 83%, reflecting a doubling of sales through the
Financial Consultants of Salomon Smith Barney. During the second quarter, life
sales by the Financial Consultants of Salomon Smith Barney increased to over 30%
of new periodic premium and single deposits. Face amount of individual life
insurance issued during the second quarter of 1998 was $2.1 billion, up 40% from
$1.5 billion in the second quarter of 1997, bringing total life insurance in
force to $53.2 billion at June 30, 1998, compared to $50.7 billion a year ago.
Earned premiums for the growing long-term care insurance line reached $48.7
million in the second quarter of 1998, up 25% from $39.1 million in the
comparable period of 1997.
PRIMERICA LIFE INSURANCE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997
---- ----
($ in millions)
<S> <C> <C>
Revenues $341 $322
==== ====
Net income (1) $ 84 $ 69
==== ====
</TABLE>
(1) 1997 net income includes $(2) million of reported net after-tax investment
portfolio losses.
Earnings before portfolio gains increased 18% to $84 million in the second
quarter of 1998 from $71 million in the second quarter of 1997. An increase in
investment income of 12% and a 5% decrease in claims contributed to the growth
in earnings.
Life insurance in force reached a record high of $377.5 billion, up from $365.4
billion at June 30, 1997, and continued to reflect good policy persistency and
stable sales growth. New term life insurance sales were $15.8 billion for the
three month period ended June 30, 1998, up from $14.1 billion for the prior year
period.
11
<PAGE> 12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TRAVELERS LIFE AND ANNUITY
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
- --------------------------------- ---- ----
($ in millions)
<S> <C> <C>
Revenues $1,572 $1,284
====== ======
Net income (1) $321 $221
====== ======
</TABLE>
(1) Net income includes $72 million and $14 million of reported net after-tax
investment portfolio gains in 1998 and 1997, respectively.
Earnings before portfolio gains increased 20% to $249 million in the six months
ended June 30, 1998, compared to $207 million in the six months ended June 30,
1997. Earnings growth was driven by strong investment performance and a higher
capital base.
For deferred annuities, net written premiums and deposits were $1.6 billion in
the first six months of 1998, up 33% from $1.2 billion in the comparable period
of 1997, reflecting increased growth in the sales of variable annuities.
Payout and group annuity net premiums and deposits grew 48% to $1.9 billion in
the first six months of 1998, from $1.3 billion in the prior year period.
For individual life insurance, net premiums and deposits were $168 million for
the first half of 1998, up 22% from $138 million in the prior year period. Face
amount of individual life insurance issued during the first half of 1998 was
$4.1 billion, up from $3.0 billion in the prior period of 1997.
Earned premiums for the growing long-term care insurance line reached $94
million in the first six months of 1998, up 27% from $74 million in the
comparable period of 1997.
PRIMERICA LIFE INSURANCE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
- --------------------------------- ---- ----
($ in millions)
<S> <C> <C>
Revenues $678 $649
==== ====
Net income $163 $138
==== ====
</TABLE>
Earnings before portfolio gains for the first six months of 1998 increased 18%
to $163 million, compared to $138 million in the first six months of 1997. Face
amount of new term life insurance sales was $28.8 billion in the first six
months of 1998, compared to $26.1 billion in the prior year period.
12
<PAGE> 13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PENDING MERGER
On April 6, 1998, Travelers Group announced that it had entered into a Merger
Agreement with Citicorp, pursuant to which Citicorp will be merged with and into
a newly formed, wholly owned subsidiary of Travelers Group (the Merger). On July
22, 1998, the stockholders of Travelers Group and Citicorp approved the Merger.
See Note 5 of Notes to Condensed Consolidated Financial Statements for a
discussion of the pending merger.
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 June 30, 1998, 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 1998 without
prior approval of the Connecticut Insurance Department is $551 million. The
Company has paid $110 million in dividends to its parent during the six months
ended June 30, 1998.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe", "expect", "anticipate", "intend",
"estimate", and similar expressions. These forward-looking statements involve
risks and uncertainties including, but not limited to, the resolution of legal
proceedings and the conduct of the Company's business following the pending
Citicorp merger.
13
<PAGE> 14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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>
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.
On April 22, 1998, the Company filed a current report on Form 8-K dated April 5,
1998, reporting under Item 5 thereof, that Travelers Group Inc., the Company's
ultimate parent, had entered into a Merger Agreement with Citicorp, pursuant to
which Citicorp will be merged with and into Travelers Group Inc.
14
<PAGE> 15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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 August 13, 1998 /s/ Ian R. Stuart
------------------------- ----------------------------
Ian R. Stuart
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY 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
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 32,359
<CASH> 66
<RECOVER-REINSURE> 3,714
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 54,145
<POLICY-LOSSES> 12,440
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 29,495
<NOTES-PAYABLE> 0
0
0
<COMMON> 100
<OTHER-SE> 7,768
<TOTAL-LIABILITY-AND-EQUITY> 54,145
833
<INVESTMENT-INCOME> 1,088
<INVESTMENT-GAINS> 112
<OTHER-INCOME> 217
<BENEFITS> 1,122
<UNDERWRITING-AMORTIZATION> 153
<UNDERWRITING-OTHER> 232
<INCOME-PRETAX> 743
<INCOME-TAX> 259
<INCOME-CONTINUING> 484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 484
<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>
