<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------------- ---------------
-------------------------------
COMMISSION FILE NUMBER 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 $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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PART I - FINANCIAL INFORMATION Page
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998 (unaudited)................... 3
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998........................................ 4
Condensed Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources
For the Three Months Ended March 31, 1999 and 1998 (unaudited)........... 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (unaudited)................... 6
Notes to Condensed Consolidated Financial Statements (unaudited)......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 16
SIGNATURES............................................................... 17
</TABLE>
2
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES
Premiums $ 408 $ 392
Net investment income 585 535
Realized investment gains 14 77
Other revenues 124 105
- --------------------------------------------------------------------------------
Total revenues 1,131 1,109
- --------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 334 322
Interest credited to contractholders 226 215
Amortization of deferred acquisition costs and
value of insurance in force 87 77
General and administrative expenses 117 115
- --------------------------------------------------------------------------------
Total benefits and expenses 764 729
- --------------------------------------------------------------------------------
Income before federal income taxes 367 380
Federal income taxes 124 133
- --------------------------------------------------------------------------------
Net income $ 243 $ 247
================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Investments $34,432 $33,552
Separate and variable accounts 16,431 15,313
Reinsurance recoverable 3,352 3,387
Deferred acquisition costs and value of insurance in force 2,633 2,567
Other assets 1,766 1,729
- ---------------------------------------------------------------------------------------------
Total assets $58,614 $56,548
- ---------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $17,156 $16,739
Future policy benefits and claims 12,673 12,326
Separate and variable accounts 16,420 15,305
Other liabilities 4,385 4,078
- ---------------------------------------------------------------------------------------------
Total liabilities 50,634 48,448
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SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,804 3,800
Retained earnings 3,735 3,602
Accumulated other changes in equity from non-owner sources 341 598
- ---------------------------------------------------------------------------------------------
Total shareholder's equity 7,980 8,100
- ---------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $58,614 $56,548
=============================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
(UNAUDITED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $ 3,602 $ 2,810
Net income 243 247
Dividends to parent (110) (110)
================================================================================
Balance, end of period $ 3,735 $ 2,947
================================================================================
- --------------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------------
Balance, beginning of period $ 598 $ 535
Unrealized losses, net of tax (257) (14)
- --------------------------------------------------------------------------------
Balance, end of period $ 341 $ 521
================================================================================
- --------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------------
Net Income $ 243 $ 247
Other changes in equity from
non-owner sources (257) (14)
- --------------------------------------------------------------------------------
Total changes in equity from
non-owner sources $ (14) $ 233
================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
<S> <C> <C>
1999 1998
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 587 $ 230
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 656 462
Mortgage loans 254 305
Proceeds from sales of investments
Fixed maturities 4,011 2,598
Equity securities 3 136
Real estate held for sale 29 26
Purchases of investments
Fixed maturities (6,199) (3,765)
Equity securities (59) (97)
Mortgage loans (48) (82)
Policy loans, net 174 3
Short-term securities (purchases) sales, net 92 (117)
Other investments purchases, net (100) (68)
Securities transactions in course of settlement, net 285 131
- --------------------------------------------------------------------------------
Net cash used in investing activities (902) (468)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 1,943 1,213
Contractholder fund withdrawals (1,538) (879)
Dividends to parent company (110) (110)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 295 224
- --------------------------------------------------------------------------------
Net decrease in cash (20) (14)
Cash at beginning of period 65 58
================================================================================
Cash at end of period $ 45 $ 44
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 22 $ 73
================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
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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 Citigroup Inc. (Citigroup), have been
prepared in conformity with generally accepted accounting principles (GAAP)
and are unaudited. The consolidated financial statements include the
accounts of TIC and its insurance and non-insurance subsidiaries on a fully
consolidated basis. 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, 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 prior year amounts have been reclassified to conform with the
current year's presentation.
ACCOUNTING CHANGES
In January 1999, the Company adopted Statement of Position 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" (SOP 97-3). SOP 97-3 provides guidance for determining when an
entity should recognize a liability for guaranty-fund and other
insurance-related assessments, how to measure that liability, and when an
asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. The adoption of this SOP had no
impact on the Company's financial condition, results of operations or
liquidity.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure
to variable cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for
changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Upon initial application of FAS 133, hedging
relationships must be designated anew and documented pursuant to the
provisions of this statement. The Company has not yet determined the impact
that FAS 133 will have on its consolidated financial statements.
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 March 31, 1999 or December 31, 1998. 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 1999 or 1998.
Citigroup, Commercial Credit Company (CCC) (an indirect wholly owned
subsidiary of Citigroup) and TIC have an agreement with a syndicate of
banks to provide $1.0 billion of revolving credit, to be allocated to any
of Citigroup, 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 March 31, 1999, $700 million was
allocated to Citigroup, $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 March 31, 1999,
the Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at March 31, 1999 or December 31, 1998. If
the Company had borrowings outstanding on 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 $4.95 billion at December
31, 1998. 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 $504 million is available in 1999 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department. The
Company paid $110 million in dividends to its parent during the three
months ended March 31, 1999 and 1998.
4. COMMITMENTS AND CONTINGENCIES
Litigation
In March 1997, a purported class action entitled Patterman v. The
Travelers, Inc., et al. 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. In October
1997, defendants answered the complaint, denied liability and asserted
numerous affirmative defenses. In February 1998, the Superior Court of
Richmond County transferred the lawsuit to the Superior Court of Gwinnett
County, Georgia. The plaintiffs appealed the transfer order, and in
December 1998 the Court of Appeals of the State of Georgia reversed the
lower court's decision. Later in December 1998, defendants petitioned the
Georgia Supreme Court to hear the appeal from the decision of the Court of
Appeals. Pending appeal, proceedings in the trial court have been stayed.
Defendants intend to vigorously contest the litigation.
8
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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, 1999, 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. This statement is a
forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 15.
5. RELATED PARTY TRANSACTION
Included in investments at December 31, 1998 was a 90 day variable rate
note receivable from Citigroup. The balance, which was $500 million at
December 31, 1998 was paid in full on February 25, 1999. Interest earned in
1999 was $4 million.
6. OPERATING SEGMENTS
The Company has two reportable business segments that are separately
managed due to differences in products, services, marketing strategy and
resource management. The business of each segment is maintained and
reported through separate legal entities within the Company. The management
groups of each segment report separately to the common ultimate parent,
Citigroup Inc.
The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the
business of The Travelers Insurance Company and The Travelers Life and
Annuity Company. The Travelers Life and Annuity business segment offers
fixed and variable deferred annuities, payout annuities and term, universal
and variable life and long-term care insurance to individuals and small
businesses. It also provides group pension products, including guaranteed
investment contracts and group annuities for employer-sponsored retirement
and savings plans.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company and National Benefit Life Insurance
Company. The Primerica Life business segment offers individual life
products, primarily term insurance, to customers through a nationwide sales
force of approximately 80,000 full and part-time licensed Personal
Financial Analysts.
9
<PAGE> 10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
MARCH 31, 1999 ($ IN MILLIONS) AND ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BUSINESS VOLUME:
Premiums $ 141 $267 $ 408
Deposits 3,075 -- 3,075
------- ---- -------
Total business volume 3,216 267 3,483
Net investment income 523 62 585
Net realized investment gains 13 1 14
Other revenues 102 22 124
Less: Deposits (3,075) -- (3,075)
------- ---- -------
Total revenues $ 779 $352 $ 1,131
Business Income (excludes realized gains or losses
and the related FIT) $ 145 $ 88 $ 233
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
MARCH 31, 1998 ($ IN MILLIONS) AND ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BUSINESS VOLUME:
Premiums $ 131 $261 $ 392
Deposits 1,792 -- 1,792
------- ---- -------
Total business volume 1,923 261 2,184
Net investment income 481 54 535
Net realized investment gains 77 -- 77
Other revenues 84 21 105
Less: Deposits (1,792) -- (1,792)
------- ---- -------
Total revenues $ 773 $336 $ 1,109
Business Income (excludes realized gains or losses and
the related FIT) $ 118 $ 79 $ 197
- -----------------------------------------------------------------------------------------------------
</TABLE>
BUSINESS SEGMENT RECONCILIATION:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
MARCH 31 ($ IN MILLIONS)
- ----------------------------------------------------------------------------------------
INCOME: 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Total business income of segments $233 $197
Realized investment gains net of tax 10 50
- ----------------------------------------------------------------------------------------
Income from continuing operations $243 $247
========================================================================================
</TABLE>
10
<PAGE> 11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenues $1,131 $1,109
====== ======
Net income $ 243 $ 247
====== ======
</TABLE>
Income from operations for the three months ended March 31, 1999 and 1998 was
$243 million and $247 million, respectively. Included in income from operations
are net after-tax investment portfolio gains of $10 million in the first quarter
of 1999 and $50 million in the first quarter of 1998. Excluding these items,
business income for the three months ended March 31, 1999 increased 18% to $233
million, reflecting improved performance in both segments.
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998
---- ----
($ in millions)
<S> <C> <C>
Revenues $779 $773
==== ====
Net income (1) $154 $168
==== ====
</TABLE>
(1) Net income includes $9 million and $50 million of after-tax investment
portfolio gains in 1999 and 1998, respectively.
Travelers Life and Annuity consists of annuity, life and long-term care products
marketed by The Travelers Insurance Company (TIC) and its wholly owned
subsidiary The Travelers Life and Annuity Company (TLAC). Among the range of
products offered are fixed and variable deferred annuities, payout annuities and
term, universal and variable life and long-term care insurance to individuals
and small businesses. These products are primarily marketed through The Copeland
Companies (Copeland), an indirect wholly owned subsidiary of TIC, Salomon Smith
Barney Financial Consultants and a nationwide network of independent agents. In
1998, Travelers Life and Annuity products were also introduced into the
Primerica and Citibank distribution networks.
11
<PAGE> 12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Travelers Life and Annuity also provides group pension products, including
guaranteed investment contracts, and group annuities to employer-sponsored
retirement and savings plans. 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 premium and
deposits collected are reported as liabilities and are not included in revenues.
Business income was $145 million in the first quarter of 1999 compared to $118
million in the first quarter of 1998. The 23% improvement in 1999 reflects
increased business volume partially offset by lower investment yields versus the
prior year period. Strong double-digit business volume growth in annuity account
balances and life and long-term care premiums resulted from significant
cross-selling initiatives. The decline in investment yields was substantially
offset by increased investment income due to an increased capital base. Also
included in net income in 1999 is a $6 million after-tax release of reserves in
connection with a favorable lease renegotiation related to the runoff group life
and health business.
The successful cross-selling of Travelers Life and Annuity products
through the Primerica Financial Services, Citibank, Copeland, and Salomon Smith
Barney distribution channels, along with improved sales through a nationwide
network of independent agents, reflect ongoing efforts to build market share by
strengthening relationships in key distribution channels.
Significant deferred annuities sales, combined with favorable market
appreciation from variable annuities, drove account balances to $20.9 billion at
March 31, 1999 up 19% from $17.5 billion at March 31, 1998. Net written premiums
and deposits increased 30% in the first quarter of 1999 to $1.1 billion, from
$820 million in the first quarter of 1998. The strong sales reflect successful
cross-selling initiatives by Salomon Smith Barney, Copeland, Primerica and the
Citibank branch network, as well as strong core agent production.
Payout and group annuity account balances and benefit reserves reached $14.5
billion at March 31, 1999, up 19% from $12.2 billion at March 31, 1998. This
business reflects strong sales momentum from ratings increases, variable rate
guaranteed investment products and structured finance transactions. Net written
premiums and deposits (excluding those received from affiliates) rose to $1.9
billion in the first quarter of 1999 from $.9 billion in the prior year period.
During 1998, the Company commenced a program to write up to $2 billion of
Guaranteed Investment Contracts in European Medium Term Notes.
Direct periodic premiums for individual life insurance of $84.5 million in the
first quarter of 1999 were up 11% from $76.2 million in the comparable period of
1998, reflecting strong agency results. Life insurance in force was $56.6
billion at March 31, 1999, up from $52.4 billion at March 31, 1998.
Net written premiums for the growing long-term care insurance line reached $52.5
million in the first quarter of 1999 compared to $44.5 million in the comparable
period of 1998. This growth reflects strong sales through three distribution
channels, Travelers Net Plus, a wholly owned subsidiary, the Financial
Consultants of Salomon Smith Barney, and independent agencies.
12
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998
---- ----
($ in millions)
<S> <C> <C>
Revenues $352 $336
==== ====
Net income (1) $ 89 $ 79
==== ====
</TABLE>
- ----------
(1) Net income includes $1 million of reported after-tax investment portfolio
gains in 1999.
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
80,000 full and part-time licensed Personal Financial Analysts.
Business income before portfolio gains was $88 million in the first quarter of
1999 compared to $79 million in the first quarter of 1998. The 13% improvement
in 1999 reflects growth in life insurance in force, favorable mortality
experience and disciplined expense management.
Earned premiums net of reinsurance were $267 million in the first quarter of
1999 compared to $261 million in the prior year period, including $252 million
and $245 million, respectively, for Primerica individual term life policies.
Life insurance in force reached $386.3 billion, up from $372.5 billion at March
31, 1998, and continued to reflect good policy persistency. The face amount of
new term life insurance sales were $13.6 billion for the three month period
ended March 31, 1999, up from $13.0 billion for the prior year period.
MERGER
On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers Group Inc. (Travelers Group) (the Merger) and
subsequently, Travelers Group changed its name to Citigroup Inc.
Upon consummation of the Merger, Citigroup became a bank holding company subject
to the provisions of the Bank Holding Company Act of 1956 (the BHCA). The BHCA
precludes a bank holding company and its affiliates from engaging in certain
activities, including insurance underwriting. Under the BHCA in its current
form, Citigroup has two years from the date it became a bank holding company to
comply with all applicable provisions (the BHCA Compliance Period). The BHCA
Compliance Period may be extended, at the discretion of the Federal Reserve
Board, for three additional one-year periods so long as the extension is not
deemed to be detrimental to the public interest. At this time, the Company
believes that its compliance with applicable laws following the Merger will not
have a material adverse effect on the Company's financial condition or results
of operations. This statement is a forward-looking statement within the meaning
of the Private Litigation Reform Act. See "Forward-Looking Statements" on page
15.
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 Citigroup will evaluate its
alternatives in order to comply with whatever laws are then applicable.
13
<PAGE> 14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At March 31, 1999, 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 1999 without
prior approval of the Connecticut Insurance Department is $504 million. The
Company has paid $110 million in dividends to its parent during the three months
ended March 31, 1999 and 1998.
YEAR 2000
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all business
critical systems and products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $23 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company had completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
Certain information contained in the foregoing paragraphs constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 15.
14
<PAGE> 15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Consolidated Financial Statements for Future
Application of Accounting Standards.
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 Merger and
the ability of the Company and third party vendors to modify computer systems
for the year 2000 date conversion in a timely manner.
15
<PAGE> 16
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
----------- -----------
<S> <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
</TABLE>
- ----------
+ Filed herewith.
(b) REPORTS ON FORM 8-K.
None
16
<PAGE> 17
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 May 13, 1999 /s/ Jay S. Benet
-------------- -----------------------------------
Jay S. Benet
Senior Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer)
17
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
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<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 34,432
<CASH> 45
<RECOVER-REINSURE> 3,352
<DEFERRED-ACQUISITION> 2,633
<TOTAL-ASSETS> 58,614
<POLICY-LOSSES> 12,673
<UNEARNED-PREMIUMS> 0
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<POLICY-HOLDER-FUNDS> 33,576
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0
0
<COMMON> 100
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<TOTAL-LIABILITY-AND-EQUITY> 58,614
408
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<UNDERWRITING-AMORTIZATION> 87
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</TABLE>
