<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 September 30, 1996
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 33-58677
THE TRAVELERS LIFE AND ANNUITY COMPANY
(exact name of registrant as specified in its charter)
CONNECTICUT 06-0904249
(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 30,000 shares of common stock, par
value $100 per share, of the registrant, all of which were owned by The
Travelers Insurance Company, 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 LIFE AND ANNUITY COMPANY
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Condensed Statement of Income and Retained Earnings for the Three and
Nine Months Ended September 30, 1996 and 1995 (unaudited)................................. 3
Condensed Statement of Financial Position as of September 30, 1996 (unaudited) and
December 31, 1995......................................................................... 4
Condensed Statement of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 (unaudited)................................. 5
Notes to Condensed Financial Statements (unaudited)....................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................ 9
SIGNATURES................................................................................ 10
</TABLE>
2
<PAGE> 3
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 2,418 $ 1,043 $ 5,261 $ 1,334
Net investment income 28,628 15,311 67,397 46,762
Realized investment gains (losses) (1,916) 7,006 (16,870) 2,331
Other revenues 3,662 1,829 9,698 9,578
----------- ---------- --------- ----------
32,792 25,189 65,486 60,005
----------- ---------- --------- ----------
BENEFITS AND EXPENSES
Current and future insurance benefits 15,207 13,857 40,420 40,639
Operating expenses, including amortization
of deferred acquisition costs and value
of insurance in force 4,026 1,746 6,312 3,713
----------- ---------- --------- ----------
19,233 15,603 46,732 44,352
----------- ---------- --------- ----------
Income from operations before
federal income taxes 13,559 9,586 18,754 15,653
Federal income taxes 4,727 3,363 6,516 5,438
----------- ---------- --------- ----------
Net income 8,832 6,223 12,238 10,215
Retained earnings beginning of period 161,313 132,982 157,907 128,990
----------- ---------- --------- ----------
Retained earnings end of period $ 170,145 $ 139,205 $ 170,145 $ 139,205
=========== ========== =========== ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF FINANCIAL POSITION
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, including real estate held for sale $ 968,021 $ 989,732
Separate and variable accounts 1,072,579 886,688
Deferred federal income taxes 71,282 41,158
Other assets 60,563 47,061
------------- --------------
Total assets $ 2,172,445 $ 1,964,639
============= ==============
LIABILITIES
Future policy benefit reserves and contractholder funds $ 726,788 $ 682,974
Separate and variable accounts 1,038,668 856,867
Other liabilities 57,787 61,247
------------- --------------
Total liabilities 1,823,243 1,601,088
------------- --------------
SHAREHOLDER'S EQUITY
Capital stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,314
Retained earnings 170,145 157,907
Unrealized investment gains, net of taxes 8,743 35,330
------------- --------------
Total shareholder's equity 349,202 363,551
------------- --------------
Total liabilities and shareholder's equity $ 2,172,445 $ 1,964,639
============= ==============
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 15,889 $ (54,523)
--------- ---------
Cash flows from investing activities
Investment repayments
Fixed maturities 13,330 6,961
Mortgage loans 16,140 14,793
Proceeds from sales of investments
Fixed maturities 896,127 274,469
Equity securities 3,269 10,266
Mortgage loans 18,737 2,497
Investments in
Fixed maturities (884,000) (250,182)
Equity securities (3,985) (71)
Mortgage loans (7,576) -
Policy loans (1,550) -
Short-term securities (purchases) sales, net (66,490) (26,438)
Other investments, net 1,403 (1,582)
Securities transactions in course of settlement (24,090) 23,514
---------- ---------
Net cash provided by (used in) investing activities (38,685) 54,227
---------- ---------
Cash flows from financing activities
Contractholder fund deposits 40,246 -
Contractholder fund withdrawals (17,449) -
---------- ---------
Net cash provided by financing activities 22,797 -
--------- ---------
Net increase (decrease) in cash 1 (296)
Cash at beginning of period - 296
--------- ---------
Cash at end of period $ 1 $ -
--------- ---------
Supplemental disclosure of cash flow information
Income taxes paid $ 15,970 $ 34,726
========= =========
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
THE TRAVELERS LIFE AND ANNUITY COMPANY
Notes to Condensed Financial Statements (Unaudited)
1. General
The interim financial statements of The Travelers Life and Annuity Company
(the Company), a wholly owned subsidiary of The Travelers Insurance Company
(an indirect, wholly owned subsidiary of Travelers Group Inc.), 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 financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. Changes in Accounting Principles
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed (e.g., real estate held for sale) be carried at the lower of cost
or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
3. Commitments and Contingencies
The Company is a defendant in various litigation matters in the normal
course of business. Although there can be no assurances, as of September
30, 1996, the Company believes, based on information currently available,
that the ultimate resolution of these legal proceedings would not likely
have a material adverse effect on its results of operations, financial
condition or liquidity.
6
<PAGE> 7
THE TRAVELERS LIFE AND ANNUITY COMPANY
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.
The Travelers Life and Annuity Company (the Company) offers individual life
insurance and fixed and variable deferred annuities to individuals and small
businesses. It also provides single premium group annuity contracts and
individual structured settlement annuities.
The Company commenced writing individual life and deferred annuity business in
the fourth quarter of 1995. These products are marketed primarily through the
Financial Consultants of Smith Barney Inc., an affiliate of the Company and a
core group of approximately 500 independent agencies. The majority of the
annuity business and a substantial portion of the individual life business
written by the Company is accounted for as investment contracts, with the result
that the amounts collected from contractholders are not included in revenues.
The individual structured settlement contracts are purchased primarily by
subsidiaries of Travelers/Aetna Property Casualty Corp., an affiliate of the
Company, in connection with the settlement of certain of their policyholder
obligations. All structured settlement contracts are issued through a separate
account of the Company. Accordingly, the Company's other revenues include
structured settlement policyholder revenues net of the related benefits and
expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net income for the nine months ended September 30, 1996 was $12.2 million,
compared to net income of $10.2 million for the comparable period in 1995.
Excluding after-tax portfolio gains and losses, operating earnings increased
from $8.7 million in the nine months ended September 30, 1995 to $23.2 million
in the nine months ended September 30, 1996, primarily resulting from improved
investment portfolio performance.
Premiums and deposits amounted to $269.3 million and $35.8 million for the nine
months ended September 30, 1996 and 1995, respectively. Sales of Vintage(R), the
variable annuity product distributed exclusively by Financial Consultants of
Smith Barney Inc., an affiliate of the Company, accounted for the significant
increase in production from the comparable period in 1995.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $1.7 billion at September 30, 1996, up from $1.5 billion at
September 30, 1995, as a result of accumulated growth in the structured
settlement separate account and growth in the individual life and deferred
annuity business which commenced in 1995.
7
<PAGE> 8
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 September 30, 1996, 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 parent in 1996, without prior
approval of the Connecticut Insurance Department, is $16 million. The Company
made no dividend payment during the nine months ended September 30, 1996.
ACCOUNTING STANDARDS NOT YET ADOPTED
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), is effective for 1996 reporting. This statement addresses the
accounting for the cost of stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured at
the grant date based upon estimated fair value, using option pricing models. The
Company, along with affiliated companies, participates in stock option and other
stock based incentive plans sponsored by its ultimate parent. The Company has
selected the disclosure alternative that requires such pro forma disclosures to
be included in annual financial statements.
In June 1996, the Financial Accounting Standards Board (FASB) issued statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial-components approach that focuses on
control. Under that 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 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The requirements of FAS 125 would be
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively; however, the FASB has announced its intention to delay until
January 1, 1998 the effective date for certain provisions. Earlier or
retroactive application is not permitted. The Company is currently evaluating
the impact of this statement.
8
<PAGE> 9
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. Articles of Incorporation and By-laws
a. Charter of the Company, as amended on April 10, 1990, incorporated herein
by reference to Exhibit 6(a) to the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
b. By-laws of the Company, as amended October 20, 1994, incorporated herein
by reference to Exhibit 6(b) to the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
27. Financial Data Schedule Electronic
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Company during the quarter ended
September 30, 1996.
9
<PAGE> 10
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 LIFE AND ANNUITY COMPANY
(Registrant)
Date November 12, 1996 /s/ Ian R. Stuart
------------------ -----------------
Ian R. Stuart
Chief Financial Officer and Chief Accounting
Officer
(Principal Financial Officer)
10
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.
Description Filing Method
<S> <C> <C>
3. Articles of Incorporation and By-laws
a. Charter of the Company, as amended on April 10, 1990, incorporated herein
by reference to Exhibit 6(a) to the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
b. By-laws of the Company, as amended October 20, 1994, incorporated herein
by reference to Exhibit 6(b) to the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
27. Financial Data Schedule Electronic
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of The Travelers Life and Annuity Company and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000929498
<NAME> THE TRAVELERS LIFE AND ANNUITY COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<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> 968,021
<CASH> 1
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 2,172,445
<POLICY-LOSSES> 726,788
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,038,668
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,000
<OTHER-SE> 346,202
<TOTAL-LIABILITY-AND-EQUITY> 2,172,445
5,261
<INVESTMENT-INCOME> 67,397
<INVESTMENT-GAINS> (16,870)
<OTHER-INCOME> 9,698
<BENEFITS> 40,420
<UNDERWRITING-AMORTIZATION> 6,312
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 18,754
<INCOME-TAX> 6,516
<INCOME-CONTINUING> 12,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,238
<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>
