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6
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, 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.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
FORM 10-Q
For the Quarter Ended March 31, 1996
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations and Retained Earnings for the
Three Months Ended March 31, 1996 and 1995 (unaudited)...................... 3
Condensed Balance Sheet as of March 31, 1996 (unaudited) and
December 31, 1995........................................................... 4
Condensed Statement of Cash Flows for the
Three Months Ended March 31, 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
2
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
REVENUES
<S> <C> <C>
Premiums $ 1,097 $ 79
Net investment income 16,954 15,869
Realized investment losses (8,192) (5,619)
Other revenues 2,608 3,691
--------- ---------
12,467 14,020
--------- ---------
BENEFITS AND EXPENSES
Current and future insurance benefits 13,303 13,330
Amortization of deferred acquisition costs and
value of insurance in force 779 313
Other operating expenses 418 674
--------- ---------
14,500 14,317
--------- ---------
Loss before federal income taxes (2,033) (297)
Federal income tax benefit (725) (127)
--------- ---------
Net loss (1,308) (170)
Retained earnings at beginning of period 157,907 128,990
--------- ---------
Retained earnings at end of period $ 156,599 $ 128,820
========= =========
</TABLE>
See notes to condensed financial statements.
3
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Investments, including real estate held for sale $ 921,104 $ 989,732
Separate and variable accounts 913,751 886,688
Deferred federal income taxes 56,357 41,158
Other assets 72,990 47,061
---------- ----------
Total assets $1,964,202 $1,964,639
========== ==========
LIABILITIES
Future policy benefit reserves and contractholder funds $ 666,698 $ 671,027
Separate and variable accounts 883,802 856,867
Other liabilities 79,087 73,194
---------- ----------
Total liabilities 1,629,587 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 156,599 157,907
Unrealized investment gains, net of taxes 7,702 35,330
---------- ----------
Total shareholder's equity 334,615 363,551
---------- ----------
Total liabilities and shareholder's equity $1,964,202 $1,964,639
========== ==========
</TABLE>
See notes to condensed financial statements.
4
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 9,305 $ (39,511)
--------- ---------
Cash flows from investing activities
Investment repayments
Fixed maturities 8,190 1,747
Mortgage loans 2,623 6,666
Proceeds from sales of investments
Fixed maturities 533,233 75,448
Equity securities 205 1,925
Mortgage loans 34 902
Investments in
Fixed maturities (512,328) (37,448)
Equity securities - (65)
Policy loans (908) -
Short-term securities (purchases) sales, net (2,974) 9,363
Other investments, net (494) (1,010)
Securities transactions in course of settlement (43,242) (18,311)
--------- ---------
Net cash provided by (used in) investing activities (15,661) 39,217
--------- ---------
Cash flows from financing activities
Contractholder fund deposits 15,112 -
Contractholder fund withdrawals (8,755) -
--------- ---------
Net cash provided by financing activities 6,357 -
--------- ---------
Net increase (decrease) in cash 1 (294)
Cash at beginning of period - 296
--------- ---------
Cash at end of period $ 1 $ 2
========= =========
Supplemental disclosure of cash flow information
Income taxes paid $ 1,713 $ 34,474
========= =========
</TABLE>
See notes to condensed financial statements.
5
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THE TRAVELERS LIFE AND ANNUITY COMPANY
Notes to Condensed Financial Statements (Unaudited)
March 31, 1996
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 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.
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 of. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed of (e.g. real estate held for sale) to be carried at the lower of
cost or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
3. Commitments and Contingencies
The Company is a defendant in various litigation matters. Although there
can be no assurances, as of March 31, 1996, the Company believes, based on
information currently available, that the ultimate resolution of these
legal proceedings would not be likely to have a material adverse effect on
its results of operations, financial condition or liquidity.
6
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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) primarily writes single
premium group annuity close-out contracts and individual structured settlement
annuities. The single premium group annuity contracts are typically purchased by
employer-sponsored pension plans upon termination of the plan, asset reversion
or other significant plan changes. As a result, sales activity can vary
significantly from period to period.
The individual structured settlement contracts are purchased by an affiliate,
The Travelers Indemnity Company, in connection with the settlement of certain of
its 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.
In 1995, the Company commenced writing individual life and deferred annuity
business in certain states and is in the process of obtaining further regulatory
approvals to write these products in additional states.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net loss for the three months ended March 31, 1996 was $1.3 million, compared to
$.2 million for the same period in 1995. Excluding after-tax portfolio gains and
losses, operating earnings increased from $3.5 million in the three months ended
March 31, 1995 to $4.0 million in the three months ended March 31, 1996,
reflecting improved investment portfolio performance.
Premiums and deposits amounted to $5.8 million for the three months ended March
31, 1996, a 25% decrease compared to the same period for 1995, reflecting a
decline in structured settlement sales. (Deposits relate to separate account
receipts, and are thus excluded from revenue).
Policyholder benefit reserves, contractholder funds and separate accounts
aggregated $1.6 billion at March 31, 1996, up from $1.5 billion at March 31,
1995, primarily as a result of accumulated growth in the structured settlement
separate account.
INSURANCE REGULATIONS
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
merit further regulatory action. At March 31, 1996, the Company had adjusted
capital in excess of amounts requiring any regulatory action.
7
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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.
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.
8
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description Filing Method
- --- ----------- -------------
27 Financial Data Schedule Electronic
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Company during the quarter ended
March 31, 1996.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Registrant)
Date May 14, 1996 /s/ Ian R. Stuart
------------ -----------------------------------------
Ian R. Stuart
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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