<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-58677
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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
FORM 10-Q
For the Quarter Ended March 31, 1997
------------------------------------
Table of Contents
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
- ----------------------------
Condensed Statements of Income and Retained Earnings for the
Three Months Ended March 31, 1997 and 1996 (unaudited)................3
Condensed Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996.....................................................4
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 (unaudited)................5
Notes to Condensed Financial Statements (unaudited)...................6
Item 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations...................................8
- -----------------------------------
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................11
- -----------------------------------------
SIGNATURES............................................................12
2
<PAGE> 3
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES
Premiums $ 2,182 $ 1,097
Net investment income 23,489 16,954
Realized investment gains (losses) 7,285 (8,192)
Other revenues 5,333 2,608
--------- ---------
Total revenues 38,289 12,467
--------- ---------
BENEFITS AND EXPENSES
Current and future insurance benefits 13,499 13,303
Interest credited to contractholders 1,152 168
Amortization of deferred acquisition costs and
value of insurance in force 1,901 779
Other operating expenses 1,838 250
--------- ---------
Total benefits and expenses 18,390 14,500
--------- ---------
Income (loss) before federal income taxes 19,899 (2,033)
Federal income tax expense (benefit) 6,950 (725)
--------- ---------
Net income (loss) 12,949 (1,308)
Retained earnings at beginning of period 167,698 157,907
--------- ---------
Retained earnings at end of period $ 180,647 $ 156,599
========= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, including real estate held for sale $ 950,160 $ 947,001
Separate and variable accounts 1,180,784 1,187,812
Deferred federal income taxes 81,218 57,617
Other assets 67,244 61,853
----------- -----------
Total assets $ 2,279,406 $ 2,254,283
=========== ===========
LIABILITIES
Future policy benefit reserves $ 650,482 $ 654,569
Contractholder funds 96,594 86,097
Separate and variable accounts 1,151,305 1,124,605
Other liabilities 35,882 17,144
----------- -----------
Total liabilities 1,934,263 1,882,415
----------- -----------
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 180,647 167,698
Unrealized investment gains (losses), net of taxes (5,818) 33,856
----------- -----------
Total shareholder's equity 345,143 371,868
----------- -----------
Total liabilities and shareholder's equity $ 2,279,406 $ 2,254,283
=========== ===========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 2,451 $ 9,305
--------- ---------
Cash flows from investing activities
Proceeds from maturities of investments
Fixed maturities 15,000 8,190
Mortgage loans 1,576 2,623
Proceeds from sales of investments
Fixed maturities 196,259 533,233
Equity securities 3,046 205
Mortgage loans -- 34
Real estate held for sale 6,371 --
Purchases of investments
Fixed maturities (159,025) (512,328)
Equity securities (2,013) --
Mortgage loans (8,930) --
Policy loans, net (244) (908)
Short-term securities purchases, net (70,349) (2,974)
Other investments (purchases) sales, net 2,271 (494)
Securities transactions in course of settlement 3,090 (43,242)
--------- ---------
Net cash provided by (used in) investing activities (12,948) (15,661)
--------- ---------
Cash flows from financing activities
Contractholder fund deposits 11,519 15,112
Contractholder fund withdrawals (1,022) (8,755)
--------- ---------
Net cash provided by financing activities 10,497 6,357
--------- ---------
Net increase (decrease) in cash -- 1
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ -- $ 1
========= =========
Supplemental disclosure of cash flow information
Income taxes paid $ 1,145 $ 1,713
========= =========
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
THE TRAVELERS LIFE AND ANNUITY COMPANY
Notes to Condensed Financial Statements (Unaudited)
March 31, 1997
--------------
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, 1996.
Effective January 1, 1997 the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS No. 125). This
Statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. FAS No. 125 provides
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. The requirements of FAS No. 125
are effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and are
to be applied prospectively. However, in December 1996 the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125," which delays until January 1, 1998 the effective
date for certain provisions. Earlier or retroactive application is not
permitted. The adoption of the provisions of this statement effective
January 1, 1997 did not have a material impact on results of operations,
financial condition or liquidity, and the Company is currently evaluating
the impact of the provisions whose effective date has been delayed until
January 1, 1998.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
2. Shareholder's Equity
--------------------
Statutory capital and surplus of the Company was $254.1 million at December
31, 1996. The Company is subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. The maximum
amount of dividends available to be paid to the Company's shareholder in
1997 without prior approval of the Connecticut Insurance Department is
$14.8 million. The Company has not paid dividends to its parent during
the three months ended March 31, 1997.
6
<PAGE> 7
THE TRAVELERS LIFE AND ANNUITY COMPANY
Notes to Condensed Financial Statements (Unaudited) Continued
March 31, 1997
3. Commitments and Contingencies
The Company is a defendant or co-defendant in various litigation matters in
the normal course of business. Although there can be no assurances, as of
March 31, 1997, the Company believes, based on information currently
available, that the ultimate resolution of these legal proceedings would
not be likely to have a material adverse effect on its results of
operations, financial condition or liquidity.
7
<PAGE> 8
THE TRAVELERS 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.
RESULTS OF OPERATIONS
---------------------
<TABLE>
<CAPTION>
For the three months ended March 31, 1997 1996
- ------------------------------------ ---- ----
(in millions)
- -------------
<S> <C> <C>
Revenues (1) $ 38.3 $ 12.5
============= =============
Net income (loss) $ 12.9 $ (1.3)
============= ==============
</TABLE>
(1) Revenues include pre-tax realized gains (losses) of $7.3 million and $(8.2)
million in 1997 and 1996, respectively.
The Travelers Life and Annuity Company (the Company) offers fixed and variable
deferred annuities and individual life insurance to individuals and small
businesses. It also provides single premium group annuity close-out contracts
and individual structured settlement annuities.
The individual life and deferred annuity business is marketed primarily through
the Financial Consultants of Smith Barney Inc., an affiliate of the Company, and
a nationwide network of independent agents. 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 by the insurance
subsidiaries of Travelers Property Casualty Corp. (TAP), 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.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $12.9 million, compared
to a net loss of $(1.3) million for the three months ended March 31, 1996.
Excluding net realized investment gains and losses, operating earnings doubled
from $4.0 million in 1996 to $8.2 million in 1997. This increase was primarily
driven by an increase in investment income, reflecting repositioning of the
investment portfolio over the past year, partially offset by increased expenses
related to increased volume of sales.
8
<PAGE> 9
THE TRAVELERS LIFE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31,
------------------
PREMIUMS AND DEPOSITS: 1997 1996
---- ----
(in thousands)
<S> <C> <C>
Deferred annuities $ 86,026 $ 46,642
Structured settlements 20,575 4,369
Universal life 6,484 9,724
Traditional life 2,056 875
Single premium group close-out 126 222
-------- --------
$115,267 $ 61,832
======== ========
</TABLE>
The increase in deferred annuity deposits is attributable to sales of
Vintage(R), the variable annuity product distributed exclusively by the
Financial Consultants of Smith Barney Inc., an affiliate of the Company.
Structured settlement growth reflects a successful cross-selling initiative with
the insurance subsidiaries of TAP.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $1.9 billion at March 31, 1997, up from $1.6 billion at March
31, 1996, primarily as a result of growth in the individual life and deferred
annuity business.
INSURANCE REGULATIONS
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
merit further regulatory action. At March 31, 1997, the Company had adjusted
capital in excess of amounts requiring any regulatory action.
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to be paid to its parent without prior approval of
insurance regulatory authorities in the state of domicile. The maximum amount of
dividends available to be paid to the Company's shareholder in 1997 without
prior approval of the Connecticut Insurance Department is $14.8 million. The
Company has not paid dividends to its parent during the three months ended March
31, 1997.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
Effective January 1, 1997 the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (FAS No. 125). This Statement establishes
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. These standards are based on an
approach that focuses on control. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished. FAS
No. 125 provides standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. The requirements of FAS
No. 125 are effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and are to be
applied prospectively. However, in December 1996 the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Stocks No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement
9
<PAGE> 10
THE TRAVELERS LIFE AND ANNUITY COMPANY
No. 125," which delays until January 1, 1998 the effective date for certain
provisions. Earlier or retroactive application is not permitted. The adoption of
the provisions of this statement effective January 1, 1997 did not have a
material impact on results of operations, financial condition or liquidity, and
the Company is currently evaluating the impact of the provisions whose effective
date has been delayed until January 1, 1998.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description Filing Method
- --- ----------- -------------
3.01 Charter of The Travelers Life and Annuity Company
(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.
3.02 By-laws of the Company, as amended on 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.
27.01 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, 1997.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS LIFE AND ANNUITY COMPANY
______________________________________
(Registrant)
Date May 13, 1997 /s/ Ian R. Stuart
_________________ ___________________________________
Ian R. Stuart
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
No. Description Filing Method
- --- ----------- -------------
3.01 Charter of The Travelers Life and Annuity Company
(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.
3.02 By-laws of the Company, as amended on 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.
27.01 Financial Data Schedule Electronic
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary of financial information extracted from the
Financial Statements of the Travelers Life & 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<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> 950,160
<CASH> 0
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 2,279,406
<POLICY-LOSSES> 650,482
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,247,899
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,000
<OTHER-SE> 342,143
<TOTAL-LIABILITY-AND-EQUITY> 2,279,406
2,182
<INVESTMENT-INCOME> 23,489
<INVESTMENT-GAINS> 7,285
<OTHER-INCOME> 5,333
<BENEFITS> 14,651
<UNDERWRITING-AMORTIZATION> 1,901
<UNDERWRITING-OTHER> 1,838
<INCOME-PRETAX> 19,899
<INCOME-TAX> 6,950
<INCOME-CONTINUING> 12,949
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,949
<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>
