<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, 1997
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
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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.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Condensed Statements of Income and Retained Earnings for the Three and Six
Months Ended June 30, 1997 and 1996 (unaudited)...................................... 3
Condensed Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996.................................................................... 4
Condensed Statements of Cash Flows for the Six Months Ended June 30, 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................................................................ 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........................................... 12
SIGNATURES........................................................................... 13
</TABLE>
2
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- -------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 5,518 $ 3,572 $ 11,609 $ 5,499
Net investment income 40,530 36,921 79,775 68,849
Realized investment gains (losses) 5,599 (6,762) 12,884 (14,954)
Other revenues 1,868 172 3,455 348
- -------------------------------------------------------------------------------------------------------------
Total Revenues 53,515 33,903 107,723 59,742
- -------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 19,093 17,846 43,392 36,526
Interest credited to contractholders 7,718 7,572 13,988 15,735
Amortization of deferred acquisition costs
and value of insurance in force 764 820 2,666 1,599
Other operating expenses 2,729 437 4,567 687
- -------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 30,304 26,675 64,613 54,547
- -------------------------------------------------------------------------------------------------------------
Income before federal income taxes 23,211 7,228 43,110 5,195
Federal income tax expense 8,109 2,514 15,059 1,789
- -------------------------------------------------------------------------------------------------------------
Net income 15,102 4,714 28,051 3,406
Retained earnings at beginning of period 180,647 156,599 167,698 157,907
- -------------------------------------------------------------------------------------------------------------
Retained earnings at end of period $195,749 $161,313 $195,749 $161,313
=============================================================================================================
</TABLE>
See notes to condensed financial statements.
3
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Investments $ 1,923,522 $ 1,810,676
Separate and variable accounts 473,967 290,940
Deferred federal income taxes 60,117 57,617
Other assets 115,020 95,050
- ------------------------------------------------------------------------------------------------
Total Assets $ 2,572,626 $ 2,254,283
- ------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefit reserves $ 944,559 $ 949,196
Contractholder funds 713,620 600,608
Separate and variable accounts 473,096 290,716
Other liabilities 45,893 41,895
- ------------------------------------------------------------------------------------------------
Total Liabilities 2,177,168 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 195,749 167,698
Unrealized investment gains, net of taxes 29,395 33,856
- ------------------------------------------------------------------------------------------------
Total Shareholder's Equity 395,458 371,868
- ------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $ 2,572,626 $ 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)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 6,335 $ 31,588
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 22,684 11,190
Mortgage loans 3,022 11,553
Proceeds from sales of investments
Fixed maturities 334,060 750,933
Equity securities 6,283 3,046
Mortgage loans 4,120 -
Real estate 4,493 -
Purchases of investments
Fixed maturities (371,787) (733,032)
Equity securities (4,599) -
Mortgage loans (28,503) -
Policy loans, net (391) (1,184)
Short-term securities (purchases) sales, net (82,942) (32,481)
Other investments (purchases) sales, net (2,071) (3,607)
Securities transactions in course of settlement (1,044) (51,840)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (116,675) (45,422)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 141,674 23,835
Contractholder fund withdrawals (31,334) (10,001)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 110,340 13,834
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash - -
Cash at beginning of period - -
- ----------------------------------------------------------------------------------------------------------
Cash at end of period $ - $ -
==========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 17,267 $ 905
==========================================================================================================
</TABLE>
See notes to condensed financial statements.
5
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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. l25 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.
6
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
JUNE 30, 1997
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS No. 130). FAS No. 130
established 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 to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement 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
comprehensive income, although FAS No. 130 does not require the use of the
terms comprehensive income or other comprehensive income. The accumulated
balance of other comprehensive income shall be displayed separately from
retained earnings and additional paid-in capital in the statement of
financial position. This Statement is effective for fiscal years beginning
after December 15, 1997. The Company anticipates that the adoption of FAS
No. 130 will result primarily in reporting unrealized gains and losses on
investments in debt and equity securities in comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" (FAS No. 131). FAS No. 131 establishes standards for
the way that public enterprises report information about operating
segments in annual financial statements and requires that selected
information about those operating segments be reported in interim
financial statements. This Statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise" (FAS No. 14). FAS No. 131 requires that all public
enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
This Statement is effective for fiscal years beginning after December 15,
1997. The Company's reportable operating segments are not expected to
change as a result of the adoption of FAS No. 131.
7
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
JUNE 30, 1997
The accompanying financial statements reflect a change in presentation of
the assets, liabilities and operations of the structured settlement
separate account business of the Company. The assets and liabilities were
previously reported in separate account line items and are now
incorporated in various respective financial statement classifications. As
a result of this change, invested assets in the amount of $870.2 million
and $863.6 million at June 30, 1997 and December 31, 1996, respectively,
associated with structured settlement contract obligations, are reported
as investments. The related structured settlement contract obligations,
which were $827.7 million and $809.1 million at June 30, 1997 and
December 31, 1996, respectively, are included in future policy benefits
and contractholder funds. Additionally, structured settlement transactions
included in the income statement for the six months ended June 30, 1997
and 1996 are premiums of $6.8 million and $2.6 million, respectively, net
investment income of $32.4 million and $30.1 million, respectively, and
benefits and expenses of $27.9 million and $27.0 million, respectively.
The 1996 amounts were previously reported as a net $5.7 million of other
revenue.
This change in presentation has no effect on net income, total assets,
total liabilities, or shareholder's equity as reflected in the condensed
statement of income and retained earnings, and balance sheets for the
periods presented.
The Company has determined that a change in presentation is warranted
because of the nature of this particular separate account and the change
in product focus of the Company. The assets of the structured settlement
separate account are owned by, and investment risk is borne by, the
Company, which also guarantees the obligations of this separate account.
Consequently, the Company, not the contractholder, bears the risks of this
separate account.
The Company is now offering a variety of variable annuity products where
the investment risk is borne by the contractholder, not the Company, and
the benefits are not guaranteed. The premiums and deposits related to
these products are reported in separate accounts. The Company considers it
necessary to differentiate, for financial statement purposes, the results
of the risks it has assumed from those it has not. See also note 4.
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.
8
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
JUNE 30, 1997
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 six months ended June 30, 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 June 30, 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.
4. STRUCTURED SETTLEMENT CONTRACTS
The Company has structured settlement contracts that provide guarantees
for the contractholders independent of the investment performance of the
assets held in the related separate account. The assets held in the
separate account are owned by the Company and contractholders do not share
in their investment performance.
The Company maintains assets sufficient to fund the guaranteed benefits
attributable to the liabilities. Assets held in the separate account
cannot be used to satisfy any other obligations of the Company.
The Company reports the related assets and liabilities in investments,
future policy benefit reserves and contractholder funds.
9
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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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Six Months Ended June 30,
- ---------------------------------
( in millions) 1997 1996
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<S> <C> <C>
Revenues (1) $107.7 $59.7
====== ======
Net income $28.1 $3.4
====== ======
</TABLE>
(1) Revenues include pre-tax realized gains (losses) of $12.9 million and
$(15.0) 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 deposits
collected are not included in revenues.
The Company has structured settlement contracts that provide guarantees for the
contractholders independent of the investment performance of the assets held in
the related separate account. The assets held in the separate account are owned
by the Company and contractholders do not share in their investment performance.
These 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.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1997 was $28.1 million, compared to
$3.4 million for the six months ended June 30, 1996. Excluding net realized
investment gains and losses, operating earnings increased from $13.1 million in
1996 to $19.7 million in 1997. This increase was primarily driven by an increase
in investment income, reflecting very favorable yields on equity partnerships.
This asset class has benefited from favorable market conditions.
10
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PREMIUMS AND DEPOSITS
<TABLE>
<CAPTION>
For The Six Months Ended June 30,
- ---------------------------------
(in thousands) 1997 1996
---- ----
<S> <C> <C>
Deferred annuities $237,737 $127,721
Structured settlements 35,905 13,980
Universal life 13,076 14,187
Traditional life 4,573 2,492
Single premium group close-out 214 353
-------- --------
$291,505 $158,733
======== ========
</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. Future sales may be impacted favorably from
A.M. Best Company's recently announced upgrade of The Travelers Insurance
Company and the Company's rating to A+ (Superior). This rating is not a
recommendation to buy, sell or hold securities, and may be revised or withdrawn
at any time.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $2.1 billion at June 30, 1997, up from $1.6 billion at June 30,
1996, primarily as a result of growth in the deferred annuity and structured
settlement businesses.
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, 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 six months ended June
30, 1997.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 to the Condensed Financial Statements for a discussion of recently
issued accounting pronouncements.
11
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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 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>
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed by the Company during the quarter ended
June 30, 1997.
12
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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 August 12, 1997 /s/ Ian R. Stuart
----------------- ----------------------------------------------------
Ian R. Stuart
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer)
13
<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
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
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<DEBT-MARKET-VALUE> 0
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<MORTGAGE> 0
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<TOTAL-INVEST> 1,923,522
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<TOTAL-ASSETS> 2,572,626
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0
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11,609
<INVESTMENT-INCOME> 79,775
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<UNDERWRITING-AMORTIZATION> 2,666
<UNDERWRITING-OTHER> 4,567
<INCOME-PRETAX> 43,110
<INCOME-TAX> 15,059
<INCOME-CONTINUING> 28,051
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