<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, 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
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
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
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Item 1. Financial Statements
<S> <C>
Condensed Statements of Income and Retained Earnings for the
Three and Nine Months Ended September 30, 1997 and 1996 (unaudited)............................ 3
Condensed Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996.............................................................................. 4
Condensed Statements of Cash Flows for the
Nine Months Ended September 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 SEPTEMBER 30, NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------ --------------------------
1997 1996 1997 1996
---- ---- ---- ------
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 13,175 $ 4,608 $ 24,784 $10,521
Net investment income 42,505 43,726 122,280 112,575
Realized investment gains (losses) 7,806 (1,916) 20,690 (16,870)
Other revenues 1,408 565 4,863 913
-------- -------- -------- --------
Total Revenues 64,894 46,983 172,617 107,139
-------- -------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 28,655 20,091 72,047 55,721
Interest credited to contractholders 8,816 9,307 22,804 26,352
Operating expenses, including amortization of deferred
acquisition costs and value of insurance in force 3,700 4,026 10,933 6,312
-------- -------- -------- --------
Total Benefits and Expenses 41,171 33,424 105,784 88,385
-------- -------- -------- --------
Income before federal income taxes 23,723 13,559 66,833 18,754
Federal income tax 8,213 4,727 23,272 6,516
-------- -------- -------- --------
Net income 15,510 8,832 43,561 12,238
Retained earnings at beginning of period 195,749 161,313 167,698 157,907
-------- -------- -------- --------
Retained earnings at end of period $211,259 $170,145 $211,259 $170,145
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Investments $2,032,062 $1,810,676
Separate and variable accounts 625,307 290,940
Deferred federal income taxes 40,573 57,617
Other assets 116,076 95,050
---------- ----------
Total Assets $2,814,018 $2,254,283
---------- ----------
LIABILITIES
Future policy benefit reserves $ 966,432 $ 967,621
Contractholder funds 714,380 582,183
Separate and variable accounts 625,307 290,716
Other liabilities 66,034 41,895
---------- ----------
Total Liabilities 2,372,153 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 211,259 167,698
Unrealized investment gains, net of taxes 60,292 33,856
---------- ----------
Total Shareholder's Equity 441,865 371,868
---------- ----------
Total Liabilities and Shareholder's Equity $2,814,018 $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>
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 20,808 $ 15,889
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 81,423 13,330
Mortgage loans 5,585 16,140
Proceeds from sales of investments
Fixed maturities 540,058 896,127
Equity securities 9,579 3,269
Mortgage loans 3,913 18,737
Real estate 4,493 -
Purchases of investments
Fixed maturities (717,358) (884,000)
Equity securities (6,259) (3,985)
Mortgage loans (30,584) (7,576)
Policy loans, net (597) (1,550)
Short-term securities (purchases) sales, net (55,096) (66,490)
Other investments (purchases) sales, net (2,576) 1,403
Securities transactions in course of settlement 14,419 (24,090)
--------- ---------
Net cash used in investing activities (153,000) (38,685)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 190,334 40,246
Contractholder fund withdrawals (58,138) (17,449)
--------- ---------
Net cash provided by financing activities 132,196 22,797
--------- ---------
Net increase in cash 4 1
Cash at beginning of period - -
========= =========
Cash at end of period $ 4 $ 1
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 21,655 $ 15,970
========= =========
</TABLE>
See notes to condensed financial statements.
5
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 presentation 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). FAS No.
125 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. Application of FAS No. 125 prior to the
effective date or retroactively is not permitted. The adoption of the
provisions of FAS No. 125 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
SEPTEMBER 30, 1997
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS No. 130). FAS No. 130
establishes 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. FAS No. 130 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. FAS
No. 130 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. FAS
No. 131 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. FAS No. 131 is effective for fiscal years beginning
after December 15, 1997. The Company's reportable operating segment will
not change as a result of the adoption of FAS No. 131.
7
<PAGE> 8
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 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 financial statement classifications. As a result of this change,
invested assets in the amount of $924.5 million and $863.6 million at
September 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 $830.3
million and $809.1 million at September 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 nine months ended September 30, 1997 and 1996 are
premiums of $16.7 million and $5.3 million, respectively, net investment
income of $49.3 million and $45.2 million, respectively, and benefits and
expenses of $48.4 million and $41.7 million, respectively. The 1996 amounts
were previously reported as a net $8.8 million included in 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.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
8
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 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
nine months ended September 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
September 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 Nine Months Ended September 30,
(in millions) 1997 1996
------- -------
<S> <C> <C>
Revenues (1) $ 172.6 $ 107.1
======= =======
Net income $ 43.6 $ 12.2
======= =======
</TABLE>
(1) Revenues include pre-tax realized gains (losses) of $20.7 million and
$(16.9) 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 nine months ended September 30, 1997 was $43.6 million,
compared to $12.2 million for the nine months ended September 30, 1996.
Excluding net realized investment gains and losses, operating earnings increased
from $23.2 million in 1996 to $30.1 million in 1997. This increase was driven by
an overall increase in investment income and management fee income attributable
to the growth in the deferred annuity business.
10
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PREMIUMS AND DEPOSITS
<TABLE>
<CAPTION>
For The Nine Months Ended September 30,
(in thousands) 1997 1996
-------- --------
<S> <C> <C>
Deferred annuities $365,691 $217,451
Structured settlements 50,261 23,951
Universal life 24,501 22,620
Traditional life 7,721 4,875
Single premium group close-out 359 386
-------- --------
$448,533 $269,283
======== ========
</TABLE>
The increase in deferred annuity deposits is attributable to strong sales of
products distributed 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's 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 $2.3 billion at September 30, 1997, up from $1.8 billion at
September 30, 1996, primarily as a result of growth in the 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 September 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 nine months ended
September 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
September 30, 1997.
12
<PAGE> 13
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, 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
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
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<EQUITIES> 0
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<REAL-ESTATE> 0
<TOTAL-INVEST> 2,032,062
<CASH> 4
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<TOTAL-ASSETS> 2,814,018
<POLICY-LOSSES> 966,432
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<POLICY-HOLDER-FUNDS> 1,339,687
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0
0
<COMMON> 3,000
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24,784
<INVESTMENT-INCOME> 122,280
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<OTHER-INCOME> 4,863
<BENEFITS> 94,851
<UNDERWRITING-AMORTIZATION> 3,926
<UNDERWRITING-OTHER> 7,007
<INCOME-PRETAX> 66,833
<INCOME-TAX> 23,272
<INCOME-CONTINUING> 43,561
<DISCONTINUED> 0
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<NET-INCOME> 43,561
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</TABLE>
