<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, 2000
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 $100 per share, of the registrant, all of which were owned by The
Travelers Insurance Company, an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Statements of Income for the
Three Months Ended March 31, 2000 and 1999 (unaudited).................................................................3
Condensed Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999......................................................................................................4
Condensed Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources
for the Three Months Ended March 31, 2000 and 1999 (unaudited).........................................................5
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (unaudited).................................................................6
Notes to Condensed Financial Statements (unaudited)....................................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................................................9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................11
SIGNATURES............................................................................................................12
</TABLE>
2
<PAGE> 3
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
- --------------------------------------------------------------------------------
REVENUES
<S> <C> <C>
Premiums $6,769 $5,313
Net investment income 49,163 42,411
Realized investment gains (losses) (9,249) 8,844
Fee income 19,202 6,987
Other revenues 11,716 5,550
- -------------------------------------------------------------------------------
Total revenues 77,601 69,105
------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 17,911 20,252
Interest credited to contractholders 16,205 12,876
Amortization of deferred acquisition costs 14,767 4,100
Operating expenses 3,314 2,405
------- --------
Total benefits and expenses 52,197 39,633
- -------------------------------------------------------------------------------
Income before federal income taxes 25,404 29,472
- -------------------------------------------------------------------------------
Federal income taxes 8,878 10,301
- -------------------------------------------------------------------------------
Net income $16,526 $ 19,171
======= ========
</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, 2000 DECEMBER 31, 1999
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments $ 2,311,933 $ 2,174,577
Separate accounts 5,596,585 4,795,165
Deferred acquisition costs 401,314 350,088
Other assets 228,063 181,503
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 8,537,895 $ 7,501,333
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 1,002,295 $ 1,007,776
Contractholder funds 1,231,036 1,117,819
Separate accounts 5,596,585 4,795,165
Other liabilities 211,701 114,408
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,041,617 7,035,168
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000 shares authorized,
30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,316 167,316
Retained earnings 351,687 335,161
Accumulated other changes in equity from non-owner sources (25,725) (39,312)
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholder's equity 496,278 466,165
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 8,537,895 $ 7,501,333
===================================================================================================================================
</TABLE>
See Notes to Condensed Financial Statements.
4
<PAGE> 5
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
(UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $ 335,161 $ 282,555
Net income 16,526 19,171
- --------------------------------------------------------------------------------
Balance, end of period $ 351,687 $ 301,726
================================================================================
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------------
Balance, beginning of period $ (39,312) $ 87,889
Unrealized gains (losses), net of tax 13,587 (47,656)
- --------------------------------------------------------------------------------
Balance, end of period $ (25,725) $ 40,233
================================================================================
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
Net income $ 16,526 $ 19,171
Other changes in equity from
Non-owner sources 13,587 (47,656)
- --------------------------------------------------------------------------------
Total changes in equity from
Non-owner sources $ 30,113 $ (28,485)
================================================================================
</TABLE>
See Notes to Condensed Financial Statements.
5
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (13,515) $ (59,531)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 61,826 46,340
Mortgage loans 3,602 4,330
Proceeds from sales of investments
Fixed maturities 264,914 202,104
Equity securities 6,123 337
Purchases of investments
Fixed maturities (412,148) (278,998)
Equity securities (7,544) (2,603)
Mortgage loans (6,113) (752)
Policy loans (356) (2,655)
Short-term securities (purchases) sales, net (41,829) 54,570
Other investment purchases, net 12,880 (1,423)
Securities transactions in course of settlement, net 28,763 27,791
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (89,882) 49,041
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CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 137,116 26,503
Contractholder fund withdrawals (24,957) (14,689)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 112,159 11,814
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 8,762 1,324
Cash at beginning of period 21 624
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 8,783 $ 1,948
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 1,748 $ 9,354
====================================================================================================================================
</TABLE>
See Notes to Condensed Financial Statements.
6
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements of The Travelers Life and Annuity Company
(the Company), a wholly owned subsidiary of The Travelers Insurance Company
(TIC), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup),
have been prepared in conformity with generally accepted accounting
principles (GAAP) and are unaudited. In the opinion of management, the
interim financial statements reflect all adjustments necessary (all of
which were normal recurring adjustments) for a fair presentation 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, 1999
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 prior year amounts have been reclassified to conform with the
current year's presentation.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). In June 1999, the
FASB issued Statement of Financial Standards No. 137, "Deferral of the
Effective Date of FASB Statement No. 133" (FAS 137), which allows entities
that have not yet adopted FAS 133 to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
recognized asset or liability or of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. Upon initial application of FAS 133, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company adopted the deferral provisions of FAS 137,
effective January 1, 2000 and has not yet determined the impact that FAS
133 will have on its consolidated financial statements.
7
<PAGE> 8
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $294 million at December
31, 1999. 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. Statutory
surplus of $29 million is available in 2000 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department. The
Company did not pay any dividends to its parent during the three months
ended March 31, 2000 and 1999.
3. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is a defendant or
co-defendant in various litigation matters incidental to and typical of the
businesses in which it is engaged. Although there can be no assurances, as
of March 31, 2000, the Company believes, based on information currently
available, that the ultimate resolution of these legal proceedings would
not be likely to have a material adverse effect on its results of
operations, financial condition or liquidity. This statement is a
forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 10.
8
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
RESULTS OF OPERATIONS ($ in millions)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000 1999
------- -------
<S> <C> <C>
Revenues $ 77.6 $ 69.1
======= =======
Net income $ 16.5 $ 19.2
======= =======
</TABLE>
The Travelers Life and Annuity Company (the Company) offers fixed and variable
deferred annuities and individual life insurance to individuals and small
businesses. These products are distributed primarily through the Financial
Consultants of Salomon Smith Barney (SSB), and Primerica Financial Services
(Primerica), affiliates of the Company, and a nationwide network of independent
agents. The Copeland Companies (Copeland) and Citibank, N.A., affiliates of the
Company, recently began distributing these products. The majority of the annuity
business and a substantial portion of the individual life business written by
the Company are accounted for as investment contracts, with the result that the
deposits collected from contractholders are reported as liabilities and are not
included in revenues.
The Company has assets held in a separate account related to reserves on
structured settlement contracts that provide guarantees for the contractholders
independent of the investment performance of the separate account assets. The
assets held in this separate account are owned by the Company and
contractholders do not share in their investment performance. These contracts
were 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 new structured settlement
contracts are being written by TIC.
Net income for the three months ended March 31, 2000 was $16.5 million, compared
to $19.2 million for the three months ended March 31, 1999. Included in net
income for the first quarter of 2000 were net after-tax realized losses on
investments of $6.0 million versus $5.8 million of net after-tax realized gains
on investments in the first quarter of 1999. Business income, defined as income
before net realized gains or losses on investments, increased 68% to $22.5
million for the first quarter of 2000 from $13.4 million for the prior year
quarter. The increase in business income resulted from increases in business
volume and strong investment income results. The business volume is reflected in
the growth of fee income in the individual annuity and universal life
businesses. This increased business volume also resulted in increased benefits
and expenses, and in particular the growth of amortization of deferred
acquisition costs from $4.1 million in the first quarter of 1999 to $14.8
million in the first quarter of 2000.
9
<PAGE> 10
THE TRAVELERS LIFE AND ANNUITY COMPANY
PREMIUMS AND DEPOSITS ($ in millions)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000 1999
---- ----
<S> <C> <C>
Individual Annuities $752 $487
Universal Life 37 24
Traditional Life 6 5
---- ----
Total $795 $516
==== ====
</TABLE>
The increase in individual annuity and universal life deposits is primarily
attributable to strong sales by SSB and Primerica.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $7.8 billion at March 31, 2000, up from $4.6 billion at March
31, 1999, primarily as a result of growth in the variable annuity separate
account business included in individual annuities.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At December 31, 1999, 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 2000 without
prior approval of the Connecticut Insurance Department is $29 million. The
Company did not pay any dividends to its parent during the three months ended
March 31, 2000 and 1999.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Financial Statements for Future Application of
Accounting Standards.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions, or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, the resolution of legal proceedings.
10
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
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
+ Filed herewith.
(b) REPORTS ON FORM 8-K.
None.
11
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THE TRAVELERS LIFE AND ANNUITY COMPANY
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 12, 2000 /s/ Glenn D. Lammey
---------------------------- ------------------------------
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief
Accounting Officer
(Principal Financial Officer)
12
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<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> 2,311,933
<CASH> 8,783
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 401,314
<TOTAL-ASSETS> 8,537,895
<POLICY-LOSSES> 1,002,295
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 6,827,621
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,000
<OTHER-SE> 493,278
<TOTAL-LIABILITY-AND-EQUITY> 8,537,895
6,769
<INVESTMENT-INCOME> 49,163
<INVESTMENT-GAINS> (9,249)
<OTHER-INCOME> 30,918
<BENEFITS> 34,116
<UNDERWRITING-AMORTIZATION> 14,767
<UNDERWRITING-OTHER> 3,314
<INCOME-PRETAX> 25,404
<INCOME-TAX> 8,878
<INCOME-CONTINUING> 16,526
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,526
<EPS-BASIC> 0
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<RESERVE-OPEN> 0
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</TABLE>
