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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, 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)
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CONNECTICUT 06-0904249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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
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PART I - FINANCIAL INFORMATION Page
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ITEM 1. FINANCIAL STATEMENTS
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Condensed Statements of Income for the Three and
Nine Months Ended September 30, 2000 and 1999 (unaudited)..........................3
Condensed Balance Sheets as of September 30, 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 and Nine Months Ended September 30, 2000 and 1999 (unaudited)........5
Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 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.....................................10
---------------------------------------------
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................................12
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SIGNATURES........................................................................13
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2
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
($ IN THOUSANDS)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2000 1999 2000 1999
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REVENUES
Premiums $ 8,583 $ 6,542 $ 25,168 $ 18,157
Net investment income 50,737 46,444 155,362 133,523
Realized investment gains (losses) (1,914) 1,166 (94) 7,893
Fee income 46,090 15,365 114,316 41,930
Other revenues 2,189 941 6,507 2,468
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Total revenues 105,685 70,458 301,259 203,971
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BENEFITS AND EXPENSES
Current and future insurance benefits 19,839 18,910 60,559 60,478
Interest credited to contractholders 20,598 14,381 54,675 40,512
Amortization of deferred acquisition costs 17,761 4,762 48,092 14,351
Operating expenses 4,085 2,536 11,150 7,132
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Total benefits and expenses 62,283 40,589 174,476 122,473
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Income before federal income taxes 43,402 29,869 126,783 81,498
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Federal income taxes 15,177 10,382 44,332 28,425
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Net income $ 28,225 $19,487 $ 82,451 $ 53,073
===========================================================================================================================
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See Notes to Condensed Financial Statements.
3
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
($ IN THOUSANDS)
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SEPTEMBER 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
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ASSETS
Investments $2,785,846 $2,174,577
Separate accounts 6,648,215 4,795,165
Deferred acquisition costs 513,489 350,088
Other assets 200,234 181,503
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Total assets $10,147,784 $7,501,333
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LIABILITIES
Future policy benefits $995,916 $1,007,776
Contractholder funds 1,489,889 1,117,819
Separate accounts 6,648,215 4,795,165
Other liabilities 192,831 114,408
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Total liabilities 9,326,851 7,035,168
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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 417,316 167,316
Retained earnings 417,612 335,161
Accumulated other changes in equity from non-owner sources (16,995) (39,312)
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Total shareholder's equity 820,933 466,165
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Total liabilities and shareholder's equity $10,147,784 $7,501,333
============================================================================================================================
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See Notes to Condensed Financial Statements.
4
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
(UNAUDITED)
($ IN THOUSANDS)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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STATEMENTS OF CHANGES IN RETAINED EARNINGS 2000 1999 2000 1999
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Balance, beginning of period $389,387 $316,141 $335,161 $282,555
Net income 28,225 19,487 82,451 53,073
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Balance, end of period $417,612 $335,628 $417,612 $335,628
=============================================================================================================================
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STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
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Balance, beginning of period $(36,916) $ 2,645 $(39,312) $ 87,889
Unrealized gains (losses), net of tax 19,921 (20,758) 22,317 (106,002)
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Balance, end of period $(16,995) $(18,113) $(16,995) $(18,113)
=============================================================================================================================
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SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
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Net income $28,225 $19,487 $82,451 $53,073
Other changes in equity from
non-owner sources 19,921 (20,758) 22,317 (106,002)
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Total changes in equity from
non-owner sources $48,146 $(1,271) $104,768 $(52,929)
=============================================================================================================================
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See Notes to Condensed Financial Statements.
5
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN THOUSANDS)
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NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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NET CASH USED IN OPERATING ACTIVITIES $ (102,988) $(118,714)
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 167,956 169,354
Mortgage loans 19,258 22,811
Proceeds from sales of investments
Fixed maturities 741,015 522,952
Equity securities 27,158 2,387
Mortgage loans 15,260 --
Real estate held for sale 2,115 --
Purchases of investments
Fixed maturities (1,286,107) (775,665)
Equity securities (17,763) (9,577)
Mortgage loans (10,010) (7,581)
Policy loans (2,296) (4,683)
Short-term securities sales (purchases), net (211,397) 51,252
Other investment purchases, net (3,133) (13,065)
Securities transactions in course of settlement, net 54,100 26,610
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Net cash used in investing activities (503,844) (15,205)
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CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 448,906 188,154
Contractholder fund withdrawals (76,778) (52,176)
Contribution by parent company 250,000 --
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Net cash provided by financing activities 622,128 135,978
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Net increase in cash 15,296 2,059
Cash at beginning of period 21 624
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Cash at end of period $ 15,317 $ 2,683
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 31,081 $ 24,726
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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. In June 2000,
the FASB issued Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133," which amends the
accounting and reporting standards of FAS 133. 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. The Company will adopt
FAS 133, as amended, as of January 1, 2001.
The Company has estimated that the pro forma cumulative effect of FAS 133,
as amended, at September 30, 2000 would not be significant. For its
estimate, the Company used holdings and applied rates available at the
balance sheet date, and did not anticipate future guidance or changes in
guidance on matters not yet addressed or not yet concluded by FASB on
implementation matters related to insurance and insurance-related
contracts. The Company anticipates a significant and continuing increase in
the complexity of the accounting and the recordkeeping requirements for
hedging activities and for insurance-related contracts and may make changes
to its risk management strategies. The Company does not expect that FAS
133, as
7
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
amended, will have a significant impact on the results of operations,
financial condition or liquidity in future periods.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, a replacement of FASB Statement
No. 125" (FAS 140). Provisions of FAS 140 primarily relating to transfers
of financial assets and securitizations that differ from provisions of FAS
125 are effective for transfers taking place after March 31, 2001. Special
purpose entities (SPEs) used in securitizations that are currently
qualifying SPEs under FAS 125 will continue to be treated as qualifying
SPEs so long as they issue no new beneficial interests and accept no new
asset transfers after March 31, 2001, other than transfers committed to
prior to that date. Under FAS 140 qualifying SPEs are not consolidated by
the transferor. It is not expected that there will be a significant effect
on the results of operations, financial condition or liquidity relating to
a change in consolidation status for existing qualifying SPEs under FAS
140. FAS 140 also amends the accounting for collateral and requires new
disclosures for collateral, securitizations, and retained interests in
securitizations. These provisions are effective for financial statements
for fiscal years ending after December 15, 2000. The accounting for
collateral, as amended, requires collateral previously recorded under FAS
125 to be derecognized in financial statements for all years presented, and
revises the criteria for reclassifying collateral pledged to an encumbered
account. The change in accounting for collateral is not expected to have a
significant effect on results of operations, financial condition or
liquidity.
2. SHAREHOLDER'S EQUITY
During September 2000, TIC contributed $250 million as additional paid-in
capital to the Company. This additional capital is used to support the
growing deferred annuity business.
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 nine months
ended September 30, 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. Although there can be no
assurances, as of September 30, 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 11.
8
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. RELATED PARTY TRANSACTIONS
In the normal course of business, management of both the Company and TIC
conducts reviews of the investment portfolios of each company to properly
match assets with liabilities. As a result of these reviews, TIC purchased
$100 million of invested assets from the Company at arm's length, with a
related loss of $1.3 million.
9
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
RESULTS OF OPERATIONS ($ in millions)
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
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Revenues $301.3 $204.0
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Net income $82.4 $53.1
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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 Salomon Smith
Barney (SSB), and Primerica Financial Services (Primerica), affiliates 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 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 nine months ended September 30, 2000 was $82.4 million,
compared to $53.1 million for the nine months ended September 30, 1999. Included
in net income for the first nine months of 2000 were net after-tax realized
losses on investments of $(.1) million versus $5.1 million of net after-tax
realized gains on investments in the first nine months of 1999 reflecting the
timing of investment transactions in 1999, to enhance investment yields.
Operating income, defined as income before net realized gains or losses on
investments, increased 71.9% to $82.5 million for the first nine months of 2000
from $48.0 million for the prior year period. The increase in operating income
resulted from increases in business volume and strong investment income results.
The strong business volume of the individual annuity and universal life
businesses is reflected in the 172.6% growth of fee income from $41.9 million in
1999 to $114.3 million in 2000. The business volume also resulted in a 42.5%
increase in benefits and expenses, and in particular, interest credited and
amortization of deferred acquisition costs.
10
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PREMIUMS AND DEPOSITS ($ in millions)
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
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Individual Annuities $2,421 $1,650
Universal Life 123 83
Traditional Life 20 17
Payout Annuities 8 --
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Total $2,572 $1,750
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The increase in individual annuity premiums and deposits reflects strong sales
growth across proprietary and non-proprietary distribution channels,
particularly SSB.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $9.1 billion at September 30, 2000, up from $5.7 billion at
September 30, 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 September 30, 2000, 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 nine months ended
September 30, 2000 and 1999.
FUTURE APPLICATION 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.
11
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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.
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EXHIBIT NO. DESCRIPTION
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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
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+ Filed herewith.
(b) REPORTS ON FORM 8-K.
None.
12
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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.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Registrant)
Date November 13, 2000 /s/ Glenn D. Lammey
----------------------------- --------------------------------------
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer)
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