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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 33-33691
THE TRAVELERS INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0566090
(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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes X No ____
As of the date hereof, there were outstanding 40,000,000 shares of common stock,
par value $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER PART I PAGE
- ----------- ------ ----
1. Business..................................................................2
A. General................................................................2
B. Business by Segment
Travelers Life & Annuity............................................2
Primerica Life Insurance............................................3
C. Insurance Regulations..................................................4
2. Properties................................................................5
3. Legal Proceedings.........................................................5
4. Submission of Matters to a Vote of Security Holders.......................6
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.....6
6. Selected Financial Data...................................................6
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................6
7A. Quantitative and Qualitative Disclosures About Market Risk...............10
8. Financial Statements and Supplementary Data..............................13
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.....................................................49
PART III
10. Directors and Executive Officers of the Registrant.......................49
11. Executive Compensation...................................................49
12. Security Ownership of Certain Beneficial Owners and Management...........49
13. Certain Relationships and Related Transactions...........................49
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........50
Exhibit Index............................................................51
Signatures...............................................................52
Index to Financial Statements and Financial Statement Schedules..........53
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS.
GENERAL
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a direct subsidiary of The Travelers Insurance Group Inc. (TIGI)
and, an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup), a
diversified holding company whose businesses provide a broad range of financial
services to consumer and corporate customers around the world. The periodic
reports of Citigroup provide additional business and financial information
concerning that company and its consolidated subsidiaries. TIC was incorporated
in 1863. With $70.3 billion of assets and $481.0 billion of life insurance in
force at December 31, 2000, the Company believes that it is one of the largest
stock life insurance groups in the United States as measured by these criteria.
The Company's two reportable business segments are Travelers Life & Annuity and
Primerica Life Insurance. The primary insurance entities of the Company are TIC
and its subsidiary The Travelers Life and Annuity Company (TLAC), included in
the Travelers Life & Annuity segment, and Primerica Life Insurance Company
(Primerica Life) and its subsidiaries, Primerica Life Insurance Company of
Canada, CitiLife Financial Limited (CitiLife) and National Benefit Life
Insurance Company (NBL), included in the Primerica Life Insurance segment. The
consolidated financial statements include the accounts of the Company on a fully
consolidated basis.
BUSINESS BY SEGMENT
TRAVELERS LIFE & ANNUITY
Travelers Life & Annuity primarily offers individual annuity, group annuity,
individual life insurance and corporate owned life insurance (COLI) products.
The individual products include fixed and variable deferred annuities, payout
annuities and term, universal and variable life insurance. These products are
primarily distributed through affiliated Citigroup businesses and a nationwide
network of independent financial professionals. The COLI product is a variable
universal life product distributed through independent specialty brokers. The
group products offered include institutional pension products, including
guaranteed investment contracts, payout annuities, structured finance
transactions and group annuities to U.S. employer-sponsored retirement and
savings plans through direct sales and various intermediaries.
Individual fixed and variable annuities are primarily used for retirement
funding purposes. Variable annuities permit policyholders to direct retirement
funds into a number of separate accounts, which offer differing investment
options. Individual payout annuities offer a guaranteed payment stream over a
specified period.
Individual life insurance is used to meet estate, business planning and
retirement needs and also to provide protection against financial loss due to
death.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
Group annuity products, including fixed and variable rate guaranteed investment
contracts, which provide a guaranteed return on investment, continue to be a
popular investment choice for employer-sponsored retirement and savings plans.
Annuities purchased by employer-sponsored plans fulfill retirement obligations
to individual employees. Payout annuities are used for providing structured
settlements of certain indemnity claims and making other payments to
policyholders over a period of time. Structured finance transactions offer fixed
term and rate investment options with policyholder status to domestic and
foreign institutional investors.
TIC is licensed to sell and market its individual products in all 50 states, the
District of Columbia, Puerto Rico, Guam, the Bahamas and the U.S. and British
Virgin Islands.
Individual annuity products are primarily distributed through CitiStreet
Retirement Services, LLC, (formerly The Copeland Companies), a division of
CitiStreet, a joint venture between Citigroup and State Street Bank; Salomon
Smith Barney (SSB); Primerica Financial Services Inc. (Primerica); Citibank,
N.A. (Citibank); and a nationwide network of independent financial
professionals. CitiStreet is a captive sales organization of personal retirement
planning specialists focused primarily on the qualified periodic deferred
annuity marketplace. CitiStreet's share of total individual annuity production
was 28% in 2000. SSB distributes Travelers Life & Annuity's non-qualified
individual annuities and individual life products, and accounted for 29% of
total individual annuity production in 2000. Sales by Primerica and Citibank
accounted for 17% and 6%, respectively, of total individual annuity premiums and
deposits in 2000. The nationwide network of independent financial professionals
accounted for 20% of individual annuity premiums and deposits.
Individual life products are primarily marketed by the independent financial
professionals and by SSB, who accounted for 67% and 27%, respectively, of total
individual life sales for 2000.
Effective July 1, 2000, the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company in the form of
an indemnity reinsurance arrangement. The proceeds were approximately $410
million, resulting in a deferred gain of approximately $150 million after-tax.
The Company operates Tower Square Securities, Inc. (Tower Square Securities),
which is an introducing broker-dealer offering a full line of brokerage
services. Tower Square Securities facilitates the sale of individual variable
life and annuity insurance products by the independent financial professionals
of the Company.
PRIMERICA LIFE INSURANCE
Primerica Life and its subsidiaries, Primerica Life Insurance Company of Canada,
CitiLife and NBL, are the insurance operations of Primerica. Their primary
product is individual term life insurance marketed through a sales force
composed of approximately 87,000 Personal Financial Analysts. A great majority
of the domestic licensed sales force works on a part-time basis. NBL also
provides statutory disability benefits and insurance, primarily in New York, as
well as direct response student term life insurance nationwide. CitiLife was
established in September 2000 to underwrite insurance in Europe. Primerica Life
and its subsidiaries together are licensed to sell and market term life
insurance in all 50 states, the District of Columbia, Canada, Puerto Rico, Guam,
the U.S. Virgin Islands, Northern Mariana Islands and parts of Europe, initially
Spain.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
INSURANCE REGULATIONS
The National Association of Insurance Commissioners (NAIC) Insurance Regulatory
Information System ("IRIS") was developed to help state regulators identify
companies that may require special attention. The IRIS system consists of a
statistical phase and an analytical phase whereby financial examiners review
annual statements and financial ratios. The statistical phase consists of 12 key
financial ratios that are generated from the NAIC database annually; each ratio
has an established "usual range" of results. These ratios assist state insurance
departments in executing their statutory mandate to oversee the financial
condition of insurance companies.
A ratio result falling outside the usual range of IRIS ratios is not considered
a failing result; rather, unusual values are viewed as part of the regulatory
early monitoring system. Furthermore, in some years, it may not be unusual for
financially sound companies to have several ratios with results outside the
usual ranges. An insurance company may fall out of the usual range for one or
more ratios because of specific transactions that are in themselves immaterial.
Generally, an insurance company will become subject to regulatory scrutiny if it
falls outside the usual ranges for four or more of the ratios. In normal years,
15% of the companies included in the IRIS system are expected by the NAIC to be
outside the usual range on four or more ratios.
In each of the last three years, IRIS ratios for TLAC have fallen outside of the
usual range due to growth in business volume. In each instance, the regulators
have been satisfied upon follow-up that there was no solvency problem. It is
possible that similar events could occur this year, and management believes that
resolution would be the same, however no assurances at this time can be given
that such resolution will be the same as in prior years. This statement is a
forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 10. No
regulatory action has been taken by any state insurance department or the NAIC
with respect to IRIS ratios of the primary insurance entities of the Company or
any of its insurance subsidiaries for the three years ended December 31, 2000.
In order to enhance the regulation of insurer solvency, the NAIC adopted a
formula and model law to implement Risk-Based Capital (RBC) requirements for
most life and annuity insurance companies, which is designed to assess minimum
capital requirements. RBC requirements are used as minimum capital requirements
by the NAIC and the states to identify companies that merit further regulatory
action. For this purpose, an insurer's surplus is measured in relation to its
specific asset and liability profiles. A company's risk-based capital is
calculated by applying factors to various asset, premium and reserve items,
where the factor is higher for those items with greater underlying risk and
lower for less risky items.
The RBC formula for life insurers measures four major areas of risk: asset risk
(i.e., the risk of asset default), insurance risk (i.e., the risk of adverse
mortality and morbidity experience), interest rate risk (i.e., the risk of loss
due to changes in interest rates) and business risk (i.e., normal business and
management risk). Pursuant to the law adopted by the states, insurers having
less statutory surplus than that required by the RBC calculation will be subject
to varying degrees of regulatory action, depending upon the level of capital
inadequacy. The formulas have not been designed to differentiate among
adequately capitalized companies, which operate with higher levels of capital.
Therefore, it is inappropriate and ineffective to use the formula to rate or
rank companies.
At December 31, 2000, the Company's principal insurance entities all had
adjusted capital in excess of amounts requiring any regulatory action at any of
the four RBC levels.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
TIC is domiciled in the State of Connecticut. The insurance holding company law
of Connecticut requires notice to, and approval by, the Connecticut Insurance
Department for the declaration or payment of any dividend which, together with
other distributions made within the preceding twelve months, exceeds the greater
of (i) 10% of the insurer's surplus or (ii) the insurer's net gain from
operations for the twelve-month period ending on the preceding December 31st, in
each case determined in accordance with statutory accounting practices. Such
declaration or payment is further limited by adjusted unassigned funds
(surplus), as determined in accordance with statutory accounting practices. The
insurance holding company laws of other states in which the Company's insurance
subsidiaries are domiciled generally contain similar (although in certain
instances somewhat more restrictive) limitations on the payment of dividends. A
maximum of $984 million is available by the end of the year 2001 for such
dividends without prior approval of the Connecticut Insurance Department.
ITEM 2. PROPERTIES.
The Company's executive offices are located in Hartford, Connecticut. The
Company owns buildings containing approximately 1.38 million square feet of
office space located in Hartford serving as the home office for the Company and
Travelers Property Casualty Corp. (TPC). TPC leases approximately 1.03 million
square feet of such office space at One Tower Square, Hartford under a ten-year
lease that expires on April 1, 2006. As of December 31, 2000, leasehold
interests of the Company included approximately 585,000 square feet of office
space in 20 field offices throughout the United States. The Company also leases
approximately 575,000 square feet of office space in Hartford, Connecticut,
under a 25-year lease that expires in 2010. The Company currently subleases
approximately 426,000 square feet to third party tenants.
The Company also owns a building in Norcross, Georgia. An affiliate's
information systems department occupies the entire building, which has
approximately 147,000 square feet of space. The Company is reimbursed by
affiliates for their use of this space on a cost allocation method based
generally on estimated usage by department.
Management believes that these facilities are suitable and adequate for the
Company's current needs.
The foregoing discussion does not include information on investment properties.
ITEM 3. LEGAL PROCEEDINGS.
This section describes the major pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or its
subsidiaries is a party or to which any of their property is subject.
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc., et al. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and other
state laws by an affiliate of the Company, Primerica Financial Services, Inc.
and certain of its affiliates. Plaintiffs seek unspecified compensatory and
punitive damages and other relief. From February 1998 through April 2000,
various motions for transfer of the lawsuit were heard and appealed. In April
2000, the matter was remanded to the Superior Court of Richmond County by the
Georgia Supreme Court. Also, in April 2000 defendants moved for summary
judgement on all counts of the complaint. Discovery commenced in May 2000.
Defendants intend to vigorously contest the litigation.
In the ordinary course of business, the Company is also a defendant or
co-defendant in various other litigation matters incidental to and typical of
the businesses in which it is engaged. Although there can be no assurances, as
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
of December 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company has 40,000,000 authorized shares of common stock, all of which are
issued and outstanding as of December 31, 2000. All shares are held by TIGI, and
there exists no established public trading market for the common equity of the
Company. The Company paid dividends to its parent of $860 million in 2000. See
Note 9 of Notes to Consolidated Financial Statements for certain information
regarding dividend restrictions.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted pursuant to General Instruction I(2)(a) of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction I(2)(a) of Form 10-K.
CONSOLIDATED OVERVIEW
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
-------------------------------- ---- ----
($ in millions)
Revenues $5,254 $4,868
====== ======
Net income (1) $1,103 $1,047
====== ======
(1) Net income includes net realized investment losses of $50 million in
2000 and net realized investment gains of $73 million in 1999.
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a direct subsidiary of The Travelers Insurance Group, Inc. and, an
indirect wholly owned subsidiary of Citigroup Inc. (Citigroup). The Company is
composed of two business segments, Travelers Life & Annuity and Primerica Life
Insurance. Operating income, defined as income before net realized gains or
losses, increased to $1.15 billion in 2000 from $974 million in 1999. This 18%
increase reflects growth in business volume, particularly fee income, and
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
investment income. The business volume growth is also reflected in the increase
in insurance benefits and expenses. The benefits and expenses increase was
mitigated by a decline in general and administrative expenses due to the
contribution of The Copeland Companies to CitiStreet, a joint venture between
Citigroup and State Street Bank, and certain one time 1999 technology expenses.
TRAVELERS LIFE & ANNUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
- -------------------------------- ---- ----
($ in millions)
Revenues $3,822 $3,451
====== ======
Net Income (1) $ 758 $ 690
====== ======
(1) Net income includes net realized investment losses of $19 million in 2000,
and net realized investment gains of $71 million in 1999.
Travelers Life & Annuity (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and The Travelers Life and Annuity Company
(TLAC) under the Travelers name. Among the range of individual products offered
are fixed and variable deferred annuities, payout annuities and term, universal
and variable life insurance. The COLI product is a variable universal life
product distributed through independent specialty brokers. The group products
include institutional pensions, including guaranteed investment contracts,
payout annuities, group annuities to employer-sponsored retirement and savings
plans and structured finance transactions. The majority of the annuity business
and a substantial portion of the life business written by Travelers Life &
Annuity are accounted for as investment contracts, with the result that the
deposits collected are reported as liabilities and are not included in revenues.
Operating income increased 26% to $777 million in 2000, compared to $619 million
in 1999. The improvement in earnings during 2000 was largely driven by increases
in business volume and investment income and by savings due to expense
management. During 2000, this business continued strong individual annuity sales
and achieved double-digit business volume growth in group annuity account
balances and individual life net written premium, reflecting growth in
retirement savings and estate planning products and strong momentum from
cross-selling initiatives.
The cross-selling of TLA products through CitiStreet Retirement Services LLC,
(formerly The Copeland Companies), Primerica Financial Services, Inc.
(Primerica), Citibank and Salomon Smith Barney (SSB) distribution channels,
along with improved sales through a nationwide network of independent financial
professionals and strong group sales through various intermediaries reflect
ongoing efforts to build market share by strengthening relationships in key
distribution channels.
Significant individual variable annuity sales drove account balances to $28.0
billion at year-end 2000, up 6% from $26.4 billion at year-end 1999. Net
premiums and deposits increased 24% in 2000 to $6.2 billion, from $5.0 billion
in 1999. The strong sales reflect significant increased production at SSB and
increased sales from all TLA core distribution channels. Proprietary
distribution channels account for 80% of individual variable annuity sales.
Group annuity account balances and benefits reserves reached $17.5 billion at
year-end 2000, up 16% from $15.1 billion at year-end 1999. This volume growth
reflects strong sales momentum in guaranteed investment contracts,
employer-sponsored group plans and cross-selling of structured settlement
annuities through Travelers
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
Property Casualty Corp (TPC), structured finance transactions and payout
annuities. Net premiums and deposits (excluding Citigroup's employee pension
plan deposits) were $5.5 billion in 2000 compared to $5.6 billion in 1999, which
reflected particularly strong structured finance transactions.
Direct periodic premiums for individual life insurance of $510.6 million were up
25% from $408.7 million in 1999. Life insurance in force was $68.3 billion at
December 31, 2000, up from $62.6 billion at year-end 1999. This reflects strong
agency results and increased corporate-owned life insurance sales.
Effective July 1, 2000, the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company in the form of
an indemnity reinsurance agreement. Proceeds from the sale were approximately
$410 million, resulting in a deferred gain of approximately $150 million
after-tax. Earned premiums were $138 million and $230 million in 2000 and 1999,
respectively, reflecting this transaction.
OUTLOOK
Travelers Life & Annuity should benefit from growth in the aging population who
are becoming more focused on the need to accumulate adequate savings for
retirement, to protect these savings and to plan for the transfer of wealth to
the next generation. Travelers Life & Annuity is well positioned to take
advantage of the favorable long-term demographic trends through its strong
financial position, widespread brand name recognition and broad array of
competitive life, annuity and retirement and estate planning products sold
through established distribution channels.
However, competition in both product pricing and customer service is
intensifying. While there has been some consolidation within the industry, other
financial services organizations are increasingly involved in the sale and/or
distribution of insurance products. Financial services reform is likely to have
many effects on the life insurance industry and the results will take time to
assess; however, heightened competition is expected. Also, the annuities
business is interest rate and market sensitive, and swings in interest rates and
equity markets could influence sales and retention of in-force policies. In
order to strengthen its competitive position, Travelers Life & Annuity expects
to maintain a current product portfolio, further diversify its distribution
channels, and retain its financial position through increased sales growth and
maintenance of an efficient cost structure.
The President has proposed to Congress as a part of his tax cut plan the repeal
of the Estate and Gift Tax, potentially over a 10 year period. If this proposal
in its current form is enacted, it could potentially negatively affect demand
for certain life and annuity products; however, the overall impact is not
expected to be material to the Company's business.
The statements above are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. See "Forward-Looking Statements" on
page 10.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
PRIMERICA LIFE INSURANCE
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
-------------------------------- ---- ----
($ in millions)
Revenues $1,432 $1,417
====== ======
Net income(1) $ 345 $ 357
====== ======
(1) Net income includes net realized investment losses of $31
million in 2000, and net realized investment gains of $2 million
in 1999.
Operating income was $376 million in 2000 compared to $355 million in 1999. The
6% improvement in 2000 reflects growth in life insurance in force, favorable
mortality experience, increased investment earnings and disciplined expense
management.
EARNED PREMIUMS, NET OF REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
-------------------------------- ---- ----
($ in millions)
Individual term life $1,038 $1,008
Other 68 64
------ ------
$1,106 $1,072
====== ======
The average face value (in thousands) per policy issued was $245 in 2000
compared to $229 in 1999. Total face amount of term life insurance issued was
$67.4 billion in 2000 compared to $56.2 billion in 1999. The number of policies
issued was 234,700 in 2000 compared to 209,900 in 1999. These increases in term
life production resulted from the Personal Financial Analysts transitioning to a
new life product in the third quarter of 1999. Life insurance in force at
year-end 2000 reached $412.7 billion, up from $394.9 billion at year-end 1999,
continuing to reflect good policy persistency.
OUTLOOK
Over the last few years, programs including sales and product training were
begun that are designed to maintain high compliance standards, increase the
number of producing agents and customer contacts and, ultimately, increase
production levels. Insurance in-force has grown and the number of producing
agents has also grown. A continuation of these trends could positively influence
future operations. This statement is a forward-looking statement within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 10. CitiLife was established to enter the European insurance
markets.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 of Notes to Consolidated Financial Statements for Future Applications
of Accounting Standards.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
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, regulatory matters, proposed legislation, the resolution of legal
proceedings and the Company's market risk, as well as the discussions of the
Company's prospects under "Outlook" for each of the businesses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by the
volatility and liquidity in the markets in which the related underlying assets
are traded. The following is a discussion of the Company's primary market risk
exposures and how those exposures are currently managed as of December 31, 2000.
MARKET RISK SENSITIVE INSTRUMENTS ENTERED INTO FOR PURPOSES OTHER THAN TRADING
The primary market risk to the Company's investment portfolio is interest rate
risk associated with investments. The Company's exposure to equity price risk
and foreign exchange risk is not significant. The Company has no direct
commodity risk.
The interest rate risk taken in the investment portfolio is managed relative to
the duration of the liabilities. The portfolio is differentiated by product
line, with each product line's portfolio structured to meet its particular
needs. Potential liquidity needs of the business are also key factors in
managing the investment portfolio. The portfolio duration relative to the
liabilities' duration is primarily managed through cash market transactions. For
additional information regarding the Company's investment portfolio see Note 4
of Notes to Consolidated Financial Statements.
There were no significant changes in the Company's primary market risk exposures
or in how those exposures are managed compared to the year ended December 31,
1999. The Company does not anticipate significant changes in the Company's
primary market risk exposures or in how those exposures are managed in future
reporting periods based upon what is known or expected to be in effect in future
reporting periods. The statements above are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" above.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SENSITIVITY ANALYSIS
Sensitivity analysis is defined as the measurement of potential loss in future
earnings, fair values or cash flows of market sensitive instruments resulting
from one or more selected hypothetical changes in interest rates and other
market rates or prices over a selected time. In the Company's sensitivity
analysis model, a hypothetical change in market rates is selected that is
expected to reflect reasonably possible near-term changes in those rates. The
term "near-term" means a period of time going forward up to one year from the
date of the financial statements. Actual results may differ from the
hypothetical change in market rates assumed in this report, especially since
this sensitivity analysis does not reflect the results of any actions that would
be taken by the Company to mitigate such hypothetical losses in fair value.
In this sensitivity analysis model, the Company uses fair values to measure its
potential loss. The sensitivity analysis model includes the following financial
instruments: fixed maturities, interest-bearing non-redeemable preferred stock,
mortgage loans, short-term securities, cash, investment income accrued, policy
loans, contractholder funds, guaranteed separate account assets and liabilities
and derivative financial instruments. In addition, certain non-financial
instrument liabilities have been included in the sensitivity analysis model.
These non-financial instruments include future policy benefits and policy and
contract claims. The primary market risk to the Company's market sensitive
instruments is interest rate risk. The sensitivity analysis model uses a 100
basis point change in interest rates to measure the hypothetical change in fair
value of financial instruments and the non-financial instruments included in the
model.
For invested assets, duration modeling is used to calculate changes in fair
values. Durations on invested assets are adjusted for call, put and reset
features. Portfolio durations are calculated on a market value weighted basis,
including accrued investment income, using trade date holdings as of December
31, 2000 and 1999. The sensitivity analysis model used by the Company produces a
loss in fair value of interest rate sensitive invested assets of approximately
$1.3 billion and $1.2 billion based on a 100 basis point increase in interest
rates as of December 31, 2000 and 1999, respectively.
Liability durations are determined consistently with the determination of
liability fair values. Where fair values are determined by discounting expected
cash flows, the duration is the percentage change in the fair value for a 100
basis point change in the discount rate. Where liability fair values are set
equal to surrender values, option-adjusted duration techniques are used to
calculate changes in fair values. The sensitivity analysis model used by the
Company produces a decrease in fair value of interest rate sensitive insurance
policy and claims reserves of approximately $.9 billion based on a 100 basis
point increase in interest rates as of December 31, 2000 and 1999.
Based on the sensitivity analysis model used by the Company, the net loss in
fair value of market sensitive instruments, including non-financial instrument
liabilities, as a result of a 100 basis point increase in interest rates as of
December 31, 2000 and 1999 is not material.
MARKET RISK SENSITIVE INSTRUMENTS ENTERED INTO FOR TRADING PURPOSES
The Company maintains a trading portfolio consisting of carrying values of
$1,870 million and $1,678 million of common stocks and convertible bonds as of
December 31, 2000 and 1999, respectively, and $1,109 million and $1,098 million
of liabilities resulting from common stocks sold not yet purchased (referred to
as short sales) as of December 31, 2000 and 1999, respectively. The primary
market risk to the trading portfolio is equity risk. Assets are reported as
trading securities and liabilities are reported as trading securities sold not
yet purchased.
The common stocks are paired with short sales, reflecting the Company's
arbitrage strategy where both positions are invested in each of the companies
involved in a merger. The convertible bonds are also paired with short
11
13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
sales of the common stocks of companies issuing the convertible bonds. These
positions are established and maintained so that general changes in equity
markets and interest rates will not materially impact the value of the
portfolio.
TABULAR PRESENTATION
The table below provides information about the trading portfolio's financial
instruments that are primarily exposed to equity price risk. This table presents
the fair values of these instruments by trading portfolio type, as designated
internally by the Company, as of December 31, 2000 and 1999. Fair values are
based upon quoted market prices.
($ in millions) Fair value as of Fair value as of
December 31, December 31,
2000 1999
---- ----
ASSETS
Trading securities
Convertible bond arbitrage $1,474 $1,045
Merger arbitrage 309 421
Other 87 212
------ ------
$1,870 $1,678
====== ======
LIABILITIES
Trading securities sold not yet
purchased
Convertible bond arbitrage $845 $799
Merger arbitrage 205 299
Other 59 -
------ ------
$1,109 $1,098
====== ======
The Company's trading portfolio investments and related liabilities are normally
held for periods less than six months. Therefore, expected future cash flows for
these assets and liabilities are expected to be realized in less than one year.
12
14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report...................................................14
Consolidated Financial Statements:
Consolidated Statements of Income for
the years ended December 31, 2000, 1999 and 1998............................15
Consolidated Balance Sheets - December 31, 2000 and 1999....................16
Consolidated Statements of Changes in Retained Earnings
and Accumulated Other Changes in Equity from Non-Owner
Sources for the years ended December 31, 2000, 1999 and 1998................17
Consolidated Statements of Cash Flows for
the years ended December 31, 2000, 1999 and 1998............................18
Notes to Consolidated Financial Statements...............................19-48
13
15
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Insurance Company:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in retained earnings and
accumulated other changes in equity from non-owner sources and cash flows for
each of the years in the three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Hartford, Connecticut
January 16, 2001
14
16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in millions)
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
---- ---- ----
REVENUES
Premiums $1,966 $1,728 $1,727
Net investment income 2,730 2,506 2,185
Realized investment gains (losses) (77) 113 149
Fee income 505 432 370
Other revenues 130 89 70
- ------------------------------------------------------------------------------------
Total Revenues 5,254 4,868 4,501
- ------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,752 1,505 1,462
Interest credited to contractholders 1,038 937 876
Amortization of deferred acquisition costs 347 315 275
General and administrative expenses 463 519 505
- ------------------------------------------------------------------------------------
Total Benefits and Expenses 3,600 3,276 3,118
- ------------------------------------------------------------------------------------
Income before federal income taxes 1,654 1,592 1,383
- ------------------------------------------------------------------------------------
Federal income taxes
Current 462 409 442
Deferred 89 136 39
- ------------------------------------------------------------------------------------
Total Federal Income Taxes 551 545 481
- ------------------------------------------------------------------------------------
Net income $1,103 $1,047 $902
====================================================================================
See Notes to Consolidated Financial Statements.
15
17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in millions)
DECEMBER 31, 2000 1999
- -------------------------------------------------------------------------------------
ASSETS
Fixed maturities, available for sale at fair value
(including $1,494 at December 31, 2000 subject
to securities lending agreements) $26,812 $23,866
Equity securities, at fair value 592 784
Mortgage loans 2,187 2,285
Real estate held for sale 31 236
Policy loans 1,249 1,258
Short-term securities 2,136 1,283
Trading securities, at fair value 1,870 1,678
Other invested assets 2,356 2,098
- -------------------------------------------------------------------------------------
Total Investments 37,233 33,488
- -------------------------------------------------------------------------------------
Cash 150 85
Investment income accrued 442 395
Premium balances receivable 97 109
Reinsurance recoverables 3,977 3,234
Deferred acquisition costs 2,989 2,688
Separate and variable accounts 24,006 22,199
Other assets 1,399 1,333
- -------------------------------------------------------------------------------------
Total Assets $70,293 $63,531
- -------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $19,394 $17,567
Future policy benefits and claims 13,300 12,563
Separate and variable accounts 23,994 22,194
Deferred federal income taxes 284 23
Trading securities sold not yet purchased, at fair value 1,109 1,098
Other liabilities 3,818 2,466
- -------------------------------------------------------------------------------------
Total Liabilities 61,899 55,911
- -------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,848 3,819
Retained earnings 4,342 4,099
Accumulated other changes in equity from non-owner sources 104 (398)
- -------------------------------------------------------------------------------------
Total Shareholder's Equity 8,394 7,620
- -------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $70,293 $63,531
=====================================================================================
See Notes to Consolidated Financial Statements.
16
18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ in millions)
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2000 1999 1998
- ------------------------------------------------------------------------------------
Balance, beginning of year $ 4,099 $ 3,602 $2,810
Net income 1,103 1,047 902
Dividends to parent 860 550 110
- ------------------------------------------------------------------------------------
Balance, end of year $ 4,342 $ 4,099 $3,602
====================================================================================
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- ------------------------------------------------------------------------------------
Balance, beginning of year $ (398) $ 598 $ 535
Unrealized gains (losses), net of tax 502 (996) 62
Foreign currency translation, net of tax 0 0 1
- ------------------------------------------------------------------------------------
Balance, end of year $ 104 $ (398) $ 598
====================================================================================
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- ------------------------------------------------------------------------------------
Net Income $ 1,103 $ 1,047 $ 902
Other changes in equity from non-owner sources 502 (996) 63
- ------------------------------------------------------------------------------------
Total changes in equity from non-owner sources $ 1,605 $ 51 $ 965
====================================================================================
See Notes to Consolidated Financial Statements.
17
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in millions)
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,986 $ 1,715 $ 1,763
Net investment income received 2,489 2,365 2,021
Other revenues received 865 537 419
Benefits and claims paid (1,193) (1,094) (1,127)
Interest credited to contractholders (1,046) (958) (918)
Operating expenses paid (970) (1,013) (751)
Income taxes paid (490) (393) (506)
Trading account investments purchases, net (143) (80) (38)
Other (258) (104) 12
- -------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 1,240 975 875
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 4,257 4,103 2,608
Mortgage loans 380 662 722
Proceeds from sales of investments
Fixed maturities 10,840 12,562 13,390
Equity securities 397 100 212
Real estate held for sale 244 219 53
Purchases of investments
Fixed maturities (17,836) (18,129) (18,072)
Equity securities (7) (309) (194)
Mortgage loans (264) (470) (457)
Policy loans, net 9 599 15
Short-term securities (purchases) sales, net (810) 316 (495)
Other investments purchases, net (461) (413) (550)
Securities transactions in course of settlement, net 944 (463) 192
- -------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,307) (1,223) (2,576)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 6,022 5,764 4,383
Contractholder fund withdrawals (4,030) (4,946) (2,565)
Dividends to parent company (860) (550) (110)
- -------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 1,132 268 1,708
- -------------------------------------------------------------------------------------------------
Net increase in cash 65 20 7
Cash at December 31, previous year 85 65 58
- -------------------------------------------------------------------------------------------------
Cash at December 31, current year $ 150 $ 85 $ 65
=================================================================================================
See Notes to Consolidated Financial Statements.
18
20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
BASIS OF PRESENTATION
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a wholly owned subsidiary of The Travelers Insurance Group Inc.
(TIGI), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup), a
diversified holding company whose businesses provide a broad range of
financial services to consumer and corporate customers around the world. The
consolidated financial statements include the accounts of the Company and its
insurance and non-insurance subsidiaries on a fully consolidated basis. The
primary insurance entities of the Company are TIC and its subsidiaries, The
Travelers Life and Annuity Company (TLAC), Primerica Life Insurance Company
(Primerica Life), and its subsidiaries, Primerica Life Insurance Company of
Canada, CitiLife Financial Limited (CitiLife) and National Benefit Life
Insurance Company (NBL). Significant intercompany transactions and balances
have been eliminated.
The financial statements and accompanying footnotes of the Company are
prepared in conformity with generally accepted accounting principles in the
United States of America (GAAP). The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
ACCOUNTING CHANGES
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
In September 2000, the Financial Accounting Standards Board (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 Company's 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
(a) certain assets pledged as collateral to be separately reported in the
consolidated balance sheet from assets not so encumbered and (b) disclosure
of assets pledged as collateral that have not been reclassified and
separately reported. The change in accounting for collateral did not have a
significant effect on the Company's results of operations, financial
condition or liquidity. See Note 4.
19
21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE
During the third quarter of 1998, the Company adopted the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants' (AcSEC) Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use and for determining when specific
costs should be capitalized or expensed. The adoption of SOP 98-1 did not
have a material impact on the Company's financial condition, results of
operations or liquidity.
ACCOUNTING POLICIES
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed
maturities are classified as "available for sale" and are reported at fair
value, with unrealized investment gains and losses, net of income taxes,
charged or credited directly to shareholder's equity. Fair values of
investments in fixed maturities are based on quoted market prices or dealer
quotes or, if these are not available, discounted expected cash flows using
market rates commensurate with the credit quality and maturity of the
investment. Also included in fixed maturities are loan-backed and structured
securities, which are amortized using the retrospective method. The effective
yield used to determine amortization is calculated based upon actual
historical and projected future cash flows, which are obtained from a widely
accepted securities data provider.
Equity securities, which include common and non-redeemable preferred stocks,
are classified as "available for sale" and carried at fair value based
primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net of
income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined to
be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the higher
returns required in the current real estate financing market. Impaired loans
were insignificant at December 31, 2000 and 1999.
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted techniques. Thereafter, an
allowance for losses on real estate held for sale is established if the
carrying value of the property exceeds its current fair value less estimated
costs to sell. There was no such allowance at December 31, 2000 and 1999.
Policy loans are carried at the amount of the unpaid balances that are not in
excess of the net cash surrender values of the related insurance policies.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost, which approximates market.
20
22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Trading securities and related liabilities are normally held for periods less
than six months. These investments are marked to market with the change
recognized in net investment income during the current period.
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. Undistributed
income is reported in net investment income. Also included in other invested
assets is an investment in Citigroup Preferred Stock. See Note 14.
Accrual of income is suspended on fixed maturities or mortgage loans that are
in default, or on which it is likely that future payments will not be made as
scheduled. Interest income on investments in default is recognized only as
payment is received.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures contracts, options, forward contracts, interest rate swaps, currency
swaps and equity swaps, as a means of hedging exposure to interest rate,
equity price and foreign currency risk. Hedge accounting is generally used to
account for derivatives. To qualify for hedge accounting the changes in value
of the derivative must be expected to substantially offset the changes in
value of the hedged item. Hedges are monitored to ensure that there is a high
correlation between the derivative instruments and the hedged investment.
Derivatives that do not qualify for hedge accounting are marked to market
with changes in market value reflected in the consolidated statement of
income.
Gains and losses arising from financial futures contracts are used to adjust
the basis of hedged investments and are recognized in net investment income
over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps hedging investments are carried at
fair value with unrealized gains and losses, net of taxes, charged or
credited directly to shareholder's equity. Interest rate, currency options
and currency swaps hedging liabilities are off-balance sheet.
Gains and losses arising from equity index options are marked to market with
changes in market value reflected in realized investment gains (losses).
Forward contracts, interest rate options and equity swaps were not
significant at December 31, 2000 and 1999. Information concerning derivative
financial instruments is included in Note 12.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the remeasurement
of the local currency value of foreign investments to U.S. dollars, the
functional currency of the Company. The foreign exchange effects of Canadian
operations are included in unrealized gains and losses.
21
23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DEFERRED ACQUISITION COSTS
Costs of acquiring individual life insurance and annuities, principally
commissions and certain expenses related to policy issuance, underwriting and
marketing, all of which vary with and are primarily related to the production
of new business, are deferred. Acquisition costs relating to traditional life
insurance, including term insurance, are amortized in relation to anticipated
premiums; universal life in relation to estimated gross profits; and annuity
contracts employing a level yield method. For life insurance, a 15 to 20-year
amortization period is used; for long-term care insurance, a 10 to 20-year
period is used, and a seven to 20-year period is employed for annuities.
Deferred acquisition costs are reviewed periodically for recoverability to
determine if any adjustment is required. Adjustments, if any, are charged to
income.
VALUE OF INSURANCE IN FORCE
The value of insurance in force is an asset that was recorded at the time of
acquisition of the Company by Citigroup's predecessor. It represents the
actuarially determined present value of anticipated profits to be realized
from life insurance, annuities and health contracts at the date of
acquisition using the same assumptions that were used for computing related
liabilities where appropriate. The value of insurance in force was the
actuarially determined present value of the projected future profits
discounted at interest rates ranging from 14% to 18%. Traditional life
insurance and guaranteed renewable health policies are amortized in relation
to anticipated premiums; universal life is amortized in relation to estimated
gross profits; and annuity contracts are amortized employing a level yield
method. The value of insurance in force, which is included in other assets,
is reviewed periodically for recoverability to determine if any adjustment is
required. Adjustments, if any, are charged to income. The carrying value at
December 31, 2000 and 1999 was $170 million and $215 million, respectively.
SEPARATE AND VARIABLE ACCOUNTS
Separate and variable accounts primarily represent funds for which investment
income and investment gains and losses accrue directly to, and investment
risk is borne by, the contractholders. Each account has specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company. The
assets of these accounts are carried at market value. Certain other separate
accounts provide guaranteed levels of return or benefits and the assets of
these accounts are primarily carried at market value. Amounts assessed to the
contractholders for management services are included in revenues. Deposits,
net investment income and realized investment gains and losses for these
accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses.
GOODWILL
Goodwill, which is included in other assets, represents the cost of acquired
businesses in excess of net assets and is being amortized on a straight-line
basis principally over a 40-year period. The carrying amount of $294 million
and $404 million at December 31, 2000 and 1999, respectively, is regularly
reviewed for indication of impairment in value that in the view of management
would be other than temporary. If it is determined that goodwill is unlikely
to be recovered, impairment is recognized on a discounted cash flow basis.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal life,
corporate owned life insurance, pension investment and certain deferred
annuity contracts. Contractholder fund balances are increased by
22
24
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
such receipts and credited interest and reduced by withdrawals, mortality
charges and administrative expenses charged to the contractholders. Interest
rates credited to contractholder funds range from 3.5% to 10.0%.
FUTURE POLICY BENEFITS
Future policy benefits represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuities have been
computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 2.5% to 8.1%,
including adverse deviation. These assumptions consider Company experience
and industry standards. The assumptions vary by plan, age at issue, year of
issue and duration. Appropriate recognition has been given to experience
rating and reinsurance.
OTHER LIABILITIES
Included in Other Liabilities is the Company's estimate of its liability for
guaranty fund and other insurance-related assessments. State guaranty fund
assessments are based upon the Company's share of premium written or received
in one or more years prior to an insolvency occurring in the industry. Once
an insolvency has occurred, the Company recognizes a liability for such
assessments if it is probable that an assessment will be imposed and the
amount of the assessment can be reasonably estimated. At December 31, 2000
and 1999, the Company had a liability of $22.5 million and $21.9 million,
respectively, for guaranty fund assessments and a related premium tax offset
recoverable of $3.4 million and $4.7 million, respectively. The assessments
are expected to be paid over a period of three to five years and the premium
tax offsets are expected to be realized over a period of 10 to 15 years.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries, domiciled principally in Connecticut
and Massachusetts, prepare statutory financial statements in accordance with
the accounting practices prescribed or permitted by the insurance departments
of the states of domicile. Prescribed statutory accounting practices include
certain publications of the National Association of Insurance Commissioners
(NAIC) as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices
not so prescribed. The impact of presently permitted accounting practices on
statutory surplus of the Company is not material.
The NAIC recently completed a process intended to codify statutory accounting
practices for certain insurance enterprises. As a result of this process, the
NAIC will issue a revised statutory Accounting Practices and Procedures
Manual - version effective January 1, 2001 (the revised Manual) that will be
effective for years beginning January 1, 2001. The State of Connecticut will
require that, effective January 1, 2001, insurance companies domiciled in
Connecticut prepare their statutory basis financial statements in accordance
with the revised Manual subject to any deviations prescribed or permitted by
the Connecticut insurance commissioner. Massachusetts and other states have
addressed compliance with the revised Manual in a similar manner. The Company
has estimated that the impact of this change on statutory capital and surplus
will not be significant.
PREMIUMS
Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.
23
25
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
OTHER REVENUES
Other revenues include management fees for variable annuity separate
accounts; surrender, mortality and administrative charges and fees earned on
investment, universal life and other insurance contracts; and revenues of
non-insurance subsidiaries.
CURRENT AND FUTURE INSURANCE BENEFITS
Current and future insurance benefits represent charges for mortality and
morbidity related to fixed annuities, universal life, term life and health
insurance benefits.
INTEREST CREDITED TO CONTRACTHOLDERS
Interest credited to contractholders represents amounts earned by universal
life, corporate owned life insurance, pension investment and certain deferred
annuity contracts in accordance with contract provisions.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income taxes
arise from changes during the year in cumulative temporary differences
between the tax basis and book basis of assets and liabilities.
STOCK-BASED COMPENSATION
The Company accounts for the stock-based compensation plans using the
accounting method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and has included in the
notes to consolidated financial statements the pro forma disclosures required
by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). See note 14. The Company accounts for
its stock-based non-employee compensation plans at fair value.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the 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
24
26
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 determined that the cumulative effect of FAS 133, as amended,
will not be significant. The Company does, however, anticipate 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 amended, will have a significant impact on
its results of operations, financial condition or liquidity in future
periods.
2. BUSINESS DISPOSITION
Effective July 1, 2000, the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company and its
subsidiary in the form of indemnity reinsurance arrangements. The proceeds
were $410 million, resulting in a deferred gain of approximately $150 million
after-tax. The deferred gain will be amortized in relation to anticipated
premiums. Earned premiums were $138 million, $230 million and $200 million in
2000, 1999 and 1998, respectively.
3. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed
due to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the common ultimate parent, Citigroup Inc.
The TRAVELERS LIFE & ANNUITY business segment consolidates primarily the
business of TIC and TLAC. Travelers Life & Annuity core offerings include
individual annuity, group annuity, individual life and corporate owned life
insurance (COLI) insurance products distributed by TIC and TLAC under the
Travelers name. Among the range of individual products offered are fixed and
variable deferred annuities, payout annuities and term, universal and
variable life insurance. The COLI product is a variable universal life
product distributed through independent specialty brokers. The group products
include institutional pensions, including guaranteed investment contracts,
payout annuities, group annuities to employer-sponsored retirement and
savings plans and structured finance transactions.
The PRIMERICA LIFE INSURANCE business segment consolidates primarily the
business of Primerica Life, Primerica Life Insurance Company of Canada,
CitiLife and NBL. The Primerica Life Insurance business segment offers
individual life products, primarily term insurance, to customers through a
nationwide sales force of approximately 87,000 full and part-time licensed
Personal Financial Analysts.
25
27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 1), except that
management also includes receipts on long-duration contracts (universal
life-type and investment contracts) as deposits along with premiums in
measuring business volume. The amount of investments in equity method
investees and total expenditures for additions to long-lived assets other
than financial instruments, long-term customer relationships of a financial
institution, mortgage and other servicing rights, and deferred tax assets,
were not material.
BUSINESS SEGMENT INFORMATION:
----------------------------------------------------------------------------------------------------------
TRAVELERS LIFE PRIMERICA LIFE
2000 ($ in millions) & ANNUITY INSURANCE TOTAL
----------------------------------------------------------------------------------------------------------
Business Volume:
Premiums $ 860 $1,106 $ 1,966
Deposits 11,536 -- 11,536
------- ------ -------
Total business volume $12,396 $1,106 $13,502
Net investment income 2,450 280 2,730
Interest credited to contractholders 1,038 -- 1,038
Amortization of deferred acquisition costs 166 181 347
Total expenditures for deferred acquisition costs 376 272 648
Federal income taxes on Operating Income 381 197 578
Operating Income (excludes realized gains or
losses and the related FIT) $ 777 $ 376 $ 1,153
Segment Assets $62,771 $7,522 $70,293
----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
TRAVELERS LIFE PRIMERICA LIFE
1999 ($ in millions) & ANNUITY INSURANCE TOTAL
---------------------------------------------------------------------------------------------------------
Business Volume:
Premiums $ 656 $1,072 $ 1,728
Deposits 10,639 -- 10,639
------- ------ -------
Total business volume $11,295 $1,072 $12,367
Net investment income 2,249 257 2,506
Interest credited to contractholders 937 -- 937
Amortization of deferred acquisition costs 127 188 315
Total expenditures for deferred acquisition costs 430 256 686
Federal income taxes on Operating Income 319 186 505
Operating Income (excludes realized gains or
losses and the related FIT) $ 619 $ 355 $ 974
Segment Assets $56,615 $6,916 $63,531
---------------------------------------------------------------------------------------------------------
26
28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
-----------------------------------------------------------------------------------------------------
TRAVELERS LIFE PRIMERICA LIFE
1998 ($ in millions) & ANNUITY INSURANCE TOTAL
-----------------------------------------------------------------------------------------------------
Business Volume:
Premiums $ 670 $1,057 $ 1,727
Deposits 7,437 -- 7,437
------- ------ -------
Total business volume $ 8,107 $1,057 $ 9,164
Net investment income 1,965 220 2,185
Interest credited to contractholders 876 -- 876
Amortization of deferred acquisition costs 88 187 275
Total expenditures for deferred acquisition costs 319 247 566
Federal income taxes on Operating Income 260 170 430
Operating Income (excludes realized gains or
losses and the related FIT) $ 493 $ 312 $ 805
Segment Assets $49,646 $6,902 $56,548
-----------------------------------------------------------------------------------------------------
27
29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
-------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
-------------------------------------------------------------------------------------------
REVENUES 2000 1999 1998
-------------------------------------------------------------------------------------------
Total business volume $ 13,502 $ 12,367 $ 9,164
Net investment income 2,730 2,506 2,185
Realized investment gains (losses) (77) 113 149
Other revenues, including fee income 635 521 440
Elimination of deposits (11,536) (10,639) (7,437)
-------------------------------------------------------------------------------------------
Total revenues $ 5,254 $ 4,868 $ 4,501
===========================================================================================
OPERATING INCOME 2000 1999 1998
-------------------------------------------------------------------------------------------
Total operating income of business segments $ 1,153 $ 974 $ 805
Realized investment gains (losses), net of tax (50) 73 97
-------------------------------------------------------------------------------------------
Income from continuing operations $ 1,103 $ 1,047 $ 902
===========================================================================================
ASSETS 2000 1999 1998
-------------------------------------------------------------------------------------------
Total assets of business segments $ 70,293 $ 63,531 $ 56,548
===========================================================================================
BUSINESS VOLUME AND REVENUES 2000 1999 1998
-------------------------------------------------------------------------------------------
Individual Annuities $ 7,101 $ 5,816 $ 4,326
Group Annuities 6,563 6,572 4,942
Individual Life and Health Insurance 2,445 2,424 2,257
Other (a) 681 695 413
Elimination of deposits (11,536) (10,639) (7,437)
-------------------------------------------------------------------------------------------
Total Revenue $ 5,254 $ 4,868 $ 4,501
===========================================================================================
(a) Other represents revenue attributable to unallocated capital and
run-off businesses.
The Company's revenue was derived almost entirely from U.S. domestic
business. Revenue attributable to foreign countries was insignificant.
The Company had no transactions with a single customer representing 10% or
more of its revenue.
28
30
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. INVESTMENTS
FIXED MATURITIES
The amortized cost and fair value of investments in fixed maturities were as
follows:
-----------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 2000 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE:
Mortgage-backed securities -
CMOs and pass-through securities $ 5,492 $169 $ 34 $ 5,627
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,141 71 5 1,207
Obligations of states, municipalities
and political subdivisions 168 14 1 181
Debt securities issued by foreign
governments 761 18 14 765
All other corporate bonds 14,575 269 253 14,591
Other debt securities 4,217 87 59 4,245
Redeemable preferred stock 201 14 19 196
-----------------------------------------------------------------------------------------------------------
Total Available For Sale $26,555 $642 $385 $26,812
-----------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE:
Mortgage-backed securities -
CMOs and pass-through securities $ 5,081 $ 22 $224 $ 4,879
U.S. Treasury securities and obligations
of U.S. Government and government
agencies and authorities 1,032 14 53 993
Obligations of states, municipalities and
political subdivisions 214 -- 31 183
Debt securities issued by foreign
governments 811 35 10 836
All other corporate bonds 13,938 69 384 13,623
Other debt securities 3,319 30 99 3,250
Redeemable preferred stock 105 4 7 102
-----------------------------------------------------------------------------------------------------------
Total Available For Sale $24,500 $174 $808 $23,866
-----------------------------------------------------------------------------------------------------------
29
31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of fixed maturities classified as available for sale were
$10.8 billion, $12.6 billion and $13.4 billion in 2000, 1999 and 1998,
respectively. Gross gains of $213 million, $200 million and $314 million and
gross losses of $432 million, $223 million and $203 million in 2000, 1999 and
1998, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $4.8 billion at
December 31, 2000 and 1999.
The amortized cost and fair value of fixed maturities at December 31, 2000,
by contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
--------------------------------------------------------------------------
AMORTIZED
($ in millions) COST FAIR VALUE
--------------------------------------------------------------------------
MATURITY:
Due in one year or less $ 1,556 $ 1,545
Due after 1 year through 5 years 7,789 7,839
Due after 5 years through 10 years 5,606 5,640
Due after 10 years 6,112 6,161
------------------------
21,063 21,185
------------------------
Mortgage-backed securities 5,492 5,627
--------------------------------------------------------------------------
Total Maturity $26,555 $26,812
--------------------------------------------------------------------------
The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches
which are protected against prepayment risk, including planned amortization
class (PAC) tranches. Prepayment protected tranches are preferred because
they provide stable cash flows in a variety of interest rate scenarios. The
Company does invest in other types of CMO tranches if a careful assessment
indicates a favorable risk/return tradeoff. The Company does not purchase
residual interests in CMOs.
At December 31, 2000 and 1999, the Company held CMOs classified as available
for sale with a fair value of $4.4 billion and $3.8 billion, respectively.
Approximately 49% and 52%, respectively, of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31, 2000
and 1999. In addition, the Company held $1.1 billion of GNMA, FNMA or FHLMC
mortgage-backed pass-through securities at December 31, 2000 and 1999.
Virtually all of these securities are rated AAA.
30
32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. The
Company generally receives cash collateral from the borrower, equal to at
least the market value of the loaned securities plus accrued interest, and
reinvests it in a short-term investment pool. See Note 14. The loaned
securities remain a recorded asset of the Company, however, the Company
records a liability for the amount of the collateral held, representing its
obligation to return the collateral related to these loaned securities, and
reports that liability as part of other liabilities in the consolidated
balance sheet. At December 31, 2000 and 1999, the Company held collateral of
$1.5 billion and $561.1 million, respectively.
EQUITY SECURITIES
The cost and fair values of investments in equity securities were as follows:
------------------------------------------------------------------------------------------
GROSS GROSS
EQUITY SECURITIES: UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------
DECEMBER 31, 2000
Common stocks $139 $ 11 $25 $125
Non-redeemable preferred stocks 492 7 32 467
------------------------------------------------------------------------------------------
Total Equity Securities $631 $ 18 $57 $592
------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Common stocks $195 $123 $ 4 $314
Non-redeemable preferred stocks 496 15 41 470
------------------------------------------------------------------------------------------
Total Equity Securities $691 $138 $45 $784
------------------------------------------------------------------------------------------
Proceeds from sales of equity securities were $397 million, $100 million and
$212 million in 2000, 1999 and 1998, respectively. Gross gains of $107
million, $15 million and $30 million and gross losses of $16 million, $8
million and $24 million in 2000, 1999 and 1998, respectively, were realized
on those sales.
MORTGAGE LOANS AND REAL ESTATE HELD FOR SALE
At December 31, 2000 and 1999, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following:
--------------------------------------------------------------------------------------
($ in millions) 2000 1999
--------------------------------------------------------------------------------------
Current Mortgage Loans $2,144 $2,228
Underperforming Mortgage Loans 43 57
----------------------
Total Mortgage Loans 2,187 2,285
----------------------
Real Estate Held For Sale - Foreclosed 18 223
Real Estate Held For Sale - Investment 13 13
--------------------------------------------------------------------------------------
Total Real Estate 31 236
--------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,218 $2,521
======================================================================================
Underperforming mortgage loans include delinquent mortgage loans over 90 days
past due, loans in the process of foreclosure and loans modified at interest
rates below market.
31
33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 2000 are as
follows:
---------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
---------------------------------------------
Past Maturity $ 32
2001 259
2002 152
2003 172
2004 167
2005 124
Thereafter 1,281
---------------------------------------------
Total $2,187
---------------------------------------------
TRADING SECURITIES
Trading securities of the Company are held in Tribeca Investments LLC. See
Note 12.
-------------------------------------------------------------------------
($ in millions) 2000 1999
-------------------------------------------------------------------------
TRADING SECURITIES OWNED
Convertible bond arbitrage $1,474 $1,045
Merger arbitrage 309 421
Other 87 212
-------------------------------------------------------------------------
Total $1,870 $1,678
-------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $ 845 $ 799
Merger arbitrage 205 299
Other 59 --
-------------------------------------------------------------------------
Total $1,109 $1,098
-------------------------------------------------------------------------
The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.
OTHER INVESTED ASSETS
Other invested assets are composed of the following:
------------------------------------------------------------------------
($ in millions) 2000 1999
------------------------------------------------------------------------
Investment in Citigroup preferred stock $ 987 $ 987
Partnership investments 807 592
Real estate joint ventures 535 502
Other 27 17
------------------------------------------------------------------------
Total $2,356 $2,098
------------------------------------------------------------------------
32
34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONCENTRATIONS
At December 31, 2000 and 1999, the Company had an investment in Citigroup
Preferred Stock of $987 million. See Note 14.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 14.
The Company had concentrations of investments, primarily fixed maturities at
fair value, in the following industries:
--------------------------------------------------
($ in millions) 2000 1999
--------------------------------------------------
Electric Utilities $2,244 $1,653
Banking 2,078 1,906
Finance 1,836 1,571
--------------------------------------------------
The Company held investments in foreign banks in the amount of $1,082 million
and $1,012 million at December 31, 2000 and 1999, respectively, which are
included in the table above. Below investment grade assets included in the
preceding table were not significant.
Included in fixed maturities are below investment grade assets totaling $2.0
billion and $2.2 billion at December 31, 2000 and 1999, respectively. The
Company defines its below investment grade assets as those securities rated
"Ba1" or below by external rating agencies, or the equivalent by internal
analysts when a public rating does not exist. Such assets include publicly
traded below investment grade bonds and certain other privately issued bonds
and notes that are classified as below investment grade.
Mortgage loan investments are relatively evenly dispersed throughout the
United States, with no significant holdings in any one state. Also, there is
no significant mortgage loan investment in a particular property type.
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and other
monitoring procedures. Collateral for fixed maturities often includes pledges
of assets, including stock and other assets, guarantees and letters of
credit. The Company's underwriting standards with respect to new mortgage
loans generally require loan to value ratios of 75% or less at the time of
mortgage origination.
NON-INCOME PRODUCING INVESTMENTS
Investments included in the consolidated balance sheets that were non-income
producing for the preceding 12 months were insignificant.
RESTRUCTURED INVESTMENTS
The Company had mortgage loans and debt securities that were restructured at
below market terms at December 31, 2000 and 1999. The balances of the
restructured investments were insignificant. The new terms typically defer a
portion of contract interest payments to varying future periods. The accrual
of interest is suspended on all restructured assets, and interest income is
reported only as payment is received. Gross interest income on restructured
assets that would have been recorded in accordance with the original terms of
such loans was insignificant in 2000 and in 1999. Interest on these assets,
included in net investment income, was also insignificant in 2000 and 1999.
33
35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NET INVESTMENT INCOME
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
($ in millions)
---------------------------------------------------------------------
GROSS INVESTMENT INCOME
Fixed maturities $2,061 $1,806 $1,598
Mortgage loans 223 235 295
Trading 208 141 43
Joint ventures and partnerships 150 141 74
Other, including policy loans 237 287 240
---------------------------------------------------------------------
Total Gross Investment Income 2,879 2,610 2,250
---------------------------------------------------------------------
Investment expenses 149 104 65
---------------------------------------------------------------------
Net Investment Income $2,730 $2,506 $2,185
---------------------------------------------------------------------
REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) for the periods were as follows:
---------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
($ in millions)
---------------------------------------------------------------------
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $(219) $(23) $111
Equity securities 91 7 6
Mortgage loans 27 29 21
Real estate held for sale 25 108 16
Other (1) (8) (5)
---------------------------------------------------------------------
Total Realized Investment
Gains (Losses) $ (77) $113 $149
---------------------------------------------------------------------
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
($ in millions)
---------------------------------------------------------------------------------------------------
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $ 891 $(1,554) $ 91
Equity securities (132) 49 13
Other 14 (30) (169)
---------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) 773 (1,535) (65)
---------------------------------------------------------------------------------------------------
Related taxes 271 (539) (20)
---------------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) 502 (996) (45)
Transferred to paid in capital, net of tax -- -- (585)
Balance beginning of year (398) 598 1,228
---------------------------------------------------------------------------------------------------
Balance End of Year $ 104 $ (398) $ 598
---------------------------------------------------------------------------------------------------
34
36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In 1998 Citigroup common stock owned by the Company was converted to
Citigroup preferred stock. The balance of unrealized appreciation on the
common stock was transferred to additional paid in capital.
Included in Other in 1998 is the unrealized loss on Citigroup common stock of
$167 million prior to the conversion to preferred stock.
5. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and to
effect business-sharing arrangements. Reinsurance is accomplished through
various plans of reinsurance, primarily yearly renewable term coinsurance and
modified coinsurance. The Company remains primarily liable as the direct
insurer on all risks reinsured.
Since 1997 universal life business has been reinsured under an 80%/20% quota
share reinsurance program and term life business has been reinsured under a
90%/10% quota share reinsurance program. Maximum retention of $2.5 million is
generally reached on policies in excess of $12.5 million. For other plans of
insurance, it is the policy of the Company to obtain reinsurance for amounts
above certain retention limits on individual life policies, which limits vary
with age and underwriting classification. Generally, the maximum retention on
an ordinary life risk is $2.5 million. Total in-force business ceded under
reinsurance contracts is $252.5 billion and $222.5 billion at December 31,
2000 and 1999.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
WRITTEN PREMIUMS 2000 1999 1998
----------------------------------------------------------------------
Direct $2,634 $2,274 $2,310
Assumed from:
Non-affiliated companies -- -- --
Ceded to:
Affiliated companies (195) (206) (242)
Non-affiliated companies (465) (322) (317)
----------------------------------------------------------------------
Total Net Written Premiums $1,974 $1,746 $1,751
======================================================================
EARNED PREMIUMS 2000 1999 1998
----------------------------------------------------------------------
Direct $2,644 $2,248 $2,286
Assumed from:
Non-affiliated companies -- -- --
Ceded to:
Affiliated companies (216) (193) (251)
Non-affiliated companies (462) (327) (308)
----------------------------------------------------------------------
Total Net Earned Premiums $1,966 $1,728 $1,727
======================================================================
35
37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Reinsurance recoverables at December 31, 2000 and 1999 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
REINSURANCE RECOVERABLES 2000 1999
-----------------------------------------------------------
Life and Accident and Health Business:
Non-affiliated companies $2,024 $1,221
Property-Casualty Business:
Affiliated companies 1,953 2,013
-----------------------------------------------------------
Total Reinsurance Recoverables $3,977 $3,234
===========================================================
Reinsurance recoverables include $820 million from General Electric Capital
Assurance Company at December 31, 2000, related to the July 1, 2000 indemnity
reinsurance transaction. Reinsurance recoverables also include $539 million
and $569 million, from The Metropolitan Life Insurance Company as of December
31, 2000 and 1999, respectively.
6. DEPOSIT FUNDS AND RESERVES
At December 31, 2000 and 1999, the Company had $29.7 billion and $27.0
billion of life and annuity deposit funds and reserves, respectively. Of that
total, $16.4 billion and $13.8 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $13.3 billion and $13.2
billion is for life and annuity products that are subject to discretionary
withdrawal by the contractholder. Included in the amounts that are subject to
discretionary withdrawal is $2.9 billion and $2.1 billion of liabilities that
are surrenderable with market value adjustments. Also included are an
additional $4.9 billion and $4.9 billion of life insurance and individual
annuity liabilities which are subject to discretionary withdrawals, and have
an average surrender charge of 4.5% and 4.6%. In the payout phase, these
funds are credited at significantly reduced interest rates. The remaining
$5.5 billion and $6.2 billion of liabilities are surrenderable without
charge. More than 10.5% and 12.7% of these relate to individual life products
for 2000 and 1999, respectively. These risks would have to be underwritten
again if transferred to another carrier, which is considered a significant
deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding
policy loans and related accrued interest prior to payout.
7. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at December 31, 2000 or December 31, 1999.
TIC must maintain bank lines of credit at least equal to the amount of the
outstanding commercial paper. Citigroup and TIC have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to Citigroup or TIC. TIC's participation in this agreement is
limited to $250 million. The agreement consists of a five-year revolving
credit facility that expires in June 2001. At December 31, 2000 and 1999, no
credit under this agreement was allocated to TIC. Under this facility TIC is
required to maintain certain minimum equity and risk-based capital levels. At
December 31, 2000, the Company was in compliance with these provisions. If
TIC had borrowings outstanding on this facility, the interest rate would be
based upon LIBOR plus a contractually negotiated margin.
36
38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. FEDERAL INCOME TAXES
EFFECTIVE TAX RATE
($ in millions)
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
----------------------------------------------------------------------------------
Income Before Federal Income Taxes $ 1,654 $ 1,592 $ 1,383
Statutory Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
Expected Federal Income Taxes 579 557 484
Tax Effect of:
Non-taxable investment income (19) (19) (5)
Other, net (9) 7 2
----------------------------------------------------------------------------------
Federal Income Taxes $ 551 $ 545 $ 481
==================================================================================
Effective Tax Rate 33% 34% 35%
----------------------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 429 $ 377 $ 418
Foreign 33 32 24
----------------------------------------------------------------------------------
Total 462 409 442
----------------------------------------------------------------------------------
Deferred:
United States 96 143 40
Foreign (7) (7) (1)
----------------------------------------------------------------------------------
Total 89 136 39
----------------------------------------------------------------------------------
Federal Income Taxes $ 551 $ 545 $ 481
==================================================================================
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity for the years ended December 31, 2000, 1999
and 1998 were $24 million, $17 million and $17 million, respectively.
37
39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 2000 and 1999 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
------------------------------------------------------------------------------------------
($ in millions) 2000 1999
------------------------------------------------------------------------------------------
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 667 $ 645
Operating lease reserves 66 70
Investments, net -- 11
Other employee benefits 102 106
Other 139 142
------------------------------------------------------------------------------------------
Total 974 974
------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of insurance in force (843) (773)
Investments, net (308) --
Other (107) (124)
------------------------------------------------------------------------------------------
Total (1,258) (897)
------------------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance (284) 77
Valuation Allowance for Deferred Tax Assets 0 (100)
------------------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (284) $ (23)
------------------------------------------------------------------------------------------
The Company and its life insurance subsidiaries file a consolidated federal
income tax return. Federal income taxes are allocated to each member of the
consolidated group on a separate return basis adjusted for credits and other
amounts required by the consolidation process. Any resulting liability will
be paid currently to the Company. Any credits for losses will be paid by the
Company to the extent that such credits are for tax benefits that have been
utilized in the consolidated federal income tax return.
The elimination of the valuation allowance for deferred tax assets in 2000
resulted from an analysis of the availability of capital gains to offset
capital losses. In management's opinion, there will be adequate capital gains
to make realization of existing capital losses more likely than not. The
reduction in the valuation allowance was recognized by reducing goodwill.
At December 31, 2000, the Company had no ordinary or capital loss
carryforwards.
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account is
approximately $932 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend or exceed limits
prescribed by federal law. Distributions are not currently contemplated from
this account. At current rates the maximum amount of such tax would be
approximately $326 million.
38
40
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. SHAREHOLDER'S EQUITY
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes the statutory net income
of all insurance subsidiaries, was $981 million, $890 million and $702
million for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company's statutory capital and surplus was $5.16 billion and $5.03
billion at December 31, 2000 and 1999, respectively.
Effective January 1, 2001, the Company will prepare its statutory basis
financial statements in accordance with the revised Manual subject to any
deviations prescribed or permitted by its domicilary insurance commissioners
(see Note 1, Summary of Significant Accounting Policies, Permitted Statutory
Accounting Practices). The Company has estimated that the impact of this
change on statutory capital and surplus will not be significant.
The Company is currently 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. A maximum of $984
million is available by the end of the year 2001 for such dividends without
prior approval of the Connecticut Insurance Department. In addition, under a
revolving credit facility, the Company is required to maintain certain
minimum equity and risk-based capital levels. The Company was in compliance
with these covenants at December 31, 2000 and 1999. The Company paid
dividends of $860 million, $550 million and $110 million in 2000, 1999 and
1998, respectively.
39
41
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. SHAREHOLDER'S EQUITY (CONTINUED)
Accumulated Other Changes in Equity from Non-Owner Sources, Net of Tax
- --------------------------------------------------------------------------------
Changes in each component of Accumulated Other Changes in Equity from Non-Owner
Sources were as follows:
- --------------------------------------------------------------------------------
NET UNREALIZED FOREIGN ACCUMULATED OTHER
GAIN (LOSS) ON CURRENCY CHANGES IN EQUITY
INVESTMENT TRANSLATION FROM NON-OWNER
($ in millions) SECURITIES ADJUSTMENTS SOURCES
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1998 $545 $(10) $535
Unrealized gains on investment securities,
Net of tax of $85 159 - 159
Less: reclassification adjustment for gains
Included in net income, net of tax of $52 97 - 97
Foreign currency translation adjustment,
Net of tax of $2 - 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 62 1 63
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 607 (9) 598
Unrealized losses on investment securities,
Net of tax of $497 (923) - (923)
Less: reclassification adjustment for gains
Included in net income, net of tax of $40 73 - 73
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (996) - (996)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 (389) (9) (398)
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain on investment securities,
Net of tax of $297 551 - 551
Less: reclassification adjustment for losses
Included in net income, net of tax of $(27) (50) - (50)
Foreign currency translation adjustment,
Net of tax of $1 - 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 501 1 502
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 112 (8) 104
- ------------------------------------------------------------------------------------------------------------------------------------
40
42
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. BENEFIT PLANS
Pension and Other Postretirement Benefits
-----------------------------------------
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by TIGI. The Company's share of net expense for the qualified
pension and other postretirement benefit plans was not significant for
2000, 1999 and 1998.
401(k) Savings Plan
-------------------
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. The Company's expenses in
connection with the 401(k) savings plan were not significant in 2000, 1999
and 1998.
11. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
Travelers Property Casualty Corp. (TPC). Rent expense related to all leases
is shared by the companies on a cost allocation method based generally on
estimated usage by department. Net rent expense was $26 million, $30
million, and $24 million in 2000, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
- --------------------------------------------------------------------------------
2001 $49
2002 48
2003 47
2004 43
2005 41
Thereafter 283
- --------------------------------------------------------------------------------
Total Rental Payments $511
- --------------------------------------------------------------------------------
Future sublease rental income of approximately $90 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of
the rental expense for a particular lease totaling $182 million, by an
affiliate. Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
41
43
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
--------------------------------
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, currency swaps, equity swaps, options and
forward contracts as a means of hedging exposure to interest rate, equity
price, and foreign currency risk on anticipated transactions or existing
assets and liabilities. The Company, through Tribeca Investments LLC, a
subsidiary that is a broker/dealer, holds and issues derivative instruments
for trading purposes. All of these derivative financial instruments have
off-balance sheet risk. Financial instruments with off-balance sheet risk
involve, to varying degrees, elements of credit and market risk in excess
of the amount recognized in the balance sheet. The contract or notional
amounts of these instruments reflect the extent of involvement the Company
has in a particular class of financial instrument. However, the maximum
loss of cash flow associated with these instruments can be less than these
amounts. For interest rate swaps, currency swaps, equity swaps, options and
forward contracts, credit risk is limited to the amount that it would cost
the Company to replace the contracts. Financial futures contracts and
purchased listed option contracts have little credit risk since organized
exchanges are the counterparties. The Company as a writer of option
contracts has no credit risk since the counterparty has no performance
obligation after it has paid a cash premium.
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange-traded financial futures contracts to manage its
exposure to changes in interest rates that arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts which offset asset price changes resulting from changes
in market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 2000 and 1999, the Company held financial futures contracts
with notional amounts of $493 million and $255 million, respectively. These
financial futures had no deferred gain or deferred loss in 2000, and a
deferred gain of $1.8 million and a deferred loss of $.5 million in 1999.
Total gains of $6.9 million from financial futures were deferred at
December 31, 1999, relating to anticipated investment purchases and
investment product sales, and are reported as other liabilities. There were
no deferred amounts at December 31, 2000. At December 31, 2000 and 1999,
the Company's futures contracts had no fair value because these contracts
were marked to market and settled in cash daily.
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match assets and liabilities. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. The Company also enters
42
44
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
into basis swaps in which both legs of the swap are floating with each
based on a different index. Generally, no cash is exchanged at the outset
of the contract and no principal payments are made by either party. A
single net payment is usually made by one counterparty at each due date.
Swap agreements are not exchange-traded so they are subject to the risk of
default by the counterparty.
At December 31, 2000 and 1999, the Company held interest rate swap
contracts with notional amounts of $1,904 million and $1,498 million,
respectively. The fair value of these financial instruments was $8.4
million (gain position) and $21.2 million (loss position) at December 31,
2000 and was $25.1 million (gain position) and $26.3 million (loss
position) at December 31, 1999. The fair values were determined using the
discounted cash flow method.
The Company enters into currency swaps in connection with other financial
instruments to provide greater risk diversification and better match assets
purchased in U.S. Dollars with corresponding funding agreements issued in
foreign currencies. Under currency swaps, the Company agrees with other
parties to exchange, at specified intervals, foreign currency for U.S.
Dollars based upon interest amounts calculated by reference to an agreed
notional principal amount. Generally, there is an exchange of foreign
currency for U.S. Dollars at the outset of the contract based upon the
prevailing foreign exchange rate. Swap agreements are not exchange-traded
so they are subject to the risk of default by the counterparty.
At December 31, 2000 and 1999, the Company held currency swap contracts
with notional amounts of $974.0 million and $732.7 million, respectively.
The fair value of these financial instruments was $1.0 million (gain
position) and $144.3 million (loss position) at December 31, 2000,
respectively, and $59.0 million (loss position) at December 31, 1999. The
fair values were determined using the discounted cash flow method.
At December 31, 2000 and 1999, the Company held interest rate, currency and
equity swap contracts with affiliate counterparties with a notional amount
of $168.7 million and $207.5 million, respectively, and a fair value of
$8.3 million (gain position) and $22.6 million (loss position),
respectively.
The Company uses equity option contracts to manage its exposure to changes
in equity market prices that arise from the sale of certain insurance
products. To hedge against adverse changes in the equity market prices, the
Company enters long positions in equity option contracts with major
financial institutions. These contracts allow the Company, for a fee, the
right to receive a payment if the Standard and Poor's 500 Index falls below
agreed upon strike prices.
At December 31, 2000 and 1999, the Company held equity options with
notional amounts of $462.3 million and $275.4 million, respectively. The
fair value of these financial instruments was $14.4 million (gain position)
and $32.6 million (gain position) at December 31, 2000 and 1999,
respectively. The fair value of these contracts represents the estimated
replacement cost as quoted by independent third party brokers.
The off-balance sheet risks of interest rate options, equity swaps and
forward contracts were not significant at December 31, 2000 and 1999.
The off-balance sheet risk of derivative instruments held for trading
purposes was not significant at December 31, 2000 and 1999.
43
45
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Financial Instruments with Off-Balance Sheet Risk
-------------------------------------------------
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 2000 and 1999. The Company had unfunded commitments to
partnerships with a value of $491.2 million and $459.8 million at December
31, 2000 and 1999, respectively.
Fair Value of Certain Financial Instruments
-------------------------------------------
The Company uses various financial instruments in the normal course of its
business. Certain insurance contracts are excluded by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments", and therefore are not included in the amounts
discussed.
At December 31, 2000 and 1999, investments in fixed maturities had a
carrying value and a fair value of $26.8 billion and $23.9 billion,
respectively. See Notes 1 and 4.
At December 31, 2000, mortgage loans had a carrying value of $2.2 billion
and a fair value of $2.2 billion and in 1999 had a carrying value of $2.3
billion and a fair value of $2.3 billion. In estimating fair value, the
Company used interest rates reflecting the current real estate financing
market.
Citigroup Preferred Stock, included in other invested assets, had a
carrying value and fair value of $987 million at December 31, 2000 and
1999.
At December 31, 2000, contractholder funds with defined maturities had a
carrying value of $6.8 billion and a fair value of $6.7 billion, compared
with a carrying value and a fair value of $5.0 billion and $4.7 billion at
December 31, 1999. The fair value of these contracts is determined by
discounting expected cash flows at an interest rate commensurate with the
Company's credit risk and the expected timing of cash flows. Contractholder
funds without defined maturities had a carrying value of $10.1 billion and
a fair value of $9.9 billion at December 31, 2000, compared with a carrying
value of $10.1 billion and a fair value of $9.9 billion at December 31,
1999. These contracts generally are valued at surrender value.
The carrying values of $588 million and $228 million of financial
instruments classified as other assets approximated their fair values at
December 31, 2000 and 1999, respectively. The carrying values of $2.4
billion and $1.4 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 2000 and
1999, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $376 million at December 31, 2000,
compared with a carrying value and a fair value of $251 million at December
31, 1999. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $376 million at December
31, 2000, compared with a carrying value and a fair value of $251 million
at December 31, 1999.
The carrying values of cash, trading securities and trading securities sold
not yet purchased are carried at fair value. The carrying values of
short-term securities and investment income accrued approximated their fair
values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
44
46
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
-------------------------------------------------
See Note 12 for a discussion of financial instruments with off-balance
sheet risk.
Litigation
----------
In March 1997, a purported class action entitled Patterman v. The
Travelers, Inc., et al. was commenced in the Superior Court of Richmond
County, Georgia, alleging, among other things, violations of the Georgia
RICO statute and other state laws by an affiliate of the Company, Primerica
Financial Services, Inc. and certain of its affiliates. Plaintiffs seek
unspecified compensatory and punitive damages and other relief. From
February 1998 through April 2000, various motions for transfer of the
lawsuit were heard and appealed. In April 2000, the matter was remanded to
the Superior Court of Richmond County by the Georgia Supreme Court. Also,
in April 2000 defendants moved for summary judgement on all counts of the
complaint. Discovery commenced in May 2000. Defendants intend to vigorously
contest the litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 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.
14. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI are handled by
two companies. The Company handles banking functions for the life and
annuity operations of Travelers Life & Annuity and some of its
non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. The Company provides various
employee benefits coverages to employees of certain subsidiaries of TIGI.
The premiums for these coverages were charged in accordance with cost
allocation procedures based upon salaries or census. In addition,
investment advisory and management services, data processing services and
claims processing services are shared with affiliated companies. Charges
for these services are shared by the companies on cost allocation methods
based generally on estimated usage by department.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 2000 and 1999, the
pool totaled approximately $4.4 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $1.8 billion and $1.0 billion at
December 31, 2000 and 1999, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney (SSB). Premiums and deposits
related to these products were $1.9 billion, $1.4 billion, and $1.3 billion
in 2000, 1999 and 1998, respectively.
45
47
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company also markets individual annuity and life and health insurance
through CitiStreet Retirement Services, LLC (formerly The Copeland
Companies) a division of CitiStreet a joint venture between Citigroup and
State Street Bank. Deposits received from CitiStreet Retirement Services,
LLC were $1.8 billion, $1.6 billion and $1.3 billion in 2000, 1999 and
1998, respectively.
During 1998, the Company began distributing individual annuity products
through an affiliate Citibank, NA, (Citibank). Deposits received from
Citibank were $392 million in 2000 and were insignificant in 1999 and 1998.
At December 31, 2000 and 1999 the Company had outstanding loaned securities
to SSB for $234.1 million and $123.0 million, respectively.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 2000 and 1999, carried at cost. Dividends
received on this investment were $32 million in 2000 and $32 million in
1999.
The Company sells structured settlement annuities to the insurance
subsidiaries of TPC in connection with the settlement of certain
policyholder obligations. Such premiums and deposits were $191 million,
$156 million, and $104 million for 2000, 1999 and 1998, respectively.
Reserves and contractholder funds related to these annuities amounted to
$811 million and $798 million in 2000 and 1999, respectively.
In the ordinary course of business, the Company purchases and sells
securities through affiliated broker-dealers. These transactions are
conducted on an arm's length basis.
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Services, Inc. (Primerica), that provides that Primerica will be
Primerica Life's general agent for marketing all insurance of Primerica
Life. In consideration of such services, Primerica Life agreed to pay
Primerica marketing fees of no less than $10 million based upon U.S. gross
direct premiums received by Primerica Life. In each of 2000, 1999, and 1998
the fees paid by Primerica Life were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life &
Annuity. Primerica sold $1.03 billion, $903 million and $256 million of
individual annuities in 2000, 1999 and 1998, respectively.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options. During 2000, Citigroup introduced the
Citigroup 2000 Stock Purchase Plan, which allowed eligible employees of
Citigroup including the Company's employees to enter into fixed
subscription agreements to purchase shares at the market value on the date
of the agreements. Enrolled employees are permitted to make one purchase
prior to the expiration date.
The Company also participates in the Citigroup Capital Accumulation Plan.
Participating officers and other key employees receive a restricted stock
award in the form of Citigroup common stock. These restricted stock awards
generally vest after a three-year period and, except under limited
circumstances, the stock can not be sold or transferred during the
restriction period by the participant, who is required to render service to
the Company during the restricted period.
46
48
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unearned compensation expense associated with the Citigroup restricted
common stock grants, which represents the market value of Citigroup's
common stock at the date of grant is included with other assets in the
Consolidated Balance Sheet and is recognized as a charge to income ratably
over the vesting period. The Company's charge to income was insignificant
during 2000, 1999 and 1998.
The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and
related interpretations in accounting for stock options. Since stock
options under the Citigroup plans are issued at fair market value on the
date of award, no compensation cost has been recognized for these awards.
FAS 123 provides an alternative to APB 25 whereby fair values may be
ascribed to options using a valuation model and amortized to compensation
cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000 1999 1998
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income, as reported $1,103 $1,047 $902
FAS 123 pro forma adjustments, after tax (19) (16) (13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income, pro forma $1,084 $1,031 $889
- ------------------------------------------------------------------------------------------------------------------------------------
The assumptions used in applying FAS 123 to account for Citigroup stock
options were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Expected volatility of Citigroup Stock 41.5% 44.1% 37.1%
Risk-free interest rate 6.23% 5.29% 5.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Expected annual dividend per Citigroup share $0.78 $0.47 $0.32
- ------------------------------------------------------------------------------------------------------------------------------------
Expected annual forfeiture rate 5% 5% 5%
- ------------------------------------------------------------------------------------------------------------------------------------
47
49
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income From Continuing Operations $1,103 $1,047 $902
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized (gains) losses 77 (113) (149)
Deferred federal income taxes 89 136 39
Amortization of deferred policy acquisition costs 347 315 275
Additions to deferred policy acquisition costs (648) (686) (566)
Investment income (384) (221) (202)
Premium balances 20 (13) 36
Insurance reserves and accrued expenses 559 411 335
Other 77 99 205
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations $1,240 $975 $875
- ------------------------------------------------------------------------------------------------------------------------------------
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
acquisition of real estate through foreclosures of mortgage loans amounting
to $205 million in 1999 and the conversion of Citigroup common stock into
Citigroup preferred stock valued at $987 million in 1998.
48
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
49
51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed:
(1) Financial Statements. See index on page 13 of this report.
(2) Financial Statement Schedules. See index on page 53 of this report.
(3) Exhibits. See Exhibit Index on page 51.
(b) Reports on Form 8-K:
None
50
52
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
---------- -----------
3. Articles of Incorporation and By-Laws
a.) Charter of The Travelers Insurance Company (the
"Company"), as effective October 19, 1994, incorporated
by reference to Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1994 (File No. 33-33691) (the "Company's
September 30, 1994 10-Q").
b.) By-laws of the Company, as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the
Company's September 30, 1994 10-Q.
10. Lease for office space in Hartford, Connecticut dated as of
April 2, 1996, by and between the Company and The Travelers
Indemnity Company, incorporated by reference to Exhibit
10.14 to the Annual Report on Form 10-K of Travelers
Property Casualty Corp. for the fiscal year ended December
31, 1996 (File No. 1-14328).
21. Subsidiaries of the Registrant:
Omitted pursuant to General Instruction I(2)(b) of Form
10-K.
51
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on the 14th day of March,
2001.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
By: /s/ Glenn D. Lammey
-------------------------
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 14th day of March, 2000.
SIGNATURE CAPACITY
/s/ George C. Kokulis Director and Chief Executive Officer
- -------------------------------- (Principal Executive Officer)
(George C. Kokulis)
/s/ Glenn D. Lammey Director, Chief Financial Officer and
- ------------------- Chief Accounting Officer
(Glenn D. Lammey) (Principal Financial Officer and Principal
Accounting Officer)
/s/ Marla Berman Lewitus Director
- ------------------------
(Marla Berman Lewitus)
/s/ Katherine M. Sullivan Director
- --------------------------------
(Katherine M. Sullivan)
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities pursuant to
Section 12 of the Act: NONE
No Annual Report to Security Holders covering the registrant's last fiscal year
or proxy material with respect to any meeting of security holders has been sent,
or will be sent, to security holders.
52
54
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
The Travelers Insurance Company and Subsidiaries
Independent Auditors' Report *
Consolidated Statements of Income *
Consolidated Balance Sheets *
Consolidated Statements of Changes In Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources *
Consolidated Statements of Cash Flows *
Notes to Consolidated Financial Statements *
Independent Auditors' Report 54
Schedule I - Summary of Investments - Other than Investments in Related Parties 2000 55
Schedule III - Supplementary Insurance Information 1998-2000 56
Schedule IV - Reinsurance 1998-2000 57
All other schedules are inapplicable for this filing.
* See index on page 13
53
55
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Insurance Company:
Under date of January 16, 2001, we reported on the consolidated balance sheets
of The Travelers Insurance Company and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of income, changes in retained
earnings and accumulated other changes in equity from non-owner sources and cash
flows for each of the years in the three-year period ended December 31, 2000,
which are included in this Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedules listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Hartford, Connecticut
January 16, 2001
54
56
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2000
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF INVESTMENT AMOUNT SHOWN IN
COST VALUE BALANCE SHEET(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Maturities:
Bonds:
U.S. Government and government agencies and
Authorities $4,317 $4,479 $4,479
States, municipalities and political subdivisions 169 181 181
Foreign governments 760 765 765
Public utilities 2,147 2,155 2,155
Convertible bonds and bonds with warrants attached 348 345 345
All other corporate bonds 18,612 18,691 18,691
- ------------------------------------------------------------------------------------------------------------------------------------
Total Bonds 26,353 26,616 26,616
Redeemable preferred stocks 201 196 196
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities 26,554 26,812 26,812
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks:
Banks, trust and insurance companies 19 20 20
Industrial, miscellaneous and all other(2) 75 59 59
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks 94 79 79
Nonredeemable preferred stocks 492 467 467
- ------------------------------------------------------------------------------------------------------------------------------------
Total Equity Securities 586 546 546
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage Loans 2,187 2,187
Real Estate Held For Sale 31 31
Policy Loans 1,249 1,249
Short-Term Securities 2,136 2,136
Other Investments(3)(4)(5) 2,963 2,931
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments $35,706 $35,892
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Determined in accordance with methods described in Notes 1 and 4 of the
Notes to Consolidated Financial Statements.
(2) Excludes $46 million related party investment.
(3) Excludes $987 million fair value of Citigroup Inc. preferred stock. See
Note 14 of Notes to Consolidated Financial Statements.
(4) Also excludes $308 million fair value of investment in affiliated
partnership interests.
(5) Includes derivatives marked to market and recorded at fair value in the
balance sheet.
55
57
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
FUTURE
POLICY
BENEFITS, AMORTIZATION
DEFERRED LOSSES, OTHER POLICY BENEFITS, OF DEFERRED
POLICY CLAIMS AND CLAIMS AND NET CLAIMS POLICY OTHER
ACQUISITION LOSS BENEFITS PREMIUM INVESTMENT AND ACQUISITION OPERATING PREMIUMS
COSTS EXPENSES(1) PAYABLE REVENUE INCOME LOSSES(2) COSTS EXPENSES WRITTEN
- -----------------------------------------------------------------------------------------------------------------------------------
2000
Travelers Life & Annuity $1,291 $29,377 $321 $ 860 $2,450 $2,294 $166 $233 $ 859
Primerica Life 1,698 2,856 140 1,106 280 496 181 230 1,115
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,989 $32,233 $461 $1,966 $2,730 $2,790 $347 $463 $1,974
====================================================================================================================================
1999
Travelers Life & Annuity $1,081 $26,958 $280 $ 656 $2,249 $1,954 $127 $322 $ 666
Primerica Life 1,607 2,734 158 1,072 257 488 188 197 1,080
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,688 $29,692 $438 $1,728 $2,506 $2,442 $315 $519 $1,746
====================================================================================================================================
1998
Travelers Life & Annuity $ 779 $26,068 $232 $ 670 $1,965 $1,854 $ 88 $306 $ 683
Primerica Life 1,538 2,619 146 1,057 220 484 187 199 1,068
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,317 $28,687 $378 $1,727 $2,185 $2,338 $275 $505 $1,751
====================================================================================================================================
(1) Includes contractholder funds.
(2) Includes interest credited to contractholders.
56
58
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
($ in millions)
- ----------------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ----------------------------------------------------------------------------------------------------------------
2000
----
Life Insurance In Force $480,958 $252,498 $3,692 $232,152 1.6%
Premiums:
Life insurance $2,106 $ 330 $ -- $1,776 --
Accident and health insurance 322 132 -- 190 --
Property casualty 216 216 -- -- --
-------- -------- ------ -------- -----
Total Premiums $2,644 $ 678 $ -- $1,966 --
======== ======== ====== ======== =====
1999
----
Life Insurance In Force $457,541 $222,522 $3,723 $238,742 1.6%
Premiums:
Life insurance $ 1,768 $ 313 $-- $ 1,455 --
Accident and health insurance 287 14 -- 273 --
Property casualty 193 193 -- -- --
-------- -------- ------ -------- -----
Total Premiums $ 2,248 $ 520 $ -- $ 1,728 --
======== ======== ====== ======== =====
1998
----
Life Insurance In Force $439,784 $201,294 $ 105 $238,595 --
Premiums:
Life insurance $ 1,784 $ 304 $ -- $ 1,480 --
Accident and health insurance 264 17 -- 247 --
Property casualty 238 238 -- -- --
-------- -------- ------ -------- -----
Total Premiums $ 2,286 $ 559 $ -- $ 1,727 --
======== ======== ====== ======== =====
57