Back to GetFilings.com
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, 1993
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 1-9924
--------------------
THE TRAVELERS INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
65 East 55th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 891-8900
(Registrant's telephone number, including area code)
_______________
Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange on which
------------------------------
Title of each class registered
------------------- ----------
Common Stock, par value $ .01 per New York Stock Exchange and
share Pacific Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/10th of a share of 8.125%
Cumulative Preferred Stock, Series A
5.50% Convertible Preferred Stock, New York Stock Exchange
Series B
Depositary Shares, each representing 1/2 New York Stock Exchange
of a share of 9.25% Preferred Stock,
Series D
7 3/4% Notes Due June 15, 1999 New York Stock Exchange
7 5/8% Notes Due January 15, 1997 New York Stock Exchange
1998 Warrants to Purchase Common Stock New York Stock Exchange
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. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 8, 1994 was approximately $10.78 billion.
As of March 8, 1994, 323,716,455 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1993 are incorporated by reference into Part II
of this Form 10-K.
Certain portions of the registrant's Proxy Statement for the 1994 Annual
Meeting of Stockholders to be held on April 27, 1994 are incorporated by
reference into Part III of this Form 10-K.
THE TRAVELERS INC.
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 1993
______________________________
TABLE OF CONTENTS
Form 10-K
Item Number
- -----------
Part I
------
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . .
Part II
-------
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . .
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . .
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . .
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . .
Part III
--------
10. Directors and Executive Officers of the Registrant . . . . . . . . . . .
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. Certain Relationships and Related Transactions . . . . . . . . . . . . .
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements and Schedules . . . . . . . . . . . . . .
PART I
------
Item 1. BUSINESS.
THE COMPANY
The Travelers Inc. (the "Company") is a financial services holding
company engaged, through its subsidiaries, principally in four business
segments: (i) Investment Services; (ii) Consumer Finance Services; (iii) Life
Insurance Services; and (iv) Property & Casualty Insurance Services. In
December 1992, the Company, then known as Primerica Corporation, acquired
approximately 27% of the common stock of The Travelers Corporation, a
Connecticut corporation ("old Travelers"), in a series of related transactions.
See Note 1 of Notes to Consolidated Financial Statements. This acquisition was
accounted for as a purchase with an effective accounting date of December 31,
1992. During 1993, this investment was accounted for on the equity method.
On December 31, 1993, the Company acquired the approximately 73% of old
Travelers common stock it did not already own through the merger of old
Travelers into the Company (the "Merger"). In the Merger, each share of old
Travelers common stock (other than shares held by the Company, old Travelers or
shareholders who properly exercised dissenters' rights) was exchanged for
0.80423 of a share of the Company's common stock. The Company, as the
surviving corporation of the Merger, changed its name from Primerica
Corporation to The Travelers Inc. The Company also issued shares of its
preferred stock in exchange for outstanding shares of old Travelers preference
stock. The total purchase price in the Merger was approximately $3.4 billion.
The 1992 acquisition and the Merger are being accounted for as a step
acquisition. The assets and liabilities of old Travelers are reflected in the
Consolidated Statement of Financial Position at December 31, 1993 on a fully
consolidated basis at management's best estimate of their fair values based on
currently available information. See Note 1 of Notes to Consolidated Financial
Statements. The Company's results of operations for periods prior to the
Merger do not include those of old Travelers, other than for the equity in
earnings relating to the 27% previously owned. Accordingly, the Company's
Consolidated Financial Statements reflect the three business segments in which
the Company was engaged during 1993. For financial information of old
Travelers, provided on an historical accounting basis, see Exhibit 99.01 to
this Form 10-K.
In July 1993, the Company and certain of its subsidiaries acquired
substantially all of the assets and assumed certain of the liabilities of the
domestic retail brokerage business and the asset management business of
Shearson Lehman Brothers Holdings Inc. As a result of this acquisition, the
Company's subsidiary Smith Barney Shearson Inc. became one of the largest retail
brokerage firms in the United States. See "Investment Services -- Smith Barney
Shearson."
The periodic reports of Commercial Credit Company ("CCC"), Smith Barney
Shearson Holdings Inc. ("SBS Holdings"), and The Travelers Insurance Company
("TIC"), subsidiaries of the Company that make filings pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), provide
additional business and financial information concerning those companies and
their consolidated subsidiaries.
The principal executive offices of the Company are located at 65 East
55th Street, New York, New York 10022; telephone number 212-891-8900.
This discussion of the Company's business is organized as follows: (i)
a description of each of the Company's four business segments, including
descriptions of the old Travelers businesses; (ii) combined product line
information for the property-casualty businesses, consolidating the operations
of the old Travelers property-casualty commercial and personal lines and Gulf
1
Insurance Group; (iii) a description of the Corporate and Other Operations
segment; and (iv) certain other information. A glossary of insurance terms is
included at page 59.
INVESTMENT SERVICES
This segment includes the operations of SBS Holdings and its
subsidiaries, the mutual fund and other asset management activities of American
Capital Management & Research, Inc. and its subsidiaries ("American Capital")
and the Company's interest in RCM Capital Management, A California Limited
Partnership ("RCM"). It also includes the mortgage banking operations of
Margaretten & Company, Inc. ("Margaretten") through February 5, 1992, the date
the Company sold its interest in Margaretten in an underwritten public
offering.
SMITH BARNEY SHEARSON
- ---------------------
SBS Holdings provides investment banking, asset management, brokerage
and other financial services through its subsidiaries. Its principal operating
subsidiary is Smith Barney Shearson Inc. ("SBSI"), an investment banking,
securities trading and brokerage firm that traces its origins back to 1873. As
noted above, in July 1993, SBS Holdings acquired substantially all of the
assets and certain of the liabilities of the domestic retail brokerage business
and the asset management business (the "Shearson Acquisition") of Shearson
Lehman Brothers Holdings Inc. and its subsidiaries ("SLB"). See "Shearson
Acquisition" below. As used herein, unless the context otherwise requires,
"SBS" refers to SBS Holdings and its consolidated subsidiaries.
Investment Banking and Securities Brokerage
SBS is an investment banking and securities trading and brokerage firm
serving United States and foreign corporations, governments and institutional
and individual investors. Its business includes securities, options and
commodities brokerage for domestic and international institutional and
individual clients; underwriting and distribution of securities; arranging for
the private placement of securities; assisting in mergers and acquisitions and
providing financial advisory services; market making and trading in corporate,
United States government and agency, mortgage-related and municipal securities;
customer financing activities; securities lending activities; and other
activities, including investment management and advisory activities and
securities research.
SBS's investment banking services include the underwriting of debt and
equity issues for United States and foreign corporations and for state, local
and other governmental authorities. Frequently, SBS acts as managing
underwriter in corporate and public securities offerings. SBS also acts as a
private placement agent for various clients. In this role SBS helps to place
securities for clients with large institutions and other eligible investors.
SBS also provides financial advice to investment banking clients on a wide
variety of transactions including securities offerings, mergers and
acquisitions and corporate restructurings.
SBS effects securities brokerage transactions on all major United
States exchanges and distributes a wide variety of financial products. It
makes inter-dealer markets and trades as principal in corporate debt and equity
securities primarily of United States corporate issuers, United States
government and agency securities, mortgage-related securities, whole loans and
municipal and other tax-exempt securities. The firm carries inventories of
securities to facilitate sales to customers and other dealers and with a view
to realizing trading gains. SBSI is one of the leading dealers in municipal
securities and is a "Primary Dealer" in United States government securities, as
2
designated by the Federal Reserve Bank of New York. Its daily trading
inventory positions in United States government and agency securities are
financed largely through the use of repurchase agreements pursuant to which SBS
sells the securities and simultaneously agrees to repurchase them at a future
date. SBS also acts as an intermediary between borrowers and lenders of short-
term funds utilizing repurchase and reverse repurchase agreements. In
addition, SBS engages for its own account in certain arbitrage activities,
which primarily seek to benefit from temporary price discrepancies that occur
when a convertible security is trading at a price that is not fully reflective
of the price of the security into which it is convertible. SBS also engages in
the borrowing and lending of securities.
SBS effects transactions in large blocks of exchange-listed stocks,
usually with institutional investors, and often acts as principal to facilitate
these transactions. It makes markets, buying and selling as principal, in
common stocks, convertible preferred stocks, warrants and other securities
traded on the NASDAQ system or otherwise in the over-the-counter market. SBS
also maintains trading positions in equity options, convertible securities,
debt options and foreign exchange transactions. It executes significant client
transactions in both listed and unlisted options and in foreign exchange, and
often acts as principal to facilitate these transactions. SBS also sells
various types of structured securities on both a principal and an agency basis.
The firm's securities trading and investment activities involve significant
risk in that the values of positions carried in its trading and investment
accounts are subject to market fluctuations. SBS engages in a variety of
financial techniques designed to manage this risk.
Customer Financing
Customers' securities transactions are effected on either a cash or
margin basis. Federal regulations prescribe the minimum original margin that
must be deposited by securities purchasers, and exchange regulations prescribe
the minimum margins that must be maintained by customers. SBS imposes margin
maintenance requirements that are equal to or exceed those required by exchange
regulations. Such requirements are intended to reduce the risk assumed by SBS
that a market decline will reduce the value of a customer's collateral below
the amount of the customer's indebtedness before the collateral can be sold.
Substantially all transactions in commodities futures contracts are on margin
subject to individual exchange regulations. Margin, in the case of commodities
futures contracts, is primarily made in the form of cash or United States
Treasury securities which represent good faith deposits. Commodities
transactions involve substantial risk, principally because of low margin
requirements permitted by the exchanges.
Income earned on financing customers' securities transactions provides
SBS with an additional source of income. Credit losses may arise as a result
of this financing activity; however, such losses have not been material.
Asset Management
SBS provides asset management services to corporations, not-for-profit
institutions, pension and profit-sharing plans, municipalities and individual
investors in equity, fixed income and other securities. The SBS Consulting
Group is a money management consulting service that offers "wrap fee" and other
programs for individual as well as institutional investors. "Wrap fee"
accounts consist of customer accounts paying a single asset-based fee for
multiple services that may include brokerage, custody and advisory services.
The SBS TRAK(R) program provides investors with personalized investment
management through a broad array of investment portfolios. SBSI receives a
fee, but does not have investment discretion, with respect to assets invested
through TRAK(R).
SBS provides asset management services to, and sponsors, 128 separate
portfolios within 55 investment companies that invest in United States and
3
foreign corporate debt and equity securities, and municipal and United States
government and agency securities, including 14 taxable or tax-exempt money
market portfolios. The portfolios managed by SBS have various investment
objectives, including growth, growth and income, taxable income and tax-exempt
income.
At December 31, 1993, SBS had total assets under management of
approximately $74.8 billion, consisting of approximately $29.9 billion of money
market funds, $25.2 billion of other mutual funds and $19.7 billion of assets
of other institutional and individual clients. These amounts exclude assets
held in trust by the trust companies described under the heading "Miscellaneous
Activities" below, except for the portion of such assets that are held in
accounts actively managed by SBS. SBS also sells mutual funds sponsored by
other organizations, including funds managed by other subsidiaries of the
Company. In addition, SBS's Unit Trust business (i.e., unit investment trusts
that do not involve continuing investment management) consists of the TEST and
CST series of securities trusts and other proprietary unit trusts. The TEST
and CST securities trusts, for which SBS is the managing sponsor of the
syndicate, consist of municipal and corporate securities. A total of $3.1
billion par value of all series of TEST and CST trusts was outstanding as of
December 31, 1993. The other proprietary unit trusts, consisting of equity and
taxable bond trusts for which SBS is the sole sponsor, have a market value of
approximately $2.1 billion as of December 31, 1993. SBS also participates in a
syndicate that sponsors unit trusts including equity, taxable and tax-exempt
fixed income trusts.
Shearson Acquisition
On July 31, 1993, SBS acquired substantially all of the assets and
assumed certain of the liabilities of the domestic retail brokerage and asset
management businesses of SLB for approximately $2.1 billion, representing
approximately $1.6 billion for the net assets acquired, plus approximately $500
million of cash required to be segregated for the benefit of customers under
commodities regulations. Following the transaction, SLB was renamed Lehman
Brothers Holdings Inc. ("LBI"). The purchase price for the net assets acquired
consisted of approximately $900 million in cash, $125 million in the form of
5.50% Convertible Preferred Stock, Series B, of the Company, $25 million in the
form of a warrant to purchase approximately 3.75 million shares of the
Company's common stock at an initial price of $39 per share, and the balance in
notes. The Series B Preferred Stock is convertible into approximately 3.4
million shares of the Company's common stock at a price of $36.75 per share.
(The foregoing share numbers and per share price information have been adjusted
to give effect to the 4-for-3 stock split declared by the Company's Board of
Directors in July 1993.) On March 9, 1993, American Express Company, the parent
company of LBI, completed a public offering of the Series B Preferred Stock and
the warrants. SBS has agreed to pay additional amounts based upon the
performance of SBSI, consisting of up to $50 million per year for three years
based on SBSI's revenues and 10% of SBSI's after-tax profits in excess of
$250 million per year over a five-year period. See Note 1 of Notes to
Consolidated Financial Statements.
For an interim period of up to two years from the closing, SBSI has
agreed to provide securities clearing, data processing and other operational
services to LBI.
Miscellaneous Activities
SBS has entered into several joint ventures and affiliate relationships
(in some cases subject to approval by appropriate regulatory bodies) with
foreign financial services firms. These arrangements provide for SBS and the
other firms to supply sales and research services in the United States and
foreign markets. SBS is also a participant in a joint U.S.-Russian group that
formed the Russian-American Bank, which will assist Russian enterprises in
restructuring efforts.
4
Smith Barney Shearson Trust Company, a New York trust company chartered
in 1991, and Smith Barney Shearson Trust Company of Florida, a Florida trust
company chartered in 1993, both subsidiaries of the Company, provide a full
range of fiduciary services with a particular emphasis on personal trusts,
corporate trust services and employee benefit trust services. SBS Trust
Company, chartered in Delaware in 1992 and also a subsidiary of the Company,
offers a broad range of trustee services for qualified retirement plans, with
particular emphasis on the 401(k) plan market. Each trust company is subject
to the supervision of the state banking authority where it was chartered.
Although these trust companies are not subsidiaries of SBS Holdings, they use
the distribution network of SBSI to market their services. SBS provides
certain advisory and support services to the trust companies and receives fees
for such services.
AMERICAN CAPITAL AND RCM
- ------------------------
Mutual Funds and Asset Management
American Capital constitutes one of the larger mutual fund management
and distribution organizations in the United States. At December 31, 1993, the
group included (i) an investment adviser to 39 investment company fund
portfolios with aggregate fund assets under management of approximately $16.7
billion; (ii) a wholesale distribution firm, which is a registered broker-
dealer with selling group agreements with approximately 2,500 other registered
broker-dealers; (iii) a retail distribution firm, Advantage Capital
Corporation, which is a registered broker-dealer marketing the open-end funds
and other securities products directly to the public through a licensed sales
force of approximately 600 persons located throughout the United States; and
(iv) a transfer and shareholder servicing agent, which provides services to 28
of the mutual funds mentioned above. In 1993, American Capital Management &
Research, Inc. ("ACMR") also began providing investment advisory services to
fund portfolios of which it is not the distributor.
A number of joint ventures between subsidiaries of ACMR and companies
that are part of the Primerica Financial Services group of companies
(collectively, "PFS") provide investment advisory, underwriting, transfer
agency and custodial services to the Common Sense(R) Trust mutual funds included
in the statistics above. In addition, PFS Investments Inc. ("PFS Investments")
is the exclusive retail distributor of the Common Sense(R) Trust funds. For the
years ended December 31, 1993, 1992 and 1991, PFS Investments' total mutual
fund sales were $1,266.4 million, $1,071.2 million and $788.0 million,
respectively, with sales of shares of the Common Sense(R) Trust funds accounting
for approximately 61%, 75% and 75% respectively, of total sales. This decline
in 1993 reflected increased product offerings outside the Common Sense(R) Trust
funds. At December 31, 1993, approximately 21,000 members of the PFS sales
force were also independent registered securities representatives of PFS
Investments. The increase in sales in recent years is primarily attributable
to the economic environment and expanded marketing efforts for mutual funds.
See "Life Insurance Services -- Primerica Financial Services."
ACMR managed $16.7 billion in fund portfolio assets as of December 31,
1993, as compared with $14.5 billion as of December 31, 1992 and $13.7 billion
as of December 31, 1991.
A subsidiary of the Company is the sole limited partner in RCM, a
limited partnership headquartered in San Francisco, California, which provides
investment management services, principally for pension funds, other
institutional clients and high net worth individuals. Assets under management
by RCM were $24.5 billion at December 31, 1993, as compared to $23.8 billion at
December 31, 1992 and $23.0 billion at December 31, 1991.
5
The investment company and asset management operations of SBS are
described above under "Smith Barney Shearson -- Investment Banking and
Securities Brokerage" and "-- Asset Management."
GENERAL
- -------
Competition
The businesses included in the Investment Services segment are highly
competitive. The principal factors affecting competition in the investment
banking and securities brokerage industry are the quality and ability of
professional personnel and the relative prices of services and products
offered. In addition to competition from other investment banking firms, both
domestic and international, and securities brokerage companies and discount
securities brokerage operations, including regional firms in the United States,
there has been increasing competition from other sources, such as commercial
banks, insurance companies and other major companies that have entered the
investment banking and securities brokerage industry, in many cases through
acquisitions. Certain of those competitors may have greater capital and other
resources than SBS. In addition, certain large commercial banks have been
granted permission by the Federal Reserve Board, subject to certain
limitations, to engage, through affiliates, in the underwriting of and dealing
in corporate debt securities, mortgage-backed securities, municipal revenue
securities, commercial paper and securities backed by consumer loans. The
Federal Reserve Board has also permitted certain bank holding companies to
underwrite and deal in equities through their securities subsidiaries, subject
to certain operational limitations. With this action, the Federal Reserve
Board has substantially removed the barrier originally erected by the Glass-
Steagall Act restricting investment banking activities of commercial banks and
their affiliates.
Competitors of the Company's mutual funds and asset management groups,
including those of SBS, include a large number of mutual fund management and
sales companies and asset management firms. Competition in mutual fund sales
and investment management is based on investment performance, service to
clients, and product design. PFS Investments faces competition not only from
large financial services firms offering products and services that cross
traditional business boundaries, but also from insurance companies offering
life insurance products with investment features.
Regulation
Certain of the Company's subsidiaries are registered as broker-dealers
and as investment advisers with the Securities and Exchange Commission (the
"Commission") and as futures commission merchants and as a commodity pool
operator with the Commodity Futures Trading Commission ("CFTC"). SBSI and its
subsidiary, The Robinson-Humphrey Company ("R-H"), are members of the New York
Stock Exchange, Inc. (the "NYSE") and other principal United States securities
exchanges, as well as the National Association of Securities Dealers, Inc.
("NASD") and the National Futures Association ("NFA"), a not-for-profit
membership corporation which has been designated as a registered futures
association by the CFTC. SBSI and R-H are registered as broker-dealers in all
50 states, the District of Columbia and Puerto Rico, and in addition are
registered as investment advisers in certain states that require such
registration. SBSI is also a reporting dealer to the Federal Reserve Bank of
New York, a member of the principal United States futures exchanges and a
registered broker-dealer in Guam. Both SBSI and R-H are subject to extensive
regulation, primarily for the benefit of their customers, including minimum
capital requirements, which are promulgated and enforced by, among others,
the Commission, the CFTC, the NFA, various self-regulatory organizations
of which SBSI and R-H are members and the securities administrators of
the 50 states, the District of Columbia and Puerto Rico and,
6
in SBSI's case, Guam. In 1992, the Commission promulgated regulations under
the Market Reform Act of 1990 that, among other things, require certain
registered broker-dealers (including SBSI) to maintain records concerning
certain financial and securities activities of affiliated companies that may
be material to the broker-dealer, and to file certain financial and other
information regarding such affiliated companies.
In addition, the Investment Company Act of 1940 generally prohibits
registered investment companies managed by affiliates of the Company (including
ACMR) from, among other things, entering into securities transactions on a
principal basis with SBS, and restricts their ability to purchase securities in
underwritings in which SBS participates as an underwriting syndicate member.
Transactions between SBS and RCM are also subject to certain limitations.
SBS's operations abroad, described in this paragraph, are conducted
through various subsidiaries, and through a representative office in Paris.
Its activities in the United Kingdom are subject to the Financial Services Act
1986, which regulates organizations that conduct investment businesses in the
United Kingdom (including imposing capital and liquidity requirements). SBS
has received permanent authorization to engage in certain types of investment
business in the United Kingdom. It is also a member of the International
Petroleum Exchange and the London International Financial Futures and Options
Exchange, and as such is subject to the rules and regulations of those
Exchanges. SBS is a licensed securities company in Japan and, as such, its
activities in Japan are subject to Japanese law applicable to foreign
securities firms. SBS is also a member of the Tokyo Stock Exchange and,
therefore, its activities in Japan are subject to the rules and regulations of
that Exchange. SBS conducts a securities and commodities brokerage and
corporate finance business and securities research business in Singapore for
individual and institutional clients which is regulated by the Monetary
Authority of Singapore. Additionally, the firm is registered as a "dealer" and
"adviser" with the Hong Kong Securities and Futures Commission, as an
"international dealer" with the Ontario Securities Commission and as a "B
license holder" with the Zurich Stock Exchange.
In connection with the mutual funds business, the Company and its
subsidiaries must comply with regulations of a number of regulatory agencies
and organizations, including the Commission and the NASD. The Company is the
indirect parent of investment advisers registered and regulated under the
Investment Advisers Act of 1940, and of companies that distribute shares of
mutual funds pursuant to distribution agreements subject to regulation under
the Investment Company Act of 1940. Under those Acts, the advisory contracts
between the Company's investment adviser subsidiaries and the mutual funds they
serve, as well as the mutual fund distribution agreements, would automatically
terminate upon an assignment of such contracts by the investment adviser or the
fund distribution company, as the case may be. Such an assignment would be
presumed to have occurred if any party were to acquire more than 25% of the
Company's voting securities. Continuation of advisory and distribution
relationships under these circumstances could be achieved only by obtaining
consent to the assignment from the shareholders of the mutual funds involved.
SBSI and R-H are members of the Securities Investor Protection
Corporation ("SIPC"), which, in the event of liquidation of a broker-dealer,
provides protection for customers' securities accounts held by the firm of up
to $500,000 for each eligible customer, subject to a limitation of $100,000 for
claims for cash balances. In addition, SBS has purchased additional coverage
from a subsidiary of the Company, Gulf Insurance Company, for eligible
customers.
As registered broker-dealers, SBSI and R-H are subject to
the Commission's net capital rule (Rule 15c3-1, the "Net Capital
Rule") promulgated under the Exchange Act. SBSI and R-H compute
net capital under the alternative method of the Net Capital Rule
which requires the maintenance of minimum net capital, as defined.
A member of the NYSE may be required to reduce its business if
7
its net capital is less than 4% of aggregate debit balances (as defined) and
may also be prohibited from expanding its business or paying cash dividends if
resulting net capital would be less than 5% of aggregate debit balances.
Furthermore, the Net Capital Rule does not permit withdrawal of equity or
subordinated capital if the resulting net capital would be less than 5% of
such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to
transfer large amounts of capital to parent companies and other affiliates.
Under the Net Capital Rule, equity capital cannot be withdrawn from a broker-
dealer without the prior approval of the Commission when net capital after the
withdrawal would be less than 25% of its securities position "haircuts," or
deductions from capital of certain specified percentages of the market value of
securities to reflect the possibility of a market decline prior to disposition.
In addition, the Net Capital Rule requires broker-dealers to notify the
Commission and the appropriate self-regulatory organization two business days
before a withdrawal of excess net capital if the withdrawal would exceed the
greater of $500,000 or 30% of the broker-dealer's excess net capital, and two
business days after a withdrawal that exceeds the greater of $500,000 or 20% of
excess net capital. Finally, the Net Capital Rule authorizes the Commission to
order a freeze on the transfer of capital if a broker-dealer plans a withdrawal
of more than 30% of its excess net capital and the Commission believes that
such a withdrawal would be detrimental to the financial integrity of the firm
or would jeopardize the broker-dealer's ability to pay its customers.
PFS Investments is registered as a broker-dealer with the SEC, in all
50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam,
and is a member of the NASD. Advantage Capital Corporation is also registered
as a broker-dealer with the SEC, in all 50 states, the District of Columbia and
Puerto Rico and is a member of the NASD. These companies are subject to
extensive regulation by those agencies and the securities administrators of
those jurisdictions, primarily for the benefit of their customers, including
minimum capital and licensing requirements.
CONSUMER FINANCE SERVICES
The Company's Consumer Finance Services segment includes consumer
lending services conducted primarily under the name "Commercial Credit," as
well as credit-related insurance and credit card services.
Consumer Finance
As of December 31, 1993, CCC maintained 768 loan offices in 42 states,
and it plans to open approximately 60 additional offices in 1994. The Company
owns two state-chartered banks headquartered in Newark, Delaware, which
generally limit their activities to offering credit card services nationwide.
Loans to consumers by the Consumer Finance Services unit include secured
and unsecured personal loans, real estate-secured loans and consumer goods
financing. Credit card loans are discussed below. CCC's loan offices are
located throughout the United States. They are generally located in small to
medium-sized communities in suburban or rural areas, and are managed by
individuals who generally have considerable consumer lending experience. The
primary market for CCC's consumer loans consists of households with an annual
income of $15,000 to $54,000. The number of loan customers (excluding credit
card customers) was approximately 1,142,000 at December 31, 1993, as compared
to approximately 1,058,000 at December 31, 1992, and approximately 1,078,000 at
December 31, 1991. A CCC loan program solicits applications for second
mortgage loans through the PFS sales force. See "Life Insurance Services --
Primerica Financial Services."
The average amount of cash advanced per personal loan made was approxi-
mately $3,800 in each of 1993, 1992 and 1991. The average amount of cash
8
advanced per real estate-secured loan made was approximately $28,800 in 1993
and approximately $26,000 in each of 1992 and 1991. The average annual yield
for loans in 1993 was 15.83%, as compared to 16.31% in 1992 and 16.69% in 1991.
The average annual yield for personal loans in 1993 was 20.11%, as compared to
19.99% in 1992 and 19.97% in 1991, and for real estate-secured loans it was
13.14% in 1993, as compared to 14.05% in 1992 and 14.48% in 1991. The 1993
average yield for real estate-secured loans was affected by the successful
introduction of a variable rate product. The Company's average net interest
margin for loans was 8.44% in 1993, 8.66% in 1992 and 8.63% in 1991.
Prior to 1992, both delinquencies and charge-offs had increased,
reflecting the recessionary economic environment. CCC took steps to combat
this trend, by tightening the credit criteria used for making new loans and
placing a greater emphasis on collection policies and practices. As a result
of these measures and recent economic trends, delinquency rates generally have
continued to improve throughout 1993. See "Delinquent Receivables and Loss
Experience," below. In addition, aggregate quarterly loss charge-off rates
have generally declined since the first quarter of 1992, and charge-offs
generally decreased in 1993.
Analysis of Consumer Finance Receivables
For an analysis of consumer finance receivables, net of unearned finance
charges ("Consumer Finance Receivables"), see Note 9 of Notes to Consolidated
Financial Statements.
Delinquent Receivables and Loss Experience
The management of the consumer finance business attempts to prevent
customer delinquency through careful evaluation of each borrower's application
and credit history at the time the loan is made or acquired, and attempts to
control losses through appropriate collection activity. An account is
considered delinquent for financial reporting purposes when a payment is more
than 60 days past due, based on the original or extended terms of the contract.
Due to the nature of the finance business, some customer delinquency and loss
is unavoidable. The delinquency and loss experience on real estate-secured
loans is generally more favorable than on personal loans.
9
The table below shows the ratio of receivables delinquent for 60 days or
more on a contractual basis (i.e., more than 60 days past due) to gross
receivables outstanding:
Ratio of Receivables Delinquent 60 Days or More to Gross Receivables
Outstanding (1)
Real
Estate-
Personal Secured Credit Sales Total
As of December 31, Loans Loans Cards Finance Consumer
- ------------------ ----- ----- ----- ------- --------
1993 2.62% 2.15% 1.03% 1.54% 2.21%(2)
1992 3.02% 2.31% 1.87% 1.48% 2.55%
1991 3.51% 2.19% 2.57% 2.00% 2.80%
__________________________
(1) The receivable balance used for these ratios is before the deduction of
unearned finance charges and excludes accrued interest receivable.
Receivables delinquent 60 days or more include, for all periods presented,
accounts in the process of foreclosure.
(2) Includes the reacquisition in the fourth quarter of 1993 of the remainder
of a portfolio of loans collateralized by manufactured housing units.
The following table shows the ratio of net charge-offs to average
Consumer Finance Receivables. For all periods presented, the ratios shown
below give effect to all deferred origination costs.
Ratio of Net Charge-Offs to Average Consumer Finance Receivables
Real
Estate-
Year Ending Personal Secured Credit Sales Total
December 31, Loans Loans Cards Finance Consumer
- ------------ -------- ------- ----- ------- --------
1993 4.08% 0.84% 2.56% 1.78% 2.36%(1)
1992 5.09% 0.74% 4.01% 2.05% 2.84%
1991 5.03% 0.69% 3.05% 2.52% 2.72%
______________________________
(1) Includes the reacquisition in the fourth quarter of 1993 of the remainder
of a portfolio of loans collateralized by manufactured housing units.
The following table sets forth information regarding the ratio of
allowance for losses to Consumer Finance Receivables.
Ratio of Allowance For Losses to Consumer Finance Receivables
As of December 31,
------------------
1993 2.64%
1992 2.91%
1991 2.86%
Credit-Related Insurance
American Health and Life Insurance Company ("AHL"), a subsidiary of CCC,
underwrites or arranges for credit-related insurance, which is offered to
customers of the consumer finance business. AHL has an A+ (superior) rating
from the A.M. Best Company, whose ratings may be revised or withdrawn at any
time. Credit life insurance covers the declining balance of unpaid
indebtedness. Credit disability insurance provides monthly benefits during
periods of covered disability. Credit property insurance covers the loss of
property given as security for loans. Other insurance products offered or
10
arranged for by AHL include accidental death and dismemberment, auto single
interest, nonfiling, involuntary unemployment insurance and mortgage impairment
insurance. Most of AHL's products are single premium, which premiums are
earned over the related contract period. See "Life Insurance Services" for
information concerning life and health insurance other than credit-related
insurance.
The following table sets forth gross written insurance premiums, net of
refunds, for consumer finance customers:
Consumer Finance Insurance Premiums Written
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Premiums written (1)
Writings for consumer finance:
Credit life . . . . . . . . . $ 36.4 $ 36.0 $ 45.0
Credit disability . . . . . . 47.1 $ 44.7 $ 49.9
------- ------- -------
Total . . . . . . . . . . . $ 83.5 $ 80.7 $ 94.9
======= ======= =======
_________________________
(1) Premiums are written by AHL and by other subsidiaries of the Company.
Credit Card Services
Primerica Bank, a subsidiary of CCC, is a state-chartered bank located
in Newark, Delaware, which provides credit card services, including upper
market gold credit card services, to individuals and to affinity groups (such
as nationwide professional associations and fraternal organizations).
Primerica Bank USA, another state-chartered bank subsidiary of CCC, was formed
in September 1989. Primerica Bank USA is not subject to certain regulatory
restrictions relating to growth and cross-marketing activities to which
Primerica Bank is subject. See "Regulation" below. These banks generally
limit their activities to credit card operations.
The following table sets forth aggregate information regarding credit
cards issued by Primerica Bank and Primerica Bank USA:
Credit Cardholders and Total Outstandings
(outstandings in millions)
As of and for the year ended December 31,
-----------------------------------------
1993 1992 1991
---- ---- ----
Approximate total credit cardholders 534,000 423,000 370,000
Approximate gold credit cardholders 478,000 371,000 305,000
Total outstandings $697.1 $538.2 $472.9
Average annual yield 11.66% 12.12% 13.50%
The primary market for the banks' credit cards consists of households
with annual incomes of $40,000 and above.
The Delaware credit card banks offer deposit-taking services (which as
to Primerica Bank USA are limited to deposits of at least $100,000 per
account). At December 31, 1993, deposits at the Delaware offices were $51.2
million, as compared to $22.3 million at December 31, 1992 and $23.8 million at
December 31, 1991. At December 31, 1993, substantially all of such deposits
were federally insured. The increase in deposits supported a balance transfer
promotion conducted by Primerica Bank during 1993.
11
Competition
The consumer finance business competes with banks, savings and loan
associations, credit unions, credit card issuers and other consumer finance
companies. Additionally, substantial national financial services networks have
been formed by major brokerage firms, insurance companies, retailers and bank
holding companies. Some competitors have substantial local market positions;
others are part of large, diversified organizations. Deregulation of banking
institutions has greatly expanded the consumer lending products permitted to be
offered by these institutions, and because of their long-standing insured
deposit base, many of them are able to offer financial services on very
competitive terms. The Company believes that it is able to compete effectively
with such institutions. In particular, the Company believes that the diversity
and features of the products it offers, personal service and cultivation of
repeat and referral business support and strengthen its competitive position in
its Consumer Finance Services businesses.
Regulation
Most consumer finance activities are subject to extensive federal and
state regulation. Personal loan, real estate-secured loan and sales finance
laws generally require licensing of the lender, limitations on the amount,
duration and charges for various categories of loans, adequate disclosure of
certain contract terms and limitations on certain collection practices and
creditor remedies. Federal consumer credit statutes primarily require
disclosure of credit terms in consumer finance transactions. CCC's banking
operations, which must undergo periodic examination, are subject to additional
regulations relating to capitalization, leverage, reporting, dividends and
permitted asset and liability products. CCC's credit card banks are also
covered by the Competitive Equality Banking Act of 1987 (the "Banking Act"),
which, among other things, prevents the Company from acquiring or forming most
types of new banks or savings and loan institutions and, with respect to
Primerica Bank, restricts cross-marketing of products by or of certain
affiliates. CCC's banks are also subject to the Community Reinvestment Act,
which requires a bank to provide equal credit opportunity to all persons in
such bank's delineated community. The Company believes that it complies in
all material respects with applicable regulations. See "Insurance Services -
General -- Regulation" at the end of the description of the Property & Casualty
Insurance segment for a discussion of the regulatory factors governing the
insurance businesses of CCC.
The Real Estate Settlement Procedures Act of 1974 ("RESPA") has been
extended to cover real estate-secured loans that are subordinated to other
mortgage loans. Generally, RESPA requires disclosure of certain information to
customers and regulates the receipt or payment of fees or charges for services
performed.
LIFE INSURANCE SERVICES
The businesses in the Company's Life Insurance Services segment write
principally individual and group life insurance, annuities, accident and health
insurance, and pension and managed health care programs. Most of these
products are offered on a nationwide basis in the United States.
This segment includes the operations of PFS, including Primerica Life
Insurance Company ("Primerica Life"), and Transport Life Insurance Company and
its affiliates ("Transport"). It also includes the businesses of The Travelers
Insurance Company ("TIC"), which became a subsidiary of the Company on December
31, 1993, as a result of the Merger. In conjunction with the Merger, Primerica
Life and Transport were contributed by the Company to TIC. With $503.8 billion
of life insurance in force and $41.3 billion of assets at December 31, 1993,
the Company believes that TIC and its subsidiaries constitute one of the
12
largest stock life insurance groups in the United States as measured by
insurance in force and assets at December 31, 1993.
Because the Company's interest in old Travelers was accounted for during
1993 on the equity method, the Company's results of operations for 1993 do not
include the full results of TIC's business. See Notes 1 and 4 of Notes to
Consolidated Financial Statements. Accordingly, premium and other operational
information is provided for TIC's businesses for informational purposes only.
PRIMERICA FINANCIAL SERVICES
- ----------------------------
During 1993, the Company wrote individual and group life insurance,
accident and health insurance and credit insurance through a number of
subsidiaries, including Primerica Life. The Company's insurance activities
relating to its consumer finance business are discussed above under "Consumer
Finance Services."
Primerica Financial Services
Principal Markets and Methods of Distribution
The business operations of the PFS group of companies involve the sale
of insurance, mutual funds and other financial products, and consist of an
affiliated group of companies engaged, in (i) the underwriting and
administration of individual term life insurance throughout the United States
and in Canada and (ii) securities brokerage, consisting primarily of mutual
fund sales. The PFS sales force, composed of approximately 100,000 independent
agents, primarily markets certain products of subsidiaries of the Company,
including certain loans offered by the Company's consumer finance subsidiaries,
and other products approved by the Company. Because the great majority of the
licensed sales force works on a part-time basis, a substantial portion of the
sales force is inactive from time to time.
Primerica Life offers individual term life insurance. Through a
subsidiary, it provides statutory disability benefits in New York, as well as
direct response student term life insurance nationwide. Primerica Life and its
subsidiary together are licensed to sell and market term life insurance in all
50 states and the District of Columbia. Products offered by PFS Investments
include a proprietary group of mutual funds managed and administered through a
group of partnerships owned equally by PFS and by the Company's subsidiary
ACMR. For additional information concerning PFS Investments and ACMR, see
"Investment Services -- American Capital and RCM."
Premium revenues, net of reinsurance, for PFS for the years ended
December 31, 1993, 1992 and 1991 were $889.9 million, $862.7 million and $878.1
million, respectively. See "Insurance Services - General -- Reinsurance," at
the end of the description of the Property & Casualty Insurance Services
segment, for a discussion of reinsurance.
Life Insurance in Force
The table on the next page provides a reconciliation of beginning and
ending term life insurance in force for Primerica Life, and related statistical
data on a statutory basis for 1991-1993.
13
(in millions of dollars, except as noted)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
In force beginning of year $302,314 $309,337 $324,465
Additions 48,307 46,244 51,135
Terminations(1)
(41,362) (53,267) (66,263)
-------- -------- --------
In force end of year $309,259 $302,314 $309,337
======= ======== =======
The amounts in force at end of
year are before reinsurance ceded
in the following amounts $75,907 $ 84,237 $97,821
======= ======= =======
At end of year:
Number of policies in force 2,003,491 1,993,686 2,067,441
Average size of policy
in force (in dollars) $154,360 $151,636 $149,623
______________________________
(1) Includes terminations due to death, surrenders and lapses.
AIDS-related claims, net of reinsurance, as a percentage of total net
life claims paid by Primerica Life in 1993, were 6.7%. Management believes
that current pricing and reserves make adequate provision for AIDS-related
claim experience.
TRAVELERS INSURANCE COMPANY
- ---------------------------
Other Life and Annuities
This section includes the businesses identified by old Travelers as
Financial Services and Asset Management & Pension Services ("AMPS"), as well as
Transport.
Principal Products
TIC offers individual life insurance, accident and health insurance,
annuities and investment products and services to individuals and small
businesses. It also provides guaranteed investment products, annuities and
recordkeeping services to employer-sponsored retirement and savings plans, and
provides short-term domestic equity and balanced investment management
services on a pooled basis to present clients through its separate accounts.
TIC views market specialization as a critical component of profitability and
has updated its individual product portfolio with a range of competitively
priced life, disability income, long-term care and fixed and variable annuity
products for target customers.
Individual fixed income annuities are used for retirement funding
purposes and for structuring settlements for certain indemnity claims not paid
as a single lump sum. TIC also offers deferred annuity products under which
deposits are directed by the contract owner among separate accounts with
investments in common stocks, money market obligations, debt obligations or
managed portfolios, or into a variable interest rate deposit fund held in the
general account. In recent years, TIC has increased the amount of individual
variable annuities that it sells. Various other investment products and
services, such as mutual funds, limited partnerships, managed accounts and
trust facilities, are also available.
14
The table below sets forth written premiums, net of reinsurance, and
deposits for the Financial Services and AMPS businesses of old Travelers.
Premiums and Deposits
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Premiums
Individual life $ 112 $ 99 $91
Individual accident and health 104 110 115
Annuities
Individual single premium 19 22 43
Group single premium 27 28 41
Group fixed 110 86 142
------ ----- ---
Total premiums 372 345 432
------ ------ ---
Deposits
Universal life insurance 163 164 157
Annuities
Individual fixed accumulation 577 647 689
Individual variable accumulation 392 232 160
Individual immediate(1) 34 50 60
Guaranteed investment contracts(2) 918 502 955
Group separate accounts and managed funds(3)
772 730 613
Other fixed funds 265 223 410
------ ----- ---
Total deposits 3,121 2,548 3,044
-------- ------ -----
Total premiums and deposits $3,493 $2,893 $3,476
===== ===== ======
______________________________
(1) Represents primarily structured settlement annuities, in which payments
are currently being made to annuitants.
(2) The 1992 amount reflects the adverse impact of downgrades in TIC's
financial strength ratings and general industry conditions. The 1993
increase reflects success in attracting guaranteed business in alternative
markets, and such business is not expected to recur.
(3) The 1992 amount reflects the shift in emphasis to separate account
production. The 1993 increase reflects an increase in deposits to
guaranteed separate accounts offset by a decrease in deposits to indexed
separate accounts.
15
For information about reinsurance, see "Insurance Services - General --
Reinsurance" at the end of the description of the Property & Casualty Insurance
Services segment.
Principal Markets and Methods of Distribution
TIC is licensed to sell and market its individual products in all 50
states and the District of Columbia.
Individual products are marketed through a variety of distribution
systems, primarily by a core group of approximately 450 independent
professional life agents and by H. C. Copeland and Associates, Inc., a
subsidiary of TIC's parent company and a major distributor of annuity products.
Approximately 60% of the total individual fixed and variable annuities sold by
TIC in each of the last three years (as measured by deposits) were sold through
this subsidiary. Another subsidiary acts as a broker-dealer for TIC and
affiliates. The various distribution systems for individual products operate
through TIC's field offices, through general agencies representing TIC or
directly to TIC. The price of individual products is affected by long-term
assumptions as to interest, expenses and rates of mortality, morbidity and
persistency, as well as competitive and regulatory considerations.
Guaranteed investment products, annuities and recordkeeping services are
marketed principally by TIC's salaried staff directly to plan sponsors.
Business is also placed through independent consultants and investment
advisers. The major factors affecting the pricing of these contracts are the
economics of the capital markets, primarily the interest rate environment, the
availability of appropriate investments and surplus required to support this
business due to risk-adjusted capital standards. The pricing of products and
services also reflects charges for expenses, mortality, profit and other
relevant financial factors such as credit risk. The current pension market
reflects product pricing that is sensitive to the quality and relative
investment risk of the assets supporting those products.
Life Insurance in Force
The table on the next page provides a reconciliation of beginning and
ending Financial Services life insurance in force and related statistical data
on a statutory basis for 1991-1993.
16
(in millions of dollars, except as noted)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
In force beginning of year $38,834 $31,990 $27,651
Additions 9,944 10,503 7,729
Terminations(1) (4,469) (3,659) (3,390)
------- ------- -------
In force end of year $44,309 $38,834 $31,990
====== ====== ======
The amounts in force at end of
year are before reinsurance ceded
in the following amounts $5,042 $ 3,933 $ 2,902
====== ====== ======
At end of year:
Number of policies in force 592,710 596,411 596,793
Average size of policy
in force (in dollars) $74,757 $65,113 $53,603
______________________________
(1) Includes terminations due to death, surrenders and lapses.
Insurance Reserves and Contractholder Funds
As life, accident and health insurance and annuity premiums are received,
TIC establishes policy benefit reserves that reflect the present value of
expected future obligations, net of the present value of expected future net
premiums. These reserves generally reflect long-term fixed obligations to
policyholders and are based on assumptions as to interest rates, future
mortality, morbidity, persistency and expenses, with provision for adverse
deviation. Policy benefit reserves, which give appropriate recognition to
reinsurance, are established based on factors derived from past experience.
Contractholder funds arise from the issuance of individual life contracts
that include an investment component, deferred annuities and certain individual
immediate annuity investment contracts. Contractholder funds are equal to
deposits received and interest credited less withdrawals, mortality charges and
administrative expenses. Contractholder funds also include receipts from the
issuance of pension investment contracts.
AIDS-related claims paid in 1993 were 1.2%, as a percentage of total life
claims paid, and .7%, as a percentage of total health claims paid. Such claims
have not materially affected TIC's financial results.
Transport
Transport specializes in accident and health insurance including cancer,
heart/stroke and long-term care coverage. It distributes such products
nationwide through a sales force of approximately 13,000 independent agents.
For the three years ended December 31, 1993, Transport's premium revenues, net
of reinsurance ceded, were $245.0 million in 1993, $273.9 million in 1992 and
$325.5 million in 1991.
17
Managed Care and Employee Benefits Operations
Principal Products
Managed Care and Employee Benefits Operations ("MCEBO") markets group life
and accident and health insurance, managed health care programs, and
administrative services associated with employee benefit plans. These products
are sold through group contracts to employers, employer associations and
trusts, and other organizations ranging in size from small local employers to
very large multinational corporations.
Life insurance products are primarily group renewable term life insurance.
Group accident and health insurance benefits include reimbursement of hospital,
medical and dental expenses, as well as indemnity payments for short- and long-
term disability. Flexible benefit or cafeteria style programs, where employees
can pick and choose benefits, are also available. More than 90% of MCEBO's
group life and accident and health insurance premiums, deposits and benefits
under administration, including fees, are individually experience rated, i.e.,
future (prospectively rated) and past (retrospectively rated) premiums are
adjusted annually to reflect actual claims, administrative expenses and
investable funds attributable to each policyholder.
In response to employers' concerns with the rapidly increasing cost of
providing health care benefits to their employees, MCEBO offers a continuum of
managed health care products that are designed to control those costs as well
as maintain the quality of care. The range of services provided by these
products includes programs to maintain health and wellness, as well as to
promote patient education and to manage health care through networks of
providers of medical/surgical, mental health and pharmaceutical services.
MCEBO network products rely on contractual arrangements between TIC and
providers of health care to deliver services to covered individuals at
negotiated reimbursement levels as well as to participate in utilization and
quality management programs. The most comprehensive network products provide
HMO-like medical management with a reliance on primary care physicians to
manage the delivery of health care to the individuals who have enrolled with
them. TIC also offers other levels of managed care, including preferred
provider organizations ("PPOs") where participants have the option to seek care
from any provider in the network. TIC currently has a nationwide system of 59
medical/surgical networks in 37 states in 130 metropolitan areas.
Covered lives using the managed care networks at December 31, 1993 were 1.8
million, which represent 31% of total lives covered by TIC's medical benefits.
Included in this total are 678,000 lives covered by comprehensive managed care
plans, consisting of point of service and health maintenance organization
("HMO") plans. Medical covered lives in the aggregate for indemnity products
were 4.1 million at December 31, 1993.
MCEBO is a contractor for the Health Care Financing Administration and the
Railroad Retirement Board to administer the federally funded Medicare program.
The underlying contracts are generally on a cost reimbursement basis with
respect to costs incurred to administer the programs.
The Company and Metropolitan Life Insurance Company are engaged in
exploratory discussions concerning possible alliances among their health care
operations. Because of the preliminary nature of these discussions, the Company
believes that it is premature to speculate on the possible outcomes of these
discussions.
There is a continuing trend on the part of policyholders to self-insure
part or all of their accident and health benefits and to utilize administrative
or claim adjudication services for a fee. The table below includes the amount
of deposits and benefits under administration associated with those benefit
plans for which MCEBO provides the administration under a partially insured or
self-insured arrangement. The deposits and benefits under administration for
these plans are estimates of premiums that fee-based customers would have been
charged to provide these benefits under a fully insured arrangement. Deposits
18
and benefits under administration, other than HMO revenues and fee income, do
not represent actual revenues.
The following table sets forth written premiums, net of reinsurance, and
deposits and benefits under administration, including fees, for the MCEBO
businesses.
Premiums, Deposits and Benefits Under Administration, Including Fees
(in millions)
Year Ended December 31,
-------------------------
1993 1992 1991
---- ---- ----
Premiums
Group life $ 426 $ 483 $ 537
Group health 2,191 2,137 2,150
----- ----- -----
Total premiums 2,617 2,620 2,687
Deposits and benefits under administration,
including fees(1) 7,791 7,747 7,473
----- ----- -----
Total premiums, deposits and benefits
under administration, including fees $ 10,408 $10,367 $10,160
========= ====== ======
______________________________
(1) Reflects an ongoing shift from insurance to administratively managed
types of products.
For information about reinsurance, see "Insurance Services - General --
Reinsurance" at the end of the description of the Property & Casualty Insurance
Services segment.
19
Life Insurance in Force
The following table provides a reconciliation of beginning and ending
group life insurance in force and related statistical data on a statutory basis
for 1991-1993.
(in millions of dollars)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
In force beginning of year $157,259 $186,138 $177,253
------- ------- -------
Additions(1) 12,738 6,181 23,920
Terminations(2) (30,049) (35,060) (15,035)
-------- -------- --------
In force end of year $139,948 $157,259 $186,138
======= ======= =======
The amounts in force at end of
year are before reinsurance
ceded in the following amounts $ 4,669(3) $7,030(3) $5,934
======= ======= ======
At end of year:
Number of policies in force
67,084(4) 48,174(4) 42,593
====== ====== ======
The average size of group life policies in force is not presented due to
the range of coverage and varying number of participants in each group.
______________________________
(1) Includes business written directly by MCEBO plus reinsurance assumed and
is subject to year-to-year fluctuations. Also includes increases and
decreases caused by changes in the composition of groups covered (i.e.,
number of employees and the coverage amounts).
(2) Includes terminations due to death, surrender and lapses. Also includes
the surrender of a single large group life policy, the cancellation of
Servicemen's Employees Group Life Insurance in 1993 and the cancellation
of Federal Employees Group Life Insurance in 1992, both of which were
large assumed reinsurance policies, and the cancellation of several
relatively large life policies.
(3) In 1993, the decrease is due to a large decrease in the amount of
insurance on two policies which were ceded and the cancellation of two
policies. In 1992, the increase is attributable to a large increase in
the amount of insurance on one policy which is ceded.
(4) In 1993 and 1992, the number of policies reflects a large increase in
the number of small group policies.
20
Principal Markets and Methods of Distribution
TIC has been actively engaged in writing group insurance for over 80
years and is a licensed group insurer in all 50 states, the District of
Columbia, Puerto Rico, the Virgin Islands and the Bahamas.
MCEBO's group products and administrative services are sold principally
through independent insurance agents, brokers and consultants, although some
direct marketing occurs in the managed care area. A salaried staff of
approximately 530 field representatives, located in 66 offices throughout the
United States, assist in the sale and servicing of these products.
Premiums charged for group insurance products reflect, in addition to a
profit margin, assumptions as to claims, investment return and expenses.
Except for the smaller group cases, most group policies are individually
experience rated. The pricing of MCEBO's fee-based business incorporates a
review of actual expenses incurred by MCEBO in providing its services, a study
of competitive market rates, and a provision for profit and margin for adverse
expense fluctuation. MCEBO has continued its efforts to improve financial
underwriting to ensure prudent selection of new risks, and is emphasizing
careful management of risks already undertaken.
Insurance Reserves
Group life and group accident and health reserves reflect assumptions
as to withdrawal, mortality, morbidity and interest rates based on TIC's
experience and industry standards. Life and health claim reserves are
monitored to ensure proper reserve levels. Appropriate recognition has
been given to experience rating and reinsurance.
In management's view, life and health reserves make adequate provision
for AIDS claims experience. AIDS-related claims as a percentage of total life
claims have approximated 4% for each of the three years ended December 31,
1993. AIDS claims as a percentage of total health claims paid have
approximated .6% for each of the three years ended December 31, 1993. MCEBO's
products generally are not underwritten individually, and therefore AIDS-
related claims are expected to continue to reflect the AIDS experience in the
employed population.
Competition and Regulation
For a description of competition and regulation relating to the
Company's life insurance businesses, see "Insurance Services - General" at the
end of the description of the Property & Casualty Insurance Services segment.
21
PROPERTY & CASUALTY INSURANCE SERVICES
This segment includes the operations of The Travelers Indemnity Company
and its subsidiary and affiliated property-casualty insurance companies
("Travelers Indemnity") and Gulf Insurance Company and its subsidiaries
("Gulf").
Because the Company's interest in old Travelers was accounted for during
1993 on the equity method, the Company's results of operations for 1993 do not
include the full results of the businesses of Travelers Indemnity. See Notes 1
and 4 of Notes to Consolidated Financial Statements. Accordingly, premium and
other operational information is provided for Travelers Indemnity for
informational purposes only. For additional information with respect to the
combined property and casualty insurance businesses of the Company, see
"Combined Property-Casualty Product Line Information."
TRAVELERS INDEMNITY
- -------------------
Property-Casualty Commercial Lines
Principal Products
Property-Casualty Commercial Lines ("Commercial Lines") is organized to
serve the needs of its customer base by market: National Accounts ("National")
and Field Marketing ("Field"). Each marketing and underwriting area targets
specific segments of the marketplace based upon size of business, nature of
risk and specific customer needs. National serves large organizations, as well
as employee groups, associations and franchises. Field serves small and
medium-sized businesses and individuals with commercial exposures through a
network of independent agents and brokers. Protection is afforded to
businesses and other institutions for the risks of property loss such as fire
and windstorm, financial loss such as business interruption, liability claims
arising from operations and workers' compensation benefits through insurance
products where risk is transferred from the customer to Commercial Lines. Such
coverages include workers' compensation, liability, automobile, property and
multiple-peril.
In addition to more traditional insurance products, Commercial Lines
provides policy, loss and benefit administration through service agreements.
The primary product serviced under these agreements is workers' compensation.
Commercial Lines emphasizes cost containment strategies and customer service in
this market. It has introduced managed care coupled with services such as toll
free telephone numbers for reporting of claims and early intervention in the
care process. Losses under administration, presented in the tables on the next
page, are losses that Commercial Lines services under this type of service
agreement, or under a policy with a deductible. The amounts are based on
expected losses associated with non-risk bearing components of each account, as
determined in the pricing process. Losses under administration do not
represent actual revenues.
22
The following tables set forth written premiums, net of reinsurance, for
Commercial Lines.
Premiums
(in millions)
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
National
Premiums $ 946 $1,011 $1,215
Losses under administration 1,784 1,366 826
------- ----- ---
Total National $ 2,730 $2,377 $2,041
======= ===== =====
Field
Premiums $1,288 $1,284 $1,511
Losses under administration 157 86 30
----- ----- ----
Total Field $ 1,445 $1,370 $1,541
======= ===== =====
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
Workers' compensation $ 933 $ 961 $1,180
Other liability 416 424 544
Automobile 381 375 378
Multiple-peril 239 256 306
Property and other 265 279 318
----- ------ -----
Total premiums $ 2,234 $ 2,295(1) $2,726
======== ======= ======
Losses under administration $ 1,941 $1,452 $856
======== ====== ====
_________________________
(1) Adverse market conditions, coupled with a shift in product mix from
insurance to service business, caused the premium decline in 1992.
Principal Markets and Methods of Distribution
National markets financial programs that involve both insurance (i.e.,
risk transfer) and risk service (i.e., claim settlement, loss control and risk
management). Customers range in size from businesses with sales of
approximately $10 million per year to Fortune 1000 corporations. Each customer
typically generates annual premiums of at least $1 million and generally
selects products under which the ultimate cost of insurance is retrospectively
rated. National customers continue to demand increased levels of risk service
programs where the ultimate cost is based on their own loss experience. Based
on premiums written and estimated loss dollars serviced, National constituted
approximately 60% of Commercial Lines' business in 1993. These large accounts
are usually national in scope and highly complex in their operations. The
majority of this business is written under retrospective rating plans, large
self-insured retentions or some other loss-responsive arrangement. Receivables
from retrospectively rated policies totaled $1.3 billion at December 31, 1993.
Collateral, primarily letters of credit, is routinely required for agreements
that provide for deferred collection of ultimate premiums.
Travelers Indemnity is also a member of, and therefore participates in,
the underwriting operations of insurance and reinsurance pools and
associations, several of which make independent underwriting decisions on
behalf of their members. These pools insure specialized risks such as aircraft
and airline liability, property exposures of large manufacturing plants,
nuclear power plants and transporters of nuclear materials and other specialty
risks. Travelers Indemnity monitors its involuntary market exposure state by
23
state and will continue to modify state specific strategies as prevailing
market conditions warrant.
Field, which made up approximately 40% of Commercial Lines' business in
1993, sells a broad range of commercial property-casualty products to small and
medium-sized customers. Small accounts tend to be more price-sensitive and
make up approximately 25% of such business. The core products for the small
customer are package contracts covering property and general liability
exposures. The product choice for the medium-sized customer is a loss-
sensitive contract covering workers' compensation. Other coverages are sold to
complement the core products. Products are distributed primarily through
independent agents (for small customers) and brokers (for medium-sized
customers) working with Travelers Indemnity's marketing and underwriting
specialists in a field office network of 42 locations. Field continues to
selectively streamline its distribution force as management focuses on selected
markets and producers.
The following table shows the distribution of 1993 premiums for the
states that accounted for the majority of the premium volume.
% of
State Total
----- -----
New York 10.6%
California 8.4
Texas 7.6
Massachusetts 7.2
Florida 5.2
New Jersey 4.5
Illinois 4.0
Pennsylvania 4.0
All others(1) 48.5
------------
Total 100.0%
=====
______________________________
(1) No one of these states accounted for as much as 3.0% of the total.
Pricing levels for property and casualty insurance products are
generally developed based upon estimated losses, the expenses of producing
business and administering claims, and a reasonable allowance for profit. In
addition, most retrospective rating plans contain sufficient flexibility that
the subjective evaluation of a risk by the underwriter can be incorporated in
the pricing. In guaranteed cost products, loss cost inflation has outpaced
marketplace price changes. In addition, current economic conditions have
constrained business growth, decreasing the size of customers' workforces and
consequently reducing the insurable market.
A variety of factors continue to affect the casualty market. Travelers
Indemnity attempts to avoid exposure to high hazard liability risks through
careful underwriting, extensive use of retrospective rating and reliance on
financially secure reinsurers. In addition, the absence of needed rate relief,
rapidly rising medical costs, and the need for legislative reform in workers'
compensation continue to have an adverse effect on profitability, particularly
in business written on a guaranteed cost basis. Travelers Indemnity's response
to these negative issues is to underwrite more state-specific business,
increase its use of deductibles and loss sensitive rating plans as well as
aggressive use of self-insurance programs.
In the property market, the extraordinarily high level of catastrophe
losses in recent periods has led to the contraction of the reinsurance market
and corresponding price increases for reinsurance protection. This contraction
and the steep increase in the price of reinsurance coverage have contributed to
overall higher prices for commercial property policies and may result in the
reduced availability of commercial insurance in some markets.
24
The underwriting cycle has improved slightly over the past year, but is
still trailing loss trends. Certain coastal areas experienced price increases
as a result of the 1992 catastrophic events. For Field, the duration of the
current downturn in the underwriting cycle continues to pressure the pricing of
guaranteed cost products. The small account market, which primarily buys
guaranteed cost products, is extremely price competitive. In this market, loss
cost inflation has outpaced price increases in recent years. The focus is to
retain existing profitable business and obtain new accounts where Travelers
Indemnity can maintain its selective underwriting policy. Travelers Indemnity
continues to adhere to strict guidelines to maintain high quality underwriting,
which could affect future premium levels. National business is less affected
by the underwriting cycle; however, the pricing of large account business
continues to be very competitive. Retention levels surpassed those from the
prior year as a result of Travelers Indemnity's continued delivery of quality
service, primarily claim management focused on loss cost reduction. National
has realized growth in certain states as competitors withdraw and Travelers
Indemnity's position in deductible and fee-for-service products increases.
See "Insurance Services - General -- Reinsurance" below for information
regarding reinsurance.
Hazardous Substances
The Special Liability Group ("SLG") was established in 1986 to deal
exclusively with environmental exposures and other exposures of a cumulative
nature. SLG is essentially a claim operation, segregated from other claim
areas within the Company. Its objective is to fulfill all of the Company's
contractual obligations to its policyholders in a manner that most effectively
preserves corporate assets.
Environmental Claims
As a result of various state and federal regulatory efforts aimed at
environmental remediation (particularly "Superfund"), the insurance industry
has been, and continues to be, involved in extensive litigation involving
policy coverage and liability issues. The Administration's current Superfund
proposal would change the manner in which Superfund clean ups would be
financed, by imposing a premium tax on insurance companies. The revenues from
that tax would be used to fund the clean up of sites on the National Priorities
List. Other proposals to change Superfund clean ups have also been introduced.
One of such proposals includes a provision requiring a minimum level of
participation by claimants. The Company is reviewing the proposals and has
not yet determined the ultimate effect that the Administration's Superfund
proposal, or the other proposals, is likely to have on the Company's financial
statements.
In addition to the regulatory pressures, certain court decisions have
expanded insurance coverage beyond the original intent of the insurer and
insured, frequently involving policies that were issued prior to the mid-1970s.
The results of court decisions affecting the industry's coverage positions
continue to be inconsistent. Accordingly, the ultimate responsibility and
liability for environmental remediation costs remain uncertain.
Travelers Indemnity is part of the industry segment affected by these
issues and continues to receive claims alleging liability exposures arising out
of insureds' alleged disposition of toxic substances. The review of
environmental claims includes an assessment of the probable liability,
available coverage, judicial interpretations and historic value of similar
claims. In addition, the unique facts presented in each claim are evaluated
individually and collectively. Due consideration is given to the many
variables presented in each claim, such as: the nature of the alleged
activities of the insured at each site; the allegations of environmental damage
at each site; the number of sites; the total number of potentially responsible
25
parties at each site; the nature of environmental harm and the corresponding
remedy at a site; the nature of government enforcement activities at each site;
the ownership and general use of each site; the willingness and ability of
other potentially responsible parties to contribute to the cost of the required
remediation at each site; the overall nature of the insurance relationship
between Travelers Indemnity and insured; the identification of other insurers;
the potential coverage available, if any; the number of years of coverage, if
any; and the applicable law in each jurisdiction. Analysis of these and other
factors on a case-by-case basis results in ultimate reserve assessment.
To date, Travelers Indemnity has been successful in its coverage
litigation and continues to reduce its potential exposure through favorable
settlements with certain insureds. These settlement agreements are based on
the variables presented in each piece of coverage litigation. Generally the
settlement dollars paid in disputed coverage claims are a percentage of the
total coverage sought by such insureds. In addition, with respect to many of
the environmental claims there is a "buy-back" of future environmental
liability risks by Travelers Indemnity, together with appropriate indemnities
and hold harmless provisions to protect Travelers Indemnity.
Environmental loss and loss expense reserves of Travelers Indemnity at
December 31, 1993 were $333 million, net of reinsurance of $11 million.
Approximately 12% of the net environmental loss reserve (i.e., approximately
$40 million) is case reserve for resolved claims. Travelers Indemnity does not
post case reserves for environmental claims in which there is a coverage
dispute. The remainder of the reserve is for claims in which coverage is in
dispute and unreported environmental losses.
To date, the reinsurance claims for environmental losses have been
relatively minor due to the allocation of the favorable settlement amounts over
the appropriate policy years.
The industry does not have a standard method of calculating claim
activity for environmental losses. Generally, for environmental claims,
Travelers Indemnity establishes a claim file for each insured on a per site,
per claimant basis. If there is more than one claimant, e.g., a federal and a
state agency, this method will result in two claims being set up for a
policyholder at that one site.
Travelers Indemnity adheres to its method of calculating claim activity
on all environmental-related claims, whether such claims are tendered on
primary, excess or umbrella policies.
As of December 31, 1993, Travelers Indemnity had approximately 8,300
pending environmental-related claims and had resolved over 12,500 such claims
since 1986. Approximately 75% of the pending environmental-related claims are
property damage claims instituted by governmental agencies, seeking remediation
of contaminated property. The balance represents bodily injury claims alleging
injury due to the discharge of insureds' waste or pollutants.
Asbestos Claims
In the area of asbestos claims, the property and casualty insurance
industry has suffered from judicial interpretations that have attempted to
maximize insurance availability from both a coverage and liability standpoint
far beyond the intentions of the contracting parties. These policies generally
were issued prior to the 1980s. Originally the cases involved mainly plant
workers and traditional asbestos manufacturers and distributors. However, in
the mid-1980s, a new group of plaintiffs, whose exposure to asbestos was less
direct and whose injuries were often speculative, began to file lawsuits in
increasing numbers against the traditional defendants as well as peripheral
defendants who had produced products that may have contained small amounts of
encapsulated asbestos. These claims continue to arise and on an individual
basis generally involve smaller companies and small limits of potential
26
coverage. As a result, state and federal court dockets became clogged with
asbestos cases. This backlog has given rise to various efforts, including the
consolidation of federal cases in Philadelphia in 1993, to alleviate the
congestion. More recently, there has emerged a group of nonproduct claims by
plaintiffs, mostly independent labor union workers, mainly against companies,
alleging exposure to asbestos while working at these companies' premises. In
addition, various insurers, including Travelers Indemnity, remain parties to a
widely publicized action brought in Philadelphia regarding potential resolution
of future asbestos bodily injury claims.
The various classes of asbestos defendants, including major product
manufacturers, peripheral and regional product defendants as well as premises
owners, continue to tender asbestos-related claims to the industry. Since each
insured presents different liability and coverage issues, Travelers Indemnity
evaluates those issues on an insured-by-insured basis. The cumulative effect
of these claims and the judicial actions on the Company and its insureds
currently is uncertain.
In addition, the evaluations have not resulted in any meaningful data
from which an average asbestos defense or indemnity payment may be determined.
The varying defense and indemnity payments made by Travelers Indemnity on
behalf of its insureds has also precluded Travelers Indemnity from deriving any
meaningful data by which it can predict whether its defense and indemnity
payments for asbestos claims (on average or in the aggregate) will remain the
same or change in the future.
Asbestos loss and loss expense reserves of Travelers Indemnity at
December 31, 1993 were $323 million, net of reinsurance of $451 million.
Approximately 80% of the net asbestos reserves at December 31, 1993 represented
incurred but not reported losses.
Travelers Indemnity estimates future reinsurance billings for asbestos
claims based on a review of each insured's projected asbestos exposure and
policies, as well as the reinsurance contracts of Travelers Indemnity.
With respect to the asbestos and environmental-related claims, Travelers
Indemnity carries on a continuing review of its overall position, its reserving
techniques and reinsurance recoverable. In each of these areas of exposure
Travelers Indemnity has endeavored to litigate individual cases and settle
claims on favorable terms. Given the inconsistencies of court coverage
decisions, plaintiffs' expanded theories of liability, the risks inherent in
major litigation and other uncertainties, it is not presently possible to
quantify the ultimate exposure represented by these claims. As a result, the
Company expects that future earnings may be adversely affected by environmental
and asbestos claims, although the amounts cannot be reasonably estimated.
However, it is not likely these claims will have a material adverse effect on
the Company's financial condition.
Property-Casualty Personal Lines
Principal Products
The primary coverages in Property-Casualty Personal Lines ("Personal
Lines") are automobile and homeowners insurance sold to individuals, which
account for 97% of the premium volume. Automobile policies provide coverage
for liability to others for both bodily injury and property damage, and for
physical damage to an insured's own vehicle from collision and various other
perils. In addition, many states require policies to provide first-party
personal injury protection, frequently referred to as no-fault coverage.
Homeowners policies are available for dwellings, condominiums, mobile
homes and rental property contents. Protection against losses to dwellings and
contents from a wide variety of perils is included in these policies, as well
as coverage for liability arising from ownership or occupancy.
27
The following table sets forth written premiums, net of reinsurance, for
Personal Lines.
Premiums
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Automobile $1,202 $1,153 $1,129
Homeowners 122 236 282
Other 37 39 46
---- ----- ----
Total premiums $1,361(1) $ 1,428(2) $1,457
======= ======= ======
______________________________
(1) The written premium decline in 1993 reflects the purchase of additional
reinsurance to reduce exposure to catastrophe losses.
(2) The written premium decline in 1992 reflects the Company's efforts to
eliminate unprofitable business.
Principal Markets and Methods of Distribution
Personal Lines writes virtually all types of property and casualty
insurance covering personal risks. Business written is distributed through
independent agencies and brokerage firms, supported by a network of 15 field
marketing offices and two regional service centers. The principal markets for
Personal Lines insurance are in states along the east coast, in the south, and
in the mid-west.
Personal Lines has implemented various programs over the past four years
in order to improve operating and financial results, including the
restructuring of Home Office and Field Office operations, the termination of
1,850 contracts of underperforming agents and the withdrawal from markets where
Personal Lines had a small market share or saw little potential for long-term,
profitable growth. These actions have reduced the overall size of the Personal
Lines business in terms of policy counts and premium volume.
For 1993, Personal Lines business was concentrated in the states shown
in the table below.
State % of Total
----- ----------
New York 24.5%
Massachusetts 14.9
Florida 8.1
Connecticut 7.1
New Jersey 7.0
Pennsylvania 6.1
Virginia 6.0
All others(1) 26.3
------
Total 100.0%
======
______________________________
(1) No one of these states accounted for as much as 3.5% of the total.
In addition, approximately 50% of Personal Lines' homeowners premiums in
1993 was in New York, Florida, Massachusetts and New Jersey.
Pricing for automobile insurance is driven by changes in the relative
frequency of claims and by inflation in the cost of automobile repairs, medical
care and litigation of liability claims. As a result, the profitability of the
business is largely dependent on promptly identifying and rectifying
28
disparities between premium levels and expected claim costs, and obtaining the
indicated rate increases. Premiums charged for physical damage coverages
reflect insured car values and, accordingly, premium levels are somewhat
related to the volume of new car sales.
In addition to the normal risks associated with any multiple-peril
coverage, the profitability and pricing of homeowners insurance is affected by
the incidence of natural disasters, particularly tornadoes and hurricanes.
Most policies offer automatic increases in coverage to reflect growth in
replacement costs and property values.
As noted above, the high level of catastrophe losses in recent periods
has led to the contraction of the reinsurance market and corresponding price
increases for reinsurance protection. These factors have resulted in a reduced
availability of homeowners insurance and have led to higher prices for
homeowners policies in some markets.
Several insurance companies have attempted to limit their writings in
coastal areas of the country as a result of heavy claim losses sustained from
Hurricane Andrew. Travelers Indemnity has stopped writing new homeowners
policies in certain counties in South Florida and in coastal areas of New York
and Connecticut. In addition, Travelers Indemnity has reduced agents'
commissions on homeowners insurance in certain markets within those states
previously identified, strengthened underwriting standards, implemented price
increases, and purchased additional reinsurance to limit its exposure to future
catastrophe losses.
GULF INSURANCE GROUP
- --------------------
During 1993, the Company's property and casualty insurance operations
were conducted principally through Gulf. Gulf operates through regional
offices for traditional lines of property and casualty insurance and specialty
lines of business.
Gulf obtains its regional property and casualty insurance business
primarily through independent insurance agencies that represent it on a
nonexclusive basis. During 1993, approximately 19% of Gulf's regional business
represented personal lines of insurance, approximately 29% represented workers'
compensation insurance and approximately 52% represented other commercial lines
of business, including commercial automobile liability and physical damage, and
commercial multiple peril insurance. At the end of 1993, Gulf discontinued
writing personal lines of insurance and transferred a major part of that
business to Travelers Indemnity, although Gulf does retain some run-off
business. Approximately 73% of Gulf's regional business, as represented by
direct written premiums during 1993, is in Texas, Georgia, Florida and
Missouri.
Product offerings in Gulf's specialty lines include directors' and
officers' liability and various forms of nonprofessional errors and omissions,
fidelity bonds, commercial umbrella coverages and contingent liability
coverages; coverages relating to the entertainment industry; and standard
commercial property and casualty products for specific niche markets. These
speciality lines are produced mainly through commercial insurance brokers and
several wholesale brokers, and underwriting managers for specific industry
programs. In the aggregate these specialty lines constituted approximately
53%, 47% and 42% of Gulf's earned premiums in 1993, 1992 and 1991,
respectively.
Reserves are subject to ongoing review as additional experience and
other data become available. Increases or decreases to reserves for loss and
loss adjustment expenses may be made, which would be reflected in operating
results for the period in which such adjustments, if any, are made.
29
For information regarding reinsurance, see "Insurance Services - General
- -- Reinsurance" below.
Also included in this area is account insurance provided by Gulf to
SBSI, in excess of that provided by SIPC. This insurance provides certain
excess coverage for losses due to forced liquidation of broker-dealers, which
losses would be recoverable by securities customers from SIPC but for SIPC's
$500,000 limitation on liability per customer.
The following table sets forth information concerning the property and
casualty operations of Gulf and its subsidiaries:
(dollars in millions)
Year Ended December 31,
-------------------------------
1993 1992 1991
---- ---- ----
Net premiums written . . $264.9 $250.1 $ 232.2
Premiums earned:
Regional business . . . $121.9 $128.4 $ 128.7
Specialty business . . 135.4 112.1 93.0
------- ------- -------
Total premiums earned $257.3 $240.5 $ 221.7
Total Loss and Expense Reserve $ 244.7 $ 223.1 $216.8
Loss ratio (1) . . . . . 72.1% 70.3% 75.1%
Expense ratio (2) . . . . 23.8% 27.3% 26.8%
Combined ratio (3) . . . 95.9% 97.6% 101.9%
____________________________
(1) Ratio of losses and loss expenses incurred to premiums earned,
determined in accordance with statutory insurance accounting
principles.
(2) Ratio of underwriting expenses incurred to net premiums written,
determined in accordance with statutory insurance accounting principles.
(3) Total of loss ratio and expense ratio.
INSURANCE SERVICES - GENERAL
- ----------------------------
The following table summarizes the financial strength ratings of the
Company's life insurance companies and the claims-paying ratings of its
property-casualty insurance companies. These ratings are not a recommendation
to buy, sell or hold securities, and they may be revised or withdrawn at any
time. Each rating should be evaluated independently of any other rating.
Moody's
Investor's Duff & Standard A.M. Best
Service Inc. Phelps Corp. & Poor's Corp. Company
------------ ------------ ---------------- --------
TIC A2 (good) A+ (high) A+ (strong) A-(excellent)
Primerica Life _ _ AA (excellent) A-(excellent)
Travelers Indemnity
Pool(1) A1 (good) AA-(very high) AA-(excellent) A (excellent)
Gulf Pool(2) _ _ _ A+ (superior)
______________________________
(1) The companies that participate in the pool are The Travelers Indemnity
Company, The Charter Oak Fire Insurance Company, The Phoenix Insurance
Company, The Travelers Indemnity Company of America, The Travelers
Indemnity Company of Illinois and The Travelers Indemnity Company of Rhode
Island.
(2) The Gulf pool includes Gulf Insurance Company and its subsidiaries.
Reinsurance
Reinsurance is subject to collectibility in all cases and to aggregate
loss limits in certain cases. The Company remains primarily liable as the
30
direct insurer on all risks reinsured. Reinsurance recoverables are reported
after allowances for uncollectible amounts. The Company also holds collateral
including escrow funds and letters of credit under certain reinsurance
agreements. Uncollectible reinsurance recoverables have not had, and
management does not expect that any amounts becoming uncollectible in the
future would have, a material adverse effect on the consolidated financial
position of the Company. Evaluation of the value assigned to the reinsurance
recoverable of old Travelers at the date of acquisition is continuing and such
value is subject to adjustment. For additional information concerning
reinsurance for the insurance companies included in the Company's Statement of
Income for 1993, see Note 12 of Notes to Consolidated Financial Statements.
Reinsurers are selected based on their financial position and business
practices. The Company monitors the financial condition of reinsurers on an
ongoing basis, and reviews its reinsurance arrangements periodically.
Life Insurance
Retention on life insurance risks after reinsurance in these companies
varies up to a maximum of $1.5 million per insured, depending on the subsidiary
involved, the type of policy and the age of the insured. In addition, certain
of these companies maintain catastrophic coverage limiting their exposure to
losses on multiple lives arising out of a single occurrence and use reinsurance
arrangements that provide protection against mortality fluctuation on large
blocks of business. Other reinsurance arrangements are made from time to time
to reinsure or assume existing blocks of business.
MCEBO primarily uses two reinsurance agreements with nonaffiliated
insurers to control its exposure to large group insurance losses. The first
such agreement provides protection to MCEBO against losses in excess of $1
million and up to $101 million arising from a single occurrence involving three
or more lives for group life and accidental death and dismemberment, with a
limit of $3 million per life. The second agreement provides MCEBO protection
for death and for waiver of premium disability on group life coverages in
excess of $1 million on a single life up to a limit per life of $5 million.
Another reinsurance agreement provides excess loss coverage for the HMOs
operated by a subsidiary of the Company. This coverage could pay for either
80% or 90% of hospital services provided to a member in excess of $250,000
($10,000 for certain emergency care) at a maximum of $1,750 per day up to a
limit of $1 million per year and $2 million over a member's lifetime. Most of
the other reinsurance agreements are entered into at the direction of MCEBO
customers for the purpose of sharing those customers' business with other
insurance companies.
31
Property and Casualty Insurance
Currently, for third-party liability, including automobile no-fault, the
reinsurance agreements used by Commercial Lines limit its net retention to a
maximum of $5 million per insured, per occurrence. For commercial property
insurance, there is a $5 million retention per insured with 100% coverage for
risks with higher limits. For large accounts, reinsurance arrangements are
typically tiered, or layered, such that only levels of risk acceptable to
Travelers Indemnity are retained. The reinsurance agreements in place for
Personal Lines cover 90% of each loss between $2 million and $6 million for all
third-party liability, including automobile no-fault.
In addition to traditional reinsurance agreements which serve to control
its exposure to loss, Travelers Indemnity acts as a servicing carrier for many
pools and associations, such as workers' compensation pools. These
transactions are reflected as direct business on the company's books and
records. This business is then ceded to the pools and recorded as reinsurance
ceded.
In Gulf's regional business, losses on any single claim are limited by
reinsurance to $500,000 per occurrence and reinsurance arrangements limit
Gulf's maximum loss from any single property catastrophic occurrence to $4.0
million, and it participates for 5% of any excess, up to a maximum excess
participation of $36 million. For its specialty lines coverages, Gulf's
maximum risk is limited through reinsurance to approximately $2.73 million per
policy or, under certain policies, per occurrence.
Catastrophe Reinsurance
For the accumulation of net property losses arising out of one
occurrence, reinsurance coverage averages 60% of total losses between $75
million and $325 million. For the accumulation of net property losses in
Florida only, an additional $100 million of protection in excess of $325
million of loss was purchased, subject to an industry loss trigger of $10
billion. For multiple workers' compensation losses arising from a single
occurrence, reinsurance coverage averages 100% of losses between $10 million
and $160 million and 68% on average for losses caused by property perils
between $140 million and $282 million.
The Company utilizes reinsurance agreements with nonaffiliated
reinsurers to control its exposure to losses resulting from a single
occurrence. For Field-produced commercial property insurance, 30% of all
losses were reinsured in 1993, subject to an occurrence limitation of 200% of
ceded premium or an estimated $240 million. In 1994, the quota share is 25%,
with the same occurrence limit as 1993. For Personal Lines homeowners
insurance, 30% of losses are reinsured up to a maximum recovery of
approximately $96 million.
At December 31, 1993, the Company had $4.3 billion in reinsurance
deducted from loss reserves. Of this amount, $2.6 billion was ceded to pools
and associations, which have the strength of the participating insurance
companies supporting these cessions. The remainder is due from reinsurers.
The two largest reinsurers, Lloyd's of London and General Reinsurance
Corporation, had assumed losses from the Company at December 31, 1993 of $351
million and $119 million, respectively.
Competition and Other Factors Affecting Growth
Life Insurance
The Company's life insurance businesses compete with national, regional
and local insurance companies, as well as with self-insurance programs and
captive insurers. Competition is based upon price, product design and services
32
rendered to producers and policyholders. The insurance industry is extremely
competitive, in both price and services, and no single insurer is dominant.
Insurance companies that operate through salaried personnel and employee agents
may benefit from cost advantages, once they have achieved sufficient size, over
insurers that utilize independent agents and brokers. The PFS sales force is
composed of independent commissioned agents and brokers, and Transport operates
primarily through independent agents. PFS competes in its market segment by
emphasizing the value of term life insurance, and aggressively markets its
products which often replace existing life insurance policies underwritten by
other companies, including cash value whole life policies.
Savings banks also compete directly in the sale of life insurance in
Connecticut, Massachusetts and New York. Competition for the savings dollar
arises from entities such as banks, investment advisers, mutual funds and other
financial institutions.
All segments of the employee benefits business are highly competitive
because of the market structure and the large number of insurance companies and
other entities in the business. These factors prevent any one insurance
company from dominating the market.
There continues to be intense competition, particularly for the group
accident and health coverage where HMOs and third party administrators compete
for the coverage and administration traditionally provided by insurance
companies.
Property and Casualty Insurance
The insurance industry is represented in the commercial lines
marketplace by many insurance companies of varying size. Companies may be
small local firms, large regional firms or large national firms, as well as
self-insurance programs or captive insurers. Market competition, regulated by
state insurance departments, works to set the price charged for insurance
products and the level of service provided. Growth is driven by a company's
ability to provide insurance and services at a price that is reasonable and
acceptable to the customer. In addition, the marketplace is affected by
available capacity of the insurance industry as measured by policyholders'
surplus. Surplus expands and contracts primarily in conjunction with profit
levels generated by the industry, which is generally referred to as the
underwriting cycle. Growth in premium and service business is also measured by
a company's ability to retain existing customers and to attract new customers.
In addition to traditional insurance services, National offers risk
managers of large national accounts programs that provide increased flexibility
in selecting loss prevention and claim services, and premium payment plans.
This business is highly competitive on the basis of quality of service provided
and somewhat sensitive to price competition, and is written primarily by
Travelers Indemnity and several other very large companies. New business levels
improved in 1993, and retentions remained high in both traditional insurance
products and risk service programs.
Overhead reductions and improved efficiency through automation are key
competitive issues for Field business. During the past several years, Field
management has taken significant steps to streamline this operation and
establish efficiencies to make these products more competitive in the
marketplace. In addition, Travelers Indemnity believes that its breadth of
products, highly qualified field staff and applied technology provide for
distinct competitive advantages. The highly competitive business for medium-
sized accounts has historically been written by companies dealing through
agents and brokers, although some direct writing companies are represented in
the field. A competitive advantage resides in local representation and
underwriting authority. With emphasis on regional locations and resident
entrepreneurs marketing the full spectrum of Travelers Indemnity's commercial
33
products, Travelers Indemnity believes it has created significant opportunity
for growth in this area.
The insurance industry is represented in the personal lines marketplace
by many hundreds of insurance companies of varying size. Although national
companies write the majority of the business, local or regional companies are
effective competitors because of their expense structure or because they
specialize in providing coverage to particular risk groups.
Personal automobile and homeowners insurance is marketed mainly through
one of two distribution systems: independent agents or direct writing.
Personal Lines operates through 2,500 independent agents who usually represent
several unrelated property-casualty companies. Direct writing companies
operate either by mail or through exclusive agents or sales representatives.
Due in part to the expense advantage that direct writers typically have
relative to agency companies, the direct writers have been able to gradually
expand their market share. Personal Lines continues to focus primarily on the
independent agency distribution system, recognizing the service and
underwriting advantages the agent can deliver. In addition, Personal Lines has
taken advantage of opportunities presented within certain alternate
distribution mechanisms, including affinity groups and mortgage lenders, and
plans to continue to pursue other opportunities as they arise.
In recent years, reductions in the volume of Personal Lines voluntary
business have caused similar reductions in the involuntary business assigned to
the Company. However, this trend has been somewhat offset by increases in the
size of many of the pools themselves. Intense regulation in the personal
automobile insurance business has caused some insurance companies to withdraw
from or reduce their writings in the personal lines market, which has forced
more individuals to obtain insurance in the involuntary market.
Regulation
The Company's insurance subsidiaries are subject to considerable
regulation and supervision by insurance departments or other authorities in
each state or other jurisdiction in which they transact business. The laws of
the various jurisdictions establish supervisory and regulatory agencies with
broad administrative powers. The purpose of such regulation and supervision is
primarily to provide safeguards for policyholders, rather than to protect the
interests of the insurers' stockholders. Typically, state regulation extends
to such matters as licensing companies, regulating the type, amount and quality
of permitted investments, licensing agents, regulating aspects of a company's
relationship with its agents, requiring triennial financial examinations,
market conduct surveys and the filing of reports on financial condition,
recording complaints, restricting expenses, commissions and new business
issued, restricting use of some underwriting criteria, regulating rates, forms
and advertising, specifying what might constitute unfair practices, fixing
maximum interest rates on policy loans and establishing minimum reserve
requirements and minimum policy surrender values. Such powers also extend to
premium rate regulation, which varies from open competition to limited review
upon implementation, to requirements for prior approval for rate changes.
State regulation may also cover regulating capital and surplus and actuarial
reserve maintenance, setting solvency standards, mandating loss ratios for
certain kinds of insurance, limiting the grounds for cancellation or nonrenewal
of policies and regulating solicitation and replacement practices. State laws
also regulate transactions and dividends between an insurance company and its
parent or affiliates, and require prior approval or notification of any change
in control of an insurance subsidiary. In addition, under insurance holding
company legislation, most states regulate affiliated groups with respect to
intercorporate transfers of assets, service arrangements and dividend payments
from insurance subsidiaries.
The insurance industry generally is exempt from federal antitrust laws
because of the application of the McCarran-Ferguson Act. In recent years,
34
legislation has been introduced to modify or repeal the McCarran-Ferguson Act.
The effect of any such modification or repeal cannot currently be determined.
Virtually all states mandate participation in insurance guaranty
associations and/or insolvency funds, which assess insurance companies in order
to fund claims of policyholders of insolvent insurance companies. Under these
arrangements, insurers are assessed their proportionate share (based on
premiums written for the relevant lines of insurance in that state each year)
of the estimated loss and loss expense of insolvent insurers. Similarly, as a
condition to writing a line of property and casualty business, many states
mandate participation in "fair plans" and/or "assigned risk pools" that
underwrite insurance for individuals and businesses that are otherwise unable
to obtain insurance. Participation is based on the amount of premiums written
in past years by the participating company in an individual state for the
classes of insurance involved. These plans or pools traditionally have been
unprofitable, although the effect of their performance has been partially
mitigated in certain lines of insurance by the states' allowance of increases
in rates for business voluntarily written by plan or pool participants in such
states. For workers' compensation plans or pools the effect may be further
mitigated by the method of participation selected by insurance companies.
In addition to state insurance laws, the Company's insurance
subsidiaries are also subject to general business and corporation laws, state
securities laws, consumer protection laws, fair credit reporting acts and other
laws.
On the federal level, most employers purchasing group life and accident
and health insurance from the Company are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and its enforcement
provisions, as administered by the U.S. Department of Labor. ERISA
restrictions on "prohibited transactions" and its fiduciary responsibilities
increase the complexity of providing insurance and other services to employer
sponsored life and health benefit plans. However, in recent years there have
been several significant court decisions in which ERISA has preempted state
law. These decisions have allowed the Company to provide its products in a
more efficient and uniform way throughout the United States. Federal health
care reform may, however, change the impact of ERISA on the group insurance
business.
Certain variable life insurance and individual variable annuities and
their related separate accounts are subject to regulation by the Securities and
Exchange Commission. In addition, the Company's HMOs are subject to state
regulation which is similar to the regulation of insurers. Five of the HMOs
are federally qualified and accordingly are also subject to federal
requirements.
Health care reform is at the forefront of domestic policy issues at the
federal level and is a leading issue in many state legislatures in 1994.
Various proposals, including that of the Clinton Administration, have been
introduced. A great deal of uncertainty remains regarding what the final
health reform package will contain or what effect it will have on the Company's
managed care programs. These proposals may also affect workers' compensation
and automobile insurance. Furthermore, a number of states have passed, or are
considering, some form of health care reform. Such state regulation primarily
impacts fully insured small employer plans. The overall impact of federal or
state legislation on the Company's businesses is impossible to predict at this
time. The Company continues to monitor political and legislative activity that
addresses the cost, availability and quality of health care.
Recently, a United States Supreme Court decision has changed
the interpretation of the impact of ERISA on the nonguaranteed
benefit portion of certain pension contracts. Industry efforts
to obtain regulatory or legislative relief from the effects of
this decision are ongoing. TIC is conducting a review of its
35
pension contracts, but the potential impact of this case on the Company is
uncertain at this time.
In October 1992, the Department of Labor issued final regulations under
Section 404(c) of ERISA. These regulations apply to ERISA-covered defined
contribution plans that allow participants to control the investment of their
account balances. In general, under certain conditions, Section 404(c)
provides that a plan fiduciary is not liable for investment losses directly
resulting from investment decisions made by a plan participant. For most
plans, the rules will begin to apply to transactions occurring in the 1994
plan year for plans administered on a calendar year basis.
Many jurisdictions require prior regulatory approval of rate and rating
plan changes and some impose restrictions on the cancellation or nonrenewal of
risks and the termination of agency contracts, or have regulations that
preclude immediate withdrawal from certain lines of business. Certain lines of
business, such as commercial automobile and workers' compensation, experience
rate inadequacies in many jurisdictions. Automobile insurance is also subject
to varying regulatory requirements as to mandated coverages and availability,
such as no-fault benefits, assigned risk pools, reinsurance facilities and
joint underwriting associations. The added expense associated with involuntary
pools in this and other areas has adversely affected profitability.
See "Property-Casualty Commercial Lines -- Hazardous Substances" on
pages 29 through 31 for a discussion of the effect on the Company of various
state and federal regulatory efforts aimed at environmental remediation,
including proposed amendments to the federal Superfund statute.
In December 1992, the Florida legislature created the Residential
Property and Casualty Joint Underwriting Association ("RPCJUA") to provide
residential property and casualty insurance to individuals who cannot obtain
coverage in the voluntary market. Property-casualty insurance companies in
Florida, including Travelers Indemnity, will be required to share the risk in
the RPCJUA.
In November 1993, the Florida legislature created a Florida Hurricane
Catastrophe Fund to provide reimbursement to insurers for a portion of their
future catastrophic hurricane losses. This Hurricane Catastrophe Fund will be
funded in part by assessments on insurance companies.
Recent Developments in Insurance Regulations
The National Association of Insurance Commissioners (the "NAIC") adopted
risk-based capital ("RBC") requirements for life insurance companies in 1992,
effective with reporting for 1993, and for property-casualty companies in
December 1993, effective with reporting for 1994. The RBC requirements are to
be used as early warning tools by the NAIC and states to identify companies
that merit further regulatory action.
For these purposes, 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 life formula calculates baseline life risk-based capital ("LRBC") as
a mathematical combination of amounts for the following four categories 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).
Fifty percent of the baseline LRBC calculation is defined as Authorized
Control Level RBC. The insurer's ratio of adjusted capital to Authorized
36
Control Level RBC (the "RBC ratio") can then be calculated from data contained
in the annual statement. Adjusted capital is defined as the sum of statutory
capital, statutory surplus, asset valuation reserve, voluntary investment
reserves and one-half the policyholder dividend liability.
The property-casualty formula calculates baseline property-casualty
risk-based capital ("PCRBC") as a mathematical combination of amounts for the
following categories of risk: asset risk, credit risk (i.e., the risk of
nonpayment of amounts due under reinsurance ceded and other miscellaneous
receivables), off-balance-sheet risk (i.e., the risk of loss due to adverse
experience from non-controlled assets, guarantees for affiliates, contingent
liabilities, and reserve and premium growth) and underwriting risk (i.e., the
risk associated with loss reserves and written premiums).
Forty percent of the baseline PCRBC calculation is defined as Authorized
Control Level RBC for 1994 (this percentage will increase to fifty percent by
1996). The PCRBC ratio is then calculated from data contained in the annual
statement. Property-casualty companies will implement this formula with 1994
annual statement filings.
Within certain ratio ranges, regulators have increasing authority to
take action as the RBC ratio decreases. There are four levels of regulatory
action. The first of these levels is the "company action level." The RBC
ratio for this level is less than 200% but greater than 150%. Insurers within
this level must submit a comprehensive plan (an "RBC plan") to the
commissioner. The next level is the "regulatory action level." The RBC ratio
for this level is less than 150% but greater than 100%. An insurer within this
level must submit an RBC plan, is subject to an examination of assets,
liabilities and operations by the commissioner, and is subject to provisions of
any corrective order subsequently issued by the commissioner. The third level
is the "authorized control level." The RBC ratio for this level is less than
100% but greater than 70%. At this level, the commissioner takes action as
described under "regulatory action level" and may cause the insurer to be
placed under regulatory control if such action is deemed to be in the best
interests of policyholders. The fourth level is the "mandatory control level."
The RBC ratio for this level is less than 70%, and the commissioner takes
actions necessary to place the insurer under regulatory control.
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 formulas to rate or to rank such
companies. At December 31, 1993, all of the Company's life companies had
adjusted capital in excess of amounts requiring any regulatory action.
As part of the process of accreditation by the NAIC, state insurance
regulators have been recommending the adoption of new statutory standards for
the payment of dividends by insurance companies without prior approval. As
part of this effort, the Connecticut General Assembly passed legislation to
require prior approval by the Connecticut Insurance Commissioner for any
dividend distributions during a twelve month period that are in excess of the
greater of (i) ten percent of an insurer's surplus limited by unassigned funds-
surplus, or (ii) net gain from operations (for life companies) or net income
(for non-life companies), in each case measured as of the preceding December
31.
Under the legislation, statutory surplus would not be available in 1994
for dividends from The Travelers Insurance Group Inc. (the parent of TIC and
Travelers Indemnity) to The Travelers Inc. without prior approval.
The NAIC IRIS ratios, discussed under "Combined Property-Casualty
Product Line Information" on page 55, are part of the NAIC solvency
surveillance process. They consist of approximately 12 ratios with defined
acceptable ranges. They are used as an initial screening process for
identifying companies that may be in need of special attention. Companies that
37
have several ratios that fall outside of the acceptable range are selected for
closer review by the NAIC examiner team. If the examiner determines that more
attention may be warranted, one of several priority designations is assigned,
and the insurance department of the state of domicile is then responsible for
follow-up action.
Occasionally one or more of the Company's subsidiaries has been
"flagged" by the IRIS ratios. In all such instances, the regulators have been
satisfied upon follow up that there is no solvency problem. It is possible
that similar occasions could occur this year, and management believes that the
resulting resolution would be the same.
Reserving Methods
Property-casualty loss reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses that have been
reported but not yet settled, reopened claims, and claims which have been
incurred but not reported. Property-casualty personal and commercial lines
actuaries use a number of generally accepted actuarial and statistical
techniques to estimate ultimate liabilities. These techniques generally rely
upon analyses of historical development patterns of various types of accident
year data. Typically, these techniques utilize review of paid and incurred
claim data and paid and incurred expense data, closed claim data, claim counts,
claim costs and various types of pricing data. Subsequent to reviewing a
variety of tests, management selects what it believes is the best estimate of
ultimate loss and loss adjustment expense for each line of business and market
segment. These estimates are refined over time as experience develops and
further claims are reported and settled. Any required adjustments to reserves
are reflected in the results of the periods in which such adjustments are made.
Recognition is given to recoveries for reinsurance, salvage and subrogation.
The ultimate incurred losses and the corresponding reserve levels
carried for all accident years have an implicit provision for inflation and
other factors that result in differences in levels of claim cost by accident
year. Ultimate claim values are based in part on analysis of historical trends
in average closed claim costs and open claim costs. Average closed claim costs
reflect actual historic inflation trends while reported losses reflect historic
trends based upon both paid losses and adjusters' estimates. There is no
precise method for evaluating the impact of inflation since claim settlements
are also affected by many other factors including judicial decisions, the
social environment and claims handling procedures. Frequent reviews are
therefore performed for the major property-casualty insurance coverages,
particularly those related to third party claims. Such third party claims
often involve lengthy litigation or are otherwise settled only after a
considerable passage of time and are particularly subject to the effects of
judicial trends and changes in the social environment.
Investments
This section discusses the investment portfolios of the businesses
described in the Company's Insurance Services segments.
At December 31, 1993, the investment holdings of the companies included
in the Insurance Services segments were composed primarily of fixed maturities.
At December 31, 1993, approximately 95.5% in total dollar amount of the fixed
maturities portfolios of such companies had investment grade ratings. The
remaining investments are principally mortgage loans and real estate, discussed
below, policy loans and other investments. For additional information
regarding these investment portfolios, see Note 5 of Notes to Consolidated
Financial Statements, Schedule I to this Form 10-K and the discussion of Asset
Quality in the Insurance Services Segment discussion in Item 7 of this Form 10-
K, "Management's Discussion and Analysis of Financial Condition and Results of
Operations." State insurance laws prescribe the types, quality and diversity
of permissible investments for insurance companies.
38
Consistent with the nature of their contract obligations, the invested
assets attributable to group insurance and individual life, health and
financial services are primarily long-term fixed income investments such as
corporate debt securities, mortgage and asset-backed securities, and mortgage
loans. A small portion of the invested assets related to these operations is
in preferred and common stocks and real estate equity investments. The Company
did not originate a significant amount of new real estate business in 1993 and
does not plan to do so in 1994. The property-casualty fixed maturities
portfolios (principally bonds) are shifted from time to time to respond to the
changing economic outlook, insurance underwriting results and the resultant
changes in the federal income tax position of the Company and its subsidiaries.
Cash available for investment is principally derived from operating
activities and investment income. In addition, cash becomes available for
investment from prepayment, maturity and sale of investments. The
underperforming mortgage loan and real estate portfolios may continue to have
an adverse impact on cash available for investment. See "Mortgage Loans and
Real Estate" below. Different investment policies have been developed for
various lines of business based on the product requirements, the type and term
of the liabilities associated with these products, regulatory requirements and
tax treatment of the businesses in which each company is engaged.
Mortgage Loans and Real Estate
Primarily all of the mortgage loan and real estate portfolios are held
for sale and are carried at their fair values. At December 31, 1993, the
mortgage loan and real estate portfolios of the businesses included in the
Company's Insurance Services segments consisted of approximately $7.4 billion
and $1.0 billion, respectively. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," for additional
information.
The underperforming mortgage loan and real estate portfolios have had a
negative impact on investment income. While the level of underperforming
assets will continue to have an adverse effect on investment income, this is
expected to be mitigated by the implementation of the Company's accelerated
liquidation strategy for mortgage loans and foreclosed real estate. As a
result of the continued problems in the real estate markets, management
anticipates that a considerable amount of maturing commercial mortgage loans
will be refinanced, restructured, sold or foreclosed. Consequently, the
adverse impact on investment income is expected to continue.
For information regarding the principal balance of mortgage loans at
December 31, 1993 by contractual maturity, see Note 5 of Notes to Consolidated
Financial Statements. Actual maturities will differ from contractual
maturities because borrowers may have the right to prepay loans with or without
prepayment premiums. Unscheduled payments and sales of mortgage loans were
$1.0 billion in 1993. The majority of these mortgages are seven-year term
loans.
Restructured loans are defined as loans the terms of which have been
changed from the original contract generally by lowering the pay rate of
interest in the early years after modification. Loans which have pay rates of
interest after modification that are equal to or above market rates are not
included in the underperforming mortgage loan inventory. At December 31, 1993,
approximately $1.3 billion, or 17%, of the mortgage loan portfolio was
classified as underperforming.
In addition to loans classified as underperforming, the Company
identifies certain loans that are in some form of default (generally having
missed at least one payment). It is possible that some of these loans may
become underperforming within the next year. Interest income on these loans is
recorded only upon receipt of actual payment. The carrying value of loans in
that category at December 31, 1993 totaled $66 million.
39
Based on the Company's investment review process, certain loans that are
currently performing have been identified as having characteristics that cause
management to have serious doubts as to the ability of those borrowers to
continue to meet contractual mortgage loan terms which could result in
impairments to loan carrying value. The Company estimates that up to $306
million of loans that are currently performing have characteristics suggesting
a high likelihood that they will become underperforming. Because this estimate
is based on a series of judgments and observations, actual performance will
likely vary due to the dynamics of the factors influencing real estate.
Real estate management evaluates the portfolio on an ongoing basis,
assessing the probabilities of loss with respect to a comprehensive series of
future projections, including a host of variables relating to the borrower, the
property, the term of the loan, the tenant composition, rental rates, other
supply and demand factors, and overall economic conditions.
The mortgage loan portfolio and real estate assets included in the
investment portfolios as of December 31, 1993, are summarized by property type
as set forth in the table below. For information summarizing the geographic
distribution of the mortgage loan portfolio and real estate assets, see Note 5
of Notes to Consolidated Financial Statements.
(dollars in millions)
Property Type: Mortgage Loans Real Estate
- -------------- -------------- -----------
Office $2,875 $ 641
Apartment 1,711 66
Retail 938 137
Hotel 782 77
Industrial 267 69
Other 116 41
---- ----
Total commercial 6,689 1,031
Agricultural 673 18
Residential 3 -
---- ----
Total $7,365 $1,049
===== =====
At December 31, 1993, the Company's investment portfolios had second
mortgage loans on commercial properties with purchase accounting value of
approximately $82 million. Third-party first mortgage loans on these
properties are estimated to be $65 million. The Company's subordinated
position in these loans increases risk for which the Company is compensated
through the interest rate charged for the second mortgage loan.
COMBINED PROPERTY-CASUALTY PRODUCT LINE INFORMATION
The following discussion of the Company's combined property-casualty
lines displays information for the insurance operations of Property-Casualty
Commercial Lines and Property-Casualty Personal Lines on a combined basis,
consolidating Gulf and Travelers Indemnity. The operating results of Travelers
Indemnity prior to the December 31, 1993 Merger are not included in the
Company's Consolidated Financial Statements.
40
Combined Property-Casualty Reserves
Property-casualty loss reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses for claims
that have been reported but not yet settled, reopened claims and claims which
have been incurred but not reported. The process of estimating this liability
is an imprecise science subject to a number of variables. These variables are
impacted by both internal and external events such as changes in claim handling
procedures, economic inflation, judicial trends and legislative changes. Many
of these items are not directly quantifiable, particularly on a prospective
basis. Additionally, there may be significant reporting lags between the
occurrence of the insured event and its actual reporting to the insurer. At
December 31, 1993 and 1992, $5.5 billion and $5.4 billion, respectively, of
unpaid claim and claim adjustment expenses were provided for claims which had
not yet been reported and for future development on reported claims. Reserve
estimates are continually refined in a regular ongoing process as experience
develops and further claims are reported and settled. Adjustments to reserves
are reflected in the results of the periods in which such adjustments are made.
Estimates for reported claims are established based on judgments by the
claim department on a case by case basis. These estimates are reviewed on a
regular basis and revised as additional facts become known.
Estimates for unreported claims, future reopened claims and development
on reported claims are principally derived from actuarial analyses of
historical patterns of claim development by accident year for each line of
business and market segment. Similarly, estimates of unpaid claim adjustment
expenses are also principally derived from actuarial analyses of historical
development patterns of the relationship of claim adjustment expenses to losses
by accident year for each line of business and market segment.
Refer to "Insurance Services - General -- Reserving Methods" at page 44
for a more complete discussion of reserving methodology.
The table on the next page provides a reconciliation of beginning and
ending reserve liability balances for 1993, 1992 and 1991. The table on page 51
shows the development of the estimated reserves for the 10 years prior to 1993.
Reconciliation of Reserves for Losses and Loss Adjustment Expenses (LAE)
(Excluding Accident and Health Business)
(in millions)
1993 1992 1991
---- ---- ----
Reserves for losses and LAE at beginning of year $ 9,872 $9,406 $9,239
------- ----- -----
Plus:
Provision for losses and LAE for claims arising in the
current year 3,132 3,875 3,653
Increase in estimated losses and LAE for claims arising
in prior years 142 39 119
----- ----- -----
Total incurred losses and LAE 3,274 3,914 3,772
----- ----- -----
Less:
Losses and LAE payments for claims arising in:
The current year 975 1,312 1,187
Prior years 2,206 2,136 2,418
----- ----- -----
Total payments 3,181 3,448 3,605
----- ----- -----
Reserves for losses and LAE at end of year $ 9,965 $ 9,872 $9,406
======= ======= =====
The increases in estimated losses and LAE for claims arising in prior
years in all three calendar years pertain primarily to reserve increases for
insurance coverages related to asbestos and environmental claims. Reserves for
these coverages were increased on a pretax basis by $420 million in 1993 and by
$129 million and $124 million in 1992 and 1991, respectively. Most of these
claims were incurred in years prior to 1985. In 1993, Commercial Lines added
41
$325 million to its reserves for asbestos and environmental liabilities, as
well as for blood-related claims for policies issued in the early 1980s. This
addition to reserves resulted in an after-tax charge of $211 million.
Several recent developments contributed to the decision to add to reserves.
The insurance industry is witnessing a growth in claims brought by outside
workers who allege exposure to asbestos while working on site at various
companies. There has been an increase in the incidence of this type of claim
during 1993. Commercial Lines also has experienced a growth in environmental
claims primarily from smaller companies with lower coverage limits and has been
named as a defendant in coverage cases brought by other insurers against their
policyholders and the policyholders' other carriers. Accrual of the interest
for workers' compensation long-term disability claims which are discounted
accounted for $25 million of pretax reserve increases in 1993, and $24 million
in each of 1992 and 1991. There was favorable reserve development on other
lines of business which acts to offset a significant portion of the increases
to reserves cited above. During 1993, Commercial Lines experienced favorable
development in the workers' compensation, other liability and commerical
automobile product lines for National business for the post-1985 accident
years. During 1992 Travelers Indemnity experienced favorable development in
Personal Lines and certain sublines of other liability commercial exposure.
The differences between the reserves for losses and LAE shown in the
tables above and on page 51, all of which are prepared in accordance with
generally accepted accounting principles ("GAAP"), and those reported in the
annual statements filed with state insurance departments, which are prepared in
accordance with statutory accounting practices ("SAP"), were $32 million, $38
million and $100 million for the years 1993, 1992 and 1991, respectively.
Those differences are primarily attributable to estimated salvage and
subrogation recoveries for automobile physical damage and property damage
liability, which are recorded on an accrual basis for GAAP and on a cash basis
for SAP in 1991, and a certain portion of the discounting of workers'
compensation reserves impacting all three years.
See "Property & Casualty Insurance Services -- Property-Casualty
Commercial Lines" for a discussion of environmental and asbestos claims and the
Special Liability Group that deals with such claims.
Discounting
The liability for losses for certain long-term disability payments under
workers' compensation insurance has been discounted by $610 million at
December 31, 1993 using a maximum interest rate of 5%. The corresponding
amounts of discount for calendar years 1992 and 1991 were $623 million and $620
million, respectively.
42
Analysis of Combined Property-Casualty Loss and Loss Adjustment
Expense Development (excluding accident and health business)
(in millions)
Year Ended December 31,
-----------------------------------------------------
-
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Reserves for Loss and LAE
Originally Estimated
$4,455 $4,817 $5,475 $6,658 $7,644 $8,116 $8,947 $9,239 $9,406 $9,872 $9,965
Cumulative Amount Paid as of
- ----------------------------
One year later 1,573 1,655 1,753 1,839 2,376 2,146 2,430 2,418 2,136 2,206
Two years later 2,435 2,559 2,748 3,261 3,631 3,632 3,992 3,932 3,584
Three years later 2,990 3,138 3,737 4,075 4,648 4,706 5,095 4,993
Four years later 3,350 3,795 4,258 4,760 5,402 5,487 5,878
Five years later 3,823 4,119 4,732 5,303 5,978 6,080
Six years later 4,047 4,425 5,130 5,735 6,443
Seven years later 4,265 4,717 5,459 6,109
Eight years later 4,495 4,951 5,784
Nine years later 4,686 5,128
Ten years later 4,812
Reserves Reestimated as of
- --------------------------
One year later 4,717 4,937 5,863 6,799 7,858 8,292 9,099 9,358 9,446 10,014
Two years later 4,767 5,261 6,135 7,078 8,051 8,497 9,220 9,470 9,756
Three years later 5,006 5,460 6,376 7,292 8,254 8,698 9,408 9,898
Four years later 5,159 5,656 6,665 7,569 8,497 8,912 9,954
Five years later 5,317 5,856 6,922 7,765 8,746 9,489
Six years later 5,483 6,097 7,136 8,021 9,334
Seven years later 5,676 6,266 7,368 8,637
Eight years later 5,781 6,464 7,951
Nine years later 5,948 6,988
Ten years later 6,393
Cumulative Deficiency
1,938 2,171 2,476 1,979 1,690 1,373 1,007 659 350 142
Gross liability - end of year
$13,513 $13,650
Reinsurance recoverable 3,641 3,685
----- -----
Net liability - end of year
$ 9,872 $9,965
====== =====
Gross reestimated liability - latest $13,962
Reestimated recoverable - latest 3,948
-----
Net reestimated liability - latest $10,014
======
Gross cumulative deficiency
$ 449
======
The data in the above table is presented in accordance with reporting
requirements of the Securities and Exchange Commission. Care must be taken to
avoid misinterpretation by those unfamiliar with such information or familiar
with other data commonly reported by the insurance industry. The above data is
not "accident year" data, but rather a display of 1983-1993 year-end reserves
and the subsequent changes in those reserves.
43
For instance, the "cumulative deficiency" shown above for each year
represents the aggregate amount by which original estimates of reserves as of
that year end have changed in subsequent years through charges to income.
Accordingly, the cumulative deficiency for each year relates only to reserves
at that year end and such amounts are not additive. Expressed another way, if
the original reserves at the end of 1983 included $4 million for a loss which
is finally settled in 1993 for $5 million, the $1 million deficiency (excess of
actual settlement of $5 million over original estimate of $4 million) would be
included in the cumulative deficiencies in each of the years 1983-1992 shown
above.
A substantial portion of the cumulative deficiencies in each of the
years 1983-1992 arises from claims on policies written prior to the mid-1970s
involving liability exposures such as asbestos. In the post-1984 period, the
Company has developed more stringent underwriting standards and significantly
contracted or terminated the writing of such risks.
General conditions and trends that have affected the development of
these liabilities in the past will not necessarily recur in the future;
however, deficiencies will occur in the future due to the discount on the
workers compensation reserves, therefore, it would be difficult to develop
meaningful extrapolation of estimated future redundancies or deficiencies in
loss reserves from the data in the table on page 51.
A significant portion of National business is underwritten with
retrospectively rated insurance policies in which the ultimate cost of
insurance for a given year is dependent on the loss experience of the insured.
This analysis does not reflect amounts recoverable from insureds in the
retrospective rating process. Such recoverables tend to significantly mitigate
the impact of the cumulative deficiencies shown above. Retrospective rating is
particularly significant for National business for the workers' compensation,
general liability and commercial automobile liability coverages. This
mechanism affords the Company a significant measure of financial protection
against adverse development on a large block ($3.2 billion) of net reserves.
Combined Ratios
Combined ratios are a measure of property-casualty underwriting results.
The combined ratio is the sum of (i) the ratio of losses, loss adjustment
expenses and policyholder dividends to earned premiums, and (ii) the ratio of
other underwriting expenses to written premiums. When the combined ratio is
under 100%, underwriting results are generally profitable; when this ratio is
over 100%, underwriting results are generally unprofitable. Underwriting
results do not include investment income which makes a significant contribution
to overall property-casualty profitability. In preparing the following tables,
anticipated salvage and subrogation were deducted from losses.
44
The following table and related discussions present information
regarding the combined ratios of Travelers Indemnity and other property-
casualty insurance operations of old Travelers and its subsidiaries. For
information regarding the combined ratios of Gulf, see "Property & Casualty
Insurance Services - Gulf Insurance Group."
Travelers Indemnity
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Personal Lines
Automobile 101.6% 104.1% 113.5%
Homeowners 131.9 246.6 108.2
Total Personal Lines
Losses and loss adjustment expenses 71.2 98.1 79.4
Other underwriting expenses 33.2 33.7 32.7
---- ---- ----
Combined Personal Lines 104.4 131.8 112.1
Commercial Lines
Workers' compensation 103.0 105.6 97.5
Multiple-peril 127.9 141.1 121.0
Automobile 106.0 116.0 118.6
Other liability 254.3 153.6 144.1
Property and other 95.2 144.1 110.5
Total Commercial Lines
Losses and loss adjustment expenses 101.8 96.6 88.1
Other underwriting expenses 27.2 27.7 23.8
----- ----- -----
Combined before policyholder dividends 129.0 124.3 111.9
Combined Commercial Lines 130.4 124.6 112.7
Total Personal and Commercial Lines
Losses and loss adjustment expenses 89.5 97.2 85.0
Other underwriting expenses 29.5 30.0 26.9
----- ----- -----
Combined before policyholder dividends 119.0 127.2 111.9
Combined 119.8% 127.4% 112.4%
Personal Lines underwriting profitability is driven principally by
results in the automobile line and is influenced by factors such as inflation
in medical, legal and auto repair costs, accident frequencies and regulatory
actions. Results have improved in the automobile line since 1990 due in part
to programs implemented by Travelers Indemnity to be more selective in
marketing and underwriting. In 1993, Personal Lines purchased additional
amounts of reinsurance to reduce its exposure to future catastrophe losses.
Homeowners results are heavily influenced by the cost of reinsurance, as well
as the incidence of natural catastrophes. Personal Lines' results in 1992 were
adversely affected by Hurricane Andrew, which added 22.3 percentage points to
the total Personal Lines combined ratio. Excluding Hurricane Andrew, the total
Personal Lines combined ratio in 1992 would have been 109.5.
Commercial Lines underwriting profitability has historically been
cyclical, influenced by factors such as inflation levels, changes in the
interpretation of the doctrines of tort liability, unemployment trends,
legislative actions affecting workers' compensation benefit levels, crime
rates, natural catastrophes and general business conditions. The softening of
market prices which began in 1988 has continued. The combined ratio has been,
and will continue to be, affected by the shift to fee-for-service products,
which reduces premiums and losses while expenses remain in insurance results.
During 1993, asbestos and environmental claims continued to negatively
impact other liability lines. The combined impact from these claims added 20.3
percentage points to the total 1993 Commercial Lines combined ratio. Asbestos
claims incurred totaled $229 million in 1993, $61 million in 1992 and $49
million in 1991. Environmental claims incurred were $190 million in 1993, $67
million in 1992 and $73 million in 1991. In the multiple-peril and property
lines, the 1992 combined ratios were severely impacted by Hurricane Andrew and
45
other natural catastrophes. Hurricane Andrew alone added 4.9 percentage points
to the total Commercial Lines combined ratio.
Travelers Indemnity has heavily invested in workers' compensation cost
containment initiatives since 1989. Investments in early intervention, managed
care, systems technology and employer education have allowed Travelers
Indemnity to consistently outperform the industry's workers' compensation
combined ratio results. In addition, Travelers Indemnity's overall strategy of
restricting growth in states with rate inadequacy, its strong shift towards
large self-insured and loss responsive products, and its growth in service of
assigned risk pools have all contributed to favorable combined ratio trends.
The following table and related discussion sets forth information
regarding the premium to surplus ratios of Travelers Indemnity and other
property-casualty insurance operations of old Travelers and its subsidiaries.
Travelers Indemnity
Schedule of Premiums to Surplus Ratios (Statutory Basis)
(Including Accident and Health Business)
(in millions)
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
A. Net written premiums $3,637 $3,855 $4,327
B. Capital and surplus 2,294 1,665 1,843
Ratio of premiums to capital and surplus
(A divided by B) 1.59 2.32 2.35
The ratio of net written premiums to capital and surplus is a key
financial indicator of the overall strength of a property-casualty insurance
company. The usual range for this ratio, which is used as a benchmark by the
Insurance Regulatory Information System ("IRIS") of the National Association of
Insurance Commissioners, is 3.00 to 1 or less. The ratio improved in 1993 due
to a modest decline in premium volume from the continuing trend toward self-
insured service business in Commercial Lines, and due to a significant increase
in capital and surplus, largely resulting from the assumption of old Travelers
public debt by the Company. Although 1992 capital and surplus was adversely
impacted by Hurricane Andrew, further reductions in premiums caused by the
shift to self-insured service business kept the ratio essentially level for
1992.
CORPORATE AND OTHER OPERATIONS
In addition to its four business segments, the Company's Corporate and
Other segment consists of unallocated expenses and earnings primarily related
to interest, corporate administration, and certain corporate investments. This
segment has also included the Company's 27% equity interest in old Travelers
(1993), lines of business retained from the sale of Voyager Group, Inc. and its
affiliates ("Voyager") (1993 and 1992), and the Company's interest in Fingerhut
Companies, Inc. ("Fingerhut") (1992 and 1991), a direct marketing business.
Between 1990 and 1992, the Company completed several public offerings
that reduced its formerly 100% ownership interest in Fingerhut to approximately
42% by the end of 1991 and 2% by the end of 1992. The Company's remaining
interest in Fingerhut was sold in January 1993. Through December 31, 1991,
Fingerhut's results of operations were included with those of the Company on a
consolidated basis. For additional information regarding the inclusion of
Fingerhut in the Company's consolidated operating results, see Note 2 of Notes
to Consolidated Financial Statements.
46
In May 1993, the stock of Voyager was sold. Voyager sold credit
insurance on installment loans through independent consumer finance companies
and furniture and appliance retailers. The Company retained a portion of
Voyager's run-off business, but it does not plan to engage in marketing
activities for this business. At December 31, 1992, the net carrying value of
the Company's investment in Voyager was classified as held for sale.
OTHER INFORMATION
General Business Factors
In the judgment of the Company, no material part of the business of the
Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a materially adverse effect
on the Company, and no one customer or group of affiliated customers accounts
for as much as 10% of the Company's consolidated revenues.
At January 1, 1994, the Company had approximately 60,000 full-time and
5,000 part-time employees.
Source of Funds
For a discussion of the Company's sources of funds and maturities of the
long-term debt of the Company's subsidiaries, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," and Note 10 of Notes to Consolidated
Financial Statements.
Taxation
For a discussion of tax matters affecting the Company and its
operations, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Notes 2 and 13 of Notes to
Consolidated Financial Statements.
Financial Information about Industry Segments
For financial information regarding industry segments of the Company,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 4 of Notes to Consolidated Financial
Statements.
47
Executive Officers of the Company
The current executive officers of the Company are indicated on the
following page. Periods of offices held include offices with the Company's
predecessor, CCC. Ages are given as of March 8, 1994.
Officer
Name Age Positions Since
---- --- --------- -------
Sanford I. Weill 60 Chairman of the Board 1986
and Chief Executive Officer*
Robert I. Lipp 55 Vice Chairman of the Board and 1986
Group Chief Executive of the
Company; Chief Executive Officer of
The Travelers Insurance Group Inc.*
Frank G. Zarb 59 Vice Chairman of the Board and 1991
Group Chief Executive of the Company*
James Dimon 37 President, Chief Operating Officer and 1986
Chief Financial Officer of the Company;
Chief Operating Officer of SBS Holdings*
Robert F. Greenhill 57 Chairman and Chief Executive Officer of 1993
SBS Holdings*
Edwin M. Cooperman 50 Executive Vice President 1991
Irwin R. Ettinger 55 Senior Vice President, Taxes and 1987
Audit and Chief Accounting Officer
Charles O. Prince, III 44 Senior Vice President, General Counsel 1986
and Secretary
______________________________
* Member of the Office of the Chairman
Mr. Weill has been a director of the Company since 1986. He has been
Chairman of the Board and Chief Executive Officer of the Company and its
predecessor, CCC, since 1986; he was also its President from 1986 until 1991.
He was President of American Express Company from 1983 to 1985; Chairman of the
Board and Chief Executive Officer of American Express Insurance Services, Inc.
from 1984 to 1985; Chairman of the Board and Chief Executive Officer, or a
principal executive officer, of Shearson Lehman Brothers Inc. from 1965 to
1984; Chairman of the Board of Shearson Lehman Brothers Holdings Inc. from 1984
to 1985; and a founding partner of Shearson's predecessor partnership from 1960
to 1965. He is Chairman of the Board of Trustees of Carnegie Hall, and a
director of the Baltimore Symphony Orchestra. Mr. Weill is a member of the
Board of Governors of New York Hospital and is Vice Chairman of the Board of
Overseers of Cornell University Medical Center and a member of the Joint Board
of New York Hospital--Cornell University Medical College. He is a member of
Cornell University's Johnson Graduate School of Management Advisory Board and a
Board of Trustees Fellow. He has served as Chairman of the Joint Mayoral/City
Council Commission on Early Child and Child Care Programs during the Dinkins
Administration. He is co-chair, serving with New York Lieutenant Governor Stan
Lundine, of the Leadership Council for the Early Childhood Investment Fund. He
is also a member of The Business Roundtable.
Mr. Lipp has been a director of the Company since 1991, and is a Vice
Chairman and Group Chief Executive of the Company. In November 1993, he was
named a member of the newly-created Office of the Chairman of the Company.
Since completion of the merger with old Travelers, Mr. Lipp has acted as chief
executive officer of the Travelers insurance companies based in Hartford,
Connecticut. From 1991 to 1993, he was Chairman and Chief Executive Officer of
CCC. From April 1986 through September 1991, he was an Executive Vice
President of the Company and its corporate predecessor. Prior to joining the
Company in 1986, he was a President and a director of Chemical New York
Corporation and Chemical Bank where he held senior executive positions for more
48
than five years prior thereto. Mr. Lipp is a director of The New York City
Ballet.
Mr. Zarb has been a director of the Company since 1986, and is a Vice
Chairman and Group Chief Executive of the Company. In November 1993, he was
named a member of the newly-created Office of the Chairman of the Company. He
was Chairman and Chief Executive Officer of Smith Barney Inc. and Smith Barney,
Harris Upham & Co. Incorporated from November 1988 to June 1993, and President
of such corporations from June 1989 to June 1993. He was a General Partner at
Lazard Freres & Co. (an investment banking firm) from 1978 to 1988.
Previously, he served in the United States Government as Administrator for the
Federal Energy Administration from 1974 to 1977; Assistant to the President of
the United States for Energy Affairs from 1975 to 1977; Associate Director of
the United States Office of Management and Budget from 1973 to 1974; and United
States Assistant Secretary of Labor from 1971 to 1972. Mr. Zarb is a director
of the Securities Investor Protection Corporation and a member of the Board of
Trustees of Hofstra University and the Gerald R. Ford Foundation. He is a
member of the New York Stock Exchange Nominating Committee, and serves on the
U.S. Enrichment Corporation's Board of Directors.
Mr. Dimon has been a director of the Company since September 1991. He
is President, Chief Operating Officer and Chief Financial Officer of the
Company. In November 1993, he was named a member of the newly-created Office
of the Chairman of the Company. He was, from May 1988 to September 1991,
Executive Vice President and Chief Financial Officer of the Company, and was
Senior Executive Vice President and Chief Administrative Officer of Smith
Barney Inc., a subsidiary of the Company, from 1990 to 1991. He is also a
director, the Chief Operating Officer and a member of the Executive Committee
of SBSI, and Chief Operating Officer and a director of SBS Holdings. From 1986
to 1988, Mr. Dimon was Senior Vice President and Chief Financial Officer of
CCC, the Company's predecessor. From 1982 to 1985, he was a Vice President of
American Express Company and Assistant to the President, Sanford I. Weill. Mr.
Dimon is a trustee of New York University Medical Center, Chairman of the Board
of the New York Academy of Finance, and a member of the Young Presidents'
Organization.
Mr. Greenhill became a director of the Company in August 1993. In
November 1993, he was named a member of the newly-created Office of the
Chairman of the Company. He became Chairman and Chief Executive Officer of SBS
in June 1993. He also serves as Chairman and Chief Executive Officer of SBS
Holdings. Mr. Greenhill was President of Morgan Stanley Group, Inc. from
January 1991 to June 1993. Mr. Greenhill joined Morgan Stanley in 1962 and
became a Partner in 1970. In 1972, he directed Morgan Stanley's newly-formed
Mergers and Acquisitions Department. In 1980, Mr. Greenhill was named director
of Morgan Stanley's Investment Banking Division with responsibility for
domestic and international corporate finance, mergers and acquisitions,
merchant banking, capital market services and real estate. In 1980, he also
became a member of Morgan Stanley's Management Committee which was the firm's
policy-making group. He became a Vice Chairman of Morgan Stanley Group, Inc.
in January 1989. Mr. Greenhill is a trustee of the Whitney Museum of American
Art, a trustee of the American Enterprise Institute for Public Policy Research,
a member of the International Advisory Board of the British-American Chamber of
Commerce, and is also a member of the Advisory Board of the New York Academy of
Finance.
Mr. Cooperman joined the Company in November 1991. Prior thereto, he
was Chairman and Co-Chief Executive Officer of American Express Company Travel
Related Services. He joined American Express in 1972 and assumed positions of
increasing responsibility during his tenure there.
Mr. Ettinger, prior to joining CCC in October 1987, was Partner in
charge of the Tax Department of Arthur Young and Company's New York offices for
more than five years prior thereto.
49
Mr. Prince has been General Counsel of the Company or its predecessor
since 1983, and has been a Senior Vice President since 1986.
GLOSSARY OF INSURANCE TERMS
Annuity -- A contract that pays a periodic income benefit for the life of
a person (the annuitant), the lives of two or more persons or for a specified
period of time.
Assumed Reinsurance -- Business received as reinsurance from another
company. See "Reinsurance."
Benefits Under Administration, Including Fees -- Estimates of amounts
that fee-based Managed Care and Employee Benefits customers would have been
charged if their group health plans had been fully insured.
Catastrophe -- A severe loss, usually involving many risks such as
conflagration, earthquake, windstorm, explosion and other similar events.
Ceded Reinsurance -- Risks transferred to another company as reinsurance.
See "Reinsurance."
Claim -- Request by an insured for indemnification by an insurance
company for loss incurred from an insured peril.
Combined Ratio -- A measure of property-casualty underwriting results.
The combined ratio is the sum of (a) Loss Ratio -- the ratio of losses, loss
adjustment expenses and, where applicable, policyholder dividends to earned
premiums, and (b) Expense Ratio -- the ratio of other underwriting expenses to
written premiums. When the combined ratio is under 100%, underwriting results
are generally profitable; when the ratio is over 100%, underwriting results are
generally unprofitable. Underwriting results do not include investment income,
which may make a significant contribution to overall profitability.
Contractholder Funds -- Receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risks.
Deductible -- The amount of loss that an insured retains.
Deferred Acquisition Costs -- Commissions and other selling expenses that
vary with and are directly related to the production of business. These
acquisition costs are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in conformity with
GAAP.
Defined Contribution Plans -- Type of pension plan in which the
contribution rate is certain but the retirement benefit is variable.
Deposits and Other Considerations -- Consist of cash deposits and charges
for mortality risk and expenses associated with universal life insurance,
annuities and group pensions.
Excess Loss Coverage -- Coverage which indemnifies the person for that
portion of the loss (arising out of a loss occurrence) which is in excess of
the deductible.
Expense Ratio -- See "Combined Ratio."
Experience Rated Contracts -- Insurance contracts in which future rates
and/or commissions are compiled from past experience, that is, total premiums
50
earned and losses incurred. This can be applied by certain risk classifications
or to an individual risk.
Fiduciary Accounts -- Accounts held on behalf of others.
General Account -- All an insurer's assets other than those allocated to
separate accounts.
Guaranteed Cost Insurance -- Premium charged on a prospective basis which
may be fixed or adjustable on a specified rating basis but never on the basis
of loss experience in the period of coverage.
Guaranteed Investment Contracts (GICs) -- Group contracts sold to pension
plans, profit sharing plans and funding agreements that guarantee a stated
interest rate for a specified period of time.
Guaranty Fund -- State-regulated mechanism which is financed by assessing
insurers doing business in those states. Should insolvencies occur, these funds
are available to meet some or all of the obligations to policyholders.
Health Maintenance Organization (HMO) -- A group of medical care entities
organized to provide defined health care services to members in return for
fixed periodic premiums paid in advance (usually monthly).
Incurred But Not Reported Losses (IBNR) -- Losses that have occurred but
have not been reported.
Insurance -- Mechanism for contractually shifting burdens of a number of
risks by pooling them.
Involuntary Business (residual market) -- Risks that are not insurable in
the voluntary market due to either the level of risk or pricing. Residual
markets are largest for lines in which state governments or other agencies
mandate coverage such as workers' compensation. Generally states provide
residual market plans that are designed to allocate the underwriting experience
for these coverages in proportion to a given carrier's market share.
Life Contingencies -- Contingencies affecting the duration of life of an
individual or a group of individuals.
Long-Term Care -- Coverage for extended stays in a nursing home or home
health services.
Loss Adjustment Expense (LAE) -- Expenses paid in connection with
settling claims.
Loss Ratios -- See "Combined Ratio."
Loss Reserves -- Liabilities established by insurers to reflect the
estimated cost of claims payments that the insurer will ultimately be required
to pay in the future in respect of losses occurring on or prior to the balance
sheet date.
Losses Under Administration -- Projected loss and loss adjustment expense
payments to be made for the current policy year on behalf of clients who self-
insure and purchase claim adjustment services.
Managed Health Care Programs -- A method to curb rising medical costs by
favorably influencing provider practice patterns and making employees
knowledgeable health care consumers by identifying inappropriate care,
providing a managed structure in which medical services are offered, and
maintaining integrated management information systems to encourage quality and
cost-effective use of medical care.
51
Market Reinsurance -- Ceded reinsurance purchased from reinsurance
companies in the competitive marketplace.
Morbidity -- The rate at which people become diseased, mentally or
physically, or physically impaired.
Mortality -- The rate at which people die.
Policy Loan -- A loan made by an insurance company to a policyholder on
the security of the cash value of the policy. Policy loans offset benefits
payable to policyholders.
Pool -- Syndicate or association of insurance companies organized to
underwrite a particular risk, usually with high limits of exposure. Each member
shares in premiums, losses and expenses, according to a predetermined
agreement.
Reinsurance -- The acceptance by one or more insurers, called reinsurers,
of all or a portion of the risk underwritten by another insurer who has
directly written the coverage. However, the legal rights of the insured
generally are not affected by the reinsurance transaction and the insurance
enterprise issuing the insurance contract remains liable to the insured for
payment of policy benefits.
Reinsurance Pools and Associations -- Mechanisms established to aggregate
insurance, and then distribute results to participants in the mechanism. The
pool or association performs rating, loss adjustment and engineering services
for certain exposures. In some cases, they are established to absorb business
that will not be written voluntarily by insurers.
Residual Market -- See "Involuntary Business."
Retention -- The amount of exposure an insurance company retains on any
one risk or group of risks.
Retrospective Rating -- A plan or method which permits adjustment of the
final premium or commission on the basis of the actual loss experience, subject
to certain minimum and maximum limits.
Salvage -- Amount received by an insurer from the sale of property
(usually damaged) on which the insurer has paid a total loss to the insured.
For example, when an insurer has paid the insured the actual cash value of an
automobile damaged (usually extensively) by collision, then the insurer takes
title to and sells the damaged automobile for its own account. Salvage is
applied by insurance companies to reduce the amount of loss paid.
Self-Insured Retentions -- That portion of the risk retained by a person
for its own account. Generally, that person retains an amount of first loss for
its own account and purchases an excess of loss cover to protect itself for
losses above its retention.
Separate Accounts -- Funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
contractholders. The assets of these separate accounts are legally segregated
and not subject to claims that arise out of any other business of the insurance
company.
Servicing Carrier -- An insurance company that provides various services
including policy issuance, claims adjusting and customer service for insureds
in a reinsurance pool, for a fee.
Statutory Accounting Practices -- Those accounting practices prescribed
or permitted by the National Association of Insurance Commissioners or an
52
insurer's domiciliary state insurance regulator for purposes of financial
reporting to regulators.
Statutory Capital and Surplus -- The excess of statutory admitted assets
over statutory liabilities as shown on an insurer's statutory financial
statements.
Structured Settlements -- Periodic payments to an injured person or
survivor for a determined number of years or for life, typically in settlement
of a claim under a liability policy.
Subrogation -- The statutory or legal right of an insurer to recover from
a third party who is wholly or partially responsible for a loss paid by the
insurer under the terms of a policy. For example, when an insurer has paid the
insured for loss sustained to his or her automobile as a result of a collision,
the insurer may collect through the process of subrogation from the person
whose automobile caused the damage. Subrogation recoveries are treated as
reductions of the losses paid.
Surrender Value -- The amount of money, usually the legal reserve under
the policy, less sometimes a surrender charge, which an insurance company will
pay to a policyholder who cancels a policy. This value may be used as
collateral for a loan.
Trading Portfolio -- Fixed maturity investments that are likely to be
sold prior to maturity and are therefore carried at current market value.
Unrealized gains and losses on these investments are reflected in stockholders'
equity.
Underwriting --The assumption of risk for designated loss or damage in
consideration of receiving a premium. Also includes the process of examining,
accepting or rejecting insurance risks, and determining the proper premium.
Item 2. PROPERTIES.
The Company's executive offices are located in New York City. Offices
and other properties used by the Company's subsidiaries are located throughout
the United States. A few subsidiaries have offices located in foreign
countries. Most office locations and other properties are leased on terms and
for durations which are reflective of commercial standards in the communities
where such offices and other properties are located.
At December 31, 1993, leasehold interests of old Travelers included a
total of approximately 6,100,000 square feet of office space at about 300
locations throughout the United States under both operating and capital leases.
TIC owns buildings containing approximately 1,610,000 square feet of office
space located in Hartford, Connecticut and vicinity, serving as the home office
for TIC and Travelers Indemnity. TIC also owns a building in Norcross, Georgia
that is occupied by its information systems department.
SBS owns a 318,000 total square foot office building and data processing
center in New York City. Most of SBS's other offices are located in leased
premises, the leases for which expire at various times.
As part of the Shearson Acquisition, SBS leased three buildings
including an office building located at 388 Greenwich Street with approximately
1.6 million square feet, which had been the operations and administration
building of LBI. SBS plans to consolidate its executive offices and certain
other New York City operations at these locations. Two of the buildings were
acquired by an independent third party and were leased by SBS for a period of
five years. SBS has a purchase option with respect to these properties. SBS
expects to purchase the other building, in which it is currently a tenant, from
a partnership in which SBS has an equity interest. In connection with the
purchase, SBS will relinquish its interest in the partnership.
53
A few other offices and certain warehouse space are owned, none of which
is material to the Company's financial condition or operations. The Company is
the lessee under the lease on old Primerica's former headquarters in Greenwich,
Connecticut. The lease obligation on half of this property ended in December
1991; the remainder of the lease expires in December 1996. The Company
believes its properties are adequate and suitable for its business as presently
conducted and are adequately maintained. For further information concerning
leases, Note 18 of Notes to Consolidated Financial Statements.
54
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 of which any of their property is subject.
Certain additional matters may be described in the periodic reports filed under
the Exchange Act by certain subsidiaries of the Company.
Shareholder Litigation
For information concerning purported class actions challenging certain
aspects of the Merger, see the descriptions that appear in the last paragraph
on page 2 and the first two paragraphs on page 3 of the Company's filing on
Form 8-K dated September 23, 1993, the third paragraph on page 26 of the
Company's filing on Form 10-Q for the quarter ended September 30, 1993 and
the third paragraph on page 2 of the Company's filing on Form 8-K dated March
1, 1994, which descriptions are incorporated by reference herein. A copy of the
pertinent paragraphs of such filings is included as an exhibit to this Form
10-K.
For information concerning purported class actions challenging certain
aspects of the 1988 merger of Primerica Corporation, a New Jersey Corporation
("old Primerica") into Primerica Holdings, see the description contained in the
third and fourth paragraphs of page 30 of the Company's filing on Form 10-K for
the year ended December 31, 1989, which description is incorporated by
reference herein. A copy of the pertinent paragraphs of such filing is
included as an exhibit to this Form 10-K. Subsequent to that filing, other
shareholder class actions relating to the same subject were commenced in
Federal, New Jersey state, New York state and Connecticut state courts. All of
these subsequent actions are currently stayed.
Other Litigation and Legal Proceedings
Smith Barney Shearson
For information concerning purported class actions and an individual
action against SBHU and others in connection with Worlds of Wonder common stock
and convertible debentures, see the description that appears in the first,
second and third paragraphs of page 31 of the Company's filing on Form 10-K for
the year ended December 31, 1989, and the description that appears in the first
paragraph of page 30 of the Company's filing on Form 10-K for the year ended
December 31, 1990, which descriptions are incorporated by reference herein. A
copy of the pertinent paragraphs of such filings is included as an exhibit to
this Form 10-K. The individual action was dismissed in May 1992. In January
1993, summary judgment was granted for SBHU and the other defendants in the
class action. Plaintiffs have appealed the grant of summary judgment to the
U.S. Court of Appeals for the Ninth Circuit.
For information concerning several purported class action lawsuits filed
against SBSI in connection with three funds managed by Hyperion Capital
Management Inc., see the description that appears in the fourth paragraph of
page 26 of the Company's filing on Form 10-Q for the quarter ended September
30, 1993, which description is incorporated by reference herein. A copy of the
pertinent paragraph of such filing is included as an exhibit to this Form 10-K.
An amended consolidated complaint with respect to these actions was filed in
March 1994, and the consolidated action is entitled In re: Hyperion Securities
Litigation.
Old Primerica
For information concerning a purported class action against the Company
and others in connection with certain changes in the retirement benefits of old
Primerica retirees, see the description that appears in the fourth paragraph of
page 31 of the Company's filing on Form 10-K for the year ended December 31,
55
1989, and the description that appears in the fourth full paragraph of page 26
of the Company's filing on Form 10-K for the year ended December 31, 1991,
which descriptions are incorporated by reference herein. A copy of the
pertinent paragraphs of such filings is included as an exhibit to this Form 10-
K. In June 1992, the United States Court of Appeals for the Third Circuit
reversed the trial court's grant of summary judgment in favor of the Company
and the other defendants in the class action, and remanded the case to the
District Court to determine certain factual matters. Discovery is proceeding.
For information concerning matters involving the Company and certain of
its subsidiaries relating to federal, state or local regulations or laws
regulating the discharge of materials into the environment, see the description
that appears in the first full paragraph of page 26 of the Company's filing on
Form 10-K for the year ended December 31, 1992, which description is
incorporated by reference herein. A copy of the pertinent paragraph of such
filing is included as an exhibit to this Form 10-K. The Company is in the
process of negotiating a consent decree with respect to soil remediation. The
Company believes that insurance maintained by or on behalf of the Company, old
Primerica or certain affiliates, indemnities in favor of the Company or such
subsidiaries and contributions from other potentially responsible parties will
be available to mitigate the financial exposure of the Company and its
subsidiaries in these matters. The Company is using a variety of approaches to
recover from each of these sources, including pursuing litigation where
appropriate relating to such matters. Although there can be no assurance, the
Company does not believe that the ultimate resolution of these matters will
have a material adverse effect on the consolidated financial condition of the
Company and its subsidiaries.
Old Travelers
For information concerning a case brought by the federal government
against old Travelers involving benefit claims for Medicare handled by old
Travelers, see the description that appears in the fourth paragraph of page 2
of the Company's filing on Form 8-K, dated March 1, 1994, which description is
incorporated by reference herein. A copy of the pertinent paragraph of such
filing is included as an exhibit to this Form 10-K.
For information concerning a case filed by certain subsidiaries of old
Travelers involving certain reinsurance contracts with Lloyd's of London, see
the description that appears in the paragraph that begins on page 2 and ends on
page 3 of the Company's filing on Form 8-K, dated March 1, 1994, which
description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-K.
Certain of the subsidiaries that the Company acquired in the Merger are
involved in defending against claims asserting alleged injuries and damages
from asbestos and other hazardous and toxic substances. For additional
information with respect to these claims, reference is made to the discussion
of asbestos and environmental claims contained on pages 29 through 31 of this
Form 10-K.
The Securities and Exchange Commission (the "Commission") has been
conducting a nonpublic inquiry pursuant to an order of investigation with
respect to old Travelers' accounting, reporting and disclosure treatment of
certain matters in connection with its lending and loss recognition practices
pertaining to real estate investments and related matters going back to January
1, 1988. The Company is cooperating fully with the Commission's staff.
Other
For information concerning a California Superior Court case against
Transport arising out of a hospital indemnity policy issued by Transport, see
the description that appears in the second paragraph of page 26 of the
Company's filing on Form 10-Q for the quarter ended September 30, 1993, which
56
description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-K. The
Company has reached a settlement agreement with respect to this case.
The Company and various subsidiaries have also been named as defendants
in various matters incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and
other matters in which SBSI, R-H and American Capital have been named, arising
in the normal course of business out of activities as a broker and dealer in
securities, as an underwriter, as an investment banker or otherwise. In the
opinion of the Company's management, none of these actions is expected to have
a material adverse effect on the consolidated financial condition of the
Company and its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special meeting held on December 30, 1993, the stockholders of the
Company voted upon four proposals, one of which related to the combination of
the businesses of the Company and old Travelers and three of which were
amendments to two of the Company's incentive plans. The proposals were (i) to
approve and adopt the Agreement and Plan of Merger dated as of September 23,
1993, between the Company (then known as Primerica Corporation) and old
Travelers, including the issuance of up to 110,500,000 shares of the Company's
Common Stock in connection with such business combination, (ii) to approve an
amendment to the Company's Capital Accumulation Plan, authorizing an increase
of 17,000,000 shares in the number of shares of the Company's Common Stock
available for issuance under such plan, (iii) to approve an amendment to the
Company's Stock Option Plan that established maximum allocations of option
grants to certain executive officers of the Company, and (iv) to approve an
amendment to the Company's Stock Option Plan, which amendment (x) authorized an
increase of 8,000,000 shares in the number of shares of the Company's Common
Stock available for issuance pursuant to option grants under such plan, and an
increase of 15,000,000 shares in the number of shares of the Company's Common
Stock available for issuance pursuant to reload option grants under such plan,
and (y) provided for a period of restricted transferability of shares of the
Company's Common Stock acquired upon exercise of an option and a minimum
appreciation in the market price of the Company's Common Stock over the option
exercise price in order for an optionee to receive a reload option in
connection with such exercise.
The voting with respect to these matters was as follows:
Proposal Votes Cast Votes Cast Abstentions Broker
FOR AGAINST Non-Votes
-------- ---------- ---------- ----------- ----------
Proposal 1 203,835,497 621,403 849,925 20,875,874
Proposal 2 183,091,851 20,898,097 1,316,877 20,875,874
Proposal 3 209,248,799 15,292,575 1,641,325 0
Proposal 4 158,785,353 44,565,912 1,955,560 20,875,874
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is listed on the NYSE and on the Pacific
Stock Exchange under the symbol "TRV." The high and low sale prices, as
reported on the consolidated transaction reporting system, for the common
stock of the Company for the periods indicated, and the dividends per share,
are set forth on the next page. All amounts have been adjusted to give
retroactive effect to the two stock splits effected in 1993 on the Company's
common stock.
57
1992 1993 1994
---------------------------------------------- ------------------------------------------------- ----
1st Q 2nd Q 3rd Q 4th Q 1st Q 2ndQ 3rd Q 4th Q 1st Q*
------- ------- ------- ------ ------ ----- ------- ------- -------
Common Stock
Price
High $21.3125 $20.8750 $22.2500 $24.9375 $37.3125 $39.4688 $49.5000 $48.6250 $43.125
Low $18.8125 $17.8750 $19.0625 $20.7500 $24.3125 $31.2188 $37.5938 $38.0000 $36.500
Dividends per
Share of
Common Stock $.063 $.100 $.100 $.100 $.120 $.120 $.125 $.125 $.125
_______________________________
* Through February 28, 1994
At March 8, 1994, the Company had approximately 57,000 common
stockholders of record. This figure does not represent the actual number of
beneficial owners of common stock because shares are frequently held in "street
name" by securities dealers and others for the benefit of individual owners who
may vote the shares.
For information on dividend restrictions in certain long-term loan and
credit agreements of the Company and its subsidiaries, as well as restrictions
on the ability of certain of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends or otherwise, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 6. SELECTED FINANCIAL DATA.
See "Five-Year Summary of Selected Financial Data" on page 24 of the
Company's 1993 Annual Report to Stockholders (the "1993 Annual Report"),
included as part of Exhibit 13 to this Form 10-K and incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 25 of the 1993 Annual Report, included
as part of Exhibit 13 to this Form 10-K and incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and Schedules on page F-1
hereof. There is also incorporated by reference herein in response to this
Item the material under the caption "Quarterly Financial Data (unaudited)" on
page 57 of the 1993 Annual Report, which material is included as part of
Exhibit 13 to this Form 10-K.
The preacquisition consolidated balance sheets of The Travelers
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 31, 1993, together with the
notes thereto and the related report of Independent Accountants, are included as
Exhibit 99.01 to this Form 10-K and are incorporated herein by reference.
58
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.
For information on the directors of the Company, see the material under
the caption "Election of Directors," in the definitive Proxy Statement for the
Company's Annual Meeting of Stockholders to be held on April 27, 1994 filed
with the Securities and Exchange Commission (the "Proxy Statement"),
incorporated herein by reference. For information on executive officers, see
Item 1, "Business -- Other Information -- Executive Officers of the Company"
herein.
Item 11. EXECUTIVE COMPENSATION.
See the material under the caption "Executive Compensation" of the Proxy
Statement, incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the material under the captions "Voting Rights" and "Security
Ownership of Management" of the Proxy Statement, incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the material under the captions "Election of Directors" and
"Executive Compensation" of the Proxy Statement, incorporated herein by
reference.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of the report:
(1) Financial Statements. See Index to Consolidated Financial
Statements and Schedules on page F-1 hereof. Also filed as a
part of this report are the preacquisition consolidated
balance sheets of The Travelers Corporation and Subsidiaries
as of December 31, 1993 and 1992, and the related consolidated
statements of operations and retained earnings and cash flows
for each of the three years in the period ended December 31,
1993, together with the notes thereto and the related report
of Independent Accountants. See Exhibit 99.01.
(2) Financial Statement Schedules. See Index to Consolidated
Financial Statements and Schedules on page F-1 hereof.
(3) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
59
On October 1, 1993, the Company filed a Current Report on Form 8-K
dated September 23, 1993, reporting under Item 5 thereof its
agreement to acquire the remaining approximately 73% of the common
stock of The Travelers Corporation that it did not already own, and
certain legal proceedings arising out of the announcement of that
agreement.
On October 21, 1993, the Company filed a Current Report on Form 8-K,
dated October 18, 1993, reporting under Item 5 thereof the results
of its operations for the three months and nine months ended
September 30, 1993, and certain other selected financial data.
On December 2, 1993, the Company filed a Current Report on Form 8-K
dated November 29, 1993, including under Items 5 and 7 thereof
certain historical financial information of The Travelers
Corporation and certain pro forma financial information with respect
to its merger with The Travelers Corporation.
No other reports on Form 8-K have been filed by the Company during
the last quarter of the period covered by this report; however, on
January 13, 1994, the Company filed a Current Report on Form 8-K,
dated December 31, 1993, reporting under Item 2 thereof the
consummation of the merger of The Travelers Corporation into the
Company; and on January 26, 1994, the Company filed a Current Report
on Form 8-K, dated January 24, 1994, reporting under Item 5 thereof
the results of its operations for the three months and year ended
December 31, 1993; and on March 1, 1994, the Company filed a Current
Report on Form 8-K, dated March 1, 1994, reporting under Item 5
thereof certain information with respect to legal proceedings in
order to update the information incorporated by reference into its
shelf registration statements.
60
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Electronic
The Travelers Inc., as filed with the
Delaware Secretary of State on March 30,
1994.
3.02 By-Laws of the Company as amended effective
December 17, 1992, incorporated by
reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-3 (No. 33-
55542).
10.01* Employment Protection Agreement, dated as
of December 31, 1987, between the Company
(as successor to Commercial Credit Company)
and Sanford I. Weill, incorporated by
reference to Exhibit 10.03 to CCC's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-6594).
10.02.1* Stock Option Plan of the Company, as
amended through April 26, 1989,
incorporated by reference to Annex A to the
prospectus contained in the Company's
Registration Statement on Form S-8 (No. 33-
29711).
10.02.2* Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991
(File No. 1-9924) (the "Company's 1991 10-
K").
10.02.3* Amendments to the Company's Stock Option
Plan, approved by the Company's
stockholders on April 22, 1992,
incorporated by reference to Exhibit
10.02.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992 (File No.1-9924) (the
"Company's 1992 10-K").
10.02.4* Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5* Amendment No. 11 to the Company's Stock Electronic
Option Plan.
10.02.6* Amendment No. 12 to the Company's Stock Electronic
Option Plan.
10.03* Retirement Benefit Equalization Plan of Electronic
Primerica Corporation (as successor to
Primerica Holdings, Inc.), as amended.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.04* Letter Agreement between Joseph A.
Califano, Jr. and the Company, dated
December 14, 1988, incorporated by
reference to Exhibit 10.21.1 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
(File No. 1-9924) (the "Company's 1988 10-
K").
10.05.1* The Company's Deferred Compensation Plan
for Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2* Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1* Supplemental Retirement Plan of the
Company, incorporated by reference to
Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1990 (File No. 1-9924)
(the "Company's 1990 10-K").
10.06.2* Amendment to the Company's Supplemental Electronic
Retirement Plan.
10.07* Long-Term Incentive Plan of Primerica
Corporation, as amended, incorporated by
reference to Exhibit 10.08 to the Company's
1992 10-K.
10.08.1* Capital Accumulation Plan of the Company
(the "CAP Plan"), as amended to January 31,
1993, incorporated by reference to Exhibit
10.09 to the Company's 1992 10-K.
10.08.2* Amendment No. 8 to the Company's CAP Plan. Electronic
10.09.1* Employment Agreement dated as of December
16, 1988 among Smith Barney Shearson Inc.
(formerly Smith Barney, Harris Upham & Co.
Incorporated; hereinafter "SBS"), the
Company and Frank G. Zarb (the "FGZ
Employment Agreement"), incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1989 (File
No. 1-9924).
10.09.2* Assignment Agreement and Amendment No. One Electronic
to FGZ Employment Agreement.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles
D. Adams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., SBS, the Company, American
Express Company and Shearson Lehman
Brothers Holdings Inc. (the "SLB
Agreement"), incorporated by reference to
Exhibit 10.21 to the Company's 1992 10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1993 (File
No. 1-9924) (the "Company's June 30, 1993
10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1* Employment Agreement dated June 23, 1993,
by and among SBS, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2* Form of Amendment to the RFG Employment Electronic
Agreement.
10.18* Memorandum of Sale dated June 23, 1993,
between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.02 to the Company's September
30, 1993 10-Q.
10.19* Registration Rights Agreement dated June
23, 1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September
30, 1993 10-Q.
10.20* Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September
30, 1993 10-Q.
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old Travelers"),
incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K of old
Travelers, dated September 23, 1993 and
filed with the Commission on October 8,
1993 (File No. 1-5799).
10.22* Agreement dated December 21, 1993 between Electronic
the Company and Edward H. Budd.
10.23* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Richard H. Booth.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.24* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Robert W. Crispin.
10.25* The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1991 (File No. 1-5799) (the
"old Travelers' 1991 10-K").
10.26* The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1992 (File No. 1-5799) (the
"old Travelers' 1992 10-K").
10.27* The Travelers Corporation 1984 Management
Incentive Plan, as amended effective
January 1, 1991, incorporated by reference
to Exhibit 10(c) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1990 (File No. 1-
5799).
10.28* The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
10.29* The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers' 1991
10-K.
10.30* The Travelers Severance Plan of Officers, Electronic
as amended September 23, 1993.
10.31* The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by reference
to Exhibit 10(d) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1986 (File No. 1-
5799).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
13.01 Pages 24 through 57 of the 1993 Annual Report Electronic
to Stockholders of the Company.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
21.01 Subsidiaries of the Company. Electronic
23.01 Consent of KPMG Peat Marwick, Independent Electronic
Certified Public Accountants.
23.02 Consent of Coopers & Lybrand, Independent Electronic
Accountants.
24.01 Powers of Attorney. Electronic
28.01 Information from Reports Furnished to State P
Insurance Regulatory Authorities. Schedule Paper
P of the Consolidated Annual Statement of
The Travelers Insurance Group Inc. and its
affiliated fire and casualty insurers, and
Schedule P of the Consolidated Annual
Statement of Gulf Insurance Company and its
affiliated fire and casualty insurers.
99.01 Consolidated balance sheets of The Electronic
Travelers Corporation and Subsidiaries as
of December 31, 1993 and 1992, and the
related consolidated statements of
operations and retained earnings and cash
flows for each of the three years in the
period ended December 31, 1993, together
with the notes thereto and the related
report of Independent Accountants.
99.02 The last paragraph of page 2 and the first Electronic
two paragraphs of page 3 of the Company's
Current Report on Form 8-K dated September
23, 1993 (File No. 1-9924), the third
paragraph of page 26 of the Company's
September 30, 1993 10-Q, and the third
paragraph of page 2 of the Company's
Current Report on Form 8-K dated
March 1, 1994 (File No. 1-9924) (the
"Company's March 1, 1994 8-K").
99.03 The third and fourth paragraphs of page 30 Electronic
of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
(File No. 1-9924) (the "Company's 1989 10-
K").
99.04 The first, second and third paragraphs of Electronic
page 31 of the Company's 1989 10-K, and the
first paragraph of page 30 of the Company's
1990 10-K.
99.05 The fourth paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
99.06 The fourth paragraph of page 31 of the Electronic
Company's 1989 10-K, and the fourth full
paragraph of page 26 of the Company's 1991
10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
99.07 The first full paragraph of page 26 of the Electronic
Company's 1992 10-K.
99.08 The fourth paragraph of page 2 of the Electronic
Company's March 1, 1994 8-K.
99.09 The paragraph that begins on page 2 and Electronic
ends on page 3 of the Company's March 1,
1994 8-K.
99.10 The second paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not
exceed 10% of the total assets of the Company and its consolidated
subsidiaries. The Company will furnish copies of any such instrument
to the Commission upon request.
The financial statements required by Form 11-K for 1993 for the
Company's employee savings plans will be filed as exhibits by
amendment to this Form 10-K pursuant to Rule 15d-21 of the Securities
Exchange Act of 1934, as amended.
Copies of any of the exhibits referred to above will be furnished at
a cost of $.25 per page (except that no charge will be made for the
1993 Annual Report on Form 10-K) to security holders who make written
request therefor to Corporate Communications and Investor Relations
Department, The Travelers Inc., 65 East 55th Street, New York, New
York 10022.
______________________________
* Denotes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
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 30th day of
March, 1994.
THE TRAVELERS INC.
(Registrant)
By: /s/ Sanford I. Weill
. . . . . . . . . . . . . . . . . . . .
Sanford I. Weill, Chairman of
the Board and Chief Executive 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 30th day of March, 1994.
Signature Title
--------- -----
/s/ Sanford I. Weill
. . . . . . . . . . . . . . Chairman of the Board, Chief
Sanford I. Weill Executive Officer
(Principal Executive Officer)
and Director
/s/ James Dimon
. . . . . . . . . . . . . . President, Chief Operating
James Dimon Officer,
Chief Financial Officer
(Principal Financial
Officer) and Director
/s/ Irwin R. Ettinger
. . . . . . . . . . . . . . Senior Vice President and Chief
Irwin R. Ettinger Accounting
Officer (Principal Accounting
Officer)
*
. . . . . . . . . . . . . . Director
C. Michael Armstrong
*
. . . . . . . . . . . . . . Director
Kenneth J. Bialkin
62
Signature Title
--------- -----
*
. . . . . . . . . . . . . . Director
Richard H. Booth
* Director
. . . . . . . . . . . . . .
Edward H. Budd
*
. . . . . . . . . . . . . . Director
Joseph A. Califano, Jr.
*
. . . . . . . . . . . . . . Director
Robert W. Crispin
*
. . . . . . . . . . . . . . Director
Douglas D. Danforth
*
. . . . . . . . . . . . . . Director
Robert F. Daniell
*
. . . . . . . . . . . . . . Director
Leslie B. Disharoon
*
. . . . . . . . . . . . . . Director
Gerald R. Ford
*
. . . . . . . . . . . . . . Director
Robert F. Greenhill
63
Signature Title
--------- -----
*
. . . . . . . . . . . . . . Director
Ann Dibble Jordan
*
. . . . . . . . . . . . . . Director
Robert I. Lipp
*
. . . . . . . . . . . . . . Director
Dudley C. Mecum
*
. . . . . . . . . . . . . . Director
Andrall E. Pearson
*
. . . . . . . . . . . . . . Director
Frank J. Tasco
*
. . . . . . . . . . . . . . Director
Linda J. Wachner
*
. . . . . . . . . . . . . . Director
Joseph R. Wright, Jr.
*
. . . . . . . . . . . . . . Director
Arthur Zankel
*
. . . . . . . . . . . . . . Director
Frank G. Zarb
/s/ James Dimon
*By: . . . . . . . . . . .
James Dimon
Attorney-in-fact
64
The Travelers Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES*
_________________________________
Incorporated
By Reference from
the Company's 1993
Annual Report to
Page Stockholders at
Herein Page Indicated
------ ------------------
Independent Auditors' Report F-2 58
Consolidated Statement of Income for the year ended
December 31, 1993, 1992 and 1991 34
Consolidated Statement of Financial Position at
December 31, 1993 and 1992 35
Consolidated Statement of Changes in Stockholders'
Equity for the year ended December 31, 1993, 1992 and 1991 36
Consolidated Statement of Cash Flows for the year ended
December 31, 1993, 1992 and 1991 37
Notes to Consolidated Financial Statements 38-57
Schedules:
Schedule I - Marketable Securities - Other Investments F-3
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees Other Than
Related Parties F-4 - F-10
Schedule III - Condensed Financial Information of
Registrant (Parent Company only) F-11 - F-14
Schedule VI - Reinsurance F-15
Schedule IX - Short-Term Borrowings F-16
*Schedules not listed are omitted as not applicable or not required by Regulation S-X.
F-1
Independent Auditors' Report
The Board of Directors and Stockholders
The Travelers Inc.:
Under date of January 24, 1994, we reported on the consolidated
statements of financial position of The Travelers Inc. (formerly
Primerica Corporation) and subsidiaries as of December 31,
1993 and 1992, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the years in
the three year period ended December 31, 1993, as contained
in the 1993 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year
1993. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the
related financial statement schedules as 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, these 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 Peat Marwick
KPMG Peat Marwick
New York, New York
January 24, 1994
F-2
SCHEDULE I
The Travelers Inc. and Subsidiaries
Marketable Securities - Other Investments
December 31, 1993
(In millions of dollars)
Column A Column B Column C Column D
-------- -------- -------- --------
Amount at
Which Shown
Market in the
Type of Investment Cost Value Balance Sheet
------------------ ---- ----- -------------
Fixed maturities
Bonds
United States
Government and government
agencies and authorities (1) $8,427 $8,530 $8,427
States, municipalities and
political sub-divisions 3,073 3,111 3,073
Foreign governments 541 549 541
Public utilities 3,105 3,136 3,105
Convertibles and bonds with
warrants attached 405 412 405
All other corporate bonds 12,672 12,836 12,672
Redeemable preferred stock 63 65 63
------- ------- -------
Total fixed maturities $28,286 $28,639 $28,286
------ ------ ------
Equity securities
Common stocks
Banks, trust and insurance companies $ 15 $ 14 $ 14
Industrial and all other 263 297 297
Non-redeemable preferred stocks 235 244 244
------- ------- -------
Total equity securities 513 $ 555 555
------- ======= -------
Mortgage loans on real estate 7,365 7,365
Real estate held for sale 1,049 1,049
Policy loans 1,367 1,367
Short-term investments 1,651 1,651
Other investments 1,008 1,008
------- -------
Total investments $41,239 $41,281
====== ======
(1) includes mortgage-backed security obligations of U.S. Government agencies.
F-3
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
-------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
D. Allen * $ - $144,313 $ - $ - $144,313
R. Altemus * - 198,725 - - 198,725
S. Baritz * - 203,400 - - 203,400
W. Barndollar * - 136,676 30,044 - 106,632
N. Boccella * - 101,875 - - 101,875
L. Brachfeld * - 199,475 - - 199,475
J. Brock * - 350,375 - - 350,375
R. Buckingham * - 100,000 - - 100,000
E. Butler, Jr. * - 148,925 - - 148,925
R. Cerasia * - 216,250 - - 216,250
R. Chanin * - 477,471 - - 477,471
R. Conway * - 298,500 - - 298,500
T. Cook * - 143,000 - - 143,000
G. Dahl * - 421,663 - - 421,663
G. Daniels * - 351,059 - - 351,059
D. Darrah * - 285,750 - - 285,750
W. Davis * - 298,000 - - 298,000
J. Delahaye * - 142,963 - - 142,963
E. Depatie * - 149,875 - - 149,875
D. Desmon * - 152,250 - - 152,250
E. Dipple * - 601,138 - - 601,138
M. Donohue * - 100,000 - - 100,000
D. Drescher * - 394,363 - - 394,363
I. Dublirer * - 380,750 - - 380,750
L. Epstein * - 448,250 - - 448,250
R. Ferrelli * - 181,250 - - 181,250
E. Fitzsimons * - 221,278 - - 221,278
G. Foley * - 224,100 - - 224,100
J. Frager * - 121,125 - - 121,125
H. Gaykian * - 179,150 - - 179,150
F-4
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
R. Gintz * - 148,300 - - 148,300
A. Goldstein * - 118,375 - - 118,375
L. Goldstein * - 104,250 - - 104,250
P. Grassi * - 299,475 - - 299,475
W. Greer * - 144,382 - - 144,382
G. Helmich * - 218,000 - - 218,000
M. Hess * - 150,130 - - 150,130
R. Hlavek * - 393,988 - - 393,988
J. Hogue * - 287,475 - - 287,475
I. Hovey * - 148,438 - - 148,438
G. Irish * - 216,688 - - 216,688
R. Isaacman * - 150,425 - - 150,425
B. Jackson * - 151,037 - - 151,037
B. Klefos * - 104,018 - - 104,018
M. Koblak * - 265,502 - - 265,502
K. Kuklenski * - 148,500 - - 148,500
R. Leo * - 404,063 - - 404,063
J. Levitt * - 387,125 - - 387,125
G. Linger * - 106,750 - - 106,750
C. Lofgren * - 701,390 16,371 - 685,019
R. Mathews * - 104,038 - - 104,038
M. McHugh * - 101,125 - - 101,125
R. McCord III * - 449,350 - - 449,350
T. McNellis * - 141,525 - - 141,525
R. Melzer * - 317,393 - - 317,393
J. Moreau * - 212,913 - - 212,913
C. Muff * - 142,853 - - 142,853
G. Mulqueen * - 187,875 - - 187,875
F-5
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
A. Munroe * - 147,688 - - 147,688
W. Murphy * - 150,413 - - 150,413
D. Nee * - 150,338 - - 150,338
E. Osman * - 151,663 - - 151,663
J. Plumeri * - 403,141 - - 403,141
M. Pullman * - 148,225 - - 148,225
A. Purdie, Jr. * - 399,996 - - 399,996
G. Rach * - 149,000 - - 149,000
M. Rader * - 147,863 - - 147,863
R. Reissiger * - 148,925 - - 148,925
W. Rogan * - 418,203 - - 418,203
M. Rogers, Jr. * - 437,250 - - 437,250
R. Rogers * - 426,413 - - 426,413
J. Sando * - 249,993 - - 249,993
C. Sawicki * - 102,813 - - 102,813
D. Scharenberg * - 100,013 - - 100,013
G. Scheidt * - 473,250 - - 473,250
M. Serranio * - 100,000 - - 100,000
R. Shores * - 119,000 - - 119,000
C. Singer * - 148,838 - - 148,838
K. Skiba * - 148,063 - - 148,063
J. Sokol * - 155,850 - - 155,850
R. Sproul * - 100,000 - - 100,000
M. Steckler * - 150,450 - - 150,450
M. Stocklan * - 1,157,178 70,543 - 1,086,635
S. Stoker * - 159,175 - - 159,175
A. Stuvland * - 152,438 - - 152,438
C. Tara * - 148,000 - - 148,000
F-6
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
D. Tidlund * - 316,350 - - 316,350
A. Trattner * - 145,625 - - 145,625
W. Ullmark * - 416,011 - - 416,011
D. Verhille * - 150,000 - - 150,000
R. Warren * - 285,000 - - 285,000
W. Wilcox * - 451,100 - - 451,100
N. Wood * - 128,750 - - 128,750
A. Fedele (1) 33,253 103,630 4,427 35,017 97,439
R. Hammack (2) - 810,461 39,625 ** 770,836
D. Holt (3) - 157,101 - 100,000 57,101
H. Irvine (4) - 104,982 - 104,982 -
B. Klein (5) - 379,997 218,329 ** 161,668
A. Langer (6) - 138,980 6,991 131,989 -
L. Lekai (7) - 353,500 133,380 41,620 178,500
J. McKenzie (8) 107,985 4,745 106,039 6,691 -
P. Morrison (9) - 175,944 43,749 70,986 61,209
C. Nolting (10) - 155,537 - - 155,537
D. Perez (11) - 264,670 125,000 139,670 -
S. Ricardo (12) - 315,474 - ** 315,474
M. Rogers (13) - 212,167 50,000 ** 162,167
J. Rupp (14) 172,595 4,456 95,535 81,516 -
R. Salyer (15) - 296,617 110,284 180,000 6,333
C. Santoro (16) - 468,179 - 78,179 390,000
D. Standridge (17) - 156,480 26,080 52,160 78,240
F. Traynor (18) - 156,540 36,806 12,000 107,734
M. Wagner (19) - 164,509 34,977 ** 129,532
Others (20) $ - $298,475 $ - $ - $298,475
F-7
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
(*) The Executive Stock Loan Program of Smith Barney Shearson, which was initiated in 1987 by LBI and is no longer
available, provided low interest demand loans on an unsecured basis, to assist key employees in acquiring common
stock through open market purchases. These loans, which were acquired as part of the Shearson Acquisition, are
payable on demand and may not extend beyond December 31, 1996. Loans under this program bear interest at the
lower of the prime lending rate minus 2% or 11%, which is forgivable if still employed by Smith Barney Shearson
at December 31, 1996.
(**) Due to the nature of the repayment terms, it cannot be determined how much will be repaid during 1994. Therefore,
all amounts are included in "Due After One-Year."
(1) Consists of: a note for $200,000 of which $28,500 is remianing, is payable by $250 bi-monthly payroll deductions.
The balance is payable in February 1994 vs. bonus and bears interest at 8%; a note for $100,000 is payable by
$250 bi-monthly payroll deductions. The balance is payable in three equal installments of $30,000, plus
interest, February 1995, 1996 and 1997, respectively, vs. bonus and interest accrues at 8%.
(2) The note is payable by monthly payroll deductions of 15% of all net after-tax income. Interest is payable
monthly and accrues at the prime lending rate plus 1%.
(3) The note is payable in three equal installments of $50,000, plus interest, January 1, 1994, July 1, 1994, and
July 1, 1995 and accrues interest at 8%.
(4) The note is payable by March 31, 1994 and interest accrues at Smith Barney Shearson's margin rate.
(5) The note is payable by monthly payroll deductions of $2,500, plus $5,000 from monthly gross commission from
$90,000 to $125,000, plus $10,000 for gross commission over $125,000 and interest accrues at broker's call rate.
(6) The note is payable by April 30, 1994 and interest accrues at broker's call rate.
(7) The note is payable in two installments of $41,620, plus interest, February 1994 and $175,000 plus interest
February 1995 vs. bonus and interest accrues at 8%.
(8) The note is payable May 1, 1994 and bears interest at 110% of the applicable IRS rate. This note is
collateralized by a mortgage on the premises owned by the debtor. Smith Barney Shearson also has a security
interest in and general continuing lien upon all property of the debtor.
(9) The note is payable by monthly payroll deductions of $2,582 plus a quarterly payment of $10,000 and interest
accrues at 8%.
(10) The note is payable from retirement deferred compensation and interest accrues at broker's call rate.
(11) The note is payable by December 31, 1993, and is currently in arrears and interest accrues at Smith Barney
Shearson's margin rate.
(12) The note is payable by 5/1/95 from annual gross commissions and bonus excess of $250,000 and interest on loan and
interest accrues at 8%.
(13) The note is payable February 1994 and 1995 vs. bonus and interest accrues at Smith Barney Shearson's margins
rate.
(14) The note is payable on January 19, 1994 and interest accrues at 7%.
(15) The notes are payable by monthly payroll deductions of $15,000 and interest accrues at Smith Barney Shearson's
margin rate.
(16) The note is payable in installments of $60,000, plus interest, February 1994, $130,000, plus interest in February
1995, 1996 and 1997 and interest accrues at 8%.
(17) The note is payable in annual installments as follows: $26,080 in February, 1994 vs. bonus and $52,160 in February
1995 and 1996 vs. bonuses and is non-interest bearing.
(18) The notes are payable by monthly payroll deductions of $1,000 and interest accrues at broker's call rate.
(19) The note of $100,000 is payable by payroll deductions of $542 and from all bonuses and the interest accrues at
Smith Barney Shearson's margin rate. The note for $42,137 is payable in annual installments of $10,534 on June
18, 1993, and $31,603 on June 20, 1994 and interest accrues at broker's call rate plus 1/4%.
(20) The aggregate amount of loans to individuals who terminated employment and are outstanding at December 31, 1993.
F-8
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1992
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
--------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
K. Yarnell (1) $549,982 $ - $549,982 $ - $ -
J. Long (1) 310,251 - 310,251 - -
R. White (2) 124,667 4,634 51,560 77,741 -
A. Fedele (2) 101,946 6,038 74,731 6,000 27,253
J. McKenzie (2) - 107,985 - 53,993 53,992
J. Rupp (2) - 191,685 19,090 172,595 -
(1) Represent loans to current and former members of senior management made during their employment to purchase
shares of the Company's common stock pursuant to the Stock Purchase Assistance Plan approved by the shareholders
during 1984. In accordance with the terms of the plan the loans bear interest at 6.7% to 10% currently. The
rate is not less than that which is necessary to avoid unstated interest under the Internal Revenue Code. The
notes generally mature within five years and are collateralized by all or a portion of the shares of the common
stock acquired with the proceeds.
(2) Interest bearing promissory note to current employees.
F-9
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1991
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
-------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
D. Rosellini (1) $395,646 $ - $395,646 $ - $ -
C. Dornbush (1) 135,438 - 135,438 - -
K. Yarnell (1) 549,982 - - 549,982 -
J. Long (1) 310,251 - - 310,251 -
P. Goldberg (1) 101,942 - 63,000 38,942 -
R. White (2) 113,000 11,667 - 86,667 38,000
A. Fedele (2) - 106,268 4,322 6,000 95,946
(1) Represent loans to current and former members of senior management made during their employment to purchase
shares of the Company's common stock pursuant to the Stock Purchase Assistance Plan approved by the shareholders
during 1984. In accordance with the terms of the plan the loans bear interest at 6.7% to 10% currently. The
rate is not less than that which is necessary to avoid unstated interest under the Internal Revenue Code. The
notes generally mature within five years and are collateralized by all or a portion of the shares of the common
stock acquired with the proceeds.
(2) Interest bearing promissory note to current employee.
F-10
SCHEDULE III
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Income
Years Ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
Income:
-------
Equity in income of old Travelers $126 $ - $ -
Gain on sales of stock of subsidiaries and affiliate - 96 40
Other 6 12 5
--- ---- ---
Total 132 108 45
--- ---- ---
Expenses:
---------
Interest $ 77 $ 79 $103
Other 46 58 91
--- --- ---
Total 123 137 194
--- --- ---
Pre-tax income (loss) 9 (29) (149)
Income tax benefit (35) 9 50
---- ---- ----
Net loss before equity in net income
of subsidiaries 44 (20) (99)
Equity in net income of subsidiaries 907 776 578
Cumulative effect of changes in accounting principles
(including $17 and $28, respectively,
applicable to subsidiaries) (35) (28) -
---- ----- ----
Net income $916 $728 $479
=== === ===
The condensed financial statements should be read in conjunction with the consolidated financial
statements and notes thereto and the accompanying notes to the condensed financial information of
Registrant.
F-11
SCHEDULE III
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars except per share amounts)
Condensed Statement of Financial Position
December 31,
-----------------------
1993 1992
------- --------
Assets
------
Investment in subsidiaries at equity $11,808 $4,830
Advances to and receivables from subsidiaries 433 263
Investment in old Travelers - 485
Cost of acquired businesses in excess of net assets 686 538
Other 24 49
------ -----
$12,951 $6,165
====== =====
Liabilities
-----------
Short-term borrowings $ 329 $ 71
Long-term debt 1,504 518
Advances from and payables to subsidiaries 1,033 818
Other liabilities 549 329
----- -----
3,415 1,736
----- -----
Redeemable preferred stock (held by subsidiary) 100 200
----- -----
ESOP Preferred stock - Series C 235 -
Guaranteed ESOP obligation (125) -
----- -----
110 -
----- -----
Stockholders' equity
--------------------
Preferred stock ($1.00 par value) authorized shares: 30 million), at
aggregate liquidation value 800 300
Common stock ($.01 par value; authorized shares:
500 million; issued shares: 1993 - 368,287,709 and
1992 - 253,524,014) 4 3
Additional paid-in capital 6,566 2,147
Retained earnings 3,140 2,363
Treasury stock, at cost (1993 - 41,155,405 shares;
1992 - 31,572,048 shares) (1,121) (540)
Unearned compensation - restricted stock and other, net (63) (44)
------ -----
9,326 4,229
------ -----
$12,951 $6,165
====== =====
The condensed financial statements should be read in conjunction with the consolidated financial statements and
notes thereto and the accompanying notes to the condensed financial information of Registrant.
F-12
SCHEDULE III
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Cash Flows
Year ended December 31,
-----------------------
1993 1992 1991
------ ------ -----
Cash Flows From Operating Activities
------------------------------------
Net Income $ 916 $ 728 $ 479
Adjustment to reconcile net income to
cash provided by operating activities:
Equity in net income of subsidiaries (907) (776) (578)
Dividends received from subsidiaries, net 349 365 187
Advances from subsidiaries, net 45 292 115
Other, net 61 57 (15)
----- --- ----
Net cash provided by (used in) operating activities 464 666 188
--- --- ----
Cash Flows From Investing Activities
------------------------------------
Capital contribution to subsidiaries (1,100) - -
Business acquisitions - (485) -
Business divestments - 259 103
------ ----- ---
Net cash provided by (used in) investing activities (1,100) (227) 103
------ ----- ---
Cash Flows From Financing Activities
------------------------------------
Issuance of preferred stock - 290 -
Dividends paid (139) (85) (48)
Issuance of common stock 329 - -
Cash received from stock options exercised 8 14 41
Treasury stock acquired (58) (122) (89)
Stock tendered by employees for payment
of withholding taxes (77) (56) (10)
Issuance of long-term debt 450 100 100
Payments and redemptions of long-term debt (35) (209) (20)
Net change in short-term borrowings 258 (271) (165)
Redemption of redeemable preferred stock
(held by subsidiary) (100) (100) (100)
---- ----- ----
Net cash provided by (used in) financing activities 636 (439) (291)
---- ----- ----
Change in cash $ - $ - $ -
====== ===== =====
Supplemental disclosure of cash flow information:
-------------------------------------------------
Cash paid during the period for interest $ 68 $ 84 $ 100
==== ==== ====
Cash received during the period for taxes $ 129 $ 65 $ 27
==== ==== ====
The condensed financial statements should be read in conjunction with the consolidated financial statements
and notes thereto and the accompanying notes to the condensed financial information of Registrant.
F-13
SCHEDULE III
Notes to Condensed Financial Statements of Registrant
(In millions of dollars)
1. Principles of Consolidation
---------------------------
The accompanying financial statement include the accounts of The Travelers
Inc. (the Parent) and on an equity basis its subsidiaries and affiliates
and should be read in conjunction with the Consolidated Financial
Statements and notes thereto.
On December 17, 1992 Primerica Holdings, Inc. (Primerica Holdings), one
of the Parent's principal holding company subsidiaries, merged with and
into the Parent. The Parent is the surviving corporation of the
merger and has succeeded to all of the rights and obligations of
Primerica Holdings.
2. Debt
----
Aggregate annual maturities on long-term debt obligations excluding
principal payments on the ESOP loan obligation and the 12% GNMA/FNMA
collateralized obligations, are as follows:
1994 $ 93
1995 $ -
1996 $ 100
1997 $ 185
1998 $ 250
F-14
SCHEDULE VI
The Travelers Inc. and Subsidiaries
Reinsurance
(In millions of dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
% of
Ceded to Assumed Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount To Net
------ --------- --------- ------ -------
Year ended December 31, 1993
----------------------------
Life insurance in force (1) $502,319 $ 93,747 $5,126 $413,701 1.24%
======= ======= ====== ======= =====
Premiums
Life insurance $1,176 $284 $ 2 $ 894 0.2%
Accident and health insurance 393 56 (8) 329 (0.2)%
Warranty, property and
casualty insurance 417 177 17 257 0.6%
----- --- --- -----
$1,986 $517 $ 11 $1,480
===== === === =====
Year ended December 31, 1992
----------------------------
Life insurance in force $324,643 $ 90,379 $1,550 $235,814 .7%
======= ======= ===== ======= ====
Premiums
Life insurance $1,212 $312 $ 9 $ 909 1.0%
Accident and health insurance 437 40 7 404 1.6%
Warranty, property and
casualty insurance 513 180 48 381 12.8%
----- --- -- -----
$2,162 $532 $64 $1,694
===== === == =====
Year ended December 31, 1991
----------------------------
Life insurance in force $331,661 $105,994 $2,653 $228,320 1.2%
======= ======= ===== ======= ====
Premiums
Life insurance $1,281 $390 $38 $ 929 4.1%
Accident and health insurance 530 58 17 489 3.6%
Warranty, property and
casualty insurance 508 174 31 365 8.1%
----- --- -- -----
$2,319 $622 $86 $1,783
===== === == =====
(1) Amounts at December 31, 1993 include The Travelers Insurance Group.
F-15
Schedule IX
The Travelers Inc. and Subsidiaries
Short-term Borrowings
Year Ended December 31,
(In millions of dollars)
Column A Column B Column C Column D Column E Column F
- ------------------ ---------- -------------- --------------- --------------- -------------
Category of Weighted Maximum Average Weighted
Average
Aggregate Short- Balance at Average Amount Outstanding Amount Outstanding Interest
Rate
Term Borrowings End of Year Interest Rate During the Year During the Year During the
Year
- ------------------ ----------- ------------- --------------- --------------- ----------
1993
----
Commercial paper
- ----------------
Commercial Credit Company (2) $2,206 3.34% $2,387 $2,027 3.18%
The Travelers Inc. (2) $ 329 3.43% $ 361 $ 115 3.17%
Smith Barney Shearson (3) $1,401 3.29% $1,401 $ 606 3.16%
Amounts payable to banks for borrowings (1,3) $2,053 2.24% $2,838 $1,660 3.00%
---------------------------------------
Securities loaned or sold
- -------------------------
under agreements to repurchase $5,275 2.77% $7,968 $5,797 2.72%
-------------------------------
1992
----
Commercial paper (2)
----------------
Commercial Credit Company $2,387 3.55% $2,432 $2,092 3.76%
The Travelers Inc. $ 71 3.74% $ 374 $ 163 3.92%
Amounts payable to banks for borrowings(1,3) $ 670 4.07% $1,202 $ 871 4.05%
---------------------------------------
Securities loaned or sold
- -------------------------
under agreements to repurchase $3,441 3.30% $5,451 $4,357 3.26%
-------------------------------
1991
----
Commercial paper (2)
----------------
Commercial Credit Company $2,293 4.83% $3,002 $2,564 6.12%
The Travelers Inc. $1,020 5.61% $1,079 $ 913 6.22%
Amounts payable to banks for borrowings (1,3) $ 937 4.76% $1,118 $ 902 5.64%
- ---------------------------------------
Securities loaned or sold
- -------------------------
under agreements to repurchase $2,701 4.36% $5,442 $3,978 5.41%
-------------------------------
(1) Included at December 31, 1993, 1992 and 1991 is $2,053, $595 and $534,
respectively, of bank loans and notes to Lehman Brother Inc. (for 1993
only) which are included in the Statement of Financial Position under
the Caption "Investment banking and brokerage borrowings" and at
December 31, 1991, amounts include $237 of bank loans which are
included in the Statement of Financial Position under the caption
"Notes payable principally collateralized by first mortgage loans."
(2) Weighted average interest rates are computed by dividing the interest
during the period by the weighted average daily borrowings.
(3) Weighted average interest rates are computed by dividing the interest
during the period by the average amount outstanding based on month end
balances.
F-16
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Electronic
The Travelers Inc., as filed with the
Delaware Secretary of State on March 30,
1994.
3.02 By-Laws of the Company as amended effective
December 17, 1992, incorporated by
reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-3 (No. 33-
55542).
10.01* Employment Protection Agreement, dated as
of December 31, 1987, between the Company
(as successor to Commercial Credit Company)
and Sanford I. Weill, incorporated by
reference to Exhibit 10.03 to CCC's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-6594).
10.02.1* Stock Option Plan of the Company, as
amended through April 26, 1989,
incorporated by reference to Annex A to the
prospectus contained in the Company's
Registration Statement on Form S-8 (No. 33-
29711).
10.02.2* Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991
(File No. 1-9924) (the "Company's 1991 10-
K").
10.02.3* Amendments to the Company's Stock Option
Plan, approved by the Company's
stockholders on April 22, 1992,
incorporated by reference to Exhibit
10.02.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992 (File No.1-9924) (the
"Company's 1992 10-K").
10.02.4* Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5* Amendment No. 11 to the Company's Stock Electronic
Option Plan.
10.02.6* Amendment No. 12 to the Company's Stock Electronic
Option Plan.
10.03* Retirement Benefit Equalization Plan of Electronic
Primerica Corporation (as successor to
Primerica Holdings, Inc.), as amended.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.04* Letter Agreement between Joseph A.
Califano, Jr. and the Company, dated
December 14, 1988, incorporated by
reference to Exhibit 10.21.1 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
(File No. 1-9924) (the "Company's 1988 10-
K").
10.05.1* The Company's Deferred Compensation Plan
for Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2* Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1* Supplemental Retirement Plan of the
Company, incorporated by reference to
Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1990 (File No. 1-9924)
(the "Company's 1990 10-K").
10.06.2* Amendment to the Company's Supplemental Electronic
Retirement Plan.
10.07* Long-Term Incentive Plan of Primerica
Corporation, as amended, incorporated by
reference to Exhibit 10.08 to the Company's
1992 10-K.
10.08.1* Capital Accumulation Plan of the Company
(the "CAP Plan"), as amended to January 31,
1993, incorporated by reference to Exhibit
10.09 to the Company's 1992 10-K.
10.08.2* Amendment No. 8 to the Company's CAP Plan. Electronic
10.09.1* Employment Agreement dated as of December
16, 1988 among Smith Barney Shearson Inc.
(formerly Smith Barney, Harris Upham & Co.
Incorporated; hereinafter "SBS"), the
Company and Frank G. Zarb (the "FGZ
Employment Agreement"), incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1989 (File
No. 1-9924).
10.09.2* Assignment Agreement and Amendment No. One Electronic
to FGZ Employment Agreement.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles
D. Adams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., SBS, the Company, American
Express Company and Shearson Lehman
Brothers Holdings Inc. (the "SLB
Agreement"), incorporated by reference to
Exhibit 10.21 to the Company's 1992 10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1993 (File
No. 1-9924) (the "Company's June 30, 1993
10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1* Employment Agreement dated June 23, 1993,
by and among SBS, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2* Form of Amendment to the RFG Employment Electronic
Agreement.
10.18* Memorandum of Sale dated June 23, 1993,
between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.02 to the Company's September
30, 1993 10-Q.
10.19* Registration Rights Agreement dated June
23, 1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September
30, 1993 10-Q.
10.20* Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September
30, 1993 10-Q.
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old
Travelers"), incorporated by reference to
Exhibit 2.1 to the Current Report on Form
8-K of old Travelers, dated September 23,
1993 and filed with the Commission on
October 8, 1993 (File No. 1-5799).
10.22* Agreement dated December 21, 1993 between Electronic
the Company and Edward H. Budd.
10.23* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Richard H. Booth.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.24* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Robert W. Crispin.
10.25* The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1991 (File No. 1-5799) (the
"old Travelers' 1991 10-K").
10.26* The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1992 (File No. 1-5799) (the
"old Travelers' 1992 10-K").
10.27* The Travelers Corporation 1984 Management
Incentive Plan, as amended effective
January 1, 1991, incorporated by reference
to Exhibit 10(c) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1990 (File No. 1-
5799).
10.28* The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
10.29* The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers' 1991
10-K.
10.30* The Travelers Severance Plan of Officers, Electronic
as amended September 23, 1993.
10.31* The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by reference
to Exhibit 10(d) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1986 (File No. 1-
5799).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
13.01 Pages 24 through 57 of the 1993 Annual Report Electronic
to Stockholders of the Company.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
21.01 Subsidiaries of the Company. Electronic
23.01 Consent of KPMG Peat Marwick, Independent Electronic
Certified Public Accountants.
23.02 Consent of Coopers & Lybrand, Independent Electronic
Accountants.
24.01 Powers of Attorney. Electronic
28.01 Information from Reports Furnished to State P
Insurance Regulatory Authorities. Schedule Paper
P of the Consolidated Annual Statement of
The Travelers Insurance Group Inc. and its
affiliated fire and casualty insurers, and
Schedule P of the Consolidated Annual
Statement of Gulf Insurance Company and its
affiliated fire and casualty insurers.
99.01 Consolidated balance sheets of The Electronic
Travelers Corporation and Subsidiaries as
of December 31, 1993 and 1992, and the
related consolidated statements of
operations and retained earnings and cash
flows for each of the three years in the
period ended December 31, 1993, together
with the notes thereto and the related
report of Independent Accountants.
99.02 The last paragraph of page 2 and the first Electronic
two paragraphs of page 3 of the Company's
Current Report on Form 8-K dated September
23, 1993 (File No. 1-9924), the third
paragraph of page 26 of the Company's
September 30, 1993 10-Q, and the third
paragraph of page 2 of the Company's
Current Report on Form 8-K dated
March 1, 1994 (File No. 1-9924) (the
"Company's March 1, 1994 8-K").
99.03 The third and fourth paragraphs of page 30 Electronic
of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
(File No. 1-9924) (the "Company's 1989 10-
K").
99.04 The first, second and third paragraphs of Electronic
page 31 of the Company's 1989 10-K, and the
first paragraph of page 30 of the Company's
1990 10-K.
99.05 The fourth paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
99.06 The fourth paragraph of page 31 of the Electronic
Company's 1989 10-K, and the fourth full
paragraph of page 26 of the Company's 1991
10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
99.07 The first full paragraph of page 26 of the Electronic
Company's 1992 10-K.
99.08 The fourth paragraph of page 2 of the Electronic
Company's March 1, 1994 8-K.
99.09 The paragraph that begins on page 2 and Electronic
ends on page 3 of the Company's March 1,
1994 8-K.
99.10 The second paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not
exceed 10% of the total assets of the Company and its consolidated
subsidiaries. The Company will furnish copies of any such instrument
to the Commission upon request.
The financial statements required by Form 11-K for 1993 for the
Company's employee savings plans will be filed as exhibits by
amendment to this Form 10-K pursuant to Rule 15d-21 of the Securities
Exchange Act of 1934, as amended.
Copies of any of the exhibits referred to above will be furnished at
a cost of $.25 per page (except that no charge will be made for the
1993 Annual Report on Form 10-K) to security holders who make written
request therefor to Corporate Communications and Investor Relations
Department, The Travelers Inc., 65 East 55th Street, New York, New
York 10022.
______________________________
* Denotes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.