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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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 001-31266

Travelers Property Casualty Corp.

(Exact name of registrant as specified in its charter)
     
Connecticut
(State or other jurisdiction of
incorporation or organization)		   06-1008174
(I.R.S. Employer
Identification No.)

One Tower Square, Hartford, Connecticut 06183
(Address of principal executive offices)

(860) 277-0111
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  [x]  No  [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes  [   ]  No  [x]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common stock outstanding as of July 28, 2003:

         
Class A     507,089,579  
Class B     499,901,062  

 

 

TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

         
        Page
       
Part I - Financial Information    
Item 1.   Financial Statements:    
    Condensed Consolidated Statement of Income (Unaudited) - Three and Six Months Ended June 30, 2003 and 2002   3
    Condensed Consolidated Balance Sheet - June 30, 2003 (Unaudited) and December 31, 2002   4
   
Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) - Six Months Ended June 30, 2003 and 2002
  5
    Condensed Consolidated Statement of Cash Flows (Unaudited) - Six Months Ended June 30, 2003 and 2002   6
    Notes to Condensed Consolidated Financial Statements (Unaudited)   7
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   24
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   49
Item 4.   Controls and Procedures   50
Part II - Other Information    
Item 1.   Legal Proceedings   51
Item 4.   Submission of Matters to a Vote of Security Holders   54
Item 5.   Other Information   56
Item 6.   Exhibits and Reports on Form 8-K   56
Signatures   57
Exhibit Index   58

2

 

TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share data)

                                   
      Three Months Ended   Six Months Ended
      June 30,   June 30,
     
 
      2003   2002   2003   2002
     
 
 
 
Revenues
                                
Premiums
   $ 3,100.4     $ 2,756.7     $ 6,079.0     $ 5,341.3  
Net investment income
     455.9       464.8       911.8       952.6  
Fee income
     133.7       108.8       270.0       211.5  
Realized investment gains (losses), net
     16.1       (36.0 )     22.6       (7.2 )
Other revenues
     42.6       25.5       68.3       54.3  
 
    
     
     
     
 
 
Total revenues
     3,748.7       3,319.8       7,351.7       6,552.5  
 
    
     
     
     
 
Claims and expenses
                                
Claims and claim adjustment expenses
     2,211.0       2,094.3       4,498.9       4,080.4  
Amortization of deferred acquisition costs
     483.4       446.1       946.1       872.5  
Interest expense
     40.3       39.8       92.0       75.6  
General and administrative expenses
     413.3       304.4       806.7       634.5  
 
    
     
     
     
 
 
Total claims and expenses
     3,148.0       2,884.6       6,343.7       5,663.0  
 
    
     
     
     
 
Income before federal income taxes, minority interest and cumulative effect of change in accounting principle
     600.7       435.2       1,008.0       889.5  
Federal income taxes
     155.1       103.2       244.9       212.8  
Minority interest, net of tax
     4.4       —       (18.1 )     —  
 
    
     
     
     
 
Income before cumulative effect of change in accounting principle
     441.2       332.0       781.2       676.7  
Cumulative effect of change in accounting for goodwill and other intangible assets, net of tax
     —       —       —       (242.6 )
 
    
     
     
     
 
Net income
   $ 441.2     $ 332.0     $ 781.2     $ 434.1  
 
    
     
     
     
 
Basic earnings per share
                                
Income before cumulative effect of change in accounting principle
   $ 0.44     $ 0.33     $ 0.78     $ 0.75  
Cumulative effect of change in accounting principle
     —       —       —       (0.27 )
 
    
     
     
     
 
Net income
   $ 0.44     $ 0.33     $ 0.78     $ 0.48  
 
    
     
     
     
 
Weighted average number of common shares outstanding
     1,002.3       1,000.0       1,002.4       897.9  
 
    
     
     
     
 
Diluted earnings per share
                                
Income before cumulative effect of change in accounting principle
   $ 0.44     $ 0.33     $ 0.78     $ 0.75  
Cumulative effect of change in accounting principle
     —       —       —       (0.27 )
 
    
     
     
     
 
Net income
   $ 0.44     $ 0.33     $ 0.78     $ 0.48  
 
    
     
     
     
 
Weighted average number of common shares outstanding and common stock equivalents
     1,007.7       1,000.0       1,007.6       897.9  
 
    
     
     
     
 

See notes to condensed consolidated financial statements.

3

 

TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except shares and per share data)

                     
        June 30,        
        2003   December 31,
        (Unaudited)   2002
       
 
Assets
                
Fixed maturities, available for sale at fair value (including $3,316.7 and $580.5 subject to securities lending and repurchase agreements) (amortized cost $29,849.5 and $28,877.8)
   $ 31,668.3     $ 30,003.2  
Equity securities, at fair value (cost $755.3 and $861.9)
     811.3       851.5  
Mortgage loans
     251.9       257.9  
Real estate held for sale
     1.7       12.5  
Short-term securities
     5,210.7       4,853.6  
Trading securities, at fair value
     43.8       40.7  
Other investments
     2,240.8       2,405.8  
 
    
     
 
 
Total investments
     40,228.5       38,425.2  
 
    
     
 
Cash
     209.1       92.2  
Investment income accrued
     337.7       339.3  
Premium balances receivable
     4,095.3       3,861.4  
Reinsurance recoverables
     11,043.8       10,977.5  
Deferred acquisition costs
     923.0       873.0  
Deferred federal income taxes
     734.5       1,447.1  
Contractholder receivables
     2,710.8       2,544.1  
Goodwill
     2,411.5       2,411.5  
Receivables for investment sales
     631.1       138.7  
Other assets
     2,705.4       3,027.5  
 
    
     
 
 
Total assets
   $ 66,030.7     $ 64,137.5  
 
    
     
 
Liabilities
                
Claims and claim adjustment expense reserves
   $ 33,650.9     $ 33,736.0  
Unearned premium reserves
     6,818.8       6,459.9  
Contractholder payables
     2,710.8       2,544.1  
Short-term debt
     450.4       —  
Notes payable to former affiliates
     —       700.0  
Long-term debt
     1,758.1       926.2  
Convertible junior subordinated notes payable
     868.3       867.8  
Convertible notes payable
     49.7       49.7  
Payables for investment purchases
     1,046.5       3,737.9  
Payables for securities lending and repurchase agreements
     3,302.4       597.9  
Other liabilities
     4,059.0       3,480.7  
 
    
     
 
 
Total liabilities
     54,714.9       53,100.2  
 
    
     
 
TIGHI-obligated mandatorily redeemable securities of subsidiary trusts holding solely junior subordinated debt securities of TIGHI
     —       900.0  
 
    
     
 
Shareholders’ equity
                
Common Stock:
                
   
Class A, $.01 par value, 1.5 billion shares authorized, 508.1 million and 504.2 million issued and outstanding at June 30, 2003 and December 31, 2002, respectively
     5.1       5.0  
   
Class B, $.01 par value, 1.5 billion shares authorized, 500.0 million issued and outstanding
     5.0       5.0  
Additional paid-in capital
     8,667.5       8,618.4  
Retained earnings
     1,538.7       880.5  
Accumulated other changes in equity from nonowner sources
     1,162.2       656.6  
Treasury stock, at cost (1.3 million and .3 million shares)
     (19.7 )     (4.9 )
Unearned compensation
     (43.0 )     (23.3 )
 
    
     
 
 
Total shareholders’ equity
     11,315.8       10,137.3  
 
    
     
 
 
Total liabilities and shareholders’ equity
   $ 66,030.7     $ 64,137.5  
 
    
     
 

See notes to condensed consolidated financial statements.

4

 

TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in millions)

                   
For the six months ended June 30,   2003   2002
 
 
Common stock and additional paid in capital
                
Balance, beginning of period
   $ 8,628.4     $ 4,440.7  
Net employee stock-based compensation plans
     52.9       —  
Net proceeds from initial public offering
     —       4,089.5  
Other
     (3.7 )     18.2  
 
    
     
 
Balance, end of period
     8,677.6       8,548.4  
 
    
     
 
Retained earnings
                
Balance, beginning of period
     880.5       6,004.2  
Net income
     781.2       434.1  
Receipts from former subsidiaries
     —       157.5  
Dividends
     (123.0 )     (5,252.5 )
 
    
     
 
Balance, end of period
     1,538.7       1,343.3  
 
    
     
 
Accumulated other changes in equity from nonowner sources, net of tax
                
Balance, beginning of period
     656.6       241.4  
Net unrealized gain on investment securities
     492.5       120.6  
Other
     13.1       10.4  
 
    
     
 
Balance, end of period
     1,162.2       372.4  
 
    
     
 
Treasury stock (at cost)
                
Balance, beginning of period
     (4.9 )     —  
Net employee stock-based compensation plans
     (14.8 )     —  
 
    
     
 
Balance, end of period
     (19.7 )     —  
 
    
     
 
Unearned compensation
                
Balance, beginning of period
     (23.3 )     —  
Net issuance of restricted stock under employee stock-based compensation plans
     (33.5 )     —  
Restricted stock amortization
     13.8       —  
 
    
     
 
Balance, end of period
     (43.0 )     —  
 
    
     
 
 
Total shareholders’ equity
   $ 11,315.8     $ 10,264.1  
 
    
     
 
Common shares outstanding
                
Balance, beginning of period
     1,003.9       769.0  
Shares issued in Initial Public Offering
     —       231.0  
Net shares issued for employee stock-based compensation plans
     2.9       —  
 
    
     
 
Balance, end of period
     1,006.8       1,000.0  
 
    
     
 

See notes to condensed consolidated financial statements.

5

 

TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)

                   
For the six months ended June 30,   2003   2002
 
 
Cash flows from operating activities
                
Net income
   $ 781.2     $ 434.1  
Adjustments to reconcile net income to net cash provided by operating activities:
                
 
Realized investment (gains) losses, net
     (22.6 )     7.2  
 
Cumulative effect of changes in accounting principles, net of tax
     —       242.6  
 
Depreciation and amortization
     18.9       18.5  
 
Deferred federal income taxes (benefit)
     440.8       (50.4 )
 
Amortization of deferred policy acquisition costs
     946.1       872.5  
 
Premium balances receivable
     (233.9 )     (209.0 )
 
Reinsurance recoverables
     (66.3 )     56.3  
 
Deferred acquisition costs
     (996.1 )     (953.0 )
 
Insurance reserves
     273.8       474.6  
 
Trading account activities
     (3.1 )     209.5  
 
Recoveries from former affiliate
     360.7       —  
 
Other
     331.9       6.0  
 
    
     
 
Net cash provided by operating activities
     1,831.4       1,108.9  
 
    
     
 
Cash flows from investing activities
                
Proceeds from maturities of investments
                
 
Fixed maturities
     2,054.4       1,394.1  
 
Mortgage loans
     13.7       13.1  
Proceeds from sales of investments
                
 
Fixed maturities
     4,130.5       5,885.3  
 
Equity securities
     148.6       76.1  
 
Real estate held for sale
     10.8       —  
Purchases of investments
                
 
Fixed maturities
     (7,199.1 )     (8,389.8 )