<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                -----------------

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

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

                  FOR THE TRANSITION PERIOD FROM ______ TO ______

                                ----------------
                         COMMISSION FILE NUMBER 1-14328
                                ----------------

                        TRAVELERS PROPERTY CASUALTY CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  DELAWARE                                      06-1445591
(STATE OR OTHER JURISDICTION OF  INCORPORATION               (I.R.S. EMPLOYER
               OR ORGANIZATION)                              IDENTIFICATION NO.)


                  ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
                                 (860) 277-0111
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                ----------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
              TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
              -------------------                    -----------------------------------------
<S>                                                  <C>
        6-3/4% NOTES DUE APRIL 15, 2001                       NEW YORK STOCK EXCHANGE

      8.08% TRUST PREFERRED SECURITIES OF                     NEW YORK STOCK EXCHANGE
  SUBSIDIARY TRUST (AND REGISTRANT'S GUARANTY
             WITH RESPECT THERETO)

  8% TRUST PREFERRED SECURITIES OF SUBSIDIARY                 NEW YORK STOCK EXCHANGE
     TRUST (AND REGISTRANT'S GUARANTY WITH
                RESPECT THERETO)
</TABLE>

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]

AS OF THE DATE HEREOF THERE WERE 1,000 SHARES OF THE REGISTRANT'S COMMON STOCK,
PAR VALUE $0.01 PER SHARE, ALL OF WHICH WERE OWNED BY THE TRAVELERS INSURANCE
GROUP INC., AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CITIGROUP INC.



                            REDUCED DISCLOSURE FORMAT

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.



DOCUMENTS INCORPORATED BY REFERENCE:  NONE
<PAGE>   2
                        TRAVELERS PROPERTY CASUALTY CORP.

                           ANNUAL REPORT ON FORM 10-K

                     FOR FISCAL YEAR ENDED DECEMBER 31, 2000

                         ------------------------------

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
FORM 10-K
ITEM NUMBER                                                                 PAGE
-----------                                                                 ----
<S>                                                                        <C>
      PART I

1.    Business.........................................................       1
2.    Properties.......................................................      17
3.    Legal Proceedings................................................      17
4.    Submission of Matters to a Vote of Security Holders..............      18

      PART II

5.    Market for Registrant's Common Equity and
        Related Stockholder Matters....................................      18
6.    Selected Financial Data..........................................      18
7.    Management's Discussion and Analysis of Financial Conditions and
        Results of Operations..........................................      18
7A.   Quantitative and Qualitative Disclosures About Market Risk.......      36
8.    Financial Statements and Supplementary Data......................      39
9.    Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure............................      77

      PART III

10.   Directors and Executive Officers of the Registrant...............      77
11.   Executive Compensation...........................................      77
12.   Security Ownership of Certain Beneficial Owners
        and Management.................................................      77
13.   Certain Relationships and Related Transactions...................      77

      PART IV

14.   Exhibits, Financial Statement Schedules, and Reports
        on Form 8-K....................................................      78
      Exhibit Index....................................................      79
      Signatures.......................................................      81
      Index to Consolidated Financial Statements and Schedules.........      83
</TABLE>
<PAGE>   3
                                     PART I


ITEM 1.  BUSINESS.


Travelers Property Casualty Corp., an indirect, wholly-owned subsidiary of
Citigroup Inc. ("Citigroup"), is a property-casualty insurance holding company
engaged, through its subsidiaries, in two business segments: Commercial Lines
and Personal Lines. The Company provides a wide range of commercial and personal
property and casualty insurance products and services to businesses, government
units, associations and individuals, primarily in the United States. Except as
the context otherwise requires, as used herein the "Company" refers to Travelers
Property Casualty Corp. and its consolidated subsidiaries.

Travelers Property Casualty Corp. was formed in January 1996 to hold the
property and casualty insurance subsidiaries (collectively, "Travelers P&C") of
The Travelers Insurance Group Inc. ("TIGI"), an indirect wholly-owned subsidiary
of Citigroup. On April 2, 1996, the Company purchased from Aetna Services, Inc.
(formerly Aetna Life and Casualty Company) ("Aetna") all of the outstanding
capital stock (the "Acquisition") of Aetna's property and casualty insurance
subsidiaries (collectively, "Aetna P&C"), for approximately $4.2 billion in
cash. At December 31, 1999, TIGI owned approximately 85% of the Company's
outstanding common stock.

During April 2000, TIGI completed a cash tender offer to purchase all of the
outstanding shares of Class A Common Stock of the Company at a price of $41.95
per share. TIGI also established a wholly-owned subsidiary of TIGI which
effected a merger pursuant to which the Company became a wholly-owned subsidiary
of TIGI. Upon the merger of the new subsidiary into the Company, all previously
outstanding shares of Class B Common Stock were converted to shares of Class A
Common Stock and all resulting outstanding shares of Class A Common Stock of the
Company became authorized and unissued shares and the 1,000 shares of Common
Stock of the new subsidiary (held by TIGI) were exchanged for 1,000 shares of
Class A Common Stock of the Company. On June 29, 2000, the Company restated its
certificate of incorporation and reclassified the Class A Common Stock to Common
Stock, which had the effect of retiring all treasury stock. At December 31, 2000
the Company's common stock outstanding consists of 1,000 shares of Common Stock,
which are 100% owned by TIGI.

Citigroup indirectly owns all the Company's outstanding common stock at December
31, 2000. Citigroup is a diversified holding company whose businesses provide a
broad range of financial services to consumer and corporate customers around the
world. The periodic reports of Citigroup provide additional business and
financial information concerning that company and its consolidated subsidiaries.

The principal executive offices of the Company are located at One Tower Square,
Hartford, Connecticut 06183; telephone number (860) 277-0111.

This discussion of the Company's business is organized as follows: (i) a
description of each of the Company's two business segments and related services;
(ii) a description of Interest Expense and Other; and (iii) certain other
information.(1)


--------

(1) Certain items in this Form 10-K, including certain matters discussed under
Item 7, "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" (the "MD&A"), are forward-looking statements. The matters
referred to in such statements could be affected by the risks and uncertainties
involved in the Company's business, including the effect of economic and market
conditions, the level and volatility of interest rates and currency values, the
impact of current or pending legislation and regulation and the other risks and
uncertainties detailed in the section under the heading "Outlook" and in the
Forward Looking Statements section of the MD&A.
<PAGE>   4
COMMERCIAL LINES

The Company is the third largest writer of commercial lines insurance in the
United States based on 1999 direct written premiums as compiled and published by
A.M. Best Company ("A.M. Best"). Commercial Lines offers a broad array of
property and casualty insurance and insurance-related services to its customers.
Commercial Lines is organized into four marketing and underwriting groups that
are designed to focus on a particular client base or industry segment to provide
products and services that specifically address customers' needs: National
Accounts, primarily serving large corporations; Commercial Accounts, serving
mid-sized businesses for casualty products and both large and mid-sized
businesses for property products; Select Accounts, serving small businesses; and
Specialty Accounts, providing a variety of specialty coverages. The Company also
has a dedicated group within Commercial Accounts that serves the construction
industry. In 2000, Commercial Lines generated net written premiums of
approximately $5.0 billion.


                            2000 NET WRITTEN PREMIUMS

<TABLE>
<CAPTION>
                                          AMOUNT OF
                                             NET
                                           WRITTEN                 PERCENTAGE OF TOTAL
                                           PREMIUMS                NET WRITTEN PREMIUMS
                                           --------                --------------------
                                     (Dollars in millions)
<S>                                  <C>                           <C>
NET WRITTEN PREMIUMS BY
PRODUCT LINE:
   Commercial multi-peril                  $1,644                         32.7%
   Workers' compensation                    1,062                         21.1
   Commercial automobile                      778                         15.5
   Property                                   638                         12.7
   Fidelity and surety                        475                          9.4
   General liability                          432                          8.6
   Other                                        2                           --
                                           ------                        -----
      Total Commercial Lines               $5,031                        100.0%
                                           ======                        =====
</TABLE>

PRODUCT LINES

The Company writes a broad range of commercial property and casualty insurance
for risks of all sizes. The core products in Commercial Lines are as follows:

COMMERCIAL MULTI-PERIL provides a combination of property and liability coverage
for businesses. Property insurance covers damages such as those caused by fire,
wind, hail, water, theft and vandalism, and protects businesses from financial
loss due to business interruption resulting from a covered loss. Liability
coverage also insures businesses against third-party liability from accidents
occurring on their premises or arising out of their operations, such as injuries
sustained from products sold.

WORKERS' COMPENSATION provides coverage for employers for specified benefits
payable under state or federal law for workplace injuries to employees. There
are typically four types of benefits payable under workers' compensation
policies: medical benefits, disability benefits, death benefits and vocational
rehabilitation benefits. The Company offers three types of workers' compensation
products: (i) guaranteed cost insurance products, in which policy premium
charges are fixed and do not vary as a result


                                       2
<PAGE>   5
of the insured's loss experience, (ii) loss-sensitive insurance products,
including large deductible plans and retrospectively rated policies, in which
fees or premiums are adjusted based on actual loss experience of the insured
during the policy period, and (iii) service programs, which are generally sold
to the Company's National Accounts customers, where the Company receives fees
rather than premiums for providing loss prevention, risk management, and claim
and benefit administration services to organizations pursuant to service
agreements. The Company also participates in state assigned risk pools servicing
workers' compensation policies as a servicing carrier and pool participant. The
Company emphasizes managed care cost containment strategies (which involve
employers, employees and care providers in a cooperative effort that focuses on
the injured employee's early return to work), cost-effective quality care, and
customer service in this market.

COMMERCIAL AUTOMOBILE provides coverage for businesses against losses incurred
from personal bodily injury, bodily injury to third parties, property damage to
an insured's vehicle, and property damage to other vehicles and other property
resulting from the ownership, maintenance or use of automobiles and trucks in a
business.

PROPERTY provides coverage for loss or damage to buildings, inventory and
equipment from natural disasters, including hurricanes, windstorms, earthquakes,
hail, explosions, severe winter weather and other events such as theft and
vandalism, fires and storms and financial loss due to business interruption
resulting from covered property damage. Property also includes boiler and
machinery insurance, which provides coverage for loss or damage resulting from
the mechanical breakdown of boilers and machinery, and inland marine, which
provides coverage for goods in transit and unique, one-of-a-kind exposures.

FIDELITY AND SURETY provides fidelity insurance coverage which protects an
insured for loss due to embezzlement or misappropriation of funds by an
employee, and surety which is a three-party agreement whereby the insurer agrees
to pay a second party or make complete an obligation in response to the default,
acts or omissions of a third party. Surety is generally provided for
construction performance, legal matters such as appeals, trustees in bankruptcy
and probate and other performance bonds.

GENERAL LIABILITY provides coverage for liability exposures including bodily
injury and property damage arising from products sold and general business
operations. Liability policies may also include coverage for directors' and
officers' liability arising in their official capacities, employment practices
liability insurance, fiduciary liability for trustees and sponsors of pension,
health and welfare, and other employee benefit plans, errors and omissions
insurance for employees, agents, professionals and others arising from acts or
failures to act under specified circumstances, as well as medical malpractice,
umbrella and excess insurance.

OTHER coverages include miscellaneous assumed reinsurance.

PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

The Company distributes its commercial products through approximately 5,500
brokers and independent agencies located throughout the United States that are
serviced by approximately 80 field offices and two customer service centers. The
Company has made a significant investment in enhanced technology utilizing
internet-based applications to improve interface capabilities with its
independent agencies and brokers. The Company seeks to establish relationships
with well-established, independent insurance agencies and brokers. In selecting
new independent agencies and brokers to distribute the Company's products, the
Company considers each agency's or broker's profitability, financial stability,
staff


                                       3
<PAGE>   6
experience and strategic fit with the Company's operating and marketing plans.
Once an agency or broker is appointed, the Company carefully monitors its
performance.

NATIONAL ACCOUNTS

The Company's National Accounts provides a variety of casualty products to large
companies. The Company's National Accounts also includes the Company's
alternative market business, which primarily offers workers' compensation
products and services to the involuntary market. National Accounts customers
generally select loss-sensitive products in connection with a large deductible
or self-insured program and, to a lesser extent, a guaranteed cost or a
retrospectively rated insurance policy. Customers are frequently national in
scope and range in size from businesses with sales of approximately $10 million
per year to Fortune 2000 corporations. Through a network of field offices, the
Company's marketing and underwriting specialists work closely with national and
regional brokers to tailor insurance coverages to meet customers needs. Workers'
compensation accounted for approximately 72% of the products sold in 2000 to
National Accounts customers, based on gross written premiums and fee income.

COMMERCIAL ACCOUNTS

The Company's Commercial Accounts sells a broad range of property and casualty
insurance products through a large network of independent agents and brokers.
Commercial Accounts casualty products target businesses with 75 to 1,000
employees, while its property products target both large and mid-sized
businesses. The Company offers a full line of products to its Commercial
Accounts customers, with an emphasis on guaranteed cost products. In the third
quarter of 2000, the Company purchased the renewal rights to a portion of
Reliance Group Holdings, Inc.'s Commercial Lines middle-market book of business.

The Company continues to develop new industry-targeted programs both on a
national and local level. Specific industry knowledge enables the Company to
select, as customers, better managed companies in an industry segment, to tailor
specialized coverages for those companies, to link price to the individual
exposure and to control risk. The Company uses components of this approach
specifically in connection with loss control and claims management processing.
Through a network of field offices, the Company's marketing and underwriting
specialists, who have point of sale authority, work closely with local brokers
and agents to tailor insurance coverage to individual customer needs. Within
Commercial Accounts, the Company has a Construction unit with dedicated claims,
engineering and underwriting expertise, providing insurance and risk management
targeted to the construction industry.

SELECT ACCOUNTS

Select Accounts serves firms typically with one to 75 employees. Products
offered by Select Accounts are generally guaranteed cost policies, often a
packaged product covering property and liability exposures. Products are sold
through independent agents, who are often the same agents that sell the
Company's Commercial Accounts and Personal Lines products.

SPECIALTY ACCOUNTS

Specialty Accounts markets products to national, mid-sized and small customers,
and distributes them through both wholesale brokers and retail agents and
brokers throughout the United States. The Company believes that it has a
competitive advantage with respect to many of these products based on its
reputation for timely decision-making, underwriting, claim-handling abilities,
industry expertise and strong producer


                                       4
<PAGE>   7
and customer relationships as well as its ability to cross-sell with National
Accounts, Commercial Accounts and Select Accounts.

The Company has two separate marketing and underwriting groups within Specialty
Accounts:

Gulf Specialty focuses on many non-traditional lines of business, with a
particular emphasis on professional liability and management liability. Products
include directors' and officers' liability insurance, errors and omissions
coverages for financial institutions, investment counselors and mutual fund
advisors, and fidelity and surety coverage for related classes. In addition,
Gulf Specialty offers professional liability coverage for professionals such as
lawyers, architects and engineers, insurance agents, podiatrists and
chiropractors medical malpractice. Gulf Specialty also writes umbrella coverage
for various industries, provides insurance products to the entertainment and
transportation industries and provides insurance products for other industry
specific programs. In the third quarter of 2000, the Company purchased the
renewal rights to Frontier Insurance Group, Inc.'s environmental excess and
surplus lines casualty businesses and certain classes of surety business.

Bond Specialty's range of products includes fidelity and surety bonds,
directors' and officers' and other professional liability insurance, employment
practices liability insurance, fiduciary liability insurance and other related
coverages. The customer base ranges from large financial services companies and
commercial entities to small businesses and individuals. Products and services
are distributed primarily through agents and brokers. Bond Specialty is
organized around three broad customer segments: Financial Services, Construction
and Commercial Risk, and two specialized product niches: Surety and Executive
Liability Services.

On May 31, 2000, the Company completed the acquisition of the surety business of
Reliance Group Holdings, Inc. ("Reliance Surety") for $580 million. In
connection with the acquisition, the Company entered into a reinsurance
arrangement for pre-existing business, and the resulting net cash outlay for
this transaction was approximately $278 million. This transaction included the
acquisition of an intangible asset of approximately $450 million, which is being
amortized over 15 years. Accordingly, the results of operations and the assets
and liabilities acquired from Reliance Surety are included in the financial
statements beginning June 1, 2000. This acquisition was accounted for as a
purchase.

PERSONAL LINES

The Company is the second largest writer of personal lines insurance through
independent agents and the eighth largest writer of personal lines insurance
overall in the United States based on 1999 direct written premiums as compiled
and published by A.M. Best. In 2000, Personal Lines generated net written
premiums of approximately $3.8 billion.


                                       5
<PAGE>   8
                            2000 NET WRITTEN PREMIUMS

<TABLE>
<CAPTION>
                                        AMOUNT
                                        OF NET            PERCENTAGE OF  TOTAL
                                        WRITTEN               NET  WRITTEN
                                        PREMIUMS                PREMIUMS
                                         ------                   -----
                                 (Dollars in millions)
<S>                              <C>                      <C>
NET WRITTEN PREMIUMS BY
PRODUCT LINE:
   Personal automobile                   $2,366                     62.1%
   Homeowners and other                   1,447                     37.9
                                         ------                    -----
      Total Personal Lines               $3,813                    100.0%
                                         ======                    =====
</TABLE>

PRODUCT LINES

The Company writes virtually all types of property and casualty insurance
covering personal risks. Personal Lines had approximately 5.4 million policies
in force at December 31, 2000. The primary coverages in Personal Lines are
personal automobile and homeowners insurance sold to individuals.

PERSONAL AUTOMOBILE provides 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 provides protection against losses to dwellings and contents from a
wide variety of perils, as well as coverage for liability arising from ownership
or occupancy. The Company writes homeowners insurance for dwellings,
condominiums and rental property contents. OTHER products include coverage for
boats, personal articles such as jewelry, and umbrella liability protection.

PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

Personal Lines products are distributed primarily through approximately 5,300
independent agencies located throughout the United States, supported by a
network of 13 field marketing offices and five customer service centers. In the
states of Florida, New Jersey and Massachusetts, the Company operates domestic
companies to enhance its competitive capability in these highly regulated
markets. The Company primarily distributes its products through independent
agents in these markets. Personal Lines also markets through alternative
distribution channels, including sponsoring organizations such as employee and
affinity groups, and joint marketing arrangements with other insurers. In
addition, in 1998, Personal Lines began cross-marketing its products to Citibank
N.A. customers, primarily credit cardholders. Citibank is a subsidiary of
Citigroup. Also, in 2000, the Company continued to expand its presence on the
internet. Although it is in the early stages of growth, this new distribution
channel provides a significant opportunity to reach potential customers. While
the Company's principal markets for Personal Lines insurance are in states along
the East Coast, in the South and Texas, Personal Lines is expanding its
geographical presence across the United States.


                                       6
<PAGE>   9
Insurance companies generally market personal automobile and homeowners
insurance through one of three distribution systems: independent agents,
exclusive agents or direct writing. The independent agents that distribute the
Company's Personal Lines products usually represent several unrelated property
and casualty companies. Exclusive agents represent one company and generally
sell a number of products, including life insurance and annuities in addition to
property-casualty products. In contrast, direct writing companies generally
operate by mail and telephone through sales representatives. Due in part to the
expense advantage that direct writers may have relative to companies using
independent agents and changing customer buying preferences to buying directly
from companies, the direct writing companies have gradually expanded their
market share in recent years. Nonetheless, the Company continues to be able to
grow its business consistent with its overall strategy.

Personal Lines continues to distribute its products through the independent
agency distribution system, recognizing the service and underwriting advantages
the agent can deliver. In addition to its agency distribution system, the
Company has broadened its distribution channels for Personal Lines products as
noted above. In marketing its products directly to Citibank customers, Personal
Lines solicits potential customers by telephone after transfer from a Citibank
customer service call center, through direct mail or inserts in credit card
statements. Potential customers for the Citibank program and certain affinity
group programs are directed to one of the Company's three telemarketing centers
where a licensed telemarketing sales representative underwrites and sells new
business to interested individuals.

Since 1995, the Company has had a marketing agreement with GEICO to write the
majority of GEICO's homeowners business, and to receive referrals from GEICO for
new homeowners business. This agreement added historically profitable business
and helped to geographically diversify the homeowners line of business. It also
provided for limits on Personal Lines' obligation to write new and renewal
business in certain catastrophe-prone areas.

The Company believes that its focus on service and development of long-term
relationships with individual agents gives it a competitive advantage in the
Personal Lines market. The Company believes that its expense management
practices, including prompt and efficient claims handling and high level of
automation, allow it to offer a competitively priced product. In addition, the
Company is leveraging its service, claims handling and automation experience in
the expansion of the distribution of Personal Lines products through its
alternative distribution channels.

REINSURANCE

The Company reinsures a portion of the risks it underwrites in order to control
its exposure to losses, stabilize earnings and protect capital resources. The
Company cedes to reinsurers a portion of these risks and pays premiums based
upon the risk and exposure of the policies subject to such reinsurance.
Reinsurance involves credit risk and is generally subject to aggregate loss
limits. Although the reinsurer is liable to the Company to the extent of the
reinsurance ceded, the Company remains primarily liable as the 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. The Company
monitors the financial condition of reinsurers on an ongoing basis, and reviews
its reinsurance arrangements periodically. Reinsurers are selected based on
their financial condition, business practices and the price of their product
offerings. For additional information concerning reinsurance, see Note 5 of
Notes to Consolidated Financial Statements.


                                       7
<PAGE>   10
The Company utilizes a variety of reinsurance agreements to control its exposure
to large property and casualty losses. The Company utilizes the following types
of reinsurance: (i) facultative reinsurance, in which reinsurance is provided
for all or a portion of the insurance provided by a single policy and each
policy reinsured is separately negotiated; (ii) treaty reinsurance, in which
reinsurance is provided for a specified type or category of risks; and (iii)
catastrophe reinsurance, in which the Company is indemnified for an amount of
loss in excess of a specified retention with respect to losses resulting from a
catastrophic event.

Net Retention Policy. The descriptions below relate to reinsurance arrangements
of the Company in effect at January 1, 2001. For third-party liability,
including automobile no-fault, the reinsurance agreement used by Construction
and Select Accounts limits the net retention to a maximum of $4 million per
insured, per occurrence and for Commercial Accounts limits the net retention to
a maximum of $6 million per insured, per occurrence. Gulf Specialty utilizes
various reinsurance mechanisms and has limited its net retention to a maximum of
$3.8 million per risk for any line of business. For commercial property
insurance, there is a $5 million maximum retention per risk with 100%
reinsurance coverage for risks with higher limits. The reinsurance agreements in
place for workers' compensation policies written by Commercial Accounts,
Construction, National Accounts, Select Accounts, and some segments of
Alternative Markets and Gulf Specialty cover 100% of each loss between $1
million and $10 million and 90% of each loss between $10 million and $20
million. For National Accounts, reinsurance arrangements are typically tiered,
or layered, such that only levels of risk acceptable to the Company are
retained. Personal Lines retains the first $5 million of umbrella policies and
purchases facultative reinsurance for limits over $5 million. For personal
property insurance, there is a $6 million maximum retention per risk. For
executive liability coverages such as errors and omissions liability, directors'
and officers' liability, employment practices liability and blended insurance,
Bond Specialty retains from $2 million up to $5 million per risk. For surety
protection, Bond Specialty generally retains up to $10 million per principal.
The risk tolerance of Bond Specialty varies by line of business and by risk.

Catastrophe Reinsurance. The Company utilizes reinsurance agreements with
nonaffiliated reinsurers to control its exposure to losses resulting from one
occurrence. For the accumulation of net property losses arising out of one
occurrence, reinsurance agreements cover 40% of total losses between $250
million and $750 million. For multiple workers' compensation losses arising from
a single occurrence, reinsurance agreements cover 100% of losses between $20
million and $250 million and, for workers' compensation losses caused by
property perils, reinsurance agreements cover 40% of losses between $250 million
and $750 million. The Company reviews its risk and catastrophe covers at least
quarterly and makes changes it deems appropriate.

RESERVES

Property and casualty claim 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 and claims that have been incurred but
not reported. The Company establishes reserves by major product line, coverage
and year.

The process of estimating claim reserves is imprecise due to a number of
variables. These variables are affected by both internal and external events
such as changes in claims handling procedures, 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


                                       8
<PAGE>   11
insured event and the time it is actually reported to the insurer. The Company
continually refines reserve estimates in a regular ongoing process as experience
develops and further claims are reported and settled. The Company reflects
adjustments to reserves in the results of operations in the periods in which the
estimates are changed. In establishing reserves, the Company takes into account
estimated recoveries for reinsurance, salvage and subrogation.

The Company derives estimates for unreported claims and development on reported
claims principally from actuarial analyses of historical patterns of claims
development by accident year for each type of exposure and market segment.
Similarly, the Company derives estimates of unpaid claim adjustment expenses
principally from actuarial analyses of historical development patterns of the
relationship of claim adjustment expenses to losses for each line of business
and type of exposure. For a description of the Company's reserving methods for
environmental and asbestos claims, see "Environmental, Asbestos and Other
Cumulative Injury Claims."

Discounting. The liability for losses for certain long-term disability payments
under workers' compensation insurance and workers' compensation excess insurance
has been discounted using a maximum interest rate of 5%. At December 31, 2000,
1999 and 1998 the combined amounts of discount for the Company were $800
million, $832 million and $781 million, respectively.

For a reconciliation of beginning and ending property and casualty insurance
claims and claim adjustment expense reserves of the Company for each of the last
three years, see Note 6 of Notes to Consolidated Financial Statements.

The table at the end of this section sets forth the year-end reserves from 1990
through 2000 and the subsequent changes in those reserves, presented on a
historical basis for the Company. Accordingly, the original estimates,
cumulative amounts paid and reestimated reserves in the table for the years
1990-1995 have not been restated to include Aetna P&C. Beginning in 1996, the
table includes the reserve activity of Aetna P&C. The data in the 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 accompanying data is not accident year data, but
rather a display of 1990-2000 year-end reserves and the subsequent changes in
those reserves.

For instance, the "cumulative deficiency or redundancy" shown in the
accompanying table for each year represents the aggregate amount by which
original estimates of reserves as of that year-end have changed in subsequent
years. Accordingly, the cumulative deficiency for a 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 1990 included $4 million for a loss
that is finally paid in 2000 for $5 million, the $1 million deficiency (the
excess of the actual payment of $5 million over the original estimate of $4
million) would be included in the cumulative deficiencies in each of the years
1990-1999 shown in the accompanying table.

Certain factors may distort the re-estimated reserves and cumulative deficiency
or redundancy shown in the accompanying table. For example, a substantial
portion of the cumulative deficiencies shown in the accompanying table arise
from claims on policies written prior to the mid-1970s involving liability
exposures such as environmental, asbestos and other cumulative injury claims. In
the post-1984 period, the Company has developed more stringent underwriting
standards and policy exclusions and has significantly contracted or terminated
the writing of such risks. See "Environmental, Asbestos and Other


                                       9
<PAGE>   12
Cumulative Injury Claims." General conditions and trends that have affected the
development of these liabilities in the past will not necessarily recur in the
future.

Other factors that affect the data in the accompanying table include the
discounting of workers' compensation reserves and the use of retrospectively
rated insurance policies. To the extent permitted under applicable accounting
practices, workers' compensation reserves are discounted to reflect the time
value of money, due to the relatively long time period over which these claims
are to be paid. Apparent deficiencies will continue to occur as the discount on
these workers' compensation reserves is accreted at the appropriate interest
rates. Also, a portion of National Accounts business is underwritten with
retrospectively rated insurance policies in which the ultimate loss experience
is primarily borne by the insured. For this business, increases in loss
experience result in an increase in reserves, and an offsetting increase in
amounts recoverable from insureds. Likewise, decreases in loss experience result
in a decrease in reserves, and an offsetting decrease in amounts recoverable
from these insureds. The amounts recoverable on these retrospectively rated
policies mitigate the impact of the cumulative deficiencies or redundancies on
the Company's earnings but are not reflected in the accompanying table.

Because of these and other factors, it is difficult to develop a meaningful
extrapolation of estimated future redundancies or deficiencies in loss reserves
from the data in the accompanying table.

The differences between the reserves for claims and claim adjustment expenses
shown in the accompanying table, which is prepared in accordance with GAAP, and
those reported in the annual statements of the Company filed with state
insurance departments, which are prepared in accordance with statutory
accounting practices, were: $9 million, $38 million and $37 million for 2000,
1999 and 1998, respectively.


                                       10
<PAGE>   13
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                           1990(a)        1991(a)        1992(a)         1993(a)         1994(a)           1995(a)
                                          -----------------------------------------------------------------------------------------
                                                                       (Dollars in millions)
<S>                                        <C>            <C>            <C>            <C>             <C>               <C>
Reserves for Loss and Loss Adjustment
  Expense Originally Estimated:            $8,022         $8,360         $8,955         $ 9,319         $  9,712          $ 10,090
Cumulative amounts paid as of
One year later                              2,135          1,869          2,005           1,706            1,595             1,521
Two years later                             3,422          3,161          3,199           2,843            2,631             2,809
Three years later                           4,351          4,041          4,063           3,610            3,798             3,903
Four years later                            4,996          4,706          4,662           4,563            4,676             4,761
Five years later                            5,492          5,182          5,465           5,274            5,388             5,322
Six years later                             5,887          5,878          6,078           5,882            5,855
Seven years later                           6,466          6,421          6,618           6,289
Eight years later                           6,953          6,913          6,983
Nine years later                            7,408          7,250
Ten years later                             7,722

Reserves re-estimated as of
One year later                              8,128          8,362          9,058           9,270            9,486             9,848
Two years later                             8,197          8,637          9,139           9,234            9,310             9,785
Three years later                           8,592          8,906          9,183           9,108            9,395             9,789
Four years later                            9,003          9,026          9,189           9,271            9,427             9,735
Five years later                            9,159          9,123          9,405           9,298            9,463             9,711
Six years later                             9,295          9,367          9,440           9,349            9,441
Seven years later                           9,551          9,396          9,508           9,370
Eight years later                           9,586          9,477          9,555
Nine years later                            9,669          9,537
Ten years later                             9,751

Cumulative deficiency (redundancy)          1,729          1,177            600              51             (271)             (379)


Gross liability - end of year                                                           $14,638         $ 15,013          $ 15,213
Reinsurance recoverables                                                                  5,319            5,301             5,123
                                                                                        -------         --------          --------


Net liability - end of year                                                             $ 9,319         $  9,712          $ 10,090
                                                                                        =======         ========          ========


Gross reestimated liability--latest                                                     $14,794         $ 15,099          $ 14,759
Reestimated reinsurance
   Recoverables--latest                                                                   5,424            5,658             5,048
                                                                                        -------         --------          --------

Net reestimated liability--latest                                                       $ 9,370         $  9,441          $  9,711
                                                                                        =======         ========          ========

Gross cumulative deficiency (redundancy)                                                $   156         $     86          $   (454)
                                                                                        =======         ========          ========
</TABLE>


<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                  1996(b)           1997(b)           1998(b)           1999(b)          2000(b)
                                          -----------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>               <C>
Reserves for Loss and Loss Adjustment
  Expense Originally Estimated:               $ 21,816          $ 21,406          $ 20,763          $ 19,983          $19,435
Cumulative amounts paid as of
One year later                                   3,704             4,025             4,159             4,082
Two years later                                  6,600             6,882             6,879
Three years later                                8,841             8,850
Four years later                                10,355
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later

Reserves re-estimated as of
One year later                                  21,345            21,083            20,521            19,736
Two years later                                 21,160            20,697            20,172
Three years later                               20,816            20,417
Four years later                                20,664
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later

Cumulative deficiency (redundancy)              (1,152)             (989)             (591)             (247)


Gross liability - end of year                 $ 30,969          $ 30,138          $ 29,411          $ 28,854          $28,312
Reinsurance recoverables                         9,153             8,732             8,648             8,871            8,877
                                              --------          --------          --------          --------          -------


Net liability - end of year                   $ 21,816          $ 21,406          $ 20,763          $ 19,983          $19,435
                                              ========          ========          ========          ========          =======


Gross reestimated liability--latest           $ 29,718          $ 29,023          $ 28,821          $ 28,621
Reestimated reinsurance
   Recoverables--latest                          9,054             8,606             8,649             8,885
                                              --------          --------          --------          --------

Net reestimated liability--latest             $ 20,664          $ 20,417          $ 20,172          $ 19,736
                                              ========          ========          ========          ========

Gross cumulative deficiency (redundancy)      $ (1,251)         $ (1,115)         $   (590)         $   (233)
                                              ========          ========          ========          ========
</TABLE>



(a) Reflects reserves of Travelers P&C, excluding Aetna P&C reserves which were
    acquired on April 2, 1996. Accordingly, the reserve development (net
    reserves for loss and loss adjustment expense recorded at the end of the
    year, as originally estimated, less net reserves reestimated as of
    subsequent years) relates only to losses recorded by Travelers P&C and does
    not include reserve development recorded by Aetna P&C.

(b) Includes Aetna P&C gross reserves of $16,775 million and net reserves of
    $11,752 million acquired on April 2, 1996 and subsequent development
    recorded by Aetna P&C.


                                       11
<PAGE>   14
ENVIRONMENTAL, ASBESTOS AND OTHER CUMULATIVE INJURY CLAIMS

Environmental, asbestos and other cumulative injury claims are segregated from
other claims and are handled separately by the Company's Special Liability
Group, a special unit staffed by dedicated legal, claim, finance and engineering
professionals. For additional information on environmental, asbestos and other
cumulative injury claims, see Item 7, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."

INTERCOMPANY INSURANCE POOLS

Most of the Company's insurance subsidiaries are members of one of two separate
intercompany property and casualty reinsurance pooling arrangements: the
Travelers Property Casualty pool and the Gulf pool. Each of these insurance
pools permits the participating companies to rely on the capacity of the entire
pool rather than just on its own capital and surplus. Under the arrangements of
each insurance pool, the members share substantially all insurance business that
is written and allocate the combined premiums, losses and expenses. Travelers
Casualty and Surety Company of America ("Travelers C&S of America") does not
participate in either pool and is dedicated to the Bond Specialty business.

RATINGS

Insurance companies are rated by rating agencies to provide both industry
participants and insurance consumers with meaningful information on specific
insurance companies. Higher ratings generally indicate financial stability and a
strong ability to pay claims. These ratings are based upon factors relevant to
policyholders and are not directed toward protection of investors. Such ratings
are neither a rating of securities nor a recommendation to buy, hold or sell any
security and may be revised or withdrawn at any time. Ratings focus primarily on
the following factors: capital resources, financial strength, demonstrated
management expertise in the insurance business, credit analysis, systems
development, market segment position and growth opportunities, marketing, sales
conduct practices, investment operations, minimum policyholders' surplus
requirements and capital sufficiency to meet projected growth, as well as access
to such traditional capital as may be necessary to continue to meet standards
for capital adequacy.

The following table summarizes the current claims-paying and financial strength
ratings of the Company's property-casualty insurance pools and Travelers C&S of
America by A. M. Best, Fitch, Moody's Investor's Service Inc. ("Moody's") and
Standard & Poor's Ratings Group ("Standard & Poor's").  The table also presents
the position of each rating in the applicable agency's rating scale.

<TABLE>
<CAPTION>
                                                                                                         STANDARD &
                                             A.M. BEST            FITCH             MOODY'S                POOR'S
                                             ---------            -----             -------                ------
<S>                                       <C>                 <C>               <C>                   <C>
Travelers Property Casualty pool (1)      A++(1st of 15)      AA (3rd of 18)    Aa2 (3rd of 19)       AA- (4th of 17)
Gulf pool (2)                             A+ (2nd of 15)            --                --              AA  (3rd of 17)
Travelers C&S of America                  A++(1st of 15)      AA (3rd of 18)    Aa2 (3rd of 19)       AA- (4th of 17)
</TABLE>

---------------------

(1) The Travelers Property Casualty pool consists of The Travelers Indemnity
    Company, Travelers Casualty and Surety Company, The Phoenix Insurance
    Company, The Standard Fire Insurance Company, Travelers Casualty and Surety
    Company of Illinois, Farmington Casualty Company, The Travelers Indemnity
    Company of Connecticut, The Automobile Insurance Company of Hartford,
    Connecticut, The Charter Oak Fire Insurance Company, The Travelers Indemnity
    Company of America, The Travelers Indemnity Company of Missouri, Travelers
    Casualty Company of Connecticut, Travelers Commercial Insurance Company, The
    Travelers Indemnity Company of Illinois, Travelers


                                       12
<PAGE>   15
    Property Casualty Insurance Company, TravCo Insurance Company, The Travelers
    Home and Marine Insurance Company, Travelers Personal Security Insurance
    Company, Travelers Property Casualty Insurance Company of Illinois and
    Travelers Excess and Surplus Lines Company.

(2) The Gulf pool consists of Gulf Insurance Company, Gulf Insurance Company
    U.K. Limited, Gulf Underwriters Insurance Company, Select Insurance Company,
    Atlantic Insurance Company and Gulf Group Lloyds.

COMPETITION

COMMERCIAL LINES. The insurance industry is represented in the commercial lines
marketplace by many insurance companies of varying size as well as other
entities offering risk alternatives such as self-insured retentions or captive
programs. Market competition works to set the price charged for insurance
products and the level of service provided within the insurance regulatory
framework. 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. Growth in
premium and service business is also measured by a company's ability to retain
existing customers and to attract new customers.

PERSONAL LINES. Personal lines insurance is written by hundreds of insurance
companies of varying sizes. Although national companies write the majority of
the business, the Company also faces competition from local or regional
companies which often have a competitive advantage because of their knowledge of
the local marketplace and their relationship with local agents. The Company
believes that the principal competitive factors are price, service, perceived
stability of the insurer and name recognition. The Company also competes for
business within each of the independent agencies representing it, because these
agencies also offer policies of competing independent agency companies. At the
agency level, the Company believes that competition is primarily based on price
and the level of service, including claims handling, as well as the level of
automation and the development of long-term relationships with individual
agents. The Company also competes with insurance companies that use captive
agents or salaried employees to sell their products. Because these companies
generally pay lower commissions than independent agency companies, they may be
able to generate business at a lower cost than the Company. Due to this expense
advantage, direct writing companies have gradually expanded their market share
in recent years. However, in addition to its traditional independent agency
distribution, Personal Lines has broadened its distribution of Personal Lines
products to include marketing to sponsoring organizations including employee and
affinity groups, establishment of joint marketing arrangements with other
insurers and cross-marketing to Citibank customers. The Company believes that
its continued focus on expense management practices enables it to price its
products competitively in all of its distribution channels.

REGULATION

STATE REGULATION

The Company's insurance subsidiaries are subject to regulation in the various
states and jurisdictions in which they transact business. The extent of
regulation varies but generally has its source in statutes that delegate
regulatory, supervisory and administrative authority to a department of
insurance in each state. The regulation, supervision and administration relate,
among other things, to the standards of solvency that must be met and
maintained, the licensing of insurers and their agents, the nature of and
limitations on investments, premium rates, restrictions on the size of risks
that may be insured under a single policy, reserves and provisions for unearned
premiums, losses and other obligations, deposits of securities for the benefit
of policyholders, approval of policy forms and the regulation of market conduct
including the use


                                       13
<PAGE>   16
of credit information in underwriting as well as other underwriting and claims
practices. In addition, many states have enacted variations of competitive
rate-making laws which allow insurers to set certain premium rates for certain
classes of insurance without having to obtain the prior approval of the state
insurance department. State insurance departments also conduct periodic
examinations of the affairs of insurance companies and require the filing of
annual and other reports relating to the financial condition of companies and
other matters.

At the present time, the Company's insurance subsidiaries are collectively
licensed to transact insurance business in all states, the District of Columbia,
Guam, Puerto Rico, Bermuda, and the U.S. Virgin Islands, as well as Canada and
the United Kingdom.

Although the holding company, Travelers Property Casualty Corp., is not
regulated as an insurance company, it is the owner of the capital stock of its
insurance subsidiaries and as such is subject to state insurance holding company
statutes, as well as certain other laws, of each of the states of domicile of
its insurance subsidiaries. All holding company statutes, as well as certain
other laws, require disclosure and, in some instances, prior approval of
material transactions between an insurance company and an affiliate. The holding
company statutes, as well as certain other laws, also require, among other
things, prior approval of an acquisition of control of a domestic insurer and
the payment of extraordinary dividends or distributions.

The Company's principal insurance subsidiaries are domiciled in the State of
Connecticut. The insurance holding company law of Connecticut requires notice
to, and approval by, the state insurance commissioner for the declaration or
payment of any dividend, which together with other distributions made within the
preceding twelve months, exceeds the greater of (i) 10% of the insurer's surplus
or (ii) the insurer's net income for the twelve-month period ending the
preceding December 31st, in each case determined in accordance with statutory
accounting practices. Such declaration or payment is further limited by adjusted
unassigned funds (surplus), as determined in accordance with statutory
accounting practices. The insurance holding company laws of other states in
which the Company's insurance subsidiaries are domiciled generally contain
similar (although in certain instances somewhat more restrictive) limitations on
the payment of dividends. A maximum of $1.2 billion is available by the end of
the year 2001 for dividend payments to the Company from its insurance
subsidiaries without prior approval of the Connecticut Insurance Department.

Proposed legislation and regulatory changes have been introduced in the states
from time to time that would modify certain laws and regulations affecting the
financial services industry, including the use of information. The potential
impact of such legislation on the Company's businesses cannot be predicted at
this time.

INSURANCE REGULATIONS CONCERNING CHANGE OF CONTROL

Many state insurance regulatory laws intended primarily for the protection of
policyholders contain provisions that require advance approval by state agencies
of any change in control of an insurance company that is domiciled (or, in some
cases, having such substantial business that it is deemed to be commercially
domiciled) in that state. The Company owns, directly or indirectly, all of the
shares of stock of certain property and casualty insurance companies domiciled
in the States of California, Connecticut, Florida, Illinois, Massachusetts,
Missouri, New Jersey and Texas. "Control" is generally presumed to exist through
the ownership of 10% or more of the voting securities of a domestic insurance
company or of any company that controls a domestic insurance company. Any
purchaser of shares of


                                       14
<PAGE>   17
Common Stock representing 10% or more of the voting power of the Company will be
presumed to have acquired control of the Company's domestic insurance
subsidiaries unless, following application by such purchaser in each insurance
subsidiary's state of domicile, the relevant Insurance Commissioner determines
otherwise. In addition, many state insurance regulatory laws contain provisions
that require prenotification to state agencies of a change in control of a
nondomestic admitted insurance company in that state. While such prenotification
statutes do not authorize the state agency to disapprove the change of control,
such statutes do authorize issuance of a cease and desist order with respect to
the nondomestic admitted insurer if certain conditions exist such as undue
market concentration. Any future transactions that would constitute a change in
control of the Company would generally require prior approval by the insurance
departments of the states in which the Company's insurance subsidiaries are
domiciled or commercially domiciled and may require preacquisition notification
in those states that have adopted preacquisition notification provisions and in
which such insurance subsidiaries are admitted to transact business.

One insurance subsidiary of the Company is domiciled in the United Kingdom.
Insurers in the United Kingdom are subject to certain change of control
restrictions in the Insurance Companies Act of 1982 including approval of the
Financial Services Authority.

Certain other insurance subsidiaries of the Company are domiciled in, or
authorized to conduct insurance business in Canada. Authorized insurers in
Canada are subject to certain change of control restrictions in Section 407 of
the Insurance Companies Act, including approval of the Office of the
Superintendent of Financial Institutions.

Such requirements may deter, delay or prevent certain transactions affecting the
control of or the ownership of common stock, including transactions that could
be advantageous to the stockholder of the Company.

INSURANCE REGULATORY INFORMATION SYSTEM

The NAIC Insurance Regulatory Information System ("IRIS") was developed to help
state regulators identify companies that may require special attention. The IRIS
system consists of a statistical phase and an analytical phase whereby financial
examiners review annual statements and financial ratios. The statistical phase
consists of 12 key financial ratios that are generated from the NAIC database
annually; each ratio has an established "usual range" of results. These ratios
assist state insurance departments in executing their statutory mandate to
oversee the financial condition of insurance companies.

A ratio result falling outside the usual range of IRIS ratios is not considered
a failing result; rather, unusual values are viewed as part of the regulatory
early monitoring system. Furthermore, in some years, it may not be unusual for
financially sound companies to have several ratios with results outside the
usual ranges. Generally, an insurance company will become subject to regulatory
scrutiny if it falls outside the usual ranges of four or more of the ratios. In
normal years, 15% of the companies included in the IRIS system are expected by
the NAIC to be outside the usual range on four or more ratios.

In each of the last three years, certain of the Company's insurance subsidiaries
have been outside of the usual range of 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 events could occur this year and management believes
that the resolution would be the same. No regulatory action has been taken by
any state insurance department or the NAIC with respect to IRIS ratios of any of
the Company's insurance subsidiaries for the


                                       15
<PAGE>   18
three years ended December 31, 2000. Travelers Indemnity, the lead company for
the Travelers Property Casualty pool, had no values outside the usual range for
all IRIS ratios for each of the three years ended December 31, 2000.


RISK-BASED CAPITAL (RBC) REQUIREMENTS

In order to enhance the regulation of insurer solvency, the NAIC has adopted a
formula and model law to implement RBC requirements for most property and
casualty insurance companies, which is designed to assess minimum capital
requirements and to raise the level of protection that statutory surplus
provides for policyholder obligations. The RBC formula for property and casualty
insurance companies measures four major areas of risk facing property and
casualty insurers: (i) underwriting, which encompasses the risk of adverse loss
developments and inadequate pricing; (ii) declines in asset values arising from
credit risk; (iii) declines in asset values arising from investment risks; and
(iv) off-balance sheet risk arising from adverse experience from non-controlled
assets, guarantees for affiliates or other contingent liabilities and reserve
and premium growth. Pursuant to laws adopted by individual states, insurers
having less total adjusted capital than that required by the RBC calculation
will be subject to varying degrees of regulatory action, depending on the level
of capital inadequacy.

The formulas have not been designed to differentiate among adequately
capitalized companies which operate with higher levels of capital. Therefore, it
is inappropriate and ineffective to use the formulas to rate or to rank such
companies. At December 31, 2000, all of the Company's property-casualty
insurance subsidiaries had total adjusted capital in excess of amounts requiring
company or regulatory action at any prescribed RBC action level.

FEDERAL REGULATION

Citigroup is a bank holding company subject to the provisions of the Bank
Holding Company Act of 1956 (the "BHCA") and is a Financial Holding Company
under the Gramm Leach Bliley Act of 1999 which eliminated many legal barriers to
affiliations among banks, insurers, securities firms and other financial
services providers.

Although the federal government does not generally regulate the business of
insurance, other than flood insurance, federal initiatives often have an impact
on the insurance industry. the Gramm Leach Bliley Act may have the effect of
increasing competition in the insurance industry from other financial services
providers. Other provisions of The Gramm Leach Bliley Act address privacy,
uniform standards for the state licensing of insurance agents and conversion of
mutual insurers to stock insurers.

INTEREST EXPENSE AND OTHER

Interest Expense and Other consists primarily of financing costs associated with
the Acquisition.

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


                                       16
<PAGE>   19
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 December 31, 2000, the Company had approximately 19,691 full-time and 742
part-time employees. The Company believes that its employee relations are
satisfactory. None of the Company's employees is subject to collective
bargaining agreements.

ITEM 2.  PROPERTIES.

The Company's executive offices are located in Hartford, Connecticut. The
Company rents from an affiliate of Citigroup approximately 1,030,000 square feet
of office space in Hartford, Connecticut, under a ten-year lease that expires on
April 1, 2006 and, subject to certain conditions, is renewable by the Company
for additional five-year terms. Under certain circumstances, the Company may be
required to purchase the leased premises. In addition, the Company leases 175
field and claim offices totaling approximately 4,643,000 square feet throughout
the United States under leases or subleases with third parties. The Company also
rents from Aetna approximately 373,000 square feet of office space at CityPlace,
located in Hartford, Connecticut, under an eight-year sublease that expires in
2004.

The Company believes its properties are adequate and suitable for its business
as presently conducted and are adequately maintained. For further information
concerning leases, see Note 11 of Notes to Consolidated Financial Statements.

ITEM 3.  LEGAL PROCEEDINGS.

This section describes the major pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or its
subsidiaries is a party or to which any of their property is subject.

Beginning in January 1997, sixteen purported class actions and one multi-party
action were commenced in various courts against certain subsidiaries of the
Company, dozens of other insurers and the National Council on Compensation
Insurance ("NCCI"). The allegations in the actions are substantially similar.
The plaintiffs generally allege that the defendants conspired to collect
excessive or improper premiums on certain loss-sensitive workers' compensation
insurance policies in violation of state insurance laws, antitrust laws, and
state unfair trade practices laws. Plaintiffs seek unspecified monetary damages.
Actions have been commenced in the following jurisdictions: Georgia (El Chico
Restaurants, Inc. v. The Aetna Casualty and Surety Company, et al. and FFE
Transportation Services, Inc. et al. v. NCCI, et al.); Tennessee (El Chico
Restaurants, Inc. v. The Aetna Casualty and Surety Company, et al.); Florida
(Bristol Hotel Management Corp., et al. v. The Aetna Casualty and Surety
Company, et al.); New Jersey (Foodarama Supermarkets, Inc., et al. v. The Aetna
Casualty and Surety Company, et al.); Illinois (Hill-Behan Lumber Co v. Hartford
Insurance Co. et al. and CR/PL Management Co., et al. v. Allianz Insurance
Company Group, et al.); Pennsylvania (Foodarama Supermarkets, Inc. v. The Aetna
Casualty and Surety Company, et al.); Missouri (Hill-Behan Lumber Corp., et al.
v. Hartford Insurance Co., et al.); California (Dal-Tile Corp., et al. v. NCCI,
et al.); Texas (Sandwich Chef of Texas, Inc., et al. v. Reliance National
Insurance Company, et al.); Alabama (Alumax Inc., et al. v. Allianz Insurance
Company, et al.); Michigan (American Association of Retired Persons, et al. v.
National Surety Corp., et al.); Kentucky (Payless Cashways, Inc. et al. v.
National Surety Corp. et al.); New York (Burnham Service Corp. v. NCCI, et al.);
and Arizona (Albany International Corp. v. American National Fire Insurance
Company, et al.). The Company has vigorously defended all of these cases, and
intends to continue doing so.


                                       17
<PAGE>   20
The trial courts have ordered dismissal of the entire California case, and
partial dismissals of ten others: those pending in Tennessee, Florida, New
Jersey, Illinois (both cases), Pennsylvania, Missouri, Alabama, New York and
Arizona. The trial courts in Georgia, Kentucky, Texas, and Michigan have denied
defendants' motions to dismiss. The Pennsylvania and New Jersey courts have
denied class certification. Appeals are currently pending from the dismissal
orders in California and New York, and from the class certification ruling in
New Jersey.

In the ordinary course of business, certain of the Company's subsidiaries
receive claims asserting alleged injuries and damages from asbestos and other
hazardous waste and toxic substances. The conditions surrounding the final
resolution of these claims continue to change. Currently, it is not possible to
predict legal and legislative changes and their impact on the future development
of asbestos and environmental claims. Such development will be affected by
future court decisions and interpretations as well as changes in legislation
applicable to such claims. Because of these future unknowns, additional
liabilities may arise exceeding current reserves. The magnitude of these
additional amounts, or a range of these additional amounts, cannot now be
reasonably estimated, and could result in a liability exceeding reserves by an
amount that would be material to the Company's operating results in a future
period. However, in the opinion of the Company's management, it is not likely
that these claims will have a material adverse effect on the Company's financial
condition or liquidity.

The Company is involved in numerous other lawsuits (other than environmental and
asbestos claims) arising mostly in the ordinary course of business operations
either as a liability insurer defending third-party claims brought against
insureds or as an insurer defending coverage claims brought against it. In the
opinion of the Company's management, the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on the
Company's results of operations, financial condition or liquidity.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Omitted pursuant to General Instruction I (2)(c) of Form 10-K.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company has 1,000 authorized shares of common stock, all of which are issued
and outstanding as of December 31, 2000. All shares are held by TIGI, and there
exists no established public trading market for the common equity of the
Company. The Company paid dividends to its parent of $1,226 million in 2000. See
Note 9 of Notes to Consolidated Financial Statements for certain information
regarding dividend restrictions.

ITEM 6.  SELECTED FINANCIAL DATA.

Omitted pursuant to General Instruction I (2)(a) of Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.

Management's narrative analysis of the results of operations is presented in
lieu of Management's


                                       18
<PAGE>   21
Discussion and Analysis of Financial Condition and Results of Operations,
pursuant to General Instruction I (2) (a) of Form 10-K.

The Results of Operations reflect the consolidated results of operations of
Travelers Property Casualty Corp. (TPC) and its subsidiaries (the Company). The
Company provides a wide range of commercial and personal property and casualty
insurance products and services to businesses, government units, associations
and individuals, primarily in the United States.

During April 2000, TIGI completed a cash tender offer to purchase all of the
outstanding shares of Class A Common Stock of TPC at a price of $41.95 per
share. TIGI also established a wholly-owned subsidiary of TIGI which effected a
merger pursuant to which TPC became a wholly-owned subsidiary of TIGI. Upon the
merger of the new subsidiary into TPC, all previously outstanding shares of
Class A Common Stock of TPC became authorized and unissued shares and the 1,000
shares of Common Stock of the new subsidiary (held by TIGI) were exchanged for
1,000 shares of Class A Common Stock of TPC. On June 29, 2000, the Company
restated its certificate of incorporation and reclassified the Class A Common
Stock to Common Stock, which had the effect of retiring all treasury stock. At
December 31, 2000 TPC's common stock outstanding consists of 1,000 shares of
Common Stock, which are 100% owned by TIGI. These transactions also generated
goodwill of approximately $1.0 billion, which TIGI allocated to TPC. The
goodwill is being amortized over 36 years.

On May 31, 2000, the Company completed its acquisition of the surety business of
Reliance Group Holdings, Inc. (Reliance Surety) for $580 million. In connection
with the acquisition, the Company entered into a reinsurance arrangement for
pre-existing business, and the resulting net cash outlay for this transaction
was approximately $278 million. This transaction included the acquisition of an
intangible asset of approximately $450 million, which is being amortized over 15
years. Accordingly, the results of operations and the assets and liabilities
acquired from Reliance Surety are included in the financial statements beginning
June 1, 2000. This acquisition was accounted for as a purchase.

In the third quarter of 2000, the Company purchased the renewal rights to a
portion of Reliance Group Holdings, Inc.'s commercial lines middle-market book
of business (Reliance Middle Market). The Company also acquired the renewal
rights to Frontier Insurance Group, Inc.'s (Frontier) environmental, excess and
surplus lines casualty businesses and certain classes of surety business.

<TABLE>
<CAPTION>
===================================================================================================================
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2000
-------------------------------------------------------------------------------------------------------------------
(in millions)                                                                2000            1999            1998
===================================================================================================================
<S>                                                                        <C>            <C>              <C>
Revenues ..........................................................        $11,068        $ 10,572         $10,451
-------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles        $ 1,480        $  1,409         $ 1,343
Cumulative effect of changes in accounting principles .............             --            (133)             --
-------------------------------------------------------------------------------------------------------------------
Net income (1) ....................................................        $ 1,480        $  1,276         $ 1,343
-------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) Net income includes $31 million, $72 million and $93 million of realized
    investment gains in 2000, 1999 and 1998, respectively.

Net income was $1.480 billion in 2000, $1.276 billion in 1999 and $1.343 billion
in 1998. Net income in 1999 included a charge of $160 million related to the
initial adoption of the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants' (AcSEC) Statement of Position 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" (SOP 97-3) and a benefit of $27 million related to the initial
adoption of AcSEC Statement of Position 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer


                                       19
<PAGE>   22
Insurance Risk" (SOP 98-7). The net charge of $133 million due to the initial
adoption of these Statements of Position has been accounted for as a cumulative
effect of a change in accounting principles.

Excluding realized investment gains in all years and the cumulative effect of
changes in accounting principles in 1999 described above, operating income was
$1.449 billion in 2000, $1.337 billion in 1999 and $1.250 billion in 1998. The
increase in operating income in 2000 from 1999 was due to Commercial Lines rate
increases, lower catastrophe losses, higher net investment income, the 1999
charge related to curtailing the sale of TRAVELERS SECURE(R) auto and homeowners
products marketed through the agents of Primerica Financial Services, a unit of
Citigroup, higher fee income and lower operating expenses. These factors were
partially offset by increased loss cost trends primarily due to inflationary
pressures and lower favorable prior-year reserve development. Results for 2000
and 1999 reflected benefits resulting from legislative actions that changed the
manner in which certain states finance their workers' compensation second injury
funds, principally in the states of New York and Pennsylvania. The increase in
operating income in 1999 from 1998 was primarily due to favorable prior-year
reserve development and lower weather-related losses in Commercial Lines, the
benefit of the legislative actions in the states of New York and Pennsylvania,
an increase in income due to the growth in Personal Lines and lower operating
expenses. These factors were partially offset by higher catastrophe losses
principally due to Hurricane Floyd, higher loss ratios in the TRAVELERS
SECURE(R) program, a charge related to curtailing the sale of TRAVELERS
SECURE(R) auto and homeowners products, lower favorable prior-year reserve
development in Personal Lines and lower Commercial Lines fee income.

Revenues of $11.068 billion in 2000 increased $496 million from 1999. Revenues
of $10.572 billion in 1999 increased $121 million from 1998. The increase in
revenue in 2000 from 1999 was due to higher earned premiums, higher net
investment income and higher fee income, partially offset by lower realized
gains. The increase in earned premiums in 2000 was primarily due to Commercial
Lines rate increases and the impact of the ongoing business associated with the
Reliance Surety acquisition and the new business associated with the acquisition
of the renewal rights for the Reliance Middle Market and Frontier businesses.
The 1999 increase was primarily attributable to growth in earned premiums in
Personal Lines, partially offset by lower earned premiums in Commercial Lines,
lower realized investment gains and lower fee income.

Claims and expenses were $9.041 billion in 2000 compared to $8.657 billion in
1999. The increase in claims and expenses in 2000 was primarily the result of
increased loss cost trends, lower favorable prior-year reserve development and
increased claims related to the growth in premiums, including the impact of the
ongoing business associated with the Reliance Surety acquisition and the new
business associated with the acquisition of the renewal rights for the Reliance
Middle Market and Frontier businesses. These factors were partially offset by
lower catastrophe losses, the 1999 charge related to curtailing the sale of
TRAVELERS SECURE(R) products, a reduction in general and administrative expenses
and a decrease in interest expense due to debt repayments. Results for 2000 and
1999 reflected benefits resulting from legislative actions that changed the
manner in which certain states finance their workers' compensation second injury
funds, principally in the states of New York and Pennsylvania. Claims and
expenses of $8.657 billion in 1999 increased $43 million from 1998. This
increase was primarily the result of higher claims associated with the growth in
premiums in Personal Lines, higher catastrophe losses principally due to
Hurricane Floyd, higher loss ratios in the TRAVELERS SECURE(R) program, the
TRAVELERS SECURE(R) charge and lower favorable prior-year reserve development in
Personal Lines, mostly offset by favorable prior-year reserve development and
lower weather-related losses in Commercial Lines, the benefit related to the
legislative actions in New York and Pennsylvania that changed the manner in
which these states finance their workers' compensation second-injury funds, and
a reduction in operating


                                       20
<PAGE>   23
expenses.

The Company's effective tax rate was 27%, 26% and 27% in 2000, 1999 and 1998,
respectively. These rates differed from the statutory tax rate in those years
primarily due to non-taxable investment income.

The statutory and GAAP combined ratios were as follows:


<TABLE>
<CAPTION>
==================================================================================================
                                                           2000           1999           1998
--------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>
STATUTORY:
     Loss and Loss Adjustment Expense (LAE) ratio          75.1%          74.3%          73.6%
     Underwriting expense ratio .................          27.0           28.8           28.6
     Combined ratio before policyholder dividends         102.1          103.1          102.2
     Combined ratio .............................         102.5          103.7          102.7
--------------------------------------------------------------------------------------------------
GAAP:
     Loss and LAE ratio .........................          74.2%          73.0%          73.5%
     Underwriting expense ratio .................          25.6           28.3           29.1
     Combined ratio before policyholder dividends          99.8          101.3          102.6
     Combined ratio .............................         100.2          101.9          103.1
==================================================================================================
</TABLE>

GAAP combined ratios differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.

The 2000 statutory and GAAP combined ratios include an adjustment in Commercial
Lines due to a reinsurance transaction associated with the acquisition of the
Reliance Surety business. Excluding this adjustment, the statutory and GAAP
combined ratios before policyholder dividends for 2000 would have been 101.9%
and 100.1%, respectively. The 1999 statutory combined ratio before policyholder
dividends includes the treatment, on a statutory basis only, of a commutation of
an asbestos liability to an insured. In addition, the 1999 statutory and GAAP
combined ratios before policyholder dividends include an adjustment in Personal
Lines associated with the termination of a quota share reinsurance arrangement.
Excluding these items, the statutory and GAAP combined ratios before
policyholder dividends for 1999 would have been 101.8% and 101.5%, respectively.

The 2000 statutory combined ratio before policyholder dividends, excluding the
Reliance Surety adjustment, was virtually the same as the 1999 statutory
combined ratio before policyholder dividends, excluding the commutation and
quota share reinsurance adjustments. The 2000 statutory loss and loss adjustment
expense ratio component increased primarily due to increased loss cost trends
and lower favorable prior-year reserve development, partially offset by lower
catastrophe losses. The 2000 statutory underwriting expense ratio decreased
primarily due to a disproportionately smaller increase in expenses associated
with the growth in premiums.

The improvement in the 2000 GAAP combined ratio before policyholder dividends,
excluding the Reliance Surety adjustment, compared to the 1999 GAAP combined
ratio before policyholder dividends, excluding the effects of a quota share
termination, was primarily due to a decrease in the underwriting expense ratio
related to a disproportionately smaller increase in expenses associated with the
growth in premiums, partially offset by an increase in the loss and loss
adjustment expense ratio primarily due to increased loss cost trends and lower
favorable prior-year reserve development, partially offset by lower catastrophe
losses.


                                       21
<PAGE>   24
The improvement in the 1999 statutory and GAAP combined ratios before
policyholder dividends, excluding the commutation adjustment and the effects of
a quota share termination, compared to 1998 was due to favorable prior-year
reserve development in Commercial Lines, continued productivity improvements and
expense savings, partially offset by higher catastrophe losses, higher loss
ratios in the TRAVELERS SECURE(R) program and the charge related to curtailing
the sale of TRAVELERS SECURE(R) policies. In addition, the 1999 GAAP combined
ratio before policyholder dividends benefited from legislative actions in the
states of New York and Pennsylvania that changed the manner in which these
states finance their workers' compensation second-injury funds.

RESULTS OF OPERATIONS BY SEGMENT

<TABLE>
<CAPTION>
================================================================================================================
COMMERCIAL LINES
(in millions)                                                               2000           1999           1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>             <C>
Revenues ..........................................................        $6,835        $ 6,492         $6,699
-----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles        $1,220        $ 1,159         $1,018
Cumulative effect of changes in accounting principles .............            --           (133)            --
-----------------------------------------------------------------------------------------------------------------
Net income (1) ....................................................        $1,220        $ 1,026         $1,018
================================================================================================================
</TABLE>

(1)  Commercial Lines net income includes $31 million, $82 million and $76
     million of realized investment gains in 2000, 1999 and 1998, respectively.

Net income was $1.220 billion in 2000, $1.026 billion in 1999 and $1.018 billion
in 1998. Net income in 1999 included a charge of $160 million related to the
initial adoption of SOP 97-3 and a benefit of $27 million related to the initial
adoption of SOP 98-7. The net charge of $133 million due to the initial adoption
of these Statements of Position has been accounted for as a cumulative effect of
a change in accounting principles.

Commercial Lines operating income, which excludes realized investment gains in
all years and the cumulative effect of changes in accounting principles in 1999,
was $1.189 billion, $1.077 billion and $942 million in 2000, 1999 and 1998,
respectively. The improvement in operating income for 2000 over 1999 reflected
rate increases, higher fee income, lower catastrophe losses and higher net
investment income, partially offset by increased loss cost trends and lower
favorable prior-year reserve development. Results for 2000 and 1999 reflected
benefits resulting from legislative actions that changed the manner in which
certain states finance their workers' compensation second injury funds,
principally in the states of New York and Pennsylvania. The improvement in
operating income for 1999 over 1998 included the benefit of the New York and
Pennsylvania legislative actions, favorable prior-year reserve development,
lower weather-related losses and lower operating expenses, partially offset by
lower fee income.

Revenues of $6.835 billion in 2000 increased $343 million from 1999. The
increase in 2000 reflected higher earned premiums, higher fee income and higher
net investment income, partially offset by a decrease in realized investment
gains. The increase in earned premiums was primarily due to rate increases, and
the ongoing business associated with the Reliance Surety acquisition and the new
business associated with the acquisition of the renewal rights for the Reliance
Middle Market and Frontier businesses. The increase in fee income in 2000 was
primarily due to the shift of business mix from premium-based products to
fee-based products and rate increases. Revenues of $6.492 billion in 1999
decreased $207 million from 1998. The decrease in 1999 reflected lower levels of
earned premiums, lower net investment income and lower fee income, partially
offset by an increase in realized investment


                                       22
<PAGE>   25
gains. The decrease in fee income in 1999 was the result of the depopulation of
involuntary pools serviced by the Company.

Net written premiums by market for the three years ended December 31, 2000 were
as follows:

<TABLE>
<CAPTION>
==================================================================================
(in millions)                              2000            1999            1998
----------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>
National Accounts ..............          $  352          $  488          $  625
Commercial Accounts ............           2,099           1,816           1,800
Select Accounts ................           1,576           1,494           1,494
Specialty Accounts .............           1,004             610             695
----------------------------------------------------------------------------------
Total net written premiums .....          $5,031          $4,408          $4,614
==================================================================================
</TABLE>


Commercial Lines net written premiums were $5.031 billion in 2000 compared to
$4.408 billion in 1999 and $4.614 billion in 1998. Included in Specialty
Accounts net written premiums in 2000 is an adjustment of $131 million due to a
reinsurance transaction associated with the acquisition of the Reliance Surety
business. The 2000 increase reflected the impact of an improving rate
environment as evidenced by the continued favorable pricing on new and renewal
business. Also contributing to the increase in net written premiums in 2000 was
the new business associated with the acquisition of the renewal rights for the
Reliance Middle Market business in Commercial Accounts and the impact of the
ongoing business associated with the Reliance Surety acquisition and the new
business associated with the acquisition of the renewal rights for the Frontier
business in Specialty Accounts. The decrease in National Accounts net written
premiums is primarily due to the shift in business mix from premium-based
products to fee-based products. The decrease in 1999 net written premiums
reflected the highly competitive marketplace and the Company's continued
disciplined approach to underwriting and risk management. Also contributing to
the 1999 decrease in net written premiums in National Accounts and Specialty
Accounts was the impact of additional reinsurance coverage. The slight increase
in Commercial Accounts net written premiums in 1999 reflected growth in specific
business segments and an improving rate environment.

New business in National Accounts for 2000 was marginally lower than 1999,
reflecting the Company's continued disciplined approach to underwriting and risk
management. For 1999, new business in National Accounts was significantly lower
than 1998, reflecting the Company's continued disciplined approach to
underwriting and risk management in the highly competitive marketplace. The
business retention ratio for 2000 was moderately lower than 1999, reflecting an
increase in lost business due to the renewal price increases in 2000. The
business retention ratio for 1999 was moderately higher than 1998, primarily
reflecting the loss of one large account in 1998.

New business in Commercial Accounts for 2000 was significantly higher than 1999,
reflecting the impact of the acquisition of Reliance Middle Market renewal
business. For 1999, new business in Commercial Accounts was significantly less
than 1998, reflecting the Company's selective underwriting policy and continued
focus on obtaining profitable new business accounts. The business retention
ratio for 2000 was moderately lower than 1999, reflecting an increase in lost
business due to the renewal price increases in 2000. The business retention
ratio in 1999 was virtually the same as 1998.

For 2000, new business in Select Accounts was moderately higher than 1999, while
for 1999 new business was significantly lower than 1998. These changes reflect
the unusually low new business in 1999 resulting from the Company's selective
underwriting policy in the highly competitive marketplace. The business
retention ratio for 2000 was moderately lower than 1999, reflecting an increase
in lost


                                       23
<PAGE>   26
business due to the renewal price increases in 2000. The business retention
ratio in 1999 was virtually the same as 1998.

Commercial Lines claims and expenses of $5.171 billion in 2000 increased $244
million from 1999 and decreased $400 million in 1999 compared to 1998. The 2000
increase was primarily due to increased loss cost trends, lower favorable
prior-year reserve development and higher losses associated with the growth in
premium and claims volume, partially offset by lower catastrophe losses. Results
for 2000 and 1999 reflected benefits resulting from legislative actions that
changed the manner in which certain states finance their workers' compensation
second injury funds, principally in the states of New York and Pennsylvania. The
1999 decrease reflected the benefit resulting from the legislative actions in
the states of New York and Pennsylvania, favorable prior-year reserve
development, lower weather-related losses and lower operating expenses.

There were no catastrophe losses in 2000. Catastrophe losses, net of taxes and
reinsurance, were $27 million and $25 million in 1999 and 1998, respectively.
The 1999 catastrophe losses were primarily due to Hurricane Floyd in the third
quarter and tornadoes in Oklahoma in the second quarter. The 1998 catastrophe
losses were primarily due to Hurricane Georges in the third quarter and
tornadoes in Nashville, Tennessee in the second quarter.

Statutory and GAAP combined ratios for Commercial Lines were as follows:

<TABLE>
<CAPTION>
================================================================================================
                                                           2000           1999           1998
------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>
STATUTORY:
     Loss and LAE ratio .........................          76.0%          77.9%          78.5%
     Underwriting expense ratio .................          27.8           30.7           29.7
     Combined ratio before policyholder dividends         103.8          108.6          108.2
     Combined ratio .............................         104.5          109.7          109.1
------------------------------------------------------------------------------------------------
GAAP:
     Loss and LAE ratio .........................          74.7%          75.2%          78.4%
     Underwriting expense ratio .................          25.4           29.8           31.1
     Combined ratio before policyholder dividends         100.1          105.0          109.5
     Combined ratio .............................         100.8          106.1          110.4
================================================================================================
</TABLE>

GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.

The 2000 statutory and GAAP combined ratios include an adjustment associated
with the acquisition of the Reliance Surety business. Excluding this adjustment,
the statutory and GAAP combined ratios before policyholder dividends for 2000
would have been 103.5% and 100.8%, respectively. The 1999 statutory combined
ratio reflects the treatment, on a statutory basis only, of the commutation of
an asbestos liability to an insured. Excluding the commutation, the statutory
combined ratio before policyholder dividends for 1999 would have been 106.1%.
The improvement in the 2000 statutory and GAAP combined ratios before
policyholder dividends compared to 1999, excluding the related adjustments
above, was primarily due to premium growth related to rate increases as well as
the impact of the ongoing business associated with the Reliance Surety
acquisition and the purchase of the renewal rights for the Reliance Middle
Market and Frontier businesses, and lower catastrophe losses. This was partially
offset by increased loss cost trends, lower favorable prior-year reserve
development and a disproportionately smaller increase in expenses associated
with the growth in premiums. The improvement in the 1999 statutory combined
ratio before policyholder dividends, excluding the commutation, over 1998 was
primarily due to favorable


                                       24
<PAGE>   27
prior-year reserve development and lower weather-related losses. The decrease in
the 1999 GAAP combined ratio before policyholder dividends compared to 1998 was
due to favorable prior-year reserve development, lower weather-related losses
and the benefit of the New York and Pennsylvania legislative actions, partially
offset by lower fee income.

<TABLE>
<CAPTION>
==================================================================================
PERSONAL LINES
(in millions)                           2000              1999              1998
----------------------------------------------------------------------------------
<S>                                   <C>               <C>               <C>
Revenues .................            $4,232            $4,077            $3,743
Net income (1) ...........            $  360            $  358            $  437
==================================================================================
</TABLE>


(1) Personal Lines net income includes $10 million of realized investment losses
    in 1999 and $17 million of realized investment gains in 1998.

Net income in 2000 was $360 million compared to $358 million in 1999. Net income
of $358 million in 1999 decreased $79 million from 1998. Personal Lines
operating income, which excludes realized investment gains and losses, was $360
million, $368 million and $420 million in 2000, 1999 and 1998, respectively. The
decrease in operating income in 2000 was primarily due to increased loss cost
trends and lower favorable prior-year reserve development, partially offset by
the 1999 charge related to curtailing the sale of TRAVELERS SECURE(R) products,
higher net investment income and lower catastrophe losses. The 1999 decrease in
operating income was due to higher catastrophe losses primarily due to Hurricane
Floyd, higher loss ratios in the TRAVELERS SECURE(R) program, the charge related
to curtailing the sale of TRAVELERS SECURE(R) products and lower favorable
prior-year reserve development, partially offset by the increase in income due
to the growth in earned premiums.

Revenues in 2000 of $4.232 billion increased $155 million from 1999. The
increase in revenues in 2000 reflected growth in earned premiums in all
distribution channels except TRAVELERS SECURE(R), higher net investment income
and lower realized investment losses. Revenues were $4.077 billion in 1999
compared to $3.743 billion in 1998. The 1999 increase compared to 1998 reflected
growth in earned premiums in all distribution channels and higher net investment
income. Personal Lines had approximately 5.4 million, 5.3 million and 5.1
million policies in force at December 31, 2000, 1999 and 1998, respectively.

Net written premiums by product line for the three years ended December 31:

<TABLE>
<CAPTION>
==================================================================================
(in millions)                              2000            1999            1998
----------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>
Personal automobile ............          $2,366          $2,369          $2,328
Homeowners and other ...........           1,447           1,436           1,162
----------------------------------------------------------------------------------
Total net written premiums .....          $3,813          $3,805          $3,490
==================================================================================
</TABLE>


Personal Lines net written premiums in 2000 were $3.813 billion compared to
$3.733 billion in 1999 (excluding an adjustment of $72 million due to an
adjustment associated with the termination of a quota share reinsurance
arrangement) and $3.490 billion in 1998. The increase in 2000 reflects growth in
target markets served by independent agents and growth in affinity group
marketing and joint marketing arrangements, partially offset by planned
reductions in the TRAVELERS SECURE(R) auto and homeowners business, a mandated
rate decrease in New Jersey, and continued emphasis on disciplined underwriting
and risk management. The business retention ratio in 2000 was moderately lower
compared to 1999, reflecting planned reductions in the TRAVELERS SECURE(R) auto
and homeowners business. The net written premium increase in 1999 primarily
reflected growth in independent agents business and


                                       25
<PAGE>   28
growth in affinity group marketing and joint marketing arrangements.

Personal Lines claims and expenses were $3.715 billion in 2000 compared to
$3.561 billion in 1999 and $3.104 billion in 1998. The 2000 increase was
primarily the result of increased loss cost trends, lower favorable prior-year
reserve development and higher losses associated with the growth in premiums and
related claim volume, partially offset by the 1999 charge related to curtailing
the sale of TRAVELERS SECURE(R) products and lower catastrophe losses. The 1999
increase was primarily the result of higher losses associated with the growth in
premiums and related claim volumes, higher catastrophe losses and lower
favorable prior-year reserve development. In addition, 1999 included higher loss
ratios in the TRAVELERS SECURE(R) program and the charge related to curtailing
the sale of TRAVELERS SECURE(R) products.

Catastrophe losses, net of tax and reinsurance, were $54 million, $79 million
and $44 million in 2000, 1999 and 1998, respectively. Catastrophe losses in 2000
were primarily due to Texas, Midwest and Northeast wind and hailstorms in the
second quarter and hailstorms in Louisiana and Texas in the first quarter.
Catastrophe losses in 1999 were primarily due to Hurricane Floyd in the third
quarter, wind and hail storms on the East Coast and tornadoes in the Midwest in
the second quarter and a wind and ice storm in the Midwest and Northeast in the
first quarter. Catastrophe losses in 1998 were primarily due to Hurricanes
Bonnie and Georges, severe first quarter winter storms and second and third
quarter wind and hailstorms.

Statutory and GAAP combined ratios for Personal Lines were as follows:


<TABLE>
<CAPTION>
==================================================================================================
                                                         2000             1999              1998
--------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>               <C>
STATUTORY:
     Loss and LAE ratio.......................           73.8%            70.0%             66.7%
     Underwriting expense ratio...............           25.9             26.7              27.2
     Combined ratio...........................           99.7             96.7              93.9
--------------------------------------------------------------------------------------------------
GAAP:
     Loss and LAE ratio.......................           73.6%            70.3%             66.7%
     Underwriting expense ratio...............           25.7             26.5              26.5
     Combined ratio...........................           99.3             96.8              93.2
==================================================================================================
</TABLE>


GAAP combined ratios for Personal Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.

The 1999 statutory and GAAP combined ratios for Personal Lines include an
adjustment associated with the termination of a quota share reinsurance
arrangement. Excluding this adjustment, the statutory and GAAP combined ratios
for 1999 would have been 96.5% and 97.3%, respectively. The increase in the 2000
statutory and GAAP combined ratios compared to 1999 statutory and GAAP combined
ratios, excluding the reinsurance adjustment, was primarily due to increased
loss cost trends and lower favorable prior-year reserve development, offset in
part by the 1999 TRAVELERS SECURE(R) charge and lower catastrophe losses. The
increase in the 1999 statutory and GAAP combined ratios excluding the
reinsurance adjustment compared to 1998 was due to higher catastrophe losses due
to Hurricane Floyd, higher loss ratios in the TRAVELERS SECURE(R) program, the
TRAVELERS SECURE(R) charge and lower favorable prior-year development in the
automobile bodily injury line.


                                       26
<PAGE>   29
<TABLE>
<CAPTION>
=======================================================================================
INTEREST EXPENSE AND OTHER
(in millions)                                           2000        1999        1998
---------------------------------------------------------------------------------------
<S>                                                    <C>         <C>         <C>
Revenues.........................................      $   1       $   3       $   9
Net loss.........................................      $(100)      $(108)      $  (112)
=======================================================================================
</TABLE>

The primary component of net loss for 2000, 1999 and 1998 was after-tax interest
expense of $87 million, $99 million and $105 million, respectively.


ENVIRONMENTAL CLAIMS

The Company continues to receive claims from insureds which allege that they are
liable for injury or damage arising out of their alleged disposition of toxic
substances. Mostly, these claims are due to various legislative as well as
regulatory efforts aimed at environmental remediation. For instance, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
enacted in 1980 and later modified, enables private parties as well as Federal
and State governments to take action with respect to releases and threatened
releases of hazardous substances. This federal statute permits both the recovery
of response costs from certain liable parties and may require liable parties to
directly undertake their own remedial action. Liability under CERCLA may be
joint and several with other responsible parties.

The Company has been, and continues to be, involved in litigation involving
insurance coverage issues pertaining to environmental claims. The Company
believes that certain court decisions have interpreted the insurance coverage to
be broader than the original intent of the insurers and insureds. These
decisions often pertain to insurance policies that were issued by the Company
prior to the mid-1970s. These decisions continue to be inconsistent and vary
from jurisdiction to jurisdiction. Environmental claims when submitted rarely
indicate the monetary amount being sought by the claimant from the insured and
the Company does not keep track of the monetary amount being sought in those few
claims which indicate such a monetary amount.

The Company's reserves for environmental claims are not established on a
claim-by-claim basis. An aggregate bulk reserve is carried for all of the
Company's environmental claims that are in the dispute process, until the
dispute is resolved. This bulk reserve is established and adjusted based upon
the aggregate volume of in-process environmental claims and the Company's
experience in resolving such claims. At December 31, 2000, approximately 73% of
the net aggregate reserve (approximately $405 million), is carried in a bulk
reserve and includes unresolved as well as incurred but not reported
environmental claims for which the Company has not received any specific claims.
The balance, approximately 27% of the net environmental loss reserve
(approximately $153 million) consists of case reserves for resolved claims.

The Company's reserving methodology is preferable to one based on "identified
claims" since the resolution of environmental exposures by the Company generally
occurs by settlement on an insured-by-insured basis as opposed to a
claim-by-claim basis. Generally, the settlement between the Company and the
insured extinguishes any obligation the Company may have under any policy issued
to the insured for past, present and future environmental liabilities as well as
extinguishes any pending coverage litigation dispute with the insured. This form
of settlement is commonly referred to as a "buy-back" of policies for future
environmental liability. In addition, many of the agreements have also
extinguished any insurance obligation which the Company may have for other
claims, including but not limited to asbestos and other


                                       27
<PAGE>   30
cumulative injury claims. Provisions of these agreements also include
appropriate indemnities and hold harmless provisions to protect the Company. The
Company's general purpose in executing such agreements is to reduce its
potential environmental exposure and eliminate both the risks presented by
coverage litigation with the insured and the cost of such litigation.

The reserving methodology includes an analysis by the Company of the exposure
presented by each insured and the anticipated cost of resolution, if any, for
each insured. This analysis is completed by the Company on a quarterly basis. In
the course of this analysis, an assessment of the probable liability, available
coverage, judicial interpretations and historical value of similar exposures is
considered by the Company. In addition, due consideration is given to the many
variables presented, such as the nature of the alleged activities of the insured
at each site; the allegations of environmental harm at each site; the number of
sites; the total number of potentially responsible 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 overall nature of the insurance relationship between the
Company and the insured, including the role of any umbrella or excess insurance
issued by the Company to the insured; the identification of other insurers; the
potential for other available coverage, including the number of years of
coverage; the role, if any, of non-environmental claims or potential
non-environmental claims, in any resolution process; and the applicable law in
each jurisdiction. Analysis of these and other factors, including the potential
for future claims, results in the establishment of the bulk reserve.

The duration of the Company's investigation and review of such claims and the
extent of time necessary to determine an appropriate estimate, if any, of the
value of the claim to the Company, vary significantly and are dependent upon a
number of factors. These factors include, but are not limited to, the
cooperation of the insured in providing claim information, the pace of
underlying litigation or claim processes, the pace of coverage litigation
between the insured and the Company and the willingness of the insured and the
Company to negotiate, if appropriate, a resolution of any dispute between them
pertaining to such claims. Since the foregoing factors vary from claim-to-claim
and insured-by-insured, the Company cannot provide a meaningful average of the
duration of an environmental claim. However, based upon the Company's experience
in resolving such claims, the duration may vary from months to several years.

The property and casualty insurance industry does not have a standard method of
calculating claim activity for environmental losses. Generally for Superfund
remediation-type environmental claims, the Company establishes a claim file for
each insured on a per site, per claimant basis. If there is more than one
claimant such as a federal and a state agency, this method will result in two
claims being set up for a policyholder at that one site. The Company adheres to
this method of calculating claim activity on all environmental-related claims,
whether such claims are tendered on primary, excess or umbrella policies.

In addition, the Company establishes claim files for environmental claims
brought by individual claimants who allege injury or damage as a result of the
discharge of wastes or pollutants allegedly by the policyholder. As it pertains
to such claims tendered on policies issued by Travelers P&C, the Company
establishes a claim file on a per claimant, per insured, per site basis. For
example, if one hundred claimants file a lawsuit against five policyholders
alleging bodily injury and property damage as a result of the discharge of
wastes or pollutants, one thousand claims (five hundred for the bodily injury
claims and five hundred for the property damage claims) would be established.

As it pertains to environmental claims brought by individual claimants and
tendered on Aetna P&C policies, the Company establishes claim files on a per
insured, per site basis due to current claim system


                                       28
<PAGE>   31
limitations. For example, if one hundred claimants file a lawsuit against five
policyholders alleging bodily injury and property damage as a result of the
discharge of wastes or pollutants, five claims for the bodily injury claims and
five for the property damage claims would be established.

As of December 31, 2000, calculated as described above, the Company had
approximately 43,000 pending environmental-related claims tendered by 787 active
policyholders. Of the total pending environmental-related claims, 34,000 claims
would relate to Travelers P&C policies tendered by 385 policyholders and 9,000
claims relate to Aetna P&C policies tendered by 501 policyholders. Approximately
99 of these Aetna P&C policyholders are also included in the 385 Travelers P&C
policyholders count. The pending environmental-related claims represent federal
or state EPA-type claims as well as plaintiffs' claims alleging bodily injury
and property damage due to the discharge of waste or pollutants allegedly by the
policyholder.

The following table displays activity for environmental losses and loss expenses
and reserves for the years ended December 31:

<TABLE>
<CAPTION>
==================================================================================
ENVIRONMENTAL LOSSES
(in millions)                                2000          1999            1998
----------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>
Beginning reserves:
  Direct ...........................        $ 801         $ 928         $ 1,193
  Ceded ............................         (125)          (96)            (74)
----------------------------------------------------------------------------------

   Net .............................          676           832           1,119

Incurred losses and loss expenses:
  Direct ...........................           75           139             123
  Ceded ............................          (11)          (82)            (73)

Losses paid:
  Direct ...........................          207           266             388
  Ceded ............................          (25)          (53)            (51)
----------------------------------------------------------------------------------
Ending reserves:
  Direct ...........................          669           801             928
  Ceded ............................         (111)         (125)            (96)
----------------------------------------------------------------------------------
   Net .............................        $ 558         $ 676         $   832
==================================================================================
</TABLE>

Over the past three years, the Company has experienced a substantial reduction
in the number of policyholders with pending coverage litigation disputes, a
continued reduction in the number of policyholders tendering for the first time
an environmental remediation-type claim to the Company as well as a continued
reduction in the number of policyholders with active environmental claims.

As of December 31, 2000, the number of policyholders with pending coverage
litigation disputes pertaining to environmental claims was 243, approximately
10% less than the number pending as of December 31, 1999, approximately 40% less
than the number pending as of December 31, 1998, as well as approximately 54%
less than the number pending as of December 31, 1997. Also, in 2000, there were
158 policyholders tendering for the first time an environmental remediation-type
claim to the Company. This compares to 256 policyholders doing so in 1999 and
288 policyholders in 1998.


                                       29
<PAGE>   32
As of December 31, 2000, the Company, for approximately $1.78 billion (before
reinsurance), has resolved the environmental liabilities presented by 5,286 of
the 6,073 policyholders who have tendered environmental claims to the Company.
This resolution comprises 87% of the policyholders who have tendered such
claims. The Company generally has been successful in resolving its coverage
litigation disputes and continues to reduce its potential exposure through
favorable settlements with certain insureds. Generally, the settlement dollars
paid in disputed coverage claims are a percentage of the total coverage sought
by such insureds.

The Company has direct environmental reserves (before reinsurance) of
approximately $669 million, $390 million of which relates to 787 policyholders
with unresolved environmental claims (the remaining 13% of the 6,073
policyholders who have tendered environmental claims); policyholders that may
tender an environmental claim in the future; and for the anticipated cost of
coverage litigation disputes pertaining to such environmental claims. Based upon
the Company's reserving methodology and the experience of its historical
resolution of environmental exposures, it believes that the environmental
reserves are appropriate.

ASBESTOS CLAIMS

In the area of asbestos claims, the Company believes that 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 intent of the contracting parties. These policies
generally were issued prior to 1980. The Company continues to receive asbestos
claims alleging insureds' liability from claimants' asbestos-related injuries.
In 2000, the Company experienced an increase over prior years in the number of
asbestos claims being tendered to the Company. In addition, the Company is
continuing to evaluate the impact of recent and well-publicized filings for
bankruptcy protection by certain major asbestos producers. As in the past,
asbestos claims, when submitted, rarely indicate the monetary amount being
sought by the claimant from the insured and the Company does not keep track of
the monetary amount being sought in those few claims that indicated such a
monetary amount. Based upon the Company's experience with asbestos claims, the
duration period of an asbestos claim from the date of submission to resolution
is approximately two years.

Various classes of asbestos defendants, such as major product manufacturers,
installers of asbestos, peripheral and regional product defendants as well as
premises owners, continue to tender asbestos-related claims to the industry.
Because each insured presents different liability and coverage issues, including
whether such claims qualify as products/completed operations or
non-products/operations claims, the Company evaluates those issues on an
insured-by-insured basis. From a coverage standpoint, one general distinction
between a products/completed operations and a non-products/operations claim is
that a products/completed operations claim is typically subject to a policy
aggregate limitation and a non-products/operations claim is not typically
subject to such a limitation in a pre-1985 general liability policy. The
Company's evaluations have not resulted in any meaningful data from which an
average asbestos defense or indemnity payment may be determined.

At December 31, 2000, approximately 83% (approximately $670 million) of the net
asbestos reserve, represents incurred but not reported losses for which the
Company has not received any specific claims. The balance, approximately 17% of
the net aggregate reserve (approximately $136 million) is for pending asbestos
claims.



                                       30
<PAGE>   33
In general, the Company posts case reserves for pending asbestos claims within
approximately thirty (30) business days of receipt of such claims. The following
table displays activity for asbestos losses and loss expenses and reserves for
the years ended December 31:

<TABLE>
<CAPTION>
====================================================================================
ASBESTOS LOSSES
(in millions)                                2000            1999            1998
------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>
Beginning reserves:
  Direct .........................        $ 1,050         $ 1,252         $ 1,363
  Ceded ..........................           (223)           (266)           (249)
------------------------------------------------------------------------------------
   Net ...........................            827             986           1,114

Incurred losses and loss expenses:
  Direct .........................            187             128             135
  Ceded ..........................           (137)            (71)            (69)

Losses paid:
  Direct .........................            232             330             246
  Ceded ..........................           (161)           (114)            (52)
------------------------------------------------------------------------------------
Ending reserves:
  Direct .........................          1,005           1,050           1,252
  Ceded ..........................           (199)           (223)           (266)
------------------------------------------------------------------------------------
   Net ...........................        $   806         $   827         $   986
====================================================================================
</TABLE>


UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES

It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation and other
uncertainties, including without limitation, those which are set forth below.
Conventional actuarial techniques are not used to estimate such reserves.

For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the underlying environmental exposure of each policyholder. The
unique facts are evaluated individually and collectively. Due consideration is
given to the many variables presented by each policyholder, as discussed above.

The reserving methodology for asbestos includes an evaluation of the asbestos
exposure presented by each insured. The following factors are evaluated:
available insurance coverage including the role of any umbrella or excess
insurance issued by the Company to the insured; limits and deductibles; an
analysis of each insured's potential liability; jurisdictional involvement; past
and anticipated future claim activity; past settlement values of similar claims;
allocated claim adjustment expense; potential role of other insurance; the role,
if any, of non-asbestos claims or potential non-asbestos claims in any
resolution process; and applicable coverage defenses or determinations, if any,
including the determination as to whether an asbestos claim is a
products/completed operations or non-products/operations claim and the available
coverage, if any, for such a claim. Once the gross ultimate exposure for
indemnity and allocated claim adjustment expense is determined for each insured
by each policy year, a ceded reinsurance projection is calculated based on any
applicable facultative and treaty reinsurance, as well as past ceded experience.
Adjustments to the ceded projections also occur due to actual ceded claim
experience and reinsurance collections.


                                       31
<PAGE>   34
Historically, the Company's experience has indicated that insureds with
potentially significant environmental and asbestos exposures may often have
potential cumulative injury other than asbestos (CIOTA) exposures or CIOTA
claims pending with the Company. Due to this experience and the fact that
settlement agreements with insureds may extinguish the Company's obligations for
all claims, including environmental, asbestos and CIOTA, the Company evaluates
and considers the environmental and asbestos reserves in conjunction with the
CIOTA reserve.

The Company also compares its historical direct and net loss and expense paid
experience in environmental and asbestos, year-by-year, to assess any emerging
trends, fluctuations or characteristics suggested by the aggregate paid
activity. The comparison includes a review of the result derived from the
division of the ending direct and net reserves by last year's direct and net
paid activity, also known as the survival ratio.

As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at December 31, 2000 are the Company's best
estimate of ultimate claims and claim adjustment expenses based upon known facts
and current law. However, the uncertainties surrounding the final resolution of
these claims continue. These include, without limitation, any impact from the
bankruptcy protection sought by various asbestos producers, a further increase
or decrease in asbestos and environmental claims which cannot now be anticipated
as well as the role of any umbrella or excess policies issued by the Company for
such claims, the resolution or adjudication of certain disputes pertaining to
asbestos non-products/operations claims in a manner inconsistent with the
Company's previous assessment of such claims as well as unanticipated
developments pertaining to the Company's ability to recover reinsurance for
environmental and asbestos claims.

It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of asbestos and
environmental claims. Such development will be affected by future court
decisions and interpretations, as well as changes in legislation applicable to
such claims. Because of these future unknowns, and the uncertainties set forth
above, additional liabilities may arise for amounts in excess of the current
reserves. These additional amounts, or a range of these additional amounts,
cannot now be reasonably estimated, and could result in a liability exceeding
reserves by an amount that would be material to the Company's operating results
in a future period. However, in the opinion of the Company's management, it is
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity.

CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS

CIOTA claims are generally submitted to the Company under general liability
policies and often involve an allegation by a claimant against an insured that
the claimant has suffered injuries as a result of long-term or continuous
exposure to potentially harmful products or substances. Such potentially harmful
products or substances include, but are not limited to, lead paint, pesticides,
pharmaceutical products, silicone-based personal products, solvents and other
deleterious substances.

Due to claimants' allegations of long-term bodily injury in CIOTA claims,
numerous complex issues regarding such claims are presented. The claimants'
theories of liability must be evaluated, evidence pertaining to a causal link
between injury and exposure to a substance must be reviewed, the potential role
of other causes of injury must be analyzed, the liability of other defendants
must be explored, an assessment of a claimant's damages must be made and the law
of the jurisdiction must be applied. In addition, the Company must review the
number of policies issued by the Company to the insured and whether such
policies are triggered by the allegations, the terms and limits of liability of
such policies, the


                                       32
<PAGE>   35
obligations of other insurers to respond to the claim, the applicable law in
each jurisdiction, and the role, if any, of non-CIOTA claims or potential
non-CIOTA claims in any resolution process.

To the extent disputes exist between the Company and a policyholder regarding
the coverage available for CIOTA claims, the Company resolves the disputes,
where feasible, through settlements with the policyholder or through coverage
litigation. Some agreements may extinguish any insurance obligation which the
Company may have for other claims, including but not limited to asbestos and
environmental claims. Generally, the terms of a settlement agreement set forth
the nature of the Company's participation in resolving CIOTA claims, the scope
of coverage to be provided by the Company and contain the appropriate
indemnities and hold harmless provisions to protect the Company. These
settlements generally eliminate uncertainties for the Company regarding the
risks extinguished, including the risk that losses would be greater than
anticipated due to evolving theories of tort liability or unfavorable coverage
determinations. The Company's approach also has the effect of determining losses
at a date earlier than would have occurred in the absence of such settlement
agreements. On the other hand, in cases where future developments are favorable
to insurers, this approach could have the effect of resolving claims for amounts
in excess of those that would ultimately have been paid had the claims not been
settled in this manner. No inference should be drawn that because of the
Company's method of dealing with CIOTA claims, its reserves for such claims are
more conservatively stated than those of other insurers.

At December 31, 2000, approximately 83% (approximately $667 million) of the net
CIOTA reserve, represents incurred but not reported losses for which the Company
has not received any specific claims. The balance, approximately 17% of the net
aggregate reserve (approximately $132 million) is for pending CIOTA claims.

The following table displays activity for CIOTA losses and loss expenses and
reserves for the years ended December 31:

<TABLE>
<CAPTION>
====================================================================================
CIOTA LOSSES
(in millions)                               2000            1999            1998
------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>
Beginning reserves:
  Direct .........................        $ 1,184         $ 1,346         $ 1,520
  Ceded ..........................           (313)           (392)           (432)
------------------------------------------------------------------------------------

   Net ...........................            871             954           1,088

Incurred losses and loss expenses:
  Direct .........................             27             (36)            (31)
  Ceded ..........................            (11)             28              29

Losses paid:
  Direct .........................            132             126             143
  Ceded ..........................            (44)            (51)            (11)
------------------------------------------------------------------------------------

Ending reserves:
  Direct .........................          1,079           1,184           1,346
  Ceded ..........................           (280)           (313)           (392)
------------------------------------------------------------------------------------
   Net ...........................        $   799         $   871         $   954
====================================================================================
</TABLE>


                                       33
<PAGE>   36
OUTLOOK

A variety of factors continue to affect the property and casualty insurance
market and the Company's core business outlook, including a firming of pricing
in the commercial lines marketplace as evidenced by price increases, a
continuing highly competitive personal lines marketplace, inflationary pressures
on loss cost trends including medical inflation and increasing auto loss costs,
rising reinsurance costs and litigation.

COMMERCIAL LINES

In 2000, the trend of higher rates continued in Commercial Lines. Prices
generally rose throughout the year, although some of the increases varied
significantly by region and business segment. These increases were necessary to
offset the impact of rising loss cost trends and the decline in profitability
from the competitive pressures of the last several years.

In National Accounts, where programs include risk management services, such as
claims settlement, loss control and risk management information services, which
are generally offered in connection with a large deductible or self-insured
program, and risk transfer, which is typically provided through a guaranteed
cost or retrospectively rated insurance policy, pricing began to stabilize
during 2000. National Accounts has benefited from higher rates on both new and
renewal business as evidenced by the improving profit margins earned on this
business. National Accounts believes that pricing will continue to firm in 2001.
However, National Accounts will continue to reject business that is not expected
to produce acceptable returns.

Commercial Accounts achieved double-digit price increases on renewal business
during 2000, improving the overall profit margin in this business. In addition,
these increases were necessary to offset the impacts of rising loss cost
inflation, medical inflation and reinsurance costs. Commercial Accounts will
continue to seek significant rate increases in 2001, as pricing in certain areas
and business segments still has not improved to the point of producing
acceptable returns.

In Select Accounts, the trend toward increased pricing on renewal business that
started in late 1999 gained momentum in 2000. Prices generally rose throughout
the year, although these increases varied significantly by region, industry and
product. Loss cost trends, however, also worsened in 2000, especially in
workers' compensation and auto liability. The impact of these negative loss cost
trends has been partially offset by a continued disciplined approach to
underwriting and risk selection by the Company. Select Accounts believes that
the improvements gained through high quality underwriting and continued price
increases in 2001 may be offset by the combination of worsening loss cost trends
in certain lines and regulatory pricing constraints in some jurisdictions.

Specialty Accounts achieved significant growth in 2000, with the acquisition of
Reliance Surety cementing a leadership position in the surety bond marketplace
by broadening product and service capabilities. The Company's focus in this
market is to sustain its emphasis on products with the most opportunities for
acceptable profitability and to increase its efforts to cross-sell its expanding
array of specialty products to existing customers of National Accounts,
Commercial Accounts, Select Accounts and various other Citigroup units.

The Company was able to achieve growth in its premium and fee levels during 2000
as a result of the Reliance Surety acquisition, the acquisition of the renewal
rights for the Reliance Middle Market and Frontier businesses and the
continuation of rate increases. The rate increases are expected to continue into


                                       34
<PAGE>   37
2001, although the deteriorating loss cost trends and increased costs of
reinsurance will offset some of the positive impact. The Company will continue
to adhere to strict underwriting guidelines and to reject business that is not
expected to produce acceptable returns.

The Company continues to receive asbestos claims alleging insureds' liability
from claimants' asbestos-related injuries. In 2000, the Company experienced an
increase over prior years in the number of asbestos claims being tendered to the
Company. However, the uncertainties surrounding the final resolution of these
claims continue. See the preceding discussions of Asbestos Claims and
Uncertainty Regarding Adequacy of Environmental and Asbestos Reserves.

PERSONAL LINES

Personal Lines strategy includes control of operating expenses to improve
competitiveness and profitability, growth in sales primarily through independent
agents and selective expansion of alternative marketing channels to broaden
distribution to a wider customer base. Personal Lines is continuing to grow its
nonstandard auto insurance to broaden its product capabilities. These growth
strategies also provide opportunities to leverage the existing cost structure
and achieve economies of scale. In addition, Personal Lines continues to take
action to control its exposure to catastrophe losses, including limiting the
writing of new homeowners business in certain markets and implementing price
increases in certain hurricane-prone areas, subject to restrictions imposed by
insurance regulatory authorities.

The personal auto insurance marketplace remains highly competitive as some
personal auto carriers have been reluctant to increase prices despite increases
in loss cost trends due to inflationary pressures. These trends are expected to
continue into 2001. Personal Lines will continue to emphasize underwriting
discipline in this competitive marketplace and continue to pursue its strategy
of increases in auto rates to offset increases in loss cost trends. Market
conditions for homeowners insurance have remained stable, with the industry
experiencing modest rate increases. Personal Lines expects homeowners rate
increases to continue in 2001. Homeowners loss cost trends continue to increase
at modest levels, reflecting inflationary pressures and the increased frequency
of weather-related losses.

TRAVELERS GROUP MERGER WITH CITICORP

As a result of the Merger, the Company has developed and made investments in
various cross-selling opportunities to Citigroup's customers including selling
Personal Lines products through referrals from the call centers servicing
Citibank's credit card operations. The Company continues to focus its efforts
and investments in those opportunities with the greatest sales and profit
potential.

PROPERTY AND CASUALTY INSURANCE INDUSTRY

The property and casualty insurance industry continues to be reshaped by
consolidation and globalization. The Company's strategic objectives are to
enhance its position as a consistently profitable market leader and to become a
low-cost provider of property and casualty insurance in the United States, as
the industry consolidates. While some of the insurance industry's cost control
methods have been challenged in litigation, it continues to be the Company's
objective to be a low-cost provider of property and casualty insurance, with an
emphasis on claim payout and performance and enhanced productivity.

With respect to globalization, Citigroup recently announced the formation of
CitiInsurance, the international arm of Citigroup insurance activities. This new
Citigroup unit was formed to capitalize on the strength of the Citigroup branch
franchise and the extensive distribution strength of the Citigroup consumer
business around the world. This unit will build on the progress already made in
Southeast Asia during 2000 with the strategic alliance with Fubon Group, a
diversified financial services company based


                                       35
<PAGE>   38
in Taiwan.

Changes in the general interest rate environment affect the return received on
newly invested and reinvested funds. While a rising interest rate environment
enhances the returns available, it reduces the market value of existing fixed
maturity investments and the availability of gains on disposition. A decline in
interest rates reduces the return available on investment of funds but creates
the opportunity for realized investment gains on disposition of fixed maturity
investments.

As required by various state laws and regulations, the Company's insurance
subsidiaries are subject to assessments from state-administered guaranty
associations, second injury funds and similar associations. Management believes
that such assessments will not have a material impact on the Company's results
of operations.

Certain social, economic, political and litigation issues have led to an
increased number of legislative and regulatory proposals aimed at addressing the
cost and availability of certain types of insurance as well as the claim and
coverage obligations of insurers. While most of these provisions have failed to
become law, these initiatives may continue as legislators and regulators try to
respond to public availability, affordability and claim concerns and the
resulting laws, if any, could adversely affect the Company's ability to write
business with appropriate returns.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See Note 1 of Notes to Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements.

FORWARD-LOOKING STATEMENTS

Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "may affect," and similar expressions or
future or conditional verbs such as "will," "should," "would," and "could." In
particular, the information appearing in the section under the heading "Outlook"
is forward-looking. These forward-looking statements involve risks and
uncertainties including, but not limited to, the following: the resolution of
legal proceedings and related matters; the conduct of the Company's businesses
following the Travelers Group merger with Citicorp; customer responsiveness to
both new products and distribution channels; and the actual amount of
liabilities associated with certain environmental and asbestos-related insurance
claims. Readers are also directed to other risks and uncertainties discussed in
documents filed by the Company with the Securities and Exchange Commission.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK.

MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by the
volatility and liquidity in the markets in which the related underlying assets
are traded. The following is a discussion of the Company's primary market risk
exposures and how those exposures are currently managed as of December 31, 2000.
The Company's market risk sensitive


                                       36
<PAGE>   39
instruments, including derivatives, are primarily entered into for purposes
other than trading.

The carrying value of the Company's investment portfolio as of December 31, 2000
and 1999 was $30.7 billion and $29.8 billion, respectively, of which 81% and 85%
was invested in fixed maturity securities, respectively. The primary market risk
to the investment portfolio is interest rate risk associated with investments in
fixed maturity securities. The Company's exposure to equity price risk and
foreign exchange risk is not significant. The Company has no direct commodity
risk.

For fixed maturity securities, short-term liquidity needs and the potential
liquidity needs of the business are key factors in managing the portfolio. The
portfolio duration relative to the liabilities' duration is primarily managed
through cash market transactions.

For the Company's investment portfolio, there were no significant changes in the
Company's primary market risk exposures or in how those exposures are managed
compared to the year ended December 31, 1999. The Company does not currently
anticipate significant changes in its primary market risk exposures or in how
those exposures are managed in future reporting periods based upon what is known
or expected to be in effect in future reporting periods.

The primary market risk for all of the Company's long-term debt and mandatorily
redeemable securities of subsidiary trusts (trust securities) is interest rate
risk at the time of refinancing. All of the Company's fixed rate debt is
non-redeemable. On April 15, 2001, $500 million of the Company's fixed rate debt
matures. The Company has the right to redeem the fixed rate trust securities on
or after April 30, 2001, in whole or in part, at a redemption price equal to
100% of the principal amount to be redeemed plus any accrued and unpaid interest
to the redemption date. The Company will continue to monitor the interest rate
environment and to evaluate refinancing opportunities as maturity/redemption
dates approach. For additional information regarding the Company's long-term
debt and trust securities see Notes 7 and 9 of Notes to Consolidated Financial
Statements.

SENSITIVITY ANALYSIS

Sensitivity analysis is defined as the measurement of potential loss in future
earnings, fair values or cash flows of market sensitive instruments resulting
from one or more selected hypothetical changes in interest rates and other
market rates or prices over a selected time. In the Company's sensitivity
analysis model, a hypothetical change in market rates is selected that is
expected to reflect reasonably possible near-term changes in those rates. The
term "near-term" means a period of time going forward up to one year from the
date of the consolidated financial statements. Actual results may differ from
the hypothetical change in market rates assumed in this disclosure, especially
since this sensitivity analysis does not reflect the results of any actions that
would be taken by the Company to mitigate such hypothetical losses in fair
value.

In this sensitivity analysis model, the Company uses fair values to measure its
potential loss. The sensitivity analysis model includes the following financial
instruments: fixed maturities, interest-bearing non-redeemable preferred stocks,
mortgage loans, short-term securities, cash, investment income accrued,
long-term debt, fixed rate trust securities and derivative financial
instruments. The primary market risk to the Company's market sensitive
instruments is interest rate risk. The sensitivity analysis model uses a 100
basis point change in interest rates to measure the hypothetical change in fair
value of financial instruments included in the model.

For invested assets, duration modeling is used to calculate changes in fair
values. Durations on invested


                                       37
<PAGE>   40
assets are adjusted for call, put and interest rate reset features. Duration on
tax-exempt securities is adjusted for the fact that the yield on such securities
is less sensitive to changes in interest rates compared to Treasury securities.
Invested asset portfolio durations are calculated on a market value weighted
basis, including accrued investment income, using holdings as of December 31,
2000 and 1999.

For long-term debt and fixed rate trust securities, the change in fair value is
determined by calculating hypothetical December 31, 2000 and 1999 ending prices
based on yields adjusted to reflect a 100 basis point change, comparing such
hypothetical ending prices to actual ending prices, and multiplying the
difference by the par or securities outstanding.

The sensitivity analysis model used by the Company produces a loss in fair value
of market sensitive instruments of $1.2 billion based on a 100 basis point
increase in interest rates as of December 31, 2000 and 1999, respectively. This
loss value only reflects the impact of an interest rate increase on the fair
value of the Company's financial instruments, which constitute approximately 55%
of total assets and approximately 4% of total liabilities as of December 31,
2000 and approximately 56% of total assets and approximately 4% of total
liabilities as of December 31, 1999. As a result, the loss value excludes a
significant portion of the Company's consolidated balance sheet which would
materially mitigate the impact of the loss in fair value associated with a 100
basis point increase in interest rates.

For example, certain non-financial instruments, primarily insurance accounts for
which the fixed maturity portfolio's primary purpose is to fund future claims
payments, are not reflected in the development of the above loss value. These
non-financial instruments include premium balances receivable, reinsurance
recoverables, claims and claim adjustment expense reserves and unearned premium
reserves. The Company's sensitivity model also calculates a potential loss in
fair value with the inclusion of these non-financial instruments. For
non-financial instruments, changes in fair value are determined by calculating
the present value of the estimated cash flows associated with such instruments
using risk-free rates as of December 31, 2000 and 1999, calculating the
resulting duration, then using that duration to determine the change in value
for a 100 basis point change.

Based on the sensitivity analysis model used by the Company, the loss in fair
value of market sensitive instruments, including these non-financial
instruments, as a result of a 100 basis point increase in interest rates as of
December 31, 2000 and 1999 is not material.


                                       38
<PAGE>   41
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                           <C>
Independent Auditors' Report .........................................        40

Consolidated Statement of Income for the years ended
  December 31, 2000, 1999 and 1998 ...................................        41

Consolidated Balance Sheet at December 31, 2000 and 1999 .............        42

Consolidated Statement of Changes in Stockholders' Equity
  for the years ended December 31, 2000, 1999 and 1998 ...............        43

Consolidated Statement of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998 ...................................        44

Notes to Consolidated Financial Statements ...........................        45
</TABLE>


                                       39
<PAGE>   42
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholder
Travelers Property Casualty Corp.:

We have audited the accompanying consolidated balance sheets of Travelers
Property Casualty Corp. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, changes in stockholder's equity
and cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Travelers Property
Casualty Corp. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations, changes in stockholder's equity and their cash
flows for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 1 to the consolidated financial statements, in 1999 the
Company changed its methods of accounting for insurance and reinsurance
contracts that do not transfer insurance risk and its accounting for
insurance-related assessments.






/s/ KPMG LLP
Hartford, Connecticut
January 16, 2001


                                       40
<PAGE>   43
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME
                                  (In millions)

<TABLE>
<CAPTION>
=======================================================================================================================
For the Year Ended December 31,                                                 2000            1999            1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>              <C>
REVENUES
Premiums                                                                       $ 8,462        $  8,009         $ 7,796
Net investment income                                                            2,160           2,092           2,100
Fee income                                                                         312             275             306
Realized investment gains                                                           47             112             143
Other revenues                                                                      87              84             106
-----------------------------------------------------------------------------------------------------------------------
  Total revenues                                                                11,068          10,572          10,451
-----------------------------------------------------------------------------------------------------------------------
CLAIMS AND EXPENSES
Claims and claim adjustment expenses                                             6,473           6,059           5,947
Amortization of deferred acquisition costs                                       1,298           1,260           1,197
Interest expense                                                                   134             152             161
General and administrative expenses                                              1,136           1,186           1,309
-----------------------------------------------------------------------------------------------------------------------
  Total claims and expenses                                                      9,041           8,657           8,614
-----------------------------------------------------------------------------------------------------------------------
Income before federal income taxes and cumulative
  effect of changes in accounting principles                                     2,027           1,915           1,837
-----------------------------------------------------------------------------------------------------------------------
Federal income taxes:
 Current expense                                                                   382             287             394
 Deferred expense                                                                  165             219             100
-----------------------------------------------------------------------------------------------------------------------
   Total federal income taxes                                                      547             506             494
-----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles              1,480           1,409           1,343
Cumulative effect of change in accounting for insurance-related
  assessments, net of tax                                                           --            (160)             --
Cumulative effect of change in accounting for insurance and
  reinsurance contracts that do not transfer insurance risk, net of tax             --              27              --
-----------------------------------------------------------------------------------------------------------------------
Net income                                                                     $ 1,480        $  1,276         $ 1,343
=======================================================================================================================
</TABLE>


                 See notes to consolidated financial statements.


                                       41
<PAGE>   44
                TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                           (In millions, except shares)

<TABLE>
<CAPTION>
=====================================================================================================
At December 31,                                                               2000            1999
-----------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>
ASSETS
Fixed maturities, available for sale at fair value (including $1,042
   at December 31, 2000 subject to securities lending agreements)           $25,001        $ 25,305
Equity securities, at fair value                                              1,019           1,261
Mortgage loans                                                                  286             464
Real estate held for sale                                                        47              50
Short-term securities                                                         2,527           1,535
Other investments                                                             1,835           1,221
-----------------------------------------------------------------------------------------------------
     Total investments                                                       30,715          29,836
-----------------------------------------------------------------------------------------------------
Cash                                                                            196              55
Investment income accrued                                                       355             385
Premium balances receivable                                                   2,952           2,738
Reinsurance recoverables                                                      9,444           9,424
Deferred acquisition costs                                                      614             525
Deferred federal income taxes                                                 1,063           1,552
Contractholder receivables                                                    2,104           2,059
Goodwill                                                                      2,316           1,390
Other assets                                                                  3,099           2,293
-----------------------------------------------------------------------------------------------------
     Total assets                                                           $52,858        $ 50,257
=====================================================================================================
LIABILITIES
Claims and claim adjustment expense reserves                                $28,442        $ 29,003
Unearned premium reserves                                                     4,792           4,274
Contractholder payables                                                       2,104           2,059
Long-term debt                                                                  850             850
Other liabilities                                                             5,056           4,230
-----------------------------------------------------------------------------------------------------
     Total liabilities                                                       41,244          40,416
-----------------------------------------------------------------------------------------------------
TPC-obligated mandatorily redeemable securities of subsidiary
   trusts holding solely junior subordinated debt securities of TPC             900             900
-----------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Common Stock, $.01 par value, 1,000 shares authorized;
   1,000 and 0 shares issued and outstanding                                     --              --
Class A Common Stock, $.01 par value, 700 million shares authorized;
   0 and 72,393,407 shares issued and outstanding                                --               1
Class B Common Stock, $.01 par value, 700 million shares authorized;
   0 and 328,020,170 shares issued and outstanding                               --               3
Additional paid-in capital                                                    5,934           5,479
Retained earnings                                                             4,379           4,133
Accumulated other changes in equity from nonowner sources                       401            (202)
Treasury stock, at cost (shares, 0 and 13,159,386)                               --            (451)
Unearned compensation                                                            --             (22)
-----------------------------------------------------------------------------------------------------
     Total stockholder's equity                                              10,714           8,941
-----------------------------------------------------------------------------------------------------
     Total liabilities and stockholder's equity                             $52,858        $ 50,257
=====================================================================================================
</TABLE>


                 See notes to consolidated financial statements.


                                       42
<PAGE>   45
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
                          (In millions, except shares)

<TABLE>
<CAPTION>
===================================================================================================================================
                                                                                                    SHARES  (IN THOUSANDS)
                                                                                            ---------------------------------------
For the Year Ended December 31,                    2000          1999          1998           2000           1999           1998
-------------------------------------------------------------------------------------       ---------------------------------------
<S>                                              <C>            <C>           <C>           <C>             <C>            <C>
COMMON STOCK AND ADDI-
  TIONAL PAID-IN CAPITAL
Balance, beginning of year                       $  5,483       $ 5,483       $ 5,477        400,414        400,414        400,414
TIGI tender offer-related transactions                971            --            --             --             --             --
Authorized and unissued shares related
  to TIGI's tender offer                               --            --            --       (385,197)            --             --
Treasury stock retired                               (521)           --            --        (15,216)            --             --
Net Capital Accumulation Plan (CAP)
  grants                                                1            --             6             --             --             --
-------------------------------------------------------------------------------------       ---------------------------------------
Balance, end of year                                5,934         5,483         5,483              1        400,414        400,414
-------------------------------------------------------------------------------------       ---------------------------------------
RETAINED EARNINGS
Balance, beginning of year                          4,133         3,052         1,866
Net income                                          1,480         1,276         1,343
Dividends                                          (1,234)         (195)         (157)
-------------------------------------------------------------------------------------
Balance, end of year                                4,379         4,133         3,052
-------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES
  IN EQUITY FROM NONOWNER
  SOURCES, NET OF TAX
Balance, beginning of year                           (202)          921           722
Net unrealized gain (loss) on investment
  securities, net of reclassification
  adjustment (see note 9)                             609        (1,131)          200
Foreign currency translation adjustments               (6)            8            (1)
-------------------------------------------------------------------------------------
Balance, end of year                                  401          (202)          921
-------------------------------------------------------------------------------------
TREASURY STOCK (at cost)
Balance, beginning of year                           (451)         (298)         (266)       (13,160)        (8,545)        (7,315)
Net CAP Plan grants                                     7            15            29            245            501            782
Treasury stock acquired                               (77)         (169)          (62)        (2,301)        (5,137)        (2,029)
Treasury stock retired                                521            --            --         15,216             --             --
Other                                                  --             1             1             --             21             17
-------------------------------------------------------------------------------------       ---------------------------------------
Balance, end of year                                   --          (451)         (298)            --        (13,160)        (8,545)
-------------------------------------------------------------------------------------       ---------------------------------------
UNEARNED COMPENSATION
Balance, beginning of year                            (22)          (33)          (22)
Net issuance of restricted stock under CAP            (16)          (11)          (29)
Restricted stock amortization                           7            22            18
CAP grants converted to Citigroup
  CAP grants                                           31            --            --
-------------------------------------------------------------------------------------
Balance, end of year                                   --           (22)          (33)
-------------------------------------------------------------------------------------       ---------------------------------------

Total stockholder's equity and
  shares outstanding                             $ 10,714       $ 8,941       $ 9,125              1        387,254        391,869
-------------------------------------------------------------------------------------       ---------------------------------------
SUMMARY OF CHANGES IN
  EQUITY FROM NONOWNER
  SOURCES
Net income                                       $  1,480       $ 1,276       $ 1,343
Other changes in equity from
  nonowner sources, net of tax                        603        (1,123)          199
-------------------------------------------------------------------------------------
Total changes in equity from
   nonowner sources                              $  2,083       $   153       $ 1,542
-------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>


                 See notes to consolidated financial statements.


                                       43
<PAGE>   46
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (In millions)

<TABLE>
<CAPTION>
====================================================================================================================================
For the Year Ended December 31,                                                            2000            1999            1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                              $  1,480        $  1,276        $  1,343
  Adjustments to reconcile net income to net cash provided by operating activities
   Realized investment gains                                                                  (47)           (112)           (143)
   Cumulative effect of changes in accounting principles, net of tax                           --             133              --
   Depreciation and amortization                                                               87              66              60
   Deferred federal income taxes                                                              165             219             100
   Amortization of deferred policy acquisition costs                                        1,298           1,260           1,197
   Premium balances receivable                                                               (179)            163              (4)
   Reinsurance recoverables                                                                  (168)           (122)            (60)
   Deferred policy acquisition costs                                                       (1,355)         (1,266)         (1,214)
   Insurance reserves                                                                        (102)           (627)           (341)
   Other                                                                                      (76)           (349)           (220)
------------------------------------------------------------------------------------------------------------------------------------
   Net cash provided by operating activities                                                1,103             641             718
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from maturities of investments
  Fixed maturities                                                                          1,806           1,678           1,551
  Mortgage loans                                                                              289             231             160
 Proceeds from sales of investments
  Fixed maturities                                                                         12,508          10,022           8,541
  Equity securities                                                                         2,355             873             580
  Mortgage loans                                                                               --              --              15
  Real estate held for sale                                                                    19             122              33
 Purchases of investments
  Fixed maturities                                                                        (12,803)        (10,840)        (10,206)
  Equity securities                                                                        (2,332)         (1,072)           (505)
  Mortgage loans                                                                              (40)            (42)            (34)
 Short-term securities, net                                                                (1,051)            (82)            (98)
 Other investments, net                                                                      (595)           (495)           (244)
 Securities transactions in course of settlement                                              491            (279)           (169)
 Business acquisitions                                                                       (298)             --              --
------------------------------------------------------------------------------------------------------------------------------------
   Net cash provided by (used in) investing activities                                        349             116            (376)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of commercial paper, net                                                           --              --            (108)
 Payment of long-term debt                                                                     --            (400)             --
 Purchase of treasury stock                                                                   (77)           (169)            (62)
 Dividends to TIGI                                                                         (1,226)           (164)           (131)
 Dividends to minority shareholders                                                            (8)            (31)            (26)
------------------------------------------------------------------------------------------------------------------------------------
   Net cash used in financing activities                                                   (1,311)           (764)           (327)
------------------------------------------------------------------------------------------------------------------------------------
 Net increase (decrease) in cash                                                              141              (7)             15
 Cash at beginning of period                                                                   55              62              47
------------------------------------------------------------------------------------------------------------------------------------
 Cash at end of period                                                                   $    196        $     55        $     62
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Income taxes paid                                                                       $    339        $    356        $    399
 Interest paid                                                                           $    134        $    159        $    161
====================================================================================================================================
</TABLE>


                 See notes to consolidated financial statements.


                                                                 44
<PAGE>   47
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Travelers
     Property Casualty Corp. (TPC) (a direct subsidiary of The Travelers
     Insurance Group Inc. (TIGI) and an indirect subsidiary of Citigroup Inc.
     (Citigroup)) and its subsidiaries (collectively, the Company). Significant
     intercompany transactions and balances have been eliminated.

     During April 2000, TIGI completed a cash tender offer to purchase all of
     the outstanding shares of Class A Common Stock of TPC at a price of $41.95
     per share. See note 9.

     The preparation of the consolidated financial statements in conformity with
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the consolidated financial statements and the reported amounts of
     revenues and claims and expenses during the reporting period. Actual
     results could differ from those estimates.

     ACCOUNTING CHANGES

     ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
     EXTINGUISHMENTS OF LIABILITIES

     In September 2000, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards No. 140, "Accounting for
     Transfers and Servicing of Financial Assets and Extinguishments of
     Liabilities, a replacement of FASB Statement No. 125" (FAS 140). Provisions
     of FAS 140 primarily relating to transfers of financial assets and
     securitizations that differ from provisions of "Accounting for Transfers
     and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS
     125) are effective for transfers taking place after March 31, 2001. Special
     purpose entities (SPEs) used in securitizations that are currently
     qualifying SPEs under FAS 125 will continue to be treated as qualifying
     SPEs as long as they issue no new beneficial interests and accept no new
     asset transfers after March 31, 2001, other than transfers committed to
     prior to that date. Under FAS 140, qualifying SPEs are not consolidated by
     the transferor. It is not expected that there will be a significant effect
     on results of operations, financial condition or liquidity relating to a
     change in consolidation status for existing qualifying SPEs under FAS 140.
     FAS 140 also amends the accounting for collateral and requires new
     disclosures for collateral, securitizations and retained interests in
     securitizations. These provisions are effective for financial statements
     for fiscal years ending after December 15, 2000. The accounting for
     collateral, as amended, requires (a) certain assets pledged as collateral
     to be separately reported in the consolidated balance sheet from assets not
     so encumbered and (b) disclosure of assets pledged as collateral that have
     not been reclassified and separately reported. The change in accounting for
     collateral did not have a significant effect on results of operations,
     financial condition or liquidity. See note 4.


                                       45
<PAGE>   48
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      DEPOSIT ACCOUNTING: ACCOUNTING FOR INSURANCE AND REINSURANCE CONTRACTS
      THAT DO NOT TRANSFER INSURANCE RISK

      Effective January 1, 1999, the Company adopted the Accounting Standards
      Executive Committee of the American Institute of Certified Public
      Accountants' (AcSEC) Statement of Position 98-7, "Deposit Accounting:
      Accounting for Insurance and Reinsurance Contracts That Do Not Transfer
      Insurance Risk" (SOP 98-7). SOP 98-7 provides guidance on how to account
      for insurance and reinsurance contracts that do not transfer insurance
      risk and applies to all entities and all such contracts, except for
      long-duration life and health insurance contracts. The method used to
      account for such contracts is referred to as deposit accounting. This SOP
      does not address when deposit accounting should be applied. SOP 98-7
      identifies several methods of deposit accounting for insurance and
      reinsurance contracts that do not transfer insurance risk and provides
      guidance on the application of each method. The effect of initially
      adopting SOP 98-7 is to be reported as a cumulative catch-up adjustment.
      Restatement of previously issued financial statements is not permitted. As
      a result of adopting SOP 98-7, the Company recorded a benefit of $27
      million after tax, reflected as a cumulative catch-up adjustment. This SOP
      is not expected to have a significant impact on results of operations,
      financial condition or liquidity. See note 5.

      ACCOUNTING BY INSURANCE AND OTHER ENTERPRISES FOR INSURANCE-RELATED
      ASSESSMENTS

      Effective January 1, 1999, the Company adopted the AcSEC Statement of
      Position 97-3, "Accounting by Insurance and Other Enterprises for
      Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
      determining when an entity should recognize a liability for guaranty-fund
      and other insurance-related assessments, how to measure that liability,
      and when an asset may be recognized for the recovery of such assessments
      through premium tax offsets or policy surcharges. The effect of the
      initial adoption of this SOP is to be reported as a cumulative catch-up
      adjustment. Restatement of previously issued financial statements is not
      permitted. As a result of adopting SOP 97-3, the Company recorded a charge
      of $160 million after tax, reflected as a cumulative catch-up adjustment.
      Aside from the initial impact at adoption, this SOP is not expected to
      have a significant impact on results of operations, financial condition or
      liquidity.

      ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
      INTERNAL USE

      During the third quarter of 1998, the Company adopted the AcSEC Statement
      of Position 98-1, "Accounting for the Costs of Computer Software Developed
      or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on
      accounting for the costs of computer software developed or obtained for
      internal use and for determining when specific costs should be capitalized
      and when they should be expensed. The adoption of SOP 98-1 did not have a
      significant impact on results of operations, financial condition or
      liquidity.


                                       46
<PAGE>   49
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

     ACCOUNTING POLICIES

     INVESTMENTS

     Fixed maturities include bonds, notes and redeemable preferred stocks.
     Fixed maturities are valued based upon quoted market prices or dealer
     quotes, or if quoted market prices or dealer quotes are not available,
     discounted expected cash flows using market rates commensurate with the
     credit quality and maturity of the investment. Also included in fixed
     maturities are loan-backed and structured securities, which are amortized
     using the retrospective method. The effective yield used to determine
     amortization is calculated based upon actual historical and projected
     future cash flows, which are obtained from a widely-accepted securities
     data provider. Fixed maturities, including instruments subject to
     securities lending agreements (see note 4), are classified as "available
     for sale" and are reported at fair value, with unrealized investment gains
     and losses, net of income taxes, charged or credited directly to
     stockholder's equity.

     Equity securities, which include common and nonredeemable preferred stocks,
     are classified as available for sale and carried at fair value based
     primarily on quoted market prices. Changes in fair values of equity
     securities are charged or credited directly to stockholder's equity, net of
     income taxes.

     Mortgage loans are carried at amortized cost. A mortgage loan is considered
     impaired when it is probable that the Company will be unable to collect
     principal and interest amounts due. For mortgage loans that are determined
     to be impaired, a reserve is established for the difference between the
     amortized cost and fair market value of the underlying collateral. In
     estimating fair value, the Company uses interest rates reflecting the
     returns required in the current real estate financing market. Impaired
     loans were not significant at December 31, 2000 and 1999.

     Real estate held for sale is carried at the lower of cost or fair value
     less estimated costs to sell. Fair value is established at the time of
     acquisition by internal analysis or external appraisers, using discounted
     cash flow analyses and other acceptable techniques. Thereafter, an
     allowance for losses on real estate held for sale is established if the
     carrying value of the property exceeds its current fair value less
     estimated costs to sell. There was no such allowance at December 31, 2000
     and 1999.

     Accrual of income is suspended on fixed maturities or mortgage loans that
     are in default, or on which it is likely that future payments will not be
     made as scheduled. Interest income on investments in default is recognized
     only as payment is received. Investments included in the consolidated
     balance sheet that were not income-producing for the preceding 12 months
     were not significant.

     Short-term securities, consisting primarily of money market instruments and
     other debt issues purchased with a maturity of less than one year, are
     carried at amortized cost, which approximates market.

     Other invested assets include partnership investments and real estate joint
     ventures accounted for on the equity method of accounting. Undistributed
     income is reported in net investment income.


                                       47
<PAGE>   50
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

     INVESTMENT GAINS AND LOSSES

     Realized investment gains and losses are included as a component of pretax
     revenues based upon specific identification of the investments sold on the
     trade date. Other-than-temporary declines in market value of investments
     are included in realized investment gains and losses.

     REINSURANCE RECOVERABLES

     Amounts recoverable from reinsurers are estimated in a manner consistent
     with the claim liability associated with the reinsured business. The
     Company evaluates and monitors the financial condition of its reinsurers
     under voluntary reinsurance arrangements to minimize its exposure to
     significant losses from reinsurer insolvencies.

     DEFERRED ACQUISITION COSTS

     Amounts which vary with and are primarily related to the production of new
     business, primarily commissions and premium taxes, are deferred and
     amortized pro rata over the contract periods in which the related premiums
     are earned. Future investment income attributable to related premiums is
     taken into account in measuring the recoverability of the carrying value of
     this asset. Deferred acquisition costs are reviewed to determine if they
     are recoverable from future income, and if not, are charged to expense. All
     other acquisition expenses are charged to operations as incurred.

     CONTRACTHOLDER RECEIVABLES AND PAYABLES

     Under certain workers' compensation insurance contracts with deductible
     features, the Company is obligated to pay the claimant for the full amount
     of the claim. The Company is subsequently reimbursed by the policyholder
     for the deductible amount. These amounts are included on a gross basis in
     the consolidated balance sheet in contractholder payables and
     contractholder receivables, respectively.

     GOODWILL AND INTANGIBLE ASSETS

     Goodwill is generally amortized on a straight-line basis over a 40-year
     period. TIGI's purchase of the outstanding shares of Class A Common Stock
     of TPC (see note 1, basis of presentation) generated goodwill of
     approximately $1.0 billion, which is being amortized on a straight-line
     basis over a 36-year period. The Company's acquisition of the surety
     business of Reliance Group Holdings, Inc. (Reliance Surety) (see note 2)
     included an intangible asset of approximately $450 million, which is being
     amortized on a straight-line basis over a 15-year period. The carrying
     amount of these assets is regularly reviewed for indicators of
     other-than-temporary impairments in value. Impairments would be recognized
     in operating results if a permanent diminution in value is deemed to have
     occurred, based upon an evaluation of expected future cash flows for the
     Company in accordance with Statement of Financial Accounting Standards No.
     121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to be Disposed of." An impairment would be measured by the amount
     the present value of the expected future net cash flows from operating
     activities of the Company (applying the discount rate(s) used to determine
     the fair value of the acquired assets and assumed liabilities at the date
     of acquisition) is less than the carrying amount of goodwill. Amortization
     expense included in the consolidated statement of income was $80 million,
     $40 million and $40 million for the years ended December 31, 2000, 1999 and
     1998, respectively.


                                       48

<PAGE>   51
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES
       Claims and claim adjustment expense reserves represent estimated
       provisions for both reported and unreported claims incurred and related
       expenses. The reserves are adjusted regularly based upon experience.
       Included in the claims and claim adjustment expense reserves in the
       consolidated balance sheet at December 31, 2000 and 1999 are $1.4 billion
       and $1.5 billion, respectively, of reserves related to workers'
       compensation that have been discounted using an interest rate of 5%.

       In determining claims and claim adjustment expense reserves, the Company
       carries on a continuing review of its overall position, its reserving
       techniques and its reinsurance. These reserves represent the estimated
       ultimate cost of all incurred claims and claim adjustment expenses. Since
       the reserves are based on estimates, the ultimate liability may be more
       or less than such reserves. The effects of changes in such estimated
       reserves are included in the results of operations in the period in which
       the estimates are changed. Such changes may be material to the results of
       operations and could occur in a future period.

       OTHER LIABILITIES
       Included in other liabilities in the consolidated balance sheet is the
       Company's estimate of its liability for guaranty-fund and other
       insurance-related assessments. The liability for expected state
       guaranty-fund and other premium-based assessments is recognized as the
       Company writes or becomes obligated to write or renew the premiums on
       which the assessments are expected to be based. The liability for
       loss-based assessments is recognized as the related losses are incurred.
       At December 31, 2000 and 1999, the Company had a liability of $223
       million and $308 million, respectively, for guaranty-fund and other
       assessments and related recoveries of $28 million and $41 million,
       respectively. The assessments are expected to be paid over a period
       ranging from one year to the life expectancy of certain workers'
       compensation claimants and the recoveries are expected to occur over the
       same period of time.

       PERMITTED STATUTORY ACCOUNTING PRACTICES
       The Company's insurance subsidiaries, domiciled principally in
       Connecticut, prepare statutory financial statements in accordance with
       the accounting practices prescribed or permitted by the insurance
       departments of the states of domicile. Prescribed statutory accounting
       practices include certain publications of the National Association of
       Insurance Commissioners (NAIC) as well as state laws, regulations, and
       general administrative rules. Permitted statutory accounting practices
       encompass all accounting practices not so prescribed. The impact of any
       permitted accounting practices on statutory surplus of the Company is not
       material.

       The NAIC recently completed a process intended to codify statutory
       accounting practices for certain insurance enterprises. As a result, the
       NAIC issued a revised statutory Accounting Practices and Procedures
       Manual - version effective January 1, 2001 (the revised Manual) that will
       be effective for years beginning January 1, 2001. The State of
       Connecticut requires that, effective January 1, 2001, insurance companies
       domiciled in Connecticut prepare their statutory basis financial
       statements in accordance with the revised Manual subject to any
       deviations prescribed or permitted by the Connecticut insurance
       commissioner. Other states have addressed compliance with the revised
       Manual in a similar manner. The Company has estimated that the impact of
       this change will be an increase to statutory capital and surplus of its
       insurance subsidiaries of approximately $350 million.


                                       49
<PAGE>   52
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       PREMIUMS AND UNEARNED PREMIUM RESERVES
       Premiums are recognized as revenues pro rata over the policy period.
       Unearned premium reserves represent the unexpired portion of policy
       premiums. Accrued retrospective premiums are included in premium balances
       receivable.

       FEE INCOME
       Fee income includes servicing fees from carriers and revenues from large
       deductible policies and service contracts and are recognized pro rata
       over the contract or policy periods.

       OTHER REVENUES
       Other revenues include revenues from premium installment charges, which
       are recognized as collected, revenues of noninsurance subsidiaries other
       than fee income and gains and losses on dispositions of assets and
       operations other than realized investment gains and losses.

       FEDERAL INCOME TAXES
       The provision for federal income taxes is comprised of two components,
       current income taxes and deferred income taxes. Deferred federal income
       taxes arise from changes during the year in cumulative temporary
       differences between the tax basis and book basis of assets and
       liabilities.

       STOCK-BASED COMPENSATION
       The Company accounts for the stock-based compensation plans using the
       accounting method prescribed by Accounting Principles Board Opinion No.
       25, "Accounting for Stock Issued to Employees" (APB 25) and has included
       in the notes to consolidated financial statements the pro forma
       disclosures required by Statement of Financial Accounting Standards No.
       123, "Accounting for Stock-Based Compensation" (FAS 123). See note 14.
       The Company accounts for its stock-based non-employee compensation plans
       at fair value.

       DERIVATIVE FINANCIAL INSTRUMENTS
       The Company uses derivative financial instruments, including interest
       rate swaps, currency swaps, options, forward contracts and financial
       futures, as a means of hedging exposure to interest rate, equity price
       change and foreign currency risk. The Company's insurance subsidiaries do
       not hold or issue derivative instruments for trading purposes. Where
       applicable, hedge accounting is used to account for derivatives. To
       qualify for hedge accounting, the changes in value of the derivative must
       be expected to substantially offset the changes in value of the hedged
       item. Hedges are monitored to ensure that there is a high correlation
       between the derivative instruments and the hedged investment. Derivatives
       that do not qualify for hedge accounting are marked to market with the
       changes in market value reflected in the consolidated statement of
       income.

       Interest rate swaps, currency swaps, options, forward contracts and
       financial futures were not significant at December 31, 2000 and 1999. See
       note 12.



                                       50
<PAGE>   53
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       ACCOUNTING STANDARDS NOT YET ADOPTED

       ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
       In June 1998, the FASB issued Statement of Financial Accounting Standards
       No. 133, "Accounting for Derivative Instruments and Hedging Activities"
       (FAS 133). In June 1999, the FASB issued Statement of Financial
       Accounting Standards No. 137, "Deferral of the Effective Date of FASB
       Statement No. 133," which allows entities which have not yet adopted FAS
       133 to defer its effective date to all fiscal quarters of all fiscal
       years beginning after June 15, 2000. In June 2000, the FASB issued
       Statement of Financial Accounting Standards No. 138, "Accounting for
       Certain Derivative Financial Instruments and Certain Hedging Activities,
       an amendment of FASB Statement No. 133," which amends the accounting and
       reporting standards of FAS 133. FAS 133 establishes accounting and
       reporting standards for derivative instruments, including certain
       derivative instruments embedded in other contracts (collectively referred
       to as derivatives), and for hedging activities. It requires that an
       entity recognize all derivatives as either assets or liabilities in the
       consolidated balance sheet and measure those instruments at fair value.
       If certain conditions are met, a derivative may be specifically
       designated as (a) a hedge of the exposure to changes in the fair value of
       a recognized asset or liability or an unrecognized firm commitment, (b) a
       hedge of the exposure to variable cash flows of a recognized asset or
       liability or of a forecasted transaction, or (c) a hedge of the foreign
       currency exposure of a net investment in a foreign operation, an
       unrecognized firm commitment, an available-for-sale security, or a
       foreign-currency-denominated forecasted transaction. The accounting for
       changes in the fair value of a derivative (that is, gains and losses)
       depends on the intended use of the derivative and the resulting
       designation. Upon initial application of FAS 133, hedging relationships
       must be designated anew and documented pursuant to the provisions of this
       statement. The Company will adopt FAS 133, as amended, as of January 1,
       2001.

       The Company has determined that the cumulative effect of FAS 133, as
       amended, will not be significant. The Company does, however, anticipate a
       significant and continuing increase in the complexity of the accounting
       and the recordkeeping requirements for hedging activities and for
       insurance-related contracts and may make changes to its risk management
       strategies. The Company does not expect that FAS 133, as amended, will
       have a significant impact on results of operations, financial condition
       or liquidity in future periods.




                                       51
<PAGE>   54
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       NATURE OF OPERATIONS

       The Company is comprised of two business segments: Commercial Lines and
       Personal Lines. See note 3.

       COMMERCIAL LINES
       Commercial Lines offers a broad array of property and casualty insurance
       and insurance-related services. Protection is afforded to customers of
       Commercial Lines for the risks of property loss such as fire and
       windstorm, financial loss such as business interruption from property
       damage, liability claims arising from operations and workers'
       compensation benefits through insurance products where risk is
       transferred from the customer to Commercial Lines. Coverages include
       workers' compensation, general liability, commercial multi-peril,
       commercial automobile, property, fidelity and surety, professional
       liability, and several miscellaneous coverages.

       Commercial Lines is divided into four marketing groups that are designed
       to focus on a particular client base or industry segment to provide
       products and services that specifically address customers' needs:
       National Accounts, Commercial Accounts, Select Accounts and Specialty
       Accounts.

       National Accounts provides a variety of casualty products to large
       companies. Products are marketed through national and regional brokers.
       Programs offered by National Accounts include risk management services,
       such as claims settlement, loss control and risk management information
       services, which are generally offered in connection with a large
       deductible or self-insured program, and risk transfer, which is typically
       provided through a guaranteed cost or retrospectively rated insurance
       policy. National Accounts also includes the Company's alternative market
       business, which primarily offers workers' compensation products and
       services to the involuntary market.

       Commercial Accounts serves mid-sized businesses for casualty products and
       both large and mid-sized businesses for property products. Commercial
       Accounts sells a broad range of property and casualty insurance products,
       with an emphasis on guaranteed cost products, through a large network of
       independent agents and brokers. Within Commercial Accounts the Company
       has dedicated operations that exclusively target the construction
       industry, providing insurance and risk management services for virtually
       all areas of construction. The dedicated construction operations reflect
       the Company's focus on industry specialization.

       Select Accounts serves small businesses. Select Accounts' products are
       generally guaranteed cost policies, often a packaged product covering
       property and liability exposures. The products are sold through
       independent agents.

       Specialty Accounts markets products to national, mid-sized and small
       customers. The principal products of Specialty Accounts include
       professional liability insurance, directors' and officers' liability
       insurance, fiduciary liability insurance, employment practices liability
       insurance, product liability, fidelity and surety bonds, commercial
       umbrella and excess liability, excess property insurance and coverages
       relating to the entertainment and transportation industries, excess and
       surplus lines coverages and other industry specific programs. Its
       products are distributed through both wholesale brokers and retail agents
       and brokers.




                                       52
<PAGE>   55
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       PERSONAL LINES
       Personal Lines writes virtually all types of property and casualty
       insurance covering personal risks. The primary coverages in Personal
       Lines are personal automobile and homeowners insurance sold to
       individuals. These products are distributed through independent agents,
       sponsoring organizations such as employee and affinity groups,
       cross-marketing arrangements with Citibank N.A., a unit of Citigroup, and
       joint marketing arrangements with other insurers. During 1999, Personal
       Lines curtailed the sale of automobile and homeowners products through
       the independent agents of Primerica Financial Services, a unit of
       Citigroup.

       Personal 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.

       CATASTROPHE EXPOSURE
       The Company has a geographic exposure to catastrophe losses in certain
       areas of the country. Catastrophes can be caused by various events
       including hurricanes, windstorms, earthquakes, hail, severe winter
       weather, explosions and fires. The incidence and severity of catastrophes
       are inherently unpredictable. The extent of losses from a catastrophe is
       a function of both the total amount of insured exposure in the area
       affected by the event and the severity of the event. Most catastrophes
       are restricted to small geographic areas; however, hurricanes and
       earthquakes may produce significant damage in large, heavily populated
       areas. The Company generally seeks to reduce its exposure to catastrophes
       through individual risk selection and the purchase of catastrophe
       reinsurance.

2.     ACQUISITIONS

       On May 31, 2000, the Company completed the acquisition of the surety
       business of Reliance Surety for $580 million. In connection with the
       acquisition, the Company entered into a reinsurance arrangement for
       pre-existing business, and the resulting net cash outlay for this
       transaction was approximately $278 million. This transaction included the
       acquisition of an intangible asset of approximately $450 million, which
       is being amortized over 15 years. The results of operations and the
       assets and liabilities acquired from Reliance Surety are included in the
       financial statements beginning June 1, 2000. This acquisition was
       accounted for as a purchase.

       In the third quarter of 2000, the Company purchased the renewal rights to
       a portion of Reliance Group Holdings, Inc.'s commercial lines
       middle-market book of business. The Company also acquired the renewal
       rights to Frontier Insurance Group, Inc.'s environmental, excess and
       surplus lines casualty businesses and certain classes of surety business.
       The final purchase price for each of these transactions is dependent on
       the level of business renewed by the Company.




                                       53
<PAGE>   56
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.     SEGMENT INFORMATION

       The Company has two reportable business segments.

       The Commercial Lines business segment serves businesses of all sizes,
       providing a full range of primary and excess insurance and risk
       management and insurance-related services. The Commercial Lines segment
       offers workers' compensation, general liability, commercial multi-peril,
       commercial automobile, property, fidelity and surety, professional
       liability, and several miscellaneous coverages.

       The Personal Lines business segment serves consumers and writes virtually
       all types of property and casualty insurance covering personal risks. The
       primary coverages in Personal Lines are personal automobile and
       homeowners insurance.

       The accounting policies used to generate the following segment data are
       the same as those described in the summary of significant accounting
       policies in note 1. The amount of investments in equity method investees
       and total expenditures for additions to long-lived assets other than
       financial instruments were not significant.



                                       54
<PAGE>   57
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.     SEGMENT INFORMATION, CONTINUED

<TABLE>
<CAPTION>
       ------------------------------------------------------------------------------------------------------
                                                                                                        TOTAL
                                                                  COMMERCIAL       PERSONAL        REPORTABLE
       (at and for the year ended December 31, in millions)            LINES          LINES          SEGMENTS
       ------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>               <C>
       2000
       Revenues
         Premiums                                                    $ 4,747        $ 3,715           $ 8,462
         Net investment income                                         1,713            446             2,159
         Fee income                                                      312           --                 312
         Realized investment gains                                        47           --                  47
         Other                                                            16             71                87
       ------------------------------------------------------------------------------------------------------
           Total revenues                                            $ 6,835        $ 4,232           $11,067
       ======================================================================================================
       Amortization and depreciation                                 $   750        $   637           $ 1,387
       Federal income taxes                                              444            157               601
       Operating income                                                1,189            360             1,549
       Assets                                                         44,888          7,929            52,817
       ------------------------------------------------------------------------------------------------------
       1999
       Revenues
         Premiums                                                    $ 4,375        $ 3,634           $ 8,009
         Net investment income                                         1,689            400             2,089
         Fee income                                                      275           --                 275
         Realized investment gains (losses)                              127            (15)              112
         Other                                                            26             58                84
       ------------------------------------------------------------------------------------------------------
           Total revenues                                            $ 6,492        $ 4,077           $10,569
       ======================================================================================================
       Amortization and depreciation                                 $   662        $   663           $ 1,325
       Federal income taxes                                              405            159               564
       Operating income                                                1,077            368             1,445
       Assets                                                         42,521          7,544            50,065
       ------------------------------------------------------------------------------------------------------
       1998
       Revenues
         Premiums                                                    $ 4,525        $ 3,271           $ 7,796
         Net investment income                                         1,709            389             2,098
         Fee income                                                      306           --                 306
         Realized investment gains                                       117             26               143
         Other                                                            42             57                99
       ------------------------------------------------------------------------------------------------------
           Total revenues                                            $ 6,699        $ 3,743           $10,442
       ======================================================================================================
       Amortization and depreciation                                 $   686        $   570           $ 1,256
       Federal income taxes                                              354            201               555
       Operating income                                                  942            420             1,362
       Assets                                                         43,403          7,562            50,965
       ------------------------------------------------------------------------------------------------------
</TABLE>

       Operating income excludes realized investment gains (losses) and the
       cumulative effect of changes in accounting principles, and is reflected
       net of tax.



                                       55
<PAGE>   58
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.     SEGMENT INFORMATION, CONTINUED

       BUSINESS SEGMENT RECONCILIATIONS

<TABLE>
<CAPTION>
       ----------------------------------------------------------------------------------------------------
       (at and for the year ended December 31, in millions)          2000            1999            1998
       ----------------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>             <C>
       REVENUE RECONCILIATION
       Total revenues for reportable segments                      $ 11,067        $ 10,569        $ 10,442
       Other revenues(1)                                                  1               3               9
       ----------------------------------------------------------------------------------------------------
         Total consolidated revenues                               $ 11,068        $ 10,572        $ 10,451
       ====================================================================================================
       INCOME RECONCILIATION, NET OF TAX
       Total operating income for reportable segments              $  1,549        $  1,445        $  1,362
       Other operating loss(2)                                         (100)           (108)           (112)
       Realized investment gains                                         31              72              93
       Cumulative effect of changes in accounting principles           --              (133)           --
       ----------------------------------------------------------------------------------------------------
         Total consolidated net income                             $  1,480        $  1,276        $  1,343
       ====================================================================================================
       ASSET RECONCILIATION
       Total assets for reportable segments                        $ 52,817        $ 50,065        $ 50,965
       Other assets(3)                                                   41             192             309
       ----------------------------------------------------------------------------------------------------
         Total consolidated assets                                 $ 52,858        $ 50,257        $ 51,274
       ====================================================================================================
</TABLE>

       (1) The source of other revenues is businesses that are in run-off and
           are not significant.

       (2) The primary component of the other operating loss is after-tax
           interest expense of $87 million, $99 million and $105 million in
           2000, 1999 and 1998, respectively.

       (3) Reinsurance recoverables of businesses that are in run-off is the
           primary component of other assets.

       ENTERPRISE-WIDE DISCLOSURES

       The Company generally does not accumulate revenues by product; therefore,
       it would be impracticable to provide revenues from external customers for
       each product.

       Revenues from internal customers, foreign revenues and foreign assets are
       not significant. The Company does not have revenue from transactions with
       a single customer amounting to 10 percent or more of its revenues.




                                       56
<PAGE>   59
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.     INVESTMENTS

       FIXED MATURITIES

       The amortized cost and fair value of investments in fixed maturities
       classified as available for sale were as follows:

<TABLE>
<CAPTION>
       -----------------------------------------------------------------------------------------------------
                                                                             GROSS UNREALIZED
                                                         AMORTIZED         -------------------          FAIR
       (at December 31, 2000, in millions)                    COST         GAINS        LOSSES         VALUE
       -----------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>           <C>           <C>
       Mortgage-backed securities -
         CMOs and pass-through securities                  $ 4,207       $   117       $     5       $ 4,319
       U.S. Treasury securities and obligations
         of U.S. Government and government
         agencies and authorities                            1,492            63             2         1,553
       Obligations of states, municipalities and
         political subdivisions                              9,757           443             6        10,194
       Debt securities issued by foreign governments           710            18            11           717
       All other corporate bonds                             7,918           192           130         7,980
       Redeemable preferred stock                              248            10            20           238
       -----------------------------------------------------------------------------------------------------
          Total                                            $24,332       $   843       $   174       $25,001
       =====================================================================================================

<CAPTION>
                                                                             GROSS UNREALIZED
                                                         AMORTIZED         -------------------          FAIR
       (at December 31, 1999, in millions)                    COST         GAINS        LOSSES         VALUE
       -----------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>           <C>           <C>
       Mortgage-backed securities -
         CMOs and pass-through securities                  $ 3,826       $    26       $    68       $ 3,784
       U.S. Treasury securities and obligations
         of U.S. Government and government
         agencies and authorities                            1,676             6            33         1,649
       Obligations of states, municipalities and
         political subdivisions                              9,978            72           323         9,727
       Debt securities issued by foreign governments           853            24             7           870
       All other corporate bonds                             9,185            57           150         9,092
       Redeemable preferred stock                              193             1            11           183
       -----------------------------------------------------------------------------------------------------
          Total                                            $25,711       $   186       $   592       $25,305
       =====================================================================================================
</TABLE>

       The amortized cost and fair value of fixed maturities by contractual
       maturity follow. Actual maturities will differ from contractual
       maturities because borrowers may have the right to call or prepay
       obligations with or without call or prepayment penalties.


                                       57
<PAGE>   60
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.     INVESTMENTS, CONTINUED

<TABLE>
<CAPTION>
       -------------------------------------------------------------------------
                                                         AMORTIZED          FAIR
       (at December 31, 2000, in millions)                    COST         VALUE
       -------------------------------------------------------------------------
<S>                                                      <C>             <C>
       Due in one year or less                             $   817       $   816
       Due after 1 year through 5 years                      4,356         4,425
       Due after 5 years through 10 years                    4,673         4,756
       Due after 10 years                                   10,279        10,685
       -------------------------------------------------------------------------
                                                            20,125        20,682
       Mortgage-backed securities                            4,207         4,319
       -------------------------------------------------------------------------
          Total                                            $24,332       $25,001
       =========================================================================
</TABLE>

       The Company makes investments in collateralized mortgage obligations
       (CMOs). CMOs typically have high credit quality, offer good liquidity,
       and provide a significant advantage in yield and total return compared to
       U.S. Treasury securities. The Company's investment strategy is to
       purchase CMO tranches which are protected against prepayment risk,
       including planned amortization class tranches. Prepayment protected
       tranches are preferred because they provide stable cash flows in a
       variety of scenarios. The Company does invest in other types of CMO
       tranches if a careful assessment indicates a favorable risk/return
       tradeoff. The Company does not purchase residual interests in CMOs.

       At December 31, 2000 and 1999, the Company held CMOs classified as
       available for sale with a fair value of $2.8 billion and $2.3 billion,
       respectively. Approximately 59% and 66% of the Company's CMO holdings are
       fully collateralized by GNMA, FNMA or FHLMC securities at December 31,
       2000 and 1999, respectively. In addition, the Company held $1.5 billion
       and $1.4 billion of GNMA, FNMA or FHLMC mortgage-backed pass-through
       securities classified as available for sale at December 31, 2000 and
       1999, respectively. Virtually all of these securities are rated Aaa.

       The Company engages in securities lending agreements whereby certain
       securities from its portfolio are loaned to other institutions for short
       periods of time. The Company generally receives cash collateral from the
       borrower, equal to at least the market value of the loaned securities
       plus accrued interest, and reinvests it in a short-term investment pool.
       See note 14. The loaned securities remain a recorded asset of the
       Company, however, the Company records a liability for the amount of the
       collateral held, representing its obligation to return the collateral
       related to these loaned securities, and reports that liability as part of
       other liabilities in the consolidated balance sheet. At December 31, 2000
       and 1999, the Company held collateral of $1.1 billion and $563 million,
       respectively.

       Proceeds from sales of fixed maturities classified as available for sale
       were $12.5 billion, $10.0 billion and $8.5 billion in 2000, 1999 and
       1998, respectively. Gross gains of $267 million, $193 million and $210
       million and gross losses of $284 million, $182 million and $93 million,
       respectively, were realized on those sales.



                                       58
<PAGE>   61
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.     INVESTMENTS, CONTINUED

       EQUITY SECURITIES

       The cost and fair value of investments in equity securities were as
       follows:

<TABLE>
<CAPTION>
                                                                GROSS UNREALIZED
                                                               ------------------         FAIR
       (at December 31, 2000, in millions)         COST        GAINS       LOSSES        VALUE
       ---------------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>          <C>
       Common stocks                             $  173       $    5       $   26       $  152
       Nonredeemable preferred stocks               889           17           39          867
       ---------------------------------------------------------------------------------------
         Total                                   $1,062       $   22       $   65       $1,019
       =======================================================================================

       (at December 31, 1999, in millions)
       ---------------------------------------------------------------------------------------
       Common stocks                             $  364       $  127       $    5       $  486
       Nonredeemable preferred stocks               802           13           40          775
       ---------------------------------------------------------------------------------------
         Total                                   $1,166       $  140       $   45       $1,261
       =======================================================================================
</TABLE>

       Proceeds from sales of equity securities were $2.4 billion, $873 million
       and $580 million in 2000, 1999 and 1998, respectively, resulting in gross
       realized gains of $154 million, $70 million and $74 million and gross
       realized losses of $94 million, $45 million and $60 million,
       respectively.

       MORTGAGE LOANS

       Underperforming mortgage loans include delinquent loans, loans in the
       process of foreclosure and loans modified at interest rates below market
       and were not significant at December 31, 2000 and 1999.

       Aggregate annual maturities on mortgage loans are $3 million, $4 million,
       $30 million, $23 million, $1 million and $225 million for 2001, 2002,
       2003, 2004, 2005 and 2006 and thereafter, respectively. There are no
       mortgage loans which are past due.

       CONCENTRATIONS

       At December 31, 2000 and 1999, the Company had concentrations of credit
       risk in tax-exempt investments of the State of Texas of $1.3 billion and
       $1.4 billion, respectively, and in the State of New York of $1.3 billion
       for both years.

       The Company participates in a short-term investment pool maintained by an
       affiliate. See note 14.

       Included in fixed maturities are below investment grade assets totaling
       $1.6 billion and $1.5 billion at December 31, 2000 and 1999,
       respectively. The Company defines its below investment grade assets as
       those securities rated "Ba1" or lower by external rating agencies, or the
       equivalent by internal analysts when a public rating does not exist. Such
       assets include publicly traded below investment grade bonds and certain
       other privately issued bonds that are classified as below investment
       grade loans.



                                       59
<PAGE>   62
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.     INVESTMENTS, CONTINUED

       The Company monitors creditworthiness of counterparties to all financial
       instruments by using controls that include credit approvals, limits and
       other monitoring procedures. Collateral for fixed maturities often
       includes pledges of assets, including stock and other assets, guarantees
       and letters of credit.

       NET INVESTMENT INCOME

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)         2000         1999         1998
       ------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>
       Gross investment income:
         Fixed maturities                                  $1,708       $1,699       $1,736
         Mortgage loans                                        58           68           90
         Other                                                434          384          323
       ------------------------------------------------------------------------------------
                                                            2,200        2,151        2,149
       Investment expenses                                     40           59           49
       ------------------------------------------------------------------------------------
       Net investment income                               $2,160       $2,092       $2,100
       ====================================================================================
</TABLE>

       REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES)

       Net realized investment gains (losses) for the periods were as follows:

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)        2000         1999         1998
       -----------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>
       REALIZED
       Fixed maturities                                    $ (17)       $  11        $ 117
       Equity securities                                      60           25           14
       Mortgage loans                                         10           29            9
       Real estate held for sale                              13           50            1
       Other                                                 (19)          (3)           2
       -----------------------------------------------------------------------------------
       Realized investment gains                           $  47        $ 112        $ 143
       ===================================================================================
</TABLE>

       Changes in net unrealized gains (losses) on investment securities that
       are included as a separate component of accumulated other changes in
       equity from nonowner sources were as follows:

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)                         2000           1999           1998
       --------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>            <C>
       UNREALIZED
       Fixed maturities                                                   $ 1,075        $(1,803)       $   336
       Equity securities                                                     (138)            63            (28)
       --------------------------------------------------------------------------------------------------------
                                                                              937         (1,740)           308
       Related taxes                                                          328           (609)           108
       --------------------------------------------------------------------------------------------------------
       Change in unrealized gains (losses) on investment securities           609         (1,131)           200
       Balance, beginning of year                                            (202)           929            729
       --------------------------------------------------------------------------------------------------------
       Balance, end of year                                               $   407        $  (202)       $   929
       ========================================================================================================
</TABLE>



                                       60
<PAGE>   63
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.     REINSURANCE

       The Company participates in reinsurance in order to limit losses,
       minimize exposure to large risks, provide additional capacity for future
       growth and to effect business-sharing arrangements. In addition, the
       Company assumes 100% of the workers' compensation premiums written by the
       Accident Department of its affiliate, The Travelers Insurance Company
       (TIC). The Company is also a member of and participates as a servicing
       carrier for several pools and associations.

       Reinsurance is placed on both a quota-share and excess of loss basis.
       Reinsurance ceded arrangements do not discharge the Company as the
       primary insurer, except for cases involving a novation.

       In connection with the 1992 sale of American Re-Insurance Company (Am
       Re), a reinsurance agreement was entered into that provides that to the
       extent Am Re incurred losses in 1991 and prior that were still
       outstanding at January 1, 1992 in excess of $2.7 billion, the Company has
       an 80% participation in payments on those losses up to a maximum payment
       of $500 million. This agreement has been accounted for as a deposit and a
       liability has been established for the expected payout under the
       agreement.

       A summary of reinsurance financial data reflected within the consolidated
       statement of income is presented below:

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)          2000            1999            1998
       -------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>
       WRITTEN PREMIUMS
       Direct                                              $ 9,763         $ 9,056         $ 9,059
       Assumed from:
        Affiliated companies                                   197             208             243
        Non-affiliated companies                               688             519             523
       Ceded to:
        Affiliated companies                                  (105)            (42)            (43)
        Non-affiliated companies                            (1,700)         (1,528)         (1,678)
       -------------------------------------------------------------------------------------------
       Total net written premiums                          $ 8,843         $ 8,213         $ 8,104
       ===========================================================================================
       EARNED PREMIUMS
       Direct                                              $ 9,357         $ 8,869         $ 8,751
       Assumed from:
        Affiliated companies                                   218             194             238
        Non-affiliated companies                               647             538             503
       Ceded to:
        Affiliated companies                                  (100)            (43)            (33)
        Non-affiliated companies                            (1,660)         (1,549)         (1,663)
       -------------------------------------------------------------------------------------------
       Total net earned premiums                           $ 8,462         $ 8,009         $ 7,796
       ===========================================================================================
       Percentage of amount assumed to net earned             10.2%            9.1%            9.5%
       -------------------------------------------------------------------------------------------
       Ceded claims incurred                               $ 1,248         $ 1,500         $ 1,312
       ===========================================================================================
</TABLE>




                                       61
<PAGE>   64
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.     REINSURANCE, CONTINUED

       Reinsurance recoverables, net of valuation allowance, include amounts
       recoverable on unpaid and paid claims and were as follows:

<TABLE>
<CAPTION>
       (at December 31, in millions)                           2000         1999
       -------------------------------------------------------------------------
<S>                                                          <C>          <C>
       REINSURANCE RECOVERABLES
       Property-casualty business:
         Pools and associations                              $2,407       $2,781
         Non-affiliated companies                             6,096        5,695
         Affiliated companies                                   811          799

       Accident and health business:
         Affiliated companies                                   130          149
       -------------------------------------------------------------------------
       Total reinsurance recoverables                        $9,444       $9,424
       =========================================================================
</TABLE>

       In 1996, Lloyd's of London (Lloyd's) restructured its operations with
       respect to claims for years prior to 1993 and reinsured these into
       Equitas Limited (Equitas). Amounts recoverable from unaffiliated insurers
       at December 31, 2000 and 1999 include $295 million and $304 million,
       respectively, recoverable from Equitas. The outcome of the restructuring
       of Lloyd's is uncertain and the impact, if any, on collectibility of
       amounts recoverable by the Company from Equitas cannot be quantified at
       this time. The Company believes that it is possible that an unfavorable
       impact on collectibility could have a material adverse effect on the
       Company's results of operations in a future period. However, the Company
       believes that it is not likely that the outcome could have a material
       adverse effect on the Company's financial condition or liquidity.

       The Company carries an allowance for uncollectible reinsurance which is
       not allocated to any specific proceedings or disputes, whether for
       financial impairments or coverage defenses. Including this allowance, in
       the opinion of the Company's management, the net receivable from
       reinsurance contracts is appropriately stated.

6.     INSURANCE CLAIMS RESERVES

       Claims and claim adjustment expense reserves were as follows:

<TABLE>
<CAPTION>
       (at December 31, in millions)                          2000          1999
       -------------------------------------------------------------------------
<S>                                                        <C>           <C>
       Claims and claim adjustment expense reserves:
         Property-casualty                                 $28,312       $28,854
         Accident and health                                   130           149
       -------------------------------------------------------------------------
         Total                                             $28,442       $29,003
       =========================================================================
</TABLE>




                                       62
<PAGE>   65
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.     INSURANCE CLAIMS RESERVES, CONTINUED

       The table below is a reconciliation of beginning and ending
       property-casualty reserve balances for claims and claim adjustment
       expenses.

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)                2000            1999            1998
       -------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>             <C>
       Claims and claim adjustment expense
         reserves at beginning of year                          $ 28,854        $ 29,411        $ 30,138
       Less reinsurance recoverables on unpaid losses              8,871           8,648           8,732
       -------------------------------------------------------------------------------------------------
       Net balance at beginning of year                           19,983          20,763          21,406
       -------------------------------------------------------------------------------------------------
       Provision for claims and claim adjustment expenses
         for claims arising in the current year                    6,509           6,194           6,057
       Estimated claims and claim adjustment expenses for
         claims arising in prior years                              (247)           (242)           (323)
       -------------------------------------------------------------------------------------------------
           Total increases                                         6,262           5,952           5,734
       -------------------------------------------------------------------------------------------------
       Claims and claim adjustment expense
         payments for claims arising in:
         Current year                                              2,728           2,573           2,352
         Prior years                                               4,082           4,159           4,025
       -------------------------------------------------------------------------------------------------
           Total payments                                          6,810           6,732           6,377
       -------------------------------------------------------------------------------------------------
       Net balance at end of year                                 19,435          19,983          20,763
       Plus reinsurance recoverables on unpaid losses              8,877           8,871           8,648
       -------------------------------------------------------------------------------------------------
       Claims and claim adjustment expense
         reserves at end of year                                $ 28,312        $ 28,854        $ 29,411
       =================================================================================================
</TABLE>

       The decreases in the claims and claim adjustment expense reserves in 2000
       and 1999, from 1999 and 1998, respectively, were primarily attributable
       to net payments of $341 million and $504 million, respectively, for
       environmental and cumulative injury claims.

       In 2000, estimated claims and claim adjustment expenses for claims
       arising in prior years included approximately $76 million primarily
       relating to net favorable development in certain Commercial Lines
       coverages, predominantly in the commercial multi-peril line of business,
       and in certain Personal Lines coverages, predominately personal umbrella
       coverages. In addition, in 2000 Commercial Lines experienced favorable
       loss development on loss sensitive policies in various lines; however,
       since the business to which it relates is subject to premium adjustments,
       there is no impact on results of operations.

       In 1999, estimated claims and claim adjustment expenses for claims
       arising in prior years included approximately $205 million primarily
       relating to net favorable development in certain Personal Lines
       coverages, predominantly automobile coverages, and in certain Commercial
       Lines coverages, predominantly in the general liability and commercial
       multi-peril lines of business. In addition, in 1999 Commercial Lines
       experienced favorable loss development on loss sensitive policies in the
       workers' compensation line; however, since the business to which it
       relates is subject to premium adjustments, there was no impact on results
       of operations.



                                       63
<PAGE>   66
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.     INSURANCE CLAIMS RESERVES, CONTINUED

       In 1998, estimated claims and claim adjustment expenses for claims
       arising in prior years included approximately $176 million primarily
       relating to net favorable development in certain Personal Lines
       coverages, predominantly automobile coverages. In addition, in 1998
       Commercial Lines experienced favorable loss development on loss sensitive
       policies in the workers' compensation line; however, since the business
       to which it relates is subject to premium adjustments, there was no
       impact on results of operations.

       The claims and claim adjustment expense reserves included $1.4 billion
       and $1.5 billion for asbestos and environmental-related claims net of
       reinsurance at December 31, 2000 and 1999, respectively.

       It is difficult to estimate the reserves for environmental and
       asbestos-related claims due to the vagaries of court coverage decisions,
       plaintiffs' expanded theories of liability, the risks inherent in major
       litigation and other uncertainties, including without limitation, those
       which are set forth below. Conventional actuarial techniques are not used
       to estimate such reserves.

       For environmental claims, the Company estimates its financial exposure
       and establishes reserves based upon an analysis of its historical claim
       experience and the facts of the individual underlying environmental
       exposure of each policyholder. The unique facts are evaluated
       individually and collectively. Due consideration is given to the many
       variables presented by each policyholder.

       The reserving methodology for asbestos includes an evaluation of the
       asbestos exposure presented by each insured. The following factors are
       evaluated: available insurance coverage including the role of any
       umbrella or excess insurance issued by the Company to the insured; limits
       and deductibles; an analysis of each insured's potential liability;
       jurisdictional involvement; past and anticipated future claim activity;
       past settlement values of similar claims; allocated claim adjustment
       expense; potential role of other insurance; the role, if any, of
       non-asbestos claims or potential non-asbestos claims in any resolution
       process; and applicable coverage defenses or determinations, if any,
       including the determination as to whether an asbestos claim is a
       products/completed operations or non-products/operations claim and the
       available coverage, if any, for such a claim. Once the gross ultimate
       exposure for indemnity and allocated claim adjustment expense is
       determined for each insured by each policy year, a ceded reinsurance
       projection is calculated based on any applicable facultative and treaty
       reinsurance, as well as past ceded experience. Adjustments to the ceded
       projections also occur due to actual ceded claim experience and
       reinsurance collections.

       Historically, the Company's experience has indicated that insureds with
       potentially significant environmental and asbestos exposures may often
       have potential cumulative injury other than asbestos (CIOTA) exposures or
       CIOTA claims pending with the Company. Due to this experience and the
       fact that settlement agreements with insureds may extinguish the
       Company's obligations for all claims, including environmental, asbestos
       and CIOTA, the Company evaluates and considers the environmental and
       asbestos reserves in conjunction with the CIOTA reserve.

       The Company also compares its historical direct and net loss and expense
       paid experience in environmental and asbestos, year-by-year, to assess
       any emerging trends, fluctuations or characteristics suggested by the
       aggregate paid activity. The comparison includes a review of the result
       derived from the division of the ending direct and net reserves by last
       year's direct and net paid activity, also known as the survival ratio.




                                       64
<PAGE>   67
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.     INSURANCE CLAIMS RESERVES, CONTINUED

       As a result of these processes and procedures, the reserves carried for
       environmental and asbestos claims at December 31, 2000 are the Company's
       best estimate of ultimate claims and claim adjustment expenses based upon
       known facts and current law. However, the uncertainties surrounding the
       final resolution of these claims continue. These include, without
       limitation, any impact from the bankruptcy protection sought by various
       asbestos producers, a further increase or decrease in asbestos and
       environmental claims which cannot now be anticipated as well as the role
       of any umbrella or excess policies issued by the Company for such claims,
       the resolution or adjudication of certain disputes pertaining to asbestos
       non-products/operations claims in a manner inconsistent with the
       Company's previous assessment of such claims as well as unanticipated
       developments pertaining to the Company's ability to recover reinsurance
       for environmental and asbestos claims.

       It is also not possible to predict changes in the legal and legislative
       environment and their impact on the future development of asbestos and
       environmental claims. Such development will be affected by future court
       decisions and interpretations, as well as changes in legislation
       applicable to such claims. Because of these future unknowns, and the
       uncertainties set forth above, additional liabilities may arise for
       amounts in excess of the current reserves. These additional amounts, or a
       range of these additional amounts, cannot now be reasonably estimated,
       and could result in a liability exceeding reserves by an amount that
       would be material to the Company's operating results in a future period.
       However, in the opinion of the Company's management, it is not likely
       that these claims will have a material adverse effect on the Company's
       financial condition or liquidity.

7.     DEBT

       TPC has a revolving credit facility in the amount of $250 million with a
       syndicate of banks (the Credit Facility). Under this facility, which
       expires in December 2001, TPC is required to maintain a certain level of
       consolidated stockholder's equity (as defined in the agreement). At
       December 31, 2000, this requirement was exceeded by approximately $5.6
       billion. In addition, the Credit Facility places restrictions on the
       amount of consolidated debt TPC can incur. At December 31, 2000, there
       were no borrowings outstanding under this facility. If TPC had borrowings
       under this facility, the interest rate would be based upon LIBOR plus a
       negotiated margin. TPC compensates the banks for the Credit Facility
       through commitment fees. TPC also issues commercial paper directly to
       investors and maintains unused credit availability under the Credit
       Facility at least equal to the amount of commercial paper outstanding. At
       December 31, 2000, TPC had no commercial paper outstanding. TPC also
       currently has available to it a $200 million line of credit for working
       capital and other general corporate purposes from a subsidiary of
       Citigroup. The lender has no obligation to make any loan to TPC under
       this line of credit.

       On each of September 1, 1999 and October 1, 1999, TPC repaid $200 million
       for its 6-3/4% note and 6-1/4% note, respectively, which matured on those
       dates. Long-term debt outstanding at December 31, 2000 and 1999 was as
       follows:

<TABLE>
<CAPTION>
       (in millions)
       -------------------------------------------------------------------------
<S>                                                                         <C>
       6-3/4% Notes due 2001                                                $500
       6-3/4% Notes due 2006                                                 150
       7-3/4% Notes due 2026                                                 200
       -------------------------------------------------------------------------
         Total                                                              $850
       =========================================================================
</TABLE>

                                       65
<PAGE>   68
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.     FEDERAL INCOME TAXES

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)              2000            1999            1998
       -----------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>
       EFFECTIVE TAX RATE
       Income before federal income taxes and cumulative
          effect of changes in accounting principles           $ 2,027         $ 1,915         $ 1,837
       Statutory tax rate                                           35%             35%             35%
       -----------------------------------------------------------------------------------------------
       Expected federal income taxes                               709             670             643
       Tax effect of:
         Nontaxable investment income                             (166)           (168)           (154)
         Other, net                                                  4               4               5
       -----------------------------------------------------------------------------------------------
       Federal income taxes                                    $   547         $   506         $   494
       ===============================================================================================
       Effective tax rate                                           27%             26%             27%
       -----------------------------------------------------------------------------------------------

       COMPOSITION OF FEDERAL INCOME TAXES
       Current expense:
         United States                                         $   365         $   278         $   386
         Foreign                                                    17               9               8
       -----------------------------------------------------------------------------------------------
           Total                                                   382             287             394
       -----------------------------------------------------------------------------------------------
       Deferred expense:
         United States                                             165             219             100
       -----------------------------------------------------------------------------------------------
       Federal income tax expense                              $   547         $   506         $   494
       ===============================================================================================
</TABLE>

       The net deferred tax assets were comprised of the tax effects of
       temporary differences related to the following assets and liabilities:

<TABLE>
<CAPTION>
       (at December 31, in millions)                           2000         1999
       -------------------------------------------------------------------------
<S>                                                          <C>          <C>
       Deferred tax assets:
         Claims and claim adjustment expense reserves        $  980       $1,027
         Unearned premium reserves                              260          222
         Employee benefits                                      127          135
         Insurance-related assessments                           65           98
         Acquisition-related reserves                            35           45
         Investments                                             --           89
         Other                                                  166          164
       -------------------------------------------------------------------------
           Total                                              1,633        1,780
       -------------------------------------------------------------------------
       Deferred tax liabilities:
         Investments                                            288           --
         Deferred acquisition costs                             215          184
         Other                                                   67           44
       -------------------------------------------------------------------------
           Total                                                570          228
       -------------------------------------------------------------------------
       Net deferred tax asset                                $1,063       $1,552
       =========================================================================
</TABLE>



                                       66
<PAGE>   69
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.     FEDERAL INCOME TAXES, CONTINUED

       The Company is a member of a subgroup of companies comprised of TIGI and
       its non-life insurance subsidiaries. This subgroup is included in the
       consolidated federal income tax return filed by Citigroup. TIGI allocates
       federal income taxes to its subsidiaries on a separate return basis
       adjusted for credits and other amounts required by the consolidation
       process. Any resulting liability is paid currently to TIGI. Any credits
       for losses will be paid by TIGI currently to the extent that such credits
       are for tax benefits that have been utilized in the consolidated federal
       income tax return. TIGI will reimburse the Company for any remaining
       receivable at the end of the federal statutory carryforward period.

       In the event that the consolidated return develops an alternative minimum
       tax (AMT), each company with an AMT on a separate company basis will be
       allocated a portion of the consolidated AMT. Settlement of the AMT will
       be made in the same manner and timing as the regular tax. If the AMT is
       available as a credit against the regular tax, each subsidiary remitting
       the AMT may establish a receivable from TIGI. The receivable will be paid
       as the credit is utilized on the consolidated return or at the end of the
       federal statutory carryforward period for operating losses.

       In the opinion of the Company's management, the realization of the
       recognized net deferred tax asset of $1.1 billion is more likely than not
       based on existing carryback ability and expectations as to future taxable
       income. Citigroup has reported pre-tax financial statement income of
       approximately $17.0 billion on average over the last three years and has
       generated federal taxable income exceeding $10.0 billion on average each
       year during this same period.

9.     STOCKHOLDER'S EQUITY AND DIVIDEND AVAILABILITY

       MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS

       The Company formed statutory business trusts under the laws of the state
       of Delaware, which exist for the exclusive purposes of (i) issuing Trust
       Securities representing undivided beneficial interests in the assets of
       the Trust; (ii) investing the gross proceeds of the Trust Securities in
       Junior Subordinated Deferrable Interest Debentures (Junior Subordinated
       Debentures) of its parent; and (iii) engaging in only those activities
       necessary or incidental thereto. These Junior Subordinated Debentures and
       the related income effects are eliminated in the consolidated financial
       statements. The financial structure of each of the Company's subsidiary
       trusts at December 31, 2000 and 1999 was as follows:






                                       67
<PAGE>   70
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.     STOCKHOLDER'S EQUITY AND DIVIDEND AVAILABILITY, CONTINUED

<TABLE>
<CAPTION>
                                                              TRAVELERS P&C       TRAVELERS P&C
                                                                  CAPITAL I          CAPITAL II
       ----------------------------------------------------------------------------------------
<S>                                                          <C>                  <C>
       TRUST SECURITIES (TPC SECURITIES)
       Issuance date                                             April 1996            May 1996
       Securities issued                                         32,000,000           4,000,000
       Liquidation preference per security                            $  25               $  25
       Liquidation value (in millions)                                $ 800               $ 100
       Coupon rate                                                    8.08%               8.00%
       Distributions payable                                      Quarterly           Quarterly
       Distributions guaranteed by(1)                                   TPC                 TPC
       Common shares issued to parent                               989,720             123,720
       ----------------------------------------------------------------------------------------
       JUNIOR SUBORDINATED DEBENTURES (TPC DEBENTURES)
       Amount owned (in millions)                                     $ 825               $ 103
       Coupon rate                                                    8.08%               8.00%
       Interest payable                                           Quarterly           Quarterly
       Maturity date                                         April 30, 2036        May 15, 2036
       Redeemable by issuer on or after                      April 30, 2001        May 15, 2001
       ----------------------------------------------------------------------------------------
</TABLE>

       (1) Under the arrangements, taken as a whole, payments due are fully and
           unconditionally guaranteed on a subordinated basis.

       Travelers P&C Capital I and Travelers P&C Capital II will use the
       proceeds from any redemption of TPC Securities to redeem a like amount of
       TPC Debentures.

       The obligations of TPC with respect to the TPC Debentures, when
       considered together with certain undertakings of TPC with respect to
       Travelers P&C Capital I and Travelers P&C Capital II, constitute full and
       unconditional guarantees by TPC of Travelers P&C Capital I's and
       Travelers P&C Capital II's obligations under the respective TPC
       Securities. The TPC Securities are classified in the consolidated balance
       sheet as "TPC-obligated mandatorily redeemable securities of subsidiary
       trusts holding solely junior subordinated debt securities of TPC" at
       their liquidation value of $900 million. TPC has the right, at any time,
       to defer payments of interest on the TPC Debentures and consequently the
       distributions on the TPC Securities and common securities would be
       deferred (though such distributions would continue to accrue with
       interest thereon since interest would accrue on the TPC Debentures during
       any such extended interest payment period). TPC cannot pay dividends on
       its common stock during such deferments. Distributions on the TPC
       Securities have been classified as interest expense in the consolidated
       statement of income.

       COMMON STOCK

       COMMON STOCK
       On April 20, 2000, TIGI completed a cash tender offer to purchase all of
       the outstanding shares of Class A Common Stock of TPC at a price of
       $41.95 per share. TIGI also established a wholly-owned subsidiary of TIGI
       which effected a merger pursuant to which TPC became a wholly-owned
       subsidiary of TIGI. Upon the merger of the new subsidiary into TPC, all
       previously outstanding shares of Class B Common Stock were converted to
       shares of Class A Common Stock and all resulting outstanding shares of
       Class A Common Stock of TPC became authorized and unissued shares and the
       1,000 shares of Common Stock of the new subsidiary (held by TIGI) were
       exchanged for 1,000 shares of Class A Common Stock of TPC.



                                       68
<PAGE>   71
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.     STOCKHOLDER'S EQUITY AND DIVIDEND AVAILABILITY, CONTINUED

       On June 29, 2000, the Company restated its certificate of incorporation
       and reclassified the Class A Common Stock to Common Stock, which had the
       effect of retiring all treasury stock. At December 31, 2000, TPC's common
       stock outstanding consists of 1,000 shares of Common Stock, which are
       100% owned by TIGI.

       CLASS A
       On April 2, 1996, TPC sold approximately 33 million shares of its Class A
       Common Stock to four private investors, Aetna Services, Inc., J.P. Morgan
       Capital Corporation, Fund American Enterprise Holdings, Inc. and The
       Trident Partnership, L.P. (collectively, the Private Investors), for an
       aggregate of $525 million. On April 23, 1996, TPC sold in a public
       offering approximately 39 million shares of its Class A Common Stock, for
       net proceeds of $928 million. On all matters submitted to vote of the TPC
       stockholders, holders of Class A Common Stock were entitled to one vote
       per share.

       On June 23, 1997, the Company repurchased, in the aggregate, 6,600,102
       shares of Class A Common Stock held by the Private Investors for a total
       purchase price of approximately $241 million, representing a discount to
       the then current market price. Following this transaction, Citigroup's
       beneficial ownership of the Company increased to 83.4%. The repurchases
       represented 20% of the holdings of each of the Private Investors.

       In connection with the cash tender offer completed by TIGI in 2000, all
       previously outstanding shares of Class A Common Stock became authorized
       and unissued shares.

       On January 18, 2000, January 19, 1999 and January 28, 1998, the Company,
       through the Travelers Property Casualty Corp. Capital Accumulation Plan
       (TPC CAP), reissued 467,207, 476,431 and 763,654 shares of treasury
       stock, respectively, in the form of restricted Class A Common Stock to
       participating officers and other key employees. The fair market value per
       share of the 2000, 1999 and 1998 restricted stock awards was $36.49,
       $31.88 and $43.71, respectively. The restricted stock generally vested
       after a three-year period. Except under limited circumstances, the stock
       could not be sold or transferred during the restricted period by the
       participant, who was required to render service to the Company during the
       restricted period. Unearned compensation expense associated with the
       restricted stock grants represented the market value of the Company's
       common stock at the date of grant and was recognized as a charge to
       income ratably over the vesting period. The after-tax compensation cost
       charged to earnings for these restricted stock awards was $6 million, $22
       million and $12 million for the years ended December 31, 2000, 1999 and
       1998, respectively. In connection with the cash tender offer completed by
       TIGI in 2000, all of the restricted Class A Common Stock under TPC CAP
       were terminated and significantly all were replaced with Citigroup common
       stock in the form of restricted common stock. See Note 14 for a
       discussion of Citigroup restricted common stock awards.

       On August 12, 1998, TPC Board of Directors authorized a $150 million
       repurchase program, which was completed in October of 1999. On October 6,
       1999, TPC Board of Directors authorized the expenditure of up to $200
       million for the repurchase of its Class A Common Stock. The repurchases
       were made from time to time in the open market or through negotiated
       transactions and were used primarily for the issuance of stock for
       employee benefit plans. At April 19, 2000, TPC had repurchased $159
       million of its common stock pursuant to this final repurchase plan. In
       connection with the cash tender offer completed by TIGI in 2000, all
       treasury stock was effectively retired.


                                       69
<PAGE>   72
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.     STOCKHOLDER'S EQUITY AND DIVIDEND AVAILABILITY, CONTINUED

       CLASS B
       TIGI owned all of the outstanding shares of Class B Common Stock
       representing 85.2% of the economic interest in TPC at April 19, 2000.
       Class B holders were entitled to 10 votes per share on any matter
       submitted to vote of the TPC stockholders. In connection with the cash
       tender offer by TIGI in 2000, all of the outstanding shares of Class B
       Common Stock were converted to shares of Class A Common Stock.

       DIVIDENDS

       TPC's insurance subsidiaries are subject to various regulatory
       restrictions that limit the maximum amount of dividends available to be
       paid to their parent without prior approval of insurance regulatory
       authorities. A maximum of $1.2 billion is available by the end of the
       year 2001 for such dividends without prior approval of the Connecticut
       Insurance Department.

       STATUTORY NET INCOME AND SURPLUS

       Statutory net income of TPC's insurance subsidiaries was $1.4 billion for
       each of the years ended December 31, 2000, 1999 and 1998. Statutory
       capital and surplus of TPC's insurance subsidiaries was $6.9 billion and
       $7.7 billion at December 31, 2000 and 1999, respectively. Effective
       January 1, 2001, the Company will prepare its statutory basis financial
       statements in accordance with the revised Manual subject to any
       deviations prescribed or permitted by its domiciliary insurance
       commissioner (see note 1, Summary of Significant Accounting Policies,
       Permitted Statutory Accounting Practices). The Company has estimated that
       the impact of this change will be an increase to statutory capital and
       surplus of its insurance subsidiaries of approximately $350 million.






                                       70
<PAGE>   73
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.     STOCKHOLDER'S EQUITY AND DIVIDEND AVAILABILITY, CONTINUED

       ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES, NET OF TAX

       Changes in each component of Accumulated Other Changes in Equity from
       Nonowner Sources were as follows:

<TABLE>
<CAPTION>
                                                              NET                   ACCUMULATED
                                                       UNREALIZED                         OTHER
                                                            GAINS        FOREIGN     CHANGES IN
                                                      (LOSSES) ON       CURRENCY    EQUITY FROM
       (for the year ended                             INVESTMENT    TRANSLATION       NONOWNER
       December 31, in millions)                       SECURITIES     ADJUSTMENT        SOURCES
       ----------------------------------------------------------------------------------------
<S>                                                    <C>           <C>            <C>
       BALANCE, JANUARY 1, 1998                           $   729        $    (7)       $   722
       Net unrealized gains on investment
        securities, net of tax of $154                        285             --            285
       Less: Reclassification adjustment for gains
        included in net income, net of tax of ($46)           (85)            --            (85)
       Foreign currency translation adjustment,
        net of tax of $0                                       --             (1)            (1)
       ----------------------------------------------------------------------------------------

       Current period change                                  200             (1)           199
       ----------------------------------------------------------------------------------------

       BALANCE, DECEMBER 31, 1998                             929             (8)           921
       Net unrealized losses on investment
        securities, net of tax of ($596)                   (1,108)            --         (1,108)
       Less: Reclassification adjustment for gains
        included in net income, net of tax of ($13)           (23)            --            (23)
       Foreign currency translation adjustment,
        net of tax of $3                                       --              8              8
       ----------------------------------------------------------------------------------------

       Current period change                               (1,131)             8         (1,123)
       ----------------------------------------------------------------------------------------

       BALANCE, DECEMBER 31, 1999                            (202)            --           (202)
       Net unrealized gains on investment
        securities, net of tax of $343                        637             --            637
       Less: Reclassification adjustment for gains
        included in net income, net of tax of ($15)           (28)            --            (28)
       Foreign currency translation adjustment,
        net of tax of ($1)                                     --             (6)            (6)
       ----------------------------------------------------------------------------------------

       Current period change                                  609             (6)           603
       ----------------------------------------------------------------------------------------

       BALANCE, DECEMBER 31, 2000                         $   407        $    (6)       $   401
       ========================================================================================
</TABLE>



                                       71
<PAGE>   74
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.    BENEFIT PLANS

       PENSION AND OTHER POSTRETIREMENT BENEFITS

       The Company participates in a qualified, noncontributory defined benefit
       pension plan sponsored by an affiliate. In addition, the Company provides
       certain other postretirement benefits to retired employees through a plan
       sponsored by TIGI. The Company's share of net expense for the qualified
       pension and other postretirement benefit plans was $5 million, $30
       million and $31 million for 2000, 1999 and 1998, respectively.

       401(k) SAVINGS PLAN

       Substantially all employees of the Company are eligible to participate in
       a 401(k) savings plan sponsored by Citigroup. There are no Company
       matching contributions for substantially all employees.

11.    LEASES

       Most leasing functions for TIGI and its subsidiaries are administered by
       the Company. See note 14. Rent expense related to these leases is shared
       by the companies on a cost allocation method based generally on estimated
       usage by department. Rent expense was $113 million, $112 million and $106
       million in 2000, 1999 and 1998, respectively.

       Future minimum annual rentals under noncancellable operating leases are
       $97 million, $72 million, $49 million, $24 million, $17 million and $97
       million for 2001, 2002, 2003, 2004, 2005 and 2006 and thereafter,
       respectively. Future sublease rental income of approximately $37 million
       will partially offset these commitments.

12.    DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

       DERIVATIVE FINANCIAL INSTRUMENTS

       The Company uses derivative financial instruments, including interest
       rate swaps, currency swaps, options, forward contracts and financial
       futures, as a means of hedging exposure to foreign currency, equity price
       changes and/or interest rate risk on anticipated transactions or existing
       assets and liabilities. The Company's insurance subsidiaries do not hold
       or issue derivative instruments for trading purposes.

       These derivative financial instruments have off-balance-sheet risk.
       Financial instruments with off-balance-sheet risk involve, to varying
       degrees, elements of credit and market risk in excess of the amount
       recognized on the consolidated balance sheet. The contract or notional
       amounts of these instruments reflect the extent of involvement the
       Company has in a particular class of financial instrument. However, the
       maximum loss of cash flow associated with these instruments can be less
       than these amounts. For interest rate swaps, currency swaps, currency
       options, forward contracts and financial futures, credit risk is limited
       to the amount that it would cost the Company to replace the contract. The
       Company is a writer of option contracts and as such has no credit risk
       since the counterparty has no performance obligation after it has paid a
       premium.

       The Company monitors creditworthiness of counterparties to these
       financial instruments by using criteria of acceptable risk that are
       consistent with on-balance-sheet financial instruments. The controls
       include credit approvals, limits and other monitoring procedures.



                                       72
<PAGE>   75
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.    DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS,
       CONTINUED

       The off-balance-sheet risk of interest rate swaps, currency swaps,
       options, forward contracts and financial futures was not significant at
       December 31, 2000 and 1999.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company uses various financial instruments in the normal course of
       its business. Certain insurance contracts are excluded by Statement of
       Financial Accounting Standards No. 107, "Disclosures about Fair Value of
       Financial Instruments," and, therefore, are not included in the amounts
       discussed.

       At December 31, 2000 and 1999, investments in fixed maturities had a fair
       value, which equaled carrying value, of $25.0 billion and $25.3 billion,
       respectively. The fair value of investments in fixed maturities for which
       a quoted market price or dealer quote are not available was $874 million
       and $949 million at December 31, 2000 and 1999, respectively. The
       carrying values of cash, short-term securities, mortgage loans and
       investment income accrued approximated their fair values. See notes 1
       and 4.

       At December 31, 2000 and 1999, the carrying value of $850 million of
       long-term debt approximated its fair value. Fair value is based upon bid
       price at December 31, 2000 and 1999. At December 31, 2000, the TPC
       Debentures had a carrying value of $900 million, which approximated their
       fair value. At December 31, 1999, the TPC Debentures had a carrying value
       and a fair value of $900 million and $814 million, respectively. Fair
       value is based upon the closing price at December 31, 2000 and 1999.

       The carrying values of $1.8 billion and $1.7 billion of financial
       instruments classified as other assets approximated their fair values at
       December 31, 2000 and 1999, respectively. The carrying values of $4.1
       billion and $3.4 billion of financial instruments classified as other
       liabilities at December 31, 2000 and 1999, respectively, also
       approximated their fair values. Fair value is determined using various
       methods including discounted cash flows, as appropriate for the various
       financial instruments.

13.    COMMITMENTS AND CONTINGENCIES

       FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

       See note 12 for a discussion of financial instruments with
       off-balance-sheet risk.

       In the normal course of business, the Company issues fixed and variable
       rate loan commitments and has unfunded commitments to partnerships and
       limited liability corporations. The off-balance-sheet risks of these
       financial instruments were not significant at December 31, 2000 and 1999.

       LITIGATION

       In the ordinary course of business, the Company is a defendant or
       codefendant in various litigation matters other than environmental and
       asbestos claims. Although there can be no assurances, as of December 31,
       2000, in the opinion of the Company's management, based on information
       currently available, the ultimate resolution of these other legal
       proceedings would not be likely to have a material adverse effect on its
       results of operations, financial condition or liquidity.


                                       73
<PAGE>   76
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.    RELATED PARTY TRANSACTIONS

       The Company provides certain administrative services to TIC. Settlements
       for these functions between the Company and its affiliates are made
       regularly. Investment advisory and management services and data
       processing services are provided by affiliated companies. Charges for
       these services are shared by the companies on cost allocation methods
       based generally on estimated usage by department.

       An affiliate maintains a short-term investment pool in which the Company
       participates. The positions of each company participating in the pool are
       calculated and adjusted daily. At December 31, 2000 and 1999, the pool
       totaled approximately $4.4 billion and $2.6 billion, respectively. The
       Company's share of the pool amounted to $2.2 billion and $1.3 billion at
       December 31, 2000 and 1999, respectively, and is included in short-term
       securities in the consolidated balance sheet.

       The Company participates in the Citigroup Capital Accumulation Plan. For
       the 2000 and 1999 restricted stock awards, participating officers and
       other key employees received 50% of their restricted stock award in the
       form of Citigroup common stock. In connection with the cash tender offer
       completed by TIGI in 2000, all restricted Class A Common Stock under TPC
       CAP were terminated and substantially all were replaced with Citigroup
       common stock in the form of restricted common stock, and 100% of the 2001
       restricted stock awards granted on January 16, 2001 were also in the form
       of Citigroup common stock. Similar to TPC CAP these restricted stock
       awards generally vest after a three-year period and, except under limited
       circumstances, the stock can not be sold or transferred during the
       restricted period by the participant, who is required to render service
       to the Company during the restricted period. Unearned compensation
       expense associated with the Citigroup restricted common stock grants,
       which represents the market value of Citigroup's common stock at the date
       of grant, and the remaining unamortized portion of the previous TPC CAP
       shares, is included with other assets in the consolidated balance sheet
       and is recognized as a charge to income ratably over the vesting period.
       The after-tax compensation cost charged to earnings for these restricted
       stock awards was $19 million, $3 million and $0 million for the years
       ended December 31, 2000, 1999 and 1998, respectively.

       The Company also participates in a stock option plan sponsored by
       Citigroup that provides for the granting of stock options in Citigroup
       common stock to officers and key employees. To further encourage employee
       stock ownership, Citigroup introduced the WealthBuilder stock option
       program during 1997. Under this program all employees meeting certain
       requirements have been granted Citigroup stock options. During 2000,
       Citigroup introduced the Citigroup 2000 Stock Purchase Plan, which
       allowed eligible employees of Citigroup, including the Company's
       employees, to enter into fixed subscription agreements to purchase shares
       at the market value on the date of the agreements. Enrolled employees are
       permitted to make one purchase prior to the expiration date.

       The Company applies APB 25 and related interpretations in accounting for
       stock options. Since stock options under the Citigroup plans are issued
       at fair market value on the date of award, no compensation cost has been
       recognized for these awards. FAS 123 provides an alternative to APB 25
       whereby fair values may be ascribed to options using a valuation model
       and amortized to compensation cost over the vesting period of the
       options.





                                       74
<PAGE>   77
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.    RELATED PARTY TRANSACTIONS, CONTINUED

       Had the Company applied FAS 123 in accounting for Citigroup stock
       options, net income would have been the pro forma amounts indicated as
       follows:

<TABLE>
<CAPTION>
       (for the year ended December 31, in millions)          2000           1999           1998
       -----------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>
       Net income, as reported                             $ 1,480        $ 1,276        $ 1,343
       FAS 123 pro forma adjustments, after tax                (51)           (37)           (25)
       -----------------------------------------------------------------------------------------
       Net income, pro forma                               $ 1,429        $ 1,239        $ 1,318
       =========================================================================================
</TABLE>

       The assumptions used in applying FAS 123 to account for Citigroup stock
       options were as follows:


<TABLE>
<CAPTION>
                                                            2000       1999       1998
       --------------------------------------------------------------------------------
<S>                                                       <C>        <C>        <C>
       Expected volatility of Citigroup Stock               41.5%      44.1%      37.1%
       Risk-free interest rate                              6.23%      5.29%      4.70%
       Expected annual dividend per Citigroup share       $ 0.78     $ 0.47     $ 0.32
       Expected annual forfeiture rate                         5%         5%         5%
       --------------------------------------------------------------------------------
</TABLE>

       At December 31, 2000 and 1999, the Company had $102 million of securities
       pledged as collateral to Citibank N.A. to support a letter of credit
       facility for certain of the Company's surety customers.

       Most leasing functions for TIGI and its subsidiaries are administered by
       the Company. See note 11. The Company leases furniture and equipment from
       subsidiaries of TIGI. The rental expense charged to the Company for this
       furniture and equipment was $18 million, $28 million and $42 million in
       2000, 1999 and 1998, respectively.

       In the ordinary course of business, the Company purchases and sells
       securities through affiliated broker-dealers. These transactions are
       conducted on an arm's-length basis.

       The Company participates in reinsurance agreements with TIC. See note 5.

       The Company purchases annuities from affiliates to settle certain claims.
       Reinsurance recoverables at December 31, 2000 and 1999 included $811
       million and $799 million, respectively, related to these annuities.

15.    NONCASH FINANCING AND INVESTING ACTIVITIES

       There were no significant noncash financing or investing activities for
       the years ended December 31, 2000, 1999 or 1998.



                                       75
<PAGE>   78
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FIRST         SECOND         THIRD        FOURTH
       2000 (in millions)                                      QUARTER        QUARTER       QUARTER       QUARTER         TOTAL
       ------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>           <C>           <C>           <C>
       Total revenues                                          $ 2,569        $ 2,706       $ 2,864       $ 2,929       $11,068
       Total expenses                                            2,125          2,208         2,301         2,407         9,041
       ------------------------------------------------------------------------------------------------------------------------
       Income before federal income taxes                          444            498           563           522         2,027
       Federal income tax expense                                  113            133           158           143           547
       ------------------------------------------------------------------------------------------------------------------------
       Net income                                              $   331        $   365       $   405       $   379       $ 1,480
       ========================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                 FIRST         SECOND         THIRD        FOURTH
       1999 (in millions)                                      QUARTER        QUARTER       QUARTER       QUARTER         TOTAL
       ------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>           <C>           <C>           <C>
       Total revenues                                          $ 2,573        $ 2,634       $ 2,619       $ 2,746       $10,572
       Total expenses                                            2,122          2,154         2,189         2,192         8,657
       ------------------------------------------------------------------------------------------------------------------------
       Income before federal income taxes
        and cumulative effect of changes
        in accounting principles                                   451            480           430           554         1,915
       Federal income tax expense                                  117            126           110           153           506
       ------------------------------------------------------------------------------------------------------------------------
       Income before cumulative effect of changes
        in accounting principles                                   334            354           320           401         1,409
       Cumulative effect of change in accounting
        for insurance-related assessments, net of tax             (160)            --            --            --          (160)
       Cumulative effect of change in accounting
        for insurance and reinsurance contracts
        that do not transfer insurance risk, net of tax             27             --            --            --            27
       ------------------------------------------------------------------------------------------------------------------------

       Net income                                              $   201        $   354       $   320       $   401       $ 1,276
       ========================================================================================================================
</TABLE>





                                       76
<PAGE>   79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

       None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

       Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

       Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       Omitted pursuant to General Instruction I(2)(c) of Form 10-K.






                                       77
<PAGE>   80
                                     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 on page 39 hereof.

              (2)    Financial Statement Schedules. See Index to Consolidated
                     Financial Statements and Schedules on page 83 hereof.

              (3)    Exhibits:

                     See Exhibit Index on page 79 hereof.

       (b)    Reports on Form 8-K:

              There were no reports on Form 8-K filed during the quarter ended
              December 31, 2000.





                                       78
<PAGE>   81
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION OF EXHIBIT
------         ----------------------
<S>            <C>
3.01           Restated Certificate of Incorporation of Travelers Property
               Casualty Corp. (the "Company"), filed June 29, 2000, incorporated
               by reference to Exhibit 3.01 to the Company's Quarterly Report on
               Form 10-Q for the fiscal quarter ended June 30, 2000 (File
               No.1-14328).

3.02+          Amended By-Laws of the Company, effective January 10, 2001.

4.01           Intercompany Agreement, dated as of April 2, 1996, between
               Travelers Group Inc. and the Company, incorporated by reference
               to Exhibit 4.1 to the Company's Form S-1.

10.01          TPC Tax Allocation Agreement, effective as of January 1, 1996
               between Travelers Group Inc. and the Company, incorporated by
               reference to Exhibit 10.9 to the Company's Form S-1.

10.02          Lease for office space at CityPlace, dated March 28, 1996, by and
               between Aetna Life and Casualty Company and The Travelers
               Indemnity Company, incorporated by reference to Exhibit 10.10 to
               the Company's Form S-1.

10.03          Lease for office space in Hartford, Connecticut, dated as of
               April 2, 1996, by and between The Travelers Insurance Company and
               The Travelers Indemnity Company, incorporated by reference to
               Exhibit 10.14 to the Company's 1996 10-K.

12.01+         Computation of Ratio of Earnings to Fixed Charges.

21.01          Subsidiaries of the Registrant: Omitted pursuant to General
               Instruction I (2)(b) of Form 10-K.

23.01+         Consent of KPMG LLP, Independent Certified Public Accountants.
</TABLE>

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 2000 for the Citigroup 401(k)
Savings Plan will be filed as an exhibit by amendment to this Form 10-K pursuant
to Rule 15d-21 of the Securities Exchange Act of 1934, as amended.


                                       79
<PAGE>   82
Copies of any of the exhibits referred to above will be furnished at a cost of
$.25 per page to security holders who make written request therefor to Corporate
Communications, Travelers Property Casualty Corp., One Tower Square, Hartford,
Connecticut 06183.


----------
+  Filed herewith.






                                       80
<PAGE>   83
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 14th day of
March, 2001.

                                    TRAVELERS PROPERTY CASUALTY CORP.
                                    (Registrant)

                                    By:
                                       .......................................
                                       Jay S. Fishman, 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 14th day of March, 2001.

<TABLE>
<CAPTION>
                     SIGNATURE                                                      TITLE
                     ---------                                                      -----
<S>                                                              <C>

                                                                           Chief Executive Officer
 .................................................                (Principal Executive Officer) and Director
                  Jay S. Fishman

                                                                     Chief Financial Officer and Director
 .................................................                      (Principal Financial Officer)
                 Christine B. Mead

                                                                           Chief Accounting Officer
 .................................................                      (Principal Accounting Officer)
                Douglas K. Russell

                                                                            President and Director
 .................................................
                 Charles J. Clarke

                                                                            Chairman and Director
 .................................................
                  Robert I. Lipp


                                                                    President and Chief Executive Officer,
 .................................................                      Commercial Lines and Director
                 Douglas G. Elliot

                                                                    Senior Vice President, General Counsel
 .................................................                          Secretary and Director
                 James M. Michener
</TABLE>


                                       81
<PAGE>   84
<TABLE>
<CAPTION>
                     SIGNATURE                                                      TITLE
                     ---------                                                      -----
<S>                                                              <C>
                                                                           Chief Executive Officer,
 .................................................                       Personal Lines and Director
                  Jerry T. Shroat
</TABLE>






                                       82
<PAGE>   85
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES





<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----

<S>                                                                         <C>
Independent Auditors' Report                                                  *

Consolidated Statement of Income for the years ended
   December 31, 2000, 1999 and 1998                                           *

Consolidated Balance Sheet at December 31, 2000 and 1999                      *

Consolidated Statement of Changes in Stockholders' Equity
   for the years ended December 31, 2000, 1999 and 1998                       *

Consolidated Statement of Cash Flows for the years ended
   December 31, 2000, 1999 and 1998                                           *

Notes to Consolidated Financial Statements                                    *

Schedules:

Schedule II - Condensed Financial Information of
   Registrant (Parent Company only)                                           85

Schedule III - Supplementary Insurance Information                            89

Schedule VI - Supplementary Information Concerning
   Property-Casualty Insurance Operations                                     92
</TABLE>



* See index on page 39.



                                       83
<PAGE>   86
                          Independent Auditors' Report


The Board of Directors and Stockholder
Travelers Property Casualty Corp.:

Under date of January 16, 2001, we reported on the consolidated balance sheets
of Travelers Property Casualty Corp. and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of income, changes in
stockholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 2000, which are included in this Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedules listed in
the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 1999 the
Company changed its methods of accounting for insurance and reinsurance
contracts that do not transfer insurance risk and its accounting for
insurance-related assessments.






/s/ KPMG LLP
Hartford, Connecticut
January 16, 2001





                                       84
<PAGE>   87
                                                                     SCHEDULE II

                        TRAVELERS PROPERTY CASUALTY CORP.
                              (Parent Company Only)

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)

                          CONDENSED STATEMENT OF INCOME


<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                       -------------------------------
                                                       2000         1999         1998
                                                      -------      -------      -------
<S>                                                   <C>          <C>          <C>

REVENUES
Net investment income and other                       $     7      $     8      $    14

EXPENSES
Interest                                                  136          154          163
Other                                                       6           11            4
                                                      -------      -------      -------
     Total expenses                                       142          165          167
                                                      -------      -------      -------

Loss before federal income tax benefit and equity
  in net income of subsidiaries                          (135)        (157)        (153)
Federal income tax benefit                                 47           54           54
                                                      -------      -------      -------

Loss before equity in net income of subsidiaries          (88)        (103)         (99)
Equity in net income of subsidiaries                    1,568        1,379        1,442
                                                      -------      -------      -------

     Net income                                       $ 1,480      $ 1,276      $ 1,343
                                                      =======      =======      =======
</TABLE>

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.



                                       85
<PAGE>   88
                                                                     SCHEDULE II

                        TRAVELERS PROPERTY CASUALTY CORP.
                              (Parent Company Only)

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)

                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                              ------------
                                                                           2000         1999
                                                                         --------     --------
<S>                                                                      <C>          <C>

ASSETS
Short-term securities                                                    $     29     $     19
Investment in subsidiaries at equity                                       12,501       10,776
Deferred federal income taxes                                                  18           16
Other assets                                                                   10            4
                                                                         --------     --------

     Total assets                                                        $ 12,558     $ 10,815
                                                                         ========     ========

LIABILITIES
Long-term debt                                                           $  1,777     $  1,777
Other liabilities                                                              67           97
                                                                         --------     --------

     Total liabilities                                                      1,844        1,874
                                                                         --------     --------

STOCKHOLDER'S EQUITY
Common Stock, $.01 par value, 1,000 shares authorized; 1,000 and 0
   shares issued and outstanding                                               --           --
Class A Common Stock, $.01 par value, 700 million shares authorized;
   0 and 72,393,407 shares issued and outstanding                              --            1
Class B Common Stock, $.01 par value, 700 million shares authorized;
   0 and 328,020,170 shares issued and outstanding                             --            3
Additional paid-in capital                                                  5,934        5,479
Retained earnings                                                           4,379        4,133
Accumulated other changes in equity from nonowner sources                     401         (202)
Treasury stock, at cost (shares, 0 and 13,159,386)                             --         (451)
Unearned compensation                                                          --          (22)
                                                                         --------     --------

     Total stockholder's equity                                            10,714        8,941
                                                                         --------     --------

     Total liabilities and stockholder's equity                          $ 12,558     $ 10,815
                                                                         ========     ========
</TABLE>

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.



                                       86
<PAGE>   89
                                                                     SCHEDULE II

                        TRAVELERS PROPERTY CASUALTY CORP.
                              (Parent Company Only)

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)

                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                          -------------------------------
                                                           2000         1999         1998
                                                         -------      -------      -------
<S>                                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                              $ 1,480      $ 1,276      $ 1,343
  Adjustments to reconcile net income to net
   cash provided by operating activities:
   Equity in net income of subsidiaries                   (1,568)      (1,379)      (1,442)
   Dividends received from consolidated subsidiaries       1,475          850          540
   Amortization expense                                        1            2            2
   Deferred federal income tax benefit                        (1)          (2)           1
   Federal income taxes receivable                            (9)           1            2
   Other assets                                               (1)           6           (6)
   Other liabilities                                         (28)          (5)          (3)
                                                         -------      -------      -------

    Net cash provided by operating activities              1,349          749          437
                                                         -------      -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES
 Short-term securities, (purchases) sales, net               (10)         135         (143)
 Other investments, net                                      (45)        (135)          --
                                                         -------      -------      -------

    Net cash used in investing activities                    (55)          --         (143)
                                                         -------      -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES
 Repayment of commercial paper, net                           --           --         (108)
 Payment of long-term debt                                    --         (400)          --
 Purchase of treasury stock                                  (77)        (169)         (62)
 Restricted stock issuance                                    17           15           33
 Dividends to TIGI                                        (1,226)        (164)        (131)
 Dividends to minority shareholders                           (8)         (31)         (26)
                                                         -------      -------      -------

    Net cash used in financing activities                 (1,294)        (749)        (294)
                                                         -------      -------      -------

 Net decrease in cash                                         --           --           --

 Cash at beginning of period                                  --           --           --
                                                         -------      -------      -------

 Cash at end of period                                   $    --      $    --      $    --
                                                         =======      =======      =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Cash paid during the period for interest                $   136      $   162      $   163
                                                         =======      =======      =======

 Cash received during the period for taxes               $    37      $    53      $    57
                                                         =======      =======      =======
</TABLE>

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.



                                       87
<PAGE>   90
                                                                     SCHEDULE II

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT


1.  GENERAL

    Travelers Property Casualty Corp. (TPC) (a direct subsidiary of The
    Travelers Insurance Group Inc. (TIGI) and an indirect wholly-owned
    subsidiary of Citigroup Inc.) was organized on January 16, 1996. During
    April 1996, TIGI contributed The Travelers Indemnity Company and its
    subsidiaries to TPC. In addition, TPC purchased all of the outstanding
    capital stock of Travelers Casualty and Surety Company (formerly The Aetna
    Casualty and Surety Company) and The Standard Fire Insurance Company for a
    purchase price of approximately $4.2 billion in cash.

    During April 2000, TIGI completed a cash tender offer to purchase all of the
    outstanding shares of Class A Common Stock of TPC at a price of $41.95 per
    share. TIGI also established a wholly-owned subsidiary of TIGI which
    effected a merger pursuant to which TPC became a wholly-owned subsidiary of
    TIGI. Upon the merger of the new subsidiary into TPC, all previously
    outstanding shares of Class A Common Stock of TPC became authorized and
    unissued shares and the 1,000 shares of Common Stock of the new subsidiary
    (held by TIGI) were exchanged for 1,000 shares of Class A Common Stock of
    TPC. On June 29, 2000, TPC restated its certificate of incorporation and
    reclassified the Class A Common Stock to Common Stock, which had the effect
    of retiring all treasury stock. At December 31, 2000, TPC's common stock
    outstanding consists of 1,000 shares of Common Stock, which are 100% owned
    by TIGI.

2.  PRINCIPLES OF CONSOLIDATION

    The accompanying financial statements include the accounts of TPC and, on an
    equity basis, its subsidiaries and affiliates and should be read in
    conjunction with the Consolidated Financial Statements and notes thereto.

3.  DEBT

    On each of September 1, 1999 and October 1, 1999, TPC repaid $200 million
    for its 6-3/4% notes and 6-1/4% notes, respectively, which matured on those
    dates.

    The annual maturities of the outstanding debt are as follows: $500 million
    in 2001; $1,277 million after 2005.




                                       88
<PAGE>   91
                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      2000
                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                Amortization
Segment              Deferred      Claims       Unearned   Premium    Net          Claims       of deferred    Other       Premiums
                     policy        and claim    premiums   revenue    investment   and claim    policy         operating   written
                     acquisition   adjustment                         income       adjustment   acquisition    expenses
                     costs         expense                            (a)          expenses     costs          (b)
                                   reserves
------------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>           <C>          <C>        <C>         <C>         <C>          <C>            <C>         <C>
Commercial
   Lines             $   341       $25,672      $ 3,028    $ 4,747     $ 1,713     $ 3,739      $   680        $   752     $ 5,030

Personal
   Lines                 273         2,640        1,764      3,715         446       2,734          618            363       3,813
                     -------       -------      -------    -------     -------     -------      -------        -------     -------

Total - Reportable
   Segments              614        28,312        4,792      8,462       2,159       6,473        1,298          1,115       8,843

Other                     --           130           --         --           1          --           --            155          --
                     -------       -------      -------    -------     -------     -------      -------        -------     -------

Consolidated         $   614       $28,442      $ 4,792    $ 8,462     $ 2,160     $ 6,473      $ 1,298        $ 1,270     $ 8,843
                     =======       =======      =======    =======     =======     =======      =======        =======     =======
</TABLE>

(a) Net investment income for each segment is accounted for separately, except
    for the portion earned on the investment of stockholder's equity, which is
    allocated based on assigned capital.

(b) Expense allocations are determined in accordance with prescribed statutory
    accounting practices. These practices make a reasonable allocation of all
    expenses to those product lines with which they are associated.




                                       89
<PAGE>   92
                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1999
                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                Amortization
Segment              Deferred      Claims       Unearned   Premium    Net          Claims       of deferred    Other       Premiums
                     policy        and claim    premiums   revenue    investment   and claim    policy         operating   written
                     acquisition   adjustment                         income       adjustment   acquisition    expenses
                     costs         expense                            (a)          expenses     costs          (b)
                                   reserves
-----------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>           <C>          <C>        <C>        <C>          <C>          <C>            <C>         <C>

Commercial
   Lines             $   277       $26,184      $ 2,608    $ 4,375    $ 1,689      $ 3,505      $   617        $   805     $ 4,408

Personal
   Lines                 248         2,670        1,666      3,634        400        2,554          643            364       3,805
                     -------       -------      -------    -------    -------      -------      -------        -------     -------

Total - Reportable
   Segments              525        28,854        4,274      8,009      2,089        6,059        1,260          1,169       8,213

Other                     --           149           --         --          3           --           --            169          --
                     -------       -------      -------    -------    -------      -------      -------        -------     -------

Consolidated         $   525       $29,003      $ 4,274    $ 8,009    $ 2,092      $ 6,059      $ 1,260        $ 1,338     $ 8,213
                     =======       =======      =======    =======    =======      =======      =======        =======     =======
</TABLE>

(a) Net investment income for each segment is accounted for separately, except
    for the portion earned on the investment of stockholder's equity, which is
    allocated based on assigned capital.

(b) Expense allocations are determined in accordance with prescribed statutory
    accounting practices. These practices make a reasonable allocation of all
    expenses to those product lines with which they are associated.



                                       90
<PAGE>   93
                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1998
                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                Amortization
Segment              Deferred      Claims       Unearned   Premium    Net          Claims       of deferred    Other       Premiums
                     policy        and claim    premiums   revenue    investment   and claim    policy         operating   written
                     acquisition   adjustment                         income       adjustment   acquisition    expenses
                     costs         expense                            (a)          expenses     costs          (b)
                                   reserves
-----------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>           <C>          <C>        <C>        <C>          <C>          <C>            <C>         <C>

Commercial
   Lines             $   292       $26,702      $ 2,597    $ 4,525    $ 1,709      $ 3,766      $   645        $   916     $ 4,614

Personal
   Lines                 226         2,709        1,569      3,271        389        2,181          552            372       3,490
                     -------       -------      -------    -------    -------      -------      -------        -------     -------

Total - Reportable
   Segments              518        29,411        4,166      7,796      2,098        5,947        1,197          1,288       8,104

Other                     --           178           --         --          2           --           --            182          --
                     -------       -------      -------    -------    -------      -------      -------        -------     -------

Consolidated         $   518       $29,589      $ 4,166    $ 7,796    $ 2,100      $ 5,947      $ 1,197        $ 1,470     $ 8,104
                     =======       =======      =======    =======    =======      =======      =======        =======     =======
</TABLE>


(a) Net investment income for each segment is accounted for separately, except
    for the portion earned on the investment of stockholder's equity, which is
    allocated based on assigned capital.

(b) Expense allocations are determined in accordance with prescribed statutory
    accounting practices. These practices make a reasonable allocation of all
    expenses to those product lines with which they are associated.



                                       91
<PAGE>   94
                                   SCHEDULE VI

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES


 Supplementary Information Concerning Property-Casualty Insurance Operations(1)

                                    1998-2000

                                  (In millions)


<TABLE>
<CAPTION>
                                               Reserves for
                                                  unpaid       Discount
                                  Deferred        claims         from
           Affiliation             policy        and claim     reserves                             Net
              with               acquisition    adjustment    for unpaid   Unearned    Earned    investment
           registrant               costs        expenses      claims(2)   premiums   premiums     income
           ----------            -----------    -----------   ----------   --------   --------   ----------
<S>    <C>                       <C>           <C>            <C>          <C>        <C>        <C>

2000   Consolidated property -
         casualty operations       $   614        $28,312       $  800     $ 4,792    $ 8,462     $ 2,159


1999   Consolidated property -
         casualty operations       $   525        $28,854       $  832     $ 4,274    $ 8,009     $ 2,089


1998   Consolidated property -
         casualty operations       $   518        $29,411       $  781     $ 4,166    $ 7,796     $ 2,098
</TABLE>

<TABLE>
<CAPTION>
                                     Claims and
                                    claim adjust-
                                    ment expenses       Amortization
                                 incurred related to:   of deferred    Paid claims
           Affiliation                                    policy        and claim
              with               Current      Prior     acquisition     adjustment   Premiums
           registrant              year        year       costs         expenses     written
           ----------            -------     -------    ------------   -----------   --------
<S>    <C>                       <C>         <C>        <C>            <C>           <C>

2000   Consolidated property -
         casualty operations     $ 6,509     $ (247)       $ 1,298       $ 6,810     $ 8,843


1999   Consolidated property -
         casualty operations     $ 6,194     $ (242)       $ 1,260       $ 6,732     $ 8,213


1998   Consolidated property -
         casualty operations     $ 6,057     $ (323)       $ 1,197       $ 6,377     $ 8,104

</TABLE>


(1)    Excludes accident and health business.
(2)    See "Discounting" on page 9.



                                       92