<PAGE>
                                  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, 2001

                                       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 INSURANCE GROUP HOLDINGS INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

                  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:

                                                     NAME OF EACH EXCHANGE ON
                   TITLE OF EACH CLASS               WHICH REGISTERED
                   -------------------               ------------------------

     6.75% NOTES DUE NOVEMBER 15, 2006               NEW YORK STOCK EXCHANGE

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

     8.00% TRUST PREFERRED SECURITIES OF             NEW YORK STOCK EXCHANGE
           SUBSIDIARY TRUST (AND REGISTRANT'S
           GUARANTY WITH RESPECT THERETO)

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 TRAVELERS PROPERTY
CASUALTY CORP.

                            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>
                     TRAVELERS INSURANCE GROUP HOLDINGS INC.

                           ANNUAL REPORT ON FORM 10-K

                     FOR FISCAL YEAR ENDED DECEMBER 31, 2001

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

                                TABLE OF CONTENTS

FORM 10-K

<TABLE>
<CAPTION>
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.................    19

         PART II

5.       Market for Registrant's Common Equity and
           Related Stockholder Matters.......................................    19
6.       Selected Financial Data.............................................    19
7.       Management's Discussion and Analysis of Financial
           Conditions and Results of Operations..............................    20
7A.      Quantitative and Qualitative Disclosures About Market Risk..........    41
8.       Financial Statements and Supplementary Data.........................    43
9.       Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure...............................    86

         PART III

10.      Directors and Executive Officers of the Registrant..................    86
11.      Executive Compensation..............................................    86
12.      Security Ownership of Certain Beneficial Owners
           and Management....................................................    86
13.      Certain Relationships and Related Transactions......................    86

         PART IV

14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...    86
         Exhibit Index.......................................................    87
         Signatures..........................................................    88
         Index to Consolidated Financial Statements and Schedules............    89
</TABLE>
<PAGE>
                                     PART I

ITEM 1. BUSINESS.

Travelers Insurance Group Holdings Inc. (formerly known as Travelers Property
Casualty Corp.) (TIGHI), a wholly-owned subsidiary of Travelers Property
Casualty Corp. (formerly known as The Travelers Insurance Group Inc.) (TPC) 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. Except as the context otherwise requires, as used herein the
"Company" refers to Travelers Insurance Group Holdings Inc. and its consolidated
subsidiaries.

TIGHI's predecessor companies have been in the insurance business for more than
130 years. In January 1996, TIGHI was formed to hold TPC's property and casualty
insurance subsidiaries. In April 1996, TIGHI purchased from Aetna Services, Inc.
(Aetna) all of the outstanding capital stock of Aetna's significant property and
casualty insurance subsidiaries for approximately $4.2 billion in cash. In April
1996, TIGHI also completed an initial public offering of its common stock. In
April 2000, TPC completed a cash tender offer and merger, as a result of which
TIGHI became its wholly-owned subsidiary. In the tender offer and merger, TPC
acquired all of TIGHI's outstanding shares of common stock which it did not
already own, representing approximately 14.8% of its outstanding common stock,
for approximately $2.4 billion in cash financed by a loan from Citigroup Inc.
(Citigroup).

On March 21, 2002, TPC issued 210 million shares of its common stock in an
initial public offering, and on March 26, 2002, the underwriters exercised their
option to purchase an additional 21 million shares of TPC's common stock,
together representing approximately 23% of TPC's common equity. Citigroup has
announced that it intends to make a tax-free distribution of most of Citigroup's
ownership interest in TPC, subject to, among other things, regulatory approval
and receipt of a private letter ruling from the Internal Revenue Service that
the distribution will be tax-free to Citigroup, its stockholders and TPC.
Citigroup is under no obligation to make the distribution even if these
approvals are obtained. Immediately after the distribution, Citigroup would own
approximately 9.9% of TPC.

Citigroup indirectly owned all of the Company's outstanding common stock at
December 31, 2001. Citigroup is a diversified holding company whose businesses
provide a broad range of financial services to consumer and corporate customers
around the world. Information concerning TPC and its consolidated subsidiaries
may be found in its registration statement filed in connection with the initial
public offering of its common stock.

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.


                                       1
<PAGE>
COMMERCIAL LINES

The Company is the third largest writer of Commercial Lines insurance in the
United States based on 2000 direct written premiums as compiled and published by
A.M. Best. The Company believes this position provides the Company with
significant advantages in terms of brand recognition, relationships, and
critical mass, as well as the ability to realize operating efficiencies. The
Company's Commercial Lines segment offers a broad array of property and casualty
insurance and insurance-related services to its clients. Commercial Lines is
organized into the following five marketing and underwriting groups, each of
which focuses on a particular client base or product grouping to provide
products and services that specifically address clients' needs:

      -     National Accounts provides large corporations with casualty products
            and services and includes the Company's residual market business
            which offers workers' compensation products and services to the
            involuntary market;

      -     Commercial Accounts provides property and casualty products to
            mid-sized businesses, property products to large businesses and
            boiler and machinery products to businesses of all sizes, and
            includes dedicated groups focused on the construction industry,
            trucking industry, agribusiness, and ocean and inland marine;

      -     Select Accounts provides small businesses with property and casualty
            products, including packaged property and liability policies;

      -     Bond provides a wide range of customers with specialty products
            built around the Company's market leading surety bond business along
            with an expanding executive liability practice; and

      -     Gulf serves all sizes of customers through specialty programs, with
            particular emphasis on management and professional liability
            products.

In 2001, Commercial Lines generated net written premiums of approximately $5.7
billion.

Many National Accounts customers demand services, other than pure risk coverage,
primarily for workers' compensation and, to a lesser extent, general liability
and commercial automobile exposures. These types of services include risk
management services, such as claims management, loss control and risk management
information services, and are generally offered in connection with a large
deductible or self-insured programs. These services generate fee income rather
than net written premiums, which are not reflected in the accompanying table.

                            2001 NET WRITTEN PREMIUMS

<TABLE>
<CAPTION>
NET WRITTEN PREMIUMS BY PRODUCT LINE:         AMOUNT OF          PERCENTAGE OF TOTAL
(in millions)                           NET WRITTEN PREMIUMS    NET WRITTEN PREMIUMS
------------------------------------------------------------------------------------
<S>                                     <C>                     <C>
   Commercial multi-peril                      $1,758                   30.7%
   Workers' compensation                        1,031                   18.0
   Commercial automobile                          914                   16.0
   Property                                       834                   14.6
   Fidelity and surety                            506                    8.8
   General liability                              683                   11.9
------------------------------------------------------------------------------------
      Total Commercial Lines                   $5,726                  100.0%
====================================================================================
</TABLE>


                                       2
<PAGE>
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
typically for small 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 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. The Company
offers the following three types of workers' compensation products:

      -     guaranteed cost insurance products, in which policy premium charges
            are fixed for the period of coverage and do not vary as a result of
            the insured's loss experience;

      -     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

      -     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 under service
            agreements. The Company also participates in state assigned risk
            pools servicing workers' compensation policies as a servicing
            carrier and pool participant.

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, severe winter weather and other events such as theft and vandalism, fires,
explosions, and storms, and financial loss due to business interruption
resulting from covered property damage. Property also includes specialized
equipment insurance, which provides coverage for loss or damage resulting from
the mechanical breakdown of boilers and machinery, ocean and inland marine,
which provides coverage for goods in transit and unique, one-of-a-kind exposures
and miscellaneous assumed reinsurance.

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.


                                       3
<PAGE>
GENERAL LIABILITY provides coverage for liability exposures including bodily
injury and property damage arising from products sold and general business
operations. Specialized 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
umbrella and excess insurance.

PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

The Company distributes its commercial products through approximately 6,300
brokers and independent agencies located throughout the United States that are
serviced by approximately 80 field offices and two customer service centers. In
recent years, the Company has made significant investments in enhanced
technology utilizing state-of-the-art Internet-based applications to provide
real-time interface capabilities with its independent agencies and brokers. The
Company establishes 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 experience and strategic fit
with its operating and marketing plans. Once an agency or broker is appointed,
the Company carefully monitors its performance.

NATIONAL ACCOUNTS sells a variety of casualty products and services to large
companies. National Accounts also include the Company's residual market
business, which primarily offers workers' compensation products and services to
the involuntary market. National Accounts clients 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. Clients are frequently national in scope and range in size
from businesses with sales of approximately $10 million per year to the largest
Fortune 2000 corporations. Through a network of field offices, the Company's
underwriting specialists work closely with national and regional brokers to
tailor insurance coverages to meet clients' needs. Workers' compensation
accounted for approximately 71% of sales to National Accounts customers during
2001, based on gross written premiums and fee income.

The Company's residual market business sells claims and policy management
services to workers' compensation and automobile assigned risk plans and to
self-insurance pools throughout the United States. The Company services
approximately 35% of the total workers' compensation assigned risk market. The
Company is one of only two servicing carriers which operate nationally. Assigned
risk plan contracts generated approximately $80 million in service fee income in
2001.

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 and other related first party 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 programs.

The Company continues to develop new industry targeted programs on a national
level. The Company's industry specific knowledge, coupled with a disciplined
exposure analysis process involving loss and claim control, allows its field
underwriters to select, price and tailor terms and conditions for the better
managed companies in each of the Company's industry segments.


                                       4
<PAGE>
A key objective of Commercial Accounts is continued focus on first party lines
which cover risks of loss to property of the insured. Beyond the traditional
middle-market network, dedicated units exist to complement the middle market or
specifically respond to the unique or unusual business client insurance needs.
These units are:

      -     boiler and machinery,

      -     commercial agribusiness,

      -     inland and ocean marine,

      -     trucking industry, and

      -     the national commercial property division, which underwrites large
            property schedules such as Fortune 1000 companies.

Within Commercial Accounts, a construction unit exists with separately dedicated
claims, engineering and underwriting expertise providing insurance and risk
management targeted solely to the construction industry. The Company offers
predominantly casualty products to mid-sized contractors on a guaranteed cost
basis, and loss responsive products to the larger contractor marketplace.

SELECT ACCOUNTS is one of the leading providers of property casualty products to
small businesses. It serves firms with one to 75 employees. Products offered by
Select Accounts are 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.

BOND underwrites and markets its products to national, mid-sized and small
customers as well as individuals, and distributes them through both national and
wholesale brokers, and retail agents and regional brokers throughout the United
States. Bond, through a newly established Global Services segment, also
underwrites and markets surety products to large international businesses in
Canada, the European Union, Latin and South America, Asia, Australia and New
Zealand.

Bond's range of products includes fidelity and surety bonds, excess SIPC
(Securities Investors Protection Corporation), directors' and officers'
liability insurance, errors and omissions insurance, professional liability
insurance, employment practices liability insurance, fiduciary liability
insurance, and other related coverages. In addition, the Company markets blended
products, which combine fidelity, employment practices liability insurance,
directors' and officers' liability insurance, other related professional
liability insurance and fiduciary liability insurance into one product with
either individual or aggregate limits. The customer base ranges from large
financial services companies and commercial entities to small businesses and
individuals. Bond is organized into two broad product line groups: Surety and
Executive Liability. Surety is organized around construction and commercial
customer segments as well as a newly established Global Services segment.
Executive Liability is organized around commercial and financial services
customers.

On May 31, 2000, the Company completed the acquisition of the surety business of
Reliance Group Holdings, Inc., or Reliance Surety. In connection with the
acquisition, the Company entered into a reinsurance arrangement for pre-existing
business. Accordingly, the results of operations and the assets and liabilities
acquired from Reliance Surety are included in the Company's financial statements
beginning June 1, 2000.


                                       5
<PAGE>
GULF provides a diverse product and program portfolio of specialty insurance
lines, with particular emphasis on management and professional liability.
Products include various types of directors' and officers' insurance, fiduciary,
and employment practices liability for all sectors of commercial companies and
financial institutions. Errors and omissions coverages are provided for numerous
professional exposures including architects and engineers, lawyers, accountants,
insurance agents, mutual fund advisors and investment counselors. Gulf provides
fidelity and commercial crime coverages for nearly all classes of business. Gulf
also offers excess and umbrella coverages for various industries. In 2000, Gulf
expanded its product offerings with the purchase of the renewal rights to
Frontier Insurance Group, Inc.'s environmental and excess surplus lines casualty
businesses.

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 2000 direct written premiums as compiled
and published by A.M. Best. The Company believes its brand recognition and
customer and agent relationships are strengthened by its size and operating
efficiencies, coupled with extensive underwriting, claims and actuarial
experience. In 2001, Personal Lines generated net written premiums of
approximately $4.1 billion.

                            2001 NET WRITTEN PREMIUMS

<TABLE>
<CAPTION>
NET WRITTEN PREMIUMS BY PRODUCT LINE:               AMOUNT OF          PERCENTAGE OF TOTAL
(in millions)                                 NET WRITTEN PREMIUMS     NET WRITTEN PREMIUMS
------------------------------------------------------------------------------------------
<S>                                           <C>                      <C>
Personal automobile                                     $2,591                  63.1%
Homeowners and other                                     1,517                  36.9
------------------------------------------------------------------------------------------
   Total Personal Lines                                 $4,108                 100.0%
==========================================================================================
</TABLE>

PRODUCT LINES

The Company writes most types of property and casualty insurance covering
personal risks. Personal Lines had approximately 5.4 million policies in force
at December 31, 2001. 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 AND OTHER 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. The Company also writes
coverage for personal watercraft, personal articles such as jewelry, and
umbrella liability protection.

PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

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 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.


                                       6
<PAGE>
The Company's Personal Lines products are distributed primarily through
approximately 7,600 independent agencies located throughout the United States,
supported by personnel in 12 marketing regions and six customer service centers.
In selecting new independent agencies to distribute the Company's products, the
Company considers each agency's profitability, financial stability, staff
experience and strategic fit with the Company's operating and marketing plans.
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.

Personal Lines operates three single state companies in Massachusetts, New
Jersey and Florida with products marketed virtually exclusively through
independent agents. These states represented 20.4% of Personal Lines direct
written premiums in 2001. The companies were established to manage difficult
automobile environments in Massachusetts and New Jersey and property catastrophe
exposure in Florida. Each company has dedicated resources in underwriting,
claim, finance, legal and service functions. The establishment of these separate
companies in these states limits the capital at risk.

Personal Lines also markets through additional distribution channels, including
sponsoring organizations such as employers and consumer associations, and joint
marketing arrangements with other insurers. The Company handles the sales and
service for these programs either through a sponsoring independent agent or
through three of the Company's call center locations. The Company is one of the
leading providers of personal lines products to members of affinity groups. A
number of well-known corporations endorse the Company's product offerings to
their employees primarily through a payroll deduction payment process. The
Company has significant relationships with the majority of the American
Automobile Association (AAA) clubs in the United States and other affinity
groups that endorse the Company's tailored offerings to their members. Since
1995, the Company 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.

The Company's expense management practices and sophisticated underwriting
segmentation allow the Company to offer a competitively priced product. In
addition, the Company is leveraging these strengths and its service capabilities
including prompt and efficient claims handling and a high level of automation,
to expand the geographic distribution of Personal Lines products through the
Company's independent agents and additional distribution mechanisms.

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 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 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 the
notes to the Company's consolidated financial statements.


                                       7
<PAGE>
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:

      -     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;

      -     treaty reinsurance, in which reinsurance is provided for a specified
            type or category of risks; and

      -     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.

CURRENT NET RETENTION POLICY

The descriptions below relate to the Company's reinsurance arrangements in
effect at January 1, 2002. For third-party liability, including automobile
no-fault, the reinsurance agreements used by Commercial Accounts limit the net
retention to a maximum of $8.2 million per insured, per occurrence and those
used by Select Accounts limit the net retention to a maximum of $6.4 million per
insured, per occurrence. National Accounts utilizes reinsurance to limit net
retained policy limits on third party coverages to $6.0 million. Gulf utilizes
various reinsurance mechanisms and has limited its net retention to a maximum of
$5.5 million per risk for any line of business. For commercial property
insurance, there is a $7.5 million maximum retention per risk with 100%
reinsurance coverage for risks with higher limits. The reinsurance agreement in
place for workers' compensation policies written by Commercial Accounts,
National Accounts, Select Accounts, and some segments of the residual market
business within National Accounts and Gulf cover 75% of each loss between $10
million and $20 million. 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 products such as errors and omissions liability,
directors' and officers' liability, employment practices liability and blended
insurance products, Bond generally retains from $2 million up to $5 million per
risk. For surety protection, Bond generally retains up to $29.7 million per
principal which may be increased based on the type of obligation and other
credit risk factors. The Company reviews its retention policy on an ongoing
basis.

CATASTROPHE REINSURANCE

The Company utilizes reinsurance agreements with nonaffiliated reinsurers to
control the Company's exposure to losses resulting from one occurrence. For the
accumulation of net property losses arising out of one occurrence, reinsurance
agreements cover 67% of total losses between $450 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 67% of losses between $450 million and $750 million. The
Company reviews its risk and catastrophe coverages at least quarterly and makes
changes it deems appropriate.

RESERVES

Property and casualty loss reserves are established to account for the estimated
ultimate unpaid costs of loss and loss 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.


                                       8
<PAGE>
The process of estimating loss 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 insured event and the time it is
actually reported to the insurer. The Company continually refines reserve
estimates in a regular ongoing process as historical loss experience develops
and additional 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 reserves are also
reviewed periodically by a qualified actuary employed by us.

The Company derives estimates for unreported claims and development on reported
claims principally from actuarial analyses of historical patterns of loss
development by accident year for each type of exposure and market segment.
Similarly, the Company derives estimates of unpaid loss adjustment expenses
principally from actuarial analyses of historical development patterns of the
relationship of loss 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 some 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, 2001, 2000 and
1999 the combined amounts of discount on our balance sheets were $792 million,
$800 million and $832 million, respectively.

The table at the end of this section sets forth the year-end reserves from 1991
through 2001 and the subsequent changes in those reserves, presented on a
historical basis. Accordingly, the original estimates, cumulative amounts paid
and reestimated reserves in the table for the years 1991 to 1995 have not been
restated to reflect the acquisition of Aetna's property and casualty insurance
subsidiaries. Beginning in 1996, the table includes the reserve activity of
Aetna. 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 this 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 1991 to 2001 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 those amounts are not additive. Expressed another
way, if the original reserves at the end of 1991 included $4 million for a loss
that is finally paid in 2001 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
1991 to 2000 shown in the accompanying table.


                                       9
<PAGE>
OTHER FACTORS

Various 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 these risks. See "-- Environmental, Asbestos and Other 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 loss and loss adjustment expenses shown
in the accompanying table, which is prepared in accordance with accounting
principles generally accepted in the United States of America and those reported
in the Company's annual reports filed with state insurance departments, which
are prepared in accordance with statutory accounting practices, were $(17)
million, $9 million and $38 million for 2001, 2000 and 1999, respectively.


                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                           -----------------------------------------------------------------
                                                           1991(a)    1992(a)    1993(a)    1994(a)     1995(a)      1996(b)
                                                           -----------------------------------------------------------------
                                                                                   (dollars in millions)
<S>                                                        <C>        <C>       <C>       <C>           <C>         <C>
Reserves for Loss and Loss Adjustment
   Expense Originally Estimated:                           $8,360     $8,955     $9,319     $9,712      $10,090     $21,816
Cumulative amounts paid as of
  One year later                                            1,869      2,005      1,706      1,595        1,521       3,704
  Two years later                                           3,161      3,199      2,843      2,631        2,809       6,600
  Three years later                                         4,041      4,063      3,610      3,798        3,903       8,841
  Four years later                                          4,706      4,662      4,563      4,676        4,761      10,355
  Five years later                                          5,182      5,465      5,274      5,388        5,322      11,649
  Six years later                                           5,878      6,078      5,882      5,855        5,842
  Seven years later                                         6,421      6,618      6,289      6,324
  Eight years later                                         6,913      6,983      6,718
  Nine years later                                          7,250      7,383
  Ten years later                                           7,623

Reserves re-estimated as of
  One year later                                            8,362      9,058      9,270      9,486        9,848      21,345
  Two years later                                           8,637      9,139      9,234      9,310        9,785      21,160
  Three years later                                         8,906      9,183      9,108      9,395        9,789      20,816
  Four years later                                          9,026      9,189      9,271      9,427        9,735      20,664
  Five years later                                          9,123      9,405      9,298      9,463        9,711      20,427
  Six years later                                           9,367      9,440      9,349      9,441        9,661
  Seven years later                                         9,396      9,508      9,370      9,445
  Eight years later                                         9,477      9,555      9,374
  Nine years later                                          9,537      9,569
  Ten years later                                           9,568

Cumulative deficiency (redundancy)                          1,208        614         55       (267)        (429)     (1,389)

Gross liability - end of year                                                   $14,638   $ 15,013      $15,213     $30,969
  Reinsurance recoverables                                                        5,319      5,301        5,123       9,153
                                                                                -------   --------      -------     -------
Net liability - end of year                                                     $ 9,319   $  9,712      $10,090     $21,816
                                                                                -------   --------      -------     -------
Gross reestimated liability--latest                                             $14,742   $ 15,029      $14,633     $29,411
Reestimated reinsurance
   Recoverables--latest                                                           5,368      5,584        4,972       8,984
                                                                                -------   --------      -------     -------
Net reestimated liability--latest                                               $ 9,374   $  9,445      $ 9,661     $20,427
                                                                                -------   --------      -------     -------
Gross cumulative deficiency (redundancy)                                        $   104   $     16      $  (580)    $(1,558)
                                                                                =======   ========      =======     =======
</TABLE>

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                          -------------------------------------------------------
                                                           1997(b)   1998(b)    1999(b)    2000(b)    2001(b)(c)
                                                          -------------------------------------------------------
                                                                          (dollars in millions)
<S>                                                       <C>        <C>        <C>        <C>        <C>
Reserves for Loss and Loss Adjustment
   Expense Originally Estimated:                          $21,406    $20,763    $19,983    $19,435     $20,197
Cumulative amounts paid as of
  One year later                                            4,025      4,159      4,082      4,374
  Two years later                                           6,882      6,879     6,957
  Three years later                                         8,850      9,006
  Four years later                                         10,480
  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                                           21,083     20,521     19,736     19,394
  Two years later                                          20,697     20,172     19,600
  Three years later                                        20,417     19,975
  Four years later                                         20,168
  Five years later
  Six years later
  Seven years later
  Eight years later
  Nine years later
  Ten years later

Cumulative deficiency (redundancy)                         (1,238)      (788)      (383)       (41)

Gross liability - end of year                              $30,138   $29,411    $28,854    $28,312     $30,617
  Reinsurance recoverables                                   8,732     8,648      8,871      8,877      10,420
                                                           -------   -------    -------    -------     -------
Net liability - end of year                                $21,406   $20,763    $19,983    $19,435     $20,197
                                                           -------   -------    -------    -------     -------
Gross reestimated liability--latest                        $28,658   $28,573    $28,555    $28,630
Reestimated reinsurance
   Recoverables--latest                                      8,490     8,598      8,955      9,236
                                                           -------   -------    -------    -------
Net reestimated liability--latest                          $20,168   $19,975    $19,600    $19,394
                                                           -------   -------    -------    -------
Gross cumulative deficiency (redundancy)                   $(1,480)  $  (838)   $  (299)   $   318
                                                           =======   =======    =======    =======
</TABLE>

----------
(a)   Excludes 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 which were acquired on April 2, 1996 and subsequent
      development recorded by Aetna P&C.

(c)   Includes reserves of The Northland Company and its subsidiaries and
      Associates Lloyds Insurance Company which were acquired on October 1, 2001
      from Citigroup. Also includes reserves of CitiCapital Insurance Company,
      formerly known as Associates Insurance Company, which was contributed by
      Citigroup on October 3, 2001. These reserves total $623 million.


                                       11
<PAGE>
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 separate 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 REINSURANCE POOLS

Most of the Company's insurance subsidiaries are members of intercompany
property and casualty reinsurance pooling arrangements. At December 31, 2001,
the intercompany pools were the Travelers Property Casualty pool and the
Northland pool. As of October 1, 2001, most of the Gulf companies were included
in the Travelers Property Casualty pool. The Northland companies were acquired
from an affiliate and they maintain their own reinsurance pool. Each of these
reinsurance 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 reinsurance pool, the members share substantially all
insurance business that is written, with some exceptions for the Northland pool,
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 business. The Personal Lines single
state companies are not included in any pool.

RATINGS

The following table summarizes the current claims-paying and financial strength
ratings of the Company's property casualty insurance pools, CitiCapital and
affiliates, Travelers C&S of America and some of the Company's Personal Lines
single state companies, by A.M. Best, Fitch Ratings, Moody's and Standard &
Poor's as of December 31, 2001. The table also presents the position of each
rating in the applicable agency's rating scale.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   STANDARD &
                                                 A.M BEST             FITCH RATINGS             MOODY'S             POOR'S
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                     <C>                    <C>                   <C>
Travelers Property Casualty pool (a)          A++ (1st of 16)         AA  (3rd of 24)        Aa2 (3rd of 21)       AA- (4th of 21)
Northland pool (b)                            A+  (2nd of 16)                  --                     --                    --
CitiCapital and affiliates(c)                 A+  (2nd of 16)                  --                     --                    --
First Floridian Auto and Home Ins. Co.        A   (3rd of 16)         AA  (3rd of 24)                 --                    --
First Trenton Indemnity Company               A   (3rd of 16)         AA  (3rd of 24)                 --                    --
The Premier Insurance Co. of MA               A   (3rd of 16)         AA  (3rd of 24)                 --                    --
Travelers C&S of America                      A++ (1st of 16)         AA  (3rd of 24)        Aa2 (3rd of 21)       AA- (4th of 21)
====================================================================================================================================
</TABLE>

(a)   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, Travelers Commercial Casualty
      Company (formerly known as The Travelers Indemnity Company of Missouri),
      Travelers Casualty Company of Connecticut, Travelers Commercial Insurance
      Company, The Travelers Indemnity Company of Illinois, Travelers 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,
      Travelers Excess and Surplus Lines Company, Gulf Insurance Company,
      Atlantic Insurance Company, Select Insurance Company and Gulf Underwriters
      Insurance Company.

(b)   The Northland pool consists of Northland Insurance Company, Northfield
      Insurance Company, Northland Casualty Company, Mendota Insurance Company,
      Mendakota Insurance Company, American Equity Insurance Company, and
      American Equity Specialty Insurance Company.


                                       12
<PAGE>
(c)   CitiCapital and affiliates consists of CitiCapital Insurance Company,
      Commercial Guaranty Insurance Company and Associates Lloyds Insurance
      Company. Commercial Guaranty Insurance Company and Associates Lloyds cede
      all of their business to CitiCapital Insurance Company. CitiCapital
      Insurance Company was formerly known as Associates Insurance Company.

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. 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. In addition to its traditional independent agency
distribution, Personal Lines has broadened its distribution of Personal Lines
products by marketing to sponsoring organizations, including employee and
affinity groups, and through joint marketing arrangements with other insurers.
The Company believes that its continued focus on expense management practices
and its underwriting segmentation abilities enable the Company to price its
products competitively in all of its distribution channels.


                                       13
<PAGE>
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 derives from 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 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 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. Financial examinations completed in the past three years have not
resulted in any adjustments to statutory surplus and pending financial and
market conduct examinations have not identified any material findings to date.
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.

INSURANCE HOLDING COMPANY STATUTES

Although as a holding company, the Company is not regulated as an insurance
company, the Company owns capital stock in insurance subsidiaries and therefore
is subject to state insurance holding company statutes, as well as certain other
laws, of each of the states of domicile of the Company's insurance subsidiaries.
All holding company statutes, as well as 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 other laws
also require, among other things, prior approval of an acquisition of control of
a domestic insurer, some transactions between affiliates and the payment of
extraordinary dividends or distributions.

INSURANCE REGULATION CONCERNING DIVIDENDS

The Company's principal insurance subsidiaries are domiciled in the State of
Connecticut. The insurance holding company law of Connecticut applicable to the
Company's subsidiaries requires notice to, and approval by, the state insurance
commissioner for the declaration or payment of any dividend, that together with
other distributions made within the preceding twelve months exceeds the greater
of 10% of the insurer's surplus as of the preceding December 31, or the
insurer's net income for the twelve-month period ending the preceding December
31, in each case determined in accordance with statutory accounting practices.
This declaration or payment is further limited by adjusted unassigned 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 some instances
somewhat more restrictive, limitations on the payment of dividends. During 2002,
a significant portion of dividends from the Company's insurance subsidiaries is
likely to be subject to approval from the Connecticut Insurance Department,
depending upon the amount and timing of the payments.


                                       14
<PAGE>
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 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 property and casualty insurance companies domiciled in the
states of Arizona, California, Connecticut, Delaware, Florida, Illinois,
Indiana, Iowa, Massachusetts, Minnesota, Missouri, New Jersey and Texas.
"Control" is generally presumed to exist through the ownership of 10% (5% in the
case of Florida) 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 common stock representing 10% (5% in the case of Florida)
or more of the voting power of the Company's capital stock will be presumed to
have acquired control of the Company's domestic insurance subsidiaries unless,
following application by that purchaser in each insurance subsidiary's state of
domicile, the relevant insurance commissioner determines otherwise.

In addition to these filings, the laws of many states contain provisions
requiring pre-notification to state agencies prior to any change in control of a
non-domestic insurance company admitted to transact business in that state.
While these pre-notification statutes do not authorize the state agency to
disapprove the change of control, they do authorize issuance of cease and desist
orders with respect to the non-domestic insurer if it is determined that some
conditions, such as undue market concentration, would result from the
acquisition.

Any future transactions that would constitute a change in control of any of the
Company's insurer subsidiaries 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 of the Company's insurance subsidiaries is domiciled in the United Kingdom.
Insurers in the United Kingdom are subject to change of control restrictions in
the Insurance Companies Act of 1982 including approval of the Financial Services
Authority.

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

These requirements may deter, delay or prevent transactions affecting the
control of or the ownership of common stock, including transactions that could
be advantageous to TPC, the Company's sole shareholder.

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 based on year-end data 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.


                                       15
<PAGE>
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. As
published by the NAIC, 11% of the companies included in the IRIS system have
reported results outside the usual range on four or more ratios.

In each of 2001, 2000 and 1999, some of the Company's insurance subsidiaries
have been outside of the usual range of IRIS ratios. No regulatory action is
anticipated as a result of the 2001 IRIS ratio results. 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 years ended
December 31, 2000 and 1999, respectively.

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 determine 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 three major areas of risk facing property and
casualty insurers:

      -     underwriting, which encompasses the risk of adverse loss
            developments and inadequate pricing;

      -     declines in asset values arising from market and/or credit risk; and

      -     off-balance sheet risk arising from adverse experience from
            non-controlled assets, guarantees for affiliates or other contingent
            liabilities and reserve and premium growth.

Under 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 that operate with higher levels of capital. Therefore, it
is inappropriate and ineffective to use the formulas to rate or to rank these
companies. At December 31, 2001, all of the Company's property and 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 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.


                                       16
<PAGE>
INTEREST EXPENSE AND OTHER

Interest Expense and Other consists primarily of interest expense.

OTHER INFORMATION

GENERAL BUSINESS FACTORS

In the opinion of the Company's management, no material part of the business of
the Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a materially adverse effect
on the Company, and no one customer or group of affiliated customers accounts
for as much as 10% of the Company's consolidated revenues.

At December 31, 2001, the Company had 20,199 full-time and 752 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 currently owns six buildings in Hartford, Connecticut, which
comprise its headquarters. The Company currently occupies approximately
1,030,000 square feet of office space in such buildings. The Company also owns
other real property in Connecticut and a data center in Norcross, Georgia. The
Company also leases approximately 373,000 square feet of office space at
CityPlace, located in Hartford, Connecticut, under a sublease that expires in
March 2004 with respect to approximately 118,000 square feet and expires in
October 2008 with respect to the balance of the premises, 93,500 square feet at
the 90 State House Square complex in Hartford, Connecticut, and 79,400 square
feet at the 50/58 State House Square complex in Hartford, Connecticut. In
addition, the Company leases 168 field and claim offices totaling approximately
4,717,000 square feet throughout the United States under leases or subleases
with third parties.

The Company leases 284,225 square feet of office space in its headquarters
buildings to Citigroup. The Company has agreed to exchange office space
with Citigroup and, as a result, will relocate its operations from the office
space at CityPlace to the six headquarters buildings and assign the lease for
CityPlace to Citigroup. The exchange is anticipated to occur by the end of the
first quarter of 2003, at which time the lease for office space in the
headquarters buildings will terminate.

On September 1, 2001, the Company vacated the 50 Prospect Street complex in
Hartford, Connecticut in order to undertake a complete renovation thereof over
the next three years. Therefore, the Company leased approximately 423,000 square
feet of office space in Hartford, Connecticut to temporarily house the displaced
operations.

The Company believes its properties are adequate and suitable for its business
as presently conducted and are adequately maintained.

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 are a party or to which any of the Company's property is subject.


                                       17
<PAGE>
Beginning in January 1997, various plaintiffs commenced a series of purported
class actions and one multi-party action in various courts against some of the
Company's subsidiaries, dozens of other insurers and the National Council on
Compensation Insurance, or the NCCI. The allegations in the actions are
substantially similar. The plaintiffs generally allege that the defendants
conspired to collect excessive or improper premiums on 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. After several voluntary dismissals, refilings and
consolidations, actions are currently pending in the following jurisdictions:
Georgia (Melvin Simon & Associates, Inc., et al. v. Standard Fire Insurance
Company, et al.); Tennessee (Bristol Hotel Asset Company, et al. v. The Aetna
Casualty and Surety Company, et al.); Florida (Bristol Hotel Asset Company, et
al. v. Allianz Insurance Company, et al. and Bristol Hotel Management
Corporation, et al. v. Aetna Casualty & Surety Company, et al.); New Jersey
(Foodarama Supermarkets, Inc., et al. v. Allianz Insurance Company, et al.);
Illinois (CR/PL Management Co., et al. v. Allianz Insurance Company Group, et
al.); Pennsylvania (Foodarama Supermarkets, Inc. v. American Insurance Company,
et al.); Missouri (American Freightways Corporation, et al. v. American
Insurance Co., et al.); California (Bristol Hotels & Resorts, et al. v. NCCI, et
al.); Texas (Sandwich Chef of Texas, Inc., et al. v. Reliance National Indemnity
Insurance Company, et al.); Alabama (Alumax Inc., et al. v. Allianz Insurance
Company, et al.); Michigan (Alumax, Inc., 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. American Motorists Insurance Company, et
al.); and Arizona (Albany International Corp. v. American Home Assurance
Company, et al.). The Company has vigorously defended all of these cases and
intends to continue doing so.

The trial courts have ordered dismissal of the California, Pennsylvania and New
York cases, and partial dismissals of six others: those pending in Tennessee,
New Jersey, Illinois, Missouri, Alabama and Arizona. The trial courts in
Georgia, Kentucky, Texas, and Michigan have denied defendants' motions to
dismiss. The California appellate court has reversed the trial court in part and
ordered reinstatement of most claims, while the New York appellate court has
affirmed dismissal in part and allowed plaintiffs to dismiss their remaining
claims voluntarily. The Michigan, Pennsylvania and New Jersey courts have denied
class certification, while the Texas court has granted class certification. The
New Jersey appellate court denied plaintiffs' request to appeal. Defendants'
appeal of the Texas class certification decision is pending.

The Company provided surety bonds to affiliates of JPMorgan Chase in connection
with performance obligations of two subsidiaries of Enron. The Company is in
litigation (JPMorgan Chase Bank v. Liberty Mutual Insurance Company, et al.) in
New York over whether the Company is obligated to perform under these bonds. In
December 2001, Enron filed for Chapter 11 bankruptcy protection and JPMorgan
Chase made claims against these bonds. The demand against the Company, based on
the Company's aggregate participation in the bonds, is approximately $266
million before any reinsurance, recoveries and taxes. In December 2001, all
defendants filed answers and counterclaims to the complaint, and on December 31,
2001, the plaintiff filed a motion for summary judgment, which was denied on
March 5, 2002. The Company is vigorously defending the lawsuit and, in the
opinion of the Company's management, the Company has meritorious defenses.

The Company is increasingly becoming subject to more aggressive asbestos-related
litigation, and the Company expects this trend to continue. In October 2001, a
purported class action suit (Wise v. Travelers) was filed against the Company
and other insurers in state court in West Virginia alleging that the Company's
conduct violated the West Virginia Unfair Trade Practice Act. The case seeks to
reopen large numbers of settled asbestos claims and to impose liability on
insurers directly. The complaint seeks damages, including punitive damages. In
addition, in November 2001, the Company received notice under an administrative
process of another purported class action proceeding making similar allegations
under Massachusetts insurance law. The plaintiffs seek damages, including
punitive damages.


                                       18
<PAGE>
In November 2001, plaintiffs in consolidated asbestos actions pending before a
mass tort panel of judges in West Virginia state court moved to amend their
complaint to name the Company as a defendant, alleging that the Company and
other insurers breached duties to asbestos product end users. In March 2002, the
court granted the motion to amend. Plaintiffs seek damages, including punitive
damages. These cases are scheduled for trial as early as September 2002.
Lawsuits based on similar allegations have been filed in courts in Louisiana,
Massachusetts and Texas.

In the ordinary course of business, the Company's subsidiaries receive claims
asserting alleged injuries and damages from asbestos and other hazardous waste
and toxic substances and are subject to related coverage litigation. The
conditions surrounding the final resolution of these claims and the related
litigation 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 and litigation. This development will be affected by
future court decisions and interpretations, as well as changes in applicable
legislation. Because of these future unknowns, additional liabilities may arise
for amounts in excess of the current related reserves. These additional amounts,
or a range of these additional amounts, cannot now be reasonably estimated.

The Company is defending its environmental and asbestos-related litigation
vigorously and believes that it has meritorious defenses.

The Company is involved in numerous other lawsuits, other than asbestos and
environmental 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.

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 SHAREHOLDER MATTERS.

The Company has 1,000 authorized shares of common stock, all of which are issued
and outstanding as of December 31, 2001. All shares are held by TPC, and there
exists no established public trading market for the common equity of the
Company. The Company paid dividends to its parent of $1.1 billion in 2001. See
Note 10 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.


                                       19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Result's
of Operations, pursuant to General Instruction I (2) (a) of Form 10-K.

The Results of Operations reflect the consolidated results of Travelers
Insurance Group Holdings Inc. (TIGHI) 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, TPC completed a cash tender offer and merger, as a result of
which the Company became TPC's wholly-owned subsidiary. In the tender offer and
merger, TPC acquired all of the Company's outstanding shares of common stock
that were not already owned by TPC, representing approximately 14.8% of the
Company's outstanding common stock, for approximately $2.4 billion in cash
financed by a loan from Citigroup.

On March 21, 2002, TPC issued 210 million shares of its common stock in an
initial public offering, and on March 26, 2002, the underwriters exercised
their option to purchase an additional 21 million shares of its common stock,
together representing approximately 23% of TPC's common equity. Citigroup has
announced that it intends to make a tax-free distribution of most of Citigroup's
ownership interest in TPC, subject to, among other things, regulatory approval
and receipt of a private letter ruling from the Internal Revenue Service that
the distribution will be tax-free to Citigroup, its stockholders and TPC.
Citigroup is under no obligation to make the distribution even if these
approvals are obtained. Immediately after the distribution, Citigroup would own
approximately 9.9% of TPC.

TPC provides and purchases services to and from affiliates, including facilities
management, banking and financial functions, benefit coverages, data processing
services, and a short-term investment pool. Charges for these shared services
are allocated at cost. If the tax-free distribution by Citigroup occurs, TPC has
agreed with Citigroup to negotiate in good faith the terms of a transition
services agreement for the provision of these services. TPC has agreed with
Citigroup that an affiliate will provide investment advisory services to TPC for
a period and at fees to be mutually agreed upon.

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 Surety'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 some classes of surety business.

On October 1, 2001, the Company paid $329 million to Citigroup for The Northland
Company and its subsidiaries (Northland) and Associates Lloyds Insurance
Company. In addition, on October 3, 2001, the capital stock of CitiCapital
Insurance Company (CitiCapital) formerly known as Associates Insurance Company,
with a net book value of $356 million was contributed to the Company by
Citigroup. See notes 1 and 2 to the Company's consolidated financial statements.


                                       20
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
(in millions)                                                            2001      2000       1999
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>       <C>       <C>
Revenues                                                              $12,221   $11,068   $ 10,572
--------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles   $ 1,115   $ 1,480   $  1,409
Cumulative effect of changes in accounting principles, net of tax           3        --       (133)
--------------------------------------------------------------------------------------------------
Net income (1)                                                        $ 1,118   $ 1,480   $  1,276
==================================================================================================
</TABLE>

(1)   Net income includes $211 million, $31 million and $72 million of realized
      investment gains in 2001, 2000 and 1999, respectively. Included in
      realized investment gains were after-tax impairment charges related to
      other than temporary declines in value of $95 million, $20 million and $28
      million for the years ended December 31, 2001, 2000 and 1999,
      respectively.

Net income was $1.118 billion in 2001, $1.480 billion in 2000 and $1.276 billion
in 1999. Net income for 2001 included $3 million of restructuring charges
related primarily to the downsizing of direct marketing activities and
associated telemarketing operations in Personal Lines. Also included in 2001 was
a charge of $1 million related to the initial adoption of the FASB Emerging
Issues Task Force EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Interests in Securitized Financial Assets" (EITF 99-20),
and a benefit of $4 million related to the initial adoption of Financial
Accounting Standards Board No. 133, "Accounting for Derivative Instruments and
Hedging Activity" (FAS 133). The net benefit of $3 million due to the adoption
of these accounting changes has been accounted for as a cumulative effect of
changes in accounting principles. 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 Insurance Risk" (SOP 98-7). The net charge of $133 million due to the
initial adoption of these Statements of Position has also been accounted for as
a cumulative effect of changes in accounting principles.

Operating income, which excludes realized investment gains in all years,
restructuring charges and the cumulative effect of changes in accounting
principles in 2001 and 1999 described above, was $907 million in 2001, $1.449
billion in 2000 and $1.337 billion in 1999. The decrease in operating earnings
in 2001 from 2000 primarily reflects the impact of catastrophe losses of $490
million associated with the terrorist attack on September 11th. Operating
earnings in 2001 were also reduced by increased loss cost trends, including
increased medical costs, auto repair costs and reinsurance costs, and lower net
investment income, partly offset by the benefit of rate increases, higher fee
income and lower interest expense. 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, including increased medical costs and auto repair costs, lower favorable
prior-year reserve development and higher interest expense. Results for 2000 and
1999 also reflected benefits resulting from legislative actions that changed the
manner in which some states finance their workers' compensation second-injury
funds, principally in the states of New York and Pennsylvania.

Revenues of $12.221 billion in 2001 increased $1.153 billion from 2000. Revenues
of $11.068 billion in 2000 increased $496 million from 1999. The increase in
revenue in 2001 from 2000 was primarily attributable to higher earned premiums,
higher fee income and higher realized investment gains, partially offset by a
decrease in net investment income. 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.


                                       21
<PAGE>
Earned premiums increased $949 million to $9.411 billion in 2001 primarily due
to rate increases, the full year impact of the acquisitions in 2000 of Reliance
Surety and the renewal rights for the Reliance Middle Market and Frontier
businesses, combined with the purchase of Northland and contribution of
CitiCapital in October 2001. Earned premiums increased $453 million to $8.462
billion in 2000 from 1999, primarily due to rate increases and the impact of the
Reliance Surety acquisition and the new business associated with the acquisition
of the renewal rights for the Reliance Middle Market and Frontier businesses.

Net investment income was $2.022 billion in 2001, a decrease of $138 million
from 2000. This decrease largely reflects the increase in dividends to the
Company's parent, lower fixed income interest rates and lower returns from
private equity investments. Net investment income was $2.160 billion in 2000, an
increase of $68 million from 1999 primarily due to a higher return on
investments.

Fee income was $347 million in 2001, a $35 million increase from 2000. Fee
income was $312 million in 2000, a $37 million increase from 1999. National
Accounts within Commercial Lines is the primary source of fee income due to its
service fee business. The increase in fee income in 2001 and 2000 was primarily
due to the shift of business mix from premium-based products to fee-based
products and the favorable rate environment and the repopulation of the
involuntary pools.

Claims and expenses were $10.752 billion in 2001 compared to $9.041 billion in
2000 and $8.657 billion in 1999. The increase in claims and expenses in 2001 was
primarily the result of higher catastrophe losses associated with the terrorist
attack on September 11th, increased loss cost trends, and increased claims and
operating expenses related to the growth in premiums, including the full-year
impact of the Reliance Surety acquisition and the acquisition of the renewal
rights for the Reliance Middle Market and Frontier businesses, and the
acquisition of Northland and the contribution of CitiCapital in October 2001.
The increase in claims and expenses in 2000 was primarily the result of
increased loss cost trends, lower favorable prior-year reserve development,
increased claims related to the growth in premiums, including the impact of 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 and a reduction
in general and administrative expenses. Results for 2000 and 1999 also reflected
benefits resulting from legislative actions that changed the manner in which
some states finance their workers' compensation second-injury funds, principally
in the states of New York and Pennsylvania.

The Company's effective tax rate was 24%, 27% and 26% in 2001, 2000 and 1999,
respectively. These rates differed from the statutory tax rate in those years
primarily due to non-taxable investment income. The decrease in the 2001
effective tax rate from 2000 was primarily due to relatively higher non-taxable
income reflecting the impact of the losses associated with the terrorist attack
on September 11th.


                                       22
<PAGE>
The statutory and GAAP combined ratios were as follows:

<TABLE>
<CAPTION>
                                                    2001      2000      1999
--------------------------------------------------------------------------------
STATUTORY:
<S>                                                 <C>       <C>       <C>
  Loss and Loss Adjustment Expense (LAE) ratio       80.7%     75.1%     74.3%
  Underwriting expense ratio                         27.3      27.0      28.8
  Combined ratio before policyholder dividends      108.0     102.1     103.1
  Combined ratio                                    108.3     102.5     103.7
--------------------------------------------------------------------------------
GAAP:
  Loss and LAE ratio                                 80.5%     74.2%     73.0%
  Underwriting expense ratio                         27.2      25.6      28.3
  Combined ratio before policyholder dividends      107.7      99.8     101.3
  Combined ratio                                    108.0     100.2     101.9
================================================================================
</TABLE>

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

The 2001 statutory and GAAP combined ratios include the impact of the terrorist
attack on September 11th. Excluding the impact of this event, the statutory and
GAAP combined ratios before policyholder dividends for 2001 would have been
100.0% and 99.7%, respectively. 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 decrease in the 2001 statutory and GAAP combined ratios before policyholder
dividends, excluding the impact of the terrorist attack on September 11th,
compared to the 2000 statutory and GAAP combined ratios before policyholder
dividends, excluding the impact of the reinsurance transaction, was primarily
due to premium growth related to rate increases and the impact of the increase
in the Commercial Lines Bond business, primarily associated with the ongoing
business associated with Reliance Surety acquisition, which generally has a
lower loss and LAE ratio, partially offset by a higher underwriting expense
ratio. Partially offsetting these items was the effect of increased loss cost
trends.

The 2000 statutory combined ratio before policyholder dividends, excluding the
impact of the reinsurance transaction, 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 impact of the reinsurance transaction, 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. This was 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.


                                       23
<PAGE>
RESULTS OF OPERATIONS BY SEGMENT FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND
1999

<TABLE>
<CAPTION>
COMMERCIAL LINES
(in millions)                                                           2001     2000      1999
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>      <C>      <C>

Revenues                                                              $7,751   $6,835   $ 6,492
-----------------------------------------------------------------------------------------------

Income before cumulative effect of changes in accounting principles   $  957   $1,220   $ 1,159
Cumulative effect of changes in accounting principles, net of tax          2       --      (133)
-----------------------------------------------------------------------------------------------

Net income (1)                                                        $  959   $1,220   $ 1,026
===============================================================================================
</TABLE>

(1)   Commercial Lines net income includes $208 million, $31 million and $82
      million of realized investment gains in 2001, 2000 and 1999, respectively.

Net income was $959 million in 2001, $1.220 billion in 2000 and $1.026 billion
in 1999. Included in net income in 2001 was a charge of $1 million related to
the initial adoption of EITF 99-20. Also included in 2001 was a $3 million
benefit related to the initial adoption of FAS 133. Both of these items have
been accounted for as a cumulative effect of changes in accounting principles.
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
changes 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 2001
and 1999, was $749 million, $1.189 billion and $1.077 billion in 2001, 2000 and
1999, respectively. The 2001 decrease compared to 2000 primarily reflects the
impact of catastrophe losses of $448 million associated with the terrorist
attack on September 11th. The decrease also reflects increased loss cost trends,
including increased medical costs, auto repair costs and reinsurance costs, and
lower net investment income, partially offset by the benefit of rate increases,
higher fee income and higher favorable prior- year reserve development. 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 also reflected benefits resulting
from legislative actions that changed the manner in which some states finance
their workers' compensation second-injury funds, principally in the states of
New York and Pennsylvania.

Revenues of $7.751 billion in 2001 increased $916 million from 2000. Revenues of
$6.835 billion in 2000 increased $343 million from 1999. The increase in 2001
reflected higher earned premiums, higher fee income and higher realized
investment gains, partially offset by a decrease in net investment income. 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.

Earned premiums were $5.431 billion in 2001 compared to $4.747 billion in 2000
and $4.375 billion in 1999. The 2001 increase in earned premiums was primarily
due to rate increases, the full-year impact of the ongoing business associated
with the Reliance Surety acquisition and the renewal rights for the Reliance
Middle Market and Frontier businesses, and the acquisition of Northland and the
contribution of CitiCapital in October 2001. The 2000 increase in earned
premiums was primarily due to rate increases, the Reliance Surety acquisition
and the new business associated with the acquisition of the renewal rights for
the Reliance Middle Market and Frontier businesses.

Net investment income was $1.615 billion for 2001, a decrease of $98 million
from $1.713 billion in 2000. This decrease largely reflects the increase in
dividends and debt repayments to Citigroup, lower fixed income interest rates
and lower returns from private equity investments. Net investment income was
$1.713 billion in


                                       24
<PAGE>
2000, an increase of $24 million from $1.689 billion in 1999. This increase was
primarily due to a higher return on investments.

Fee income was $347 million in 2001, a $35 million increase from 2000. Fee
income was $312 million in 2000, a $37 million increase from 1999. National
Accounts is the primary source of fee income due to its service fee business.
The increase in fee income in 2001 and 2000 was primarily due to the shift of
business mix from premium-based products to fee-based products, the favorable
rate environment and the repopulation of involuntary pools.

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

<TABLE>
<CAPTION>
(in millions)                                     2001         2000         1999
--------------------------------------------------------------------------------
<S>                                             <C>          <C>          <C>
National Accounts                               $  419       $  352       $  488
Commercial Accounts                              2,396        2,099        1,816
Select Accounts                                  1,713        1,575        1,494
Bond                                               590          487          207
Gulf                                               608          517          403
--------------------------------------------------------------------------------

Total net written premiums                      $5,726       $5,030       $4,408
================================================================================
</TABLE>

Commercial Lines net written premiums were $5.726 billion in 2001 compared to
$5.030 billion in 2000 and $4.408 billion in 1999. The 2001 increase reflected
the impact of the improving rate environment as evidenced by the continued
favorable pricing on new and renewal business. The 2001 increase also includes
the full-year impact of the acquisition in 2000 of the renewal rights for the
Reliance Middle Market business combined with net written premiums related to
the acquisition of Northland and the contribution of CitiCapital in October 2001
in Commercial Accounts, the acquisition in 2000 of the renewal rights for the
Frontier business in Gulf and the impact of the ongoing business associated with
the Reliance Surety acquisition in Bond. Included in Bond net written premiums
in 2000 is an increase 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 impact of new business
associated with the acquisition of the renewal rights for the Reliance Middle
Market business in Commercial Accounts, the impact of the Reliance Surety
acquisition in Bond and the new business associated with the acquisition of the
renewal rights for the Frontier business in Gulf.

National Accounts works with national and regional brokers providing insurance
coverages and services, primarily workers' compensation, mainly to large
corporations. National Accounts also includes the residual market business,
which sells claims and policy management services to workers' compensation and
automobile assigned risk plans and to self-insurance pools throughout the United
States. National Accounts net written premiums were $419 million in 2001
compared to $352 million in 2000. This increase was primarily due to the
purchase of less reinsurance, reflecting the shift in business mix from
guaranteed cost products to loss-sensitive products, combined with the
repopulation of the involuntary pools. National Accounts net written premiums
were $352 million in 2000 compared to $488 million in 1999. This decrease was
primarily due to a decrease in the Company's level of involuntary pool
participation, the result of pricing declines due to the highly competitive
marketplace, and the Company's disciplined approach to underwriting and risk
management.

For 2001, new business in National Accounts was marginally lower than 2000,
reflecting a disciplined approach to market opportunities. The business
retention ratio for 2001 was moderately lower than 2000, reflecting a focus on
account profitability and an increase in lost business due to the renewal price
increases in 2001. New business in National Accounts for 2000 was marginally
lower than 1999, reflecting the Company's disciplined approach to underwriting
and risk management. 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.


                                       25
<PAGE>
Commercial Accounts serves primarily mid-sized businesses for casualty products
and both large and mid-sized businesses for property products through a network
of independent agents and brokers. Within Commercial Accounts, a dedicated
construction unit exists as well as a unit which primarily writes coverages for
the trucking industry. Commercial Accounts net written premiums of $2.396
billion in 2001 were $297 million above 2000 premium levels. This increase
reflected continued favorable pricing on renewal business, favorable new
business in national property, the acquisition of Northland and the contribution
of CitiCapital in October 2001. Commercial Accounts net written premiums were
$2.099 billion in 2000 compared to $1.816 billion in 1999, reflecting the impact
of the new business associated with the Reliance Middle Market business and the
impact of the improving rate environment.

For 2001, new premium business in Commercial Accounts was moderately lower than
2000, reflecting the acquisition of the renewal rights for the Reliance Middle
Market business in 2000. The business retention ratio for 2001 was significantly
lower than 2000, reflecting the continued disciplined approach to achieving
acceptable levels of account profitability and an increase in lost business due
to the renewal price increases in 2001. New business in Commercial Accounts for
2000 was significantly higher than 1999, reflecting the impact of the
acquisition of Reliance Middle Market renewal business. 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.

Select Accounts serves small businesses through a network of independent agents.
Select Accounts net written premiums were $1.713 billion in 2001 compared to
$1.575 billion in 2000 and $1.494 billion in 1999. The increase in Select
Accounts net written premiums primarily reflected price increases on renewal
business. This increase was partially offset by the Company's continued
disciplined approach to underwriting and risk management. New premium business
in Select Accounts was marginally lower in 2001 compared to 2000. The business
retention ratio for 2001 was virtually the same as 2000. For 2000, new business
in Select Accounts was moderately higher than 1999, reflecting 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 business due to the
renewal price increases in 2000.

Bond provides a variety of fidelity and surety bonds and executive liability
coverages to clients of all sizes through independent agents and brokers. Bond's
net written premiums of $590 million in 2001 were $234 million above 2000,
excluding an adjustment of $131 million in 2000 due to a reinsurance transaction
associated with the acquisition of the Reliance Surety business, primarily due
to the full-year impact of the ongoing business associated with the Reliance
Surety acquisition and production growth in Bond's Executive Liability product
line group, specifically its fidelity, directors' and officers' liability and
blended product lines. The blended product lines combine fidelity insurance,
employment practices liability insurance, directors' and officers' liability
insurance, other related professional liability insurance and fiduciary
liability insurance into one product with either individual or aggregate limits.
The growth in these product lines is reflective of Bond's strategy to further
enhance its product and customer diversification through the faster growing and
larger executive liability market. Bond's net written premiums of $356 million
in 2000, excluding an adjustment of $131 million due to a reinsurance
transaction associated with the acquisition of the Reliance Surety business,
were $149 million above 1999 due to the impact of the Reliance Surety
acquisition and production growth in Bond's Executive Liability product line
group, specifically its fidelity, directors' and officers' liability and blended
product lines.

Gulf 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. Gulf's net written premiums were $608 million in 2001, compared
to $517 million in 2000. This increase primarily reflected the full-year impact
of the renewal rights for the Frontier business and participation in the London
market. Gulf's net written premiums of $517 million in 2000 were $114 million
above 1999 due to the impact of the new business associated with the acquisition
of the renewal rights for the Frontier business and less use of reinsurance.


                                       26
<PAGE>
Commercial Lines claims and expenses of $6.494 billion in 2001 increased $1.323
billion from 2000 and increased $244 million in 2000 compared to 1999. The 2001
increase was primarily due to higher catastrophe losses primarily associated
with the terrorist attack on September 11th, increased loss cost trends,
including increased medical costs, auto repair costs and reinsurance costs,
higher losses and operating expenses associated with the growth in premium and
claims volume including the full-year impact of the Reliance Surety acquisition
and the acquisition of the renewal rights for the Reliance Middle Market and
Frontier businesses, and the acquisition of Northland and contribution of
CitiCapital in October 2001, partially offset by higher favorable prior-year
reserve development. 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 some states finance
their workers' compensation second-injury funds, principally in the states of
New York and Pennsylvania.

Catastrophe losses, net of taxes and reinsurance, were $471 million and $27
million in 2001 and 1999, respectively. There were no catastrophe losses in
2000. Catastrophe losses in 2001 were primarily due to the Seattle earthquake,
Tropical Storm Allison and the terrorist attack on September 11th. The 1999
catastrophe losses were primarily due to Hurricane Floyd and tornadoes in
Oklahoma.

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

<TABLE>
<CAPTION>
                                                         2001      2000      1999
----------------------------------------------------------------------------------
<S>                                                     <C>       <C>       <C>
STATUTORY:
  Loss and LAE ratio                                     83.4%     76.0%     77.9%
  Underwriting expense ratio                             28.7      27.8      30.7
  Combined ratio before policyholder dividends          112.1     103.8     108.6
  Combined ratio                                        112.6     104.5     109.7
----------------------------------------------------------------------------------
GAAP:
  Loss and LAE ratio                                     83.0%     74.7%     75.2%
  Underwriting expense ratio                             28.2      25.4      29.8
  Combined ratio before policyholder dividends          111.2     100.1     105.0
  Combined ratio                                        111.7     100.8     106.1
==================================================================================
</TABLE>

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

The 2001 statutory and GAAP combined ratios include the impact of the terrorist
attack on September 11th. Excluding the impact of this event, the statutory and
GAAP combined ratios before policyholder dividends for 2001 would have been
99.5% and 98.4%, respectively. 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 decrease in the 2001 statutory and GAAP combined ratios before policyholder
dividends, excluding the impact of the terrorist attack on September 11th,
compared to the 2000 statutory and GAAP combined ratios before policyholder
dividends, excluding the impact of the Reliance Surety reinsurance transaction,
was primarily due to premium growth related to rate increases, the full-year
impact of the ongoing business associated with the Reliance Surety acquisition,
the purchase of the renewal rights for the Reliance Middle Market and Frontier
businesses and higher favorable prior-year reserve development, partially offset
by increased loss cost trends and catastrophe losses due to the Seattle
earthquake and Tropical Storm Allison in 2001.


                                       27
<PAGE>
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 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.

<TABLE>
<CAPTION>
PERSONAL LINES
(in millions)                                                             2001     2000     1999
------------------------------------------------------------------------------------------------
<S>                                                                     <C>      <C>      <C>

Revenues                                                                $4,454   $4,232   $4,077
------------------------------------------------------------------------------------------------

Net income before cumulative effect of change in accounting principle   $  241   $  360   $  358
Cumulative effect of change in accounting principle, net of tax              1       --       --
------------------------------------------------------------------------------------------------

Net income (1)                                                          $  242   $  360   $  358
================================================================================================
</TABLE>

(1) Personal Lines net income includes $3 million of realized investment gains
in 2001 and $10 million of realized investment losses in 1999.

Net income in 2001 was $242 million compared to $360 million in 2000 and $358
million in 1999. Net income for 2001 included $3 million of restructuring
charges related primarily to the downsizing of direct marketing activities and
associated telemarketing operations in Personal Lines and a $1 million benefit
related to the initial adoption of FAS 133, which has been accounted for as a
cumulative effect of a change in accounting principle.

Personal Lines operating income, which excludes realized investment gains and
losses in all years and the cumulative effect of a change in accounting
principle and the restructuring charges in 2001, was $241 million, $360 million
and $368 million in 2001, 2000 and 1999, respectively. The decrease in operating
income in 2001 reflects the impact of catastrophe losses of $42 million
associated with the terrorist attack on September 11th. The decrease in
operating income in 2001 also reflects the effects of increased loss cost
trends, including increased medical costs and auto repair costs, lower favorable
prior-year reserve development and lower net investment income partially offset
by rate increases. 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.

Revenues in 2001 were $4.454 billion compared to $4.232 billion in 2000. The
increase was primarily attributable to a $249 million growth in earned premiums
primarily due to rate increases and $6 million of realized investment gains in
2001, compared to no realized investment gains in 2000. This was partially
offset by a $36 million decrease in net investment income from 2000, which
largely reflects the increase in dividends and debt repayments to Citigroup and
lower fixed income interest rates.

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. Personal Lines had approximately 5.4
million, 5.4 million and 5.3 million policies in force at December 31, 2001,
2000 and 1999, respectively.


                                       28
<PAGE>
Net written premiums by product line for the three years ended December 31:

<TABLE>
<CAPTION>
(in millions)                                     2001         2000         1999
--------------------------------------------------------------------------------
<S>                                             <C>          <C>          <C>

Personal automobile                             $2,591       $2,366       $2,369
Homeowners and other                             1,517        1,447        1,436
--------------------------------------------------------------------------------

Total net written premiums                      $4,108       $3,813       $3,805
================================================================================
</TABLE>

Personal Lines net written premiums in 2001 were $4.108 billion compared to
$3.813 billion in 2000. The increase in 2001 reflects growth in target markets
served by independent agents and growth in affinity group marketing and joint
marketing arrangements, partially offset by continued emphasis on disciplined
underwriting and risk management. Rate increases implemented in both the
automobile and homeowners product lines were the primary contributors to the
growth in net written premiums. The business retention ratio in 2001 is
comparable to the 2000 ratio.

Personal Lines net written premiums in 2000 were $3.813 billion, compared to
$3.733 billion in 1999 (excluding an adjustment of $72 million associated with
the termination of a quota share reinsurance arrangement). 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.

Personal Lines claims and expenses were $4.115 billion in 2001 compared to
$3.715 billion in 2000 and $3.561 billion in 1999. The increase in claims and
expenses in 2001 reflects higher catastrophe losses associated with the
terrorist attack on September 11th. The increase also reflects the impact of
increased loss cost trends and lower favorable prior-year reserve development.
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.

Catastrophe losses, net of taxes and reinsurance, were $86 million, $54 million
and $79 million in 2001, 2000 and 1999, respectively. Catastrophe losses in 2001
were primarily due to Tropical Storm Allison and wind and hailstorms in the
Midwest and Texas in the second quarter and the terrorist attack on September
11th in the third quarter. 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
hailstorms 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.

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

<TABLE>
<CAPTION>
                                                 2001         2000         1999
--------------------------------------------------------------------------------
<S>                                             <C>           <C>          <C>
STATUTORY:
  Loss and LAE ratio                             77.0%        73.8%        70.0%
  Underwriting expense ratio                     25.3         25.9         26.7
  Combined ratio                                102.3         99.7         96.7
--------------------------------------------------------------------------------
GAAP:
  Loss and LAE ratio                             77.0%        73.6%        70.3%
  Underwriting expense ratio                     25.8         25.7         26.5
  Combined ratio                                102.8         99.3         96.8
================================================================================
</TABLE>


                                       29
<PAGE>
GAAP combined ratios for Personal Lines differ from statutory combined ratios
primarily due to the deferral and amortization of some expenses for GAAP
reporting purposes only.

The 2001 statutory and GAAP combined ratios include the impact of the terrorist
attack on September 11th. Excluding the impact of this event, the statutory and
GAAP combined ratios for 2001 would have been 100.7% and 101.2%, respectively.
The increase in the 2001 statutory and GAAP combined ratios, excluding the
impact of the terrorist attack on September 11th, compared to the 2000 statutory
and GAAP combined ratios reflects increased loss cost trends and lower favorable
prior-year reserve development, partially offset by the growth in premiums due
to rate increases.

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.

<TABLE>
<CAPTION>
INTEREST EXPENSE AND OTHER
(in millions)                                  2001          2000          1999
--------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>

Revenues                                       $ 16         $   1         $   3
Net loss                                       $(83)        $(100)        $(108)
================================================================================
</TABLE>

The primary component of net loss for the years ended December 31, 2001, 2000
and 1999 was after-tax interest expense of $79 million, $87 million and $99
million, respectively. The decrease in interest expense in 2001 is due to lower
interest rates on refinanced debt. The decrease in interest expense in 2000 from
1999 is due to lower outstanding debt in 2000 resulting from $400 million of
maturing debt which was repaid in 1999.

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, or 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 the recovery of
response costs from some liable parties and may require liable parties to
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 some 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 a monetary amount.




                                       30
<PAGE>
The Company's reserves for environmental claims are not established on a
claim-by-claim basis. The Company carries an aggregate bulk reserve for all of
the Company's environmental claims that are in dispute, 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 those claims. At December 31, 2001, approximately 75% of the net
environmental reserve (approximately $298 million), is carried in a bulk reserve
and includes unresolved and incurred but not reported environmental claims for
which the Company has not received any specific claims as well as for the
anticipated cost of coverage litigation disputes relating to these claims. The
balance, approximately 25% of the net environmental reserve (approximately $98
million) consists of case reserves for resolved claims.

The Company's reserving methodology is preferable to one based on "identified
claims" because 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 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 these agreements is to reduce its potential environmental exposure
and eliminate the risks presented by coverage litigation with the insured and
related costs.

In establishing environmental reserves, the Company evaluates the exposure
presented by each insured and the anticipated cost of resolution, if any, for
each insured on a quarterly basis. In the course of this analysis, the Company
considers the probable liability, available coverage, relevant judicial
interpretations and historical value of similar exposures. In addition, the
Company considers 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 each 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 the Company has issued to
the insured; the involvement 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. Accordingly,
there remains a high degree of uncertainty with respect to future exposure from
environmental claims.

The duration of the Company's investigation and review of these 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 pertaining to
these claims. Because these 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 these claims, the duration may vary from months to several years.


                                       31
<PAGE>
The Company also compares the Company's historical direct and net loss and
expense paid experience, 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.

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

<TABLE>
<CAPTION>
(in millions)                                      2001        2000        1999
--------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>
Beginning reserves:
    Direct                                        $ 669       $ 801       $ 928
    Ceded                                          (111)       (125)        (96)
--------------------------------------------------------------------------------

    Net                                             558         676         832
Incurred losses and loss expenses:
    Direct                                           58          75         139
    Ceded                                           (12)        (11)        (82)
Losses paid:
    Direct                                          248         207         266
    Ceded                                           (40)        (25)        (53)
--------------------------------------------------------------------------------

Ending reserves:
    Direct                                          479         669         801
    Ceded                                           (83)       (111)       (125)
--------------------------------------------------------------------------------

    Net                                           $ 396       $ 558       $ 676
================================================================================
</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, 2001, the number of policyholders with pending coverage
litigation disputes pertaining to environmental claims was 216, approximately
11% less than the number pending as of December 31, 2000, and approximately 20%
less than the number pending as of December 31, 1999. Also, in 2001, there were
134 policyholders tendering for the first time an environmental remediation-type
claim to the Company. This compares to 158 policyholders doing so in 2000 and
256 policyholders in 1999.

As of December 31, 2001, the Company has resolved the environmental liabilities
presented by 5,595 of the 6,214 policyholders who have tendered environmental
claims to the Company for approximately $1.88 billion (before reinsurance). This
resolution comprises 90% of the policyholders who have tendered these claims.
The Company generally has been successful in resolving its coverage litigation
disputes and continues to reduce its potential exposure through favorable
settlements with some insureds.


                                       32
<PAGE>
ASBESTOS CLAIMS AND LITIGATION

The Company believes that the property and casualty insurance industry has
suffered from judicial interpretations that have attempted to maximize insurance
availability for asbestos claims 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. Since the
beginning of 2000, the Company has experienced an increase over prior years in
the number of asbestos claims being tendered to the Company and the Company
expects this trend to continue. Factors lending to these increases include more
intensive advertising by lawyers seeking asbestos claimants, the increasing
focus by plaintiffs on new and previously peripheral defendants and an increase
in the number of entities seeking bankruptcy protection as a result of
asbestos-related liabilities. In addition to contributing to the increase in
claims, the bankruptcy proceedings may have the effect of significantly
accelerating and increasing loss payments by insurers, including the Company.
Particularly during the last few months of 2001 and continuing into 2002, these
trends have both accelerated and become more visible. Accordingly, there is a
high degree of uncertainty with respect to future exposure from asbestos claims.

Increasingly, policyholders have been asserting that their claims for
asbestos-related insurance are not subject to aggregate limits on coverage and
that each individual bodily injury claim should be treated as a separate
occurrence under the policy. The Company expects this trend to continue.
Although it is difficult to predict whether these policyholders will be
successful on both issues, to the extent both issues are resolved in their
favor, the Company's coverage obligations under the policies at issue would be
materially increased and bounded only by the applicable per occurrence limits
and the number of asbestos bodily injury claims against the policyholders.
Accordingly, it is difficult to predict the ultimate size of the claims for
coverage not subject to aggregate limits.

In addition, proceedings have recently been launched directly against insurers,
including the Company, challenging insurers' conduct in respect of asbestos
claims, including in some cases with respect to previous settlements. Some
plaintiffs have also joined the Company as defendants in asbestos personal
injury cases that are close to trial. The Company anticipates the filing of
other direct actions against insurers, including the Company, in the future.
Particularly in light of jurisdictional issues, it is difficult to predict the
outcome of these proceedings, including whether the plaintiffs will be able to
sustain these actions against insurers based on novel legal theories of
liability.


Because each insured presents different liability and coverage issues, the
Company evaluates those issues on an insured-by-insured basis. The Company's
evaluations have not resulted in any meaningful data from which an average
asbestos defense or indemnity payment may be determined.


                                       33
<PAGE>
In establishing the Company's asbestos reserves, the Company evaluates the
exposure presented by each insured. In the course of this evaluation, the
Company considers: available insurance coverage, including the role any umbrella
or excess insurance the Company has issued to the insured; limits and
deductibles; an analysis of each insured's potential liability; the
jurisdictions involved; 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 or
not an asbestos claim is a products/completed operation claim subject to an
aggregate limit and the available coverage, if any, for that claim. Once the
gross ultimate exposure for indemnity and allocated claim adjustment expense is
determined for each insured by each policy year, the Company calculates a ceded
reinsurance projection 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.

The Company also compares its historical direct and net loss and expense paid
experience, 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.

At December 31, 2001, approximately 81% (approximately $665 million) of the net
asbestos reserves represents incurred but not reported losses for which the
Company has not received any specific claims. The balance, approximately 19% of
the net asbestos reserve (approximately $155 million) is for pending asbestos
claims. 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 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.

In general, the Company posts case reserves for pending asbestos claims within
approximately 30 business days of receipt of these claims. The following table
displays activity for asbestos losses and loss expenses and reserves for the
years ended December 31:

<TABLE>
<CAPTION>
(in millions)                                    2001         2000         1999
--------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>

Beginning reserves:
    Direct                                    $ 1,005      $ 1,050      $ 1,252
    Ceded                                        (199)        (223)        (266)
--------------------------------------------------------------------------------

    Net                                           806          827          986
Incurred losses and loss expenses:
    Direct                                        283          187          128
    Ceded                                         (94)        (137)         (71)
Losses paid:
    Direct                                        242          232          330
    Ceded                                         (67)        (161)        (114)
--------------------------------------------------------------------------------

Ending reserves:
    Direct                                      1,046        1,005        1,050
    Ceded                                        (226)        (199)        (223)
--------------------------------------------------------------------------------

    Net                                       $   820      $   806      $   827
================================================================================
</TABLE>


                                       34
<PAGE>
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES

It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the factors described above. Conventional actuarial techniques are
not used to estimate these reserves.

As a result of the processes and procedures described above, the reserves
carried for environmental and asbestos claims at December 31, 2001 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,
the risks inherent in major litigation, any impact from the bankruptcy
protection sought by various asbestos producers and other asbestos defendants, a
further increase or decrease in asbestos and environmental claims which cannot
now be anticipated, the role of any umbrella or excess policies the Company has
issued, the resolution or adjudication of some disputes pertaining to the amount
of available coverage for asbestos claims in a manner inconsistent with the
Company's previous assessment of these claims, the number and outcome of direct
actions against the Company, and 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. This development will be affected by future court
decisions and interpretations, as well as changes in applicable legislation.

Because of the uncertainties set forth above, additional liabilities may arise
for amounts in excess of the current related reserves. These additional amounts,
or a range of these additional amounts, cannot now be reasonably estimated and
could result in liability exceeding the related reserves by an amount that could
be material to the Company's operating results and financial condition in future
periods. Because the level of uncertainty continues to increase and in order to
strengthen the ability and flexibility of the Company's parent, TPC, to advance
TPC's strategic goals following its initial public offering, Citigroup has
entered into an agreement under which it will provide TPC with significant
financial support for asbestos claims and related litigation, in any year that
the Company's insurance subsidiaries record asbestos-related income statement
charges in excess of $150 million, net of any reinsurance up to a cumulative
aggregate of $800 million, reduced by the tax effect of the highest applicable
federal income tax rate.

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. These potentially
harmful products or substances include, but are not limited to, lead paint,
pesticides, pharmaceutical products, silicone-based personal products, solvents,
latex gloves, silica, mold and other potentially harmful substances.

Due to claimants' allegations of long-term bodily injury in CIOTA claims,
numerous complex issues regarding these claims are presented. The claimants'
theories of liability must be evaluated, the 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 applicable jurisdiction must be analyzed. In addition, the
Company must review the number of policies it has issued to the insured and
whether these policies are triggered by the allegations, the terms and limits of
liability of these policies, the obligations of other insurers to respond to the
claim and the role, if any, of non-CIOTA claims or potential non-CIOTA claims in
any resolution process.


                                       35
<PAGE>
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 settlement with the policyholder or through coverage
litigation. Historically, the Company's experience has indicated that insureds
with potentially significant environmental and/or asbestos exposures may often
have other 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, the Company evaluates and considers
the environmental and asbestos reserves in conjunction with the CIOTA reserve.
Generally, the terms of a settlement agreement set forth the nature of the
Company's participation in resolving CIOTA claims and 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 these 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
the Company ultimately would have paid had the claims not been settled in this
manner.

At December 31, 2001, approximately 80% (approximately $569 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 20% of the net
CIOTA reserve (approximately $141 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>
(in millions)                                    2001         2000         1999
--------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>

Beginning reserves:
    Direct                                    $ 1,079      $ 1,184      $ 1,346
    Ceded                                        (280)        (313)        (392)
--------------------------------------------------------------------------------

    Net                                           799          871          954
Incurred losses and loss expenses:
    Direct                                       (115)          27          (36)
    Ceded                                          70          (11)          28
Losses paid:
    Direct                                         71          132          126
    Ceded                                         (27)         (44)         (51)
--------------------------------------------------------------------------------

Ending reserves:
    Direct                                        893        1,079        1,184
    Ceded                                        (183)        (280)        (313)
--------------------------------------------------------------------------------

    Net                                       $   710      $   799      $   871
================================================================================
</TABLE>

OUTLOOK

A variety of factors continue to affect the property and casualty insurance
market and the Company's core business outlook, including improvement in 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,
asbestos related developments and rising reinsurance and litigation costs.


                                       36
<PAGE>
PROPERTY 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 a
cost-effective provider of property and casualty insurance in the United States,
as the industry consolidates.

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. The Company believes
that these assessments will not have a material impact on its results of
operations.

Some 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 some 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.

COMMERCIAL LINES

In 2001, 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. Since the terrorist
attack on September 11th, there has been greater concern over the availability,
terms and conditions, and pricing of reinsurance. As a result, the primary
insurance market is expected to continue to see significant rate increases for
certain coverages.

In National Accounts, where programs include risk management services, such as
claims settlement, loss control and risk management information services,
generally offered in connection with a large deductible or self-insured program,
and risk transfer, typically provided through a guaranteed cost or
retrospectively rated insurance policy, pricing improved during 2001 and 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 into 2002.
However, National Accounts will continue to reject business that is not expected
to produce acceptable returns. Included in National Accounts is service fee
income for policy and claim administration of several states' Workers'
Compensation Residual Market pools. After several years of depopulation, these
pools are growing significantly as the primary market is firming. Premium that
the Company services for these pools grew 76% in 2001 compared to 2000 and is
expected to continue to grow significantly.

Commercial Accounts achieved double-digit price increases on renewal business
during 2001 and 2000, improving the overall profit margin in this business and
offsetting the impacts of rising loss cost inflation, medical inflation and
reinsurance costs. Commercial Accounts will continue to seek significant rate
increases in 2002, as pricing in some areas and business segments still has not
improved to the point of producing acceptable returns.


                                       37
<PAGE>
In Select Accounts, the trend toward increased pricing on renewal business that
started in late 1999 gained momentum in 2000 and continued to improve during
2001. Prices generally rose during this time frame while customer retention
remained consistent with prior periods. Price increases varied significantly by
region, industry and product. However, the ability of Select Accounts to achieve
future rate increases is subject to regulatory constraints in some
jurisdictions. Loss cost trends in Select Accounts also worsened in 2001,
especially in workers' compensation and property. The impact of these negative
loss cost trends has been partially offset by the Company's continued
disciplined approach to underwriting and risk selection. The Company will
continue to pursue business based on its ability to achieve acceptable returns.

Bond achieved significant growth in 2001 and 2000, with the acquisition of
Reliance Surety cementing a leadership position in the surety bond marketplace
by broadening product and service capabilities. In addition, Bond's expanding
array of products and recognized expertise in the executive liability
marketplace has enabled Bond to further enhance its product and customer
diversification and profit opportunities. Bond's focus remains on underwriting
and selling their products to customers that provide the greatest opportunity
for profit. Bond is also focused on the Company's efforts to cross-sell its
expanding array of specialty products to existing customers of Commercial Lines
and Personal Lines. In Bond, prices in both of its markets began to modestly
increase in late 2001. In 2001, Bond and the industry have experienced an
increase in claim frequency and severity in the most recent accident years. This
increase in claim frequency and severity has impacted the primary insurer and
reinsurance capacity in Bond's marketplace. This decrease in capacity is
expected to create opportunities for further price increases for all products in
2002, although the worsening loss cost trends and increased cost of reinsurance
will offset some of the positive impact.

In Gulf, rate increases began in most lines of business in 2001 although
specific increases varied significantly by region, industry and product.
Improvement was most evident in the umbrella and excess and surplus lines of
business, with lesser increases achieved in the professional liability lines of
business. In most areas of the business, capacity has dissipated due to
reinsurance constriction, which should lead to further rate increases throughout
2002. The favorable impact from rate improvement continues to be offset by
rising loss costs. Gulf will reduce its exposure in products and business
segments where acceptable returns have not been achieved. Gulf scaled back its
assumed reinsurance business in 2001 and at the same time began to restructure
its transportation and property business. The Company is currently engaged in
discussions with a potential minority investor in Gulf pursuant to which such
investor would acquire debt and up to 20% equity interest in Gulf. The
transaction, if agreed to, would be subject to customary conditions. The Company
has tentatively agreed that, if the Company proceeds, the Company would grant
the investor customary "demand" and "piggyback" registration rights with respect
to its investment in Gulf.

See the preceding discussions of Environmental Claims, Asbestos Claims and
Litigation and Uncertainty Regarding Adequacy of Environmental and Asbestos
Reserves.


Insurers generally, including the Company, are experiencing an increase in the
number of asbestos-related claims due to, among other things, more intensive
advertising by lawyers seeking asbestos claimants, the increasing focus by
plaintiffs on new and previously peripheral defendants and an increase in the
number of entities seeking bankruptcy protection as a result of asbestos-related
liabilities. In addition to contributing to the increase in claims, the
bankruptcy proceedings may have the effect of significantly accelerating and
increasing loss payments by insurers, including the Company. Increasingly,
policyholders have been asserting that their claims for asbestos-related
insurance are not subject to aggregate limits on coverage and that each
individual bodily injury claim should be treated as a separate occurrence under
the policy. Particularly during the last few months of 2001 and continuing into
2002, the asbestos-related trends described above have both accelerated and
become more visible. In addition, these claims and the related litigation could
result in liability exceeding these reserves by an amount that could be material
to the Company's operating results and financial condition in future periods.
Because the level of uncertainty continues to increase and in order to
strengthen the ability and flexibility of the Company's parent, TPC, to advance
TPC's strategic goals following its initial public offering, Citigroup has
entered into an agreement under which it will provide TPC with significant
financial support for asbestos claims and related litigation, in any year that
the Company's insurance subsidiaries record asbestos-related income statement
charges in excess of $150 million, net of any reinsurance up to a cumulative
aggregate of $800 million, reduced by the tax effect of the highest applicable
federal income tax rate.



                                       38
<PAGE>
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 additional marketing channels to broaden
distribution to a wider customer base. 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 some markets, implementing price increases in certain
hurricane-prone areas and non-renewing policies in some hurricane-prone areas
where acceptable returns are not being achieved, 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 to fully offset
increases in loss cost trends due to inflationary pressures in medical costs and
auto repair costs. These trends are expected to continue into 2002. 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 2002. Homeowners
loss cost trends continue to increase at modest levels, reflecting inflationary
pressures and the increased frequency of weather-related losses.

The personal lines insurance market shows indications of contraction as a result
of the terrorist attack on September 11th. Several personal lines carriers have
ceased writing new policies and begun non-renewal of existing policies. As
carriers fail to renew policies and exit markets, Personal Lines is well
positioned with its independent agents to take advantage of this opportunity to
properly underwrite and bind this new business.

TRANSACTIONS WITH RELATED PARTIES

TPC has agreed with Citigroup that, promptly following the completion of the
initial public offering of stock by TPC, TPC, will take all reasonable action to
negotiate in good faith the terms of a transition services agreement for the
provision of facilities sharing, systems, corporate, administrative and other
existing shared services to take effect after the distribution. This agreement
will reflect pricing terms for these services to be mutually agreed upon subject
to all applicable regulatory requirements. The term for the provision of each
service will be determined on a case by case basis up to a maximum term of one
year and subject to an extension for a second year for various services and upon
advance notice. TPC, the Company and its subsidiaries intend to develop their
internal capabilities in the future in order to reduce their reliance on
Citigroup for such services.

Citigroup has provided corporate staff services, including legal, internal audit
and other services, to the Company at cost under a service reimbursement
agreement and may, but will not be obligated to continue to do so following
completion of the tax-free distribution.

TPC intends to enter into an agreement under which a Citigroup affiliate will
provide investment advisory services to TPC at fees to be mutually agreed upon.


                                       39
<PAGE>
CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Contractual obligations at December 31, 2001 included the following:

<TABLE>
<CAPTION>
                                                                                LESS
PAYMENTS DUE BY PERIOD                                                          THAN         1-3            4-5         AFTER 5
(in millions)                                                     TOTAL        1 YEAR       YEARS          YEARS         YEARS
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>          <C>          <C>            <C>

Notes payable to affiliates                                      $  500         $ --         $500         $   --         $   --
Long-term debt                                                      380           --           --            150            230
TIGHI-obligated mandatorily redeemable securities
   of subsidiary trusts
   holding solely junior subordinated debt securities of TIGHI      900           --           --             --            900
Operating leases                                                    431          111          141             67            112
--------------------------------------------------------------------------------------------------------------------------------
                                                                 $2,211         $111         $641         $  217         $1,242
================================================================================================================================
</TABLE>

In the normal course of business the Company has unfunded commitments to
partnerships. These commitments were $792 million and $729 million at December
31, 2001 and 2000, respectively.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See Note 1 of notes to the Company's 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 increase," may fluctuate," 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 TPC's initial public offering; 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.


                                       40
<PAGE>
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, 2001.
The Company's market risk sensitive 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, 2001
and 2000 was $32.5 billion and $30.7 billion, respectively, of which 80% and 81%
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, 2000. 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, or trust securities, is interest
rate risk at the time of refinancing. All of the Company's non-affiliate fixed
rate debt is non-redeemable. On April 13, 2001, the Company entered into a $500
million line of credit agreement with Citicorp Banking Corporation, an
affiliate. On April 16, 2001, the Company borrowed $275 million on the line of
credit. Proceeds from this borrowing together with $225 million of commercial
paper proceeds were used to pay a $500 million 6.75% long-term note payable. On
November 8, 2001, the Company borrowed another $225 million under the line of
credit. The proceeds were used to pay off maturing commercial paper. The
maturity for all $500 million borrowed under this line was extended to November
7, 2003 and the interest rate was fixed at 3.60%. The Company currently has the
right to redeem the fixed rate trust securities, 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 continues to
monitor the interest rate environment and to evaluate refinancing opportunities
as maturity dates approach. For additional information regarding the Company's
long-term debt and trust securities see notes 8 and 10 to the consolidated
financial statements.


                                       41
<PAGE>
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 entered into for purposes other than trading: fixed maturities,
interest-bearing non-redeemable preferred stocks, mortgage loans, short-term
securities, cash, investment income accrued, notes payable to affiliates,
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 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, 2001 and 2000.

For long-term debt and fixed rate trust securities, the change in fair value is
determined by calculating hypothetical December 31, 2001 and 2000 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 $1.5 billion and $1.2 billion based on a 100
basis point increase in interest rates as of December 31, 2001 and 2000,
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 53% of total assets and approximately 4% of total
liabilities as of December 31, 2001 and approximately 54% of total assets and
approximately 4% of total liabilities as of December 31, 2000. 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, some 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, 2001 and 2000, 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 the Company uses, 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, 2001
and 2000 is not material.


                                       42
<PAGE>
              ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

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

<TABLE>
                                                                           Page
                                                                           ----
<S>                                                                       <C>
Independent Auditors' Report                                                44

Consolidated Statement of Income for the years ended
  December 31, 2001, 2000 and 1999                                          45

Consolidated Balance Sheet at December 31, 2001 and 2000                    46

Consolidated Statement of Changes in Shareholder's Equity
  for the years ended December 31, 2001, 2000 and 1999                      47

Consolidated Statement of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999                                          48

Notes to Consolidated Financial Statements                                  49
</TABLE>


                                       43
<PAGE>
                          Independent Auditors' Report

The Board of Directors and Shareholder
Travelers Insurance Group Holdings Inc.:

We have audited the consolidated balance sheets of Travelers Insurance Group
Holdings Inc. (formerly known as Travelers Property Casualty Corp.) and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income, changes in shareholder's equity and cash flows for each of
the years in the three-year period ended December 31, 2001. 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 Insurance
Group Holdings Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its methods of accounting for derivative instruments and hedging
activities and for securitized financial assets in 2001, and its methods of
accounting for insurance and reinsurance contracts that do not transfer
insurance risk and for insurance-related assessments in 1999.


                                        /s/ KPMG LLP



Hartford, Connecticut
January 17, 2002, except
as to Note 1, which is as of
March 26, 2002


                                       44
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME
                                  (In millions)

<TABLE>
<CAPTION>
For the Year Ended December 31,                                    2001        2000        1999
-----------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>        <C>

REVENUES
Premiums                                                       $  9,411     $ 8,462    $  8,009
Net investment income                                             2,022       2,160       2,092
Fee income                                                          347         312         275
Realized investment gains                                           325          47         112
Other revenues                                                      116          87          84
-----------------------------------------------------------------------------------------------

  Total revenues                                                 12,221      11,068      10,572
-----------------------------------------------------------------------------------------------

CLAIMS AND EXPENSES
Claims and claim adjustment expenses                              7,765       6,473       6,059
Amortization of deferred acquisition costs                        1,539       1,298       1,260
Interest expense                                                    122         134         152
General and administrative expenses                               1,326       1,136       1,186
-----------------------------------------------------------------------------------------------

  Total claims and expenses                                      10,752       9,041       8,657
-----------------------------------------------------------------------------------------------

Income before federal income taxes and cumulative
  effect of changes in accounting principles                      1,469       2,027       1,915
Federal income taxes                                                354         547         506
-----------------------------------------------------------------------------------------------

Income before cumulative effect of changes in accounting
  principles                                                      1,115       1,480       1,409
Cumulative effect of change in accounting for:
  Derivative instruments and hedging activities, net of tax           4          --          --
  Securitized financial assets, net of tax                           (1)         --          --
  Insurance-related assessments, net of tax                          --          --        (160)
  Insurance and reinsurance contracts that do not
    transfer insurance risk, net of tax                              --          --          27
-----------------------------------------------------------------------------------------------

Net income                                                     $  1,118     $ 1,480    $  1,276
===============================================================================================
</TABLE>

                See notes to consolidated financial statements.


                                       45
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                          (In millions, except shares)

<TABLE>
<CAPTION>
At December 31,                                                                            2001       2000
----------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>        <C>

ASSETS
Fixed maturities, available for sale at fair value (including $976 and $1,042 at
   December 31, 2001 and 2000, respectively, subject to securities lending
   agreements) (amortized cost, $25,461 and $24,332)                                  $  25,851  $  25,001
Equity securities, at fair value (cost, $1,079 and $1,062)                                1,083      1,019
Mortgage loans                                                                              274        286
Real estate held for sale                                                                    38         47
Short-term securities                                                                     2,645      2,527
Trading securities                                                                          628          -
Other investments                                                                         1,946      1,835
----------------------------------------------------------------------------------------------------------

      Total investments                                                                  32,465     30,715
----------------------------------------------------------------------------------------------------------

Cash                                                                                        237        196
Investment income accrued                                                                   360        355
Premium balances receivable                                                               3,657      3,262
Reinsurance recoverables                                                                 11,047      9,444
Deferred acquisition costs                                                                  768        614
Deferred federal income taxes                                                             1,175      1,063
Contractholder receivables                                                                2,198      2,104
Goodwill                                                                                  2,421      2,316
Other assets                                                                              2,681      3,099
----------------------------------------------------------------------------------------------------------

      Total assets                                                                    $  57,009  $  53,168
==========================================================================================================

LIABILITIES
Claims and claim adjustment expense reserves                                          $  30,737  $  28,442
Unearned premium reserves                                                                 5,667      4,792
Contractholder payables                                                                   2,198      2,104
Note payable to Citigroup                                                                   500          -
Long-term debt                                                                              380        850
Other liabilities                                                                         5,477      5,366
----------------------------------------------------------------------------------------------------------

      Total liabilities                                                                  44,959     41,554
----------------------------------------------------------------------------------------------------------

TIGHI-obligated mandatorily redeemable securities of subsidiary
   trusts holding solely junior subordinated debt securities of TIGHI                       900        900
----------------------------------------------------------------------------------------------------------

SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding                 -          -
Additional paid-in capital                                                                6,512      5,934
Retained earnings                                                                         4,397      4,379
Accumulated other changes in equity from nonowner sources                                   241        401
----------------------------------------------------------------------------------------------------------
      Total shareholder's equity                                                         11,150     10,714
----------------------------------------------------------------------------------------------------------

      Total liabilities and shareholder's equity                                      $  57,009  $  53,168
==========================================================================================================
</TABLE>

                See notes to consolidated financial statements.


                                       46
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
                          (In millions, except shares)

<TABLE>
<CAPTION>
                                                                                                       SHARES  (IN THOUSANDS)
                                                                                                    ---------------------------
For the Year Ended December 31,                                  2001       2000       1999           2001       2000      1999
-------------------------------------------------------------------------------------------         ---------------------------
COMMON STOCK AND ADDITIONAL PAID-IN
CAPITAL
<S>                                                           <C>        <C>         <C>            <C>       <C>       <C>
Balance, beginning of year                                    $ 5,934    $ 5,483     $5,483              1    400,414   400,414
Contribution of CitiCapital Insurance Company                     336         --         --
TPC tender offer-related transactions                              --        971         --             --         --        --
Authorized and unissued shares related to TPC tender offer         --         --         --             --   (385,197)       --
Treasury stock retired                                             --       (521)        --             --    (15,216)       --
Contribution of Northland goodwill and
 intangible assets (see note 2)                                   242         --         --
Net Capital Accumulation Plan (CAP) grants                         --          1         --             --         --        --
-------------------------------------------------------------------------------------------         ---------------------------
Balance, end of year                                            6,512      5,934      5,483              1          1   400,414
-------------------------------------------------------------------------------------------         ---------------------------
RETAINED EARNINGS
Balance, beginning of year                                      4,379      4,133      3,052
Net income                                                      1,118      1,480      1,276
Dividends                                                      (1,100)    (1,234)      (195)
-------------------------------------------------------------------------------------------
Balance, end of year                                            4,397      4,379      4,133
-------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES
 IN EQUITY FROM NONOWNER
 SOURCES, NET OF TAX
Balance, beginning of year                                        401       (202)       921
Contribution of CitiCapital Insurance Company                      21         --         --
Net unrealized gains (loss) on investment
   securities net of reclassification
   adjustment (see note 9)                                       (173)       609     (1,131)
Foreign currency translation adjustments                           (4)        (6)         8
Cumulative effect of change in accounting
   for derivative instruments and hedging activities               (4)        --         --
-------------------------------------------------------------------------------------------
Balance, end of year                                              241        401       (202)
-------------------------------------------------------------------------------------------
TREASURY STOCK (at cost)
Balance, beginning of year                                         --       (451)      (298)            --    (13,160)   (8,545)
Net CAP Plan grants                                                --          7         15             --        245       501
Treasury stock acquired                                            --        (77)      (169)            --     (2,301)   (5,137)
Treasury stock retired                                             --        521         --             --     15,216        --
Other                                                              --         --          1             --         --        21
-------------------------------------------------------------------------------------------         ---------------------------
Balance, end of year                                               --         --       (451)            --         --   (13,160)
-------------------------------------------------------------------------------------------         ---------------------------
UNEARNED COMPENSATION
Balance, beginning of year                                         --        (22)       (33)
Net issuance of restricted stock
  under CAP                                                        --        (16)       (11)
Restricted stock amortization                                      --          7         22
CAP grants converted to Citigroup CAP grants                       --         31         --
-------------------------------------------------------------------------------------------
Balance, end of year                                               --         --        (22)
-------------------------------------------------------------------------------------------         ---------------------------
Total shareholder's equity and shares outstanding             $11,150    $10,714     $8,941              1          1   387,254
===========================================================================================         ===========================
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
Net income                                                    $ 1,118    $ 1,480     $1,276
Other changes in equity from
 nonowner sources, net of tax                                    (181)       603     (1,123)
-------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources                 $   937    $ 2,083     $  153
===========================================================================================
</TABLE>

                See notes to consolidated financial statements.


                                       47
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (In millions)

<TABLE>
<CAPTION>
For the Year Ended December 31,                                              2001         2000         1999
-----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                              $  1,118     $  1,480     $  1,276
  Adjustments to reconcile net income to net cash
   provided by operating activities
    Realized investment gains                                                (325)         (47)        (112)
    Cumulative effect of changes in accounting principles, net of tax          (3)          --          133
    Depreciation and amortization                                              95           87           66
    Deferred federal income taxes                                              18          165          219
    Amortization of deferred policy acquisition costs                       1,539        1,298        1,260
    Premium balances receivable                                              (174)        (179)         163
    Reinsurance recoverables                                               (1,386)        (168)        (122)
    Deferred policy acquisition costs                                      (1,620)      (1,355)      (1,266)
    Insurance reserves                                                      1,887         (102)        (627)
    Other                                                                     (20)         (76)        (349)
-----------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                             1,129        1,103          641
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from maturities of investments
  Fixed maturities                                                          2,082        1,806        1,678
  Mortgage loans                                                               16          289          231
 Proceeds from sales of investments
  Fixed maturities                                                         14,467       12,508       10,022
  Equity securities                                                           455        2,355          873
  Real estate held for sale                                                    --           19          122
 Purchases of investments
  Fixed maturities                                                        (15,990)     (12,803)     (10,840)
  Equity securities                                                           (67)      (2,332)      (1,072)
  Mortgage loans                                                               (4)         (40)         (42)
  Real estate                                                                  (6)          --           --
 Short-term securities, net                                                    19       (1,051)         (82)
 Other investments, net                                                      (688)        (595)        (495)
 Securities transactions in course of settlement                               58          491         (279)
 Business acquisitions                                                       (330)        (298)          --
-----------------------------------------------------------------------------------------------------------
      Net cash provided by investing activities                                12          349          116
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
 Payment of long-term debt                                                   (500)          --         (400)
 Issuance of note payable to affiliate                                        500           --           --
 Purchase of treasury stock                                                    --          (77)        (169)
 Dividends to TPC                                                          (1,100)      (1,226)        (164)
 Dividends to minority shareholders                                            --           (8)         (31)
-----------------------------------------------------------------------------------------------------------
    Net cash used in financing activities                                  (1,100)      (1,311)        (764)
-----------------------------------------------------------------------------------------------------------
 Net increase (decrease) in cash                                               41          141           (7)
 Cash at beginning of period                                                  196           55           62
-----------------------------------------------------------------------------------------------------------
 Cash at end of period                                                   $    237     $    196     $     55
===========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Income taxes paid                                                       $    414     $    339     $    356
 Interest paid                                                           $    120     $    134     $    159
===========================================================================================================
</TABLE>

                See notes to consolidated financial statements.


                                       48
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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
      Insurance Group Holdings Inc. (formerly known as Travelers Property
      Casualty Corp.) (TIGHI) (a direct subsidiary of Travelers Property
      Casualty Corp. (formerly known as The Travelers Insurance Group Inc.)
      (TPC) and an indirect subsidiary of Citigroup Inc. (Citigroup)) and its
      subsidiaries (collectively, the Company).

      During April 2000, TPC completed a cash tender offer to purchase all of
      the outstanding shares of Class A Common Stock of TIGHI at a price of
      $41.95 per share. See note 10.

      On March 21, 2002, TPC issued 210 million shares of its common stock in an
      initial public offering, and on March 26, 2002, the underwriters exercised
      their option to purchase an additional 21 million shares of its common
      stock, together representing approximately 23% of TPC's common equity.
      Citigroup has announced that it intends to make a tax-free distribution of
      most of Citigroup's ownership interest in TPC, subject to, among other
      things, regulatory approval and receipt of a private letter ruling from
      the Internal Revenue Service that the distribution will be tax-free to
      Citigroup, its stockholders and TPC. Citigroup is under no obligation to
      make the distribution even if these approvals are obtained. Immediately
      after the distribution, Citigroup would own approximately 9.9% of TPC.

      TPC provides and purchases services to and from affiliates, including
      facilities management, banking and financial functions, benefit coverages,
      data processing services, and a short-term investment pool. Charges for
      these shared services are allocated at cost. If the tax-free distribution
      by Citigroup occurs, TPC has agreed with Citigroup to negotiate in good
      faith the terms of a transition services agreement for the provision of
      these services. TPC has agreed with Citigroup that an affiliate will
      provide investment advisory services to TPC for a period and at fees to be
      mutually agreed upon.

      The preparation of the consolidated financial statements in conformity
      with accounting principles generally accepted in the United States of
      America 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.

      Certain reclassifications have been made to prior years' financial
      statements to conform to the current year's presentation. Significant
      intercompany transactions and balances have been eliminated.


                                       49
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      ACCOUNTING CHANGES

      ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

      Effective January 1, 2001, the Company adopted the Financial Accounting
      Standards Board (FASB) Statement of Financial Accounting Standards No.
      133, "Accounting for Derivative Instruments and Hedging Activities" (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. See note 13.

      As a result of adopting FAS 133, the Company recorded a benefit of $4
      million after tax, reflected as a cumulative catch-up adjustment in the
      consolidated statement of income and a charge of $4 million after tax,
      reflected as a cumulative catch-up adjustment in the accumulated other
      changes in equity from nonowner sources section of shareholder's equity.
      In addition, the Company redesignated certain investments as trading from
      available for sale in accordance with the transition provisions of FAS 133
      resulting in a gross gain of $12 million, reflected in realized investment
      gains (losses).

      RECOGNITION OF INTEREST INCOME AND IMPAIRMENT ON PURCHASED AND RETAINED
      BENEFICIAL INTERESTS IN SECURITIZED FINANCIAL ASSETS

      Effective April 1, 2001, the Company adopted FASB Emerging Issues Task
      Force (EITF) 99-20, "Recognition of Interest Income and Impairment on
      Purchased and Retained Beneficial Interests in Securitized Financial
      Assets" (EITF 99-20). EITF 99-20 provides new guidance on the recognition
      and measurement of interest income and impairment on certain investments,
      e.g., certain asset-backed securities. The recognition of impairment
      resulting from the adoption of EITF 99-20 is to be recorded as a
      cumulative catch-up adjustment as of the beginning of the fiscal quarter
      in which it is adopted. Interest income on beneficial interests falling
      within the scope of EITF 99-20 is to be recognized prospectively. As a
      result of adopting EITF 99-20, the Company recorded a charge of $1 million
      after tax, reflected as a cumulative catch-up adjustment. The
      implementation of this EITF did not have a significant impact on results
      of operations, financial condition or liquidity.


                                       50
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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

      In September 2000, the FASB issued Statement of Financial Accounting
      Standards No. 140, "Accounting for Transfers and Servicing of Financial
      Assets and Extinguishments of Liabilities, a replacement of FASB Statement
      No. 125" (FAS 140). Provisions of FAS 140 primarily relating to transfers
      of financial assets and securitizations that differ from provisions of
      "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
      securizations 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. FAS 140 also
      amends the accounting for collateral and requires new disclosures for
      collateral, securitizations and retained interests in securizations. These
      provisions were 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 adoption of FAS 140 did not have
      a significant effect on results of operations, financial condition or
      liquidity. See note 4.

      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
      did not have a significant impact on results of operations, financial
      condition or liquidity.

      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 did not have a
      significant impact on results of operations, financial condition or
      liquidity.


                                       51
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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
      shareholder'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 shareholder's equity, net
      of income taxes.

      Mortgage loans are carried at amortized cost. A mortgage loan is
      considered impaired when it is probable that the Company will be unable to
      collect principal and interest amounts due. For mortgage loans that are
      determined to be impaired, a reserve is established for the difference
      between the amortized cost and fair market value of the underlying
      collateral. In estimating fair value, the Company uses interest rates
      reflecting the returns required in the current real estate financing
      market. Impaired loans were not significant at December 31, 2001 and 2000.

      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
      impairment is taken if the carrying value of the property exceeds its
      current fair value less estimated costs to sell.

      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.

      Trading securities and related liabilities are normally held for periods
      of less than six months. These investments are marked to market with the
      change recognized in net investment income during the current period.

      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 fair value.

      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.

      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 fair value of investments are
      included in realized investment gains and losses.


                                       52
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      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. Deferred acquisition costs are reviewed to determine if they
      are recoverable from future income, and if not, are charged to expense.
      Future investment income attributable to related premiums is taken into
      account in measuring the recoverability of the carrying value of this
      asset. 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

      Prior to the adoption of FASB Statements of Financial Accounting Standards
      No. 141, "Business Combinations" (FAS 141) and No. 142, "Goodwill and
      Other Intangible Assets" (FAS 142), which will be applied to goodwill and
      intangible asset amortization in the first quarter of 2002, goodwill is
      generally being amortized on a straight-line basis over a 40-year period.
      TPC's purchase of the outstanding shares of Class A Common Stock of TIGHI
      (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 Northland Company and its
      subsidiaries (see note 2) included goodwill and intangible assets of
      approximately $243 million, which are being amortized on a straight-line
      basis over a 20-year period for goodwill and periods of 15 to 20 years for
      the intangible assets. 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. Amortization expense
      included in the consolidated statement of income was $102 million, $80
      million and $40 million for the years ended December 31, 2001, 2000 and
      1999, respectively.

      The carrying amount of these assets is regularly reviewed for indicators
      of 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.

      Upon adoption of FAS 141 and FAS 142, the Company will stop amortizing
      goodwill and intangible assets deemed to have an indefinite useful life.
      Instead, these assets will be subject to an annual review for impairment.
      Other intangible assets that are not deemed to have an indefinite useful
      life will continue to be amortized over their useful lives. See note 1,
      Summary of Significant Accounting Policies, Accounting Standards not yet
      adopted.


                                       53
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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 both December 31, 2001 and 2000 are $1.4
      billion 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. The reserves are also reviewed
      periodically by a qualified actuary employed by the Company. 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, 2001 and 2000, the Company had a liability of $200 million
      and $223 million, respectively, for guaranty-fund and other assessments
      and related recoveries of $23 million and $28 million, respectively. The
      liability for such assessments and their related recoveries are not
      discounted for the time value of money. 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.

      Also included in other liabilities is an accrual for policyholder
      dividends. Certain insurance contracts, primarily workers' compensation,
      are participating whereby dividends are paid to policyholders in
      accordance with contract provisions. Net written premiums for
      participating dividend policies were approximately 3%, 4% and 6% of total
      Company net written premiums for the years ended December 31, 2001, 2000
      and 1999, respectively. Policyholder dividends are accrued against
      earnings using best available estimates of amounts to be paid.
      Policyholder dividends were $28 million, $32 million and $47 million for
      the years ended December 31, 2001, 2000 and 1999, respectively.

      STATUTORY ACCOUNTING PRACTICES

      The Company's insurance subsidiaries, domiciled principally in the State
      of 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 are those practices that are incorporated directly or by
      reference in state laws, regulations, and general administrative rules
      applicable to all insurance enterprises domiciled in a particular state.
      Permitted statutory accounting practices include practices not prescribed
      by the domiciliary state, but allowed by the domiciliary state regulatory
      authority. The impact of any permitted accounting practices on statutory
      surplus of the Company is not material.

      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.


                                       54
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      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 comprises 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 15. 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, equity 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. In 2000 these
      derivative financial instruments were treated as off-balance-sheet risk.
      Beginning January 1, 2001, the Company adopted FAS 133 which establishes
      accounting and reporting standards for derivative instruments, including
      certain derivative instruments embedded in other contracts, 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. 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, equity swaps, options, forward contracts and
      financial futures were not significant at December 31, 2001 and 2000. See
      note 13.


                                       55
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      ACCOUNTING STANDARDS NOT YET ADOPTED

      ACCOUNTING BY CERTAIN ENTITIES (INCLUDING ENTITIES WITH TRADE RECEIVABLES)
      THAT LEND TO OR FINANCE THE ACTIVITIES OF OTHERS

      In December 2001, AcSEC issued Statement of Position 01-06, "Accounting by
      Certain Entities (Including Entities With Trade Receivables) That Lend to
      or Finance the Activities of Others" (SOP 01-06). This SOP applies to any
      entity that lends to or finances the activities of others. SOP 01-06
      clarifies that accounting and financial reporting practices for lending
      and financing activities should be the same regardless of the type of
      entity engaging in those activities. SOP 01-06 provides certain
      presentation and disclosure changes for entities with trade receivables as
      part of the objective of requiring consistent accounting and reporting for
      like transactions. This SOP also provides specific guidance for other
      types of transactions specific to certain financial institutions. To the
      extent an entity is not considered such a financial institution, the other
      guidance provided is not applicable. This SOP is effective for annual and
      interim financial statements issued for fiscal years beginning after
      December 15, 2001. The adoption of this SOP is not expected to have a
      significant impact on the Company's results of operations, financial
      condition or liquidity.

      BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

      In July 2001, the FASB issued Statements of Financial Accounting Standards
      No. 141, "Business Combinations" (FAS 141) and No. 142, "Goodwill and
      Other Intangible Assets" (FAS 142). These standards change the accounting
      for business combinations by, among other things, prohibiting the
      prospective use of pooling-of-interests accounting and requiring companies
      to stop amortizing goodwill and certain intangible assets with an
      indefinite useful life created by business combinations accounted for
      using the purchase method of accounting. Instead, goodwill and intangible
      assets deemed to have an indefinite useful life will be subject to an
      annual review for impairment. Other intangible assets that are not deemed
      to have an indefinite useful life will continue to be amortized over their
      useful lives. The Company will apply the new rules on accounting for
      goodwill and other intangible assets in the first quarter of 2002 and for
      purchase business combinations consummated after June 30, 2001.

      Upon adoption, the Company will stop amortizing goodwill. Based on the
      current levels of goodwill, this would reduce general and administrative
      expenses and increase net income by approximately $67 million in 2002. In
      addition, the Company has performed the transitional impairment tests
      using the fair value approach required by the new standard. Based upon
      these tests, the Company expects to impair approximately $243 million of
      goodwill and indefinite-lived intangible assets, all attributable to The
      Northland Company and subsidiaries, as a cumulative catch-up adjustment as
      of January 1, 2002.

      ASSET RETIREMENT OBLIGATIONS

      In June 2001, the FASB issued Statement of Financial Accounting Standards
      No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143
      changes the measurement of an asset retirement obligation from a
      cost-accumulation approach to a fair value approach, where the fair value
      (discounted value) of an asset retirement obligation is recognized as a
      liability in the period in which it is incurred and accretion expense is
      recognized using the credit-adjusted risk-free interest rate in effect
      when the liability was initially recognized. The associated asset
      retirement costs are capitalized as part of the carrying amount of the
      long-lived asset and subsequently amortized into expense. The pre-FAS 143
      prescribed practice of reporting a retirement obligation as a contra-asset
      will no longer be allowed. The Company is in the process of assessing the
      impact of this new standard that will take effect on January 1, 2003.


                                       56
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

      In August 2001, the FASB issued Statement of Financial Accounting
      Standards No. 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets" (FAS 144). FAS 144 establishes a single accounting
      model for long-lived assets to be disposed of by sale. A long-lived asset
      classified as held for sale is to be measured at the lower of its carrying
      amount or fair value less cost to sell. Depreciation (amortization) is to
      cease. Impairment is recognized only if the carrying amount of a
      long-lived asset is not recoverable from its undiscounted cash flows and
      is measured as the difference between the carrying amount and fair value
      of the asset. Long-lived assets to be abandoned, exchanged for a similar
      productive asset, or distributed to owners in a spin-off are considered
      held and used until disposed of. Accordingly, discontinued operations are
      no longer to be measured on a net realizable value basis, and future
      operating losses are no longer recognized before they occur.

      The Company will adopt FAS 144 effective January 1, 2002. The provisions
      of the new standard are generally to be applied prospectively and are not
      expected to significantly affect the Company's results of operations,
      financial condition or liquidity.

      NATURE OF OPERATIONS

      The Company comprises 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 organized into five marketing and underwriting groups,
      each of which focuses on a particular client base or product grouping to
      provide products and services that specifically address customers' needs:
      National Accounts, Commercial Accounts, Select Accounts, Bond and Gulf.

      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 residual market
      business, which primarily offers workers' compensation products and
      services to the involuntary market.


                                       57
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

      Commercial Accounts serves primarily 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 a specialty unit which primarily writes coverages for the
      trucking industry and has dedicated operations that exclusively target the
      construction industry, providing insurance and risk management services
      for virtually all areas of construction. These dedicated 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.

      Bond markets its products to national, mid-sized and small customers as
      well as individuals, and distributes them through both national and
      wholesale brokers, and retail agents and regional brokers. Bond's range of
      products includes fidelity and surety bonds, excess SIPC, directors' and
      officers' liability insurance, errors and omissions insurance,
      professional liability insurance, employment practices liability
      insurance, fiduciary liability insurance, and other related coverages.

      Gulf markets products to national, mid-sized and small customers, and
      distributes them through both wholesale brokers and retail agents. Gulf
      provides a diverse product and program portfolio of specialty insurance
      lines, with particular emphasis on management and professional liability.
      Products include various types of directors' and officers' insurance,
      fiduciary, employment practices liability, errors and omissions coverages,
      and fidelity and commercial crime coverages.

      Net written premiums by market were as follows:

<TABLE>
<CAPTION>
      (for the year ended December 31, in millions)     2001      2000      1999
      --------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>

      National Accounts                               $  419    $  352    $  488
      Commercial Accounts                              2,396     2,099     1,816
      Select Accounts                                  1,713     1,575     1,494
      Bond                                               590       487       207
      Gulf                                               608       517       403
      --------------------------------------------------------------------------

          Total net written premiums                  $5,726    $5,030    $4,408
      ==========================================================================
</TABLE>


                                       58
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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, and joint marketing
      arrangements with other insurers.

      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.

      Net written premiums by product line were as follows:

<TABLE>
<CAPTION>
      (for the year ended December 31, in millions)      2001      2000      1999
      ---------------------------------------------------------------------------
<S>                                                    <C>       <C>       <C>
      Personal automobile                              $2,591    $2,366    $2,369
      Homeowners and other                              1,517     1,447     1,436
      ---------------------------------------------------------------------------

          Total net written premiums                   $4,108    $3,813    $3,805
      ===========================================================================
</TABLE>

      CATASTROPHE EXPOSURE

      The Company has a geographic exposure to catastrophe losses in certain
      areas of the country. Catastrophes can be caused by various natural and
      man-made 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 areas, especially
      those that are heavily populated. The Company generally seeks to reduce
      its exposure to catastrophes through individual risk selection and the
      purchase of catastrophe reinsurance.


                                       59
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.    ACQUISITIONS

      On October 1, 2001, the Company paid $329 million to Associates First
      Capital Corp., an affiliate, for The Northland Company and its
      subsidiaries and Associates Lloyds Insurance Company. These entities had a
      combined net book value of $572 million. The excess of this net book value
      over the purchase price was reflected as a contribution to the Company. In
      addition, on October 3, 2001, the capital stock of CitiCapital Insurance
      Company (formerly known as Associates Insurance Company), with a net book
      value of $356 million, was contributed to the Company. These acquisitions
      were accounted for as transfers of net assets between entities under
      common control. The prior period financial statements were not restated
      due to immateriality.

      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 these transactions, which was dependent on
      the level of business renewed by the Company, was approximately $27
      million.

      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. 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.

3.    SEGMENT INFORMATION

      The Company comprises two reportable business segments: Commercial Lines
      and Personal Lines.

      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.


                                       60
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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>
2001
Revenues
  Premiums                                                      $ 5,431      $ 3,964       $ 9,395
  Net investment income                                           1,615          410         2,025
  Fee income                                                        347           --           347
  Realized investment gains                                         319            6           325
  Other                                                              39           74           113
--------------------------------------------------------------------------------------------------
    Total revenues                                              $ 7,751      $ 4,454       $12,205
==================================================================================================

Amortization and depreciation                                   $   954      $   695       $ 1,649
Federal income taxes                                                301           97           398
Operating income                                                    749          241           990
Assets                                                           48,477        8,369        56,846
--------------------------------------------------------------------------------------------------
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                                                           45,166        7,961        53,127
--------------------------------------------------------------------------------------------------
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                                                           42,799        7,576        50,375
==================================================================================================
</TABLE>

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


                                       61
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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)           2001           2000           1999
      -------------------------------------------------------------------------------------------------
      <S>                                                        <C>            <C>            <C>

      REVENUE RECONCILIATION
      Total revenues for reportable segments                     $ 12,205       $ 11,067       $ 10,569
      Other revenues (1)                                               16              1              3
      -------------------------------------------------------------------------------------------------

        Total consolidated revenues                              $ 12,221       $ 11,068       $ 10,572
      =================================================================================================

      INCOME RECONCILIATION, NET OF TAX
      Total operating income for reportable segments             $    990       $  1,549       $  1,445
      Other operating loss (2)                                        (83)          (100)          (108)
      Realized investment gains                                       211             31             72
      Cumulative effect of changes in accounting principles             3             --           (133)
      Restructuring charge                                             (3)            --             --
      -------------------------------------------------------------------------------------------------
        Total consolidated net income                            $  1,118       $  1,480       $  1,276
      =================================================================================================

      ASSET RECONCILIATION
      Total assets for reportable segments                       $ 56,846       $ 53,127       $ 50,375
      Other assets (3)                                                163             41            192
      -------------------------------------------------------------------------------------------------

        Total consolidated assets                                $ 57,009       $ 53,168       $ 50,567
      =================================================================================================
      </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 $79 million, $87 million and $99 million in 2001, 2000 and
      1999, respectively.

(3)   Other assets consists primarily of reinsurance recoverables of businesses
      that are in run-off.

      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.


                                       62
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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, 2001, in millions)                        COST       GAINS          LOSSES            VALUE
      -----------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>            <C>             <C>
      Mortgage-backed securities - CMOs and
        pass-through securities                              $ 5,559          $107          $ 57          $ 5,609
      U.S. Treasury securities and obligations of
        U.S. Government and government agencies
        and authorities                                        1,361            37            15            1,383
      Obligations of states, municipalities and
        political subdivisions                                10,843           241            74           11,010
      Debt securities issued by foreign governments              593            30             5              618
      All other corporate bonds                                6,918           255           125            7,048
      Redeemable preferred stock                                 187             7            11              183
      -----------------------------------------------------------------------------------------------------------

          Total                                              $25,461          $677          $287          $25,851
      ===========================================================================================================
</TABLE>

<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
      ===========================================================================================================
</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.


                                       63
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.    INVESTMENTS, CONTINUED

<TABLE>
<CAPTION>
                                                AMORTIZED              FAIR
      (at December 31, 2001, in millions)            COST             VALUE
      ---------------------------------------------------------------------
<S>                                             <C>                <C>
      Due in one year or less                     $   788          $   801
      Due after 1 year through 5 years              3,626            3,739
      Due after 5 years through 10 years            5,339            5,402
      Due after 10 years                           10,149           10,300
      ---------------------------------------------------------------------
                                                   19,902           20,242
      Mortgage-backed securities                    5,559            5,609
      ---------------------------------------------------------------------

          Total                                   $25,461          $25,851
      =====================================================================
</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 and last cash flow 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, 2001 and 2000, the Company held CMOs classified as
      available for sale with a fair value of $3.3 billion and $2.8 billion,
      respectively. Approximately 54% and 59% of the Company's CMO holdings are
      fully collateralized by GNMA, FNMA or FHLMC securities at December 31,
      2001 and 2000, respectively. In addition, the Company held $2.3 billion
      and $1.5 billion of GNMA, FNMA, FHLMC or FHA mortgage-backed pass-through
      securities classified as available for sale at December 31, 2001 and 2000,
      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 15. 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, 2001 and
      2000, the Company held collateral of $1.0 billion and $1.1 billion,
      respectively.

      Proceeds from sales of fixed maturities classified as available for sale
      were $14.5 billion, $12.5 billion and $10.0 billion in 2001, 2000 and
      1999, respectively. Gross gains of $599 million, $267 million and $193
      million and gross losses of $268 million, $284 million and $182 million,
      respectively, were realized on those sales.


                                       64
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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, 2001, in millions)            COST        GAINS       LOSSES           VALUE
      ---------------------------------------------------------------------------------------------
<S>                                                <C>           <C>         <C>             <C>
      Common stocks                                $   92          $ 5          $15          $   82
      Nonredeemable preferred stocks                  987           29           15           1,001
      ---------------------------------------------------------------------------------------------

         Total                                     $1,079          $34          $30          $1,083
      =============================================================================================

      (at December 31, 2000, in millions)
      ---------------------------------------------------------------------------------------------
      Common stocks                                $  173          $ 5          $26          $  152
      Nonredeemable preferred stocks                  889           17           39             867
      ---------------------------------------------------------------------------------------------
         Total                                     $1,062          $22          $65          $1,019
      =============================================================================================
</TABLE>

      Proceeds from sales of equity securities were $455 million, $2.4 billion
      and $873 million in 2001, 2000 and 1999, respectively, resulting in gross
      realized gains of $61 million, $154 million and $70 million and gross
      realized losses of $69 million, $94 million and $45 million, respectively.

      MORTGAGE LOANS

      Aggregate annual maturities on mortgage loans are $16 million, $36
      million, $28 million, $9 million, $15 million and $170 million for 2002,
      2003, 2004, 2005, 2006 and 2007 and thereafter, respectively. There are no
      mortgage loans which are past due.

      Underperforming mortgage loans, which include delinquent loans, loans in
      the process of foreclosure and loans modified at interest rates below
      market, were not significant at December 31, 2001 and 2000.

      CONCENTRATIONS

      At December 31, 2001 and 2000, the Company had concentrations of credit
      risk in tax-exempt investments of the State of Texas of $1.2 billion and
      $1.3 billion, respectively, and of the State of New York of $1.0 billion
      and $1.3 billion, respectively.

      The Company participates in a short-term investment pool maintained by an
      affiliate. See note 15.

      Included in fixed maturities are below investment grade assets totaling
      $1.7 billion and $1.6 billion at December 31, 2001 and 2000, 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.

      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.


                                       65
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.    INVESTMENTS, CONTINUED

      NET INVESTMENT INCOME

<TABLE>
<CAPTION>
      (for the year ended December 31, in millions)             2001          2000          1999
      ------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>           <C>

      Gross investment income:
        Fixed maturities                                     $ 1,700       $ 1,708       $ 1,699
        Mortgage loans                                            28            58            68
        Other, including trading                                 340           434           384
      ------------------------------------------------------------------------------------------
                                                               2,068         2,200         2,151
      Investment expenses                                         46            40            59
      ------------------------------------------------------------------------------------------

      Net investment income                                  $ 2,022       $ 2,160       $ 2,092
      ==========================================================================================
</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)             2001          2000          1999
      ------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>           <C>

      REALIZED
      Fixed maturities                                       $   331       $   (17)      $    11
      Equity securities                                           (8)           60            25
      Mortgage loans                                              --            10            29
      Real estate held for sale                                   --            13            50
      Other                                                        2           (19)           (3)
      ------------------------------------------------------------------------------------------

      Realized investment gains                              $   325       $    47       $   112
      ==========================================================================================
</TABLE>

      Included in net realized investment gains were impairment charges related
      to other than temporary declines in value of $146 million, $31 million and
      $43 million for the years ended December 31, 2001, 2000 and 1999,
      respectively.

      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)             2001          2000          1999
      ------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>           <C>

      UNREALIZED
      Fixed maturities                                       $  (279)      $ 1,075       $(1,803)
      Equity securities                                           47          (138)           63
      ------------------------------------------------------------------------------------------
                                                                (232)          937        (1,740)
      Related taxes                                              (80)          328          (609)
      ------------------------------------------------------------------------------------------
      Change in unrealized gains (losses) on investment
        securities                                              (152)          609        (1,131)
      Balance, beginning of year                                 407          (202)          929
      ------------------------------------------------------------------------------------------

      Balance, end of year                                   $   255       $   407       $  (202)
      ==========================================================================================
</TABLE>


                                       66
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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.

      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)          2001           2000           1999
      ------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>            <C>

      WRITTEN PREMIUMS
      Direct                                             $ 10,991        $ 9,763        $ 9,056
      Assumed from:
        Affiliated companies                                  144            197            208
        Non-affiliated companies                              534            688            519
      Ceded to:
        Affiliated companies                                 (120)          (105)           (42)
        Non-affiliated companies                           (1,703)        (1,700)        (1,528)
      ------------------------------------------------------------------------------------------

      Total net written premiums                         $  9,846        $ 8,843        $ 8,213
      ==========================================================================================

      EARNED PREMIUMS
      Direct                                             $ 10,458        $ 9,357        $ 8,869
      Assumed from:
        Affiliated companies                                  181            218            194
        Non-affiliated companies                              598            647            538
      Ceded to:
        Affiliated companies                                 (113)          (100)           (43)
        Non-affiliated companies                           (1,713)        (1,660)        (1,549)
      ------------------------------------------------------------------------------------------

      Total net earned premiums                          $  9,411        $ 8,462        $ 8,009
      ------------------------------------------------------------------------------------------

      Percentage of amount assumed to net earned              8.3%          10.2%           9.1%
      ------------------------------------------------------------------------------------------

      Ceded claims incurred                              $  1,845        $ 1,248        $ 1,500
      ==========================================================================================
</TABLE>


                                       67
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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)                                2001        2000
      -----------------------------------------------------------------------------
<S>                                                             <C>          <C>

      REINSURANCE RECOVERABLES
      Property casualty business:
         Pools and associations                                 $ 2,082      $2,407
         Non-affiliated companies                                 8,019       6,096
         Affiliated companies                                       826         811

      Accident and health business:
         Affiliated companies                                       120         130
      -----------------------------------------------------------------------------

      Total reinsurance recoverables                            $11,047      $9,444
      =============================================================================
</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, 2001 and 2000 include $248 million and $295 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. 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, in the opinion of the Company's
      management, 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. This allowance was $286
      million and $213 million at December 31, 2001 and 2000, respectively.
      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)                         2001         2000
      -----------------------------------------------------------------------
<S>                                                      <C>          <C>

      Claims and claim adjustment expense reserves:
         Property casualty                               $30,617      $28,312
         Accident and health                                 120          130
      -----------------------------------------------------------------------

      Total                                              $30,737      $28,442
      =======================================================================
</TABLE>


                                       68
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. 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)                                2001           2000           1999
      ---------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>            <C>
      Claims and claim adjustment expense
        reserves at beginning of year                                          $ 28,312       $ 28,854       $ 29,411
      Less reinsurance recoverables on unpaid losses                              8,877          8,871          8,648
      ---------------------------------------------------------------------------------------------------------------

      Net balance at beginning of year                                           19,435         19,983         20,763
      ---------------------------------------------------------------------------------------------------------------

      Provision for claims and claim adjustment expenses
        for claims arising in the current year                                    7,599          6,509          6,194
      Estimated claims and claim adjustment expenses for
        claims arising in prior years                                               (41)          (247)          (242)
      Acquisitions                                                                  623             --             --
      ---------------------------------------------------------------------------------------------------------------

          Total increases                                                         8,181          6,262          5,952
      ---------------------------------------------------------------------------------------------------------------

      Claims and claim adjustment expense payments for claims arising in:
        Current year                                                              3,045          2,728          2,573
        Prior years                                                               4,374          4,082          4,159
      ---------------------------------------------------------------------------------------------------------------

          Total payments                                                          7,419          6,810          6,732
      ---------------------------------------------------------------------------------------------------------------

      Net balance at end of year                                                 20,197         19,435         19,983
      Plus reinsurance recoverables on unpaid losses                             10,420          8,877          8,871
      ---------------------------------------------------------------------------------------------------------------

      Claims and claim adjustment expense
        reserves at end of year                                                $ 30,617       $ 28,312       $ 28,854
      ===============================================================================================================
</TABLE>

      The increase in the claims and claim adjustment expense reserves in 2001
      from 2000 was primarily due to the additional reserves recorded as part of
      the acquisition and contribution of certain affiliates (see note 2), and
      the impact of the terrorist attack on September 11th, 2001. Partially
      offsetting the above were net payments of $427 million in 2001 for
      environmental and cumulative injury claims.

      The decrease in the claims and claim adjustment expense reserves in 2000
      from 1999 was primarily attributable to net payments of $341 million for
      environmental and cumulative injury claims.


                                       69
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.    INSURANCE CLAIMS RESERVES, CONTINUED

      In 2001, estimated claims and claim adjustment expenses for claims arising
      in prior years included net favorable loss development on Commercial Lines
      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 addition, estimated claims and claim adjustment
      expenses for claims arising in prior years also included approximately
      $109 million of net unfavorable development, primarily related to certain
      Commercial Lines coverages, predominately in general liability, commercial
      auto liability, assumed reinsurance and specialty businesses partially
      offset by favorable development in commercial multi-peril and other claim
      adjustment expenses.

      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.

      The claims and claim adjustment expense reserves included $1.2 billion and
      $1.4 billion for asbestos and environmental-related claims net of
      reinsurance at December 31, 2001 and 2000, 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.

      In establishing environmental reserves, the Company evaluates the exposure
      presented by each insured and the anticipated cost of resolution, if any,
      for each insured on a quarterly basis. In the course of this analysis, the
      Company considers the probable liability, available coverage, relevant
      judicial interpretations and historical value of similar exposures. In
      addition, the Company considers 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 each 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 the Company has issued to the insured;
      the involvement 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.


                                       70
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.    INSURANCE CLAIMS RESERVES, CONTINUED

      In establishing the Company's asbestos reserves, the Company evaluates the
      exposure presented by each insured. In the course of this evaluation, the
      Company considers available insurance coverage, including the role any
      umbrella or excess insurance the Company has issued to the insured; limits
      and deductibles; an analysis of each insured's potential liability; the
      jurisdictions involved; 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 or not an asbestos claim is a
      product/completed operation claim subject to an aggregate limit and the
      available coverage, if any, for that claim. Once the gross ultimate
      exposure for indemnity and allocated claim adjustment expense is
      determined for each insured by each policy year, the Company calculates a
      ceded reinsurance projection 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/or asbestos exposures often have
      other cumulative injury other than asbestos (CIOTA) exposures or CIOTA
      claims pending with it. Due to this experience and the fact that
      settlement agreements with insureds may extinguish the Company's
      obligations for all claims, 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, 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.

      The reserves carried for environmental and asbestos claims at December 31,
      2001 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, the risks inherent in major litigation,
      including more aggressive asbestos litigation against insurers, including
      the Company, any impact from the bankruptcy protection sought by various
      asbestos producers and other asbestos defendants, a further increase or
      decrease in asbestos and environmental claims which cannot now be
      anticipated, the role of any umbrella or excess policies issued by the
      Company for such claims, whether or not an asbestos claim is a
      product/completed operation claim subject to an aggregate limit and the
      available coverage, if any, for that claim, the number and outcome of
      direct actions against the Company and 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 applicable legislation. In addition, particularly during the
      last few months of 2001 and continuing into 2002, asbestos-related trends
      have both accelerated and become more visible. These trends include, but
      are not limited to, the filing of additional claims, more aggressive
      litigation based on novel theories of liability and litigation against new
      and previously peripheral defendants, and developments in existing and
      pending bankruptcy proceedings.


                                       71
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.    INSURANCE CLAIMS RESERVES, CONTINUED

      Because of the uncertainties set forth above, additional liabilities may
      arise for amounts in excess of the current related reserves. These
      additional amounts, or a range of these additional amounts, cannot now be
      reasonably estimated and could result in liability exceeding these
      reserves by an amount that could be material to the Company's operating
      results and financial condition in future periods.

7.    TERRORIST ATTACK ON SEPTEMBER 11TH

      During 2001, the Company recorded a charge of $490 million representing
      the estimated loss for both reported and unreported claims incurred and
      related claim adjustment expenses, net of reinsurance recoverables and
      taxes, related to the terrorist attack on September 11th. The associated
      reserves and related reinsurance recoverables represent the estimated
      ultimate net costs of all incurred claims and claim adjustment expenses
      related to the attack. Since the reserves and related reinsurance
      recoverables are based on estimates, the ultimate net liability may be
      more or less than such amounts.

8.    DEBT

      On April 13, 2001, TIGHI entered into a $500 million line of credit
      agreement with Citicorp Banking Corporation, an affiliate. On April 16,
      2001, TIGHI borrowed $275 million on the line of credit. Proceeds from
      this borrowing together with $225 million of commercial paper proceeds
      were used to pay the $500 million 6.75% long-term note payable which was
      due on April 16, 2001. On November 8, 2001, TIGHI borrowed another $225
      million under the line of credit. The proceeds were used to pay off
      maturing commercial paper. The maturity for all $500 million borrowed
      under this line was extended to November 7, 2003, and the interest rate
      was fixed at 3.60%.

      TIGHI has a $250 million revolving line of credit from Citigroup. TIGHI
      pays a commitment fee to Citigroup for that line of credit, which expires
      in 2006. This agreement became effective on December 19, 2001 and replaced
      a previous facility with a syndicate of banks. The interest rate for
      borrowings under this committed line is based on the cost of commercial
      paper issued by Citicorp. At December 31, 2001, there were no borrowings
      outstanding under this line of credit. TIGHI also issues commercial paper
      directly to investors and maintain unused credit availability under the
      committed credit facility at least equal to the amount of commercial paper
      outstanding. At December 31, 2001, there was no commercial paper
      outstanding.


                                       72
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.    DEBT, CONTINUED

      On April 16, 2001, September 1, 1999 and October 1, 1999, TIGHI repaid
      $500 million, $200 million and $200 million for its 6.75% notes, 6.75%
      notes and 6.25% notes, respectively, which matured on those dates.

      Long-term debt outstanding was as follows:

<TABLE>
<CAPTION>
      (at December 31, in millions)                                                    2001          2000
      ---------------------------------------------------------------------------------------------------
<S>                                                                                    <C>           <C>
      6.75% Notes due 2001                                                             $ --          $500
      6.75% Notes due 2006                                                              150           150
      7.81% Note due 2011                                                                30            --
      7.75% Notes due 2026                                                              200           200
      ---------------------------------------------------------------------------------------------------
        Total                                                                          $380          $850
      ===================================================================================================
</TABLE>

      The Company's primary source of funds for debt service is dividends from
      subsidiaries which are subject to various restrictions. See note 10.

9.    FEDERAL INCOME TAXES

<TABLE>
<CAPTION>
      (for the year ended December 31, in millions)                    2001           2000           1999
      ---------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>            <C>

      EFFECTIVE TAX RATE
      Income before federal income taxes and cumulative effect
        of changes in accounting principles                         $ 1,469        $ 2,027        $ 1,915
      Statutory tax rate                                                 35%            35%            35%
      ---------------------------------------------------------------------------------------------------

      Expected federal income taxes                                     514            709            670
      Tax effect of:
       Nontaxable investment income                                    (169)          (166)          (168)
       Other, net                                                         9              4              4
      ---------------------------------------------------------------------------------------------------

      Federal income taxes                                          $   354        $   547        $   506
      ===================================================================================================

      Effective tax rate                                                 24%            27%            26%
      ===================================================================================================

      COMPOSITION OF FEDERAL INCOME TAXES

      Current expense:

       United States                                                $   360        $   365        $   278
       Foreign                                                            3             17              9
      ---------------------------------------------------------------------------------------------------

         Total                                                          363            382            287
      ---------------------------------------------------------------------------------------------------

      Deferred expense:
       United States                                                     (9)           165            219
      ---------------------------------------------------------------------------------------------------

      Federal income tax expense                                    $   354        $   547        $   506
      ===================================================================================================
</TABLE>


                                                          73
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.    FEDERAL INCOME TAXES, CONTINUED

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

<TABLE>
<CAPTION>
      (at December 31, in millions)                                    2001        2000
      ---------------------------------------------------------------------------------
<S>                                                                  <C>         <C>

      Deferred tax assets:
       Claims and claim adjustment expense reserves                  $  944      $  980
       Unearned premium reserves                                        323         260
       Employee benefits                                                136         127
       Insurance-related assessments                                     52          65
       Acquisition-related reserves                                      33          35
       Other                                                            161         166
      ---------------------------------------------------------------------------------

         Total                                                        1,649       1,633
      ---------------------------------------------------------------------------------

      Deferred tax liabilities:
       Investments                                                      145         288
       Deferred acquisition costs                                       268         215
       Other                                                             61          67
      ---------------------------------------------------------------------------------

         Total                                                          474         570
      ---------------------------------------------------------------------------------
      Net deferred tax asset                                         $1,175      $1,063
      =================================================================================
</TABLE>

      The Company is a member of a subgroup of companies comprised of TPC and
      its non-life insurance subsidiaries. This subgroup is included in the
      consolidated federal income tax return filed by Citigroup. TPC 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 TPC. Any credits for
      losses will be paid by TPC currently to the extent that such credits are
      for tax benefits that have been utilized in the consolidated federal
      income tax return. TPC 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 TPC. 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 $1.2 billion is more likely than not
      based on existing carryback ability and expectations as to future taxable
      income. Citigroup has reported pretax financial statement income of
      approximately $20 billion on average over the last three years and has
      generated federal taxable income exceeding $13 billion on average in each
      year during this same period.

      Following the initial public offering of stock by TPC, TPC and its
      subsidiaries will not be included in the Citigroup consolidated tax
      return. Management also believes that on a separate reporting basis the
      realization of the recognized deferred tax asset of $1.2 billion is more
      likely than not based on existing carryback ability and expectations as to
      future taxable income of the Company. The Company has reported pretax
      financial statement income of $1.8 billion, on average over the last three
      years and has generated federal taxable income exceeding $877 million, on
      average, in each year during the same period.


                                       74
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.   SHAREHOLDER'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 Travelers P&C Capital I and
      Travelers P&C Capital II (the subsidiary trusts) at December 31, 2001 and
      2000 was as follows:

<TABLE>
<CAPTION>
                                                                      TRAVELERS P&C             TRAVELERS P&C
                                                                          CAPITAL I                CAPITAL II
      -------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                        <C>
      TRUST SECURITIES (TIGHI 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)                                         TIGHI                     TIGHI
      Common Securities issued to TIGHI                                     989,720                   123,720
      -------------------------------------------------------------------------------------------------------
      JUNIOR SUBORDINATED DEBENTURES (TIGHI 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.

      The subsidiary trusts will use the proceeds from any redemption of TIGHI
      Securities to redeem a like amount of TIGHI Debentures.

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


                                       75
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.   SHAREHOLDER'S EQUITY AND DIVIDEND AVAILABILITY, CONTINUED

      COMMON STOCK

      COMMON STOCK

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

      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, TIGHI's
      common stock outstanding consists of 1,000 shares of Common Stock, which
      are 100% owned by TPC.

      CLASS A

      On April 2, 1996, TIGHI 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, TIGHI 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
      TIGHI shareholders, 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 TPC in 2000, all
      previously outstanding shares of TIGHI Class A Common Stock became
      authorized and unissued shares.

      On January 18, 2000 and January 19, 1999, the Company, through the
      Travelers Insurance Group Holdings Inc. Capital Accumulation Plan (TIGHI
      CAP), reissued 467,207 and 476,431 substantially shares of treasury stock,
      respectively, in the form of restricted common stock to participating
      officers and other key employees. The fair market value per share of the
      2000 and 1999 restricted stock awards was $36.49 and $31.88, 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 and $22 million for the years ended
      December 31, 2000 and 1999, respectively. In connection with the cash
      tender offer completed by TPC in 2000, all shares of restricted common
      stock under TIGHI CAP were eliminated and substantially all were replaced
      with restricted Citigroup common stock. See note 15 for a discussion of
      Citigroup restricted common stock awards.


                                       76
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.   SHAREHOLDER'S EQUITY AND DIVIDEND AVAILABILITY, CONTINUED

      On August 12, 1998, TIGHI Board of Directors authorized a $150 million
      repurchase program, which was completed in October of 1999. On October 6,
      1999, TIGHI 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, TIGHI had repurchased $159
      million of its common stock pursuant to this final repurchase plan. In
      connection with the cash tender offer completed by TPC in 2000, all
      treasury stock was effectively retired.

      CLASS B

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

      DIVIDENDS

      TIGHI'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 $1.0 billion will be available by the end of
      2002 for such dividends without prior approval of the Connecticut
      Insurance Department. However, the payment of a significant portion of
      this amount is likely to be subject to approval by the Connecticut
      Insurance Department, depending upon the amount and timing of the
      payments. See note 1.

      STATUTORY NET INCOME AND SURPLUS

      Statutory net income of TIGHI's insurance subsidiaries was $1.1 billion,
      $1.4 billion and $1.4 billion for the years ended December 31, 2001, 2000
      and 1999, respectively. Statutory capital and surplus of TIGHI's insurance
      subsidiaries was $7.7 billion and $6.9 billion at December 31, 2001 and
      2000, respectively. Effective January 1, 2001, the Company began preparing
      its statutory basis financial statements in accordance with the revised
      Manual subject to any deviations prescribed or permitted by its domicilary
      insurance commissioner (see note 1, Summary of Significant Accounting
      Policies, Permitted Statutory Accounting Practices). The impact of this
      change was an increase to the statutory capital and surplus of the
      Company's insurance subsidiaries of approximately $350 million. In
      addition, the acquisition of The Northland Company, Associates Lloyds
      Insurance Company and the contribution of CitiCapital Insurance Company
      (see note 2) increased the statutory capital and surplus of the Company's
      insurance subsidiaries by approximately $340 million as of December 31,
      2001.


                                       77
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.   SHAREHOLDER'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>
                                                                                           CUMULATIVE
                                                                                            EFFECT OF
                                                                                            CHANGE IN
                                                                  NET                      ACCOUNTING     ACCUMULATED
                                                           UNREALIZED                             FOR           OTHER
                                                                GAINS         FOREIGN      DERIVATIVE      CHANGES IN
                                                          (LOSSES) ON        CURRENCY     INSTRUMENTS     EQUITY FROM
                                                           INVESTMENT     TRANSLATION     AND HEDGING        NONOWNER
      (for the year ended December 31, in millions)        SECURITIES      ADJUSTMENT      ACTIVITIES         SOURCES
      ---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>            <C>              <C>
      BALANCE, JANUARY 1, 1999                                $   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
      Net unrealized gains on investment securities
          obtained as part of affiliate
          acquisition, net of tax of $12                           21              --              --              21
      Net unrealized gains on investment
          securities, net of tax of $21                            37              --              --              37
      Less: Reclassification adjustment for gains
          included in net income, net of tax of ($113)           (210)             --              --            (210)
      Foreign currency translation adjustment,
          net of tax of ($2)                                       --              (4)             --              (4)
      Other, net of tax of ($2)                                    --              --              (4)             (4)
      ---------------------------------------------------------------------------------------------------------------

      Current period change                                      (152)             (4)             (4)           (160)
      ---------------------------------------------------------------------------------------------------------------

      BALANCE, DECEMBER 31, 2001                              $   255         $   (10)        $    (4)        $   241
      ===============================================================================================================
</TABLE>


                                       78
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.   BENEFIT PLANS

      PENSION 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 TPC. The Company's share of net expense for the qualified
      pension and other postretirement benefit plans was $4 million, $5 million
      and $30 million for 2001, 2000 and 1999, respectively.

      In connection with TPC's corporate reorganization, and contingent on the
      tax-free distribution by Citigroup, TPC intends to establish a separate
      defined benefit pension plan. The Company expects that this plan will
      cover the active employees of the Company. Retirees and inactive employees
      are expected to remain with the Citigroup sponsored pension plan.

      401(k) SAVINGS PLAN

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

12.   LEASES

      Most leasing functions for TIGHI and its subsidiaries are administered by
      the Company. See note 15. 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 $121 million, $113 million and $112
      million in 2001, 2000 and 1999, respectively.

      Future minimum annual rentals under noncancellable operating leases are
      $111 million, $85 million, $56 million, $44 million, $23 million and $112
      million for 2002, 2003, 2004, 2005, 2006 and 2007 and thereafter,
      respectively. Future sublease rental income of approximately $18 million
      will partially offset these commitments.

13.   DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

      DERIVATIVE FINANCIAL INSTRUMENTS

      The Company uses derivative financial instruments, including interest rate
      swaps, equity swaps, options, financial futures and forward contracts, 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 derivatives for trading purposes. In 2000, these derivative
      financial instruments were treated as off-balance-sheet risk and were not
      significant.

      Beginning January 1, 2001, the Company adopted FAS 133 which establishes
      accounting and reporting standards for derivative instruments, including
      certain derivative instruments embedded in other contracts, and for
      hedging activities. It requires that an entity recognizes all derivatives
      as either assets or liabilities in the consolidated balance sheet and
      measure those instruments at fair value. Where applicable, hedge
      accounting is used to account for derivatives.


                                       79
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

      To qualify as a hedge, the hedge relationship is designated and formally
      documented at inception detailing the particular risk management objective
      and strategy for the hedge, which includes the item and risk that is being
      hedged, the derivative that is being used, as well as how effectiveness is
      being assessed. A derivative has to be highly effective in accomplishing
      the objective of offsetting either changes in fair value or cash flows for
      the risk being hedged.

      For fair value hedges, changes in the fair value of derivatives are
      reflected in realized investment gains (losses), together with changes in
      the fair value of the related hedged item. The Company did not utilize
      fair value hedges during the year ended December 31, 2001.

      For cash flow hedges, the accounting treatment depends on the
      effectiveness of the hedge. To the extent these derivatives are effective
      in offsetting the variability of the hedged cash flows, changes in the
      derivatives' fair value will not be included in current earnings but are
      reported in accumulated other changes in equity from nonowner sources.
      These changes in fair value will be included in the earnings of future
      periods when earnings are also affected by the variability of the hedged
      cash flows. At December 31, 2001, the Company expects to include realized
      investment losses of approximately $1 million in earnings over the next
      twelve months for these cash flow hedges. To the extent these derivatives
      are not effective, changes in their fair value are immediately included in
      realized investment gains (losses). The Company's cash flow hedges
      primarily include hedges of floating rate available-for-sale securities
      and certain forecasted transactions up to a maximum tenure of one year.
      While the earnings impact of cash flow hedges are similar to the previous
      accounting practice, the amounts included in the accumulated other changes
      in equity from nonowner sources will vary depending on market conditions.

      For net investment hedges in which derivatives hedge the foreign currency
      exposure of a net investment in a foreign operation, the accounting
      treatment will similarly depend on the effectiveness of the hedge. The
      effective portion of the change in fair value of the derivative, including
      any forward premium or discount, is reflected in the accumulated other
      changes in equity from nonowner sources as part of the foreign currency
      translation adjustment. For the year ended December 31, 2001, the amount
      included in the foreign currency translation adjustment in equity from
      nonowner sources was a $3 million loss. The ineffective portion is
      reflected in realized investment gains (losses).

      Derivatives that are either hedging instruments that are not designated or
      do not qualify as hedges under the new rules are also carried at fair
      value with changes in value reflected in realized investment gains
      (losses). The Company has certain foreign currency forward contracts which
      are not designated as hedges at December 31, 2001.

      The effectiveness of these hedging relationships is evaluated on a
      retrospective and prospective basis using quantitative measures of
      correlation. If a hedge relationship is found to be ineffective, it no
      longer qualifies as a hedge, and any excess gains or losses attributable
      to such ineffectiveness as well as subsequent changes in fair value are
      recognized in realized investment gains (losses). During the year ended
      December 31, 2001, there was no hedge ineffectiveness that was recognized
      in realized investment gains (losses).


                                       80
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

      For those hedge relationships that are terminated, hedge designations
      removed, or forecasted transactions that are no longer expected to occur,
      the hedge accounting treatment described in the paragraphs above will no
      longer apply. For fair value hedges, any changes to the hedged item remain
      as part of the basis of the asset and are ultimately reflected as an
      element of the yield. For cash flow hedges, any changes in fair value of
      the end-user derivative remain in accumulated other changes in equity from
      nonowner sources, and are included in earnings of future periods when
      earnings are also affected by the variability of the hedged cash flow. If
      the hedged relationship was discontinued or a forecasted transaction is
      not expected to occur when scheduled, any changes in fair value of the
      end-user derivative are immediately reflected in realized investment gains
      (losses). During the year ended December 31, 2001, there were no such
      discontinued forecasted transactions.

      The Company also purchases investments that have embedded derivatives,
      primarily convertible debt securities. These embedded derivatives are
      carried at fair value with changes in value reflected in realized
      investment gains (losses). The Company bifurcates an embedded derivative
      where: a) the economic characteristics and risks of the embedded
      instrument are not clearly and closely related to the economic
      characteristics and risks of the host contract, b) the entire instrument
      would not otherwise be remeasured at fair value, and c) a separate
      instrument with the same terms of the embedded instrument would meet the
      definition of a derivative under FAS 133. Derivatives embedded in
      convertible debt securities are reported on a combined basis with their
      host instrument and are classified as fixed maturity securities.

      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, 2001 and 2000, investments in fixed maturities had a fair
      value, which equaled carrying value, of $25.9 billion and $25.0 billion,
      respectively. The fair value of investments in fixed maturities for which
      a quoted market price or dealer quote are not available was $790 million
      and $874 million at December 31, 2001 and 2000, respectively.

      The carrying values of cash, trading securities, short-term securities,
      mortgage loans and investment income accrued approximated their fair
      values. See notes 1 and 4.

      At December 31, 2001, the carrying value of $500 million of the note
      payable to affiliates approximated its fair value. Fair value is based
      upon discounted cash flows.

      At December 31, 2001 and 2000, the carrying value of $380 million and $850
      million, respectively, of long-term debt approximated its fair value. Fair
      value is based upon bid price at December 31, 2001 and 2000. At December
      31, 2001 and 2000, the TIGHI Debentures had a carrying value of $900
      million, which approximated their fair value. Fair value is based upon the
      closing price at December 31, 2001 and 2000.


                                       81
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

      The carrying values of $522 million and $975 million of financial
      instruments classified as other assets approximated their fair values at
      December 31, 2001 and 2000, respectively. The carrying values of $4.0
      billion and $4.1 billion of financial instruments classified as other
      liabilities at December 31, 2001 and 2000, respectively, also approximated
      their fair values. Fair value is determined using various methods
      including discounted cash flows, as appropriate for the various financial
      instruments.

14.   COMMITMENTS AND CONTINGENCIES

      COMMITMENTS

      In the normal course of business, the Company has unfunded commitments to
      partnerships. Such commitments were $792 million and $729 million at
      December 31, 2001 and 2000.

      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,
      2001, 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.

      For environmental and asbestos claims matters see note 6.

15.   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, 2001 and 2000, the pool
      totaled approximately $5.6 billion and $4.4 billion, respectively. The
      Company's share of the pool amounted to $2.4 billion and $2.2 billion at
      December 31, 2001 and 2000, respectively, and is included in short-term
      securities in the consolidated balance sheet.


                                       82
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.   RELATED PARTY TRANSACTIONS, CONTINUED

      The Company participates in the Citigroup Capital Accumulation Plan (CAP).
      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 and received 50% in the form of TIGHI
      common stock. In connection with the cash tender offer completed by TPC in
      2000, all shares of restricted common stock under TIGHI CAP were
      eliminated and substantially all were replaced with restricted Citigroup
      common stock. All of the 2001 restricted stock awards granted on January
      16, 2001 were in the form of Citigroup common stock. Similar to TIGHI 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 TIGHI 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, $16 million
      and $16 million for the years ended December 31, 2001, 2000 and 1999,
      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.


                                       83
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.   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)           2001             2000             1999
      ----------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>              <C>

      Net income, as reported                              $ 1,118          $ 1,480          $ 1,276
      FAS 123 pro forma adjustments, after tax                 (49)             (51)             (37)
      ----------------------------------------------------------------------------------------------

      Net income, pro forma                                $ 1,069          $ 1,429          $ 1,239
      ==============================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                              2001             2000             1999
      ----------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>              <C>
      Expected volatility of Citigroup Stock                  38.6%            41.5%            44.1%
      Risk-free interest rate                                 4.52%            6.23%            5.29%
      Expected annual dividend per Citigroup share         $  0.92          $  0.78          $  0.47
      Expected annual forfeiture rate                            5%               5%               5%
      ----------------------------------------------------------------------------------------------
</TABLE>

      On October 1, 2001, the Company paid $329 million to Associates First
      Capital Corp., an affiliate, for The Northland Company and its
      subsidiaries and Associates Lloyds Insurance Company. In addition, on
      October 3, 2001, the capital stock of CitiCapital Insurance Company
      (formerly known as Associates Insurance Company), with a net book value of
      $356 million, was contributed to the Company. See note 2.

      At December 31, 2001 and 2000, 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 TPC and its subsidiaries are administered by
      the Company. See note 12. The Company leases furniture and equipment from
      an affiliate. The rental expense charged to the Company for this furniture
      and equipment was $18 million, $18 million and $28 million in 2001, 2000
      and 1999, respectively.

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

      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, 2001 and 2000 included $825
      million and $811 million, respectively, related to these annuities.


                                       84
<PAGE>
            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.   NONCASH FINANCING AND INVESTING ACTIVITIES

      On October 3, 2001, the capital stock of CitiCapital Insurance Company
      (formerly known as Associates Insurance Company), with a net book value of
      $356 million, was contributed to the Company. See note 2. There were no
      significant noncash financing or investing activities for the years ended
      December 31, 2000 or 1999.

17.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                         FIRST          SECOND            THIRD           FOURTH
      2001 (in millions)                               QUARTER         QUARTER          QUARTER          QUARTER           TOTAL
      --------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>              <C>              <C>             <C>

      Total revenues                                  $  3,058        $  2,982         $  3,004         $  3,177        $ 12,221
      Total expenses                                     2,355           2,491            3,145            2,761          10,752
      --------------------------------------------------------------------------------------------------------------------------

      Income (loss) before federal income
        taxes and cumulative effect of
        changes in accounting principles                   703             491             (141)             416           1,469
      Federal income taxes (benefit)                       206             132              (89)             105             354
      --------------------------------------------------------------------------------------------------------------------------

      Income (loss) before cumulative effect
        of changes in accounting principles                497             359              (52)             311           1,115
      Cumulative effect of change in
        accounting for derivative instruments
        and hedging activities, net of tax                   4              --               --               --               4
      Cumulative effect of change in
        accounting for securitized financial
        assets, net of tax                                  --              (1)              --               --              (1)
      --------------------------------------------------------------------------------------------------------------------------

      Net income (loss)                               $    501        $    358         $    (52)        $    311        $  1,118
      ==========================================================================================================================
</TABLE>


<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
        and minority interest                              444             498              563              522           2,027
      Federal income taxes                                 113             133              158              143             547
      --------------------------------------------------------------------------------------------------------------------------

      Net income                                      $    331        $    365         $    405         $    379        $  1,480
      ==========================================================================================================================
</TABLE>


                                       85
<PAGE>
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.

                                     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 43 hereof.

           (2)   Financial Statement Schedules. See Index to Consolidated
                 Financial Statements and Schedules on page 89 hereof.

           (3)   Exhibits:

                 See Exhibit Index on page 87 hereof.

    (b)    Reports on Form 8-K:

           There were no reports on Form 8-K filed during the quarter ended
           December 31, 2001. However, on February 8, 2002, TIGHI filed a
           current Report on Form 8-K, dated February 8, 2002, reporting under
           Item 5 thereof the filing by TIGHI of an amendment to its certificate
           of incorporation changing its name from Travelers Property Casualty
           Corp. to Travelers Insurance Group Holdings Inc.


                                       86
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER      DESCRIPTION OF EXHIBIT
------      ----------------------

<S>         <C>
3.01.1      Restated Certificate of Incorporation of 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).

3.01.2      Amendment to Restated Certificate of Incorporation of the Company,
            filed February 1, 2002, incorporated by reference to Exhibit 3.03 to
            the Company's Current Report on Form 8-K, dated February 8, 2002
            (File No. 1-14328).

3.02        Amended By-Laws of the Company, effective January 10, 2001,
            incorporated by reference to Exhibit 3.02 to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31, 2000
            (File No. 1-14328).

10.01       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.

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.

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 therefore to
Shareholder Relations, Travelers Property Casualty Corp., One Tower Square,
Hartford, Connecticut 06183.

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


                                       87
<PAGE>
                                   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 29th day of
March 2002.

                                 TRAVELERS INSURANCE GROUP HOLDINGS INC.
                                 (Registrant)


                                 By:  /s/ Robert I. Lipp
                                 ------------------------------------------
                                 Robert I. Lipp, 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 29th day of March 2002.

                SIGNATURE                               TITLE
                ---------                               -----


/s/          Robert I. Lipp                    Chief Executive Officer
-------------------------------------     (Principal Executive Officer) and
             Robert I. Lipp                     Chairman of the Board


/s/         Jay S. Benet                       Chief Financial Officer
-------------------------------------      (Principal Financial Officer) and
            Jay S. Benet                             Director


/s/         Douglas K. Russell
-------------------------------------          Chief Accounting Officer
            Douglas K. Russell              (Principal Accounting Officer)


/s/         Charles J. Clarke
-------------------------------------
            Charles J. Clarke                  President and Director


/s/         Douglas G. Elliot
-------------------------------------
            Douglas G. Elliot           Chief Operating Officer and Director


/s/         Joseph P. Kiernan
-------------------------------------      Executive Vice President - Bond
            Joseph P. Kiernan                       and Director


/s/         Joseph P. Lacher, Jr.
-------------------------------------    Executive Vice President - Personal
            Joseph P. Lacher, Jr.                Lines and Director


/s/         Brian W. MacLean
-------------------------------------     Executive Vice President - Claim
            Brian W. MacLean                        and Director


/s/         James M. Michener
-------------------------------------        General Counsel, Secretary
            James M. Michener                       and Director


                                       88
<PAGE>
            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, 2001, 2000 and 1999                                              *

Consolidated Balance Sheet at December 31, 2001 and 2000                        *

Consolidated Statement of Changes in Shareholder's Equity
  for the years ended December 31, 2001, 2000 and 1999                          *

Consolidated Statement of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999                                              *

Notes to Consolidated Financial Statements                                      *

Schedules:

Schedule II - Condensed Financial Information of
  Registrant (Parent Company only)                                              91

Schedule III - Supplementary Insurance Information                              96

Schedule V - Valuation and Qualifying Accounts                                  99

Schedule VI - Supplementary Information Concerning
  Property-Casualty Insurance Operations                                        100
</TABLE>

* See index on page 43.


                                       89
<PAGE>
                          Independent Auditors' Report

The Board of Directors and Shareholder
Travelers Insurance Group Holdings Inc.:

Under date of January 17, 2002, except as to Note 1, which is as of March 26,
2002, we reported on the consolidated balance sheets of Travelers Insurance
Group Holdings Inc. (formerly known as Travelers Property Casualty Corp.) and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the years in the three-year period ended December 31, 2001, 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 as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.

In our opinion, 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, the Company
changed its methods of accounting for derivative instruments and hedging
activities and for securitized financial assets in 2001, and its methods of
accounting for insurance and reinsurance contracts that do not transfer
insurance risk and for insurance-related assessments in 1999.


                                            /s/ KPMG LLP


Hartford, Connecticut
January 17, 2002, except
as to Note 1, which is
as of March 26, 2002

                                       90
<PAGE>
                                                                     SCHEDULE II

                     TRAVELERS INSURANCE GROUP HOLDINGS INC.
                              (Parent Company Only)

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)

                          CONDENSED STATEMENT OF INCOME


<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31,
                                                             ----------------------------------------
                                                               2001            2000            1999
                                                               ----            ----            ----
<S>                                                         <C>             <C>             <C>
REVENUES

Net investment income and other                             $     3         $     7         $     8

EXPENSES
Interest                                                        124             136             154
Other                                                             5               6              11
                                                            -------         -------         -------
  Total expenses                                                129             142             165
                                                            -------         -------         -------

Loss before federal income tax benefit and equity in
  net income of subsidiaries                                   (126)           (135)           (157)
Federal income tax benefit                                       44              47              54
                                                            -------         -------         -------

Loss before equity in net income of subsidiaries                (82)            (88)           (103)
Equity in net income of subsidiaries                          1,200           1,568           1,379
                                                            -------         -------         -------

  Net income                                                $ 1,118         $ 1,480         $ 1,276
                                                            =======         =======         =======
</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.


                                       91
<PAGE>
                                                                     SCHEDULE II

                     TRAVELERS INSURANCE GROUP HOLDINGS INC.
                              (Parent Company Only)

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)

                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------
                                                                    2001           2000
                                                                    ----           ----
<S>                                                              <C>            <C>
ASSETS
Short-term securities                                            $    27        $    29
Investment in subsidiaries at equity                              12,696         12,501
Goodwill and intangible assets                                       269             --
Other assets                                                          16             28
                                                                 -------        -------

  Total assets                                                   $13,008        $12,558
                                                                 =======        =======

LIABILITIES
Long-term debt                                                   $ 1,777        $ 1,777
Other liabilities                                                     81             67
                                                                 -------        -------

  Total liabilities                                                1,858          1,844
                                                                 -------        -------

SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares authorized,
  issued and outstanding                                              --             --
Additional paid-in capital                                         6,512          5,934
Retained earnings                                                  4,397          4,379
Accumulated other changes in equity from nonowner sources            241            401
                                                                 -------        -------

  Total shareholder's equity                                      11,150         10,714
                                                                 -------        -------

  Total liabilities and shareholder's equity                     $13,008        $12,558
                                                                 =======        =======
</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.


                                       92
<PAGE>
                                                                     SCHEDULE II

                     TRAVELERS INSURANCE GROUP HOLDINGS INC.
                              (Parent Company Only)

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)

                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                               ---------------------------------------
                                                                  2001            2000            1999
                                                               -------         -------         -------
<S>                                                            <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                     $ 1,118         $ 1,480         $ 1,276
Adjustments to reconcile net income to net
 cash provided by operating activities:
 Equity in net income of subsidiaries                           (1,200)         (1,568)         (1,379)
 Dividends received from consolidated subsidiaries               1,190           1,475             850
 Deferred federal income tax benefit                                --              (1)             (2)
 Federal income taxes receivable                                    --              (9)              1
 Other                                                             (10)            (28)              3
                                                               -------         -------         -------

    Net cash provided by operating activities                    1,098           1,349             749
                                                               -------         -------         -------

CASH FLOWS FROM INVESTING ACTIVITIES
 Short-term securities, (purchases) sales, net                       2             (10)            135
 Other investments, net                                             --             (45)           (135)
                                                               -------         -------         -------
    Net cash provided by (used in) investing activities              2             (55)             --
                                                               -------         -------         -------

CASH FLOWS FROM FINANCING ACTIVITIES
 Payment of long-term debt                                        (500)             --            (400)
 Issuance of note payable to affiliate                             500              --              --
 Purchase of treasury stock                                         --             (77)           (169)
 Restricted stock issuance                                          --              17              15
 Dividends to TPC                                               (1,100)         (1,226)           (164)
 Dividends to minority shareholders                                 --              (8)            (31)
                                                               -------         -------         -------

    Net cash used in financing activities                       (1,100)         (1,294)           (749)
                                                               -------         -------         -------

    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                      $   120         $   136         $   162
                                                               =======         =======         =======

 Cash received during the period for taxes                     $    36         $    37         $    53
                                                               =======         =======         =======
</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.


                                       93
<PAGE>
                                                                     SCHEDULE II

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

1.    GENERAL

      Travelers Insurance Group Holdings, Inc. (TIGHI) (a direct wholly-owned
      subsidiary of Travelers Property Casualty Corp. (TPC)) was organized on
      January 16, 1996. During April 1996, TPC contributed The Travelers
      indemnity Company and its subsidiaries to TIGHI. In addition, TIGHI
      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, TPC completed a cash tender offer to purchase all of
      the outstanding shares of Class A Common Stock of TIGHI at a price of
      $41.95 per share. TPC also established a wholly-owned subsidiary of TPC
      which effected a merger pursuant to which TIGHI became a wholly-owned
      subsidiary of TPC. Upon the merger of the new subsidiary into TIGHI, all
      previously outstanding shares of Class A Common Stock of TIGHI became
      authorized and unissued shares and the 1,000 shares of Common Stock of the
      new subsidiary (held by TPC) were exchanged for 1,000 shares of Class A
      Common Stock of TIGHI. On June 29, 2000, TIGHI 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,
      TIGHI's common stock outstanding consists of 1,000 shares of Common Stock,
      which are 100% owned by TPC.

      On March 21, 2002, TPC issued 210 million shares of its common stock in an
      initial public offering, and on March 26, 2002, the underwriters exercised
      their option to purchase an additional 21 million shares of its common
      stock, together representing approximately 23% of TPC's common equity.
      Citigroup has announced that it intends to make a tax-free distribution of
      most of Citigroup's ownership interest in TPC, subject to, among other
      things, regulatory approval and receipt of a private letter ruling from
      the Internal Revenue Service that the distribution will be tax-free to
      Citigroup, its stockholders and TPC. Citigroup is under no obligation to
      make the distribution even if these approvals are obtained. Immediately
      after the distribution, Citigroup would own approximately 9.9% of TPC.

      TPC provides and purchases services to and from affiliates, including
      facilities management, banking and financial functions, benefit coverages,
      data processing services, and a short-term investment pool. Charges for
      these shared services are allocated at cost. If the tax-free distribution
      by Citigroup occurs, TPC has agreed with Citigroup to negotiate in good
      faith the terms of a transition services agreement for the provision of
      these services. TPC has agreed with Citigroup that an affiliate will
      provide investment advisory services to TPC for a period and at fees to be
      mutually agreed upon.


2.    PRINCIPLES OF CONSOLIDATION

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


                                       94
<PAGE>
3.    DEBT

      On April 16, 2001, September 1, 1999 and October 1, 1999, TIGHI repaid
      $500 million, $200 million and $200 million for its 6.75% notes, 6.75%
      notes and 6.25% notes, respectively, which matured on those dates.

      The annual maturities of the outstanding debt are as follows: $150 million
      in 2006; $230 million after 2006.


                                       95
<PAGE>
                                  SCHEDULE III

            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION

                                      2001
                                      ----
                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                  Amortization
Segment             Deferred policy    Claims and     Unearned  Premium  Net         Claims       of deferred   Other      Premiums
                    acquisition costs  claim adjust-  premiums  revenue  investment  and claim    policy        operating  written
                                       ment expense                      income      adjustment   acquisition   expenses
                                       reserves                          (a)         expenses     costs         (b)
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>                <C>            <C>       <C>      <C>         <C>          <C>           <C>        <C>
Commercial
      Lines             $   466          $27,749       $ 3,729  $ 5,431   $ 1,615     $ 4,702      $   861      $   931     $ 5,726

Personal
  Lines                     302            2,867         1,938    3,964       410       3,053          674          388       4,108
                        -------          -------       -------  -------   -------     -------      -------      -------     -------

Total - Reportable
  Segments                  768           30,616         5,667    9,395     2,025       7,755        1,535        1,319       9,834

Other                        --              121            --       16        (3)         10            4          129          12
                        -------          -------       -------  -------   -------     -------      -------      -------     -------

Consolidated            $   768          $30,737       $ 5,667  $ 9,411   $ 2,022     $ 7,765      $ 1,539      $ 1,448     $ 9,846
                        =======          =======       =======  =======   =======     =======      =======      =======     =======
</TABLE>

(a) Net investment income for each segment is accounted for separately, except
    for the portion earned on the investment of shareholder'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.


                                       96
<PAGE>
                                  SCHEDULE III

            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION

                                      2000
                                      ----
                                  (In millions)

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


                                       97
<PAGE>
                                  SCHEDULE III

            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION

                                      1999
                                      ----
                                  (In millions)

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


                                       98
<PAGE>
                                   SCHEDULE V
                     TRAVELERS INSURANCE GROUP HOLDINGS INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                                  (IN MILLIONS)

<TABLE>
<CAPTION>
                                                     Charged
                                        Balance at   to costs     Charged                      Balance
                                         beginning   and          to other                    at end of
                                         of period   expenses     accounts(1)  Deductions(2)    period
--------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>            <C>
    Reinsurance Recoverables: 2001        $  213       $   -        $  130        $  57         $  286

                              2000        $  219       $   -        $    -        $   6         $  213

                              1999        $  192       $   -        $   33        $   6         $  219
</TABLE>

----------
(1)   Charged to claims and claim adjustment expenses in the consolidated
      statement of income.

(2)   Credited to the related asset account.


                                       99
<PAGE>
                                   SCHEDULE VI

            TRAVELERS INSURANCE GROUP HOLDINGS INC. AND SUBSIDIARIES

 SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (1)

                                    1999-2001

                                  (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>
2001  Consolidated property -
        casualty operations      $   768       $ 30,616          $  792      $ 5,667      $ 9,395      $ 2,025

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
</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>
2001  Consolidated property -
        casualty operations        $ 7,599    $  (41)        $ 1,535            $ 7,419        $ 9,834

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
</TABLE>

(1)   Excludes accident and health business.

(2)   See "Discounting" on page 9.


                                      100