<PAGE>   1
 

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-K

[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

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



                         COMMISSION FILE NUMBER 1-14328


                        TRAVELERS PROPERTY CASUALTY CORP.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

                  ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (860) 277-0111
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                     

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>

                               TITLE OF EACH CLASS                               NAME OF EACH EXCHANGE ON WHICH REGISTERED
                               -------------------                               -----------------------------------------
<S>                                                                              <C> 
                 CLASS A COMMON STOCK, PAR VALUE $ .01 PER SHARE                          NEW YORK STOCK EXCHANGE
                         6-3/4% NOTES DUE APRIL 15, 2001                                  NEW YORK STOCK EXCHANGE
            8.08% TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST (AND                     NEW YORK STOCK EXCHANGE
                   REGISTRANT'S GUARANTY WITH RESPECT THERETO)
              8% TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST (AND                      NEW YORK STOCK EXCHANGE
                   REGISTRANT'S GUARANTY WITH RESPECT THERETO)
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF MARCH 3, 1999 WAS APPROXIMATELY $2.28 BILLION.

AS OF MARCH 3, 1999, 63,388,266 SHARES OF THE REGISTRANT'S CLASS A COMMON STOCK,
PAR VALUE $ .01 PER SHARE, AND 328,020,170 SHARES OF THE REGISTRANT'S CLASS B
COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.

                       DOCUMENTS INCORPORATED BY REFERENCE

CERTAIN PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1998 ARE INCORPORATED BY REFERENCE INTO PART II
OF THIS FORM 10-K.

CERTAIN PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1999 ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON APRIL 20, 1999 ARE INCORPORATED BY REFERENCE INTO
PART III OF THIS FORM 10-K.
<PAGE>   2
                        TRAVELERS PROPERTY CASUALTY CORP.

                           ANNUAL REPORT ON FORM 10-K

                     FOR FISCAL YEAR ENDED DECEMBER 31, 1998

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

FORM 10-K
ITEM NUMBER                                                                                                        PAGE

         PART I
<S>                                                                                                                <C>
1.       Business................................................................................................     1 
2.       Properties..............................................................................................    43
3.       Legal Proceedings.......................................................................................    43
4.       Submission of Matters to a Vote of Security Holders.....................................................    44
                                                                                                                 
         PART II

5.       Market for Registrant's Common Equity and
           Related Stockholder Matters...........................................................................    44
6.       Selected Financial Data.................................................................................    45
7.       Management's Discussion and Analysis of Financial                                                           
           Condition and Results of Operations...................................................................    45
7A.      Quantitative and Qualitative Disclosures About Market Risk..............................................    45
8.       Financial Statements and Supplementary Data.............................................................    46
9.       Changes in and Disagreements with Accountants on                                                             
           Accounting and Financial Disclosure...................................................................    46
                                                                                                                     
         PART III                                                                                                    
                                                                                                                     
10.      Directors and Executive Officers of the Registrant......................................................    46
11.      Executive Compensation..................................................................................    46
12.      Security Ownership of Certain Beneficial Owners                                                             
           and Management........................................................................................    46
13.      Certain Relationships and Related Transactions..........................................................    46

         PART IV                                                                                                     
                                                                                                                     
14.      Exhibits, Financial Statement Schedules, and Reports                                                        
           on Form 8-K...........................................................................................    47
         Exhibit Index...........................................................................................    48
         Signatures..............................................................................................    52
         Index to Consolidated Financial Statements and Schedules................................................   F-1
</TABLE>
<PAGE>   3
                                     PART I

ITEM 1.       BUSINESS.

         Travelers Property Casualty Corp. 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
Property Casualty Corp. and its consolidated subsidiaries.

         Travelers Property Casualty Corp. was formed in January 1996 to hold
the property and casualty insurance subsidiaries (collectively, "Travelers P&C")
of The Travelers Insurance Group Inc. ("TIGI"), an indirect wholly-owned
subsidiary of Citigroup Inc. ("Citigroup"). On April 2, 1996, the Company
purchased from Aetna Services, Inc. (formerly Aetna Life and Casualty Company)
("Aetna") all of the outstanding capital stock (the "Acquisition") of Aetna's
property and casualty insurance subsidiaries (collectively, "Aetna P&C"), for
approximately $4.2 billion in cash. For additional information about the
Acquisition, the public offering and other related transactions, see Note 3 of
Notes to Consolidated Financial Statements.

         Citigroup owns approximately 84% of the Company's outstanding common
stock at December 31, 1998. Citigroup is a diversified holding company whose
businesses provide a broad range of financial services to consumer and corporate
customers around the world. The periodic reports of Citigroup provide additional
business and financial information concerning that company and its consolidated
subsidiaries.

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

         This discussion of the Company's business is organized as follows: (i)
a description of each of the Company's two business segments and related
services; (ii) a description of Other Operations; and (iii) certain other
information.(1) A glossary of insurance terms is included beginning on page 34.


--------

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

         The Company is the third largest writer of commercial lines insurance
in the United States based on 1997 direct written premiums published by A.M.
Best Company ("A.M. Best"). The Company's Commercial Lines offers a broad array
of property and casualty insurance and insurance-related services to its
customers. Commercial Lines is organized into four marketing and underwriting
groups that are designed to focus on a particular client base or industry
segment to provide products and services that specifically address customers'
needs: National Accounts, primarily serving large national corporations;
Commercial Accounts, serving mid-size businesses for casualty products and both
large and mid-size businesses for property products; Select Accounts, serving
small businesses; and Specialty Accounts, providing a variety of specialty
coverages. The Company also has a dedicated group within Commercial Accounts
that serves the construction industry. In 1998, Commercial Lines generated net
written premiums of $4.6 billion.

         SELECTED PRODUCT AND MARKET INFORMATION

         The accompanying table sets forth by product line and market net
written premiums for Commercial Lines for the periods indicated. For a
description of the product lines and markets referred to in the table, see "--
Product Lines" and "-- Principal Markets and Methods of Distribution,"
respectively.

         Many larger National Accounts customers often demand service-type
products, primarily for workers' compensation coverage and to a lesser extent in
general liability and commercial automobile coverages. These types of products
include risk management services such as claims settlement, loss control and
engineering. Many of these products generate fee income rather than net written
premiums, and are not reflected in the accompanying table.

         Because the Acquisition occurred on April 2, 1996, the Company's
results of operations for periods prior to April 2, 1996 do not include the
results of Aetna P&C. Accordingly, premium and other operational information
provided for the Company's combined businesses prior to such time has been
included below for informational purposes only. As used herein, unless the
context otherwise requires, "combined" refers to the operations of both
Travelers P&C and Aetna P&C, without regard to the date of the Acquisition.

                                       2
<PAGE>   5
                          COMBINED NET WRITTEN PREMIUMS
<TABLE>
<CAPTION>

                                                                                  PERCENTAGE OF TOTAL
                                                YEAR ENDED DECEMBER 31,          NET WRITTEN PREMIUMS
                                          -------------------------------------       YEAR ENDED
                                                                                     DECEMBER 31,
                                          1998(1)       1997(2)         1996             1998
                                          --------     --------       --------        ----------
                                                   (Dollars in millions)

NET WRITTEN PREMIUMS BY PRODUCT
LINE:
<S>                                      <C>             <C>             <C>              <C>  
   Commercial multi-peril                $1,436          $1,037          $1,223           31.1%
   Workers' compensation                  1,179           1,176           1,223           25.6
   Commercial automobile                    781             866             806           16.9
   General liability                        539             931             836           11.7
   Property                                 281             383             342            6.1
   Fidelity and surety                      209             201             215            4.5
   Other                                    189             163              23            4.1
                                         ------          ------          ------          ----- 
      Total Commercial Lines             $4,614          $4,757          $4,668          100.0%
                                         ======          ======          ======          ===== 

NET WRITTEN PREMIUMS BY MARKET:

   National Accounts                     $  625          $  657          $  852           13.5%
   Commercial Accounts                    1,800           1,986           1,725           39.0
   Select Accounts                        1,494           1,432           1,412           32.4
   Specialty Accounts                       695             682             679           15.1
                                         ------          ------          ------          ----- 
      Total Commercial Lines             $4,614          $4,757          $4,668          100.0%
                                         ======          ======          ======          ===== 

</TABLE>

----------

         (1)      Effective in 1998, net written premiums by product line
                  reflect a change to conform the Aetna P&C and Travelers P&C
                  statutory line assignments. There was no impact on total net
                  written premiums.

         (2)      1997 includes a $142 million increase due to a change to
                  conform the Aetna P&C method of recording certain net written
                  premiums to the method employed by Travelers P&C.

         PRODUCT LINES

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

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

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

                                       3
<PAGE>   6
sensitive insurance products, including retrospectively rated policies, in which
premiums are adjusted based on actual loss experience of the insured during the
policy period, and large deductible plans, in which the customer bears the
insurance risk up to its deductible amount, and (iii) service programs, which
are generally sold to the Company's larger National Accounts customers, where
the Company receives fees for providing loss prevention, risk management, claim
administration and benefit administration services to organizations pursuant to
service agreements. The Company also participates in state assigned risk pools
servicing workers' compensation policies as a servicing carrier and pool
participant. The Company emphasizes managed care cost containment strategies
(which involve employers, employees and care providers in a cooperative effort
that focuses on the injured employee's early return to work), cost-effective
quality care, and customer service in this market.

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

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

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

         FIDELITY AND SURETY provides fidelity insurance coverage which protects
an insured for loss due to embezzlement or misappropriation of funds by an
employee. Surety 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.

         OTHER coverages include boiler and machinery insurance, which provides
coverage for loss or damage resulting from the mechanical breakdown of boilers
and machinery, as well as miscellaneous assumed reinsurance.

         PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

         The Company distributes its commercial products primarily through
approximately 5,200 brokers and independent agencies located throughout the
United States that are serviced by approximately 80 field offices. The Company
seeks to establish relationships with well-


                                       4
<PAGE>   7
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 the Company's operating and marketing
plans. Once an agency or broker is appointed, the Company carefully monitors its
performance.

         NATIONAL ACCOUNTS

         The Company's National Accounts provides a variety of casualty products
to large companies. The Company's National Accounts also includes the Company's
alternative market business (the "Alternative Market"), which primarily offers
workers' compensation products and services to the voluntary market including
employee groups, associations and franchises and to involuntary state pools.
National Accounts customers generally select products in connection with a large
deductible or self-insured program, or a guaranteed cost or a retrospectively
rated insurance policy. Customers are usually national in scope and range in
size from businesses with sales of approximately $10 million per year to Fortune
2000 corporations. Products are marketed through national brokers and regional
agents with offices throughout the United States. Workers' compensation
accounted for approximately 68% of the products sold in 1998 to National
Accounts customers, based on net written premiums and service fee income.

         In December 1998, the Company announced a global strategic relationship
with Winterthur International, called Travelers/Winterthur International, which
markets a variety of commercial lines products to multinational corporations.
The Company expects that Travelers/Winterthur International will allow it to
participate in business requiring international underwriting and insurance
services.

         The Alternative 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 has emerged as
the largest workers' compensation assigned risk plan servicing insurer in the
industry with approximately 25% share of the market in 1998. Assigned risk plan
contracts generated approximately $55 million in service fee income in 1998 for
the Company.

         The Alternative Market business also services self-insurance groups,
sells excess workers' compensation coverage to these groups and markets various
workers' compensation specialty programs. Self-insurance groups and these
specialty programs generated net written premiums of $43 million and service fee
income of $3 million in 1998. The Alternative Market business also participates
in various involuntary assigned risk pools, which provide insurance coverage to
individuals or other entities that otherwise are unable to purchase such
coverage in the voluntary market. Participation in these pools in most states is
generally in proportion to voluntary writings of related lines of business in
that state.

         COMMERCIAL ACCOUNTS

         The Company's Commercial Accounts sells a broad range of property and
casualty insurance products through a large network of independent agents and
brokers. Commercial 


                                       5
<PAGE>   8
Accounts casualty products target businesses with 75 to 1,000 employees, while
its property products target both large and mid-size businesses. The Company
offers a full line of products to its Commercial Accounts customers, with an
emphasis on guaranteed cost products.

         Commercial Accounts targets certain industries in which the Company has
claims, engineering and underwriting expertise and to which the Company has
established dedicated operations. Industry segments within the manufacturing
sector include: advanced technology, metal products, mineral products, plastic
and rubber products and wood products. Also targeted are colleges and
universities, food, retail, financial, property management and the wholesale
industries. The Company continues to develop new industry-targeted programs both
on a national and local level. Specific industry knowledge enables the Company
to select, as customers, better managed companies in an industry segment, to
tailor specialized coverages for those companies, to link price to the
individual exposure and to control risk. The Company uses components of this
approach specifically in connection with loss control and claims management
processing. Through a network of field offices, the Company's marketing and
underwriting specialists, who have point of sale authority, work closely with
local brokers and agents to tailor insurance coverage to individual customer
needs.

         Construction. The Company has established dedicated operations that
exclusively target the construction industry, providing insurance and risk
management services for virtually all areas of construction, including general
contractors, heavy construction (including street and road) and special trade
contractors, except artisan or smaller trade contractors. The Company offers all
product lines to mid-size and national customers in the construction market,
including both guaranteed cost and loss-responsive products, and wrap-up
insurance programs, with general liability, workers' compensation, commercial
auto, commercial property and inland marine coverages. The dedicated
construction operations provide specialized service and underwriting, with local
market expertise and national capability, that enable the Company to tailor
specialized coverages, have competitive pricing and control risk. This includes
local underwriters who understand their states' laws and claim climates,
engineering and loss control specialists, professional claim management and
legal personnel with extensive construction experience. Construction's products
are distributed through independent agents and brokers throughout the United
States. Construction operations contributed approximately 24% of the Commercial
Accounts premium-based business in 1998. Additionally, construction operations
service-based business contributed $6 million of service fees to the Company in
1998.

         SELECT ACCOUNTS

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

         Personnel in the Company's field offices and other points of local
service, which are located throughout the United States, work closely with
agents to ensure a strong local presence in the marketplace. The Company
utilizes a marketing and underwriting approach based on agency automation and
defined underwriting criteria. Agency automation allows agents access to the
Company's price quotation and policy issuance systems and enables agents


                                       6
<PAGE>   9
to provide faster and more cost-effective service to customers with supervision
and underwriting control. Agents that do not utilize the automated quotation and
policy issuance systems work with the Company's sales and marketing
representatives who have point of sale authority. Agents serving Select Accounts
are given greater control and discretion over underwriting decisions, within
predefined parameters, than brokers selling to larger accounts. Business in
other classifications is subject to consultative review by in-house
underwriters. The Company believes that its breadth of products, highly
qualified field staff and its technology offer distinct competitive advantages.

         SPECIALTY ACCOUNTS

         Specialty Accounts markets products to national, mid-size and small
customers, and distributes them through both wholesale brokers and retail agents
and brokers throughout the United States. The Company believes that it has a
competitive advantage with respect to many of these products based on its
reputation for timely decision-making, underwriting and industry expertise and
strong producer and customer relationships as well as its ability to cross-sell
with National Accounts, Commercial Accounts and Select Accounts.

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

         Gulf Specialty focuses on many non-traditional lines of business with a
particular emphasis on the financial services market. Products include
directors' and officers' liability insurance, errors and omissions coverage for
bankers, investment counselors and mutual fund advisors, and fidelity and surety
coverage for related classes. In addition, Gulf Specialty offers errors and
omissions coverage for professionals and non-professionals such as lawyers,
architects and engineers, insurance agents, podiatrists and chiropractors
medical malpractice, primary and excess property, and various coverages that
target the transportation industry. Gulf Specialty also writes umbrella coverage
for various industries, provides insurance products to the entertainment
industry and to municipalities and provides insurance products for other
industry specific programs. Effective January 1, 1998, the Company's former
Travelers Specialty unit was combined with Gulf Specialty, and during 1998 and
1999 the majority of renewal policies within the former Travelers Specialty unit
are being written as Gulf Specialty policies.

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

         PRICING AND UNDERWRITING

         Pricing levels for property and casualty insurance products by the
Company's Commercial Lines are generally developed based upon the frequency and
severity of estimated losses, the expenses of producing business and
administering claims, and a reasonable allowance  


                                       7
<PAGE>   10
for profit. The Company's strategy emphasizes a profit-oriented approach rather
than a premium volume or market share-oriented approach to underwriting. The
market conditions for all Commercial Lines products are characterized by
difficult pricing and increased competition.

         A significant portion of Commercial Lines business is written with
large deductible insurance policies. Under certain workers' compensation
insurance contracts with deductible features, the Company is obligated to pay
the claimant the full amount of the claim. The Company is subsequently
reimbursed by the contractholder for the deductible amount, and is subject to
credit risk until such reimbursement is made. At December 31, 1998,
contractholder receivables and payables on unpaid losses were each approximately
$2.0 billion. Retrospectively rated policies are primarily used in workers'
compensation coverage. Although the retrospectively rated feature of the policy
substantially reduces insurance risk to the Company, it introduces credit risk
to the Company. Receivables on unpaid losses from holders of retrospectively
rated policies totaled approximately $456 million at December 31, 1998.
Collateral, primarily letters of credit and, to a lesser extent, cash
collateral, is generally requested for large deductible plans and/or
retrospectively rated policies that provide for deferred collection of
deductibles and/or ultimate premiums. The amount of collateral requested is
predicated upon the creditworthiness of the customer and the nature of the
insured risks. Commercial Lines continually monitors the credit exposure on
individual accounts and the adequacy of collateral.

         The Company has developed an underwriting and pricing methodology that
incorporates underwriting, claims, engineering, actuarial and product
development disciplines for particular industries. This approach is designed to
maintain high quality underwriting and pricing discipline. This approach
utilizes proprietary data gathered and analyzed by the Company with respect to
its Commercial Lines business over many years. The underwriters and engineers
use this information to assess and evaluate risks prior to quotation. This
information provides specialized knowledge about industry segments and
catastrophe management and helps analyze risk based on account characteristics
and pricing parameters designed to ensure that the Company does not compromise
its underwriting integrity.

         Select Accounts uses a process based on standard industry
classification (S.I.C.) to allow agents and field marketing representatives to
make underwriting and pricing decisions within predetermined classifications,
because underwriting criteria and pricing tend to be more standardized for
smaller businesses.

         The Company is also a member of and participates in the underwriting
operations of insurance and reinsurance pools and associations, several of which
make independent underwriting decisions on behalf of their members. These pools
insure specialized risks such as exposures related to the aviation and nuclear
power industries.

         The Company continually reviews its exposure to catastrophic losses and
attempts to mitigate such exposure. See "Reinsurance." The Company uses
sophisticated computer modeling techniques to assess underwriting risks and
renewal of business in catastrophe-prone areas.

                                       8
<PAGE>   11
         GEOGRAPHIC DISTRIBUTION

         The following table shows the distribution of Commercial Lines' direct
written premiums for the states that accounted for the majority of premium
volume for the year ended December 31, 1998:
<TABLE>
<CAPTION>

         STATE                                 % OF TOTAL
         -----                                 ----------
<S>                                             <C>  
         New York                                 12.6%
         California                                8.8
         Texas                                     6.8
         Massachusetts                             6.2
         Florida                                   4.5
         Pennsylvania                              4.2
         New Jersey                                3.8
         Illinois                                  3.6
         Connecticut                               3.5
         North Carolina                            3.3
         All Others (1)                           42.7
                                                 ----- 
         TOTAL                                   100.0%
                                                 ===== 
</TABLE>


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

(1)      No other single state accounted for 3.0% or more of the total direct
         written premiums written in 1998 by the Company.

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 1997 direct written premiums
published by A.M. Best. In 1998, Personal Lines generated net written premiums
of approximately $3.5 billion. Personal Lines primarily offers personal
automobile and homeowners insurance.

         SELECTED PRODUCT INFORMATION

         The accompanying table sets forth by product line net written premiums
for Personal Lines for the periods indicated. For a description of the product
lines referred to in the accompanying table below, see "-- Product Lines."


                                       9
<PAGE>   12
                          COMBINED NET WRITTEN PREMIUMS
<TABLE>
<CAPTION>

                                                                                      PERCENTAGE OF TOTAL NET
                                                                                          WRITTEN PREMIUMS
                                                 YEAR ENDED DECEMBER 31,                     YEAR ENDED
                                           ------------------------------------              DECEMBER 31,
                                           1998           1997          1996                   1998
                                           --------      -------      ---------              -----------
                                                    (Dollars in millions)
NET WRITTEN PREMIUMS BY PRODUCT
LINE:
<S>                                      <C>             <C>             <C>                 <C>  
Personal automobile                      $2,328          $1,950          $1,851                66.7%
Homeowners and other                      1,162           1,124             824                33.3
                                         ------          ------          ------               -----
   Total Personal Lines (1)              $3,490          $3,074          $2,675               100.0%
                                         ======          ======          ======               =====

</TABLE>

(1)      In 1998 and 1997, $638 million and $371 million, respectively, of
         Personal Lines net written premiums were generated by new distribution
         channels.

         PRODUCT LINES

         The Company writes virtually all types of property and casualty
insurance covering personal risks. Personal Lines had approximately 5.1 million,
4.6 million and 4.4 million policies in force at December 31, 1998, 1997 and
1996, respectively. 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. In 1997, the Company introduced a nonstandard
automobile product in Texas, distributed through independent agents. In 1998,
the Company expanded its nonstandard auto product into New York, Florida and
Georgia. In 1999, the Company expanded its nonstandard auto product into
Connecticut and plans to further expand this product into states where it has
significant agency representation, including Pennsylvania and Virginia.

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

         PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

         The Company's Personal Lines products are distributed primarily through
approximately 5,000 independent agencies located throughout the United States,
supported by a network of 13 field marketing offices and five customer service
centers. Personal Lines also markets through new distribution channels,
including sponsoring organizations such as employee and affinity groups, the
independent agents of Primerica Financial Services ("Primerica"), a unit of
Citigroup, and joint marketing arrangements with other insurers. In 1998,
Personal Lines began cross-marketing its products to Citibank customers,
primarily credit cardholders. (Citibank is a 


                                       10
<PAGE>   13
unit of Citigroup.) 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. In the
states of Florida, New Jersey, Massachusetts and California, the Company
operates domestic companies to enhance its competitive capability in these
highly regulated markets. Property-casualty licensed Primerica agents market
Personal Lines products under the TRAVELERS SECURE(R) program in 39 states. At
the end of 1998, approximately 14,100 Primerica agents were licensed to sell
Personal Lines products through the TRAVELERS SECURE(R) program. During 1998,
approximately 154,000 new automobile or homeowners policies were sold through
this program. Approximately 38% of Personal Lines new business originated from
new distribution channels in 1998 and represented 22% and 16% of policies in
force at December 31, 1998 and 1997, respectively.

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

         The Company's Personal Lines continues to distribute its products
through the independent agency distribution system, recognizing the service and
underwriting advantages the agent can deliver. In addition to its agency
distribution system, the Company has broadened its distribution channels for
Personal Lines products to include sponsoring organizations such as employee and
affinity groups, joint marketing arrangements with other insurers, and sales
through the independent agents of Primerica, who primarily sell life insurance
products issued by affiliates of the Company as well as mutual funds and other
Citigroup products. In general, the Primerica agents contact potential customers
directly, and then transmit information about the customer to one of the
Company's three regional telemarketing centers. An authorized telemarketing
sales representative contacts the customer to underwrite, sell and ultimately
process new business. In 1998, Personal Lines began marketing products directly
to Citibank customers, primarily credit cardholders: potential customers are
solicited by telephone after transfer from a Citibank customer service call
center, through direct mail or inserts in credit card statements.

         In 1995, Aetna P&C entered into 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 geographically diversify the homeowners line of business. It
also provided for limits on Personal Lines' obligation to write new and renewal
business in certain catastrophe-prone areas.

         The Company believes that its focus on service and development of
long-term relationships with individual agents gives it a competitive advantage
in the Personal Lines market. The Company believes that its expense management
practices, including prompt and 


                                       11
<PAGE>   14
efficient claims handling and high level of automation, allow it to offer a
competitively priced product. In addition, the Company is leveraging its
service, claims handling and automation experience in the expansion of the
distribution of Personal Lines products through its new channels.

         PRICING AND UNDERWRITING

         Pricing for personal automobile insurance is driven by changes in the
frequency of claims and by inflation in the cost of automobile repairs, medical
care and litigation of liability claims. As a result, the profitability of the
business is largely dependent on promptly identifying and rectifying disparities
between premium levels and expected claim costs, and obtaining approval of the
state regulatory authorities for indicated rate increases. Premiums charged for
physical damage coverage reflect insured car values and, accordingly, premium
levels are somewhat related to the volume of new car sales.

         Pricing in the homeowners business is also driven by changes in the
frequency of claims and by inflation in building supplies, labor costs and
household possessions. Most homeowners policies offer (but do not require)
automatic increases in coverage to reflect growth in replacement costs and
property values. In addition to the normal risks associated with any multiple
peril coverage, the profitability and pricing of homeowners insurance is
affected by the incidence of natural disasters, particularly hurricanes, winter
storms, earthquakes and tornadoes. In order to reduce its exposure to
catastrophe losses, the Company has limited the writing of new homeowners
business and selectively non-renewed existing homeowners business in certain
markets, tightened underwriting standards and implemented price increases in
certain catastrophe-prone areas, and instituted deductibles in hurricane-prone
areas, all subject to restrictions imposed by insurance regulatory authorities.
In California, the Company introduced in 1996 an endorsement that reduces its
exposure to catastrophic earthquake claims by increasing the deductible and
limiting other policy coverages in the event of an earthquake loss. The Company
uses computer modeling techniques to assess its level of exposure to loss in
catastrophe-prone areas. Changes to methods of marketing and underwriting in
coastal areas of Florida and New York, and in California are subject to
state-imposed restrictions, the general effect of which is to make it more
difficult for an insurer to reduce exposures.

         Insurers writing property-casualty policies are generally unable to
increase rates until some time after the costs associated with coverage have
increased, primarily as a result of state insurance rate regulation laws. The
pace at which an insurer can change rates in response to competition or to
increased costs depends, in part, on whether the applicable rate regulation law
requires prior approval of a rate increase or notification to the regulator
either before or after a rate increase is imposed. In states having prior
approval laws, a rate must be approved by the regulator before it may be used by
the insurer. In states having "file-and-use" laws, the insurer must file the
rate with the regulator, but does not need to wait for approval before using it.
A "use-and-file" law requires an insurer to file rates within a certain period
of time after the insurer begins using the new rate. Approximately one-half of
the states, including New York and New Jersey, require prior approval of most
rate increases.

         Underwriting of Personal Lines new business policies is conducted
primarily by independent agents. Agents underwrite Personal Lines policies under
strict underwriting 


                                       12
<PAGE>   15
guidelines established and monitored by underwriters in the Company's customer
service centers. Each agent is assigned to a specific employee of the Company or
team of employees responsible for working with the agent on business plan
development, marketing, and overall growth and profitability. The Company uses
agency level management information to analyze and understand results and to
identify problems and opportunities.

         Personal Lines products are also sold through alternative marketing
channels. In these channels, underwriting is conducted by employees of the
Company. Underwriters work with Company management on business plan development,
marketing, and overall growth and profitability. Channel-specific production
information is used to analyze results and identify problems and opportunities.

         GEOGRAPHIC DISTRIBUTION

         The following table shows the distribution of Personal Lines' direct
written premiums for the states that accounted for the majority of premium
volume for the year ended December 31, 1998:
<TABLE>
<CAPTION>
STATE                                % OF TOTAL
-----                                ----------
<S>                                  <C>  
New York                                21.7%
Texas                                    9.1
New Jersey                               8.6
Pennsylvania                             8.3
Florida                                  6.2
Massachusetts                            5.6
Connecticut                              5.4
Virginia                                 3.7
Georgia                                  3.5
North Carolina                           3.2
California                               3.1
All others (1)                          21.6
                                       ----- 
TOTAL                                  100.0%
                                       ===== 
</TABLE>

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

(1)      No other single state accounted for 3.0% or more of the total direct
         written premiums written in 1998 by the Company.

CLAIM ADMINISTRATION

         The Company employs approximately 8,500 claim adjusters, appraisers,
investigators, staff attorneys, system specialists and training, management and
support personnel in the claim department. These employees manage over 90% of
the Company's claims. Approved external vendors, such as claim adjusters,
appraisers, investigators and attorneys, are used only when the geographic
location or unique issues raised by a claim warrant such use. To be approved,
these vendors must have a proven record and have demonstrated cost-consciousness
and relevant technical skills.

                                       13
<PAGE>   16
         The Company seeks to achieve optimal levels of losses and loss
adjustment expenses while maintaining its high level of service. The Company's
claim department is organized to meet these goals. The organization features
seven operating regions, and grants to the regions authority to address the
needs of local customers, underwriters, agents and brokers across Commercial
Lines and Personal Lines. In addition, technical and legal personnel have
created teams around technical specialties to better support the regional
operations. This structure permits the Company to maintain the economies of
scale of a larger, established company while enjoying the flexibility of a
smaller company that can quickly respond to the needs of its customers,
underwriters, agents and brokers. The home office continues to monitor adherence
to claims policies and procedures, the adequacy of case reserves, loss and
expense controls and productivity and service standards.

         The Company continuously reviews its claim practices in its effort to
meet its service and loss and expense objectives. The Company's claim
adjudication process focuses on the segmentation of claims, based on complexity
of the claim, required technical specialization, and speed of process. To
enhance this effort, the Company's claim handling staff and workflow design is
organized around line of business specialization. In 1998, through workflow and
management information improvements, the Company enhanced its claim adjudication
process for auto physical damage.

         Another example of this effort is the Company's introduction of
TravComp, a workers' compensation claim and medical management program that
assists adjusters in promptly investigating, validating or rejecting workers'
compensation claims. Medical management workstations permit nurse professionals
to access additional information that supports the Company's emphasis on early
return to work strategies for these claims. These new technologies, together
with better matching of professional skills and authority to specific claim
issues, have resulted in workers' compensation cases closing faster and with
lower losses and loss adjustment expenses.

         Environmental, asbestos and other cumulative injury claims are
separately managed by the Company's Special Liability Group. See "Environmental,
Asbestos and Other Cumulative Injury Claims."

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 subject to aggregate loss
limits. Although the reinsurer is liable to the Company to the extent of the
reinsurance ceded, the Company remains primarily liable as the direct insurer on
all risks reinsured. Reinsurance recoverables are reported after allowances for
uncollectible amounts. The Company also holds collateral, including escrow funds
and letters of credit, under certain reinsurance agreements. The Company
monitors the financial condition of reinsurers on an ongoing basis, and reviews
its reinsurance arrangements periodically. Reinsurers are selected based on
their financial condition, business practices and the price of their product
offerings. For additional information concerning reinsurance, see Note 6 of
Notes to Consolidated Financial Statements.

                                       14
<PAGE>   17
         The Company utilizes a variety of reinsurance agreements to control its
exposure to large property and casualty losses. The Company utilizes the
following types of reinsurance: (i) facultative reinsurance, in which
reinsurance is provided for all or a portion of the insurance provided by a
single policy and each policy reinsured is separately negotiated; (ii) treaty
reinsurance, in which reinsurance is provided for a specified type or category
of risks; and (iii) catastrophe reinsurance, in which the Company is indemnified
for an amount of loss in excess of a specified retention with respect to losses
resulting from a catastrophic event.

         The following presents the Company's top five reinsurers (except
Lloyd's of London ("Lloyd's") which is discussed in more detail below) by
reinsurance recoverable at December 31, 1998 (in millions):

<TABLE>
<CAPTION>
                                       REINSURANCE 
       REINSURER                        RECOVERABLE      A.M. BEST RATING OF REINSURER
----------------------------------     -------------     -----------------------------
<S>                                    <C>               <C>       
General Reinsurance Corporation            $513          A++ highest of 15 ratings
American Re-Insurance Company              404           A+  2nd highest of 15 ratings
Executive Risk Indemnity Inc.              167           A   3rd highest of 15 ratings
Employers Reinsurance Corporation          139           A++ highest of 15 ratings
Transatlantic Reinsurance Company          123           A++ highest of 15 ratings
</TABLE>

         As of December 31, 1998, the Company had reinsurance recoverables from
Lloyd's of $398 million. In 1996, Lloyd's restructured its operations with
respect to claims for years prior to 1993 and reinsured these into Equitas
Limited ("Equitas"), which is currently unrated. Approximately $310 million of
the Company's Lloyd's reinsurance recoverable at December 31, 1998 relates to
Equitas liabilities. The remaining recoverables of $88 million are from the
continuing market of Lloyd's, which is rated A (3rd highest of 15 ratings) by
A.M. Best.

         The impact of the Lloyd's restructuring on the collectibility of
amounts recoverable by the Company from Lloyd's cannot be quantified at this
time. The Company believes that it is possible that an unfavorable impact on
collectibility could have a material adverse effect on the Company's operating
results in a future period. However, the Company believes that it is not likely
that the outcome of these matters would have a material adverse effect on the
Company's financial condition or liquidity.

         The Company participates in pools with other insurers to provide
capacity for unique and high-valued risks such as exposures related to the
aviation and nuclear power industries. The Company's maximum net exposure to
this type of business at December 31, 1998 was $15 million per risk.

         At December 31, 1998, the Company had $9.2 billion in reinsurance
recoverables. Of this amount, $3.1 billion is for pools and associations that
relate primarily to workers' compensation service business and have the
obligation of the participating insurance companies on a joint and several basis
supporting these cessions. Also, $2.2 billion is attributable to structured
settlements relating primarily to personal injury claims for which the Company
has purchased an annuity and remains contingently liable in the event of a
default by the company issuing the annuity. Of the remaining $3.9 billion ceded
to reinsurers at December 31, 1998, 


                                       15
<PAGE>   18
$882 million was environmental, asbestos and other cumulative injury-related and
the remainder principally reflects reinsurance in support of ongoing business.
In addition, at December 31, 1998, $407 million of reinsurance recoverables were
collateralized by letters of credit and escrow funds.

         Net Retention Policy. The descriptions below relate to reinsurance
arrangements of the Company in effect at January 1, 1999. For third-party
liability, including automobile no-fault, the reinsurance agreements used by
Commercial Accounts, Construction and Select Accounts limit the net retention to
a maximum of $4 million per insured, per occurrence. Gulf Specialty utilizes
various reinsurance mechanisms and has limited its net retention to a maximum of
$3.75 million per risk for any line of business. For commercial property
insurance, there is a $5 million maximum retention per risk with 100%
reinsurance coverage for risks with higher limits. The reinsurance agreement in
place for workers' compensation policies written by Commercial Accounts,
Construction, National Accounts, Select Accounts, and some segments of
Alternative Markets and Gulf Specialty covers 100% of each loss between $1
million and $10 million. For National Accounts, reinsurance arrangements are
typically tiered, or layered, such that only levels of risk acceptable to the
Company are retained. The reinsurance agreement in place for Personal Lines
umbrella policies covers 100% of each loss between $1 million and $5 million.
For personal property insurance, there is a $6 million maximum retention per
risk. For directors' and officers' liability, employment practices liability and
blended insurance, Bond Specialty retains up to $5 million per risk. For surety
protection, Bond Specialty has reinsurance coverage for 95% of up to $50 million
of liability in excess of $50 million of liability. The risk tolerance of Bond
Specialty varies by line of business and by risk. Bond Specialty purchases an
accident year aggregate cover attaching at a 40% loss ratio to lower its
exposure to large losses or loss frequency. The first layer of the aggregate
provides 96% of approximately $41.4 million and the second layer provides 80% of
approximately $35.5 million of reinsurance coverage in excess of a $94.7 million
retention.

         Catastrophe Reinsurance. The Company utilizes reinsurance agreements
with nonaffiliated reinsurers to control its exposure to losses resulting from
one occurrence. For the accumulation of net property losses arising out of one
occurrence, reinsurance agreements cover 40% of total losses between $250
million and $750 million. For multiple workers' compensation losses arising from
a single occurrence, reinsurance agreements cover 100% of losses between $10
million and $250 million and, for workers' compensation losses caused by
property perils, reinsurance agreements cover 40% of losses between $250 million
and $750 million.

         For the accumulation of net casualty losses arising out of one
occurrence, a casualty clash agreement covers 95% of losses between $10 million
and $50 million.

         The Company reviews its risk and catastrophe covers at least quarterly
and makes changes it deems appropriate.

         REINSURANCE FUND

         The Company also participates in the Florida Hurricane Catastrophe Fund
("FHCF"), which is a state-mandated catastrophe reinsurance fund that provides
reimbursement to insurers for a portion of their future catastrophic hurricane
losses. FHCF is primarily funded by 


                                       16
<PAGE>   19
premiums from insurance companies that write residential property business in
Florida and, if insufficient, assessments on insurance companies that write
other property and casualty insurance, excluding workers' compensation. FHCF's
resources are limited to these contributions and to its borrowing capacity at
the time of a significant catastrophe in Florida. There can be no assurance that
these resources will be sufficient to meet the obligations of FHCF.

         The Company's recovery of less than contracted amounts from FHCF could
have a material adverse effect on the Company's results of operations in the
event of a significant catastrophe in Florida. However, the Company believes
that it is not likely that the Company's recovery of less than contracted
amounts from FHCF would have a material adverse effect on the Company's
financial condition or liquidity.

RESERVES

         Property and casualty claim reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses for claims that
have been reported but not yet settled and claims that have been incurred but
not reported. The Company establishes reserves by line of business, coverage and
year.

         The process of estimating claim reserves is imprecise due to a number
of variables. These variables are affected by both internal and external events
such as changes in claims handling procedures, inflation, judicial trends and
legislative changes. Many of these items are not directly quantifiable,
particularly on a prospective basis. Additionally, there may be significant
reporting lags between the occurrence of the insured event and the time it is
actually reported to the insurer. The Company continually refines reserve
estimates in a regular ongoing process as experience develops and further claims
are reported and settled. The Company reflects adjustments to reserves in the
results of operations in the periods in which the estimates are changed. In
establishing reserves, the Company takes into account estimated recoveries for
reinsurance, salvage and subrogation.

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

         Discounting. The liability for losses for certain long-term disability
payments under workers' compensation insurance and workers' compensation excess
insurance has been discounted using a maximum interest rate of 5%. At December
31, 1998, 1997 and 1996 the combined amounts of discount for the Company were
$781 million, $912 million and $1.012 billion, respectively.

                                       17
<PAGE>   20
         For a reconciliation of beginning and ending property and casualty
insurance claims and claim adjustment expense reserves of the Company for each
of the last three years, see Note 7 of Notes to Consolidated Financial
Statements.

         The table at the end of this section sets forth the year-end reserves
from 1988 through 1998 and the subsequent changes in those reserves, presented
on a historical basis for the Company. Accordingly, the original estimates,
cumulative amounts paid and reestimated reserves in the table for the years
1988-1995 have not been restated to include Aetna P&C. Beginning in 1996, the
table includes the reserve activity of Aetna P&C. The data in the table is
presented in accordance with reporting requirements of the Securities and
Exchange Commission. Care must be taken to avoid misinterpretation by those
unfamiliar with such information or familiar with other data commonly reported
by the insurance industry. The accompanying data is not accident year data, but
rather a display of 1988-1998 year-end reserves and the subsequent changes in
those reserves.

         For instance, the "cumulative deficiency or redundancy" shown in the
accompanying table for each year represents the aggregate amount by which
original estimates of reserves as of that year-end have changed in subsequent
years. Accordingly, the cumulative deficiency for a year relates only to
reserves at that year-end and such amounts are not additive. Expressed another
way, if the original reserves at the end of 1988 included $4 million for a loss
that is finally settled in 1998 for $5 million, the $1 million deficiency (the
excess of the actual settlement of $5 million over the original estimate of $4
million) would be included in the cumulative deficiencies in each of the years
1988-1997 shown in the accompanying table.

         Certain factors may distort the re-estimated reserves and cumulative
deficiency or redundancy shown in the accompanying table. For example, a
substantial portion of the cumulative deficiencies in each of the years
1988-1998 arises from claims on policies written prior to the mid-1970s
involving liability exposures such as environmental, asbestos and other
cumulative injury claims. In the post-1984 period, the Company has developed
more stringent underwriting standards and policy exclusions and has
significantly contracted or terminated the writing of such risks. See
"Environmental, Asbestos and Other 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. These amounts recoverable mitigate the impact of the
cumulative deficiencies or redundancies but are not reflected in the


                                       18
<PAGE>   21
accompanying table. This mechanism affords the Company significant financial
protection against adverse development on this block of net reserves.

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

         The differences between the reserves for claims and claim adjustment
expenses shown in the accompanying table, which is prepared in accordance with
GAAP, and those reported in the annual statements of the Company filed with
state insurance departments, which are prepared in accordance with statutory
accounting practices, were: $37 million, $31 million and $14 million for 1998,
1997 and 1996, respectively.


                                       19
<PAGE>   22
<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,

                                  1988(a)  1989(a)  1990(a)  1991(a)  1992(a)  1993(a)  1994(a)  1995(a)  1996(b)  1997(b)  1998(b)
                                 -------------------------------------------------------------------------------------------------
                                                                        (Dollars in millions)
<S>                               <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>    
Reserves for Loss and Loss 
Adjustment Expense 
Originally Estimated:             $ 6,954  $ 7,729  $ 8,022  $ 8,360  $ 8,955  $ 9,319  $ 9,712  $10,090  $21,816  $21,406  $ 20,763
Cumulative amounts paid as of
One year later                      1,828    2,091    2,135    1,869    2,005    1,706    1,595    1,521    3,704    4,025
Two years later                     3,101    3,488    3,422    3,161    3,199    2,843    2,631    2,809    6,600
Three years later                   4,063    4,415    4,351    4,041    4,063    3,610    3,798    3,903
Four years later                    4,710    5,095    4,996    4,706    4,662    4,563    4,676
Five years later                    5,227    5,597    5,492    5,182    5,465    5,274
Six years later                     5,620    5,995    5,887    5,878    6,078
Seven years later                   5,952    6,333    6,466    6,421
Eight years later                   6,251    6,851    6,953
Nine years later                    6,725    7,287
Ten years later                     7,131

Reserves re-estimated as of

One year later                      7,080    7,832    8,128    8,362    9,058    9,270    9,486    9,848   21,345   21,083
Two years later                     7,243    7,929    8,197    8,637    9,139    9,234    9,310    9,785   21,160
Three years later                   7,405    8,077    8,592    8,906    9,183    9,108    9,395    9,789
Four years later                    7,585    8,560    9,003    9,026    9,189    9,271    9,427
Five years later                    8,098    8,991    9,159    9,123    9,405    9,298
Six years later                     8,531    9,189    9,295    9,367    9,440
Seven years later                   8,715    9,328    9,551    9,396
Eight years later                   8,871    9,592    9,586
Nine years later                    9,163    9,616
Ten years later                     9,189

Cumulative deficiency 
     (redundancy)                   2,235    1,887    1,564    1,036      485      (21)    (285)    (301)    (656)    (323)


Gross liability -- end of year                                                  $14,638  $15,013  $15,213  $30,969  $30,138  $29,411
Reinsurance recoverables                                                          5,319    5,301    5,123    9,153    8,732    8,648
                                                                                ----------------------------------------------------

Net liability -- end of year                                                    $ 9,319  $ 9,712  $10,090  $21,816  $21,406  $20,763
                                                                                ====================================================
Gross reestimated liability 
     -- latest                                                                  $14,781  $15,157  $14,930  $30,430  $29,886

Reestimated reinsurance                                                                                             
   recoverables -- latest                                                         5,483    5,730    5,141    9,270    8,803
                                                                                -------------------------------------------
Net reestimated liability 
    -- latest                                                                   $ 9,298  $ 9,427  $ 9,789  $21,160  $21,083
                                                                                ===========================================
Gross cumulative deficiency
    (redundancy)                                                                $   143  $   144  $  (283) $  (539) $  (252)
                                                                                ===========================================
</TABLE>

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

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


                                       20
<PAGE>   23
STATUTORY COMBINED RATIO INFORMATION

         The statutory combined ratio is an industry measurement of the results
of property and casualty insurance underwriting. This ratio is the sum of the
ratio of incurred losses and loss adjustment expenses to net premiums earned
(the "loss and LAE ratio"), the ratio of underwriting expenses incurred to net
premiums written (the "underwriting expense ratio") and, where applicable, the
ratio of dividends to policyholders to net premiums earned. A combined ratio
under 100% generally indicates an underwriting profit; a combined ratio over
100% generally indicates an underwriting loss. However, investment income,
federal income taxes and other non-underwriting income or expenses, such as fee
income, are not reflected in the statutory combined ratio. The profitability of
property and casualty insurance companies depends on income from underwriting,
investment and service operations. Lines of business where claims are paid out
over a longer period of time ("long-tail"), such as workers' compensation, also
provide investment income over a longer period of time and therefore can be
profitable at higher combined ratios than lines where claims are paid out over a
shorter period ("short-tail"). Insurers with a high proportion of long-tail
policies will generally have higher combined ratios than insurers with more
short-tail business.

         The ratios shown in the table below are computed based upon statutory
accounting practices, not generally accepted accounting principles ("GAAP"). For
information on GAAP combined ratios, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

                            STATUTORY COMBINED RATIOS
<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                    -----------------------------------
                                     1998         1997        1996
                                    ------       ------      ------
<S>                                 <C>          <C>          <C>  
Commercial Lines:
   Loss and LAE ratio                78.5%        78.4%        96.2%
   Underwriting expense ratio        29.7         30.6         32.7
   Combined ratio before
      policyholder dividends        108.2        109.0        128.9 (1)
   Combined ratio                   109.1        111.0        129.6

Personal Lines:
   Loss and LAE ratio                66.7         63.5         68.7
   Underwriting expense ratio        27.2         28.7         28.9
   Combined ratio                    93.9         92.2         97.6 (2)

Total:
   Loss and LAE ratio                73.6         72.4         85.5
   Underwriting expense ratio        28.6         29.9         31.3
   Combined ratio before
      policyholder dividends        102.2        102.3        116.8
   Combined ratio                   102.7        103.5        117.2
</TABLE>

(1)   Includes the effect of charges associated with the Acquisition and also
      includes statutory charges made to conform accounting policies and Company
      strategies in connection with the Acquisition (but not for GAAP reporting
      purposes due to purchase accounting). Excluding such charges, the combined
      ratio before policyholder dividends was 110.0%.

(2)   Includes the effect of the Company's review of reserves associated with
      the Acquisition. The combined ratio excluding this item was 100.1%.


                                       21
<PAGE>   24
ENVIRONMENTAL, ASBESTOS AND OTHER CUMULATIVE INJURY CLAIMS

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

INSURANCE POOLS

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

RATINGS

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

         The following table summarizes the current claims-paying and financial
strength ratings of the Company's property-casualty insurance pools and
Travelers C&S of America by A. M. Best, Duff & Phelps Corp. ("Duff & Phelps"),
Moody's Investor's Service Inc. ("Moody's") and Standard & Poor's Ratings Group
("Standard & Poor's"). The table also presents the position of each rating in
the applicable agency's rating scale.
<TABLE>
<CAPTION>
                                                                                                       STANDARD &
                                              A.M. BEST        DUFF & PHELPS         MOODY'S             POOR'S
                                          -------------       --------------    --------------        --------------
<S>                                      <C>                 <C>               <C>                    <C>
Travelers Property Casualty pool (1)      A+ (2nd of 15)      AA- (4th of 18)   Aa3 (4th of 19)       AA- (4th of 18)
Gulf pool (2)                             A+ (2nd of 15)              --                --            AA  (3rd of 18)
Travelers C&S of America                  A+ (2nd of 15)      AA- (4th of 18)   Aa3 (4th of 19)       AA- (4th of 18)
</TABLE>


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


(1)   The Travelers Property Casualty pool consists of The Travelers Indemnity
      Company, Travelers Casualty and Surety Company, The Phoenix Insurance
      Company, The Standard Fire Insurance Company, Travelers Casualty and
      Surety Company of Illinois, Farmington Casualty Company, The Travelers
      Indemnity Company 


                                       22
<PAGE>   25
         of Connecticut, The Automobile Insurance Company of Hartford,
         Connecticut, The Charter Oak Fire Insurance Company, The Travelers
         Indemnity Company of America, The Travelers Indemnity Company of
         Missouri, Travelers Casualty Company of Connecticut, Travelers
         Commercial Insurance Company, The Travelers Indemnity Company of
         Illinois, Travelers Property Casualty Insurance Company, TravCo
         Insurance Company, The Travelers Home and Marine Insurance Company,
         Travelers Personal Security Insurance Company, Travelers Property
         Casualty Insurance Company of Illinois and Travelers Excess and Surplus
         Lines Company.

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

INVESTMENTS

         Insurance company investments must comply with applicable laws and
regulations which prescribe the kind, quality and concentration of investments.
In general, these laws and regulations permit investments, within specified
limits and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common equity securities, mortgage
loans, real estate and certain other investments.

         At December 31, 1998, the carrying value of the Company's investment
portfolio was $31.9 billion, of which 92.7% was invested in fixed maturity
investments and short-term investments (of which 43% was invested in federal,
state or municipal government obligations), 2.1% in mortgage loans and real
estate held for sale, 2.6% in common stocks and other equity securities and 2.6%
in other investments. The average duration of the fixed maturity portfolio,
including short-term investments, was 5.4 years at such date. Non-investment
grade securities totaled approximately $1.2 billion, representing approximately
4.2% of the Company's fixed maturity investment portfolio as of December 31,
1998.

         The following table sets forth information regarding the investments of
the Company. It reflects the average amount of investments, net investment
income earned and the yield thereon for the years ended December 31, 1998, 1997
and 1996. The table includes information on the investments of Aetna P&C for
periods prior to April 2, 1996 (the date of the Acquisition). See Note 5 of
Notes to Consolidated Financial Statements and the discussion of Investment
Portfolio in Item 7 of this Form 10-K for information regarding the investment
portfolio of the Company.
<TABLE>
<CAPTION>

                                                       YEAR ENDED DECEMBER 31,
                                        -----------------------------------------------------
                                           1998                1997                 1996
                                        -----------         -----------         -------------
                                                         (Dollars in millions)
<S>                                       <C>                 <C>                 <C>      
Average investments                       $31,458.5           $30,197.7           $28,018.7
Net investment income                     $ 2,100.0           $ 2,050.8           $ 1,898.6
Average yield (1)                               7.4%                7.4%                7.2%
Average tax equivalent yield (1)                8.2%                8.0%                7.7%
</TABLE>

---------------------
(1)      Excluding realized and unrealized investment gains and losses.

         DERIVATIVES

         See Note 13 of Notes to Consolidated Financial Statements for a
discussion of the policies and transactions related to derivatives of the
Company.

                                       23
<PAGE>   26
COMPETITION

         The property and casualty insurance industry is highly competitive in
the areas of price, service, product offerings, agent relationships and, in the
case of personal property and casualty business, method of distribution (i.e.,
use of independent agents, exclusive agents and/or salaried employees). There
are approximately 1,100 property-casualty organizations in the United States,
comprised of approximately 2,400 property-casualty companies. Of those
organizations, the top 200 account for approximately 90% of the consolidated
industry's total net written premiums. In addition, an increasing amount of
commercial risks are covered by purchaser self-insurance, large deductibles,
risk-purchasing groups, risk-retention groups and captive companies.

         COMMERCIAL LINES. The insurance industry is represented in the
commercial lines marketplace by many insurance companies of varying size as well
as self-insurance programs or captive insurers. 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.

         The National Accounts market is highly competitive. Competition is
based primarily on price and breadth of products and services. National Accounts
business is generally written through national brokers and regional agents. The
Company's Alternative Market business also competes for state contracts to
provide claims and policy management services. These contracts, which generally
have three-year terms, are selected by state agencies through a bid process
based on the quality of service and price. The Company has emerged as the
largest assigned risk plan service carrier in the industry with approximately
25% of the market in 1998.

         The Commercial Accounts market is highly competitive. Commercial
Accounts business has historically been written through independent agents and
brokers, although some companies use direct writing. Competitors in this market
are primarily national property-casualty insurance companies willing to write
most classes of business using traditional products and pricing and, to a lesser
extent, regional insurance companies and companies that have developed niche
programs for specific industry segments. Companies compete on price, product
offerings, response time in policy issuance and claim and loss prevention
services. Additionally, reduced overhead and improved efficiency through
automation and response time to customer needs are key to success in this
market. The construction market has become a focused industry segment for
several large insurance companies. Construction market business is written
through agents and brokers. Insurance companies compete in this market based
upon price, product offering and claim and risk management service. The Company
utilizes its specialized underwriters, engineers, auditors and claim handlers,
who have extensive experience and knowledge of the construction industry, to
work with agents and brokers to compete effectively in this market.

         The Select Accounts market is highly competitive and is typically
written through independent agents and, to a lesser extent, regional brokers.
Both national and regional property-


                                       24
<PAGE>   27
casualty insurance companies compete in the Select Accounts market which is
generally comprised of low risk, "main street" business customers. Risks are
underwritten and priced using standard industry practices and a combination of
proprietary and standard industry product offerings. Competition in this market
is primarily based on price, product offerings and response time in policy
services. The Company has established a strong marketing relationship with its
distribution network and has provided it with defined underwriting policies,
competitive prices and efficient automated environments.

         The market in which Specialty Accounts competes includes small to
mid-size niche companies that target certain lines of insurance and larger,
multi-line companies that focus on various segments of the Specialty Accounts
market. Specialty Accounts business is generally written through wholesale
brokers and retail agents and brokers throughout the United States. Gulf
Specialty derives a competitive advantage through its underwriting practices,
low expense levels and broad product offering base. Bond Specialty's reputation
for timely decision-making, a nationwide network of local underwriting and
industry experts and strong producer and customer relationships as well as its
ability to offer its customers a full range of financial services products,
enable it to compete effectively. Its ability to cross-sell Bond Specialty
products to customers of National Accounts, Commercial Accounts, Select Accounts
and through other Citigroup units provides further competitive advantages for
the Company.

         PERSONAL LINES. Personal lines insurance is written by hundreds of
insurance companies of varying sizes. Although national companies write the
majority of the business, the Company also faces competition from local or
regional companies which often have a competitive advantage because of their
knowledge of the local marketplace and their relationship with local agents. The
Company believes that the principal competitive factors are price, service,
perceived stability of the insurer and name recognition. The Company also
competes for business within each of the independent agencies representing it,
because these agencies also offer policies of competing independent agency
companies. At the agency level, the Company believes that competition is
primarily based on price and the level of service, including claims handling, as
well as the level of automation and the development of long-term relationships
with individual agents. The Company also competes with insurance companies that
use captive agents or salaried employees to sell their products. Because these
companies generally pay lower commissions than independent agency companies,
they may be able to generate business at a lower cost than the Company. Due to
this expense advantage, direct writing companies have gradually expanded their
market share in recent years. However, in addition to its traditional
independent agency distribution, Personal Lines has broadened its distribution
of Personal Lines products to include marketing through the Primerica sales
force, marketing to sponsoring organizations including employee and affinity
groups, establishment of joint marketing arrangements with other insurers and
cross-marketing to Citibank customers. The Company believes that its continued
focus on expense management practices enables it to price its products
competitively in all of its distribution channels. The personal auto insurance
marketplace has been more competitive in 1998 as some personal auto carriers
have reduced prices in selected markets. This trend is expected to continue in
1999.

                                       25
<PAGE>   28
REGULATION

         STATE REGULATION

         The Company's insurance subsidiaries are subject to regulation in the
various states and jurisdictions in which they transact business. The extent of
regulation varies but generally has its source in statutes that delegate
regulatory, supervisory and administrative authority to a department of
insurance in each state. The regulation, supervision and administration relate,
among other things, to the standards of solvency that must be met and
maintained, the licensing of insurers and their agents, the nature of and
limitations on investments, premium rates, restrictions on the size of risks
that may be insured under a single policy, reserves and provisions for unearned
premiums, losses and other obligations, deposits of securities for the benefit
of policyholders, approval of policy forms and the regulation of market conduct
including the use of credit information in underwriting as well as other
underwriting and claims practices. In addition, many states have enacted
variations of competitive rate-making laws which allow insurers to set certain
premium rates for certain classes of insurance without having to obtain the
prior approval of the state insurance department. State insurance departments
also conduct periodic examinations of the affairs of insurance companies and
require the filing of annual and other reports relating to the financial
condition of companies and other matters.

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

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

         The Company's principal insurance subsidiaries are domiciled in the
State of Connecticut. The insurance holding company law of Connecticut requires
notice to, and approval by, the state insurance commissioner for the declaration
or payment of any dividend, which together with other distributions made within
the preceding twelve months, exceeds the greater of (i) 10% of the insurer's
surplus or (ii) the insurer's net income for the twelve-month period ending the
preceding December 31st, in each case determined in accordance with statutory
accounting practices. Such declaration or payment is further limited by adjusted
unassigned funds (surplus), as determined in accordance with statutory
accounting practices. The insurance holding company laws of other states in
which the Company's insurance subsidiaries are domiciled generally contain
similar (although in certain instances somewhat more restrictive) limitations on
the payment of dividends. Dividend payments to the Company from its insurance
subsidiaries are limited to $1.0 billion in 1999 without prior approval of the
Connecticut Insurance Department.

                                       26
<PAGE>   29
         Virtually all states require insurers licensed to do business in their
state to bear a portion of the loss suffered by certain insureds as a result of
the insolvency of other insurers. Depending upon state law, insurers can be
assessed an amount that is generally equal to between 1% and 2% of premiums
written for the relevant lines of insurance in that state each year to pay the
claims of an insolvent insurer. Most of these payments are recoverable through
premium rates, premium tax credits or policy surcharges. Significant increases
in assessments could limit the ability of the Company's insurance subsidiaries
to recover such assessments through tax credits. In addition, there have been
some legislative efforts to limit or repeal the tax offset provisions, which
efforts, to date, have been generally unsuccessful. These assessments may
increase or decrease in the future depending upon the rate of insolvencies of
insurance companies.

         The Company's insurance subsidiaries are also required to participate
in various involuntary assigned risk pools, principally involving workers'
compensation and automobile insurance, which provide various insurance coverages
to individuals or other entities that otherwise are unable to purchase such
coverage in the voluntary market. Participation in these pools in most states is
generally in proportion to voluntary writings of related lines of business in
that state. Combined earned premiums related to such pools and assigned risks
for the Company were $176 million, $226 million and $379 million in 1998, 1997
and 1996, respectively. The related combined underwriting losses for the Company
were $19 million, $16 million and $39 million in 1998, 1997 and 1996,
respectively.

         Proposed legislation and regulatory changes have been introduced in the
states from time to time that would modify certain laws and regulations
affecting the financial services industry, including the provisions governing
relationships among insurance companies and agents, investment banks and
commercial banks. The potential impact of such legislation on the Company's
businesses cannot be predicted at this time.

         INSURANCE REGULATIONS CONCERNING CHANGE OF CONTROL

         Many state insurance regulatory laws intended primarily for the
protection of policyholders contain provisions that require advance approval by
state agencies of any change in control of an insurance company that is
domiciled (or, in some cases, having such substantial business that it is deemed
to be commercially domiciled) in that state. The Company owns, directly or
indirectly, all of the shares of stock of certain property and casualty
insurance companies domiciled in the States of California, Connecticut, Florida,
Illinois, Massachusetts, Missouri, New Jersey and Texas. "Control" is generally
presumed to exist through the ownership of 10% or more of the voting securities
of a domestic insurance company or of any company that controls a domestic
insurance company. Any purchaser of shares of Common Stock representing 10% or
more of the voting power of the Company will be presumed to have acquired
control of the Company's domestic insurance subsidiaries unless, following
application by such purchaser in each insurance subsidiary's state of domicile,
the relevant Insurance Commissioner determines otherwise. In addition, many
state insurance regulatory laws contain provisions that require prenotification
to state agencies of a change in control of a nondomestic admitted insurance
company in that state. While such prenotification statutes do not authorize the
state agency to disapprove the change of control, such statutes do authorize
issuance of a cease and desist order with respect to the nondomestic admitted
insurer if certain conditions exist such as undue market concentration. Any
future 


                                       27
<PAGE>   30
transactions that would constitute a change in control of the Company would
generally require prior approval by the insurance departments of the states in
which the Company's insurance subsidiaries are domiciled or commercially
domiciled and may require preacquisition notification in those states that have
adopted preacquisition notification provisions and in which such insurance
subsidiaries are admitted to transact business.

         A subsidiary of the Company is domiciled in the United Kingdom.
Insurers in the United Kingdom are subject to certain change of control
restrictions in the Insurance Companies Act of 1982 which require the approval
of The Department of Trade and Industry if any person is to become a
"controller" (which is defined as a person entitled to exercise control of 15%
or more of the voting power) of an authorized insurance company.

         Certain other insurance subsidiaries of the Company are domiciled in,
or authorized to conduct insurance business in Canada. Authorized insurers in
Canada are subject to certain change of control restrictions in Section 407 of
the Insurance Companies Act, which requires the approval of the Minister of
Finance if any person acquires a "significant interest" (beneficial ownership,
directly or through one or more entities controlled by such person, of 10% of
the outstanding shares of such Company) in an authorized insurance company.

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

         INSURANCE REGULATORY INFORMATION SYSTEM

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

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

         In each of the last three years, certain of the Company's insurance
subsidiaries have been outside of the usual range for certain IRIS ratios. In
all such instances, the regulators have been satisfied upon follow-up that there
is no solvency problem. It is possible that similar events could occur this
year, and management believes that the resolution would be the same. No


                                       28
<PAGE>   31
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 three years ended December 31, 1998.

         For 1998, Travelers Indemnity, the lead company for the Travelers
Property Casualty pool, had no values outside the usual range for all IRIS
ratios. For 1997, Travelers Indemnity was outside the usual range for the
liabilities to liquid assets ratio. Travelers Indemnity is also the ultimate
parent of 19 insurance companies and several other non-insurance entities. As a
result, this ratio is distorted because all of the liabilities are included in
the calculation while Travelers Indemnity's significant investment in
affiliates, which increased in 1997, is excluded from liquid assets. For 1996,
both the two-year overall operating ratio and the two-year reserve development
to surplus ratios were outside the usual range for Travelers Casualty and Surety
Company ("Travelers Casualty") and The Standard Fire Insurance Company
("Standard Fire") because of actions taken during 1996 and 1995 to strengthen
reserves for environmental and asbestos-related claims. Both Travelers Casualty
and Standard Fire have been members of the Travelers Property Casualty pool
since January 1, 1997. In addition, in 1996, the change in writings ratio
produced an unusual value for Standard Fire and the estimated current reserve
deficiency to surplus ratio was outside the usual range for Travelers C&S of
America, both as a result of a decision in 1995 to combine the Aetna P&C's two
intercompany pooling arrangements (one for Personal Lines and one for Commercial
Lines) into one pool. If these two ratios were recalculated to have all items
reflect the new agreement, the ratios would not produce unusual values.
Concurrent with the change in the intercompany pooling arrangements, capital was
reallocated among Aetna P&C insurers, which resulted in an unusual value in the
change in surplus ratio for Standard Fire.

         The following table sets forth information regarding the premium to
surplus ratios of the Company. For informational purposes only, the table
includes Aetna P&C for all periods presented.

             SCHEDULE OF PREMIUM TO SURPLUS RATIOS (STATUTORY BASIS)
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                               --------------------------------
                                                 1998        1997         1996
                                               -------      ------       ------
                                                     (Dollars in millions)
<S>                                             <C>         <C>          <C>   
Net written premiums                            $8,104      $7,832       $7,343
Capital and surplus                              7,079       6,188        5,423
Ratio of net written premiums to capital
   and surplus                                    1.14x       1.27x        1.35x
</TABLE>

         RISK-BASED CAPITAL (RBC) REQUIREMENTS

         In order to enhance the regulation of insurer solvency, the NAIC has
adopted a formula and model law to implement RBC requirements for most property
and casualty insurance companies, which is designed to assess minimum capital
requirements and to raise the level of protection that statutory surplus
provides for policyholder obligations. The RBC formula for property and casualty
insurance companies measures four major areas of risk facing property and
casualty insurers: (i) underwriting, which encompasses the risk of adverse loss
developments and inadequate pricing; (ii) declines in asset values arising from
credit risk; (iii) declines in asset 


                                       29
<PAGE>   32
values arising from investment risks; and (iv) off-balance sheet risk arising
from adverse experience from non-controlled assets, guarantees for affiliates or
other contingent liabilities and reserve and premium growth. Pursuant to the
law, insurers having less statutory surplus than that required by the RBC
calculation will be subject to varying degrees of regulatory action, depending
on the level of capital inadequacy.

         The RBC law provides for four levels of regulatory action. The extent
of regulatory intervention and action increases as the level of surplus to RBC
falls. The first level, the Company Action Level (as defined by the NAIC),
requires an insurer to submit a plan of corrective actions to the regulator if
surplus falls below 200% of the RBC amount. The Regulatory Action Level (as
defined by the NAIC) requires an insurer to submit a plan containing corrective
actions and permits the relevant Insurance Commissioner to perform an
examination or other analysis and issue a corrective order if surplus falls
below 150% of the RBC amount. The Authorized Control Level (as defined by the
NAIC) allows the relevant Insurance Commissioner to rehabilitate or liquidate an
insurer in addition to the aforementioned actions if surplus falls below 100% of
the RBC amount. The fourth action level is the Mandatory Control Level (as
defined by the NAIC) which requires the relevant Insurance Commissioner to
rehabilitate or liquidate the insurer if surplus falls below 70% of the RBC
amount.

         The formulas have not been designed to differentiate among adequately
capitalized companies which operate with higher levels of capital. Therefore, it
is inappropriate and ineffective to use the formulas to rate or to rank such
companies. At December 31, 1998, all of the Company's property-casualty
insurance companies had adjusted capital in excess of amounts requiring company
or regulatory action at any of the four levels.

         FEDERAL REGULATION

         Citigroup is a bank holding company subject to the provisions of the
Bank Holding Company Act of 1956 (the "BHCA"). For a discussion of the BHCA and
its application to the Company, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Note 2 of Notes
to Consolidated Financial Statements.

         Although the federal government does not directly regulate the business
of insurance, other than flood insurance, federal initiatives often have an
impact on the insurance industry. Legislation has been introduced in Congress
during the past several sessions that, if enacted, would result in substantially
greater federal regulation of the insurance business. Current and proposed
federal measures that may affect the property and casualty industry may include:
possible changes to the tax laws governing property and casualty insurance
companies; proposals regarding natural disaster protection, tort reform
(including limits to product liability lawsuits) and the use of credit history;
and the enforcement of territorial underwriting in Personal Lines. In addition,
proposed legislation has been introduced in Congress from time to time that
would modify certain laws and regulations affecting the financial services
industry, including the provisions regarding affiliations among insurance
companies, investment banks and commercial banks.

                                       30
<PAGE>   33
         President Clinton's recent budget proposal (the "Budget Proposal")
contains a number of tax provisions that could adversely impact the Company,
including a provision relating to tax-exempt interest obligations. The Budget
Proposal, which is in its early stages of consideration, has not yet been
introduced as part of any legislation in Congress but has engendered
considerable opposition from the public and members of Congress.

         It is not possible to predict whether the Budget Proposal or any of the
proposed legislation discussed above will be enacted, what form such legislation
might take when enacted, or the potential effects of such legislation on the
Company and its competitors.

OTHER OPERATIONS

         Other Operations consists primarily of financing costs associated with
the Acquisition.

OTHER INFORMATION

         GENERAL BUSINESS FACTORS

         In the judgment of the Company, no material part of the business of the
Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a 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, 1998, the Company had approximately 20,000 full-time
and 670 part-time employees. The Company believes that its employee relations
are satisfactory. None of the Company's employees is subject to collective
bargaining agreements.

         SOURCE OF FUNDS

         For a discussion of the Company's sources of funds and maturities of
the long-term debt of the Company, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," and Note 8 of Notes to Consolidated Financial Statements.

         TAXATION

         For a discussion of tax matters affecting the Company and its
operations, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Note 9 of Notes to Consolidated
Financial Statements.

         FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         For financial information regarding industry segments of the Company,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 4 of Notes to Consolidated Financial
Statements.


                                       31
<PAGE>   34
         EXECUTIVE OFFICERS OF THE COMPANY

         The current executive officers of the Company are indicated below. Ages
are given as of March 3, 1999.
<TABLE>
<CAPTION>
                                                                                    OFFICER
NAME                      AGE       POSITIONS                                       SINCE
----                      ---       ---------                                       -----
<S>                       <C>       <C>                                            <C> 
Jay S. Fishman            46        President and Chief Executive Officer            1996
Charles J. Clarke         63        Vice Chairman; Chairman - Commercial             1996
                                       Lines
J. David Gibbs            44        President and Chief Executive Officer -          1999
                                       Claim Services
Joseph P. Kiernan         58        Chairman and Chief Executive Officer -           1996
                                       Bond Specialty
Anil M. Khanna            42        Chief Executive Officer - Personal Lines         1998
Ronald E. Foley           53        Chairman and Chief Executive Officer -           1996
                                       Risk Management
William P. Hannon         50        Chief Financial Officer                          1996
James M. Michener         46        Senior Vice President, General Counsel and       1996
                                       Secretary
Thomas P. Shugrue         41        Vice President and Chief Accounting              1996
                                       Officer
</TABLE>

         Mr. Fishman was named President and Chief Executive Officer of the
Company in October 1998. Since January 1998 he has also served as Chief
Executive Officer of Commercial Lines, and from October 1996 through October
1998 he also served as President of Commercial Lines. From October 1996 through
January 1998, he also served as Chief Operating Officer of Commercial Lines. Mr.
Fishman was Vice Chairman of the Company from January 1996 through October 1998,
and from January 1996 through January 1998 he was the Chief Administrative
Officer of the Company. Mr. Fishman has also served as Vice Chairman of The
Travelers Insurance Group Inc. since September 1995, and has been Chief
Financial Officer and Chief Administrative Officer of that Company since
December 1993 and June 1996, respectively. Mr. Fishman was a Senior Vice
President of Travelers Group from October 1991 through October 1998, and
Treasurer of Travelers Group from 1991 to December 1993. From 1989 to 1991, he
held various other positions with Travelers Group and its subsidiaries.

         Mr. Clarke was named Vice Chairman of the Company in January 1998. He
has been Chairman of Commercial Lines since 1990, and served as Chief Executive
Officer of Commercial Lines from January 1996 through January 1998. From 1990 to
January 1996, Mr. Clarke was Chairman of Commercial Lines of Travelers P&C.
Prior thereto, Mr. Clarke was Senior Vice President of the National Accounts and
the Reinsurance business units of Travelers P&C. Mr. Clarke has served in
several positions at Travelers P&C since 1958.

         Mr. Gibbs was named President and Chief Executive Officer - Claim
Services in January 1999, and served as Executive Vice President - Claim
Services from December 1996 through January 1999. Prior to joining the Company,
Mr. Gibbs was Senior Vice President of Product 


                                       32
<PAGE>   35
Services and Regulation at American International Group ("AIG"). From 1990 to
1996, Mr. Gibbs held various positions with AIG.

         Mr. Kiernan has been Chairman and Chief Executive Officer - Bond
Specialty of the Company since March 1996. From 1989 to March 1996, Mr. Kiernan
was Vice President of Aetna's bond business and has worked in the bond business
lines at Aetna since 1963. From June 1995 to March 1996, Mr. Kiernan was Vice
President of Standard Commercial Accounts of Aetna.

         Mr. Khanna has been Chief Executive Officer - Personal Lines of the
Company since October 1998. He was, from 1986 to 1998, a Senior Vice President
of Citibank, N.A. From 1982 until 1986, he was Engagement Manager at McKinsey &
Co.

         Mr. Foley has been Chairman and Chief Executive Officer - Risk
Management of the Company since January 1996. Mr. Foley served as Chairman of
Personal Lines of Travelers P&C from 1994 until his present appointment and from
1987 to 1991, and served as Chief Financial Officer of The Travelers Corporation
from 1991 through 1993.

         Mr. Hannon has been Chief Financial Officer of the Company since
January 1996. Prior to joining the Company, Mr. Hannon served as Deputy Managing
Partner of the Financial Services practice of KPMG LLP, which he joined in 1969,
and also served as a member of the firm's Securities and Exchange Commission
reviewing partner's committee.

         Mr. Michener has been Senior Vice President, General Counsel and
Secretary of the Company since July 1996. Prior to joining the Company, Mr.
Michener was General Counsel of The MetraHealth Companies, Inc. from January
1995 to October 1995 and Deputy General Counsel of United HealthCare Corporation
from October 1995 to May 1996. From August 1977 to December 1994, Mr. Michener
served in several positions at TIGI.

         Mr. Shugrue has been Vice President and Controller of the Company since
October 1996 and Chief Accounting Officer of the Company since November 1996.
Mr. Shugrue has served in several positions at TIGI since 1983.


                                       33
<PAGE>   36
GLOSSARY OF INSURANCE TERMS

Accident year........................   The annual accounting period in which
                                        loss events occurred, regardless of
                                        when the losses are actually reported,
                                        booked or paid.

Adjusted unassigned surplus..........   Unassigned surplus as of the most recent
                                        statutory annual report reduced by
                                        twenty-five percent of that year's
                                        unrealized appreciation in value or
                                        revaluation of assets or unrealized
                                        profits on investments, as defined in
                                        such report.

Admitted insurer.....................   A company licensed to transact insurance
                                        business within a state.

Alternative market...................   The segment of the insurance market
                                        which has developed in response to
                                        volatility in cost and availability of
                                        traditional commercial insurance
                                        coverage and consists of various risk
                                        financing mechanisms, including self
                                        insurance, captive insurance companies,
                                        risk retention groups and residual
                                        market business.

Annuity..............................   A contract that pays a periodic income
                                        benefit for the life of a person (the
                                        annuitant), the lives of two or more
                                        persons or for a specified period of
                                        time.

Assigned risk pools..................   Reinsurance pools which cover risks for
                                        those unable to purchase insurance in
                                        the voluntary market because the risk is
                                        too great or rate inadequacy has reduced
                                        the supply of insurance. The costs of
                                        the risks associated with these pools
                                        are charged back to insurance carriers
                                        in proportion to their direct writings.

Assumed reinsurance..................   Insurance risks acquired from a ceding
                                        company.

Assumption reinsurance...............   A transaction whereby the ceding company
                                        transfers its entire obligation under
                                        the policy to the reinsurer, who becomes
                                        directly liable to the policyholder in
                                        all respects, including collecting
                                        premiums and paying benefits. See
                                        "Reinsurance."

Attachment point.....................   The amount of losses above which excess
                                        of loss reinsurance becomes operative.

Broker...............................   One who negotiates contracts of
                                        insurance or reinsurance on behalf of an
                                        insured party, receiving a commission
                                        from the insurer or reinsurer for
                                        placement and other services rendered.


                                       34
<PAGE>   37
Capacity.............................   The percentage of surplus, or the dollar
                                        amount of exposure, that an insurer or
                                        reinsurer is willing or able to place at
                                        risk. Capacity may apply to a single
                                        risk, a program, a line of business or
                                        an entire book of business. Capacity may
                                        be constrained by legal restrictions,
                                        corporate restrictions or indirect
                                        restrictions.

Captive company......................   An insurance company formed to insure
                                        the risks of its parent entity or
                                        entities.

Case reserves........................   Loss reserves, established with respect
                                        to specific, individual reported claims.

Casualty insurance...................   Insurance which is primarily concerned
                                        with the losses caused by injuries to
                                        third persons (i.e., not the insured)
                                        and the legal liability imposed on the
                                        insured resulting therefrom. It
                                        includes, but is not limited to,
                                        employers' liability, workers'
                                        compensation, public liability,
                                        automobile liability, personal liability
                                        and aviation liability insurance. It
                                        excludes certain types of losses that by
                                        law or custom are considered as being
                                        exclusively within the scope of other
                                        types of insurance, such as fire or
                                        marine.

Catastrophe..........................   A severe loss, usually involving risks
                                        such as fire, earthquake, windstorm,
                                        explosion and other similar events.

Catastrophe loss.....................   Loss and directly identified loss
                                        adjustment expenses from catastrophes.

Catastrophe reinsurance..............   A form of excess of loss property
                                        reinsurance which, subject to a
                                        specified limit, indemnifies the ceding
                                        company for the amount of loss in excess
                                        of a specified retention with respect to
                                        an accumulation of losses resulting from
                                        a catastrophic event. The actual
                                        reinsurance document is called a
                                        "catastrophe cover."

Cede; ceding company.................   When an insurer reinsures its liability
                                        with another insurer (a "cession"), it
                                        "cedes" business and is referred to as
                                        the "ceding company."

Ceded reinsurance....................   Insurance risks transferred to another
                                        company as reinsurance. See
                                        "Reinsurance."

Claim................................   Request by an insured for
                                        indemnification by an insurance company
                                        for loss incurred from an insured peril.

Claim adjustment expense.............   See "Loss adjustment expense."


                                       35
<PAGE>   38
Claims and claim adjustment
       expense.......................   See "Loss and loss adjustment expenses."

Claims and claim adjustment
       expense reserves..............   See "Loss reserves."

Clash agreement......................   An excess of loss agreement with a
                                        retention higher than the limits on any
                                        one reinsured policy. The agreement is
                                        thus only exposed to loss when two or
                                        more policies (perhaps from different
                                        lines of business) are involved in a
                                        common occurrence in an amount greater
                                        than the clash agreement retention. Also
                                        known as contingency cover.

Combined ratio.......................   The sum of the loss and LAE ratio, the
                                        underwriting expense ratio and, where
                                        applicable, the ratio of dividends to
                                        policyholders to net premiums earned. A
                                        combined ratio under 100% generally
                                        indicates an underwriting profit. A
                                        combined ratio over 100% generally
                                        indicates an underwriting loss.

Commercial lines.....................   The various kinds of property and
                                        casualty insurance that are written for
                                        businesses.

Commutation agreement................   An agreement between a reinsurer and a
                                        ceding company whereby the reinsurer
                                        pays an agreed upon amount in exchange
                                        for a complete discharge of all
                                        obligations, including future
                                        obligations, between the parties for
                                        reinsurance losses incurred.

Deductible...........................   The amount of loss that an insured
                                        retains.

Deferred acquisition costs...........   Primarily commissions and premium taxes,
                                        which vary with and are primarily
                                        related to the production of new
                                        business, are deferred and amortized to
                                        achieve a matching of revenues and
                                        expenses when reported in financial
                                        statements prepared in accordance with
                                        GAAP.

Direct written premiums..............   The amounts charged by a primary insurer
                                        to insureds in exchange for coverages
                                        provided in accordance with the terms of
                                        an insurance contract.

Earned premiums or premiums
       earned........................   That portion of property-casualty
                                        premiums written that applies to the
                                        expired portion of the policy term.
                                        Earned premiums are recognized as
                                        revenues under both SAP and GAAP.

Excess liability.....................   Additional casualty coverage above a
                                        layer of insurance exposures.


                                       36
<PAGE>   39
Excess of loss reinsurance...........   Reinsurance that indemnifies the
                                        reinsured against all or a specified
                                        portion of losses under a specified
                                        dollar amount or "retention."

Expense ratio........................   See "Underwriting expense ratio."

Extra contractual obligations........   Amounts incurred by an insurer, beyond
                                        those that would have been incurred as
                                        specified in the insurance agreement
                                        with an insured, due to monetary awards
                                        required by a court of law against the
                                        insurer for its negligence to or bad
                                        faith in dealing with its insured.

Facultative reinsurance..............   The reinsurance of all or a portion of
                                        the insurance provided by a single
                                        policy. Each policy reinsured is
                                        separately negotiated.

Fidelity and surety programs..........  Insurance which guarantees performance
                                        of an obligation or indemnifies for loss
                                        due to embezzlement or wrongful
                                        abstraction of money, securities or
                                        other property.

Guaranteed cost products.............   An insurance policy where the premiums
                                        charged will not be adjusted for actual
                                        loss experience during the covered
                                        period.

Guaranty fund........................   State-regulated mechanism which is
                                        financed by assessing insurers doing
                                        business in those states. Should
                                        insolvencies occur, these funds are
                                        available to meet some or all of the
                                        insolvent insurer's obligations to
                                        policyholders.

Incurred but not reported
       ("IBNR") reserves.............   Reserves for estimated losses and LAE
                                        that have been incurred but not yet
                                        reported to the insurer.

Indemnity reinsurance................   A transaction whereby the reinsurer
                                        agrees to indemnify the ceding company
                                        against all or part of the loss that the
                                        latter may sustain under the policies it
                                        issued that are being reinsured. The
                                        ceding company remains primarily liable
                                        as the direct insurer on all risks
                                        ceded. See "Reinsurance."

Inland marine........................   A broad type of insurance generally
                                        covering articles that may be
                                        transported from one place to another,
                                        as well as bridges, tunnels and other
                                        instrumentalities of transportation. It
                                        includes goods in transit (generally
                                        other than transoceanic) and may include
                                        policies for movable objects such as
                                        personal effects, personal property,
                                        jewelry, furs, fine art and others.

IRIS ratios..........................   Financial ratios calculated by the NAIC
                                        to assist state insurance departments in
                                        monitoring the financial condition of
                                        insurance companies.


                                       37
<PAGE>   40
Large deductible policy..............   An insurance policy where the customer
                                        assumes at least $25,000 or more of each
                                        loss.

Loss.................................   An occurrence that is the basis for
                                        submission and/or payment of a claim.
                                        Losses may be covered, limited or
                                        excluded from coverage, depending on the
                                        terms of the policy.

Loss adjustment expenses
       ("LAE").......................   The expenses of settling claims,
                                        including legal and other fees and the
                                        portion of general expenses allocated to
                                        claim settlement costs.

Loss and LAE ratio...................   For SAP it is the ratio of incurred
                                        losses and loss adjustment expenses to
                                        net earned premiums. For GAAP it is the
                                        ratio of incurred losses and loss
                                        adjustment expenses reduced by an
                                        allocation of fee income to net earned
                                        premiums.

Loss reserves........................   Liabilities established by insurers and
                                        reinsurers to reflect the estimated cost
                                        of claims incurred that the insurer or
                                        reinsurer will ultimately be required to
                                        pay in respect of insurance or
                                        reinsurance it has written. Reserves are
                                        established for losses and for LAE, and
                                        consist of case reserves and IBNR
                                        reserves.

Losses and loss adjustment
       expenses......................   The sum of losses incurred and loss
                                        adjustment expenses.

Losses incurred......................   The total losses sustained by an
                                        insurance company under a policy or
                                        policies, whether paid or unpaid.
                                        Incurred losses include a provision for
                                        IBNR.

Multi-peril policies.................   Refers to policies which cover both
                                        property and third party liability
                                        exposures.

National Association of
       Insurance Commissioners
       ("NAIC")......................   An organization of the insurance
                                        commissioners or directors of all 50
                                        states and the District of Columbia
                                        organized to promote consistency of
                                        regulatory practice and statutory
                                        accounting standards throughout the
                                        United States.

Net written premiums.................   Direct written premiums plus assumed
                                        reinsurance less premiums ceded to
                                        reinsurers.

                                       38
<PAGE>   41
Non-admitted coverage................   Insurance coverage written in a given
                                        state by an insurer not licensed in that
                                        state.

Novation.............................   A transaction in which the original
                                        direct insurer's obligations are
                                        completely extinguished, resulting in no
                                        further exposure to loss arising on the
                                        business novated.

Personal lines.......................   Types of property and casualty insurance
                                        written for individuals or families,
                                        rather than for businesses.

Pool.................................   An organization of insurers or
                                        reinsurers through which particular
                                        types of risks are underwritten with
                                        premiums, losses and expenses being
                                        shared in agreed-upon percentages.

Premiums.............................   The amount charged during the year on
                                        policies and contracts issued, renewed
                                        or reinsured by an insurance company.

Producer.............................   Contractual entity which directs
                                        insureds to the insurer for coverage.
                                        See "Broker."

Property insurance...................   Insurance that provides coverage to a
                                        person with an insurable interest in
                                        tangible property for that person's
                                        property loss, damage or loss of use.

Quota share reinsurance..............   Reinsurance wherein the insurer cedes an
                                        agreed-upon fixed percentage of
                                        liabilities, premiums and losses for
                                        each policy covered on a pro rata basis.

Rate of renewal/retention
       ratio.........................   Current period renewal accounts or
                                        policies as a percentage of total
                                        accounts or policies available for
                                        renewal.

Rates................................   Amounts charged per unit of insurance.

Reinsurance..........................   The practice whereby one insurer, called
                                        the reinsurer, in consideration of a
                                        premium paid to such insurer, agrees to
                                        indemnify another insurer, called the
                                        ceding company, for part or all of the
                                        liability assumed by the ceding company
                                        under one or more policies or contracts
                                        of insurance which it has issued.

Reinsurance agreement................   A contract specifying the terms of a
                                        reinsurance transaction.


                                       39
<PAGE>   42
Residual market (involuntary
       business).....................   Insurance market which provides coverage
                                        for risks unable to purchase insurance
                                        in the voluntary market either because
                                        the risk is too great or rate inadequacy
                                        has reduced the supply of insurance.
                                        Residual markets are frequently created
                                        by state legislation either because of
                                        lack of available coverage such as
                                        property coverage in a windstorm prone
                                        area or protection of the accident
                                        victim as in the case of workers'
                                        compensation. The costs of the residual
                                        market are usually charged back to the
                                        direct insurance carriers in proportion
                                        to the carriers' voluntary market shares
                                        for the type of coverage involved.

Retention............................   The amount of exposure an insurance
                                        company retains on any one risk or group
                                        of risks.

Retrospective premiums...............   Premiums related to retrospectively
                                        rated policies.

Retrospective rating.................   A plan or method which permits
                                        adjustment of the final premium or
                                        commission on the basis of actual loss
                                        experience, subject to certain minimum
                                        and maximum limits.

Risk-based capital ("RBC")...........   A measure adopted by the NAIC for
                                        assessing the minimum statutory capital
                                        and surplus requirements of insurers.

Risk retention.......................   The amount or portion of a risk an
                                        insurer retains for its own account
                                        after ceded reinsurance. Losses above
                                        the stated retention level are
                                        collectible from the reinsurer. The
                                        retention level may be stated as a
                                        percentage or dollar amount.

Salvage..............................   The amount of money an insurer recovers
                                        through the sale of property transferred
                                        to the insurer as a result of a loss
                                        payment.

Second injury fund...................   The employer of an injured, impaired
                                        worker is responsible only for the
                                        workers' compensation benefit for the
                                        most recent injury; the second injury
                                        fund would cover the cost of any
                                        additional benefits for aggravation of a
                                        prior condition. The cost is shared by
                                        the insurance industry, funded through
                                        assessments to insurance companies based
                                        on either premiums or losses.

Self-insured retentions..............   That portion of the risk retained by a
                                        person for its own account.


                                       40
<PAGE>   43
Servicing carrier....................   An insurance company that provides, for
                                        a fee, various services including policy
                                        issuance, claims adjusting and customer
                                        service for insureds in a reinsurance
                                        pool.

Standard policy forms................   Self-contained pre-printed policy
                                        language used when a large number of
                                        insureds face similar loss exposures.

Statutory accounting practices
       ("SAP").......................   The rules and procedures prescribed or
                                        permitted by United States state
                                        insurance regulatory authorities for
                                        recording transactions and preparing
                                        financial statements. Statutory
                                        accounting practices generally reflect a
                                        modified going concern basis of
                                        accounting.

Statutory surplus....................   As determined under SAP, the amount
                                        remaining after all liabilities,
                                        including loss reserves, are subtracted
                                        from all admitted assets. Admitted
                                        assets are assets of an insurer
                                        prescribed or permitted by a state to be
                                        recognized on the statutory balance
                                        sheet. Statutory surplus is also
                                        referred to as "surplus" or "surplus as
                                        regards policyholders" for statutory
                                        accounting purposes.

Structured settlements...............   Periodic payments to an injured person
                                        or survivor for a determined number of
                                        years or for life, typically in
                                        settlement of a claim under a liability
                                        policy, usually funded through the
                                        purchase of an annuity.

Subrogation..........................   A principle of law incorporated in
                                        insurance policies, which enables an
                                        insurance company, after paying a loss
                                        to its insured, to recover the amount of
                                        the loss from another who is legally
                                        liable for it.

Third party liability................   A liability owed to a claimant (or
                                        "third party") who is not one of the two
                                        parties to the insurance contract.
                                        Insured liability claims are referred to
                                        as third party claims.

Treaty reinsurance...................   The reinsurance of a specified type or
                                        category of risks defined in a
                                        reinsurance agreement (a "treaty")
                                        between a primary insurer or other
                                        reinsured and a reinsurer. Typically, in
                                        treaty reinsurance, the primary insurer
                                        or reinsured is obligated to offer and
                                        the reinsurer is obligated to accept a
                                        specified portion of all such type or
                                        category of risks originally written by
                                        the primary insurer or reinsured.

Umbrella coverage....................   A form of insurance protection against
                                        losses in excess of amounts covered by
                                        other liability insurance policies or
                                        amounts not covered by the usual
                                        liability policies.


                                       41
<PAGE>   44
Unassigned funds (surplus)...........   The undistributed and unappropriated
                                        amount of statutory surplus.

Underwriter..........................   An employee of an insurance company who
                                        examines, accepts or rejects risks and
                                        classifies accepted risks in order to
                                        charge an appropriate premium for each
                                        accepted risk. The underwriter is
                                        expected to select business that will
                                        produce an average risk of loss no
                                        greater than that anticipated for the
                                        class of business.

Underwriting.........................   The insurer's or reinsurer's process of
                                        reviewing applications for insurance
                                        coverage, and the decision whether to
                                        accept all or part of the coverage and
                                        determination of the applicable
                                        premiums; also refers to the acceptance
                                        of such coverage.

Underwriting expense ratio...........   For SAP it is the ratio of underwriting
                                        expenses incurred to net written
                                        premiums. For GAAP it is the ratio of
                                        underwriting expenses incurred reduced
                                        by an allocation of fee income to net
                                        written premiums.

Underwriting gain or
       underwriting loss.............   The pre-tax profit or loss experienced
                                        by a property and casualty insurance
                                        company after deducting loss and loss
                                        adjustment expenses and operating
                                        expenses from net earned premiums. This
                                        profit or loss calculation includes
                                        reinsurance assumed and ceded but
                                        excludes investment income.

Unearned premium.....................   The portion of premiums written that is
                                        allocable to the unexpired portion of
                                        the policy term.

Voluntary market.....................   The market in which a person seeking
                                        insurance obtains coverage without the
                                        assistance of residual market
                                        mechanisms.

Wholesale broker.....................   An independent or exclusive agent that
                                        represents both admitted and non
                                        admitted insurers in market areas which
                                        include standard, non-standard,
                                        specialty and excess and surplus lines
                                        of insurance. The wholesaler does not
                                        deal directly with the insurance
                                        consumer. The wholesaler deals with the
                                        retail agent or broker.

Workers' compensation................   A system (established under state and
                                        federal laws) under which employers
                                        provide insurance for benefit payments
                                        to their employees for work-related
                                        injuries, deaths and diseases,
                                        regardless of fault.


                                       42
<PAGE>   45
ITEM 2.       PROPERTIES.

         The Company's executive offices are located in Hartford, Connecticut.
The Company rents from an affiliate of Citigroup approximately 1,030,000 square
feet of office space in Hartford, Connecticut, under a ten-year lease that
expires on April 1, 2006 and, subject to certain conditions, is renewable by the
Company for additional five-year terms. Under certain circumstances, the Company
may be required to purchase the leased premises. In addition, the Company leases
199 field offices totaling approximately 4,920,000 square feet throughout the
United States under leases or subleases with third parties. The Company also
rents from Aetna approximately 373,000 square feet of office space at CityPlace,
located in Hartford, Connecticut, under an eight-year sublease that expires in
2004.

         The Company believes its properties are adequate and suitable for its
business as presently conducted and are adequately maintained. For further
information concerning leases, see Note 12 of Notes to Consolidated Financial
Statements.

ITEM 3.       LEGAL PROCEEDINGS.

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

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

         In February 1998, the Georgia state court dismissed the El Chico
Restaurants lawsuit. Plaintiffs in that case have appealed. In April 1998, the
plaintiffs in the Hill-Behan Lumber 


                                       43
<PAGE>   46
lawsuit in Illinois voluntarily dismissed that case with prejudice. In August
1998, the Florida federal court dismissed the Bristol Hotel Management case and
plaintiffs have appealed. In November 1998, the state court in California
granted the Company's motion to dismiss the Dal-Tile Corp. case and granted
plaintiffs leave to replead. In December 1998, the Pennsylvania state court in
Foodarama Supermarkets granted objections to certain allegations of the
complaint. In January 1999, the Arizona federal court dismissed in part the
Albany International Corp. action; the Tennessee court in El Chico Restaurants
granted defendants' motions to dismiss; and the Illinois state court dismissed
in part the pending complaint in CR/PL Management. The Company is awaiting
decisions on motions to dismiss filed in Missouri, New Jersey, Michigan, and
Kentucky.

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

         The Company is involved in numerous other lawsuits (other than
environmental and asbestos claims) arising, from the most part, in the ordinary
course of business operations either as a liability insurer defending
third-party claims brought against its insureds or an insurer defending coverage
claims brought against it. Although there can be no assurances, the Company
believes, based on information currently available, that the ultimate resolution
of these legal proceedings would not be likely to have a material adverse effect
on the Company's results of operations, financial condition or liquidity.

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

              Not Applicable.

                                     PART II

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

         The Company's Class A Common Stock is listed on the NYSE under the
symbol "TAP." There is no established public trading market for the Company's
Class B Common Stock. The high and low sale prices, as reported on the
consolidated transaction reporting system, for the Class A Common Stock for the
periods indicated, and the dividends per share, are set forth on the following
page:


                                       44
<PAGE>   47
<TABLE>
<CAPTION>
                                                1997                                          1998                     1999
                             --------------------------------------------  ----------------------------------------   ------
                                1ST Q     2ND Q     3RD Q      4TH Q         1ST Q    2ND Q    3RD Q         4TH Q     1ST Q*
                             ---------- --------- ---------- ----------    --------  -------  --------   ----------   ------
<S>                          <C>        <C>        <C>        <C>          <C>       <C>        <C>        <C>        <C>    
Class A Common
Stock Price
High                         $39.625    $40.375    $43.563    $45.000      $46.063   $45.625    $45.750    $35.500    $38.500
Low                          $31.750    $31.375    $37.875    $34.875      $39.125   $38.750    $29.625    $24.125    $28.188

Dividends per
Share of Class A Common
Stock                        $  .075    $  .075    $  .075    $  .075      $   .10   $   .10    $   .10    $   .10    $  .125
</TABLE>

----------------------------
* Through March 3, 1999

         At March 3, 1999, the Company had approximately 1,259 holders of record
of its Class A Common Stock. This figure does not represent the actual number of
beneficial owners of common stock because shares are frequently held in "street
name" by securities dealers and others for the benefit of individual owners who
may vote the shares. At March 3, 1999, TIGI was the sole holder of record of the
Company's Class B Common Stock.

         For information on dividend restrictions in certain long-term loan and
credit agreements of the Company and its subsidiaries, as well as restrictions
on the ability of certain of the Company's subsidiaries to transfer funds to the
Company in the form of cash dividends or otherwise, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 6.       SELECTED FINANCIAL DATA.

         See "Five-Year Summary of Selected Financial Data" on page 17 of the
Company's 1998 Annual Report to Stockholders (the "1998 Annual Report"),
included as part of Exhibit 13 to this Form 10-K and incorporated herein by
reference.

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

         See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 18 of the 1998 Annual Report, included
as part of Exhibit 13 to this Form 10-K and incorporated herein by reference.

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

         See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 18 of the 1998 Annual Report, included
as part of Exhibit 13 to this Form 10-K and incorporated herein by reference.


                                       45
<PAGE>   48
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         See Index to Consolidated Financial Statements and Schedules on page
F-1 hereof. There is also incorporated by reference herein in response to this
Item the material under the caption "Selected Quarterly Financial Data
(unaudited)" on page 58 of the 1998 Annual Report, which material is included as
part of Exhibit 13 to this Form 10-K.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE.

         None.

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         For information on the directors of the Company, see the material under
the caption "Election of Directors," in the definitive Proxy Statement for the
Company's Annual Meeting of Stockholders to be held on April 20, 1999, filed
with the Securities and Exchange Commission (the "Proxy Statement"),
incorporated herein by reference. For information on executive officers, see
Item 1, "Business -- Other Information -- Executive Officers of the Company"
herein. For information on compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, see the material under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement,
incorporated herein by reference.

ITEM 11.      EXECUTIVE COMPENSATION.

         See the material under the caption "Executive Compensation" of the
Proxy Statement, incorporated herein by reference.

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

         See the material under the captions "Voting Rights," "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Management"
of the Proxy Statement, incorporated herein by reference.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         See the material under the captions "Election of Directors" and
"Executive Compensation" of the Proxy Statement, incorporated herein by
reference.


                                       46
<PAGE>   49
                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
              REPORTS ON FORM 8-K.

     (a)      Documents filed as a part of the report:

          (1)  Financial Statements. See Index to Consolidated Financial
               Statements and Schedules on page F-1 hereof.

          (2)  Financial Statement Schedules. See Index to Consolidated
               Financial Statements and Schedules on page F-1 hereof.

          (3)  Exhibits:

                See Exhibit Index.

     (b)      Reports on Form 8-K:

              No reports on Form 8-K were filed during the fourth quarter of
              1998.


                                       47
<PAGE>   50
                                  EXHIBIT INDEX


EXHIBIT
NUMBER                    DESCRIPTION OF EXHIBIT
------                    ----------------------
3.01                      Restated Certificate of Incorporation of Travelers
                          Property Casualty Corp. (the "Company"), Certificate
                          of Designations, Powers, Preferences and Rights of
                          7.5% Redeemable Preferred Stock, Series Z, of the
                          Company, Certificate of Amendment to the Restated
                          Certificate of Incorporation, filed March 7, 1997, and
                          Certificate of Amendment to the Restated Certificate
                          of Incorporation, filed April 23, 1997, incorporated
                          by reference to Exhibit 3.01 to the Company's
                          Quarterly Report on Form 10-Q for the fiscal quarter
                          ended March 31, 1997 (File No.1-14328) (the "Company's
                          3/31/97 10-Q").

3.02                      Restated By-Laws of the Company, effective April 23,
                          1997, incorporated by reference to Exhibit 3.02 to the
                          Company's 3/31/97 10-Q.

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

4.02.1                    Shareholders Agreement, dated as of April 2, 1996, by
                          and among the Company, The Travelers Insurance Group
                          Inc., Aetna Life and Casualty Company (now known as
                          Aetna Services, Inc.), J.P. Morgan Capital
                          Corporation, The Trident Partnership, L.P. and Fund
                          American Enterprises Holdings, Inc., incorporated by
                          reference to Exhibit 4.2 to the Company's Form S-1.

4.02.2                    Amendment to Shareholders Agreement, dated June 20,
                          1997, by and among the Company, Aetna Services, Inc.,
                          J.P. Morgan Capital Corporation, The Trident
                          Partnership, L.P. and Fund American Enterprises
                          Holdings, Inc., incorporated by reference to Exhibit
                          4.02.2 to the Company's Annual Report on Form 10-K for
                          the fiscal year ended December 31, 1997 (File No.
                          1-14328) (the "Company's 1997 10-K").


                                       48
<PAGE>   51
EXHIBIT
NUMBER                    DESCRIPTION OF EXHIBIT
------                    ----------------------

10.01*                    Travelers Property Casualty Corp. Capital Accumulation
                          Plan (as amended through July 23, 1997), incorporated
                          by reference to Exhibit 10.01 to the Company's
                          Quarterly Report on Form 10-Q for the fiscal quarter
                          ended September 30, 1997 (File No. 1-14328).

10.02*                    Travelers Property Casualty Corp. 1996 Executive
                          Option Plan (as amended through March 7, 1997),
                          incorporated by reference to Exhibit 10.03 to the
                          Company's Annual Report on Form 10-K for the fiscal
                          year ended December 31, 1996 (File No. 1-14328) (the
                          "Company's 1996 10-K").

10.03*                    Travelers Property Casualty Corp. Executive
                          Performance Compensation Plan (as amended through
                          March 7, 1997), incorporated by reference to Exhibit
                          10.04 to the Company's 1996 10-K.

10.04*                    Travelers Property Casualty Corp. 1996 Deferred
                          Compensation Plan for Non-Employee Directors (as
                          amended through September 25, 1996), incorporated by
                          reference to Exhibit 10.02 to the Company's Quarterly
                          Report on Form 10-Q for the fiscal quarter ended
                          September 30, 1996 (File No. 1-14328).

10.05*                    Travelers Group Capital Accumulation Plan (as amended
                          through July 23, 1997), incorporated by reference to
                          Exhibit 10.02 to the Quarterly Report on Form 10-Q of
                          Travelers Group Inc. for the fiscal quarter ended
                          September 30, 1997 (File No. 1-9924) (the "TRV 9/30/97
                          10-Q").

10.06.1*                  Travelers Group Stock Option Plan (as amended and
                          restated as of April 24, 1996), incorporated by
                          reference to Exhibit 10.02.1 to the Annual Report on
                          Form 10-K of Travelers Group Inc. for the fiscal year
                          ended December 31, 1996 (File No. 1-9924) (the "TRV
                          1996 10-K").

10.06.2*                  Amendment No. 14 to the Travelers Group Stock Option
                          Plan, incorporated by reference to Exhibit 10.01 to
                          the Quarterly Report on Form 10-Q of Travelers Group
                          Inc. for the fiscal quarter ended September 30, 1996
                          (File No. 1-9924).

10.06.3*                  Amendment No. 15 to the Travelers Group Stock Option
                          Plan, incorporated by reference to Exhibit 10.04 to
                          the TRV 9/30/97 10-Q.


                                       49
<PAGE>   52
EXHIBIT
NUMBER                    DESCRIPTION OF EXHIBIT
------                    ----------------------

10.07*                    Travelers Group 1996 Stock Incentive Plan (as amended
                          through July 23, 1997), incorporated by reference to
                          Exhibit 10.03 to the TRV 9/30/97 10-Q.

10.08*                    Travelers Group Inc. Retirement Benefit Equalization
                          Plan (as amended and restated as of January 2, 1996),
                          incorporated by reference to Exhibit 10.04 to
                          Citigroup Inc.'s Annual Report on Form 10-K for the
                          fiscal year ended December 31, 1998 (File No. 1-9934)
                          (the "Citigroup 1998 10-K").

10.09                     TAPC Tax Allocation Agreement, effective as of January
                          1, 1996 among Travelers Group Inc., The Travelers
                          Insurance Group Inc. and the Company, incorporated by
                          reference to Exhibit 10.9 to the Company's Form S-1.

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

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

10.12*                    Letter Agreement, dated November 17, 1996, between the
                          Company and Stanton F. Long, incorporated by reference
                          to Exhibit 10.15 to the Company's 1996 10-K.

10.13*                    The Travelers Insurance Deferred Compensation Plan
                          (formerly The Travelers Corporation TESIP Restoration
                          and Non-Qualified Savings Plan) (as amended December
                          10, 1998), incorporated by reference to Exhibit 10.10
                          to the Citigroup 1998 10-K.

11.01+                    Computation of Earnings Per Share.

12.01+                    Computation of Ratio of Earnings to Fixed Charges.

13.01+                    Pages 17 through 59 of the 1998 Annual Report to
                          Stockholders of the Company (pagination of exhibit
                          does not correspond to pagination in the 1998 Annual
                          Report to Stockholders).

21.01+                    Subsidiaries of the Registrant.

23.01+                    Consent of KPMG LLP, Independent Certified Public
                          Accountants.


                                       50
<PAGE>   53
EXHIBIT
NUMBER                    DESCRIPTION OF EXHIBIT
------                    ----------------------

24.01+                    Powers of Attorney.

27.01+                    Financial Data Schedule.

The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Commission upon request.

The financial statements required by Form 11-K for 1998 for the Travelers Group
401(k) Savings Plan will be filed as an exhibit by amendment to this Form 10-K
pursuant to Rule 15d-21 of the Securities Exchange Act of 1934, as amended.

Copies of any of the exhibits referred to above will be furnished at a cost of
$.25 per page (although no charge will be made for the 1998 Annual Report on
Form 10-K) to security holders who make written request therefor to Corporate
Communications, Travelers Property Casualty Corp., One Tower Square, Hartford,
Connecticut 06183.

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

*        Denotes a management contract or compensatory plan or arrangement
         required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

+        Filed herewith.


                                       51
<PAGE>   54
                                   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 19th day of
March, 1999.

                                        TRAVELERS PROPERTY CASUALTY CORP.

                                        (Registrant)

                                        By:       /s/ Jay S. Fishman
                                           ------------------------------------
                                             Jay S. Fishman, President and 
                                             Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on the 19th day of March, 1999.

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

      /s/ Jay S. Fishman        President and Chief Executive Officer (Principal
 -----------------------------          Executive Officer) and Director
        Jay S. Fishman

     /s/ William P. Hannon                  Chief Financial Officer
-------------------------------          (Principal Financial Officer)
       William P. Hannon

     /s/ Thomas P. Shugrue        Vice President and Chief Accounting Officer
-------------------------------           (Principal Accounting Officer)
       Thomas P. Shugrue

               *                                    Director
--------------------------------
      Kenneth J. Bialkin

               *                                    Director
--------------------------------
      Leslie B. Disharoon

               *                             Chairman and Director
--------------------------------
        Robert I. Lipp

               *                                    Director
--------------------------------
        Dudley C. Mecum

                                       52
<PAGE>   55
           SIGNATURE                                 TITLE
           ---------                                 -----


--------------------------------                    Director
      Roberto G. Mendoza

               *                                    Director
--------------------------------
        Frank J. Tasco

               *                                    Director
--------------------------------
       Sanford I. Weill

               *                                    Director
--------------------------------
         Arthur Zankel

*By:    /s/ Jay S. Fishman
--------------------------------
           Jay S. Fishman
           Attorney-in-fact


                                       53
<PAGE>   56
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

           INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES *

<TABLE>
<CAPTION>
                                                                                           Incorporated
                                                                                         by Reference from
                                                                                        the Company's 1998
                                                                                         Annual Report to
                                                                          Page            Stockholders at
                                                                         Herein           Page Indicated
                                                                         ------           --------------
<S>                                                                  <C>                 <C>
Independent Auditors' Report                                               F-2                  59

Consolidated Statement of Income for the years ended
   December 31, 1998, 1997 and 1996                                                             34

Consolidated Balance Sheet at December 31, 1998 and 1997                                        35

Consolidated Statement of Changes in Stockholders' Equity
   for the years ended December 31, 1998, 1997 and 1996                                         36

Consolidated Statement of Cash Flows for the years ended
   December 31, 1998, 1997 and 1996                                                             37

Notes to Consolidated Financial Statements                                                     38-58

Schedules:

Schedule II - Condensed Financial Information of
   Registrant (Parent Company only)                                     F-3 - F-6

Schedule III - Supplementary Insurance Information                      F-7 - F-9

Schedule VI - Supplementary Information Concerning
   Property-Casualty Insurance Operations                                 F-10
</TABLE>


*        Schedules not listed are omitted as not applicable or not required by
         Regulation S-X.

                                       F-1
<PAGE>   57
                          Independent Auditors' Report

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

Under date of January 25, 1999, we reported on the consolidated balance sheets
of Travelers Property Casualty Corp. and Subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, which are incorporated by reference in the
December 31, 1998 annual report on 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.

/s/ KPMG LLP

Hartford, Connecticut
January 25, 1999

                                       F-2
<PAGE>   58
                                                                     SCHEDULE II

                        Travelers Property Casualty Corp.
                              (Parent Company Only)

                  Condensed Financial Information of Registrant
                                  (In millions)

                          CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                            For the period
                                                   For the year            January 16, 1996
                                                ended December 31,          to December 31,
                                          ------------------------------   ----------------
                                              1998             1997              1996
                                              ----             ----              ----
<S>                                        <C>               <C>              <C>      
REVENUES
Net investment income and other            $      14         $       9        $       2

EXPENSES
Interest                                         163               165              120
Other                                              4                 7               36
                                           ---------         ---------        ---------
                                                 167               172              156
                                           ---------         ---------        ---------
Loss before federal income tax benefit 
  and equity in net income 
  of subsidiaries                               (153)             (163)            (154)
Federal income tax benefit                        54                59               54
                                           ---------         ---------        ---------
Loss before equity in net income 
  of subsidiaries                                (99)             (104)            (100)
Equity in net income of subsidiaries           1,442             1,340              491
                                           ---------         ---------        ---------
Net income                                 $   1,343         $   1,236        $     391
                                           =========         =========        =========
</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.

                                       F-3
<PAGE>   59
                                                                     SCHEDULE II

                        Travelers Property Casualty Corp.
                              (Parent Company Only)

                  Condensed Financial Information of Registrant
                                  (In millions)

                             CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                          December 31,
                                                                      1998           1997
                                                                   ----------     ----------
<S>                                                                <C>            <C>       
ASSETS
Short-term securities                                              $      154     $       11
Investment in subsidiaries at equity                                   11,234         10,122
Deferred federal income taxes                                              14             14
Other assets                                                               11              8
                                                                   ----------     ----------
                  Total assets                                     $   11,413     $   10,155
                                                                   ==========     ==========
LIABILITIES
Commercial paper                                                   $        -     $      108
Long-term debt                                                          2,177          2,177
Other liabilities                                                         111             93
                                                                   ----------     ----------
                  Total liabilities                                     2,288          2,378
                                                                   ----------     ----------

STOCKHOLDERS' EQUITY 
Common Stock:

     Class A, $.01 par value, 700 million shares authorized;
       72,393,407 shares issued and outstanding                             1              1
     Class B, $.01 par value, 700 million shares authorized;
       328,020,170 shares issued and outstanding                            3              3
Additional paid-in capital                                              5,479          5,473
Retained earnings                                                       3,052          1,866
Accumulated other changes in equity from nonowner sources                 921            722
Treasury stock, at cost (shares, 8,544,687 and 7,314,688)                (298)          (266)
Unearned compensation                                                     (33)           (22)
                                                                   ----------     -----------
                  Total stockholders' equity                            9,125          7,777
                                                                   ----------     ----------
                  Total liabilities and stockholders' equity       $   11,413     $   10,155
                                                                   ==========     ==========
</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.

                                       F-4
<PAGE>   60
                                                                     SCHEDULE II

                        Travelers Property Casualty Corp.
                              (Parent Company Only)

                  Condensed Financial Information of Registrant
                                  (In millions)

                        CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                               For the period
                                                                                         For the year         January 16, 1996
                                                                                      ended December 31,       to December 31,
                                                                                      1998         1997             1996
                                                                                    ----------   ---------         --------
<S>                                                                                 <C>          <C>               <C>     
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                       $   1,343    $   1,236         $    391
     Adjustments to reconcile net income to net
       cash provided by operating activities:
       Equity in net income of subsidiaries                                            (1,442)      (1,340)            (491)
       Dividends received from consolidated subsidiaries                                  540          340              299
       Amortization expense                                                                 2            2                1
       Deferred federal income tax benefit                                                  1           (2)             (12)
       Federal income taxes receivable                                                      2           32              (32)
       Other assets                                                                        (3)           -              (14)
       Other liabilities                                                                   (6)           6               52
                                                                                    ----------   ---------         --------
         Net cash provided by operating activities                                        437          274              194
                                                                                    ---------    ---------         --------
CASH FLOWS FROM INVESTING ACTIVITIES
   Capital contribution to subsidiaries                                                     -            -             (710)
   Short-term securities, purchases, net                                                 (143)          (5)              (6)
   Business acquisition                                                                     -            -           (4,160)
                                                                                    ---------    ---------         --------
         Net cash used in investing activities                                           (143)          (5)          (4,876)
                                                                                    ---------    ---------         --------
CASH FLOWS FROM FINANCING ACTIVITIES
   Issuance (repayment) of commercial paper, net                                         (108)          83               25
   Issuance of long-term debt                                                               -            -            2,177
   Borrowings on revolving line of credit                                                   -            -            2,650
   Payments on revolving line of credit                                                     -            -           (2,650)
   Contributions from TIGI                                                                  -            -            1,138
   Purchase of treasury stock                                                             (62)        (268)             (13)
   Private offering of common stock                                                         -            -              525
   Initial public offering of common stock                                                  -            -              928
   Issuance of Series Z preferred stock                                                     -            -              540
   Redemptions of Series Z preferred stock                                                  -            -             (540)
   Fees paid on behalf of subsidiaries                                                      -            -              (33)
   Dividends on Series Z preferred stock                                                    -            -               (4)
   Restricted stock issuance                                                               33           34                -
   Dividends to TIGI                                                                     (131)         (98)             (49)
   Dividends to minority shareholders                                                     (26)         (21)             (11)
                                                                                    ---------    ---------         --------
         Net cash provided by (used in) financing activities                             (294)        (270)           4,683
                                                                                    ---------    ---------         --------
   Net increase (decrease) in cash                                                          -           (1)               1
   Cash at beginning of period                                                              -            1                -
                                                                                    ---------    ---------         --------
   Cash at end of period                                                                    -    $       -         $      1
                                                                                    =========    =========         ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   Cash paid during the period for interest                                         $     163    $     163         $    100
                                                                                    =========    =========         ========
   Cash received during the period for taxes                                        $      57    $      79         $     10
                                                                                    =========    =========         ========
</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.

                                       F-5
<PAGE>   61
                                                                     SCHEDULE II

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

1.  GENERAL

    Travelers Property Casualty Corp. (TAP) (a direct majority-owned subsidiary
    of The Travelers Insurance Group Inc. (TIGI) and an indirect majority-owned
    subsidiary of Citigroup Inc. (formerly Travelers Group Inc.)) was organized
    on January 16, 1996. In April 1996, TIGI contributed The Travelers Indemnity
    Company and its subsidiaries to TAP. In addition, TAP 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.

2.  PRINCIPLES OF CONSOLIDATION

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

3.  DEBT

    The annual maturities of the outstanding debt are as follows: $400 million
    in 1999; $500 million in 2001 and $1,277 million after 2002.

4.  SUPPLEMENTARY DISCLOSURE OF NON-CASH FINANCING ACTIVITIES

    In 1996, TIGI acquired approximately 328 million shares of Class B Common
    Stock of TAP in exchange for contributing the outstanding capital stock of
    The Travelers Indemnity Company and a capital contribution of approximately
    $1.1 billion.

                                       F-6
<PAGE>   62
                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1998
                                  (In millions)
<TABLE>
<CAPTION>
                                                                                                
Segment                 Deferred policy     Claims and        Unearned    Premium       Net     
                       acquisition costs    claim adjust-     premiums    revenue   investment 
                                            ment expense                              income   
                                            reserves                                   (a)      
------------------------------------------------------------------------------------------------
<S>                         <C>              <C>              <C>         <C>         <C>       
Commercial
   Lines                    $   292          $26,702          $ 2,597     $ 4,525     $ 1,709   

Personal
   Lines                        226            2,709            1,569       3,271         389   
                            -------          -------          -------     -------     -------   

Total - Reportable
   Segments                     518           29,411            4,166       7,796       2,098   

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

Consolidated                $   518          $29,589          $ 4,166     $ 7,796     $ 2,100   
                            =======          =======          =======     =======     =======   
</TABLE>


<TABLE>
<CAPTION>
                                       Amortization
Segment                  Claims        of deferred       Other           Premiums
                        and claim        policy        operating         written
                        adjustment     acquisition      expenses
                         expenses         costs          (b)
---------------------------------------------------------------------------------
<S>                       <C>           <C>              <C>              <C>    
Commercial
   Lines                  $ 3,766       $   645          $   916          $ 4,614

Personal
   Lines                    2,181           552              372            3,490
                          -------       -------          -------          -------

Total - Reportable
   Segments                 5,947         1,197            1,288            8,104

Other                        --            --                182             --
                          -------       -------          -------          -------

Consolidated              $ 5,947       $ 1,197          $ 1,470          $ 8,104
                          =======       =======          =======          =======
</TABLE>


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

                                       F-7
<PAGE>   63
                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1997

                                  (In millions)
<TABLE>
<CAPTION>
                                                                                                 
Segment                 Deferred policy     Claims and       Unearned     Premium         Net    
                       acquisition costs    claim adjust-    premiums      revenue     investment
                                            ment expense                               income    
                                            reserves                                   (a)       
-------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>              <C>         <C>         <C>         

Commercial
   Lines                    $   309          $27,356          $ 2,519      $ 4,308    $ 1,695    

Personal
   Lines                        192            2,782            1,348        2,917        353    
                            -------          -------          -------      -------    -------    

Total - Reportable
   Segments                     501           30,138            3,867        7,225      2,048    

Other                          --                186             --            --           3   
                            -------          -------          -------      -------    -------    
Consolidated                $   501          $30,324          $ 3,867      $ 7,225    $ 2,051    
                            =======          =======          =======      =======    =======    
</TABLE>


<TABLE>
<CAPTION>
                                     Amortization
Segment                  Claims      of deferred       Other         Premiums
                        and claim      policy         operating      written
                       adjustment    acquisition      expenses
                        expenses        costs           (b)
----------------------------------------------------------------------------
<S>                    <C>           <C>              <C>           <C>    

Commercial
   Lines                 $ 3,631       $   622          $   980       $ 4,758

Personal
   Lines                   1,853           505              366         3,074
                         -------       -------          -------       -------

Total - Reportable
   Segments                5,484         1,127            1,346         7,832

Other                        --            --               202          --
                         -------       -------          -------       -------
Consolidated             $ 5,484       $ 1,127          $ 1,548       $ 7,832
                         =======       =======          =======       =======
</TABLE>


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

                                       F-8
<PAGE>   64
                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1996

                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                  
Segment                 Deferred policy     Claims and        Unearned    Premium         Net     
                       acquisition costs    claim adjust-     premiums    revenue     investment  
                                            ment expense                               income     
                                            reserves                                   (a)        
--------------------------------------------------------------------------------------------------
<S>                         <C>              <C>              <C>         <C>         <C>         
Commercial
   Lines                    $   253          $28,017          $ 2,303      $ 3,695     $ 1,343    

Personal
   Lines                        173            2,952            1,251        2,323         311    
                            -------          -------          -------      -------     -------    

Total - Reportable
   Segments                     426           30,969            3,554        6,018       1,654    

Other                          --                208             --             10           2    
                            -------          -------          -------      -------     -------    
Consolidated                $   426          $31,177          $ 3,554      $ 6,028     $ 1,656    
                            =======          =======          =======      =======     =======    
</TABLE>


<TABLE>
<CAPTION>
                                     Amortization
Segment                  Claims        of deferred       Other         Premiums
                       and claim         policy         operating      written
                       adjustment     acquisition       expenses
                        expenses         costs            (b)
-------------------------------------------------------------------------------
<S>                     <C>           <C>              <C>              <C>    
Commercial
   Lines                 $ 3,679       $   533          $ 1,081          $ 3,973

Personal
   Lines                   1,599           373              294            2,359
                         -------       -------          -------          -------

Total - Reportable
   Segments                5,278           906            1,375            6,332

Other                          4          --                147               10
                         -------       -------          -------          -------
Consolidated             $ 5,282       $   906          $ 1,522          $ 6,342
                         =======       =======          =======          =======
</TABLE>

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

                                      F-9
<PAGE>   65
                                   SCHEDULE VI

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

 Supplementary Information Concerning Property-Casualty Insurance Operations (1)

                                    1996-1998

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

<S>                                   <C>              <C>              <C>         <C>          <C>        
1998 Consolidated property -
         casualty operations          $   518          $29,411          $   781     $ 4,166      $ 7,796    


1997 Consolidated property -
         casualty operations          $   501          $30,138          $   912     $ 3,867      $ 7,225    


1996 Consolidated property -
         casualty operations          $   426          $30,969          $ 1,012     $ 3,554      $ 6,018    
</TABLE>


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

<S>                                    <C>          <C>          <C>            <C>              <C>           <C>    
1998 Consolidated property -
         casualty operations           $ 2,098      $ 6,057      $  (323)       $ 1,197          $ 6,377       $ 8,104


1997 Consolidated property -
         casualty operations           $ 2,048      $ 5,730      $  (492)       $ 1,127          $ 5,648       $ 7,832


1996 Consolidated property -
         casualty operations           $ 1,654      $ 4,839      $   192        $   906          $ 5,057       $ 6,332
</TABLE>


(1)    Excludes accident and health business.

(2)    See "Discounting" on page 17.

                                      F-10