##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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

For the quarterly period ended September 30, 2003

or

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

For the transition period
from ___________ to __________



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Commission file number 001-31266



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Travelers Property Casualty Corp.

(Exact name of registrant as specified in its charter)


|                                                                           |  |                                                
|-------------------------------------------------------------------------- |  | -----------------------------------------------
|Connecticut
(State or other jurisdiction of
incorporation or organization) |  | 06-1008174
(I.R.S. Employer
Identification No.)

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

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



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  [X]   No  [  ]


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes  [  ]   No  [X]


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

Common stock outstanding as of October 24, 2003:

|        |  |  |             | 
|------- |  |  | ----------- | 
|Class A |  |  | 504,966,902 | 
|Class B |  |  | 499,859,233 | 





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TABLE OF CONTENTS



|                            |                                                                                               |                                                                     |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF INCOME                         
|                            |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEET                               
|                            |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|                            |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS                     
|                            |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS               
|                            | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                            | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                            | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II - OTHER INFORMATION
|                            | Item 1. LEGAL PROCEEDINGS                                                                    
|                            | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                 
|EXHIBIT INDEX              
|302 CERTIFICATION          
|302 CERTIFICATION          
|906 CERTIFICATION          
|906 CERTIFICATION          



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##### Table of Contents



TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

|                               |  |                                                                                       |    |                                                                                                                                 |    |      |   | 
|------------------------------ |  | ------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                               |  |                                                                                       |    |                                                                                                                                 |    | Page
|                               |  |                                                                                       |    |                                                                                                                                 |    |     
|Part I - Financial Information |  |                                                                                       |    |                                                                                                                                
|Item 1.                        |  | Financial Statements:                                                                 |    |                                                                                                                                 |    |     
|                               |  |                                                                                       |    | Condensed Consolidated Statement of Income (Unaudited) -
Three and Nine Months Ended September 30, 2003 and 2002                |    |      | 3 | 
|                               |  |                                                                                       |    | Condensed Consolidated Balance Sheet - September 30, 2003 (Unaudited)
and December 31, 2002                                     |    |      | 4 | 
|                               |  |                                                                                       |    | Condensed Consolidated Statement of Changes in Shareholders Equity
(Unaudited) - Nine Months Ended September 30, 2003 and 2002 |    |      | 5 | 
|                               |  |                                                                                       |    | Condensed Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2003 and 2002                      |    |      | 6 | 
|                               |  |                                                                                       |    | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                |    |      | 7 | 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |    |                                                                                                                                 | 26 |     
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |                                                                                                                                 | 53 |     
|Item 4.                        |  | Controls and Procedures                                                               |    |                                                                                                                                 | 54 |     
|Part II - Other Information    |  |                                                                                       |    |                                                                                                                                
|Item 1.                        |  | Legal Proceedings                                                                     |    |                                                                                                                                 | 55 |     
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                                                 | 59 |     
|Signatures                     |  |                                                                                       | 60 |                                                                                                                                
|Exhibit Index                  |  |                                                                                       | 61 |                                                                                                                                

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##### Table of Contents



TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share data)


|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |          | 
|------------------------------------------------------------------------------------------------------------- | ------------------------- | - | ------------------ | ------- | ----------------- | - | ------- | ------- | ---- | - | ------- | -------- |  | - | ------- | -------- | 
|                                                                                                              |                           |   | Three Months Ended |         | Nine Months Ended
|                                                                                                              |                           |   | September 30,      |         | September 30,    
|                                                                                                              |                           |   |                    |         |                  
|                                                                                                              |                           |   | 2003               |         | 2002              |   | 2003    |         | 2002
|                                                                                                              |                           |   |                    |         |                   |   |         |         |     
|Revenues                                                                                                      |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Premiums                                                                                                      |                           | $ | 3,149.2            |         |                   | $ | 2,875.3 |         |      | $ | 9,228.2 |          |  | $ | 8,216.6 |         
|Net investment income                                                                                         |                           |   | 457.9              |         |                   |   | 440.7   |         |      |   | 1,369.7 |          |  |   | 1,393.3 |         
|Fee income                                                                                                    |                           |   | 133.7              |         |                   |   | 118.6   |         |      |   | 403.7   |          |  |   | 330.1   |         
|Net realized investment losses                                                                                |                           |   | (23.3              | )       |                   |   | (51.3   | )       |      |   | (.7     | )        |  |   | (58.5   | )       
|Recoveries from former affiliate                                                                              |                           |   |                   |         |                   |   | 159.3   |         |      |   |        |          |  |   | 159.3   |         
|Other revenues                                                                                                |                           |   | 28.0               |         |                   |   | 21.3    |         |      |   | 96.3    |          |  |   | 75.6    |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|                                                                                                              | Total revenues            |   |                    | 3,745.5 |                   |   |         | 3,563.9 |      |   |         | 11,097.2 |  |   |         | 10,116.4 | 
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Claims and expenses                                                                                           |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Claims and claim adjustment expenses                                                                          |                           |   | 2,236.5            |         |                   |   | 2,370.0 |         |      |   | 6,735.4 |          |  |   | 6,450.4 |         
|Amortization of deferred acquisition costs                                                                    |                           |   | 512.3              |         |                   |   | 462.3   |         |      |   | 1,458.4 |          |  |   | 1,334.8 |         
|Interest expense                                                                                              |                           |   | 38.1               |         |                   |   | 40.4    |         |      |   | 130.1   |          |  |   | 116.0   |         
|General and administrative expenses                                                                           |                           |   | 397.9              |         |                   |   | 351.6   |         |      |   | 1,204.6 |          |  |   | 986.1   |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|                                                                                                              | Total claims and expenses |   |                    | 3,184.8 |                   |   |         | 3,224.3 |      |   |         | 9,528.5  |  |   |         | 8,887.3  | 
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Income before federal income taxes, minority
interest and
cumulative effect of change in accounting principle |                           |   | 560.7              |         |                   |   | 339.6   |         |      |   | 1,568.7 |          |  |   | 1,229.1 |         
|Federal income taxes                                                                                          |                           |   | 131.6              |         |                   |   | 6.0     |         |      |   | 376.5   |          |  |   | 218.8   |         
|Minority interest, net of tax                                                                                 |                           |   | 3.0                |         |                   |   | 1.3     |         |      |   | (15.1   | )        |  |   | 1.3     |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Income before cumulative effect of change
in accounting principle                                             |                           |   | 426.1              |         |                   |   | 332.3   |         |      |   | 1,207.3 |          |  |   | 1,009.0 |         
|Cumulative effect of change in accounting for
goodwill
and other intangible assets, net of tax                |                           |   |                   |         |                   |   |        |         |      |   |        |          |  |   | (242.6  | )       
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Net income                                                                                                    |                           | $ | 426.1              |         |                   | $ | 332.3   |         |      | $ | 1,207.3 |          |  | $ | 766.4   |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Basic earnings per share                                                                                      |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Income before cumulative effect of change in
accounting principle                                             |                           | $ | 0.43               |         |                   | $ | 0.33    |         |      | $ | 1.20    |          |  | $ | 1.08    |         
|Cumulative effect of change in accounting principle                                                           |                           |   |                   |         |                   |   |        |         |      |   |        |          |  |   | (0.26   | )       
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Net income                                                                                                    |                           | $ | 0.43               |         |                   | $ | 0.33    |         |      | $ | 1.20    |          |  | $ | 0.82    |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Weighted average number of common shares outstanding                                                          |                           |   | 1,002.1            |         |                   |   | 1,000.0 |         |      |   | 1,002.3 |          |  |   | 932.3   |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Diluted earnings per share                                                                                    |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Income before cumulative effect of change in
accounting principle                                             |                           | $ | 0.42               |         |                   | $ | 0.33    |         |      | $ | 1.20    |          |  | $ | 1.08    |         
|Cumulative effect of change in accounting principle                                                           |                           |   |                   |         |                   |   |        |         |      |   |        |          |  |   | (0.26   | )       
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Net income                                                                                                    |                           | $ | 0.42               |         |                   | $ | 0.33    |         |      | $ | 1.20    |          |  | $ | 0.82    |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         
|Weighted average number of common shares outstanding
and common stock equivalents                             |                           |   | 1,007.6            |         |                   |   | 1,002.0 |         |      |   | 1,007.6 |          |  |   | 933.0   |         
|                                                                                                              |                           |   |                    |         |                   |   |         |         |      |   |         |          |  |   |         |         

See notes to condensed consolidated financial statements.

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##### Table of Contents






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

|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |          |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------- | ------------- | --- | ------------ | -------- | -------- | --- | 
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          | September 30, |     |              |          |         
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          | 2003          |     | December 31,
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          | (Unaudited)   |     | 2002        
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |             
|Assets                                                                                                                                                                            |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|Fixed maturities, available for sale at fair value (including $890.6 and $580.5 subject to
securities lending and repurchase agreements) (amortized cost $30,298.2 and $28,877.8) |                                            | $                                                                                                                                                                        | 31,859.7 |               |     | $            | 30,003.2 |         
|Equity securities, at fair value (cost $712.7 and $861.9)                                                                                                                         |                                            |                                                                                                                                                                          | 762.7    |               |     |              | 851.5    |         
|Mortgage loans                                                                                                                                                                    |                                            |                                                                                                                                                                          | 222.1    |               |     |              | 257.9    |         
|Real estate held for sale                                                                                                                                                         |                                            |                                                                                                                                                                          | 1.5      |               |     |              | 12.5     |         
|Short-term securities                                                                                                                                                             |                                            |                                                                                                                                                                          | 2,455.0  |               |     |              | 4,853.6  |         
|Trading securities, at fair value                                                                                                                                                 |                                            |                                                                                                                                                                          | 48.9     |               |     |              | 40.7     |         
|Other investments                                                                                                                                                                 |                                            |                                                                                                                                                                          | 2,443.2  |               |     |              | 2,405.8  |         
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|                                                                                                                                                                                  | Total investments                          |                                                                                                                                                                          |          | 37,793.1      |     |              |          | 38,425.2 |    
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|Cash                                                                                                                                                                              |                                            |                                                                                                                                                                          | 209.0    |               |     |              | 92.2     |         
|Investment income accrued                                                                                                                                                         |                                            |                                                                                                                                                                          | 369.2    |               |     |              | 339.3    |         
|Premium balances receivable                                                                                                                                                       |                                            |                                                                                                                                                                          | 4,039.2  |               |     |              | 3,861.4  |         
|Reinsurance recoverables                                                                                                                                                          |                                            |                                                                                                                                                                          | 10,906.2 |               |     |              | 10,977.5 |         
|Deferred acquisition costs                                                                                                                                                        |                                            |                                                                                                                                                                          | 957.3    |               |     |              | 873.0    |         
|Deferred federal income taxes                                                                                                                                                     |                                            |                                                                                                                                                                          | 756.6    |               |     |              | 1,447.1  |         
|Contractholder receivables                                                                                                                                                        |                                            |                                                                                                                                                                          | 2,759.9  |               |     |              | 2,544.1  |         
|Goodwill                                                                                                                                                                          |                                            |                                                                                                                                                                          | 2,411.5  |               |     |              | 2,411.5  |         
|Receivables for investment sales                                                                                                                                                  |                                            |                                                                                                                                                                          | 458.8    |               |     |              | 138.7    |         
|Other assets                                                                                                                                                                      |                                            |                                                                                                                                                                          | 2,874.1  |               |     |              | 3,027.5  |         
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|                                                                                                                                                                                  | Total assets                               |                                                                                                                                                                          | $        | 63,534.9      |     |              | $        | 64,137.5 |    
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|Liabilities                                                                                                                                                                       |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|Claims and claim adjustment expense reserves                                                                                                                                      |                                            | $                                                                                                                                                                        | 33,854.0 |               |     | $            | 33,736.0 |         
|Unearned premium reserves                                                                                                                                                         |                                            |                                                                                                                                                                          | 7,049.8  |               |     |              | 6,459.9  |         
|Contractholder payables                                                                                                                                                           |                                            |                                                                                                                                                                          | 2,759.9  |               |     |              | 2,544.1  |         
|Notes payable to former affiliates                                                                                                                                                |                                            |                                                                                                                                                                          |         |               |     |              | 700.0    |         
|Long-term debt                                                                                                                                                                    |                                            |                                                                                                                                                                          | 1,755.5  |               |     |              | 926.2    |         
|Convertible junior subordinated notes payable                                                                                                                                     |                                            |                                                                                                                                                                          | 868.5    |               |     |              | 867.8    |         
|Convertible notes payable                                                                                                                                                         |                                            |                                                                                                                                                                          | 49.7     |               |     |              | 49.7     |         
|Payables for investment purchases                                                                                                                                                 |                                            |                                                                                                                                                                          | 533.9    |               |     |              | 3,737.9  |         
|Payables for securities lending and repurchase agreements                                                                                                                         |                                            |                                                                                                                                                                          | 902.6    |               |     |              | 597.9    |         
|Other liabilities                                                                                                                                                                 |                                            |                                                                                                                                                                          | 4,288.7  |               |     |              | 3,480.7  |         
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|                                                                                                                                                                                  | Total liabilities                          |                                                                                                                                                                          |          | 52,062.6      |     |              |          | 53,100.2 |    
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|TIGHI-obligated mandatorily redeemable securities of subsidiary trusts
holding solely junior subordinated debt securities of TIGHI                                                |                                            |                                                                                                                                                                          |         |               |     |              | 900.0    |         
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|Shareholders equity                                                                                                                                                              |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|Common Stock:                                                                                                                                                                     |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|                                                                                                                                                                                  |                                            | Class A, $.01 par value, 1.5 billion shares authorized, 509.0 million and 504.2 million
issued and outstanding at September 30, 2003 and December 31, 2002, respectively |          |               | 5.1 |              |          |          | 5.0 | 
|                                                                                                                                                                                  |                                            | Class B, $.01 par value, 1.5 billion shares authorized, 500.0 million issued and outstanding                                                                             |          |               | 5.0 |              |          |          | 5.0 | 
|Additional paid-in capital                                                                                                                                                        |                                            |                                                                                                                                                                          | 8,690.6  |               |     |              | 8,618.4  |         
|Retained earnings                                                                                                                                                                 |                                            |                                                                                                                                                                          | 1,883.2  |               |     |              | 880.5    |         
|Accumulated other changes in equity from nonowner sources                                                                                                                         |                                            |                                                                                                                                                                          | 992.1    |               |     |              | 656.6    |         
|Treasury stock, at cost (4.3 million and .3 million shares)                                                                                                                       |                                            |                                                                                                                                                                          | (67.4    | )             |     |              | (4.9     | )       
|Unearned compensation                                                                                                                                                             |                                            |                                                                                                                                                                          | (36.3    | )             |     |              | (23.3    | )       
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|                                                                                                                                                                                  | Total shareholders equity                 |                                                                                                                                                                          |          | 11,472.3      |     |              |          | 10,137.3 |    
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         
|                                                                                                                                                                                  | Total liabilities and shareholders equity |                                                                                                                                                                          | $        | 63,534.9      |     |              | $        | 64,137.5 |    
|                                                                                                                                                                                  |                                            |                                                                                                                                                                          |          |               |     |              |          |         

See notes to condensed consolidated financial statements.

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##### Table of Contents






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

|                                                                               |                            |      |         |          |  |   |          |          | 
|------------------------------------------------------------------------------ | -------------------------- | ---- | ------- | -------- |  | - | -------- | -------- | 
|For the nine months ended September 30,                                        |                            | 2003 |         | 2002    
|                                                                               |                            |      |         |         
|Common stock and additional paid-in capital                                    |                            |      |         |          |  |   |          |         
|Balance, beginning of period                                                   |                            | $    | 8,628.4 |          |  | $ | 4,440.7  |         
|Net employee stock-based compensation plans                                    |                            |      | 64.0    |          |  |   | 55.6     |         
|Net proceeds from initial public offering                                      |                            |      |        |          |  |   | 4,089.5  |         
|Other                                                                          |                            |      | 8.3     |          |  |   | 16.0     |         
|                                                                               |                            |      |         |          |  |   |          |         
|Balance, end of period                                                         |                            |      | 8,700.7 |          |  |   | 8,601.8  |         
|                                                                               |                            |      |         |          |  |   |          |         
|Retained earnings                                                              |                            |      |         |          |  |   |          |         
|Balance, beginning of period                                                   |                            |      | 880.5   |          |  |   | 6,004.2  |         
|Net income                                                                     |                            |      | 1,207.3 |          |  |   | 766.4    |         
|Receipts from former subsidiaries                                              |                            |      |        |          |  |   | 157.5    |         
|Dividends                                                                      |                            |      | (204.6  | )        |  |   | (5,253.2 | )       
|                                                                               |                            |      |         |          |  |   |          |         
|Balance, end of period                                                         |                            |      | 1,883.2 |          |  |   | 1,674.9  |         
|                                                                               |                            |      |         |          |  |   |          |         
|Accumulated other changes in equity from nonowner sources,
net of tax          |                            |      |         |          |  |   |          |         
|Balance, beginning of period                                                   |                            |      | 656.6   |          |  |   | 241.4    |         
|Net unrealized gain on investment securities                                   |                            |      | 319.2   |          |  |   | 657.1    |         
|Other                                                                          |                            |      | 16.3    |          |  |   | 16.6     |         
|                                                                               |                            |      |         |          |  |   |          |         
|Balance, end of period                                                         |                            |      | 992.1   |          |  |   | 915.1    |         
|                                                                               |                            |      |         |          |  |   |          |         
|Treasury stock (at cost)                                                       |                            |      |         |          |  |   |          |         
|Balance, beginning of period                                                   |                            |      | (4.9    | )        |  |   |         |         
|Treasury stock acquired                                                        |                            |      | (40.0   | )        |  |   |         |         
|Net employee stock-based compensation plans                                    |                            |      | (22.5   | )        |  |   | (1.1     | )       
|                                                                               |                            |      |         |          |  |   |          |         
|Balance, end of period                                                         |                            |      | (67.4   | )        |  |   | (1.1     | )       
|                                                                               |                            |      |         |          |  |   |          |         
|Unearned compensation                                                          |                            |      |         |          |  |   |          |         
|Balance, beginning of period                                                   |                            |      | (23.3   | )        |  |   |         |         
|Net issuance of restricted stock under employee
stock-based compensation plans |                            |      | (32.0   | )        |  |   | (30.4    | )       
|Restricted stock amortization                                                  |                            |      | 19.0    |          |  |   |         |         
|                                                                               |                            |      |         |          |  |   |          |         
|Balance, end of period                                                         |                            |      | (36.3   | )        |  |   | (30.4    | )       
|                                                                               |                            |      |         |          |  |   |          |         
|                                                                               | Total shareholders equity |      | $       | 11,472.3 |  |   | $        | 11,160.3 | 
|                                                                               |                            |      |         |          |  |   |          |         
|Common shares outstanding                                                      |                            |      |         |          |  |   |          |         
|Balance, beginning of period                                                   |                            |      | 1,003.9 |          |  |   | 769.0    |         
|Shares issued in Initial Public Offering                                       |                            |      |        |          |  |   | 231.0    |         
|Net shares issued for employee stock-based compensation
plans                  |                            |      | 3.4     |          |  |   | 3.3      |         
|Treasury stock acquired                                                        |                            |      | (2.6    | )        |  |   |         |         
|                                                                               |                            |      |         |          |  |   |          |         
|Balance, end of period                                                         |                            |      | 1,004.7 |          |  |   | 1,003.3  |         
|                                                                               |                            |      |         |          |  |   |          |         

See notes to condensed consolidated financial statements.

5



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

|                                                                                  |                                                                   |      |          |           |   |   |          |           |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---- | -------- | --------- | - | - | -------- | --------- | -
|For the nine months ended September 30,                                           |                                                                   | 2003 |          | 2002     
|                                                                                  |                                                                   |      |          |          
|Cash flows from operating activities                                              |                                                                   |      |          |           |   |   |          |          
|Net income                                                                        |                                                                   | $    | 1,207.3  |           |   | $ | 766.4    |          
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                   |      |          |           |   |   |          |          
|                                                                                  | Net realized investment losses                                    |      |          | .7        |   |   |          | 58.5      |  
|                                                                                  | Cumulative effect of changes in accounting principles, net of tax |      |          |          |   |   |          | 242.6     |  
|                                                                                  | Depreciation and amortization                                     |      |          | 55.1      |   |   |          | 30.6      |  
|                                                                                  | Deferred federal income taxes (benefit)                           |      |          | 510.5     |   |   |          | (74.4     | )
|                                                                                  | Amortization of deferred policy acquisition costs                 |      |          | 1,458.4   |   |   |          | 1,334.8   |  
|                                                                                  | Premium balances receivable                                       |      |          | (177.8    | ) |   |          | (227.5    | )
|                                                                                  | Reinsurance recoverables                                          |      |          | 71.3      |   |   |          | 700.5     |  
|                                                                                  | Deferred acquisition costs                                        |      |          | (1,542.7  | ) |   |          | (1,441.2  | )
|                                                                                  | Insurance reserves                                                |      |          | 707.9     |   |   |          | 553.6     |  
|                                                                                  | Trading account activities                                        |      |          | (8.2      | ) |   |          | 117.9     |  
|                                                                                  | Recoveries from former affiliate                                  |      |          | 360.7     |   |   |          |          |  
|                                                                                  | Other                                                             |      |          | 242.5     |   |   |          | 129.4     |  
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Net cash provided by operating activities                                         |                                                                   |      | 2,885.7  |           |   |   | 2,191.2  |          
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Cash flows from investing activities                                              |                                                                   |      |          |           |   |   |          |          
|Proceeds from maturities of investments                                           |                                                                   |      |          |           |   |   |          |          
|                                                                                  | Fixed maturities                                                  |      |          | 3,484.4   |   |   |          | 2,075.8   |  
|                                                                                  | Mortgage loans                                                    |      |          | 47.5      |   |   |          | 14.1      |  
|Proceeds from sales of investments                                                |                                                                   |      |          |           |   |   |          |          
|                                                                                  | Fixed maturities                                                  |      |          | 7,173.9   |   |   |          | 7,164.2   |  
|                                                                                  | Equity securities                                                 |      |          | 208.1     |   |   |          | 108.9     |  
|                                                                                  | Real estate held for sale                                         |      |          | 11.0      |   |   |          | .7        |  
|Purchases of investments                                                          |                                                                   |      |          |           |   |   |          |          
|                                                                                  | Fixed maturities                                                  |      |          | (12,237.4 | ) |   |          | (11,641.7 | )
|                                                                                  | Equity securities                                                 |      |          | (55.5     | ) |   |          | (92.7     | )
|                                                                                  | Mortgage loans                                                    |      |          | (11.7     | ) |   |          |          |  
|                                                                                  | Real estate held for sale                                         |      |          |          |   |   |          | (1.2      | )
|Short-term securities, (purchases) sales, net                                     |                                                                   |      | 2,593.9  |           |   |   | (25.1    | )        
|Other investments, net                                                            |                                                                   |      | 63.3     |           |   |   | 521.8    |          
|Securities transactions in course of settlement                                   |                                                                   |      | (3,021.3 | )         |   |   | 234.0    |          
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Net cash used in investing activities                                             |                                                                   |      | (1,743.8 | )         |   |   | (1,641.2 | )        
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Cash flows from financing activities                                              |                                                                   |      |          |           |   |   |          |          
|Issuance of short-term debt                                                       |                                                                   |      | 549.5    |           |   |   |         |          
|Payment of short-term debt                                                        |                                                                   |      | (550.0   | )         |   |   |         |          
|Issuance of long-term debt                                                        |                                                                   |      | 1,381.9  |           |   |   |         |          
|Payment of long-term debt                                                         |                                                                   |      | (553.0   | )         |   |   | (3.0     | )        
|Issuance of convertible notes, net                                                |                                                                   |      |         |           |   |   | 917.3    |          
|Payment of note payables to former affiliate                                      |                                                                   |      | (700.0   | )         |   |   | (5,299.0 | )        
|Redemption of mandatorily redeemable preferred stock                              |                                                                   |      | (900.0   | )         |   |   |         |          
|Purchase of treasury stock                                                        |                                                                   |      | (40.0    | )         |   |   |         |          
|Initial public offering                                                           |                                                                   |      |         |           |   |   | 4,089.5  |          
|Issuance of common stock-employee stock options                                   |                                                                   |      | 27.2     |           |   |   | 1.6      |          
|Treasury stock acquired                                                           |                                                                   |      | (12.7    | )         |   |   | (1.1     | )        
|Receipts from former affiliates                                                   |                                                                   |      |         |           |   |   | 157.5    |          
|Dividends to shareholders                                                         |                                                                   |      | (201.4   | )         |   |   |         |          
|Dividend to former affiliate                                                      |                                                                   |      |         |           |   |   | (157.5   | )        
|Payment of dividend on subsidiarys preferred stock                               |                                                                   |      | (3.9     | )         |   |   | (.9      | )        
|Purchase of real estate from former affiliate                                     |                                                                   |      |         |           |   |   | (68.2    | )        
|Transfer of employee benefit obligations to former affiliates                     |                                                                   |      | (22.7    | )         |   |   | (172.4   | )        
|Transfer of lease obligations to former affiliate                                 |                                                                   |      |         |           |   |   | (87.8    | )        
|Minority investment in subsidiary                                                 |                                                                   |      |         |           |   |   | 89.5     |          
|Other                                                                             |                                                                   |      |         |           |   |   | (19.6    | )        
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Net cash used in financing activities                                             |                                                                   |      | (1,025.1 | )         |   |   | (554.1   | )        
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Net increase (decrease) in cash                                                   |                                                                   |      | 116.8    |           |   |   | (4.1     | )        
|Cash at beginning of period                                                       |                                                                   |      | 92.2     |           |   |   | 236.9    |          
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Cash at end of period                                                             |                                                                   | $    | 209.0    |           |   | $ | 232.8    |          
|                                                                                  |                                                                   |      |          |           |   |   |          |          
|Supplemental disclosure of cash flow information                                  |                                                                   |      |          |           |   |   |          |          
|Income taxes (received) paid                                                      |                                                                   | $    | (360.5   | )         |   | $ | 83.2     |          
|Interest paid                                                                     |                                                                   | $    | 116.8    |           |   | $ | 90.0     |          
|                                                                                  |                                                                   |      |          |           |   |   |          |          

See notes to condensed consolidated financial statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|1. |  | GENERAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The interim condensed consolidated financial statements include the accounts
of Travelers Property Casualty Corp. (TPC) and its subsidiaries
(collectively, the Company). These financial statements are prepared in
conformity with accounting principles generally accepted in the United States
of America (GAAP) and are unaudited. In the opinion of the Companys
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation have been reflected. The accompanying
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes included in the
Companys Form 10-K for the year ended December 31, 2002.
|  
|   |  | Certain financial information that is normally included in annual financial
statements prepared in accordance with GAAP, but that is not required for
interim reporting purposes, has been condensed or omitted. Certain
reclassifications have been made to the prior years financial statements to
conform to the current years presentation.                                                                                                                                                                                                                                                                                                                                                                                        
|  
|2. |  | CHANGES IN ACCOUNTING PRINCIPLES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity
Effective January 1, 2003, the Company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No. 150
(FAS 150), Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. FAS 150 requires an issuer to classify the
following instruments as liabilities (or assets in some circumstances):                                                                                             



| |  |  | A financial instrument issued in the form of shares that is
mandatorily redeemable - that embodies an unconditional obligation
requiring the issuer to redeem it by transferring its assets at a
specified or determinable date (or dates) or upon an event that is
certain to occur;                                                                                                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A financial instrument, other than an outstanding share, that, at
inception, embodies an obligation to repurchase the issuers equity
shares, or is indexed to such an obligation, and that requires or may
require the issuer to settle the obligation by transferring assets
(for example, a forward purchase contract or written put option on the
issuers equity shares that is to be physically settled or net cash
settled);
|
| |  |  | A financial instrument that embodies an unconditional obligation,
or a financial instrument other than an outstanding share that
embodies a conditional obligation, that the issuer must or may settle
by issuing a variable number of its equity shares,                                                                                                                                                                          



| |  | if, at inception, the monetary value of the obligation is based solely or
predominantly on any of the following: (a) a fixed monetary amount known at
inception, (b) variations in something other than the fair value of the
issuers equity shares, or (c) variations inversely related to changes in the
fair value of the issuers equity shares.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The adoption of FAS 150 did not impact the Companys consolidated financial
statements.                                                                                                                                                                                                                                                              

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|2. |  | CHANGES IN ACCOUNTING PRINCIPLES, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The Company has an employee stock incentive compensation plan (the plan) that
includes stock option programs and restricted stock programs, which are
described more fully in note 11 to the consolidated financial statements
included in the Companys Form 10-K for the year ended December 31, 2002.
Prior to January 1, 2003, the Company accounted for the plan under the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees, and related
interpretations. Under APB 25 the restricted stock awards are valued based
upon their fair value at the date of issuance and charged to compensation
expense ratably over the vesting period. Options granted prior to January 1,
2003 were not reflected in compensation expense as all options granted had an
exercise price equal to the market value of the underlying common stock at
the date of grant.
|  
|   |  | Effective January 1, 2003, the Company elected to prospectively adopt the
fair value method of accounting for its employee stock-based compensation
plans as defined in the FASB Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (FAS 123), for all employee
awards granted, modified, or settled after January 1, 2003. Under this
method, compensation cost is measured at the grant date based on the fair
value of the award derived by the application of an option pricing model and
is recognized ratably over the vesting period. The adoption of FAS 123 did
not have a significant impact on the Companys results of operations,
financial condition or liquidity.                                                                                                                                                                                                                        
|  
|   |  | The following table illustrates the effect on net income and earnings per
share as if the fair value based method had been applied to all outstanding
and unvested awards in each period:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                        |  |                                                                                                                   |       |      |       |                    |       |                   |       |   |         |  |       |   |       |  |       |   |  | 
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------- | ----- | ---- | ----- | ------------------ | ----- | ----------------- | ----- | - | ------- |  | ----- | - | ----- |  | ----- | - |  | 
|                        |  |                                                                                                                   |       |      |       | Three Months Ended |       | Nine Months Ended
|                        |  |                                                                                                                   |       |      |       | September 30,      |       | September 30,    
|                        |  |                                                                                                                   |       |      |       |                    |       |                  
|(in millions)           |  | 2003                                                                                                              |       | 2002 |       | 2003               |       | 2002             
|                        |  |                                                                                                                   |       |      |       |                    |       |                  
|Net income, as reported |  | $                                                                                                                 | 426.1 |      |       | $                  | 332.3 |                   |       | $ | 1,207.3 |  |       | $ | 766.4 | 
|Add:                    |  | Stock-based employee compensation
expense included in reported net income,
net of related tax effects             |       |      | 3.7   |                    |       |                   | 2.6   |   |         |  | 12.6  |   |       |  | 11.3  |  
|Deduct:                 |  | Stock-based employee compensation
expense determined under fair value based
method, net of related tax effects(1) |       |      | (17.5 | )                  |       |                   | (38.3 | ) |         |  | (53.8 | ) |       |  | (74.7 | )
|                        |  |                                                                                                                   |       |      |       |                    |       |                   |       |   |         |  |       |   |       |  |       |   |  | 
|Net income, pro forma   |  | $                                                                                                                 | 412.3 |      |       | $                  | 296.6 |                   |       | $ | 1,166.1 |  |       | $ | 703.0 | 
|                        |  |                                                                                                                   |       |      |       |                    |       |                   |       |   |         |  |       |   |       |  |       |   |  | 
|Earnings per share      |  |                                                                                                                   |       |      |       |                    |       |                   |       |   |         |  |       |   |       | 
|Basic  as reported     |  | $                                                                                                                 | 0.43  |      |       | $                  | 0.33  |                   |       | $ | 1.20    |  |       | $ | 0.82  | 
|Diluted  as reported   |  |                                                                                                                   | 0.42  |      |       |                    | 0.33  |                   |       |   | 1.20    |  |       |   | 0.82  | 
|Basic  pro forma       |  |                                                                                                                   | 0.41  |      |       |                    | 0.30  |                   |       |   | 1.16    |  |       |   | 0.75  | 
|Diluted  pro forma     |  |                                                                                                                   | 0.41  |      |       |                    | 0.30  |                   |       |   | 1.16    |  |       |   | 0.75  | 
|                        |  |                                                                                                                   |       |      |       |                    |       |                   |       |   |         |  |       |   |       |  |       |   |  | 



|(1) |  | 2002 includes the fair value of stock-based employee compensation in
Citigroups common stock. The awards in Citigroup shares were replaced
with the Companys class A common shares in August 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|2. |  | CHANGES IN ACCOUNTING PRINCIPLES, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Business Combinations, Goodwill and Other Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Effective January 1, 2002, the Company adopted FASB Statements of Financial
Accounting Standards No. 141, Business Combinations (FAS 141) and No. 142,
Goodwill and Other Intangible Assets (FAS 142). These standards change the
accounting for business combinations by, among other things, prohibiting the
prospective use of pooling-of-interests accounting and requiring companies to
stop amortizing goodwill and certain intangible assets with an indefinite
useful life created by business combinations accounted for using the purchase
method of accounting. Instead, goodwill and intangible assets deemed to have
an indefinite useful life will be subject to an annual review for impairment.
Other intangible assets that are not deemed to have an indefinite useful
life will continue to be amortized over their useful lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | During the quarter ended March 31, 2002, the Company performed the
transitional impairment tests using the fair value approach required by FAS
142. Based on these tests, the Company impaired $220.0 million of goodwill
and $22.6 million of indefinite-lived intangible assets representing the
value of insurance operating licenses, all attributable to The Northland
Company and subsidiaries (Northland), as a cumulative catch-up adjustment as
of January 1, 2002. The fair value of the Northland reporting unit was based
on the use of a multiple of earnings model. The fair value of Northlands
indefinite-lived intangible assets was based on the present value of
estimated net cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|3. |  | ACCOUNTING STANDARDS NOT YET ADOPTED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Consolidation of Variable Interest Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated
financial support from other parties. It separates entities into two groups:
(1) those for which voting interests are used to determine consolidation and
(2) those for which variable interests are used to determine consolidation
(the subject of FIN 46). FIN 46 clarifies how to identify a variable
interest entity and how to determine when a business enterprise should
include the assets, liabilities, noncontrolling interests and results of
activities of a variable interest entity in its consolidated financial
statements. FIN 46 is effective immediately for variable interest entities
created after January 31, 2003. As of October 9, 2003, the FASB deferred the
effective date of FIN 46 to interim periods ending after December 15, 2003
for interests held in variable interest entities or potential variable
interest entities created before February 1, 2003. If it is reasonably
possible that an enterprise will consolidate or disclose information about a
variable interest entity when FIN 46 becomes effective, the enterprise is
required to disclose in all financial statements issued after January 31,
2003, the nature, purpose, size and activities of the variable interest
entity and the enterprises maximum exposure to loss as a result of its
involvement with the variable interest entity.

9



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|3. |  | ACCOUNTING STANDARDS NOT YET ADOPTED, Continued                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | For purposes of applying FIN 46, the Company is evaluating the following
investments which were acquired or created prior to February 1, 2003 to
determine whether such investments should be consolidated or disclosed as
variable interest entities in the Companys future financial statements
(amounts are as of September 30, 2003):



| |  |  | Real estate partnerships and joint ventures that are accounted
for under the equity method of accounting and have a total carrying
value of $246.3 million on the consolidated balance sheet; the
Companys unfunded commitments associated with real estate
partnerships and joint ventures were $121.8 million.                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Investment partnerships that are accounted for under the equity
method of accounting and have a carrying value of $1.713 billion on
the consolidated balance sheet; the Companys unfunded commitments
associated with investment partnerships were $548.7 million.                                                                                          
|
| |  |  | Below investment grade asset-backed securities and commercial
mortgage-backed securities that are reported at fair value and have a
carrying value of $130.6 million on the consolidated balance sheet.                                                                                                                                                      
|
| |  |  | Equity investments that are reported at fair value and have a
carrying value of $32.6 million on the balance sheet and private
equity investments that are accounted for under the equity method of
accounting and have a carrying value of $398.3 million on the balance
sheet. There were no unfunded commitments associated with these
equity investments.



| |  | The Company has assessed the impact that the provisions of FIN 46 may have on
the consolidated financial statements based on the guidance and
interpretations issued to date. No significant consolidation of investments
are expected at this time, subject to any new or additional guidance that may
be issued by the FASB as it continues to make interpretative changes during
the deferral period.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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4. SEGMENT INFORMATION

|                                                 |                          |            |          |          |  |            |         |         |  |   |          |         | 
|------------------------------------------------ | ------------------------ | ---------- | -------- | -------- |  | ---------- | ------- | ------- |  | - | -------- | ------- | 
|                                                 |                          |            |          |          |  |            |         |         |  |   | Total   
|(at and for the three months ended September 30, |                          | Commercial |          | Personal |  | Reportable
|in millions)                                     |                          | Lines      |          | Lines    |  | Segments  
|                                                 |                          |            |          |          |  |           
|2003                                             |                          |            |          |          |  |            |         |         |  |   |          |        
|Revenues                                         |                          |            |          |          |  |            |         |         |  |   |          |        
|Premiums                                         |                          | $          | 1,916.9  |          |  | $          | 1,232.3 |         |  | $ | 3,149.2  |        
|Net investment income                            |                          |            | 368.0    |          |  |            | 89.8    |         |  |   | 457.8    |        
|Fee income                                       |                          |            | 133.7    |          |  |            |        |         |  |   | 133.7    |        
|Other revenues                                   |                          |            | 7.4      |          |  |            | 20.5    |         |  |   | 27.9     |        
|                                                 |                          |            |          |          |  |            |         |         |  |   |          |        
|                                                 | Total operating revenues |            | $        | 2,426.0  |  |            | $       | 1,342.6 |  |   | $        | 3,768.6 | 
|                                                 |                          |            |          |          |  |            |         |         |  |   |          |        
|Operating income(1)                              |                          | $          | 379.8    |          |  | $          | 88.2    |         |  | $ | 468.0    |        
|Assets                                           |                          |            | 53,394.3 |          |  |            | 9,653.3 |         |  |   | 63,047.6 |        
|                                                 |                          |            |          |          |  |            |         |         |  |   |          |        
|2002                                             |                          |            |          |          |  |            |         |         |  |   |          |        
|Revenues                                         |                          |            |          |          |  |            |         |         |  |   |          |        
|Premiums                                         |                          | $          | 1,757.8  |          |  | $          | 1,117.5 |         |  | $ | 2,875.3  |        
|Net investment income                            |                          |            | 357.8    |          |  |            | 83.4    |         |  |   | 441.2    |        
|Fee income                                       |                          |            | 118.6    |          |  |            |        |         |  |   | 118.6    |        
|Recoveries from former affiliate                 |                          |            | 159.3    |          |  |            |        |         |  |   | 159.3    |        
|Other revenues                                   |                          |            | 1.6      |          |  |            | 19.6    |         |  |   | 21.2     |        
|                                                 |                          |            |          |          |  |            |         |         |  |   |          |        
|                                                 | Total operating revenues |            | $        | 2,395.1  |  |            | $       | 1,220.5 |  |   | $        | 3,615.6 | 
|                                                 |                          |            |          |          |  |            |         |         |  |   |          |        
|Operating income(1)                              |                          | $          | 294.7    |          |  | $          | 92.0    |         |  | $ | 386.7    |        
|Assets                                           |                          |            | 50,325.0 |          |  |            | 9,026.7 |         |  |   | 59,351.7 |        
|                                                 |                          |            |          |          |  |            |         |         |  |   |          |        

|    |  |                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Operating income is reflected net of tax and excludes the after-tax
impact of net realized investment gains (losses), restructuring charges and
the cumulative effect of changes in accounting principles. Operating income
is the basis upon which management evaluates segment results.

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4. SEGMENT INFORMATION, Continued

|                                                |                          |            |          |          |  |            |         |         |  |   |          |          | 
|----------------------------------------------- | ------------------------ | ---------- | -------- | -------- |  | ---------- | ------- | ------- |  | - | -------- | -------- | 
|                                                |                          |            |          |          |  |            |         |         |  |   | Total   
|(at and for the nine months ended September 30, |                          | Commercial |          | Personal |  | Reportable
|in millions)                                    |                          | Lines      |          | Lines    |  | Segments  
|                                                |                          |            |          |          |  |           
|2003                                            |                          |            |          |          |  |            |         |         |  |   |          |         
|Revenues                                        |                          |            |          |          |  |            |         |         |  |   |          |         
|Premiums                                        |                          | $          | 5,664.8  |          |  | $          | 3,563.4 |         |  | $ | 9,228.2  |         
|Net investment income                           |                          |            | 1,098.7  |          |  |            | 270.1   |         |  |   | 1,368.8  |         
|Fee income                                      |                          |            | 403.7    |          |  |            |        |         |  |   | 403.7    |         
|Other revenues                                  |                          |            | 30.4     |          |  |            | 64.9    |         |  |   | 95.3     |         
|                                                |                          |            |          |          |  |            |         |         |  |   |          |         
|                                                | Total operating revenues |            | $        | 7,197.6  |  |            | $       | 3,898.4 |  |   | $        | 11,096.0 | 
|                                                |                          |            |          |          |  |            |         |         |  |   |          |         
|Operating income(1)                             |                          | $          | 992.7    |          |  | $          | 307.5   |         |  | $ | 1,300.2  |         
|Assets                                          |                          |            | 53,394.3 |          |  |            | 9,653.3 |         |  |   | 63,047.6 |         
|                                                |                          |            |          |          |  |            |         |         |  |   |          |         
|2002                                            |                          |            |          |          |  |            |         |         |  |   |          |         
|Revenues                                        |                          |            |          |          |  |            |         |         |  |   |          |         
|Premiums                                        |                          | $          | 5,000.8  |          |  | $          | 3,215.8 |         |  | $ | 8,216.6  |         
|Net investment income                           |                          |            | 1,109.9  |          |  |            | 283.0   |         |  |   | 1,392.9  |         
|Fee income                                      |                          |            | 330.1    |          |  |            |        |         |  |   | 330.1    |         
|Recoveries from former affiliate                |                          |            | 159.3    |          |  |            |        |         |  |   | 159.3    |         
|Other revenues                                  |                          |            | 15.5     |          |  |            | 59.9    |         |  |   | 75.4     |         
|                                                |                          |            |          |          |  |            |         |         |  |   |          |         
|                                                | Total operating revenues |            | $        | 6,615.6  |  |            | $       | 3,558.7 |  |   | $        | 10,174.3 | 
|                                                |                          |            |          |          |  |            |         |         |  |   |          |         
|Operating income(1)                             |                          | $          | 882.8    |          |  | $          | 233.2   |         |  | $ | 1,116.0  |         
|Assets                                          |                          |            | 50,325.0 |          |  |            | 9,026.7 |         |  |   | 59,351.7 |         
|                                                |                          |            |          |          |  |            |         |         |  |   |          |         

|    |  |                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Operating income is reflected net of tax and excludes the after-tax
impact of net realized investment gains (losses), restructuring charges and
the cumulative effect of changes in accounting principles. Operating income
is the basis upon which management evaluates segment results.

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|4. |  | SEGMENT INFORMATION, Continued  
|-- |  | --------------------------------
|  
|   |  | Business Segment Reconciliations

|                                                                                   |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |          | 
|---------------------------------------------------------------------------------- | ----------------------------- | ---- | ------------------ | ------- | ----------------- | ---- | ------- | ------- |  | - | -------- | -------- |  | - | -------- | -------- | 
|                                                                                   |                               |      | Three Months Ended |         | Nine Months Ended
|                                                                                   |                               |      | September 30,      |         | September 30,    
|                                                                                   |                               |      |                    |         |                  
|(in millions)                                                                      |                               | 2003 |                    | 2002    |                   | 2003 |         | 2002   
|                                                                                   |                               |      |                    |         |                   |      |         |        
|Revenue reconciliation                                                             |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         
|Total revenue for reportable segments                                              |                               | $    | 3,768.6            |         |                   | $    | 3,615.6 |         |  | $ | 11,096.0 |          |  | $ | 10,174.3 |         
|Interest Expense and Other                                                         |                               |      | .2                 |         |                   |      | (.4     | )       |  |   | 1.9      |          |  |   | .6       |         
|Net realized investment losses                                                     |                               |      | (23.3              | )       |                   |      | (51.3   | )       |  |   | (.7      | )        |  |   | (58.5    | )       
|                                                                                   |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         
|                                                                                   | Total consolidated revenues   |      | $                  | 3,745.5 |                   |      | $       | 3,563.9 |  |   | $        | 11,097.2 |  |   | $        | 10,116.4 | 
|                                                                                   |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         
|Income reconciliation, net of tax and
minority
interest                            |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         
|Total operating income for reportable
segments                                     |                               | $    | 468.0              |         |                   | $    | 386.7   |         |  | $ | 1,300.2  |          |  | $ | 1,116.0  |         
|Interest Expense and Other                                                         |                               |      | (25.3              | )       |                   |      | (26.6   | )       |  |   | (88.2    | )        |  |   | (72.5    | )       
|                                                                                   |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         
|                                                                                   | Total operating income        |      |                    | 442.7   |                   |      |         | 360.1   |  |   |          | 1,212.0  |  |   |          | 1,043.5  | 
|Net realized investment losses                                                     |                               |      | (16.6              | )       |                   |      | (27.8   | )       |  |   | (4.7     | )        |  |   | (32.9    | )       
|Restructuring charge                                                               |                               |      |                   |         |                   |      |        |         |  |   |         |          |  |   | (1.6     | )       
|Cumulative effect of change in accounting for
goodwill and other intangible assets |                               |      |                   |         |                   |      |        |         |  |   |         |          |  |   | (242.6   | )       
|                                                                                   |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         
|                                                                                   | Total consolidated net income |      | $                  | 426.1   |                   |      | $       | 332.3   |  |   | $        | 1,207.3  |  |   | $        | 766.4    | 
|                                                                                   |                               |      |                    |         |                   |      |         |         |  |   |          |          |  |   |          |         

|                                     |              |      |          |          |  |   |          |          | 
|------------------------------------ | ------------ | ---- | -------- | -------- |  | - | -------- | -------- | 
|(at September 30, in millions)       |              | 2003 |          | 2002    
|                                     |              |      |          |         
|Asset reconciliation                 |              |      |          |          |  |   |          |         
|Total assets for reportable segments |              | $    | 63,047.6 |          |  | $ | 59,351.7 |         
|Other assets                         |              |      | 487.3    |          |  |   | 346.7    |         
|                                     |              |      |          |          |  |   |          |         
|                                     | Total assets |      | $        | 63,534.9 |  |   | $        | 59,698.4 | 
|                                     |              |      |          |          |  |   |          |         

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5. INVESTMENTS

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

|                                                                                                    |       |      |           |          |                  |        |       |         |  |   |      |      |  |   |          |          | 
|--------------------------------------------------------------------------------------------------- | ----- | ---- | --------- | -------- | ---------------- | ------ | ----- | ------- |  | - | ---- | ---- |  | - | -------- | -------- | 
|                                                                                                    |       |      |           |          | Gross Unrealized |        |      
|                                                                                                    |       |      | Amortized |          |                  |        | Fair 
|(at September 30, 2003, in millions)                                                                |       | Cost |           | Gains    |                  | Losses |       | Value  
|                                                                                                    |       |      |           |          |                  |        |       |        
|Mortgage-backed securities - CMOs and
pass-through securities                                       |       | $    | 7,759.5   |          |                  | $      | 287.9 |         |  | $ | 10.1 |      |  | $ | 8,037.3  |         
|U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities |       |      | 1,020.8   |          |                  |        | 53.1  |         |  |   | .1   |      |  |   | 1,073.8  |         
|Obligations of states, municipalities and
political subdivisions                                    |       |      | 14,166.7  |          |                  |        | 792.4 |         |  |   | 5.3  |      |  |   | 14,953.8 |         
|Debt securities issued by foreign
governments                                                       |       |      | 235.7     |          |                  |        | 13.9  |         |  |   | 2.3  |      |  |   | 247.3    |         
|All other corporate bonds                                                                           |       |      | 6,867.5   |          |                  |        | 461.9 |         |  |   | 38.6 |      |  |   | 7,290.8  |         
|Redeemable preferred stock                                                                          |       |      | 248.0     |          |                  |        | 12.6  |         |  |   | 3.9  |      |  |   | 256.7    |         
|                                                                                                    |       |      |           |          |                  |        |       |         |  |   |      |      |  |   |          |         
|                                                                                                    | Total |      | $         | 30,298.2 |                  |        | $     | 1,621.8 |  |   | $    | 60.3 |  |   | $        | 31,859.7 | 
|                                                                                                    |       |      |           |          |                  |        |       |         |  |   |      |      |  |   |          |         

|                                                                                                    |       |      |           |          |  |        |                  |         |  |   |       |       |  |   |          |          | 
|--------------------------------------------------------------------------------------------------- | ----- | ---- | --------- | -------- |  | ------ | ---------------- | ------- |  | - | ----- | ----- |  | - | -------- | -------- | 
|                                                                                                    |       |      |           |          |  |        | Gross Unrealized |         |  |   |      
|                                                                                                    |       |      | Amortized |          |  |        | Fair            
|(at December 31, 2002, in millions)                                                                 |       | Cost |           | Gains    |  | Losses |                  | Value  
|                                                                                                    |       |      |           |          |  |        |                  |        
|Mortgage-backed securities - CMOs and
pass-through securities                                       |       | $    | 8,595.4   |          |  | $      | 346.6            |         |  | $ | 1.5   |       |  | $ | 8,940.5  |         
|U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities |       |      | 1,034.8   |          |  |        | 62.0             |         |  |   |      |       |  |   | 1,096.8  |         
|Obligations of states, municipalities and
political subdivisions                                    |       |      | 12,664.4  |          |  |        | 631.9            |         |  |   | 10.3  |       |  |   | 13,286.0 |         
|Debt securities issued by foreign
governments                                                       |       |      | 258.2     |          |  |        | 19.9             |         |  |   | 1.7   |       |  |   | 276.4    |         
|All other corporate bonds                                                                           |       |      | 6,093.9   |          |  |        | 342.8            |         |  |   | 245.8 |       |  |   | 6,190.9  |         
|Redeemable preferred stock                                                                          |       |      | 231.1     |          |  |        | 5.6              |         |  |   | 24.1  |       |  |   | 212.6    |         
|                                                                                                    |       |      |           |          |  |        |                  |         |  |   |       |       |  |   |          |         
|                                                                                                    | Total |      | $         | 28,877.8 |  |        | $                | 1,408.8 |  |   | $     | 283.4 |  |   | $        | 30,003.2 | 
|                                                                                                    |       |      |           |          |  |        |                  |         |  |   |       |       |  |   |          |         



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

|                                     |       |      |           |       |  |        |                  |       |  |   |      |      |  |   |       |       | 
|------------------------------------ | ----- | ---- | --------- | ----- |  | ------ | ---------------- | ----- |  | - | ---- | ---- |  | - | ----- | ----- | 
|                                     |       |      |           |       |  |        | Gross Unrealized |       |  |   |     
|                                     |       |      | Amortized |       |  |        | Fair            
|(at September 30, 2003, in millions) |       | Cost |           | Gains |  | Losses |                  | Value
|                                     |       |      |           |       |  |        |                  |      
|Common stocks                        |       | $    | 72.4      |       |  | $      | 13.5             |       |  | $ | 3.7  |      |  | $ | 82.2  |      
|Nonredeemable preferred
stocks       |       |      | 640.3     |       |  |        | 52.2             |       |  |   | 12.0 |      |  |   | 680.5 |      
|                                     |       |      |           |       |  |        |                  |       |  |   |      |      |  |   |       |      
|                                     | Total |      | $         | 712.7 |  |        | $                | 65.7  |  |   | $    | 15.7 |  |   | $     | 762.7 | 
|                                     |       |      |           |       |  |        |                  |       |  |   |      |      |  |   |       |      
|(at December 31, 2002, in millions)  |       |      |           |       |  |        |                  |       |  |   |      |      |  |   |       |      
|Common stocks                        |       | $    | 57.4      |       |  | $      | 4.0              |       |  | $ | 11.3 |      |  | $ | 50.1  |      
|Nonredeemable preferred
stocks       |       |      | 804.5     |       |  |        | 24.6             |       |  |   | 27.7 |      |  |   | 801.4 |      
|                                     |       |      |           |       |  |        |                  |       |  |   |      |      |  |   |       |      
|                                     | Total |      | $         | 861.9 |  |        | $                | 28.6  |  |   | $    | 39.0 |  |   | $     | 851.5 | 
|                                     |       |      |           |       |  |        |                  |       |  |   |      |      |  |   |       |      

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|5. |  | INVESTMENTS, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Securities Lending and Dollar-Roll Repurchase Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The Company engages in securities lending activities from which it generates
net investment income from the lending of certain of its investments to other
institutions for short periods of time. The Company either receives cash or
marketable securities as collateral equal to at least the market value of the
loaned securities plus accrued interest. Collateral is marked to market and
adjusted daily. In those cases where cash collateral is received, the
Company reinvests the collateral in a short-term investment pool, the loaned
securities remain a recorded asset of the Company and a liability is recorded
to recognize the Companys obligation to return the collateral at the end of
the loan. At September 30, 2003, $518.7 million of securities were on loan
for which cash collateral was received. Where marketable securities have
been received as collateral, the collateral is held by a third party
custodian (tri-party lending agreement), and the Company has the right to
access the collateral only in the event that the institution borrowing the
Companys securities is in default under the lending agreement. The loaned
securities remain a recorded asset of the Company, and the Company does not
recognize the collateral or the obligation to return the collateral. At
September 30, 2003, $272.5 million of securities were on loan under tri-party
lending agreements.
|  
|   |  | The Company also engages in dollar-roll repurchase activities from which it
generates net investment income from selling mortgage-backed securities and
simultaneously agreeing to repurchase from the same party substantially the
same securities. The Company invests the proceeds from the sale in a
short-term investment pool, the sold securities remain a recorded asset of
the Company and a liability is recorded to recognize the Companys obligation
to repurchase substantially the same securities at the end of a specified
period. At September 30, 2003, $371.9 million of securities were subject to
dollar-roll repurchase agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Derivative Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The Company engages in U.S. Treasury note futures transactions to modify the
duration of the investment portfolio as part of the Companys management of
exposure to changes in interest rates. The Company enters into 90 day
futures contracts on 2 year, 5 year, 10 year and 30 year U.S. Treasury notes
which require a daily mark to market settlement with the broker. The
notational value of the open U.S. Treasury futures contracts was $1.465
billion at September 30, 2003. These derivative instruments are not
designated and do not qualify as hedges under Financial Accounting Standards
No. 133, Accounting for Derivatives Instruments and Hedging Activities
rules and as such the daily mark to market settlement is reflected in net
realized investment gains (losses).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|6. |  | INTANGIBLE ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | During the third quarter of 2003, the Company purchased the renewal rights to
Royal & SunAlliance USA Inc.s commercial lines national accounts, middle
market and marine businesses, and standard and preferred personal lines
businesses. Also in the third quarter of 2003, the Company purchased renewal
rights to the majority of Atlantic Mutuals commercial lines inland marine
and ocean cargo businesses written by Atlantic Mutuals Marine Division. The
minimum purchase price for both transactions, which has been paid,
was $48.0 million. The final
purchase price, which is currently estimated to be $87.0 million, is dependent on the level of
business renewed by the Company. The Company recorded customer-related
intangible assets of $82.0 million and a marketing-related intangible asset
of $5.0 million related to these transactions. These intangible assets are
estimated to have useful lives of 5 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|6. |  | INTANGIBLE ASSETS, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys customer-related intangible assets had a gross carrying amount
of $552.6 million and $470.6 million at September 30, 2003 and December 31,
2002, respectively, and had accumulated amortization of $120.3 million and
$90.8 million at September 30, 2003 and December 31, 2002, respectively. The
Companys marketing-related intangible asset totaled $5.0 million, which had
not yet been amortized, at September 30, 2003. The Companys intangible
assets are included in other assets in the condensed consolidated balance
sheet. Amortization expense was $11.7 million and $8.9 million for the three
months ended September 30, 2003 and 2002, respectively, and was $29.4 million
and $26.6 million for the nine months ended September 30, 2003 and 2002,
respectively. Intangible assets amortization expense is estimated to be
$13.0 million for the remainder of 2003 and $50.6 million, $48.1 million,
$47.0 million, $47.0 million and $41.6 million for 2004, 2005, 2006, 2007 and
2008, respectively.
|  
|7. |  | CHANGES IN EQUITY FROM NONOWNER SOURCES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                       |                                               |      |                    |       |                   |      |       |       |  |   |         |         |  |   |       |         | 
|------------------------------------------------------ | --------------------------------------------- | ---- | ------------------ | ----- | ----------------- | ---- | ----- | ----- |  | - | ------- | ------- |  | - | ----- | ------- | 
|                                                       |                                               |      | Three Months Ended |       | Nine Months Ended
|                                                       |                                               |      | September 30,      |       | September 30,    
|                                                       |                                               |      |                    |       |                  
|(in millions)                                          |                                               | 2003 |                    | 2002  |                   | 2003 |       | 2002 
|                                                       |                                               |      |                    |       |                   |      |       |      
|Net income                                             |                                               | $    | 426.1              |       |                   | $    | 332.3 |       |  | $ | 1,207.3 |         |  | $ | 766.4 |        
|Net unrealized gains (losses) on investment
securities |                                               |      | (173.3             | )     |                   |      | 536.5 |       |  |   | 319.2   |         |  |   | 657.1 |        
|Other(1)                                               |                                               |      | 3.2                |       |                   |      | 6.2   |       |  |   | 16.3    |         |  |   | 16.6  |        
|                                                       |                                               |      |                    |       |                   |      |       |       |  |   |         |         |  |   |       |        
|                                                       | Total changes in equity from nonowner sources |      | $                  | 256.0 |                   |      | $     | 875.0 |  |   | $       | 1,542.8 |  |   | $     | 1,440.1 | 
|                                                       |                                               |      |                    |       |                   |      |       |       |  |   |         |         |  |   |       |        



|(1) |  | Includes foreign currency translation adjustments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.  |  | EARNINGS PER SHARE (EPS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | EPS has been computed in accordance with Financial Accounting Standards No.
128, Earnings per Share. Basic EPS is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding during the period. The computation of diluted EPS
reflects the effect of potentially dilutive securities, principally the
incremental shares which are assumed to be issued under the Companys 2002
Stock Incentive Plan. Excluded from the computation of diluted EPS were 38.6
million of potentially dilutive shares related to convertible junior
subordinated notes payable because the contingency conditions for their
issuance have not been satisfied (see note 8 of the Companys Form 10-K for
the year ended December 31, 2002). For the three and nine months ended
September 30, 2003 and 2002, there was no significant effect on EPS from
potentially dilutive securities. For the three and nine months ended
September 30, 2002, shares have been adjusted to give effect to the
recapitalization in March 2002, prior to the Companys March 2002 Initial
Public Offering, whereby the outstanding shares of common stock (1,500
shares) were changed into 269.0 million shares of class A common stock and
500.0 million shares of class B common stock.

16



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|8. |  | EARNINGS PER SHARE (EPS), Continued                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following is a reconciliation of the income and share data used in the
basic and diluted earnings per share computations:

|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | -
|                                                                                            |  | Three Months Ended |         | Nine Months Ended
|                                                                                            |  | September 30,      |         | September 30,    
|                                                                                            |  |                    |         |                  
|(in millions, except per share amounts)                                                     |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                                                                            |  |                    |         |                   |  |      |         |     
|Income before cumulative effect of change in
accounting principle                           |  | $                  | 426.1   |                   |  | $    | 332.3   |      |  | $ | 1,207.3 |  |  | $ | 1,009.0 |  
|Cumulative effect of change in accounting
principle                                         |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   | (242.6  | )
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Net income available to common shareholders for
basic EPS (numerator)                       |  |                    | 426.1   |                   |  |      | 332.3   |      |  |   | 1,207.3 |  |  |   | 766.4   |  
|Effect of dilutive securities                                                               |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   |        |  
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Net income available to common shareholders for
diluted EPS (numerator)                     |  | $                  | 426.1   |                   |  | $    | 332.3   |      |  | $ | 1,207.3 |  |  | $ | 766.4   |  
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Weighted average common shares outstanding
applicable to basic EPS (denominator)            |  |                    | 1,002.1 |                   |  |      | 1,000.0 |      |  |   | 1,002.3 |  |  |   | 932.3   |  
|Effect of dilutive shares                                                                   |  |                    | 5.5     |                   |  |      | 2.0     |      |  |   | 5.3     |  |  |   | .7      |  
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Adjusted weighted average common shares
outstanding applicable to diluted EPS
(denominator) |  |                    | 1,007.6 |                   |  |      | 1,002.0 |      |  |   | 1,007.6 |  |  |   | 933.0   |  
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Basic earnings per share                                                                    |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Income before cumulative effect of change
in accounting principle                           |  | $                  | 0.43    |                   |  | $    | 0.33    |      |  | $ | 1.20    |  |  | $ | 1.08    |  
|Cumulative effect of change in accounting
principle                                         |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   | (0.26   | )
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Net income                                                                                  |  | $                  | 0.43    |                   |  | $    | 0.33    |      |  | $ | 1.20    |  |  | $ | 0.82    |  
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Diluted earnings per share                                                                  |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Income before cumulative effect of change
in accounting principle                           |  | $                  | 0.42    |                   |  | $    | 0.33    |      |  | $ | 1.20    |  |  | $ | 1.08    |  
|Cumulative effect of change in accounting
principle                                         |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   | (0.26   | )
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  
|Net income                                                                                  |  | $                  | 0.42    |                   |  | $    | 0.33    |      |  | $ | 1.20    |  |  | $ | 0.82    |  
|                                                                                            |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         |  

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|9. |  | CAPITAL AND DEBT                                                                                             
|-- |  | -------------------------------------------------------------------------------------------------------------
|  
|   |  | Notes payable to former affiliates, long-term debt and convertible notes
payable outstanding were as follows:

|                                                             |       |      |               |         |              |   |         |         | 
|------------------------------------------------------------ | ----- | ---- | ------------- | ------- | ------------ | - | ------- | ------- | 
|                                                             |       |      | September 30, |         | December 31,
|(in millions)                                                |       | 2003 |               | 2002   
|                                                             |       |      |               |        
|Notes payable to former affiliates                           |       | $    |              |         |              | $ | 700.0   |        
|Floating rate note due 2004, prepaid February 2003           |       |      |              |         |              |   | 550.0   |        
|6.75% Notes due 2006                                         |       |      | 150.0         |         |              |   | 150.0   |        
|3.75% Notes due 2008                                         |       |      | 400.0         |         |              |   |        |        
|7.81% Notes various due dates through 2011                   |       |      | 24.0          |         |              |   | 27.0    |        
|5.00% Notes due 2013                                         |       |      | 500.0         |         |              |   |        |        
|7.75% Notes due 2026                                         |       |      | 200.0         |         |              |   | 200.0   |        
|6.375% Notes due 2033                                        |       |      | 500.0         |         |              |   |        |        
|4.50% Convertible junior subordinated notes payable due
2032 |       |      | 892.5         |         |              |   | 892.5   |        
|6.00% Convertible notes payable due 2032                     |       |      | 49.7          |         |              |   | 49.7    |        
|                                                             |       |      |               |         |              |   |         |        
|                                                             |       |      | 2,716.2       |         |              |   | 2,569.2 |        
|Debt issuance costs                                          |       |      | (42.5         | )       |              |   | (25.5   | )      
|                                                             |       |      |               |         |              |   |         |        
|                                                             | Total |      | $             | 2,673.7 |              |   | $       | 2,543.7 | 
|                                                             |       |      |               |         |              |   |         |        



| |  | In December 2002, the Company entered into a loan agreement with an
unaffiliated lender and borrowed $550.0 million under a Promissory Note due
in January 2004. The Promissory Note carried a variable interest rate of
LIBOR plus 25 basis points per annum. On February 5, 2003, the Company
issued $550.0 million of Floating Rate Notes due in February 2004. The
proceeds from these notes were used to prepay the $550.0 million due on the
Promissory Note. The Floating Rate Notes also carried a variable interest
rate of LIBOR plus 25 basis points per annum. On March 14, 2003 and June 17,
2003, the Company repurchased $75.0 million and $24.0 million, respectively,
of the Floating Rate Notes at par plus accrued interest. The remaining
$451.0 million were repaid on September 5, 2003.                                                                                                                                                                                                                                                               
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On March 11, 2003, TPC issued $1.4 billion of senior notes comprised of
$400.0 million of 3.75% senior notes due March 15, 2008, $500.0 million of
5.00% senior notes due March 15, 2013 and $500.0 million of 6.375% senior
notes due March 15, 2033. The notes pay interest semi-annually on March 15
and September 15 of each year, beginning September 15, 2003, are senior
unsecured obligations and rank equally with all of TPCs other senior
unsecured indebtedness. TPC may redeem some or all of the notes prior to
maturity by paying a make-whole premium based on U.S. Treasury rates. The
net proceeds from the sale of these notes were contributed to its primary
subsidiary, Travelers Insurance Group Holdings, Inc. (TIGHI), so that TIGHI
could repay $500.0 million of indebtedness to Citigroup and to redeem $900.0
million aggregate principal amount of TIGHIs junior subordinated debt
securities held by subsidiary trusts. These trusts, in turn, used these
funds to redeem $900.0 million of preferred capital securities on April 9,
2003.

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|9. |  | CAPITAL AND DEBT, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | These senior notes were sold to qualified institutional buyers as defined
under Rule 144A under the Securities Act of 1933 (the Securities Act) and
outside the United States in reliance on Regulation S under the Securities
Act. Accordingly, the notes (the restricted notes) were not registered under
the Securities Act or any state securities laws and could not be transferred
or resold except pursuant to certain exemptions. As part of this offering,
TPC agreed to file a registration statement under the Securities Act to
permit the exchange of the notes for registered notes (the Exchange Notes)
having terms identical to those of the senior notes described above (Exchange
Offer). On April 14, 2003, TPC initiated the Exchange Offer pursuant to a
Form S-4 that was filed with the Securities and Exchange Commission.
Accordingly, each series of Exchange Notes has been registered under the
Securities Act, and the transfer restrictions and registration rights
relating to the restricted notes do not apply to the Exchange Notes. As of
May 13, 2003 (the Expiration Date of the Exchange Offer), 99.8%, 99.4% and
100% of TPCs 5, 10, and 30 year restricted notes, respectively, were
exchanged for Exchange Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Effective April 17, 2003, TPC entered into the following line of credit
agreements with Citibank, a subsidiary of Citigroup, TPCs former parent: (i)
a $250.0 million 45-month revolving line of credit (the 45-Month Line of
Credit), and (ii) a $250.0 million 364-day revolving line of credit (the
364-Day Line of Credit and, together with the 45-Month Line of Credit, the
Lines of Credit). TPC may, with Citibanks consent, extend the commitment of
the 364-Day Line of Credit for additional 364-day periods under the same
terms and conditions. TPC has the option, provided there is no default or
event of default, to convert outstanding advances under the 364-Day Line of
Credit at the commitment termination date to a term loan maturing no later
than one year from the commitment termination date. Borrowings under the
Lines of Credit may be made, at TPCs option, at a variable interest rate
equal to either the lenders base rate plus an applicable margin or at LIBOR
plus an applicable margin. Each Line of Credit includes a commitment fee
and, for any date on which advances exceed 50% of the total commitment, a
utilization fee. The applicable margin and the rates on which the
commitment fee and the utilization fee are based vary based upon TPCs
long-term senior unsecured non-credit-enhanced debt ratings. Each Line of
Credit requires TPC to comply with various covenants, including the
maintenance of minimum statutory capital and surplus of $5.5 billion and a
maximum ratio of total consolidated debt to total capital of 45%. In
addition, an event of default will occur if there is a change in control (as
defined in the Lines of Credit agreements) of TPC. At September 30, 2003,
the Company was in compliance with these financial covenants.
|  
|   |  | There were no amounts outstanding under the Lines of Credit at September 30,
2003. Previous lines of credit between TIGHI and Citigroup have been
terminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | On March 20, 2002, the Board of Directors designated 3 million of the 50
million shares of preferred stock authorized as Series A Junior Participating
Preferred Stock (the Series A Preferred Stock). Under the Companys
shareholder rights plan, each outstanding share of the Companys class A and
class B common stock carries with it the right to acquire one-thousandth of a
share of the Series A Preferred Stock. These rights trade with the Companys
common stock and will expire on March 20, 2012, unless the rights are earlier
redeemed. Such rights are not presently exercisable and have no voting
rights. At September 30, 2003 and December 31, 2002, there were no shares of
preferred stock, including the Series A Preferred Stock, issued or
outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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|9.  |  | CAPITAL AND DEBT, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On January 23, 2003, the Company, through its Capital Accumulation Program
(CAP), issued 1,943,627 shares of class A common stock in the form of
restricted stock to participating officers and other key employees. The fair
value per share of the class A common stock was $16.18. The restricted stock
generally vests after a three-year period. Except under limited
circumstances, during this period the stock cannot be sold or transferred by
the participant, who is required to render service to the Company during the
restricted period. The unamortized unearned compensation expense associated
with these awards is included as unearned compensation as a separate
component of equity in the condensed consolidated balance sheet. Unearned
compensation expense is recognized as a charge to income ratably over the
vesting period.
|   
|    |  | During September 2002, the Board of Directors approved a $500.0 million share
repurchase program. Purchases of class A and class B stock may be made from
time to time in the open market, and it is expected that funding for the
program will principally come from operating cash flow. Shares repurchased
are reported as treasury stock in the consolidated balance sheet. During the
third quarter of 2003, TPC repurchased approximately 2.6 million shares of
class A common stock at a total cost of $40.0 million, representing the first
acquisition of shares under this program.                                                                                                                                                                                                                                                            
|   
|    |  | TIGHIs insurance subsidiaries are subject to various regulatory restrictions
that limit the maximum amount of dividends available to be paid to their
parent without prior approval of insurance regulatory authorities. A maximum
of $727.7 million will be available by the end of 2003 for such dividends
without prior approval of the Connecticut Insurance Department. TIGHI
received $651.0 million of dividends from its insurance subsidiaries during
the first nine months of 2003.                                                                                                                                                                                                                                                                                                                                                           
|   
|10. |  | FEDERAL INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | At December 31, 2002, the Company had a net operating loss carryforward of
$1.390 billion. Under terms of the tax sharing agreement with Citigroup, the
Company is entitled to carry operating losses back to prior years upon
receiving Citigroups consent. During the first quarter of 2003, the Company
received Citigroups consent and, as a result, the Companys deferred tax
asset was reduced by $486.5 million with a corresponding reduction to the
current federal income tax payable (included in other cash flows from
operating activities in the condensed consolidated statement of cash flows.)
On June 9, 2003, the Company received a federal income tax refund of $530.9
million representing the full utilization of the net operating loss
carryforward.                                                                         
|   
|11. |  | CITIGROUP INDEMNIFICATION AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | During March 2002, the Company entered into an agreement with Citigroup which
provided that in any year in which the Company recorded additional
asbestos-related income statement charges in excess of $150.0 million, net of
any reinsurance, Citigroup would pay to the Company the amount of any such
excess up to a cumulative aggregate of $800.0 million, reduced by the tax
effect of the highest applicable federal income tax rate. During 2002, the
Company recorded $2.945 billion of asbestos incurred losses, net of
reinsurance, and accordingly has fully utilized the total benefit available
under the agreement. At December 31, 2002, other assets included a $360.7
million receivable from Citigroup under this agreement, which was received
during the first quarter of 2003.                                                    

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|12. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In 1996, Lloyds of London (Lloyds) restructured its operations with respect
to claims for years prior to 1993 and reinsured these into Equitas Limited
(Equitas). The outcome of the restructuring of Lloyds continues to be
uncertain and the impact, if any, on collectibility of amounts recoverable by
the Company from Equitas cannot be quantified at this time. It is possible
that an unfavorable impact on collectibility could have a material adverse
effect on the Companys results of operations in a future period. However,
in the opinion of the Companys management, it is not likely that the outcome
could have a material adverse effect on the Companys financial condition or
liquidity.                                                                                                           
|   
|    |  | The Company carries an allowance for uncollectible reinsurance recoverables,
which is not allocated to any specific proceedings or disputes, whether for
financial impairments or coverage defenses. Including this allowance, in the
opinion of the Companys management, the net receivable from reinsurance
contracts is fairly stated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Asbestos and Environmental-Related Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | In the ordinary course of its insurance business, the Company receives claims
for insurance arising under policies issued by the Company asserting alleged
injuries and damages from asbestos and other hazardous waste and toxic
substances which are the subject of related coverage litigation, including,
among others, the litigation described below. The Company is increasingly
becoming subject to more aggressive asbestos-related litigation, and the
Company expects this trend to continue. The conditions surrounding the final
resolution of these claims and the related litigation continue to change.                                                                                                                                                                                                        
|   
|    |  | In May 2002, the Company agreed with approximately three dozen other insurers
and PPG Industries, Inc. (PPG) on key terms to settle asbestos-related
coverage litigation under insurance policies issued to PPG. While there
remain a number of contingencies, including the final execution of documents,
court approval and possible appeals, the Company believes that the completion
of the settlement pursuant to the terms announced in May 2002 is likely. The
Companys single payment contribution to the proposed settlement, expected in
June 2004, is approximately $388.8 million after reinsurance.                                                                                                                                                                                                              
|   
|    |  | The Company is involved in a bankruptcy and other proceedings relating to
ACandS, Inc. (ACandS), formerly a national installer of products containing
asbestos. The proceedings involve disputes as to whether and to what extent
any of ACandS potential liabilities for bodily injury asbestos claims were
covered by insurance policies issued by the Company, as described below.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | ACandS filed for bankruptcy in September 2002 (In re: ACandS, Inc., pending
in the U.S. Bankruptcy Court for the District of Delaware). At the time of
its filing, ACandS asserted that it had settled or was in the process of
settling the large number of asbestos bodily injury claims pending against it
by negotiating with the claimants and assigning them ACandS rights to
recover under insurance policies issued by the Company. In its bankruptcy
filings, ACandS estimated that the total value of these unpaid but
purportedly settled claims was approximately $2.8 billion. ACandS asserted
that the Company is responsible for the financial obligations created by
these purported settlements as well as for any future claims brought against
it, and that insurance policy aggregate limits do not apply.

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|12. |  | COMMITMENTS AND CONTINGENCIES, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In January 2003, ACandS filed a proposed Plan of Reorganization in its
bankruptcy proceeding pursuant to which ACandS seeks to establish a trust to
handle and dispose of asbestos claims and that trust would be assigned
ACandS rights to its insurance policies issued by the Company. The
bankruptcy plan confirmation hearing is scheduled to begin on December 15,
2003, and the Company intends to file numerous objections to the plan as
proposed. The Company is vigorously contesting ACandS assertions through
objections filed in the bankruptcy court, as well as through defenses
asserted in the other proceedings described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Another dispute involved an insurance coverage arbitration commenced in
January 2001 to determine what percentage of ACandS financial obligations
for bodily injury asbestos claims is subject to insurance policy aggregate
limits. On July 31, 2003, the arbitration panel ruled in Travelers favor
that asbestos bodily injury claims paid by ACandS on or after July 31, 2003,
the decision date, are subject to the Companys aggregate policy limits,
which have been exhausted. As a result of the arbitration panel ruling,
ACandS filed a new lawsuit claiming that the Company is now obligated to fund
45% of ACandS unpaid but purportedly settled asbestos bodily injury claims
that predate the arbitration decision date (ACandS, Inc. v. Travelers
Casualty and Surety Co., E.D. Pa, commenced in August 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | In addition to the bankruptcy, the concluded arbitration proceedings and the
August 2003 lawsuit, the Company and ACandS are also involved in litigation
(ACandS, Inc. v. Travelers Casualty & Surety Co.,USDC, E.D. Pa), commenced
in September 2000. This litigation primarily involves the extent to which
the claims against ACandS are subject to occurrence limits under the
insurance policies. The matter is scheduled to appear on the May 14, 2004
trial calendar. The Company has filed a motion to dismiss this action based
upon the rulings of the arbitration panel and discovery in this action has
been stayed pending the resolution of the Companys motion to dismiss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Company is vigorously asserting and defending its positions in the ACandS
bankruptcy and the two other remaining proceedings. The Company believes
that it has meritorious defenses that include, among others that the
purported settlements are not final, are unreasonable in amount, and are not
binding on the Company; that any bankruptcy plan or reorganization which
ACandS files is defective to the extent it seeks to accelerate any of the
Companys obligations under policies issued to ACandS or to deprive the
Company of its right to litigate the claims against ACandS; and that the
occurrence limits in the policies substantially reduce or eliminate the
Companys obligations, if any, with respect to the purportedly settled
claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In October 2001 and April 2002,
two purported class action suits (Wisev.
Travelers,and Meningerv. Travelers), were filed against the Company and
other insurers in state court in West Virginia. The plaintiffs in these
cases, which were subsequently consolidated into a single proceeding in
Circuit Court of Kanawha County, West Virginia, allege that the insurer
defendants violated unfair trade practices requirements and inappropriately
handled and settled asbestos claims. The plaintiffs seek to reopen large
numbers of settled asbestos claims and to impose liability for damages,
including punitive damages, directly on insurers. Lawsuits similar to Wise
have been filed in Massachusetts (2002) and Hawaii (2002, served in May
2003). Also, in November 2001, plaintiffs in consolidated asbestos actions
pending before a mass tort panel of judges in West Virginia state court moved
to amend their complaint to name the Company as a defendant, alleging that
the Company and other insurers breached alleged duties to certain users of
asbestos products. In March 2002, the court granted the motion to amend.
Plaintiffs seek damages, including punitive damages. Lawsuits seeking
similar relief and raising allegations similar to those presented in the West
Virginia amended complaint are also pending against the Company in Louisiana
and Texas state courts. Similar complaints were filed in various Ohio state
courts during the second quarter of 2003.

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|12. |  | COMMITMENTS AND CONTINGENCIES, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | All of the actions described in the preceding paragraph, other than the
Hawaii actions, are currently subject to a temporary restraining order
entered by the federal bankruptcy court in New York, which had previously
presided over and approved the reorganization in bankruptcy of the Companys
former policyholder Johns Manville. In August 2002, the bankruptcy court
conducted a hearing on the Companys motion for a preliminary injunction
prohibiting further prosecution of the lawsuits pursuant to the
reorganization plan and related orders. At the conclusion of this hearing,
the court ordered the parties to mediation, appointed a mediator, and
continued the temporary restraining order. During January and June 2003, the
same bankruptcy court extended the existing injunction to apply to an
additional set of cases filed in various state courts in Texas and Ohio as
well as to the attorneys who are prosecuting these cases. The order also
enjoins these attorneys and their respective law firms from commencing any
further lawsuits against the Company based upon these allegations without the
prior approval of the court. The parties have met with the mediator several
times since August 2002. The results of the mediation, if any, are uncertain
at this time. If the mediation is not successful, the bankruptcy court could
hold a hearing as soon as late 2003 to consider the Companys motion for a
permanent injunction. If the Company is not successful, including on appeal,
the temporary restraining order currently in effect will be lifted and the
Company will again be subject to the pending litigation and could be subject
to additional litigation based on similar theories of liability.
|   
|    |  | The Company has numerous defenses in all of the direct action cases. These
defenses include the fact that these novel theories have no basis in law;
that they are directly at odds with the well established law pertaining to
the insured/insurer relationship; that there is no generalized duty to warn
as alleged by the plaintiffs; that to the extent that they have not been
released by virtue of prior settlement agreements by the claimants with the
Companys policyholders, all of these claims were released by virtue of
approved settlements and orders entered by the Johns Manville bankruptcy
court; and that the applicable statute of limitation as to many of these
claims has long since expired. Many of these defenses have been raised in
initial motions to dismiss by Travelers and other insurers. There have been
favorable rulings in Texas on some of these motions filed by other insurers
that dealt with statute of limitations and the validity of the alleged causes
of actions. Similar motions also have been filed by other insurers in West
Virginia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | It is difficult to estimate the reserves for asbestos and
environmental-related claims due to the vagaries of court coverage decisions,
plaintiffs expanded theories of liability, the risks inherent in major
litigation and other uncertainties, including without limitation, those which
are set forth below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | Because each policyholder presents different liability and coverage issues,
the Company generally evaluates the asbestos-related exposure presented by
each policyholder on a policyholder-by-policyholder basis. In the course of
this evaluation, the Company considers: available insurance coverage,
including the role of any umbrella or excess insurance the Company has issued
to the policyholder; limits and deductibles; an analysis of each
policyholders potential liability; the jurisdictions involved; past and
anticipated future claim activity and loss development on pending claims;
past settlement values of similar claims; allocated claim adjustment expense;
potential role of other insurance; the role, if any, of non-asbestos claims
or potential non-asbestos claims in any resolution process; and applicable
coverage defenses or determinations, if any, including the determination as
to whether or not an asbestos claim is a products/completed operation claim
subject to an aggregate limit and the available coverage, if any, for that
claim. Once the gross ultimate exposure for indemnity and related claim
adjustment expense is determined for each policyholder by each policy year,
the Company calculates a ceded reinsurance projection based on any applicable
facultative and treaty reinsurance, as well as past ceded experience.
Adjustments to the ceded projections also occur due to actual ceded claim
experience and reinsurance collections. Conventional actuarial methods are
not utilized to establish asbestos reserves. The Companys evaluations have
not resulted in any meaningful data from which an average asbestos defense or
indemnity payment may be determined.                 

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|12. |  | COMMITMENTS AND CONTINGENCIES, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | With respect to its asbestos exposures, the Company also compares its
historical direct and net loss and expense paid experience, year-by-year, to
assess any emerging trends, fluctuations or characteristics suggested by the
aggregate paid activity. There has been an acceleration in recent quarters
in the amount of payments, including those from prior settlements of coverage
disputes entered into between the Company and certain of its policyholders.
For the first nine months of 2003 and 2002, approximately 55% and 59%,
respectively, of total paid losses relate to policyholders with whom the
Company previously entered into settlement agreements that limit the
Companys liability. Net asbestos losses paid were $356.5 million and $265.1
million for the nine months ended September 30, 2003 and 2002, respectively,
reflective of the items previously described.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | In establishing environmental reserves, the Company evaluates the exposure
presented by each policyholder and the anticipated cost of resolution, if
any, for each policyholder on a regular basis. In the course of this
analysis, the Company considers the probable liability, available coverage,
relevant judicial interpretations and historical value of similar exposures.
In addition, the Company considers the many variables presented, such as the
nature of the alleged activities of the policyholder at each site; the
allegations of environmental harm at each site; the number of sites; the
total number of potentially responsible parties at each site; the nature of
environmental harm and the corresponding remedy at each site; the nature of
government enforcement activities at each site; the ownership and general use
of each site; the overall nature of the insurance relationship between the
Company and the policyholder, including the role of any umbrella or excess
insurance the Company has issued to the policyholder; the involvement of
other insurers; the potential for other available coverage, including the
number of years of coverage; the role, if any, of non-environmental claims or
potential non-environmental claims, in any resolution process; and the
applicable law in each jurisdiction. Conventional actuarial techniques are
not used to estimate these reserves. Net environmental losses paid were
$120.3 million and $104.1 million for the nine months ended September 30,
2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | As a result of the processes and procedures described above, management
believes that the reserves carried for asbestos and environmental claims at
September 30, 2003 are appropriately established based upon known facts,
current law and managements judgment. However, the uncertainties
surrounding the final resolution of these claims continue, and it is
presently not possible to estimate the ultimate exposure for asbestos and
environmental claims and related litigation. As a result, the reserve is
subject to revision as new information becomes available or as information is
reevaluated in light of evolving circumstances. The continuing uncertainties
include, without limitation, the risks and lack of predictability inherent in
major litigation, any impact from the bankruptcy protection sought by various
asbestos producers and other asbestos defendants, a further increase or
decrease in asbestos and environmental claims which cannot now be
anticipated, the role of any umbrella or excess policies the Company has
issued, the resolution or adjudication of some disputes pertaining to the
amount of available coverage for asbestos claims in a manner inconsistent
with the Companys previous assessment of these claims, the number and
outcome of direct actions against the Company, and future developments
pertaining to the Companys ability to recover reinsurance for asbestos and
environmental claims. It is also not possible to predict changes in the
legal and legislative environment and their impact on the future development
of asbestos and environmental claims. This development will be affected by
future court decisions and interpretations, as well as changes in applicable
legislation. It is also difficult to predict the ultimate outcome of large
coverage disputes until settlement negotiations near completion and
significant legal questions are resolved or, failing settlement, until the
dispute is adjudicated. This is particularly the case with policyholders in
bankruptcy where negotiations often involve a large number of claimants and
other parties and require court approval to be effective.
|   
|    |  | Because of the uncertainties set forth above, additional liabilities may
arise for amounts in excess of the current related reserves. In addition,
the Companys estimate of ultimate claims and claim adjustment expenses may
change. These additional liabilities or increases in estimates, or a range
of either, cannot now be reasonably estimated and could result in income
statement charges that could be material to the Companys operating results
and financial condition in future periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|12. |  | COMMITMENTS AND CONTINGENCIES, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Other Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Gulf Insurance Company (Gulf), a majority-owned subsidiary of TPC, brought an
action on May 22, 2003, as amended on July 29, 2003, in the Supreme Court of
New York, County of New York (Gulf Insurance Company v. Transatlantic
Reinsurance Company, et al), against Transatlantic Reinsurance Company
(Transatlantic), and three other reinsurance companies to recover amounts due
under reinsurance contracts issued to Gulf and related to Gulfs February
2003 settlement of a coverage dispute under a vehicle residual value
protection insurance policy. On May 22, 2003, as amended on September 5,
2003, Transatlantic brought an action against Gulf regarding the same
dispute, which has been consolidated with Gulfs action. Transatlantic seeks
rescission of its vehicle residual value reinsurance contracts issued to Gulf
and unspecified damages for breach of contract. XL Reinsurance America, Inc.
(XL), Odyssey America Reinsurance Corporation (Odyssey) and Employers
Reinsurance Company (Employers), the other defendant reinsurers, also filed
answers and counterclaims in the Gulf action asserting positions similar to
Transatlantic, including counterclaims for rescission of vehicle residual
value reinsurance contracts issued to Gulf. On October 1, 2003, Gulf entered
into a final settlement agreement with Employers, and all claims and
counterclaims with respect to Employers have been dismissed. After the
settlement, the Gulf action now seeks from the remaining three defendants a
total of $90.9 million currently due under the reinsurance contracts, a
declaration that $11.6 million will be payable under a second installment due
in 2004, and consequential and punitive damages. Gulf denies the reinsurers
allegations, believes that it has a strong legal basis to collect the amounts
due under the reinsurance contracts, and intends to vigorously pursue the
action.
|   
|    |  | In addition to the item described above, the Company is involved in numerous
lawsuits, not involving asbestos and environmental claims, arising mostly in
the ordinary course of business operations either as a liability insurer
defending third-party claims brought against insureds or as an insurer
defending coverage claims brought against it. While the ultimate resolution
of these legal proceedings could be significant to the Companys results of
operations in a future quarter, in the opinion of the Companys management it
would not be likely to have a material adverse effect on the Companys
results of operations for a calendar year or on the Companys financial
condition or liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CONSOLIDATED OVERVIEW

The following discussion and analysis of Travelers Property Casualty Corp.
(TPC) and subsidiaries (collectively, the Company) financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements of the Company and related notes included
elsewhere in this Form 10-Q and with Managements Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
2002 included in the Companys Form 10-K.

The Company provides a wide range of commercial and personal property and
casualty insurance products and services to businesses, government units,
associations and individuals, primarily in the United States.

Consolidated Revenues and Net Income

Consolidated revenues and net income are as follows:

|                                                                  |  |                    |         |                   |  |      |         |      |  |   |          |  |  |   |          |  
|----------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | -------- |  |  | - | -------- | -
|                                                                  |  | Three Months Ended |         | Nine Months Ended
|                                                                  |  | September 30,      |         | September 30,    
|                                                                  |  |                    |         |                  
|(in millions)                                                     |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                                                  |  |                    |         |                   |  |      |         |     
|Consolidated revenues                                             |  | $                  | 3,745.5 |                   |  | $    | 3,563.9 |      |  | $ | 11,097.2 |  |  | $ | 10,116.4 |  
|                                                                  |  |                    |         |                   |  |      |         |      |  |   |          |  |  |   |          |  
|Income before cumulative effect of
change in
accounting principle |  | $                  | 426.1   |                   |  | $    | 332.3   |      |  | $ | 1,207.3  |  |  | $ | 1,009.0  |  
|Cumulative effect of change in
accounting
principle, net of tax   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   | (242.6   | )
|                                                                  |  |                    |         |                   |  |      |         |      |  |   |          |  |  |   |          |  
|Consolidated net income                                           |  | $                  | 426.1   |                   |  | $    | 332.3   |      |  | $ | 1,207.3  |  |  | $ | 766.4    |  
|                                                                  |  |                    |         |                   |  |      |         |      |  |   |          |  |  |   |          |  

Pursuant to the Securities and Exchange Commissions final rule, Conditions for
the Use of Non-GAAP Financial Measures (SEC rule), the Company has identified
consolidated operating income as a non-GAAP financial measure. Operating
income is defined by the Company as net income excluding the after-tax impact
of net realized investment gains (losses) and cumulative effect of changes in
accounting principles. For 2002 and prior, operating income also excludes
non-recurring restructuring charges related to periods prior to the spin-off
from Citigroup. Operating income is considered a more appropriate indicator of
underwriting and operating results and is consistent with the way the Company
internally evaluates performance against historical results and established
financial targets on a consolidated basis. Net realized investment gains
(losses) are significantly impacted by both discretionary and economic factors
and are not necessarily indicative of operating trends. The Company has
reviewed its use of financial measures and terms in the Companys Form 10-K for
the year ended December 31, 2002 and the Form 10-Q for the quarterly period
ended September 30, 2003 (reports) and concluded that, other than operating
income, the measures and terms in these reports are either defined in GAAP, are
operating statistics, or are otherwise excluded by the SEC rule as required
disclosures of GAAP or of a governmental regulatory body.

The Companys discussions related to net income and operating income are
presented on an after tax basis. All other discussions are presented on a
pretax basis, unless otherwise noted.

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Revenues increased $181.6 million or 5% and $980.8 million or 10% in the 2003
third quarter and nine months, respectively, from the comparable periods of
2002. The increase in the 2003 third quarter revenues reflects a $273.9
million increase in earned premiums, a $17.2 million increase in net investment
income, a $15.1 million increase in fee income and a $28.0 million decrease in
net realized investment losses. The increase in the 2003 nine months revenues
reflects a $1.012 billion increase in earned premiums, a $73.6 million increase
in fee income and a $57.8 million decrease in net realized investment losses,
offset by a $23.6 million decrease in net investment income. The 2002 third
quarter and nine months include a $159.3 million recovery from the Citigroup
indemnification agreement which was fully utilized by the end of 2002.

Net income increased $93.8 million or 28% and $440.9 or 58% in the 2003 third
quarter and nine months, respectively, from the comparable periods of 2002.
Net income for the 2003 third quarter reflects strong underwriting performance
due to the continuing favorable, but moderating, rate environment and favorable
prior year reserve development compared to unfavorable prior year development
in the 2002 third quarter, partially offset by higher weather-related
catastrophe losses in the 2003 quarter. Net income for the 2003 nine months
also reflects strong underwriting performance due to the continuing favorable,
but moderating, rate environment and lower unfavorable prior year reserve
development compared to the 2002 nine months, partially offset by higher
weather-related catastrophe losses in the 2003 nine months. Net income
included $16.6 million and $4.7 million of net realized investment losses in
the 2003 third quarter and nine months, respectively, compared to $27.8 million
and $32.9 million of net realized investment losses in the comparable periods
of 2002. Net income for the nine months of 2002 included a charge for the
cumulative effect of a change in accounting principle of $242.6 million due to
the adoption of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.

The major after tax components of operating income and a reconciliation of
operating income to net income are as follows:

|                                                                                       |              |      |                    |      |                   |      |       |       |   |   |         |        |   |   |         |       |  
|-------------------------------------------------------------------------------------- | ------------ | ---- | ------------------ | ---- | ----------------- | ---- | ----- | ----- | - | - | ------- | ------ | - | - | ------- | ----- | -
|                                                                                       |              |      | Three Months Ended |      | Nine Months Ended
|                                                                                       |              |      | September 30,      |      | September 30,    
|                                                                                       |              |      |                    |      |                  
|(in millions)                                                                          |              | 2003 |                    | 2002 |                   | 2003 |       | 2002 
|                                                                                       |              |      |                    |      |                   |      |       |      
|Consolidated underwriting gain, before
catastrophes and prior year reserve
development |              | $    | 190.4              |      |                   | $    | 103.8 |       |   | $ | 522.0   |        |   | $ | 243.2   |      
|Catastrophes                                                                           |              |      | (83.0              | )    |                   |      | (11.1 | )     |   |   | (198.8  | )      |   |   | (35.8   | )    
|Prior year reserve development - benefit
(charge):                                     |              |      |                    |      |                   |      |       |       |   |   |         |        |   |   |         |      
|                                                                                       | Asbestos (1) |      |                    |     |                   |      |       | (31.7 | ) |   |         |       |   |   |         | (97.5 | )
|                                                                                       | All other    |      |                    | 9.2  |                   |      |       | (11.0 | ) |   |         | (105.9 | ) |   |         | (58.3 | )
|Accretion of discount                                                                  |              |      | (11.7              | )    |                   |      | (7.2  | )     |   |   | (35.6   | )      |   |   | (21.6   | )    
|                                                                                       |              |      |                    |      |                   |      |       |       |   |   |         |        |   |   |         |      
|Underwriting gain (loss)                                                               |              |      | 104.9              |      |                   |      | 42.8  |       |   |   | 181.7   |        |   |   | (30.0   | )    
|Net investment income                                                                  |              |      | 347.2              |      |                   |      | 331.9 |       |   |   | 1,036.3 |        |   |   | 1,039.4 |      
|Other, including interest expense and
minority interest                                |              |      | (9.4               | )    |                   |      | (14.6 | )     |   |   | (6.0    | )      |   |   | (25.9   | )    
|                                                                                       |              |      |                    |      |                   |      |       |       |   |   |         |        |   |   |         |      
|Consolidated operating income                                                          |              |      | 442.7              |      |                   |      | 360.1 |       |   |   | 1,212.0 |        |   |   | 1,043.5 |      
|Net realized investment losses                                                         |              |      | (16.6              | )    |                   |      | (27.8 | )     |   |   | (4.7    | )      |   |   | (32.9   | )    
|Restructuring charge                                                                   |              |      |                   |      |                   |      |      |       |   |   |        |        |   |   | (1.6    | )    
|Cumulative effect of change in accounting
principle                                    |              |      |                   |      |                   |      |      |       |   |   |        |        |   |   | (242.6  | )    
|                                                                                       |              |      |                    |      |                   |      |       |       |   |   |         |        |   |   |         |      
|Consolidated net income                                                                |              | $    | 426.1              |      |                   | $    | 332.3 |       |   | $ | 1,207.3 |        |   | $ | 766.4   |      
|                                                                                       |              |      |                    |      |                   |      |       |       |   |   |         |        |   |   |         |      



|(1) |  | Net of benefit of $159.3 million in the 2002 third quarter and nine
months related to asbestos incurrals subject to the Citigroup
indemnification agreement.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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The 2003 third quarter operating income increased $82.6 million or 23% from the
2002 comparable period. The consolidated underwriting gain component of
operating income, before catastrophes and prior year reserve development
increased $86.6 million or 83% in the third quarter of 2003. The third quarter
2003 underwriting results reflect the continuing favorable, but moderating,
rate environment. Also, the 2003 third quarter was unfavorably impacted by
weather-related catastrophe losses of $83.0 million, net of reinsurance and
after tax (principally due to Hurricane Isabel) which were up significantly
compared to $11.1 million in the prior year quarter. Underwriting gain also
benefited from favorable prior year reserve development in the 2003 third
quarter of $9.2 million ($14.2 million pretax) versus $42.7 million of
unfavorable prior year reserve development in the prior year quarter.

The 2003 third quarter prior year reserve development contained no asbestos
charges compared to $31.7 million of unfavorable prior year reserve development
related to asbestos in the 2002 third quarter, net of the benefit from the
Citigroup indemnification agreement. Commercial Lines had a non-asbestos
related net prior year reserve development charge of $15.6 million in the 2003
quarter compared to a $9.0 million net charge in the 2002 quarter. The
Commercial Lines charges in the 2003 third quarter primarily related to a $9.1
million increase in loss adjustment expenses ($14.0 million pretax).
Offsetting this charge was a benefit of $24.8 million ($38.1 million pretax),
related to favorable prior year reserve development in Personal Lines,
principally due to continued reduced levels of non-catastrophe property claim
frequency, compared to a net charge of $2.0 million in the prior year quarter
($3.1 million pretax).

Net investment income increased $15.3 million or 5% from the prior year
quarter. Returns from higher average invested assets resulting from strong
operating cash flows and higher 2003 third quarter returns in the Companys
private equity and arbitrage fund investments were partially offset by lower
average yields on fixed maturities. The after tax investment yield on total
invested assets declined 20 basis points from the prior year quarter to 3.9%.

The 2003 nine months operating income increased $168.5 million or 16% from the
2002 comparable period. Underwriting gain, before catastrophes and prior year
reserve development increased $278.8 million or 115% from the 2002 comparable
period. The nine months of 2003 underwriting results also reflect the
continuing favorable, but moderating, rate environment. Weather-related
catastrophe losses of $198.8 million, net of reinsurance and after tax, were up
significantly from $35.8 million in the prior year period. The 2003 nine
months losses reflect high catastrophe losses in all three quarters, including
the impact of Hurricane Isabel in the current quarter. Impacting underwriting
gain (loss) was net unfavorable prior year reserve development in the 2003 nine
months of $105.9 million ($162.9 million pretax) versus $155.8 million of
unfavorable prior year reserve development in the prior year nine months.

The 2003 nine months prior year reserve development contained no asbestos
charges compared to $97.5 million of unfavorable prior year reserve development
related to asbestos in the 2002 nine months, net of the benefit from the
Citigroup indemnification agreement. Commercial Lines had a non-asbestos
related net prior year reserve development charge of $177.8 million in the 2003
nine months compared to a $50.4 million net charge in the 2002 nine months.
The most significant component of the 2003 nine months prior year reserve
development was a $174.9 million charge ($269.1 million pretax) related to
first quarter 2003 reserve strengthening at Gulf Insurance Group (Gulf) (a
majority-owned subsidiary). The effect of this first quarter charge to the
Company was $145.5 million after tax and minority interest. The reserve
strengthening primarily related to a line of business that insured the residual
values of leased vehicles and that was placed in runoff in late 2001. The
charge reflects the significant decline in used vehicle prices and an
assumption of further reductions. Also included was an $82.6 million charge
related to the resolution of a residual value claims dispute. In addition to
this charge, there was additional Commercial Lines net unfavorable prior year
reserve development of $2.9 million. Personal Lines had a $71.9 million net
prior year reserve development benefit in the 2003 nine months principally due
to continued reduced levels of non-catastrophe property claim frequency
compared to a net charge of $7.9 million in the 2002 nine months.

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Despite strong cash flows from operations in 2003 nine months, after tax net
investment income decreased $3.1 million or less than 1% from the prior year
period due to the lower interest rate environment along with reduced nine month
returns in the Companys private equity and real estate equity investments
partially offset by higher returns in arbitrage fund investments.

Also included in the 2003 nine months operating income is a $19.0 million
minority interest benefit primarily related to the Gulf prior year reserve
development charges discussed above, compared to $1.2 million of minority
interest charges in the comparable 2002 period.

|                                 |  |                    |         |                   |  |      |         |      |  |   |          |   |  |   |          |  
|-------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                 |  | Three Months Ended |         | Nine Months Ended
|                                 |  | September 30,      |         | September 30,    
|                                 |  |                    |         |                  
|(in millions)                    |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                 |  |                    |         |                   |  |      |         |     
|Earned Premiums                  |  | $                  | 3,149.2 |                   |  | $    | 2,875.3 |      |  | $ | 9,228.2  |   |  | $ | 8,216.6  |  
|Net investment income            |  |                    | 457.9   |                   |  |      | 440.7   |      |  |   | 1,369.7  |   |  |   | 1,393.3  |  
|Fee income                       |  |                    | 133.7   |                   |  |      | 118.6   |      |  |   | 403.7    |   |  |   | 330.1    |  
|Net realized investment losses   |  |                    | (23.3   | )                 |  |      | (51.3   | )    |  |   | (0.7     | ) |  |   | (58.5    | )
|Recoveries from former
affiliate |  |                    |        |                   |  |      | 159.3   |      |  |   |         |   |  |   | 159.3    |  
|Other revenues                   |  |                    | 28.0    |                   |  |      | 21.3    |      |  |   | 96.3     |   |  |   | 75.6     |  
|                                 |  |                    |         |                   |  |      |         |      |  |   |          |   |  |   |          |  
|Consolidated revenues            |  | $                  | 3,745.5 |                   |  | $    | 3,563.9 |      |  | $ | 11,097.2 |   |  | $ | 10,116.4 |  
|                                 |  |                    |         |                   |  |      |         |      |  |   |          |   |  |   |          |  

Earned premiums increased $273.9 million or 10% and $1.012 billion or 12% in
the 2003 third quarter and nine months, respectively, from the comparable
periods of 2002. The increase in earned premiums in the 2003 third quarter and
nine months was due to rate increases on renewal business, growth in targeted
new business and strong customer retention in both Commercial Lines and
Personal Lines. Commercial Lines earned premiums increased $159.1 million or
9% and $664.0 million or 13% in the 2003 third quarter and nine months,
respectively. Commercial Lines earned premiums include Northland and
Associates which decreased $83.2 million or 36% and $152.1 million or 24% in
the 2003 third quarter and nine months, respectively, from the comparable
periods of 2002 due to the withdrawal in 2002 of business at American Equity (a
Northland subsidiary) and Associates. Personal Lines earned premiums increased
$114.8 million or 10%, and $347.6 million or 11% in the 2003 third quarter and
nine months, respectively.

Net investment income increased $17.2 million or 4% in the 2003 third quarter
and decreased $23.6 million or 2% in the nine months of 2003, respectively,
from the comparable periods of 2002. These changes were due to the factors
previously discussed and were also impacted by a higher proportion of tax
exempt investments.

Fee income increased $15.1 million or 13% and $73.6 million or 22% in the 2003
third quarter and nine months from the comparable periods of 2002. Fees rose
as both new business and pricing levels in our National Accounts business increased and more workers compensation business was written
by state residual market pools, as
discussed below.

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Claims and expenses of $3.185 billion in the 2003 third quarter decreased $39.5
million from $3.224 billion in the comparable period of 2002. The decrease was
primarily due to favorable prior year reserve development in the 2003 third
quarter compared to unfavorable prior year reserve development in the 2002
third quarter, partially offset by higher weather related catastrophe losses
and higher loss costs. The 2003 third quarter also reflects higher
commissions, premium taxes and general and administrative expenses associated
with business growth. Favorable prior year reserve development included in
claims and expenses was $14.2 million for the 2003 third quarter compared to
2002 third quarter unfavorable prior year reserve development of $310.7 million
($42.7 million after the benefit related to recoveries under the Citigroup
indemnification agreement and after tax). The 2002 third quarter unfavorable
prior year reserve development included $293.8 million of asbestos incurred
losses ($31.7 million after the benefit related to recoveries under the
Citigroup indemnification agreement and after tax) compared to no asbestos
incurrals in the 2003 third quarter. The 2003 third quarter favorable prior
year reserve development included a $38.1 million benefit in Personal Lines
primarily related to continued reduced levels of non-catastrophe property
claim frequency. Catastrophe losses, net of reinsurance, were $127.7 million
in the 2003 third quarter ($83.0 million net of tax and reinsurance) compared
to $17.0 million in the 2002 third quarter ($11.1 million net of tax and
reinsurance).

Claims and expenses of $9.529 billion in the 2003 nine months increased $641.2
million from $8.887 billion in the comparable period of 2002. The increase was
primarily due to increased loss costs and higher weather related catastrophe
losses, partially offset by lower unfavorable prior year reserve development in
the 2003 nine months. The 2003 nine months also reflects higher commissions,
premium taxes and general and administrative expenses associated with business
growth. Unfavorable prior year reserve development included in claims and
expenses was $162.9 million for the 2003 nine months compared to 2002
unfavorable prior year reserve development of $484.6 million ($155.8 million
after the benefit related to recoveries under the Citigroup indemnification
agreement and after tax). The 2002 nine months unfavorable prior year reserve
development included $395.0 million of asbestos incurred losses ($97.5 million
after the benefit related to recoveries under the Citigroup indemnification
agreement and after tax), compared to no asbestos incurrals in the 2003 nine
months. The most significant component of prior year reserve development in
the 2003 nine months was the first quarter Gulf reserve strengthening that
amounted to $269.1 million. This charge was partially offset by net favorable
Commercial Lines and Personal Lines prior year reserve development of $106.2
million primarily related to property coverages. Catastrophe losses, net of
reinsurance, were $305.8 million in the 2003 nine months ($198.8 million net of
tax and reinsurance) compared to $55.0 million ($35.8 million net of tax and
reinsurance) in the 2002 nine months. The 2003 catastrophe losses were
primarily due to Hurricane Isabel in the third quarter, severe storms in the
second quarter in a number of Southern and Midwestern states and a severe
winter storm in Colorado in the first quarter. Higher interest expense for the
2003 nine months resulted from the 2003 financing activities that were
completed in the second quarter. Shareholder services costs increased
subsequent to the August 20, 2002 spin off from Citigroup. For additional
information on the Companys spin off from Citigroup, see the Companys Form
10-K for the year ended December 31, 2002.

The Companys effective federal tax rate was 23.5% and 24.0% in the 2003 third
quarter and nine months compared to 1.8% and 17.8% in the comparable periods of
2002. The increase in the effective federal tax rate reflects a higher level
of pretax income associated with improved underwriting results for the third
quarter and nine months of 2003 compared to the third quarter and nine months
of 2002, partially offset by a higher level of non-taxable investment income.
The effective tax rates for the 2002 periods also reflect the third quarter
impact of non-taxable recoveries of $159.3 million related to the Citigroup
indemnification agreement.

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Consolidated net written premiums were as follows:

|                           |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         | 
|-------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                           |  | Three Months Ended |         | Nine Months Ended
|                           |  | September 30,      |         | September 30,    
|                           |  |                    |         |                  
|(in millions)              |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                           |  |                    |         |                   |  |      |         |     
|Commercial Lines           |  | $                  | 2,019.8 |                   |  | $    | 1,839.6 |      |  | $ | 5,994.3 |  |  | $ | 5,448.8 | 
|Personal Lines             |  |                    | 1,355.8 |                   |  |      | 1,218.0 |      |  |   | 3,817.1 |  |  |   | 3,429.4 | 
|                           |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         | 
|Total net written
premiums |  | $                  | 3,375.6 |                   |  | $    | 3,057.6 |      |  | $ | 9,811.4 |  |  | $ | 8,878.2 | 
|                           |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         | 

Net written premiums increased $318.0 million or 10% and $933.2 million or 11%
in the 2003 third quarter and nine months, respectively, from the comparable
periods of 2002. The increases in net written premiums in 2003 were primarily
due to higher but moderating rates, new business growth in favorable markets
and strong retention across all major lines of business, partially
offset by the 2002 decision to discontinue writing certain low margin specialty
lines at American Equity (a subsidiary of Northland) and certain transportation business at Associates.
The 2003 nine months increase was also impacted by a decrease in
Northland net written premiums resulting from the inclusion in
the 2002 second quarter of an additional $115.0 million of net written premiums
due to the termination of certain reinsurance contracts by Northland.

Commercial Lines net written premiums, excluding business written in Northland
and Associates, increased $252.3 million or 15% and $818.0 million or 17% for
the 2003 third quarter and nine months, respectively, due to higher but
moderating rates, new business growth in favorable markets and strong retention
across all major business lines. Personal Lines net written premiums increased
$137.8 million or 11% and $387.7 million or 11% for the 2003 third quarter and
nine months, respectively, due to higher but moderating rates as well as
increased business volumes.

The consolidated GAAP combined ratios before policyholder dividends were as
follows:

|                                                                                          |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |      | 
|----------------------------------------------------------------------------------------- | ----------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | ---- | ---- | 
|                                                                                          |             |  | Three Months Ended |      | Nine Months Ended
|                                                                                          |             |  | September 30,      |      | September 30,    
|                                                                                          |             |  |                    |      |                  
|                                                                                          |             |  | 2003               |      | 2002              |  | 2003 |      | 2002
|                                                                                          |             |  |                    |      |                   |  |      |      |     
|Consolidated GAAP combined ratio,
before catastrophes and prior year
reserve development: |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|Loss and loss adjustment expense (LAE)
ratio                                              |             |  | 64.9               | %    |                   |  | 68.5 | %    |      |  | 65.4 | %    |  |  | 69.4 | %   
|Underwriting expense ratio                                                                |             |  | 26.3               |      |                   |  | 26.1 |      |      |  | 26.1 |      |  |  | 26.2 |     
|                                                                                          |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|                                                                                          | Total       |  |                    | 91.2 |                   |  |      | 94.6 |      |  |      | 91.5 |  |  |      | 95.6 | 
|Catastrophes                                                                              |             |  | 4.1                |      |                   |  | 0.6  |      |      |  | 3.3  |      |  |  | 0.7  |     
|Prior year reserve development  (benefit)
charge:                                        |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|                                                                                          | Asbestos(1) |  |                    |     |                   |  |      | 1.7  |      |  |      |     |  |  |      | 1.8  | 
|                                                                                          | All other   |  |                    | (0.5 | )                 |  |      | 0.6  |      |  |      | 1.8  |  |  |      | 1.1  | 
|Accretion of discount                                                                     |             |  | 0.6                |      |                   |  | 0.4  |      |      |  | 0.6  |      |  |  | 0.4  |     
|                                                                                          |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|Consolidated GAAP combined ratio                                                          |             |  | 95.4               | %    |                   |  | 97.9 | %    |      |  | 97.2 | %    |  |  | 99.6 | %   
|                                                                                          |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     

(1)  Net of the Citigroup indemnification agreement in 2002.

The 2.5 point improvement in the 2003 third quarter GAAP combined ratio before
policyholder dividends as compared to the 2002 third quarter resulted from
premium rate increases that exceeded loss costs and favorable prior year
reserve development compared to unfavorable prior year reserve development in
the 2002 third quarter partially offset by higher catastrophe losses. The 2.4
point improvement in the 2003 nine months GAAP combined ratio before
policyholder dividends as compared to the 2002 nine months resulted from
premium rate increases that exceeded loss costs and lower prior year reserve
development partially offset by higher catastrophe losses

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Net realized investment losses were $23.3 million and $0.7 million in the 2003
third quarter and nine months, respectively, compared to $51.3 million and
$58.5 million of net realized investment losses in the 2002 comparable periods.
Net realized investment losses include gains of $12.7 million in the 2003
third quarter and losses of $37.2 million in the 2003 nine months, related to
U.S. Treasury futures contracts which are settled daily. Net realized
investment losses also include $7.2 million and $84.3 million of impairment
charges in the 2003 third quarter and nine months, respectively, compared to
$34.7 million and $223.6 million in the comparable periods of 2002. The 2003
and 2002 impairment charges were mostly related to corporate bonds in the
healthcare, communications, aviation and energy sectors.

RESULTS OF OPERATIONS BY SEGMENT

Commercial Lines

Commercial Lines revenues and the major after tax components of Commercial
Lines operating income are as follows:

|                                                                                            |             |      |                    |       |                   |      |         |       |   |   |         |        |   |   |         |       |  
|------------------------------------------------------------------------------------------- | ----------- | ---- | ------------------ | ----- | ----------------- | ---- | ------- | ----- | - | - | ------- | ------ | - | - | ------- | ----- | -
|                                                                                            |             |      | Three Months Ended |       | Nine Months Ended
|                                                                                            |             |      | September 30,      |       | September 30,    
|                                                                                            |             |      |                    |       |                  
|(in millions)                                                                               |             | 2003 |                    | 2002  |                   | 2003 |         | 2002 
|                                                                                            |             |      |                    |       |                   |      |         |      
|Commercial Lines revenues                                                                   |             | $    | 2,426.0            |       |                   | $    | 2,395.1 |       |   | $ | 7,197.6 |        |   | $ | 6,615.6 |      
|                                                                                            |             |      |                    |       |                   |      |         |       |   |   |         |        |   |   |         |      
|Commercial Lines underwriting gain,
before catastrophes and prior year
reserve development: |             | $    | 145.8              |       |                   | $    | 72.7    |       |   | $ | 396.3   |        |   | $ | 210.5   |      
|Catastrophes                                                                                |             |      | (23.0              | )     |                   |      |        |       |   |   | (69.8   | )      |   |   |        |      
|Prior year reserve development  benefit
(charge):                                          |             |      |                    |       |                   |      |         |       |   |   |         |        |   |   |         |      
|                                                                                            | Asbestos(1) |      |                    |      |                   |      |         | (31.7 | ) |   |         |       |   |   |         | (97.5 | )
|                                                                                            | All other   |      |                    | (15.6 | )                 |      |         | (9.0  | ) |   |         | (177.8 | ) |   |         | (50.4 | )
|Accretion of discount                                                                       |             |      | (11.7              | )     |                   |      | (7.2    | )     |   |   | (35.6   | )      |   |   | (21.6   | )    
|                                                                                            |             |      |                    |       |                   |      |         |       |   |   |         |        |   |   |         |      
|Underwriting gain                                                                           |             |      | 95.5               |       |                   |      | 24.8    |       |   |   | 113.1   |        |   |   | 41.0    |      
|Net investment income                                                                       |             |      | 281.6              |       |                   |      | 270.7   |       |   |   | 839.4   |        |   |   | 833.6   |      
|Other, including minority interest                                                          |             |      | 2.7                |       |                   |      | (0.8    | )     |   |   | 40.2    |        |   |   | 8.2     |      
|                                                                                            |             |      |                    |       |                   |      |         |       |   |   |         |        |   |   |         |      
|Commercial Lines operating income                                                           |             | $    | 379.8              |       |                   | $    | 294.7   |       |   | $ | 992.7   |        |   | $ | 882.8   |      
|                                                                                            |             |      |                    |       |                   |      |         |       |   |   |         |        |   |   |         |      



|(1) |  | Net of benefit of $159.3 million in the 2002 third quarter and nine
months related to asbestos incurrals subject to the Citigroup
indemnification agreement.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenues of $2.426 billion and $7.198 billion in the 2003 third quarter and
nine months increased $30.9 million and $582.0 million from $2.395 billion and
$6.616 billion in the comparable periods of 2002. These increases were
primarily attributable to increases in earned premiums due to premium rate
increases and increases in fee income as both new business and pricing levels
increased. The increases in revenue were partially offset by the inclusion in
the third quarter and nine months of 2002 of $159.3 million from the Citigroup
indemnification agreement, which is reported as recoveries from former
affiliate. The total benefit available under the agreement was fully utilized
in the 2002 fourth quarter.

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Operating income of $379.8 million in the 2003 third quarter increased $85.1
million or 29% from $294.7 million in the 2002 comparable quarter.
Underwriting gain, before catastrophes and prior year reserve development
increased $73.1 million or 101% to $145.8 million in the third quarter of 2003.
The third quarter 2003 underwriting results reflect the continuing favorable
but moderating rate environment. Also, the 2003 third quarter was unfavorably
impacted by $23.0 million of catastrophe losses compared to none in the prior
year quarter. The 2003 third quarter reflects no charge related to asbestos
versus a charge of $31.7 million, net of the benefit from the Citigroup
indemnification agreement, in the prior period quarter. Impacting underwriting
gain was net unfavorable prior year reserve development in the 2003 third
quarter of $15.6 million ($23.9 million pretax) versus $40.7 million ($62.6
million pretax) of unfavorable prior year reserve development in the prior year
quarter. The 2003 third quarter net unfavorable prior year reserve development
relates primarily to a $9.1 million increase in loss adjustment expenses ($14.0
million pretax). Net investment income of $281.6 million was $10.9 million
higher compared to $270.7 million in the prior year quarter. Higher returns
from higher average invested assets resulting from strong operating cash flows
and higher returns in the Companys private equity and arbitrage fund
investments were partially offset by lower average yields on fixed maturities.
The 2003 third quarter operating income also includes $2.0 million of minority
interest charges primarily related to Gulf compared to $1.2 million of minority
interest charges in the 2002 third quarter.

Operating income of $992.7 million in the 2003 nine months increased $109.9
million or 12% from $882.8 million in the 2002 comparable period. Underwriting
gain, before catastrophes and prior year reserve development increased $185.8
million or 88% to $396.3 million in the nine months of 2003. The nine months
2003 underwriting results reflect the continuing favorable but moderating rate
environment. Also, the 2003 nine months was unfavorably impacted by $69.8
million of catastrophe losses compared to no catastrophe losses in the
comparable period of 2002. The 2003 nine months reflects no charge related to
asbestos versus a charge of $97.5 million, net of the benefit from the
Citigroup indemnification agreement, in the prior year period. Impacting
underwriting gain was net unfavorable prior year reserve development in the
2003 nine months of $177.8 million ($273.5 million pretax) versus $147.9
million ($227.5 million pretax) of unfavorable prior year reserve development
in the prior year period. The most significant component of the 2003 nine
months prior year reserve development was a $174.9 million after tax charge
($269.1 million pretax) related to first quarter reserve strengthening at Gulf.
The total effect of this reserve strengthening charge to the Company was
$145.5 million after tax and minority interest. The reserve strengthening
primarily related to a line of business that insured the residual values of
leased vehicles and that was placed in runoff in late 2001. The charge
reflects the significant decline in used vehicle prices and an assumption of
further reductions. Also included in the charge was an $82.6 million charge
related to the resolution of a residual value claims dispute. The Gulf
reserve strengthening in the first quarter of 2003 was in addition to the other
Commercial Lines prior year reserve development, which was a net charge of $2.9
million in the 2003 nine months. These other Commercial Lines charges include
a second quarter $19.5 million addition to the allowance for uncollectible
reinsurance recoverables, as well as other reserve strengthening in other lines
of business during the 2003 nine month period. These charges were partially
offset by a first quarter net prior year reserve development benefit of $46.0
million, primarily related to property coverages. Net investment income of
$839.4 million was $5.8 million higher than the prior year nine months due to
higher average invested assets resulting from strong operating cash flows along
with higher returns in the Companys arbitrage fund investments partially
offset by lower returns in private equity and real estate equity investments.
Also included in the 2003 nine months operating income is a $19.0 million
minority interest benefit primarily related to losses incurred at Gulf,
compared to a $1.2 million minority interest charge in the comparable 2002
period.

Earned premiums increased $159.1 million and $664.0 million to $1.917 billion
and $5.665 billion in the 2003 third quarter and nine months, respectively,
from $1.758 billion and $5.001 billion in the comparable periods of 2002. The
increases in earned premiums in the 2003 third quarter and nine months were
primarily due to premium rate increases, growth in targeted new business and
strong customer retention. Earned premiums include Northland and Associates
which decreased $83.2 million or 36% and $152.1 million or 24% to $148.4
million and $488.2 million in the 2003 third quarter and nine months,
respectively, from $231.6 million and $640.3 million in the comparable periods
of 2002.

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Net investment income was $368.0 million in the 2003 third quarter, an increase
of $10.2 million from the comparable period of 2002. This increase was due to
higher average invested assets in the 2003 third quarter resulting from strong
operating cash flows and higher returns in the Companys private equity and
arbitrage fund investments, partially offset by lower average yields on fixed
maturities. The decrease in yields reflected the lower interest rate
environment, a higher proportion of tax exempt investments and a reduction in
average duration. Pretax investment yields declined to 5.2% in the 2003 third
quarter from 5.5% in the 2002 comparable period. Net investment income was
$1.099 billion in the 2003 nine months, a decrease of $11.2 million from the
2002 nine months, and was due to the lower interest rate environment, a higher
proportion of tax exempt investments and a reduction in average duration, along
with lower returns in the Companys private equity and real estate equity
investments partially offset by higher returns in arbitrage fund investments.
Pretax investment yields declined to 5.3 % in the 2003 nine months from 5.9% in
the 2002 nine months. The lower average yield was partially offset by the
benefit of higher average invested assets that resulted from strong cash flows
from underwriting.

Fee income was $133.7 million and $403.7 million in the 2003 third quarter and
nine months, respectively, a $15.1 million and $73.6 million increase from the
comparable periods of 2002. National Accounts is the primary source of fee
income due to its service businesses, which include claim and loss prevention
services to large companies that choose to self-insure a portion of their
insurance risks, and claims and policy management services to workers
compensation residual market pools and automobile assigned risk plans and to
self-insurance pools. Fees rose as both new business and pricing levels
increased and more workers compensation business was written by state residual
market pools. Claim volume under administration, including new and renewal
business, increased to $681.9 million and $2.481 billion for the 2003 third
quarter and nine months, respectively, compared to $549.8 million and $2.016
billion for the comparable periods in 2002. Claim volume under administration
represents a measure of claim volume expected to be serviced, under contracts
written in the period, on fee for service arrangements or loss sensitive
insurance products.

Commercial Lines net written premiums by market were as follows:

|                           |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |         |         | 
|-------------------------- | ------------------- | --------------- | ------- | ------------------ | ------- | ----------------- | ------- | ----- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                           |                     |                 |         | Three Months Ended |         | Nine Months Ended
|                           |                     |                 |         | September 30,      |         | September 30,    
|                           |                     |                 |         |                    |         |                  
|(in millions)              |                     | 2003            |         | 2002               |         | 2003              |         | 2002 
|                           |                     |                 |         |                    |         |                   |         |      
|Core                       |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |        
|                           | National Accounts   |                 | $       | 243.9              |         |                   | $       | 218.6 |         |   | $       | 663.6   |         |   | $       | 512.2   |        
|                           | Commercial Accounts |                 |         | 892.1              |         |                   |         | 888.3 |         |   |         | 2,719.1 |         |   |         | 2,659.7 |        
|                           | Select Accounts     |                 |         | 505.7              |         |                   |         | 453.6 |         |   |         | 1,532.4 |         |   |         | 1,381.5 |        
|                           |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |         |        
|                           |                     | Total Core      |         |                    | 1,641.7 |                   |         |       | 1,560.5 |   |         |         | 4,915.1 |   |         |         | 4,553.4 | 
|                           |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |         |        
|Specialty                  |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |        
|                           | Bond                |                 |         | 216.0              |         |                   |         | 175.4 |         |   |         | 584.9   |         |   |         | 466.5   |        
|                           | Gulf                |                 |         | 162.1              |         |                   |         | 103.7 |         |   |         | 494.3   |         |   |         | 428.9   |        
|                           |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |         |        
|                           |                     | Total Specialty |         |                    | 378.1   |                   |         |       | 279.1   |   |         |         | 1,079.2 |   |         |         | 895.4   | 
|                           |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |         |        
|Total net written
premiums |                     | $               | 2,019.8 |                    |         | $                 | 1,839.6 |       |         | $ | 5,994.3 |         |         | $ | 5,448.8 |        
|                           |                     |                 |         |                    |         |                   |         |       |         |   |         |         |         |   |         |         |        

Net written premiums increased $180.2 million and $545.5 million to $2.020
billion and $5.994 billion for the 2003 third quarter and nine months,
respectively. The strong but moderating rate environment, growth in targeted
new business, and strong customer retention across all major lines of business
combined to drive premium growth.

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In addition to fee based products, National Accounts works with national and
regional brokers to provide tailored insurance coverages and programs, mainly
to large corporations. National Accounts also includes participation in state
mandated residual market workers compensation and automobile assigned risk
plans. National Accounts net written premiums were $243.9 million and $663.6
million in the 2003 third quarter and nine months, respectively, compared to
$218.6 million and $512.2 million in the comparable periods of 2002. The
increase in the National Accounts net written premiums was due to the continued
benefit from rate increases, higher new business levels and higher business
volume in residual market pools. The nine months of 2002 also included a first
quarter single, large premium reduction of $41.0 million related to
loss-sensitive business. For fee based products see discussion of fee income
above.

Commercial Accounts serves primarily mid-sized businesses for casualty products
and large, mid-sized and small businesses for property products through a
network of independent agents and brokers. Commercial Accounts net written
premiums, excluding Northland and Associates, increased 11% to $756.0 million
and 17% to $2.300 billion in the 2003 third quarter and nine months,
respectively, primarily driven by renewal price change increases averaging 9%
and 11% for the 2003 third quarter and nine months, respectively, down from 25%
and 24% in the third quarter and nine months of 2002, respectively, and new
business growth in favorable markets. The lower level of renewal price changes
resulted mostly from moderation in rates. Renewal price change represents the
estimated average change in premium on policies that renew, including rate and
exposure changes, versus the average premium on those same policies for their
prior term. New business premiums in Commercial Accounts for the 2003 third
quarter and nine months were $190.4 million and $589.8 million, respectively,
compared to $176.5 million and $532.0 million in the comparable periods of
2002. The business retention ratio for the 2003 third quarter and nine months
was 82% and 81%, respectively, up from 75% for both of the comparable periods
of 2002. Retention represents the estimated percentage of premium available
for renewal which renewed in the current period. This renewal price change,
new business and retention information excludes the Companys Northland and
Associates subsidiaries. Net written premiums associated with Northland and
Associates subsidiaries were $136.1 million and $418.7 million in the 2003
third quarter and nine months, respectively, compared to $208.2 million and
$691.2 million in the comparable prior year periods due to the 2002 decision to
discontinue certain low margin specialty lines at American Equity and certain
transportation business at Associates. Northland and Associates 2002 nine
months net written premiums include an increase of approximately $115.0 million
related to the termination of certain reinsurance contracts.

Select Accounts serves small businesses through a network of independent
agents. Select Accounts net written premiums increased 11% to $505.7 million
and to $1.532 billion in both the 2003 third quarter and nine months,
respectively. The increase in Select Accounts net written premiums primarily
reflected renewal price change increases averaging 14% for both the 2003 third
quarter and nine months, compared to 18% in the third quarter and 17% in the
nine months of 2002. New business premiums in Select Accounts for the 2003
third quarter and nine months were $87.1 million and $277.9 million,
respectively, compared to $75.3 million and $214.6 million in the comparable
periods of 2002. New business growth was especially strong in the property,
general liability and commercial multi-peril lines of business. The business
retention ratio for both the 2003 third quarter and nine months increased to
83% compared to 80% and 79% for the comparable periods of 2002. Selects
retention remains strongest for small commercial business handled through the
Companys Service Centers, while premium growth has been greatest in the
commercial multi-peril and property lines of business.

Bond provides a variety of fidelity and surety bonds and executive liability
coverages to clients of all sizes through independent agents and brokers. Bond
net written premiums of $216.0 million and $584.9 million in the 2003 third
quarter and nine months, respectively, were $40.6 million and $118.4 million
higher than the comparable periods of 2002. The 2002 first quarter included a
$17.5 million reduction due to a change in the Bond Executive Liability excess
of loss reinsurance treaty that was effective January 1, 2002. The nine month
increase of $100.9 million, before the reinsurance adjustment, reflects a
favorable premium rate environment and strong new business principally in
executive liability product lines, which target middle and small market private
accounts, partially offset by higher reinsurance costs. In addition, the
surety product lines benefited from higher premium rates in 2003.

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Gulf markets products to national, mid-sized and small customers and
distributes them through both wholesale brokers and retail agents and brokers
throughout the United States with particular emphasis on management and
professional liability coverages and excess and surplus lines of insurance.
Gulf net written premiums of $162.1 million and $494.3 million in the 2003
third quarter and nine months, respectively, increased $58.4 million and $65.4
million compared to the comparable periods of 2002 as a result of significant
rate increases, especially for directors and officers liability insurance and
other professional liability products. In addition, the comparison with the
prior year quarter benefited from reductions to net written premiums in the
2002 quarter related to the exiting of non-core businesses.

Commercial Lines claims and expenses of $1.927 billion in the 2003 third
quarter decreased $166.1 million from $2.093 billion in the comparable period
of 2002. The decrease was primarily due to lower unfavorable prior year
reserve development in the 2003 third quarter partially offset by increased
loss costs and higher weather related catastrophe losses. The third quarter
also reflects higher commissions, premium taxes and general and administrative
expenses associated with business growth. Unfavorable prior year reserve
development included in claims and expenses was $23.9 million for the 2003
third quarter compared to $307.6 million in the 2002 third quarter ($40.7
million after the benefit related to recoveries under the Citigroup
indemnification agreement and after tax). The 2002 third quarter unfavorable
prior year reserve development included $293.8 million of asbestos incurred
losses ($31.7 million after the benefit related to recoveries under the
Citigroup indemnification agreement and after tax) compared to no asbestos
incurrals in the 2003 third quarter. The 2003 third quarter unfavorable prior
year reserve development included a $14.0 million increase in loss adjustment
expenses. Catastrophe losses, net of reinsurance, were $35.4 million in the
2003 third quarter ($23.0 million net of tax and reinsurance) compared to no
catastrophe losses in the 2002 third quarter. Third quarter 2003 catastrophe
losses were primarily due to Hurricane Isabel.

Commercial Lines claims and expenses of $5.933 billion in the 2003 nine months
increased $392.8 million from $5.540 billion in the comparable period of 2002.
The increase was primarily due to increased loss costs and higher weather
related catastrophe losses, partially offset by lower unfavorable prior year
reserve development in the 2003 nine months. The 2003 nine months also
reflects higher commissions, premium taxes and general and administrative
expenses associated with business growth. Unfavorable prior year reserve
development included in claims and expenses was $273.5 million for the 2003
nine months compared to $472.5 million in 2002 ($147.9 million after the
benefit related to recoveries under the Citigroup indemnification agreement and
after tax). The 2002 nine months unfavorable prior year reserve development
included $395.0 million of asbestos incurred losses ($97.5 million after the
benefit related to recoveries under the Citigroup indemnification agreement and
after tax) compared to no asbestos incurrals in the 2003 nine months. The most
significant component in the 2003 nine months prior year reserve development
was $269.1 million related to Gulf reserve strengthening for a line of
business that insured residual values of leased vehicles and that was placed in
runoff in late 2001. The Gulf reserve strengthening in the first quarter of
2003 was in addition to the other Commercial Lines prior year reserve
development which was a net charge of $4.5 million in the 2003 nine months.
These other Commercial Lines charges include a second quarter $30.0 million
addition to the allowance for uncollectible reinsurance recoverables, as well
as other reserve strengthening in other lines of business during the 2003 nine
month period. These charges were partially offset by a first quarter net prior
year reserve development benefit of $70.7 million, primarily related to
property coverages. Catastrophe losses, net of reinsurance, were $107.3
million in the 2003 nine months ($69.8 million net of tax and reinsurance)
compared to no catastrophe losses in the 2002. The 2003 catastrophe losses
were primarily due to Hurricane Isabel in the third quarter, severe storms in
the second quarter in a number of Southern and Midwestern states and a severe
winter storm in Colorado in the first quarter.

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GAAP combined ratios before policyholder dividends for Commercial Lines were as
follows:

|                                                                                              |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |      | 
|--------------------------------------------------------------------------------------------- | ----------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | ---- | ---- | 
|                                                                                              |             |  | Three Months Ended |      | Nine Months Ended
|                                                                                              |             |  | September 30,      |      | September 30,    
|                                                                                              |             |  |                    |      |                  
|                                                                                              |             |  | 2003               |      | 2002              |  | 2003 |      | 2002
|                                                                                              |             |  |                    |      |                   |  |      |      |     
|Commercial Lines GAAP combined
ratio,
before catastrophes and prior year
reserve development: |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|Loss and LAE ratio                                                                            |             |  | 62.3               | %    |                   |  | 67.3 | %    |      |  | 62.7 | %    |  |  | 67.3 | %   
|Underwriting expense ratio                                                                    |             |  | 27.1               |      |                   |  | 26.6 |      |      |  | 26.8 |      |  |  | 26.6 |     
|                                                                                              |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|                                                                                              | Total       |  |                    | 89.4 |                   |  |      | 93.9 |      |  |      | 89.5 |  |  |      | 93.9 | 
|Catastrophes                                                                                  |             |  | 1.8                |      |                   |  |     |      |      |  | 1.9  |      |  |  |     |     
|Prior year reserve development 
(benefit) charge:                                            |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|                                                                                              | Asbestos(1) |  |                    |     |                   |  |      | 2.8  |      |  |      |     |  |  |      | 3.0  | 
|                                                                                              | All other   |  |                    | 1.2  |                   |  |      | 0.8  |      |  |      | 4.8  |  |  |      | 1.5  | 
|Accretion of discount                                                                         |             |  | 0.9                |      |                   |  | 0.6  |      |      |  | 1.0  |      |  |  | 0.7  |     
|                                                                                              |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     
|Commercial Lines GAAP combined ratio                                                          |             |  | 93.3               | %    |                   |  | 98.1 | %    |      |  | 97.2 | %    |  |  | 99.1 | %   
|                                                                                              |             |  |                    |      |                   |  |      |      |      |  |      |      |  |  |      |     

(1)  Net of the Citigroup indemnification agreement in 2002.

The 4.8 point improvement in the 2003 third quarter GAAP combined ratio before
policyholder dividends resulted from premium rate increases that exceeded loss
costs and lower prior year reserve development partially offset by higher
catastrophe losses in the 2003 third quarter compared to none in the 2002 third
quarter. The 1.9 point improvement in the 2003 nine months GAAP combined ratio
before policyholder dividends resulted from premium rate increases that
exceeded loss cost trends partially offset by slightly higher prior year
reserve development and higher catastrophe losses in the 2003 nine months
compared to none in the prior year period. The improvement in the 2003 third
quarter and nine months GAAP combined ratio, before catastrophes and prior year
reserve development, from the 2002 third quarter and nine months, reflects an
improvement in the loss and LAE ratio partially offset by an increase in the
underwriting expense ratio. The improvement in the loss and LAE ratio resulted
from the favorable rate environment. The increase in the underwriting expense
ratio is primarily due to higher contingent commissions that result from
improved underwriting results.

Personal Lines

Personal Lines revenues and the major after tax components of Personal Lines
operating income are as follows:

|                                                                                         |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                         |  | Three Months Ended |         | Nine Months Ended
|                                                                                         |  | September 30,      |         | September 30,    
|                                                                                         |  |                    |         |                  
|(in millions)                                                                            |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                                                                         |  |                    |         |                   |  |      |         |     
|Personal Lines revenues                                                                  |  | $                  | 1,342.6 |                   |  | $    | 1,220.5 |      |  | $ | 3,898.4 |   |  | $ | 3,558.7 |  
|                                                                                         |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Personal Lines underwriting gain, before
catastrophes and prior year reserve
development |  | $                  | 44.6    |                   |  | $    | 31.1    |      |  | $ | 125.7   |   |  | $ | 32.7    |  
|Catastrophes                                                                             |  |                    | (60.0   | )                 |  |      | (11.1   | )    |  |   | (129.0  | ) |  |   | (35.8   | )
|Prior year reserve development  benefit
(charge)                                        |  |                    | 24.8    |                   |  |      | (2.0    | )    |  |   | 71.9    |   |  |   | (7.9    | )
|                                                                                         |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Underwriting gain (loss)                                                                 |  |                    | 9.4     |                   |  |      | 18.0    |      |  |   | 68.6    |   |  |   | (11.0   | )
|Net investment income                                                                    |  |                    | 65.5    |                   |  |      | 61.5    |      |  |   | 196.3   |   |  |   | 205.5   |  
|Other                                                                                    |  |                    | 13.3    |                   |  |      | 12.5    |      |  |   | 42.6    |   |  |   | 38.7    |  
|                                                                                         |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Personal Lines operating income                                                          |  | $                  | 88.2    |                   |  | $    | 92.0    |      |  | $ | 307.5   |   |  | $ | 233.2   |  
|                                                                                         |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  

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Revenues during the 2003 third quarter and nine months of $1.343 billion and
$3.898 billion, respectively, increased $122.1 million and $339.7 million from
the comparable periods of 2002. The increase in revenues resulted primarily
from growth in earned premiums due to renewal price increases as well as increased
business volumes and strong retention. Renewal price change for Personal Lines
products represents the estimated average change in premium on policies that
renew, including rate and exposure changes, versus the average premium on those
same policies for their prior term. Net investment income increased in the
2003 third quarter compared to the 2002 third quarter while net investment
income for the 2003 nine months decreased compared to the 2002 nine months.

Operating income of $88.2 million for the 2003 third quarter was $3.8 million
or 4% lower than $92.0 million for the 2002 comparable period. Underwriting
gain, before catastrophes and prior year reserve development increased $13.5
million or 43% to $44.6 million in the third quarter of 2003 due to the
favorable but moderating rate environment in both automobile and property and a
moderation in the increase in loss costs. Underwriting gain in the 2003 third
quarter was unfavorably impacted by catastrophe losses of $60.0 million
compared to $11.1 million in the prior year quarter. Also impacting
underwriting gain was favorable prior year reserve development in the 2003
third quarter of $24.8 million ($38.1 million pretax) versus $2.0 million ($3.1
million pretax) of unfavorable prior year reserve development in the prior year
quarter. In addition, after tax net investment income of $65.5 million was
$4.0 million higher than the 2002 third quarter.

Operating income of $307.5 million for the 2003 nine months was $74.3 million
or 32% higher than $233.2 million for the 2002 comparable period. Underwriting
gain, before catastrophes and prior year reserve development increased $93.0
million or 284% to $125.7 million in the nine months of 2003 due to the
favorable but moderating rate environment in both automobile and property and a
moderation in the increase in loss costs. Underwriting gain (loss) the 2003
nine months was unfavorably impacted by catastrophe losses of $129.0 million
compared to $35.8 million in the prior year period. Also impacting
underwriting gain (loss) was favorable prior year reserve development in the
2003 nine months of $71.9 million ($110.6 million pretax) versus $7.9 million
($12.1 million pretax) of unfavorable prior year reserve development in the
prior year period. In addition, after tax net investment income of $196.3
million was $9.2 million lower than the 2002 nine months.

Earned premiums increased $114.8 million and $347.6 million to $1.232 billion
and $3.563 billion in the 2003 third quarter and nine months, respectively,
from $1.118 billion and $3.216 billion in the comparable periods of 2002. The
increase in earned premiums in the 2003 second quarter and nine months was
primarily due to higher rates as well as increased business volumes and strong
retention.

Net investment income was $89.8 million in the 2003 third quarter, an increase
of $6.4 million from the comparable period of 2002. This increase was due to
higher average invested assets in the 2003 third quarter resulting from strong
operating cash flows and higher returns in the Companys private equity and
arbitrage fund investments, partially offset by lower average yields on fixed
maturities. The decrease in yields reflected the lower interest rate
environment, a higher proportion of tax exempt investments and a reduction in
average duration. Pretax investment yields declined to 5.2% in the 2003 third
quarter from 5.5% in the 2002 comparable period. Net investment income was
$270.1 million in the 2003 nine months, a decrease of $12.9 million from the
nine months of 2002, due to the lower interest rate environment, a higher
proportion of tax exempt investments and a reduction in average duration, along
with lower returns in the Companys private equity and real estate equity
investments, partially offset by higher returns in arbitrage fund investments.
Pretax investment yields declined to 5.3% in the 2003 nine months from 5.9% in
the 2002 nine months. The lower average yield was partially offset by the
benefit of higher average invested assets that resulted from strong cash flows
from underwriting.

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##### Table of Contents



Personal Lines net written premiums by product line were as follows:

|                           |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         | 
|-------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                           |  | Three Months Ended |         | Nine Months Ended
|                           |  | September 30,      |         | September 30,    
|                           |  |                    |         |                  
|(in millions)              |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                           |  |                    |         |                   |  |      |         |     
|Automobile                 |  | $                  | 796.3   |                   |  | $    | 741.8   |      |  | $ | 2,310.6 |  |  | $ | 2,143.5 | 
|Homeowners and Other       |  |                    | 559.5   |                   |  |      | 476.2   |      |  |   | 1,506.5 |  |  |   | 1,285.9 | 
|                           |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         | 
|Total net written
premiums |  | $                  | 1,355.8 |                   |  | $    | 1,218.0 |      |  | $ | 3,817.1 |  |  | $ | 3,429.4 | 
|                           |  |                    |         |                   |  |      |         |      |  |   |         |  |  |   |         | 

The increase in net written premiums of $137.8 million and $387.7 million in
the 2003 third quarter and nine months, respectively, was due to rate increases
and higher business volumes in both the Automobile and Homeowners and Other
lines of business.

Automobile net written premiums increased 7% to $796.3 million and 8% to $2.311
billion in the 2003 third quarter and nine months, respectively. Renewal price
change increases for standard voluntary business averaged 6% for both the 2003
third quarter and nine months, two percentage points below the third quarter
and nine months of 2002. Policy retention levels for standard voluntary
business remained favorable and averaged 81%, up one percentage point from the
prior year quarter and nine months. Retention for Personal Lines products
represents the estimated percentage of policies from the prior period renewed
in the current period.

Homeowners and Other net written premiums increased 17% to $559.5 million and
to $1.507 billion in both the 2003 third quarter and nine months, respectively.
Renewal price change increases averaged 11% for both the 2003 third quarter
and nine months, compared to 15% in the third quarter and nine months of 2002.
The higher level of renewal price change increases in the prior year periods
was mostly attributable to rate increases in Texas. Retention levels also
remained favorable and averaged 81%, up one percentage point from the prior
year quarter and nine months.

Production through the Companys independent agents in Personal Lines, which
represents over 82% of Personal Lines total net written premiums, was up 11% to
$1.110 billion and to $3.130 billion in both the 2003 third quarter and nine
months, respectively. Production through other channels, which include
affinity and joint marketing arrangements, was up 10% to $245.5 million and to
$686.7 million for both the 2003 third quarter and nine months, respectively.

Personal Lines claims and expenses of $1.218 billion and $3.458 billion in the
2003 third quarter and nine months, respectively, increased $127.9 million and
$224.9 million from $1.090 billion and $3.233 billion in the third quarter and
nine months of 2002. The 2003 increase was primarily attributed to the effect
of increased loss costs and higher catastrophe losses partially offset by
favorable prior year reserve development. The 2003 third quarter and nine
months includes $38.1 million and $110.6 million, respectively, of favorable
prior year reserve development versus unfavorable prior year reserve
development of $3.1 million and $12.1 million in the 2002 third quarter and
nine months. The 2003 favorable prior year reserve development primarily
related to property business written in 2002 and to a lesser degree automobile
business written in prior years. Catastrophe losses, net of tax and
reinsurance, were $60.0 million and $129.0 million in the 2003 third quarter
and nine months compared to $11.1 million and $35.8 million in the comparable
periods of 2002. Catastrophe losses in 2003 were primarily due to winter
storms in the Mid-Atlantic states, the Northeast and Colorado in the first
quarter, hail, ice storms and tornados in the second quarter and primarily due
to Hurricane Isabel in the third quarter. Catastrophe losses in 2002 were
primarily due to winter storms in the Midwest and New York in the first quarter
and wind and hailstorms in the mid Atlantic region in the second and third
quarters.

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GAAP combined ratios for Personal Lines were as follows:

|                                                                                            |       |  |                    |      |                   |  |      |      |      |  |      |      |  |  |       |      | 
|------------------------------------------------------------------------------------------- | ----- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | ----- | ---- | 
|                                                                                            |       |  | Three Months Ended |      | Nine Months Ended
|                                                                                            |       |  | September 30,      |      | September 30,    
|                                                                                            |       |  |                    |      |                  
|                                                                                            |       |  | 2003               |      | 2002              |  | 2003 |      | 2002
|                                                                                            |       |  |                    |      |                   |  |      |      |     
|Personal Lines GAAP combined ratio,
before catastrophes and prior year
reserve development: |       |  |                    |      |                   |  |      |      |      |  |      |      |  |  |       |     
|Loss and LAE ratio                                                                          |       |  | 69.3               | %    |                   |  | 70.4 | %    |      |  | 69.5 | %    |  |  | 72.9  | %   
|Underwriting expense ratio                                                                  |       |  | 25.2               |      |                   |  | 25.4 |      |      |  | 25.0 |      |  |  | 25.6  |     
|                                                                                            |       |  |                    |      |                   |  |      |      |      |  |      |      |  |  |       |     
|                                                                                            | Total |  |                    | 94.5 |                   |  |      | 95.8 |      |  |      | 94.5 |  |  |       | 98.5 | 
|Catastrophes                                                                                |       |  | 7.5                |      |                   |  | 1.5  |      |      |  | 5.6  |      |  |  | 1.7   |     
|Prior year reserve development  (benefit)
charge                                           |       |  | (3.1               | )    |                   |  | 0.3  |      |      |  | (3.1 | )    |  |  | 0.4   |     
|                                                                                            |       |  |                    |      |                   |  |      |      |      |  |      |      |  |  |       |     
|Personal Lines GAAP combined ratio                                                          |       |  | 98.9               | %    |                   |  | 97.6 | %    |      |  | 97.0 | %    |  |  | 100.6 | %   
|                                                                                            |       |  |                    |      |                   |  |      |      |      |  |      |      |  |  |       |     

The 1.3 point deterioration in the 2003 third quarter GAAP combined ratio
resulted from higher catastrophe losses, partially offset by premium rate
increases that exceeded loss costs and favorable prior year reserve development
compared to unfavorable prior year reserve development in the 2002 third
quarter. The 3.6 point improvement in the 2003 nine months GAAP combined ratio
resulted from premium rate increases that exceeded loss costs and favorable
prior year reserve development compared to unfavorable prior year reserve
development in the corresponding prior year periods, partially offset by higher
catastrophes. The improvement in the 2003 third quarter and nine months GAAP
combined ratio, before catastrophes and prior year reserve development,
compared to the 2002 third quarter and nine months, reflects an improvement in
both the loss and LAE ratio and in the underwriting expense ratio. The
improvement in the loss and LAE ratio was due to the favorable rate environment
and continued reduced levels of non-catastrophe property claim frequency. The
improvement in the underwriting expense ratio was primarily due to the benefits
of the favorable rate environment and further expense leverage.

Interest Expense and Other

|                                |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                |  | Three Months Ended |       | Nine Months Ended
|                                |  | September 30,      |       | September 30,    
|                                |  |                    |       |                  
|(in millions)                   |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                |  |                    |       |                   |  |      |       |     
|Revenues                        |  | $                  | 0.2   |                   |  | $    | (0.4  | )    |  | $ | 1.9   |   |  | $ | 0.6   |  
|Interest Expense and Other,
net |  | $                  | (25.3 | )                 |  | $    | (26.6 | )    |  | $ | (88.2 | ) |  | $ | (72.5 | )
|                                |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  

The expense of $25.3 million for the 2003 third quarter for Interest Expense
and Other decreased from $26.6 million in the 2002 third quarter primarily due
to lower interest expense, partially offset by higher shareholder services
costs incurred as a result of being an independent company following the spin
off from Citigroup. The expense of $88.2 million for the 2003 nine months
increased from $72.5 million in the comparable prior year period, primarily due
to higher interest costs and higher shareholder services costs. After-tax
interest expense was $23.9 million and $82.1 million in the 2003 third quarter
and nine months, respectively, compared to $25.5 million and $73.9 million in
the 2002 comparable periods. The decrease in interest expense for the 2003
third quarter was due to refinancing activities in the first quarter of 2003
which resulted in lower average interest rates on outstanding debt. The
increase in interest expense in the 2003 nine months was primarily due to the
impact of refinancing activities which included temporary financing of $550.0
million first obtained in December 2002 in connection with the fourth quarter
2002 asbestos reserve strengthening and $1.400 billion of senior notes issued
on March 11, 2003. The proceeds from this note issuance were used to prepay,
in full, a $500.0 million note to Citigroup on March 11, 2003, and to redeem
$900.0 million of trust preferred securities on April 9, 2003. For additional
information see Liquidity and Capital Resources.

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ASBESTOS CLAIMS AND LITIGATION

The Company believes that the property and casualty insurance industry has
suffered from judicial interpretations and other trends that have attempted to
maximize insurance availability for asbestos claims, from both a coverage and
liability standpoint, far beyond the intent of the contracting parties. These
policies generally were issued prior to 1980. As a result, the Company
continues to experience an increase in the number of asbestos claims being
tendered to the Company by the Companys policyholders (which includes others
seeking coverage under a policy) including claims against the Companys
policyholders by individuals who do not appear to be impaired by asbestos
exposure. Factors underlying these increases include more intensive
advertising by lawyers seeking asbestos claimants, the increasing focus by
plaintiffs on new and previously peripheral defendants and an increase in the
number of entities seeking bankruptcy protection as a result of
asbestos-related liabilities. In addition to contributing to the increase in
claims, bankruptcy proceedings may increase the volatility of asbestos-related
losses by initially delaying the reporting of claims and later by significantly
accelerating and increasing loss payments by insurers, including the Company.
The Company is currently involved in coverage litigation concerning a number of
policyholders who have filed for bankruptcy and who have asserted that all or a
portion of their asbestos-related claims are not subject to aggregate limits on
coverage as described generally in the next paragraph. See Legal
Proceedings. During 2002 and continuing into 2003, the trends described above
have accelerated. Accordingly, there is a high degree of uncertainty with
respect to future exposure from asbestos claims. See Uncertainty Regarding
Adequacy of Asbestos and Environmental Reserves.

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

Many coverage disputes with policyholders are only resolved through settlement
agreements. Because many policyholders make exaggerated demands, it is
difficult to predict the outcome of settlement negotiations. Settlements
involving bankrupt policyholders may include extensive releases which are
favorable to the Company but could result in settlements for larger amounts
than originally anticipated. As in the past, the Company will continue to
pursue settlement opportunities. For a discussion of settlement activities
with PPG Industries, Inc. see note 12 to the condensed consolidated financial
statements.

In addition, proceedings have been launched directly against insurers,
including the Company, challenging insurers conduct in respect of asbestos
claims, including in some cases with respect to previous settlements. The
Company anticipates the filing of other direct actions against insurers,
including the Company, in the future. Particularly in light of jurisdictional
issues, it is difficult to predict the outcome of these proceedings, including
whether the plaintiffs will be able to sustain these actions against insurers
based on novel legal theories of liability. See Legal Proceedings.

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##### Table of Contents



Because each policyholder presents different liability and coverage issues, the
Company generally evaluates the exposure presented by each policyholder on a
policyholder-by-policyholder basis. In the course of this evaluation, the
Company considers: available insurance coverage, including the role of any
umbrella or excess insurance the Company has issued to the policyholder; limits
and deductibles; an analysis of each policyholders potential liability; the
jurisdictions involved; past and anticipated future claim activity and loss
development on pending claims; past settlement values of similar claims;
allocated claim adjustment expense; potential role of other insurance; the
role, if any, of non-asbestos claims or potential non-asbestos claims in any
resolution process; and applicable coverage defenses or determinations, if any,
including the determination as to whether or not an asbestos claim is a
products/completed operation claim subject to an aggregate limit and the
available coverage, if any, for that claim. Once the gross ultimate exposure
for indemnity and related claim adjustment expense is determined for each
policyholder by each policy year, the Company calculates a ceded reinsurance
projection based on any applicable facultative and treaty reinsurance, as well
as past ceded experience. Adjustments to the ceded projections also occur due
to actual ceded claim experience and reinsurance collections. Conventional
actuarial methods are not utilized to establish asbestos reserves. The
Companys evaluations have not resulted in any meaningful data from which an
average asbestos defense or indemnity payment may be determined.

The Company also compares its historical direct and net loss and expense paid
experience, year-by-year, to assess any emerging trends, fluctuations or
characteristics suggested by the aggregate paid activity. There has been an
acceleration in recent years in the amount of payments, including those
from prior settlements of coverage disputes entered into between the Company
and certain of its policyholders. For the 2003 nine months, approximately 55%
of total paid losses relate to policyholders with whom the Company previously
entered into settlement agreements that limit the Companys liability compared
to 59% for the 2002 nine months. Net asbestos losses paid were $356.5 million
for the nine months of 2003 compared to $265.1 million for the nine months of
2002 reflective of the items described above and consistent with Company
expectations based upon the Companys fourth quarter 2002 asbestos study.

The following table displays activity for asbestos losses and loss expenses and
reserves:

|                                                             |            |      |   |         |   |  |   |         |  
|------------------------------------------------------------ | ---------- | ---- | - | ------- | - |  | - | ------- | -
|(at and for the nine months ended September 30, in millions) |            | 2003 |   | 2002   
|                                                             |            |      |   |        
|Beginning reserves:                                          |            |      |   |         |   |  |   |        
|                                                             | Direct     |      | $ | 4,287.1 |   |  | $ | 1,046.0 |  
|                                                             | Ceded      |      |   | (882.8  | ) |  |   | (225.6  | )
|                                                             |            |      |   |         |   |  |   |         |  
|                                                             | Net        |      |   | 3,404.3 |   |  |   | 820.4   |  
|Incurred losses and loss expenses:                           |            |      |   |         |   |  |   |        
|                                                             | Direct (1) |      |   |        |   |  |   | 442.3   |  
|                                                             | Ceded      |      |   |        |   |  |   | (47.3   | )
|Accretion of discount:                                       |            |      |   |         |   |  |   |        
|                                                             | Direct     |      |   | 18.9    |   |  |   |        |  
|                                                             | Ceded      |      |   | (0.3    | ) |  |   |        |  
|Losses paid:                                                 |            |      |   |         |   |  |   |        
|                                                             | Direct     |      |   | 421.3   |   |  |   | 300.0   |  
|                                                             | Ceded      |      |   | (64.8   | ) |  |   | (34.9   | )
|                                                             |            |      |   |         |   |  |   |         |  
|Ending reserves:                                             |            |      |   |         |   |  |   |        
|                                                             | Direct     |      |   | 3,884.7 |   |  |   | 1,188.3 |  
|                                                             | Ceded      |      |   | (818.3  | ) |  |   | (238.0  | )
|                                                             |            |      |   |         |   |  |   |         |  
|                                                             | Net        |      | $ | 3,066.4 |   |  | $ | 950.3   |  
|                                                             |            |      |   |         |   |  |   |         |  



|(1) |  | Includes $245.0 million related to asbestos incurrals subject to the
Citigroup indemnification agreement in 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------

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ENVIRONMENTAL CLAIMS AND LITIGATION

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

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

The Companys reserves for environmental claims are not established on a
claim-by-claim basis. The Company carries an aggregate bulk reserve for all of
the Companys environmental claims that are in dispute, until the dispute is
resolved. This bulk reserve is established and adjusted based upon the
aggregate volume of in-process environmental claims and the Companys
experience in resolving those claims. At September 30, 2003, approximately 74%
of the net environmental reserve (approximately $196.8 million), is carried in
a bulk reserve and includes unresolved and incurred but not reported
environmental claims for which the Company has not received any specific claims
as well as for the anticipated cost of coverage litigation disputes relating to
these claims. The balance, approximately 26% of the net environmental reserve
(approximately $68.4 million), consists of case reserves for resolved claims.
Net environmental losses paid were $120.3 million and $104.1 million for the
nine months ended September 30, 2003 and 2002, respectively. The amount of
environmental losses paid tends to fluctuate by quarter and is impacted by the
timing and terms of settlement agreements reached with policyholders.

The Companys reserving methodology is preferable to one based on identified
claims because the resolution of environmental exposures by the Company
generally occurs by settlement on a policyholder-by-policyholder basis as
opposed to a claim-by-claim basis. Generally, the settlement between the
Company and the policyholder extinguishes any obligation the Company may have
under any policy issued to the policyholder for past, present and future
environmental liabilities as well as extinguishes any pending coverage
litigation dispute with the policyholder. This form of settlement is commonly
referred to as a buy-back of policies for future environmental liability. In
addition, many of the agreements have also extinguished any insurance
obligation which the Company may have for other claims, including but not
limited to asbestos. Provisions of these agreements also include appropriate
indemnities and hold harmless provisions to protect the Company. The Companys
general purpose in executing these agreements is to reduce the Companys
potential environmental exposure and eliminate the risks presented by coverage
litigation with the policyholder and related costs.

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In establishing environmental reserves, the Company evaluates the exposure
presented by each policyholder and the anticipated cost of resolution, if any,
for each policyholder on a regular basis. In the course of this analysis, the
Company considers the probable liability, available coverage, relevant judicial
interpretations and historical value of similar exposures. In addition, the
Company considers the many variables presented, such as the nature of the
alleged activities of the policyholder at each site; the allegations of
environmental harm at each site; the number of sites; the total number of
potentially responsible parties at each site; the nature of environmental harm
and the corresponding remedy at each site; the nature of government enforcement
activities at each site; the ownership and general use of each site; the
overall nature of the insurance relationship between the Company and the
policyholder, including the role of any umbrella or excess insurance the
Company has issued to the policyholder; the involvement of other insurers; the
potential for other available coverage, including the number of years of
coverage; the role, if any, of non-environmental claims or potential
non-environmental claims, in any resolution process; and the applicable law in
each jurisdiction. Conventional actuarial techniques are not used to estimate
these reserves.

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

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

The following table displays activity for environmental losses and loss
expenses and reserves:

|                                                             |        |      |   |       |   |  |   |       |  
|------------------------------------------------------------ | ------ | ---- | - | ----- | - |  | - | ----- | -
|(at and for the nine months ended September 30, in millions) |        | 2003 |   | 2002 
|                                                             |        |      |   |      
|Beginning reserves:                                          |        |      |   |       |   |  |   |      
|                                                             | Direct |      | $ | 447.8 |   |  | $ | 478.8 |  
|                                                             | Ceded  |      |   | (62.3 | ) |  |   | (82.8 | )
|                                                             |        |      |   |       |   |  |   |       |  
|                                                             | Net    |      |   | 385.5 |   |  |   | 396.0 |  
|Incurred losses and loss expenses:                           |        |      |   |       |   |  |   |      
|                                                             | Direct |      |   |      |   |  |   | 49.6  |  
|                                                             | Ceded  |      |   |      |   |  |   | 0.5   |  
|Losses paid:                                                 |        |      |   |       |   |  |   |      
|                                                             | Direct |      |   | 148.8 |   |  |   | 121.1 |  
|                                                             | Ceded  |      |   | (28.5 | ) |  |   | (17.0 | )
|                                                             |        |      |   |       |   |  |   |       |  
|Ending reserves:                                             |        |      |   |       |   |  |   |      
|                                                             | Direct |      |   | 299.0 |   |  |   | 407.3 |  
|                                                             | Ceded  |      |   | (33.8 | ) |  |   | (65.3 | )
|                                                             |        |      |   |       |   |  |   |       |  
|                                                             | Net    |      | $ | 265.2 |   |  | $ | 342.0 |  
|                                                             |        |      |   |       |   |  |   |       |  

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UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES

As a result of the processes and procedures described above, management
believes that the reserves carried for asbestos and environmental claims at
September 30, 2003 are appropriately established based upon known facts,
current law and managements judgment. However, the uncertainties surrounding
the final resolution of these claims continue, and it is presently not possible
to estimate the ultimate exposure for asbestos and environmental claims and
related litigation. As a result, the reserve is subject to revision as new
information becomes available or as information is reevaluated in light of
evolving circumstances. The continuing uncertainties include, without
limitation, the risks and lack of predictability inherent in major litigation,
any impact from the bankruptcy protection sought by various asbestos producers
and other asbestos defendants, a further increase or decrease in asbestos and
environmental claims which cannot now be anticipated, the role of any umbrella
or excess policies the Company has issued, the resolution or adjudication of
some disputes pertaining to the amount of available coverage for asbestos
claims in a manner inconsistent with the Companys previous assessment of these
claims, the number and outcome of direct actions against the Company, and
future developments pertaining to the Companys ability to recover reinsurance
for asbestos and environmental claims. It is also not possible to predict
changes in the legal and legislative environment and their impact on the future
development of asbestos and environmental claims. This development will be
affected by future court decisions and interpretations, as well as changes in
applicable legislation. It is also difficult to predict the ultimate outcome
of large coverage disputes until settlement negotiations near completion and
significant legal questions are resolved or, failing settlement, until the
dispute is adjudicated. This is particularly the case with policyholders in
bankruptcy where negotiations often involve a large number of claimants and
other parties and require court approval to be effective. Also see Legal
Proceedings.

Because of the uncertainties set forth above, additional liabilities may arise
for amounts in excess of the current related reserves. In addition, the
Companys estimate of ultimate claims and claim adjustment expenses may change.
These additional liabilities or increases in estimates, or a range of either,
cannot now be reasonably estimated and could result in income statement charges
that could be material to the Companys operating results and financial
condition in future periods.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of a companys ability to generate sufficient cash flows
to meet the short and long-term cash requirements of its business operations.
The liquidity requirements of the Companys business have been met primarily by
funds generated from operations, asset maturities and income received on
investments. Cash provided from these sources is used primarily for claims and
claim adjustment expense payments and operating expenses. Catastrophe claims,
the timing and amount of which are inherently unpredictable, may create
increased liquidity requirements. The timing and amount of reinsurance
recoveries may be affected by reinsurer solvency and increasing reinsurance
coverage disputes. Additionally, recent increases in asbestos-related claim
payments, as well as potential judgments and settlements arising out of
litigation, may also result in increased liquidity requirements. It is the
opinion of the Companys management that the Companys future liquidity needs
will be adequately met from all of the above sources.

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Net cash flows provided by operating activities totaled $2.886 billion and
$2.191 billion in the nine months of 2003 and 2002, respectively. The 2003 net
cash flows provided by operating activities benefited from premium rate
increases and the receipt of $360.7 million from Citigroup related to
recoveries under the asbestos indemnification agreement in the first quarter of
2003 and $530.9 million of federal income taxes refunded from the Companys net
operating loss carryback in the second quarter of 2003.

Net cash flows used in investing activities totaled $1.744 billion in the 2003
nine months and $1.641 billion in the 2002 nine months. The 2003 net cash
flows used in investing activities primarily reflects the investing of net cash
from operating activities of $2.886 billion. This was offset, in part, by
sales of securities to fund net payment activity related to debt and TIGHIs
junior subordinated debt securities held by subsidiary trusts of $771.6
million. In addition, cash was used to pay quarterly dividends to shareholders
of $201.4 million. The 2002 nine months net cash flows used in investing
activities principally reflects investing of net cash from operating activities
of $2.191 billion and the receipt of $4.090 billion from the first quarter 2002
initial public offering and the concurrent issuance of $867.0 million of
convertible notes payable, partially offset by the repayment of $5.299 billion
of notes to a former affiliate.

Net cash flows are generally invested in marketable securities. The Company
closely monitors the duration of these investments, and investment purchases
and sales are executed with the objective of having adequate funds available to
satisfy the Companys liabilities. As the Companys investment strategy
focuses on asset and liability durations, and not specific cash flows, asset
sales may be required to satisfy obligations and/or rebalance asset portfolios.
The Companys invested assets at September 30, 2003 totaled $37.793 billion,
of which 91% was invested in fixed maturity and short-term investments, 2% in
common stocks and other equity securities, and 7% in other investments. The
average duration of fixed maturities and short-term securities, net of
securities lending activities and net receivables and payables on investment
sales and purchases was 4.3 as of September 30, 2003, a 0.7 decrease from 5.0
as of December 31, 2002. The reduction in average duration resulted from the
investment of underwriting cash flows and investment maturities and sales
proceeds in shorter-term investments along with the sale of certain treasury
futures contracts.

An investment in a debt or equity security is impaired if its fair value falls
below its book value and the decline is considered to be other-than-temporary.
Factors considered in determining whether a decline is other-than-temporary
include the length of time and the extent to which fair value has been below
cost; the financial condition and near-term prospects of the issuer; and the
Companys ability and intent to hold the investment for a period of time
sufficient to allow for any anticipated recovery. A debt security is impaired
if it is probable that the Company will not be able to collect all amounts due
under the securitys contractual terms. Equity investments are impaired when it
becomes apparent that the Company will not recover its cost over the expected
holding period.

The Companys process for reviewing invested assets for impairments during any
quarter includes the following:



| |  |  | Identification and evaluation of investments which have possible
indications of impairment;                                                                                                                                                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Analysis of investments with gross unrealized investment losses that
have fair values less than 80% of amortized cost during successive
quarterly periods over a rolling one-year period;                                                                                                                         
|
| |  |  | Review of investment advisor(s) recommendations for
other-than-temporary impairments based on the investees current
financial condition, liquidity, near-term recovery prospects and other
factors, as well as consideration of other investments that were not
recommended for other-than-temporary impairments;
|
| |  |  | Discussion of evidential matter, including an evaluation of factors
or triggers that would or could cause individual investments to qualify
as having other-than-temporary impairments and those that would not
support other-than-temporary impairment;                                                          
|
| |  |  | Determination of the status of each analyzed investment as
other-than-temporary or not, with documentation of the rationale for the
decision.                                                                                                                                                                     

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Impairment charges of $7.2 million and $84.3 million were recognized in net
income during the third quarter and nine months of 2003, respectively, compared
to $34.7 million and $223.6 million in the comparable periods of 2002.

The amortized cost and fair value of fixed maturities and equity securities
were as follows:

|                                     |       |      |           |          |  |        |                  |         |  |   |      |      |  |   |          |          | 
|------------------------------------ | ----- | ---- | --------- | -------- |  | ------ | ---------------- | ------- |  | - | ---- | ---- |  | - | -------- | -------- | 
|                                     |       |      |           |          |  |        | Gross Unrealized |         |  |   |     
|                                     |       |      | Amortized |          |  |        | Fair            
|(at September 30, 2003, in millions) |       | Cost |           | Gains    |  | Losses |                  | Value  
|                                     |       |      |           |          |  |        |                  |        
|Fixed maturities                     |       | $    | 30,298.2  |          |  | $      | 1,621.8          |         |  | $ | 60.3 |      |  | $ | 31,859.7 |         
|Equity securities                    |       |      | 712.7     |          |  |        | 65.7             |         |  |   | 15.7 |      |  |   | 762.7    |         
|                                     |       |      |           |          |  |        |                  |         |  |   |      |      |  |   |          |         
|                                     | Total |      | $         | 31,010.9 |  |        | $                | 1,687.5 |  |   | $    | 76.0 |  |   | $        | 32,622.4 | 
|                                     |       |      |           |          |  |        |                  |         |  |   |      |      |  |   |          |         

|                                    |       |      |           |          |  |        |                  |         |  |   |       |       |  |   |          |          | 
|----------------------------------- | ----- | ---- | --------- | -------- |  | ------ | ---------------- | ------- |  | - | ----- | ----- |  | - | -------- | -------- | 
|                                    |       |      |           |          |  |        | Gross Unrealized |         |  |   |      
|                                    |       |      | Amortized |          |  |        | Fair            
|(at December 31, 2002, in millions) |       | Cost |           | Gains    |  | Losses |                  | Value  
|                                    |       |      |           |          |  |        |                  |        
|Fixed maturities                    |       | $    | 28,877.8  |          |  | $      | 1,408.8          |         |  | $ | 283.4 |       |  | $ | 30,003.2 |         
|Equity securities                   |       |      | 861.9     |          |  |        | 28.6             |         |  |   | 39.0  |       |  |   | 851.5    |         
|                                    |       |      |           |          |  |        |                  |         |  |   |       |       |  |   |          |         
|                                    | Total |      | $         | 29,739.7 |  |        | $                | 1,437.4 |  |   | $     | 322.4 |  |   | $        | 30,854.7 | 
|                                    |       |      |           |          |  |        |                  |         |  |   |       |       |  |   |          |         

At September 30, 2003, the gross unrealized investment loss for fixed
maturities and equity securities where fair value is less than 80% of amortized
cost were as follows:

|                  |       |          |                                                                |          |           |           |           |           |          |       |         |   |  |   |   |   |  |   |     |     | 
|----------------- | ----- | -------- | -------------------------------------------------------------- | -------- | --------- | --------- | --------- | --------- | -------- | ----- | ------- | - |  | - | - | - |  | - | --- | --- | 
|                  |       |          | Period For Which Fair Value Is Less Than 80% of Amortized Cost
|                  |       |          |                                                               
|                  |       |          |                                                                |          |           |           | Greater   |           | Greater  |       |         |   |  |   |   |   | 
|                  |       |          |                                                                |          |           |           | Than      |           | Than     |       |         |   |  |   |   |   | 
|                  |       |          |                                                                |          |           |           | 3 Months  |           | 6 Months |       | Greater |   |  |   |  
|                  |       |          | Less than                                                      |          | Less Than |           | Less Than |           | Than     |       |         |   | 
|(in millions)     |       | 3 Months |                                                                | 6 Months |           | 12 Months |           | 12 Months |          | Total
|                  |       |          |                                                                |          |           |           |           |           |          |      
|Fixed maturities  |       | $        | 0.5                                                            |          |           | $         | 4.5       |           |          | $     |        |   |  | $ |  |   |  | $ | 5.0 |    
|Equity securities |       |          | 2.3                                                            |          |           |           |          |           |          |       |        |   |  |   |  |   |  |   | 2.3 |    
|                  |       |          |                                                                |          |           |           |           |           |          |       |         |   |  |   |   |   |  |   |     |    
|                  | Total |          | $                                                              | 2.8      |           |           | $         | 4.5       |          |       | $       |  |  |   | $ |  |  |   | $   | 7.3 | 
|                  |       |          |                                                                |          |           |           |           |           |          |       |         |   |  |   |   |   |  |   |     |    

Impairment charges included in net realized investment gains (losses) by
quarter were as follows:

|                  |       |             |      |             |  |             |      |      |  |   |     |     | 
|----------------- | ----- | ----------- | ---- | ----------- |  | ----------- | ---- | ---- |  | - | --- | --- | 
|                  |       |             | 2003
|                  |       |             |     
|(in millions)     |       | 1st Quarter |      | 2nd Quarter |  | 3rd Quarter
|                  |       |             |      |             |  |            
|Fixed maturities  |       | $           | 46.6 |             |  | $           | 14.8 |      |  | $ | 6.3 |    
|Equity securities |       |             | 0.1  |             |  |             | 4.1  |      |  |   | 0.9 |    
|Real estate       |       |             | 11.5 |             |  |             |     |      |  |   |    |    
|                  |       |             |      |             |  |             |      |      |  |   |     |    
|                  | Total |             | $    | 58.2        |  |             | $    | 18.9 |  |   | $   | 7.2 | 
|                  |       |             |      |             |  |             |      |      |  |   |     |    

|                  |       |             |      |             |  |             |       |             |  |   |      |      |  |   |      |      | 
|----------------- | ----- | ----------- | ---- | ----------- |  | ----------- | ----- | ----------- |  | - | ---- | ---- |  | - | ---- | ---- | 
|                  |       |             | 2002
|                  |       |             |     
|(in millions)     |       | 1st Quarter |      | 2nd Quarter |  | 3rd Quarter |       | 4th Quarter
|                  |       |             |      |             |  |             |       |            
|Fixed maturities  |       | $           | 59.0 |             |  | $           | 117.8 |             |  | $ | 33.3 |      |  | $ | 50.3 |     
|Equity securities |       |             | 3.2  |             |  |             | 2.4   |             |  |   | 1.4  |      |  |   | 1.1  |     
|Real estate       |       |             |     |             |  |             | 6.5   |             |  |   |     |      |  |   | 9.1  |     
|                  |       |             |      |             |  |             |       |             |  |   |      |      |  |   |      |     
|                  | Total |             | $    | 62.2        |  |             | $     | 126.7       |  |   | $    | 34.7 |  |   | $    | 60.5 | 
|                  |       |             |      |             |  |             |       |             |  |   |      |      |  |   |      |     

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TPC is a holding company whose principal asset is the capital stock of
Travelers Insurance Group Holdings Inc. (TIGHI) and its insurance operating
subsidiaries. TIGHIs insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid to
their parent without prior approval of insurance regulatory authorities. A
maximum of $727.7 million will be available by the end of 2003 for such
dividends without prior approval of the Connecticut Insurance Department.
TIGHI received $651.0 million of dividends from its insurance subsidiaries
during the first nine months of 2003. In the fourth quarter, certain TIGHI
 insurance subsidiaries declared dividends aggregating $276.0 million for which all required 2003 approvals were received.

At September 30, 2003, total cash and short-term invested assets aggregating
$69.4 million were held at TPC and TIGHI. These liquid assets were primarily
funded by dividends received from the Companys operating subsidiaries. These
liquid assets, combined with other sources of funds available to TPC, primarily
additional dividends from the Companys operating subsidiaries, are considered
sufficient to meet the liquidity requirements of TPC and TIGHI. These
liquidity requirements include primarily, shareholder dividends and debt
service.

Net cash flows used in financing activities totaled $1.025 billion and $554.1
million in the nine months of 2003 and 2002, respectively. Cash flows used in
financing activities in the 2003 nine months are primarily attributable to the
redemption of $900.0 million aggregate principal amount of TIGHIs junior
subordinated debt securities held by subsidiary trusts, the repayment of $700.0
million of notes payable to a former affiliate and the repayment of $550.0
million of short-term debt. Funds used in these repayments were primarily
provided by TPCs issuance of $1.4 billion of senior notes on March 11, 2003
and by cash flows provided by operating activities. These refinancing
activities were initiated with the objective of lowering the average interest
rate on the Companys total outstanding debt. The 2003 nine months also
reflect the issuance of $550.0 million of short-term Floating Rate Notes which
were used to repay the $550.0 million Promissory Note due in January 2004. Net
cash flows used in financing activities in the nine months of 2003 also
included dividends paid to shareholders of $201.4 million. The 2002 nine
months cash flows used in financing activities reflects the repayment of $5.299
billion of notes payable to a former affiliate. These payments were partially
offset by the receipt of $4.090 billion from the first quarter 2002 initial
public offering and the concurrent issuance of $867.0 million of convertible
notes payable.

In December 2002, the Company entered into a loan agreement with an
unaffiliated lender and borrowed $550.0 million under a Promissory Note due in
January 2004. The Promissory Note carried a variable interest rate of LIBOR
plus 25 basis points per annum. On February 5, 2003, the Company issued $550.0
million of Floating Rate Notes due in February 2004. The proceeds from these
notes were used to prepay the $550.0 million due on the Promissory Note. The
Floating Rate Notes also carried a variable interest rate of LIBOR plus 25
basis points per annum. On March 14, 2003 and June 17, 2003, the Company
repurchased $75.0 million and $24.0 million, respectively, of the Floating Rate
Notes at par plus accrued interest. The remaining $451.0 million were repaid
on September 5, 2003.

On March 11, 2003, TPC issued $1.4 billion of senior notes comprised of $400.0
million of 3.75% senior notes due March 15, 2008, $500.0 million of 5.00%
senior notes due March 15, 2013 and $500.0 million of 6.375% senior notes due
March 15, 2033. The notes pay interest semi-annually on March 15 and September
15 of each year, beginning September 15, 2003, are senior unsecured obligations
and rank equally with all of TPCs other senior unsecured indebtedness. TPC
may redeem some or all of the notes prior to maturity by paying a make-whole
premium based on U.S. Treasury rates. The net proceeds from the sale of these
notes were contributed to its primary subsidiary, TIGHI, so that TIGHI could
repay $500.0 million of indebtedness to Citigroup and to redeem $900.0 million
aggregate principal amount of TIGHIs junior subordinated debt securities held
by subsidiary trusts. These trusts, in turn, used these funds to redeem $900.0
million of preferred capital securities on April 9, 2003.

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These senior notes were sold to qualified institutional buyers as defined under
Rule 144A under the Securities Act of 1933 (the Securities Act) and outside the
United States in reliance on Regulation S under the Securities Act.
Accordingly, the notes (the restricted notes) were not registered under the
Securities Act or any state securities laws and could not be transferred or
resold except pursuant to certain exemptions. As part of this offering, TPC
agreed to file a registration statement under the Securities Act to permit the
exchange of the notes for registered notes (the Exchange Notes) having terms
identical to those of the senior notes described above (Exchange Offer). On
April 14, 2003, TPC initiated the Exchange Offer pursuant to a Form S-4 that
was filed with the Securities and Exchange Commission. Accordingly, each
series of Exchange Notes has been registered under the Securities Act, and the
transfer restrictions and registration rights relating to the restricted notes
do not apply to the Exchange Notes.

Effective April 17, 2003, TPC entered into the following line of credit
agreements with Citibank, a subsidiary of Citigroup, TPCs former parent: (i) a
$250.0 million 45-month revolving line of credit (the 45-Month Line of Credit),
and (ii) a $250.0 million 364-day revolving line of credit (the 364-Day Line of
Credit and, together with the 45-Month Line of Credit, the Lines of Credit).
TPC may, with Citibanks consent, extend the commitment of the 364-Day Line of
Credit for additional 364-day periods under the same terms and conditions.
TPC has the option, provided there is no default or event of default, to
convert outstanding advances under the 364-Day Line of Credit at the commitment
termination date to a term loan maturing no later than one year from the
commitment termination date. Borrowings under the Lines of Credit may be made,
at TPCs option, at a variable interest rate equal to either the lenders base
rate plus an applicable margin or at LIBOR plus an applicable margin. Each
Line of Credit includes a commitment fee and, for any date on which advances
exceed 50% of the total commitment, a utilization fee. The applicable margin
and the rates on which the commitment fee and the utilization fee are based
vary based upon TPCs long-term senior unsecured non-credit-enhanced debt
ratings. Each Line of Credit requires TPC to comply with various covenants,
including the maintenance of minimum statutory capital and surplus of $5.5
billion and a maximum ratio of total consolidated debt to total capital of 45%.
In addition, an event of default will occur if there is a change in control
(as defined in the Lines of Credit agreements) of TPC. At September 30, 2003,
the Company was in compliance with these financial covenants.

There were no amounts outstanding under the Lines of Credit at September 30,
2003. Previous lines of credit between TIGHI and Citigroup have been
terminated.

Contractual obligations at September 30, 2003 included the following:

|                                              |       |       |         |         |  |        |      |       |  |       |       |         |  |   |       |       |  |   |         |         | 
|--------------------------------------------- | ----- | ----- | ------- | ------- |  | ------ | ---- | ----- |  | ----- | ----- | ------- |  | - | ----- | ----- |  | - | ------- | ------- | 
|                                              |       |       |         |         |  |        | Less |       |  |       |       |         |  |   |       |       |  |   |        
|Payments Due by Period                        |       |       |         |         |  | than 1 |      | 1-3   |  | 4-5   |       | After 5
|(in millions)                                 |       | Total |         | Year    |  | Years  |      | Years |  | Years
|                                              |       |       |         |         |  |        |      |       |  |      
|Long-term debt                                |       | $     | 1,774.4 |         |  | $      | 4.0  |       |  | $     | 161.1 |         |  | $ | 405.1 |       |  | $ | 1,204.2 |        
|Convertible junior subordinated notes
payable |       |       | 892.5   |         |  |        |     |       |  |       |      |         |  |   |      |       |  |   | 892.5   |        
|Convertible notes payable                     |       |       | 49.7    |         |  |        |     |       |  |       |      |         |  |   |      |       |  |   | 49.7    |        
|Operating leases                              |       |       | 287.3   |         |  |        | 79.0 |       |  |       | 153.9 |         |  |   | 34.5  |       |  |   | 19.9    |        
|                                              |       |       |         |         |  |        |      |       |  |       |       |         |  |   |       |       |  |   |         |        
|                                              | Total |       | $       | 3,003.9 |  |        | $    | 83.0  |  |       | $     | 315.0   |  |   | $     | 439.6 |  |   | $       | 2,166.3 | 
|                                              |       |       |         |         |  |        |      |       |  |       |       |         |  |   |       |       |  |   |         |        

In the normal course of business, the Company has unfunded commitments to
partnerships in which it invests. These commitments were $670.5 million and
$864.3 million at September 30, 2003 and December 31, 2002, respectively.

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On July 23, 2003, the Companys Board of Directors declared a quarterly
dividend of $0.08 per share on class A and class B common stock, payable August
29, 2003, to shareholders of record on August 5, 2003. The third quarter 2003
dividend represents an increase from $0.06 per share paid in the first and
second quarters of 2003. Also, on October 23, 2003, the Companys Board of
Directors declared a quarterly dividend of $0.08 per share on class A and class
B common stock, payable November 26, 2003, to shareholders of record on
November 5, 2003. The declaration and payment of future dividends to holders
of the Companys common stock will be at the discretion of the Companys Board
of Directors and will depend upon many factors, including the Companys
financial condition, earnings, capital requirements of TPCs operating
subsidiaries, legal requirements, regulatory constraints and other factors as
the board of directors deems relevant.

On September 25, 2002, the Board of Directors approved a $500.0 million share
repurchase program. Purchases of class A and class B stock may be made from
time to time in the open market, and it is expected that funding for the
program will principally come from dividends from TPCs operating subsidiaries.
Shares repurchased are reported as treasury stock in the consolidated balance
sheet. During the third quarter of 2003, TPC repurchased approximately 2.6
million shares of class A common stock at a total cost of $40.0 million
representing the first acquisition of shares under this program. During the
2003 nine months, 1.4 million shares of common stock were acquired from
employees as treasury stock to cover payroll withholding taxes in connection
with the vesting of restricted stock awards and exercises of stock options.

TPC has the option to defer interest payments on its convertible junior
subordinated notes for a period not exceeding 20 consecutive quarterly interest
periods. If TPC elects to defer interest payments on the notes, it will not
be permitted, with limited exceptions, to pay dividends on its common stock
during a deferral period.

Ratings are an important factor in setting the Companys competitive position
in the insurance marketplace. The Company receives ratings from the following
major rating agencies: A.M. Best Co., Fitch Ratings, Moodys Investors Service
and Standard & Poors Corp. Rating agencies typically issue two types of
ratings: Claims-paying (or financial strength) ratings which assess an
insurers ability to meet its financial obligations to policyholders and debt
ratings which assess a companys prospects for repaying its debts and assist
lenders in setting interest rates and terms for a companys short and long term
borrowing needs. The system and number rating categories can vary widely from
rating agency to rating agency. Customers usually focus on claims-paying
ratings, while creditors look at debt ratings. Investors use both to evaluate
a companys overall financial strength. The ratings issued on the Company or
its subsidiaries by any of these agencies are announced publicly and are
available on the Companys website and from the agencies.

The Companys insurance operations could be negatively impacted by a downgrade
in one or more of the Companys financial strength ratings. If this were to
occur, there could be a reduced demand for certain products in certain markets.
Additionally, the Companys ability to access the capital markets could be
impacted and higher borrowing costs may be incurred. In June 2003, A. M. Best
Co. lowered the claims-paying rating of the Companys Gulf Insurance Pool to A
from A+. The Company does not expect this rating change to have any
significant impact on the operations of Gulf or the Company. The Companys
ratings remained unchanged during the third quarter of 2003. On October 10, 2003,
Standard & Poors Corp. assigned a rating of AA- to Travelers Casualty and
Surety Company of Europe, Limited (Travelers Europe) based on
Travelers Europes surety writings being supported by
reinsurance with Travelers Casualty and Surety Company of America
which is also rated AA- by Standard and Poors Corp.

CRITICAL ACCOUNTING POLICIES

The Company considers its most significant accounting policies to be those
applied to unpaid claim and claim adjustment liabilities and related
reinsurance recoverables. Further explanation of how management applies its
judgment is included throughout this Managements Discussion and Analysis and
in the notes to the consolidated financial statements for the year ended
December 31, 2002 included in the Companys Form 10-K.

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Total claims and claim adjustment expense reserves were $33.854
billion at September 30, 2003. The Company maintains property and casualty
loss reserves to cover estimated ultimate unpaid liability for losses and loss
adjustment expenses with respect to reported and unreported claims incurred as
of the end of each accounting period. Reserves do not represent an exact
calculation of liability, but instead represent estimates, generally utilizing
actuarial projection techniques at a given accounting date. Management
considers actuarial estimates, current conditions and trends, as well as past
company and certain industry experience in establishing reserve estimates.
These reserve estimates are expectations of what the ultimate settlement and
administration of claims will cost based on the Companys assessment of facts
and circumstances then known, review of historical settlement patterns,
estimates of trends in claims severity, frequency, legal theories of liability
and other factors. Variables in the reserve estimation process can be affected
by both internal and external events, such as changes in claims handling
procedures, economic inflation, legal 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 policyholder event and the time it is actually reported to the insurer.
Reserve estimates are continually refined in a regular ongoing process as
historical loss experience develops and additional claims are reported and
settled. Adjustments to reserves are reflected in the results of the periods
in which the estimates are changed. Because establishment of reserves is an
inherently uncertain process involving estimates, currently established
reserves may not be sufficient. If estimated reserves are insufficient, the
Company will incur additional income statement charges.

During 2001, the Company recorded a charge of $489.5 million representing the
estimated loss for both reported and unreported claims incurred and related
claim adjustment expenses, net of reinsurance recoverables, related to the
terrorist attack on September 11th. The associated reserves and related
reinsurance recoverables represent the estimated ultimate net costs of all
incurred claims and claim adjustment expenses related to the attack. Since the
reserves and related reinsurance recoverables are based on estimates, the
ultimate net liability may be more or less than such amounts.

Some of the Companys loss reserves are for environmental and asbestos claims
and related litigation which aggregated $3.332 billion at September 30, 2003.
While the analyses of asbestos claims and associated liabilities and of
environmental claims considered the inconsistencies of court decisions as to
coverage, plaintiffs expanded theories of liability, and the risks inherent in
major litigation and other uncertainties, in the opinion of the Companys
management it is possible that the outcome of the continued uncertainties
regarding asbestos-related claims could result in liability in future periods
that differs from current reserves by an amount that could be material to the
Companys future operating results and financial condition. See the preceding
discussion of Asbestos Claims and Litigation and Environmental Claims and
Litigation.

Total reinsurance recoverables were $10.906 billion at September 30, 2003 and
included $1.978 billion from servicing carrier arrangements with various
involuntary assigned risk pools. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the
reinsured business.

The Company evaluates and monitors the financial condition of its reinsurers
under voluntary reinsurance arrangements to minimize its exposure to
significant losses from reinsurer insolvencies. In addition, in the ordinary
course of business, the Company may become involved in coverage disputes with
its reinsurers. In recent quarters, the Company has experienced an increase in
the frequency of these reinsurance coverage disputes. Some of these disputes
could result in lawsuits and arbitrations brought by or against the reinsurers
to determine the Companys rights and obligations under various reinsurance
agreements. The Company employs dedicated specialists and aggressive
strategies to manage reinsurance collections and disputes.

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The Company reports its reinsurance recoverables net of an allowance for
estimated uncollectible reinsurance recoverables. The allowance is based upon
the Companys ongoing review of amounts outstanding, length of collection
periods, changes in reinsurer credit standing, applicable coverage defenses and
other relevant factors. Accordingly, the establishment of reinsurance
recoverables and the related allowance for uncollectible reinsurance
recoverables is also an inherently uncertain process involving estimates.
During the 2003 nine months, the Company increased the allowance by $35.1
million which included $30.0 million in the second quarter in connection with
the Companys ongoing review process. The allowance for estimated
uncollectible reinsurance recoverables was $364.2 million at September 30,
2003. Changes in these estimates could result in additional income statement
charges.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See notes 2 and 3 to the condensed consolidated financial statements for a
discussion of recently issued or adopted accounting pronouncements.

OUTLOOK

There are currently state and federal
proposals to reform the existing system
for handling asbestos claims and related litigation. One prominent proposal is
the creation of a federal asbestos claims trust to compensate asbestos
claimants. The trust would primarily be funded by former manufacturers,
distributors and sellers of asbestos products and insurers. At this time it is
not possible to predict the likelihood or timing of enactment of such
proposals. The effect on the Company, if these proposals are enacted, will
depend upon various factors including the size of the compensation fund, the
portion allocated to insurers and the formula for allocating contributions
among insurers. If legislative reform proposals are enacted, the Companys
contribution allocation could be larger than its current asbestos reserves.

FORWARD-LOOKING STATEMENTS

This report contains, and oral statements by management of the Company may
contain, certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, may be forward-looking statements.
Specifically, the Company may have forward-looking statements about the
Companys results of operations, financial condition, liquidity, and the
sufficiency of the Companys asbestos reserves, premium growth from acquired
renewal rights and the integration of those businesses into the Companys
business, and the Companys estimate of catastrophe losses from Hurricane
Isabel under the heading Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere.

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Many risks and uncertainties may impact the matters addressed in these
forward-looking statements. Actual results may differ materially from those
expressed or implied. In particular, the sufficiency of the Companys asbestos
reserves, as well as the Companys results of operations, financial condition
and liquidity, to the extent impacted by the sufficiency of the Companys
asbestos reserves, is subject to a number of potential adverse developments
including, among others, adverse developments involving asbestos claims and
related litigation, the willingness of parties, including the Company, to
settle disputes, the impact of aggregate policy coverage limits, and the impact
of bankruptcies of various asbestos producers and related businesses. In
addition, any premium growth and incremental net income resulting from the
renewal rights transactions depend, among other things, on the Companys
ability to renew a sufficient dollar amount of the policies and otherwise
successfully integrate the business acquired into the Companys organization.
This, in turn is subject to a number of other factors, including, among others,
the willingness of policyholders to renew their policies with the Company, and
the willingness of their insurance agents and brokers to recommend that
policyholders renew with the Company. Also, the Companys actual catastrophe
losses from Hurricane Isabel may be more or less than the Companys estimates.

Some of the other factors that could cause actual results to differ include,
but are not limited to, the following: the Companys inability to obtain price
increases due to competition or otherwise; the performance of the Companys
investment portfolios, which could be adversely impacted by adverse
developments in U.S. and global financial markets, interest rates and rates of
inflation; weakening U.S. and global economic conditions; insufficiency of, or
changes in, loss reserves; the occurrence of catastrophic events, both natural
and man-made, including terrorist acts, with a severity or frequency exceeding
the Companys expectations; exposure to, and adverse developments involving,
environmental claims and related litigation; the impact of claims related to
exposure to potentially harmful products or substances, including, but not
limited to, lead paint, silica and other potentially harmful substances,
adverse changes in loss cost trends, including inflationary pressures in
medical costs and auto and home repair costs; developments relating to coverage
and liability for mold claims; the effects of corporate bankruptcies on surety
bond claims; adverse developments in the cost, availability and/or ability to
collect reinsurance; the ability of the Companys subsidiaries to pay dividends
to the Company; adverse outcomes in legal proceedings; judicial expansion of
policy coverage and the impact of new theories of liability; the impact of
legislative actions, including federal and state legislation related to
asbestos liability reform; larger than expected assessments for guaranty funds
and mandatory pooling arrangements; a downgrade in the Companys claims-paying
and financial strength ratings; the loss or significant restriction on the
Companys ability to use credit scoring in the pricing and underwriting of
Personal Lines policies; and amendments to, and changes to the risk-based
capital requirements. The Companys forward-looking statements speak only as
of the date of this report or as of the date they are made, and the Company
undertakes no obligation to update these forward-looking statements.




Item 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following quantitative and qualitative disclosures about market risk of
Travelers Property Casualty Corp. (TPC) and subsidiaries (collectively, the
Company) should be read in conjunction with the quantitative and qualitative
disclosures about market risk as of December 31, 2002 included in the Companys
Form 10-K.

Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by
the volatility and liquidity in the markets in which the related underlying
assets are traded. Changes in the Companys short-term and long-term debt and
notes payable to affiliates have occurred since December 31, 2002. The primary
market risk for these market sensitive instruments is interest rate risk at the
time of refinancing. For information regarding the Companys long-term debt
and notes payable to former affiliates, see note 8 to the condensed
consolidated financial statements. In addition, the average duration of the
Companys fixed maturities portfolio decreased from December 31, 2002,
primarily as a result of the impact of the investment of underwriting cash
flows and investment maturities and sales proceeds in shorter-term investments
along with the sale of certain treasury futures contracts. See the Liquidity
and Capital Resources section of Item 2, Managements Discussion and Analysis
of Financial Condition and Results of Operations.

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The Company analyzes quantitative information about market risk based on a
sensitivity analysis model. This model produces a loss in fair value of market
sensitive instruments of approximately $1.3 billion and $1.5 billion based on a
100 basis point increase in interest rates as of September 30, 2003 and
December 31, 2002, respectively.

The Companys sensitivity model also calculates a potential loss in fair value
with the inclusion of certain non-financial instruments, including premium
balances receivable, reinsurance recoverables, claims and claim adjustment
expense reserves and unearned premium reserves. Based on this model, the loss
in fair value of market sensitive instruments, including these non-financial
instruments, as a result of a 100 basis point increase in interest rates as of
September 30, 2003 and December 31, 2002 is not material.




Item 4.     CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as that term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (the Exchange Act)) that are designed to ensure that information
required to be disclosed in the Companys reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures. Any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. The
Companys management, with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
design and operation of the Companys disclosure controls and procedures as of
September 30, 2003. Based upon that evaluation and subject to the foregoing,
the Companys Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of the Companys disclosure controls and
procedures provided reasonable assurance that the disclosure controls and
procedures are effective to accomplish their objectives.

In addition, there was no change in the Companys internal control over
financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the quarter ended September 30,
2003 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.

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PART II - OTHER INFORMATION




Item 1.     LEGAL PROCEEDINGS

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

Asbestos and Environmental

In the ordinary course of its insurance business, the Company receives claims
for insurance arising under policies issued by the Company asserting alleged
injuries and damages from asbestos and other hazardous waste and toxic
substances which are the subject of related coverage litigation, including,
among others, the litigation described below. The Company is increasingly
becoming subject to more aggressive asbestos-related litigation, and the
Company expects this trend to continue. The conditions surrounding the final
resolution of these claims and the related litigation continue to change.

The Company is involved in a bankruptcy and other proceedings relating to
ACandS, Inc. (ACandS), formerly a national installer of products containing
asbestos. The proceedings involve disputes as to whether and to what extent
any of ACandS potential liabilities for bodily injury asbestos claims were
covered by insurance policies issued by the Company, as described below.

ACandS filed for bankruptcy in September 2002 (In re: ACandS, Inc., pending in
the U.S. Bankruptcy Court for the District of Delaware). At the time of its
filing, ACandS asserted that it had settled or was in the process of settling
the large number of asbestos bodily injury claims pending against it by
negotiating with the claimants and assigning them ACandS rights to recover
under insurance policies issued by the Company. In its bankruptcy filings,
ACandS estimated that the total value of these unpaid but purportedly settled
claims was approximately $2.8 billion. ACandS asserted that the Company is
responsible for the financial obligations created by these purported
settlements as well as for any future claims brought against it, and that
insurance policy aggregate limits do not apply.

In January 2003, ACandS filed a proposed Plan of Reorganization in its
bankruptcy proceeding pursuant to which ACandS seeks to establish a trust to
handle and dispose of asbestos claims and that trust would be assigned ACandS
rights to its insurance policies issued by the Company. The bankruptcy plan
confirmation hearing is scheduled to begin on December 15, 2003, and the
Company intends to file numerous objections to the plan as proposed. The
Company is vigorously contesting ACandS assertions through objections filed in
the bankruptcy court, as well as through defenses asserted in the other
proceedings described below.

Another dispute involved an insurance coverage arbitration commenced in January
2001 to determine what percentage of ACandS financial obligations for bodily
injury asbestos claims is subject to insurance policy aggregate limits. On
July 31, 2003, the arbitration panel ruled in Travelers favor that asbestos
bodily injury claims paid by ACandS on or after July 31, 2003, the decision
date, are subject to the Companys aggregate policy limits, which have been
exhausted. As a result of the arbitration panel ruling, ACandS filed a new
lawsuit claiming that the Company is now obligated to fund 45% of ACandS
unpaid but purportedly settled asbestos bodily injury claims that predate the
arbitration decision date (ACand S, Inc. v. Travelers Casualty and Surety Co.,
E.D. Pa, commenced in August 2003).

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In addition to the bankruptcy, the concluded arbitration proceedings and the
August 2003 lawsuit, the Company and ACandS are also involved in litigation
(ACandS, Inc. v. Travelers Casualty & Surety Co.,USDC, E.D. Pa), commenced in
September 2000. This litigation primarily involves the extent to which the
claims against ACandS are subject to occurrence limits under the insurance
policies. The matter is scheduled to appear on the May 14, 2004 trial
calendar. The Company has filed a motion to dismiss this action based upon the
rulings of the arbitration panel and discovery in this action has been stayed
pending the resolution of the Companys motion to dismiss.

The Company is vigorously asserting and defending its positions in the ACandS
bankruptcy and the two other remaining proceedings. The Company believes that
it has meritorious defenses that include, among others that the purported
settlements are not final, are unreasonable in amount, and are not binding on
the Company; that any bankruptcy plan or reorganization which ACandS files is
defective to the extent it seeks to accelerate any of the Companys obligations
under policies issued to ACandS or to deprive the Company of its right to
litigate the claims against ACandS; and that the occurrence limits in the
policies substantially reduce or eliminate the Companys obligations, if any,
with respect to the purportedly settled claims.

In October 2001 and April 2002, two purported class action suits (Wisev.
Travelers,and Meningerv. Travelers), were filed against the Company and other
insurers in state court in West Virginia. The plaintiffs in these cases, which
were subsequently consolidated into a single proceeding in Circuit Court of
Kanawha County, West Virginia, allege that the insurer defendants violated
unfair trade practices requirements and inappropriately handled and settled
asbestos claims. The plaintiffs seek to reopen large numbers of settled
asbestos claims and to impose liability for damages, including punitive
damages, directly on insurers. Lawsuits similar to Wisehave been filed in
Massachusetts (2002) and Hawaii (2002, served in May 2003). Also, in November
2001, plaintiffs in consolidated asbestos actions pending before a mass tort
panel of judges in West Virginia state court moved to amend their complaint to
name the Company as a defendant, alleging that the Company and other insurers
breached alleged duties to certain users of asbestos products. In March 2002,
the court granted the motion to amend. Plaintiffs seek damages, including
punitive damages. Lawsuits seeking similar relief and raising allegations
similar to those presented in the West Virginia amended complaint are also
pending against the Company in Louisiana and Texas state courts. Similar
complaints were filed in various Ohio state courts during the second quarter of
2003.

All of the actions described in the preceding paragraph, other than the Hawaii
actions, are currently subject to a temporary restraining order entered by the
federal bankruptcy court in New York, which had previously presided over and
approved the reorganization in bankruptcy of the Companys former policyholder
Johns Manville. In August 2002, the bankruptcy court conducted a hearing on
the Companys motion for a preliminary injunction prohibiting further
prosecution of the lawsuits pursuant to the reorganization plan and related
orders. At the conclusion of this hearing, the court ordered the parties to
mediation, appointed a mediator, and continued the temporary restraining order.
During January and June 2003, the same bankruptcy court extended the existing
injunction to apply to an additional set of cases filed in various state courts
in Texas and Ohio as well as to the attorneys who are prosecuting these cases.
The order also enjoins these attorneys and their respective law firms from
commencing any further lawsuits against the Company based upon these
allegations without the prior approval of the court. The parties have met with
the mediator several times since August 2002. The results of the mediation, if
any, are uncertain at this time. If the mediation is not successful, the
bankruptcy court could hold a hearing as soon as late 2003 to consider the
Companys motion for a permanent injunction. If the Company is not successful,
including on appeal, the temporary restraining order currently in effect will
be lifted and the Company will again be subject to the pending litigation and
could be subject to additional litigation based on similar theories of
liability.

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The Company has numerous defenses in all of the direct action cases. These
defenses include the fact that these novel theories have no basis in law; that
they are directly at odds with the well established law pertaining to the
insured/insurer relationship; that there is no generalized duty to warn as
alleged by the plaintiffs; that to the extent that they have not been released
by virtue of prior settlement agreements by the claimants with the Companys
policyholders, all of these claims were released by virtue of approved
settlements and orders entered by the Johns Manville bankruptcy court; and that
the applicable statute of limitation as to many of these claims has long since
expired. Many of these defenses have been raised in initial motions to dismiss
by the Company and other insurers. There have been favorable rulings
during the current year in Texas
on some of these motions filed by other insurers that dealt with statute of
limitations and the validity of the alleged causes of actions. Similar motions
also have been filed by other insurers in West Virginia.

The Company is defending its asbestos and environmental-related litigation
vigorously and believes that it has meritorious defenses; however, the outcome
of these disputes is uncertain. In this regard, the Company employs dedicated
specialists and aggressive resolution strategies to manage asbestos and
environmental loss exposure, including settling litigation under appropriate
circumstances. For a discussion of recent settlement activity and other
information regarding the Companys asbestos and environmental exposure, see
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Asbestos Claims and Litigation,   Environmental Claims and
Litigation and   Uncertainty Regarding Adequacy of Asbestos and
Environmental Reserves.

Currently, it is not possible to predict legal and legislative outcomes and
their impact on the future development of claims and litigation relating to
asbestos and other hazardous waste and toxic substances. Any such development
will be affected by future court decisions and interpretations, as well as
changes in applicable legislation. Because of these uncertainties, additional
liabilities may arise for amounts in excess of the current reserves. In
addition, the Companys estimate of ultimate claims and claim adjustment
expenses may change. These additional liabilities or increases in estimates,
or a range of either, cannot now be reasonably estimated and could result in
income statement charges that could be material to the Companys results of
operations and financial condition in future periods.

Other

Beginning in January 1997, various plaintiffs commenced a series of purported
class actions and one multi-party action in various courts against some of the
Companys subsidiaries, dozens of other insurers and the National Council on
Compensation Insurance, or the NCCI. The allegations in the actions are
substantially similar. The plaintiffs generally allege that the defendants
conspired to collect excessive or improper premiums on loss-sensitive workers
compensation insurance policies in violation of state insurance laws, antitrust
laws, and state unfair trade practices laws. Plaintiffs seek unspecified
monetary damages. After several voluntary dismissals, refilings and
consolidations, actions are, or until recently were, pending in the following
jurisdictions: Georgia (Melvin Simon & Associates, Inc., et al. v. Standard
Fire Insurance Company, et al.); Tennessee (Bristol Hotel Asset Company, et al.
v. The Aetna Casualty and Surety Company, et al.); Florida (Bristol Hotel Asset
Company, et al.v. Allianz Insurance Company, et al. and Bristol Hotel
Management Corporation, et al. v. Aetna Casualty & Surety Company, et al.); New
Jersey (Foodarama Supermarkets, Inc., et al.v. Allianz Insurance Company, et
al.); Illinois (CR/PL Management Co., et al.v. Allianz Insurance Company
Group, et al.); Pennsylvania (Foodarama Supermarkets, Inc.v. American
Insurance Company, et al.); Missouri (American Freightways Corporation, et al.
v. American Insurance Co., et al.); California (Bristol Hotels & Resorts, et
al. v. NCCI, et al.); Texas (Sandwich Chef of Texas, Inc., et al.v. Reliance
National Indemnity Insurance Company, et al.); Alabama (Alumax Inc., et al. v.
Allianz Insurance Company, et al.); Michigan (Alumax, Inc., et al. v. National
Surety Corp., et al.); Kentucky (Payless Cashways, Inc., et al. v. National
Surety Corp. et al.); New York (Burnham Service Corp.v. American Motorists
Insurance Company, et al.); and Arizona (Albany International Corp. v. American
Home Assurance Company, et al.).

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The trial courts ordered dismissal of the California, Pennsylvania and New York
cases, one of the two Florida cases (Bristol Hotel Asset Company, et al. v.
Allianz Insurance Company, et al.), and, in August 2003, the
Kentucky case. In
addition, the trial courts have ordered partial dismissals of six other cases:
those pending in Tennessee, New Jersey, Illinois, Missouri, Alabama and
Arizona. The trial courts in Georgia, Texas, and Michigan denied defendants
motions to dismiss. The California appellate court reversed the trial court in
part and ordered reinstatement of most claims, while the New York appellate
court affirmed dismissal in part and allowed plaintiffs to dismiss their
remaining claims voluntarily. The Michigan, Pennsylvania and New Jersey courts
denied class certification. The New Jersey appellate court denied plaintiffs
request to appeal. After the rulings described above, the plaintiffs withdrew
the New York and Michigan cases. Although the trial court in Texas granted
class certification, the appellate court reversed that ruling in January 2003,
holding that class certification should not have been granted. In October
2003, the United States Supreme Court denied plaintiffs request for further
review of that appellate ruling. The Company is vigorously defending all of
the pending cases and the Companys management believes the Company has
meritorious defenses; however the outcome of these disputes is uncertain.

Gulf Insurance Company (Gulf), a majority-owned subsidiary of TPC, brought an
action on May 22, 2003, as amended on July 29, 2003, in the Supreme Court of
New York, County of New York (Gulf Insurance Company v. Transatlantic
Reinsurance Company, et al), against Transatlantic Reinsurance Company
(Transatlantic), and three other reinsurance companies to recover amounts due
under reinsurance contracts issued to Gulf and related to Gulfs February 2003
settlement of a coverage dispute under a vehicle residual value protection
insurance policy. On May 22, 2003, as amended on September 5, 2003,
Transatlantic brought an action against Gulf regarding the same dispute which
has been consolidated with Gulfs action. Transatlantic seeks rescission of
its vehicle residual value reinsurance contracts issued to Gulf and unspecified
damages for breach of contract. XL Reinsurance America, Inc. (XL), Odyssey
America Reinsurance Corporation (Odyssey) and Employers Reinsurance Company
(Employers), the other defendant reinsurers, also filed answers and
counterclaims in the Gulf action asserting positions similar to Transatlantic,
including counter claims for rescission of vehicle residual value reinsurance
contracts issued to Gulf. On October 1, 2003, Gulf entered into a final
settlement agreement with Employers, and all claims and counterclaims with
respect to Employers have been dismissed. After the settlement, the Gulf
action now seeks from the remaining three defendants a total of $90.9 million
currently due under the reinsurance contracts, a declaration that $11.6 million
will be payable under a second installment due in 2004, and consequential and
punitive damages. Gulf denies the reinsurers allegations, believes that it
has a strong legal basis to collect the amounts due under the reinsurance
contracts, and intends to vigorously pursue the action.

In addition to those described above, the Company is involved in numerous
lawsuits, not involving asbestos and environmental claims, arising mostly in
the ordinary course of business operations either as a liability insurer
defending third-party claims brought against policyholders or as an insurer
defending coverage claims brought against it. While the ultimate resolution of
these legal proceedings could be significant to the Companys results of
operations in a future quarter, in the opinion of the Companys management it
would not be likely to have a material adverse effect on the Companys results
of operations for a calendar year or on the Companys financial condition or
liquidity.

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Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits:

See Exhibit Index.

(b)     Reports on Form 8-K:

On July 17, 2003, the Company filed a Current Report on Form 8-K, dated July
17, 2003, (a) reporting under Item 12 thereof (but provided under Item 9
pursuant to SEC interim filing guidance for Item 12) the results of the
Companys operations for the quarter ended June 30, 2003, and (b) filing under
Item 7 thereof the related press release and a second quarter financial
supplement.

On August 4, 2003, the Company filed a Current Report on Form 8-K, dated August
4, 2003, (a) reporting under Item 5 thereof that an arbitration panel decision
had been rendered in the ACandS asbestos litigation matter, and (b) filing
under Item 7 thereof the related press release.

No other reports on Form 8-K were filed during the 2003 third quarter; however,

On October 3, 2003, the Company filed a Current Report on Form 8-K, dated
October 3, 2003, (a) reporting under Item 12 thereof a preliminary estimate for
catastrophe losses from Hurricane Isabel during the third quarter and adjusting
the range of full year net and operating income, and (b) filing under Item 7
thereof the related press release.

On October 16, 2003, the Company furnished in a Current Report on Form 8-K,
dated October 16, 2003, under Item 12 thereof a press release and financial
supplement relating to the results of the Companys operations for the quarter
ended September 30, 2003.

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SIGNATURES

Pursuant to the requirements 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.

|      |                  |  |                                   |                                                                                                                           
|----- | ---------------- |  | --------------------------------- | --------------------------------------------------------------------------------------------------------------------------
|      |                  |  | Travelers
Property Casualty Corp.
|      |                  |  |                                   |                                                                                                                           
|Date: | October 31, 2003 |  | By                                | /s/ Jay S. Benet

        Jay S. Benet
        Chief Financial Officer
        (Principal Financial Officer)              
|      |                  |  |                                   |                                                                                                                           
|Date: | October 31, 2003 |  | By                                | /s/ Douglas K. Russell

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

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EXHIBIT INDEX

|        |       |                        |  |                                                                                                                                                                                                                                                       
|------- | ----- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 3.1.1 |                        |  | Restated Certificate of Incorporation of the Company, effective July
18, 2003, consolidating all prior amendments, was filed as exhibit 3.1.1
to the Companys Form 10-Q for the quarter ended June 30, 2003, and is
incorporated herein by reference.
|        |       |                        |  |                                                                                                                                                                                                                                                       
|        | 3.2   |                        |  | Amended and Restated Bylaws of the Company, effective January 23, 2003,
was filed as Exhibit 3.2 to the Companys annual report on Form 10-K for
the fiscal year ended December 31, 2002, and is incorporated herein by
reference.                    
|        |       |                        |  |                                                                                                                                                                                                                                                       
|        | 31.1 |                        |  | Certification of Robert I. Lipp, Chief Executive Officer of the
Company, as required by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                
|        |       |                        |  |                                                                                                                                                                                                                                                       
|        | 31.2 |                        |  | Certification of Jay S. Benet, Chief Financial Officer of the Company,
as required by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                  
|        |       |                        |  |                                                                                                                                                                                                                                                       
|        | 32.1 |                        |  | Certification of Robert I. Lipp, Chief Executive Officer of the
Company, as required by Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                
|        |       |                        |  |                                                                                                                                                                                                                                                       
|        | 32.2 |                        |  | Certification of Jay S. Benet, Chief Financial Officer of the Company,
as required by Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                  

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. Therefore,
the Company is not filing any instruments evidencing long-term debt.
However, the Company will furnish copies of any such instrument to the
Securities and Exchange Commission upon request.



---

|Filed herewith
|---------------

61