Edgar Filing: TRAVELERS PROPERTY CASUALTY CORP

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-82388

INTERNATIONAL PROSPECTUS

210,000,000 SHARES

TRAVELERS PROPERTY CASUALTY CORP.

[TRAVELERS LOGO]

CLASS A COMMON STOCK
$18.50 PER SHARE
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We are selling 210,000,000 shares of our class A common stock. Of the
210,000,000 shares of our class A common stock that we are selling, 42,000,000
shares are being offered outside the United States and Canada by the
international underwriters named in this prospectus and 168,000,000 shares are
being offered at the same time in the United States and Canada by a syndicate of
U.S. underwriters. We have granted the underwriters an option to purchase up to
21,000,000 additional shares of our class A common stock to cover
over-allotments.

Concurrently with this offering, we are offering $850 million aggregate
principal amount of our 4.5% Convertible Junior Subordinated Notes due 2032.

This is the initial public offering of our class A common stock. Our class A
common stock has been approved for listing, subject to official notice of
issuance, on the New York Stock Exchange under the symbol "TAP.A."
------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 11.

Neither the Securities and Exchange Commission nor any state securities or
insurance commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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PER SHARE TOTAL
-------------- -----------------

Public Offering Price....................................... $18.50 $3,885,000,000
Underwriting Discount....................................... $ 0.74 $ 155,400,000
Proceeds to Travelers Property Casualty Corp. (before
expenses)................................................. $17.76 $3,729,600,000

The underwriters expect to deliver the shares to purchasers on or about
March 27, 2002.
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GLOBAL COORDINATOR

SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANK
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY
UBS WARBURG

BBVA BOLSA, S.V. BNP PARIBAS CAZENOVE
CDC IXIS CAPITAL MARKETS CREDIT LYONNAIS SECURITIES DRESDNER KLEINWORT
WASSERSTEIN
MEDIOBANCA--BANCA DI SANTANDER CENTRAL HISPANO WESTLB PANMURE
CREDITO FINANZIARIO S.P.A. INVESTMENT, S.A.

March 21, 2002

TABLE OF CONTENTS

Summary..................................................... 1
Risk Factors................................................ 11
Cautionary Statement Concerning Forward-Looking
Statements................................................ 21
Company History............................................. 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Dilution.................................................... 23
Capitalization.............................................. 24
Selected Historical Financial Information................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 54
Management.................................................. 83
Ownership of Common Stock................................... 101
Arrangements Between Our Company and Citigroup.............. 102
Description of Capital Stock................................ 113
Description of the Notes.................................... 123
Certain Indebtedness........................................ 125
Shares Eligible for Future Sale............................. 127
Certain United States Federal Tax Consequences to Non-U.S.
Holders................................................... 129
Underwriting................................................ 131
Legal Matters............................................... 137
Experts..................................................... 137
Where You Can Find More Information......................... 137
Glossary of Selected Insurance Terms........................ G-1
Index to Consolidated Financial Statements.................. F-1

SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the "Risk Factors"
and "Cautionary Statement Concerning Forward-Looking Statements" sections and
our historical consolidated financial statements and the notes to those
financial statements, before making an investment decision. As used in this
prospectus, unless the context otherwise requires, references to "Travelers,"
"we," "us," and "our" refer to Travelers Property Casualty Corp. (formerly known
as The Travelers Insurance Group Inc.), a Connecticut corporation, and its
consolidated operations, and any reference to "TIGHI" refers to our wholly-owned
subsidiary, Travelers Insurance Group Holdings Inc. (formerly known as Travelers
Property Casualty Corp.), a Delaware corporation, and its consolidated
operations. However, except where indicated, these references and the other
information in this prospectus do not include those operations that have been
transferred by us prior to the completion of this offering as part of our
corporate reorganization described below. Unless the context otherwise requires,
references to "Citigroup" refer to Citigroup Inc. and its subsidiaries other
than Travelers. References to "common stock" refer collectively to our class A
common stock and our class B common stock. We are a holding company and have no
direct operations. Our principal asset is the capital stock of TIGHI and its
insurance subsidiaries. This prospectus contains terms that are specific to the
insurance industry and may be technical in nature. We have included a glossary
of these terms, commencing on page G-1.

OUR COMPANY

We are a leading property and casualty insurance company in the United
States. We provide a wide range of commercial and personal property and casualty
insurance products and services to businesses, government units, associations
and individuals. We conduct our operations through our wholly-owned subsidiaries
in two business segments: Commercial Lines, which provides a variety of
commercial coverages to a broad spectrum of business clients, and Personal
Lines, which primarily offers automobile and homeowners insurance to
individuals. Commercial coverages and personal coverages accounted for 58% and
42%, respectively, of our combined net written premiums for the year ended
December 31, 2001. After giving pro forma effect to this offering and the
concurrent offering of our convertible notes, and the use of the proceeds from
the offerings, our corporate reorganization and related transactions, at
December 31, 2001, we had total assets and shareholders' equity of $57.6 billion
and $9.7 billion, respectively.

We are an indirect wholly-owned subsidiary of Citigroup. Citigroup is a
diversified holding company whose businesses provide a broad range of financial
services to consumer and corporate customers around the world.

COMMERCIAL LINES

We are the third largest writer of commercial lines insurance in the United
States based on 2000 direct written premiums as compiled and published by A.M.
Best. Our Commercial Lines segment offers a broad array of property and casualty
insurance and insurance-related services to our clients. Commercial Lines is
organized into the following five marketing and underwriting groups, each of
which focuses on a particular client base or product grouping to provide
products and services that specifically address clients' needs:

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

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

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

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

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

The commercial coverages which we market include workers' compensation,
general liability, including product liability, multiple peril, commercial
automobile, property including fire and allied lines, and a variety of other
coverages. We also underwrite specialty coverages, including general liability
for selected product liability risks, umbrella and excess liability coverage,
directors' and officers' liability insurance, errors and omissions insurance,
fidelity and surety bonds, excess SIPC protection, fiduciary liability insurance
and other professional liability insurance. In addition, we offer various risk
management services, generally including claims management, loss control and
engineering services, to businesses that choose to self-insure some exposures,
to states and insurance carriers that participate in state involuntary workers'
compensation pools and to employers seeking to manage workers' compensation
medical and disability costs.

We distribute our commercial products through approximately 6,300
independent agencies and brokers located throughout the United States, supported
by a network of approximately 80 field offices and two customer service centers.
We have made significant investments in enhanced technology utilizing
Internet-based applications that make doing business with us easier and more
efficient for our independent agencies and brokers. For the year ended December
31, 2001, Commercial Lines generated net written premiums of approximately $5.7
billion.

PERSONAL LINES

We are the second largest writer of personal lines insurance through
independent agents and the eighth largest writer of personal lines insurance
overall in the United States, based on 2000 direct written premiums as compiled
and published by A.M. Best. We write most types of property and casualty
insurance covering personal risks. Personal Lines had approximately 5.4 million
policies in force at December 31, 2001. The primary coverages in Personal Lines
are personal automobile and homeowners insurance sold to individuals.

Personal Lines products are distributed primarily through approximately
7,600 independent agencies located throughout the United States, supported by
personnel in 12 marketing regions and six customer service centers. We have made
significant investments in enhanced technology utilizing Internet-based
applications that make doing business with us easier and more efficient for our
independent agents. We also market through additional distribution channels,
including sponsoring organizations such as employers' and consumer associations,
and joint marketing arrangements with other insurers. For the year ended
December 31, 2001, Personal Lines generated net written premiums of
approximately $4.1 billion.

OUR COMPETITIVE ADVANTAGES

We believe that we are uniquely positioned within the property and casualty
insurance industry to benefit from an improving underwriting environment. Our
competitive advantages are based on:

- superior financial strength as a result of strong capitalization levels
and consistent operating returns;

- a recognized brand name with leading market positions, broad scale and
product breadth in many commercial and personal product lines and
geographies;

- an experienced management team with a broad complement of skills;

- a consistent record of strong operating returns which are driven by a
performance-based management and underwriting culture;

- proprietary management information systems that support detailed
attention to risk management and returns analysis in order to maximize
underwriting results;

- demonstrated long-term commitment to the independent agency and broker
distribution system with a consistent underwriting philosophy;

- industry-leading technology which enables us to cost effectively provide
differentiated service to agents and customers; and

- proven acquisition and integration expertise which will allow us to
participate in consolidation within the property and casualty industry.

OUR STRATEGY

Management has established the following key strategic objectives for us:

FOCUS ON CORE PRODUCT LINES USING A DISCIPLINED AND PERFORMANCE-BASED
UNDERWRITING APPROACH

We will continue to focus on our core property and casualty insurance
product lines and markets for which we have developed selective and consistent
underwriting policies that have been demonstrated to be effective over time. We
emphasize a profit-oriented approach to underwriting rather than focusing on
premium volume or market share.

MAINTAIN FINANCIAL STRENGTH

We believe that we are well capitalized and that our financial strength
creates a competitive advantage in retaining and attracting business. We plan to
maintain our sound financial position through selective underwriting practices
and a high quality investment portfolio.

ENHANCE OUR POSITION AS A COST-EFFECTIVE PROVIDER OF PROPERTY AND CASUALTY
INSURANCE

We believe that a critical competitive advantage in the property and
casualty insurance industry is our success in controlling expense ratios. Our
low expense ratios combined with superior risk selection and excellent execution
allow for both competitive pricing and appropriate underwriting returns.

EMPHASIZE CUSTOMER-ORIENTED FOCUS

MANAGE DISTRIBUTION RELATIONSHIPS AND CAPITALIZE ON OUR BRAND NAME AND BROAD
PRODUCT OFFERINGS

We maintain strong relationships with our distribution force. As a result
of our recognized franchise and our broad array of insurance products and
services and specialized expertise, we are able to offer our agents and brokers
significant product expansion opportunities.

LEVERAGE TECHNOLOGY TO IMPROVE SERVICE AND ENHANCE OUR AGENCY DISTRIBUTION
CHANNELS

We have been a leading developer of technology-based solutions for the
insurance industry, which enable our independent agents to quote and issue
policies directly from their agencies. The technologies we have developed
provide an ease-of-doing-business environment with our distribution force, which
we believe is a significant competitive advantage.

ACTIVELY PARTICIPATE IN INDUSTRY CONSOLIDATION

We have successfully acquired and integrated companies as a means to grow
our company. Our market presence and strong balance sheet and cash flow,
together with management's demonstrated experience, create an effective platform
for our participation in industry consolidation.

UTILIZE SOPHISTICATED MODELING AND RAPID RESPONSE SYSTEMS TO MANAGE CATASTROPHIC
EXPOSURE

We control exposure in high-risk areas through a variety of underwriting
approaches, including the employment of sophisticated computer modeling
techniques to analyze significant natural catastrophe exposures and establish
geographic limits on policy writing designed to maximize returns on catastrophe
exposed business. We have also developed a state-of-the-art rapid response
catastrophe claims unit.
3

EMPLOY DEDICATED SPECIALISTS AND AGGRESSIVE RESOLUTION STRATEGIES TO MANAGE
ENVIRONMENTAL AND ASBESTOS LOSS EXPOSURE

Our environmental and asbestos claims are managed by a dedicated group of
professionals which has operated as a separate unit since 1986. We believe that
this approach gives us consistency in claims handling and policy coverage
interpretation and facilitates our early identification of exposures and
aggressive resolution of coverage uncertainties.

COMPANY HISTORY

Our predecessor companies have been in the insurance business for more than
130 years. We are a Connecticut corporation that was formed in 1979. Recently we
changed our name from The Travelers Insurance Group Inc. to Travelers Property
Casualty Corp. In December 1993, Citigroup acquired us. In January 1996, we
formed TIGHI to hold our property and casualty insurance subsidiaries. In April
1996, TIGHI purchased from Aetna Services, Inc. all of the outstanding capital
stock of Aetna's significant property and casualty insurance subsidiaries for
approximately $4.2 billion in cash. In April 1996, TIGHI also completed an
initial public offering of its common stock.

DIVIDENDS PAYABLE

In February 2002, our board of directors declared a dividend of $1.0
billion to Citigroup in the form of a non-interest bearing note payable on
December 31, 2002. We expect to repay this note from future earnings, to the
extent available. We refer to this note in this prospectus as the "2002 note."

In February 2002, our board of directors also declared a dividend of $3.7
billion to Citigroup in the form of a $3.7 billion note payable in two
installments. The first installment of $150 million will be payable in May 2004
and the second installment of $3.55 billion will be payable in February 2017.
This note begins to bear interest after May 9, 2002 at a rate of 7.25% per
annum. This note may be prepaid at any time in whole or in part without penalty
or premium. We expect that substantially all of this note will be prepaid with
the proceeds of the offerings. We refer to this note in this prospectus as the
"special note."

In March 2002, our board of directors declared a dividend of $395 million
to Citigroup in the form of a note which begins to bear interest after May 9,
2002 at a rate of 6.00% per annum. This note is due in March 2007 and may be
prepaid in whole or in part at any time without penalty or premium. We refer to
this note in the prospectus as the "2007 note."

OUR CORPORATE REORGANIZATION

In connection with this offering, we have effected a corporate
reorganization, under which:

- we transferred substantially all of our assets to Citigroup, other than
the capital stock of TIGHI;

- Citigroup assumed all of our third-party liabilities, other than
liabilities relating to TIGHI and TIGHI's active employees;

- we have effected a recapitalization whereby the previously outstanding
shares of our common stock, all of which were owned by Citigroup, have
been exchanged for 269,000,000 shares of class A

common stock and 500,000,000 shares of class B common stock. The number
of shares of class A common stock to be owned by Citigroup may be
increased by up to an additional 21,000,000 shares (for a total of
290,000,000 shares of class A common stock), to the extent that the
underwriters do not exercise their option to purchase class A common
stock to cover over-allotments; and

- we have amended and restated our certificate of incorporation and bylaws.

In this prospectus, we refer to these transactions as our "corporate
reorganization." In addition, we sold the stock of CitiInsurance International
Holdings Inc. on February 28, 2002 to Citigroup for $403 million, its net book
value. We have applied $138 million of the proceeds from this sale to repay
intercompany indebtedness to Citigroup. As a result of the corporate
reorganization and the sale of CitiInsurance, TIGHI and its insurance
subsidiaries became our principal asset.

THE TAX-FREE DISTRIBUTION

We are currently an indirect wholly-owned subsidiary of Citigroup. After
the completion of this offering, Citigroup will beneficially own all of our
outstanding class B common stock and 290 million shares of our class A common
stock, representing 94.8% of the combined voting power of all classes of our
voting securities and 79% of the equity interest in us, assuming the
over-allotment option is not exercised.

Citigroup has informed us that by year-end 2002 it plans to make a tax-free
distribution to its stockholders of a portion of its ownership interest in us,
which, together with the shares being issued in this offering, will represent
approximately 90.1% of our common equity (more than 90% of the combined voting
power of our then outstanding voting securities). In this prospectus, we refer
to this proposed transaction as the "distribution." Following the distribution,
Citigroup would remain a holder of approximately 9.9% of our common equity (less
than 10% of the combined voting power of our outstanding voting securities). The
distribution and Citigroup's continued ownership of shares thereafter are
subject to Citigroup's receipt of a private letter ruling from the Internal
Revenue Service that the distribution will be tax-free to Citigroup, its
stockholders and us, as well as various other conditions. These other conditions
may include receipt of any necessary third-party consents and regulatory
approvals, the existence of satisfactory market conditions and the satisfaction
of any conditions which may be imposed by the Internal Revenue Service. It is
expected that the ruling will require Citigroup to divest the remaining shares
it holds within five years following the distribution and to vote the shares it
continues to hold following the distribution pro rata with the shares held by
the public. We cannot assure you that the conditions to the distribution will be
satisfied or that Citigroup will consummate the distribution. In any event,
Citigroup has no obligation to consummate the distribution by the end of 2002 or
at all, whether or not these conditions are satisfied.

BENEFITS OF THE DISTRIBUTION

We will be focused on the property and casualty insurance
industry. Separation of our company from Citigroup will allow our management
and board of directors to focus on the property and casualty industry. Strategic
decisions about our business opportunities would not need to be coordinated with
the strategies and opportunities of Citigroup.

Management incentives can be directly aligned with shareholder
interests. Management incentives can be designed with a significant equity
component. As a stand-alone property and casualty company, compensation of
management can be directly aligned with the performance of our common stock. We
believe strongly in the performance leverage of this concept.

We will have greater capital management flexibility. Separation of our
company from Citigroup would also benefit us by enhancing our capital planning
flexibility. We would no longer have to compete with other Citigroup operations
for funding from Citigroup.

We believe that the property and casualty industry is fragmented and that
there will be a significant number of consolidation opportunities. As a separate
company, we would be able to invest retained
5

earnings in growing our business and in acquisitions, or alternatively, in
achieving earnings per share growth through share repurchases.

Our regulatory environment will be simplified. As a subsidiary of
Citigroup, we comply with all insurance company regulatory requirements, as well
as Bank Holding Company Act regulations. Once separate from Citigroup, we will
no longer be subject to Bank Holding Company Act regulations. This will simplify
our regulatory compliance and put us in a regulatory position consistent with
our competition.

We will benefit from the elimination of real and perceived distribution
conflicts. We distribute the vast majority of our products through independent
agencies and brokers. Agencies and brokers can choose from a number of insurance
companies. We believe that they will be attracted to a company clearly dedicated
to the property and casualty business and committed to the independent agency
system.
------------------

Our principal executive offices are located at One Tower Square, Hartford,
Connecticut 06183, and our telephone number is (860) 277-0111.
------------------

THE OFFERING

Class A common stock:
U.S. offering............... 168,000,000 shares
International offering...... 42,000,000 shares
Total.................... 210,000,000 shares

Common stock to be outstanding
after this offering........... 500,000,000 shares of class A common stock
500,000,000 shares of class B common stock

Common stock to be held by
Citigroup following this
offering.................... 290,000,000 shares of class A common stock
500,000,000 shares of class B common stock

Use of proceeds............... We will use the net proceeds to prepay
intercompany indebtedness to Citigroup.

Dividend policy............... We intend to pay quarterly cash dividends on
all classes of our common stock at an initial
rate of $0.06 per share of common stock,
commencing in the first quarter of 2003,
subject to financial results and declaration by
our board of directors. See "Dividend Policy"
for a discussion of the factors that will
affect the determination by our board of
directors to declare dividends, as well as
other matters concerning our dividend policy.

Voting rights
Class A common stock........ One vote per share
Class B common stock........ Seven votes per share

New York Stock Exchange
symbol........................ Our class A common stock has been approved for
listing on the New York Stock Exchange, subject
to official notice of issuance, under the
symbol "TAP.A."

CONCURRENT OFFERING

We are also offering, in a concurrent offering, $850 million aggregate
principal amount of our 4.5% convertible junior subordinated notes due 2032,
plus up to an additional $42.5 million aggregate principal amount of notes if
the over-allotment option for that offering is exercised in full. For additional
information regarding our notes, see the section of this prospectus entitled
"Description of the Notes."

Unless otherwise indicated, all information in this prospectus:

- reflects the consummation of our corporate reorganization, including the
recapitalization, whereby the then outstanding shares of our common
stock, all of which were owned by Citigroup, have been exchanged for
269,000,000 shares of class A common stock and 500,000,000 shares of
class B common stock. The number of shares of class A common stock to be
owned by Citigroup may be increased by up to an additional 21,000,000
shares (for a total of 290,000,000 shares of class A common stock), to
the extent that the underwriters do not exercise their option to purchase
class A common stock to cover over-allotments;

- assumes the over-allotment option has not been exercised;

- excludes approximately 16.0 million shares of class A common stock
issuable upon the exercise of stock options to be issued on the date of
this offering, none of which are currently exercisable, at an exercise
price equal to the initial public offering price;

- excludes an indeterminate number of shares of our restricted common stock
which we may use to replace Citigroup restricted stock held by our
employees and an indeterminate number of shares of common stock issuable
upon the exercise of options which will be granted in exchange for
Citigroup options we may assume, if and when the distribution occurs. If
the distribution were to occur today, the aggregate number of restricted
shares we would issue and shares subject to options we would grant in
connection with the replacement and exchange of Citigroup awards would be
approximately 4.6 million shares of our common stock and 84.5 million
shares of our common stock, respectively; and

- excludes a maximum of 36.7 million shares of our class A common stock
that may be initially issuable in the future upon conversion of the notes
being offered in the concurrent offering of notes, or a maximum of 38.6
million shares if the over-allotment option for that offering is
exercised in full.

SUMMARY FINANCIAL DATA

The summary financial data for each of the fiscal years in the three-year
period ended December 31, 2001 have been derived from our audited financial
statements. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Our financial
statements retroactively reflect our corporate reorganization for all periods
presented. All financial data and ratios presented in this prospectus have been
prepared using U.S. generally accepted accounting principles, unless otherwise
indicated.

YEAR ENDED DECEMBER 31,
--------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS, EXCEPT PER
SHARE DATA)

INCOME STATEMENT DATA:
Revenues:
Premiums.................................................. $9,411 $8,462 $8,009
Net investment income..................................... 2,034 2,162 2,093
Fee income................................................ 347 312 275
Realized investment gains................................. 323 47 112
Other revenues............................................ 116 88 84
------ ------ ------
Total revenues......................................... 12,231 11,071 10,573
------ ------ ------
Claims and expenses:
Claims and claim adjustment expenses...................... 7,765 6,473 6,059
Amortization of deferred acquisition costs................ 1,539 1,298 1,260
Interest expense.......................................... 205 296 238
General and administrative expenses....................... 1,333 1,140 1,177
------ ------ ------
Total claims and expenses.............................. 10,842 9,207 8,734
------ ------ ------
Income before federal income taxes, minority interest and
cumulative
effect of changes in accounting principles................ 1,389 1,864 1,839
Federal income taxes........................................ 327 492 479
------ ------ ------
Income before minority interest and cumulative effect of
changes in accounting principles.......................... 1,062 1,372 1,360
Minority interest, net of tax............................... -- 60 224
------ ------ ------
Income before cumulative effect of changes in accounting
principles................................................ 1,062 1,312 1,136
Cumulative effect of changes in accounting principles(a).... 3 -- (112)
------ ------ ------
Net income.................................................. $1,065 $1,312 $1,024
====== ====== ======
Pro forma earnings per share(b)............................. $ 1.06 N/A N/A
====== ====== ======
Dividends per common share(c)............................... $ 0.53 -- --
====== ====== ======

YEAR ENDED DECEMBER 31,
--------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)

OTHER DATA:
Statutory data(d):
Ratio of net premiums written to surplus.................. 1.36x 1.28x 1.07x
Policyholders' surplus (at period end).................... $7,687 $6,904 $7,656
Loss and loss adjustment expense (LAE) ratio(e)........... 80.7% 75.1% 74.3%
Underwriting expense ratio(e)............................. 27.3 27.0 28.8
Combined ratio before policyholder dividends(e)........... 108.0 102.1 103.1
Combined ratio(e)......................................... 108.3 102.5 103.7
Statutory industry data:
Combined ratio for property and casualty insurers......... 114.4(f) 110.4 107.9

AS OF DECEMBER 31, 2001
-------------------------
AS
ACTUAL ADJUSTED(G)
------- --------------
(IN MILLIONS)

BALANCE SHEET DATA:
Total investments........................................... $32,619 $32,843
Total assets................................................ 57,778 57,599
Claims and claim adjustment expense reserves................ 30,737 30,737
Total debt.................................................. 2,077 2,855
Total liabilities........................................... 46,192 46,970
TIGHI-obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated
debt securities of TIGHI.................................. 900 900
Shareholders' equity........................................ 10,686 9,729
Shareholders' equity excluding accumulated other changes
in equity from nonowner sources........................... 10,444 9,487

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

(a) Cumulative effect of changes in accounting principles, net of tax (1) for
the year ended December 31, 2001 includes a gain of $4 million as a result
of a change in accounting for derivative instruments and hedging activities
and a loss of $1 million as a result of a change in accounting for
securitized financial assets; and (2) for the year ended December 31, 1999
includes a loss of $135 million as a result of a change in accounting for
insurance-related assessments and a gain of $23 million as a result of a
change in accounting for insurance and reinsurance contracts that do not
transfer insurance risk.

(b) The unaudited pro forma earnings per share amounts reflect the
recapitalization effected as part of our corporate reorganization. Pro forma
earnings per share does not include the effects of our Capital Accumulation
Program and Stock Option Plan described in the section of this prospectus
entitled "Arrangements Between Our Company and Citigroup -- Intercompany
Transactions During the Past Three Years" as these plans utilize Citigroup
common stock. Conversion of the Citigroup common stock in these plans to our
common stock is contingent upon the distribution occurring. Pro forma
earnings per share also does not reflect conversion of our convertible
junior subordinated notes.

(d) Our statutory data have been derived from the financial statements of our
insurance subsidiaries prepared in accordance with statutory accounting
practices and filed with insurance regulatory authorities.

written. The combined ratio represents the sum of the loss and LAE ratio and
the underwriting expense ratio and, where applicable, the ratio of dividends
to policyholders to net earned premiums.

(f) Information provided is for the nine months ended September 30, 2001 for the
companies included in the A.M. Best Industry Composite.

(g) The as adjusted amounts give effect to the following transactions as if they
had occurred on December 31, 2001: (1) our receipt of net proceeds of $4.5
billion from the offerings and the use of these proceeds to prepay
indebtedness to Citigroup, (2) the sale of CitiInsurance International
Holdings Inc. to Citigroup for $403 million and our application of $138
million of the proceeds to repay indebtedness to Citigroup, (3) the issuance
of the 2007 note in a principal amount of $395 million, (4) the issuance of
the special note in a principal amount of $3.7 billion and (5) the issuance
of the $1.0 billion 2002 note.

Immediately following the offerings, $1.65 billion of intercompany
indebtedness will remain outstanding (including $1.0 billion outstanding
under the 2002 note).

RISK FACTORS

Before investing in our class A common stock, you should carefully consider
the following risk factors. These risks could materially affect our business,
profitability or financial condition and cause the trading price of our class A
common stock to decline.

RISKS RELATING TO OUR BUSINESS

CATASTROPHE LOSSES COULD MATERIALLY REDUCE OUR PROFITABILITY

Our property and casualty insurance operations expose us to claims arising
out of catastrophes. We have experienced, and will in the future experience,
catastrophe losses which may materially reduce our profitability or harm our
financial condition. Catastrophes can be caused by various natural events,
including hurricanes, windstorms, earthquakes, hail, severe winter weather and
fires. During the past five years catastrophe losses, net of reinsurance and
taxes, ranged from a high of $106 million to a low of $15 million, excluding the
impact of the terrorist attack on September 11th. Catastrophe losses can vary
widely and significantly exceed our recent historic results. Catastrophes can
also be man-made, such as the terrorist attack of September 11th. During 2001,
we recorded a charge of $490 million representing the estimated loss for both
reported and unreported claims incurred and related claim adjustment expenses,
net of reinsurance recoverables and taxes, related to the terrorist attack on
September 11th. The incidence and severity of catastrophes are inherently
unpredictable. It is possible that both the frequency and severity of man-made
catastrophic events will increase.

The extent of losses from a catastrophe is a function of both the total
amount of insured exposure in the area affected by the event and the severity of
the event. Most catastrophes are restricted to small geographic areas; however,
hurricanes and earthquakes may produce significant damage in larger areas,
especially those that are heavily populated. Although catastrophes can cause
losses in a variety of our property and casualty lines, most of our
catastrophe-related claims in the past have related to homeowners and commercial
property coverages. The geographic distribution of our business subjects us to
catastrophe exposure from hurricanes in the Northeast, Florida, Gulf Coast and
Mid Atlantic regions as well as catastrophe exposure from earthquakes in
California, the New Madrid and Pacific Northwest regions.

Claims resulting from natural or man-made catastrophic events could cause
substantial volatility in our financial results for any fiscal quarter or year
and could materially reduce our profitability or harm our financial condition.
Our ability to write new business could also be affected. We believe that
increases in the value and geographic concentration of insured property and the
effects of inflation could increase the severity of claims from catastrophic
events in the future. In addition, states have from time to time passed
legislation that has the effect of limiting the ability of insurers to manage
catastrophe risk, such as legislation prohibiting insurers from withdrawing from
catastrophe-prone areas.

OUR BUSINESS COULD BE HARMED BECAUSE OUR POTENTIAL EXPOSURE FOR ASBESTOS CLAIMS
AND RELATED LITIGATION IS VERY DIFFICULT TO PREDICT

We have established loss reserves for asbestos claims. There is a high
degree of uncertainty with respect to future exposure from asbestos claims
because of significant issues surrounding the liabilities of the insurers; risks
inherent in major litigation, including more aggressive asbestos-related
litigation against insurers, including us; and diverging legal interpretations
and judgments in different jurisdictions. These uncertainties include, among
other things:

- the extent of coverage under insurance policies;

- whether or not particular claims are subject to an aggregate limit;

- the number of occurrences involved in particular claims; and

- new theories of insured and insurer liability.

In addition, insurers generally, including us, are experiencing an increase
in the number of asbestos-related claims due to, among other things, more
intensive advertising by lawyers seeking asbestos claimants, the increasing
focus by plaintiffs on new and previously peripheral defendants and an increase
in the number of entities seeking bankruptcy protection as a result of
asbestos-related liabilities. In addition to contributing to the increase in
claims, the bankruptcy proceedings may have the effect of significantly
accelerating and increasing loss payments by insurers, including us.

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. We expect this trend to continue. Although it is
difficult to predict whether these policyholders will be successful on both
issues, to the extent both issues are resolved in their favor, our coverage
obligations under the policies at issue would be materially increased and
bounded only by the applicable per occurrence limits and the number of asbestos
bodily injury claims against the policyholders. Accordingly, it is difficult to
predict the ultimate size of the claims for coverage not subject to aggregate
limits.

In addition, proceedings have recently been launched directly against
insurers, including us, challenging insurers' conduct in respect of asbestos
claims, including in some cases with respect to previous settlements. Some
plaintiffs have also joined us as defendants in asbestos personal injury cases
that are close to trial. We anticipate the filing of other direct actions
against insurers, including us, 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.

Particularly during the last few months of 2001 and continuing into 2002,
the asbestos-related trends described above have both accelerated and become
more visible.

Given the factors described above, it is not presently possible to quantify
the ultimate exposure or range of exposure represented by asbestos claims and
related litigation. We have established reserves that represent our best
estimate of ultimate claims and claim adjustment expenses at December 31, 2001
based upon known facts and current law. However, these claims and related
litigation, particularly if current trends continue to accelerate, could result
in liability exceeding these reserves by an amount that could be material to our
operating results and financial condition in future periods. Because the level
of uncertainty continues to increase and in order to strengthen our ability and
flexibility to advance our strategic goals following the public offering,
Citigroup has offered to enter into an agreement under which it will provide us
with significant financial support for asbestos claims and related litigation,
up to $800 million, reduced by the tax effect of the highest applicable federal
income tax rate, which we believe will substantially enhance our ability to
manage possible adverse developments in the future. This agreement with
Citigroup is described in more detail in the "Arrangements Between Our Company
and Citigroup" section of this prospectus.

OUR BUSINESS COULD BE HARMED BECAUSE OUR POTENTIAL EXPOSURE FOR ENVIRONMENTAL
CLAIMS IS VERY DIFFICULT TO PREDICT

There is also a high degree of uncertainty with respect to future exposure
from environmental claims for reasons similar to those described above for
asbestos claims.

As a result of various state and federal regulatory efforts aimed at
environmental remediation, particularly Superfund, the insurance industry
continues to be involved in litigation involving policy coverage and liability
issues. In addition to regulatory pressures, the results of court decisions
affecting the industry's coverage positions continue to be inconsistent and have
expanded coverage beyond its original intent. Accordingly, the ultimate
responsibility and liability for environmental remediation costs remain
uncertain.

Given the factors described above, it is not presently possible to quantify
the ultimate exposure or range of exposure represented by environmental claims.
We have established reserves that represent our best estimate of ultimate claims
and claim adjustment expenses at December 31, 2001 based upon known facts and
current law. However, these claims could result in liability exceeding these
reserves by an amount that could be material to our operating results in future
periods.

WE MAY INCUR ADDITIONAL INCOME STATEMENT CHARGES IF OUR PROPERTY AND CASUALTY
LOSS RESERVES ARE INSUFFICIENT

We maintain property and casualty loss reserves to cover our 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. These reserve estimates are expectations of what the
ultimate settlement and administration of claims will cost based on our
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 insured 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, we will incur
additional income statement charges.

The inherent uncertainties of estimating insurance reserves are generally
greater for casualty coverages, particularly reserves for environmental and
asbestos losses, than for property coverages. This is due primarily to the
longer period of time that typically elapses before a definitive determination
of ultimate loss can be made, changing theories of legal liability involving
some types of claims and changing political climates.

REINSURANCE MAY NOT BE ADEQUATE TO PROTECT US AGAINST LOSSES

We use reinsurance to help manage our exposure to property and casualty
risks. The availability and cost of reinsurance are subject to prevailing market
conditions, both in terms of price and available capacity, which can affect our
business volume and profitability. Although the reinsurer is liable to us to the
extent of the ceded reinsurance, we remain liable as the direct insurer on all
risks reinsured. As a result, ceded reinsurance arrangements do not eliminate
our obligation to pay claims. We are subject to credit risk with respect to our
ability to recover amounts due from reinsurers. Reinsurance may not be adequate
to protect us against losses and may not be available to us in the future at
commercially reasonable rates.

Lloyd's of London, one of our largest reinsurers, restructured its
operations in 1996 with respect to claims for years prior to 1993 and reinsured
these into Equitas Limited. Approximately $248 million was recoverable by us
from Equitas as of December 31, 2001. The outcomes of the restructuring of
Lloyd's are uncertain, and the impact, if any, on collectibility of amounts
recoverable by us from Equitas cannot be quantified at this time. An unfavorable
resolution of these matters could reduce our future profitability.

THE EFFECTS OF EMERGING CLAIM AND COVERAGE ISSUES ON OUR BUSINESS ARE UNCERTAIN

As industry practices and legal, judicial, social, and other environmental
conditions change, unexpected and unintended issues related to claim and
coverage may emerge. These issues can have a

negative effect on our business by either extending coverage beyond our
underwriting intent or by increasing the number or size of claims. Recent
examples of emerging claims and coverage issues include:

- increases in the number and size of water damage claims related to
expenses for testing and remediation of mold conditions;

- increases in the number and size of claims relating to construction
defects, which often present complex coverage and damage valuation
questions;

- changes in interpretation of the named insured provision with respect to
the uninsured/underinsured motorist coverage in commercial automobile
policies; and

- a growing trend of plaintiffs targeting property and casualty insurers,
including us, in purported class action litigation relating to
claim-handling and other practices, particularly with respect to the
handling of personal lines automobile and homeowners claims.

The effects of these and other unforeseen emerging claim and coverage issues are
extremely hard to predict and could harm our business.

OUR BUSINESSES ARE HEAVILY REGULATED AND CHANGES IN REGULATION MAY REDUCE OUR
PROFITABILITY AND LIMIT OUR GROWTH

We are subject to extensive regulation and supervision in the jurisdictions
in which we conduct business. This regulation is generally designed to protect
the interests of policyholders, as opposed to shareholders and other investors,
and relates to authorization for lines of business, capital and surplus
requirements, investment limitations, underwriting limitations, transactions
with affiliates, dividend limitations, changes in control, premium rates and a
variety of other financial and nonfinancial components of an insurance company's
business.

In recent years, the state insurance regulatory framework has come under
increased federal scrutiny, and some state legislatures have considered or
enacted laws that may alter or increase state authority to regulate insurance
companies and insurance holding companies. Further, the National Association of
Insurance Commissioners, or NAIC, and state insurance regulators are reexamining
existing laws and regulations, specifically focusing on modifications to holding
company regulations, interpretations of existing laws and the development of new
laws. In addition, Congress and some federal agencies from time to time
investigate the current condition of insurance regulation in the United States
to determine whether to impose federal regulation or to allow an optional
federal incorporation, similar to banks. We cannot predict with certainty the
effect any proposed or future legislation or NAIC initiatives may have on the
conduct of our business. In addition, the insurance laws or regulations adopted
or amended from time to time may be more restrictive or may result in higher
costs than current requirements.

Although the United States federal government does not directly regulate
the insurance business, changes in federal legislation and administrative
policies in several areas, including changes in the Gramm-Leach-Bliley Act,
financial services regulation and federal taxation, can significantly harm the
insurance industry and us.

ASSESSMENTS AND OTHER SURCHARGES FOR GUARANTY FUNDS AND SECOND-INJURY FUNDS AND
OTHER MANDATORY POOLING ARRANGEMENTS MAY REDUCE OUR PROFITABILITY

Virtually all states require insurers licensed to do business in their
state to bear a portion of the loss suffered by some insureds as the result of
impaired or insolvent insurance companies. These obligations are funded by
assessments that are expected to increase in the future as a result of recent
insolvencies. Many states also have laws that established second-injury funds to
provide compensation to injured employees for aggravation of a prior condition
or injury which are funded by either assessments based on paid losses or premium
surcharge mechanisms. In addition, as a condition to the ability to conduct
business in various states, our insurance subsidiaries are required to
participate in mandatory property and casualty shared market mechanisms or
pooling arrangements, which provide various types of insurance coverage to

individuals or other entities that otherwise are unable to purchase that
coverage from private insurers. The effect of these assessments and mandatory
shared-market mechanisms or changes in them could reduce our profitability in
any given period or limit our ability to grow our business.

OUR INDEMNITY OBLIGATIONS TO CITIGROUP MAY EFFECTIVELY PRECLUDE TRANSACTIONS
WHICH WOULD BE BENEFICIAL TO OUR SHAREHOLDERS

Citigroup could be required to recognize a gain on the distribution if we
issue a significant amount of our stock in capital raising transactions or in
acquisitions within two years after the date of the distribution, if such
transactions or acquisitions, together with the distribution, are treated as
part of a plan. We have agreed to indemnify Citigroup for any taxes arising out
of the failure of the distribution to qualify as tax-free as a result of our
action or inaction. This indemnity may preclude us from pursuing transactions
that might otherwise be beneficial to our shareholders.

A DOWNGRADE IN THE CLAIMS-PAYING AND FINANCIAL STRENGTH RATINGS OF THE TRAVELERS
PROPERTY CASUALTY POOL COULD SIGNIFICANTLY REDUCE THE NUMBER OF INSURANCE
POLICIES WE WRITE

Claims-paying and financial strength ratings have become an increasingly
important factor in establishing the competitive position of insurance
companies. At December 31, 2001, The Travelers Property Casualty Pool, which
represented 79% of net written premiums in 2001, was rated A++ (1(st) of 16) by
A.M. Best and AA- (4(th) of 21) by Standard & Poor's. Our claims-paying and
financial strength ratings have not changed since November 2000 when the A.M.
Best rating was upgraded from A+ to A++. Rating agencies review their ratings
periodically, and our current ratings may not be maintained in the future. A
significant downgrade in these ratings could lead to a significant reduction in
the number of insurance policies we write. The ratings are not in any way a
measure of protection offered to investors in our common stock and should not be
relied upon with respect to making an investment in our common stock.

LOSS OR SIGNIFICANT RESTRICTION OF THE USE OF CREDIT SCORING IN THE PRICING AND
UNDERWRITING OF PERSONAL LINES PRODUCTS COULD REDUCE OUR FUTURE PROFITABILITY

Personal Lines uses credit scoring as a factor in making risk selection and
pricing decisions where allowed by state law. Recently, some consumer groups and
regulators have questioned whether the use of credit scoring unfairly
discriminates against people with low incomes, minority groups and the elderly
and are calling for the prohibition or restriction on the use of credit scoring
in underwriting and pricing. Laws or regulations enacted in a large number of
states that significantly curtail the use of credit scoring in the underwriting
process could reduce our future profitability.

OUR INVESTMENT PORTFOLIO MAY SUFFER REDUCED RETURNS OR LOSSES WHICH COULD REDUCE
OUR PROFITABILITY

Investment returns are an important part of our overall profitability, and
fluctuations in the fixed income or equity markets could impair our
profitability, financial condition or cash flows. For the year ended December
31, 2001, net investment income and net realized capital gains accounted for
approximately 19% of our consolidated revenues.

Fluctuations in interest rates affect our returns on, and the market value
of, fixed income and short-term investments, which comprised approximately 88%
of the market value of our investment portfolio as of December 31, 2001. For
2001 and 2000 the change in net unrealized gains in our investment portfolio
reflected a decrease of $232 million and an increase of $936 million,
respectively, primarily due to the impact on our fixed maturity portfolio from
market interest rate movements. In addition, defaults by third parties,
primarily from investments in liquid corporate and municipal bonds, who fail to
pay or perform on their obligations could reduce our investment income and
realized investment gains or result in investment losses.

We invest a portion of our assets in equity investments, primarily through
private equity and arbitrage partnerships, which are subject to greater
volatility than our fixed income investments. Partnership
15

investments generally provide higher expected return, but present greater risk
and are more illiquid than our fixed income investments. The yield on our
investment portfolio was impacted by the capital markets environment as
reflected in a decrease in our overall average yield on our investment portfolio
from 7.5% in 2000 to 6.8% in 2001. General economic conditions, stock market
conditions and many other factors beyond our control can adversely affect the
value of our equity investments and our ability to control the timing of the
realization of investment income.

THE INABILITY OF OUR SUBSIDIARIES TO PAY DIVIDENDS TO US IN SUFFICIENT AMOUNTS
WOULD HARM OUR ABILITY TO MEET OUR OBLIGATIONS AND PAY FUTURE DIVIDENDS

We are a holding company, and we have no operations. Our principal asset is
the capital stock of TIGHI and its insurance subsidiaries. We rely primarily on
dividends from our subsidiaries to meet our obligations for payment of interest
and principal on outstanding debt obligations, dividends to shareholders and
corporate expenses. The ability of our insurance subsidiaries to pay dividends
to us in the future will depend on their statutory surplus, on earnings and on
regulatory restrictions. Our principal insurance subsidiaries are domiciled in
the State of Connecticut. Connecticut law governing the payment of dividends by
domestic insurance companies provides that an insurer domiciled in Connecticut
must obtain the prior approval of the state insurance commissioner for the
declaration or payment of any dividend that together with other distributions
made within the preceding twelve months exceeds the greater of 10% of the
insurer's surplus as of the preceding December 31, or the insurer's net income
for the twelve-month period ending the preceding December 31, in each case
determined in accordance with statutory accounting practices.

This declaration or payment is further limited by adjusted unassigned
surplus, as determined in accordance with Connecticut insurance laws. The
insurance holding company laws of other states in which our subsidiaries are
domiciled generally contain similar, although in some instances somewhat more
restrictive, limitations on the payment of dividends. The inability of our
insurance subsidiaries to pay dividends to us in an amount sufficient to meet
debt service and preferred stock dividend obligations, if any, and other cash
requirements, could harm us. During 2002, a significant portion of dividends
from our insurance subsidiaries is likely to be subject to approval from the
Connecticut Insurance Department, depending upon the amount and timing of the
payments.

In addition, the ability of TIGHI to pay us dividends is subject to the
terms of the TIGHI trust mandatorily redeemable securities which prohibit TIGHI
from paying dividends in the event it has failed to pay or has deferred
dividends or is in default under the trust mandatorily redeemable securities.

INTENSE COMPETITION FOR OUR PRODUCTS COULD HARM OUR ABILITY TO MAINTAIN OR
INCREASE OUR PROFITABILITY AND PREMIUM VOLUME

The property and casualty insurance business is highly competitive, and we
believe that it will remain highly competitive in the foreseeable future. Our
primary commercial lines competitors, based upon direct written premiums as
reported by A.M. Best, as of December 31, 2000, are American International Group
Inc., Zurich/Farmers Group, CNA Financial Corp., Liberty Mutual Insurance
Companies and St. Paul Companies, Inc., which compete with us across a broad
array of product lines. Personal Lines insurance is written by hundreds of
companies of varying sizes. The five largest personal lines companies, based on
automobile and homeowners direct written premiums as reported by A.M. Best, as
of December 31, 2000, are State Farm Group, Allstate Corp., Zurich/Farmers
Group, Nationwide Group and Progressive Corp. These companies sell through
various distribution channels, including independent agents, captive agents and
directly to the consumer. We compete with domestic and foreign insurers, some of
which have greater financial resources than we do. In addition, several property
and casualty insurers writing commercial lines of business now offer products
for alternative forms of risk protection, including large deductible programs
and various forms of self-insurance that utilize captive insurance companies and
risk retention groups. Continued growth in alternative forms of risk protection
could reduce our premium volume. Following the terrorist attack on September
11th, a number of new insurers and reinsurers have been formed to compete in our
industry, and a number of existing market participants have raised new capital
which may enhance
16

their ability to compete. We are also aware that other financial institutions
are now able to offer services similar to our own as a result of the
Gramm-Leach-Bliley Act, which was adopted in November 1999.

CYCLICALITY OF THE PROPERTY CASUALTY INSURANCE INDUSTRY MAY CAUSE FLUCTUATIONS
IN OUR RESULTS

The property casualty insurance business, especially commercial lines
businesses, have been historically characterized by periods of intense price
competition which could have an adverse effect on our results. Our Commercial
Lines business strategy is to price business to acceptable profit levels and to
decline business where pricing does not afford acceptable returns. We have
reduced business during periods of severe competition and price declines and
grown when pricing allows an acceptable return.

The personal lines industry is characterized by an automobile underwriting
cycle of loss cost trends. Environmental factors which effect loss cost trends
include inflation in the cost of automobile repairs, medical care and litigation
of liability claims. Other factors, such as improved automobile safety features,
legislation changes, and general economic conditions also have an impact on
changes in loss costs. The personal lines homeowners loss costs move with
inflation in the cost of building materials and labor costs and with demand
caused by weather related catastrophes. Personal lines insurers, including us,
are generally unable to increase premium rates until some time after the costs
associated with the coverage have increased, primarily as a result of state
insurance regulation laws. Therefore, in a period of increasing loss costs,
profit margins decline.

As a result, the property casualty insurance business historically has been
characterized by periods of intense price competition due to excess underwriting
capacity as well as periods when shortages of underwriting capacity have
permitted attractive premium levels. We expect to continue to experience the
effects of this cyclicality which, during down periods, could harm our financial
condition, profitability or cash flows.

RISKS RELATING TO OUR RELATIONSHIP WITH CITIGROUP

CONTROL OF OUR COMPANY BY CITIGROUP PRIOR TO THE DISTRIBUTION AND HOLDING OF
CITIGROUP'S STOCK BY SOME OF OUR DIRECTORS AND OFFICERS MAY RESULT IN CONFLICTS
OF INTEREST

As long as Citigroup owns shares of our common stock representing more than
50% of the voting power of our outstanding voting securities, Citigroup will
generally be able to determine the outcome of all corporate actions requiring
shareholder approval, including the election of directors. As a result,
Citigroup will be in a position to continue to control most of our significant
corporate actions.

Under the provisions of our certificate of incorporation, the prior consent
of Citigroup is effectively required in connection with various corporate
actions by us until such time as Citigroup ceases beneficially to own at least
20% of the combined voting power of all our outstanding voting securities.

Because Citigroup's interests may differ from ours, actions Citigroup takes
with respect to us, as our controlling shareholder, may not be favorable to us.
As a result, conflicts of interest may arise between us and Citigroup in a
number of areas relating to our past and ongoing relationships.

In addition, some of our directors and a number of our executive officers
own substantial amounts of Citigroup stock and options to purchase Citigroup
stock. Their ownership of Citigroup stock could create, or appear to create,
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for us and Citigroup.

CITIGROUP AND ITS DIRECTORS AND OFFICERS WILL HAVE LIMITED LIABILITY FOR BREACH
OF FIDUCIARY DUTY

Our certificate of incorporation provides that, subject to any contractual
provision to the contrary, Citigroup will have no obligation to refrain from:

- engaging in the same or similar business activities or lines of business
as we do; or

- doing business with any of our clients or customers.

Under our certificate of incorporation, neither Citigroup nor any officer
or director of Citigroup, except as provided in our certificate of
incorporation, will be liable to us or to our shareholders for breach of any
fiduciary duty by reason of any of these activities.

TRANSITIONAL ARRANGEMENTS WITH CITIGROUP ARE NOT THE RESULT OF ARM'S-LENGTH
NEGOTIATIONS AND MAY NOT BE SUSTAINED AT THE SAME LEVEL AS WHEN WE WERE
CONTROLLED BY CITIGROUP

We currently have, and after this offering will continue to have,
contractual arrangements which require Citigroup and its affiliates to provide
transitional services and shared arrangements to us. If the distribution occurs,
we cannot assure you that these services and shared arrangements will be
sustained at the same level as when we were controlled by Citigroup or that we
will obtain the same benefits. After the expiration of these contracts, we may
not be able to replace these services and arrangements in a timely manner or on
terms and conditions, including cost, as favorable as those we have received
from Citigroup.

These agreements were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of the planned
distribution. After the distribution, we may have to pay higher prices for
similar services from unaffiliated third parties.

IF CITIGROUP ENGAGES IN THE SAME TYPE OF BUSINESS WE CONDUCT, OUR ABILITY TO
SUCCESSFULLY OPERATE AND EXPAND OUR BUSINESS MAY BE HAMPERED

Because Citigroup may engage in the same activities in which we engage,
there is a risk that we may be in direct competition with Citigroup over
insurance underwriting activities. To address these potential conflicts, we have
adopted a corporate opportunity policy which has been incorporated into our
certificate of incorporation. This policy provides that if any of our officers
or directors are also officers or directors of Citigroup and any such individual
acquires knowledge of a potential transaction or matter that may be a corporate
opportunity for both us and Citigroup, the opportunity will belong to Citigroup,
unless the opportunity is expressly offered to our director or officer in
writing solely in his or her capacity as a director or officer of our company.
Mr. Lipp, our chairman and chief executive officer, will continue to be a member
of Citigroup's board of directors until April 16, 2002.

Due to the tremendous resources of Citigroup, including financial resources
and name recognition, Citigroup could have a significant competitive advantage
over us should it decide to engage in the type of business we conduct, which may
cause our business to be severely affected.

RISKS RELATING TO THIS OFFERING AND THE DISTRIBUTION

WE MAY NOT REALIZE THE EXPECTED BENEFITS FROM THE DISTRIBUTION

the end of 2002 or at all, whether or not these conditions are satisfied. If the
distribution does not occur at all we will not realize the benefits of the
distribution described elsewhere in this prospectus. Even if the distribution is
completed, we may not obtain these benefits.

In addition, the distribution will entail significant costs, which may be
greater than those we have planned for, that we will incur regardless of whether
we are able to realize any benefits of the distribution. Moreover, we will bear
the negative effects of the distribution, including loss of access to the
financial, managerial and professional resources from which we have benefited in
the past, regardless of whether we ever realize any benefits from the
distribution.

OUR STOCK PRICE MAY BE VOLATILE

The initial public offering price of our class A common stock has been
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of the market price of the class A common
stock after this offering or the price at which class A common stock may be sold
in the public market after the offering. Factors such as quarterly variations in
our financial results, announcements by us or others, developments affecting us
and general market volatility could cause the market price of the class A common
stock to fluctuate significantly.

THERE MAY BE FUTURE SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK,
INCLUDING SHARES OF COMMON STOCK AS A RESULT OF THE PLANNED DISTRIBUTION BY
CITIGROUP, WHICH MAY DEPRESS THE PRICE OF OUR SHARES

Any sales of a substantial number of our shares in the public market, or
the perception that such sales might occur, may cause the market price of our
shares to decline. Upon completion of this offering, all shares we are
offering will be freely tradable without restriction, unless the shares are
owned by one of our affiliates. In addition, Citigroup has informed us that by
year-end 2002 it plans to make a tax-free distribution to its stockholders of a
portion of its ownership interest in us, which, together with the shares being
issued in this offering, will represent approximately 90.1% of our common equity
(more than 90% of the combined voting power of our then outstanding voting
securities). Substantially all of these shares of common stock would be eligible
for immediate resale in the public market. We are unable to predict whether
significant numbers of shares will be sold in the open market in anticipation of
or following the distribution. We have also granted Citigroup demand
registration rights with respect to shares of our common stock it will hold upon
completion of this offering. Citigroup may exercise its demand registration
rights and any shares so registered will be freely tradable in the public market
unless owned by one of our affiliates. In addition, an indeterminate number of
shares may be issued in connection with our replacement of Citigroup restricted
stock awards or shares issuable upon the exercise of options which will be
granted in exchange for Citigroup options we may assume, if and when the
distribution occurs. If the distribution were to occur today, the aggregate
number of restricted shares we would issue and shares subject to options we
would grant in connection with the replacement and exchange of Citigroup awards
would be approximately 4.6 million shares of our common stock and 84.5 million
shares of our common stock, respectively.

BECAUSE OF DIFFERENCES IN VOTING POWER BETWEEN THE CLASS A COMMON STOCK AND THE
CLASS B COMMON STOCK, THE MARKET PRICE OF THE CLASS A COMMON STOCK MAY BE LESS
THAN THE MARKET PRICE OF THE CLASS B COMMON STOCK FOLLOWING THE DISTRIBUTION

After the distribution, the class B common stock will be publicly traded.
Shares of class B common stock have seven votes per share while shares of class
A common stock have one vote per share. Because the class B common stock has
greater voting power per share than the class A common stock, some investors may
prefer the class B common stock as a means of investing in us. The differences
in voting power between the class B common stock and the class A common stock
may cause the class B common stock to trade at a higher market price than the
class A common stock.

YOU MAY BE PREVENTED FROM RECOGNIZING A CHANGE OF CONTROL PREMIUM ON THE SALE OF
CLASS A COMMON STOCK

Citigroup currently owns all of our outstanding common stock. After
completion of this offering and prior to the distribution, Citigroup will
beneficially own all of our outstanding class B common stock and 290 million
shares of our class A common stock, together representing 94.8% of the combined
voting power of all classes of our voting securities. For as long as Citigroup
owns a majority of our voting securities, a takeover of our company will require
Citigroup's approval. Because the class B common stock has greater aggregate
voting power than the class A common stock, the accumulation of a significant
block of class B common stock following the planned distribution could result in
a change of control without the affirmative vote of holders of class A common
stock.

In addition, provisions of our certificate of incorporation, bylaws, our
shareholder rights plan and provisions of applicable Connecticut law may
discourage, delay or prevent a merger or other change of control that a
shareholder may consider favorable.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus may include
forward-looking statements which reflect our current views with respect to
future events and financial performance. These statements include
forward-looking statements both with respect to us in general and the insurance
and reinsurance sectors specifically, both as to underwriting and investment
matters. Statements which include the words "expect," "intend," "plan,"
"believe," "project," "anticipate," "will," and similar statements of a future
or forward-looking nature identify forward-looking statements for purposes of
the federal securities laws or otherwise.

All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in these
statements. We believe that these factors include, but are not limited to those
described under "Risk Factors" above. We undertake no obligation to publicly
update or review any forward-looking statement, whether as a result of new
information, future developments or otherwise.

COMPANY HISTORY

Our predecessor companies have been in the insurance business for more than
130 years. We are a Connecticut corporation that was formed in 1979. Recently we
changed our name from The Travelers Insurance Group Inc. to Travelers Property
Casualty Corp. In December 1993, Citigroup acquired us. In January 1996, we
formed TIGHI to hold our property and casualty insurance subsidiaries. In April
1996, TIGHI purchased from Aetna Services, Inc., formerly Aetna Life and
Casualty Company, all of the outstanding capital stock of Aetna's significant
property and casualty insurance subsidiaries, which we refer to in this
prospectus as Aetna P&C, for approximately $4.2 billion in cash. In April 1996,
TIGHI also completed an initial public offering of its common stock.

During April 2000, we completed a cash tender offer and merger, as a result
of which TIGHI became our wholly-owned subsidiary. In the tender offer and
merger, we acquired all of TIGHI's outstanding shares of common stock that were
not already owned by us, representing approximately 14.8% of TIGHI's outstanding
common stock, for approximately $2.4 billion in cash financed by a loan from
Citigroup. Citigroup loaned us the funds to consummate the tender offer and the
merger and to pay related fees and expenses. Citigroup obtained the funds from
existing working capital sources. In connection with the tender offer, the
independent directors of our board were advised by Morgan Stanley. Citigroup was
advised by Salomon Smith Barney. Total fees paid for investment banking and
legal expenses totalled $22.3 million.

Total interest expense incurred by us on the loan from Citigroup to finance
the tender offer was $79 million and $113 million for the years ended December
31, 2001 and 2000, respectively.

Total cash dividends paid or expected to be paid to Citigroup by us
subsequent to the tender offer and prior to the distribution are estimated to be
$4.1 billion and $526 million in 2002 and 2001, respectively. Additionally, a
$1.0 billion dividend was declared during February 2002 in the form of a
non-interest bearing note payable to Citigroup on December 31, 2002. There were
no dividend payments to Citigroup subsequent to the tender offer for the year
ended December 31, 2000.

Based on the $2.4 billion purchase price paid by Citigroup to acquire the
minority shares of TIGHI, the implied value for us in April 2000 was $16.2
billion. At the public offering price for the class A common stock, the implied
value for us is $18.5 billion, representing a 14% increase in the value of our
company, excluding dividends paid or expected to be paid by us.

USE OF PROCEEDS

The net proceeds from this offering will be approximately $3.7 billion,
after deducting underwriting discounts and commissions and the estimated
expenses of this offering payable by us. If the over-allotment option is
exercised in full, the net proceeds will be approximately $4.1 billion.

The net proceeds from the concurrent offering of our convertible notes will
be approximately $825 million, or $866 million if the over-allotment option for
that offering is exercised in full.

We will use all of the net proceeds from the offerings to prepay
intercompany indebtedness to Citigroup. The indebtedness to be prepaid includes
all or a portion of the notes payable to Citigroup described elsewhere in this
prospectus.

DIVIDEND POLICY

We intend to pay quarterly cash dividends on all classes of our common
stock at an initial rate of $0.06 per share of common stock, commencing in the
first quarter of 2003. The declaration and payment of future dividends to
holders of our common stock will be at the discretion of our board of directors
and will depend upon many factors, including our financial condition, earnings,
capital requirements of our operating subsidiaries, legal requirements,
regulatory constraints and other factors as the board of directors deems
relevant.

Under our certificate of incorporation, for so long as Citigroup controls
at least a majority of the voting power of the outstanding class B common stock,
the prior consent of Citigroup would effectively be required before we can
declare or pay any dividends in excess of our regular quarterly dividends as
contemplated above. In addition, our subsidiaries are, and we and our
subsidiaries may in the future become, subject to debt instruments or other
agreements that further limit our ability to pay dividends.

We have the option to defer interest payments on the notes. If we elect to
defer interest payments, we will not be permitted, with limited exceptions, to
pay dividends on our common stock during a deferral period.

During the year ended December 31, 2001, we paid $526 million of dividends
to Citigroup. In February and March 2002, our board of directors declared three
dividends in the aggregate amount of $5.1 billion, payable to Citigroup.

We are a holding company and have no direct operations. Our ability to pay
dividends in the future will depend on us receiving dividends from our insurance
subsidiaries. Our insurance subsidiaries are subject to the laws of the states
in which they are domiciled and are consequently limited in the amount of
dividends that they can pay.

DILUTION

Our pro forma net tangible book value at December 31, 2001 after giving
effect to our corporate reorganization but without giving effect to this
offering was approximately $7.6 billion, or $9.90 per share, assuming
769,000,000 shares of common stock issued and outstanding. Net tangible book
value per share represents the amount of our tangible assets, meaning:

- total assets less intangible assets;

- reduced by our total liabilities, including the mandatorily redeemable
securities of subsidiary trusts for which we are obligated; and

- divided by the number of shares of common stock outstanding.

Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of our common stock in this
offering and the net tangible book value per share immediately following this
offering.

After giving effect to the offerings, and after deducting the underwriting
discounts and commissions and estimated offering expenses and giving effect to
the intended use of proceeds, assuming that we use all of the net proceeds to
prepay intercompany indebtedness and the issuance of the $1.0 billion note to
Citigroup in February 2002, our adjusted pro forma net tangible book value as of
December 31, 2001 would have been approximately $6.7 billion, or $6.66 per
share. This represents an immediate decrease in net tangible book value of $3.24
per share equivalent to our existing shareholder. This also represents an
immediate dilution of $11.84 per share to new investors purchasing shares in the
class A common stock offering. The following table illustrates this dilution per
share:

Initial public offering price per share..................... $18.50
Pro forma net tangible book value per share before this
offering............................................... $ 9.90
Decrease per share attributable to investors in this
offering............................................... $(3.24)
Pro forma adjusted net tangible book value as adjusted to
give effect to this offering.............................. $ 6.66
------
Dilution per share to new investors......................... $11.84
======

To the extent that any shares of restricted common stock are issued or
options to purchase our common stock are granted and exercised, there will be
further dilution to investors.

CAPITALIZATION

Set forth below is our capitalization as of December 31, 2001:

- on an actual basis, and

- on an as adjusted basis to give effect to the following events, as if
each such event had occurred on December 31, 2001:

- the sale of CitiInsurance International Holdings Inc. to Citigroup
for $403 million and our application of $138 million of the
proceeds to repay indebtedness to Citigroup;

- the issuance of the special note in a principal amount of $3.7
billion;

- the issuance of the 2007 note in a principal amount of $395
million;

- the issuance of the 2002 note in a principal amount of $1.0
billion; and

- our receipt of net proceeds of $4.5 billion from the offerings and
the use of the proceeds to prepay indebtedness to Citigroup.

The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this prospectus.

AS OF DECEMBER 31, 2001
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN MILLIONS)

DEBT:
Payable to affiliates(a):
Line of credit.......................................... $ 500 $ 105
Notes payable........................................... 1,197 1,545
Convertible junior subordinated notes due 2032(b)......... -- 825
Other long-term debt...................................... 380 380
------- -------
Total debt............................................ 2,077 2,855
------- -------
TIGHI-obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated
debt securities of TIGHI................................ 900 900
------- -------
SHAREHOLDERS' EQUITY(c):
Common stock and additional paid-in capital(b)............ 4,440 8,578
Retained earnings......................................... 6,004 909
Accumulated other changes in equity from nonowner
sources................................................. 242 242
------- -------
Total shareholders' equity............................ 10,686 9,729
------- -------
Total capitalization............................... $13,663 $13,484
======= =======

---------------
(a) Immediately following the offerings, the as adjusted debt payable to
affiliates will consist of $105 million outstanding under the line of
credit, $1.0 billion outstanding under the 2002 note, $150 million
outstanding under the special note, and $395 million outstanding under the
2007 note. If the over-allotment options for the offerings are exercised in
full, the amount outstanding under the line of credit will be $500 million
and the aggregate amount outstanding under the notes payable will be $1.15
billion.

(b) If the over-allotment option for the concurrent offering of notes is
exercised in full, the as adjusted convertible junior subordinated notes due
2032 will increase by $41 million, and the as adjusted common stock and
additional paid-in capital will decrease by a corresponding amount.

(c) At December 31, 2001, we had 15,000 shares of common stock authorized, of
which 1,500 were issued and outstanding. After our recent corporate
reorganization, we have authorized capital consisting of (1) 50 million
shares of preferred stock, none of which is issued and outstanding, (2) 1.5
billion shares of class A common stock, of which 500 million will be issued
and outstanding after this offering and (3) 1.5 billion shares of class B
common stock of which 500 million will be issued and outstanding after this
offering.

SELECTED HISTORICAL FINANCIAL INFORMATION

The selected historical financial data for each of the fiscal years in the
five-year period ended December 31, 2001 have been derived from our financial
statements which have been audited by KPMG LLP. These historical results are not
necessarily indicative of results to be expected for any future period and the
year to date results are not necessarily indicative of our full-year
performance. The selected financial data presented below should be read in
conjunction with the audited financial statements and accompanying notes
included in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The audited financial statements
for the three years ended December 31, 2001 have been included elsewhere in this
prospectus. Our financial statements retroactively reflect our corporate
reorganization for all periods presented.

YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA:
Revenues:
Premiums.............................................. $ 9,411 $ 8,462 $ 8,009 $ 7,796 $7,225
Net investment income................................. 2,034 2,162 2,093 2,102 2,052
Fee income............................................ 347 312 275 306 365
Realized investment gains............................. 323 47 112 145 182
Other revenues........................................ 116 88 84 105 103
------- ------- ------- ------- ------
Total revenues...................................... 12,231 11,071 10,573 10,454 9,927
------- ------- ------- ------- ------
Claims and expenses:
Claims and claim adjustment expenses.................. 7,765 6,473 6,059 5,947 5,484
Amortization of deferred acquisition costs............ 1,539 1,298 1,260 1,197 1,127
Interest expense...................................... 205 296 238 185 163
General and administrative expenses................... 1,333 1,140 1,177 1,311 1,386
------- ------- ------- ------- ------
Total claims and expenses........................... 10,842 9,207 8,734 8,640 8,160
------- ------- ------- ------- ------
Income before federal income taxes, minority interest
and cumulative effect of changes in accounting
principles............................................ 1,389 1,864 1,839 1,814 1,767
Federal income taxes.................................... 327 492 479 487 521
------- ------- ------- ------- ------
Income before minority interest and cumulative effect of
changes in accounting principles...................... 1,062 1,372 1,360 1,327 1,246
Minority interest, net of tax........................... -- 60 224 223 212
------- ------- ------- ------- ------
Income before cumulative effect of changes
in accounting principles.............................. 1,062 1,312 1,136 1,104 1,034
Cumulative effect of changes in accounting principles,
net of tax and minority interest(a)................... 3 -- (112) -- --
------- ------- ------- ------- ------
Net income.............................................. $ 1,065 $ 1,312 $ 1,024 $ 1,104 $1,034
======= ======= ======= ======= ======
Pro forma earnings per share(b)......................... $ 1.06 N/A N/A N/A N/A
======= ======= ======= ======= ======
Dividends per common share(c)........................... $ 0.53 -- -- -- --
======= ======= ======= ======= ======
Ratio of earnings to fixed charges...................... 6.58x 6.48x 7.45x 8.75x 9.11x
======= ======= ======= ======= ======

YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)

OTHER DATA:
Statutory data(d):
Ratio of net premiums written to surplus................. 1.36x 1.28x 1.07x 1.14x 1.27x
Policyholders' surplus (at period end)................... $7,687 $6,904 $7,656 $7,079 $6,188
Loss and loss adjustment expense (LAE) ratio(e).......... 80.7% 75.1% 74.3% 73.6% 72.4%
Underwriting expense ratio(d)............................ 27.3 27.0 28.8 28.6 29.9
Combined ratio before policyholder dividends(e).......... 108.0 102.1 103.1 102.2 102.3
Combined ratio(e)........................................ 108.3 102.5 103.7 102.7 103.5
Statutory industry data:
Combined ratio for property and casualty insurers........ 114.4(e) 110.4 107.9 106.0 102.0

AS OF
DECEMBER 31,
-----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(IN MILLIONS)

BALANCE SHEET DATA:
Total investments...................................... $32,619 $30,754 $29,843 $31,901 $31,138
Total assets........................................... 57,778 53,850 50,795 51,751 51,230
Claims and claim adjustment expense reserves........... 30,737 28,442 29,003 29,589 30,324
Total debt............................................. 2,077 3,006 2,148 3,192 1,357
Total liabilities(g)................................... 46,192 43,736 43,455 45,080 43,740
TIGHI-obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated
debt securities of TIGHI............................. 900 900 900 900 900
Shareholder's equity................................... 10,686 9,214 6,440 5,771 6,590
Shareholder's equity excluding accumulated other
changes in equity from nonowner sources.............. 10,444 8,813 6,611 5,006 5,991

---------------
(a) Cumulative effect of changes in accounting principles, net of tax (1) for
the year ended December 31, 2001 includes a gain of $4 million as a result
of a change in accounting for derivative instruments and hedging activities
and a loss of $1 million as a result of a change in accounting for
securitized financial assets; and (2) for the year ended December 31, 1999
includes a loss of $135 million as a result of a change in accounting for
insurance-related assessments and a gain of $23 million as a result of a
change in accounting for insurance and reinsurance contracts that do not
transfer insurance risk.

(b) The unaudited pro forma earnings per share amounts reflect the
recapitalization we effected as part of our corporate reorganization. Pro
forma earnings per share does not include the effects of the Company's
Capital Accumulation Program and Stock Option Plan described in the
disclosure of Intercompany Transactions During the Past Three Years as these
plans utilize Citigroup common stock. Conversion of the Citigroup common
stock in these plans to Travelers Property Casualty Corp. common stock is
contingent upon the distribution occurring. Pro forma earnings per share
also does not reflect conversion of our convertible junior subordinated
notes.

(e) The loss and LAE ratio represents the ratio of incurred losses and loss
adjustment expenses to net premiums earned. The underwriting expense ratio
represents the ratio of underwriting expenses incurred to net premiums
written. The combined ratio represents the sum of the loss and LAE ratio and
the underwriting expense ratio and, where applicable, the ratio of dividends
to policyholders to net earned premiums.

(f) Information provided is for the nine months ended September 30, 2001 for the
companies included in the A.M. Best Industry Composite.

(g) Other liabilities include a minority interest liability of $1.4 billion,
$1.5 billion and $1.3 billion at December 31, 1999, 1998 and 1997,
respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the consolidated
financial statements of us and our subsidiaries and related notes included
elsewhere in this prospectus. These financial statements retroactively reflect
our corporate reorganization for all periods presented.

OUR CORPORATE REORGANIZATION

In connection with the offerings, we have effected a corporate
reorganization, under which:

- we transferred substantially all of our assets to affiliates of
Citigroup, other than the capital stock of TIGHI;

- Citigroup assumed all of our third-party liabilities, other than
liabilities relating to TIGHI and TIGHI's active employees;

- we have effected a recapitalization whereby the previously outstanding
shares of our common stock, all of which were owned by Citigroup, have
been exchanged for 269,000,000 shares of class A common stock and
500,000,000 shares of class B common stock. The number of shares of class
A common stock to be owned by Citigroup may be increased by up to an
additional 21,000,000 shares (for a total of 290,000,000 shares of class
A common stock), to the extent that the underwriters do not exercise
their option to purchase class A common stock to cover over-allotments;
and

- we have amended and restated our certificate of incorporation and bylaws.

As a result of these transactions, TIGHI and its insurance subsidiaries
became our principal asset.

OTHER TRANSACTIONS

On February 28, 2002, we sold the stock of CitiInsurance to Citigroup for
$403 million, its net book value. We have applied $138 million of the proceeds
from this sale to repay intercompany indebtedness to Citigroup. In addition, we
have purchased from Citigroup the premises located at One Tower Square,
Hartford, Connecticut and other properties for $68 million.

After the completion of this offering, Citigroup will beneficially own all
of our outstanding class B common stock and 290 million shares of our class A
common stock, representing 94.8% of the combined voting power of all classes of
our voting securities and 79% of the equity interest in us, assuming the over-
allotment option is not exercised. Citigroup is a diversified holding company
whose businesses provide a broad range of financial services to consumer and
corporate customers around the world. The periodic reports of Citigroup provide
additional business and financial information concerning that company and its
consolidated subsidiaries.

Citigroup has informed us that by year-end 2002 it plans to make a tax-free
distribution to its stockholders of a portion of its ownership interest in us,
which, together with the shares being issued in this offering, will represent
approximately 90.1% of our common equity (more than 90% of the combined voting
power of our then outstanding voting securities). Following the distribution,
Citigroup would remain a holder of approximately 9.9% of our common equity (less
than 10% of the combined voting power of our then outstanding voting
securities). The distribution and Citigroup's continued ownership of shares
thereafter are subject to Citigroup's receipt of a private letter ruling from
the Internal Revenue Service that the distribution will be tax-free to
Citigroup, its stockholders and us, as well as various other conditions. It is
expected that the ruling will require Citigroup to divest the remaining shares
it holds within five years following the distribution and to vote the shares it
continues to hold following the distribution pro rata with the shares held by
the public. We cannot assure you that these conditions will be satisfied or that
Citigroup will consummate the distribution. In any event, Citigroup has no
obligation to consummate the distribution by the end of 2002 or at all, whether
or not these conditions are satisfied. See "Risk Factors -- Risks Relating to
this Offering and the Distribution -- We may not realize the expected benefits
from the distribution."

Prior to the completion of this offering, we will enter into an agreement
with Citigroup that will provide that in the event that in any fiscal year we
record additional asbestos-related income statement charges in excess of $150
million, net of any reinsurance, Citigroup will pay to us the amount of any such
excess up to a cumulative aggregate of $800 million, reduced by the tax effect
of the highest applicable federal income tax rate.

CONSOLIDATED OVERVIEW

We provide 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.

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

In the third quarter of 2000, we purchased the renewal rights to a portion
of Reliance Surety's commercial lines middle-market book of business, or
Reliance Middle Market. We also acquired the renewal rights to Frontier
Insurance Group, Inc.'s environmental, excess and surplus lines casualty
businesses and some classes of surety business.

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

CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2001,
2000 AND 1999

2001 2000 1999
------- ------- -------
(IN MILLIONS)

Revenues.................................................... $12,231 $11,071 $10,573
Income before cumulative effect of changes in accounting
principles and minority interest.......................... $ 1,062 $ 1,372 $ 1,360
Minority interest, net of tax............................... -- 60 224
Cumulative effect of changes in accounting principles, net
of tax and minority interest.............................. 3 -- (112)
------- ------- -------
Net income(a)............................................... $ 1,065 $ 1,312 $ 1,024
======= ======= =======

---------------
(a) Net income includes $209 million, $31 million and $72 million of realized
investment gains in 2001, 2000 and 1999, respectively. Included in realized
investment gains were after-tax impairment charges related to other than
temporary declines in value of $95 million, $20 million and $28 million for
the years ended December 31, 2001, 2000 and 1999, respectively.

Net income was $1.065 billion in 2001, $1.312 billion in 2000 and $1.024
billion in 1999. Net income for 2001 did not include any minority interest, due
to the April 2000 completed cash tender offer and merger, compared to 2000 and
1999 which reflect minority interest of $60 million and $224 million,
respectively. Net income for 2001 included $3 million of restructuring charges
related primarily to the downsizing of direct marketing activities and
associated telemarketing operations in Personal Lines. Also included in 2001 was
a charge of $1 million related to the initial adoption of the FASB Emerging
Issues

Task Force EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Interests in Securitized Financial Assets" (EITF 99-20),
and a benefit of $4 million related to the initial adoption of Financial
Accounting Standards Board No. 133, "Accounting for Derivative Instruments and
Hedging Activity" (FAS 133). The net benefit of $3 million due to the adoption
of these accounting changes has been accounted for as a cumulative effect of
changes in accounting principles. Net income in 1999 included a charge of $135
million related to the initial adoption of the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants' (AcSEC)
Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3), and a benefit of $23 million related
to the initial adoption of AcSEC Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk" (SOP 98-7). The net charge of $112 million due to the
initial adoption of these Statements of Position has also been accounted for as
a cumulative effect of changes in accounting principles.

Operating income, which excludes realized investment gains in all years,
minority interest in 2000 and 1999, restructuring charges and the cumulative
effect of changes in accounting principles in 2001 and 1999 described above, was
$856 million in 2001, $1.341 billion in 2000 and $1.288 billion in 1999. The
decrease in operating earnings in 2001 from 2000 primarily reflects the impact
of catastrophe losses of $490 million associated with the terrorist attack on
September 11th. Operating earnings in 2001 were also reduced by increased loss
cost trends, including increased medical costs, auto repair costs and
reinsurance costs, and lower net investment income, partly offset by the benefit
of rate increases, higher fee income and lower interest expense. The increase in
operating income in 2000 from 1999 was due to Commercial Lines rate increases,
lower catastrophe losses, higher net investment income, the 1999 charge related
to curtailing the sale of TRAVELERS SECURE(R) auto and homeowners products
marketed through the agents of Primerica Financial Services, a unit of
Citigroup, higher fee income and lower operating expenses. These factors were
partially offset by increased loss cost trends, including increased medical
costs and auto repair costs, lower favorable prior-year reserve development and
higher interest expense. Results for 2000 and 1999 also reflected benefits
resulting from legislative actions that changed the manner in which some states
finance their workers' compensation second-injury funds, principally in the
states of New York and Pennsylvania.

Revenues of $12.231 billion in 2001 increased $1.160 billion from 2000.
Revenues of $11.071 billion in 2000 increased $498 million from 1999. The
increase in revenue in 2001 from 2000 was primarily attributable to higher
earned premiums, higher fee income and higher realized investment gains,
partially offset by a decrease in net investment income. The increase in revenue
in 2000 from 1999 was due to higher earned premiums, higher net investment
income and higher fee income, partially offset by lower realized gains.

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

Net investment income was $2.034 billion in 2001, a decrease of $128
million from 2000. This decrease largely reflects the increase in dividends and
debt repayments to Citigroup, lower fixed income interest rates and lower
returns from private equity investments. Net investment income was $2.162
billion in 2000, an increase of $69 million from 1999 primarily due to a higher
return on investments.

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

Claims and expenses were $10.842 billion in 2001 compared to $9.207 billion
in 2000 and $8.734 billion in 1999. The increase in claims and expenses in 2001
was primarily the result of higher catastrophe losses associated with the
terrorist attack on September 11th, increased loss cost trends, and increased
claims and operating expenses related to the growth in premiums, including the
full-year impact of the Reliance Surety acquisition and the acquisition of the
renewal rights for the Reliance Middle Market and Frontier businesses, and the
acquisition of Northland and the contribution of CitiCapital in October 2001,
partially offset by lower interest expense due to lower outstanding debt and
lower interest rates. The increase in claims and expenses in 2000 was primarily
the result of increased loss cost trends, lower favorable prior-year reserve
development, increased claims related to the growth in premiums, including the
impact of the Reliance Surety acquisition and the new business associated with
the acquisition of the renewal rights for the Reliance Middle Market and
Frontier businesses and higher interest expense principally due to increased
debt associated with the stock repurchase in April 2000. These factors were
partially offset by lower catastrophe losses, the 1999 charge related to
curtailing the sale of TRAVELERS SECURE(R) products and a reduction in general
and administrative expenses. Results for 2000 and 1999 also reflected benefits
resulting from legislative actions that changed the manner in which some states
finance their workers' compensation second-injury funds, principally in the
states of New York and Pennsylvania.

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

STATUTORY AND GAAP COMBINED RATIOS

The statutory and GAAP combined ratios were as follows:

2001 2000 1999
----- ----- -----

STATUTORY:
Loss and Loss Adjustment Expense (LAE) ratio.............. 80.7% 75.1% 74.3%
Underwriting expense ratio................................ 27.3 27.0 28.8
Combined ratio before policyholder dividends.............. 108.0 102.1 103.1
Combined ratio............................................ 108.3 102.5 103.7
GAAP:
Loss and LAE ratio........................................ 80.5% 74.2% 73.0%
Underwriting expense ratio................................ 27.2 25.6 28.3
Combined ratio before policyholder dividends.............. 107.7 99.8 101.3
Combined ratio............................................ 108.0 100.2 101.9

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

The 2001 statutory and GAAP combined ratios include the impact of the
terrorist attack on September 11th. Excluding the impact of this event, the
statutory and GAAP combined ratios before policyholder dividends for 2001 would
have been 100.0% and 99.7%, respectively. The 2000 statutory and GAAP combined
ratios include an adjustment in Commercial Lines due to a reinsurance
transaction associated with the acquisition of the Reliance Surety business.
Excluding this adjustment, the statutory and GAAP combined ratios before
policyholder dividends for 2000 would have been 101.9% and 100.1%, respectively.
The 1999 statutory combined ratio before policyholder dividends includes the
treatment, on a statutory basis only, of a commutation of an asbestos liability
to an insured. In addition, the 1999 statutory and GAAP combined ratios before
policyholder dividends include an adjustment in Personal Lines associated with
the termination of a quota share reinsurance arrangement. Excluding these items,
the statutory and GAAP combined ratios before policyholder dividends for 1999
would have been 101.8% and 101.5%, respectively.

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

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

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

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

COMMERCIAL LINES

2001 2000 1999
------ ------ ------
(IN MILLIONS)

Revenues.................................................... $7,751 $6,835 $6,492
------ ------ ------
Income before cumulative effect of changes in accounting
principles and minority interest.......................... $ 957 $1,220 $1,159
Minority interest, net of tax............................... -- 48 184
Cumulative effect of changes in accounting principles, net
of tax and minority interest.............................. 2 -- (112)
------ ------ ------
Net income(a)............................................... $ 959 $1,172 $ 863
====== ====== ======

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

Net income was $959 million in 2001, $1.172 billion in 2000 and $863
million in 1999. Net income for 2001 did not include any minority interest, due
to the April 2000 completed cash tender offer and merger, compared to 2000 and
1999 which reflect minority interest of $48 million and $184 million,
respectively. Included in net income in 2001 was a charge of $1 million related
to the initial adoption of EITF 99-20. Also included in 2001 was a $3 million
benefit related to the initial adoption of FAS 133. Both of these items have
been accounted for as a cumulative effect of changes in accounting principles.
Net income in 1999 included a charge of $135 million related to the initial
adoption of SOP 97-3 and a benefit of $23 million related to the initial
adoption of SOP 98-7. The net charge of $112 million due to the initial adoption
of these Statements of Position has been accounted for as a cumulative effect of
changes in accounting principles.

Commercial Lines operating income, which excludes realized investment gains
in all years, minority interest in 2000 and 1999 and the cumulative effect of
changes in accounting principles in 2001 and 1999, was $749 million, $1.189
billion and $1.077 billion in 2001, 2000 and 1999, respectively. The 2001
decrease compared to 2000 primarily reflects the impact of catastrophe losses of
$448 million associated

with the terrorist attack on September 11th. The decrease also reflects
increased loss cost trends, including increased medical costs, auto repair costs
and reinsurance costs, and lower net investment income, partially offset by the
benefit of rate increases, higher fee income and higher favorable prior-year
reserve development. The improvement in operating income for 2000 over 1999
reflected rate increases, higher fee income, lower catastrophe losses and higher
net investment income, partially offset by increased loss cost trends and lower
favorable prior-year reserve development. Results for 2000 and 1999 also
reflected benefits resulting from legislative actions that changed the manner in
which some states finance their workers' compensation second-injury funds,
principally in the states of New York and Pennsylvania.

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

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

Net investment income was $1.615 billion for 2001, a decrease of $98
million from $1.713 billion in 2000. This decrease largely reflects the increase
in dividends and debt repayments to Citigroup, lower fixed income interest rates
and lower returns from private equity investments. Net investment income was
$1.713 billion in 2000, an increase of $24 million from $1.689 billion in 1999.
This increase was primarily due to a higher return on investments.

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

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

2001 2000 1999
------ ------ ------
(IN MILLIONS)

National Accounts........................................ $ 419 $ 352 $ 488
Commercial Accounts...................................... 2,396 2,099 1,816
Select Accounts.......................................... 1,713 1,575 1,494
Bond..................................................... 590 487 207
Gulf..................................................... 608 517 403
------ ------ ------
Total net written premiums............................... $5,726 $5,030 $4,408
====== ====== ======

Commercial Lines net written premiums were $5.726 billion in 2001 compared
to $5.030 billion in 2000 and $4.408 billion in 1999. The 2001 increase
reflected the impact of the improving rate environment as evidenced by the
continued favorable pricing on new and renewal business. The 2001 increase also
includes the full-year impact of the acquisition in 2000 of the renewal rights
for the Reliance Middle Market business combined with net written premiums
related to the acquisition of Northland and the contribution of CitiCapital in
October 2001 in Commercial Accounts, the acquisition in 2000 of the renewal
rights for the Frontier business in Gulf and the impact of the ongoing business
associated with the Reliance Surety acquisition in Bond. Included in Bond net
written premiums in 2000 is an increase of $131 million due to a reinsurance
transaction associated with the acquisition of the Reliance Surety business. The
2000 increase reflected the impact of an improving rate environment as evidenced
by the continued favorable pricing on new and renewal business. Also
contributing to the increase in net written

premiums in 2000 was the impact of new business associated with the acquisition
of the renewal rights for the Reliance Middle Market business in Commercial
Accounts, the impact of the Reliance Surety acquisition in Bond and the new
business associated with the acquisition of the renewal rights for the Frontier
business in Gulf.

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

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

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

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

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

Bond provides a variety of fidelity and surety bonds and executive
liability coverages to clients of all sizes through independent agents and
brokers. Bond's net written premiums of $590 million in 2001 were
33

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

Gulf markets products to national, mid-sized and small customers and
distributes them through both wholesale brokers and retail agents and brokers
throughout the United States. Gulf's net written premiums were $608 million in
2001, compared to $517 million in 2000. This increase primarily reflected the
full-year impact of the renewal rights for the Frontier business and
participation in the London market. Gulf's net written premiums of $517 million
in 2000 were $114 million above 1999 due to the impact of the new business
associated with the acquisition of the renewal rights for the Frontier business
and less use of reinsurance.

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

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

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

2001 2000 1999
----- ----- -----

STATUTORY:
Loss and LAE ratio........................................ 83.4% 76.0% 77.9%
Underwriting expense ratio................................ 28.7 27.8 30.7
Combined ratio before policyholder dividends.............. 112.1 103.8 108.6
Combined ratio............................................ 112.6 104.5 109.7
GAAP:
Loss and LAE ratio........................................ 83.0% 74.7% 75.2%
Underwriting expense ratio................................ 28.2 25.4 29.8
Combined ratio before policyholder dividends.............. 111.2 100.1 105.0
Combined ratio............................................ 111.7 100.8 106.1

GAAP combined ratios for Commercial Lines differ from statutory combined
ratios primarily due to the deferral and amortization of some expenses for GAAP
reporting purposes only.
34

The 2001 statutory and GAAP combined ratios include the impact of the
terrorist attack on September 11th. Excluding the impact of this event, the
statutory and GAAP combined ratios before policyholder dividends for 2001 would
have been 99.5% and 98.4%, respectively. The 2000 statutory and GAAP combined
ratios include an adjustment associated with the acquisition of the Reliance
Surety business. Excluding this adjustment, the statutory and GAAP combined
ratios before policyholder dividends for 2000 would have been 103.5% and 100.8%,
respectively. The 1999 statutory combined ratio reflects the treatment, on a
statutory basis only, of the commutation of an asbestos liability to an insured.
Excluding the commutation, the statutory combined ratio before policyholder
dividends for 1999 would have been 106.1%.

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

The improvement in the 2000 statutory and GAAP combined ratios before
policyholder dividends compared to 1999, excluding the related adjustments
above, was primarily due to premium growth related to rate increases as well as
the impact of the Reliance Surety acquisition and the purchase of the renewal
rights for the Reliance Middle Market and Frontier businesses, and lower
catastrophe losses. This was partially offset by increased loss cost trends,
lower favorable prior-year reserve development and a disproportionately smaller
increase in expenses associated with the growth in premiums.

PERSONAL LINES

2001 2000 1999
------ ------ ------
(IN MILLIONS)

Revenues.................................................... $4,454 $4,232 $4,077
Net income before cumulative effect of change in accounting
principle and minority interest........................... $ 241 $ 360 $ 358
Minority interest, net of tax............................... -- 17 57
Cumulative effect of change in accounting principle, net of
tax and minority interest................................. 1 -- --
------ ------ ------
Net income(a)............................................... $ 242 $ 343 $ 301
====== ====== ======

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

Net income in 2001 was $242 million compared to $343 million in 2000 and
$301 million in 1999. Net income for 2001 did not include any minority interest,
due to the April 2000 completed cash tender offer and merger, compared to 2000
and 1999 which reflect minority interest of $17 million and $57 million,
respectively. Net income for 2001 also included $3 million of restructuring
charges related primarily to the downsizing of direct marketing activities and
associated telemarketing operations in Personal Lines and a $1 million benefit
related to the initial adoption of FAS 133, which has been accounted for as a
cumulative effect of a change in accounting principle.

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

costs, lower favorable prior-year reserve development and lower net investment
income partially offset by rate increases. The decrease in operating income in
2000 was primarily due to increased loss cost trends and lower favorable
prior-year reserve development, partially offset by the 1999 charge related to
curtailing the sale of TRAVELERS SECURE(R) products, higher net investment
income and lower catastrophe losses.

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

Revenues in 2000 of $4.232 billion increased $155 million from 1999. The
increase in revenues in 2000 reflected growth in earned premiums in all
distribution channels except TRAVELERS SECURE(R), higher net investment income
and lower realized investment losses. Personal Lines had approximately 5.4
million, 5.4 million and 5.3 million policies in force at December 31, 2001,
2000 and 1999, respectively.

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

2001 2000 1999
------ ------ ------
(IN MILLIONS)

Personal automobile...................................... $2,591 $2,366 $2,369
Homeowners and other..................................... 1,517 1,447 1,436
------ ------ ------
Total net written premiums............................... $4,108 $3,813 $3,805
====== ====== ======

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

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

Personal Lines claims and expenses were $4.115 billion in 2001 compared to
$3.715 billion in 2000 and $3.561 billion in 1999. The increase in claims and
expenses in 2001 reflects higher catastrophe losses associated with the
terrorist attack on September 11th. The increase also reflects the impact of
increased loss cost trends and lower favorable prior-year reserve development.
The 2000 increase was primarily the result of increased loss cost trends, lower
favorable prior-year reserve development and higher losses associated with the
growth in premiums and related claim volume, partially offset by the 1999 charge
related to curtailing the sale of TRAVELERS SECURE(R) products and lower
catastrophe losses.

Catastrophe losses, net of taxes and reinsurance, were $86 million, $54
million and $79 million in 2001, 2000 and 1999, respectively. Catastrophe losses
in 2001 were primarily due to Tropical Storm Allison and wind and hailstorms in
the Midwest and Texas in the second quarter and the terrorist attack on
September 11th in the third quarter. Catastrophe losses in 2000 were primarily
due to Texas, Midwest and Northeast wind and hailstorms in the second quarter
and hailstorms in Louisiana and Texas in the first quarter. Catastrophe losses
in 1999 were primarily due to Hurricane Floyd in the third quarter, wind and
hailstorms on the East Coast and tornadoes in the Midwest in the second quarter
and a wind and ice storm in the Midwest and Northeast in the first quarter.

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

2001 2000 1999
----- ---- ----

STATUTORY:
Loss and LAE ratio........................................ 77.0% 73.8% 70.0%
Underwriting expense ratio................................ 25.3 25.9 26.7
Combined ratio............................................ 102.3 99.7 96.7

GAAP:
Loss and LAE ratio........................................ 77.0% 73.6% 70.3%
Underwriting expense ratio................................ 25.8 25.7 26.5
Combined ratio............................................ 102.8 99.3 96.8

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

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

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

INTEREST EXPENSE AND OTHER

2001 2000 1999
----- ----- -----
(IN MILLIONS)

Revenues................................................... $ 26 $ 4 $ 4
----- ----- -----
Net loss before minority interest.......................... $(136) $(208) $(157)
Minority interest.......................................... -- (5) (17)
----- ----- -----
Net loss................................................... $(136) $(203) $(140)
===== ===== =====

The primary component of net loss before minority interest for the years
ended December 31, 2001, 2000 and 1999 was after-tax interest expense of $133
million, $192 million and $155 million, respectively. The decrease in interest
expense in 2001 is due to lower outstanding debt and lower interest rates. The
increase in interest expense in 2000 was principally due to increased debt
associated with the stock repurchase in April 2000.

ENVIRONMENTAL CLAIMS

We continue to receive claims from insureds which allege that they are
liable for injury or damage arising out of their alleged disposition of toxic
substances. Mostly, these claims are due to various legislative as well as
regulatory efforts aimed at environmental remediation. For instance, the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
enacted in 1980 and later modified, enables private parties as well as federal
and state governments to take action with respect to releases and threatened
releases of hazardous substances. This federal statute permits the

recovery of response costs from some liable parties and may require liable
parties to undertake their own remedial action. Liability under CERCLA may be
joint and several with other responsible parties.

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

Our reserves for environmental claims are not established on a
claim-by-claim basis. We carry an aggregate bulk reserve for all of our
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 our experience in resolving those claims. At
December 31, 2001, approximately 75% of the net environmental reserve,
approximately $298 million, is carried in a bulk reserve and includes unresolved
and incurred but not reported environmental claims for which we have not
received any specific claims as well as for the anticipated costs of coverage
litigation disputes relating to these claims. The balance, approximately 25% of
the net environmental reserve, approximately $98 million, consists of case
reserves for resolved claims.

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

In establishing environmental reserves, we evaluate the exposure presented
by each insured and the anticipated cost of resolution, if any, for each insured
on a quarterly basis. In the course of this analysis, we consider the probable
liability, available coverage, relevant judicial interpretations and historical
value of similar exposures. In addition, we consider the many variables
presented, such as the nature of the alleged activities of the insured at each
site; the allegations of environmental harm at each site; the number of sites;
the total number of potentially responsible parties at each site; the nature of
environmental harm and the corresponding remedy at each site; the nature of
government enforcement activities at each site; the ownership and general use of
each site; the overall nature of the insurance relationship between us and the
insured, including the role of any umbrella or excess insurance we have issued
to the insured; the involvement of other insurers; the potential for other
available coverage, including the number of years of coverage; the role, if any,
of non-environmental claims or potential non-environmental claims, in any
resolution process; and the applicable law in each jurisdiction.

For further discussion of environmental claims and the risks involved, see
"Risk Factors -- Our business could be harmed because our potential exposure for
environmental claims is very difficult to predict."

The duration of our 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 us, vary significantly and are dependent upon a number of factors.
These factors include, but are not limited to, the cooperation of the insured in
providing claim information, the pace of underlying litigation or claim
processes, the pace of coverage litigation between the insured and us and the
willingness of the insured and us to negotiate, if appropriate, a resolution of
any dispute pertaining to these claims. Because these factors vary from claim-
38

to-claim and insured-by-insured, we cannot provide a meaningful average of the
duration of an environmental claim. However, based upon our experience in
resolving these claims, the duration may vary from months to several years.

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

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

2001 2000 1999
----- ----- -----
(IN MILLIONS)

Beginning reserves:
Direct.................................................... $ 669 $ 801 $ 928
Ceded..................................................... (111) (125) (96)
----- ----- -----
Net....................................................... 558 676 832
Incurred losses and loss expenses:
Direct.................................................... 58 75 139
Ceded..................................................... (12) (11) (82)
Losses paid:
Direct.................................................... 248 207 266
Ceded..................................................... (40) (25) (53)
----- ----- -----
Ending reserves:
Direct.................................................... 479 669 801
Ceded..................................................... (83) (111) (125)
----- ----- -----
Net....................................................... $ 396 $ 558 $ 676
===== ===== =====

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

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

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

ASBESTOS CLAIMS AND LITIGATION

We believe that the property and casualty insurance industry has suffered
from judicial interpretations that have attempted to maximize insurance
availability for asbestos claims from both a coverage and liability standpoint
far beyond the intent of the contracting parties. These policies generally were
issued prior to 1980. We continue to receive asbestos claims alleging insureds'
liability from claimants' asbestos-related injuries. Since the beginning of
2000, we have experienced an increase over prior years in the number of asbestos
claims being tendered to us, and we expect this trend to continue. Factors
leading to these increases include more intensive advertising by lawyers seeking
asbestos claimants, the increasing

focus by plaintiffs on new and previously peripheral defendants and an increase
in the number of entities seeking bankruptcy protection as a result of
asbestos-related liabilities. In addition to contributing to the increase in
claims, the bankruptcy proceedings may have the effect of significantly
accelerating and increasing loss payments by insurers, including us.
Particularly during the last few months of 2001 and continuing into 2002, these
trends have both accelerated and become more visible.

For further discussion of asbestos-related claims and litigation and the
risks involved, see "Risk Factors -- Our business could be harmed because our
potential exposure for asbestos claims and related litigation is very difficult
to predict."

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

In establishing our asbestos reserves, we evaluate the exposure presented
by each insured. In the course of this evaluation, we consider: available
insurance coverage, including the role of any umbrella or excess insurance we
have issued to the insured; limits and deductibles; an analysis of each
insured's potential liability; the jurisdictions involved; past and anticipated
future claim activity; past settlement values of similar claims; allocated claim
adjustment expense; potential role of other insurance; the role, if any, of
non-asbestos claims or potential non-asbestos claims in any resolution process;
and applicable coverage defenses or determinations, if any, including the
determination as to whether or not an asbestos claim is a products/completed
operation claim subject to an aggregate limit and the available coverage, if
any, for that claim. Once the gross ultimate exposure for indemnity and
allocated claim adjustment expense is determined for each insured by each policy
year, we calculate 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.

At December 31, 2001, approximately 81%, or approximately $665 million, of
the net asbestos reserves, represents incurred but not reported losses for which
we have not received any specific claims. The balance, approximately 19% of the
net asbestos reserves, or approximately $155 million, is for pending asbestos
claims. As in the past, asbestos claims, when submitted, rarely indicate the
monetary amount being sought by the claimant from the insured, and we do not
keep track of the monetary amount being sought in those few claims that
indicated a monetary amount. Based upon our experience with asbestos claims, the
duration period of an asbestos claim from the date of submission to resolution
is approximately two years.

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

2001 2000 1999
------ ------ ------
(IN MILLIONS)

Beginning reserves:
Direct.................................................... $1,005 $1,050 $1,252
Ceded..................................................... (199) (223) (266)
------ ------ ------
Net....................................................... 806 827 986
Incurred losses and loss expenses:
Direct.................................................... 283 187 128
Ceded..................................................... (94) (137) (71)
Losses paid:
Direct.................................................... 242 232 330
Ceded..................................................... (67) (161) (114)
------ ------ ------
Ending reserves:
Direct.................................................... 1,046 1,005 1,050
Ceded..................................................... (226) (199) (223)
------ ------ ------
Net....................................................... $ 820 $ 806 $ 827
====== ====== ======

UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES

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

As a result of the processes and procedures described above, the reserves
carried for environmental and asbestos claims at December 31, 2001 are our best
estimate of ultimate claims and claim adjustment expenses based upon known facts
and current law. However, the uncertainties surrounding the final resolution of
these claims continue. These include, without limitation, the risks inherent in
major litigation, any impact from the bankruptcy protection sought by various
asbestos producers and other asbestos defendants, a further increase or decrease
in asbestos and environmental claims which cannot now be anticipated, the role
of any umbrella or excess policies we have issued for these claims, the
resolution or adjudication of some disputes pertaining to the amount of
available coverage for asbestos claims in a manner inconsistent with our
previous assessment of these claims, the number and outcome of direct actions
against us, and unanticipated developments pertaining to our ability to recover
reinsurance for environmental and asbestos claims. It is also not possible to
predict changes in the legal and legislative environment and their impact on the
future development of asbestos and environmental claims. This development will
be affected by future court decisions and interpretations, as well as changes in
applicable legislation.

Because of the uncertainties set forth above, additional liabilities may
arise for amounts in excess of the current related reserves. These additional
amounts, or a range of these additional amounts, cannot now be reasonably
estimated and could result in liability exceeding these reserves by an amount
that could be material to our operating results and financial condition in
future periods. Because the level of uncertainty continues to increase and in
order to strengthen our ability and flexibility to advance our strategic goals
we will, prior to the completion of this offering, enter into an agreement with
Citigroup under which it will provide us with significant financial support for
asbestos claims and related litigation, up to $800 million, reduced by the tax
effect of the highest applicable federal income tax rate, which we believe will
substantially enhance our ability to manage possible adverse developments in the
future. This agreement with Citigroup is described in more detail in the
"Arrangements Between Our Company and Citigroup" section of this prospectus.

CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS

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

Due to claimants' allegations of long-term bodily injury in CIOTA claims,
numerous complex issues regarding these claims are presented. The claimants'
theories of liability must be evaluated, the evidence pertaining to a causal
link between injury and exposure to a substance must be reviewed, the potential
role of other causes of injury must be analyzed, the liability of other
defendants must be explored, an assessment of a claimant's damages must be made
and the law of the applicable jurisdiction must be analyzed. In addition, we
must review the number of policies we have issued to the insured and whether
these policies are triggered by the allegations, the terms and limits of
liability of these policies, the obligations of other insurers to respond to the
claim and the role, if any, of non-CIOTA claims or potential non-CIOTA claims in
any resolution process.

To the extent disputes exist between us and a policyholder regarding the
coverage available for CIOTA claims, we resolve the disputes, where feasible,
through settlement with the policyholder or through coverage litigation.
Historically, our experience has indicated that insureds with potentially
significant environmental and/or asbestos exposures may often have other CIOTA
exposures or CIOTA claims pending with us. Due to this experience and the fact
that settlement agreements with insureds may extinguish our obligations for all
claims, we evaluate and consider the environmental and asbestos reserves in
conjunction with the CIOTA reserve. Generally, the terms of a settlement
agreement set forth the nature of our participation in resolving CIOTA claims
and the scope of coverage to be provided by us, and contain the appropriate
indemnities and hold harmless provisions to protect us. These settlements
generally eliminate uncertainties for us regarding the risks extinguished,
including the risk that losses would be greater than anticipated due to evolving
theories of tort liability or unfavorable coverage determinations. Our approach
also has the effect of determining losses at a date earlier than would have
occurred in the absence of these settlement agreements. On the other hand, in
cases where future developments are favorable to insurers, this approach could
have the effect of resolving claims for amounts in excess of those that we
ultimately would have paid had the claims not been settled in this manner.

At December 31, 2001, approximately 80%, or approximately $569 million, of
the net CIOTA reserve represents incurred but not reported losses for which we
have not received any specific claims. The balance, approximately 20% of the net
CIOTA reserve, or approximately $141 million, is for pending CIOTA claims.

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

2001 2000 1999
------ ------ ------
(IN MILLIONS)

Beginning reserves:
Direct.................................................... $1,079 $1,184 $1,346
Ceded..................................................... (280) (313) (392)
------ ------ ------
Net....................................................... 799 871 954
Incurred losses and loss expenses:
Direct.................................................... (115) 27 (36)
Ceded..................................................... 70 (11) 28
Losses paid:
Direct.................................................... 71 132 126
Ceded..................................................... (27) (44) (51)
------ ------ ------
Ending reserves:
Direct.................................................... 893 1,079 1,184
Ceded..................................................... (183) (280) (313)
------ ------ ------
Net....................................................... $ 710 $ 799 $ 871
====== ====== ======

INVESTMENT PORTFOLIO

Our invested assets at December 31, 2001 totaled $32.6 billion, of which
88% was invested in fixed maturity and short-term investments, 3% in common
stocks and other equity securities, 1% in mortgage loans and real estate held
for sale and 8% in other investments. The average yield, excluding realized and
unrealized investment gains and losses, was 6.8%, 7.5% and 7.2% for the years
ended December 31, 2001, 2000 and 1999, respectively. The after-tax average
yield, excluding realized and unrealized investment gains and losses, was 5.0%,
5.4% and 5.2% for the years ended December 31, 2001, 2000 and 1999,
respectively.

Because the primary purpose of the investment portfolio is to fund future
claims payments, we employ a conservative investment philosophy. Our fixed
maturity portfolio at December 31, 2001 totaled $25.9 billion, comprised of
$24.1 billion of publicly traded fixed maturities and $1.8 billion of private
fixed maturities. The weighted average quality ratings of our publicly traded
fixed maturity portfolio and private fixed maturity portfolio at December 31,
2001 were Aa3 and Baa1, respectively. Included in the fixed maturity portfolio
at that date was approximately $1.7 billion of below investment grade
securities. The average duration of the fixed maturity portfolio, including
short-term investments, was 5.7 years at that date.

The following table sets forth our combined fixed maturity investment
portfolio classified by Moody's Investor's Service Inc. ratings as of December
31, 2001:

CARRYING PERCENT OF TOTAL
VALUE CARRYING VALUE
-------- ----------------
(IN MILLIONS)

Quality Rating:
Aaa....................................................... $13,123 50.8%
Aa........................................................ 4,564 17.6
A......................................................... 2,845 11.0
Baa....................................................... 3,573 13.8
------- -----
Total investment grade.................................... 24,105 93.2
Non-investment grade...................................... 1,746 6.8
------- -----
Total fixed maturity investment........................... $25,851 100.0%
======= =====

We make investments in collateralized mortgage obligations, or CMOs. CMOs
typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. Our investment strategy is to purchase CMO tranches which offer the
most favorable return given the risks involved. One significant risk evaluated
is prepayment sensitivity. This drives the investment process to generally favor
prepayment protected CMO tranches including planned amortization classes and
last cash flow tranches. We do not purchase residual interests in CMOs.

At December 31, 2001, we held CMOs with a fair value of $3.3 billion.
Approximately 54% of CMO holdings were fully collateralized by GNMA, FNMA or
FHLMC securities at that date, and the balance was fully collateralized by
portfolios of individual mortgage loans. In addition, we held $2.3 billion of
GNMA, FNMA, FHLMC or FHA mortgage-backed pass-through securities at December 31,
2001. Virtually all of these securities are rated Aaa.

We make investments in equity investments, primarily through private equity
and arbitrage partnerships, which are subject to more volatility than our fixed
income investments, but historically have provided a higher return. At December
31, 2001, the carrying value of our investments in private equity and arbitrage
partnerships was $1.6 billion.

OUTLOOK

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

PROPERTY CASUALTY INSURANCE INDUSTRY

The property and casualty insurance industry continues to be reshaped by
consolidation and globalization. Our strategic objectives are to enhance our
position as a consistently profitable market leader and a cost-effective
provider of property and casualty insurance in the United States, as the
industry consolidates.

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

As required by various state laws and regulations, our insurance
subsidiaries are subject to assessments from state-administered guaranty
associations, second-injury funds and similar associations. We believe that
these assessments will not have a material impact on our results of operations.

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

COMMERCIAL LINES

In 2001, the trend of higher rates continued in Commercial Lines. Prices
generally rose throughout the year, although some of the increases varied
significantly by region and business segment. These increases were necessary to
offset the impact of rising loss cost trends and the decline in profitability
from the competitive pressures of the last several years. Since the terrorist
attack on September 11th, there has

been greater concern over the availability, terms and conditions, and pricing of
reinsurance. As a result, the primary insurance market is expected to continue
to see significant rate increases for some coverages.

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

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

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

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

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

conditions. We have tentatively agreed that, if we proceed, we would grant the
investor customary "demand" and "piggyback" registration rights with respect to
its investment in Gulf.

Insurers generally, including us, are experiencing an increase in the
number of asbestos-related claims due to, among other things, more intensive
advertising by lawyers seeking asbestos claimants, the increasing focus by
plaintiffs on new and previously peripheral defendants and an increase in the
number of entities seeking bankruptcy protection as a result of asbestos-related
liabilities. In addition to contributing to the increase in claims, the
bankruptcy proceedings may have the effect of significantly accelerating and
increasing loss payments by insurers, including us. Increasingly, policyholders
have been asserting that their claims for asbestos-related insurance are not
subject to aggregate limits on coverage and that each individual bodily injury
claim should be treated as a separate occurrence under the policy. Particularly
during the last few months of 2001 and continuing into 2002, the
asbestos-related trends described above have both accelerated and become more
visible. In addition, these claims and the related litigation could result in
liability exceeding these reserves by an amount that could be material to our
operating results and financial condition in future periods. Because the level
of uncertainty continues to increase and in order to strengthen our ability and
flexibility to advance our strategic goals following this offering, Citigroup
has offered to enter into an agreement under which it will provide us with
significant financial support for asbestos claims and related litigation, up to
$800 million, reduced by the tax effect of the highest applicable federal income
tax rate, which we believe will substantially enhance our ability to manage
possible adverse developments in the future. This agreement with Citigroup is
described in more detail in the "Arrangements Between Our Company and Citigroup"
section of this prospectus.

See "Risk Factors -- Our business could be harmed because our potential
exposure for asbestos claims and related litigation is very difficult to
predict," "-- Asbestos Claims and Litigation" and "-- Uncertainty Regarding
Adequacy of Environmental and Asbestos Reserves."

PERSONAL LINES

Personal Lines' strategy includes control of operating expenses to improve
competitiveness and profitability, growth in sales primarily through independent
agents and selective expansion of additional marketing channels to broaden
distribution to a wider customer base. These growth strategies also provide
opportunities to leverage the existing cost structure and achieve economies of
scale. In addition, Personal Lines continues to take action to control its
exposure to catastrophe losses, including limiting the writing of new homeowners
business in some markets, implementing price increases in some hurricane-prone
areas and non-renewing policies in some hurricane-prone areas where acceptable
returns are not being achieved, subject to restrictions imposed by insurance
regulatory authorities.

The personal auto insurance marketplace remains highly competitive as some
personal auto carriers have been reluctant to increase prices to fully offset
increases in loss cost trends due to inflationary pressures in medical costs and
auto repair costs. These trends are expected to continue into 2002. Personal
Lines will continue to emphasize underwriting discipline in this competitive
marketplace and continue to pursue its strategy of increases in auto rates to
offset increases in loss cost trends. Market conditions for homeowners insurance
have remained stable, with the industry experiencing modest rate increases.
Personal Lines expects homeowners rate increases to continue in 2002. Homeowners
loss cost trends continue to increase at modest levels, reflecting inflationary
pressures and the increased frequency of weather-related losses.

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

TRANSACTIONS WITH RELATED PARTIES

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

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

We intend to enter into an agreement under which a Citigroup affiliate will
provide investment advisory services to us for a period of two years from the
completion of this offering at fees to be mutually agreed upon.

You should refer to the "Arrangements Between Our Company and Citigroup"
section of this prospectus and to note 15 to our consolidated financial
statements for a description of these and other intercompany arrangements and
transactions between us and Citigroup.

LIQUIDITY AND CAPITAL RESOURCES

Our principal asset is the capital stock of TIGHI and its insurance
subsidiaries.

The liquidity requirements of our 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. Additional sources of cash flow include the sale of
invested assets and financing activities. It is the opinion of our management
that our future liquidity needs will be met from all of the above sources.

Net cash flows are generally invested in marketable securities. We closely
monitor the duration of these investments, and investment purchases and sales
are executed with the objective of having adequate funds available to satisfy
our maturing liabilities. As our 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. Our invested assets at
December 31, 2001 totaled $32.6 billion, of which 88% was invested in fixed
maturity and short-term investments, 3% in common stocks and other equity
securities, 1% in mortgage loans and real estate and 8% in other investments.

Our cash flow needs include shareholder dividends and debt service. We are
a holding company and have no direct operations. Accordingly, we meet our cash
flow needs primarily through dividends from operating subsidiaries. We also have
available to us a $250 million revolving line of credit from Citigroup. We pay a
commitment fee to Citigroup for that line of credit, which expires in 2006. This
agreement became effective on December 19, 2001 and replaced a facility which we
previously had from a syndicate of banks. The interest rate for borrowings under
this committed line is based on the cost of commercial paper issued by Citicorp.
We also issue commercial paper directly to investors and maintain unused credit
availability under our committed credit facility at least equal to the amount of
commercial paper outstanding. At December 31, 2001, there were no outstanding
borrowings under this revolving line of credit from Citigroup or any commercial
paper outstanding.

Contractual obligations at December 31, 2001 included the following:

PAYMENTS DUE BY PERIOD
----------------------------------------------
LESS THAN AFTER
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
------ --------- --------- --------- -------
(IN MILLIONS)

Notes payable to affiliates................ $1,697 $ -- $500 $1,197 $ --
Long-term debt............................. 380 -- -- 150 230
TIGHI-obligated mandatorily redeemable
securities of subsidiary trusts holding
solely junior subordinated debt
securities of TIGHI...................... 900 -- -- -- 900
Operating leases........................... 431 111 141 67 112
------ ---- ---- ------ ------
$3,408 $111 $641 $1,414 $1,242
====== ==== ==== ====== ======

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

At December 31, 2000, we had a note payable to PFS Services, Inc., our
direct parent. At December 31, 2000, the principal outstanding was $287 million.
Interest accrued at a rate of 5.06%, compounded semi-annually. On March 29,
2001, we repaid this note in its entirety, plus accrued interest.

In conjunction with the purchase of TIGHI's outstanding shares in April
2000, we entered into a note agreement with Citigroup. On February 7, 2002, this
note agreement was replaced by a new note agreement. Under the terms of the new
note agreement, interest accrues on the aggregate principal amount outstanding
at Citicorp's commercial paper rate (the then current short-term rate) plus 10
basis points per annum. Interest is compounded monthly. The principal amount of
the note may be prepaid in whole or in part without penalty and is due on April
30, 2005. At December 31, 2001 and 2000, the principal outstanding under the
prior note agreement was $1.2 billion and $1.9 billion, respectively. At March
1, 2002, the outstanding amount under the new note agreement was $1.1 billion.

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

On October 1, 1999 and September 1, 1999, we repaid $200 million for our
6.25% notes and $200 million for our 6.75% notes, respectively, which matured on
those dates. Long-term debt outstanding at December 31, 2001 was as follows:

AS OF
DECEMBER 31, 2001
-----------------
(IN MILLIONS)

6.75% Notes due 2006........................................ $150
7.81% Note due 2011......................................... 30
7.75% Notes due 2026........................................ 200
----
Total....................................................... $380
====

Concurrently with this offering, we are offering $850 million aggregate
principal amount of our convertible notes, plus up to an additional $42.5
million aggregate principal amount of notes if the over-allotment option for
that offering is exercised in full.

In February 2002, our board of directors also declared a dividend of $3.7
billion to Citigroup in the form of a $3.7 billion note payable in two
installments. The first installment of $150 million will be payable on May 9,
2004 and the second installment of $3.55 billion will be payable on February 7,
2017. This note begins to bear interest after May 9, 2002 at a rate of 7.25% per
annum. This note may be prepaid at any time in whole or in part without penalty
or premium. We expect that substantially all of this note will be prepaid with
the proceeds of the offerings.

In March 2002, our board of directors declared a dividend of $395 million
to Citigroup in the form of a note payable which begins to bear interest after
May 9, 2002 at a rate of 6.00% per annum. This note is due in March 2007 and may
be prepaid in whole or in part at any time without penalty or premium.

Our principal insurance subsidiaries are domiciled in the State of
Connecticut. The insurance holding company law of Connecticut applicable to our
subsidiaries requires notice to, and approval by, the state insurance
commissioner for the declaration or payment of any dividend that together with
other distributions made within the preceding twelve months exceeds the greater
of 10% of the insurer's surplus as of the preceding December 31, or the
insurer's net income for the twelve-month period ended the preceding December
31, in each case determined in accordance with statutory accounting practices.
This declaration or payment is further limited by adjusted unassigned surplus,
as determined in accordance with statutory accounting practices. The insurance
holding company laws of other states in which our subsidiaries are domiciled
generally contain similar, although in some instances somewhat more restrictive,
limitations on the payment of dividends. A maximum of $1.0 billion will be
available by the end of 2002 for such dividends without prior approval of the
Connecticut Insurance Department. However, the payment of a significant portion
of this amount is likely to be subject to approval by the Connecticut Insurance
Department in accordance with the formula described above, depending upon the
amount and timing of the payments.

Under our certificate of incorporation, we may not pay any dividends on our
common stock, other than regular quarterly dividends, without the prior written
consent of Citigroup, so long as Citigroup maintains ownership of an agreed upon
percentage of our common stock. Our certificate of incorporation also limits our
ability to incur indebtedness, issue equity securities and make some capital
expenditures, among other things, without the prior written consent of
Citigroup.

We have the option to defer interest payments on the notes. If we elect to
defer interest payments on the notes, we will not be permitted, with limited
exceptions, to pay dividends on our common stock during a deferral period.

The NAIC adopted RBC requirements for property casualty companies to be
used as minimum capital requirements by the NAIC and states to identify
companies that merit further regulatory action. The formulas have not been
designed to differentiate among adequately capitalized companies that operate
with levels of capital higher than RBC requirements. Therefore, it is
inappropriate and ineffective to use the formulas to rate or to rank these
companies. At December 31, 2001, all of our insurance subsidiaries had adjusted
capital in excess of amounts requiring any company or regulatory action.

It is the opinion of our management that the realization of our recognized
net deferred tax asset of $1.2 billion is more likely than not based on existing
carryback ability and expectations as to future taxable income. We are included
in the consolidated federal income tax return filed by Citigroup. Citigroup has
reported pre-tax financial statement income of approximately $20 billion on
average over the last three years and has generated federal taxable income
exceeding $13 billion on average in each year during the same period.

It is the opinion of our management that on a separate reporting basis the
realization of the recognized deferred tax asset of $1.2 billion is more likely
than not based on existing carryback ability and expectations as to our future
taxable income. We have reported pre-tax financial statement income of
49

$1.6 billion, on average, over the last three years and have generated federal
taxable income exceeding $770 million, on average, in each year during this same
period.

We provided surety bonds to affiliates of JPMorgan Chase in connection with
performance obligations of two subsidiaries of Enron. We are in litigation in
New York over whether we are obligated to perform under these bonds. In December
2001, Enron filed for Chapter 11 bankruptcy protection and JPMorgan Chase made
claims against these bonds. The demand against us, based on our aggregate
participation in the bonds, is approximately $266 million before any
reinsurance, recoveries and taxes. In December 2001, all defendants filed
answers and counterclaims to the complaint and on December 31, 2001, the
plaintiff filed a motion for summary judgment which was denied on March 5, 2002.
We are vigorously defending the lawsuit and it is the opinion of our management
that we have meritorious defenses.

Some of our loss reserves are for environmental and asbestos claims and
related litigation. Although the reserves carried for environmental and asbestos
claims at December 31, 2001 are our best estimate of ultimate claims and claim
adjustment expenses based upon known facts and current law, given the
uncertainty surrounding the final resolution of these claims, it is possible
that actual liabilities could exceed reserves by an amount that could be
material to our operating results and financial condition in future periods.
Because the level of uncertainty continues to increase and in order to
strengthen our ability and flexibility to advance our strategic goals following
the public offering, Citigroup has offered to enter into an agreement under
which it will provide us with significant financial support for asbestos claims
and related litigation, up to $800 million, reduced by the tax effect of the
highest applicable federal income tax rate, which we believe will substantially
enhance our ability to manage possible adverse developments in the future. See
the discussion of environmental and asbestos claims above.

Reserves for losses and loss adjustment expenses on a statutory basis were
$20.2 billion, $19.4 billion and $19.9 billion, at December 31, 2001, 2000 and
1999, respectively. The increase from December 31, 2000 to December 31, 2001
includes the impact of the terrorist attack on September 11th and the
acquisition of Northland and contribution of CitiCapital in October 2001. This
was partially offset by net payments of $427 million for environmental, asbestos
and other cumulative injury claims. The 2000 decrease also included net payments
of $341 million for such claims. This decrease was also impacted by favorable
prior-year reserve development combined with a shift in business mix from
longer-tail business to shorter-tail business.

We have recently purchased from Citigroup the premises located at One Tower
Square, Hartford, Connecticut and other properties, for $68 million.

We participate in the Citigroup Capital Accumulation Plan (CAP). For the
2000 and 1999 restricted stock awards, participating officers and other key
employees received 50% of their restricted stock award in the form of Citigroup
common stock and received 50% in the form of TIGHI common stock. In connection
with the cash tender offer completed by us in 2000, all shares of restricted
common stock under TIGHI CAP were eliminated and substantially all were replaced
with restricted Citigroup common stock. All of the 2001 restricted stock awards
granted on January 16, 2001 were in the form of Citigroup common stock. These
restricted stock awards generally vest after a three-year period and, except
under limited circumstances, the stock can not be sold or transferred during the
restricted period by the participant, who is required to render service to us
during the restricted period. Unearned compensation expense associated with the
Citigroup restricted common stock grants, which represents the market value of
Citigroup's common stock at the date of grant, and the remaining unamoritized
portion of the previous TIGHI CAP shares, is included with other assets in the
consolidated balance sheet and is recognized as a charge to income ratably over
the vesting period. The after-tax compensation cost charged to earnings for
these restricted stock awards was $19 million, $16 million and $16 million for
the years ended December 31, 2001, 2000 and 1999, respectively. See note 15 to
our consolidated financial statements for a discussion of Citigroup restricted
common stock awards.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See note 1 to our consolidated financial statements for a discussion of
recently issued accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates, and
other relevant market rate or price changes. Market risk is directly influenced
by the volatility and liquidity in the markets in which the related underlying
assets are traded. The following is a discussion of our primary market risk
exposures and how those exposures are currently managed as of December 31, 2001.
Our market risk sensitive instruments, including derivatives, are primarily
entered into for purposes other than trading.

The carrying value of our investment portfolio as of December 31, 2001 and
2000 was $32.6 billion and $30.8 billion, respectively, of which 79% and 81% was
invested in fixed maturity securities, respectively. The primary market risk to
the investment portfolio is interest rate risk associated with investments in
fixed maturity securities. Our exposure to equity price risk and foreign
exchange risk is not significant. We have no direct commodity risk.

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

For our investment portfolio, there were no significant changes in our
primary market risk exposures or in how those exposures are managed compared to
the year ended December 31, 2000. We do not currently anticipate significant
changes in our primary market risk exposures or in how those exposures are
managed in future reporting periods based upon what is known or expected to be
in effect in future reporting periods.

The primary market risk for all of our long-term debt and mandatorily
redeemable securities of subsidiary trusts, or trust securities, is interest
rate risk at the time of refinancing. All of our non-affiliate fixed rate debt
is non-redeemable. On April 13, 2001, we entered into a $500 million line of
credit agreement with Citicorp Banking Corporation, an affiliate. On April 16,
2001, we borrowed $275 million on the line of credit. Proceeds from this
borrowing together with $225 million of commercial paper

proceeds were used to pay a $500 million 6.75% long-term note payable. On
November 8, 2001, we borrowed another $225 million under the line of credit. The
proceeds were used to pay off maturing commercial paper. The maturity for all
$500 million borrowed under this line was extended to November 7, 2003 and the
interest rate was fixed at 3.60%. We currently have the right to redeem the
fixed rate trust securities, in whole or in part, at a redemption price equal to
100% of the principal amount to be redeemed plus any accrued and unpaid interest
to the redemption date. We continue to monitor the interest rate environment and
to evaluate refinancing opportunities as maturity dates approach. For additional
information regarding our long-term debt and trust securities see notes 8 and 10
to our consolidated financial statements.

SENSITIVITY ANALYSIS

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

In this sensitivity analysis model, we use fair values to measure our
potential loss. The sensitivity analysis model includes the following financial
instruments entered into for purposes other than trading: fixed maturities,
interest-bearing non-redeemable preferred stocks, mortgage loans, short-term
securities, cash, investment income accrued, notes payable to affiliates,
long-term debt, fixed rate trust securities and derivative financial
instruments. The primary market risk to our market sensitive instruments is
interest rate risk. The sensitivity analysis model uses a 100 basis point change
in interest rates to measure the hypothetical change in fair value of financial
instruments included in the model.

For invested assets, duration modeling is used to calculate changes in fair
values. Durations on invested assets are adjusted for call, put and interest
rate reset features. Duration on tax-exempt securities is adjusted for the fact
that the yield on such securities is less sensitive to changes in interest rates
compared to Treasury securities. Invested asset portfolio durations are
calculated on a market value weighted basis, including accrued investment
income, using holdings as of December 31, 2001 and 2000.

For long-term debt and fixed rate trust securities, the change in fair
value is determined by calculating hypothetical December 31, 2001 and 2000
ending prices based on yields adjusted to reflect a 100 basis point change,
comparing such hypothetical ending prices to actual ending prices, and
multiplying the difference by the par or securities outstanding.

The sensitivity analysis model we use produces a loss in fair value of
market sensitive instruments of $1.5 billion and $1.2 billion based on a 100
basis point increase in interest rates as of December 31, 2001 and 2000,
respectively. This loss value only reflects the impact of an interest rate
increase on the fair value of our financial instruments, which constitute
approximately 52% of total assets and approximately 9% of total liabilities as
of December 31, 2001 and approximately 54% of total assets and approximately 9%
of total liabilities as of December 31, 2000. As a result, the loss value
excludes a significant portion of our

consolidated balance sheet which would materially mitigate the impact of the
loss in fair value associated with a 100 basis point increase in interest rates.

For example, some non-financial instruments, primarily insurance accounts
for which the fixed maturity portfolio's primary purpose is to fund future
claims payments, are not reflected in the development of the above loss value.
These non-financial instruments include premium balances receivable, reinsurance
recoverables, claims and claim adjustment expense reserves and unearned premium
reserves. Our sensitivity model also calculates a potential loss in fair value
with the inclusion of these non-financial instruments. For non-financial
instruments, changes in fair value are determined by calculating the present
value of the estimated cash flows associated with such instruments using
risk-free rates as of December 31, 2001 and 2000, calculating the resulting
duration, then using that duration to determine the change in value for a 100
basis point change.

Based on the sensitivity analysis model we use, the loss in fair value of
market sensitive instruments, including these non-financial instruments, as a
result of a 100 basis point increase in interest rates as of December 31, 2001
and 2000 is not material.

BUSINESS

OVERVIEW

We are a leading property and casualty insurance company in the United
States. We provide a wide range of commercial and personal property and casualty
insurance products and services to businesses, government units, associations
and individuals. We conduct our operations through our indirect wholly-owned
subsidiaries in two business segments: Commercial Lines, which provides a
variety of commercial coverages to a broad spectrum of business clients, and
Personal Lines, which primarily offers automobile and homeowners insurance to
individuals. Commercial coverages and personal coverages accounted for 58% and
42%, respectively, of our combined net written premiums for the year ended
December 31, 2001. After giving pro forma effect to the offerings, and the use
of the proceeds from the offerings, our corporate reorganization and related
transactions, at December 31, 2001, we had total assets and shareholders' equity
of $57.6 billion and $9.7 billion, respectively.