<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-46620
FORTIS BENEFITS INSURANCE COMPANY
- - - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0170040
- - - - --------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 BIELENBERG DRIVE, WOODBURY, MN 55125
- - - - ----------------------------------- ------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
612-738-5590
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
Investments
Fixed maturities, at fair value (amortized cost: $1,810,104 at
March 31, 1995, $1,749,347 at December 31, 1994) $ 1,800,004 $ 1,674,782
Equity securities, at fair value (cost: $68,268 at March 31,
1995, $51,937 at December 31, 1994) 77,757 64,552
Mortgage loans on real estate 515,019 452,547
Policy loans 50,401 49,221
Short-term investments 139,103 117,562
Real estate and other investments 11,418 13,441
------------- -------------
2,593,702 2,372,105
Cash 3,430 10,888
Receivables:
Uncollected premium 44,282 40,667
Reinsurance recoverable on paid and unpaid losses 12,941 6,845
Due from affiliates 3,171 2,220
Other 5,217 12,593
------------- -------------
65,611 62,325
Accrued investment income 37,319 38,584
Deferred policy acquisition costs 236,152 232,198
Property and equipment, at cost, less
accumulated depreciation 56,680 56,939
Deferred federal income taxes 26,689 48,509
Other assets 1,114 1,120
Assets held in separate accounts 1,357,392 1,212,910
------------- -------------
$ 4,378,089 $ 4,035,578
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY (unaudited)
<S> <C> <C>
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 383,882 $ 373,469
Interest sensitive and investment products 1,008,662 912,653
Accident and health 807,087 791,745
------------- -------------
2,199,631 2,077,867
Unearned premiums 18,426 16,145
Other policy claims and benefits payable 171,994 169,864
Policyholder dividends payable 6,748 6,793
------------- -------------
2,396,799 2,270,669
Accrued expenses 43,892 45,905
Current income taxes payable 2,140 4,352
Deferred federal income taxes
Other liabilities 70,867 32,416
Liabilities related to separate accounts 1,336,498 1,208,039
------------- -------------
3,850,196 3,561,381
SHAREHOLDER'S EQUITY
Common stock, $5 par value, 1,000,000
shares authorized, issued and outstanding 5,000 5,000
Additional paid-in capital 358,000 358,000
Retained earnings 164,720 153,551
Unrealized loss on available-for-sale securities, net of
deferred tax benefit of $563 at March 31, 1995 and
$23,104 at December 31, 1994 (1,046) (42,908)
Unrealized gain on assets held in separate accounts,
net of deferred taxes of $656 at March 31, 1995
and $298 at December 31, 1994 1,219 554
------------- -------------
527,893 474,197
------------- -------------
$ 4,378,089 $ 4,035,578
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1995 1994
------------- -------------
REVENUES
<S> <C> <C>
Insurance operations:
Traditional life insurance premiums $ 57,095 $ 47,023
Interest sensitive and investment product policy charges 11,205 8,445
Accident and health premiums 215,084 186,664
----------- ---------
283,384 242,132
Net investment income 47,519 38,478
Realized gains (losses) on investments (492) 3,537
Other income 8,320 7,486
----------- ---------
TOTAL REVENUES 338,731 291,633
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 46,355 35,409
Interest sensitive and investment products 16,155 12,808
Accident and health 169,382 152,721
----------- ---------
231,892 200,938
Policyholder dividends 748 778
Amortization of deferred policy acquisition costs 8,746 8,773
Insurance commissions 22,862 18,932
General and administrative expenses 57,815 47,272
----------- ---------
TOTAL BENEFITS AND EXPENSES 322,063 276,693
----------- ---------
INCOME BEFORE INCOME TAX EXPENSE 16,668 14,940
INCOME TAX EXPENSE (BENEFITS)
Current 6,578 7,800
Deferred (1,079) (3,026)
----------- ---------
5,499 4,774
----------- ---------
NET INCOME 11,169 10,166
----------- ---------
----------- ---------
</TABLE>
See accompanying notes
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1995 1994
----------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 11,169 $ 10,166
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefit reserves for
traditional and interest sensitive products 29,206 23,112
Increase (decrease) in other policy claims, benefits
and policyholder dividends payable 2,085 (3,258)
Decrease in deferred federal income taxes (1,079) (3,026)
Increase (decrease) in income taxes payable (2,212) 13,793
Amortization of policy acquisition costs 8,746 8,773
Policy acquisition costs deferred (16,715) (12,887)
Provision for depreciation 3,558 2,809
Accrual of discount, net (972) (138)
Change in uncollected premiums, accrued investment
income, other receivables, unearned premiums,
accrued expenses, and other liabilities 36,699 69,931
Net realized (gains) losses on investments 492 (3,537)
Other 293 53
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,270 105,791
INVESTING ACTIVITIES
Purchases of fixed maturity investments (426,066) (643,041)
Sales or maturities of fixed maturity investments 365,312 645,193
Increase in short-term investments (21,534) (119,422)
Purchase of other investments (102,940) (45,862)
Sales or maturities of other investments 17,241 46,384
Purchase of property and equipment (3,299) (3,017)
Other 0 5
----------- ---------
NET CASH USED BY INVESTING ACTIVITIES (171,286) (119,760)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 90,987 12,842
Surrenders and death benefits (9,698) (11,486)
Interest credited to policyholders 11,269 7,151
Dividends paid to shareholder 0 0
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 92,558 8,507
----------- ---------
DECREASE IN CASH (7,458) (5,462)
Cash and cash equivalents at beginning of period 10,888 6,675
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,430 $ 1,213
----------- ---------
----------- ---------
</TABLE>
See accompanying notes.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
General: The accompanying unaudited financial statements of Fortis Benefits
Insurance Company, contain all adjustments necessary to present fairly the
balance sheet as of March 31, 1995 and the related statement of income for the
three months ended March 31, 1995 and 1994, and cash flows for the three months
ended March 31, 1995 and 1994.
Acquired Business: In October, 1991 the Company purchased certain assets and
assumed certain liabilities from The Mutual Benefit Life Insurance Company in
Rehabilitation (MBL). The seller transferred to Fortis Benefits the assets and
liabilities relating to the group life, accident and health, disability and
dental insurance business of MBL. The acquisition was accounted for as a
purchase.
Fortis Benefits purchased this business for $318 million and issued a promissory
note in the maximum amount of $200 million. Most of the purchase price was
funded by a capital contribution of $225 million from Fortis, Inc.
In accordance with the contractual agreement, additional payments were paid to
MBL based upon the persistency of the long term disability portion of the
business. Under terms of this agreement, the Company paid $6,644,000,
$5,521,000 and $8,685,000 in 1994, 1993 and 1992, respectively. This
additional purchase price was accounted for as deferred policy acquisition
costs. No additional payments will be made.
Income tax payments for the three months ended March 31, 1995 was $8,790,000,
and income tax refund for the three months ended March 31, 1994 was $5,994,000.
The classification of fixed maturity investments is to be made at the time of
purchase and, prospectively, that classification is expected to be reevaluated
as of each balance sheet date. At March 31, 1995, all fixed maturity and equity
securities are classified as available-for-sale and carried at fair value.
The amortized cost and fair values of investments available-for-sale were as
follows at March 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Fixed Income Securities:
Governments $ 835,467 $ 11,111 $ 17,769 $ 828,809
Public Utilities 51,958 2,177 141 53,994
Industrial and miscellane 902,165 11,445 17,366 896,244
Other 20,514 832 389 20,957
------------- ------------ ------------ -------------
Total 1,810,104 25,565 35,665 1,800,004
Equity Securities 68,268 13,753 4,264 77,757
------------ ------------ ------------- -------------
Total $ 1,878,372 $ 39,318 $ 39,929 $ 1,877,761
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
The amortized cost and fair value of fixed maturities at March 31, 1995, by
contractual maturity, are shown below (in thousands). Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 91,674 $ 91,686
Due after one year through five year 450,184 446,791
Due after five years through ten years 624,355 628,562
Due after ten years 643,891 632,965
------------ ------------
$ 1,810,104 $ 1,800,004
------------ ------------
------------ ------------
</TABLE>
Proceeds from sales and maturities of investments in fixed maturities in the
three month period ended March 31, 1995 were $365,034,284 and $278,000
respectively. Gross gains of $3,438,314 and gross losses of $4,440,081 were
realized on sales.
Mortgage Loans: The Company has issued commercial mortgage loans on properties
located throughout the country. Currently, approximately 30% of outstanding
principal is concentrated in the states of California, Florida and Illinois.
The Company has a diversified loan portfolio with a small average size, which
greatly reduces any loss exposure. The Company has established a reserve for
mortgage loans.
In 1995, the Company adopted FASB 114 and 118, "Accounting by Creditors for
Impairment of a Loan." Statements 114 and 118 requires that impaired loans are
to be valued at the present value of expected future cash flows discounted at
the loan's effective interest rate, or, as a practical expedient, at the loan's
observable market price, or the fair market value of the collateral if the loan
is collateral dependent. Adoption of these statements did not materially impact
the financial position or operating results of the Company.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
Net Investment Income and Realized Gains (Losses) on Investments: Major
categories of net investment income and realized gains and losses on investments
for the first three months of each year were as follows (in thousands):
<TABLE>
<CAPTION>
Investment Realized Gain (Loss)
Income on Investments
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fixed maturities $ 33,456 $ 28,336 $ (1,002) $ 2,852
Preferred stocks 186 30 203
Common stocks 415 380 264 540
Mortgage loans on real
estate 11,066 9,029 (68)
Policy loans 784 454
Short-term investments 2,415 935
Real estate and other
investments 844 620 246 10
----------- ----------- ----------- -----------
49,166 39,784 $ (492) $ 3,537
Expenses (1,647) (1,306) ----------- -----------
----------- ----------- ----------- -----------
$ 47,519 $ 38,478
----------- -----------
----------- -----------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
FIRST QUARTER 1995 COMPARED TO FIRST QUARTER 1994
Total revenues increased to $339 million in the first quarter 1995 compared with
$292 million in first quarter 1994. Capital losses were $0.5 million in first
quarter 1995 compared to capital gains of $3.5 million in first quarter 1994.
Changes in interest rates resulted in realized capital losses. Other income
increased to $8.3 million in first quarter 1995 versus $7.5 million in the prior
period. This increase is from higher revenues on third-party administered
business.
Traditional life insurance premiums increased to $57 million in first quarter
1995 from $47 million in the same period of 1994. Group life premiums increased
21% due to higher sales of this product. Interest sensitive and investment
product charges, which consist primarily of cost of insurance charges on these
policies, increased 33% to $11.2 million from first quarter 1994. This increase
was due primarily to a larger inforce block of interest sensitive and investment
products, resulting from increased sales of these products. Accident and health
premiums increased 15% led by strong sales of UMEG products.
Traditional life insurance benefits increased to $46 million in first quarter
1995 from $35 million in the same period of 1994. This increase is consistent
with the increase in life premiums noted above. Accident and health benefits
increased by $16 million to $169 million as a result of increased sales volume.
Commission expense in 1995 increased by $4 million over 1994 consistent with
increased revenues. General and administrative expenses were $58 million in
1995 versus $47 million in 1994. This increase was due to advertising,
information systems enhancements, and expenses that change in relation to
revenues.
Net income before income tax expense totaled $16.7 million in first quarter 1995
compared with $14.9 million in first quarter 1994. Operating income was up
significantly, but as noted above, capital gains dropped slightly.
Federal income taxes were $5.5 million in first quarter 1995 compared to $4.8
million in first quarter 1994. The higher income tax expense for March 31, 1995
is primarily due to the higher income before income taxes.
In summary, net income was $11.2 million for the first quarter 1995 compared to
$10.2 million for the same period of 1994.
As explained in the notes to the financial statements, the Company is
classifying all fixed maturity securities as available-for-sale and carrying
them at fair value. The unrealized gain or loss is recorded as a component of
shareholder's equity. At December 31, 1994, the Company recognized an
unrealized loss of $42 million and at March 31, 1995, an unrealized gain of $0.2
million. This change of $42 million is the primary reason for the increase in
shareholder's equity.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the company have been met by funds provided from
operations.
The primary uses of funds are to provide policy benefits and reserves, operating
expenses, commissions, and to purchase new investments. The company expects its
investment and operating activities to generate sufficient funds for these
purposes.
The NAIC has implemented risk-based capital standards to determine the capital
requirements of a life insurance company based upon the risks inherent in its
operations. These standards require the computation of a risk-based capital
amount which is then compared to a company's actual total adjusted capital. The
computation involves applying factors to various financial data to address four
primary risks: asset default, adverse insurance experience, interest rate risk
and external events. These standards provide for regulatory intervention when
the percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels. Based upon current calculations of the risk-
based capital standards, the Company's percentage of total adjusted capital is
well in excess of ratios which would require regulatory attention.
Fortis Benefits has no long or short term debt. Less than 2% of the Company's
assets consisted of non-investment grade bonds as of March 31, 1995 and the
Company does not expect this percentage to increase significantly in future
years. As noted above, total shareholder's equity was $528 million as of March
31, 1995 compared to $474 million as of December 31, 1994.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. None
b. No Forms 8-K have been filed during the quarter for which this report is
filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORTIS BENEFITS INSURANCE COMPANY
---------------------------------
(Registrant)
Date: May 12, 1995
/s/ Michael J. Peninger
------------------------
Michael J. Peninger
Senior Vice President,
Controller and Treasurer (on
behalf of the Registrant and
as its principal financial and
chief accounting officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 1,949
<DEBT-MARKET-VALUE> 1,939
<EQUITIES> 78
<MORTGAGE> 515
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,594
<CASH> 3
<RECOVER-REINSURE> 1
<DEFERRED-ACQUISITION> 236
<TOTAL-ASSETS> 4,378
<POLICY-LOSSES> 2,200
<UNEARNED-PREMIUMS> 18
<POLICY-OTHER> 172
<POLICY-HOLDER-FUNDS> 7
<NOTES-PAYABLE> 0
<COMMON> 5
0
0
<OTHER-SE> 523
<TOTAL-LIABILITY-AND-EQUITY> 4,378
283
<INVESTMENT-INCOME> 48
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 8
<BENEFITS> 232
<UNDERWRITING-AMORTIZATION> 9
<UNDERWRITING-OTHER> 81
<INCOME-PRETAX> 16
<INCOME-TAX> 5
<INCOME-CONTINUING> 11
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.23
<RESERVE-OPEN> 170
<PROVISION-CURRENT> 2,199
<PROVISION-PRIOR> 2,078
<PAYMENTS-CURRENT> 218
<PAYMENTS-PRIOR> 191
<RESERVE-CLOSE> 172
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
