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 June 30, 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 (I.R.S. Employer
incorporation or organization) Identification No.)
500 BIELENBERG DRIVE, WOODBURY, MN 55125
(Address of principal executive offices) (Zip code)
(612) 738-5590
Registrant's telephone number, including area code:
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>
<S> <C> <C>
June 30, December 31,
1995 1994
ASSETS
Investments
Fixed maturities, at fair value (amortized
cost: $1,823,217 at June 30, 1995,
$1,749,347 at December 31, 1994) $ 1,894,507 $ 1,674,782
Equity securities, at fair value (cost:
$61,747 at June 30, 1995, $51,937 at
December 31, 1994) 74,890 64,552
Mortgage loans on real estate 544,689 452,547
Policy loans 51,213 49,221
Short-term investments 160,658 117,562
Real estate and other investments 12,519 13,441
2,738,476 2,372,105
Cash 3,577 10,888
Receivables:
Uncollected premium 45,713 40,667
Reinsurance recoverable on paid and unpaid losses 11,617 6,845
Due from affiliates 3,225 2,220
Other 6,624 12,593
67,179 62,325
Accrued investment income 37,862 38,584
Deferred policy acquisition costs 227,206 232,198
Property and equipment, at cost, less
accumulated depreciation 57,289 56,939
Deferred federal income taxes 2,017 48,509
Other assets 1,195 1,120
Assets held in separate accounts 1,533,611 1,212,910
$ 4,668,412 $ 4,035,578
See accompanying notes.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
June 30, December 31,
1995 1994
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 415,111 $ 373,469
Interest sensitive and investment products 1,035,642 912,653
Accident and health 807,071 791,745
2,257,824 2,077,867
Unearned premiums 18,261 16,145
Other policy claims and benefits payable 186,721 169,864
Policyholder dividends payable 7,068 6,793
2,469,874 2,270,669
Accrued expenses 44,794 45,905
Current income taxes payable 5,476 4,352
Other liabilities 37,851 32,416
Liabilities related to separate accounts 1,510,902 1,208,039
4,068,897 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 186,918 153,551
Unrealized gain (loss) on available-for-sale
securities, net of deferred tax expense of
$25,765 at June 30, 1995 and tax benefit of
$23,104 at December 31, 1994 47,848 (42,908)
Unrealized gain on assets held in separate
accounts, net of deferred taxes of $941 at
June 30, 1995 and $298 at December 31, 1994 1,749 554
599,515 474,197
$ 4,668,412 $ 4,035,578
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three months ended
June 30,
1995 1994
REVENUES
Insurance operations:
Traditional life insurance premiums $ 62,990 $ 51,431
Interest sensitive and investment product
policy charges 11,358 9,284
Accident and health premiums 227,736 191,357
302,084 252,072
Net investment income 49,298 38,540
Realized gains (losses) on investments 24,043 (4,665)
Other income 8,847 10,326
TOTAL REVENUES 384,272 296,273
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 50,950 41,765
Interest sensitive and investment products 17,398 13,300
Accident and health 185,091 154,423
253,439 209,488
Policyholder dividends 1,128 630
Amortization of deferred policy acquisition costs 12,246 8,491
Insurance commissions 23,230 21,568
General and administrative expenses 60,203 53,905
TOTAL BENEFITS AND EXPENSES 350,246 294,082
INCOME BEFORE FEDERAL INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 34,026 2,191
INCOME TAX EXPENSE (BENEFITS)
Current 13,768 (1,090)
Deferred (1,940) 1,134
11,828 44
NET INCOME $ 22,198 $ 2,147
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(In thousands)
(unaudited)
Six months ended
June 30,
1995 1994
REVENUES
Insurance operations:
Traditional life insurance premiums $ 120,085 $ 98,454
Interest sensitive and investment policy
charges 22,563 17,729
Accident and health premiums 442,820 378,021
585,468 494,204
Net investment income 96,817 77,018
Realized gains (losses) on investments 23,551 (1,128)
Other income 17,167 17,812
TOTAL REVENUES 723,003 587,906
BENEFITS AND EXPENSES
Benefits to policy holders:
Traditional life insurance 97,305 77,174
Interest sensitive and investment products 33,553 26,108
Accident and health 354,473 307,144
485,331 410,426
Policyholder dividends 1,876 1,408
Amortization of deferred policy acquisition costs 20,992 17,264
Insurance commissions 46,092 40,500
General and administrative expenses 118,018 101,177
TOTAL BENEFITS AND EXPENSES 672,309 570,775
INCOME BEFORE INCOME TAX EXPENSE 50,694 17,131
INCOME TAX EXPENSE (BENEFITS)
Current 20,246 6,710
Deferred (3,019) (1,892)
17,327 4,818
NET INCOME $ 33,367 $ 12,313
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six months ended
June 30,
1995 1994
OPERATING ACTIVITIES
Net income $ 33,367 $ 12,313
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefit reserves for
traditional and interest sensitive products 44,960 51,016
Increase (decrease in other policy claims, benefits
and policyholder dividends payable 17,132 (986)
Decrease in deferred federal income taxes (3,019) (1,892)
Increase in income taxes payable 1,124 4,783
Amortization of policy acquisition costs 20,992 17,264
Policy acquisition costs deferred (29,839) (27,202)
Provision for depreciation 7,284 5,748
Accrual of discount, net (1,297) (6)
Change in uncollected premiums, accrued investment
income, other receivables, unearned premiums,
accrued expenses, and other liabilities 2,308 (25,827)
Realized (gains) losses on investments (23,551) (1,128)
Other 500 (316)
NET CASH PROVIDED BY OPERATING ACTIVITIES 69,961 33,767z
INVESTING ACTIVITIES
Purchases of fixed maturity investments (1,146,459) (1,178,425)
Sales or maturities of fixed maturity investments 1,093,748 1,132,657
Increase (decrease) in short-term investments (43,085) 11,522
Purchase of other investments (140,596) (109,646)
Sales or maturities of other investments 47,757 64,052
Purchase of property and equipment (7,685) (3,017)
Other (15,949) (952)
NET CASH USED BY INVESTING ACTIVITIES (212,269) (83,809)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 136,088 60,768
Surrenders and death benefits (23,864) (17,542)
Interest credited to policyholders 22,773 14,485
Dividends paid to shareholder 0 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 134,997 57,729
INCREASE (DECREASE) IN CASH (7,311) 7,687
Cash and cash equivalents at beginning of period 10,888 6,675
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,577 $ 14,362
See accompanying notes.<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
June 30, 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 June 30, 1995 and the related statement of income
for the six months ended June 30, 1995 and 1994, and cash
flows for the six months ended June 30, 1995 and 1994.
Acquired Business: In October 1991 the Company purchased
certain assets and assumed certain liabilities from the
Mutual Benefits 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 a deferred policy acquisition costs. No
additional payments will be made.
Income tax payments for the six months ended June 30,
1995 and June 30, 1994 were $19,221,619 and $1,926,679
respectively.
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 June 30, 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 June 30, 1995 (in
thousands)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income
Securities:
Governments $ 658,843 $ 32,527 $ 2,710 $ 688,660
Public Utilities 52,312 3,941 6 56,247
Industrial and
miscellaneous 1,091,975 41,482 5,531 1,127,926
Other 20,087 1,587 0 21,674
Total 1,823,217 79,537 8,247 1,894,507
Equity Services 61,747 16,306 3,163 74,890
$ 1,884,964 $ 95,843 $ 11,410 $1,969,397
/TABLE
<PAGE>
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
June Year-to-Date and Second Quarter 1995 Compared to
June Year-to-Date and Second Quarter 1994
Traditional life insurance premiums increased to $120.1
million in first half of 1995 from $98.5 million in the
same period of 1994. Premiums for the second quarter
were $63.0 million versus $51.4 million in 1994. Group
life premiums increased 21% for both the quarter and year
to date due to higher sales of this product. Revenues
from interest sensitive and investment product charges
increased to $22.6 million for the first half of 1995,
compared to $17.7 million for the same period in 1994.
Also, these charges increased to $11.4 million for the
second quarter 1995 compared to $9.3 million in 1994.
Continued Sales of interest sensitive and investment
products has steadily increased the policy base on which
these charges are assessed. Accident and health premiums
increased to $442.8 million for the first half of 1994
versus $378.0 for the same period in 1994. Accident and
health premiums increased 19% to $227.7 million for the
second quarter versus $191.4 million in 1994, led by
strong premium growth of disability and specially
marketed small group accident and health products.
Total revenues increased to $723.0 million in the first
six months of 1995 compared with $587.9 million for the
same period in 1994. Included in the revenues were
capital gains of $23.6 million in 1995 compared to
capital losses of $1.1 million in 1994. All of the 1995
gains occurred in the second quarter due to improved
investment market conditions. Revenues for the second
quarter were $384.3 million versus $296.3 million in
1994.
Traditional life insurance benefits increased to $97.3
million in first half of 1995 from $77.2 million in the
same period of 1994. This increase is consistent with
the increase in life premiums noted above. Benefits for
the second quarter were $51.0 million, an increase of
$9.2 million versus last year. Interest sensitive and
investment product benefits increased to $33.6 million
for the first six months of 1995, compared with $26.1
million for the same period in 1994. For the second
quarter, these benefits increased to $17.4 million
compared to $13.3 million for the same period in 1994.
This increase was the result of higher interest
crediting, resulting from higher fixed account sales and
transfers from variable accounts to fixed accounts.
Accident and health benefits increased by $47.4 million
to $354.5 million for the six months ended June 30, 1995
consistent with an increased book of business.
Commission expense in the first half of 1995 increased by
$5.6 million over 1994 consistent with increased
revenues. Amortization of deferred policy acquisition
costs were $21.0 million for the first six months of
1995 versus $17.3 million in 1994. General and
administrative expenses were $118.0 million in the first
half of 1995 versus $101.2 million in 1994. This
increase was due to advertising, information systems
enhancements, and other variable expenses.
Net income before income tax expense totaled $50.7
million in first six months of 1995 compared with $17.1
million in first half of 1994. The operating income
portion of net income was $27.1 million versus $18.2
million for the first half of 1994.
Federal income taxes were $17.3 million in first half of
1995 compared to $4.8 million in first six months of
1994. The higher income tax expense is primarily the
result of pre-tax income $33.6 higher than 1994. The
effectibe tax rate was higher in 1995 due to lower tax
exempt investment income, as a percent of pre-tax income.
In summary, net income was $33.4 million for the first
six months 1995 compared to $12.3 million for the same
period of 1994. The net income for the second quarter
was $22.2 versus $2.1 million for the same period in
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, net of taxes, of $43
million and at June 30, 1995, an unrealized gain, net of
taxes, of $48 million. This change of $91 million, in
addition to the net income of $33 million, has resulted
in an increase in shareholder's equity to $599.5 million
versus $474.2 million at December 31, 1994.
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 June 30, 1995 and the
Company does not expect this percentage to increase
significantly in future years. As noted above, total
shareholder's equity was $599.5 million as of June 30,
1995 compared to $474.2 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: August 11, 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>
<ARTICLE> 7
<CIK> 0000823533
<NAME> FORTIS BENEFITS INSURANCE COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 2,055,165
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 74,890
<MORTGAGE> 544,689
<REAL-ESTATE> 12,519
<TOTAL-INVEST> 2,738,476
<CASH> 3,577
<RECOVER-REINSURE> 11,617
<DEFERRED-ACQUISITION> 227,206
<TOTAL-ASSETS> 4,668,412
<POLICY-LOSSES> 2,257,824
<UNEARNED-PREMIUMS> 18,261
<POLICY-OTHER> 186,721
<POLICY-HOLDER-FUNDS> 7,068
<NOTES-PAYABLE> 0
<COMMON> 5,000
0
0
<OTHER-SE> 544,918
<TOTAL-LIABILITY-AND-EQUITY> 4,668,412
585,468
<INVESTMENT-INCOME> 96,817
<INVESTMENT-GAINS> 23,551
<OTHER-INCOME> 17,167
<BENEFITS> 485,331
<UNDERWRITING-AMORTIZATION> 20,992
<UNDERWRITING-OTHER> 165,986
<INCOME-PRETAX> 50,694
<INCOME-TAX> 17,327
<INCOME-CONTINUING> 33,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,367
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 2,077,867
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
