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, 1997
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
(State or other jurisdiction of
incorporation or organization)
81-0170040
(IRS 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)
(Unaudited)
<TABLE>
<S> <C> <C>
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Investments
Fixed maturities, at fair value (amortized
cost: $2,200,595 at June 30, 1997,
$2,078,438 at December 31, 1996) $ 2,227,705 $ 2,115,499
Equity securities, at fair value (cost:
$84,659 at June 30, 1997, $84,144 at
December 31, 1996) 104,976
106,290
Mortgage loans on real estate 579,901 582,869
Policy loans 64,132 60,722
Short-term investments 142,798 182,817
Real estate and other investments 38,969
29,628
$ 3,158,481 $ 3,077,825
Cash (28,696) 20,474
Receivables:
Uncollected premium 68,374 71,386
Reinsurance recoverable on paid and unpaid losses 13,655
12,939
Other 11,226 9,045
93,255 93,370
Accrued investment income 43,485 39,519
Deferred policy acquisition costs 281,509 268,075
Property and equipment, at cost, less
accumulated depreciation 48,567 52,882
Deferred federal income taxes 26,836 17,008
Other assets 3,993 8,005
Assets held in separate accounts 2,689,262 2,374,718
$ 6,316,692 $ 5,951,876
See accompanying notes.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands)
(Unaudited)
June 30, December 31,
1997 1996
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 441,319 $
434,378
Interest sensitive and investment products 1,250,900
1,175,480
Accident and health 841,457
834,119
2,533,676 2,443,977
Unearned premiums 12,230
12,622
Other policy claims and benefits payable 208,916
191,940
Policyholder dividends payable 9,173
8,783
2,763,995 2,657,322
Accrued expenses 37,368
42,223
Current income taxes payable 9,759 17,424
Other liabilities 37,962
104,834
Due to Affiliates 3,459
4,926
Liabilities related to separate accounts 2,659,217
2,344,474
5,511,760 5,171,203
SHAREHOLDER'S EQUITY
Common stock, $5 par value, 1,000,000
shares authorized, issued and outstanding 5,000
5,000
Additional paid-in capital 468,000
468,000
Retained earnings 300,127
265,613
Unrealized gain (loss) on available-for-sale
securities, net of deferred taxes of
$14,623 at June 30, 1997 and $19,535 at
December 31, 1996 27,168 36,290
Unrealized gain on assets held in separate
accounts, net of deferred taxes of $2,387 at
June 30, 1997 and $1,454 at December 31, 1996 4,637
5,770
Total Shareholder's equity 804,932 780,673
Total policy reserves, liabilities &
Shareholder's equity $ 6,316,692 $5,951,876
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Six months ended
June 30,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $ 130,461 $
129,268
Interest sensitive and investment product
policy charges 37,832
30,949
Accident and health premiums 441,911
504,799
Total Insurance Revenue 610,204
665,016
Net investment income 111,958
100,383
Realized gains (losses) on investments 17,093
5,692
Other income 16,752
17,028
TOTAL REVENUES 756,007
788,119
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 104,167
116,433
Interest sensitive and investment products 51,936
47,084
Accident and health 348,380
410,068
504,483
573,585
Policyholder dividends 2,214
1,888
Amortization of deferred policy acquisition
costs 19,330 20,160
Insurance commissions 50,852
48,603
General and administrative expenses 126,029
124,122
TOTAL BENEFITS AND EXPENSES 702,908
768,358
INCOME BEFORE INCOME TAXES 53,099
19,761
INCOME TAX EXPENSE (BENEFITS)
Current 24,434
7,422
Deferred (5,849) (
506)
18,585
6,916
NET INCOME $ 34,514 $
12,845
See accompanying notes.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three months ended
June 30,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $ 67,433 $
67,524
Interest sensitive and investment product
policy charges 19,587
17,374
Accident and health premiums 220,611
253,222
Total Insurance Revenue 307,631
338,120
Net investment income 57,044
49,844
Realized gains (losses) on investments 3,781
(1,174)
Other income 8,911
8,584
TOTAL REVENUES 377,367
395,374
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 52,519
57,175
Interest sensitive and investment products 26,313
23,578
Accident and health 175,188
199,892
254,020
280,645
Policyholder dividends 995
754
Amortization of deferred policy acquisition
costs 9,607 9,219
Insurance commissions 26,788
23,122
General and administrative expenses 65,540
61,000
TOTAL BENEFITS AND EXPENSES 356,950
374,740
INCOME BEFORE INCOME TAXES 20,417
20,634
INCOME TAX EXPENSE (BENEFITS)
Current 12,479
4,577
Deferred (5,332) 2,763
7,147
7,340
NET INCOME $ 13,270 $
13,294
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six months ended
June 30,
1997 1996
OPERATING ACTIVITIES
Net income $ 34,514 $ 12,847
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase (decrease)in future policy benefit reserves
for traditional and interest sensitive products 26,977
(71,803)
Increase (decrease)in other policy claims, benefits
and policyholder dividends payable 17,366 (5,540)
Provision for deferred federal income taxes (5,849)
707
(Decrease) in income taxes payable (7,666) (23,880)
Amortization of policy acquisition costs 19,330 20,160
Policy acquisition costs deferred (35,035)
(34,802)
Provision for depreciation 1,127 703
Amortization of investment premiums, net 133 1,134
Change in uncollected premiums, accrued investment
income, other receivables, unearned premiums,
accrued expenses, and other liabilities ( 81,793) (11,323)
Realized gains on investments (17,093) (
5,692)
Other 20 (4,978)
NET CASH PROVIDED BY OPERATING ACTIVITIES (47,969)
(122,467)
INVESTING ACTIVITIES
Purchases of fixed maturity investments (2,446,316) (1,084,818)
Sales or maturities of fixed maturity investments 2,325,418 1,060,351
Increase in short-term investments 40,019 26,115
Purchase of other investments (93,090) ( 71,879)
Sales or maturities of other investments 106,859
38,698
Sale (purchase) of property and equipment 3,187
1,825
Other - ( 156)
NET CASH USED BY INVESTING ACTIVITIES (63,923) ( 29,864)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 112,162 90,087
Surrenders and death benefits (75,513)
(16,493)
Interest credited to policyholders 26,073 30,821
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,722
104,415
DECREASE IN CASH (49,170)
(47,916)
Cash and cash equivalents at beginning of period 20,474
1
CASH AND CASH EQUIVALENTS AT END OF PERIOD $(28,696) $
(47,915)
See accompanying notes.
/TABLE
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
Notes to Financial Statements
June 30, 1997
(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, 1997 and the related statement of income
for the six months ended June 30, 1997 and 1996, and cash
flows for the six months ended June 30,1997 and 1996.
Income tax payments for the six months ended June 30,1997
and June 30, 1996 were $32,115,000 and $32,194,224,
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, 1997, 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, 1997 (in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 190,222 $ 2,059 $ 552 $ 191,729
Public Utilities 128,014 2,388 499
129,903
Industrial and
miscellaneous 1,840,964 29,408 6,295
1,864,077
Other 41,395 728 127 41,996
Total 2,200,595 34,583 7,473
2,227,705
Equity Securities 84,659 23,911 3,594
104,976
$2,285,254 $ 58,494 $ 11,067
$2,332,681
</TABLE>
The amortized cost and fair value of fixed maturities at
June 30, 1997, by contractual maturity, are shown below
(in thousands). Expected maturities will differ from
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
Notes to Financial Statements
June 30, 1997
(unaudited)
contractual maturities because borrowers may have the
right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 31,262 $
31,582
Due after one year through
five years 821,108 829,742
Due after five years through
ten years 551,716
557,742
Due after ten years 796,509 808,639
$ 2,200,595 $ 2,227,705
</TABLE>
Proceeds from sales and maturities of investments in
fixed maturities in the six-month period ended June
30,1997 were $2,318,817,026, and $6,601,000 respectively.
Gross gains of $15,092,024 and gross losses of
$13,694,179 were realized on sales.
Mortgage Loans: The Company has issued commercial
mortgage loans on properties located throughout the
country. Currently, approximately 36% of outstanding
principal is concentrated in the states of Florida,
California and New York. 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.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
Notes to Financial Statements
June 30, 1997
(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 six months of each year were as follows (in
thousands):
<TABLE>
<S> <C> <C>
Investment Realized Gain (Loss)
Income on Investments
1997 1996 1997 1996
Fixed maturities $ 78,255 $ 69,732 $ 1,398 $ 480
Preferred stocks 154 94 359 250
Common stocks 4,495 2,673 15,282 5,049
Mortgage loans on
real estate 26,692 26,440 ( 8) (144)
Policy loans 522 8 0 0
Short-term investments 3,470 4,704 0 57
Real estate and other
investments 2,053 1,290 62 0
115,641 104,941 $ 17,093 $ 5,692
Expenses (3,682) (4,559)
$111,959 $100,382
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations June 30, 1997
Compared to June 30, 1996
Revenues
Traditional life insurance premiums of Fortis Benefits
(the "Company"), principally composed of group life
coverages, increased in the first half of 1997 over the
same period in 1996 due to increased sales. Interest
sensitive and investment product policy charges, which
consist primarily of cost of insurance charges,
increased 22% in the first half of 1997 compared to the
same period in 1996. Continued sales of interest
sensitive and investment products has steadily
increased the policy base on which these charges are
assessed.
Total accident and health premiums decreased in the
first half of 1997 compared to the same period in 1996
primarily due to: 1) a decision made in 1996 to
discontinue new sales of certain medical products; and,
2) sales of the remaining group medical business has
decreased 8%. The decreases above are partially offset
by a 10% increase in group disability and dental
product sales.
The Company continues to match investment portfolio
composition to liquidity needs and capital
requirements. Changes in interest rates during 1997
and 1996 resulted in recognition of realized gains and
losses.
Benefits
The Company's group life benefits which are included in
the traditional life benefits were lower in the first
two quarters of 1997 compared to the same period in
1996 as a result of improved mortality in the first
half of 1997. Interest sensitive and investment
product benefits for the six month period ended June
30, 1997 increased 10% from the same period in 1996.
This increase was the result of higher mortality
experience and higher interest crediting on the
Company's steadily increasing policy base in 1997
compared to 1996.
The accident and health claims to premium ratio
improved from six months ended June 30, 1996 to the
same period in 1997 primarily due to the improved claim
experience.
Expenses
The commission rates have increased from the levels at
June 30, 1996. This is primarily due to the change in
the mix of business by product line as well as the
change in first year versus renewal premiums. Interest
sensitive and investment products commission increased
10% as a result of increased sales,in the first six
months in 1997 compared to the same period in 1996. The
Company deferred $32.6 million of these commissions in
the first half of 1997, compared to $31.1 million in
the same period in 1996.
The Company's expenses in the first half of 1997 have
increased over the same period in 1996. Contributing
to this increase are expenses associated with enabling
the application systems to be year 2000 compliant.
Group dental operations are beginning managed dental
initiatives that have also contributed to the expense
increases. Expense reductions relating to the
discontinued group medical business have continued but
the expense decreases have slowed in comparison to the
premium decreases.
Liquidity and Capital Resources
The liquidity requirements of the Company have been met
by funds provided from operations, investment income
and additional paid in capital from the Company's
parent and sole shareholder. Funds are principally
used to provide for policy benefits, operating
expenses, commissions and investment purchases. The
impact of the declining inforce medical business has
been considered in evaluating the Company's future
liquidity needs. The Company expects its operating
activities and additional paid in capital from the
Company's parent to generate sufficient funds.
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
risk-based capital amount which is then compared to a
company's actual total adjusted capital. Based upon
current calculation using these risk-based capital
standards, the <PAGE>
Company's percentage of total adjusted capital is in
excess of ratios which would require regulatory
attention.
The Company has no long or short term debt. The
Company's fixed maturity investments consisted of 97%
investment grade bonds as of June 30, 1997 and the
Company does not expect this percentage to change
significantly in the future.
<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 14, 1997
/s/ 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 2,227,705
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 104,976
<MORTGAGE> 579,901
<REAL-ESTATE> 38,969
<TOTAL-INVEST> 3,158,481
<CASH> (28,696)
<RECOVER-REINSURE> 13,655
<DEFERRED-ACQUISITION> 281,509
<TOTAL-ASSETS> 6,316,692
<POLICY-LOSSES> 2,533,676
<UNEARNED-PREMIUMS> 12,230
<POLICY-OTHER> 208,916
<POLICY-HOLDER-FUNDS> 9,173
<NOTES-PAYABLE> 0
<COMMON> 5,000
0
0
<OTHER-SE> 799,932
<TOTAL-LIABILITY-AND-EQUITY> 6,316,692
610,204
<INVESTMENT-INCOME> 111,958
<INVESTMENT-GAINS> 17,093
<OTHER-INCOME> 16,752
<BENEFITS> 504,483
<UNDERWRITING-AMORTIZATION> 19,330
<UNDERWRITING-OTHER> 179,095
<INCOME-PRETAX> 53,099
<INCOME-TAX> 18,585
<INCOME-CONTINUING> 34,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,514
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 947,711
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
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</TABLE>
