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, 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
FORTIS BENEFITS INSURANCE COMPANY
BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<S> <C> <C>
March 31, December 31,
1997 1996
(unaudited)
ASSETS
Investments
Fixed maturities, at fair value (amortized
cost: $2,167,502 at March 31, 1997,
$2,078,438 at December 31, 1996) $ 2,145,764 $ 2,115,499
Equity securities, at fair value (cost:
$94,941 at March 31, 1997, $84,144 at
December 31, 1996) 104,960 106,290
Mortgage loans on real estate 588,937 582,869
Policy loans 62,143 60,722
Short-term investments 91,540 182,817
Real estate and other investments 29,442 29,628
$ 3,022,786 $ 3,077,825
Cash (42,305) 20,474
Receivables:
Uncollected premium 70,519 71,386
Reinsurance recoverable on paid and unpaid losses 13,009 12,939
Other 33,823 9,045
117,351 93,370
Accrued investment income 44,142 39,519
Deferred policy acquisition costs 280,599 268,075
Property and equipment, at cost, less
accumulated depreciation 49,774 52,882
Deferred federal income taxes 40,810 17,008
Other assets 4,188 8,005
Assets held in separate accounts 2,354,376 2,374,718
$ 5,871,721 $ 5,951,876
See accompanying notes.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
March 31, December 31,
1997 1996
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 436,933 $ 434,378
Interest sensitive and investment products 1,205,568 1,175,480
Accident and health 835,914 834,119
2,478,415 2,443,977
Unearned premiums 12,674 12,622
Other policy claims and benefits payable 196,582 191,940
Policyholder dividends payable 9,120 8,783
2,696,791 2,657,322
Accrued expenses 33,419 42,223
Current income taxes payable 21,094 17,424
Other liabilities 32,409 104,834
Due to Affiliates 5,029 4,926
Liabilities related to separate accounts 2,324,722 2,344,474
5,113,464 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 286,856 265,613
Unrealized gain (loss) on available-for-sale
securities, net of deferred taxes of
($3,689) at March 31, 1997 and $19,535 at
December 31, 1996 (6,840) 36,290
Unrealized gain on assets held in separate
accounts, net of deferred taxes of $1,392 at
March 31, 1997 and $1,454 at December 31, 1996 5,241 5,770
Total Shareholder's equity 758,257 780,673
Total policy reserves, liabilities &
Shareholder's equity $ 5,871,721 $5,951,876
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three months ended
March 31,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $ 63,028 $ 61,744
Interest sensitive and investment product
policy charges 18,245 13,575
Accident and health premiums 221,300 251,577
Total Insurance Revenue 302,573 326,896
Net investment income 54,914 50,539
Realized gains (losses) on investments 13,312 6,866
Other income 7,841 8,444
TOTAL REVENUES 378,640 392,745
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 51,648 59,258
Interest sensitive and investment products 25,623 23,506
Accident and health 173,192 210,176
250,463 292,940
Policyholder dividends 1,219 1,134
Amortization of deferred policy acquisition
costs 9,723 10,941
Insurance commissions 24,064 25,481
General and administrative expenses 60,489 63,122
TOTAL BENEFITS AND EXPENSES 345,958 393,618
INCOME BEFORE INCOME TAXES 32,682 (873)
INCOME TAX EXPENSE (BENEFITS)
Current 11,955 2,845
Deferred (517) (3,269)
11,438 (424)
NET INCOME $ 21,244 $ (449)
See accompanying notes.<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Three months ended
March 31,
1997 1996
OPERATING ACTIVITIES
Net income $ 21,243 $ (449)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefit reserves for
traditional and interest sensitive products 11,565 (62,021)
Increase in other policy claims, benefits
and policyholder dividends payable 4,979 38,446
Provision for deferred federal income taxes (517) (3,269)
Increase (decrease) in income taxes payable 3,670 (24,502)
Amortization of policy acquisition costs 9,723 10,941
Policy acquisition costs deferred (17,604) (15,704)
Provision for depreciation 4,193 4,593
Amortization of investment premiums(discounts), net 152 676
Change in uncollected premiums, accrued investment
income, other receivables, unearned premiums,
accrued expenses, and other liabilities (114,229) 17,897
Realized (gains) losses on investments (13,312) ( 6,866)
Other (56) 778
NET CASH PROVIDED BY OPERATING ACTIVITIES ( 90,193) (39,480)
INVESTING ACTIVITIES
Purchases of fixed maturity investments (1,232,671) ( 625,023)
Sales or maturities of fixed maturity investments 1,143,043 564,633
Increase in short-term investments 91,278 60,693
Purchase of other investments (801,253) ( 46,828)
Sales or maturities of other investments 805,230 31,979
Purchase of property and equipment (1,086) ( 4,395)
Other - 364
NET CASH USED BY INVESTING ACTIVITIES 4,541 ( 18,577)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 44,543 58,767
Surrenders and death benefits (34,639) (13,369)
Interest credited to policyholders 12,969 15,535
Dividends paid to shareholder 0 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,873 60,933
INCREASE IN CASH (62,779) 2,876
Cash and cash equivalents at beginning of period 20,474 1
CASH AND CASH EQUIVALENTS AT END OF PERIOD $(42,305) $ 2,877
See accompanying notes.
/TABLE
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
Notes to Financial Statements
March 31, 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 March 31, 1997 and the related statement of income
for the three months ended March 31, 1997 and 1996, and
cash flows for the three months ended March 31,1997 and
1996.
Income tax payments for the three months ended March
31,1997 and March 31, 1996 were $8,300,000 and
$27,347,000, 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 March 31, 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 March 31, 1997 (in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 180,121 $ 40 $ 3,551 $ 176,611
Public Utilities 142,531 1,831 2,968 141,393
Industrial and
miscellaneous 1,769,618 16,397 32,293 1,753,722
Other 75,232 657 1,851 74,038
Total 2,167,502 18,925 40,663 2,145,764
Equity Securities 94,941 12,369 2,350 104,960
$2,262,443 $ 31,294 $ 43,013 $2,250,724
</TABLE>
The amortized cost and fair value of fixed maturities at
March 31, 1997, 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>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 21,407 $ 21,535
Due after one year through
five years 650,187 651,581
Due after five years through
ten years 672,806 665,064
Due after ten years 823,102 807,584
$ 2,167,502 $ 2,145,764
</TABLE>
Proceeds from sales and maturities of investments in
fixed maturities in the three-month period ended March
31,1997 were $1,112,802,706,and $68,186,018 respectively.
Gross gains of $5,478,346 and gross losses of $5,875,305
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, 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.
In 1995 the Company adopted FASB 114 and 118, "Accounting
by Creditors for Impairment of a Loan." Statements 114
and 118 require 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.
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>
<S> <C> <C>
Investment Realized Gain (Loss)
Income on Investments
1997 1996 1997 1996
Fixed maturities $ 38,544 $ 35,421 $ (397) $ 1,628
Preferred stocks 78 51 345 250
Common stocks 1,853 620 13,309 2,266
Mortgage loans on
real estate 13,244 13,351 ( 8) (144)
Policy loans 992 818 0
Short-term investments 719 2,102 57
Real estate and other
investments 1,276 239 63 2,809
56,706 52,602 $ 13,312 $ 6,866
Expenses (1,792) (2,063)
$ 54,914 $ 50,539
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations March 31, 1997
Compared to March 31, 1996
Revenues
Traditional life insurance premiums of Fortis Benefits
(the "Company") are principally composed of group life
coverages. Total life premiums in the first quarter
increased over 1996 due primarily to increased group life
sales in 1997. Interest sensitive and investment product
policy charges, which consist primarily of cost of
insurance charges, increased 34% in the first quarter 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
quarter of 1997 compared to the same period in 1996
primarily due to the decision in 1996 to discontinue new
sales of certain medical products. This decrease is
partially offset by a 10% increase in first quarter sales
of 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
quarter of 1997 compared to the same period in 1996 as a
result of improved mortality. Interest sensitive and
investment product benefits for the three month period
ended March 31, 1997 increased 9% 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 three months ended March 31, 1996 to the same period
in 1997 primarily due to the improved claim closure rates
in the group disability lines.
Expenses
The commission rates have declined from the levels at
March 31, 1996. This is primarily due to 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 from the
first three months in 1997 compared to the same period in
1996; however, the Company deferred $16.0 million of
these commissions in the first three months of 1997,
compared to $14.7 million in the same period in 1996.
The additional commission and deferral is the result of
an increase in sales of the company's variable life and
variable annuity products.
In 1996, the Company consolidated the fully insured group
medical business administration processing. This has
resulted in expense savings as demonstrated by the
reduction in the general and administrative expenses.
Also contributing to the expense reduction was the
decision to discontinue issuing large group self funded
medical business.
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 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
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 March 31, 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: May 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 2,145,764
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 104,960
<MORTGAGE> 588,937
<REAL-ESTATE> 29,442
<TOTAL-INVEST> 3,022,786
<CASH> (42,305)
<RECOVER-REINSURE> 13,009
<DEFERRED-ACQUISITION> 280,599
<TOTAL-ASSETS> 5,871,721
<POLICY-LOSSES> 2,696,791
<UNEARNED-PREMIUMS> 12,674
<POLICY-OTHER> 196,582
<POLICY-HOLDER-FUNDS> 9,120
<NOTES-PAYABLE> 0
<COMMON> 5,000
0
0
<OTHER-SE> 753,257
<TOTAL-LIABILITY-AND-EQUITY> 5,871,721
1,559,357
<INVESTMENT-INCOME> 54,914
<INVESTMENT-GAINS> 13,312
<OTHER-INCOME> 7,841
<BENEFITS> 250,463
<UNDERWRITING-AMORTIZATION> 9,723
<UNDERWRITING-OTHER> 85,772
<INCOME-PRETAX> 32,682
<INCOME-TAX> 11,438
<INCOME-CONTINUING> 21,244
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<EXTRAORDINARY> 0
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<NET-INCOME> 21,244
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<RESERVE-OPEN> 947,711
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</TABLE>
