<PAGE>
UNITED STATES
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
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from: to
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Commission File Number: 33-71690
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FIRST FORTIS LIFE INSURANCE COMPANY
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2699219
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
220 SALINA MEADOWS PARKWAY, SUITE 255, SYRACUSE, NEW YORK 13220
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(315) 451-0066
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required 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.
/x/ Yes / / No
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First Fortis Life Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1995--$105,644,308;1994--$102,195,927) $104,607,169 $ 97,337,464
Short-term investments 2,300,000 1,900,000
---------------------------------
106,907,169 99,237,464
Cash 1,342,228 483,075
Receivables:
Uncollected premiums, less allowance (1995--$100,000; 1994--$100,000)
3,423,923 4,595,706
Reinsurance recoverable on unpaid and paid losses 8,741,040 8,875,349
Prepaid federal income taxes and other 2,174,339 2,215,328
---------------------------------
14,339,302 15,686,383
Accrued investment income 1,912,640 1,945,610
Deferred policy acquisition costs 4,133,000 4,595,000
Property and equipment at cost, less accumulated
depreciation (1995--$890,789; 1994--$766,831) 1,611,943 1,360,471
Goodwill 634,500 646,000
---------------------------------
Total assets $130,880,782 $123,954,003
---------------------------------
---------------------------------
RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance $ 21,467,670 $ 21,233,643
Accident and health 53,123,422 52,844,913
---------------------------------
74,591,092 74,078,556
Other policy claims and benefits payable 17,668,821 17,974,419
Other liabilities 8,979,309 5,860,473
---------------------------------
Total policy reserves and liabilities 101,239,222 97,913,448
Shareholder's equity:
Common stock, $20 par value 100,000 shares authorized,
issued, and outstanding 2,000,000 2,000,000
Additional paid-in capital 30,440,000 30,440,000
Retained deficit (1,761,301) (1,540,982)
Unrealized depreciation of investment securities, net (1,037,139) (4,858,463)
---------------------------------
Total shareholder's equity 29,641,560 26,040,555
---------------------------------
Total reserves, liabilities, and shareholder's equity $130,880,782 $123,954,003
---------------------------------
---------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
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First Fortis Life Insurance Company
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
---------------------------------
<S> <C> <C>
REVENUES
Insurance operations:
Life insurance premiums $ 4,457,889 $ 5,636,888
Accident and health premiums 18,415,634 16,880,361
Net investment income 1,795,068 1,452,656
Realized gains (losses) on
investments (218,492) 131,993
Other income 26,720 128,249
---------------------------------
Total revenues 24,476,819 24,230,147
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance 2,256,537 7,067,747
Accident and health 17,167,591 15,063,495
Amortization of deferred policy acquisition
costs 462,000 454,000
Insurance commissions 1,394,776 1,007,414
General and administrative expenses 3,526,285 3,330,660
---------------------------------
Total benefits and expenses 24,807,189 26,923,316
---------------------------------
Loss before federal income taxes (330,370) (2,693,169)
Federal income taxes (benefit) (110,051) (1,122,103)
---------------------------------
Net loss $ (220,319) $ (1,571,066)
---------------------------------
---------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
First Fortis Life Insurance Company
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (220,319) $(1,571,066)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in future policy benefit
reserves and other policy claims
and benefits 206,938 1,462,342
Increase (decrease) in income taxes (110,031) 31,151,
Amortization of policy acquisition
costs 462,000 454,000
Increase in other liabilities 3,118,816 6,293,241
Depreciation and amortization 135,458 124,769
(Increase) decrease in uncollected
premiums and accrued investment
income 1,204,753 (604,869)
Decrease in reinsurance
recoverable 134,309 187,378
Net realized (gains) losses
on investments 218,492 (131,993)
Other 151,020 (1,040,047)
---------------------------------
Net cash provided by operating activities 5,301,456 5,204,906
INVESTING ACTIVITIES
Purchases of fixed maturity investments (15,713,021) (23,157,539)
Sales and maturities of fixed maturity
investments 12,046,148 23,388,670
Increase in equity securities and
short-term investments (400,000) (5,111,780)
Purchase of property and equipment (375,430) (28,311)
---------------------------------
Net cash used in investing activities (4,442,303) (4,908,960)
---------------------------------
Increase in cash 859,153 295,946
Cash at beginning of period 483,075 1,803,384
---------------------------------
Cash at end of period $ 1,342,228 $ 2,099,330
---------------------------------
---------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
First Fortis Life Insurance Company
Notes to Financial Statements
March 31, 1995 and 1994
(Unaudited)
GENERAL
The accompanying unaudited financial statements of First Fortis Life Insurance
Company ("First Fortis" or "Company"), contain all adjustments necessary to
present fairly the balance sheet as of March 31, 1995 and the related statements
of operations for the three months ended March 31, 1995 and 1994, and cash flows
for the three months ended March 31, 1995 and 1994.
INVESTMENTS
The following is a summary of the amortized cost and fair value of fixed
maturity securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1995:
Governments $ 40,585,855 $ 553,017 $ (637,144) $ 40,501,728
State and municipal 18,838,174 162,173 (393,089) 18,607,258
Public utilities 3,392,844 10,072 (100,134) 3,302,782
Industrial and
miscellaneous 42,827,435 325,258 (957,292) 42,195,401
---------------------------------------------------------------------------
Total $105,644,308 $1,050,520 $(2,087,659) $104,607,169
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, and
maturity of the investments.
The amortized cost and fair value of fixed maturity securities at March 31,
1995, by contractual maturity, are shown below. 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
Cost Fair Value
-----------------------------------
<S> <C> <C>
Due in one year or less $ 5,540,730 $ 5,537,296
Due after one year through five years 29,668,227 29,311,497
Due after five years through ten years 46,704,233 46,380,566
Due after ten years 23,731,118 23,377,810
-----------------------------------
$105,644,308 $104,607,169
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-----------------------------------
</TABLE>
<PAGE>
First Fortis Life Insurance Company
Notes to Financial Statements (Continued)
INVESTMENTS (CONTINUED)
Proceeds from sales and maturities of fixed maturity securities were $12,046,148
and $23,388,670 for the three month period ended March 31, 1995 and 1994,
respectively. Gross gains of $89,092 and $321,364 and gross losses of $307,584
and $189,371 were realized on the sales during the three month period ended
March 31, 1995 and 1994.
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for the three months ended March 31 were as follows:
<TABLE>
<CAPTION>
Net Realized Gains (Losses)
Net Investment Income on Investments
1995 1994 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities $1,856,398 $1,527,977 $(218,492) $136,476
Short-term
investments 702 5,774 - (4,483)
-------------------------------------------------------------------------
1,857,100 1,533,751 $(218,492) $131,993
--------------------------------
--------------------------------
Expenses (62,032) (81,095)
----------------------------------
Net investment
income $1,795,068 $1,452,656
----------------------------------
----------------------------------
</TABLE>
FEDERAL INCOME TAXES
As of March 31, 1995 and December 31, 1994, respectively, the Company had a
deferred tax valuation allowance of $1,868,158 and $3,167,408, of which
$352,627 and $1,651,877 related to unrealized depreciation on investment
securities. The $1,299,250 decrease in the deferred tax valuation allowance,
which was related to unrealized depreciation on investment securities, was
recognized in the "unrealized depreciation of investment securities, net"
component of shareholder's equity.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
REVENUES
Increased revenues are directly related to increased accident and health earned
premiums. The group accident and health premium mix has remained stable from
1994 to 1995 (medical-- averaging 65%, disability income-- averaging 19% and
dental-- averaging 16%). During 1994, medical premium grew primarily from the
impact of New York State Regulation 145 "Open Enrollment and Community Rating of
Individual and Small Group Health Insurance" ("Community Rating"). On-going
marketing efforts increased disability income and dental premiums.
First Fortis' life premiums are principally composed of group fully insured
coverages. In mid 1994, a minimum premium account lapsed. This account did not
have a significant impact on the Company's operating results. On-going marketing
efforts increased group fully insured premium from 1994 to 1995.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1995 and 1994
resulted in recognition of realized gains and losses.
BENEFITS
The group life claims ratio was higher than expected in the first quarter 1994
as a result of higher death claims. In 1995, mortality experience returned to a
level that is consistent with product pricing assumptions.
Improved recovery rates on existing group disability income claimants were
offset by a Community Rating medical loss ratio that exceeded product pricing
assumptions. Premium rate actions are expected to improve medical and
disability income results later in 1995.
COMMISSIONS
First Fortis continues to monitor its commission rate structure, and, as
indicated by market conditions, periodically adjusts rates paid. Commission
rates paid are dependent upon product type, group size and duration. The
increase in the commissions to premiums ratio reflects the change in the mix
of business in force.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company have been met by funds provided from
operations. Funds are principally used to provide for policy benefits and
reserves, operating expenses,
<PAGE>
commissions and investment purchases. The Company expects its operating
activities to continue to generate sufficient funds.
The National Association of Insurance Commissioners' risk-based capital formula
helps to establish guidelines for capital levels. At March 31, 1995, First
Fortis' capital exceeded the minimum recommended risk-based capital level.
As of March 31, 1995, 99.5% of the Company's fixed maturity securities consisted
of investment grade bonds.
REGULATION
First Fortis is subject to the laws and regulations established by the New York
State Insurance Department governing insurance business conducted in New York
State. Periodic audits are conducted by the New York Insurance Department
related to the Company's compliance with these laws and regulations. To date
there have been no adverse findings regarding First Fortis operations.
First Fortis closely monitors state and national medical insurance legislative
activity, and its potential effect on the Company's marketing approach.
<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
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None
ITEM 5: Other Information
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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.
First Fortis Life Insurance Company
-----------------------------------
(Registrant)
May 15, 1995 /s/ Larry M. Cains
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Date Larry M. Cains, Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<CIK> 0000914804
<NAME> FIRST FORTIS LIFE INSURANCE COMPANY
<MULTIPLIER> 1
<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> 104,607,169
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 106,907,169
<CASH> 1,342,228
<RECOVER-REINSURE> 8,741,040
<DEFERRED-ACQUISITION> 4,133,000
<TOTAL-ASSETS> 130,880,782
<POLICY-LOSSES> 74,591,092
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 17,668,821
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000,000
0
0
<OTHER-SE> 27,641,560
<TOTAL-LIABILITY-AND-EQUITY> 130,880,782
22,873,523
<INVESTMENT-INCOME> 1,795,068
<INVESTMENT-GAINS> (218,492)
<OTHER-INCOME> 26,720
<BENEFITS> 19,424,128
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 462,000
<INCOME-PRETAX> (330,370)
<INCOME-TAX> (110,051)
<INCOME-CONTINUING> (220,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,319)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 66,136,369
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
