UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
[ X ] For the quarterly period ended: June 30, 1996
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: 33-71690
FIRST FORTIS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK
State or other jurisdiction of incorporation or
organization)
13-2699219 (I.R.S. Employer Identification No.)
220 SALINA MEADOWS PARKWAY, SUITE 255,
SYRACUSE, NEW YORK 13220
(Address of principal executive offices)
(315) 451-0066
(Registrant's telephone number, including area code)
(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.
Yes X No
<PAGE>
First Fortis Life Insurance Company
Balance Sheets
<TABLE>
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturities, at fair value (amortized cost
1996--$114,839,140; 1995--$106,648,745) $114,440,811
$112,183,452
Preferred stock at fair value (cost--$92,029) -- 89,345
Short-term investments 5,800,000
6,850,000
120,240,811 119,122,797
Cash 2,863,887 1,145,131
Receivables:
Uncollected premiums, less allowance of $100,000 4,828,763
4,440,446
Reinsurance recoverable on unpaid and paid losses 15,494,496
9,335,947
Prepaid federal income taxes and other 3,788,763
2,255,199
24,112,022 16,031,592
Accrued investment income 1,669,573
1,814,291
Property and equipment at cost, less accumulated
depreciation (1996-$1,496,337; 1995-$1,249,280) 1,088,699
1,199,482
Goodwill 577,000
600,000
Total Assets $150,551,992
$139,913,293
Reserves, liabilities, and shareholder's equity
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance $ 24,359,374 $
22,529,817
Accident and health 67,682,902
59,442,638
92,042,276 81,972,455
Other policy claims and benefits payable 12,770,844
13,561,740
Other liabilities 13,869,825
5,988,794
Total policy reserves and liabilities 118,682,945
101,522,989
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 37,440,000
37,440,000
Retained deficit (7,308,056)
(4,700,825)
Unrealized appreciation of
investment securities, net (262,897)
3,651,129
Total shareholder's equity 31,869,047
38,390,304
Total reserves, liabilities, and shareholder's equity $150,551,992
$139,913,293
See notes to financial statements.
<PAGE>
First Fortis Life Insurance Company
Statements of Operations
(Unaudited)
Three months ended
June 30,
1996 1995
<S> <C> <C>
Revenues
Insurance operations:
Life insurance premiums $ 5,969,639 $ 4,475,372
Accident and health premiums 13,213,615 15,853,842
Net investment income 2,014,472 1,809,371
Realized gains (losses) on investments (732,500)
598,755
Other income -- 17,077
Total revenues 20,465,226 22,754,417
Benefits and expenses
Benefits to policyholders:
Life insurance 6,373,042 3,777,037
Accident and health 12,883,304 14,725,410
Amortization of deferred policy acquisition
costs --
462,000
Insurance commissions 1,326,067 1,305,570
General and administrative expenses 3,003,019 3,488,213
Total benefits and expenses 23,585,432 23,758,230
Loss before federal income taxes (benefit) (3,120,206)
(1,003,813)
Federal income taxes (benefit) (1,108,647) (403,131)
Net loss $ (2,011,559) $ (600,682)
See notes to financial statements.<PAGE>
First Fortis Life Insurance Company
Statements of Operations
(Unaudited)
Six months ended
June 30,
1996 1995
<S> <C> <C>
Revenues
Insurance operations:
Life insurance premiums $ 12,246,587 $ 8,933,261
Accident and health premiums 27,312,805 34,269,476
Net investment income 3,965,494 3,604,439
Realized gains (losses) on investments (584,396)
380,263
Other income 105,088 43,797
Total revenues 43,045,578 47,231,236
Benefits and expenses
Benefits to policyholders:
Life insurance 12,392,821 6,033,574
Accident and health 25,459,379 31,893,001
Amortization of deferred policy acquisition
costs --
924,000
Insurance commissions 2,702,006 2,700,346
General and administrative expenses 6,501,902 7,014,498
Total benefits and expenses 47,056,108 48,565,419
Loss before federal income taxes (benefit) (4,010,530)
(1,334,183)
Federal income taxes (benefit) (1,403,299) (513,182)
Net loss $ (2,607,231) $ (821,001)
See notes to financial statements.<PAGE>
First Fortis Life Insurance Company
Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
1996 1995
<S> <C> <C>
Operating activities
Net loss $ (2,607,231) $ (821,001)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Increase (decrease) in future policy
benefit reserves and other policy
claims and benefits 9,278,925 (66,235)
(Increase) decrease in income taxes 272,012 (513,162)
Amortization of policy acquisition
costs --
924,000
Increase in other liabilities 7,881,031 2,773,781
Depreciation, amortization and accretion 412,763 337,641
(Increase) decrease in uncollected premiums,
accrued investment income and other (32,858)
365,702
(Increase) decrease in reinsurance recoverable (6,158,549) 387,173
Net realized (gains) losses on
investments 584,396
(380,263 )
Net cash provided by operating activities 9,630,489 3,007,636
Investing activities
Purchases of fixed maturity investments (69,731,374) (43,838,470)
Sales and maturities of fixed maturity
investments 60,813,886 41,103,986
Decrease in equity securities and
short-term investments 1,142,029 1,300,000
Purchase of property and equipment (136,274) (240,174)
Net cash used in investing activities (7,911,733)
(1,674,658)
Increase in cash 1,718,756 1,332,978
Cash at beginning of period 1,145,131 483,075
Cash at end of period $ 2,863,887 $ 1,816,053
See notes to financial statements.
</TABLE> <PAGE>
First Fortis Life Insurance Company
Notes to Financial Statements
June 30, 1996 and 1995
(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 June 30, 1996
and the related statements of operations for the three
and six months ended June 30, 1996 and 1995, and cash
flows for the six months ended June 30, 1996 and 1995.
Investments
The following is a summary of the amortized cost and
fair value of fixed maturity securities:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
June 30, 1996
Governments $ 14,615,361 $ 99,535 $ (159,714) $ 14,555,182
Public utilities 7,458,320 38,283 (139,488)
7,357,115
Industrial and
miscellaneous 92,765,459 1,010,613 (1,247,558)
92,528,514
Total $114,839,140 $1,148,431 $(1,546,760) $114,440,811
</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 June 30, 1996, 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>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 2,596,971 $ 2,602,270
Due after one year through five years 30,936,900 31,024,909
Due after five years through ten years 45,895,306 45,529,310
Due after ten years 35,409,963 35,284,322
$114,839,140 $114,440,811
</TABLE>
First Fortis Life Insurance Company
Notes to Financial Statements (Continued)
Investments (Continued)
Proceeds from sales and maturities of fixed maturity
securities were $60,813,886 and $41,103,986 for the six
month period ended June 30, 1996 and 1995,
respectively. Gross gains of $653,485 and $817,709 and
gross losses of $1,237,881 and $491,446 were realized
on the sales during the six month period ended June 30,
1996 and 1995.
Net Investment Income and Net Realized Gains (Losses)
on Investments
Major categories of net investment income and realized
gains (losses) on investments for the six months ended
June 30 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Net Net Realized
Investment Gains (Losses)
Income on Investments
1996 1995 1996 1995
Fixed maturities $3,937,725 $3,721,598 $ (584,396)$
380,263
Short-term
investments 174,852 466 -
-
4,112,577 3,722,064 $ (584,396) $
380,263
Expenses (147,083) (117,625)
Net investment
income $3,965,494 $3,604,439
</TABLE>
Federal Income Taxes
As of June 30, 1996 and December 31, 1995,
respectively, the Company had a deferred tax asset
valuation allowance of $1,337,823.
Reinsurance
In the second quarter 1996, the Company received
approval from the New York State Insurance Department
of a reinsurance agreement with Fortis Benefits
Insurance Company ("Fortis Benefits"), an affiliate.
The agreement, which became effective as of January 1,
1996, decreases the Company's long term disability
reinsurance retention from a $10,000 net monthly
benefit to a $2,000 net monthly benefit for claims
incurred on and after January 1, 1996. Under the
agreement, which has had an immaterial net effect on
the Company's net income through June 30, 1996, the
Company has ceded $3,172,000 of premium to Fortis
Benefits and Fortis Benefits has assumed $3,174,000 of
reserves from the Company. In the future, the agreement
is expected to reduce the variability of financial
results for this product line.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
As of and for the Three and Six Months Ended June 30,
1996 and 1995.
REVENUES
Total premium decreased in 1996 as compared to 1995. A
decision announced in 1995 to cease writing new medical
business along with premium rate increases on the
Company's renewal medical business have contributed to
a decline of approximately 67% of inforce medical lives
and a $28 million decrease in annualized inforce
medical premium since January 1, 1995. On-going
marketing efforts have continued to increase the
Company's group life, group disability income, and
group dental premiums.
The Company continues to match investment portfolio
composition to liquidity needs and capital
requirements. Changes in interest rates during 1996 and
1995 resulted in recognition of realized gains and
losses.
BENEFITS
The Company's group life claims ratio was higher than
expected in the first six months of 1996 as a result of
increased mortality and larger average claim amounts.
During 1995, the corresponding mortality rate was as
expected. Actions taken by the Company on its medical
business have improved the benefit results for this
product line from 1995 to 1996. Improved recovery rates
on existing group disability income claimants were
offset in the second quarter 1996 by an increase in the
incidence of new claimants thus resulting in a decline
in the accident and health benefit results from 1995 to
1996.
EXPENSES
The Company continues to monitor its commission rate
structures, and, as indicated by market conditions,
periodically adjusts rates paid. Rates paid vary by
product type, group size and duration. Commission rate
decreases on medical products have been offset by
changes in the mix of inforce business thus resulting
in a consistent commissions to gross premium ratio from
1995 to 1996. The decrease in medical premium and
related medical claims volume from 1995 to 1996 has
resulted in a decrease in the Company's general and
administrative expenses.
Management's Discussion and Analysis of Financial
Condition and Results of Operations As of and for the
Three and Six Months Ended June 30, 1996 and 1995
(Continued)
Liquidity and Capital Resources
The liquidity requirements of the Company have been met
by funds provided from operations, including investment
income. Funds are principally used to provide for
policy benefits, operating expenses, commissions and
investment purchases. The Company expects its operating
activities to continue to generate funds which will be
sufficient for these needs.
The National Association of Insurance Commissioners'
risk-based capital formula helps to establish
guidelines for capital levels. At June 30, 1996, the
Company's capital exceeded the minimum recommended
risk-based capital level.
As of June 30, 1996, 97.8% of the Company's fixed
maturity securities consisted of investment grade
bonds.
Regulation
The Company 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 the
Company's operations.
<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
(a) On April 25, 1996, the Annual First Fortis
Life Insurance Company Shareholder Meeting
was held.
(b),(c) All 100,000 outstanding shares of the
Company's common stock were cast for the
election of each director (Larry M. Cains,
Allen R. Freedman, Thomas M. Keller, Dean
C. Kopperud, Terry J. Kryshak, Susie
Gharib, Guy G. Rutherfurd, Jr., Dale E.
Gardner, Kenneth W. Nelson, Clarence E.
Galston, and Robert B. Pollock).
(d) 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.
First Fortis Life Insurance Company
(Registrant)
Date: August 14, 1996
/s/ Larry M. Cains
Larry M. Cains, Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000914804
<NAME> FIRST FORTIS LIFE INSURANCE COMPANY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 114,440,811
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 120,240,811
<CASH> 2,863,887
<RECOVER-REINSURE> 15,494,496
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 150,551,992
<POLICY-LOSSES> 92,042,276
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,770,844
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000,000
0
0
<OTHER-SE> 29,869,047
<TOTAL-LIABILITY-AND-EQUITY> 150,551,992
39,559,392
<INVESTMENT-INCOME> 3,965,494
<INVESTMENT-GAINS> (584,396)
<OTHER-INCOME> 105,088
<BENEFITS> 37,852,200
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (4,010,530)
<INCOME-TAX> (1,403,299)
<INCOME-CONTINUING> (2,607,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,607,231)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 65,764,070
<PROVISION-CURRENT> 0
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</TABLE>
