<PAGE>
- --------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM COMMISSION FILE NUMBER
33-71690
------------------------
FIRST FORTIS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter
<TABLE>
<S> <C>
NEW YORK 13-2699219
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
220 SALINA MEADOWS PARKWAY, SUITE
255,
SYRACUSE, NEW YORK 13220
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number: (315) 451-0066
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
------------------------
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.
/X/ Yes / / No
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Form S-1 Amended Registration Statement to be filed by the
Registrant are incorporated by reference into Parts I, II and III.
- --------------------------------------------------------------------------------
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<PAGE>
PART I
ITEM 1. BUSINESS
"First Fortis Life Insurance Company" on page 7 and "Further Information
About First Fortis" on pages 17 through 21 of the prospectus attached hereto as
Exhibit No. 99 are incorporated herein.
The Company seeks to compete primarily on the basis of customer service,
product design, and, in the case of products funded through Fortis Series Fund,
Inc., the investment results achieved by Fortis Advisers, Inc. Many other
insurance companies compete with the Company in each of its markets, including
on the basis of price. Many of these companies, which include some of the
largest and best known insurance companies, have considerably greater resources
than the Company.
ITEM 2. PROPERTIES
The Company leases its home office building, consisting of 26,875 square
feet, in Syracuse, New York. It also leases space, consisting of 9,471 square
feet, for the maintenance of a sales office located in New York City. The
Company expects that this office space will be adequate for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, none of which, in the
opinion of the Company counsel, will result in a material liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" from page 18 of the prospectus attached hereto as
Exhibit No. 99, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 18 of the prospectus attached hereto as Exhibit No. 99 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements included in the prospectus attached
hereto as Exhibit No. 99 are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Directors and Executive Officers of the Registrant" on Page 20 of the
prospectus attached hereto as Exhibit No. 99 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" on Page 21 of the prospectus attached hereto as
Exhibit No. 99 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
PERCENTAGE
NAME & ADDRESS OF BENEFICIAL NUMBER OF OF OUTSTANDING
OWNER SHARES VOTING SHARES
- --------------------------------- ----------- ------------------
<S> <C> <C>
Fortis AMEV 100,000 100%
Archimedeslaan 10
3584 BA
Utrecht, The Netherlands
</TABLE>
(b) Security Ownership of Management
None.
(c) Changes in Control
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)The following financial statements of First Fortis Life Insurance Company
are included in Item 8:
Report of Independent Auditors
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and
1993
Statements of Changes in Shareholder's Equity for the years ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993.
Notes to Financial Statements
(a)(2) The information required by the following financial statement schedules
for First Fortis Life Insurance Company are included in Item 8:
I. Summary of Investments -- Other than Investments in Related Parties
-- Contained in the Notes to Financial Statements.
II. Condensed Financial Information of Registrant -- Contained in the
non-financial statement part of the prospectus.
IV. Reinsurance -- Contained in the Notes to Financial Statements.
V. Valuation and Qualifying Accounts -- Contained in the Financial
Statements and Notes to Financial Statements.
All other schedules to the financial statements required by Article 7 of the
Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.
(a)(3) Listing of Exhibits
2. None.
3.(a) Articles of Incorporation of First Fortis Life Insurance Company --
filed herewith.
(b) By-laws of First Fortis Life Insurance Company (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed on November 15, 1993);
4.(a) Form of Combination Fixed and Variable Group Annuity Contract;
(Incorporated by reference from Post-Effective Amendment No. 2 to Form
N-4 Registration Statement, File No. 33-71686, of registrant and its
Separate Account A filed on April 27, 1995);
(b) Form of Application to be used in connection with Contract filed as
Exhibit 4 (a) (Incorporated by reference from Post-Effective Amendment
No. 2 to Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed on April 27, 1995);
(c) Form of IRA Endorsement (Incorporated by reference from
Post-Effective Amendment No. 2 to Form N-4 Registration Statement, File
No. 33-71686, of registrant and its Separate Account A filed on April 27,
1995);
(d) Form of Section 403(b) Annuity Endorsement (Incorporated by
reference from Post-Effective Amendment No. 2 to Form N-4 Registration
Statement, File No. 33-71686, of registrant and its Separate Account A
filed on April 27, 1995);
10. Administrative Service Agreement -- filed herewith.
<PAGE>
24.(a) Power of Attorney for Messrs. Rutherford, Freedman and Madame
Gharib. (Incorporated by reference from Form N-4 Registration Statement,
File No. 33-71686, of registrant and its Separate Account A filed on
November 15, 1993).
(b) Power of Attorney for Messrs. Gardner, Nelson and Galston. (Incorporated
by reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed on February 28, 1995.)
99. Form of prospectus to be filed as part of Form S-1 Amended
Registration Statement of the Registrant.
(b) Reports on Form 8-K filed in the fourth quarter of 1995
None.
(c) Exhibits
Included in 14 (a)(3) above.
(d) Financial Statement Schedules
Included in 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 26th day of
March, 1996.
FIRST FORTIS LIFE INSURANCE COMPANY
By: /s/
-----------------------------------
Terry J. Kryshak
SR. VICE PRESIDENT &
CHIEF ADMINISTRATIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 26th day of March, 1996. The
following persons represent a majority of the Board of Directors of First Fortis
Life Insurance Company:
<TABLE>
<CAPTION>
SIGNATURE TITLE WITH FIRST FORTIS
- -------------------------------------------------------- --------------------------------------------------------
<C> <S>
/s/
-------------------------------------------- Sr. Vice President and Chief Administrative Officer and
Terry J. Kryshak Director (Principal Executive Officer)
/s/
-------------------------------------------- Treasurer and Director (Principal Financial Officer)
Larry M. Cains
/s/
-------------------------------------------- Assistant Treasurer and Director of Accounting
Leanne F. Hughes (Principal Accounting Officer)
*
-------------------------------------------- President and Director
Allen Royal Freedman
*
-------------------------------------------- Director
Susie Gharib
*
-------------------------------------------- Director
Guy Gerard Rutherfurd, Jr.
*
-------------------------------------------- Director
Dale Edward Gardner
*
-------------------------------------------- Director
Kenneth Warwick Nelson
-------------------------------------------- Director
Robert B. Pollack
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE WITH FIRST FORTIS
- -------------------------------------------------------- --------------------------------------------------------
<C> <S>
-------------------------------------------- Director
Dean C. Kopperud
-------------------------------------------- Director
Thomas M. Keller
*
-------------------------------------------- Director
Clarence Elkus Galston
</TABLE>
<TABLE>
<S> <C>
*By /s/
-----------------------------------------------
Terry J. Kryshak
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
EXHIBIT 3
<PAGE>
CHARTER
OF
FIRST FORTIS LIFE INSURANCE COMPANY
We, the undersigned, all being natural persons over the age of twenty-one (21)
years, at least a majority of us being citizens and residents of the United
States and not less than three being residents of the State of New York, do
hereby adopt the following charter:
1. The name of this corporation shall be FIRST FORTIS LIFE INSURANCE COMPANY.
2. The principal office of this corporation shall be located in the County of
Onondaga, State of New York.
3. The kinds of insurance to be transacted by this corporation shall be:
A. "Life Insurance," meaning every insurance upon the lives of human beings,
and every insurance appertaining thereto, including the granting of endowment
benefits, additional benefits in the event of death by accident, additional
benefits to safeguard the contract from lapse, accelerated payments of part or
all of the death benefit or a special surrender value upon diagnosis (i) of
terminal illness defined as a life expectancy of twelve months or less, or (ii)
of a medical condition requiring extraordinary medical care or treatment
regardless of life expectancy, or provide a special surrender value, upon total
and permanent disability of the insured, and optional modes of settlement of
proceeds. Amounts paid the insurer for life insurance and proceeds applied
under optional modes of settlement or under dividend options may be allocated by
the insurer to one or more separate accounts pursuant to section four thousand
two hundred forty.
B. "Annuities," meaning all agreements to make periodical payments where the
making or continuance of all or of some of a series of such payments, or the
amount of any such payment, is dependent upon the continuance of human life,
except payments made under the authority of paragraph one. Amounts paid to the
insurer to provide annuities and proceeds applied under optional modes of
settlement or under dividend options may be allocated by the insurer to one or
more separate accounts pursuant to section four thousand two hundred forty.
C. "Accident and health insurance," meaning
(a) Insurance against death or personal injury by accident or by any
specified kind or kinds of accident and insurance against sickness, ailment or
bodily injury, including insurance providing disability benefits pursuant to
article nine of the workmen's compensation law, except as specified in
subparagraph (b) following; and
(b) Non-cancelable disability insurance, meaning insurance against
disability resulting from sickness, ailment or bodily injury (but not including
insurance solely against accidental injury), under any contract which does not
give the insurer the option to cancel or otherwise terminate the contract at or
after one year from its effective date or renewal date.
1
<PAGE>
D. "Substantially similar kind of insurance," meaning such insurance which in
the opinion of the superintendent is determined to be substantially similar to
one of the foregoing kinds of insurance and thereupon for the purposes of this
chapter shall be deemed to be included in that kind of insurance.
4. The mode and manner in which the corporate powers of this corporation shall
be exercised are through a Board of Directors and through such officers and
agents as said Board shall empower.
5. The number of directors of this corporation shall be not less than nine (9)
and not more than thirteen (13), provided that the number of directors shall be
increased to not less than thirteen (13) within one year following the end of
the calendar year in which the corporation exceeds five hundred million dollars
($500,000,000) in admitted assets.
6. The directors of this corporation until the next annual meeting of
stockholders shall be the following persons, who reside at the respective
addresses set forth below opposite their names:
Name Residence Address
Allen R. Freedman Charlotte Valley Farms, HCR1 Box 45,
Charlotteville, NY 12036-9603
William D. Greiter 4108 62nd Street West, Edina, MN 55424
Thomas M. Keller 3405 North Lake Drive, Milwaukee, WI
53211
Dean C. Kopperud 9481 Painters Ridge, Eden Prairie, MN
55347-2832
Terry J. Kryshak P. O. Box 5132, Syracuse, NY 13220
Clarence E. Galston 338 Woodbury Road, Cold Harbor, NY
11724
Dale E. Gardner P.O. Box 217, Roxbury, NY 12474
Susie Gharib 1220 Park Avenue, New York, NY 10128
Kenneth W. Nelson 282 Douglas Road, Staten Island, NY
10304
Guy G. Rutherfurd, Jr. 156 East 79th Street, New York, NY
10021
2
<PAGE>
7. The annual meeting of the stockholders of this corporation shall be
held on the Wednesday after the fourth Tuesday in April (or, if such day is a
legal holiday, then on the next succeeding business day), at such place (within
or without the State of New York) or such other date and hour, as may be fixed
from time to time by the Board of Directors and set forth in the notice of such
meeting. At each such annual meeting directors shall be elected for the ensuing
year to take office immediately upon election and hold office until the next
annual meeting of stockholders of the corporation and until the successors of
such directors are elected.
8. At each annual meeting of stockholders of the corporation, each
stockholder of record on the books of the corporation who shall have held his or
her shares in his or her own name at least thirty (30) days prior to the meeting
shall be entitled to one vote in person or by proxy for each share of the stock
so held by him or her.
9. Directors shall be chosen and elected by a plurality of the whole
number of shares voted at the meeting.
10. If any vacancy or vacancies in the Board of Directors shall occur by
death, resignation, removal or otherwise, the remaining members of the Board of
Directors, at a meeting called for that purpose, or at a regular meeting, shall
elect a director or directors to fill the vacancy or vacancies thus arising, and
each director so elected shall hold office for the unexpired term of the
director whose place he or she has taken.
11. At all times, a majority of the directors of this corporation shall
be citizens and residents of the United States, and at least three directors
shall be residents of the State of New York.
12. The duration of the corporate existence of this corporation shall be
perpetual.
13. The amount of capital of this corporation shall be Two Million
Dollars, to be represented by One Hundred Thousand (100,000) shares of stock
of a par value of Twenty Dollars ($20.00) per share.
14. The Board of Directors at a meeting held at any time prior to the
first annual meeting of stockholders of this corporation, and thereafter at the
annual meeting of the Board of Directors, which shall be held immediately after
the annual meeting of stockholders of this corporation, shall elect a President,
one or more Vice Presidents, a Secretary and a Treasurer, and it may at its
option at any time appoint or elect such other officers as shall from time to
time be provided for in the bylaws of this corporation. Officers elected or
appointed by the Board of Directors shall respectively hold office until the
next annual meeting and until their successors are chosen and have qualified.
Other officers shall serve at the pleasure of the Board of Directors unless
otherwise provided in the bylaws.
15. Vacancies in the above elective offices occurring in the interval
between annual meetings of the Board of Directors maybe filled at any time by
the Board of Directors, and the person or persons so elected shall hold office
until his, her or their successors are chosen and
3
<PAGE>
become qualified.
16. Not less than one-third of the directors of this corporation (and, if
the number of directors be less than twelve (12), then not less than four (4)
directors of this corporation) and not less than one-third of the members of
each committee of the Board of Directors of this corporation shall be persons
who are not officers or employees of this corporation or of any entity
controlling, controlled by or under common control with this corporation and who
are not beneficial owners of a controlling interest in the voting stock of this
corporation or any such entity. At least one such person must be included in
any quorum for the transaction of business at any meeting of the Board of
Directors or any committee thereof.
17. The Board of Directors shall establish one or more committees
comprised solely of directors who are not officers or employees of this
corporation or of any entity controlling, controlled by, or under common control
with this corporation and who are not beneficial owners of a controlling
interest in the voting stock of this corporation or any such entity. Such
committee(s) shall have responsibility for recommending the selection of
independent certified public accountants, reviewing the corporation's financial
condition, the scope and results of the independent audit and any internal
audit, nominating candidates for director for election by stockholders or
policyholders, and evaluating the performance of officers deemed by such
committee or committees to be principal officers of this corporation and
recommending to the Board of Directors the selection and compensation of such
principal officers.
4
<PAGE>
EXHIBIT 10
<PAGE>
ADMINISTRATIVE SERVICE AGREEMENT
THIS ADMINISTRATIVE SERVICE AGREEMENT (this "Agreement") is made this
_______ day of _________________, 1995, by and among First Fortis Life Insurance
Company ("FFLIC"), a New York corporation, and Fortis Benefits Insurance Company
("FBIC"), a Minnesota corporation.
FBIC has extensive experience in the operations of its business and has
trained personnel, equipment, and facilities for conducting its present and
future operations. FFLIC herein is contracting with FBIC to perform services
related to FFLIC's production of the following types of insurance products:
Group: Group Life and AD&D; Group Long and Short Term Disability;
Dental; Self Funded Life, Dental and Disability; and other employee
benefit related products as developed.
Individual: Variable Annuity and Market Value Adjusted Variable
Annuity; and other annuity and life products as developed.
1. RELATIONSHIP OF PARTIES
Neither FBIC nor FFLIC shall act or hold itself out as the agent of
the other. Employees of FBIC providing services to FFLIC pursuant to
this Agreement shall provide such services as employees of FBIC. The
facilities used by FBIC in providing such services shall be deemed to
be owned and operated by FBIC and, unless otherwise provided in
writing, shall not be considered as being leased to FFLIC.
Employees, officers and directors of FFLIC, who are also employees,
officers and directors of FBIC, shall serve without personal
compensation from FFLIC. The cost of these services will be billed to
FFLIC as provided in paragraph 4.A.
2. USE OF THIRD PARTIES
FBIC and FFLIC each retain the right to contract with any unaffiliated
third party for the performance of services or use of facilities.
3. PERFORMANCE OF ADMINISTRATIVE SERVICES AND JOINT USE OF FACILITIES
A. SERVICES
Pursuant to guidelines established by FFLIC's Board of Directors and
pursuant to FFLIC's direction, FBIC may from time to time perform
services for FFLIC hereunder of a type similar to that which FBIC
customarily performs in the course of its own insurance operations.
The services which FBIC may perform in whole or in part for FFLIC
include, without limitation:
<PAGE>
(a) Legal and actuarial services needed by FFLIC to assist it in
qualifying to conduct its business in such jurisdictions as
FFLIC shall select, including the requisite policy and contract
filings for approval, reinsurance agreements and other requisite
contracts that may be necessary for operations.
(b) Advice and counsel with respect to complex cases where FFLIC's
underwriters lack sufficient expertise. Advice and counsel will
be in accordance with FFLIC underwriting standards and final
decision authority rests with FFLIC.
(c) Advice and counsel with respect to complex cases where FFLIC's
claims personnel lack sufficient expertise. Advice and counsel
will be in accordance with FFLIC claims standards and final
decision authority rests with FFLIC.
(d) Actuarial services which may include product development,
pricing, valuation and compliance.
(e) Assist FFLIC in the design of marketing materials and developing
product and training materials and programs, subject to final
approval by FFLIC.
(f) Electronic information processing services as necessary or
appropriate in connection with the other services provided
hereunder.
(g) Legal support services customarily performed by in-house legal
counsel.
(h) Accounting services necessary to support preparation of
customary financial reporting, including preparation of
financial statements on both STAT and GAAP bases and tax
returns.
(i) Auditing services which may include review of financial records
and a review of specific functions and activities in order to
ensure compliance with FFLIC's established policy. This
auditing provision shall not apply to FFLIC's audit of FBIC's
services performed pursuant to this Agreement.
(j) Assist FFLIC in the design and printing of general use forms
including, but not limited to, policy/certificate, claim,
policyholder service, accounting and other forms used in the
normal course of business. Final approval of such forms is the
responsibility of FFLIC.
(k) Provision of information for preparation of financial statements
required by any properly constituted regulatory body.
FBIC may provide the above-listed services to FFLIC except for any
services which FFLIC's Board of Directors, or any authorized committee
thereof, expressly decides to have either FFLIC or another third party
perform.
-2-
<PAGE>
FBIC will perform the administrative services under this Agreement
with the same standards of care, prudence and diligence which it
exercises in the performance of its own administrative
responsibilities. In the performance of its duties hereunder, FBIC
will be subject always to the direction and supervision of FFLIC's
Board of Directors, or any authorized committee thereof, and the
instructions of appropriate officers of FFLIC. It is understood that
FFLIC has certain obligations under the Commitment Letter to the New
York Insurance Department dated March 23, 1989, and it is agreed that
no services will be provided under the Agreement in violation of the
aforementioned Commitment Letter.
B. ADDITIONAL SERVICES
In accordance with the waiver request to the New York Insurance
Department dated September 23, 1991, FBIC may provide FFLIC on an
ongoing basis with storage and retrieval of files closed prior to
FFLIC's purchase of certain of the Mutual Benefit Life Insurance
Company group business on October 1, 1991.
C. FACILITIES
FBIC agrees to make available its facilities to FFLIC as FFLIC may
determine to be reasonably necessary in the conduct of its insurance
operations. The facilities of FBIC which FFLIC may use in whole or in
part shall include, but need not be limited to: electronic data
processing equipment; business property, whether owned or leased;
communication equipment; security vault; and filing space.
D. BEST EFFORTS
FBIC agrees at all times to use its best efforts to maintain
sufficient personnel and facilities of the kind necessary to perform
this Agreement, in accordance with the reasonable requests of FFLIC.
If, however, FBIC determines that for any reason, including its own
needs, it is or will be unable to perform any services or provide any
facility under this Agreement, it shall immediately notify FFLIC so
that FFLIC can make other arrangements.
E. DESIGNATED PERSONNEL
Employees of FBIC who are designated by FBIC to perform services for
FFLIC pursuant to this Agreement shall at all times remain employees
of the FBIC. FBIC shall alone retain full liability to such personnel
for their welfare, salaries, fringe benefits, legally required
employee contributions and tax obligations. With regard to all of its
employees, FFLIC shall alone retain full liability to such personnel
for their welfare, salaries, fringe benefits, legally required
employee contributions and tax obligations.
-3-
<PAGE>
F. STATUS OF FACILITIES
No facility of FBIC used in performing services for or subject to use
by FFLIC shall be deemed to be transferred, assigned, conveyed or
leased to FFLIC by performance or use pursuant to this Agreement,
except as FBIC and FFLIC may otherwise agree in writing.
In providing any service which requires the exercise of judgment, FBIC
will endeavor to perform any such service in accordance with any
reasonable and appropriate standards and guidelines FFLIC develops and
communicates to FBIC.
G. CONTROL
The performance or receipt of services or the making available or use
of facilities pursuant to this Agreement shall in no way impair the
absolute control of the business and operations of each of the parties
by its own management.
FBIC shall not be liable for its actions or omissions in furnishing
services and facilities where FBIC acted in good faith without gross
negligence.
4. DETERMINATION OF CHARGES
Expenses incurred by FBIC, as a result of providing services to FFLIC
under this Agreement, will be determined as follows and billed
quarterly to FFLIC.
A. CHARGES
Services shall be provided by FBIC hereunder at cost, and apportioned
on a fair and equitable basis, using reasonable estimates based on
time, the salary of the individual(s) providing the service, a
reasonable charge for supporting clerical services, and overhead,
including payroll taxes, employee benefits, rent and other
administrative and operating expenses, in conformity with generally
accepted accounting principles, New York Insurance Department
Regulation 33 and Section 1505 of the New York Insurance Law.
Any controversy or claim between FBIC and FFLIC arising out of this
Agreement or its breach shall be resolved by arbitration to be held in
New York State. The arbitrators will interpret this Agreement in
accordance with the usual business practices, rather than strict
technicalities or rules of law. Three arbitrators will decide any
differences. They must be officers of life insurance companies other
than the parties to this Agreement , their parents, subsidiaries and
affiliates. One of the arbitrators is to be appointed by FBIC and one
by FFLIC and these two will select a third. If the two are unable to
agree on a third, the choice will be left to the American Arbitration
Association or its successor organization. The arbitrators' decision
will be by majority vote and no appeal will be taken from it. The
expenses of the arbitrator chosen by each of the parties shall be
borne by the respective party,
-4-
<PAGE>
and the expenses of the third arbitrator and the expense of arbitration
shall be borne equally by FBIC and FFLIC.
B. PAYMENT
No later than 60 days after the end of each calendar quarter, FBIC
will submit to FFLIC a written statement of the estimated amount of
the apportioned expenses for such quarterly period, showing the basis
for the estimated apportionment for each item. FFLIC will pay to FBIC
within 30 days following receipt of such statement the amount set
forth therein.
Within 120 days after the end of each calendar year, FBIC will submit
to FFLIC a written statement of actual apportioned expenses for such
preceding calendar year (including charges not included in any
previous statement) showing the basis for the apportionment of each
item. Any difference between the estimated payments made in the
preceding calendar year and the actual apportioned expenses shall be
paid or refunded within 30 days following receipt of such statement of
actual apportioned expenses.
5. RECORDS AND DOCUMENTS
FBIC will maintain its books, records and accounts so as to clearly
and accurately disclose the nature and details of the services
furnished hereunder, in keeping with prudent standards of insurance
recordkeeping and in accordance with the requirements of Section 1505
of the New York Insurance Law. FFLIC may at its own expense and at
any reasonable time audit such books, accounts and records insofar as
they relate to the determination of FBIC's charges hereunder.
All books, records and files established and maintained by FBIC by
reason of its performance under the Agreement, which absent this
Agreement would have been held by FFLIC shall be subject to
examination at all times by FFLIC and persons authorized by it or any
governmental agency having jurisdiction over FFLIC and appropriate
copies of such records shall be delivered to FFLIC at least quarterly.
With respect to accounting and statistical records prepared by FBIC
under this Agreement, summaries of such records shall be delivered to
FFLIC within 60 days from the end of the quarter to which the records
pertain.
6. COMPLIANCE WITH APPLICABLE LAW; GOVERNING LAW
FFLIC and FBIC shall comply with all applicable federal, state and
local laws and rules, regulations or rulings issued under such laws.
This Agreement is made pursuant to and shall be subject to and
interpreted under the laws of the State of New York.
-5-
<PAGE>
7. NOTICE
All notices, statements or requests furnished under this Agreement
shall be duly given either by FBIC or FFLIC upon delivery by hand or
by facsimile transmission to an officer of the other, or when
deposited with the U.S. Postal Service, as certified mail, postage
prepaid, addressed to the other at its principal office to the
attention of the Chief Executive Officer or to such other person or
place as that party may from time to time designate by written notice
provided in this paragraph 7.
8. EFFECTIVE DATE; TERMINATION; ASSIGNMENT
The effective date of this Agreement shall be March 1, 1994, and the
Agreement shall continue in force until terminated as provided herein.
This Agreement may be terminated by either party at any time subject
to thirty days written notice to the other party, except that, with
regard to electronic data processing operations, such written notice
shall be 180 days. Upon termination of the electronic data processing
operations provided by FBIC under this Agreement, and subject to the
terms and conditions (including any limitations and restrictions) of
any applicable software or hardware licensing agreement then in effect
between FBIC and any licensor, FBIC shall grant to FFLIC a perpetual
license to use any electronic data processing software developed by
FBIC in connection with the services provided to FFLIC hereunder, if
such software is not commercially available and is necessary, in
FFLIC's reasonable judgment, for FFLIC to perform subsequent to
termination of the functions provided by FBIC hereunder. This
Agreement may be assigned by either party only with the prior written
consent of the other party.
9. HEADINGS
The headings contained in this Agreement are inserted for convenience
and are not intended to be part of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date and year first above written.
FIRST FORTIS LIFE INSURANCE COMPANY
By: __________________________________
____________________ Name:__________________________________
Witness
Title: ________________________________
-6-
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
By: __________________________________
____________________ Name:__________________________________
Witness
Title: ________________________________
By: __________________________________
____________________ Name:__________________________________
Witness
Title: ________________________________
-7-
<PAGE>
EXHIBIT 99
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
MAILING STREET ADDRESS: PHONE: 1-800-745-8248
ADDRESS: 220 SALINA MEADOWS PARKWAY
P.O. BOX 3249 SUITE 255
SYRACUSE SYRACUSE
NEW YORK 13220 NEW YORK 13220
This Prospectus describes flexible premium deferred combination variable and
fixed annuity contracts (a "Contract") issued by First Fortis Life Insurance
Company ("First Fortis"). The minimum initial purchase payment is generally
$5,000 and is $1,000 for each subsequent purchase payment.
A Contract allows you to accumulate funds on a tax-deferred basis. You may elect
a guaranteed interest accumulation option through First Fortis' Fixed Account or
a variable return accumulation option through Separate Account A (the "Variable
Account") of First Fortis, or a combination of these two options. Under the
variable rate accumulation option, you can choose among one or more of the
following investment portfolios of Fortis Series Fund, Inc. (the "Series Fund"):
Money Market Series, U.S. Government Securities Series, Diversified Income
Series, Global Bond Series, High Yield Series, Asset Allocation Series, Global
Asset Allocation Series, Value Series, Growth & Income Series, S&P 500 Index
Series, Blue Chip Stock Series, Growth Stock Series, Global Growth Series,
International Stock Series and Aggressive Growth Series. The accompanying
Prospectus for Fortis Series Fund describes the investment objectives, policies
and risks of each of the Portfolios. Under the guaranteed interest accumulation
option, you can choose among ten different guarantee periods, each of which has
its own interest rate.
The Contract provides several different types of retirement and death benefits,
including fixed and variable annuity income options. Within limits, you may make
partial surrenders of the Contract Value or may totally surrender the Contract
for its Cash Surrender Value.
You have the right to examine a Contract for ten days from the time you receive
the Contract and return it for a refund of the full Contract Value.
This Prospectus gives prospective investors information about the Contracts that
they should know before investing. This Prospectus must be accompanied by a
current Prospectus of Fortis Series Fund, Inc. Both Prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated May 1, 1996, about certain aspects
of the Contracts has been filed with the Securities and Exchange Commission and
is available without charge, from First Fortis at the address and phone number
printed above. The Table of Contents for the Statement of Additional Information
appears on page 22 of this Prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY; AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FIRST
FORTIS
MASTERS
VARIABLE
ANNUITY
Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
PROSPECTUS DATED
May 1, 1996
FORTIS LOGO
97104 (Ed. 5/96)
<PAGE>
TAX IMPLICATIONS
The tax implications for Contract Owners or any other persons who may receive
payments under a Contract, and those of any related employee benefit plan can be
quite important. A brief discussion of some of these is set out under "Federal
Tax Matters" in this Prospectus and "Taxation Under Certain Retirement Plans" in
the Statement of Additional Information, but such discussion is not
comprehensive. Therefore, you should consider these matters carefully and
consult a qualified tax adviser before making purchase payments or taking any
other action in connection with a Contract or any related employee benefit plan.
Failure to do so could result in serious adverse tax consequences which might
otherwise have been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the Contract should be directed to your sales
representative, or First Fortis' Home Office: P.O. Box 3249, Syracuse, NY 13220;
1-800-745-8248. Purchase payments and Written Requests should be mailed or
delivered to the same Home Office address. All communications should include the
Contract number, the Contract Owner's name and, if different, the Annuitant's
name. The number for telephone transfers is 1-800-745-8248.
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at First Fortis' Home Office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
This Prospectus contains no Accumulation Unit Information for subaccounts of the
Separate Account because the Separate Account has not yet commenced operations,
has no assets or liabilities and has received no income nor incurred any
expenses as of the date of this Prospectus.
For the same reason, no audited financial statements of the Variable Account are
included in the Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the Subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the Subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total return" is
the total change in value of an investment in the Subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
Financial information concerning First Fortis is included in this Prospectus
under "Further Information About First Fortis" and "First Fortis Financial
Statements."
FIRST FORTIS LIFE INSURANCE COMPANY
First Fortis Life Insurance Company, the issuer of the Contracts, was founded in
1971. At the end of 1995, First Fortis had approximately $6.5 billion of total
life insurance in force. First Fortis is a New York corporation and is qualified
to sell life insurance and annuity contracts in New York. First Fortis is a
wholly-owned subsidiary of Fortis AMEV.
First Fortis is affiliated with the Fortis Financial Group, a joint effort by
Fortis Benefits Insurance Company, Fortis Advisers, Inc., Fortis Investors,
Inc., and Time Insurance Company, offering financial products through the
management, marketing and servicing of mutual funds, annuities, life insurance
and disability income products.
Fortis AMEV is a diversified multi-national insurance, real estate, and
financial services group headquartered in Utrecht, The Netherlands, where its
insurance operations began in 1847.
All of the guarantees and commitments under the Contracts are general
obligations of First Fortis, regardless of whether the Contract Value has been
allocated to the Separate Account or to the Fixed Account. None of First Fortis'
affiliated companies has any legal obligation to back First Fortis' obligations
under the Contracts.
THE VARIABLE ACCOUNT
The Variable Account, which is a segregated investment account of First Fortis,
was established as Variable Account A by First Fortis pursuant to the insurance
laws of New York as of October 1, 1993. Although the Variable Account is an
integral part of First Fortis, the Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. Assets in the Variable Account representing
reserves and liabilities under Contracts and other variable annuity contracts
issued by First Fortis will not be chargeable with liabilities arising out of
any other business of First Fortis.
There are currently fifteen Subaccounts in the Variable Account. The assets in
each Subaccount are invested exclusively in a distinct class (or series) of
stock issued by Series Fund, each of which represents a separate investment
Portfolio within Series Fund. Income and both realized and unrealized gains or
losses from the assets of each Subaccount of the Variable Account are credited
to or charged against that Subaccount without regard to income, gains or losses
from any other Subaccount of the Variable Account or arising out of any other
business we may conduct. New Subaccounts may be added as new Portfolios are
added to Series Fund and made available. Correspondingly, if any Portfolios are
eliminated from Series Fund, Subaccounts may be eliminated from the Variable
Account.
SERIES FUND
Series Fund is a "series" type of mutual fund which is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
Series Fund has served as the investment medium for the Variable Account since
the Variable Account commenced operations and has also served as the investment
media of other variable accounts of an affiliated company since 1987.
First Fortis purchases and redeems Series Fund' shares for the Variable Account
at their net asset value without the imposition of any sales or redemption
charges. Such shares represent interests in the Portfolios of Series Fund
available for investment by the Variable Account. Each Portfolio corresponds to
one of the Subaccounts of the Variable Account. The assets of each Portfolio are
separate from the others and each Portfolio operates as a separate investment
portfolio whose performance has no effect on the investment performance of any
other Portfolio.
7
<PAGE>
WITHHOLDING
Annuity payments and other amounts received under Contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly from the qualified plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require First Fortis to disregard the recipient's election if the recipient
fails to supply First Fortis with a "TIN" or taxpayer identification number
(social security number for individuals), or if the Internal Revenue Service
notifies First Fortis that the TIN provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which set standards of diversification for the investments
underlying the Contracts, in order for the Contracts to be treated as annuities.
First Fortis believes that these diversification standards will be satisfied.
Failure to do so would result in immediate taxation to Contract Owners or
persons receiving annuity payments of all returns credited to Contracts, except
in the case of certain Qualified Contracts. Also, current regulations do not
provide guidance as to any circumstances in which control over allocation of
values among different investment alternatives may cause Contract Owners or
persons receiving annuity payments to be treated as the owners of Variable
Account assets for tax purposes. First Fortis reserves the right to amend the
Contracts in any way necessary to avoid any such result. The Treasury Department
may establish standards in this regard through regulations or rulings. Such
standards may apply only prospectively, although retroactive application is
possible if such standards were considered not to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange from one of these types of
products into a Contract pursuant to the special annuity contract exchange form
we provide for this purpose is not generally a taxable event under the Code, and
your investment in the Contract will be the same as your investment in the
product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(12) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions made after
December 31, 1988 may not be distributed in the case of hardship.
FURTHER INFORMATION ABOUT FIRST FORTIS
First Fortis Life Insurance Company is an affiliate of the worldwide Fortis
group of companies owned by Fortis AMEV of the Netherlands and Fortis AG of
Belgium. First Fortis is wholly owned by Fortis AMEV. The Company was originally
organized under New York Insurance Law on August 12, 1971, and was acquired by
the current owners on March 24, 1989, to enable the Fortis group of companies
the ability to distribute their products to the New York State marketplace.
On October 1, 1991, First Fortis Life Insurance Company and its affiliate and
Fortis Benefits Insurance Company (the "Companies"), entered into an Asset
Transfer and Acquisition Agreement (the "Agreement") with Mutual Benefit Life
Insurance Company in Rehabilitation (MBL). Pursuant to the Agreement, the
Companies acquired certain assets and assumed certain liabilities of MBL
relating to the group life, accident and health, disability and dental insurance
business of MBL. That portion of the business conducted in New York was assumed
by First Fortis, while the remaining and more substantial portion of the
business was assumed by Fortis Benefits Insurance Company. N.V. AMEV contributed
$25 million in cash to the paid-in-capital of First Fortis on October 1, 1991 in
connection with the acquisition.
GENERAL
First Fortis is engaged in the offer and sale of insurance products, including
fixed and variable annuity contracts, and group life, accident and health
insurance policies. First Fortis markets its products to small business and
individuals through a network of independent agents, brokers, and financial
institutions.
17
<PAGE>
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of First Fortis. This
summary has been derived in part from, and should be read in conjunction with,
the financial statements of First Fortis included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums........................................................ $ 81,202 $ 92,056 $ 75,393 $ 58,209 $ 14,657
Net investment income........................................... 7,466 6,261 6,074 6,245 2,027
Realized investment gains (losses).............................. 2,683 (1,057) 3,062 1,773 146
Other income.................................................... 297 287 533 296 115
--------- --------- --------- --------- ---------
TOTAL REVENUES................................................ 91,648 97,547 85,062 66,523 16,945
--------- --------- --------- --------- ---------
Benefits and expenses........................................... 96,371 104,582 85,170 63,215 14,991
Income tax expense (benefit).................................... (1,563) (999) (686) 1,058 671
--------- --------- --------- --------- ---------
Net income (loss)............................................... $ (3,160) $ (6,036) $ 578 $ 2,250 $ 1,283
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA
Total assets.................................................... $ 139,913 $ 123,954 $ 132,077 $ 109,565 $ 101,679
Total liabilities............................................... $ 101,523 $ 97,913 $ 92,863 $ 73,209 $ 67,573
Total shareholder's equity...................................... $ 38,390 $ 26,041 $ 39,214 $ 36,356 $ 34,106
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
REVENUES
Life premiums of First Fortis (the "Company") are principally composed of group
life coverages. The decrease in life premiums resulted from the lapse of a
minimum premium group life insurance account in mid-1994. This case, which
represented 24% and 44% of the group life business in 1994 and 1993,
respectively, did not have a significant impact on the Company's operating
results.
Total accident and health premium decreased in 1995 as compared to 1994.
On-going marketing efforts have continued to increase the Company's disability
income and dental premiums, whereas premium rate action on the Company's
small-group medical business has contributed to a decline of approximately 57%
of inforce fully insured medical lives and a $25 million decrease in annualized
inforce premium since 1994. During 1993 and 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").
Effective January 1, 1996, the Company ceased new sales of group medical
policies, however, the Company will continue to renew and service existing group
medical business, which represented $34 million of 1995 accident and health
premiums. In the long-term, the Company expects this decision to have a
favorable impact on its capital position, although, in the short-term it is
likely that this product line will have an immaterial negative impact on the
Company's operating results. The group accident and health premium mix, which
remained stable from 1993 to 1994 (medical -- averaging 67%; disability income
- -- averaging 18%; and dental -- averaging 14%), shifted in 1995 to medical --
54%; disability income -- 26%; and dental -- 20%.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1995, 1994 and
1993 resulted in recognition of realized gains and losses.
BENEFITS
In 1995 and 1993, the Company's group life claims ratio was higher than expected
as a result of increased mortality. In 1995, the Company also experienced larger
average claim amounts. In 1994, mortality experience levels were consistent with
Management's expectations.
Improved recovery rates on existing group disability income claimants and
premium rate increases resulting in the reduction of inforce fully insured
medical lives have improved the accident and health benefits result from 1994 to
1995. From 1993 to 1994, an increased incidence of group disability income
claims, accompanied by lower than anticipated recovery rates on existing
claimants, and Community Rating medical loss ratios in excess of product pricing
assumptions, contributed to an increased accident and health claims ratio.
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 premium ratio in 1993 through 1995.
Higher medical claims volumes have increased the Company's general and
administrative expense to premium ratio from 1994 to 1995 and from 1993 to 1994.
During the last six months of 1995, as the Company's inforce medical lives began
to decrease, the Company began to experience a reduction in medical related
expenses.
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 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 continue to generate sufficient funds.
18
<PAGE>
The National Association of Insurance Commissioners' risk-based capital formula
helps to establish guidelines for capital levels. At December 31, 1995, First
Fortis' capital exceeded the minimum recommended risk-based capital level.
As of December 31, 1995, 98.1% 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.
As a small group (1-50 lives) medical insurer in the State of New York, First
Fortis was impacted by the passage in 1992 of Regulation 145, "Open Enrollment
and Community Rating of Individual and Small Group Health Insurance" and
Regulation 146, "Establishment and Operation of Market Stabilization Mechanisms
for Individuals and Small Group Health Insurance". The purpose of Regulation 145
is to promote competition among insurers and facilitate access to health
insurance by all New York residents. Beginning April 1, 1993, Regulation 145
required insurers to apply a rating methodology (community rate) in which the
premium for all persons covered by a policy or contract form is the same based
on the experience of the entire pool of risks covered by that policy or contract
form without regard to age, sex, health status or occupation. Regulation 146
established a market stabilization process to share among insurers substantive
cost variations attributable to significant differences in demographic
characteristics of the persons covered. During 1995, 1994 and 1993, demographic
characteristics of the Company's medical business resulted in payments to the
pools which have been reflected in accident and health benefits.
19
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth is information concerning First Fortis' directors and executive
officers, together with their business experience and principal occupations for
the past five years:
<TABLE>
<S> <C>
Larry M. Cains, 49 Treasurer; Senior Vice President of Fortis, Inc.
Director since 1995
Allen R. Freedman, 56 Chairman, Chief Executive Officer and President; Chairman and Chief Executive
Director Since 1989 Officer of Fortis, Inc.
Thomas M. Keller, 48 President of Time Insurance Company; President--Fortis Healthcare of Fortis
Director Since 1994 Benefits Insurance Company; before that Senior Vice President of Fortis, Inc.
Dean C. Kopperud, 43 Chief Executive Officer of Fortis Advisers, Inc. and President of Fortis
Director Since 1994 Investors, Inc.; President--Fortis Financial Group of Fortis Benefits
Insurance Company
Terry J. Kryshak, 45 Senior Vice President and Chief Administrative Officer
Director Since 1991
Susie Gharib, 45 Anchorwoman, Cable NBC; before that, Anchorwoman, Financial News Network
Director Since 1991
Guy Gerard Rutherfurd, Jr., Executive Vice President and Chief Investment Officer of Nomura Asset
56 Management, Inc.
Director Since 1989
Dale Edward Gardner, 65 President, Gardner & Bull
Director Since 1989
Kenneth W. Nelson, 74 President, Tech Products, Inc.
Director Since 1989
Clarence Elkus Galston, 86 Attorney at Law
Director Since 1989
Robert B. Pollock, 41 President and Chief Executive Officer of Fortis Benefits Insurance Company
Director Since 1995
Robert O. Blaber, 44 Senior Vice President; before that Regional Sales Director of Mutual Benefit
Life Insurance Company
Leanne F. Hughes, 35 Assistant Treasurer and Director of Accounting; before that Senior Manager of
Ernst & Young LLP
Jerome A. Atkinson, 46 Secretary; Vice President, Secretary and General Counsel of Fortis, Inc.;
before that Senior Vice President, Secretary and General Counsel of American
Security Insurance Company
</TABLE>
First Fortis' officers serve at the pleasure of the Board of Directors, and
members of the Board who are also officers or employees of First Fortis serve
without compensation. All Directors serve until their successors are duly
elected and qualified. The compensation of members of the Board who are not also
officers or employees of First Fortis or its affiliates is as follows. The
Director receives $1,000 for attendance at the annual Board meeting. If the
Director is also a member of the Audit Committee and/or the Investment
Committee, the Director also receives $1,000 for attending any meeting of such
committee unless the committee meeting date is the same as the annual meeting,
in which case the committee meeting compensation is $500.
Mr. Freedman is also a director of Systems and Computer Technology Corporation
and Genesis Health Ventures and the following registered investment companies:
Fortis Equity Portfolios, Inc.; Fortis Growth Fund, Inc.; Fortis Fiduciary Fund,
Inc.; Fortis Income Portfolios, Inc.; Fortis Securities, Inc.; Fortis Tax-Free
Portfolios, Inc.; Fortis Money Portfolios, Inc.; Fortis Advantage Portfolios,
Inc.; Fortis Worldwide Portfolios, Inc.; Fortis Series Fund, Inc.; Special
Portfolios, Inc.
20
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation of the named
executive officers of First Fortis. Mr. Freedman and Mr. Greiter are compensated
by other affiliates of First Fortis.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------- ----------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION (1)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ------------------------------------------------------- ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Allen R. Freedman 1995 $ 0 $ 0 $ 0 $ 0
President
William D. Greiter 1995 0 0 0 0
President 1994 0 0 0 0
Terry J. Kryshak 1995 107,350 25,764 0 8,288
Senior Vice President and Chief Administrative Officer 1994 95,000 30,780 0 1,535
1993 85,439 17,000 0 7,056
Robert O. Blaber 1995 75,000 263,654 0 14,852
Senior Vice President 1994 75,000 246,032 0 14,140
1993 52,500 218,232 0 14,150
</TABLE>
- ------------------------
1 This column includes contributions made by First Fortis for the year for the
benefit for the named individual to defined contribution retirement plans.
As additional compensation to its employees and executive officers, First Fortis
has an Employees' Uniform Retirement Plan and an Executive Retirement Plan which
generally provide an annual annuity benefit upon retirement at age 65 (or a
reduced benefit upon early retirement) equal to: .9% of the employee's Average
Annual compensation up to the employee's social security covered compensation,
plus 1.3% of Average Annual compensation above the employee's social security
covered compensation up to $235,840, as adjusted by an index, multiplied by the
employee's years of credited services.
The following table illustrates the combined estimated life annuity benefit
payable from the Employees Uniform Retirement Plan and the Executive Retirement
Plan to employees with the specified Final Average Salary and Years of Service
upon retirement.
PENSION TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------
FINAL AVERAGE EARNINGS 10 15 20 25 30 35
- ------------------------------------------------------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
125,000 15,213 22,820 30,426 38,033 45,640 53,246
150,000 18,463 27,695 36,926 46,158 55,390 64,621
175,000 21,713 32,570 43,426 54,283 65,140 75,996
200,000 24,963 37,445 49,926 62,408 74,890 87,371
225,000 28,141 42,211 56,282 70,352 84,423 98,493
250,000+ 29,557 44,336 59,115 73,894 88,672 103,451
</TABLE>
The table above excludes social security benefits. In general, for the purposes
of these plans compensation includes salary and bonuses. The credited years of
service with First Fortis for those individuals named in the Summary
Compensation Table above are as follows: 0, 0, 5, and 9.
OWNERSHIP OF SECURITIES
All of First Fortis' outstanding shares are owned by Fortis AMEV.,
Archimedeslaan 10, 3584 BA, Utrecht, The Netherlands.
VOTING PRIVILEGES
In accordance with its view of current applicable law, First Fortis will vote
shares of each of the Portfolios which are attributable to a Contract at regular
and special meetings of the shareholders of Series Fund in proportion to
instructions received from the persons having the voting interest in the
Contract as of the record date for the corresponding Series Fund shareholders
meeting. Contract Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments during the Annuity Period, and
Beneficiaries after the death of the Annuitant or Contract Owner. However, if
the Investment Company Act of 1940 or any rules thereunder should be amended or
if the present interpretation thereof should change, and as a result First
Fortis determines that it is permitted to vote shares of the Portfolios in its
own right, it may elect to do so.
During the Accumulation Period, the number of shares of a Portfolio attributable
to a Contract is determined by dividing the amount of Contract Value in the
corresponding Subaccount pursuant to the Contract as of the record date for the
shareholders meeting by the net asset value of one Portfolio share as of that
date. During the Annuity Period, or after the death of the Annuitant or Contract
Owner, the number of Portfolio shares deemed attributable to the Contract will
be computed in a comparable manner, based on the liability for future variable
annuity payments allocable to that Subaccount under the Contract as of the
record date. Such liability for future payments will be calculated on the basis
of the mortality assumptions and the assumed interest rate used in determining
the number of Annuity Units credited to the Contract and the applicable Annuity
Unit value on the record date. During the Annuity Period, the number of votes
attributable to a Contract will generally decrease since funds set aside to make
the annuity payments will decrease.
First Fortis will vote shares for which it has received no timely instructions,
and any shares attributable to excess amounts First Fortis has accumulated in
the related Subaccount, in proportion to the voting instructions which it
receives with respect to all Contracts and other variable annuity contracts
participating in a Portfolio. To the extent that First Fortis or any affiliated
company holds any shares of a Portfolio, they will be voted in the same
proportion as instructions for
21
<PAGE>
that Portfolio that are received from persons holding the voting interest with
respect to all First Fortis separate accounts participating in that Portfolio.
Shares held by separate accounts other than the Variable Account will in general
be voted in accordance with instructions of participants in such other separate
accounts. This diminishes the relative voting influence of the Contracts.
Each person having a voting interest in a Subaccount of the Separate Account
will receive proxy material, reports and other materials relating to the
appropriate Portfolio. Pursuant to the procedures described above, these persons
may give instructions regarding the election of the Board of Directors of Series
Fund, ratification of the selection of its independent auditors, the approval of
the investment managers of a Portfolio, changes in fundamental investment
policies of a Portfolio and all other matters that are put to a vote by Series
Fund shareholders.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed upon
by Douglas R. Lowe, Esquire, Assistant General Counsel with the law department
of Fortis Benefits Insurance Company, an affiliate of First Fortis. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised First Fortis on
certain federal securities law matters.
OTHER INFORMATION
Registration Statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Prospectus. Not all of the information set forth in
the Registration Statement, amendments and exhibits thereto has been included in
this Prospectus. Statements contained in this Prospectus concerning the content
of the Contracts and other legal instruments are intended to be summaries. For a
complete statement of the terms of these documents, reference should be made to
the instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
First Fortis and the Variable Account.................. 2
Calculation of Annuity Payments........................ 2
Postponement of Payments............................... 3
Services............................................... 3
- Safekeeping of Variable Account Assets............. 3
- Experts............................................ 3
- Principal Underwriter.............................. 3
Limitations on Allocations............................. 4
Change of Investment Adviser or Investment Policy...... 4
Taxation Under Certain Retirement Plans................ 4
Withholding............................................ 8
Terms of Exemptive Relief in Connection With Mortality
and Expense Risk Charge............................... 8
Variable Account Financial Statements.................. 9
APPENDIX A--Performance Information.................... A-1
</TABLE>
FIRST FORTIS FINANCIAL STATEMENTS
The financial statements of First Fortis that are included in this Prospectus
should be considered primarily as bearing on the ability of First Fortis to meet
its obligations under the Contracts. The Contracts are not entitled to
participate in earnings, dividends or surplus of First Fortis.
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Fortis Life Insurance Company
We have audited the accompanying balance sheets of First Fortis Life Insurance
Company (a wholly-owned subsidiary of Fortis AMEV) as of December 31, 1995 and
1994, and the related statements of operations, changes in shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1995. Our audits also included the financial statement schedules listed in the
Index at Item 14. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Fortis Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
[SIG]
Ernst & Young LLP
Syracuse, New York
February 19, 1996
F-1
<PAGE>
BALANCE SHEETS
FIRST FORTIS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities, at fair value (amortized cost
1995--$106,648,754; 1994--$102,195,927)............. $112,183,452 $ 97,337,464
Preferred stock at fair value (cost $92,029)......... 89,345 --
Short-term investments............................... 6,850,000 1,900,000
------------ ------------
119,122,797 99,237,464
Cash................................................... 1,145,131 483,075
Receivables:
Uncollected premiums, less allowance--$100,000....... 4,440,446 4,595,706
Reinsurance recoverable on unpaid and paid losses.... 9,335,947 8,875,349
Prepaid federal income taxes and other............... 2,255,199 2,215,328
------------ ------------
16,031,592 15,686,383
Accrued investment income.............................. 1,814,291 1,945,610
Deferred policy acquisition costs (Note 2)............. -- 4,595,000
Property and equipment at cost, less accumulated
depreciation (1995--$1,249,280; 1994--$766,831)....... 1,199,482 1,360,471
Goodwill............................................... 600,000 646,000
------------ ------------
TOTAL ASSETS........................................... $139,913,293 $123,954,003
------------ ------------
------------ ------------
RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance..................................... $ 22,529,817 $ 21,233,643
Accident and health................................ 59,442,638 52,844,913
------------ ------------
81,972,455 74,078,556
Other policy claims and benefits payable............. 13,561,740 17,974,419
Other liabilities...................................... 5,988,794 5,860,473
------------ ------------
TOTAL POLICY RESERVES AND LIABILITIES............ 101,522,989 97,913,448
Commitments and contingencies (Note 11)
Shareholder's equity (Notes 1, 8, 9, and 10):
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 30,440,000
Retained earnings (deficit).......................... (4,700,825) (1,540,982)
Unrealized appreciation (depreciation) of investment
securities, net (Note 3)............................ 3,651,129 (4,858,463)
------------ ------------
TOTAL SHAREHOLDER'S EQUITY....................... 38,390,304 26,040,555
------------ ------------
TOTAL RESERVES, LIABILITIES, AND SHAREHOLDER'S
EQUITY........................................... $139,913,293 $123,954,003
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
STATEMENTS OF OPERATIONS
FIRST FORTIS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES
Insurance operations (NOTE 7):
Life insurance premiums............................ $18,879,246 $ 19,431,130 $19,541,946
Accident and health premiums....................... 62,322,484 72,624,559 55,850,949
Net investment income (NOTE 3)....................... 7,465,751 6,261,593 6,073,726
Realized gains (losses) on investments (NOTE 3)...... 2,683,100 (1,057,438) 3,062,050
Other income......................................... 297,767 287,426 533,390
----------- ------------ -----------
TOTAL REVENUES................................... 91,648,348 97,547,270 85,062,061
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance..................................... 16,206,930 15,345,645 19,102,079
Accident and health................................ 56,592,227 68,115,512 49,026,058
Amortization of deferred policy acquisition costs
(NOTE 2)............................................ 4,595,000 1,838,000 1,787,000
Insurance commissions................................ 5,070,934 5,768,504 4,761,665
General and administrative expenses (NOTES 1 AND
9).................................................. 13,906,043 13,514,820 10,493,066
----------- ------------ -----------
TOTAL BENEFITS AND EXPENSES...................... 96,371,134 104,582,481 85,169,868
----------- ------------ -----------
Loss before federal income taxes..................... (4,722,786) (7,035,211) (107,807)
Federal income taxes (benefit) (NOTE 6).............. (1,562,943) (999,671) (686,000)
----------- ------------ -----------
NET INCOME (LOSS)................................ $(3,159,843) $ (6,035,540) $ 578,193
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FIRST FORTIS LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL RETAINED OF INVESTMENT
COMMON PAID-IN EARNINGS SECURITIES,
STOCK CAPITAL (DEFICIT) NET TOTAL
---------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1993................................ $2,000,000 $30,440,000 $ 3,916,365 $36,356,365
Net income........................................... 578,193 578,193
Unrealized appreciation of investment securities,
net................................................. $2,280,000 2,280,000
---------- ----------- ----------- -------------- -----------
Balance December 31, 1993.............................. 2,000,000 30,440,000 4,494,558 2,280,000 39,214,558
Net loss............................................. (6,035,540) (6,035,540)
Unrealized depreciation of investment securities,
net................................................. (5,486,586) (5,486,586)
Change in deferred tax valuation allowance for
unrealized depreciation on investment securities.... (1,651,877) (1,651,877)
---------- ----------- ----------- -------------- -----------
Balance December 31, 1994............................ 2,000,000 30,440,000 (1,540,982) (4,858,463) 26,040,555
Additional paid-in capital from Fortis AMEV.......... 7,000,000 7,000,000
Net loss............................................. (3,159,843) (3,159,843)
Unrealized appreciation of investment securities,
net................................................. 6,857,715 6,857,715
Change in deferred tax valuation allowance for
unrealized depreciation on investment securities...... 1,651,877 1,651,877
---------- ----------- ----------- -------------- -----------
Balance December 31, 1995.............................. $2,000,000 $37,440,000 $(4,700,825) $3,651,129 $38,390,304
---------- ----------- ----------- -------------- -----------
---------- ----------- ----------- -------------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STATEMENTS OF CASH FLOWS
FIRST FORTIS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................... $ (3,159,843) $ (6,035,540) $ 578,193
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred tax valuation allowance................... (177,708) 1,515,531 --
Increase in future policy benefit reserves and
other policy claims and benefits.................. 3,481,220 7,835,342 8,696,790
Decrease in income taxes........................... (1,569,235) (2,903,210) (2,289,946)
Amortization of policy acquisition costs........... 4,595,000 1,838,000 1,787,000
Policy acquisition costs deferred.................. -- (432,000) (364,000)
Increase (decrease) in other liabilities........... 128,321 (2,118,752) 1,219,368
Depreciation, amortization and accretion........... 750,029 716,129 838,727
(Increase) decrease in uncollected premiums,
accrued investment income and other............... 112,767 2,258,061 (3,768,978)
(Increase) decrease in reinsurance recoverable..... (460,598) 333,480 1,591,543
Net realized (gains) losses on investments......... (2,683,100) 1,057,438 (3,062,050)
------------ ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 1,016,853 4,064,479 5,226,647
INVESTING ACTIVITIES
Purchases of fixed maturity investments.............. (122,289,460) (77,995,025) (120,655,536)
Sales and maturities of fixed maturity investments... 120,298,152 69,440,809 116,306,946
(Increase) decrease in equity securities and
short-term investments.............................. (5,042,029) 3,731,866 (86,873)
Purchase of property and equipment................... (321,460) (562,438) (519,408)
------------ ------------- ------------
NET CASH USED IN INVESTING ACTIVITIES............ (7,354,797) (5,384,788) (4,954,871)
------------ ------------- ------------
FINANCING ACTIVITIES
Proceeds from additional paid-in-capital............. 7,000,000 -- --
------------ ------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........ 7,000,000 -- --
------------ ------------- ------------
Increase (decrease) in cash.......................... 662,056 (1,320,309) 271,776
CASH AT BEGINNING OF YEAR........................ 483,075 1,803,384 1,531,608
------------ ------------- ------------
CASH AT END OF YEAR.............................. $ 1,145,131 $ 483,075 $ 1,803,384
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FIRST FORTIS LIFE INSURANCE COMPANY
DECEMBER 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
First Fortis Life Insurance Company ("First Fortis" or "Company") is an
affiliate of the worldwide Fortis group of companies owned by Fortis AMEV of the
Netherlands and Fortis AG of Belgium. First Fortis is wholly-owned by Fortis
AMEV. The other U.S. subsidiaries of Fortis AMEV and Fortis AG operate under the
holding company name Fortis, Inc. The Company was organized to enable the Fortis
group of companies to distribute their products to the New York State
marketplace. To date, the Company's revenues have been derived primarily from
group employee benefits products. During 1995, the Company had $17,825,000 of
direct premium written principally by three third party administrators
("TPA's"). Effective January 1, 1996, the Company stopped offering its group
medical products, however, the Company will continue to renew and service
existing medical business, which represented $34,011,000 of 1995 accident and
health premiums. At December 31, 1995, $250,000 of related termination benefits
was accrued and included in general and adminstrative expenses.
BASIS OF STATEMENT PRESENTATION
The financial statements are presented in conformity with generally accepted
accounting principles which differ in certain respects from statutory accounting
practices prescribed or permitted by the New York State Insurance Department.
Significant accounting policies followed by the Company are:
POLICY REVENUES
For group life, medical, disability, and credit life products, amounts
collected from policyholders are recognized as premium income over the
premium paying period and are reported net of experience rating refunds and
unearned premiums.
CLAIMS AND BENEFITS PAYABLE
Claims and benefits payable for reported and incurred but not reported
losses are determined using case base estimates and prior experience. These
estimates are subject to the effects of trends in claim severity and
frequency and represent the estimates of the ultimate cost of all unpaid
losses incurred through December 31 of each year. Although considerable
variability is inherent in such estimates, management believes that the
reserve for claims and benefits payable is adequate. The methods of making
such estimates and establishing the related liabilities are continually
reviewed and updated, and any adjustments resulting therefrom are reflected
in income currently.
RESERVES FOR FUTURE POLICY BENEFITS
Active life reserves for future policy and contract benefits on life and
accident and health products are provided on the net level premium method.
The reserves are calculated based upon assumptions as to interest,
withdrawal, mortality, and morbidity that were appropriate at the date of
issue. Interest rate assumptions range principally from 3.0% to 5.5% for
traditional life products and 4.0% to 10.0% for annuity products. Withdrawal
assumptions are based on actual Company experience. Mortality and morbidity
assumptions are based upon industry standards adjusted as appropriate to
reflect actual Company experience. The assumptions vary by plan, year of
issue, and policy duration and include a provision for adverse deviation.
Disabled lives reserves for future policy and contract benefits on
disability income policies are calculated based upon assumptions as to
interest and claim termination rates that are currently appropriate.
Disabled lives reserves for group life policies are based on a 3.5% interest
rate assumption. For group long-term disability income policies, the
interest rate assumption on claims is 6.0%. Termination rate assumptions are
based upon industry standards adjusted as appropriate to reflect actual
Company experience. The assumptions vary by year of claim incurred.
INVESTMENTS
The Company's investment strategy is developed based on many factors
including insurance liability matching, rate of return, maturity, credit
risk, tax considerations, and regulatory requirements.
Available-for-sale securities are reported at fair value; short-term
investments are reported at cost, which approximates fair value. Changes in
the fair values of available-for-sale securities, net of deferred income
taxes, are reported as unrealized appreciation or depreciation directly in
shareholder's equity and, accordingly, have no effect on net income.
Realized gains and losses on sales of investments, and declines in value
judged to be other-than-temporary, are recognized on the specific
identification basis.
PROPERTY AND DEPRECIATION
The Company provides depreciation (principally on the straight-line method)
over the estimated useful life of the related property.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax
assets and liabilities are determined based on the differences between their
financial reporting and their tax bases and are measured using the enacted
tax rates.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
2. DEFERRED POLICY ACQUISITION COSTS
On October 1, 1991, First Fortis Life Insurance Company and an affiliate, Fortis
Benefits Insurance Company, (the "Companies") entered into an Asset Transfer and
Acquisition Agreement (the "Agreement") with Mutual Benefit Life Insurance
Company in Rehabilitation ("MBL"). Pursuant to the Agreement, the Companies
acquired certain assets and assumed certain liabilities of MBL relating to the
group life, disability, dental and medical insurance business (the "Business")
of MBL. That portion of the Business conducted in New York was assumed by First
Fortis, while the most substantial portion of the Business was assumed by Fortis
Benefits Insurance Company. First Fortis paid $10,166,000 for its portion of the
Business acquired including contingent Promissory Note ("Note") payments
aggregating $1,366,000 from 1992 to 1994 which were based on the persistency of
the acquired Business through September 30, 1994. No additional payments will be
made. Note payments were added to deferred policy acquisition costs ("DPAC")
when made. The DPAC amortization period, which was originally scheduled through
September 30, 1997, was completed December 31, 1995 (an acceleration of
$2,749,000 into 1995), based on the overall experience of the acquired block of
business.
3. INVESTMENTS
FIXED MATURITIES
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>
December 31, 1995:
Governments.......................................... $ 17,068,216 $1,025,440 -- $ 18,093,656
Public utilities..................................... 4,906,703 262,773 -- 5,169,476
Industrial and miscellaneous......................... 84,673,835 4,272,901 $ (26,416) 88,920,320
------------ ---------- ------------ ------------
TOTAL.................................................. $106,648,754 $5,561,114 $ (26,416) $112,183,452
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1994:
Governments.......................................... $ 38,197,817 $ 33,725 $ (1,700,807) $ 36,530,735
State and municipal.................................. 18,793,434 690 (901,799) 17,892,325
Public utilities..................................... 4,512,407 -- (295,936) 4,216,471
Industrial and miscellaneous......................... 40,692,269 8,630 (2,002,966) 38,697,933
------------ ---------- ------------ ------------
TOTAL.................................................. $102,195,927 $ 43,045 $ (4,901,508) $ 97,337,464
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</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 December 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................................ $ 2,084,737 $ 2,103,881
Due after one year through five years.................. 23,936,241 24,692,303
Due after five years through ten years................. 54,663,995 57,329,162
Due after ten years.................................... 25,963,781 28,058,106
------------ ------------
$106,648,754 $112,183,452
------------ ------------
------------ ------------
</TABLE>
Proceeds from sales and maturities of fixed maturity securities were
$120,298,152, $69,440,809, and $116,306,946 in 1995, 1994, and 1993,
respectively. Gross gains of $3,373,880, $510,242, and $3,159,461 and gross
losses of $690,780, $1,572,163, and $97,411 were realized on the sales in 1995,
1994, and 1993.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows:
<TABLE>
<CAPTION>
NET REALIZED GAINS (LOSSES) ON
NET INVESTMENT INCOME INVESTMENTS
---------------------------------- -----------------------------------
1995 1994 1993 1995 1994 1993
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities........................ $7,578,652 $6,341,978 $6,210,423 $2,683,100 $(1,061,921) $3,062,050
Short-term investments.................. 152,211 200,274 113,436 -- 4,483 --
---------- ---------- ---------- ---------- ----------- ----------
7,730,863 6,542,252 6,323,859 $2,683,100 $(1,057,438) $3,062,050
---------- ----------- ----------
---------- ----------- ----------
Expenses................................ (265,112) (280,659) (250,133)
---------- ---------- ----------
Net investment income................... $7,465,751 $6,261,593 $6,073,726
---------- ---------- ----------
</TABLE>
4. LEASES
The Company leases office space under operating lease arrangements that have
various renewal options and are subject to escalation clauses for real estate
taxes and operating expenses. Rent expense was $673,407, $597,365, and $554,213
in 1995, 1994, and 1993, respectively. Future minimum payments required under
operating lease arrangements that have initial or noncancelable terms in excess
of one year or more are: 1996--$701,250, 1997--$678,367, 1998--$718,322, and
1999--$550,219.
5. UNPAID LOSSES AND LOSS EXPENSE ALLOWANCE
Activity for the liability for unpaid accident and health losses and related
loss expense allowance is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance
recoverable........................................... $66,136,369 $58,646,889 $48,837,776
Add: Incurred losses related to:
Current year....................................... 57,400,613 66,066,609 49,505,698
Prior years........................................ (808,386) 2,048,903 (479,640)
----------- ----------- -----------
Total incurred losses................................ 56,592,227 68,115,512 49,026,058
----------- ----------- -----------
Deduct: Paid losses related to:
Current year....................................... 35,779,078 40,882,341 26,688,924
Prior years........................................ 21,185,448 19,743,691 12,528,021
----------- ----------- -----------
Total paid losses.................................... 56,964,526 60,626,032 39,216,945
----------- ----------- -----------
Balance as of December 31, net of reinsurance
recoverable........................................... $65,764,070 $66,136,369 $58,646,889
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In 1994, lower than anticipated recovery rates on existing long-term disability
income claimants, offset by a favorable refinement in the claims reserve
estimates contributed to the "incurred losses related to prior years" result.
The liability for unpaid accident and health losses and loss expense allowance
includes $53,953,000, $47,489,000, and $42,474,000 of long-term disability
income reserves as of December 31, 1995, 1994, and 1993, respectively, which
were discounted for anticipated interest earnings assuming a 6.0% interest rate.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
6. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes. The significant components of the Company's deferred
tax assets and liabilities as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves..................................................................... $ 2,104 $ 2,073
Deferred policy acquisition costs............................................ 470 --
Alternative minimum tax credit carryforward.................................. 191 243
Unrealized losses............................................................ -- 1,652
Other........................................................................ 485 406
--------- ---------
Total gross deferred tax assets................................................ 3,250 4,374
Valuation allowance............................................................ (1,338) (3,167)
--------- ---------
Net deferred tax assets........................................................ 1,912 1,207
Deferred tax liabilities:
Unrealized gains............................................................. 1,881 --
Deferred policy acquisition costs............................................ -- 1,172
Other........................................................................ 31 35
--------- ---------
Total gross deferred tax liabilities........................................... 1,912 1,207
--------- ---------
Net deferred tax liability..................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1995 and 1994, respectively, the Company had a deferred tax
asset valuation allowance of $1,337,823 and $3,167,408, of which $-0- and
$1,651,877 in 1995 and 1994, respectively, related to unrealized depreciation on
investment securities. The valuation allowance decrease of $1,829,585 was
recognized as a $1,651,877 increase to the "unrealized appreciation
(depreciation) of investment securities, net" component of shareholder's equity
and a $177,708 tax benefit in the statement of operations in 1995.
The income tax provision is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current........................................... $ 393 $(1,775) $ 384
Deferred.......................................... (1,778) (740) (1,070)
Valuation allowance............................... (178) 1,516 --
------- ------- -------
------- ------- -------
Federal income taxes (benefit).................... $(1,563) $ (999) $ (686)
------- ------- -------
------- ------- -------
</TABLE>
Tax payments of $251,591, $1,442,818, and $1,670,000 were made in 1995, 1994,
and 1993, respectively.
The differences between the benefit for income taxes at the federal statutory
income tax rate and the tax benefit were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate............................ (34.0)% (34.0)% (34.0)%
------- ------- -------
------- ------- -------
Tax benefit at statutory rate..................... $(1,606) $(2,392) $ (38)
Tax exempt interest............................... (188) (406) (603)
Other, net........................................ 409 283 (45)
Valuation allowance............................... (178) 1,516 --
------- ------- -------
------- ------- -------
Tax benefit as reported........................... $(1,563) $ (999) $ (686)
------- ------- -------
------- ------- -------
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of $389,000 which are available to offset future
federal taxable income, if any, through 2010. The Company also has alternative
minimum tax credit carryforwards of $191,000, which are available to reduce
future federal regular income taxes, if any, over an indefinite period of time.
7. REINSURANCE
The maximum amounts that the Company retains on any one life are $500,000 for
group life; $250,000 for group accidental death; $10,000 net monthly benefit for
long-term disability; from 10% to 50% of possible benefits payable under credit
life and credit disability insurance; and 0% of a closed block of individual
life business. Amounts in excess of these limits are reinsured with various
insurance companies on a yearly renewable term, coinsurance or other basis.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
7. REINSURANCE (CONTINUED)
Future policy benefits and other policy claims and benefits payable are reported
gross of reinsurance. The reinsured portion of future policy benefits
and other policy claims and benefits payable are $9,335,947 and $8,875,349 in
1995 and 1994, respectively. The Company remains contingently liable in the
event the reinsuring companies are unable to meet their obligations under such
reinsurance agreements.
Additional information regarding the Company's reinsurance activity for the
years ended December 31, 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
AMOUNT CEDED NET AMOUNT
----------- ---------- -----------
<S> <C> <C> <C>
1995
Life insurance in force (000s).................... $ 6,864,625 $ 321,785 $ 6,542,840
----------- ---------- -----------
----------- ---------- -----------
Premiums:
Group and individual life....................... $20,376,696 $1,497,450 $18,879,246
Accident and health............................. 63,696,935 1,374,451 62,322,484
----------- ---------- -----------
Total premiums.................................... $84,073,631 $2,871,901 $81,201,730
----------- ---------- -----------
----------- ---------- -----------
1994
Life insurance in force (000s).................. $ 5,116,384 $ 297,027 $ 4,819,357
----------- ---------- -----------
----------- ---------- -----------
Premiums:
Group and individual life....................... $20,508,492 $1,077,362 $19,431,130
Accident and health............................. 72,835,490 210,931 72,624,559
----------- ---------- -----------
Total premiums.................................... $93,343,982 $1,288,293 $92,055,689
----------- ---------- -----------
----------- ---------- -----------
1993
Life insurance in force (000s).................... $ 4,903,885 $ 328,733 $ 4,575,152
----------- ---------- -----------
----------- ---------- -----------
Premiums:
Group and individual life....................... $21,059,528 $1,517,582 $19,541,946
Accident and health............................. 56,278,535 427,586 55,850,949
----------- ---------- -----------
Total premiums.................................... $77,338,063 $1,945,168 $75,392,895
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
8. DIVIDEND RESTRICTIONS
The Company is subject to insurance regulatory restrictions that limit cash
dividends which can be paid from the Company to its parent. All dividends
require prior approval by the New York State Insurance Department.
9. TRANSACTIONS WITH AFFILIATED COMPANIES
Affiliates of the Company provide services, such as information systems,
actuarial and investment management in return for payment representing the costs
incurred for such services. In 1995, 1994, and 1993, the Company incurred
$1,581,000, $1,443,000, and $1,491,000, respectively, in service fees under the
arrangements with the affiliates. In 1995, the Company received cash of
$7,000,000 representing additional paid-in capital from Fortis AMEV.
The Company participates in the Fortis, Inc. noncontributory defined benefit
pension plan and a contributory profit sharing plan covering substantially all
of its employees. Amounts expensed under these plans were $232,252, $171,519,
and $109,328 in 1995, 1994, and 1993, respectively.
10. STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by insurance regulatory
authorities. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed; such practices may differ from state to state, may differ from
company to company within a state, and may change in the future. The NAIC is
currently in the process of recodifying statutory accounting practices. This
project, which is expected to be completed in 1997, may result in changes to the
accounting practices that insurance enterprises use to prepare their
statutory-basis financial statements.
Insurance enterprises are required by state insurance departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. The
Company exceeds minimum RBC requirements.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
10. STATUTORY ACCOUNTING PRACTICES (CONTINUED)
Reconciliations of net income or loss and shareholder's equity on the basis of
statutory accounting to the related amounts presented in the accompanying
statements were as follows:
<TABLE>
<CAPTION>
NET INCOME (LOSS) SHAREHOLDER'S EQUITY
------------------------------------- ------------------------
1995 1994 1993 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........... $(1,627,624) $(2,004,993) $ (551,557) $27,773,005 $22,394,191
Deferred policy acquisition costs................. (4,595,000) (1,838,000) (1,787,000) -- 4,595,000
Deferred and uncollected premiums................. -- (100,000) 332,588 149,066 207,171
Property and equipment............................ -- -- -- 583,613 766,547
Policy reserves................................... 68,018 (16,872) (73,025) 182,546 114,530
Investment valuation difference................... -- -- -- 5,532,013 (4,858,463)
Realized gains (losses) on investments............ 2,683,736 (1,060,352) 2,309,360 -- --
Amortization of goodwill.......................... (46,000) (46,000) (45,550) 600,000 646,000
Income taxes...................................... 674,642 1,035,479 686,000 1,337,823 1,614,329
Deferred tax valuation allowance.................. 177,708 (1,515,531) -- (1,337,823) (1,515,531)
Interest maintenance reserve ("IMR").............. -- -- -- 2,430,093 1,135,461
Amortization of IMR............................... (432,656) (451,286) (324,446) -- --
Asset valuation reserve........................... -- -- -- 881,150 753,187
Other............................................. (62,667) (37,985) 31,823 258,818 188,133
----------- ----------- ----------- ----------- -----------
$(3,159,843) $(6,035,540) $ 578,193 $38,390,304 $26,040,555
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions arising in the normal course of
its operations. The Company does not believe that the eventual outcome of any
such litigation will have a materially adverse effect on its financial condition
or future operations.
F-11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<CIK> 0000914804
<NAME> FIRST FORTIS LIFE INSURANCE COMPANY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 112,183,452
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 89,345
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 119,122,797
<CASH> 1,145,131
<RECOVER-REINSURE> 9,335,947
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 139,913,293
<POLICY-LOSSES> 81,972,455
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 13,561,740
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000,000
<OTHER-SE> 36,390,304
<TOTAL-LIABILITY-AND-EQUITY> 139,913,293
81,201,730
<INVESTMENT-INCOME> 7,465,751
<INVESTMENT-GAINS> 2,683,100
<OTHER-INCOME> 297,767
<BENEFITS> 72,799,157
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 4,595,000
<INCOME-PRETAX> (4,722,786)
<INCOME-TAX> (1,562,943)
<INCOME-CONTINUING> (3,159,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,159,843)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 66,136,369
<PROVISION-CURRENT> 57,400,613
<PROVISION-PRIOR> (808,386)
<PAYMENTS-CURRENT> 35,779,078
<PAYMENTS-PRIOR> 21,185,448
<RESERVE-CLOSE> 65,764,070
<CUMULATIVE-DEFICIENCY> (808,386)
</TABLE>
