UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
[ X ] For the quarterly period ended:
September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from: to
Commission File Number: 33-71690
FIRST FORTIS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK
State or other jurisdiction of incorporation or
organization)
13-2699219 (I.R.S. Employer Identification No.)
220 SALINA MEADOWS PARKWAY, SUITE 255,
SYRACUSE, NEW YORK 13220
(Address of principal executive offices)
(315) 451-0066
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
<PAGE>
First Fortis Life Insurance Company
Balance Sheets
<TABLE>
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturities, at fair value (amortized cost
1996--$111,175,799; 1995-$106,648,754) $110,934,721 $112,183,452
Preferred stock at fair value (cost--$92,029) -- 89,345
Short-term investments 3,500,000 6,850,000
114,434,721 119,122,797
Cash 643,657 1,145,131
Receivables:
Uncollected premiums, less allowance of $100,000 5,142,064 4,440,446
Reinsurance recoverable on unpaid and paid losses 13,583,977 9,335,947
Prepaid federal income taxes and other 2,974,883 2,255,199
21,700,924 16,031,592
Accrued investment income 2,173,901 1,814,291
Property and equipment at cost, less accumulated
depreciation (1996-$1,324,535; 1995-$1,249,280) 1,009,862 1,199,482
Goodwill 565,500 600,000
Assets held is separate accounts 683,333 -
Total Assets $141,211,898 $139,913,293
Reserves, liabilities, and shareholder's equity
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance $ 24,257,392 $ 22,529,817
Accident and health 65,132,736 59,442,638
89,390,128 81,972,455
Other policy claims and benefits payable 10,815,118 13,561,740
Other liabilities 6,061,329 5,988,794
Liabilities related to separate accounts 683,333 -
Total policy reserves and liabilities 106,949,908 101,522,989
Shareholder's equity:
Common stock, $20 par value 100,000 shares
authorized, issued, and outstanding 2,000,000 2,000,000
Additional paid-in capital 37,440,000 37,440,000
Retained deficit (5,018,899) (4,700,825)
Unrealized appreciation (depreciation) of
investment securities, net (159,111) 3,651,129
Total shareholder's equity 34,261,990 38,390,304
Total reserves, liabilities, and shareholder's equity $141,211,898 $139,913,293
See notes to financial statements.
<PAGE>
First Fortis Life Insurance Company
Statements of Operations
(Unaudited)
Three months ended
September 30,
1996 1995
<S> <C> <C>
Revenues
Insurance operations:
Life insurance premiums $ 5,761,379 $ 5,092,793
Accident and health premiums 10,283,974 14,318,558
Net investment income 1,977,664 1,765,857
Realized gains on investments 136,942 1,620,033
Other income 37,932 136,818
Total revenues 18,197,891 22,934,059
Benefits and expenses
Benefits to policyholders:
Life insurance 3,306,763 5,857,045
Accident and health 6,971,883 11,026,159
Amortization of deferred policy acquisition
costs -- 462,000
Insurance commissions 1,386,282 1,385,461
General and administrative expenses 2,968,537 3,231,214
Total benefits and expenses 14,633,465 21,961,879
Income before federal income taxes 3,564,426 972,180
Federal income taxes 1,275,269 288,209
Net income $ 2,289,157 $ 683,971
See notes to financial statements.<PAGE>
First Fortis Life Insurance Company
Statements of Operations
(Unaudited)
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Revenues
Insurance operations:
Life insurance premiums $ 18,007,966 $ 14,026,054
Accident and health premiums 37,596,779 48,588,034
Net investment income 5,943,158 5,370,296
Realized gains (losses) on investments (447,454) 2,000,296
Other income 143,020 180,615
Total revenues 61,243,469 70,165,295
Benefits and expenses
Benefits to policyholders:
Life insurance 15,699,584 11,890,619
Accident and health 32,431,262 42,919,160
Amortization of deferred policy acquisition
costs -- 1,386,000
Insurance commissions 4,091,042 4,085,807
General and administrative expenses 9,467,685 10,245,712
Total benefits and expenses 61,689,573 70,527,298
Loss before federal income taxes (benefit) (446,104) (362,003)
Federal income taxes (benefit) (128,030) (224,973)
Net loss $ (318,074) $ (137,030)
See notes to financial statements.<PAGE>
First Fortis Life Insurance Company
Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Operating activities
Net loss $ (318,074) $ (137,030)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on sale of property and equipment 56,475 -
Increase in future policy
benefit reserves and other policy
claims and benefits 4,671,051 385,664
(Increase) decrease in income taxes 1,583,053 (224,953)
Amortization of policy acquisition
costs -- 1,386,000
Increase in other liabilities 72,535 4,988,999
Depreciation, amortization and accretion 608,845 534,843
Increase in uncollected premiums,
accrued investment income and other (1,402,500) (969,444)
Increase in reinsurance recoverable (4,248,030) (563,125)
Net realized (gains) losses on
investments 447,454 (2,000,296)
Net cash provided by operating activities 1,470,809 3,400,658
Investing activities
Purchases of fixed maturity investments (102,455,310) (104,316,706)
Sales and maturities of fixed maturity
investments 97,274,337 101,373,906
Decrease in equity securities and
short-term investments 3,442,029 1,200,000
Proceeds from sale of property and
equipment 6,006 --
Purchase of property and equipment (239,345) (315,797)
Net cash used in investing activities (1,972,283) (2,058,597)
Increase (decrease) in cash (501,474) 1,342,061
Cash at beginning of period 1,145,131 483,075
Cash at end of period $ 643,657 $ 1,825,136
See notes to financial statements.
</TABLE> <PAGE>
First Fortis Life Insurance Company
Notes to Financial Statements
September 30, 1996 and 1995
(Unaudited)
General
The accompanying unaudited financial statements of
First Fortis Life Insurance Company ("First Fortis" or
"Company"), contain all adjustments necessary to
present fairly the balance sheet as of September 30,
1996 and the related statements of operations for the
three and nine months ended September 30, 1996 and
1995, and cash flows for the nine months ended
September 30, 1996 and 1995.
Investments
The following is a summary of the amortized cost and
fair value of fixed maturity securities:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
September 30, 1996
Governments $ 10,465,522 $ 74,367 $ (80,100) $ 10,459,789
Public utilities 7,452,140 39,788 (103,625) 7,388,303
Industrial and
miscellaneous 93,258,137 810,344 (981,852) 93,086,629
Total $111,175,799 $ 924,499 $(1,165,577) $110,934,721
</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 September 30, 1996, by contractual
maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers
may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 1,095,433 $ 1,097,580
Due after one year through five years 31,222,936 31,367,324
Due after five years through ten years 45,683,392 45,464,250
Due after ten years 33,174,038 33,005,567
$111,175,799 $110,934,721
</TABLE>
First Fortis Life Insurance Company
Notes to Financial Statements (Continued)
Investments (Continued)
Proceeds from sales and maturities of fixed maturity
securities were $97,274,337 and $101,373,906 for the
nine month period ended September 30, 1996 and 1995,
respectively. Gross gains of $1,040,323 and $2,688,576
and gross losses of $1,487,777 and $688,280 were
realized on the sales during the nine month period
ended September 30, 1996 and 1995.
Net Investment Income and Net Realized Gains (Losses)
on Investments
Major categories of net investment income and realized
gains (losses) on investments for the nine months ended
September 30 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Net Net Realized
Investment Gains (Losses)
Income on Investments
1996 1995 1996 1995
Fixed maturities $5,927,316 $5,569,236 $ (447,454) $ 2,000,296
Short-term
investments 228,683 785 - -
6,155,999 5,570,021 $ (447,454) $ 2,000,296
Expenses (212,841) (199,725)
Net investment
income $5,943,158 $5,370,296
</TABLE>
Federal Income Taxes
As of September 30, 1996 and December 31, 1995,
respectively, the Company had a deferred tax asset
valuation allowance of $1,337,823.
Reinsurance
In the second quarter 1996, the Company received
approval from the New York State Insurance Department
of a reinsurance agreement with Fortis Benefits
Insurance Company ("Fortis Benefits"), an affiliate.
The agreement, which became effective as of January 1,
1996, decreases the Company's long term disability
reinsurance retention from a $10,000 net monthly
benefit to a $2,000 net monthly benefit for claims
incurred on and after January 1, 1996. Through
September 30, 1996, the Company has ceded $4,555,000 of
premium to Fortis Benefits and Fortis Benefits has
assumed $3,525,000 of reserves from the Company. In the
future, the agreement is expected to reduce the
variability of financial results for this product line.
Separate Accounts
The Company began selling variable annuity products
July 1, 1996. Assets and liabilities associated with
separate accounts relate to premium and annuity
considerations for which the contractholder, rather
than the Company, bears the investment risk. Separate
account assets are reported at fair value. Revenues and
expenses related to the separate account assets and
liabilities, to the extent of benefits paid or provided
to the separate account contractholders, are excluded
from the amounts reported in the accompanying
statements of operations.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
As of and for the Three and Nine Months Ended September
30, 1996 and 1995.
REVENUES
Total premium decreased in 1996 as compared to 1995. A
decision announced in 1995 to cease writing new medical
business along with premium rate increases on the
Company's renewal medical business have contributed to
a decline of approximately 72% of inforce medical lives
and a $31 million decrease in annualized inforce
medical premium since January 1, 1995. Effective July
1, 1996, $5.4 million of group dental premium lapsed.
The historical benefit loss experience on the lapsed
business was worse than the experience on the remaining
business. On-going marketing efforts have continued to
increase the Company's group life, group disability
income, and variable annuity premiums.
The Company continues to match investment portfolio
composition to liquidity needs and capital
requirements. Changes in interest rates during 1996 and
1995 resulted in recognition of realized gains and
losses.
BENEFITS
The Company's group life claims ratio improved during
the third quarter 1996 as a result of a decrease in
mortality. During the third quarter 1995, the
corresponding mortality rate was higher than expected
as a result of increased mortality and larger average
claim amounts. Actions taken by the Company on its
medical and dental business have improved the benefit
results for these product lines from 1995 to 1996.
Recovery rates improved on existing group disability
income claimants during the third quarter 1996 as
compared to 1995, thus resulting in improved accident
and health benefit results from 1995 to 1996.
EXPENSES
The Company continues to monitor its commission rate
structures, and, as indicated by market conditions,
periodically adjusts rates paid. Rates paid vary by
product type, group size and duration. Commission rate
decreases on medical products have been offset by
changes in the mix of inforce business thus resulting
in an increase to the commissions to premium ratio from
1995 to 1996. The decrease in medical premium and
related medical claims volume from 1995 to 1996 has
resulted in a decrease in the Company's general and
administrative expenses.
Liquidity and Capital Resources
The liquidity requirements of the Company have been met
by funds provided from operations, including investment
income. Funds are principally used to provide for
policy benefits, operating expenses, commissions and
investment purchases. The Company expects its operating
activities to continue to generate funds which will be
sufficient for these needs.
The National Association of Insurance Commissioners'
risk-based capital formula helps to establish
guidelines for capital levels. At September 30, 1996,
the Company's capital exceeded the minimum recommended
risk-based capital level.
As of September 30, 1996, 97.7% of the Company's fixed
maturity securities consisted of investment grade
bonds.
Regulation
The Company is subject to the laws and regulations
established by the New York State Insurance Department
governing insurance business conducted in New York
State. Periodic audits are conducted by the New York
Insurance Department related to the Company's
compliance with these laws and regulations. To date
there have been no adverse findings regarding the
Company's operations.<PAGE>
Part II. Other Information
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security
Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
a) None
b) No Forms 8-K have been filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
First Fortis Life Insurance Company
(Registrant)
Date: November 14, 1996
/s/
Larry M. Cains, Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000914804
<NAME> FIRST FORTIS LIFE INSURANCE COMPANY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 110,934,721
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 114,434,721
<CASH> 643,657
<RECOVER-REINSURE> 13,583,977
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 141,211,898
<POLICY-LOSSES> 89,390,128
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 10,815,118
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000,000
0
0
<OTHER-SE> 32,261,990
<TOTAL-LIABILITY-AND-EQUITY> 141,211,898
55,604,745
<INVESTMENT-INCOME> 5,943,158
<INVESTMENT-GAINS> (447,454)
<OTHER-INCOME> 143,020
<BENEFITS> 48,130,846
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (446,104)
<INCOME-TAX> (128,030)
<INCOME-CONTINUING> (318,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (318,074)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 65,764,070
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
