SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-71690
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
(IRS Identification No.)
220 SALINA MEADOWS PARKWAY,SUITE 255,SYRACUSE, NY 13220
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 315-451-0066
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
FIRST FORTIS LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<S> <C> <C>
September 30, December 31,
1997 1996
(unaudited)
ASSETS
Investments:
Fixed maturities, at fair value (amortized
cost: $104,840,679 at September 30, 1997,
$111,970,939 at December 31, 1996) $ 107,419,594 $113,136,650
Short-term investments 11,049,625 0
118,469,219 $113,136,650
Cash 4,207,983 1,544,745
Receivables:
Uncollected premium, less allowance of $100,000 1,156,660 3,890,111
Reinsurance recoverable on paid and unpaid losses 18,088,686 14,731,285
Prepaid federal income taxes and other 3,768,591 4,311,855
23,013,937 22,933,251
Accrued investment income 1,730,384 1,739,498
Property and equipment, at cost, less accumulated
depreciation (1997--$1,738,874; 1996--1,395,517) 790,505 1,027,576
Goodwill 519,500 554,000
Assets held in separate accounts 10,375,869 2,203,109
Total Assets $ 159,107,397 $143,138,829
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
September 30, December 31,
1997 1996
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 31,522,760 $25,225,095
Accident and health 63,402,702 60,774,384
94,925,462 85,999,479
Other policy claims and benefits payable 12,613,677 14,798,802
Other liabilities 6,232,448 4,445,831
Liabilities related to separate accounts 10,375,869 2,203,109
Total policy reserves and liabilities 124,147,456 107,447,221
SHAREHOLDER'S EQUITY
Common stock, $20 par value, 100,000
shares authorized and outstanding 2,000,000 2,000,000
Additional paid-in capital 37,440,000 37,440,000
Retained deficit (6,182,142) (4,517,761)
Unrealized appreciation of
investment securities, net 1,702,083 769,369
Total Shareholder's equity 34,959,941 35,691,608
Total reserves, liabilities, and shareholder's
equity $159,107,397 $143,138,829
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended
September 30,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $14,663,549 $18,007,966
Accident and health premiums 24,883,107 37,596,779
Net investment income 5,933,778 5,943,158
Realized gains (losses) on investments 153,109 (447,454)
Other income 466,574 143,020
TOTAL REVENUES 46,100,117 61,243,469
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 11,837,725 15,687,372
Accident and health 23,981,875 32,431,262
Insurance commissions 3,370,316 4,089,666
General and administrative expenses 9,470,735 9,481,274
TOTAL BENEFITS AND EXPENSES 48,660,651 61,689,573
LOSS BEFORE INCOME TAXES (BENEFIT) (2,560,533) ( 446,104)
Federal Income Taxes (Benefit) (896,153) ( 128,030)
NET LOSS $(1,664,381) $( 318,074)
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
September 30,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $4,978,272 $ 5,761,379
Accident and health premiums 7,660,586 10,283,974
Net investment income 2,016,681 1,977,664
Realized gains (losses) on investments 251,239 136,942
Other income 194,354 37,932
TOTAL REVENUES 15,101,132 18,197,891
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 4,728,291 3,294,551
Accident and health 6,351,235 6,971,883
Insurance commissions 1,063,915 1,387,660
General and administrative expenses 3,408,207 2,979,372
TOTAL BENEFITS AND EXPENSES 15,551,648 14,633,466
LOSS BEFORE INCOME TAXES (BENEFIT) ( 450,516) 3,564,426
Federal Income Taxes (Benefit) (157,596) 1,275,269
NET LOSS $( 292,920) $ 2,289,157
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
1997 1996
OPERATING ACTIVITIES
Net loss $(1,664,381) $(318,074)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on sale of property and equipment 0 56,475
Increase in future policy benefit reserves
and other policy claims and benefits 2,431,535 4,671,051
(Increase) decrease in federal income taxes (1,288,186) 1,583,053
Increase in other liabilities 2,182,957 72,535
Depreciation, amortization and accretion 563,952 608,845
(Increase)decrease in uncollected premiums, accrued
investment income and other 3,688,560 (1,402,500)
(Increase)in reinsurance recoverable (3,357,401) (4,248,030)
Net realized (gains) losses on investments (153,109) 447,454
Other 8,622 -
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,412,549 1,470,809
INVESTING ACTIVITIES
Purchases of fixed maturity investments (114,541,122) (102,455,310)
Sales or maturities of fixed maturity investments 121,638,397 97,274,337
(Increase)decrease in equity securities and short-term
investments (11,049,625) 3,442,029
Proceeds from sale of property and equipment 0 6,006
Purchase of property and equipment (106,285) (239,345)
NET CASH USED BY INVESTING ACTIVITIES (4,058,635) (1,972,283)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 5,036,202 0
Surrenders and death benefits (794,010) 0
Interest credited to policyholders 67,132 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,309,324 0
INCREASE (DECREASE) IN CASH 2,663,238 (501,474)
Cash and cash equivalents at beginning of period 1,544 745 1,145,131
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,207,983 $ 643,657
See accompanying notes.
/TABLE
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
September 30, 1997
(unaudited)
General: The accompanying unaudited financial statements
of First Fortis Life Insurance Company (the "Company")
contain all adjustments necessary to present fairly the
balance sheet as of September 30, 1997 and the related
statements of operations for the nine months ended
September 30, 1997 and 1996, and cash flows for the nine
months ended September 30, 1997 and 1996.
The Company was purchased by Fortis, Inc. from Fortis
Amev, NV on April 30, 1997 for $33,042,000.
Federal Income Taxes: As of September 30, 1997 and
December 31, 1996, respectively, the Company had a
deferred tax asset valuation allowance of $1,338,000.
The classification of fixed maturity investments is to be
made at the time of purchase and, prospectively, that
classification is expected to be reevaluated as of each
balance sheet date. At September 30, 1997, all fixed
maturity and equity securities are classified as
available-for-sale and carried at fair value.
The amortized cost and fair values of investments
available-for-sale were as follows at September 30, 1997:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 5,422,486 $ 101,892 $ 0 $ 5,524,378
Public Utilities 8,603,008 253,262 0 8,856,270
Industrial and
miscellaneous 90,815,185 2,307,718 ( 83,958) 93,038,946
Total $ 104,840,679 2,662,872 ( 83,958) 107,419,594
</TABLE>
The amortized cost and fair value of fixed maturities at
September 30, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
September 30, 1997
(unaudited)
or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 649,895 $ 649,591
Due after one year through
five years 44,026,446 44,759,938
Due after five years through
ten years 20,637,168 21,156,626
Due after ten years 39 527,170 40,853,439
$104,840,679 $107,419,594
</TABLE>
Proceeds from sales and maturities of fixed maturity
securities were $121,638,397 and $97,274,337 for the nine
month period ended September 30, 1997 and 1996,
respectively. Gross gains of $922,217 and $1,040,322 and
gross losses of $769,108 and $1,487,776 were realized on
the sales during the nine month period ended September
30, 1997 and 1996.
Net Investment Income and Realized Gains (Losses) on
Investments: Major categories of net investment income
and realized gains and losses on investments for the
first nine months of each year were as follows:
<TABLE>
<S> <C> <C>
Investment Realized Gain (Loss)
Income on Investments
1997 1996 1997 1996
Fixed maturities $5,891,606 $5,927,316 $153,109 $(447,454)
Short-term investments 169,867 228,683 - -
6,061,473 6,155,999 $153,109 $(447,454)
Expenses (127,695) (212,841)
Net investment income $5,933,778 $5,943,158
</TABLE>
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,
decreased 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. For the nine months ended September 30,
1997, the Company has ceded $4,081,000 of premium to
Fortis Benefits. At September 30, 1997, Fortis Benefits
has assumed $5,797,340 of reserve liabilities from the
Company. The agreement is expected to reduce the
variability of financial results for this product line.
Separate Accounts
The Company began selling variable annuity products in
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
September Year-to-Date 1997 Compared to September Year-
to-Date 1996
Revenues
First Fortis' (the "Company") insurance premiums
decreased during the first nine months of 1997 as
compared to the first nine months of 1996. This decrease
was substantially attributable to the following: (1)
effective January 1, 1996, the Company ceased new sales
of group medical policies, however, the Company continues
to service the existing group medical business. The
decision to effectively exit the group medical business
has reduced premiums associated with this line from a
peak in 1996 of $26 million inforce to a current inforce
of $7 million in revenue; and, (2) during the last six
months of 1996, the annualized premium of Group Life
($2.6 M), Group LTD ($1.4 M) and Group Dental ($7.0 M) of
business written through one third party administrator
was lapsed. Historically, the benefit loss experience
related to this business was worse than the experience
from the Company's remaining business. The loss of this
business should have minimal impact on overall operating
results.
On-going marketing efforts have continued to generate new
group life, variable annuity, group disability income,
group dental and credit life and health business.
The Company continues to match investment portfolio
composition to liquidity needs and capital requirements.
Changes in interest rates during 1997 and 1996 resulted
in recognition of realized gains and losses.
Benefits
During the first three quarters of 1996, the Company's
group life claims ratio was higher than expected as a
result of increased mortality and larger average claim
amounts. Consistent with the last six months of 1996,
during the first three quarters of 1997, the Company's
group life mortality experience and average claim amounts
continued to remain low. During the first three quarters
of 1997, group disability income had an increase in the
average new claim size as compared to 1996. The
Company's group dental claims ratio was higher than
expected during the first three quarters of 1997 as a
result of higher benefit utilization rates and an
increase in dental care costs.
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.
As the Company's inforce medical lives continue to
decrease, the Company continues to experience a reduction
in medical insurance related administrative expenses.
Some fixed costs related to the medical business remain
with the Company.
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.
The National Association of Insurance Commissioners has
implemented risk-based capital standards to determine the
capital requirements of a life insurance company based
upon the risks inherent in its operations. These
standards require the computation of risk-based capital
amount which is then compared to a company's actual total
adjusted capital. Based upon current calculation using
these risk-based capital standards, the Company's
percentage of total adjusted capital is in excess of
ratios which would require regulatory attention.
The Company has no long or short term debt. As of
September 30, 1997, 97% of the Company's fixed maturity
investments consisted of investment grade bonds, and the
Company does not expect this percentage to change
significantly in the future.
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.
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 13, 1997
/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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 118,469,219
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 118,469,219
<CASH> 4,207,983
<RECOVER-REINSURE> 18,088,686
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 159,107,397
<POLICY-LOSSES> 94,925,462
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,613,677
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000,000
0
0
<OTHER-SE> 32,959,941
<TOTAL-LIABILITY-AND-EQUITY> 159,107,397
39,546,656
<INVESTMENT-INCOME> 5,933,778
<INVESTMENT-GAINS> 153,109
<OTHER-INCOME> 466,574
<BENEFITS> 35,819,600
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (2,560,534)
<INCOME-TAX> (896,153)
<INCOME-CONTINUING> (1,664,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,664,381)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 61,481,436
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
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</TABLE>
