SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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>
March 31, December 31,
1997 1996
(unaudited)
ASSETS
Investments:
Fixed maturities, at fair value (amortized
cost: $112,418,069 at March 31, 1997,
$111,970,939 at December 31, 1996) $ 110,761,401 $113,136,650
Short-term investments 600,000 0
111,361,401 $113,136,650
Cash 921,893 1,544,745
Receivables:
Uncollected premium, less allowance of $100,000 2,561,801 3,890,111
Reinsurance recoverable on paid and unpaid losses 15,583,226 14,731,285
Prepaid federal income taxes and other 6,709,501 4,311,855
24,854,528 22,933,251
Accrued investment income 1,976,492 1,739,498
Property and equipment, at cost, less accumulated
depreciation (1997--$1,506,658; 1996--1,395,517 940,891 1,027,576
Goodwill 542,500 554,000
Assets held in separate accounts 3,588,037 2,203,109
Total Assets $ 144,185,742 $143,138,829
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
March 31, December 31,
1997 1996
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 26,717,833 $25,225,095
Accident and health 62,254,574 60,774,384
88,972,407 85,999,479
Other policy claims and benefits payable 14,337,028 14,798,802
Other liabilities 4,657,853 4,445,831
Liabilities related to separate accounts 3,588,037 2,203,109
Total policy reserves and liabilities 111,555,325 107,447,221
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 (5,716,229) (4,517,761)
Unrealized appreciation (depreciation) of
investment securities, net (1,093,354) 769,369
Total Shareholder's equity 32,630,417 35,691,608
Total reserves, liabilities, and shareholder's
equity $144,185,742 143,138,829
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $4,630,038 $ 6,276,948
Accident and health premiums 8,782,544 14,099,190
Net investment income 1,956,172 1,951,022
Realized gains (losses) on investments (80,656) 148,104
Other income 134,352 105,751
TOTAL REVENUES 15,422,450 22,581,015
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 3,194,014 6,019,779
Accident and health 10,002,318 12,576,075
Insurance commissions 1,018,850 1,379,939
General and administrative expenses 3,023,104 3,499,546
TOTAL BENEFITS AND EXPENSES 17,238,286 23,475,339
LOSS BEFORE INCOME TAXES (BENEFIT) (1,815,836) (894,324)
Federal Income Taxes (Benefit) (617,368) (294,652)
NET LOSS (1,198,468) $ (599,672)
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1997 1996
OPERATING ACTIVITIES
Net loss $ (1,198,468) $ (599,672)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on sale of property and equipment - -
Increase in future policy benefit reserves
and other policy claims and benefits 2,282,643 3,283,616
(Increase) decrease in federal income taxes (617,367) 1,336,032
Increase in other liabilities 1,171,630 5,931,657
Depreciation, amortization and accretion 193,636 209,950
Increase in uncollected premiums, accrued
investment income and other (691,418) (991,817)
Increase in reinsurance recoverable (851,941) (201,757)
Net realized (gains) losses on investments 80,656 (148,104)
NET CASH PROVIDED BY OPERATING ACTIVITIES 369,371 8,819,905
INVESTING ACTIVITIES
Purchases of fixed maturity investments (36,380,103) (41,227,677)
Sales or maturities of fixed maturity investments 35,781,325 30,257,918
Increase (decrease)in equity securities and short-term
investments (600,000) 3,592,029
Purchase of property and equipment (21,955) (44,182)
NET CASH USED BY INVESTING ACTIVITIES (1,220,733) (7,421,912)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 257,466 0
Surrenders and death benefits (33,346) 0
Interest credited to policyholders 4,390 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 228,510 0
INCREASE (DECREASE) IN CASH (622,852) 1,397,993
Cash and cash equivalents at beginning of period 1,544,745 1,145,131
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 921,893 $ 2,543,124
See accompanying notes.
/TABLE
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
March 31, 1997
(unaudited)
General: The accompanying unaudited financial statements
of First Fortis Life Insurance Company contain all
adjustments necessary to present fairly the balance sheet
as of March 31, 1997 and the related statements of
operations for the three months ended March 31, 1997 and
1996, and cash flows for the three months ended March 31,
1997 and 1996.
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 March 31, 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 March 31, 1997:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 11,918,688 $ 754 $ ( 405,526) $11,513,916
Public Utilities 9,741,458 21,411 ( 243,806) 9,519,063
Industrial and
miscellaneous 90,757,923 490,358 (1,519,859) 89,728,422
Total $ 112,418,069 512,523 (2,169,191) 110,761,401
</TABLE>
The amortized cost and fair value of fixed maturities at
March 31, 1997, 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.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
March 31, 1997
(unaudited)
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<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 0 $ 0
Due after one year through
five years 37,835,722 37,787,387
Due after five years through
ten years 38,330,250 37,671,464
Due after ten years 36 252,097 35,302,550
112,418,069 110,761,401
</TABLE>
Proceeds from sales and maturities of fixed maturity
securities were $35,781,325 and $30,257,918 for the three
month period ended March 31, 1997 and 1996, respectively.
Gross gains of $188,064 and $583,959 and gross losses of
$268,720 and $435,855 were realized on the sales during
the three month period ended March 31, 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 three months of each year were as follows (in
thousands):
<TABLE>
<S> <C> <C>
Investment Realized Gain (Loss)
Income on Investments
1997 1996 1997 1996
Fixed maturities $2,011,580 $1,951,201 $(80,656) $148,104
Short-term investments (10,133) 71,905 - -
2,001,447 2,023,106 $ 80,656 $148,104
Expenses ( 45,275) ( 72,084)
Net investment income $1,956,172 $1,951,022
</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 three months ended March 31,
1997, the Company has ceded $930,000 of premium to Fortis
Benefits. At March 31, 1997, Fortis Benefits has assumed
$4,340,000 of reserves 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 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
March Year-to-Date 1997 Compared to March Year-to-Date
1996
Revenues
First Fortis' (the "Company") insurance premiums
decreased during the first quarter of 1997 as compared to
the first quarter 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 renew and service the existing group medical business
and; (2) a lapse on January 1, 1997 of business
generating the following annualized premiums: $2.6
million of group life, $1.4 million of group long term
disability income and $1.0 million of group dental
business. This business, which was written by one third
party administrator, had historical benefit loss
experience that was worse than the experience of the
remaining business. On-going marketing efforts have
continued to generate new group life, variable annuity,
group disability income and group dental 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 quarter 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 quarter of 1997, the Company's group life mortality
experience and average claim amounts continued to
decrease. During the first quarter of 1997, there was an
increase in the number of group disability income
claimants that recovered but that increase was offset by
a decrease in the average recovered claim size and an
increase in the average new claim size as compared to
1996. The Company's group dental claims ratio was higher
<PAGE>
than expected during the first quarter 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.
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 March
31, 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.
<PAGE>
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: May 14, 1997
/s/ Larry M. Cains
Larry M. Cains
Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000914804
<NAME> FIRST FORTIS LIFE INSURANCE COMPANY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 111,361,401
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 111,361,401
<CASH> 921,893
<RECOVER-REINSURE> 15,583,226
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 144,185,742
<POLICY-LOSSES> 88,972,407
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 14,337,028
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000,000
0
0
<OTHER-SE> 30,630,417
<TOTAL-LIABILITY-AND-EQUITY> 144,185,742
13,412,582
<INVESTMENT-INCOME> 1,956,172
<INVESTMENT-GAINS> (80,656)
<OTHER-INCOME> 134,352
<BENEFITS> 13,196,332
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (1,815,836)
<INCOME-TAX> (617,368)
<INCOME-CONTINUING> (1,198,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,198,468)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 61,481,436
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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<PAYMENTS-PRIOR> 0
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</TABLE>
