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 June 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<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<S> <C> <C>
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Investments:
Fixed maturities, at fair value (amortized
cost: $104,915,087 at June 30, 1997,
$111,970,939 at December 31, 1996) $ 105,646,713 $113,136,650
Short-term investments 3,340,000
0
108,986,713 $113,136,650
Cash 2,591,624 1,544,745
Receivables:
Uncollected premium, less allowance of $100,000 3,235,673
3,890,111
Reinsurance recoverable on paid and unpaid losses 16,770,200
14,731,285
Prepaid federal income taxes and other 9,745,461
4,311,855
29,751,334 22,933,251
Accrued investment income 1,618,467 1,739,498
Property and equipment, at cost, less accumulated
depreciation (1997--$1,624,422; 1996--1,395,517 904,957 1,027,576
Goodwill 531,000 554,000
Assets held in separate accounts 6,956,580 2,203,109
Total Assets $ 151,340,675 $143,138,829
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
June 30, December 31,
1997 1996
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 28,917,186 $25,225,095
Accident and health 63,777,276
60,774,384
92,694,462 85,999,479
Other policy claims and benefits payable 12,466,076
14,798,802
Other liabilities 5,189,906 4,445,831
Liabilities related to separate accounts 6,956,580
2,203,109
Total policy reserves and liabilities 117,307,024 107,447,221
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 (5,889,223) (4,517,761)
Unrealized appreciation of
investment securities, net 482,874 769,369
Total Shareholder's equity 34,033,651 35,691,608
Total reserves, liabilities, and shareholder's
equity $151,340,675 $143,138,829
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended
June 30,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $9,685,277
$12,246,587
Accident and health premiums 17,222,521
27,312,805
Net investment income 3,917,097
3,965,494
Realized gains (losses) on investments (98,130)
(584,396)
Other income 272,220
105,088
TOTAL REVENUES 30,998,985
43,045,578
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 7,109,434
12,392,821
Accident and health 17,630,640
25,459,379
Insurance commissions 2,306,401
2,702,005
General and administrative expenses 6,062,527
6,501,902
TOTAL BENEFITS AND EXPENSES 33,109,002
47,056,108
LOSS BEFORE INCOME TAXES (BENEFIT) (2,110,017)
(4,010,530)
Federal Income Taxes (Benefit) (738,557)
(1,403,299)
NET LOSS $(1,371,460)
$(2,607,231)
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
June 30,
1997 1996
REVENUES
Insurance operations:
Traditional life insurance premiums $5,055,239 $
5,969,639
Accident and health premiums 8,439,977
13,213,615
Net investment income 1,960,925
2,016,679
Realized gains (losses) on investments (17,474)
(732,500)
Other income 137,868
(664)
TOTAL REVENUES 15,576,535
20,466,769
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 3,915,420
6,373,042
Accident and health 7,628,322
12,883,304
Insurance commissions 1,287,551
1,322,066
General and administrative expenses 3,039,423
3,133,648
TOTAL BENEFITS AND EXPENSES 15,870,716
23,712,060
LOSS BEFORE INCOME TAXES (BENEFIT) ( 294,181)
(3,245,291)
Federal Income Taxes (Benefit) (121,189)
(1,108,647)
NET LOSS $( 172,992)
$(2,136,644)
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1997 1996
OPERATING ACTIVITIES
Net loss $ (1,371,460) $(2,607,231)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Increase in future policy benefit reserves
and other policy claims and benefits 2,576,572
9,278,925
(Increase) decrease in federal income taxes (738,557)
272,012
Increase in other liabilities 891,661
7,881,031
Depreciation, amortization and accretion 380,008
412,763
(Increase) in uncollected premiums, accrued
investment income and other (3,924,933)
( 32,858)
(Increase)in reinsurance recoverable (2,038,915)
(6,158,549)
Net realized (gains) losses on investments 98,130
584,396
Other 5,352 -
NET CASH PROVIDED BY OPERATING ACTIVITIES (4,122,142)
9,630,489
INVESTING ACTIVITIES
Purchases of fixed maturity investments (81,778,299)
(69,731,374)
Sales or maturities of fixed maturity investments 88,607,920
60,813,886
(Increase)decrease in equity securities and short-term
investments (3,340,000) 1,142,029
Purchase of property and equipment (106,286)
(136,274)
NET CASH USED BY INVESTING ACTIVITIES 3,383,335
(7,911,733)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 1,956,058 0
Surrenders and death benefits (192,867)
0
Interest credited to policyholders 22,495
0
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,785,686
0
INCREASE (DECREASE) IN CASH 1,046,879
1,718,756
Cash and cash equivalents at beginning of period 1,544,745
1,145,131
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,591,624 $
2,863,887
See accompanying notes.
/TABLE
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
June 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 June 30, 1997 and the related
statements of operations for the six months ended June
30, 1997 and 1996, and cash flows for the six months
ended June 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 June 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 June 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 June 30, 1997:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 5,855,025 $ 17,669 $ ( 57,484) $ 5,815,210
Public Utilities 10,144,739 72,387 ( 42,514)
10,174,612
Industrial and
miscellaneous 88,915,323 1,028,682 (287,114) 89,656,891
Total $ 104,915,087 1,118,738 (387,112) 105,646,713
</TABLE>
The amortized cost and fair value of fixed maturities at
June 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
June 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 $ 0 $
0
Due after one year through
five years 45,624,087 46,002,615
Due after five years through
ten years 19,566,762 19,724,207
Due after ten years 39 724,238 39,919,891
$104,915,087 $105,646,713
</TABLE>
Proceeds from sales and maturities of fixed maturity
securities were $88,607,920 and $60,813,886 for the six
month period ended June 30, 1997 and 1996, respectively.
Gross gains of $556,954 and $653,485 and gross losses of
$655,084 and $1,237,881 were realized on the sales during
the six month period ended June 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 six months of each year were as follows:
<TABLE>
<S> <C> <C>
Investment Realized Gain (Loss)
Income on Investments
1997 1996 1997 1996
Fixed maturities $3,968,485 $3,937,725 $(98,130)
$(584,396)
Short-term investments 35,800 174,852 -
-
4,004,285 4,112,577 $(98,130)
$(584,396)
Expenses ( 87,188) (147,083)
Net investment income $3,917,097 $3,965,494
</TABLE>
<PAGE>
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 six months ended June 30, 1997,
the Company has ceded $1,485,000 of premium to Fortis
Benefits. At June 30, 1997, Fortis Benefits has assumed
$5,261,000 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 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
June Year-to-Date 1997 Compared to June Year-to-Date 1996
Revenues
First Fortis' (the "Company") insurance premiums
decreased during the first six months of 1997 as compared
to the first six 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 $48 million to a current in force of $8
million in revenue; and, (2) during the last six months
of 1996, the following 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 two 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 half of 1997, the Company's group life
mortality experience and average claim amounts continued
to remain low. During the first half 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 half 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 June
30, 1997, 97% of the Company 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
a. On April 17, 1997, the Annual First Fortis Life
Insurance Company Shareholder Meeting was held.
b. All 100,000 outstanding shares of the Company's
common stock were cast for the election of each
director (Larry M. Cains, Allen R. Freedman, Thomas
M. Keller, Dean C. Kopperud, Terry J. Kryshak,
Susie Gharib, Guy G. Rutherford, Jr., Dale E.
Gardner, Kenneth W. Nelson, Clarence E. Galston,
and Robert B. Pollock).
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. None
b. Form 8-K filed on May 8, 1997 for change of
ownership.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
First Fortis Life Insurance Company
(Registrant)
Date: August 14, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 108,986,713
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 108,986,713
<CASH> 2,591,624
<RECOVER-REINSURE> 16,770,200
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 151,340,675
<POLICY-LOSSES> 92,694,462
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,466,076
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000,000
0
0
<OTHER-SE> 32,033,651
<TOTAL-LIABILITY-AND-EQUITY> 151,340,675
26,907,798
<INVESTMENT-INCOME> 3,917,097
<INVESTMENT-GAINS> (98,130)
<OTHER-INCOME> 272,220
<BENEFITS> 24,740,074
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (2,110,017)
<INCOME-TAX> (738,557)
<INCOME-CONTINUING> (1,371,460)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,371,460)
<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>
