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, 1998
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 13212
(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
(In thousands, except per share data)
<TABLE>
<S> <C> <C>
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Investments:
Fixed maturities, at fair value (amortized
cost 1998--$118,064; 1997--$102,284) $121,097 $105,776
Short-term investments 1,950 11,697
123,047 117,473
Cash and cash equivalents 4,174 7,453
Receivables:
Uncollected premium, less allowance of $100 3,072 2,358
Reinsurance recoverable on paid and unpaid losses 22,727 19,764
Other 1,296 1,402
27,095 23,524
Accrued investment income 1,922 1,700
Deferred policy acquisition costs 1,810 1,413
Property and equipment at cost, less accumulated
depreciation (1998--$1,920; 1997--$1,853) 577 676
Deferred federal income tax 2,065 2,079
Goodwill, less accumulated amortization
(1998--$333; 1997--$322) 497 508
Assets held in separate accounts 21,279 16,072
Total assets $182,466 $170,898
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands, except per share data)
March 31, December 31,
1998 1997
(unaudited)
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Life insurance $ 28,585 $ 27,671
Interest sensitive and investment products 8,221 6,878
Accident and health 64,432 61,175
101,238 95,724
Unearned revenues 5,865 5,223
Other policy claims and benefits payable 10,967 10,304
Income taxes payable 856 911
Other liabilities 6,041 5,583
Liabilities related to separate accounts 21,279 16,072
Total policy reserves and liabilities 146,246 133,817
SHAREHOLDER'S EQUITY:
Common stock, $20 par value, 100,000
shares authorized and outstanding 2,000 2,000
Additional paid-in capital 37,440 37,440
Retained deficit (5,204) (4,642)
Unrealized gain on investments, net 1,984 2,283
Total shareholder's equity 36,220 37,081
Total policy reserves, liabilities, and
shareholder's equity $182,466 $170,898
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three months ended
March 31,
1998 1997
REVENUES
Insurance operations:
Life insurance premiums $5,198 $4,630
Interest sensitive and investment products
policy charges 11 -
Accident and health premiums 7,644 8,783
Net investment income 1,992 1,956
Realized gains (losses) on investments 369 (81)
Other income 239 134
TOTAL REVENUES 15,453 15,422
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance 4,514 3,194
Interest sensitive and investment products 156 -
Accident and health 7,546 10,002
Amortization of deferred policy
acquisition costs (47) -
Insurance commissions 1,147 1,019
General and administrative expenses 3,001 3,023
TOTAL BENEFITS AND EXPENSES 16,318 17,238
LOSS BEFORE FEDERAL INCOME TAXES (865) (1,816)
Federal income taxes benefit (303) (617)
NET LOSS $(562) $(1,199)
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
March 31,
1998 1997
OPERATING ACTIVITIES
Net loss $ (562) $(1,199)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on disposal of property and equipment 11 -
Increase in future policy benefit reserves
and other policy claims and benefits 5,474 2,283
(Increase) decrease in federal income taxes 121 (617)
Increase in other liabilities 458 1,172
Depreciation, amortization and accretion (300) 193
Increase in uncollected premiums, accrued
investment income and other (831) (691)
Increase in reinsurance recoverable (2,963) (852)
Net realized (gains) losses on investments (369) 80
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,039 369
INVESTING ACTIVITIES
Purchases of fixed maturity investments (72,054) (36,380)
Sales or maturities of fixed maturity investments 56,644 35,781
Increase (decrease)in equity securities and
short-term investments 9,747 (600)
Purchase of property and equipment - (21)
NET CASH USED BY INVESTING ACTIVITIES (5,663) (1,220)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 3,731 257
Surrenders and death benefits (2,542)
(33)
Interest credited to policyholders 156 4
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,345 228
INCREASE (DECREASE) IN CASH (3,279)
(623)
Cash and cash equivalents at beginning of period 7,453
1,545
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,174
$ 922
See accompanying notes.
/TABLE
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
March 31, 1998
(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, 1998 and the related statements of
operations for the three months ended March 31, 1998 and
1997, and cash flows for the three months ended March 31,
1998 and 1997.
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, 1998, 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, 1998 (in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 22,186 $ 132 $123 $ 22,195
Public Utilities 8,205 228 5 8,428
Industrial and
miscellaneous 87,673 2,917 116 90,474
Total $118,064 $3,277 $244 $121,097
</TABLE>
The amortized cost and fair value of fixed maturities at
March 31, 1998, by contractual maturity, are shown below
(in thousands). 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, 1998
(unaudited)
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 1,255 $ 1,261
Due after one year through
five years 53,101 53,867
Due after five years through
ten years 25,130 25,636
Due after ten years 38,578 40,333
$118,064 $121,097
</TABLE>
Proceeds from sales and maturities of fixed maturity
securities were $24,037,000 and $32,607,000 for the three
month period ended March 31, 1998 and 1997, respectively.
Gross gains of $478,000 and $188,000 and gross losses of
$109,000 and $269,000 were realized on the sales during
the three month period ended March 31, 1998 and 1997.
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>
Realized Gain (Loss)
Investment Income on Investments
1998 1997 1998 1997
Fixed maturities $1,880 $2,011 $369 $(81)
Short-term investments 134 (10) - -
2,014 2,001 $369 $(81)
Expenses (22) (45)
Net investment income $1,992 $1,956
/TABLE
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
March Year-to-Date 1998 Compared to March Year-to-Date
1997
Revenues
First Fortis' (the 'Company') insurance premiums
decreased during the first quarter of 1998 as compared to
the first quarter of 1997. This decrease was
substantially attributable to the Company's decision,
effective January 1, 1996, to cease new sales of group
medical policies. The Company continues to service the
existing group medical business. The decision to
effectively exit the group medical business has reduced
annualized premiums associated with this line from $11.4
million inforce at January 1, 1997 to a current inforce
of $5.5 million in premium. Accident and health premiums
are principally composed of group accident and health
coverages. The discontinuance of group medical sales and
strong dental sales have caused the group accident and
health premium mix to shift. First quarter disability
income, dental, and medical premium represented 39%, 43%,
and 18%, respectively, of total group accident and health
premium in 1998 compared to 39%, 32%, and 29%,
respectively, in 1997.
The Company continues to match investment portfolio
composition to liquidity needs and capital requirements.
Changes in interest rates during 1998 and 1997 resulted
in recognition of realized gains and losses upon sales of
securities.
Benefits
The decrease in accident and health benefits in the first
three months of 1998 as compared to the same period in
1997 is primarily due to improved experience in the group
medical products. Slightly offsetting this is a larger
volume of new group long term disability claims.
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.
The Company's general and administrative expenses are
relatively flat in the first quarter of 1998 from the
same period in 1997. The Company continues to strive for
improvements in the expense to gross revenue ratio, while
maintaining quality and timely services to the
policyholders.
Year 2000
The Year 2000 issue is the result of computer programs
having been written using two digits rather than four to
define a year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of
major systems or miscalculations, which could have a
material impact on the operations of the Company and any
of its businesses or subsidiaries. All of the Company's
major businesses are heavily dependent upon internal
computer systems, and many have significant interaction
with systems of third parties.
A comprehensive review of the Company's computer systems
and business processes has been conducted to identify the
major systems that could be affected by the Year 2000
issue. Steps are being taken to resolve any potential
problems including modification to existing software and
the purchase of new software. These measures are
scheduled to be completed and tested on a timely basis.
The Company's goal is to complete internal remediation
and testing of each system by early 1999.
The costs related to the Year 2000 issue are not expected
to have a material impact on the Company's results of
financial condition. This expectation is subject to
uncertainties that could cause actual results to differ
materially. Factors that could influence the total costs
to be incurred by the Company in connection with the Year
2000 issue include the ability of the Company to
successfully identify systems containing two-digit year
codes, the nature and amount of programming required to
fix the affected programs, the related labor and
consulting costs for such remediation, and the ability of
third parties that interface with the Company to
successfully address their Year 2000 issues.
The Company is evaluating the Year 2000 readiness of
advisors and other third parties whose system failures
could have an impact on the Company's operations. The
potential materiality of any such impact is not entirely
known at this time. The Company is closely monitoring
these entities to avoid any unforeseen circumstances.
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, 1998, 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.
<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 13, 1998
/s/ Larry M. Cains
Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000914804
<NAME> FIRST FORTIS LIFE INSURANCE COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 123,047
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 123,047
<CASH> 4,174
<RECOVER-REINSURE> 22,727
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 182,466
<POLICY-LOSSES> 101,238
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 10,967
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000
0
0
<OTHER-SE> 34,220
<TOTAL-LIABILITY-AND-EQUITY> 182,466
12,853
<INVESTMENT-INCOME> 1,992
<INVESTMENT-GAINS> 369
<OTHER-INCOME> 239
<BENEFITS> 12,216
<UNDERWRITING-AMORTIZATION> (47)
<UNDERWRITING-OTHER> 4,148
<INCOME-PRETAX> (865)
<INCOME-TAX> (303)
<INCOME-CONTINUING> (562)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 60,498
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
