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, 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>
September 30,
December 31,
1998
1997
(unaudited)
ASSETS:
Investments:
Fixed maturities, at fair value (amortized
cost 1998--$123,825; 1997--$102,284) $129,360
$105,776
Short-term investments 900
11,697
130,260
117,473
Cash and cash equivalents 2,910
7,453
Receivables:
Uncollected premiums, less allowance of $100 3,548
2,358
Reinsurance recoverable on paid and unpaid losses 27,645
19,764
Other 1,273
1,402
32,466
23,524
Accrued investment income 2,001
1,700
Deferred policy acquisition costs 2,556
1,413
Property and equipment at cost, less accumulated
depreciation (1998--$2,091; 1997--$1,853) 407
676
Deferred federal income tax 781
2,079
Goodwill, less accumulated amortization
(1998--$345; 1997--$322) 474
508
Assets held in separate accounts 33,197
16,072
Total assets $205,052
$170,898
See accompanying notes.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands, except per share data)
September 30,
December 31,
1998
1997
(unaudited)
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Life insurance $ 29,714 $
27,671
Interest sensitive and investment products 9,294
6,878
Accident and health 68,141
61,175
107,149
95,724
Unearned revenues 7,741
5,223
Other policy claims and benefits payable 10,662
10,304
Income taxes payable 1,335
911
Other liabilities 5,476
5,583
Liabilities related to separate accounts 33,197
16,072
Total policy reserves and liabilities 165,560
133,817
SHAREHOLDER'S EQUITY:
Common stock, $20 par value, 100,000
Authorized, issued, and outstanding shares
--100,000 2,000
2,000
Additional paid-in capital 37,440
37,440
Retained deficit (3,558)
(4,642)
Unrealized gain on investments, net 3,610
2,283
Total shareholder's equity 39,492
37,081
Total policy reserves, liabilities, and
shareholder's equity $205,052
$170,898
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Nine months ended
September 30,
1998 1997
REVENUES
Insurance operations:
Life insurance premiums $17,243 $14,664
Interest sensitive and investment products
policy charges 66
- -
Accident and health premiums 23,445 24,883
Net investment income 6,093 5,934
Net realized gains (losses) on investments 1,022 153
Other income 873 466
TOTAL REVENUES 48,742 46,100
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance 12,345 11,838
Interest sensitive and investment products 578 -
Accident and health 20,833 23,982
Amortization of deferred policy
acquisition costs 55 -
Insurance commissions 3,730 3,370
General and administrative expenses 9,535 9,471
TOTAL BENEFITS AND EXPENSES 47,076 48,661
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 1,666
(2,561)
DEFERRED INCOME TAX EXPENSE (BENEFITS) 583
(897)
NET INCOME (LOSS) 1,083
(1,664)
OTHER COMPREHENSIVE (LOSS) INCOME:
Unrealized gain on investments 1,328
933
COMPREHENSIVE INCOME (LOSS) $ 2,411 $
(731)
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended
September 30,
1998 1997
REVENUES
Insurance operations:
Life insurance premiums $5,818 $4,978
Interest sensitive and investment products
policy charges 13
- -
Accident and health premiums 8,071 7,661
Net investment income 2,039 2,017
Realized gains (losses) on investments 172 251
Other income 386 194
TOTAL REVENUES 16,499 15,101
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance 2,632 4,728
Interest sensitive and investment products 244 -
Accident and health 4,100 6,351
Amortization of deferred policy
acquisition costs 153 -
Insurance commissions 1,567 1,064
General and administrative expenses 3,431 3,409
TOTAL BENEFITS AND EXPENSES 12,127 15,552
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 4,372
(451)
Federal income tax expense (benefit) 1,530
(158)
NET INCOME (LOSS) 2,842
(293)
OTHER COMPREHENSIVE INCOME:
Unrealized gain on investments 1,250 1,219
COMPREHENSIVE INCOME $4,092 $ 926
See accompanying notes.<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months
ended
September 30,
1998
1997
OPERATING ACTIVITIES
Net income (loss) $ 1,083
$(1,664)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on disposal of property and equipment 12
-
Increase in future policy benefit reserves
and other policy claims and benefits 11,904
2,431
Provision for deferred federal income taxes 583
-
Increase in federal income taxes 424
(1,288)
(Decrease) increase in other liabilities (107)
2,183
Depreciation, amortization and accretion (852)
564
Amortization of investment premiums, net (47)
-
Increase in uncollected premiums, accrued
investment income and other (1,362)
3,688
Increase in reinsurance recoverable (7,881)
(3,357)
Net realized (gains) losses on investments (1,022)
(153)
Other -
9
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,735
2,413
INVESTING ACTIVITIES
Purchases of fixed maturity investments (88,964)
(114,541)
Sales or maturities of fixed maturity investments 68,492
121,638
Increase (decrease)in equity securities and
short-term investments 10,797
(11,050)
Purchase of property and equipment -
(106)
NET CASH USED BY INVESTING ACTIVITIES (9,675)
(4,059)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 12,265
5,036
Surrenders and death benefits (10,388)
(794)
Interest credited to policyholders 520
67
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,397
4,309
INCREASE (DECREASE) IN CASH (4,543)
2,663
Cash and cash equivalents at beginning of period 7,453
1,545
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,910
$4,208
See accompanying notes.
/TABLE
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Notes to Financial Statements
September 30, 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 September 30, 1998 and the related statements of
operations for the nine months ended September 30, 1998
and 1997, and cash flows for the nine months ended
September 30, 1998 and 1997.
Income tax payments for the nine months ended September
30, 1998 and September 30, 1997 were $424,000 and $0,
respectively.
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, 1998, all fixed
maturity investments 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, 1998
(in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized
Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 18,700 $ 842 $ - $
19,542
Public Utilities 13,961 698 159
14,500
Industrial and
miscellaneous 91,164 4,301 147
95,318
Total $123,825 $5,841 $306
$129,360
</TABLE>
The amortized cost and fair value of fixed maturities at
September 30, 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
September 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 2,506 $ 2,519
Due after one year through
five years 50,137 51,740
Due after five years through
ten years 34,800 36,815
Due after ten years 36,382 38,286
$123,825 $129,360
</TABLE>
Proceeds from sales and maturities of fixed maturity
securities were $68,492,000 and $121,638,000 for the nine
month period ended September 30, 1998 and 1997,
respectively. Gross gains of $1,273,000 and $922,000 and
gross losses of $251,000 and $769,000 were realized on
the sales during the nine month period ended September
30, 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 nine 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 $5,986 $5,892 $1,022
$153
Short-term investments 214 170 -
- -
6,200 6,062 $1,022 $153
Expenses (107) (128)
Net investment income $6,093 $5,934
/TABLE
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
September Year-to-Date 1998 Compared to September Year-
to-Date 1997
Revenues
First Fortis (the "Company") life insurance premiums
increased during the first three quarters of 1998 as
compared to the first three quarters of 1997 due to
strong group life sales. Accident and health premiums
decreased during the first three quarters of 1998 as
compared to the first three quarters of 1997. This
accident and health premium 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 $4.7 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. Third quarter dental, disability income,
and medical premium represented 44%, 40%, and 16%,
respectively, of total group accident and health premium
in 1998 compared to 32%, 45%, and 23%, 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
Life benefits were favorable during the first three
quarters of 1998. The decrease in accident and health
benefits in the first nine 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 third 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.
<PAGE>
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, 1998, 96% 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
a. None
b. 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, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 130,260
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 130,260
<CASH> 2,910
<RECOVER-REINSURE> 27,645
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 205,052
<POLICY-LOSSES> 107,149
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 10,662
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,000
0
0
<OTHER-SE> 37,492
<TOTAL-LIABILITY-AND-EQUITY> 205,052
40,754
<INVESTMENT-INCOME> 6,093
<INVESTMENT-GAINS> 1,022
<OTHER-INCOME> 873
<BENEFITS> 33,756
<UNDERWRITING-AMORTIZATION> 55
<UNDERWRITING-OTHER> 13,265
<INCOME-PRETAX> 1,666
<INCOME-TAX> 583
<INCOME-CONTINUING> 1,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,083
<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>
