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, 2000
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 333-14761
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.)
308 MALTBIE STREET, SUITE 200, SYRACUSE, NY 13204
(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
(In thousands, except share data)
March 31, December 31,
2000 1999
(Unaudited)
Assets
Investments:
Fixed maturities, at fair value (amortized
cost 2000-- $126,540; 1999--$126,432;) $121,611 $121,212
Policy Loans 1 1
Short-term investments 6,900 5,800
128,512 127,013
Cash and cash equivalents 1,494 4,562
Receivables:
Uncollected premiums, less allowance (2000
and 1999 $100) 2,869 3,097
Reinsurance recoverable on unpaid and paidlosses 32,475 31,634
Other 681 1,495
36,025 36,226
Accrued investment income 2,312 2,095
Deferred policy acquisition costs 3,916 4,353
Property and equipment at cost, less
accumulated depreciation (2000-- $ 2,298;
1999--$2,287) 112 124
Deferred federal income taxes 4,416 3,535
Goodwill, less accumulated amortization
(2000--$425; 1999--$414) 405 416
Assets held in separate accounts 75,612 69,928
Total assets $252,804 $248,252
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands, except per share data)
March 31, December 31,
2000 1999
(Unaudited)
Policy reserves, liabilities and
shareholder's equity
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance $ 34,895 $ 34,165
Interest sensitive and investment products 4,100 3,487
Accident and health 71,582 70,852
110,577 108,504
Unearned revenues 9,644 9,834
Other policy claims and benefits payable 13,361 12,247
Income taxes payable 1,738 1,213
Other liabilities 6,423 10,590
Liabilities related to separate accounts 75,612 69,928
Total policy reserves and liabilities 217,355 212,316
Shareholder's equity:
Common stock, $20 par value:
Authorized, issued and outstanding shares 2,000 2,000
- - 100,000
Additional paid-in capital 37,440 37,440
Retained deficit (6,955) (124)
Accumulated other comprehensive income 2,964 (3,380)
Total shareholder's equity 35,449 35,936
Total policy reserves, liabilities and $252,804 $248,252
shareholder's equity
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended
March 31,
2000 1999
Revenues
Insurance operations:
Life insurance premiums $6,426 $5,885
Interest sensitive and investment products 45 5
policy charges
Accident and health insurance premiums 9,174 8,502
Total 15,645 14,392
Net investment income 2,292 2,135
Realized (losses) gains on investments (727) 421
Other income 321 337
Total revenues 17,531 17,285
Benefits and Expenses
Benefits to policyholders:
Life insurance 6,142 4,504
Interest sensitive and investment products 58 136
Accident and health 7,798 6,859
Total 13,998 11,499
Amortization of deferred policy 85 43
acquisition costs
Insurance commissions 1,233 942
General and administrative expenses 3,256 3,866
Total benefits and expenses 18,572 16,350
(Loss) income before federal income taxes (1,041) 935
Income taxes expense(benefits)
Current 619 292
Deferred (983) 35
(364) 327
Net (loss) income (677) 608
Other comprehensive income (loss):
Unrealized gain (loss) on investments 6,344 (1,929)
Comprehensive income $5,667 $1,321
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
March 31,
2000 1999
Operating Activities
Net income $ (677) $ 608
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Loss on disposal of property and equipment - (2)
Increase in future policy benefit reserves and
other policy claims and benefits 2,329 2,893
Increase in federal income taxes (457) (636)
Decrease in other liabilities (4,167) (612)
Depreciation, amortization and accretion 460 24
Amortization of investment premiums, net 9 9
Decrease (increase) in uncollected premiums,
accrued investment income and other 825 (1,799)
Increase in reinsurance recoverable (841) (75)
Net realized (gains) loss on investments 727 (421)
Cash Used By Operating Activities (1,792) (11)
Investing Activities
Purchases of fixed maturity investments (20,042) (25,876)
Sales or maturities of fixed maturity 19,198 30,780
investments
Increase in equity securities and short-term (1,100) (3,720)
investments
Purchase of property and equipment - 2
Net Cash (Used) Provided By Investing (1,944) 1,186
Activities
Financing Activities
Activities related to investment products:
Considerations received 1,384 564
Surrenders and death benefits (783) (2,903)
Interest credited to policyholders 67 91
Net Cash Provided (Used) By Financing 668 (2,248)
Activities
Decrease In Cash (3,068) (1,073)
Cash and cash equivalents at beginning of 4,562 1,160
period
Cash and cash equivalents at end of period $1,494 $ 87
See accompanying notes
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(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, 2000 and
the related statement of income for the three
months ended March 31, 2000 and 1999, and cash
flow for the three months ended March 31, 2000 and
1999.
Income tax payments for the three months ended
March 31, 2000 and March 31, 1999 were $94,000 and
$897,000, 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
March 31, 2000, 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,
2000 (in thousands):
Gross Gross
Amortized UnrealizedUnrealized Fair
Cost Gain Loss Value
Fixed Income
Securities:
Governments $ 15,239 $ 150 $ 445 $ 14,944
Public utilities 16,511 4 922 15,593
Industrial and 94,790 185 3,901 91,074
miscellaneous
Total $126,540 $ 339 $5,268 $121,611
.
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(unaudited)
The amortized cost and fair value of available-for-
sale investments in fixed maturities at March 31,
2000, 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.
Amortized Fair
Cost Value
Due in one year or less $ 2,503 $ 2,503
Due after one year through five years 31,326 30,393
Due after five years through ten years 42,318 40,259
Due after ten years 50,393 48,456
Total $ 126,540 $ 121,611
Proceeds from sales and maturities of investments
in fixed maturities in the three-month period
ended March 31, 2000 were $19,198,000 and
$30,780,000 respectively. Gross gains of $18,000
and $518,000 and gross losses of $745,000 and
$97,000 were realized on sales during the three-
month period ended March 31, 2000 and 1999,
respectively.
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):
Realized
Investment Income Gain (Loss)
2000 1999 2000 1999
Fixed maturities $2,222 $2,058 $(727) $421
Short-term investments 100 111 - -
2,322 2,169 $(727) $421
Expenses (30) (34)
Net investment income $2,292 $2,135
First Fortis Life Insurance Company
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
March Year-to-Date 2000 Compared to
March Year-to-Date 1999
Revenues
First Fortis (the Company) life insurance premiums
increased during the first three months of 2000,
as compared to the same period in 1999 due to
strong group life sales. Group disability and
dental sales account for the increase in accident
and health premiums. Accident and health premiums
are principally composed of group accident and
health coverages. Dental, disability income, and
medical premium represented 51%, 47%, and 2%,
respectively, of total first quarter group
accident and health premium in 2000 compared to
45%, 44%, and 11%, respectively, in 1999. The
decrease in the group medical premium as a percent
of the total group accident and health premium is
due to the run-out of a block of business that
discontinued sales in 1996.
The Company continues to match investment
portfolio composition to liquidity needs and
capital requirements. Changes in interest rates
during 2000 and 1999 resulted in recognition of
realized gains and losses upon sales of
securities.
Benefits
First quarter year-to-date 2000 life benefits as
compared to premium were higher than 1999 and is
attributed to higher paid claim activity and
reserve increases. First quarter year-to-date
2000 accident and health benefits as compared to
premium were higher than the same period in 1999
due primarily to losses paid and additional
reserves established for the discontinued group
medical business.
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 as a percent
of premium have decreased to 21% in 2000 from 27% in
1999. The Company is incurring lower costs due to the
relocation of their administrative offices, service and
supply vendor changes, and permanent staff alignment.
The Company continues to strive for improvements in the
expense to gross revenue ratio while maintaining quality
and timely services to the policyholders.
Market Risk and Risk Management
Interest rate risk is the Company's primary market risk
exposure. Substantial and sustained increases and
decreases in market interest rates can affect the
profitability of insurance products and market value of
investments. The yield realized on new investments
generally increases or decreases in direct relationship
with interest rate changes. The market value of the
Company's fixed maturity and mortgage loan portfolios
generally increases when interest rates decrease, and
decreases when interest rates increase.
Interest rate risk is monitored and controlled through
asset/liability management. As part of the risk
management process, different economic scenarios are
modeled, including cash flow testing required for
insurance regulatory purposes, to determine that
existing assets are adequate to meet projected liability
cash flows. A major component of the Company's
asset/liability management program is structuring the
investment portfolio with cash flow characteristics
consistent with the cash flow characteristics of the
Company's insurance liabilities.
The Company uses computer models to perform simulations of the
cash flow generated from existing insurance policies
under various interest rate scenarios. Information from
these models is used in the determination of interest
crediting strategies and investment strategies. The
asset/liability management discipline includes
strategies to minimize exposure to loss as market
interest rates change. On the basis of these analyses,
management believes there is no material solvency risk
to the Company with respect to interest rate movements
up or down of 100 basis points from year end levels.
Equity market risk exposure is not significant. Equity
investments in the general account are not material
enough to threaten solvency and contract owners bear the
investment risk related to the variable products.
Therefore, the risks associated with the investments
supporting the variable separate accounts are assumed by
contract owners, not by the Company. The Company
provides certain minimum death benefits that depend on
the performance of the variable separate accounts.
Currently the majority of these death benefit risks are
reinsured which then protects the Company from adverse
mortality experience and prolonged capital market
decline.
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 a 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 30, 2000,
99% of the Company's fixed maturity investments consisted of
investment grade bonds. 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.
Year 2000
The Company utilizes computer systems to process Company
businesses. Fortis Inc., the Company's parent ("Fortis"),
created a Year 2000 Project Office which was dedicated to
ensuring that all of the systems for Fortis and its
subsidiaries and affiliates were ready for Year 2000. The
estimated total cost of the Fortis Year 2000 Project was
approximately $85 million. The Company is not incurring any
cost for the Year 2000 project since it is being paid for by
affiliates of the Company.
As of December 20, 1999, 100% of the computer system lines of
code that had been identified were renovated and tested and
were ready for year 2000. Although there have been several
minor matters, as of March 31, 2000, no significant
disruptions resulting from the century date change have been
detected. The Company will continue to monitor the status
of and exposure to any potential Year 2000 issues.
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 repot to be signed
on its behalf by the undersigned thereunto duly authorized.
First Fortis Life Insurance Company
(Registrant)
/s/ Larry M. Cains
_____________________________________________
Larry M. Cains
Treasurer
Date: May 12, 2000
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