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, 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)
June 30, December
31,
2000 1999
(Unaudited)
Assets
Investments:
Fixed maturities, at fair value (amortized
cost 2000-- $125,603; 1999--$126,432) $119,537 $121,212
Policy Loans 1 1
Short-term investments 8,410 5,800
127,948 127,013
Cash and cash equivalents 1,900 4,562
Receivables:
Uncollected premiums, less allowance (2000
and 1999-- $100) 3,092 3,097
Reinsurance recoverable on unpaid and paid 35,104 31,634
losses
Other 847 1,495
39,043 36,226
Accrued investment income 2,136 2,095
Deferred policy acquisition costs 3,958 4,353
Property and equipment at cost, less
accumulated 101 124
depreciation (2000-- $ 2,310; 1999--
$2,287)
Deferred federal income taxes 5,285 3,535
Goodwill, less accumulated amortization
(2000--$ 437; 393 416
1999--$414)
Assets held in separate accounts 75,612 69,928
Total assets $256,376 $248,252
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands, except per share data)
June 30, December
2000 31,
1999
(Unaudited)
Policy reserves, liabilities and
shareholder's equity
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance $ 28,396 $ 34,165
Interest sensitive and investment products 4,114 3,487
Accident and health 77,034 70,852
109,544 108,504
Unearned revenues 14,952 9,834
Other policy claims and benefits payable 13,770 12,247
Income taxes payable 705 1,213
Other liabilities 6,641 10,590
Liabilities related to separate accounts 75,612 69,928
Total policy reserves and liabilities 221,224 212,316
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 (359) (124)
Accumulated other comprehensive income (3,929) (3,380)
(loss)
Total shareholder's equity 35,152 35,936
Total policy reserves, liabilities and $256,376 $248,252
shareholder's equity
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Six months ended
June 30,
2000 1999
Revenues
Insurance operations:
Life insurance premiums $12,083 $11,837
Interest sensitive and investment product 210 130
policy charges
Accident and health insurance premiums 19,622 16,913
31,915 28,880
Net investment income 4,638 4,217
Realized (losses) gains on investments (1,078) 264
Other income 829 638
Total revenues 36,304 33,999
Benefits and Expenses
Benefits to policyholders:
Life insurance 11,116 9,249
Interest sensitive and investment products 225 202
Accident and health claims 16,747 13,176
28,088 22,627
Amortization of deferred policy 146 38
acquisition costs
Insurance commissions 2,106 2,246
General and administrative expenses 6,325 7,237
Total benefits and expenses 36,665 32,148
(Loss) income before federal income taxes (361) 1,851
Income taxes expense(benefits)
Current 1,328 809
Deferred (1,454) (161)
(126) 648
Net (loss) income (235) 1,203
Other comprehensive loss:
Unrealized loss on investments (549) (4,203)
Comprehensive loss $ (784) $(3,000)
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended
June 30,
2000 1999
Revenues
Insurance operations:
Life insurance premiums $ 5,657 $ 5,952
Interest sensitive and investment product 165 125
policy charges
Accident and health insurance premiums 10,448 8,411
16,270 14,488
Net investment income 2,346 2,082
Realized (losses) gains on investments (351) (157)
Other income 508 301
Total revenues 18,773 16,714
Benefits and Expenses
Benefits to policyholders:
Life insurance 4,974 4,745
Interest sensitive and investment products 167 66
Accident and health claims 8,949 6,317
14,090 11,128
Amortization of deferred policy 61 (5)
acquisition costs
Insurance commissions 873 1,304
General and administrative expenses 3,069 3,371
Total benefits and expenses 18,093 15,798
(Loss) income before federal income taxes 680 916
Income taxes expense(benefits)
Current 709 517
Deferred (471) (196)
238 321
Net income 442 595
Other comprehensive loss:
Unrealized loss on investments (739) (2,274)
Comprehensive loss $ (297) $(1,679)
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
June 30,
2000 1999
Operating Activities
Net income $ (235) $1,203
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Increase in future policy benefit reserves
and other policy claims and benefits 7,074 3,420
Provision for deferred federal income (1,454) (161)
taxes
Increase in federal income taxes (508) (673)
Decrease in other liabilities (3,949) (1,106)
Depreciation, amortization and accretion 441 (186)
Amortization of investment premiums, net 17 41
Decrease (increase) in uncollected
premiums, accrued investment income and 612 312
other
Increase in reinsurance recoverable (3,470) (834)
Net realized loss (gains) on investments 1,078 (264)
Cash Used By Operating Activities (393) 1,752
Investing Activities
Purchases of fixed maturity investments (29,821) (48,941)
Sales or maturities of fixed maturity 29,555 51,603
investments
Increase in equity securities and short- (2,610) (2,650)
term investments
Net Cash (Used) Provided By Investing (2,876) 12
Activities
Financing Activities
Activities related to investment products:
Considerations received 2,609 1,900
Surrenders and death benefits (2,151) (4,419)
Interest credited to policyholders 149 160
Net Cash Provided (Used) By Financing 607 (2,359)
Activities
Decrease In Cash (2,662) (595)
Cash and cash equivalents at beginning of 4,562 1,160
period
Cash and cash equivalents at end of period $ 1,900 $ 565
See accompanying notes
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
June 30, 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 June 30,
2000 and the related statement of income for the six months
ended June 30, 2000 and 1999, and cash flow for the six
months ended June 30, 2000 and 1999.
Income tax payments for the six months ended June 30, 2000 and
June 30, 1999 were $1,836,000 and $1,482,000, 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 June 30, 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 June 30, 2000 (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
Fixed Income Securities:
Governments $ 13,993 $ 78 $ 219 $ 13,852
Public utilities 16,003 3 864 15,142
Industrial and 95,607 190 5,254 90,543
miscellaneous
Total $125,603 $271 $6,337 $119,537
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
June30, 2000
(unaudited)
The amortized cost and fair value of available-for-sale
investments in fixed maturities at June 30, 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 $ 6,552 $ 6,346
Due after one year through five years 32,760 31,411
Due after five years through ten years 36,789 34,632
Due after ten years 49,502 47,148
Total $125,603 $119,537
Proceeds from sales and maturities of investments in fixed
maturities in the six-month period ended June 30, 2000 were
$29,555,000 and $51,603,000 respectively. Gross gains of
$38,000 and $264,000 and gross losses of $1,117,000 and $ 0
were realized on sales during the six-month period ended June
30, 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 six
months of each year were as follows (in thousands):
Realized
Investment Income Gain (Loss)
2000 1999 2000 1999
Fixed maturities $4,444 $4,118 $(1,078) $264
Short-term investments 254 167 - -
4,698 4,285 $(1,078) $264
Expenses (60) (68)
Net investment income $4,638 $4,217
First Fortis Life Insurance Company
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
June Year-to-Date 2000 Compared to June Year-to-
Date 1999
Revenues
First Fortis (the Company) life insurance premiums increased
during the first six 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 six months
group accident and health premium in 2000 compared to 46%,
45%, and 9%, 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
Second 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. Second 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 20% in 2000 from 25% 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 June 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 June 30, 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. On May 2, 2000, 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, Clarence
E. Galston, Dale E. Gardner, Susie Gharib, Barbara R.
Hege, Terry J. Kryshak, Esther Liselotte L. Nelson,
Kenneth W. Nelson, Robert B. Pollock).
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a.None
b. A Form 8K report was filed June 1, 2000, disclosing that
PricewaterhouseCoopers replaced Ernst & Young as
independent auditors of the registrant effective June
1, 2000.
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: August 11, 2000
