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, 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)
September December
30, 31,
2000 1999
(Unaudited)
Assets
Investments:
Fixed maturities, at fair value (amortized
cost 2000-- $130,048; 1999--$126,432) $126,222 $121,212
Policy Loans 2 1
Short-term investments 2,960 5,800
129,184 127,013
Cash and cash equivalents 4,072 4,562
Receivables:
Uncollected premiums, less allowance (2000
and 1999-- $100) 4,193 3,097
Reinsurance recoverable on unpaid and paid 36,194 31,634
losses
Other 1,148 1,495
41,535 36,226
Accrued investment income 2,167 2,095
Deferred policy acquisition costs 4,018 4,353
Property and equipment at cost, less
accumulated 89 124
depreciation (2000-- $ 2,322; 1999--
$2,287)
Deferred federal income taxes 4,637 3,535
Goodwill, less accumulated amortization
(2000--$ 448; 382 416
1999--$414)
Assets held in separate accounts 78,307 69,928
Total assets $264,391 $248,252
FIRST FORTIS LIFE INSURANCE COMPANY
RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands, except per share data)
September December
30, 31,
2000 1999
(Unaudited)
Policy reserves, liabilities and
shareholder's equity
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance $ 29,132 $ 34,165
Interest sensitive and investment products 4,119 3,487
Accident and health 75,873 70,852
109,124 108,504
Unearned revenues 15,450 9,834
Other policy claims and benefits payable 12,491 12,247
Income taxes payable 1,992 1,213
Other liabilities 8,162 10,590
Liabilities related to separate accounts 78,307 69,928
Total policy reserves and liabilities 225,526 212,316
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 1,898 (124)
Accumulated other comprehensive (loss) (2,473) (3,380)
income
Total shareholder's equity 38,865 35,936
Total policy reserves, liabilities and $264,391 $248,252
shareholder's equity
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Nine months ended
September 30,
2000 1999
Revenues
Insurance operations: $$
Life insurance premiums $18,688 $18,015
Interest sensitive and investment product 268 144
policy charges
Accident and health insurance premiums 29,093 25,557
48,049 43,716
Net investment income 6,886 6,370
Realized (losses) gains on investments (1,821) 141
Other income 1,354 978
Total revenues 54,468 51,205
Benefits and Expenses
Benefits to policyholders:
Life insurance 14,785 13,677
Interest sensitive and investment products 338 257
Accident and health claims 22,000 19,831
37,123 33,765
Amortization of deferred policy 242 103
acquisition costs
Insurance commissions 4,428 3,645
General and administrative expenses 9,564 10,500
Total benefits and expenses 51,357 48,013
Income (loss) before federal income taxes 3,111 3,192
Income taxes expense(benefits)
Current 2,680 (427)
Deferred (1,591) 1,544
1,089 1,117
Net income (loss) 2,022 2,075
Other comprehensive income:
Unrealized gain on investments 907 (5,172)
Comprehensive income $ 2,929 $(3,097)
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended
September 30,
2000 1999
Revenues
Insurance operations:
Life insurance premiums $ 6,605 $ 6,178
Interest sensitive and investment product 58 14
policy charges
Accident and health insurance premiums 9,471 8,644
16,134 14,836
Net investment income 2,248 2,153
Realized (losses) gains on investments (743) (123)
Other income 525 340
Total revenues 18,164 17,206
Benefits and Expenses
Benefits to policyholders:
Life insurance 3,669 4,428
Interest sensitive and investment products 113 55
Accident and health claims 5,253 6,655
9,035 11,138
Amortization of deferred policy 96 65
acquisition costs
Insurance commissions 2,322 1,399
General and administrative expenses 3,239 3,263
Total benefits and expenses 14,692 15,865
Income (loss) before federal income taxes 3,472 1,341
Income taxes expense(benefits)
Current 1,352 (1,236)
Deferred (137) 1,705
1,215 469
Net income 2,257 872
Other comprehensive income:
Unrealized gain on investments 1,456 (969)
Comprehensive income $ 3,713 $ (97)
See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
September 30,
2000 1999
Operating Activities
Net income $ 2,022 $ 2,075
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 5,781 5,082
Provision for deferred federal income (1,591) 1,544
taxes
Decrease (increase) in federal income 779 (1,332)
taxes
(Increase) decrease in other liabilities (2,428) 1,029
Depreciation, amortization and accretion 404 (521)
Amortization of investment premiums, net 71 66
(Increase) decrease in uncollected
premiums, accrued investment income and (821) 314
other
Increase in reinsurance recoverable (4,560) (2,528)
Net realized loss (gains) on investments 1,821 (141)
Cash Provided By Operating Activities 1,478 5,588
Investing Activities
Purchases of fixed maturity investments (53,512) (65,833)
Sales or maturities of fixed maturity 48,005 65,030
investments
Increase in equity securities and short- 2,840 (3,940)
term investments
Net Cash Used By Investing Activities (2,667) (4,743)
Financing Activities
Activities related to investment products:
Considerations received 3,808 2,290
Surrenders and death benefits (3,343) (5,437)
Interest credited to policyholders 234 266
Net Cash Provided (Used) By Financing 699 (2,881)
Activities
Decrease In Cash (490) (2,036)
Cash and cash equivalents at beginning of (4,562) 1,160
period
Cash and cash equivalents at end of period $ 4,072 $ (876)
See accompanying notes
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
September 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 September
30, 2000 and the related statement of income for the nine
months ended September 30, 2000 and 1999, and cash flow for
the nine months ended September 30, 2000 and 1999.
Income tax payments for the nine months ended September 30,
2000 and September 30, 1999 were $1,901,000 and $906,000,
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 September 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 September 30, 2000 (in thousands):
Gross Gross
Amortized Unrealize Unrealize Fair
Cost d d Value
Gain Loss
Fixed Income Securities:
Governments $ 16,729 $ 151 $ 161 $
16,719
Public utilities 97,324 564 3,666 94,222
Industrial and 15,995 8 722 15,281
miscellaneous
Total $130,048 $ 723 $4,549 $126,222
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
The amortized cost and fair value of available-for-sale
investments in fixed maturities at September 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 $ 11,343 $ 11,249
Due after one year through five years 28,356 27,868
Due after five years through ten years 38,060 36,253
Due after ten years 52,289 50,852
Total $130,048 $126,222
Proceeds from sales and maturities of investments in fixed
maturities in the nine-month period ended September 30, 2000
and 1999 were $48,005,000 and $65,030,000 respectively.
Gross gains of $164,000 and $693,000 and gross losses of
$1,983,000 and $552,000 were realized on sales during the
nine-month period ended September 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 nine
months of each year were as follows (in thousands):
Realized
Investment Income Gain (Loss)
2000 1999 2000 1999
Fixed maturities $6,572 $6,260 $(1,821) $141
Short-term investments 404 213
6,976 6,473 $(1,821) $141
Expenses 90 103
Net investment income $6,886 $6,370
First Fortis Life Insurance Company
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
September Year-to-Date 2000 Compared to September Year-
to-Date 1999
Revenues
First Fortis (the Company) life insurance premiums increased
somewhat during the first nine 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
53%, 46%, and 1%, respectively, of total first nine months
group accident and health premium in 2000 compared to 47%,
47%, and 6%, 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
Third quarter year-to-date 2000 life benefits as compared to
premium were level with the same period in 1999. Third
quarter year-to-date 2000 accident and health benefits as
compared to premium were lower than the same period in 1999
due primarily to proportionally less remaining 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 24% 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 September 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 September 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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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: November 14, 2000
