10-Q 1 c85496e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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, 2004 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 033-71690 FIRST FORTIS LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) NEW YORK 13-2699219 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 308 MALTBIE STREET, SUITE 200 SYRACUSE, NEW YORK 13204 (Address of Principal Executive Offices) (Zip Code) (315) 451-0066 (Registrant's Telephone Number, Including Area Code) 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 --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X --- --- The number of shares of the registrant's Common Stock outstanding at April 30, 2004 was 100,000, all of which are owned directly by Assurant, Inc. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT. FIRST FORTIS LIFE INSURANCE COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 TABLE OF CONTENTS

ITEM PAGE NUMBER NUMBER ------ ------ PART I FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS .................................................................... 2 Unaudited interim balance sheets of First Fortis Life Insurance Company at March 31, 2004 and December 31, 2003 ................................................................... 2 Unaudited interim statements of operations of First Fortis Life Insurance Company for the three months ended March 31, 2004 and 2003 .............................................. 4 Unaudited interim statements of changes in stockholder's equity of First Fortis Life Insurance Company for the three months ended March 31, 2004 ............................. 5 Unaudited interim statement of cash flows of First Fortis Life Insurance Company for the three months ended March 31, 2004 and 2003 .............................................. 6 Notes to the unaudited financial statements of First Fortis Life Insurance Company ...... 7 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................................................................. 9 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK * ............................ 11 4. CONTROLS AND PROCEDURES ................................................................. 11 PART II OTHER INFORMATION 1. LEGAL PROCEEDINGS ....................................................................... 11 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES * ...... 11 3. DEFAULTS UPON SENIOR SECURITIES * ....................................................... 11 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS * ................................... 11 5. OTHER INFORMATION ....................................................................... 12 6. EXHIBITS AND REPORTS ON FORM 8-K ........................................................ 12 SIGNATURES ................................................................................. 13

* NOT REQUIRED UNDER REDUCED DISCLOSURE PURSUANT TO GENERAL INSTRUCTION H(1) (A) AND (B) OF FORM 10Q. 1 FIRST FORTIS LIFE INSURANCE COMPANY BALANCE SHEETS AT MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003

MARCH 31, DECEMBER 31, 2004 2003 -------- -------- (IN THOUSANDS) ASSETS Investments: Fixed maturities available for sale, at fair value (amortized cost- $150,186 in 2004 and $157,032 in 2003) $163,442 $167,712 Equity securities available for sale, at fair value (cost- $11,036 in 2004 and $9,574 in 2003) 11,419 9,784 Commercial mortgage loans on real estate at amortized cost 3,784 3,800 Policy loans 37 37 Short-term investments 6,389 8,091 Other investments 246 275 -------- -------- Total investments 185,317 189,699 Cash and cash equivalents 4,413 1,060 Premiums and accounts receivable 4,844 2,777 Reinsurance recoverables 99,968 100,451 Accrued investment income 2,281 2,185 Deferred acquisition costs 977 942 Deferred income taxes, net 1,558 3,040 Goodwill 2,038 2,038 Other assets 92 82 Assets held in separate accounts 33,541 39,678 -------- -------- Total assets $335,029 $341,952 ======== ========

2 See the accompanying notes to the financial statements FIRST FORTIS LIFE INSURANCE COMPANY BALANCE SHEETS AT MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003

MARCH 31, DECEMBER 31, 2004 2003 -------- -------- (IN THOUSANDS) LIABILITIES Future policy benefits and expenses $ 25,537 $ 24,143 Unearned premiums 32,373 35,798 Claims and benefits payable 135,037 137,233 Commissions payable 3,857 3,811 Reinsurance balances payable 1,694 1,935 Funds held under reinsurance 86 94 Deferred gain on disposal of businesses 7,669 8,067 Due to affiliates 39 2,407 Accounts payable and other liabilities 5,123 6,264 Income tax payable 3,458 1,771 Liabilities related to separate accounts 33,541 39,678 -------- -------- Total liabilities 248,414 261,201 STOCKHOLDER'S EQUITY Common stock, $20 par value: authorized, issued and outstanding shares - 100,000 2,000 2,000 Additional paid-in capital 43,006 43,006 Retained earnings 32,739 28,663 Accumulated other comprehensive income 8,870 7,082 -------- -------- Total stockholder's equity 86,615 80,751 -------- -------- Total liabilities and stockholder's equity $335,029 $341,952 ======== ========

3 See the accompanying notes to the financial statements FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2004 AND 2003

THREE MONTHS ENDED MARCH 31, ---------------------------- 2004 2003 -------- -------- (IN THOUSANDS) REVENUES Net earned premiums and other considerations $ 15,692 $ 17,432 Net investment income 2,677 2,580 Net realized gain (loss) on investments 215 (55) Amortization of deferred gain on disposal of businesses 398 481 Fees and other income 67 87 -------- -------- Total revenues 19,049 20,525 BENEFITS, LOSSES AND EXPENSES Policyholder benefits 8,069 10,114 Amortization of deferred acquisition costs 180 4 Underwriting, general and administrative expenses 4,517 6,368 -------- -------- Total benefits, losses and expenses 12,766 16,486 -------- -------- Income before income taxes 6,283 4,039 Income taxes 2,207 1,414 -------- -------- Net income $ 4,076 $ 2,625 ======== ========

4 See the accompanying notes to the financial statements FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FROM DECEMBER 31, 2003 THROUGH MARCH 31, 2004 (UNAUDITED)

ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL ----- ------- -------- ------------- ----- (IN THOUSANDS) Balance, December 1, 2003 $ 2,000 $43,006 $28,663 $ 7,082 $80,751 Comprehensive income: Net income -- -- 4,076 -- 4,076 Net change in unrealized gains on securities -- -- -- 1,788 1,788 ------- Total comprehensive income 5,864 ------- ------- ------- ------- ------- Balance, March 31, 2004 $ 2,000 $43,006 $32,739 $ 8,870 $86,615 ======= ======= ======= ======= =======

5 See the accompanying notes to the financial statements FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2004 AND 2003

THREE MONTHS ENDED MARCH 31, ---------------------------- 2004 2003 -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net cash (used in) provided by operating activities $ (4,007) $ 780 INVESTING ACTIVITIES Sales of: Fixed maturities available for sale 10,221 13,214 Equity securities available for sale 526 409 Other invested assets 29 -- Maturities, prepayments and scheduled redemption of: Fixed maturities available for sale -- -- Purchase of: Fixed maturities available for sale (3,147) (10,080) Equity securities available for sale (1,987) (3,387) Decrease in commercial mortgage loans on real estate 16 -- Decrease in short-term investments 1,702 667 Decrease (Increase) in policy loans -- (2) -------- -------- Net cash provided by investing activities 7,360 823 Change in cash and cash equivalents 3,353 1,603 Cash and cash equivalents at beginning of period 1,060 2,042 -------- -------- Cash and cash equivalents at end of period $ 4,413 $ 3,645 ======== ========

6 See the accompanying notes to the financial statements FIRST FORTIS LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) 1. NATURE OF OPERATIONS First Fortis Life Insurance Company (the "Company") is a provider of life and health insurance products. At January 1, 2004, the Company was a wholly owned subsidiary of Assurant, Inc. (formerly Fortis, Inc.), which itself was an indirect, wholly owned subsidiary of Fortis N.V. of the Netherlands and Fortis SA/NV of Belgium (collectively, "Fortis") through their affiliates, including their wholly owned subsidiary, Fortis Insurance N.V. On February 5, 2004, Fortis sold approximately 65% of its ownership interest in Assurant, Inc. via an Initial Public Offering ("IPO"). In connection with the IPO, Fortis, Inc. was merged into Assurant, Inc., a Delaware corporation, which was formed solely for the purpose of the redomestication of Fortis, Inc. After the merger, Assurant, Inc. became the successor to the business, operations and obligations of Fortis, Inc. Assurant, Inc. is traded on the New York Stock Exchange under the symbol AIZ. The Company is incorporated in New York and is qualified to sell life, health and annuity insurance in the state of New York. The Company's revenues are derived principally from group employee benefits products and credit products. The Company offers insurance products, including life insurance policies, and group life, accident and health insurance policies. 2. BASIS OF PRESENTATION The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the 2004 presentation. Dollar amounts are presented in U.S. dollars and all amounts are in thousands except for number of shares and per share amounts. The financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant inter-company transactions and balances are eliminated in consolidation. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The accompanying interim financial statements should be read in conjunction with the audited financial statements and related notes on form 10K for the fiscal year ended December 31, 2003. 3. RECENT ACCOUNTING PRONOUNCEMENTS On July 7, 2003, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long Duration Contracts and for 7 FIRST FORTIS LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) Separate Accounts ("SOP 03-1"). SOP 03-1 provides guidance on a number of topics unique to insurance enterprises, including separate account presentation, interest in separate accounts, gains and losses on the transfer of assets from the general account to a separate account, liability valuation, returns based on a contractually referenced pool of assets or index, accounting for contracts that contain death or other insurance benefit features, accounting for reinsurance and other similar contracts, accounting for annuitization benefits and sales inducements to contract holders. SOP 03-1 will be effective for the Company's financial statements on January 1, 2004. The adoption of this statement did not have a material impact on the Company's financial position or the results of operations. 4. RETIREMENT AND OTHER EMPLOYEE BENEFITS The Company is a wholly-owned subsidiary of Assurant, Inc., which sponsors a defined benefit pension plan covering employees and certain agents who meet eligibility requirements as to age and length of service. Pension cost allocated to the Company amounted to approximately $28 and $15 for March 31, 2004 and 2003, respectively. The Company participates in a contributory profit sharing plan, sponsored by Assurant, Inc. covering employees and certain agents who meet eligibility requirements as to age and length of service. The amount expensed was approximately $10 and $15 for March 31, 2004 and 2003, respectively. In addition to retirement benefits, the Company participates in other health care and life insurance benefit plans (postretirement benefits) for retired employees, sponsored by Assurant, Inc. There were no net postretirement benefit costs allocated to the Company for the three months ended March 31, 2004 and 2003. For the three months ended March 31, 2004 and 2003, the Company incurred expenses related to retirement benefits of $8 and $3, respectively. 5. INCOME TAXES The effective tax rate for the three months ended March 31, 2004 was 35.1% as compared to 35.0% for the three months ended March 31, 2003. 6. SUBSEQUENT EVENTS There are no subsequent events to report. 7. COMMITMENTS AND CONTINGENCIES The Company is regularly involved in litigation in the ordinary course of business, both as a defendant and as a plaintiff. The Company may from time to time be subject to a variety of legal and regulatory actions relating to the Company's current and past business operations. While the Company cannot predict the outcome of any pending or future litigation, examination or investigation, the Company does not believe that any pending matter will have a material adverse effect on the Company's financial condition or results of operations. 8 PART I FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) addresses the financial condition of First Fortis Life Insurance Company (FFLIC or the Company) as of March 31, 2004, compared with December 31, 2003, and its results of operations for the three months ended March 31, 2004, compared with the equivalent 2003 period. This discussion should be read in conjunction with FFLIC's MD&A and annual audited financial statements as of December 31, 2003 filed with the Company's Form 10-K for the year ended December 31, 2003 filed with the U.S. Securities and Exchange Commission (hereafter referred to as the Company's 2003 Form 10-K) and unaudited consolidated financial statements and related notes included elsewhere in this Form 10-Q. Some of the statements in this MD&A and elsewhere in this report may contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in this report. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read in this report reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, financial condition, growth strategy and liquidity. 9 RESULTS OF OPERATIONS CONSOLIDATED OVERVIEW The table below presents information regarding our consolidated results of operations:

FOR THE THREE MONTHS ENDED MARCH 31, 2004 2003 ---- ---- (IN MILLIONS) REVENUES: Net earned premiums and other considerations $ 16 $ 17 Net investment income 3 3 ---- ---- Total revenues 19 20 ---- ---- BENEFITS, LOSSES AND EXPENSES: Policyholder benefits (8) (10) Selling, underwriting and general expenses(1) (5) (6) ---- ---- Total benefits, losses and expenses (13) (16) ---- ---- INCOME BEFORE INCOME TAXES 6 4 Income taxes (2) (1) ---- ---- NET INCOME $ 4 $ 3 ==== ====

--------------- (1) Includes amortization of DAC. THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003 Total Revenues Total revenues decreased by $1 million, or 5%, from $20 million for the three months ended March 31, 2003, to $19 million for the three months ended March 31, 2004. Net earned premiums and other considerations decreased by $1 million, or 6%, from $17 million for the three months ended March 31, 2003, to $16 million for the three months ended March 31, 2004. This decrease was primarily due to a decline in the rate of renewals for both the life, dental and the credit life business. The decline in renewals for the life and dental business resulted primarily from our continued pricing discipline. The decline in renewals for the credit life business resulted primarily from an adverse regulatory climate that has affected this line of business. Our total net earned premiums were derived 85% and 80% from the life, dental and disability business in 2004 and 2003, respectively, and 15% and 20% from the credit life business in 2004 and 2003, respectively. Net investment income remained unchanged at $3 million for the three months ended March 31, 2004 compared to March 31, 2003. Total Benefits, Losses, and Expenses Total benefits, losses, and expenses decreased by $3 million, or 19%, from $16 million for the three months ended March 31, 2003, to $13 million for the three months ended March 31, 2004. Policyholder benefits decreased by $2 million, or 20%, from $10 million for the three months ended March 31, 2003, to $8 million for the three months ended March 31, 2004. The decrease was driven by favorable development in life claims and lower claims volume due to the reduction in net earned premiums. The total policyholder benefit to premium ratio decreased from 59% for the three months ended March 31, 2003, to 53% for the three months ended March 31, 2004. Our overall decrease is due primarily 10 to the favorable development in life claims. In the life business, the policyholder benefit to premium ratio decreased from 79% for the three months ended March 31, 2003, to 13% for the three months ended March 31, 2004. The improvement in the group life policyholder benefit to premium ratio is driven by favorable mortality experience and favorable reserve runoff on terminated cases. Selling, underwriting and general expenses decreased by $1 million, or 17%, from $6 million for the three months ended March 31, 2003, to $5 million for the three months ended March 31, 2004. Our general and administrative expense to premium ratio stayed flat at 20% from March 31, 2003, to March 31, 2004. Net income increased by $1 million, or 33%, from $3 million for the three months ended March 31, 2003, to $4 million for the three months ended March 31, 2004. Income taxes increased from $1 million for the three months ended March 31, 2003, to $2 million for the three months ended March 31, 2004. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not required under reduced disclosure format. ITEM 4. CONTROLS AND PROCEDURES. Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2004. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of that date in providing a reasonable level of assurance that information we are required to disclose in reports we file or furnish under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods in SEC rules and forms. Further, our disclosure controls and procedures were effective in providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES. Not required under reduced disclosure format. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not required under reduced disclosure format. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not required under reduced disclosure format. 11 ITEM 5. OTHER INFORMATION. (a) None. (b) Because all of the Company's outstanding common stock is held directly by Assurant, Inc., the Company does not file a Schedule 14A and has not adopted any procedures by which security holders may recommend nominees to the registrant's board of directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS The following exhibits either (a) are filed with this report or (b) have previously been filed with the SEC and are incorporated herein by reference to those prior filings. Exhibits are available upon request at the investor relations section of our website, located at www.assurant.com.

EXHIBIT NUMBER EXHIBIT DESCRIPTION ------ ------------------- 3.1 Articles of Incorporation of First Fortis Life Insurance Company (incorporated by reference from the Registrant's Form 10-K filed, File No. 33-71690, filed on March 29, 1996). 3.2 By-laws of First Fortis Life Insurance Company (incorporated by reference from the Registrant's Registration Statement on Form N-4, File No. 33-71686, and Separate Account A filed on November 15, 1993). 4.1 Form of Combination Fixed and Variable Group Annuity Contract; (incorporated by reference from the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-4, File No. 33-71686, and Separate Account A filed on April 27, 1995). 4.2 Form of Application to be used in connection with Form of Combination Fixed and Variable Group Annuity Contract filed as Exhibit 4.1 to this report (incorporated by reference from the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-4, File No. 33-71686, and Separate Account A filed on April 27, 1995). 4.3 Form of IRA Endorsement (incorporated by reference from the Registrant's Post- Effective Amendment No. 2 to the Registration Statement on Form N-4, File No. 33- 71686, and Separate Account A filed on April 27, 1995). 4.4 Form of Section 403(b) Annuity Endorsement (incorporated by reference from Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-4, File No. 33-71686, and Separate Account A filed on April 27, 1995). 31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. 31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. 32.1 Certification of Chief Executive Officer of First Fortis Life Insurance Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer of First Fortis Life Insurance Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(B) REPORTS ON FORM 8-K None. 12 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 Date: May 14, 2004 By: /s/ Lance Wilson ----------------------------------- Name: Lance Wilson Title: President and, Chief Executive Officer (Principal Executive Officer) Date: May 14, 2004 By: /s/ Ranell Jacobson ----------------------------------- Name: Ranell Jacobson Title: Treasurer 13