-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V+GW8yFrG7XNiJTUqUFxFXV+jDsPlyLkEHCZo+jNfS8GKK9chnTiEzgacc2Attye Tfg1wmopVvOSuSxe0q3G0Q== 0000086317-99-000150.txt : 19990816 0000086317-99-000150.hdr.sgml : 19990816 ACCESSION NUMBER: 0000086317-99-000150 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FORTIS LIFE INSURANCE CO CENTRAL INDEX KEY: 0000914804 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132699219 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-71690 FILM NUMBER: 99688430 BUSINESS ADDRESS: STREET 1: 220 SALINA MEADOWS PARKWAY STREET 2: SUITE 225 CITY: SYRACUSE STATE: NY ZIP: 13220 BUSINESS PHONE: 3154510066 MAIL ADDRESS: STREET 1: 220 SALINA MEADOWS PARKWAY STREET 2: SUITE 225 CITY: SYRACUSE STATE: NY ZIP: 13220 10-Q 1 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, 1999 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 FIRST FORTIS LIFE INSURANCE COMPANY BALANCE SHEETS (In thousands, except per share data) June 30, December 31, 1999 1998 (unaudited) ASSETS: Investments: Fixed maturities, at fair value (amortized cost 1999--$123,348; 1998--$125,787) $121,132 $130,038 Policy loans 1 - Short-term investments 3,480 830 124,613 130,868 Cash and cash equivalents 565 1,160 Receivables: Uncollected premiums, less allowance of $100 3,008 3,538 Reinsurance recoverable on paid and unpaid losses 29,292 28,458 Other 490 313 32,790 32,309 Accrued investment income 1,955 1,895 Deferred policy acquisition costs 3,441 3,148 Property and equipment at cost, less accumulated depreciation (1999--$2,170; 1998--$2,086) 240 324 Deferred federal income tax 3,574 1,150 Goodwill, less accumulated amortization (1999--$391; 1998--$368) 439 462 Other assets 85 104 Assets held in separate accounts 59,022 46,082 Total assets $226,724 $217,502 See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY (In thousands, except per share data) June 30, December 31, 1999 1998 (unaudited) POLICY RESERVES AND LIABILITIES: Future policy benefit reserves: Life insurance $ 32,130 $ 30,388 Interest sensitive and investment products 3,781 6,267 Accident and health 68,704 68,206 104,615 104,861 Unearned revenues 9,229 8,535 Other policy claims and benefits payable 11,697 11,084 Income taxes payable 1,344 2,017 Other liabilities 3,791 4,897 Liabilities related to separate accounts 59,022 46,082 Total policy reserves and liabilities 189,698 177,476 SHAREHOLDER'S EQUITY: Common stock, $20 par value: Authorized, issued, and outstanding shares --100,000 2,000 2,000 Additional paid-in capital 37,440 37,440 Retained deficit (987) (2,190) Accumulated other comprehensive income (1,427) 2,776 Total shareholder's equity 37,026 40,026 Total policy reserves, liabilities, and shareholder's equity $226,724 $217,502 See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands) (Unaudited) Six months ended June 30, 1999 1998 REVENUES Insurance operations: Life insurance premiums $11,837 $11,425 Interest sensitive and investment products policy charges 130 53 Accident and health premiums 16,913 15,374 Net investment income 4,217 4,054 Net realized gains on investments 264 850 Other income 638 487 TOTAL REVENUES 33,999 32,243 BENEFITS AND EXPENSES Benefits to policyholders: Life insurance 9,249 9,713 Interest sensitive and investment products 202 334 Accident and health 13,176 16,733 Amortization of deferred policy acquisition costs 38 (98) Insurance commissions 2,246 2,163 General and administrative expenses 7,237 6,104 TOTAL BENEFITS AND EXPENSES 32,148 34,949 INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 1,851 (2,706) INCOME TAX EXPENSE (BENEFITS) Current 809 (1,173) Deferred (161) 226 648 (947) NET INCOME (LOSS) 1,203(1,759) OTHER COMPREHENSIVE (LOSS) INCOME: Unrealized (loss) gain on investments (4,203) 78 COMPREHENSIVE LOSS $(3,000) $(1,681) See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands) (Unaudited) Three months ended June 30, 1999 1998 REVENUES Insurance operations: Life insurance premiums $5,952 $6,227 Interest sensitive and investment products policy charges 125 42 Accident and health premiums 8,411 7,730 Net investment income 2,082 2,062 Realized (losses) gains on investments (157) 481 Other income 301 248 TOTAL REVENUES 16,714 16,790 BENEFITS AND EXPENSES Benefits to policyholders: Life insurance 4,745 5,199 Interest sensitive and investment products 66 178 Accident and health 6,317 9,187 Amortization of deferred policy acquisition costs (5) (51) Insurance commissions 1,304 1,016 General and administrative expenses 3,371 3,102 TOTAL BENEFITS AND EXPENSES 15,798 18,631 INCOME BEFORE FEDERAL INCOME TAXES 916 1,841 INCOME TAX EXPENSE (BENEFITS) Current 517 (695) Deferred (196) 51 321 (644) NET INCOME (LOSS) 595 (1,197) OTHER COMPREHENSIVE (LOSS) INCOME: Unrealized (loss) gain on investments (2,274) 377 COMPREHENSIVE (LOSS) $(1,679) $ (820) See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30, 1999 1998 OPERATING ACTIVITIES Net Income (loss) $ 1,203 $ (1,759) 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 3,420 10,927 Provision for deferred federal income taxes (161) 226 Decrease in federal income taxes (673) (750) Decrease in other liabilities (1,106) (1,322) Depreciation, amortization and accretion (186) (771) Amortization of investment premiums, net 41 (36) Increase in uncollected premiums, accrued investment income and other 312 (739) Increase in reinsurance recoverable (834) (5,372) Net realized gains on investments (264) (850) CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,752 (434) INVESTING ACTIVITIES Purchases of fixed maturity investments (48,941) (111,080) Sales or maturities of fixed maturity investments 51,603 95,975 (Decrease)Increase in equity securities and short-term investments (2,650) 9,947 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 12 (5,158) FINANCING ACTIVITIES Activities related to investment products: Considerations received 1,900 8,221 Surrenders and death benefits (4,419) (5,927) Interest credited to policyholders 160 337 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,359) 2,631 INCREASE (DECREASE) IN CASH (595) (2,961) Cash and cash equivalents at beginning of period 1,160 7,453 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 565 $ 4,492 See accompanying notes.
FIRST FORTIS LIFE INSURANCE COMPANY Notes to Financial Statements June 30, 1999 (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, 1999 and the related statements of operations for the six and three months ended June 30, 1999 and 1998, and cash flows for the six months ended June 30, 1999 and 1998. Income tax payments for the six months ended June 30, 1999 and June 30, 1998 were $1,482,000 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 June 30, 1999, 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 June 30, 1999 (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gain Loss Value Fixed Income Securities: Governments $ 8,984 $ 22 $ 141 $ 8,865 Public Utilities 16,421 63 555 15,929 Industrial and miscellaneous 97,943 648 2,253 96,338 Total $ 123,348 $733 $2,949 $121,132
The amortized cost and fair value of fixed maturities at June 30, 1999, 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. FIRST FORTIS LIFE INSURANCE COMPANY Notes to Financial Statements June 30, 1999 (unaudited) Amortized Fair Cost Value Due in one year or less $ 4,549 $ 4,589 Due after one year through five years 30,641 30,642 Due after five years through ten years 43,692 42,685 Due after ten years 44,466 43,216 $123,348 $121,132
Proceeds from sales and maturities of fixed maturity securities were $51,603,000 and $47,925,000 for the six month period ended June 30, 1999 and 1998, respectively. Gross gains of $631,000 and $1,005,000 and gross losses of $367,000 and $155,000 were realized on the sales during the six month period ended June 30, 1999 and 1998. 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 Gain (Loss) Investment Income on Investments 1999 1998 1999 1998 Fixed maturities $4,118 $3,926 $ 264 $850 Short-term investments 167 176 - - 4,285 4,102 $ 264 $850 Expenses (68) (48) Net investment income $4,217 $4,054
First Fortis Life Insurance Company Management's Discussion and Analysis of Financial Condition and Results of Operations June Year-to-Date 1999 Compared to June Year-to-Date 1998 Revenues First Fortis' (the Company) life insurance premiums increased during the first two quarters of 1999 as compared to the first two quarters of 1998 due to strong group life sales. Group disability and dental sales account for the increase in accident and health premiums. Slightly offsetting this is a decrease in the group medical premiums. This group medical 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 $2.1 million in premium inforce at June 30, 1999. Accident and health premiums are principally composed of group accident and health coverages. The discontinuance of the group medical sales and strong dental and disability sales have caused the group accident and health premium mix to shift. Second quarter dental, disability income, and medical premium represented 46%, 45%, and 9%, respectively, of total group accident and health premium in 1999 compared to 44%, 39%, and 17%, respectively, in 1998. The Company continues to match investment portfolio composition to liquidity needs and capital requirements. Changes in interest rates during 1999 and 1998 resulted in recognition of realized gains and losses upon sales of securities. Benefits Second quarter year-to-date 1999 life benefits as compared to premium were lower than 1998 due to more favorable mortality experience and higher life premium volumes. The decrease in accident and health benefits in the first six months of 1999 as compared to the same period in 1998 is primarily due to improved experience in the 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 as a percent of premium have increased to 25.1% in 1999 from 22.7% in 1998 due to an increase in the effective state premium tax rates. 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 contractowners bear the investment risk related to the variable products. Therefore, the risks associated with the investments supporting the variable separate accounts are assumed by contractowners, 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, 1999, 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 Introduction. The information provided in this section and in other communications is to keep the reader informed about Fortis, Inc. and its subsidiaries ("Fortis") Year 2000 effort. A list of the Fortis, Inc. subsidiaries is attached hereto as Exhibit A. This information reflects Fortis' understanding and expectations as of the date we provide it, but the situation could change over time. This document is designated as a Year 2000 Readiness Disclosure and the information contained herein is provided in accordance with the Year 2000 Information and Readiness Disclosure Act (112 Stat. 2386). Fortis relies heavily on information technology ("IT") systems to conduct its business. These Fortis IT systems include both internally developed and vendor-supplied systems. Fortis also relies on the non-IT systems including the embedded technology and facility related systems. In addition, Fortis has business relationships with numerous entities including but not limited to financial institutions, financial intermediaries, third party administrators and other critical vendors as well as regulators and customers. These entities are themselves reliant on their IT systems to conduct their businesses. Therefore, there is a supply chain of dependency among and between all involved entities. State of Readiness. In 1997, the Fortis parent company organized a multi-disciplinary Year 2000 Project Team ("Team"). The Team consists of employees at each subsidiary, audit, legal and outside consultants. The Team and Fortis have developed and are currently executing a comprehensive plan ("Plan") designed to make Fortis' IT systems Year 2000 ready. The Plan covers four stages including (i) inventory, (ii) assessment, (iii) programming, and (iv) testing and certification. Fortis has completed the inventory stage for its internal hardware, software and telecommunications systems (mainframe and client/server applications). The assessment process is also complete and Fortis is utilizing both internal and external resources to reprogram or replace the systems where necessary, and testing the applications for Year 2000 readiness. Fortis has also inventoried its various facility locations and the systems that relate thereto including embedded technologies. Fortis is proceeding with actions to ensure Year 2000 readiness of those systems. Programming, testing and certification of all systems and applications are targeted for completion by the end of 1999. Fortis is also in the process of identifying third parties with which they have a material relationship in both sending and receiving information from those entities with respect to current Year 2000 readiness, additional actions which need to be taken and potential opportunities to share specific, detailed information and possible test results. Costs. The cost of the Fortis Year 2000 project is estimated at $84.8 million (pre-tax) and is being funded through operating cash flows. Total Year 2000 project costs are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. Costs to upgrade and replace systems in the normal course of business are not included in this estimate. As of June 30, 1999, approximately $64.3 million (pre-tax) had already been expensed to Fortis. Fortis believes that its Year 2000 project generally is on schedule. Risks. Fortis is attempting to limit the potential impact of the Year 2000 by monitoring the progress of its own Year 2000 project and those of its critical external relationships (both I/T and non-I/T) and by developing contingency/recovery plans. Those contingency plans have identified the mission critical systems and relationships and have put action plans in place to address a Year 2000 issue. Fortis cannot guarantee that it will be able to identify and/or resolve all of its Year 2000 issues. Any critical unresolved Year 2000 issues at Fortis or its external relationships, however, could have a material adverse effect on the Fortis' results of operations, liquidity or financial condition. If Fortis' Year 2000 issues were unresolved, potential consequences would include, among other possibilities, the inability to accurately and timely process benefit claims; update customer's accounts; process financial transactions; bill customers; assess exposure to risks; determine liquidity requirements or report accurate data to management, shareholders, customers, regulators and others; as well as business interruptions or shutdowns; financial losses; harm to its reputation; increased scrutiny by regulators; and litigation related to Year 2000 issues. However, Fortis is using methods recognized and adopted in the general business community to ensure that any Year 2000 issue will be addressed promptly and any damages will be mitigated. Contingency Plans. Consistent with prudent due diligence efforts, Fortis has defined contingency plans aimed at ensuring the continuity of critical business functions before and after December 31, 1999, should there be an unexpected system failure. Fortis has developed plans that are designed to reduce the negative impact on Fortis, and provide methods of returning to normal operations, if failure occurs. EXHIBIT A FORTIS, INC. SUBSIDIARIES First Fortis Life Insurance Company Fortis Insurance Company Fortis Benefits Insurance Company American Security Insurance Company Union Security Life Insurance Company Standard Guaranty Insurance Company Insureco, Inc. Fortis Advisers Inc. Fortis Investors, Inc. United Family Life Insurance Company Adultcare, Inc. Dental Health Alliance, L.L.C. Remembrance Institute, Inc. Associated California State Insurance Agencies/Ardiel Insurance Services, Inc. John Alden Financial Corporation John Alden Life Insurance Company Houston National Life Insurance Company Pierce National Life Insurance Company 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 April 23, 1999, 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, Barbara R. Hege, Terry J. Kryshak, Susie Gharib, Dale E. Gardner, Esthere Nelson, Kenneth W. Nelson, Clarence E. Galston, and Robert B. Pollock). 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: August 13, 1999 /s/ Larry M. Cains Treasurer EX-27 2
7 0000914804 FIRST FORTIS LIFE INSURANCE COMPANY 1000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 124,613 0 0 0 0 0 124,613 565 29,292 0 226,724 104,615 0 9,229 0 0 2,000 0 0 35,026 226,724 28,880 4,217 264 638 22,627 38 9,483 1,851 648 1,203 0 0 0 1,203 0 0 62,540 0 0 0 0 0 0
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