-----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, GVFRXpiW31AQbjQWMhqo/+gr8k1MU/b3fbKo7otsbYVZIXc+DmYtBY7utYoJY1U9 +19UFeH9ba7NNpU6j5s4eA== 0000086317-98-000093.txt : 19980813 0000086317-98-000093.hdr.sgml : 19980813 ACCESSION NUMBER: 0000086317-98-000093 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD 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: 98683560 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, 1998 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, 1998 1997 (unaudited) ASSETS: Investments: Fixed maturities, at fair value (amortized cost 1998--$118,273; 1997--$102,284) $121,887 $105,776 Short-term investments 1,750 11,697 123,637 117,473 Cash and cash equivalents 4,492 7,453 Receivables: Uncollected premiums, less allowance of $100 2,954 2,358 Reinsurance recoverable on paid and unpaid losses 25,136 19,764 Other 1,540 1,402 29,630 23,524 Accrued investment income 1,705 1,700 Deferred policy acquisition costs 2,379 1,413 Property and equipment at cost, less accumulated depreciation (1998--$1,920; 1997--$1,853) 492 676 Deferred federal income tax 1,811 2,079 Goodwill, less accumulated amortization (1998--$345; 1997--$322) 485 508 Assets held in separate accounts 28,325 16,072 Total assets $192,956 $170,898 See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY (In thousands, except per share data) June 30, December 31, 1998 1997 (unaudited) POLICY RESERVES AND LIABILITIES: Future policy benefit reserves: Life insurance $ 29,959 $ 27,671 Interest sensitive and investment products 9,470 6,878 Accident and health 68,030 61,175 107,459 95,724 Unearned revenues 6,632 5,223 Other policy claims and benefits payable 10,718 10,304 Income taxes payable 161 911 Other liabilities 4,261 5,583 Liabilities related to separate accounts 28,325 16,072 Total policy reserves and liabilities 157,556 133,817 SHAREHOLDER'S EQUITY: Common stock, $20 par value, 100,000 Authorized, issued, and outstanding shares --100,000 2,000 2,000 Additional paid-in capital 37,440 37,440 Retained deficit (6,401) (4,642) Unrealized gain on investments, net 2,361 2,283 Total shareholder's equity 35,400 37,081 Total policy reserves, liabilities, and shareholder's equity $192,956 $170,898 See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands) (Unaudited) Six months ended June 30, 1998 1997 REVENUES Insurance operations: Life insurance premiums $11,425 $9,686 Interest sensitive and investment products policy charges 53 - Accident and health premiums 15,374 17,222 Net investment income 4,054 3,917 Net realized gains (losses) on investments 850 (98) Other income 487 272 TOTAL REVENUES 32,243 30,999 BENEFITS AND EXPENSES Benefits to policyholders: Life insurance 9,713 7,066 Interest sensitive and investment products 334 43 Accident and health 16,733 17,631 Amortization of deferred policy acquisition costs (98) (2) Insurance commissions 2,163 2,306 General and administrative expenses 6,104 6,065 TOTAL BENEFITS AND EXPENSES 34,949 33,109 LOSS BEFORE FEDERAL INCOME TAXES (2,706) (2,110) INCOME TAX EXPENSE (BENEFITS) Current (1,173) - Deferred 226 (739) (947) (739) NET LOSS (1,759) (1,371) OTHER COMPREHENSIVE (LOSS) INCOME: Unrealized gain (loss) on investments 78 (286) COMPREHENSIVE LOSS $(1,681) $(1,657) See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands) (Unaudited) Three months ended June 30, 1998 1997 REVENUES Insurance operations: Life insurance premiums $6,227 $5,056 Interest sensitive and investment products policy charges 42 - Accident and health premiums 7,730 8,439 Net investment income 2,062 1,961 Realized gains (losses) on investments 481 (17) Other income 248 138 TOTAL REVENUES 16,790 15,577 BENEFITS AND EXPENSES Benefits to policyholders: Life insurance 5,199 3,872 Interest sensitive and investment products 178 43 Accident and health 9,187 7,629 Amortization of deferred policy acquisition costs (51) (2) Insurance commissions 1,016 1,287 General and administrative expenses 3,102 3,042 TOTAL BENEFITS AND EXPENSES 18,631 15,871 LOSS BEFORE FEDERAL INCOME TAXES (1,841) (294) Federal income tax benefit (644) (122) NET LOSS (1,197) (172) OTHER COMPREHENSIVE INCOME: Unrealized gain on investments 377 1,576 COMPREHENSIVE INCOME (LOSS) $ (820) $1,404 See accompanying notes. FIRST FORTIS LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30, 1998 1997 OPERATING ACTIVITIES Net loss $(1,759) $(1,371) 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 10,927 2,577 Provision for deferred federal income taxes 226 (739) Decrease in federal income taxes (750) - (Decrease) increase in other liabilities (1,322) 891 Depreciation, amortization and accretion (771) 252 Amortization of investment premiums, net (36) 128 Increase in uncollected premiums, accrued investment income and other (739) (3,925) Increase in reinsurance recoverable (5,372) (2,039) Net realized (gains) losses on investments (850) 98 Other - 6 NET CASH PROVIDED BY OPERATING ACTIVITIES (434) (4,122) INVESTING ACTIVITIES Purchases of fixed maturity investments (111,080) (81,778) Sales or maturities of fixed maturity investments 95,975 88,607 Increase (decrease)in equity securities and short-term investments 9,947 (3,340) Purchase of property and equipment - (106) NET CASH USED BY INVESTING ACTIVITIES (5,158) 3,383 FINANCING ACTIVITIES Activities related to investment products: Considerations received 8,221 1,956 Surrenders and death benefits (5,927) (192) Interest credited to policyholders 337 22 NET CASH PROVIDED BY FINANCING ACTIVITIES 2,631 1,786 INCREASE (DECREASE) IN CASH (2,961) 1,047 Cash and cash equivalents at beginning of period 7,453 1,545 CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,492 $2,592 See accompanying notes. /TABLE FIRST FORTIS LIFE INSURANCE COMPANY Notes to Financial Statements June 30, 1998 (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, 1998 and the related statements of operations for the six months ended June 30, 1998 and 1997, and cash flows for the six months ended June 30, 1998 and 1997. 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, 1998, 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, 1998 (in thousands):
Gross Gross Amortized Unrealized Unrealized Fair Cost Gain Loss Value Fixed Income Securities: Governments $ 18,231 $ 236 $ 15 $ 18,452 Public Utilities 13,468 450 34 13,884 Industrial and miscellaneous 86,574 3,040 63 89,551 Total $118,273 $3,726 $112 $121,887
The amortized cost and fair value of fixed maturities at June 30, 1998, 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, 1998 (unaudited) Amortized Fair Cost Value Due in one year or less $ 1,760 $ 1,767 Due after one year through five years 53,224 54,100 Due after five years through ten years 30,253 31,034 Due after ten years 33,036 34,986 $118,273 $121,887
Proceeds from sales and maturities of fixed maturity securities were $95,975,000 and $88,607,000 for the six month period ended June 30, 1998 and 1997, respectively. Gross gains of $1,005,000 and $557,000 and gross losses of $155,000 and $655,000 were realized on the sales during the six month period ended June 30, 1998 and 1997. 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 1998 1997 1998 1997 Fixed maturities $3,926 $3,968 $850 $(98) Short-term investments 176 36 - - 4,102 4,004 $850 $(98) Expenses (48) (87) Net investment income $4,054 $3,917 /TABLE Management's Discussion and Analysis of Financial Condition and Results of Operations June Year-to-Date 1998 Compared to June Year-to-Date 1997 Revenues First Fortis (the "Company") life insurance premiums increased during the first two quarters of 1998 as compared to the first two quarters of 1997 due to strong group life sales. Accident and health premiums decreased during the first two quarters of 1998 as compared to the first two quarters of 1997. This accident and health 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 a current inforce of $5.5 million in premium. Accident and health premiums are principally composed of group accident and health coverages. The discontinuance of group medical sales and strong dental sales have caused the group accident and health premium mix to shift. Second quarter dental, disability income, and medical premium represented 44%, 39%, and 17%, respectively, of total group accident and health premium in 1998 compared to 35%, 40%, and 25%, respectively, in 1997. The Company continues to match investment portfolio composition to liquidity needs and capital requirements. Changes in interest rates during 1998 and 1997 resulted in recognition of realized gains and losses upon sales of securities. Benefits Life benefits have increased during the first two quarters of 1998 as compared to the first two quarters of 1997 due to good experience in 1997. The decrease in accident and health benefits in the first six months of 1998 as compared to the same period in 1997 is primarily due to improved experience in the group medical products. Slightly offsetting this is a larger volume of new 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 are relatively flat in the second quarter of 1998 from the same period in 1997. The Company continues to strive for improvements in the expense to gross revenue ratio, while maintaining quality and timely services to the policyholders. Year 2000 The Year 2000 issue is the result of computer programs having been written using two digits rather than four to define a year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in the failure of major systems or miscalculations, which could have a material impact on the operations of the Company and any of its businesses or subsidiaries. All of the Company's major businesses are heavily dependent upon internal computer systems, and many have significant interaction with systems of third parties. A comprehensive review of the Company's computer systems and business processes has been conducted to identify the major systems that could be affected by the Year 2000 issue. Steps are being taken to resolve any potential problems including modification to existing software and the purchase of new software. These measures are scheduled to be completed and tested on a timely basis. The Company's goal is to complete internal remediation and testing of each system by early 1999. The costs related to the Year 2000 issue are not expected to have a material impact on the Company's results of financial condition. This expectation is subject to uncertainties that could cause actual results to differ materially. Factors that could influence the total costs to be incurred by the Company in connection with the Year 2000 issue include the ability of the Company to successfully identify systems containing two-digit year codes, the nature and amount of programming required to fix the affected programs, the related labor and consulting costs for such remediation, and the ability of third parties that interface with the Company to successfully address their Year 2000 issues. The Company is evaluating the Year 2000 readiness of advisors and other third parties whose system failures could have an impact on the Company's operations. The potential materiality of any such impact is not entirely known at this time. The Company is closely monitoring these entities to avoid any unforeseen circumstances. 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 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, 1998, 97% of the Company's fixed maturity investments consisted of investment grade bonds, and 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. 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 27, 1998, 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, Zafar Rashid, Dean C. Kopperud, Terry J. Kryshak, Susie Gharib, Guy G. Rutherfurd, Jr., Dale E. Gardner, 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 14, 1998 /s/ Larry M. Cains Treasurer EX-27.1 2
7 0000914804 FIRST FORTIS LIFE INSURANCE COMPANY 1000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 123,637 0 0 0 0 0 123,637 4,492 25,136 0 192,956 107,459 0 10,718 0 0 2,000 0 0 33,400 192,956 26,852 4,054 850 487 26,780 (98) 8,267 (2,706) (947) (1,759) 0 0 0 (1,759) 0 0 60,498 0 0 0 0 0 0
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