UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 033-37576
FORTIS BENEFITS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0170040
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
576 BIELENBERG DRIVE
WOODBURY, MINNESOTA 55125
(Address of Principal Executive Offices) (Zip Code)
(651) 361-4000
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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 July
31, 2004 was 1,000,000, all of which are owned indirectly 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.
FORTIS BENEFITS INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
- ------ ------
PART I
FINANCIAL INFORMATION
1. Financial Statements................................................................... 2
Unaudited interim consolidated balance sheets of Fortis Benefits Insurance Company
at June 30, 2004 and December 31, 2003. 2
Unaudited interim consolidated statements of operations of Fortis Benefits Insurance
Company for the three and six months ended June 30, 2004 and 2003. 4
Unaudited interim consolidated statement of changes in stockholder's equity of
Fortis Benefits Insurance Company for the six months ended June 30, 2004. 5
Unaudited interim consolidated statements of cash flows of Fortis Benefits Insurance
Company for the six months ended June 30, 2004 and 2003. 6
Notes to the unaudited interim consolidated financial statements of Fortis Benefits
Insurance Company 7
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................. 10
3. Quantitative and Qualitative Disclosures About Market Risk * ......................... 13
4. Controls and Procedures................................................................ 13
PART II
OTHER INFORMATION
1. Legal Proceedings...................................................................... 13
2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities * ... 13
3. Defaults Upon Senior Securities * ..................................................... 13
4. Submission of Matters to a Vote of Security Holders * ................................ 13
5. Other Information...................................................................... 13
6. Exhibits and Reports on Form 8-K....................................................... 14
Signatures...................................................................................... 16
* NOT REQUIRED UNDER REDUCED DISCLOSURE PURSUANT TO GENERAL INSTRUCTION H(1) (a)
AND (b) OF FORM 10Q
FORTIS BENEFITS INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
JUNE 30, DECEMBER 31,
------------------------------------
2004 2003
------------ -------------
(IN THOUSANDS)
ASSETS
Investments:
Fixed maturities available for sale, at fair value (amortized
cost - $3,226,509 in 2004 and $3,227,043 in 2003) $ 3,346,887 $ 3,452,299
Equity securities available for sale, at fair value
(cost - $236,849 in 2004 and $199,287 in 2003) 230,959 208,149
Commercial mortgage loans on real estate at amortized cost 694,479 634,615
Policy loans 10,694 10,678
Short-term investments 37,536 71,057
Other investments 58,101 51,831
------------ -------------
Total investments 4,378,656 4,428,629
Cash and cash equivalents 16,341 29,176
Premiums and accounts receivable 78,900 77,094
Reinsurance recoverables 1,224,698 1,210,299
Accrued investment income 50,716 49,756
Deferred acquisition costs 109,473 92,117
Property and equipment, at cost less accumulated depreciation 2,014 2,566
Deferred income taxes, net 86,759 54,249
Goodwill 156,756 156,985
Value of business acquired 42,339 45,710
Other assets 40,045 41,710
Assets held in separate accounts 3,439,927 3,516,070
------------ -------------
Total assets $ 9,626,624 $ 9,704,361
============ =============
See the accompanying notes to the consolidated financial statements
2
FORTIS BENEFITS INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
JUNE 30, DECEMBER 31,
-----------------------
2004 2003
---------- ----------
(IN THOUSANDS)
LIABILITIES
Future policy benefits and expenses $2,921,388 $2,869,324
Unearned premiums 43,640 50,002
Claims and benefits payable 1,858,770 1,810,847
Commissions payable 13,339 15,918
Reinsurance balances payable 5,862 5,138
Funds held under reinsurance 101 100
Deferred gain on disposal of businesses 227,871 249,481
Due to affiliates - 3,478
Accounts payable and other liabilities 135,404 141,309
Tax payable 9,144 22,112
Liabilities related to separate accounts 3,439,927 3,516,070
---------- ----------
Total liabilities 8,655,446 8,683,779
STOCKHOLDER'S EQUITY
Common stock, $5 par value, 1,000,000 shares authorized,
issued and outstanding 5,000 5,000
Additional paid-in capital 516,570 516,570
Retained earnings 372,376 342,610
Accumulated other comprehensive income 77,232 156,402
---------- ----------
Total stockholder's equity 971,178 1,020,582
---------- ----------
Total liabilities and stockholder's equity $9,626,624 $9,704,361
========== ==========
See the accompanying notes to the consolidated financial statements
3
FORTIS BENEFITS INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- ----------------------------
2004 2003 2004 2003
-------------- --------------- ------------ ------------
(IN THOUSANDS)
REVENUES
Net earned premiums and other considerations $ 432,467 $ 413,901 $ 871,025 $ 844,948
Net investment income 70,080 65,419 137,176 127,518
Net realized gain on investments (12) 6,602 3,580 2,045
Amortization of deferred gain on disposal of businesses 10,752 10,980 21,610 25,951
Fees and other income 2,853 3,277 6,743 6,548
-------------- --------------- ------------ ------------
Total revenues 516,140 500,179 1,040,134 1,007,010
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 330,217 312,155 685,495 655,613
Amortization of deferred acquisition costs and
value of business acquired 20,279 10,462 35,229 23,728
Underwriting, general and administrative expenses 119,721 119,031 238,736 241,076
-------------- --------------- ------------ ------------
Total benefits, losses and expenses 470,217 441,648 959,460 920,417
-------------- --------------- ------------ ------------
Income before income taxes 45,923 58,531 80,674 86,593
Income taxes 15,506 20,448 27,544 30,210
-------------- --------------- ------------ ------------
Net income $ 30,417 $ 38,083 $ 53,130 $ 56,383
============== =============== ============ ============
See the accompanying notes to the consolidated financial statements
4
FORTIS BENEFITS INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FROM DECEMBER 31, 2003 THROUGH JUNE 30, 2004 (UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
---------- ------------- ------------ ------------ -----------
(IN THOUSANDS)
Balance, December 31, 2003 $ 5,000 $ 516,570 $ 342,610 $ 156,402 $ 1,020,582
Comprehensive income (loss):
Net income - - 53,130 - 53,130
Net change in unrealized gains (losses)
on securities - - - (76,538) (76,538)
Foreign currency translation - - (22) (974) (996)
-----------
Total comprehensive loss (24,404)
Dividends - - (25,000) - (25,000)
Other - - 1,658 (1,658) -
---------- --------- ------------ ------------ -----------
Balance, June 30, 2004 $ 5,000 $ 516,570 $ 372,376 $ 77,232 $ 971,178
========== ========= ============ ============ ===========
See the accompanying notes to the consolidated financial statements
5
FORTIS BENEFITS INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
--------- ---------
(IN THOUSANDS)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 84,126 $ 163,842
INVESTING ACTIVITIES
Sales of:
Fixed maturities available for sale 355,766 354,364
Equity securities available for sale 18,629 30,387
Other invested assets 4,581 2,120
Maturities, prepayments, and scheduled redemption of:
Fixed maturities available for sale 88,413 163,227
Purchases of:
Fixed maturities available for sale (445,440) (725,257)
Equity securities available for sale (55,769) (115,583)
Other invested assets (10,946) (3,691)
Change in commercial mortgage loans on real estate (60,716) (11,391)
Change in short term investments 33,521 106,493
--------- ---------
Net cash used in investing activities (71,961) (199,331)
FINANCING ACTIVITIES
Dividends paid (25,000) -
--------- ---------
Net cash used in financing activities (25,000) -
Change in cash and cash equivalents (12,835) (35,489)
Cash and cash equivalents at beginning of period 29,176 49,575
--------- ---------
Cash and cash equivalents at end of period $ 16,341 $ 14,086
========= =========
See the accompanying notes to the consolidated financial statements
6
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
1. NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the "Company") is a provider of life and
health insurance products. At January 1, 2004, the Company was an indirect
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 Minnesota and distributes its products in
all states except New York. The Company's revenues are derived principally from
group employee benefits products and from individual pre-funded funeral
products. The Company offers insurance products, including life insurance
policies, annuity contracts, and group life, accident and health insurance
policies.
2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated 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 only of normal
recurring accruals) considered necessary for a fair statement 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.
The consolidated 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 and six months ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004. The accompanying interim consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and related notes on form 10K for the fiscal year ended December 31, 2003.
7
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
3. RECENTLY ADOPTED 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 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 was adopted by the Company 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.
In March 2004, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue 03-1, "The Meaning of Other Than Temporary Impairment and Its
Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides guidance
on the disclosure requirements for other than temporary impairments of debt and
marketable equity investments that are accounted for under FAS No. 115. EITF
03-1 also provides guidance for evaluating whether an investment is other than
temporarily impaired. The adoption of EITF 03-1 required the Company to include
certain quantitative and qualitative disclosures for debt and marketable equity
securities classified as available-for-sale or held-to-maturity under FAS 115
that are impaired at the balance sheet date but for which an other than
temporary impairment has not been recognized. The disclosures were effective for
annual financial statements for fiscal years ending after December 15, 2003 The
guidance for evaluating whether an investment is other than temporarily impaired
is effective for reporting period beginning after June 15, 2004. The Company's
current policy for determining whether an investment is other than temporarily
impaired already addresses the guidance provided by EITF 03-1.
In May 2004, the Financial Accounting Standard Board ("FASB") issued FASB
Staff Position ("FSP") FAS 106-2, Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003
("FAS 106-2"). This statement provides guidance on the accounting for the
effects of the Medicare Prescription Drug, Improvement and Modernization Act of
2003 ("The Act") for employers that sponsor postretirement health care plans
that provide prescription drug benefits. FAS 106-2 also requires employers to
provide certain disclosures regarding the effect of the federal subsidy provided
by The Act. FAS 106-2 is effective for the first interim or annual period
beginning after June 15, 2004. The Company is assessing whether the adoption of
this statement will have a material impact on the Company's financial position
or the results of operations.
4. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect 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 $1,753 and $1,482 for three
months ended June 30, 2004 and 2003, respectively, and $3,504 and $2,947 for the
six months ended June 30, 2004 and 2003, respectively.
8
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
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 $900 and $1,292 for three months ended June 30, 2004 and 2003,
respectively, and $2,766 and $3,200 for the six months ended June 30, 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 and six months ended June
30, 2004 and 2003. The Company made contributions to the postretirement benefit
plans of approximately $397 and $403 for three months ended June 30, 2004 and
2003, respectively, and $807 and $806 for the six months ended June 30, 2004 and
2003, respectively, as claims were incurred. The Company incurred expenses
related to retirement benefits of $448 and $475 for the three months ended June
30, 2004 and 2003, respectively, and $909 and $949 for the six months ended June
30, 2004 and 2003, respectively.
5. 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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(Dollar amounts in thousands except share data.)
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) addresses the financial condition of Fortis Benefits Insurance
Company and its subsidiaries (collectively, FBIC or the Company) as of June 30,
2004, compared with December 31, 2003, and its results of operations for the
three and six months ended June 30, 2004 and 2003. This discussion should be
read in conjunction with FBIC'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 June 30, 2004
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.
10
CONSOLIDATED OVERVIEW
The table below presents information regarding our consolidated results of
operations:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2004 2003 2004 2003
------------ ----------- ----------- ------------
(IN THOUSANDS) (IN THOUSANDS)
-------------------------- -------------------------
REVENUES:
Net earned premiums and other considerations $ 432,467 $ 413,901 $ 871,025 $ 844,948
Net investment income........... 70,080 65,419 137,176 127,518
Net realized gains (losses) on investments (12) 6,602 3,580 2,045
Amortization of deferred gain on disposal of
businesses 10,752 10,980 21,610 25,951
Fees and other income........... 2,853 3,277 6,743 6,548
------------ ----------- ----------- ------------
Total revenues................ 516,140 500,179 1,040,134 1,007,010
------------ ----------- ----------- ------------
BENEFITS, LOSSES AND EXPENSES:
Policyholder benefits........... (330,217) (312,155) (685,495) (655,613)
Selling, underwriting and general expenses(1) (140,000) (129,493) (273,965) (264,804)
------------ ----------- ----------- ------------
Total benefits, losses and expenses (470,217) (441,648) (959,460) (920,417)
------------ ----------- ----------- ------------
INCOME BEFORE INCOME TAXES......... 45,923 58,531 80,674 86,593
Income taxes.................... (15,506) (20,448) (27,544) (30,210)
------------ ----------- ----------- ------------
NET INCOME ........................ $ 30,417 $ 38,083 $ 53,130 $ 56,383
============ =========== =========== ============
- ---------------
(1) Includes amortization of DAC and VOBA.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 2003
Total Revenues
Total revenues increased by $15,961, or 3%, from $500,179 for the three
months ended June 30, 2003, to $516,140 for the three months ended June 30,
2004. Total revenues increased by $33,124, or 3%, from $1,007,010 for the six
months ended June 30, 2003, to $1,040,134 for the six months ended June 30,
2004.
Net earned premiums and other considerations increased by $18,566, or 4%,
from $413,901 for the three months ended June 30, 2003, to $432,467 for the
three months ended June 30, 2004. Net earned premiums and other considerations
increased by $26,077, or 3%, from $844,948 for the six months ended June 30,
2003, to $871,025 for the six months ended June 30, 2004. The increases in net
earned premiums and other considerations for the three and six months ended June
30, 2004 are primarily due to increases of $10,244 and $15,400, respectively, in
disability premiums; $6,926 and $14,778, respectively, in health premiums; and
$4,067 and $3,346, respectively, in pre-funded funeral premiums. The increases
were offset by decreases of $1,671 and $3,761 for the three and six months ended
June 30, 2004, respectively, in dental premiums; and $571 and $3,033,
respectively, in group life premiums. The increases in disability premiums are
primarily driven by an increase in business written through alternative
distribution sources, as well as the transition of a block of business from
administrative fee only business to fully insured business. Net earned premium
growth in the health business is primarily due to membership growth and premium
rate increases. Pre-funded funeral net earned premium increases are due to the
change in mix of business. Lower sales and renewals due to maintaining pricing
discipline in an increasingly competitive market was the driver for the decrease
in dental premiums. Life net earned premium decreases were due to the
non-renewal of certain unprofitable business.
11
Net investment income increased by $4,661, or 7%, from $65,419 for the
three months ended June 30, 2003, to $70,080 for the three months ended June 30,
2004. Net investment income increased by $9,658, or 8%, from $127,518 for the
six months ended June 30, 2003, to $137,176 for the six months ended June 30,
2004. These increases were primarily due to increases in invested assets, offset
by a decrease in investment yields driven by the lower interest rate
environment.
Net realized gains (losses) on investments declined by $6,614 from net
realized gains of $6,602 for the three months ended June 30, 2003, to net
realized losses of $12 for the three months ended June 30, 2004. Net realized
gains on investments increased by $1,535 from net realized gains of $2,045 for
the six months ended June 30, 2003, to net realized gains of $3,580 for the six
months ended June 30, 2004. Other than temporary impairments of $0 and $515 were
realized during the three and six months ended June 30, 2004, respectively.
Amortization of deferred gain on disposal of businesses decreased by $228,
or 2%, from $10,980 for the three months ended June 30, 2003, to $10,752 for the
three months ended June 30, 2004. Amortization of deferred gain on disposal of
businesses decreased by $4,341, from $25,951 for the six months ended June 30,
2003, to $21,610 for the six months ended June 30, 2004. The decreases are
consistent with the run-off of the businesses ceded to The Hartford in 2001 and
John Hancock in 2000.
Fees and other income decreased by $424 or 18%, from $3,277 for the three
months ended June 30, 2003, to $2,853 for the three months ended June 30, 2004.
Fees and other income increased by $195, or 3%, from $6,548 for the six months
ended June 30, 2003, to $6,743 for the six months ended June 30, 2004. The three
month decrease was due primarily to the transition of a disability block of
business from administrative fee only business to fully insured business. The
six month increase was due primarily to the increase in the CPI CAP during the
first quarter.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased by $28,570 or 6%, from
$441,647 for the three months ended June 30, 2003, to $470,217 for the three
months ended June 30, 2004. Total benefits, losses and expenses increased by
$39,043, or 4%, from $920,417 for the six months ended June 30, 2003, to
$959,460 for the six months ended June 30, 2004.
Policyholder benefits increased by $18,062, or 6%, from $312,155 for the
three months ended June 30, 2003, to $330,217 for the three months ended June
30, 2004. Policyholder benefits increased by $29,882, or 5%, from $655,613 for
the six months ended June 30, 2003, to $685,495 for the six months ended June
30, 2004. The increases in policyholder benefits for the three and six months
ended June 30, 2004, are primarily due to increases of $12,941 and $14,589,
respectively, in disability benefits; $6,461 and $16,051, respectively, in
health benefits; and $3,133 and $6,076, respectively, in pre-funded funeral
benefits. The increases were offset by decreases of $3,426 and $682 for the
three and six months ended June 30, 2004, respectively, in dental benefits; and
$3,163 and $6,509, respectively, in group life benefits. The increase in
disability benefits is primarily attributable to unfavorable experience on a
large disability case. The increase in the health insurance net earned premiums
is the driver behind the increase in the related benefits. Increases in
pre-funded funeral benefits are primarily due to the crediting of policy growth
to a larger inforce block of business. Group life and dental benefit decreases,
in turn, are driven by lower net earned premium levels.
Selling, underwriting and general expenses increased by $10,507, or 8%,
from $129,493 for the three months ended June 30, 2003, to $140,000 for the
three months ended June 30, 2004. Selling, underwriting and general expenses
increased by $9,161, or 3%, from $264,804 for the six months ended June 30,
2003, to $273,965 for the six months ended June 30, 2004. These increases were
primarily due to increased commission expense due to growth in business.
12
Net Income
Net income decreased by $7,666, or 20%, from $38,083 for the three months
ended June 30, 2003, to $30,417 for the three months ended June 30, 2004. Net
income decreased by $3,253, or 6%, from $56,383 for the six months ended June
30, 2003, to $53,130 for the six months ended June 30, 2004.
Income taxes decreased by $4,942, or 24%, from $20,448 for the three
months ended June 30, 2003, to $15,506 for the three months ended June 30, 2004.
Income taxes decreased by $2,666, or 9%, from $30,210 for the six months ended
June 30, 2003, to $27,544 for the six months ended June 30, 2004. Income tax
decreases are consistent with decreases in pre-tax income.
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 June 30, 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.
There have been no new material legal proceedings, other than ordinary
routine litigation incidental to the business of Fortis Benefits Insurance
Company or its subsidiaries, for the three months ended June 30, 2004. There
have been no material developments in previously reported legal proceedings in
the three months ended June 30, 2004.
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.
ITEM 5. OTHER INFORMATION.
(a) None.
13
(b) None.
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 at www.assurant.com
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------
3.1 Articles of Incorporation of Fortis Benefits Insurance Company
(incorporated by reference from the Registrant's Registration
Statement on Form S-6 and Variable Account C filed on March 17, 1986,
File No. 33-03919).
3.2 By-laws of Fortis Benefits Insurance Company (incorporated by
reference from the Registrant's Registration Statement on Form S-6
and Variable Account C filed on March 17, 1986, File No. 33-03919).
3.3 Amendments to Articles of Incorporation and By-laws of Fortis
Benefits Insurance Company dated November 21, 1991 (incorporated by
reference from the Registrant's Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 and Variable Account D filed on
March 2, 1992, File No. 33-37577).
3.4 Amendment to By-laws of Fortis Benefits Insurance Company dated May
1, 1999 (incorporated by reference from Exhibit 3(d) to the
Registrant's Form 10-K filed on March 30, 2001, File No. 33-63799).
4.1 Form of Combination Fixed and Variable Group Annuity Contract
(incorporated by reference from Registrant's Post-Effective Amendment
No. 1 to the Registration Statement on Form N-4 and Variable Account
D filed on March 2, 1992, File No. 33-37577).
4.2 Form of Certificate 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 Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-4 and Variable Account D filed on March 2, 1992, File No.
33-37577).
4.3 Form of Application to be used in connection with Form of Certificate
filed as Exhibit 4.2 to this report (incorporated by reference from
Registrant's Post-Effective Amendment No. 1 to the Registration
Statement on Form N-4 and Variable Account D filed on March 2, 1992,
File No. 33-37577).
4.4 Form of IRA Endorsement (incorporated by reference from Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-4 and Variable Account D filed on March 2, 1992, File No.
33-37577).
4.5 Form of Section 403(b) Annuity Endorsement (incorporated by reference
from Registrant's Post-Effective Amendment No. 3 to the Registration
Statement on Form N-4 and Variable Account D filed on March 1, 1990,
File No. 33-19421).
4.6 Annuity Contract Exchange Form (incorporated by reference from
Registrant's Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4 and Variable Account D filed on April 19, 1988,
File No. 33-19421).
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 Fortis Benefits Insurance
Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
14
32.2 Certification of Chief Financial Officer of Fortis Benefits 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.
15
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.
FORTIS BENEFITS INSURANCE COMPANY
Date: August 11, 2004 By: /s/Robert Pollock
--------------------------------------
Name: Robert B. Pollock
Title: President and Chief Executive
Officer (Principal Executive Officer)
Date: August 11, 2004 By: /s/ Ranell Jacobson
--------------------------------------
Name: Ranell Jacobson
Title: Treasurer
(Chief Financial Officer)
16
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------
3.1 Articles of Incorporation of Fortis Benefits Insurance Company
(incorporated by reference from the Registrant's Registration
Statement on Form S-6 and Variable Account C filed on March 17, 1986,
File No. 33-03919).
3.2 By-laws of Fortis Benefits Insurance Company (incorporated by
reference from the Registrant's Registration Statement on Form S-6
and Variable Account C filed on March 17, 1986, File No. 33-03919).
3.3 Amendments to Articles of Incorporation and By-laws of Fortis
Benefits Insurance Company dated November 21, 1991 (incorporated by
reference from the Registrant's Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 and Variable Account D filed on
March 2, 1992, File No. 33-37577).
3.4 Amendment to By-laws of Fortis Benefits Insurance Company dated May
1, 1999 (incorporated by reference from Exhibit 3(d) to the
Registrant's Form 10-K filed on March 30, 2001, File No. 33-63799).
4.1 Form of Combination Fixed and Variable Group Annuity Contract
(incorporated by reference from Registrant's Post-Effective Amendment
No. 1 to the Registration Statement on Form N-4 and Variable Account
D filed on March 2, 1992, File No. 33-37577).
4.2 Form of Certificate 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 Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-4 and Variable Account D filed on March 2, 1992, File No.
33-37577).
4.3 Form of Application to be used in connection with Form of Certificate
filed as Exhibit 4.2 to this report (incorporated by reference from
Registrant's Post-Effective Amendment No. 1 to the Registration
Statement on Form N-4 and Variable Account D filed on March 2, 1992,
File No. 33-37577).
4.4 Form of IRA Endorsement (incorporated by reference from Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-4 and Variable Account D filed on March 2, 1992, File No.
33-37577).
4.5 Form of Section 403(b) Annuity Endorsement (incorporated by reference
from Registrant's Post-Effective Amendment No. 3 to the Registration
Statement on Form N-4 and Variable Account D filed on March 1, 1990,
File No. 33-19421).
4.6 Annuity Contract Exchange Form (incorporated by reference from
Registrant's Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4 and Variable Account D filed on April 19, 1988,
File No. 33-19421).
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 Fortis Benefits 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 Fortis Benefits Insurance
Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.