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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
    FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 OR
 o
    
    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
of Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)308 MALTBIE STREET, SUITE 200
SYRACUSE, NEW YORK
    
    13204(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code:   (315) 451-0066 Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None 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   þ       No   o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes   o       No   þ The aggregate market value of the voting and non-voting common equity held by non-affiliates
is not applicable as no public market exists for the voting stock of the registrant. As of March 4, 2005, there were 100,000 shares of common stock of the registrant outstanding,
all of which are owned by Assurant, Inc.




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THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS I(1)(A) AND (B) OF FORM 10-K AND IS FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.




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FIRST FORTIS LIFE INSURANCE COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 TABLE OF CONTENTS Item
    
    
    
    PageNumber
    
    
    
    NumberPART I1.
    
    Business
    
    
    22.
    
    Properties
    
    
    53.
    
    Legal Proceedings
    
    
    54.
    
    Submission of Matters to a Vote of Security Holders
    
    
    5PART II5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    66.
    
    Selected Financial Data
    
    
    67.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    67A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    88.
    
    Financial Statements and Supplementary Data
    
    
    99.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    99A.
    
    Controls and Procedures
    
    
    99B.
    
    Other Information
    
    
    10PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    1011.
    
    Executive Compensation
    
    
    1012.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    1013.
    
    Certain Relationships and Related Transactions
    
    
    1014.
    
    Principal Accountant Fees and Services
    
    
    10PART IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    11Signatures
    
    
    
    
    14EX-24.1: POWER OF ATTORNEYEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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FORWARD-LOOKING STATEMENTS Some of the statements under Business, Managements Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this report may contain forward-looking
statements which 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. We
believe that these factors include but are not limited to those described under the subsection
entitled Risk Factors in Managements Discussion and Analysis of Financial Condition and Results
of Operations. These factors should not be construed as exhaustive and should be read in
conjunction with the other cautionary statements that are included in this report. We undertake no
obligation to publicly update or review any forward-looking statement, whether as a result of new
information, future developments or otherwise. 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. 1




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PART I 
 Item 1.Business First Fortis is a stock life insurance company formed in 1971 and organized under the laws of
the State of New York. It is a direct wholly owned subsidiary of Assurant, Inc. (Assurant), which
owns and operates companies that provide insurance products and related services in North America
and selected other markets. Assurant, a Delaware corporation, completed an initial public offering
of its common stock in February 2004, and its common stock now trades on The New York Stock
Exchange. Prior to the initial public offering, Fortis, Inc., a Nevada corporation, had formed
Assurant and merged into it on February 4, 2004. The merger was done in order to redomesticate
Fortis, Inc. from Nevada to Delaware and to change its name. As a result of the merger, Assurant is
the successor to the business operations and obligations of Fortis, Inc. First Fortis has been a
wholly owned subsidiary of Fortis, Inc. since 1989. In this report, references to the Company, First Fortis, we, us or our refer to
First Fortis Life Insurance Company. Also, in this report, references to Assurant refer to
Fortis, Inc. and its subsidiaries prior to the merger described above, and Assurant, Inc. and its
subsidiaries after the consummation of the merger described above. 2




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Assurant organizes and manages their specialized businesses through four operating business
segments: Operating Business Segment
    
    Principal Products and Services
    
    Principal Distribution ChannelsAssurant SolutionsSpecialty
Property
    
    
    
    Creditor-placed homeowners
insurance (including tracking
services)
    
    
    
    Mortgage lenders and services
    
    Manufactured housing
homeowners insurance
    
    
    
    Manufactured housing
lenders, dealers and
vertically integrated buildersConsumer
Protection
    
    
    
    Debt protection
administration
    
    
    
    Financial institutions
(including credit card
issuers) and retailers
    
    Credit insurance
    
    
    
    Consumer electronics and appliance retailers
    
    Warranties and extended
service contracts
    
    
    
    Vehicle dealerships-Appliances-Automobiles and recreational
vehicles-Consumer electronics-Wireless devicesAssurant HealthIndividual Health
    
    
    
    Preferred Provider
Organizations (PPO)
    
    
    
    Independent agents
    
    Short-term medical insurance
    
    
    
    National accounts
    
    Student medical insurance
    
    
    
    InternetSmall Employer Group Health
    
    
    
    PPO
    
    
    
    Independent agentsAssurant Employee Benefits
    
    
    
    Group dental insurance
    
    
    
    Employee benefit advisors- Employer-paid
    
    
    
    Brokers- Employee-paid
    
    
    
    DRMS(1)
    
    Group disability insurance
    
    Group term life insuranceAssurant PreNeed
    
    
    
    Pre-funded funeral insurance
    
    
    
    Service Corporation
International (SCI)
    
    Independent funeral homes
   (1)
    
    DRMS refers to Disability Reinsurance Management Services, Inc., one of our wholly owned
subsidiaries that provides a turnkey facility to other insurers to write principally group
disability insurance. First Fortis, which is licensed to sell life, health and annuity
insurance only in New York, writes certain of the insurance products that are marketed in New York
by the Assurant Employee Benefits and Assurant Solutions business segments. Within the Assurant
Employee Benefits segment, we write group life, group dental, group long-term disability and group
short-term disability insurance products. Within the Assurant Solutions segment, we market, sell
and issue credit life and credit disability products. Of our total gross revenues generated during
2004, approximately 82% were from the Assurant Employee Benefits segment and approximately 14% from
the Assurant Solutions segment. It is possible that our sales of credit life for the Assurant
Solutions segment will decline, as almost all of the largest credit card issuing institutions in
the United States have switched from offering credit insurance to their credit card customers to
offering their own banking-approved debt protection programs. Assurant Solutions earns fee income
from performing debt protection administration services for such institutions, but we are not
involved in providing those services and do not receive that fee income. 3




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As a direct wholly owned subsidiary of Assurant, First Fortis does not have any publicly
issued equity or debt securities. We are, however, subject to certain filing requirements of the
Securities Exchange Act of 1934, as amended, because we have issued certain variable and market
value adjusted insurance contracts, which are required to be registered with the SEC as securities.
Effective April 1, 2001, Assurant exited this line of business and sold the business segment, then
referred to as Fortis Financial Group, to The Hartford Financial Services Group, Inc. and certain
of its subsidiaries (The Hartford). This sale was accomplished by means of coinsurance and modified
coinsurance. As a result, The Hartford is contractually responsible for servicing the insurance
contracts, including the payment of benefits, oversight of investment management, overall contract
administration and funding of reserves. If The Hartford fails to fulfill its obligations, however,
we will be obligated to perform the services and make the required payments and funding. In addition, effective March 1, 2000, Assurant sold all of its long term care insurance
operations to John Hancock Life Insurance Company (John Hancock). In connection with that sale, we
reinsured our existing block of long-term care insurance policies to John Hancock on a coinsurance
basis. Under the coinsurance agreement, we transferred 100% of the policy reserves and related
assets on this block of business to John Hancock, and John Hancock agreed to be responsible for
100% of the policy benefits. The assets backing the liabilities on this business are held in a
trust and John Hancock is obligated to fund the trust if the value of the assets is deemed
insufficient to fund the liabilities. If John Hancock fails to fulfill these obligations, we will
be obligated to make these payments. In 2001, another indirect wholly owned subsidiary of Assurant, Bankers American Life Assurance
Company (BALAC), merged into First Fortis. Pursuant to that merger, First Fortis acquired all
assets and liabilities of BALAC, which had been licensed to write insurance business only in the
State of New York. On June 2, 2003, Assurant terminated the Voting Trust Agreement, dated June 1, 1999, pursuant
to which Assurants voting rights with respect to our stock had been placed in a trust. The trust
was established after a stockholder in Belgium, Societe Generale de Belgique S.A. (SGB), and its
parent company, Suez Lyonnaise des Eaux (Suez), acquired more than 20% of the stock of Fortis
SA/NV, one of the indirect stockholders of Assurant. This caused Suez and SGB to hold indirectly
more than 10% of our stock. However, as of April 24, 2003, Suez and SGB reduced their stock
holdings to only 1.5% of Fortis SA/NV which, at that time, represented only 0.75% of our stock.
Because the ownership percentage of Suez and SGB was substantially below the 10% threshold set
forth in Section 1501(a)(2) of the New York Insurance Law, the trust was terminated pursuant to
Section 11(a) of the Voting Trust Agreement, and all voting rights of our stock are now held
directly by Assurant. RISK FACTORS First Fortis is subject to risks associated with our business. These risks include, among
others:  
    Reliance on Relationships with Significant Clients, Distributors and Other
Parties. If our significant clients, distributors and other parties with which we do
business decline to renew or seek to terminate our relationships or contractual
arrangements, our results of operations and financial condition could be materially
adversely affected. We are also subject to the risk that these parties may face
financial difficulties, reputational issues or problems with respect to their own
products and services, which may lead to decreased sales of products and services.
    Failure to Attract and Retain Sales Representatives or Develop and Maintain
Distribution Sources. Our sales representatives interface with clients and third
party distributors. Our inability to attract and retain our sales representatives or
an interruption in, or changes to, our relationships with various third-party
distributors could impair our ability to compete and market our insurance products
and services and materially adversely affect our results of operations and financial
condition. In addition, our ability to market our products and 4




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services depends on our ability to tailor our channels of distribution to comply with
changes in the regulatory environment.  
    Effect of General Economic, Financial Market and Political Conditions. Our
results of operations and financial condition may be materially adversely affected
by general economic, financial market and political conditions, including:  
    insurance industry cycles;
    levels of employment;
    levels of inflation and movements of the financial markets;
    fluctuations in interest rates;
    monetary policy;
    demographics; and
    legislative and competitive factors.  
    Failure to Predict Accurately Benefits and Other Costs and Claims. We may be
unable to predict accurately benefits, claims and other costs or to manage such
costs through our loss limitation methods, which could have a material adverse
effect on our results of operations and financial condition if claims substantially
exceed our expectations.
    Changes in Regulation. Legislation or other regulatory reform that increases the
regulatory requirements imposed on us or that changes the way we are able to do
business may significantly harm our business or results of operations in the future. As of December 31, 2004, we had approximately 9 employees in our sales offices in New York,
New York. In addition, approximately 23 Assurant employees, subject to a lease arrangement, spent
at least a portion of their time working for us at our headquarters in Syracuse, New York. In 2004, we initiated the consolidation of the Syracuse, New York customer relations support
functions to our Kansas City, Missouri and Birmingham, Alabama offices. As a result, approximately
20 positions will be eliminated in the Syracuse, New York office during 2004 and 2005. 
 Item 2.Properties. We lease a 15,684 square foot office building in Syracuse, New York that serves as our
headquarters. We also lease 9,471 square feet of space in New York City that serves as our sales
office. We believe that our leased properties are adequate for our current business operations. 
 Item 3.Legal Proceedings. We are regularly involved in litigation in the ordinary course of business, both as a
defendant and as a plaintiff. We may from time to time be subject to a variety of legal and
regulatory actions relating to our current and past business operations. While we cannot predict
the outcome of any pending or future litigation, examination or investigation and although no
assurances can be given, we do not believe that any pending matter will have a material adverse
effect on our financial condition or results of operations. 
 Item 4.Submission Of Matters To A Vote Of Security Holders. Not required under reduced disclosure format. 5




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Part II 
 Item 5.Market For Registrants Common Equity and Related Stockholder Matters There is no public trading market for our common stock. As of March 4, 2005, we had 100,000
shares of common stock outstanding, all of which are owned directly by Assurant. We paid $40
million, zero, and zero in dividends to our stockholder in 2004, 2003 and 2002, respectively. As
part of the regulatory approval process for the 2001 merger of BALAC into First Fortis, we agreed
not to pay any ordinary dividends to Assurant until fiscal year 2004. 
 Item 6.Selected Financial Data. Not required under reduced disclosure format. 
 Item 7.Managements Discussion And Analysis Of Financial Condition And Results Of Operations. The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and accompanying notes
which appear elsewhere in this report. It contains forward-looking statements that involve risks
and uncertainties. Please see Forward-Looking Statements for more information. Our actual
results could differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those discussed below and elsewhere in this report. The table below presents information regarding our consolidated results of operations: For the Year EndedDecember 31,2004
    
    
    2003(in thousands)Revenues:Net earned premiums and other considerations
    
    $
    65,593
    
    
    $
    69,206Net investment income
    
    
    9,738
    
    
    
    10,315Net realized gains on investments
    
    
    819
    
    
    
    646Amortization of deferred gains on disposal of businesses
    
    
    1,575
    
    
    
    1,896Fees and other income
    
    
    305
    
    
    
    306Total revenues
    
    
    78,030
    
    
    
    82,369Benefits, losses and expenses:Policyholder benefits
    
    
    42,732
    
    
    
    45,114Selling, underwriting and general expenses(1)
    
    
    18,689
    
    
    
    24,011Total benefits, losses and expenses
    
    
    61,421
    
    
    
    69,125Income before income taxes
    
    
    16,609
    
    
    
    13,244Income taxes
    
    
    4,632
    
    
    
    4,507Net income
    
    $
    11,977
    
    
    $
    8,737
   (1)
    
    Includes amortization of DAC and VOBA and underwriting, general and administrative
expenses. 6




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Year Ended December 31, 2004 Compared to December 31, 2003 Total Revenues Total revenues decreased by $4,339, or 5%, from $82,369 for the year ended December 31, 2003,
to $78,030 for the year ended December 31, 2004. Net earned premiums and other considerations decreased $3,613, or 5%, from $69,206 for the
year ended December 31, 2003, to $65,593 for the year ended December 31, 2004. The decrease was
primarily due to decreases of $3,981, $3,446 and $1,585 in our credit life, group life and group
dental businesses, respectively, offset by an increase of $5,413 in our group disability business.
The decrease in our credit life business is primarily due to an adverse regulatory climate. The
decrease in our group life business was primarily due to the non-renewal of certain unprofitable
business in 2003. The decrease in our group dental business was primarily due to maintaining
pricing discipline in an increasingly competitive market, which has resulted in lower sales and
renewals. The increase in group disability business was primarily driven by business written
through alternate distribution sources. In 2004, our total net earned premiums were
derived 87% from the group life, group dental and group disability business, and 13% from the
credit life business. In 2003, our total net earned premiums were derived 82% from the group life,
group dental and group disability business, and 18% from the credit life business. Net investment income decreased by $577, or 6%, from $10,315 for the year ended December 31,
2003, to $9,738 for the year ended December 31, 2004. The decline is attributable to a decrease in
invested assets. Net realized gains on investments increased $173, or 27%, from $646 for the year ended
December 31, 2003, to $819 for the year ended December 31, 2004. Net realized gains on investments
are comprised of both other-than-temporary impairments and realized gains/(losses) on the sales of
securities. For the years ended December 31, 2003 and 2004, we had other-than-temporary impairments
on available for sale securities of $38 and zero, respectively. Amortization of deferred gain on disposal of business decreased by $321, or 17%, from $1,896
for the year ended December 31, 2003, to $1,575 for the year ended December 31, 2004. The decrease
is consistent with the anticipated run-off of the businesses ceded to The Hartford in 2001 and John
Hancock in 2000. Fees and other income decreased by $1, or less than 1%, from $306 for the year ended December
31, 2003, to $305 for the year ended December 31, 2004. The decrease is driven by lower
administrative services only sales. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased by $7,704, or 11%, from $69,125 for the year
ended December 31, 2003, to $61,421 for the year ended December 31, 2004. Policyholder benefits decreased by $2,382, or 5%, from $45,114 for the year ended December 31,
2003, to $42,732 for the year ended December 31, 2004. The decrease was primarily due to decreases
of $1,432, $985 and $1,217 in our credit life, group life and group dental businesses, offset by an
increase of $2,075 in our group disability business. The decrease in our credit life business is
primarily due to less new business as a result of the adverse regulatory climate. The decrease in
group life and dental benefits is predominantly attributable to favorable mortality experience in
group life and improved experience in group dental. The increase in group disability is primarily
due to growth in business written through alternate distribution sources, as well as unfavorable
experience on a large case. Selling, underwriting and general expenses decreased $5,322, or 22%, from $24,011 for the year
ended December 31, 2003, to $18,689 for the year ended December 31, 2004. The decrease was
primarily due to a decrease of $3,659 in our credit life business and a net decrease of $1,406 in
our group disability, 7




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group life and group dental business. The decrease in our credit life business is due to less
new business as a result of the adverse regulatory climate. The decrease in our group disability,
group life and group dental business was driven by focused expense management in 2004. Net Income Net income increased $3,240, or 37%, from $8,737 for the year ended December 31, 2003, to
$11,977 for the year ended December 31, 2004. Income taxes increased $125, or 3%, from $4,507 for the year ended December 31, 2003, to
$4,632 for the year ended December 31, 2004. The increase is primarily due to an increase in
pre-tax income. In addition, during the fourth quarter of 2004, an analysis of the federal tax
liability resulted in a $1,000 reduction of our tax liability. 
 Item 7A.Quantitative And Qualitative Disclosures About Market Risk As a provider of insurance products, effective risk management is fundamental to our ability
to protect both our customers and our stockholders interests. We are exposed to potential loss
from various market risks, in particular interest rate risk and credit risk, as well as inflation
risk. Interest rate risk is the possibility the fair value of liabilities will change more or less
than the market value of investments in response to changes in interest rates, including changes in
the slope or shape of the yield curve and changes in spreads due to credit risks and other factors. Credit risk is the possibility that counterparties may not be able to meet payment obligations
when they become due. We assume counterparty credit risk in many forms. A counterparty is any
person or entity from which cash or other forms of consideration are expected to extinguish a
liability or obligation to us. Primarily, our credit risk exposure is concentrated in our fixed
income investment portfolio and, to a lesser extent, in our reinsurance recoverables. Interest Rate Risk Interest rate risk arises as we invest substantial funds in interest-sensitive fixed income
assets, such as fixed maturity investments, mortgage-backed and asset-backed securities and
commercial mortgage loans. There are two forms of interest rate riskprice risk and reinvestment
risk. Price risk occurs when fluctuations in interest rates have a direct impact on the market
valuation of these investments. As interest rates rise, the market value of these investments
falls, and conversely, as interest rates fall, the market value of these investments rises.
Reinvestment risk occurs when fluctuations in interest rates have a direct impact on expected cash
flows from mortgage-backed and asset-backed securities. As interest rates fall, an increase in
prepayments on these assets results in earlier than expected receipt of cash flows forcing us to
reinvest the proceeds in an unfavorable lower interest rate environment, and conversely as interest
rates rise, a decrease in prepayments on these assets results in later than expected receipt of
cash flows forcing us to forgo reinvesting in a favorable higher interest rate environment. As of
December 31, 2004, we held $128,766 of fixed maturity securities at fair market value and $9,125 of
commercial mortgages at amortized cost for a combined total of 91% of total invested assets. As of
December 31, 2003, we held $167,712 of fixed maturity securities at fair market value and $3,800 of
commercial mortgages for a combined total of 90% of total invested assets. We expect to manage interest rate risk by selecting investments with characteristics such as
duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of
our insurance and reinsurance liabilities. Our group long-term disability and group term life waiver of premium reserves are also
sensitive to interest rates. These reserves are discounted to the valuation date at the valuation
interest rate. The valuation interest rate is determined by taking into consideration actual and
expected earned rates on our asset portfolio, with adjustments for investment expenses and
provisions for adverse deviation. 8




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The interest rate sensitivity of our fixed maturity security assets is assessed using
hypothetical test scenarios that assume several positive and negative parallel shifts of the
underlying yield curves. The individual securities are repriced under each scenario using a
valuation model. For investments such as mortgage-backed and asset-backed securities, a prepayment
model was used in conjunction with a valuation model. Our actual experience may differ from the
results noted below particularly due to assumptions utilized or if events occur that were not
included in the methodology. Credit Risk We have exposure to credit risk primarily as a holder of fixed income securities and by
entering into reinsurance cessions. Our risk management strategy and investment policy is to invest in debt instruments of high
credit quality issuers and to limit the amount of credit exposure with respect to any one issuer.
We attempt to limit our credit exposure by imposing fixed maturity portfolio limits on individual
issuers based upon credit quality. Currently our portfolio limits are 1.5% for issuers rated AA-and
above, 1% for issuers rated A- to A+, 0.75% for issuers rated BBB- to BBB+ and 0.38% for issuers
rated BB- to BB+. These portfolio limits are further reduced for certain issuers with whom we have
credit exposure on reinsurance agreements. We use the lower of Moodys or Standard & Poors
ratings to determine an issuers rating. We are also exposed to the credit risk of our reinsurers. When we reinsure, we are still
liable to our insureds regardless of whether we get reimbursed by our reinsurer. As part of our
overall risk and capacity management strategy, we purchase reinsurance for certain risks that we
underwrite. For at least 50% of our $94 million of reinsurance recoverables at December 31, 2004, we are
protected from the credit risk by using some type of risk mitigation mechanism such as a trust,
letter of credit or by withholding the assets in a modified coinsurance or co-funds-withheld
arrangement. For recoverables that are not protected by these mechanisms, we are dependent solely
on the credit of the reinsurer. Occasionally, the credit worthiness of the reinsurer becomes
questionable. Reinsurance may not be available or adequate to protect us against losses, and we are
subject to the credit risk of reinsurers. 
 Item 8.Financial Statements And Supplementary Data. The consolidated financial statements and financial statement schedules in Part IV, Item 15(a)
1 and 2 of this report are incorporated by reference into this Item 8. 
 Item 9.Changes In And Disagreements With Accountants On Accounting And Financial Disclosure. There have been no changes in or disagreements with accountants on accounting and financial
disclosure. 
 Item 9A.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 December 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. 9




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Item 9B.Other Information. None. 
 PART III 
 Item 10.Directors And Executive Officers Of The Registrant. Not required under reduced disclosure format. 
 Item 11.Executive Compensation. Not required under reduced disclosure format. 
 Item 12.Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder
Matters. Not required under reduced disclosure format. 
 Item 13.Certain Relationships And Related Transactions. Not required under reduced disclosure format. 
 Item 14.Principal Accountant Fees And Services PricewaterhouseCoopers LLP has audited our financial statements for fiscal 2004. The following
table shows the aggregate fees billed to us by PricewaterhouseCoopers LLP for services rendered and
the percentage of those services that were approved by the Audit Committee of our Board of
Directors during the fiscal years ended December 31, 2004 and 2003. Fiscal Year Ended December 31, 2004
    
    
    Fiscal Year Ended December 31, 2003Description of Fees (in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageAudit Fees
    
    $
    71
    
    
    
    100
    %

    
    $
    59
    
    
    
    100
    %Audit Related Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 In March 2004, the Audit Committee of the Board of Directors of the Company adopted written
procedures for pre-approval of services by the independent auditors, including procedures relating
to the Committees power to:  
    Retain and terminate independent auditors and approve all audit engagement fees and
terms;
    Inform each registered public accounting firm performing work for the Company that such
shall report directly to the Audit Committee;
    Directly oversee the work of any registered public accounting firm employed by the
Company, including the resolution of any disagreement between management and the auditor
regarding financial reporting, for the purpose of preparing or issuing an audit report or
related work; and
    Approve in advance any significant audit or non-audit engagement or relationship
between the Company and the independent auditors, other than prohibited non-auditing
services. Prohibited nonauditing services are services that Congress, the SEC or the Public Company
Accounting Oversight Board prohibits through regulation. Notwithstanding the foregoing,
pre-approval is not necessary for minor audit services if: (i) the aggregate amount of all such
non-audit services provided to the Company constitutes not more than 5% of the total amount of
revenues paid by the Company to its 10




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auditor during the fiscal year in which the non-audit services are provided; (ii) such services
were not recognized by the Company at the time of the engagement to be non-audit services; and
(iii) such services are promptly brought to the attention of the Audit Committee and approved prior
to the completion of the audit by the Audit Committee or by one or more members of the Audit
Committee who are members of the Board to whom authority to grant such approvals has been delegated
by the Audit Committee. The Audit Committee may delegate to one or more of its members the
authority to approve in advance all significant audit or non-audit services to be provided by the
independent auditors so long as it is presented to the full Audit Committee at a later time. 
 PART IV 
 Item 15.Exhibits and Financial Statement Schedules (a)1. Financial Statements The following financial statements of First Fortis Life Insurance Company, incorporated by
reference into Item 8, are attached hereto: PageFinancial Statements of First Fortis Life Insurance Company.Report of Independent Registered Public Accounting Firm
    
    
    F-1Balance Sheets of First Fortis Life Insurance Company
at December 31, 2004 and 2003
    
    
    F-2Statements of Operations of First Fortis Life Insurance
Company for the Three Fiscal Years in the Period Ended
December 31, 2004
    
    
    F-4Statements of Changes in Stockholders Equity of First Fortis
Life Insurance Company for the Three Fiscal Years in the Period
Ended December 31, 2004
    
    
    F-5Statements of Cash Flows of First Fortis Life Insurance
Company for the Three Fiscal Years in the Period Ended
December 31, 2004
    
    
    F-6Notes to Financial Statements of First Fortis Life
Insurance Company
    
    
    F-8
 (a)2. Financial Statement Schedules The following financial statement schedules of First Fortis Life Insurance Company are
attached hereto: All schedules are omitted because they are not applicable, not required, or
the information is
included in the financial statements or the notes thereto. (a)3. 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.  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). 11




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##### Table of Contents



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 November 15, 1993).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 November 15, 1993).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).10.1
    Stock Option Plan (incorporated by reference from Exhibit 10.2 to Assurant, Inc.s
Registration Statement on Form S-1 (File No. 333-109984) and amendments thereto, originally
filed on October 24, 2003).10.2
    Assurant 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.3 to
Assurant, Inc.s Registration Statement on Form S-1/A (File No. 333-109984) and amendments
thereto, originally filed on January 13, 2004).10.3
    Supplemental Executive Retirement Plan, as amended (incorporated by reference from Exhibit
10.4 to Assurant, Inc.s Registration Statement on Form S-1 (File No. 333-109984) and
amendments thereto, originally filed on October 24, 210.4
    Executive Pension and 401(k) Plan (incorporated by reference from Exhibit 10.5 to Assurant,
Inc.s Registration Statement on Form S-1 (File No. 333-109984) and amendments thereto,
originally filed on October 24, 2003).10.5
    Assurant Directors Compensation Plan (incorporated by reference from Exhibit 10.12 to
Assurant, Inc.s Registration Statement on Form S-1/A (File No. 333-109984) and amendments
thereto, originally filed on January 13, 2004).10.6
    Assurant 2004 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.13 to
Assurant, Inc.s Registration Statement on Form S-1/A (File No. 333-109984) and amendments
thereto, originally filed on January 13, 2004).10.7
    Assurant Executive Management Incentive Plan (incorporated by reference from Exhibit 10.16 to
Assurant, Inc.s Registration Statement on Form S-1 (File No. 333-109984) and amendments
thereto, originally filed on October 24, 2003).10.8
    Assurant Appreciation Incentive Rights Plan (incorporated by reference from Exhibit 10.17 to
Assurant, Inc.s Registration Statement on Form S-1 (File No. 333-109984) and amendments
thereto, originally filed on October 24, 2003).10.9
    Investment Plan (incorporated by reference from Exhibit 10.18 to Assurant, Inc.s
Registration Statement on Form S-1 (File No. 333-109984) and amendments thereto, originally
filed on October 24, 2003). 12




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##### Table of Contents



10.10
    Assurant Deferred Compensation Plan (incorporated by reference from Exhibit 10.17 to
Assurant, Inc.s Form 10-K filed March 31, 2005)10.11
    Amendment No. 1 To the Amended and Restated 2004 Employee Stock Purchase Agreement
(incorporated by reference from Exhibit 10.27 to Assurant, Inc.s Form 10-K filed March 31,
2005)10.12
    Amendment No 1. To the Executive Pension and 401K Plan (incorporated by reference from
Exhibit 10.28 to Assurant, Inc.s Form 10-K filed March 31, 2005)10.13
    Amendment No. 2 To the Supplemental Executive Retirement Plan (incorporated by reference
from Exhibit 10.29 to Assurant, Inc.s Form 10-K filed March 31, 2005)24.1
    Power of Attorney.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. 13




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 29, 2005. FIRST FORTIS LIFE INSURANCE COMPANYBy:
    /s/ Lance WilsonName:
    Lance WilsonTitle:
    President and Chief Executive
Officer (Principal Executive
Officer)By:
    /s/ Ranell JacobsonName:
    Ranell JacobsonTitle:
    Treasurer 14




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##### Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the capacities indicated on
March 29, 2005. Signature
    
    Title/s/ Lance Wilson
    
    President and Chief Executive OfficerLance Wilson
    
    (Principal Executive Officer)/s/ Ranell Jacobson
    
    Treasurer and DirectorRanell Jacobson
    
    (Principal Financial Officer)
(Principal Accounting Office)*
    
    DirectorTerry Kryshak*
    
    DirectorBarbara Hege*
    
    DirectorAllen R. Freedman*
    
    DirectorClarence E. Galston*
    
    DirectorDale Edward Gardner*
    
    DirectorLesley G. Silvester*
    
    DirectorEsther L. Nelson
  *By:
    /s/ Douglas R. Lowe
Douglas R. Lowe
Attorney-in-Fact 15




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholder of
First Fortis Life Insurance Company: In our opinion, the
accompanying balance sheets and the related statements of operations,
changes in stockholders equity and cash flows present fairly, in
all material respects, the financial position of First Fortis Life
Insurance Company (the Company), a direct wholly owned subsidiary of
Assurant, Inc. at December 31, 2004 and 2003, and the results of
its operations and its cash flows for each of the three years in the
period ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
of these statements in accordance with standards of the Public
Company Accounting Oversight Board (United States), which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. /s/  PricewaterhouseCoopers  LLP March  31, 2005
Minneapolis, Minnesota F-1




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First Fortis Life Insurance Company
Balance Sheets
At December 31, 2004 and 2003  December 31,2004
    
    
    2003(in thousands except share data)AssetsInvestments:Fixed maturities available for sale, at fair value (amortized
cost - $119,840 in 2004 and $157,032 in 2003)
    
    $
    128,766
    
    
    $
    167,712Equity securities available for sale, at fair value
(cost - $8,514 in 2004 and $9,574 in 2003)
    
    
    8,571
    
    
    
    9,784Commercial mortgage loans on real estate at amortized cost
    
    
    9,125
    
    
    
    3,800Policy loans
    
    
    80
    
    
    
    37Short-term investments
    
    
    4,575
    
    
    
    8,091Other investments
    
    
    
    
    
    
    275Total investments
    
    
    151,117
    
    
    
    189,699Cash and cash equivalents
    
    
    5,360
    
    
    
    1,060Premiums and accounts receivable, net
    
    
    4,858
    
    
    
    2,777Income tax receivable
    
    
    1,250
    
    
    
    Reinsurance recoverables
    
    
    93,607
    
    
    
    100,451Due from affiliates
    
    
    582
    
    
    
    Accrued investment income
    
    
    1,701
    
    
    
    2,185Deferred acquisition costs
    
    
    1,123
    
    
    
    942Deferred income taxes, net
    
    
    1,481
    
    
    
    3,040Goodwill
    
    
    2,038
    
    
    
    2,038Other assets
    
    
    95
    
    
    
    82Assets held in separate accounts
    
    
    32,446
    
    
    
    39,678Total assets
    
    $
    295,658
    
    
    $
    341,952
 See the accompanying notes to the financial statements F-2




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First Fortis Life Insurance Company
Balance Sheets
At December 31, 2004 and 2003  December 31,2004
    
    
    2003(in thousands except share data)LiabilitiesFuture policy benefits and expenses
    
    $
    29,168
    
    
    $
    24,143Unearned premiums
    
    
    20,902
    
    
    
    35,798Claims and benefits payable
    
    
    139,270
    
    
    
    137,233Commissions payable
    
    
    5,001
    
    
    
    3,811Reinsurance balances payable
    
    
    2,509
    
    
    
    1,935Funds held under reinsurance
    
    
    89
    
    
    
    94Deferred gain on disposal of businesses
    
    
    6,492
    
    
    
    8,067Due to affiliates
    
    
    
    
    
    
    2,407Accounts payable and other liabilities
    
    
    8,292
    
    
    
    6,264Tax payable
    
    
    
    
    
    
    1,771Liabilities related to separate accounts
    
    
    32,446
    
    
    
    39,678Total liabilities
    
    
    244,169
    
    
    
    261,201Stockholders equityCommon stock, par value $20 per share, 100,000
shares authorized, issued, and outstanding
    
    
    2,000
    
    
    
    2,000Additional paid-in capital
    
    
    43,006
    
    
    
    43,006Retained earnings
    
    
    644
    
    
    
    28,663Accumulated other comprehensive income
    
    
    5,839
    
    
    
    7,082Total stockholders equity
    
    
    51,489
    
    
    
    80,751Total liabilities and stockholders equity
    
    $
    295,658
    
    
    $
    341,952
 See the accompanying notes to the financial statements F-3




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##### Table of Contents



First Fortis Life Insurance Company
Statements of Operations
Years Ended December 31, 2004, 2003 and 2002  Years Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)RevenuesNet earned premiums and other considerations
    
    $
    65,593
    
    
    $
    69,206
    
    
    $
    74,215Net investment income
    
    
    9,738
    
    
    
    10,315
    
    
    
    11,171Net realized gain (loss) on investments
    
    
    819
    
    
    
    646
    
    
    
    (2,599
    )Amortization of deferred gain on disposal of businesses
    
    
    1,575
    
    
    
    1,896
    
    
    
    2,242Fees and other income
    
    
    305
    
    
    
    306
    
    
    
    368Total revenues
    
    
    78,030
    
    
    
    82,369
    
    
    
    85,397Benefits, losses and expensesPolicyholder benefits
    
    
    42,732
    
    
    
    45,114
    
    
    
    47,151Amortization of deferred acquisition costs
    
    
    247
    
    
    
    774
    
    
    
    2,319Underwriting, general and administrative expenses
    
    
    18,442
    
    
    
    23,237
    
    
    
    23,638Total benefits, losses and expenses
    
    
    61,421
    
    
    
    69,125
    
    
    
    73,108Income before income taxes
    
    
    16,609
    
    
    
    13,244
    
    
    
    12,289Income taxes
    
    
    4,632
    
    
    
    4,507
    
    
    
    4,197Net income
    
    $
    11,977
    
    
    $
    8,737
    
    
    $
    8,092
 See the accompanying notes to the financial statements F-4




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##### Table of Contents



First Fortis Life Insurance Company
Statements of Changes in Stockholders Equity
Years Ended December 31, 2004, 2003 and 2002  AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total(in thousands)Balance, January 1, 2002
    
    $
    2,000
    
    
    $
    43,006
    
    
    $
    12,047
    
    
    $
    2,247
    
    
    $
    59,300Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,092
    
    
    
    
    
    
    
    8,092Net change in unrealized gains on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,681
    
    
    
    3,681Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,773Balance, December 31, 2002
    
    
    2,000
    
    
    
    43,006
    
    
    
    20,139
    
    
    
    5,928
    
    
    
    71,073Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,737
    
    
    
    
    
    
    
    8,737Net change in unrealized gains on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    941
    
    
    
    941Other
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    213
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,678Balance, December 31, 2003
    
    
    2,000
    
    
    
    43,006
    
    
    
    28,663
    
    
    
    7,082
    
    
    
    80,751Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    11,977
    
    
    
    
    
    
    
    11,977Net change in unrealized gains on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (1,239
    )Other
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    (4
    )
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,738Balance, December 31, 2004
    
    $
    2,000
    
    
    $
    43,006
    
    
    $
    644
    
    
    $
    5,839
    
    
    $
    51,489
 See the accompanying notes to the financial statements F-5




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First Fortis Life Insurance Company
Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002  Years Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Operating activitiesNet income
    
    $
    11,977
    
    
    $
    8,737
    
    
    $
    8,092Adjustments to reconcile net income to net cash
provided by operating activities:Change in reinsurance recoverable
    
    
    6,844
    
    
    
    9,677
    
    
    
    (2,075
    )Change in premiums and accounts receivables
    
    
    (2,663
    )
    
    
    1,527
    
    
    
    3,995Change in deferred acquisition costs
    
    
    (181
    )
    
    
    628
    
    
    
    2,190Change in accrued investment income
    
    
    484
    
    
    
    148
    
    
    
    155Change in insurance policy reserves and expenses
    
    
    (7,834
    )
    
    
    (13,537
    )
    
    
    47Change in accounts payable and other liabilities
    
    
    (379
    )
    
    
    716
    
    
    
    (3,897
    )Change in commissions payable
    
    
    1,190
    
    
    
    (37
    )
    
    
    107Change in reinsurance balances payable
    
    
    574
    
    
    
    (872
    )
    
    
    (76
    )Change in funds held under reinsurance
    
    
    (5
    )
    
    
    (167
    )
    
    
    68Amortization of deferred gain on disposal of businesses
    
    
    (1,575
    )
    
    
    (1,896
    )
    
    
    (2,243
    )Change in income taxes
    
    
    (794
    )
    
    
    (83
    )
    
    
    (4,241
    )Net realized (gains)/losses on investments
    
    
    (819
    )
    
    
    (646
    )
    
    
    2,599Other
    
    
    (166
    )
    
    
    18
    
    
    
    (207
    )Net cash provided by operating activities
    
    
    6,653
    
    
    
    4,213
    
    
    
    4,514Investing activitiesSales of:Fixed maturities available for sale
    
    
    57,159
    
    
    
    30,892
    
    
    
    86,092Equity securities available for sale
    
    
    4,376
    
    
    
    2,486
    
    
    
    1,640Other invested assets
    
    
    275
    
    
    
    73
    
    
    
    126Maturities, prepayments, and scheduled redemption of:Fixed maturities available for sale
    
    
    11,214
    
    
    
    22,221
    
    
    
    14,276Purchase of:Fixed maturities available for sale
    
    
    (30,195
    )
    
    
    (43,359
    )
    
    
    (111,100
    )Equity securities available for sale
    
    
    (3,330
    )
    
    
    (8,986
    )
    
    
    (2,096
    )Change in commercial mortgage loans on real estate
    
    
    (5,325
    )
    
    
    (3,800
    )
    
    
    Change in short term investments
    
    
    3,516
    
    
    
    (4,697
    )
    
    
    3,207Change in policy loans
    
    
    (43
    )
    
    
    (13
    )
    
    
    (18
    )Net cash provided by (used in) investing activities
    
    $
    37,647
    
    
    $
    (5,183
    )
    
    $
    (7,873
    )
 See the accompanying notes to the financial statements F-6




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First Fortis Life Insurance Company
Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002  Years Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Financing activitiesDividends paid
    
    $
    (40,000
    )
    
    $
    
    
    
    $
    Net cash used in financing activities
    
    
    (40,000
    )
    
    
    
    
    
    
    Change in cash and cash equivalents
    
    
    4,300
    
    
    
    (970
    )
    
    
    (3,359
    )Cash and cash equivalents at beginning of period
    
    
    1,060
    
    
    
    2,030
    
    
    
    5,389Cash and cash equivalents at end of period
    
    $
    5,360
    
    
    $
    1,060
    
    
    $
    2,030Supplemental schedule of non-cash investing activities:Assets and liabilities transferred in reinsurance transaction (Note 8):Non-cash assets ceded:Other assets
    
    $
    
    
    
    $
    
    
    
    $
    (63
    )Total value of assets ceded
    
    $
    
    
    
    $
    
    
    
    $
    (63
    )Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (32
    )Total liabilities assumed
    
    $
    
    
    
    $
    
    
    
    $
    (32
    )Supplemental information:Income taxes paid
    
    $
    5,428
    
    
    $
    4,544
    
    
    $
    8,455
 See the accompanying notes to the financial statements F-7




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  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 Fortis, Inc., which
itself was an indirect, wholly owned subsidiary of Fortis N.V. of the Netherlands and Fortis SA/NV
of Belgium (collectively, the 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 (the IPO) and retained approximately 35% of its ownership (50,199,130
shares). 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. On January 21, 2005, Fortis owned approximately 36% (50,199,130 shares) of the Assurant, Inc. based
on the number of shares outstanding that day and sold 27,200,000 of those shares in a secondary
offering to the public. Assurant, Inc. did not receive any of the proceeds from the sale of shares
of common stock by Fortis. Fortis received all net proceeds from the sale. Fortis concurrently sold
exchangeable bonds, due January 26, 2008, that are mandatorily exchangeable for their remaining
22,999,130 shares of Assurant, Inc. Fortis may elect, prior to the maturity date of the bonds, a
cash settlement alternative and pay the bondholders an amount of cash equal to the applicable
market value of Assurant, Inc.s common stock. The exchangeable bonds and the shares of the
Assurant, Inc.s common stock into which they are exchangeable have not been and will not be
registered under the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements. 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 and credit products. The Company offers insurance products, including life insurance
policies, annuity contracts, and group life, accident and health insurance policies. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates when recording
transactions resulting from business operations based on information currently available. The most
significant items on the Companys balance sheet that involve accounting estimates and actuarial
determinations are goodwill, reinsurance recoverables, valuation of investments, deferred
acquisition costs (DAC), liabilities for future policy benefits and expenses, claims and benefits
payable and taxes. The accounting estimates and actuarial determinations are sensitive to market
conditions, investment yields, mortality, morbidity, commissions and other acquisition expenses,
and terminations by policyholders. As additional information becomes available or actual amounts
are determinable, the recorded estimates will be revised and reflected in operating results.
Although some variability is inherent in these estimates, the Company believes the amounts provided
are reasonable and adequate. F-8




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  Comprehensive Income Comprehensive income is comprised of net income and other comprehensive income, which includes
unrealized gains and losses on securities classified as available for sale, less deferred income
taxes. Reclassifications Certain prior period amounts have been reclassified to conform to the 2004 presentation. Cash and Cash Equivalents The Company considers cash on hand, all operating cash and working capital cash to be cash
equivalents. These amounts are carried principally at cost, which approximates fair value. Cash
balances are reviewed at the end of each reporting period to determine if negative cash balances
exist. If negative cash balances do exist, the cash accounts are netted with other positive cash
accounts of the same bank providing the right of offset exists between the accounts. If the right
of offset does not exist, the negative cash balances are reclassified to accounts payable. Investments The Companys investment strategy is developed based on many factors including appropriate
insurance asset and liability management, rate of return, maturity, credit risk, tax considerations
and regulatory requirements. Fixed maturities and equity securities are classified as available-for-sale and reported at fair
value. If the fair value is higher than the amortized cost for debt securities or the purchase
cost for equity securities, the excess is an unrealized gain; and if lower than cost, the
difference is an unrealized loss. The net unrealized gains and losses, less deferred income taxes
are reported as included in accumulated other comprehensive income and, accordingly, have no effect
on net income. Commercial mortgage loans on real estate are reported at unpaid balances, adjusted for amortization
of premium or discount, less allowance for losses. The change in the allowance for losses is
recorded as realized gains and losses on investments. Policy loans are reported at unpaid principal balances, which do not exceed the cash surrender
value of the underlying policies. Other investments consist of investments in joint ventures and partnerships. The joint ventures and
partnerships are valued according to the equity method of accounting. Any changes in the fair
value are recorded as net realized gains and losses in the statement of operations. Short-term investments include all investment cash and short maturity investments. These amounts
are carried principally at cost, which approximates fair value. The Company regularly monitors its investment portfolio to determine that investments that may be
other than temporarily impaired are identified in a timely fashion and properly valued, and that
any F-9




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  impairments are charged against earnings in the proper period. The Companys methodology to
identify potential impairments requires professional judgment. Changes in individual security values are monitored on a regular basis in order to identify
potential credit problems. In addition, securities whose market price is equal to 85% or less of
their original purchase price are added to the impairment watch list, which is discussed at monthly
meetings attended by members of the Companys investment, accounting and finance departments. Any
security whose price decrease is deemed other-than-temporary is written down to its then current
market level with the amount of the writedown reflected as a realized loss in the Statement of
Operations for that period. Assessment factors include, but are not limited to, the financial
condition and rating of the issuer, any collateral held and the length of time the market value of
the security has been below cost. Inherently, there are risks and uncertainties involved in making these judgments. Changes in
circumstances and critical assumptions such as a continued weak economy, a more pronounced economic
downturn or unforeseen events which affect one or more companies, industry sectors or countries
could result in additional write downs in future periods for impairments that are deemed to be
other-than-temporary. Realized gains and losses on sales of investments and declines in value judged to be
other-than-temporary are recognized on the specific identification basis. Investment income is recorded as earned net of investment expenses. The Company anticipates prepayments of principal in the calculation of the effective yield for
mortgage-backed securities and structured securities. The majority of the Companys
mortgage-backed securities and structured securities are of high credit quality. Therefore, the
retrospective method is used to adjust the effective yield. Reinsurance Reinsurance recoverables include amounts related to paid benefits and estimated amounts related to
unpaid policy and contract claims, future policyholder benefits and policyholder contract deposits.
The cost of reinsurance is accounted for over the terms of the underlying reinsured policies using
assumptions consistent with those used to account for the policies. Amounts recoverable from
reinsurers are estimated in a manner consistent with claim and claim adjustment expense reserves or
future policy benefits reserves and are reported in the balance sheets. The cost of reinsurance
related to long-duration contracts is accounted for over the life of the underlying reinsured
policies. The ceding of insurance does not discharge the Companys primary liability to insureds.
An estimated allowance for doubtful accounts is recorded on the basis of periodic evaluations of
balances due from reinsurers, reinsurer solvency, managements experience, and current economic
conditions. Deferred Acquisition Costs (DAC) The costs of acquiring new business that vary with and are primarily related to the production of
new business are deferred to the extent that such costs are deemed recoverable from future premiums
or gross profits. Acquisition costs primarily consist of commissions, policy issuance expenses,
premium taxes and certain direct marketing expenses. F-10




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  A premium deficiency is recognized by a charge to the statement of operations as a reduction of DAC
to the extent that future policy premiums, including anticipation of interest income, are not
adequate to recover all DAC and related claims, benefits and expenses. If the premium deficiency
is greater than unamortized DAC, a liability will be accrued for the excess deficiency. Short Duration Contracts Acquisition costs relating to single premium credit insurance contracts are amortized over the term
of the contracts in relation to premiums earned. Acquisition costs relating to monthly pay credit insurance business consist mainly of direct
marketing costs and are deferred and amortized over the estimated average terms of the underlying
contracts. Acquisition costs relating to group term life, group disability and group dental consist primarily
of new business underwriting, field sales support, commissions to agents and brokers, and
compensation to sales representatives. These acquisition costs are front-end loaded; thus they are
deferred and amortized over the estimated terms of the underlying contracts. Long Duration Contracts Acquisition costs on the Fortis Financial Group (FFG) and Long-Term Care (LTC) disposed
businesses were written off when the businesses were sold. Goodwill Goodwill represents the excess of acquisition costs over the net fair values of identifiable assets
acquired and liabilities assumed in a business combination. The Company adopted Statement of
Financial Accounting Standards No. 142 (FAS 142), Goodwill and Other Intangible Assets, as of
January 1, 2002. Pursuant to FAS 142, goodwill is deemed to have an indefinite life and should not
be amortized, but rather tested at least annually for impairment. The goodwill impairment test has
two steps. The first identifies potential impairments by comparing the fair value of a reporting
unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the
carrying amount, goodwill is not impaired and the second step is not required. If the carrying
value exceeds the fair value, the second step calculates the possible impairment loss by comparing
the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than
the carrying amount, a write down is recorded. Prior to the adoption of FAS 142, goodwill was
amortized over 20 years. Upon the adoption of FAS 142, the Company ceased amortizing goodwill. The
measurement of fair value was determined based on a valuation report prepared by an independent
valuation firm. The valuation was based on an evaluation of ranges of future discounted earnings,
public company trading multiples and acquisitions of similar companies. Certain key assumptions
considered include forecasted trends in revenues, operating expenses and effective tax rates. The
Company performs a goodwill impairment test annually and has not recognized an impairment charge
since adoption. The Company performed a January 1, 2005 impairment test during the three months
ended March 31, 2005 and concluded that goodwill was not further impaired. Separate Accounts Assets and liabilities associated with separate accounts relate to premium and annuity
considerations for variable life and annuity products for which the contract-holder, rather than
the Company, bears the F-11




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  investment risk. Separate account assets are reported at fair value. Revenues and expenses related
to the separate account assets and liabilities, to the extent of benefits paid or provided to the
separate account policyholders, are excluded from the amounts reported in the accompanying
consolidated statements of operations. Prior to April 2, 2001,
FFG had issued variable insurance products registered as securities
under the Securities Act of 1933. These products featured fixed
premiums, a minimum death benefit, and policyholder returns linked to
an underlying portfolio of securities. The variable insurance
products issued by FFG have been 100% reinsured with The
Hartford Financial Services Group Inc. (The
Hartford). The balance of reserve ceded for the
variable insurance products issued by FFG was $5,559 and $6,870 as of
December 31, 2004 and 2003, respectively. Income Taxes From January 1, 2002 through December 31, 2002, the Company reported its taxable income in a
separately filed federal income tax return. Beginning January 1, 2003, the Company reports its taxable income in a consolidated federal income
tax return along with other affiliated subsidiaries of Assurant, Inc. Income tax expense or
credits are allocated among the affiliated subsidiaries by applying corporate income tax rates to
taxable income or loss determined on a separate return basis according to a Tax Allocation
Agreement. Current federal income taxes are charged to operations based upon amounts estimated to be payable
or recoverable as a result of taxable operations for the current year. Deferred income taxes are
recognized for temporary differences between the financial reporting basis and income tax basis of
assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods
in which we expect the temporary differences to reverse. The Company is required to establish a
valuation allowance for any portion of the deferred tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets and, therefore, no such valuation allowance has been
established. Other Assets Other assets include prepaid items and intangible assets. Identifiable intangible assets with
finite lives are amortized on a straight-line basis over their estimated useful lives. The Company
tests the intangible assets for impairment whenever circumstances warrant, but at least annually.
If impairment exists, then excess of the unamortized balance over the fair value of the intangible
assets will be charged to earnings at that time. Premiums Short Duration Contracts The Companys short duration contracts are those on which the Company recognizes revenue on a
pro-rata basis over the contract term. The Companys short duration contracts primarily include
group term life, group disability, medical and dental, credit life and disability. Long Duration Contracts Premiums for LTC insurance and traditional life insurance contracts within FFG are recognized as
revenue when due from the policyholder. For universal life insurance and investment-type annuity
contracts within FFG, revenues consist of charges assessed against policy balances. For the FFG
and LTC businesses previously sold, all revenue is ceded to Hartford Life and Annuity Insurance
Company (the Hartford) and John Hancock Life Insurance Company (John Hancock), respectively. F-12




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  Reinsurance Assumed Reinsurance premiums assumed are calculated based upon payments received from ceding companies
together with accrual estimates, which are based on both payments received and in force policy
information received from ceding companies. Any subsequent differences arising on such estimates
are recorded in the period in which they are determined. Fee Income The Company primarily derives income from fees received from providing administrative services. Fee
income is earned when services are performed. Reserves Reserves are established according to GAAP, using generally accepted actuarial methods and are
based on a number of factors. These factors include experience derived from historical claim
payments and actuarial assumptions to arrive at loss development factors. Such assumptions and
other factors include trends, the incidence of incurred claims, the extent to which all claims have
been reported, and internal claims processing charges. The process used in computing reserves
cannot be exact, particularly for liability coverages, since actual claim costs are dependent upon
such complex factors as inflation, changes in doctrines of legal liabilities and damage awards.
The methods of making such estimates and establishing the related liabilities are periodically
reviewed and updated. Short Duration Contracts For short duration contracts, claims and benefits payable reserves are recorded when insured events
occur. The liability is based on the expected ultimate cost of settling the claims. The claims
and benefits payable reserves include (1) case basis reserves for known but unpaid claims as of the
balance sheet date; (2) incurred but not reported (IBNR) reserves for claims where the insured
event has occurred but has not been reported to the Company as of the balance sheet date; and (3)
loss adjustment expense reserves for the expected handling costs of settling the claims. For group disability, the case reserves and the IBNR are calculated based on historical experience
and on assumptions relating to claim severity, frequency, and other factors. These assumptions are
modified as necessary to reflect anticipated trends, with any adjustment being reflected in current
operations. We establish reserves for disability policies in an amount equal to the net present
value of the expected claims future payments. Group long-term disability and group term life
waiver of premium reserves are discounted to the valuation date at the valuation interest rate.
The valuation interest rate is determined by taking into consideration actual and expected earned
rates on our asset portfolio, with adjustments for investment expenses and provisions for adverse
deviation. Group long-term disability and group term life reserve adequacy studies are performed
annually, and morbidity and mortality assumptions are adjusted where appropriate. Unearned premium reserves are maintained for the portion of the premiums on short duration
contracts that is related to the unexpired period of the policy. F-13




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  Long Duration Contracts Future policy benefits and expense reserves on LTC and the traditional life insurance contracts
within FFG are recorded at the present value of future benefits to be paid to policyholders and
related expenses less the present value of the future net premiums. These amounts are estimated
and include assumptions as to the expected investment yield, inflation, mortality, morbidity and
withdrawal rates as well as other assumptions that are based on the Companys experience. These
assumptions reflect anticipated trends and include provisions for possible unfavorable deviations. Future policy benefits and expense reserves for investment-type annuity contracts in FFG consist of
policy account balances before applicable surrender charges and certain deferred policy initiation
fees that are being recognized in income over the terms of the policies. Policy benefits charged
to expense during the period include amounts paid in excess of policy account balances and interest
credited to policy account balances. Changes in the estimated liabilities are charged or credited to operations as the estimates are
revised. Guaranty Fund Assessments There are a number of insurance companies that are currently under regulatory supervision. This
may result in future assessments to the Company by state guaranty fund associations to cover losses
to policyholders of insolvent or rehabilitated companies. These assessments can be partially
recovered through a reduction in future premium taxes in New York. The Company believes it has
adequately provided for the impact of future assessments relating to current insolvencies. Recent Accounting Pronouncements In April 2003, the FASB issued FAS 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (FAS 149). This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities under FAS 133,
Accounting for Derivative Instruments and Hedging Activities. This Statement is effective
prospectively for contracts entered into or modified after June 30, 2003 and prospectively for
hedging relationships designated after June 30, 2003. The adoption of this standard did not have a
material impact on the Companys financial position or results of operations. 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 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. In December 2003, the FASB issued FAS 132 (Revised 2003), Employers Disclosure about Pensions and
Other Postretirement Benefits(FAS 132  Revised 2003). This statement revises employers F-14




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  disclosure about pension plans and other postretirement benefit plans. This statement does not
change the measurement or recognition of those plans required by FAS No. 87, Employers Accounting
for Pensions, No. 88, Employers Accounting for Settlement and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions. This statement retains the disclosure requirements contained in FAS
132, Employers Disclosure about Pensions and Other Postretirement Benefits, which it replaces. It
requires additional disclosure to that found in FAS 132 about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans and was effective for fiscal year ending after December 15, 2003. The
Companys Parent fully adopted this statement. 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 Financial
Accounting Standard 115 (FAS 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 financial statements for fiscal years ending after December 15,
2003. The Company adopted the disclosure requirements of EITF 03-1 at December 31, 2003. The
guidance for evaluating whether an investment is other than temporarily impaired is effective for
reporting periods beginning after June 15, 2004; however, the Financial Accounting Standards Board
(FASB) has issued two new proposed Staff Positions. EITF 03-1a, which would defer the June 15,
2004 effective date of the requirement to record impairment losses caused by the effect of
increases in interest rates or sector spreads on debt securities subject to paragraph 16 of EITF
03-1 until further guidance is provided and EITF 03-1b, which would exclude minor impairments from
the requirement. Both Staff Positions are still in the comment period phase. The Company is
continuing to evaluate the impact of adoption of this issue given the fact that portions of the
issue are still in the comment period. The Company currently follows the guidance on other than
temporary impairments provided by Staff Accounting Bulletin (SAB) 59, Accounting for Noncurrent
Marketable Equity Securities. In May 2004, the 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), which provides guidance on accounting for the effects of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces (1) a prescription
drug benefit under Medicare and (2) a federal subsidy to sponsors of retiree health care benefit
plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The FASB
concluded that the subsidy should be treated as an actuarial gain pursuant to FAS 106, Employers
Accounting for Postretirement Benefits Other Than Pensions. FAS 106-2 is effective for the first
interim period or annual period beginning after June 15, 2004. Since the effects of the Act were
not considered a significant event, the effects of the Act were incorporated in the next
measurement of plan assets and obligations, December 31, 2004. The Company believes that it will be
entitled to the subsidy. Therefore, the Company adopted FAS 106-2 as of December 31, 2004. The
adoption of FAS 106-2 did not have a material effect on either the Companys accumulated
postretirement benefit obligation or its financial position or results of operations. F-15




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  3. Investments The amortized cost and fair value of fixed maturities and equity securities as of December 31, 2004
were as follows: Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed maturitiesBonds:United States Government and government
agencies and authorities
    
    $
    21,001
    
    
    $
    698
    
    
    $
    (22
    )
    
    
    21,677States, municipalities and political subdivisions
    
    
    2,777
    
    
    
    276
    
    
    
    
    
    
    
    3,053Foreign governments
    
    
    2,842
    
    
    
    209
    
    
    
    (5
    )
    
    
    3,046Public utilities
    
    
    16,376
    
    
    
    1,670
    
    
    
    (1
    )
    
    
    18,045All other corporate bonds
    
    
    76,844
    
    
    
    6,172
    
    
    
    (71
    )
    
    
    82,945Total fixed maturities
    
    $
    119,840
    
    
    $
    9,025
    
    
    $
    (99
    )
    
    $
    128,766Equity securitiesNon-redeemable preferred stocks:Non-sinking fund preferred stocks
    
    
    8,514
    
    
    
    142
    
    
    
    (85
    )
    
    
    8,571Total equity securities
    
    $
    8,514
    
    
    $
    142
    
    
    $
    (85
    )
    
    $
    8,571
 F-16




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  The amortized cost and fair value of fixed maturities as of December 31, 2003 were as follows: Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed
maturities
Bonds:United States Government and government
agencies and authorities
    
    $
    27,211
    
    
    $
    861
    
    
    $
    (18
    )
    
    
    28,054States, municipalities and political subdivisions
    
    
    2,775
    
    
    
    246
    
    
    
    
    
    
    
    3,021Foreign governments
    
    
    5,349
    
    
    
    396
    
    
    
    (23
    )
    
    
    5,722Public utilities
    
    
    20,239
    
    
    
    2,047
    
    
    
    
    
    
    
    22,286All other corporate bonds
    
    
    101,458
    
    
    
    7,226
    
    
    
    (55
    )
    
    
    108,629Total fixed maturities
    
    $
    157,032
    
    
    $
    10,776
    
    
    $
    (96
    )
    
    $
    167,712Equity
securities
Non-redeemable preferred stocks:Non-sinking fund preferred stocks
    
    $
    9,574
    
    
    $
    256
    
    
    $
    (46
    )
    
    $
    9,784Total equity securities
    
    $
    9,574
    
    
    $
    256
    
    
    $
    (46
    )
    
    $
    9,784
 The amortized cost and fair value of fixed maturities at December 31, 2004 by contractual
maturity are shown below. Expected maturities may differ from contractual maturities because
issuers of the securities may have the right to call or prepay obligations with or without call or
prepayment penalties. AmortizedCost
    
    
    Fair ValueDue in one year or less
    
    $
    9,053
    
    
    $
    9,197Due after one year through five years
    
    
    16,834
    
    
    
    18,182Due after five years through ten years
    
    
    29,523
    
    
    
    31,769Due after ten years
    
    
    36,100
    
    
    
    40,884Total
    
    
    91,510
    
    
    
    100,032Mortgage and asset backed securities
    
    
    28,330
    
    
    
    28,734Total
    
    $
    119,840
    
    
    $
    128,766
 Gross gains of $1,474, $1,247 and $2,887 and gross losses of $427, $560 and $4,331 were
realized on sales of fixed maturities and equity securities in 2004, 2003 and 2002, respectively. F-17




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  Major categories of net investment income were as follows: Years Ended December 31,2004
    
    
    2003
    
    
    2002Fixed maturities
    
    $
    8,697
    
    
    $
    9,869
    
    
    $
    11,104Equity securities
    
    
    719
    
    
    
    528
    
    
    
    280Commercial mortgage loans on real estate
    
    
    337
    
    
    
    
    
    
    
    Policy loans
    
    
    4
    
    
    
    3
    
    
    
    2Short-term investments
    
    
    98
    
    
    
    61
    
    
    
    112Other investments
    
    
    5
    
    
    
    (7
    )
    
    
    (46
    )Investment expenses
    
    
    (122
    )
    
    
    (139
    )
    
    
    (281
    )Net investment income
    
    $
    9,738
    
    
    $
    10,315
    
    
    $
    11,171
 The net realized gains (losses) recorded in income for 2004, 2003 and 2002 are summarized as
follows: Years Ended December 31,2004
    
    
    2003
    
    
    2002Fixed maturities
    
    $
    1,060
    
    
    $
    628
    
    
    $
    (2,489
    )Equity securities
    
    
    (13
    )
    
    
    21
    
    
    
    (32
    )Total marketable securities
    
    
    1,047
    
    
    
    649
    
    
    
    (2,521
    )Other
    
    
    (228
    )
    
    
    (3
    )
    
    
    (78
    )Total
    
    $
    819
    
    
    $
    646
    
    
    $
    (2,599
    )
 The Company recorded $0, $38 and $1,077 of pre-tax realized losses in 2004, 2003 and 2002,
respectively, associated with other-than-temporary declines in value of available for sale
securities. F-18




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First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  The investment category and duration of the Companys gross unrealized losses on fixed
maturities and equity securities at December 31, 2004 were as follows: Less than 12 months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesFixed maturitiesBonds:United States Government and government
agencies and authorities
    
    $
    4,985
    
    
    $
    (22
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,985
    
    
    $
    (22
    )States, municipalities and political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign governments
    
    
    533
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    533
    
    
    
    (5
    )Public utilities
    
    
    66
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    (1
    )All other corporate bonds
    
    
    6,199
    
    
    
    (45
    )
    
    
    637
    
    
    
    (26
    )
    
    
    6,836
    
    
    
    (71
    )Total fixed maturities
    
    $
    11,783
    
    
    $
    (73
    )
    
    $
    637
    
    
    $
    (26
    )
    
    $
    12,420
    
    
    $
    (99
    )Equity securitiesCommon stocks:Public utilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Banks, trusts and insurance companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Industrial, miscellaneous and all other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-redeemable preferred stocks:Non-sinking fund preferred stocks
    
    
    2,514
    
    
    
    (54
    )
    
    
    297
    
    
    
    (31
    )
    
    
    2,811
    
    
    
    (85
    )Total equity securities
    
    $
    2,514
    
    
    $
    (54
    )
    
    $
    297
    
    
    $
    (31
    )
    
    $
    2,811
    
    
    $
    (85
    )
 The total unrealized loss represents less than 2% of the aggregate fair value of the related
securities. Approximately 86% of these securities in an unrealized loss position have been in a
continuous loss position for less than twelve months. The total unrealized losses on securities
that were in a continuous unrealized loss position for longer than six months but less than 12
months were approximately $15, with no security with a book value greater than $1,000 having a
market value below 99% of book value. As part of the Companys ongoing monitor ing process, the
Company regularly reviews its investment portfolio to ensure that investments that may be other
than temporarily impaired are identified on a timely basis and that any impairment is charged
against earnings in the proper period. The Company has reviewed these securities and concluded
that there were no additional other than temporary impairments as of December 31, 2004. Due to
issuers continued satisfaction of the securities obligations in accordance with their contractual
terms and their continued expectations to do so, as well as the Companys evaluation of the fundamentals of the issuers
financial condition, the Company believes that the securities in an unrealized loss status are not
impaired and intends to hold them until recovery. The Company has made commercial mortage loans, collaterized by the underlying real estate, on
properties located in the State of New York, Minnesota, and Pennsylvania. A potential loss reserve
based on historical data adjusted for current expectations is maintained and is typically between
1.25% and 2.25% of commercial mortgage loans on real estate. As of December 31, 2004, the reserve
was approximately 2.0% of the unpaid principal of our commercial mortgage loans, or $200. The Company had fixed maturities carried at $959 and $993 at December 31, 2004 and 2003,
respectively, on deposit with various governmental authorities as required by law. F-19




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  4. Income Taxes The Company is subject to U.S. taxes. Starting in 2003, it is part of the U.S. consolidated
federal income tax return with its parent, Assurant, Inc. For 2002, it filed a separate U.S.
federal tax return. Information about current and deferred tax expense follows: Years Ended December 31,2004
    
    
    2003
    
    
    2002Current expense:Federal
    
    $
    2,406
    
    
    $
    3,837
    
    
    $
    4,548Foreign
    
    
    
    
    
    
    
    
    
    
    Total current expense
    
    
    2,406
    
    
    
    3,837
    
    
    
    4,548Deferred expense (benefit)Federal
    
    
    2,226
    
    
    
    670
    
    
    
    (351
    )Foreign
    
    
    
    
    
    
    
    
    
    
    Total deferred expense (benefit)
    
    
    2,226
    
    
    
    670
    
    
    
    (351
    )Total income tax expense
    
    $
    4,632
    
    
    $
    4,507
    
    
    $
    4,197
 A reconciliation of the federal income tax rate to the Companys effective income tax rate
follows: December 31,2004
    
    
    2003
    
    
    2002Federal income tax rate:
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Reconciling items:Tax exempt interest
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.3
    )Dividends received deduction
    
    
    (0.4
    )
    
    
    (0.7
    )
    
    
    Permanent nondeductible expenses
    
    
    
    
    
    
    0.2
    
    
    
    0.1Change in reserve for prior year taxes
    
    
    (6.0
    )
    
    
    
    
    
    
    Other
    
    
    (0.4
    )
    
    
    (0.3
    )
    
    
    (0.6
    )Effective income tax rate:
    
    
    27.9
    %
    
    
    34.0
    %
    
    
    34.2
    %
 F-20




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  The tax effects of temporary differences that result in significant deferred tax assets and
deferred tax liabilities are as follows: December 31,2004
    
    
    2003Deferred tax assets:Policyholder and separate account reserves
    
    $
    390
    
    
    $
    271Accrued liabilities
    
    
    111
    
    
    
    865Deferred acquisition costs
    
    
    1,300
    
    
    
    1,442Deferred gains on reinsurance
    
    
    2,272
    
    
    
    2,857Other assets
    
    
    570
    
    
    
    1,417Gross deferred tax assets
    
    
    4,643
    
    
    
    6,852Deferred tax liabilities:Investment adjustment
    
    
    18
    
    
    
    Unrealized gains on fixed maturities and equities
    
    
    3,144
    
    
    
    3,812Gross deferred tax liabilities
    
    
    3,162
    
    
    
    3,812Net deferred income tax asset
    
    $
    1,481
    
    
    $
    3,040
 5. Stockholders Equity The Board of Directors of the Company has authorized 100,000 shares of common stock with a stated
value of $20 per share. All the shares are issued and outstanding as of December 31, 2004 and 2003.
All the outstanding shares at December 31, 2004 are owned by Assurant, Inc. (see Note 1). The
Company paid dividends of $40,000, $0, and $0 at December 31, 2004, 2003 and 2002, respectively. The maximum amount of dividends which can be paid by the State of New York insurance companies to
shareholders without prior approval of the Insurance Commissioner is subject to restrictions
relating to statutory surplus (see Note 6). 6. Statutory Information The Company prepares its statutory-basis financial statements in accordance with accounting
practices prescribed or permitted by the Department of Insurance of the State of New York.
Prescribed statutory accounting practices (SAP) includes the Accounting Practices and Procedures
Manual of the National Association of Insurance Commissioners (NAIC) as well as state laws,
regulations and administrative rules. The principal differences between SAP and GAAP are: 1) policy acquisition costs are expensed as
incurred under SAP, but are deferred and amortized under GAAP; 2) amounts collected from holders of
universal life-type and annuity products are recognized as premiums when collected under SAP, but
are initially recorded as contract deposits under GAAP, with cost of insurance recognized as
revenue when assessed and other contract charges recognized over the periods for which services are
provided; 3) the classification and carrying amounts of investments in certain securities are
different under SAP than under GAAP; 4) the criteria for providing asset valuation allowances, and
the methodologies used to determine the amounts thereof, are different under SAP than under GAAP;
5) the timing of establishing certain reserves, and the methodologies used to determine the amounts
thereof, are different under SAP than under GAAP; and 6) certain assets are not admitted for
purposes of determining surplus under SAP. F-21




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  Reconciliations of net income and stockholders equity on the basis of statutory accounting
to the related amounts presented in the accompanying statements were as follows: Net Income
    
    
    Stockholder's Equity2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003Based on statutory accounting practices
    
    $
    11,088
    
    
    $
    10,190
    
    
    $
    8,770
    
    
    $
    43,039
    
    
    $
    73,599Deferred policy acquisition costs
    
    
    181
    
    
    
    (628
    )
    
    
    (2,190
    )
    
    
    1,123
    
    
    
    942Deferred and uncollected premiums
    
    
    1,006
    
    
    
    (932
    )
    
    
    156
    
    
    
    104
    
    
    
    33Policy reserves
    
    
    591
    
    
    
    (798
    )
    
    
    361
    
    
    
    2,002
    
    
    
    398Investment valuation difference
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,636
    
    
    
    10,726Commissions
    
    
    99
    
    
    
    426
    
    
    
    (1,848
    )
    
    
    (134
    )
    
    
    (233
    )Deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,305
    )
    
    
    (1,424
    )Deferred gain on disposal of business
    
    
    320
    
    
    
    1,896
    
    
    
    2,242
    
    
    
    (6,492
    )
    
    
    (8,067
    )Unearned ceding fee
    
    
    612
    
    
    
    
    
    
    
    
    
    
    
    (827
    )
    
    
    (1,439
    )Amounts payable reinsurance ceded
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    454Funds held under reinsurance treaty
unauthorized reinsurer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Realized gains (losses) on investments
    
    
    497
    
    
    
    547
    
    
    
    (443
    )
    
    
    
    
    
    
    Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,038
    
    
    
    2,038Income taxes
    
    
    (2,226
    )
    
    
    (339
    )
    
    
    351
    
    
    
    1,481
    
    
    
    3,040Pension
    
    
    (154
    )
    
    
    (61
    )
    
    
    153
    
    
    
    (300
    )
    
    
    (106
    )Amortization of IMR
    
    
    (37
    )
    
    
    (5
    )
    
    
    (45
    )
    
    
    
    
    
    
    Reinsurance in unauthorized companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    42Interest maintenance reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    569
    
    
    
    Asset valuation reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,182
    
    
    
    908Agents balances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    23Other
    
    
    
    
    
    
    (1,559
    )
    
    
    585
    
    
    
    246
    
    
    
    (183
    )Based on generally accepted accounting
principles
    
    $
    11,977
    
    
    $
    8,737
    
    
    $
    8,092
    
    
    $
    51,489
    
    
    $
    80,751
 Insurance enterprises are required by state insurance departments to adhere to minimum
risk-based capital (RBC) requirements developed by the NAIC. The Company exceeds minimum RBC
requirements. Per Section 4207 of New York Insurance Laws, dividends may be paid by domestic stock
life insurance companies upon receiving approval from the Superintendent of Insurance 30 days prior
to declaration. The payment of dividends in excess of a certain amount (i.e., extraordinary
dividends) must be approved by the Department of Insurance, in the state of New York. Ordinary
dividends are limited to the lesser of (i) 10% of the statutory surplus as of the end of the prior
year or (ii) 100% of adjusted net investment income of the same period upon approval of the New
York Department of Insurance. If insurance regulators determine that payment of an ordinary
dividend or any other payments by the Companys insurance subsidiaries to the Company (such as
payments under a tax sharing agreement or payments for employee or other services) would be adverse
to policyholders or creditors, the regulators may block such payments that would otherwise be
permitted without prior approval. The Company entered into an agreement with the New York Insurance
Department in connection with the merger of BALAC in 2001, pursuant to which the Company agreed not
to pay any dividends until fiscal year 2004. No assurance can be given that there will not be further regulatory actions restricting the ability of the
Companys insurance subsidiaries to pay dividends. F-22




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  7. Reinsurance In the ordinary course of business, the Company is involved in both the assumption and cession of
reinsurance with non-affiliated companies. The following table provides details of the reinsurance
recoverables balance for the years ended December 31: 2004
    
    
    2003Ceded future policy holder benefits and expense
    
    $
    29,085
    
    
    $
    24,051Ceded unearned premium
    
    
    18,139
    
    
    
    30,120Ceded claims and benefits payable
    
    
    44,291
    
    
    
    44,621Ceded paid losses
    
    
    2,092
    
    
    
    1,659Total
    
    $
    93,607
    
    
    $
    100,451
 The changes in direct premiums and premiums ceded were as follows: Years Ended December 31,2004
    
    
    2003
    
    
    2002Long
    
    
    Short
    
    
    
    
    
    
    Long
    
    
    Short
    
    
    
    
    
    
    Long
    
    
    ShortDuration
    
    
    Duration
    
    
    Total
    
    
    Duration
    
    
    Duration
    
    
    Total
    
    
    Duration
    
    
    Duration
    
    
    TotalGross earnedPremiums and
other
considerations
    
    $
    10,930
    
    
    $
    79,285
    
    
    $
    90,215
    
    
    $
    11,442
    
    
    $
    97,379
    
    
    $
    108,821
    
    
    $
    10,618
    
    
    $
    119,369
    
    
    $
    129,987Premiums assumed
    
    
    
    
    
    
    13,174
    
    
    
    13,174
    
    
    
    
    
    
    
    6,513
    
    
    
    6,513
    
    
    
    
    
    
    
    2,100
    
    
    
    2,100Premiums ceded
    
    
    (10,930
    )
    
    
    (26,866
    )
    
    
    (37,796
    )
    
    
    (11,442
    )
    
    
    (34,686
    )
    
    
    (46,128
    )
    
    
    (10,618
    )
    
    
    (47,254
    )
    
    
    (57,872
    )Net earned premiums
and other
considerations
    
    $
    
    
    
    $
    65,593
    
    
    $
    65,593
    
    
    $
    
    
    
    $
    69,206
    
    
    $
    69,206
    
    
    $
    
    
    
    $
    74,215
    
    
    $
    74,215Gross policyholderBenefits
    
    $
    19,628
    
    
    $
    46,939
    
    
    $
    66,567
    
    
    $
    22,637
    
    
    $
    61,514
    
    
    $
    84,151
    
    
    $
    18,217
    
    
    $
    81,827
    
    
    $
    100,044Benefits assumed
    
    
    
    
    
    
    15,304
    
    
    
    15,304
    
    
    
    
    
    
    
    6,785
    
    
    
    6,785
    
    
    
    
    
    
    
    1,323
    
    
    
    1,323Benefits ceded
    
    
    (19,619
    )
    
    
    (19,520
    )
    
    
    (39,139
    )
    
    
    (22,628
    )
    
    
    (23,194
    )
    
    
    (45,822
    )
    
    
    (18,209
    )
    
    
    (36,007
    )
    
    
    (54,216
    )Net policyholderBenefits
    
    $
    9
    
    
    $
    42,723
    
    
    $
    42,732
    
    
    $
    9
    
    
    $
    45,105
    
    
    $
    45,114
    
    
    $
    8
    
    
    $
    47,143
    
    
    $
    47,151
 The Company utilizes ceded reinsurance for loss protection and capital management and
business divestitures. Loss Protection and Capital Management As part of the Companys overall risk and capacity management strategy, the Company purchases
reinsurance for certain risks underwritten by the Company, including significant individual or
catastrophic claims, and to free up capital to enable the Company to write additional business. Under indemnity reinsurance transactions in which the Company is the ceding insurer, the Company
remains liable for policy claims if the assuming company fails to meet its obligations. To limit
this risk, F-23




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  the Company has control procedures in place to evaluate the financial condition of
reinsurers and to monitor the concentration of credit risk to minimize this exposure. The
selection of reinsurance companies is based on criteria related to solvency and reliability and, to
a lesser degree, diversification as well as on developing strong relationships with the Companys
reinsurers for the sharing of risks. Business Divestitures The Company has used reinsurance to exit certain businesses. Assets backing ceded liabilities
related to this business are held in trust for the benefit of the Company and are reflected in the
Companys balance sheet. In 2001, the Company entered into a reinsurance agreement with the Hartford for the sale of its FFG
division. The reinsurance recoverable from the Hartford was $5,559 and $6,870 as of December 31,
2004 and 2003, respectively. The Company would be responsible to administer this business in the
event of a default by reinsurers. In addition, under the reinsurance agreement, the Hartford is
obligated to contribute funds to increase the value of the separate account assets relating to
modified guaranteed annuity business sold if such value declines below the value of the associated
liabilities. If the Hartford fails to fulfill these obligations, the Company will be obligated to
make these payments. In 2000, the Company divested its LTC operations to John Hancock. Reinsurance recoverable from John
Hancock was $28,862 and $21,046 as of December 31, 2004 and 2003, respectively. 8. Reserves The following table provides reserve information by major lines of business as of: December 31, 2004
    
    
    December 31, 2003Future Policy
    
    
    
    
    
    
    Claims and
    
    
    Future Policy
    
    
    Claims andBenefits and
    
    
    Unearned
    
    
    Benefits
    
    
    Benefits and
    
    
    Unearned
    
    
    BenefitsExpenses
    
    
    Premiums
    
    
    Payable
    
    
    Expenses
    
    
    Premiums
    
    
    PayableLong Duration Contracts:FFG and other disposed
businesses
    
    $
    29,168
    
    
    $
    2,648
    
    
    $
    2,689
    
    
    $
    24,143
    
    
    $
    2,694
    
    
    $
    1,171Short Duration Contracts:Group term life
    
    
    
    
    
    
    103
    
    
    
    20,045
    
    
    
    
    
    
    
    125
    
    
    
    20,936Group disability
    
    
    
    
    
    
    129
    
    
    
    92,641
    
    
    
    
    
    
    
    110
    
    
    
    85,956Medical
    
    
    
    
    
    
    6
    
    
    
    2,144
    
    
    
    
    
    
    
    8
    
    
    
    1,884Dental
    
    
    
    
    
    
    95
    
    
    
    1,939
    
    
    
    
    
    
    
    111
    
    
    
    1,858Credit Life and Disability
    
    
    
    
    
    
    17,921
    
    
    
    19,389
    
    
    
    
    
    
    
    30,628
    
    
    
    24,608Other
    
    
    
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    2,122
    
    
    
    820Total
    
    $
    29,168
    
    
    $
    20,902
    
    
    $
    139,270
    
    
    $
    24,143
    
    
    $
    35,798
    
    
    $
    137,233
 The Companys short duration contract group disability category includes short and long term
disability products. Claims and benefits payable for long-term disability have been discounted at
5.25%. The December 31, 2004 and 2003 liabilities include $92,254 and $85,491, respectively of
such reserves. The amount of discounts deducted from outstanding reserves as of December 31, 2004
and 2003 are $20,747 and $20,477 respectively. F-24




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  9. Fair Value Disclosures Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financia l
Instruments(FAS 107) requires disclosure of fair value information about financial instruments,
as defined therein, for which it is practicable to estimate such fair value. These financial
instruments may or may not be recognized in the balance sheets. In the measurement of the fair
value of certain financial instruments, if quoted market prices were not available other valuation
techniques were utilized. These derived fair value estimates are significantly affected by the
assumptions used. Additionally, FAS 107 excludes certain financial instruments including those
related to insurance contracts. In estimating the fair value of the financial instruments presented, the Company used the following
methods and assumptions: Cash, cash equivalents and short-term investments: the carrying amount
reported approximates fair value because of the short maturity of the instruments. Fixed maturity securities: the fair value for fixed maturity securities is based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments. Equity securities: fair value of equity securities and non-sinking fund preferred stocks is based
upon quoted market prices. Commercial mortgage loans and policy loans: the fair values of mortgage loans are estimated using
discounted cash flow analyses, based on interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Mortgage loans with similar characteristics are aggregated
for purposes of the calculations. The carrying amounts of policy loans are reported in the balance
sheets at amortized cost, which approximates fair value. Other investments: the fair values of joint ventures are calculated based on fair market value
appraisals. The carrying amounts of the remaining other investments approximate fair value. Policy reserves under investment products: the fair values for the Companys policy reserves under
the investment products are determined using cash surrender value. Separate account assets and liabilities: separate account assets and liabilities are reported at
their estimated fair values in the balance sheet. F-25




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  December 31, 2004
    
    
    December 31, 2003Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    5,360
    
    
    $
    5,360
    
    
    $
    1,060
    
    
    $
    1,060Fixed maturities
    
    
    128,766
    
    
    
    128,766
    
    
    
    167,712
    
    
    
    167,712Equity securities
    
    
    8,571
    
    
    
    8,571
    
    
    
    9,784
    
    
    
    9,784Commercial mortgage loans on real estate
    
    
    9,125
    
    
    
    9,627
    
    
    
    3,800
    
    
    
    3,800Policy loans
    
    
    80
    
    
    
    80
    
    
    
    37
    
    
    
    37Short-term investments
    
    
    4,575
    
    
    
    4,575
    
    
    
    8,091
    
    
    
    8,091Other investments
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    275Assets held in separate accounts
    
    
    32,446
    
    
    
    32,446
    
    
    
    39,678
    
    
    
    39,678Financial liabilitiesPolicy reserves under investment products(Individual and group annuities, subject to
discretionary withdrawal)
    
    $
    5,286
    
    
    $
    5,177
    
    
    $
    6,527
    
    
    $
    6,346Liabilities related to separate accounts
    
    
    32,446
    
    
    
    32,446
    
    
    
    39,678
    
    
    
    39,678
 The fair value of the Companys liabilities for insurance contracts other than investment-type
contracts are not required to be disclosed. However, the fair values of liabilities under all
insurance contracts are taken into consideration in the Companys overall management of interest
rate risk, such that the Companys exposure to changing interest rates is minimized through the
matching of investment maturities with amounts due under insurance contracts. 10. Retirement and Other Employee Benefits The Company is a wholly-owned subsidiary of Assurant, Inc., which sponsors a defined benefit
pension plan and certain other post retirement benefits covering employees and certain agents who
meet eligibility requirements as to age and length of service. Plan assets of the defined benefit
plans are not specifically identified by each participating subsidiary. Therefore, a breakdown of
plan assets is not reflected in these financial statements. The Company has no legal obligation for
benefits under these plans. The benefits are based on years of service and career compensation.
Assurants pension plan funding policy is to contribute annually the maximum amount that can be
deducted for federal income tax purposes, and to charge each subsidiary an allocable amount based
on its employee census. Pension cost allocated to the Company amounted to $108, $61 and $153 for
2004, 2003 and 2002, respectively. The Company has a contributory profit sharing plan, sponsored by Assurant, covering employees and
certain agents who meet eligibility requirements as to age and length of service. Benefits are
payable to participants on retirement or disability and to the beneficiaries of participants in the
event of death. For employees hired on or before December 31, 2000, the first 3% of an employees
contribution is matched 200% by the Company. The second 2% is matched 50% by the Company. For
employees hired after December 31, 2000, the first 3% of an employees contribution is matched 100%
by the Company. The second 2% is matched 50% by the Company. The amount expensed was approximately
$34, $44 and $70 for 2004, 2003 and 2002, respectively. With respect to retirement benefits, the Company participates in other health care and life
insurance benefit plans (postretirement benefits) for retired employees, sponsored by Assurant.
Health care benefits, either through an Assurant sponsored retiree pla n for retirees under age 65
or through a cost F-26




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  offset for individually purchased Medigap policies for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with 10 years or more
service. Life insurance, on a retiree pay all basis, is available to those who retire on or after
January 1, 1993. During 2004, 2003, and 2002 the Company incurred expenses related to retirement
benefits of $37, $0 and $0, respectively. 11. Deferred Policy Acquisition Costs Information regarding deferred policy acquisition costs follows: December 31,2004
    
    
    2003
    
    
    2002Beginning Balance
    
    $
    942
    
    
    $
    1,570
    
    
    $
    3,760Costs deferred
    
    
    428
    
    
    
    146
    
    
    
    129Amortization
    
    
    (247
    )
    
    
    (774
    )
    
    
    (2,319
    )Ending Balance
    
    $
    1,123
    
    
    $
    942
    
    
    $
    1,570
 12. Goodwill Information regarding goodwill follows: Goodwill for the Year EndedDecember 31,2004
    
    
    2003
    
    
    2002Beginning Balance
    
    $
    2,038
    
    
    $
    1,971
    
    
    $
    1,949Acquistions
    
    
    
    
    
    
    67
    
    
    
    22Ending Balance
    
    $
    2,038
    
    
    $
    2,038
    
    
    $
    1,971
 13. Related Party Transactions The Company received various services from Assurant. These services include assistance in benefit
plan administration, corporate insurance, accounting, tax, auditing, investment, information
systems, actuarial and other administrative functions. The fees paid for these services for years
ended December 31, 2004, 2003 and 2002 were $4,192, $4,236 and $3,474, respectively. Administrative expenses allocated for the Company may be greater or less than the expenses that
would be incurred if the Company were operating as a separate company. The Company cedes group liability business to its affiliate, Fortis Benefits Insurance Company
(Fortis Benefits). The Company has ceded $6,526, $5,847 and $6,705 of premium to Fortis Benefits in
2004, 2003 and 2002, respectively. The Company has ceded $23,533 and $22,096 of reserves in 2004
and 2003, respectively, to Fortis Benefits. F-27




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##### Table of Contents



First Fortis Life Insurance Company
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(In thousands except share data)  14. Commitments and Contingencies The Company lease office space and equipment under operating lease arrangements. Certain
facility leases contain escalation clauses based on increases in the lessors operating expenses.
At December 31, 2004, the aggregate future minimum lease payment under operating lease agreements
that have initial or non-cancelable terms in excess of one year are: 2005
    
    
    6042006
    
    
    5212007
    
    
    3482008
    
    
    3482009 and thereafter
    
    
    Total minimum future lease payments
    
    $
    1,821
 Rent expense was $418, $492 and $652 for 2004, 2003 and 2002 respectively. 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 business, financial condition or results of operations. 15. Subsequent Events.


     On
March 14, 2005 the Company was notified by the Insurance Department of the State of New York that the Company is entitled to an estimated
refund of approximately $2,788 as a result of our participation in a Specified Medical Condition Pool under
 regulations mandating community rated medical coverage for high-risk individuals. It is anticipated that the disbursement will be made by
July 30, 2005. The Company has not recorded any amounts in the financials statements as a result of this anticipated disbursement. F-28