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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
 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 033-37576
 UNION SECURITY INSURANCE COMPANY
 (Exact name of registrant as specified in its charter)
 IOWA
    
    81-0170040(State or Other Jurisdiction
of Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 729 INSURANCE EXCHANGE BUILDING
DES MOINES, IOWA
    
    50309(Address of Principal Executive Offices)
    
    (Zip Code)
 (651) 361-4000
 FORTIS BENEFITS INSURANCE COMPANY
   þ o
  o þ
  o þ




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UNION SECURITY INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
 TABLE OF CONTENTS
 Item
    
    
    
    
    PageNumber
    
    
    
    
    NumberPART IFINANCIAL INFORMATION1.
    
    FINANCIAL STATEMENTS
    
    
    2Union Security Insurance Company Consolidated Balance Sheets at
September 30, 2005 (Unaudited) and December 31, 2004
    
    
    2Union Security Insurance Company Consolidated Statements of Operations for the
three and nine months ended September 30, 2005 and 2004 (Unaudited)
    
    
    4Union Security Insurance Company Consolidated Statement of Changes in
Stockholders Equity from December 31, 2004 to September 30, 2005 (Unaudited)
    
    
    5Union Security Insurance Company Consolidated Statements of Cash Flows
for the nine months ended September 30, 2005 and 2004 (Unaudited)
    
    
    6Union Security Insurance Company Notes to the Consolidated Financial Statements
for the nine months ended September 30, 2005 and 2004 (Unaudited)
    
    
    72.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    103.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK *
    
    
    124.
    
    CONTROLS AND PROCEDURES
    
    
    12PART IIOTHER INFORMATION2.
    
    UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS*
    
    
    133.
    
    DEFAULTS UPON SENIOR SECURITIES *
    
    
    134.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS *
    
    
    135.
    
    OTHER INFORMATION
    
    
    136.
    
    EXHIBITS
    
    
    13SIGNATURES
    
    
    14EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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Item 1. FINANCIAL STATEMENTS 
 Union Security Insurance Company
Consolidated Balance Sheets
 September 30,
    
    
    December 31,2005
    
    
    2004(in thousands except number of shares)AssetsInvestments:Fixed maturities available for sale, at fair value (amortized
cost  $3,360,106 in 2005 and $3,298,900 in 2004)
    
    $
    3,554,276
    
    
    $
    3,543,790Equity securities available for sale, at fair value
(cost  $317,498 in 2005 and $295,021 in 2004)
    
    
    321,406
    
    
    
    305,448Commercial mortgage loans on real estate at amortized cost
    
    
    720,419
    
    
    
    695,921Policy loans
    
    
    9,842
    
    
    
    9,956Short-term investments
    
    
    41,479
    
    
    
    47,989Collateral held under securities lending
    
    
    313,759
    
    
    
    332,276Other investments
    
    
    54,571
    
    
    
    49,020Total investments
    
    
    5,015,752
    
    
    
    4,984,400Cash and cash equivalents
    
    
    23,947
    
    
    
    43,362Premiums and accounts receivable, net
    
    
    90,335
    
    
    
    78,669Reinsurance recoverables
    
    
    1,249,759
    
    
    
    1,238,111Due from affiliates
    
    
    
    
    
    
    5,967Accrued investment income
    
    
    56,915
    
    
    
    51,933Deferred acquisition costs
    
    
    124,608
    
    
    
    116,060Property and equipment, at cost less accumulated depreciation
    
    
    1,170
    
    
    
    1,507Deferred income taxes, net
    
    
    23,855
    
    
    
    20,515Goodwill
    
    
    156,383
    
    
    
    156,104Value of business acquired
    
    
    35,335
    
    
    
    39,413Other assets
    
    
    35,065
    
    
    
    38,708Assets held in separate accounts
    
    
    3,227,374
    
    
    
    3,435,089Total assets
    
    $
    10,040,498
    
    
    $
    10,209,838
  2




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Union Security Insurance Company
Consolidated Balance Sheets
 September 30,
    
    
    December 31,2005
    
    
    2004(in thousands except number of shares)LiabilitiesFuture policy benefits and expenses
    
    $
    3,129,125
    
    
    $
    3,028,030Unearned premiums
    
    
    43,721
    
    
    
    46,228Claims and benefits payable
    
    
    1,931,139
    
    
    
    1,884,608Commissions payable
    
    
    20,427
    
    
    
    19,721Reinsurance balances payable
    
    
    4,474
    
    
    
    6,727Funds held under reinsurance
    
    
    94
    
    
    
    93Deferred gain on disposal of businesses
    
    
    180,074
    
    
    
    206,182Obligation under securities lending
    
    
    313,759
    
    
    
    332,276Accounts payable and other liabilities
    
    
    135,758
    
    
    
    159,798Tax payable
    
    
    22,486
    
    
    
    7,987Liabilities related to separate accounts
    
    
    3,227,374
    
    
    
    3,435,089Total liabilities
    
    
    9,008,431
    
    
    
    9,126,739Stockholders equityCommon stock, par value $5 per share, 1,000,000
shares authorized, issued, and outstanding
    
    
    5,000
    
    
    
    5,000Additional paid-in capital
    
    
    516,570
    
    
    
    516,570Retained earnings
    
    
    375,219
    
    
    
    388,854Accumulated other comprehensive income
    
    
    135,278
    
    
    
    172,675Total stockholders equity
    
    
    1,032,067
    
    
    
    1,083,099Total liabilities and stockholders equity
    
    $
    10,040,498
    
    
    $
    10,209,838
  3




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Union Security Insurance Company
Consolidated Statements of Operations (Unaudited)
 Three Months EndedSeptember 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)RevenuesNet earned premiums and other considerations
    
    $
    416,894
    
    
    $
    426,506
    
    
    $
    1,301,615
    
    
    $
    1,297,531Net investment income
    
    
    73,694
    
    
    
    67,804
    
    
    
    221,871
    
    
    
    204,980Net realized gains on investments
    
    
    822
    
    
    
    516
    
    
    
    612
    
    
    
    4,096Amortization of deferred gain on disposal of businesses
    
    
    8,663
    
    
    
    10,929
    
    
    
    26,107
    
    
    
    32,539Fees and other income
    
    
    3,588
    
    
    
    1,937
    
    
    
    7,992
    
    
    
    8,681Total revenues
    
    
    503,661
    
    
    
    507,692
    
    
    
    1,558,197
    
    
    
    1,547,827Benefits, losses and expensesPolicyholder benefits
    
    
    304,101
    
    
    
    316,646
    
    
    
    996,561
    
    
    
    1,002,142Amortization of deferred acquisition costs and
value of business acquired
    
    
    21,577
    
    
    
    19,388
    
    
    
    60,699
    
    
    
    54,617Underwriting, general and administrative expenses
    
    
    117,823
    
    
    
    124,485
    
    
    
    356,037
    
    
    
    363,220Total benefits, losses and expenses
    
    
    443,501
    
    
    
    460,519
    
    
    
    1,413,297
    
    
    
    1,419,979Income before income taxes
    
    
    60,160
    
    
    
    47,173
    
    
    
    144,900
    
    
    
    127,848Income taxes
    
    
    20,864
    
    
    
    16,568
    
    
    
    48,535
    
    
    
    44,112Net income
    
    $
    39,296
    
    
    $
    30,605
    
    
    $
    96,365
    
    
    $
    83,736
  4




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Union Security Insurance Company
Consolidated Statement of Changes in Stockholders Equity
 Accumulated OtherAdditional Paid-in
    
    
    
    
    
    
    ComprehensiveCommon Stock
    
    
    Capital
    
    
    Retained Earnings
    
    
    Income (Loss)
    
    
    Total(in thousands)Balance, December 31, 2004
    
    $
    5,000
    
    
    $
    516,570
    
    
    $
    388,854
    
    
    $
    172,675
    
    
    $
    1,083,099Dividends
    
    
    
    
    
    
    
    
    
    
    (110,000
    )
    
    
    
    
    
    
    (110,000
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    96,365
    
    
    
    
    
    
    
    96,365Other comprehensive income:Net change in unrealized
gains on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,211
    )
    
    
    (37,211
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (186
    )
    
    
    (186
    )Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,397
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,968Balance, September 30, 2005
    
    $
    5,000
    
    
    $
    516,570
    
    
    $
    375,219
    
    
    $
    135,278
    
    
    $
    1,032,067
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Union Security Insurance Company
Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004(in thousands)Net cash provided by operating activities
    
    $
    190,271
    
    
    $
    167,282Investing activitiesSales of:Fixed maturities available for sale
    
    
    264,159
    
    
    
    543,473Equity securities available for sale
    
    
    31,082
    
    
    
    32,922Other invested assets
    
    
    13,694
    
    
    
    7,930Maturities, prepayments, and scheduled redemption of:Fixed maturities available for sale
    
    
    172,210
    
    
    
    132,266Purchase of:Fixed maturities available for sale
    
    
    (493,739
    )
    
    
    (684,598
    )Equity securities available for sale
    
    
    (51,027
    )
    
    
    (87,902
    )Other invested assets
    
    
    (19,245
    )
    
    
    (20,307
    )Property and equipment
    
    
    (5
    )
    
    
    Change in commercial mortgage loans on real estate
    
    
    (23,485
    )
    
    
    (62,987
    )Change in short term investments
    
    
    6,509
    
    
    
    8,598Change in collateral held under securities lending
    
    
    18,517
    
    
    
    40,808Change in policy loans
    
    
    161
    
    
    
    Net cash (used in) investing activities
    
    $
    (81,169
    )
    
    $
    (89,797
    )Financing activitiesDividends paid
    
    
    (110,000
    )
    
    
    (50,000
    )Change in obligation under securities lending
    
    
    (18,517
    )
    
    
    (40,808
    )Net cash (used in) financing activities
    
    
    (128,517
    )
    
    
    (90,808
    )Change in cash and cash equivalents
    
    
    (19,415
    )
    
    
    (13,323
    )Cash and cash equivalents at beginning of period
    
    
    43,362
    
    
    
    29,176Cash and cash equivalents at end of period
    
    $
    23,947
    
    
    $
    15,853
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Union Security Insurance Company
Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2005 and 2004 (Unaudited)
 1. Nature of Operations
    2. Basis of Presentation
    3. Recently Adopted Accounting Pronouncements
 Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements
 7




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4. Retirement and Other Employee Benefits
    5. Commitments and Contingencies
   8




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6. Subsequent Event
  9




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PART I
FINANCIAL INFORMATION
 
 Item 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations.
    10




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For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)
    
    
    (in thousands)Revenues:Net earned premiums and
other considerations
    
    $
    416,894
    
    
    $
    426,506
    
    
    $
    1,301,615
    
    
    $
    1,297,531Net investment income
    
    
    73,694
    
    
    
    67,804
    
    
    
    221,871
    
    
    
    204,980Net realized gains on
investments
    
    
    822
    
    
    
    516
    
    
    
    612
    
    
    
    4,096Amortization of deferred
gains on disposal of
businesses
    
    
    8,663
    
    
    
    10,929
    
    
    
    26,107
    
    
    
    32,539Fees and other income
    
    
    3,588
    
    
    
    1,937
    
    
    
    7,992
    
    
    
    8,681Total revenues
    
    
    503,661
    
    
    
    507,692
    
    
    
    1,558,197
    
    
    
    1,547,827Benefits, losses and expenses:Policyholder benefits
    
    
    304,101
    
    
    
    316,646
    
    
    
    996,561
    
    
    
    1,002,142Selling, underwriting and
general expenses(1)
    
    
    139,400
    
    
    
    143,873
    
    
    
    416,736
    
    
    
    417,837Total benefits, losses
and expenses
    
    
    443,501
    
    
    
    460,519
    
    
    
    1,413,297
    
    
    
    1,419,979Income before income taxes
    
    
    60,160
    
    
    
    47,173
    
    
    
    144,900
    
    
    
    127,848Income taxes
    
    
    20,864
    
    
    
    16,568
    
    
    
    48,535
    
    
    
    44,112Net income
    
    $
    39,296
    
    
    $
    30,605
    
    
    $
    96,365
    
    
    $
    83,736
 
 (1)
    
    Includes amortization of deferred acquisition costs and value of business acquired and
underwriting, general and administrative expenses. For The Three Months Ended September 30, 2005 Compared to The Three Months Ended September 30,
2004.
 Net Income
  Total Revenues
  11




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Total Benefits, Losses and Expenses
  For The Nine Months Ended September 30, 2005 Compared to The Nine Months Ended September 30, 2004.
 Net Income
  Total Revenues
  Total Benefits, Losses and Expenses
  
 Item 3. Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4. Controls And Procedures.
  12




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PART II
OTHER INFORMATION
 
 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
 (a)
    
    None.(b)
    
    Because all of the Companys outstanding common stock is held indirectly by
Assurant, Inc., the Company does not file a Schedule 14A and has not adopted any
procedures by which security holders may recommend nominees to the registrants board
of directors.
 
 Item 6. Exhibits
  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 Union Security 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 Union Security Insurance Company pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
  UNION SECURITY INSURANCE COMPANYBy:
    /s/ P. Bruce CamachoName:
    P. Bruce CamachoTitle:
    President and Chief
Executive OfficerBy:
    /s/ Ranell M. JacobsonName:
    Ranell M. JacobsonTitle:
    Treasurer 14