The Company leases its home office building, consisting of 15,684 square feet, in Syracuse, New York. It also leases space consisting of 9,471 square feet for the maintenance of a sales office located in New York City and space consisting of 2,539 square feet for a sales office in Rochester, NY. The Company expects that this office space will be adequate for the foreseeable future.
Also on November 30, 2001, and immediately following the stock purchase described above, BALAC merged with and into FFLIC, with FFLIC as the surviving corporation (the "Merger"). No consideration was exchanged in the Merger.
The ratio of life benefits to premium decreased in 2001 to 62% from 74% in 2000 primarily due to additional reinsurance coverage purchased in 2001. The accident and health benefits as a percent of premium decreased to 71% in 2001 from 73% in 2000. This decrease is due to a decline in the dental benefit to premium ratio as this line continues to see improved experience. The disability income line maintained a 72% benefit to premium ratio from 2000 to 2001.
First Fortis (the Company) life insurance is principally group life business and the premium remained consistent from 1999 to 2000. Accident and health premiums increased during 2000 as compared to 1999 due to strong group disability and dental sales. Accident and health premiums are principally composed of group accident and health coverages. Dental, disability income, and medical premium represented 52%, 47%, and 1%, respectively, of total group accident and health premium in 2000 compared to 48%, 46%, and 6%, respectively, in 1999. The decrease in the group medical premium as a percent of the total group accident and health premium is due to the run-out of a block of business that discontinued sales in 1996.
The Company continues to match investment portfolio composition to liquidity needs and capital requirements. Changes in interest rates during 2000 and 1999 resulted in recognition of realized gains and losses upon sales of securities.
Interest rate risk is the Company's primary market risk exposure. Substantial and sustained increases and decreases in market interest rates can affect the profitability of insurance products and market value of investments. The yield realized on new investments generally increases or decreases in direct relationship with interest rate changes. The market value of the Company's fixed maturity and mortgage loan portfolios generally increases when interest rates decrease, and decreases when interest rates increase.
Equity market risk exposure is not significant. Equity investments in the general account are not material enough to threaten solvency and contract owners bear the investment risk related to the variable products. Therefore, the risks associated with the investments supporting the variable separate accounts are assumed by contract owners, not by the Company. The Company provides certain minimum death benefits that depend on the performance of the variable separate accounts. Currently the majority of these death benefit risks are reinsured which then protects the Company from adverse mortality experience and prolonged capital market decline.
The Company has no long or short term debt. As of December 31, 2001, 98% of the Company's fixed maturity investments consisted of investment grade bonds. The Company does not expect this percentage to change significantly in the future.