-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F0Z48QWuNbPJZ+8MMxCd3c9YC6fF7S3moYgULTJ/CPTMdjQq7RO96kVQzHW1cfII 78U+QXnyGwulswfY+jtIIw== 0000703701-01-500015.txt : 20010515 0000703701-01-500015.hdr.sgml : 20010515 ACCESSION NUMBER: 0000703701-01-500015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASCENT ASSURANCE INC CENTRAL INDEX KEY: 0000703701 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 731165000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10873 FILM NUMBER: 1631314 BUSINESS ADDRESS: STREET 1: 110 WEST SEVENTH STREET STREET 2: STE 300 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8178783300 MAIL ADDRESS: STREET 1: 110 WEST SEVENTH STREET STREET 2: SUITE 300 CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: WESTBRIDGE CAPITAL CORP DATE OF NAME CHANGE: 19920703 10-Q 1 f10q0301.txt 03/31/2001 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 2001 Commission File Number 1-8538 ASCENT ASSURANCE, INC. ---------------------- (Exact name of Registrant as specified in its Charter) DELAWARE 73-1165000 - -------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) 110 West Seventh Street, Suite 300, Fort Worth, Texas 76102 - ----------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) 817-878-3300 ------------------------------------------------------------------- (Registrant's Telephone Number, including Area Code) N/A ------------------------------------------------------------------------------ (Former Name, Address and Former Fiscal Year, if changed since Last Report) Indicate, by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- Indicate, by check mark whether the Registrant has filed all reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO ------- Common Stock - Par Value $.01 6,500,000 Shares Outstanding at May 11, 2001 ASCENT ASSURANCE, INC. INDEX TO FORM 10-Q PART 1 - FINANCIAL INFORMATION Page No. - ------------------------------ -------- Item 1 - Financial Statements Ascent Assurance, Inc. Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 2 Ascent Assurance, Inc. Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and March 31, 2000 3 Ascent Assurance, Inc. Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2001 and March 31, 2000 4 Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and March 31, 2000 5 Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 2001 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General 10 Business Overview 10 Operating Results 11 Financial Condition 13 Liquidity, Capital Resources and Statutory Capital and Surplus 16 Forward-Looking Statements 18 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 20
ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2001 2000 (Unaudited) (Audited) ---------------- ---------------- (in thousands, except per share data) Assets Investments: Fixed Maturities: Available-for-sale, at market value (amortized cost $97,546 and $104,081) $ 96,509 $ 100,590 Equity securities, at market (cost $1,365) 1,346 1,335 Other investments 430 398 Short-term investments 7,601 7,254 ---------------- ---------------- Total Investments 105,886 109,577 Cash 4,268 2,658 Accrued investment income 1,668 1,965 Receivables from agents, net of allowance for doubtful accounts of $4,007 and $3,711 8,338 8,737 Deferred policy acquisition costs 25,828 24,711 Property and equipment, net of accumulated depreciation of $3,128 and $2,683 6,340 6,375 Other assets 6,967 6,455 ---------------- ---------------- Total Assets $ 159,295 $ 160,478 ================ ================ Liabilities, Preferred Stock and Stockholders' Equity Liabilities: Policy liabilities and accruals: Future policy benefits $ 62,543 $ 61,306 Claim reserves 39,700 42,778 ---------------- ---------------- Total Policy Liabilities and Accruals 102,243 104,084 Accounts payable and other liabilities 15,735 15,667 Notes payable 8,736 8,947 ---------------- ---------------- Total Liabilities 126,714 128,698 ---------------- ---------------- Redeemable Convertible Preferred Stock 27,705 27,705 ---------------- ---------------- Stockholders' Equity: Common stock ($.01 par value, 30,000,000 shares authorized; 6,500,000 shares issued) 65 65 Capital in excess of par value 27,716 27,620 Accumulated other comprehensive income, net of tax (1,056) (2,324) Retained deficit (21,849) (21,286) ---------------- ---------------- Total Stockholders' Equity 4,876 4,075 ---------------- ---------------- Total Liabilities, Redeemable Convertible Preferred Stock And Stockholders' Equity $ 159,295 $ 160,478 ================ ================
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, -------------------------------------- 2001 2000 ----------------- ----------------- (in thousands, except per share data) Revenues: Premiums: First-year $ 7,825 $ 6,709 Renewal 24,149 22,296 ----------------- ----------------- Total premiums 31,974 29,005 Net investment income 2,322 2,078 Fee, service and other income 5,609 4,896 Net realized gain on investments 42 17 ----------------- ----------------- Total revenue 39,947 35,996 ----------------- ----------------- Benefits, claims and expenses: Benefits and claims 24,817 23,682 Increase in deferred acquisition costs (1,117) (1,709) Commissions 5,963 6,439 General and administrative expenses 10,102 7,567 Taxes, licenses and fees 1,063 1,191 Interest expense on notes payable 170 84 ----------------- ----------------- Total expenses 40,998 37,254 Loss before income taxes (1,051) (1,258) Federal income tax benefit - 428 ----------------- ----------------- Net loss $ (1,051) $ (830) Preferred stock dividends 710 651 ----------------- ----------------- Loss applicable to common stockholders $ (1,761) $ (1,481) ================= ================= Basic and diluted loss per common share $ (.27) $ (.23) ================= ================= Weighted average shares outstanding: Basic 6,500 6,500 ================= ================= Diluted 6,500 6,500 ================= =================
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, -------------------------------------- 2001 2000 ----------------- ----------------- (in thousands) Net loss $ (1,051) $ (830) Other comprehensive income: Unrealized holding gain arising during period, net of tax 1,310 164 Reclassification adjustment of gain on sales of investments included in net income, net of tax (42) (11) ----------------- ----------------- Comprehensive income (loss) $ 217 $ (677) ================= =================
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, ------------------------------------ 2001 2000 ---------------- ---------------- (in thousands) Cash Flow From Operating Activities: Net loss $ (1,051) $ (830) Adjustments to reconcile net income to cash provided by (used for) operating activities Decrease in accrued investment income 297 145 Increase in deferred acquisition costs (1,117) (1,709) Decrease in receivables from agents 399 373 Increase in other assets (512) (1,016) (Decrease) increase in policy liabilities and accruals (1,841) 2,785 Increase (decrease) in accounts payable and other liabilities 68 (2,637) Increase in deferred income taxes, net - (284) Other, net (65) 1,552 ---------------- ---------------- Net Cash Used For Operating Activities (3,822) (1,621) ---------------- ---------------- Cash Flow From Investing Activities: Purchases of fixed maturity investments (4,984) (2,981) Sales of fixed maturity investments 9,041 906 Maturities and calls of fixed maturity investments 2,379 873 Net (increase) decrease in short term and other investments (379) 3,041 Property and equipment purchased (414) (535) ---------------- ---------------- Net Cash Provided By Investing Activities 5,643 1,304 ---------------- ---------------- Cash Flow From Financing Activities: Issuance of notes payable - 742 Repayment of notes payable (211) (140) ---------------- ---------------- Net Cash (Used For) Provided By Financing Activities (211) 602 ---------------- ---------------- Increase In Cash During Period 1,610 285 Cash At Beginning Of Period 2,658 5,110 ---------------- ---------------- Cash At End Of Period $ 4,268 $ 5,395 ================ ================
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (in thousands, except share data) Accumulated Capital Other Retained Total Common Stock in Excess Comprehensive (Deficit) Stockholders' Shares Amount of Par Value Loss Earnings Equity Balance at December 31, 2000 6,500,000 $ 65 $ 27,620 $ (2,324) $ (21,286) $ 4,075 Net loss (1,051) (1,051) Preferred Stock dividend (710) (710) Other comprehensive gain, net of tax 1,268 1,198 2,466 Amortization of unearned compensation 96 96 ---------- ------ ------------ ------------- ------------ --------------- Balance at March 31, 2001 6,500,000 $ 65 $ 27,716 $ (1,056) $ (21,849) $ 4,876 ========== ====== ============ ============= ============ ===============
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - DESCRIPTION OF BUSINESS Ascent Assurance, Inc. ("Ascent"), a Delaware company incorporated in 1982, is an insurance holding company engaged in the development, marketing, underwriting and administration of medical expense and supplemental health insurance products, primarily to self-employed individuals and small business owners. The Company's revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of America ("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance Company of Texas ("AICT", and together with NFL, NFIC and FLICA, collectively, the "Insurance Subsidiaries") and marketed by NationalCare(R) Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives revenue from (i) telemarketing services, (ii) printing services, and (iii) renewal commissions for prior year sales of unaffiliated insurance products. NOTE 2 - ACCOUNTING PRINCIPLES Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. Financial statements prepared in accordance with GAAP require the use of management estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to 2000 amounts in order to conform to the 2001 financial statement presentation. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Future Policy Benefits. Liabilities for future policy benefits not yet incurred are computed primarily using the net level premium method including actuarial assumptions as to investment yield, mortality, morbidity, withdrawals, persistency and other assumptions which were appropriate at the time the policies were issued. Assumptions used are based on the Company's experience as adjusted to provide for possible adverse deviation. Generally, these actuarial assumptions are fixed and, absent material adverse benefit experience, are not adjusted. Claim Reserves. Claim reserves represent the estimated liabilities on claims reported plus claims incurred but not yet reported. The process of estimating claim reserves involves the active participation of experienced actuarial consultants with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Examples of such changes include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) changes in production sources for existing lines of business; (4) writings of significant blocks of new business and (5) significant changes in claims payment patterns. As a result of the implementation of a new claims administration system in May 2000, the Company's claims payment pattern has accelerated, which resulted in a significant reduction in pending claims inventory at March 31, 2001 from historical levels. This significant change in the claims payment pattern has greatly increased the inherent uncertainty in estimating claim reserves. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations. Federal Income Taxes. The Company records income taxes based on the asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequence of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The tax effect of future taxable temporary differences (liabilities) and future deductible temporary differences (assets) are separately calculated and recorded when such differences arise. A valuation allowance, reducing any recognized deferred tax asset, must be recorded if it is determined that it is more likely than not that such deferred tax asset will not be realized. As of March 31, 2001, the Company has reported cumulative pre-tax losses since March 31, 1999, the date it emerged from Chapter 11 bankruptcy proceedings. Realization of the Company's deferred tax asset is dependent upon the return of the Company's operations to profitability. Pre-tax losses during 2000 and the first quarter of 2001 were principally attributable to adverse claims experience for certain major medical products. Management believes that such product losses can be significantly reduced through aggressive rate increase management. However, projections of future profitability are significantly discounted when evaluating the recoverability of deferred tax assets and do not overcome the negative evidence of cumulative losses under GAAP. Accordingly, the Company has increased its deferred tax asset valuation allowance to fully reserve all net deferred tax assets as of March 31, 2001. Earnings Per Share. Under GAAP there are two measures of earnings per share: "basic earnings per share" and "diluted earnings per share". Basic earnings per share is computed by dividing income applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were converted or exercised. Diluted weighted shares exclude all convertible securities for loss periods. The following table reflects the calculation of basic and diluted EPS: Three Months Ended March 31, 2001 2000 ---------------- --------------- (amounts in 000's, except per share amounts) Net loss $ (1,051) $ (830) Preferred Stock dividends (710) (651) ---------------- --------------- Loss applicable to common shareholders $ (1,761) $ (1,481) ================ =============== Weighted average shares outstanding: Basic 6,500 6,500 Diluted 6,500 6,500 Basic and diluted loss per share $ (.27) $ (.23) ================ ===============
NOTE 3 - FINANCING OBTAINED IN APRIL 2001 During the first quarter of 2001, the Company determined that continued adverse claims experience for the Group Preferred Provider Organization ("GPPO") product, the principal product marketed by the Company from 1998 through June 2000, would require Ascent to make capital contributions to FLICA in excess of those originally planned. Ascent obtained debt financing (see below) and contributed an additional $11 million to FLICA in April 2001 to enable FLICA to comply with minimum statutory capital and surplus requirements promulgated by the states of Texas and Florida. To the extent that the adverse claims experience for the old GPPO product exceeds management's current estimates, Ascent would be required to make additional capital contributions to FLICA in excess of those currently projected for 2001. Additional financing would be required by Ascent in order to make any such "excess" contributions. While the Company has implemented rate increases on the GPPO product that should begin to reduce losses in mid-2001, there can be no assurance that such rate increases will be sufficient. In April 2001, Ascent received debt financing for the $11 million capital contribution described above from a loan made by Credit Suisse First Boston Management Corporation, which is an affiliate of Special Situations Holdings, Inc. -- Westbridge (Ascent's largest stockholder). The credit agreement relating to that loan provided Ascent with total loan commitments of $11 million (all of which has been drawn). The loan bears interest at a rate of 12% per annum and matures in April 2004. Absent any acceleration following an event of default, the Company may elect to pay interest in kind by issuance of additional notes. The credit agreement relating to the loan provides for a facility fee of $1.5 million which is payable upon maturity or upon a change in control, as defined. Ascent's obligations are secured, pursuant to a guarantee and security agreement and pledge agreements, by substantially all of the assets of Ascent and its subsidiaries (excluding the capital stock and the assets of AICT, FLICA, NFL, NFIC, NCM, Ascent Funding, Inc. and Ascent Management, Inc., some or all of which is pledged as collateral to LaSalle Bank NA ("LaSalle") for receivables financing). Ascent's subsidiaries (other than those listed above) have also guaranteed Ascent's obligations under the credit agreement and the loan. In connection with the $11 million loan, LaSalle waived certain events of default and amended various agreements related to receivables financing provided by LaSalle. Debt covenants under the credit agreement related to the new $11 million loan are substantially similar to those under the LaSalle receivables financing arrangements. NOTE 4 - PREFERRED STOCK Dividends on the Company's preferred stock are payable in cash or through issuance of additional shares of preferred stock, at the Company's option. At March 31, 2001, the Company accrued preferred stock dividends of $709,941. NOTE 5 - COMMITMENTS AND CONTINGENCIES In the normal course of its business operations, the Company is involved in various claims and other business related disputes. In the opinion of management, the Company is not a party to any pending litigation the disposition of which would have a material adverse effect on the Company's business, financial position or its results of operations. NOTE 6 - IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles guidance, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in certain areas. The Insurance Department of the State of Domicile of the Company's Insurance Subsidiaries has adopted the Codification effective January 1, 2001. Codification guidance did not materially impact statutory surplus of the Company's Insurance Subsidiaries. In June, 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement (as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities, Deferral of the Effective Date of SFAS No. 133, an amendment of SFAS No. 133") is effective for fiscal years beginning after June 15, 2000. The pronouncement established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. As the Company has not participated in derivative or hedging activities, the Company's financial statements are not affected by SFAS 133. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). The Company adopted FIN 44 on a prospective basis effective July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's results of operations, liquidity or financial position. ASCENT ASSURANCE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion provides management's assessment of financial condition at March 31, 2001 as compared to December 31, 2000 and results of operations for the three months ended March 31, 2001 as compared to the comparable 2000 period for the Company. This discussion updates the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2000 Report on Form 10-K and should be read in conjunction therewith. Business Overview. The Company's revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of America ("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance Company of Texas ("AICT", and together with NFL, NFIC and FLICA, collectively, the "Insurance Subsidiaries") and marketed by NationalCare(R) Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives revenue from (i) telemarketing services, (ii) printing services, and (iii) renewal commissions for prior year sales of unaffiliated insurance products. The Company's operations are comprised of one segment, Accident and Health insurance. The principal products currently marketed by NCM and underwritten by the Insurance Subsidiaries are medical expense reimbursement policies. These products are designed with flexibility as to benefits, deductibles, coinsurance and premium payments, which can be adapted to meet regional sales or competitive needs, as well as those of the individual policyholders. The principal product groups currently underwritten by the Insurance Subsidiaries are comprehensive major medical products, hospital/surgical major medical products and supplemental specified disease products: x Comprehensive major medical products are generally designed to reimburse insureds for eligible expenses incurred for hospital confinement, surgical expenses, physician services, outpatient services and the cost of medicines. x Hospital/surgical major medical products are similar to comprehensive major medical products except that benefits are limited to hospital/surgical services (services such as routine well care physician visits and prescription drugs are excluded) and deductibles and coinsurance provisions are generally higher. x Supplemental specified disease products include indemnity policies for hospital confinement and convalescent care for treatment of specified diseases and "event specific" policies, which provide fixed benefits or lump sum payments upon diagnosis of certain types of internal cancer or other catastrophic diseases. Prior to 1998, the Insurance Subsidiaries also underwrote Medicare Supplement products designed to provide reimbursement for certain expenses not covered by the Medicare program. The Insurance Subsidiaries continue to receive premiums on Medicare Supplement policies sold prior to that date. Forward-Looking Statements. Statements contained in this analysis and elsewhere in this document that are not based on historical information are forward-looking statements and are based on management's projections, estimates and assumptions. Management cautions readers regarding its forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Various statements contained in the Management's Discussion and Analysis of Results of Operation and Financial Condition, are forward-looking statements. These forward-looking statements are based on the intent, belief or current expectations of the Company and members of its senior management team. While the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Report include, but are not limited to: x further adverse claims experience or other events adversely impacting the Company's liquidity position, x actions that may be taken by insurance regulatory authorities, x adverse developments in the timing or results of the Company's current strategic business plan to return operations to profitability by improving claims experience and reducing overhead expenses, x the loss of key personnel, x and the effect of changing economic and market conditions, especially medical expense inflation and health care reform initiatives. Subsequent written or oral statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this Report and those in the Company's reports previously filed with the SEC. Copies of these filings may be obtained by contacting the Company or the SEC. OPERATING RESULTS Results of operations for Ascent are reported for the three months ended March 31, 2001 and 2000. (In thousands except insurance operating ratios.) Three Months Ended March 31, ------------------------------------- 2001 2000 ----------------- ---------------- Premiums $ 31,974 $ 29,005 Other 902 685 ----------------- ---------------- Total insurance operating revenue 32,876 29,690 ----------------- ---------------- Benefits and claims 24,817 23,682 Commissions 4,861 4,575 Increase in deferred acquisition costs (1,117) (1,707) General and administrative expense 7,191 5,876 Taxes, licenses and fees 905 952 ----------------- ---------------- Total insurance operating expenses 36,657 33,378 ----------------- ---------------- Insurance Operating Results (3,781) (3,688) ----------------- ---------------- Fee and service income 4,707 4,211 Fee and service expenses (4,171) (3,792) ----------------- ---------------- Fee and Service Results 536 419 ----------------- ---------------- Net investment income 2,322 2,078 Net realized gain on investments 42 17 Interest expense on notes payable (170) (84) ----------------- ---------------- Loss Before Income Taxes (1,051) (1,258) Income tax benefit - 428 ----------------- ---------------- Net Loss $ (1,051) $ (830) ================= ================ Insurance operating ratios* Benefits and claims 77.6% 81.6% Commissions 15.2% 15.8% Increase in deferred acquisition costs (3.5%) (5.9%) General and administrative expenses 21.9% 19.8% Taxes, licenses and fees 2.8% 3.3%
*Ratios are calculated as a percent of premium with the exception of the general and administrative expense ratio which is calculated as a percent of total insurance operating revenue. Overview. For the first quarter of 2001, the loss before income taxes was $1.1 million compared to loss before income taxes of $1.3 million for the corresponding 2000 period. Pre-tax operating losses for both first quarter 2001 and 2000 were attributable to losses from the Group Preferred Provider Organization ("GPPO") product, the principal major medical product marketed by FLICA from 1998 to July 2000. Losses from the GPPO product were principally driven by higher than expected claims frequency. While the Company has implemented rate increases on the GPPO product that should begin to reduce losses in mid-2001, there can be no assurance that such rate increases will be sufficient. Due to losses from the GPPO product, FLICA has required significant capital contributions during 2000 and 2001 to comply with statutory capital and surplus requirements. Continued adverse claims experience for the GPPO product could have a material adverse impact on FLICA's ability to meet minimum statutory capital and surplus requirements and maintain its new business production at current levels (see "Liquidity, Capital Resources and Statutory Capital and Surplus"). Since July 2000, the Company has been successfully marketing a new major medical policy in all significant marketing regions. The new major medical policy is designed to produce a substantially lower benefits and claims to premium ratio than the old GPPO product. At March 31, 2001, annualized premiums in force for the new major medical policy were $13.8 million. The following narratives discuss the principal components of insurance operating results. Premiums. Premium revenue, in thousands, for each major product line is set forth below: Three Months Ended March 31, ---------------------------------- 2001 2000 ---------------- -------------- Major medical: First-year $ 7,178 $ 6,218 Renewal 12,108 8,564 ---------------- -------------- Subtotal 19,286 14,782 ---------------- -------------- Supplemental specified disease: First-year 246 374 Renewal 6,595 6,801 ---------------- -------------- Subtotal 6,841 7,175 ---------------- -------------- Medicare supplement: First-year - - Renewal 5,183 6,469 ---------------- -------------- Subtotal 5,183 6,469 ---------------- -------------- Other 664 579 ---------------- -------------- Consolidated Premium Revenue $ 31,974 $ 29,005 ================ ============== Total premiums increased by $3.0 million, or 10.2%, for the first quarter of 2001 as compared to the first quarter of 2000 as new business production exceeded the expected decline in renewal premiums from older, closed blocks of business. Premiums from the GPPO major medical product, for which marketing was discontinued in July 2000, were $10.2 million and $8.0 million for the three months ended March 31, 2001 and 2000, respectively. The Company is principally marketing major medical products. No Medicare Supplement products are being marketed. Benefits and Claims. Benefits and claims are comprised of (1) claims paid, (2) changes in the claim reserves for claims incurred (whether or not reported), and (3) changes in future policy benefit reserves. The ratio of benefits and claims to premiums decreased for the first quarter of 2001 compared to the first quarter of 2000 due primarily to improved experience for supplemental products. Incurred benefit and claims experience for the GPPO major medical product, for which marketing was discontinued in July 2000, was significantly higher than pricing assumptions for both the first quarter of 2001 and 2000. Adverse claims experience for the old GPPO product has been primarily due to higher than expected claims frequency. Continued adverse claims experience for the old GPPO product could have a material adverse impact on FLICA's ability to meet minimum statutory capital and surplus requirements (See "Liquidity, Capital, Resources and Statutory Capital and Surplus"). General and Administrative Expense. For the first quarter of 2001, general and administrative expenses increased over the comparable 2000 period by 2.1 percentage points which reduced insurance operating results by approximately $.7 million. The increase was due principally to amortization of the Company's new policy administration and claims data processing systems and increases in the allowance for agent balances. FINANCIAL CONDITION Investments. The following table summarizes the Company's fixed maturity securities, excluding short-term investments and certificates of deposit. All of the Company's fixed maturity securities are classified as available-for-sale and are carried at estimated market value. Estimated market value represents the closing sales prices of marketable securities. Investments in the debt securities of corporations are principally in publicly traded bonds. March 31, 2001 December 31, 2000 ----------------------------- ------------------------------ Market Market Fixed Maturity Securities Value % Value % - --------------------------------------- ------------- ------------ -------------- ------------ (in thousands) (in thousands) U.S. Government and governmental agencies and authorities (except mortgage-backed) $ 10,597 11.0 $ 10,462 10.4 Finance 23,164 24.0 23,445 23.3 Public utilities 6,382 6.6 6,787 6.7 Mortgage-backed 11,155 11.6 13,302 13.2 States, municipalities and political subdivisions 2,006 2.1 1,982 2.0 All other corporate bonds 43,205 44.7 44,612 44.4 ------------- ------------ -------------- -------------- Total fixed maturity securities $ 96,509 100.0 $ 100,590 100.0 ============= ============ ============== ==============
The following table indicates by rating the composition of the Company's fixed maturity securities portfolio, excluding short-term investments and certificates of deposit. Ratings are the lower of those assigned by Standard & Poor's and Moody's, when available, and are shown in the table using the Standard & Poor's rating scale. Unrated securities are assigned ratings based on the applicable NAIC's designation or the rating assigned to comparable debt outstanding of the same issuer. NAIC 1 fixed maturity securities have been classified as "A" (and above) and NAIC 2 fixed maturity securities have been classified as "BBB". March 31, 2001 December 31, 2000 ------------------------------ ----------------------------- Composition of Fixed Maturity Market Market Securities by Rating Value % Value % - --------------------------------------------- ------------- ------------- -------------- ------------ (in thousands) (in thousands) Ratings - ------- Investment grade: U.S. Government and agencies $ 20,232 21.0 $ 22,754 22.6 AAA 3,396 3.5 2,885 2.9 AA 7,597 7.9 8,305 8.3 A 35,989 37.3 38,552 38.3 BBB 27,798 28.8 27,168 27.0 Non-Investment grade: BB 658 0.7 674 0.7 B and below 839 0.8 252 0.2 ------------- ------------- ------------- ------------ Total fixed maturity securities $ 96,509 100.0 $ 100,590 100.0 ============= ============= ============= ============
The scheduled contractual maturities of the Company's fixed maturity securities, excluding short-term investments and certificates of deposit, at March 31, 2001 and December 31, 2000 are shown in the table below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. March 31, 2001 December 31, 2000 ---------------------------- ---------------------------- Composition of Fixed Maturity Market Market Securities by Maturity Value % Value % - --------------------------------------------- ------------- ----------- ------------- ----------- (in thousands) (in thousands) Scheduled Maturity Due in one year or less $ 6,888 7.1 $ 7,073 7.0 Due after one year through five years 27,334 28.3 28,877 28.7 Due after five years through ten years 26,240 27.2 26,327 26.2 Due after ten years 24,892 25.8 25,011 24.9 Mortgage-backed and asset-backed securities 11,155 11.6 13,302 13.2 ------------- ----------- ------------- ----------- Total fixed maturity securities $ 96,509 100.0 $ 100,590 100.0 ============= =========== ============= ===========
Claim Reserves. Claim reserves are established by the Company for benefit payments which have already been incurred by the policyholder but which have not been paid by the Company. Claim reserves totaled $39.7 million at March 31, 2001 as compared to $42.8 million at December 31, 2000. The process of estimating claim reserves involves the active participation of experienced actuarial consultants with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Examples of such changes include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) changes in production sources for existing lines of business; (4) writings of significant blocks of new business and (5) significant changes in claims payment patterns. As a result of the implementation of a new claims administration system in May 2000, the Company's claims payment pattern has accelerated, which resulted in a significant reduction in pending claims inventory at March 31, 2001 from historical levels. This significant change in the claims payment pattern has greatly increased the inherent uncertainty in estimating claim reserves. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations. Management considers many factors when setting reserves including: (1) historical trends; (2) current legal interpretations of coverage and liability; (3) loss payments and pending levels of unpaid claims; and (4) product mix. Based on these considerations, management believes that adequate provision has been made for the Company's claim reserves. Actual claims paid may deviate, perhaps substantially, from such reserves. Future Policy Benefit Reserves. Future policy benefit reserves are established by the Company for benefit payments that have not been incurred but which are estimated to be incurred in the future. Future policy benefit reserves totaled $62.5 million at March 31, 2001 as compared to $61.3 million at December 31, 2000. Future policy benefit reserves are calculated according to the net level premium reserve method and are equal to the discounted present value of the Company's expected future policyholder benefits minus the discounted present value of its expected future net premiums. These present value determinations are based upon assumed fixed investment yields, the age of the insured(s) at the time of policy issuance, expected morbidity and persistency rates, and expected future policyholder benefits. Except for purposes of reporting to insurance regulatory authorities and for tax filing, the Company's claim reserves and policy benefit reserves are determined in accordance with GAAP. In determining the morbidity, persistency rate, claim cost and other assumptions used in determining the Company's future policy benefit reserves, the Company relies primarily upon its own benefit payment history and upon information developed in conjunction with actuarial consultants and industry data. The Company's persistency rates have a direct impact upon its policy benefit reserves because the determinations for this reserve are, in part, a function of the number of policies in force and expected to remain in force to maturity. If persistency is higher or lower than expected, future policyholder benefits will also be higher or lower because of the different than expected number of policies in force, and the policy benefit reserves will be increased or decreased accordingly. The Company's policy benefit reserve requirements are also interrelated with product pricing and profitability. The Company must price its products at a level sufficient to fund its policyholders benefits and still remain profitable. Because the Company's claim and policyholder benefits represent the single largest category of its operating expenses, inaccuracies in the assumptions used to estimate the amount of such benefits can result in the Company failing to price its products appropriately and to generate sufficient premiums to fund the payment thereof. The increases in claim ratios experienced by the Company during 2000 and into 2001 were indicative of inadequate pricing in the Company's principal major medical product marketed through June 2000. In accordance with GAAP, the Company's actuarial assumptions are generally fixed, and absent materially adverse benefit experience, they are not generally adjusted. The Company monitors the adequacy of its policy benefit reserves on an ongoing basis by periodically analyzing the accuracy of its actuarial assumptions. The adequacy of the Company's policy benefit reserves may also be impacted by the development of new medicines and treatment procedures which may alter the incidence rates of illness and the treatment methods for illness and accident (such as out-patient versus in-patient care) or prolong life expectancy. Changes in coverage provided by major medical insurers or government plans may also affect the adequacy of the Company's reserves if, for example, such developments had the effect of increasing or decreasing the incidence rate and per claim costs of occurrences against which the Company insures. An increase in either the incidence rate or the per claim costs of such occurrences could result in the Company needing to post additional reserves, which could have a material adverse effect upon its business, financial condition or results of operations. LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS Ascent. Ascent's principal assets consist of the capital stock of its subsidiaries and invested assets. Accordingly, Ascent's sources of funds are primarily comprised of dividends and advances from non-insurance subsidiaries. The Company's principal uses of cash are for capital contributions to its Insurance Subsidiaries and general and administrative expenses. The Company funded capital contributions to its Insurance Subsidiaries of $4.3 million during the three months ended March 31, 2001 as compared to $2.0 million for the corresponding prior year period. As of March 31, 2001, Ascent held approximately $1.7 million in unrestricted cash and invested assets. During the first quarter 2001, the Company determined that continued adverse claims experience for the old GPPO product would require Ascent to make capital contributions to FLICA in excess of those originally planned. Ascent obtained financing (see below) and contributed an additional $11 million to FLICA in April 2001 to enable FLICA to comply with minimum statutory capital and surplus requirements promulgated by the states of Texas and Florida. If the adverse claims experience for the old GPPO product exceeds management's current estimates, Ascent would be required to make additional capital contributions to FLICA in excess of those currently projected for 2001. Additional financing would be required by Ascent in order to make any such "excess" contributions. As a result, continued adverse claims experience for the old GPPO product or other products written by the Insurance Subsidiaries could have a material adverse effect on Ascent's liquidity and capital resources and, due to potential restrictions on the ability of FLICA to underwrite new policies, its results of operations. Ascent received debt financing for the $11 million capital contribution described above from a loan made by Credit Suisse First Boston Management Corporation, which is an affiliate of Special Situations Holdings, Inc. -- Westbridge (Ascent's largest stockholder). The credit agreement relating to that loan provided Ascent with total loan commitments of $11 million (all of which has been drawn). The loan bears interest at a rate of 12% per annum and matures in April, 2004. Absent any acceleration following an event of default, the Company may elect to pay interest in kind by issuance of additional notes. The credit agreement relating to the loan provides for a facility fee of $1.5 million which is payable upon maturity or upon a change in control, as defined. Ascent's obligations are secured, pursuant to a guarantee and security agreement and pledge agreements, by substantially all of the assets of Ascent and its subsidiaries (excluding the capital stock and the assets of AICT, FLICA, NFL, NFIC, NCM, Ascent Funding Corporation and Ascent Management, Inc., some or all of which is pledged as collateral for receivables financing described below). Ascent's subsidiaries (other than those listed above) have also guaranteed Ascent's obligations under the credit agreement and the loan. Continued adverse claims experience for the old GPPO product could result in events of default under the credit agreement and related agreements. Dividends on Ascent's Redeemable Convertible Preferred Stock ("Preferred Stock") may be paid in cash or by issuance of additional shares of Preferred Stock, at the Company's option. For the three months ended March 31, 2001, preferred stock dividends of approximately $710,000 were accrued. Insurance Subsidiaries. The primary sources of cash for the Insurance Subsidiaries are premiums, sales and maturities of invested assets and investment income while the primary uses of cash are benefits and claims, commissions, general and administrative expenses, and taxes, licenses and fees. Cash contributions of $15.3 million were funded in 2001, through April 2001, by Ascent to its Insurance Subsidiaries to maintain capital and surplus (see "Ascent" discussion above). The Company's Insurance Subsidiaries recorded combined statutory losses of $9.7 million for the first quarter 2001 and $17.0 million for the twelve months ended December 31, 2000. The statutory losses resulted from 1) higher than expected claims and benefits for the old GPPO major medical product (see "Operating Results") and 2) costs associated with increased new business production which must be expensed under statutory accounting (for GAAP, such costs are deferred and amortized as related premiums are recorded). Dividends paid by the Company's Insurance Subsidiaries are determined by and subject to the regulations of the insurance laws and practices of the insurance department of the state of domicile. The Insurance Subsidiaries are precluded from paying dividends during 2001 without the prior approval of the Texas Insurance Commissioner as the Companies' earned surplus is negative. Inflation will affect claim costs on the Company's Medicare supplement and major medical products. Costs associated with a hospital stay and the amounts reimbursed by the Medicare program are each determined, in part, based on the rate of inflation. If hospital and other medical costs that are reimbursed by the Medicare program increase, claim costs on the Medicare supplement products will increase. Similarly, as the hospital and other medical costs increase, claim costs on the major medical products will increase. The Company has somewhat mitigated its exposure to inflation by incorporating certain limitations on the maximum benefits which may be paid under its policies and by filing for premium rate increases as necessary. Consolidated. The Company's consolidated net cash used for operations totaled $3.8 million and $1.6 million for the first quarter of 2001 and 2000, respectively. The decrease in cash flow from operations was primarily attributable to an increase in the cash basis ratio of benefits and claims to premiums. Net cash provided by investing activities for the first quarter of 2001 and 2000 totaled $5.6 million and $1.3 million, respectively. Cash provided by investing activities was used primarily to fund operational activities. Net cash (used for) provided by financing activities totaled $(0.2) million and $0.6 million for the first quarter of 2001 and 2000, respectively. Financing activities during the first quarter of 2001 include $0.1 million in net repayments related to the Company's Receivables Financing Program (defined below) and $0.1 million in repayments related to the term loan facility. Financing activities for the corresponding period in 2000 included $0.7 million of borrowings related to the Company's Receivables Financing Program and $0.1 million of repayments under the term loan facility. In the ordinary course of business, the Company advances commissions on policies written by its general agencies and their agents. The Company is reimbursed for these advances from the commissions earned over the respective policy's life. The Company finances the majority of its obligations to make commission advances through Ascent Funding Corporation ("AFI"), an indirect wholly owned subsidiary of Ascent. AFI has entered into a Credit Agreement (the "Credit Agreement") with LaSalle Bank, NA ("LaSalle") which currently provides AFI with a $7.5 million revolving loan facility (the "Receivables Financing"), the proceeds of which are used to purchase agent advance receivables from FLICA and NFL and certain affiliated marketing companies. The Credit Agreement expires June 5, 2002, at which time the outstanding principal and interest will be due and payable. At March 31, 2001, approximately $6.1 million was outstanding under the Credit Agreement. AFI's obligations under the Credit Agreement are secured by liens upon substantially all of AFI's assets. The Company has guaranteed AFI's obligations under the Credit Agreement, and has pledged all of the issued and outstanding shares of the capital stock of AFI, NFL, FLICA and NFIC as collateral for that guaranty (the "Guaranty Agreement"). As of May 11, 2001, there were no events of default under the Credit or Guaranty Agreements. However, continued adverse claims experience for the old GPPO major medical product could result in events of default under the Guaranty Agreement, Credit Agreement and term loan facility discussed below. In July 1999, Ascent Management, Inc. ("AMI") entered into a $3.3 million term loan facility with LaSalle, proceeds of which were used to fund system replacement costs. Advances under the term loan facility are secured by substantially all of AMI's assets and the Guaranty Agreement. Under the terms of the loan, principal is payable in 60 equal monthly installments beginning January 31, 2000. At March 31, 2001, approximately $2.6 million was outstanding under the term loan facility. ASCENT ASSURANCE, INC. PART II ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith. Exhibits incorporated by reference are indicated in the parentheses following the description. 3.1 Second Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 24, 1999 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-A filed on March 25, 1999). 3.2 Amended and Restated By-Laws of the Company, effective as of March 24, 1999 (incorporated by reference to Exhibit 3.2 to the Company's Form 8-A filed on March 25, 1999). 3.3 Amendment to the By-Laws of the Company, effective as of April 5, 2000 (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Form 8-A filed on March 25, 1999). 4.2 Form of Warrant Certificate, included in the Form of Warrant Agreement (incorporated by reference to Exhibit 4.2 to the Company's Form 8-A filed on March 25, 1999). 4.3 Form of Warrant Agreement dated as of March 24, 1999, between the Company and LaSalle National Bank, as warrant agent (incorporated by reference to Exhibit 4.3 to the Company's Form 8-A filed on March 25, 1999). 4.4 Form of Preferred Stock Certificate (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.1 First Amendment to Guaranty Agreement dated as of March 24, 1999 between Westbridge Capital Corp. in favor of LaSalle National Bank (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.2 Registration Rights Agreement dated as of March 24, 1999 between the Company and Special Situations Holdings, Inc. - Westbridge (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.3 1999 Stock Option Plan dated as of March 24, 1999 (incorporated by reference to the Company's Schedule 14A filed with the Commission on April 30, 1999). 10.4 Installment Note Agreement dated July 20, 1999 between Ascent Management, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.5 Second Amendment to Credit Agreement dated August 12, 1999 between Ascent Funding, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.6 Second Amendment to Guaranty Agreement dated July 20, 1999 between Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.7 Third Amendment to Guaranty Agreement dated April 17, 2000 between Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.8 Extension of Employment Agreement, dated as of September 15, 1998, by and among the Company, Westbridge Management Corp. and Mr. Patrick J. Mitchell (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.9 Extension of Employment Agreement, dated as of September 15, 1998, by and among the Company, Westbridge Management Corp. and Mr. Patrick H. O'Neill (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.10Fourth Amendment to Guaranty Agreement dated August 10, 2000 between Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 10.11First Amendment to Pledge Agreement, dated as of November 30, 2000, by and among Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000). 10.12Fifth Amendment to Guaranty Agreement, dated as of November 30, 2000, by and among Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000). 10.13Third Amendment to Credit Agreement, dated as of November 30, 2000, by and among Ascent Funding, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000). 10.14First Amendment to Security Agreement, dated as of November 30, 2000, by and among Ascent Management, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000). 10.15Credit Agreement dated April 17, 2001 between Ascent Assurance, Inc. and Credit Suisse First Boston Management Corporation (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed April 25, 2001). 10.16Guaranty and Security Agreement dated April 17, 2001 among Foundation Financial Services, Inc., NationalCare(R)Marketing, Inc., LifeStyles marketing Group, Inc., Precision Dialing Service, Inc., Senior Benefits, L.L.C., and Westbridge Printing Services, Inc. and Credit Suisse First Boston management Corporation (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed April 25, 2001). 10.17Pledge Agreement dated April 17, 2001 between Ascent Assurance, Inc. and Credit Suisse First Boston Management Corporation (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed April 25, 2001). 10.18Sixth Amendment to Guaranty Agreement and Waiver dated April 17, 2001 between Ascent Assurance Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed April 25, 2001). 10.19Fourth Amendment to Credit Agreement dated April 17, 2001 between Ascent Funding, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.5 to the Company's Form 8-K filed April 25, 2001). (b) Reports on Form 8-K No Reports on Form 8-K were filed during the quarter ended March 31, 2001. Form 10-Q Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASCENT ASSURANCE, INC. /s/ Cynthia B. Koenig --------------------------------------------- Cynthia B. Koenig Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Dated at Fort Worth, Texas May 11, 2001 -----END PRIVACY-ENHANCED MESSAGE-----