-----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, CiDSRow9R+9U24HfMnj3yjqQ7Hx/H13FQ4euXZauT9o+LUhEtB55abwfLFX6PWIY 7SqxVGcO+PEzgurWAyWh0g== 0000703701-01-500017.txt : 20010815 0000703701-01-500017.hdr.sgml : 20010815 ACCESSION NUMBER: 0000703701-01-500017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1934 Act SEC FILE NUMBER: 000-10873 FILM NUMBER: 1712471 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 f10q0601.txt 6/30/01 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 June 30, 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 August 14, 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 June 30, 2001 and December 31, 2000 2 Ascent Assurance, Inc. Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000 3 Ascent Assurance, Inc. Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2001 and 2000 4 Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2001 and 2000 5 Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 2001 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General 11 Operating Results 13 Financial Condition 15 Liquidity, Capital Resources and Statutory Capital and Surplus 18 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 21 Item 6 - Exhibits and Reports on Form 8-K 22
ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2001 2000 (Unaudited) (Audited) ------------- -------------- (in thousands, except per share data) Assets Investments: Fixed Maturities: Available-for-sale, at market value (amortized cost $100,845 and $104,081) $ 99,375 $ 100,590 Equity securities, at market (cost $1,365) 1,275 1,335 Other investments 435 398 Short-term investments 12,539 7,254 ---------- ----------- Total Investments 113,624 109,577 Cash 942 2,658 Accrued investment income 1,848 1,965 Receivables from agents, net of allowance for doubtful accounts of $4,292 and $3,711 8,354 8,737 Deferred policy acquisition costs 26,938 24,711 Property and equipment, net of accumulated depreciation of $3,577 and $2,683 5,959 6,375 Other assets 7,369 6,455 ---------- ----------- Total Assets $ 165,034 $ 160,478 ========== =========== Liabilities, Preferred Stock and Stockholders' Equity Liabilities: Policy liabilities and accruals: Future policy benefits $ 62,888 $ 61,306 Claim reserves 36,356 42,778 ---------- ----------- Total Policy Liabilities and Accruals 99,244 104,084 Accounts payable and other liabilities 13,588 15,667 Notes payable 20,079 8,947 ---------- ----------- Total Liabilities 132,911 128,698 ---------- ----------- Redeemable Convertible Preferred Stock 29,124 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 27,817 27,620 Accumulated other comprehensive income, net of tax (1,560) (2,324) Retained deficit (23,323) (21,286) ---------- ----------- Total Stockholders' Equity 2,999 4,075 ---------- ----------- Total Liabilities, Redeemable Convertible Preferred Stock And Stockholders' Equity $ 165,034 $ 160,478 ========== ===========
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ------------ ------------ ------------ ----------- (in thousands, except per share data) Revenues: Premiums: First-year $ 8,543 $ 7,230 $ 16,368 $ 13,939 Renewal 23,398 21,998 47,547 44,294 ----------- ----------- ----------- ----------- Total premiums 31,941 29,228 63,915 58,233 Net investment income 2,294 2,266 4,616 4,344 Fee, service and other income 5,362 5,294 10,971 10,190 Net realized gain (loss) on investments 52 (254) 94 (237) ----------- ----------- ----------- ----------- Total revenue 39,649 36,534 79,596 72,530 ----------- ----------- ----------- ----------- Benefits, claims and expenses: Benefits and claims 24,558 22,962 49,375 46,644 Increase in deferred acquisition costs (1,110) (2,229) (2,227) (3,938) Commissions 5,538 5,851 11,501 12,290 General and administrative expenses 9,651 9,203 19,753 16,770 Taxes, licenses and fees 1,290 1,513 2,353 2,704 Interest expense on notes payable 486 152 656 236 ----------- ----------- ----------- ----------- Total expenses 40,413 37,452 81,411 74,706 Loss before income taxes (764) (918) (1,815) (2,176) Federal income tax benefit - 312 - 740 ----------- ----------- ----------- ----------- Net loss $ (764) $ (606) $ (1,815) $ (1,436) Preferred stock dividends 710 651 1,420 1,302 ----------- ----------- ----------- ----------- Loss applicable to common stockholders $ (1,474) $ (1,257) $ (3,235) $ (2,738) =========== =========== =========== =========== Basic and diluted loss per common share $ (.23) $ (.19) $ (.50) $ (.42) =========== =========== =========== =========== Weighted average shares outstanding: Basic 6,500 6,500 6,500 6,500 =========== =========== =========== =========== Diluted 6,500 6,500 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 Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------- ------------ ------------ ------------ (in thousands) Net loss $ (764) $ (606) $ (1,815) $ (1,436) Other comprehensive (loss) income: Unrealized holding (loss) gain arising during period, net of tax (452) (841) 858 (677) Reclassification adjustment of (gain) loss on sales of investments included in net income, net of tax (52) 168 (94) 157 ----------- ----------- ----------- ----------- Comprehensive loss $ (1,268) $ (1,279) $ (1,051) $ (1,956) =========== =========== =========== ===========
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (in thousands) Cash Flow From Operating Activities: Net loss $ (764) $ (606) $ (1,815) $ (1,436) Adjustments to reconcile net income to cash provided by (used for) operating activities (Increase) decrease in accrued investment income (180) (138) 117 7 Increase in deferred acquisition costs (1,110) (2,229) (2,227) (3,938) (Increase) decrease in receivables from agents (16) (1,138) 383 (765) (Increase) decrease in other assets (402) 187 (914) (829) (Decrease) increase in policy liabilities and accruals (2,999) 7,193 (4,840) 9,978 (Decrease) increase in accounts payable and other liabilities (2,147) 3,540 (2,079) 903 Increase in deferred income taxes, net - (665) - (949) Other, net 1,964 449 1,899 2,001 ----------- ----------- ----------- ----------- Net Cash (Used For) Provided By Operating Activities (5,654) 6,593 (9,476) 4,972 ----------- ----------- ----------- ----------- Cash Flow From Investing Activities: Purchases of fixed maturity investments (8,014) (6,025) (12,998) (9,006) Sales of fixed maturity investments 4,367 2,808 13,408 3,714 Maturities and calls of fixed maturity investments 265 1,125 2,644 1,998 Net increase in short-term and other investments (4,943) (6,952) (5,322) (3,911) Property and equipment purchased (66) (285) (480) (820) ----------- ----------- ----------- ----------- Net Cash Used For Investing Activities (8,391) (9,329) (2,748) (8,025) ----------- ----------- ----------- ----------- Cash Flow From Financing Activities: Issuance of notes payable 11,305 1,146 11,305 1,888 Repayment of notes payable (239) (140) (450) (280) Deferred debt costs (347) - (347) - ----------- ----------- ----------- ----------- Net Cash Provided By Financing Activities 10,719 1,006 10,508 1,608 ----------- ----------- ----------- ----------- Decrease In Cash During Period (3,326) (1,730) (1,716) (1,445) Cash At Beginning Of Period 4,268 5,395 2,658 5,110 ----------- ----------- ----------- ----------- Cash At End Of Period $ 942 $ 3,665 $ 942 $ 3,665 =========== =========== =========== ===========
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 (1,815) (1,815) Preferred Stock dividend (1,420) (1,420) Other comprehensive gain, net of tax 764 1,198 1,962 Amortization of unearned compensation 197 197 ---------- ------ ------------ --------------- ---------- --------- Balance at June 30, 2001 6,500,000 $ 65 $ 27,817 $ (1,560) $ (23,323) $ 2,999 ========== ====== ============ =============== ========== =========
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 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 June 30, 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 June 30, 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 six months 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 June 30, 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 Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (amounts in thousands, except per share amounts) Net loss $ (764) $ (606) $ (1,815) $ (1,436) Preferred Stock dividends (710) (651) (1,420) (1,302) ----------- ----------- ----------- ----------- Loss applicable to common shareholders $ (1,474) $ (1,257) $ (3,235) $ (2,738) =========== =========== =========== =========== Weighted average shares outstanding: Basic 6,500 6,500 6,500 6,500 Diluted 6,500 6,500 6,500 6,500 Basic and diluted loss per share $ (.23) $ (.19) $ (.50) $ (.42) =========== =========== =========== ===========
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 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. During the secound quarter 2001, Ascent issued $277,000 in additional notes for payment of interest in kind. 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. On June 30, 2001, preferred stock dividends accrued in the first six months of 2001 were paid through the issuance of 1,419 shares of preferred stock and a $881 distribution of cash. 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 replaced the 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 June 30, 2001 as compared to December 31, 2000 and results of operations for the three and six months ended June 30, 2001 as compared to the comparable 2000 periods 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 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: o 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. o 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. o 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: o further adverse claims experience in excess of management's current expectations or other events adversely impacting the Company's liquidity position, o actions that may be taken by insurance regulatory authorities, o 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, o the loss of key personnel, o 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 and six months ended June 30, 2001 and 2000. (In thousands except insurance operating ratios.) Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Premiums $ 31,941 $ 29,228 $ 63,915 $ 58,233 Other 970 810 1,872 1,495 ----------- ----------- ----------- ----------- Total insurance operating revenue 32,911 30,038 65,787 59,728 ----------- ----------- ----------- ----------- Benefits and claims 24,558 22,962 49,375 46,644 Commissions 4,690 4,283 9,551 8,858 Increase in deferred acquisition costs (1,110) (2,231) (2,227) (3,938) General and administrative expense 6,714 7,149 13,905 13,025 Taxes, licenses and fees 1,138 1,508 2,043 2,460 ----------- ----------- ----------- ----------- Total insurance operating expenses 35,990 33,671 72,647 67,049 ----------- ----------- ----------- ----------- Insurance Operating Results (3,079) (3,633) (6,860) (7,321) ----------- ----------- ----------- ----------- Fee and service income 4,392 4,484 9,099 8,695 Fee and service expenses (3,937) (3,629) (8,108) (7,421) ----------- ----------- ----------- ----------- Fee and Service Results 455 855 991 1,274 ----------- ----------- ----------- ----------- Net investment income 2,294 2,266 4,616 4,344 Net realized gain (loss) on investments 52 (254) 94 (237) Interest expense on notes payable (486) (152) (656) (236) ----------- ----------- ----------- ----------- Loss Before Income Taxes (764) (918) (1,815) (2,176) Income tax benefit - 312 - 740 ----------- ----------- ----------- ----------- Net Loss $ (764) $ (606) $ (1,815) $ (1,436) =========== =========== =========== =========== Insurance operating ratios* Benefits and claims 76.9% 78.6% 77.3% 80.1% Commissions 14.7% 14.7% 14.9% 15.2% Increase in deferred acquisition costs -3.5% -7.6% -3.5% -6.8% General and administrative expenses 20.4% 23.8% 21.1% 21.8% Taxes, licenses and fees 3.6% 5.2% 3.2% 4.2%
*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 second quarter of 2001, the loss before income taxes was $0.8 million, compared to a loss before income taxes of $0.9 million for the corresponding 2000 period. For the first six months of 2001, the pre-tax loss was $1.8 million, compared to a pre-tax loss of $2.2 million for the six months ended June 30, 2000. Pre-tax operating losses for both 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 the first six months of 2001 to comply with statutory capital and surplus requirements. Continued adverse claims experience for the GPPO product in excess of management's current expectations would 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 June 30, 2001, annualized premiums in force for the new major medical policy were $23.4 million as compared to $8.7 million at December 31, 2000. The following narratives discuss the principal components of the operating results. Premiums. Premium revenue, in thousands, for each major product line is set forth below: Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Major medical: First-year $ 8,036 $ 6,629 $ 15,376 $ 12,847 Renewal 11,895 8,514 23,983 17,308 ----------- ----------- ----------- ----------- Subtotal 19,931 15,143 39,359 30,155 ----------- ----------- ----------- ----------- Supplemental specified disease: First-year 326 352 584 726 Renewal 5,882 6,468 12,043 13,294 ----------- ----------- ----------- ----------- Subtotal 6,208 6,820 12,627 14,020 ----------- ----------- ----------- ----------- Medicare supplement: First-year - - - - Renewal 5,159 6,574 10,592 13,074 ----------- ----------- ----------- ----------- Subtotal 5,159 6,574 10,592 13,074 ----------- ----------- ----------- ----------- Other 643 691 1,337 984 ----------- ----------- ----------- ----------- Consolidated Premium Revenue $ 31,941 $ 29,228 $ 63,915 $ 58,233 =========== =========== =========== ===========
Total premiums increased by $2.7 million, or 9.3%, for the second quarter of 2001 and $5.7 million, or 9.8%, for the six months of 2001 as compared to the corresponding 2000 periods 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 $10.1 million and $20.3 million for the three and six months ended June 30, 2001, compared to $7.7 million and $15.2 million for the comparable 2000 periods. The Company is principally marketing major medical products. 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 second quarter of 2001 compared to the second 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 second quarter of 2001 and 2000. Adverse claims experience for the old GPPO product has been primarily due to higher than expected claims frequency. Additional adverse claims experience for the old GPPO product in excess of management's current expectations 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 second quarter of 2001, general and administrative expenses decreased over the comparable 2000 period by 3.4 percentage points which improved insurance operating results by approximately $1.1 million. The decrease was due principally to expenses in the second quarter of 2000 related to the implementation of the Company's new policy administration and claims data processing systems. Interest Expense. Interest expense increased $0.3 million and $0.4 million, respectively, for the three and six months ended June 30, 2001 compared to the comparable 2000 periods due to the $11 million debt financing from Credit Suisse First Boston Management Corporation in April, 2001. Interest paid in the three and six months ended June 30, 2001 was $0.5 million and $0.7 million, respectively, and includes $0.3 million of deferred financing costs, which are amortized over the life of the loan. 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. June 30, 2001 December 31, 2000 Fixed Maturity Securities Market Value % Market Value % - ----------------------------------------- -------------- ------ ------------- ------ (in thousands) (in thousands) U.S. Government and governmental agencies and authorities (except mortgage-backed) $ 10,614 10.7 $ 10,462 10.4 Finance 22,736 22.9 23,445 23.3 Public utilities 7,324 7.4 6,787 6.7 Mortgage-backed 12,351 12.4 13,302 13.2 States, municipalities and political subdivisions 1,984 2.0 1,982 2.0 All other corporate bonds 44,366 44.6 44,612 44.4 --------- -------- ---------- -------- Total fixed maturity securities $ 99,375 100.0 $ 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". Composition of Fixed Maturity June 30, 2001 December 31, 2000 Securities by Rating Market Value % Market Value % - ----------------------------------------------- -------------- -------- -------------- ------ (in thousands) (in thousands) Ratings Investment grade: U.S. Government and agencies $ 21,438 21.6 $ 22,754 22.6 AAA 3,610 3.6 2,885 2.9 AA 7,404 7.5 8,305 8.3 A 37,280 37.5 38,552 38.3 BBB 28,677 28.8 27,168 27.0 Non-Investment grade: BB - - 674 0.7 B and below 966 1.0 252 0.2 --------- -------- ---------- -------- Total fixed maturity securities $ 99,375 100.0 $ 100,590 100.0 ========= ======== ========== ========
The scheduled contractual maturities of the Company's fixed maturity securities, excluding short-term investments and certificates of deposit, at June 30, 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. Composition of Fixed Maturity June 30, 2001 December 31, 2000 Securities by Maturity Market Value % Market Value % - ----------------------------------------------- -------------- -------- -------------- ------- (in thousands) (in thousands) Scheduled Maturity Due in one year or less $ 7,814 7.9 $ 7,073 7.0 Due after one year through five years 26,070 26.2 28,877 28.7 Due after five years through ten years 29,066 29.3 26,327 26.2 Due after ten years 24,074 24.2 25,011 24.9 Mortgage-backed and asset-backed securities 12,351 12.4 13,302 13.2 --------- ------- ---------- ------- Total fixed maturity securities $ 99,375 100.0 $ 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 $36.4 million at June 30, 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 June 30, 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 $62.9 million at June 30, 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 $16.6 million during the six months ended June 30, 2001 as compared to $2.8 million for the corresponding prior year period. As of June 30, 2001, Ascent held approximately $1.5 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. During the second quarter of 2001, Ascent issued $277,000 in additional notes for payment of interest in kind. 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. On June 30, 2001, preferred stock dividends accrued in the first six months of 2001 were paid through the issuance of 1,419 shares of preferred stock and a $881 distribution of cash. 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 $16.6 million were funded during the six months ended June 30, 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 $11.8 million for the first six months of 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 attempts to limit 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) provided by operations totaled $(5.6) million and $6.6 million for the second quarter of 2001 and 2000, respectively. The increase in cash outflow from operations for 2001 was primarily attributable to an increase in the cash basis ratio of benefits and claims to premiums. Net cash used for investing activities for the second quarter of 2001 and 2000 totaled $(8.4) million and $(9.3) million, respectively. Cash used for investing activities was primarily for the purchase of fixed maturity and short term investments. Net cash provided by financing activities totaled $10.7 million and $1.0 million for the second quarter of 2001 and 2000, respectively. Financing activities during the second quarter of 2001 include $11 million loan proceeds for the debt financing, $0.3 million payment of deferred debt costs, $0.1 million in net borrowings 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 $1.1 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 Inc., ("AFI"), an indirect wholly owned subsidiary of Ascent. AFI has entered into a Credit Agreement (the "LaSalle Credit Agreement") with LaSalle Bank, N.A. ("LaSalle"). The LaSalle Credit Agreement, as amended, provides AFI with a $7.5 million revolving loan facility, the proceeds of which are used to purchase agent advance receivables from affiliates. At June 30, 2001, approximately $6.3 million was outstanding under the LaSalle Credit Agreement. The LaSalle Credit Agreement expires June 5, 2002, at which time the outstanding principal and interest will be due and payable. Under the terms of the LaSalle Credit Agreement, agent advances made within six months of the expiration date (after December 5, 2001) are not eligible for financing. The Company is currently seeking to extend the LaSalle Credit Agreement. Failure of the Company to obtain an extension of the LaSalle Credit Agreement by December 2001 could have a material adverse effect on Ascent's liquidity and capital resources and ability to fund projected capital contributions to its Insurance Subsidiaries . Failure by Ascent to fund projected capital contributions to its Insurance Subsidiaries could have a material adverse effect on Ascent's results of operations. AFI's obligations under the LaSalle Credit Agreement are secured by liens upon substantially all of AFI's assets. The Company has guaranteed AFI's obligations under the LaSalle 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 August 13, 2001, there were no events of default under the LaSalle Credit or Guaranty Agreements. However, additional adverse claims experience in excess of management's current expectations 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. The term loan facility is 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 June 30, 2001, approximately $2.5 million was outstanding under the term loan facility. ASCENT ASSURANCE, INC. PART II ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 8, 2001, Ascent Assurance, Inc. held its annual meeting of shareholders. At the meeting, the shareholders elected three directors of the Company. The shareholders elected Patrick J. Mitchell, James K. Steen and Paul E. Suckow to serve on the Company's Board of Directors for a three year term expiring in 2004. The following table reflects the votes cast at the annual meeting: For Withheld ------------ ------------- Patrick J. Mitchell 3,306,491 55 James K. Steen 3,306,491 55 Paul E. Suckow 3,306,491 55 Total Votes Cast 3,306,546 Directors whose terms continued and the years in which their term expires are as follows: Director Term Expiration ----------------------- --------------------------- John H. Gutfreund 2002 Michael A. Kramer 2002 Richard H. Hershman 2003 Robert A. Peiser 2003 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). 10.10 Fourth 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). 10.11 First 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). 10.12 Fifth 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). 10.13 Third 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). 10.14 First 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). 10.15 Credit 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). 10.16 Guaranty and Security Agreement dated April 17, 2001 among Foundation Financial Services, Inc., NationalCare 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). 10.17 Pledge 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). 10.18 Sixth 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). 10.19 Fourth 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 The Registrant filed a Report on Form 8-K dated April 25, 2001 in response to Item 5, Other Events, to report the $11 million debt financing with Credit Suisse First Boston Management Corporation. 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 August 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----