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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

FOR QUARTERLY AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended September 30, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-8538

ASCENT ASSURANCE, INC.
(Exact Name of Registrant as Specified in its Charter)

Registrant's Telephone Number, including Area Code
(817) 878-3300

Registrant's Shareholder and Investor Relations Telephone Number
(817) 877-3048

Securities Registered Pursuant to Section 12(b) of the Act:
None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock (par value $.01)
Warrants to purchase Common Stock

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 documents and 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        

Indicate, by check mark, whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES                NO    X  

Common Stock – Par value $0.01; 6,532,100 shares outstanding at November 12, 2003.

ASCENT ASSURANCE, INC.
INDEX TO FORM 10-Q

ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

See the Notes to the Condensed Consolidated Financial Statements.

ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

See the Notes to the Condensed Consolidated Financial Statements.

ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

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)

See the Notes to the Condensed Consolidated Financial Statements.

ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)

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”) is the successor to a Delaware company incorporated in 1982 as an insurance holding company. Ascent, through its applicable subsidiaries, is 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 (Ascent and its subsidiaries are collectively hereinafter the “Company”).

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) tele-marketing services, (ii) printing services, and (iii) renewal commissions received for prior year sales of insurance products underwritten by unaffiliated insurance carriers.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications of prior period amounts have been made to conform to the 2003 financial statement presentation. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Ascent’s Annual Report on Form 10-K for the year ended December 31, 2002.

Cash Equivalents.     Cash equivalents consist of highly liquid instruments with maturities at the time of acquisition of three months or less. Cash equivalents are stated at cost, which approximates market.

Short-Term Investments.     Short-term investments are stated at cost, which approximates market.

Investments.     The Company’s fixed maturity portfolio is classified as available-for-sale and is carried at estimated market value. Equity securities (common stocks) which are included in other investments are also carried at estimated market value. Changes in aggregate unrealized appreciation or depreciation on fixed maturity and equity securities are reported directly in stockholders’ equity, net of any applicable deferred income taxes and, accordingly, will have no effect on current operations.

Deferred Policy Acquisition Costs (“DPAC”).     Policy acquisition costs consisting of commissions and other policy issue costs, which vary with and are primarily related to the production of new business, are deferred and amortized over periods not to exceed the estimated premium-paying periods of the related policies. The amortization of these costs is based on actuarially estimated future premium revenues, and the amortization rate is adjusted periodically to reflect actual experience. Projected future levels of premium revenue are estimated using assumptions as to interest, mortality, morbidity and withdrawals consistent with those used in calculating liabilities for future policy benefits.

Agent Receivables.     In the ordinary course of business, a subsidiary of Ascent advances commissions on policies written by its general agencies and their agents. Net agent receivables were approximately $4.8 million and $6.3 million at September 30, 2003 and December 31, 2002, respectively. Such subsidiary is reimbursed for these advances from the commissions earned over the respective policy’s life. In the event that policies lapse prior to the time the subsidiary has been fully reimbursed, the general agencies or the individual agents, as the case may be, are responsible for reimbursing the subsidiary for the outstanding balance of the commission advances. A reserve for uncollectible agents’ balances is routinely established based upon historical experience and projected commission earnings. As of September 30, 2003 and December 31, 2002, the Company’s allowances for uncollectible commission advances were $5.3 million and $4.6 million, respectively.

Property and Equipment.     Property and equipment is stated on the basis of cost and consists primarily of furniture, fixtures, leasehold improvements and software. Depreciation is computed principally by the straight-line method for financial reporting purposes using estimated useful lives of 2 to 10 years.

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 Insurance Subsidiaries 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. Changes impacting the Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) writings of significant blocks of new business and (4) significant changes in claims payment patterns. 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.

Notes Payable.     Notes payable are stated at cost, which approximates market.

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 September 30, 2003, the Company has reported cumulative pre-tax losses since the fresh start date of March 31, 1999. Realization of the Company’s deferred tax asset is dependent upon the return of the Company’s operations to profitability. 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 carries a valuation allowance to fully reserve all net deferred tax assets as of September 30, 2003 and December 31, 2002.

Recognition of Revenue.     Premium revenues from insurance contracts are recognized when due from policyholders. Fee and service income is recognized when earned, the services have been provided and collectibility is reasonably assured.

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 reflect the potential dilution that could occur if securities or other contracts to issue common stock were converted or exercised. For the nine months ended September 30, 2003 and 2002, stock options of 926,650 and 1,015,750, respectively, and the conversion of the preferred stock that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share because, to do so, would have been anti-dilutive.

The following table reflects the calculation of basic and diluted EPS:

Change in Accounting Estimate.     During the third quarter of 2003, the Company redetermined the estimated useful life of certain software programs used by the Company to manage policyholder data. Effective July 1, 2003, the original estimated life was extended by twenty-four months, reducing software amortization expense by approximately $138,000 for the three and nine month periods ended September 30, 2003. It is expected that this change in accounting estimate will reduce software amortization by approximately $276,000 for the year ending December 31, 2003. The reduction in loss per basic and diluted share outstanding was approximately $.02 for the three and nine month periods ended September 30, 2003.

Recently Issued Accounting Pronouncements.     In December 2002, the FASB issued SFAS No. 148, “Accounting and Stock-Based Compensation – Transition and Disclosure an amendment of FASB Statement No. 123". This statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this statement amends APB Opinion No. 28, “Interim Financial Reporting”, to require disclosure about those effects in interim financial information. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. The Company has complied with the requirements of SFAS No. 148 in the preparation of this statement (see Note 5 of the Notes to the Condensed Consolidated Financial Statements).

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability measured at fair value. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has implemented SFAS 150 effective with the beginning of the third quarter 2003. As a result, the Company’s mandatorily redeemable convertible preferred stock of approximately $36.6 million has been classified as a liability in the September 30, 2003 Condensed Consolidated Balance Sheet. The amount for redeemable convertible preferred stock exhibited in the December 31, 2002 Condensed Consolidated Balance Sheet has not been reclassified as specified in SFAS No. 150. Also, under SFAS No. 150 amounts paid in excess of the initial measurement amount to holders of the mandatorily redeemable preferred stock classified as liabilities are to be reflected in interest cost in the Statements of Operations. All amounts paid to or accrued prior to the reclassification of the stock as a liability shall not be reclassified as interest cost upon implementation. As a result, the Company reflected in interest cost in its Condensed Consolidated Statements of Operations the third quarter 2003 dividends paid to the holders of the redeemable convertible preferred stock. All dividend amounts paid or accrued prior to the implementation of SFAS 150 are reflected as preferred stock dividends.

NOTE 3 – CSFB FINANCING

Ascent received debt financing to fund an $11 million capital contribution to FLICA in April 2001 from Credit Suisse First Boston Management Corporation (“CSFB”), which is an affiliate of Special Situations Holdings, Inc. – Westbridge (Ascent’s largest stockholder). The credit agreement relating to that loan (“CSFB Credit Agreement”) provided Ascent with total loan commitments of $11 million, all of which were drawn in April 2001. The loan bears interest at a rate of 12% per annum and matures in April 2004. Absent any acceleration following an event of default, Ascent may elect to pay interest in kind by issuance of additional notes. During the nine months ended September 30, 2003, Ascent issued $1.3 million in additional notes for payment of interest in kind which increased the notes payable balance to CSFB at September 30, 2003 to approximately $14.8 million. Terms of the CSFB Credit Agreement are equivalent to terms that exist in arms-length credit transactions.

Ascent must obtain additional financing to retire the note payable when it matures in April 2004 or restructure the terms of the note. In August 2003, CSFB indicated that it would discuss the terms in which it would be willing to extend the maturity date. Ascent’s Board of Directors has formed a special committee, consisting of the Board’s four independent directors, to evaluate and negotiate the terms of any such extension with CSFB. The special committee has retained legal counsel and an independent financial advisor to assist it in evaluating the fairness of the terms of any transaction to be entered into with CSFB. There can be no assurance that the negotiations with CSFB will result in a successful extension of the maturity date. Failure of Ascent to successfully restructure the terms of the note payable would have a material adverse impact on Ascent’s liquidity, capital resources and results of operations.

NOTE 4 – REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company has authorized 40,000 shares of non-voting preferred stock. At September 30, 2003, 36,567 shares of preferred stock were outstanding, all of which, are owned by Special Situations Holdings, Inc. – Westbridge, which is Ascent’s largest common stockholder and is also an affiliate of CSFB. Dividends on Ascent’s preferred stock are payable in cash or through issuance of additional shares of preferred stock at the option of Ascent. On September 30, 2003, preferred stock dividends accrued in the third quarter of 2003 were paid through the issuance of 913 shares of preferred stock.

The preferred stock is mandatorily redeemable in cash on March 24, 2004 in an amount equal to the stated value per share plus all accrued and unpaid dividends thereon to the date of redemption. Ascent must obtain additional financing to retire the preferred stock when due or restructure the terms of the preferred stock. In August 2003, CSFB indicated that it would discuss the terms in which it would be willing to extend the maturity date. Ascent’s Board of Directors has formed a special committee, consisting of the Board’s four independent directors, to evaluate and negotiate the terms of any such extension with CSFB. The special committee has retained legal counsel and an independent financial advisor to assist it in evaluating the fairness of the terms of any transaction to be entered into with CSFB. There can be no assurance that the negotiations with CSFB will result in a successful extension of the maturity date. Failure of Ascent to successfully restructure the terms of the preferred stock would have a material adverse impact on Ascent’s liquidity, capital resources and results of operations.

NOTE 5 – EMPLOYEE BENEFIT PLANS

Ascent applies the intrinsic value method, in accordance with APB 25, in accounting for its stock options issued to employees of one of its subsidiaries and non-employee directors. Accordingly, no compensation expense has been recognized for options granted with an exercise price equal to market value at the date of grant. Ascent applies the fair value method under SFAS 123 in accounting for stock options issued to consultants (including marketing agents). Accordingly, compensation cost recognized in the income statement for stock-based employee and consultants (including marketing agents) compensation awards were approximately $4,500 and $3,100 for the three months ended September 30, 2003 and 2002, respectively, and $7,200 and $53,000 for the nine months ended.

The following table illustrates the effect on net loss and loss per share if Ascent had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

For purposes of pro forma disclosure, the estimated fair value of the stock compensation is amortized to expense over the stock’s vesting period. The effect on net loss of the stock compensation amortization for the year presented above is not likely to be representative of the effects on reported income for future years.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

In the normal course of their business operations, the Insurance Subsidiaries continue to be involved in various claims, lawsuits (alleging actual as well as substantial exemplary damages) and regulatory matters. In the opinion of management, the disposition of these or any other legal matters will not have a material adverse effect on Ascent’s business, consolidated financial position or results of operations.

The Insurance Subsidiaries are subject to extensive governmental regulation and supervision at both federal and state levels. Such regulation includes premium rate levels, premium rate increases, policy forms, minimum loss ratios, dividend payments, claims settlement, licensing of insurers and their agents, capital adequacy, transfer of control, and amount and type of investments. Additionally, there are numerous healthcare reform proposals and regulatory initiatives under consideration which if enacted could have significant impact on the Insurance Subsidiaries’ results of operations.

ASCENT ASSURANCE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Ascent Assurance, Inc. (“Ascent”) is the successor to a Delaware company incorporated in 1982 as an insurance holding company. Ascent, through its applicable subsidiaries, is 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 (Ascent and its subsidiaries are collectively hereinafter the “Company”).

The following discussion provides management’s assessment of financial condition at September 30, 2003 as compared to December 31, 2002 and results of operations for the three and nine months ended September 30, 2003 as compared to the comparable 2002 periods for the Company. This discussion updates the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2002 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) tele-marketing services, (ii) printing services, and (iii) renewal commissions received for prior year sales of insurance products for unaffiliated insurance carriers.

The Company’s operations are comprised of one segment, Accident and Health insurance. The principal products currently marketed by NCM and underwritten by NFL and FLICA 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 NFL and FLICA are comprehensive major medical products, hospital/surgical major medical products and supplemental specified disease products:

Prior to 1998, the Insurance Subsidiaries also actively 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. In particular, forward-looking statements can be identified by the use of words such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “continue”, or similar words. 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 Ascent and members of its senior management team. While Ascent management 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:

Subsequent written or oral statements attributable to Ascent or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this Report and those in Ascent’s reports previously filed with the SEC. Copies of these filings may be obtained by contacting Ascent or the SEC.

OPERATING RESULTS

Consolidated results of operations for Ascent are reported for the three and nine months ended September 30, 2003 and 2002. (In thousands except insurance operating ratios.)

Overview.     For the third quarter of 2003, net loss was approximately ($1 million) compared to net income of $154,000 for the corresponding period in 2002. The $1.2 million decrease in net income was primarily due to the implementation of SFAS 150 (see Note 2 to the Condensed Consolidated Financial Statements, Recently Issued Accounting Pronouncements) whereby preferred stock dividends of $.9 million have been reported as a component of interest expense. Pursuant to SFAS 150, prior periods have not been restated. In addition, net investment income declined by $366,000 for the third quarter of 2003 as compared to the prior period quarter due to declining market interest rates.

Net loss for the nine months ended September 30, 2003 was ($477,000) compared to a net loss of ($174,000) for the comparable 2002 period. The net loss for year to date September 2003 included $.9 million of preferred stock dividends reported as interest as a result of the implementation of SFAS 150. Insurance operating results for the nine months ended September 30, 2003 and 2002 were $2.1 million and $1.1 million, respectively. The $1 million improvement in insurance operating results was principally due to a 3.0 percentage point decrease in the benefits and claims ratio. Fee and service results decreased $249,000 for year to date 2003 compared to 2002 principally as a result of Ascent’s printing subsidiary.

Interest expense on the note payable to related party increased to $608,000 in the third quarter of 2003 from $558,000 in the third quarter of 2002 due to the increase in the note payable balance to $14.8 million as of September 30, 2003 from $13.1 million as of September 30, 2002 for interest paid in kind. In addition, dividends on the redeemable convertible preferred stock increased during the third quarter 2003 due to the payment of such dividends in kind. At September 30, 2003, total redeemable convertible preferred stock outstanding was $36.6 million. The redeemable preferred stock and note payable mature in March 2004 and April 2004, respectively. Failure of Ascent to successfully restructure the terms of these facilities would have a material adverse impact on Ascent’s liquidity, capital resources and results of operations (see Liquidity, Capital Resources and Statutory Capital and Surplus.)

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:

Total premiums decreased by $2.3 million, or 8.3%, for the third quarter of 2003 and $7.5 million, or 8.9 %, for the nine months of 2003 as compared to the corresponding 2002 periods as a result of lower new major medical policy sales and the normal lapsing of supplemental specified disease and Medicare supplement policies.

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 1.8 and 3.0 percentage point improvements in the ratio of consolidated benefits and claims to consolidated premiums for the third quarter of 2003 and year to date 2003 as compared to the comparable 2002 periods are principally attributable to a favorable shift in major medical product mix toward products marketed subsequent to June 2000 which were designed to produce a substantially lower benefits and claims to premium ratio than previously marketed products.

FINANCIAL CONDITION

Investments.     The following table summarizes the Company’s fixed maturity securities, excluding short-term investments. All of the Company’s fixed maturity securities are classified as available-for-sale and are carried at market value. Investments in the debt securities of corporations are principally in publicly traded bonds.

The following table indicates by rating the composition of the Company’s fixed maturity securities portfolio, excluding short-term investments.

The scheduled contractual maturities of the Company’s fixed maturity securities, excluding short-term investments, at September 30, 2003 and December 31, 2002 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.

Claim Reserves.    Claim reserves are established by the Insurance Subsidiaries for benefit payments which have already been incurred by the policyholder, but which have not been paid by the applicable Insurance Subsidiary. Claim reserves totaled $25.8 million at September 30, 2003 as compared to $30.9 million at December 31, 2002. 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. Changes impacting the Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) writings of significant blocks of new business and (4) significant changes in claims payment patterns. 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 claim reserves of the Insurance Subsidiaries. Actual claims paid may deviate, perhaps substantially, from such reserves.

Future Policy Benefit Reserves.     Future policy benefit reserves are established by each applicable Insurance Subsidiary for benefit payments that have not been incurred but which are estimated to be incurred in the future. Future policy benefit reserves totaled $58.9 million at September 30, 2003 as compared to $60.7 million at December 31, 2002. Future policy benefit reserves are calculated according to the net level premium reserve method and are equal to the discounted present value of the applicable Insurance Subsidiary’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, policy benefit reserves are determined in accordance with GAAP.

In determining the morbidity, persistency rate, claim cost and other assumptions used in determining future policy benefit reserves, the Insurance Subsidiaries each rely primarily upon their own respective benefit payment history and upon information developed in conjunction with actuarial consultants and industry data. Persistency rates have a direct impact upon their policy benefit reserves because the determinations for these reserves 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.

In accordance with GAAP, actuarial assumptions of each of the Insurance Subsidiaries are generally fixed, and absent materially adverse benefit experience, are not generally adjusted. The Insurance Subsidiaries each monitor the adequacy of their policy benefit reserves on an ongoing basis by periodically analyzing the accuracy of their actuarial assumptions. The adequacy of 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 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 applicable Insurance Subsidiary insures. An increase in either the incidence rate or the per claim costs of such occurrences could result in the need for the Insurance Subsidiaries to post additional reserves, which could have a material adverse effect upon Ascent’s liquidity, capital resources and results of operations.

LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS

General.     The primary sources of cash for the Company’s consolidated operations are premiums and fees from insurance policies, sales and maturity of invested assets and investment income while the primary uses of cash are payments of insurance policy benefits, claims and commissions, and general operating expenses. Net cash provided by (used for) operations totaled $0.2 million and $1.2 million for the three and nine months ended September 30, 2003, compared to ($3.7) million and ($6.9) million for the comparable 2002 periods, respectively. The increase in cash provided by operations is principally due to decreases in the cash basis ratio of benefits and claims to premiums and to the timing of payments of accounts payable and other liabilities.

Ascent is a holding company, the principal assets of which consist of the capital stock of its subsidiaries and invested assets. Ascent’s principal sources of funds are comprised of dividends from its non-insurance subsidiaries. The Insurance Subsidiaries are precluded from paying dividends without prior approval of the Texas Insurance Commissioner as the Insurance Subsidiaries’ earned surplus is negative due to statutory losses incurred in recent years. Ascent’s principal uses of cash are for capital contributions to maintain minimum statutory capital and surplus requirements for the Insurance Subsidiaries and general and administrative expenses. Ascent funded capital contributions to the Insurance Subsidiaries totaling approximately $0.7 million and $1.8 million during the nine months ended September 30, 2003 and 2002, respectively. As of September 30, 2003, Ascent had approximately $2.4 million in unrestricted cash and invested assets.

The statutory losses incurred during recent years resulted from (1) significant losses for comprehensive major medical products marketed prior to July 2000 due to higher than expected claims frequency 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). Major medical claims experience adverse to management’s current estimates or adverse claims experience for other insurance products may cause Ascent to make capital contributions to the Insurance Subsidiaries in excess of those currently projected for 2003. As a result, adverse claims experience could have a material adverse effect on Ascent’s liquidity and capital resources and results of operations.

CSFB Financing and Preferred Stock.     Ascent received debt financing to fund an $11 million capital contribution to FLICA in April 2001 from Credit Suisse First Boston Management Corporation, (“CSFB”), which is an affiliate of Special Situations Holdings, Inc. – Westbridge (Ascent’s largest common stockholder). The Credit Agreement relating to that loan (“CSFB Credit Agreement”) provided Ascent with total loan commitments of $11 million, all of which were drawn in April 2001. 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 three and nine months ended September 30, 2003, Ascent issued $445,000 and $1.3 million in additional notes for payment of interest in kind which increased the notes payable balance to CSFB at September 30, 2003 to approximately $14.8 million. The CSFB Credit Agreement provides for a facility fee of $1.5 million which is payable upon maturity or upon a change in control, as defined. This facility fee is being accrued as additional interest payable over the term of the loan. Ascent’s obligations to CSFB are secured, pursuant to a guaranty 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 for bank financing described below). Ascent’s subsidiaries (other than those listed above) have also guaranteed Ascent’s obligations under the CSFB Credit Agreement. At September 30, 2003, there were no events of default.

Ascent’s redeemable convertible preferred stock is 100% owned by Special Situations Holdings, Inc. – Westbridge, which is Ascent’s largest common stockholder and is also an affiliate of CSFB. Dividends may be paid in cash or by issuance of additional shares of preferred stock, at Ascent’s option. Ascent paid preferred stock dividends through the issuance of 913 and 825 additional shares of preferred stock in the third quarter of 2003 and 2002, respectively. The preferred stock is mandatorily redeemable in cash in March 2004.

Ascent must obtain additional financing to retire the redeemable preferred stock and note payable when due in early 2004 or restructure these facilities. In August 2003, CSFB indicated that it would discuss the terms in which it would be willing to extend the maturity date. Ascent’s Board of Directors has formed a special committee, consisting of the Board’s four independent directors, to evaluate and negotiate the terms of any such extension with CSFB. The special committee has retained legal counsel and an independent financial advisor to assist it in evaluating the fairness of the terms of any transaction to be entered into with CSFB. There can be no assurance that the negotiations with CSFB will result in a successful extension of the maturity date. Failure of Ascent to successfully refinance these facilities would have a material adverse impact on Ascent’s liquidity, capital resources and results of operations.

Bank Financing.     The majority of commission advances to NCM’s agents are financed through Ascent Funding, Inc. (“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 $3.0 million revolving loan facility, the proceeds of which are used to purchase agent advance receivables from NCM and other affiliates. As of September 30, 2003, $1.4 million was outstanding under the Credit Agreement. AFI incurs a commitment fee on the unused portion of the Credit Agreement at a rate of 0.50% per annum.

The Credit Agreement expires January 5, 2004, at which time the outstanding principal and interest will be due and payable. Under the terms of the Credit Agreement, agent advances made within two months of the expiration date (after November 5, 2003) are not eligible for financing. The Company has obtained a commitment from a local bank for a $3.0 million line of credit to finance agent receivables that is intended to replace the LaSalle loan facility. This commitment is subject to the execution of definitive agreements by December 31, 2003 and other customary conditions. There can be no assurance that this financing will be obtained. Failure of the Company to maintain an agent receivable financing credit facility may limit growth in new business sales.

AFI’s obligations under the Credit Agreement are secured by liens upon substantially all of AFI’s assets. AFI’s principal assets at September 30, 2003 are net agent receivables of $5.0 million. In addition, Ascent has guaranteed AFI’s obligation 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 September 30, 2003, there were no events of default under the Credit or Guaranty Agreements.

On January 31, 2003, pursuant to the terms of the Credit Agreement, AFI liquidated a $2.6 million cash collateral account pledged to LaSalle. Pursuant to an agreement with LaSalle, AFI paid a dividend of $1.6 million to Ascent. The proceeds of this dividend were used to fully pay off Ascent Management, Inc.‘s (“AMI”) term loan facility with LaSalle on January 31, 2003. In addition, AMI’s assets and capital stock were pledged as collateral under the Credit Agreement. The remaining proceeds from the cash collateral account were principally used to reduce the outstanding loan balance under the Credit Agreement.

Inflation.     Inflation impacts claim costs and overall operating costs and, although inflation has been lower the last few years, hospital and medical costs have still increased at a higher rate than general inflation, especially prescription drug costs. New, more expensive and wider use of pharmaceuticals, is inflating healthcare costs. The Insurance Subsidiaries will continue to establish premium rates in accordance with trends in hospital and medical costs along with concentrated efforts in various cost containment programs. However, there can be no assurance that these efforts will fully offset the impact of inflation or that increases in premium rates will equal or exceed increasing healthcare costs.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Ascent has no material changes to the disclosure concerning market risk made in its Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.     Under the supervision and with the participation of Ascent’s management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2003, the end of the quarter covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company’s control and procedures are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, Ascent’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2003, the end of the quarter covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Ascent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Changes in internal controls.     There were no changes in the Company’s internal controls over financial reporting that have materially affected, or, are reasonably likely to material affect, these controls during the period covered by this quarterly report.

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.

(b) Reports on Form 8-K

The registrant filed a Report on Form 8-K dated August 13, 2003 under “Item 9. Regulation FD Disclosure” and also under “Item 12. Results of Operations and Financial Condition” attaching a copy of the registrants press release reporting the registrants financial results for the second quarter of 2003.

*Filed Herewith

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.

Dated at Fort Worth, Texas
November 12, 2003