<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-90272
33-84480
33-50884
NORTHBROOK LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3001527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Sanders Road
Northbrook, Illinois 60062
(Address of principal executive offices)
(Zip Code)
847/402-2400
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former 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 the number of shares of each of the issuer's classes of common
stock, as of March 31, 1996; there were 25,000 shares of common capital stock
outstanding, par value $100 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position
March 31, 1996 (Unaudited) and December 31, 1995 3
Statements of Operations
Three Months Ended March 31, 1996
and March 31, 1995 (Unaudited) 4
Statements of Cash Flows
Three Months Ended March 31, 1996
and March 31, 1995 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
($ in thousands) 1996 1995
(Unaudited)
<S> <C> <C>
Assets
Investments
Fixed income securities
Available for sale, at fair value
(amortized cost $55,377 and $59,142) $ 57,289 $ 63,229
Short-term 11,608 8,049
Total investments 68,897 71,278
Reinsurance recoverable from Allstate Life
Insurance Company 2,589,073 2,636,981
Cash 59 87
Net receivable from Allstate Life Insurance
Company 8,596 6,183
Other assets 2,832 2,164
Separate Accounts 3,603,983 3,354,910
Total assets $6,273,440 $6,071,603
Liabilities
Reserve for life insurance policy
benefits $ 139,533 $ 139,509
Contractholder funds 2,451,004 2,497,278
Income taxes payable 625 233
Deferred income taxes 2,061 2,798
Separate Accounts 3,603,983 3,354,910
Total liabilities 6,197,206 5,994,728
Shareholder's equity
Common stock ($100 par value, 25,000 shares
authorized, issued and outstanding) 2,500 2,500
Additional capital paid-in 56,600 56,600
Unrealized net capital gains 1,243 2,657
Retained income 15,891 15,118
Total shareholder's equity 76,234 76,875
Total liabilities and
shareholder's equity $6,273,440 $6,071,603
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
($ in thousands) 1996 1995
------ ------
(Unaudited)
<S> <C> <C>
Revenues
Net investment income $ 1,220 $ 1,217
Realized capital gains
and losses (31) 67
Income before income taxes 1,189 1,284
Income tax expense 416 453
Net income $ 773 $ 831
</TABLE>
See notes to financial statements.
4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
($ in thousands) 1996 1995
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 773 $ 831
Adjustments to reconcile net income to net
cash from operating activities
Net realized capital losses (gains) 31 (67)
Amortization and other non-cash items 63 144
Net change in reserve for policy
benefits and contractholder funds 1,658 (8)
Change in deferred income taxes 23 1,130
Changes in other operating assets and
liabilities (2,781) (3,697)
Net cash from operating activities (233) (1,667)
Cash flows from investing activities
Fixed income securities available for sale
Proceeds from sales 3,522 5,422
Investment collections 1,319 792
Investment purchases (1,077) (5,790)
Change in short-term investments, net (3,559) 1,231
Net cash from investing activities 205 1,655
Net (decrease) in cash (28) (12)
Cash at beginning of period 87 59
Cash at end of period $ 59 $ 47
</TABLE>
See notes to financial statements.
5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
($ in thousands)
1. Basis of Presentation
Northbrook Life Insurance Company (the "Company") is wholly owned by
Allstate Life Insurance Company ("Allstate Life"), which is wholly owned by
Allstate Insurance Company, a wholly-owned subsidiary of The Allstate
Corporation.
The statements of financial position as of March 31, 1996, the
statements of operations for the three-month periods ended March 31, 1996
and 1995 and the statements of cash flows for the three-month periods then
ended are unaudited. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in
the opinion of management, necessary for the fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The financial statements should be read in conjunction with the
financial statements and notes thereto included in the Northbrook Life
Insurance Company Annual Report on Form 10-K for 1995. The results of
operations for the interim period should not be considered indicative of
results to be expected for the full year.
To conform with the 1996 presentation, certain items in the prior
year's financial statements have been reclassified.
2. Reinsurance
The Company reinsures substantially all business with Allstate Life.
Premiums and contract charges ceded to Allstate Life were $385 and $13,598
for the three-month period ended March 31, 1996 and $889 and $11,435 for
the three-month period ended March 31, 1995. Credited interest, policy
benefits and other expenses ceded to Allstate Life amounted to $53,367 and
$61,185 for the three-month periods ended March 31, 1996 and 1995,
respectively. Investment income earned on the assets which support
contractholder funds was excluded from the Company's financial statements
as those assets were transferred to Allstate Life under the terms of
reinsurance treaties. Reinsurance ceded arrangements do not discharge the
Company as the primary insurer.
Included in Reinsurance recoverable from Allstate Life are fixed
income securities with a carrying value of $10,086 and $10,327 at March 31,
1996 and December 31, 1995, respectively. These securities support
qualified contract liabilities issued in conjunction with certain
retirement plans. Under the terms of the modified coinsurance agreement,
the income related to these securities is ceded to Allstate Life, and is,
therefore, not included in the Company's statements of operations.
6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following highlights significant factors influencing results of operations
and changes in financial position of Northbrook Life Insurance Company (the
"Company"). It should be read in conjunction with the financial statements and
notes thereto found under Part II. Item 8 along with the discussion and analysis
found under Part II. Item 7 of the Northbrook Life Insurance Company Annual
Report on Form 10-K.
The Company, which is wholly owned by Allstate Life Insurance Company ("Allstate
Life"), issues single and flexible premium fixed annuity contracts and universal
life insurance policies. In addition, the Company issues flexible premium
deferred variable annuity contracts, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as the assets and liabilities of the Separate Accounts. Dean Witter
Reynolds is the sole distributor of the Company's products and also manages the
funds in which the assets of the Separate Accounts are invested.
The Company reinsures all of its annuity deposits and life insurance in force
with Allstate Life. Accordingly, the financial results reflected in the
Company's statements of operations do not include income related to those assets
that are transferred to Allstate Life or fixed income securities relating to
policies subject to a modified coinsurance agreement.
Separate account assets and liabilities are carried at fair value in the
statements of financial position. Investment income and realized gains and
losses of the Separate Account investments accrue directly to the
contractholders (net of fees) and, therefore, are not included in the Company's
statements of operations.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Three Months
Ended March 31,
1996 1995
------- -------
<S> <C> <C>
($ IN THOUSANDS)
Net investment income....................... $ 1,220 $ 1,217
======= =======
Realized capital (losses) gains, after tax.. $ (20) $ 44
======= =======
Net income.................................. $ 773 $ 831
======= =======
Invested assets, at amortized cost.......... $66,985 $63,432
======= =======
</TABLE>
7
<PAGE>
Pre-tax net investment income of $1.2 million for the three-month period ended
March 31, 1996 was essentially unchanged when compared to the same period in
1995. Income on an increased level of invested assets at amortized cost, $67
million at March 31, 1996 compared to $63.4 million at March 31, 1995, was
partially offset by an increase in investment expense, as well as a decline in
the overall portfolio yield as yields on the reinvestment of proceeds from calls
and maturities over the last few years were less than the average portfolio
rate.
Net realized capital losses after tax were $20 thousand for the three-month
period ended March 31, 1996 compared to net realized capital gains after tax of
$44 thousand in the same period of 1995. Realized capital losses in 1996 are
primarily related to the disposition of certain mortgage-backed securities, the
proceeds of which were used to acquire higher yielding investments.
Net income decreased 7.0% to $773 thousand during the first three months of 1996
from $831 thousand for the same period in 1995. This decrease is primarily
attributable to the net capital gain (loss) activity during the first three
months of both periods.
FINANCIAL POSITION
At March 31, 1996 unrealized net capital gains were $1.9 million compared to
$4.1 million at December 31, 1995. The decrease in unrealized net capital gains
is primarily attributable to increasing interest rates.
Contractholder funds decreased by $46 million and reinsurance recoverable from
Allstate Life under reinsurance treaties decreased by $48 million, reflecting
policyholder transfers from fixed annuities to variable annuities and fixed
annuity surrenders. Reinsurance recoverable from Allstate Life relates to policy
benefit obligations ceded to Allstate Life.
Separate Account assets and liabilities increased by $249 million attributable
to sales of variable annuities, the favorable investment performance of the
Separate Account funds, and the policyholder transfers previously described.
LIQUIDITY AND CAPITAL RESOURCES
Under the terms of intercompany reinsurance agreements, assets of the Company
that relate to insurance in force, excluding Separate Account assets and fixed
income securities relating to policies subject to the modified coinsurance
agreement, are transferred to Allstate Life which maintains the investment
portfolios that support the Company's products.
8
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
The Company and its Board of Directors know of no material legal
proceedings pending to which the Company is a party or which would materially
affect the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
(2) None
(3) (i) Articles of Incorporation*
(ii) By-laws*
(4) Form of Northbrook Life Insurance Company
Flexible Premium Deferred Annuity Contract
and Application**
(10) (i) Reinsurance Agreement between Northbrook
Life Insurance Company and Allstate Life
Insurance Company***
(ii) Modified Coinsurance Agreement between
Northbrook Life Insurance Company and Allstate
Life Insurance Company****
(11) None
(15) None
(18) None
(19) None
(22) None
(23) (a) Consent of Independent Public Accountants*****
(b) Consent of Attorneys******
(24) None
(27) Financial Data Schedule
(99) None
(b) Reports on 8-K
No reports on Form 8-K were filed during the first
quarter of 1996.
* Previously filed in Form N-4 Registration Statement No. 33-35412
dated June 14, 1990 and incorporated by reference.
** Previously filed in Form S-1 Registration Statement No. 33-90272
dated March 13, 1995 and incorporated by reference. Previously filed in Form S-1
Registration Statement No. 33-67352 dated August 12, 1993 and incorporated by
reference. Previously filed in Form S-1 Registration Statement No. 33-50884
dated August 14, 1992 and incorporated by reference.
*** Previously filed in Form S-1 Registration Statement No. 33-39268
dated March 6, 1991 and incorporated by reference.
**** Previously filed in Form S-1 Registration Statement No. 33-84480
dated March 8, 1995 and incorporated by reference.
***** Previously filed in Form S-1 Registration Statement No. 33-90272
dated April 2, 1996 and incorporated by reference.
******Previously filed in Form S-1 Registration Statement No. 33-90272
dated March 13, 1995 and incorporated by reference. Previously filed in Form
S-1 Registration Statement No. 33-50884 dated August 14, 1992 and incorporated
by reference. Previously filed in Form S-1 Registration Statement No. 33-84480
dated September 28, 1994 and incorporated by reference.
10
<PAGE>
SIGNATURES
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.
Northbrook Life Insurance Company
(Registrant)
DATE May 14, 1996 /s/ MICHAEL J. VELOTTA*
------------ ----------------------
LOUIS G. LOWER, II
CHAIRMAN OF THE BOARD OF DIRECTORS
and CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
DATE MAY 14, 1996 /s/ BARRY S. PAUL
------------ -----------------
BARRY S. PAUL
ASSISTANT VICE PRESIDENT
and CONTROLLER
(Chief Accounting Officer)
*by Michael J. Velotta, Vice President, Secretary and General Counsel pursuant
to Powers of Attorney dated February 9, 1996, previously filed with Form S-1
Registration Statement, File No. 33-84480 filed April 4, 1996; Form S-1
Registration Statement, File No. 33-50884 filed April 4, 1996; and Form S-1
Registration Statement, File No. 33-90272 filed April 2, 1996, copies attached
hereto.
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY CONTRACT
Know all men by these presents that Louis G. Lower, II, whose
signature appears below, constitutes and appoints Michael J. Velotta, his
attorney-in-fact, with power of substitution, and his in any and all capacities,
to sign any registration statements and amendments thereto for the Northbrook
Life Insurance Company Custom Annuity Contract and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
February 9, 1996
----------------
Date
/s/ LOUIS G. LOWER, II
---------------------
Louis G. Lower, II
Chairman of the Board of Directors
& Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY PLUS CONTRACT
Know all men by these presents that Louis G. Lower, II, whose
signature appears below, constitutes and appoints Michael J. Velotta, his
attorney-in-fact, with power of substitution, and his in any and all capacities,
to sign any registration statements and amendments thereto for the Northbrook
Life Insurance Company Custom Annuity Plus Contract and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
February 9, 1996
----------------
Date
/s/ LOUIS G. LOWER, II
----------------------
Louis G. Lower, II
Chairman of the Board of Directors
& Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
SAM ANNUITY CONTRACT
Know all men by these presents that Louis G. Lower, II, whose
signature appears below, constitutes and appoints Michael J. Velotta, his
attorney-in-fact, with power of substitution, and his in any and all capacities,
to sign any registration statements and amendments thereto for the Northbrook
Life Insurance Company SAM Annuity Contract and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
February 9, 1996
----------------
Date
/s/ LOUIS G. LOWER, II
---------------------
Louis G. Lower, II
Chairman of the Board of Directors
& Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
Statements of Financial Position; Statements of Operations; and Statements of
Cash Flows and is qualified in its entirety by reference to such financial
statements.</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 57,289 63,229
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 68,897 71,278
<CASH> 59 87
<RECOVER-REINSURE> 8,596 6,183
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 6,273,440 6,071,603
<POLICY-LOSSES> 139,533 139,509
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 2,451,004 2,497,278
<NOTES-PAYABLE> 0 0
<COMMON> 2,500 2,500
0 0
0 0
<OTHER-SE> 73,734 74,375
<TOTAL-LIABILITY-AND-EQUITY> 6,273,440 6,071,603
0 0
<INVESTMENT-INCOME> 1,220 4,782
<INVESTMENT-GAINS> (31) 67
<OTHER-INCOME> 0 0
<BENEFITS> 0 0
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 0 0
<INCOME-PRETAX> 1,189 4,849
<INCOME-TAX> 416 1,686
<INCOME-CONTINUING> 773 3,163
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 773 3,163
<EPS-PRIMARY> 30.92 126.52
<EPS-DILUTED> 30.92 126.52
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
