<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: June 30, 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 June 30, 1996; there were 25,000 shares of common capital stock
outstanding, par value $100 per share all of which shares are held by Allstate
Life Insurance Company.
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Statements of Financial Position As Of
June 30, 1996(Unaudited)and December 31, 1995 3
Statements of Operations
Three Months Ended June 30, 1996
and June 30, 1995 (Unaudited)
Six Months Ended June 30, 1996
and June 30, 1995 (Unaudited) 4
Statements of Cash Flows
Six Months Ended June 30, 1996
and June 30, 1995(Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
Signature Page
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NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
($ in thousands) 1996 1995
(Unaudited)
<S> <C> <C>
Assets
Investments
Fixed income securities available
for sale, at fair value
(amortized cost $63,703 and $59,142) $ 64,586 $ 63,229
Short-term 5,377 8,049
Total investments 69,963 71,278
Reinsurance recoverable from Allstate
Life Insurance Company 2,547,461 2,636,981
Cash 8 87
Net receivable from Allstate Life
Insurance Company 5,053 6,183
Other assets 2,816 2,164
Separate Accounts 3,826,667 3,354,910
Total assets $6,451,968 $6,071,603
Liabilities
Reserve for life insurance policy
benefits $ 140,360 $ 139,509
Contractholder funds 2,406,857 2,497,278
Income taxes payable 18 233
Deferred income taxes 1,724 2,798
Separate Accounts 3,826,667 3,354,910
Total liabilities 6,375,626 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 574 2,657
Retained income 16,668 15,118
Total shareholder's equity 76,342 76,875
Total liabilities and
shareholder's equity $6,451,968 $6,071,603
</TABLE>
See notes to financial statements.
3
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NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands) 1996 1995 1996 1995
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Net investment income $1,187 $1,192 $2,407 $2,409
Realized capital gains
and losses 9 0 (22) 67
Income before income taxes 1,196 1,192 2,385 2,476
Income tax expense 419 421 835 874
Net income $ 777 $ 771 $1,550 $1,602
</TABLE>
See notes to financial statements.
4
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NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
($ in thousands) 1996 1995
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,550 $ 1,602
Adjustments to reconcile net income to net
cash provided by operating activities
Realized capital gains and losses 22 (67)
Depreciation, amortization and other
non-cash items 303 317
Net change in reserve for policy
benefits and contractholder funds (50) 11,051
Change in deferred income taxes 47 575
Changes in other operating assets and
liabilities (112) (15,296)
Net cash provided by operating
activities 1,760 (1,818)
Cash flows from investing activities
Fixed income securities available for sale
Proceeds from sales 2,320 5,423
Investment collections 4,510 3,511
Investment purchases (11,341) (8,476)
Change in short-term investments, net 2,672 1,402
Net cash used in investing activities (1,839) 1,860
Net (decrease) increase in cash (79) 42
Cash at beginning of period 87 59
Cash at end of period $ 8 $ 101
</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 June 30, 1996, the
statements of operations for the three-month and six-month periods ended
June 30, 1996 and 1995 and the statements of cash flows for the six-month
periods then ended are unaudited. These 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 10K for 1995. The
results of operations for the interim periods 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 $948 and $28,812
for the six-month period ended June 30, 1996 and $1,278 and $22,974 for the
six-month period ended June 30, 1995. Credited interest, policy benefits
and other expenses ceded to Allstate Life amounted to $108,832 and $113,179
for the six-month periods ended June 30, 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 $8,818 and $10,327 at June 30,
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
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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 discussion
and analysis and financial statements thereto found under Items 7 and 8 of Part
II 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.
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 Inc. is the sole
distributor of the Company's products and Dean Witter InterCapital Inc. 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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Net investment income.......... $ 1,187 $ 1,192 $ 2,407 $ 2,409
Realized capital gains and
losses, after tax............ $ 6 $ 0 $ (14) $ 44
Net income..................... $ 777 $ 771 $ 1,550 $ 1,602
Invested assets, at amortized
cost......................... $69,080 $63,286 $69,080 $63,286
</TABLE>
<PAGE>
Pre-tax net investment income of $1.2 million and $2.4 million for the
three-and six-month periods ended June 30, 1996, respectively, was essentially
unchanged when compared to the same periods in 1995. Income on a greater amount
of invested assets at amortized cost was offset by an increase in investment
expense, as well as a decline in the overall portfolio yield as proceeds from
calls and maturities were reinvested in securities yielding less than the
average portfolio rate.
FINANCIAL POSITION
At June 30, 1996 unrealized net capital gains before tax were $.9 million
compared to $4.1 million at December 31, 1995. The decrease in unrealized gains
in the fixed income portfolio is due to effect of rising interest rates.
Contractholder funds decreased by $90.4 million as compared to December 31,
1995 and reinsurance recoverable from Allstate Life under reinsurance treaties
decreased by $89.5 million as compared to December 31, 1995, reflecting
policyholder transfers from fixed annuity contracts to variable annuity
contracts and fixed annuity contract surrenders. Reinsurance recoverable from
Allstate Life relates to policy benefit obligations ceded to Allstate Life.
Separate Account assets and liabilities increased by $471.8 million as
compared to December 31, 1995. The increases were attributable to increased
sales of deferred variable annuity contracts, favorable investment performance
of the Separate Account funds, and policyholder transfers previously described.
LIQUIDITY AND CAPITAL RESOURCES
Under the terms of intercompany reinsurance agreements, assets of the
Company that relate to insurance inforce, 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
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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.
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 second
quarter of 1996.
* Previously filed in Form N-4 Registration Statement No. 33-35412
dated June 14, 1990 and incorporated by reference.
9
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** 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
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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 August 13, 1996 /s/ LOUIS G. LOWER, II
------------------------ -----------------------------
LOUIS G. LOWER, II
CHAIRMAN OF THE BOARD OF DIRECTORS
and CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
DATE August 13, 1996 /s/ BARRY S. PAUL
------------------------ ----------------------------
BARRY S. PAUL
ASSISTANT VICE PRESIDENT
and CONTROLLER
(Chief Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 64,586 63,229
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 69,963 71,278
<CASH> 8 87
<RECOVER-REINSURE> 2,547,461 2,636,981
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 6,451,968 6,071,603
<POLICY-LOSSES> 140,360 139,509
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 2,406,857 2,497,278
<NOTES-PAYABLE> 0 0
<COMMON> 2,500 2,500
0 0
0 0
<OTHER-SE> 73,842 74,375
<TOTAL-LIABILITY-AND-EQUITY> 6,451,968 6,071,603
0 0
<INVESTMENT-INCOME> 2,407 4,782
<INVESTMENT-GAINS> (22) 67
<OTHER-INCOME> 0 0
<BENEFITS> 0 0
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 0 0
<INCOME-PRETAX> 2,385 4,849
<INCOME-TAX> 835 1,686
<INCOME-CONTINUING> 1,550 3,163
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,550 3,163
<EPS-PRIMARY> 62.00 126.52
<EPS-DILUTED> 62.00 126.52
<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>
