FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1997
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, 1997; there were 25,000 shares of common capital stock
outstanding, par value $100 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position
March 31, 1997(Unaudited)and December 31, 1996....................3
Statements of Operations
Three Months Ended March 31, 1997
and March 31, 1996 (Unaudited)....................................4
Statements of Cash Flows
Three Months Ended March 31, 1997
and March 31, 1996 (Unaudited)....................................5
Notes to Financial Statements.....................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................7
Item 3. Quantitative and Qualitative Disclosure About
Market Risk*..................................................N/A
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................10
Item 2. Changes in Securities*............................................N/A
Item 3. Defaults Upon Senior Securities*..................................N/A
Item 4. Submission of Matters to a Vote of Security Holders*..............N/A
Item 5. Other Information..................................................10
Item 6. Exhibits and Reports on Form 8-K...................................10
Signature Page...............................................................12
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
-2-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
($ in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed income securities at fair value (amortized
cost $70,711 and $65,500) $ 70,861 $ 67,479
Short-term 2,071 6,590
---------- ----------
Total investments 72,932 74,069
Reinsurance recoverable from Allstate Life
Insurance Company 2,443,085 2,480,034
Cash 11 -
Net receivable from Allstate Life Insurance Company 4,676 4,505
Other assets 2,731 2,639
Separate Accounts 4,468,964 4,354,783
---------- ----------
Total assets $ 6,992,399 $ 6,916,030
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits $ 144,448 $ 143,346
Contractholder funds 2,298,234 2,336,296
Income taxes payable 943 814
Deferred income taxes 1,459 2,085
Separate Accounts 4,468,964 4,354,783
---------- ----------
Total liabilities $ 6,914,048 $ 6,837,324
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 98 1,286
Retained income 19,153 18,320
---------- ----------
Total shareholder's equity 78,351 78,706
---------- ----------
Total liabilities and shareholder's equity $6,992,399 $6,916,030
========== ==========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
($ in thousands) 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
REVENUES
Net investment income $ 1,272 $ 1,220
Realized capital gains and losses 1 (31)
-------- --------
INCOME BEFORE INCOME TAX EXPENSE 1,273 1,189
INCOME TAX EXPENSE 440 416
-------- --------
NET INCOME $ 833 $ 773
======== ========
</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) 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 833 $ 773
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items 86 63
Realized capital gains and losses (1) 31
(Decrease) Increase in life-contingent contract benefits
and contractholder funds (11) 1,658
Change in deferred income taxes 14 23
Changes in other operating assets and liabilities (246) (2,781)
-------- -------
Net cash provided by (used in) operating activities 675 (233)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales - 3,522
Investment collections 940 1,319
Investment purchases (6,123) (1,077)
Change in short-term investments, net 4,519 (3,559)
-------- --------
Net cash (used in) provided by investing activities (664) 205
-------- --------
NET INCREASE (DECREASE) IN CASH 11 (28)
CASH AT BEGINNING OF PERIOD - 87
-------- ---------
CASH AT END OF PERIOD $ 11 $ 59
======== =========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements include the accounts of Northbrook
Life Insurance Company (the "Company"), a wholly owned subsidiary of
Allstate Life Insurance Company ("ALIC"), 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, 1997, the statements
of operations for the three-month periods ended March 31, 1997 and 1996
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 1996. The results of operations
for the interim period should not be considered indicative of results to
be expected for the full year.
2. Reinsurance
The Company and ALIC have reinsurance agreements under which all premiums
and deposits are transferred to ALIC. Premiums, contract charges,
credited interest and policy benefits are ceded and reflected net of such
cessions in the statements of operations. The amounts shown in the
Company's statements of operations relate to the investment of those
assets of the Company that are not transferred to ALIC under reinsurance
agreements. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues
to have primary liability as the direct insurer for risks reinsured.
Premiums and contract charges ceded to ALIC were $562 thousand and $17.5
million for the three-month period ended March 31, 1997 and $385 thousand
and $13.6 million for the three-month period ended March 31, 1996.
Credited interest, policy benefits and expenses ceded to ALIC amounted to
$52.7 million and $53.4 million for the three-month periods ended March
31, 1997 and 1996, respectively. Investment income earned on the assets
which support contractholder funds is not included in the Company's
financial statements as those assets are owned and managed by ALIC under
the terms of reinsurance agreements.
-6-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing
results of operations and financial position of Northbrook Life Insurance
Company (the "Company"). It should be read in conjunction with the financial
statements and related notes thereto found under items 7 and 8 of Part II of the
Northbrook Life Insurance Company Annual Report on Form 10-K for the year ended
December 31, 1996.
The Company is wholly owned by Allstate Life Insurance Company ("ALIC").
The Company markets life insurance contracts and annuity products through Dean
Witter Reynolds Inc., a wholly owned subsidiary of Dean Witter, Discover & Co.
On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc.
announced that they had entered into an agreement and plan of merger, with the
combined company to be named Morgan Stanley, Dean Witter, Discover & Co. The
parties to the merger anticipate that the transaction will close in mid-1997.
The Company does not expect the merger to have a significant impact on its
business.
The Company and ALIC have reinsurance agreements under which all contract
related transactions are transferred to ALIC. The Company's results of
operations relate to the investment of those assets of the Company that are not
transferred to ALIC under the reinsurance agreements.
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 Accounts accrue directly to the contractholders (net of
fees) and, therefore, are not included in the Company's statements of
operations.
Results of Operations
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
Net investment income $ 1,272 $ 1,220
======== ========
Realized capital gains and (losses), after tax $ 1 $ (20)
======== ========
Net income $ 833 $ 773
======== ========
Total investments $ 72,932 $ 74,069
======== ========
</TABLE>
Net income increased $60 thousand for the first quarter of 1997 due to the
increase in net investment income.
As a result of the reinsurance agreements, the Company's results of
operations include only investment income earned on its investment portfolio.
Net investment income increased by $52 thousand or 4.3% for the first quarter of
1997 when compared to first quarter of 1996. The additional investment income
was earned on a higher base of investments arising from positive cash flows from
operating activities, and is partially offset by lower yields on fixed income
securities and increased investment expense.
-7-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The increase in realized capital gains and losses in 1997 compared to the
first quarter of 1996 is primarily attributable to capital losses realized in
1996 relating to the disposition of certain mortgage-backed securities, the
proceeds of which were used to acquire higher yielding investments.
Financial Position
($ in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ -------------
<S> <C> <C>
Total investments $ 72,932 $ 74,069
============ ============
Separate Account assets $ 4,468,964 $ 4,354,783
============ =============
Contractholder funds $ 2,298,234 $ 2,336,296
============ =============
Reinsurance recoverable from ALIC $ 2,443,085 $ 2,480,034
============ =============
</TABLE>
The Company's fixed income securities portfolio consists of tax-exempt
municipal bonds, publicly traded corporate bonds, mortgage-backed securities and
U.S. government bonds. The Company generally holds its fixed income securities
for the long term, but has classified all of these securities as available for
sale to allow maximum flexibility in portfolio management. Total investments
decreased to $72.9 million at March 31, 1997. The decrease is due to the
decrease of $1.8 million in unrealized gains on fixed income securities. The
decrease in the unrealized gain position is primarily attributable to rising
interest rates.
All of the Company's fixed income securities portfolio is rated investment
grade, with a National Association of Insurance Commissioners rating of 1 or a
Moody's rating of Aaa, Aa or A.
The Company's short-term investment portfolio was $2.1 million and $6.6
million at March 31, 1997 and December 31, 1996, respectively. The Company
invests all available cash balances in taxable and tax-exempt short-term
securities having a final maturity date or redemption date of one year or less.
Contractholder funds decreased by $38.1 million and reinsurance
recoverable from ALIC under reinsurance agreements decreased by $36.9 million,
reflecting fixed deferred annuity contract surrenders, withdrawals and benefits,
as well as policyholder transfers from fixed annuity contracts to variable
deferred annuity contracts, partially offset by interest credited to
contractholders. Reinsurance recoverable from ALIC related to contract benefit
obligations ceded to ALIC.
Separate Accounts increased by $114.2 million attributable to sales of
deferred variable annuity contracts, the favorable investment performance of the
Separate Account investment portfolios and transfers from fixed deferred annuity
contracts, partially offset by variable annuity contract surrenders and
withdrawals and contract charges.
-8-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Under the terms of intercompany reinsurance agreements, premium and
deposits, excluding those related to Separate Accounts, are transferred to ALIC,
which maintains the investment portfolios supporting the Company's products. The
Company continues to have primary liability as a direct insurer for the risks
insured.
Pending Accounting Standards
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48 ("FRR 48") "Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments."
Among other things, FRR 48 requires annual disclosure of quantitative and
qualitative information about the market risk inherent in the Company's
market risk sensitive instruments, including but not limited to, the Company's
fixed income securities. The quantitative and qualitative disclosures are
effective for the Company's year-end 1998 reporting, but recent Congressional
events may ultimately impact the nature and effective date of FRR 48.
-9-
<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. The Company is involved in pending and
threatened litigation in the normal course of its business in which claims
for monetary damages are asserted. Management, after consultation with
legal counsel, does not anticipate the ultimate liability arising from such
pending or threatened litigation to have a material effect on the financial
condition of the Company.
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 first quarter of
1997.
* 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.
-10-
<PAGE>
*** 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 1, 1997 and incorporated by reference. Previously filed in
Form S-1 Registration Statement No. 33-84480 dated April 1, 1997 and
incorporated by reference. Previously filed in Form S-1 Registration Statement
No. 33-50884 dated April 1, 1997 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.
-11-
<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, on the 14th day of May 1997.
NORTHBROOK LIFE INSURANCE COMPANY
(Registrant)
(SEAL)
Attest: /s/ BRENDA D. SNEED By: /s/ MICHAEL J. VELOTTA
------------------- -----------------------
Assistant Secretary and Vice President, Secretary,
Assistant General Counsel General Counsel and Director
*/LOUIS G. LOWER, II CHAIRMAN OF THE BOARD OF DIRECTORS
- --------------------- and CHIEF EXECUTIVE OFFICER
LOUIS G. LOWER, II (Principal Executive Officer)
/s/ KEITH A. HAUSCHILDT ASSISTANT VICE PRESIDENT AND CONTROLLER
- ----------------------- (Chief Accounting Officer)
KEITH A. HAUSCHILDT
*/By Michael J. Velotta, pursuant to Power of Attorney previously filed.
-12-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT MARCH 31, 1997; STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997; AND STATEMENTS OF CASH FLOWS THREE MONTHS
ENDED MARCH 31, 1997.
</LEGEND>
<CIK> 0000716791
<NAME> NORTHBROOK LIFE INSURANCE COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 70,861
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 72,932
<CASH> 11
<RECOVER-REINSURE> 2,443,085
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 6,992,399
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 144,448
<POLICY-HOLDER-FUNDS> 2,298,234
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 75,851
<TOTAL-LIABILITY-AND-EQUITY> 6,992,399
0
<INVESTMENT-INCOME> 1,272
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,273
<INCOME-TAX> 440
<INCOME-CONTINUING> 833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 833
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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</TABLE>
