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: September 30, 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 September 30, 1997; there were 25,000 shares of common capital
stock outstanding, par value $100 per share all of which shares are held by
Allstate Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position
September 30, 1997(Unaudited)and December 31, 1996................3
Statements of Operations
Three Months Ended September 30, 1997 and September 30, 1996
and Nine Months Ended September 30, 1997 and
September 30, 1996 (Unaudited)....................................4
Statements of Cash Flows
Nine Months Ended September 30, 1997
and September 30, 1996 (Unaudited)................................5
Notes to Financial Statements (Unaudited).........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................7
Item 3. Quantitative and Qualitative Disclosure About
Market Risk*.....................................................N/A
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................10
Item 2. Changes in Securities*............................................N/A
Item 3. Defaults Upon Senior Securities*..................................N/A
Item 4. Submission of Matters to a Vote of Security Holders*..............N/A
Item 5. Other Information..................................................10
Item 6. Exhibits and Reports on Form 8-K...................................10
Signature Page...............................................................12
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
-2-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
($ in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed income securities at fair value (amortized
cost $72,394 and $65,500) $ 75,439 $ 67,479
Short-term 2,333 6,590
------------ ------------
Total investments 77,772 74,069
Reinsurance recoverable from Allstate Life
Insurance Company 2,329,533 2,480,034
Cash 262 -
Net receivable from Allstate Life Insurance Company 3,397 4,505
Other assets 3,830 2,639
Separate Accounts 5,575,370 4,354,783
------------ -----------
Total assets $7,990,164 $6,916,030
============ ===========
LIABILITIES
Reserve for life-contingent contract benefits $ 144,188 $ 143,346
Contractholder funds 2,185,075 2,336,296
Income taxes payable 1,190 814
Deferred income taxes 2,475 2,085
Separate Accounts 5,575,370 4,354,783
------------ ----------
Total liabilities $7,908,298 $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 1,980 1,286
Retained income 20,786 18,320
------------ -----------
Total shareholder's equity 81,866 78,706
------------ -----------
Total liabilities and shareholder's equity $7,990,164 $6,916,030
============ ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
($ in thousands) 1997 1996 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Net investment income $ 1,310 $ 1,243 $ 3,838 $ 3,650
Realized capital gains and losses 1 - (68) (22)
-------- ------- -------- -------
INCOME BEFORE INCOME TAX
EXPENSE 1,311 1,243 3,770 3,628
INCOME TAX EXPENSE 454 424 1,304 1,259
--------- -------- -------- -------
NET INCOME $ 857 $ 819 $ 2,466 $ 2,369
========= ======== ======== =======
</TABLE>
See notes to financial statements.
-4-
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
($ in thousands) 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,466 $ 2,369
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items 316 571
Realized capital gains and losses 68 22
(Decrease) Increase in life-contingent contract benefits
and contractholder funds 122 196
Change in deferred income taxes 17 1
Changes in other operating assets and liabilities (126) (421)
---------- -----------
Net cash provided by operating activities 2,863 2,738
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,606 2,320
Investment collections 3,709 5,873
Investment purchases (12,173) (12,694)
Change in short-term investments, net 4,257 1,731
---------- -----------
Net cash used in investing activities (2,601) (2,770)
---------- -----------
NET INCREASE (DECREASE) IN CASH 262 (32)
CASH AT BEGINNING OF PERIOD - 87
---------- -----------
CASH AT END OF PERIOD $ 262 $ 55
========== ===========
</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 September 30, 1997, the
statements of operations for the three-month and nine-month periods ended
September 30, 1997 and 1996, and the statements of cash flows for the
nine-month periods ended September 30, 1997 and 1996 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 10K 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 to ALIC and shown 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.
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. The
following amounts were ceded to ALIC under reinsurance agreements.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
($ in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums $ 549 $ 225 $ 1,369 $ 1,173
Contract charges 23,938 15,422 60,519 44,234
Credited interest, policy benefits,
and expenses $ 47,674 $ 52,906 $143,899 $161,738
</TABLE>
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing
results of operations and financial position of Northbrook Life Insurance
Company (the "Company"). It should be read in conjunction with the financial
statements and notes thereto found under items 7 and 8 of Part II of the
Northbrook Life Insurance Company Annual Report on Form 10K.
The Company is wholly owned by Allstate Life Insurance Company ("ALIC").
The Company markets life insurance contracts and annuity products through Dean
Witter Reynolds Inc., a wholly owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co.
On May 31, 1997, Dean Witter Discover and Morgan Stanley Group Inc. merged
and the combined company became Morgan Stanley, Dean Witter, Discover & Co. The
merger has not and is not expected to have a significant impact on the Company's
business.
The Company and ALIC have reinsurance agreements under which all contract
related transactions are transferred to ALIC. The Company's results of
operations relate to the investment of those assets of the Company that are not
transferred to ALIC under the reinsurance agreements.
Separate Account assets and liabilities are carried at fair value in the
statements of financial position. Investment income and realized gains and
losses of the Separate Accounts accrue directly to the contractholders (net of
fees) and, therefore, are not included in the Company's statements of
operations.
Results of Operations
- ---------------------
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income $ 1,310 $ 1,243 $ 3,838 $ 3,650
========= ======== ========= =========
Realized capital gains and
losses, after tax $ 1 $ - $ (44) $ (14)
========= ======== ========= =========
Net income $ 857 $ 819 $ 2,466 $ 2,369
========= ======== ========= =========
Total investments $ 77,772 $ 71,099 $ 77,772 $ 71,099
========= ======== ========= =========
</TABLE>
Net income increased $38 thousand and $97 thousand for the three-month and
nine-month periods ended September 30, 1997, respectively, compared to the same
periods in 1996. The net income increase is due to increased net investment
income.
-7-
<PAGE>
Net investment income increased $67 thousand and $188 thousand for the
three-month and nine-month periods ended September 30, 1997, respectively. The
additional investment income was earned on a higher base of investments arising
from positive cash flows from operating activities, partially offset by
increased investment expense.
Realized capital losses of $44 thousand after tax for the nine-month
period ended September 30, 1997 are primarily related to the disposition of
fixed income securities. Realized capital losses after tax were $14 thousand for
the nine-month period ended September 30, 1996, and were primarily related to
the disposition of mortgage-backed securities, the proceeds of which were used
to acquire higher yielding investments.
Financial Position
- ------------------
($ in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Total investments $ 77,772 $ 74,069
============ ============
Reinsurance recoverable from ALIC $ 2,329,533 $ 2,480,034
============ ============
Separate Account assets and liabilities $ 5,575,370 $ 4,354,783
============ ============
Contractholder funds $ 2,185,075 $ 2,336,296
============ ============
</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. The increase in
investments is primarily due to the investment of positive operating cash flows
and an increase in the unrealized gains position. At September 30, 1997, net
unrealized capital gains on fixed income securities totaled $3.0 million
compared to $2.0 million as of December 31, 1996. The increase in the unrealized
gain position is primarily attributable to the impact of lower interest rates on
fixed income securities.
All of the Company's fixed income securities portfolio is rated investment
grade, with a National Association of Insurance Commissioners ("NAIC") rating of
1 or a Moody's rating of Aaa, Aa, A, or Baa or a comparable Company internal
rating.
Contractholder funds decreased by $151.2 million and reinsurance
recoverable from ALIC under reinsurance agreements decreased by $150.5 million,
reflecting increased fixed deferred annuity contract surrenders, withdrawals and
benefits, as well as policyholder transfers from fixed annuity contracts to
deferred variable annuity contracts, partially offset by interest credited to
contractholders. The reinsurance recoverable from ALIC is related to contract
benefit obligations ceded to ALIC.
Separate Accounts increased by $1.2 billion attributable to sales of
deferred variable annuity contracts, favorable investment performance of the
Separate Account investment portfolios and transfers from deferred fixed annuity
contracts, partially offset by variable annuity contract surrenders, withdrawals
and contract charges.
-8-
<PAGE>
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 reinsurer for risks
reinsured.
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."
Effective in the second quarter of 1997, FRR 48 requires additional
disclosures in the footnotes to the financial statements about the Company's
accounting policies for derivative financial instruments. The Company
substantially adopted this requirement at December 31, 1996. In addition, 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, equity and fixed income securities and derivative
financial instruments. The quantitative and qualitative disclosures are
effective for the Company's year-end 1997 reporting.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information."
SFAS No. 130 requires the presentation of comprehensive income in the
financial statements. Comprehensive income is a measurement of all changes in
equity that result from transactions and other economic events other than
transactions with stockholders. The requirements of this statement will be
adopted in January 1998.
SFAS No. 131 redefines how segments are determined and requires
additional segment disclosures for both annual and quarterly reporting. Under
this statement, segments are determined using the management approach for
financial statement reporting. The management approach is how an enterprise
makes operating decisions and assesses performance of its businesses. The
requirements of this statement will be adopted in December 1998.
Forward-Looking Statements
- --------------------------
The statements contained in this Management's Discussion and Analysis
that are not historical information are forward-looking statements that are
based on management's estimates, assumptions and projections. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor under The
Securities Act of 1933 and The Securities Exchange Act of 1934 for
forward-looking statements.
-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 third quarter of
1997.
* Previously filed in Form N-4 Registration Statement No. 33-35412
dated September 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 11th day of November 1997.
NORTHBROOK LIFE INSURANCE COMPANY
(Registrant)
/s/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
-12-
<TABLE> <S> <C>
<CAPTION>
<ARTICLE> 7
<LEGEND> THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT SEPTEMBER 30, 1997; STATEMENTS OF
OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996; AND STATEMENTS OF
CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1997.
</LEGEND>
<CIK> 0000716791
<NAME> NORTHBROOK LIFE INSURANCE COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 75,439
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 77,772
<CASH> 262
<RECOVER-REINSURE> 2,329,533
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 7,990,164
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 144,188
<POLICY-HOLDER-FUNDS> 2,185,075
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 79,366
<TOTAL-LIABILITY-AND-EQUITY> 7,990,164
0
<INVESTMENT-INCOME> 3838
<INVESTMENT-GAINS> (68)
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 3770
<INCOME-TAX> 1304
<INCOME-CONTINUING> 2466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2466
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
