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Filed Pursuant to Rule 424b(3)
File No. 33-47245
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
P.O. BOX 9095
FARMINGVILLE, NEW YORK 11738
(516) 451-5170
INDIVIDUAL DEFERRED ANNUITY CONTRACTS
DISTRIBUTED BY
DEAN WITTER REYNOLDS INC.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
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This Prospectus describes the individual Single Premium Deferred Annuity
Contract ("Contract") offered by Allstate Life Insurance Company of New York
("Company"), an indirect wholly-owned subsidiary of Allstate Insurance Company.
Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter and
distributor of the Contract.
The Contract is designed to aid you in your choice of short-term, mid-term or
long-term financial planning and can be used for retirement planning regardless
of whether the plan qualifies for special federal income tax treatment. A
minimum Purchase Payment of $4,000 must be presented at the time of application
for a Contract ($1,000 for a Qualified Contract). Presently, the Company will
accept a Purchase Payment of $1,000 for all Contracts, but reserves the right
to increase this amount to no more than $4,000.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996
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The Contracts are available only in New York.
At least once each Contract year, the Company will send the Owner an annual
statement that contains certain information pertinent to the Owner's individual
Contract. The annual statement details values and specific Contract data that
applies to each particular Contract. The annual statement does not contain
financial statements of the Company. The Company, however, is subject to the
informational requirements of the Securities Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities
and Exchange Commission. Reports and other information filed by the Company can
be inspected at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549, at prescribed rates.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
TABLE OF CONTENTS
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PAGE
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GLOSSARY............................... 3
INTRODUCTION........................... 5
THE CONTRACT........................... 6
Purchase of the Contract............. 6
THE ACCUMULATION PHASE................. 7
The Accumulation Phase Defined....... 7
Initial and Subsequent Guarantee
Periods............................. 7
Interest Credited.................... 7
Example of Interest Crediting During
the Guarantee Period................ 8
Partial Withdrawals and Surrenders... 9
Withdrawal Charge.................... 9
Market Value Adjustment.............. 9
Withdrawals at the End of a Guarantee
Period.............................. 10
Taxes................................ 10
Payment Upon Partial Withdrawal or
Surrender........................... 10
Death Benefits....................... 10
THE PAYOUT PHASE....................... 11
Income Plans......................... 11
Payout Terms......................... 12
AMENDMENT OF THE CONTRACT.............. 13
DISTRIBUTION OF THE CONTRACT........... 13
CUSTOMER INQUIRIES..................... 13
</TABLE>
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FEDERAL TAX MATTERS.................... 13
Introduction......................... 13
Taxation of the Company.............. 13
Taxation of Annuities in General..... 14
Qualified Plans...................... 15
Other Considerations................. 16
THE COMPANY............................ 17
Business............................. 17
Investments by the Company........... 17
SELECTED FINANCIAL DATA................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 20
General.............................. 20
Results of Operations................ 20
Financial Position................... 21
Liquidity and Capital Resources...... 23
COMPETITION............................ 24
EMPLOYEES.............................. 24
PROPERTIES............................. 24
STATE AND FEDERAL REGULATION........... 24
EXECUTIVE OFFICERS AND DIRECTORS....... 25
EXECUTIVE COMPENSATION................. 27
LEGAL PROCEEDINGS...................... 28
EXPERTS................................ 28
LEGAL MATTERS.......................... 28
FINANCIAL STATEMENTS................... F-1
APPENDIX A............................. A-1
</TABLE>
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GLOSSARY
Accumulation Phase--The Accumulation Phase is the first of two phases in the
life of the Contract. The Accumulation Phase begins on the Issue Date. The Ac-
cumulation Phase will continue until the Payout Start Date unless the Contract
is terminated before that date.
Account Value--The Account Value is the Purchase Payment accumulated with
credited interest. Any withdrawals will affect the Account Value.
Age--Age on last birthday.
Annuitant--The person designated in the Contract, whose life determines the
duration of Income Payments involving life contingencies. Includes any Joint
Annuitant.
Beneficiary--The person(s) designated in the Contract who, during the Accumu-
lation Phase, after the death of all Owners, may elect to receive the Death
Benefit or continue the Contract as described in the "Death Benefits" section.
If the sole surviving Owner dies after the Payout Start Date, the Beneficiary
will receive any guaranteed Income Payments scheduled to continue.
Company--The issuer of the Contract, Allstate Life Insurance Company of New
York, which is an indirect wholly-owned subsidiary of Allstate Insurance Com-
pany ("Allstate"). Allstate is a wholly-owned subsidiary of The Allstate Corpo-
ration.
Contract--The Allstate Life Insurance Company of New York single premium de-
ferred annuity contract, known as the "Custom Annuity", that is described in
this Prospectus.
Date of Death--The date that an Owner and/or last surviving Annuitant dies.
Death Benefit--The Death Benefit is the greater of: (1) the Account Value or
(2) the Settlement Value.
Due Proof of Death--one of the following:
(a) A certified copy of a death certificate.
(b) A certified copy of a decree of a court of competent jurisdiction as
to the finding of death.
(c) Any other proof satisfactory to the Company.
Guarantee Period--The period for which a particular declared effective annual
interest rate is guaranteed.
Income Payments--A series of periodic payments made by the Company to the
Owner during the Payout Phase of the Contract.
Issue Date--The date the Contract becomes effective.
Joint Annuitant--The person, along with the Annuitant, whose life determines
the duration of Income Payments under a joint and last survivor annuity.
Market Value Adjustment--The Market Value Adjustment is the adjustment made
to the money distributed prior to the end of a Guarantee Period to reflect the
impact of changes in interest rates between the time money was allocated to the
Guarantee Period and the time of distribution.
Non-Qualified Contracts--Contracts that do not qualify for special federal
tax treatment.
Owner--The person(s) designated as the Owner(s) in the Contract. The Owner
will receive the Death Benefit upon the death of the last surviving Annuitant,
who is not also an Owner.
Payout Phase--The Payout Phase is the second of the two phases in the life of
the Contract. It begins on the Payout Start Date.
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Payout Start Date--The date Income Payments are to begin under the Contract.
Preferred Withdrawal Amount--A portion of the Account Value which may be an-
nually withdrawn without incurring a Withdrawal Charge or a Market Value Ad-
justment.
Purchase Payment--The premium paid by the Owner to the Company.
Qualified Contracts--Contracts issued under plans that qualify for special
federal tax treatment.
Settlement Value--The Settlement Value is the Account Value adjusted by any
applicable Market Value Adjustment less any applicable Withdrawal Charges and
premium tax.
Surrender--Termination of the Contract.
Systematic Withdrawals--Periodic partial withdrawals of $100 or more may be
deposited in the Owner's bank account or Dean Witter Active Assets(TM) Account.
Systematic Withdrawals are available monthly, quarterly, semi-annually and
annually.
Withdrawal Charge--The charge that will be assessed by the Company on full or
partial withdrawals in excess of the Preferred Withdrawal Amount.
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INTRODUCTION
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1. WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract described in this Prospectus provides a cash withdrawal benefit
and a Death Benefit during the Accumulation Phase and periodic Income Payments
beginning on the Payout Start Date during the Payout Phase. (See "Partial
Withdrawals and Surrenders", pg. 9, "Death Benefits", pg. 10, and "The Payout
Phase", pg. 11.)
The cash withdrawal benefit may be subject to a Market Value Adjustment. As
such, the Owner bears some investment risk under the Contract. (See, "Market
Value Adjustment", pg. 9.)
2. HOW DO I PURCHASE A CONTRACT?
You may purchase the Contract from Dean Witter, the Company's sales
representative. The Purchase Payment must be at least $4,000 ($1,000 for a
Qualified Contract). Presently, the Company will accept a Purchase Payment of
$1,000 for all Contracts, but reserves the right to increase this amount to no
more than $4,000.
At the time of purchase, you will select a Guarantee Period in which to
allocate your Purchase Payment. Guarantee Periods, which are offered at the
discretion of the Company, may range from one to ten years. (See, "Purchase of
the Contract", pg. 6.)
3. WHAT IS A GUARANTEE PERIOD AND WHAT HAPPENS AT THE END OF IT?
Interest is credited at an effective annual rate declared by the Company for
the Guarantee Period.
You will have two options at the end of a Guarantee Period: you may either
withdraw your entire Account Value free of a Withdrawal Charge and a Market
Value Adjustment or you may select a renewal Guarantee Period. If you do not
choose either option within 10 calendar days after the end of a Guarantee
Period, the Company will establish a one-year renewal Guarantee Period for you.
At the end of any future Guarantee Period you may withdraw your Account Value
or select a renewal Guarantee Period. (See, "Initial and Subsequent Guarantee
Periods", pg. 7.)
4. IS THERE A FREE-LOOK PROVISION?
The Owner may cancel the Contract anytime within 10 days after the receipt of
the Contract and receive a full refund of the Purchase Payment.
5. DOES THE CONTRACT HAVE CHARGES OR DEDUCTIONS?
There are no front-end charges under the Contract. A Withdrawal Charge will
be applied to a partial withdrawal or full surrender during the initial
Guarantee Period. Withdrawal Charges will be the lesser of:
(a) one-half the interest crediting rate for the Guarantee Period
multiplied by the amount withdrawn in excess of the Preferred
Withdrawal Amount; or
(b) interest earned on the amount withdrawn.
The Withdrawal Charge will not exceed 10%, reduced by 1% for every year the
Contract is in force, multiplied by the sum of: (1) the amount withdrawn; and
(2) the Market Value Adjustment.
No Withdrawal Charge will be applied to a withdrawal following the end of the
initial Guarantee Period.
If money is withdrawn from the Contract prior to the end of an initial or a
renewal Guarantee Period, a Market Value Adjustment will be applied to the
money distributed in excess of the Preferred
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Withdrawal Amount. The Market Value Adjustment may be positive or negative.
(See, "Withdrawal Charge", pg. 9, and "Market Value Adjustment", pg. 9.)
Money may be withdrawn from a Contract during the 10 calendar days after the
end of a Guarantee Period without being subject to a Market Value Adjustment.
If a surrender request is received by the Company at its home office within 10
calendar days after the end of a Guarantee Period, the Account Value as of the
end of that Guarantee Period will be paid.
6. CAN I GET MY MONEY IF I NEED IT?
All or part of the Account Value can be withdrawn before the earliest of the
Payout Start Date, the death of the Owner, or the death of the Annuitant.
Withdrawal Charges, taxes, and a Market Value Adjustment may be applied to the
partial withdrawal or surrender. (See, "Partial Withdrawals and Surrenders",
pg. 9, and "Taxation of Annuities in General", pg. 14.) Withdrawal restrictions
may apply to Qualified Contracts as well as Non-Qualified Contracts. (See,
"Qualified Plans", pg. 15.)
THE COMPANY GUARANTEES THAT IF YOU SURRENDER THE CONTRACT, YOU WILL RECEIVE
AN AMOUNT AT LEAST EQUAL TO THE PURCHASE PAYMENT LESS ANY PRIOR PARTIAL
WITHDRAWALS.
7. DOES THE CONTRACT HAVE A GUARANTEED DEATH BENEFIT?
Prior to the Payout Start Date, the Contract offers a Death Benefit upon the
death of any Owner or last surviving Annuitant, whichever occurs first. The
Death Benefit is the greater of the Account Value or the Settlement Value as of
the receipt of a complete request for payment of the Death Benefit. (See,
"Death Benefits", pg. 10.)
Death Benefits after the Payout Start Date depend on the income plan chosen.
8. WHAT HAPPENS IN THE PAYOUT PHASE OF THE CONTRACT?
During this phase, the Account Value less premium tax and any other
applicable tax is applied to the income plan you choose and monies are paid to
you on a scheduled basis as provided in that plan. The Payout Phase begins on
the Payout Start Date. It continues until the Company makes the last payment as
provided by the income plan chosen. (See, "The Payout Phase", pg. 11.)
THE CONTRACT
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PURCHASE OF THE CONTRACT
The Contract may be purchased through sales representatives of Dean Witter,
the principal underwriter of the Contract. The Company will apply the Purchase
Payment to the Contract within seven days of the receipt of the Purchase
Payment and required issuing information.
The Purchase Payment must be at least $4,000 ($1,000 for a Qualified
Contract). Presently, the Company will accept a Purchase Payment of $1,000 for
all Contracts, but reserves the right to increase this amount to no more than
$4,000. Additional Purchase Payments to an existing Contract are not allowed.
The Contract described in this Prospectus is made up of two phases -- the
Accumulation Phase and the Payout Phase.
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THE ACCUMULATION PHASE
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THE ACCUMULATION PHASE DEFINED
The Accumulation Phase begins on the Issue Date stated on the Annuity Data
Page and continues until the Payout Start Date. During this phase, cash
withdrawal benefits and a Death Benefit are available. No deductions are made
by the Company from the Purchase Payment. Therefore, the full amount of the
Purchase Payment is invested and accumulates interest beginning on the Issue
Date. At least once every year, the Company will send the Owner a statement
containing Account Value information.
INITIAL AND SUBSEQUENT GUARANTEE PERIODS
The Owner will be required to designate a Guarantee Period, from the
Guarantee Periods which are offered at the Company's discretion, in which to
allocate the Purchase Payment. Guarantee Periods may range from one to ten
years.
A notice will be mailed 35 calendar days prior to the end of a Guarantee
Period reminding you of the event. If the Company has not had any instructions
from the Owner within 10 calendar days after the end of the Guarantee Period, a
one-year renewal Guarantee Period will be established.
INTEREST CREDITED
Interest will be credited daily based on the effective annual interest rate
declared by the Company at that time for that particular Guarantee Period.
"Effective annual rate" means the yield earned when interest credited at the
underlying daily rate has compounded for a full year. Effective annual interest
rates will be declared periodically for
each initial and renewal Guarantee Period then being offered. The declared
rates will be greater than or equal to the minimum guaranteed interest rate
under the Contract. The "minimum guaranteed interest rate under the Contract"
is a rate of interest specified in the Contract that is guaranteed for the life
of the Contract.
The Company has no specific formula for determining the rate of interest that
it will declare initially or in the future. Such interest rates will be
reflective of investment returns available at the time of the determination. In
addition, the management of the Company may also consider various other factors
in determining interest rates, including regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company, general economic
trends and competitive factors.
THE MANAGEMENT OF THE COMPANY WILL MAKE THE FINAL DETERMINATION AS TO THE
INTEREST RATES TO BE DECLARED. THE COMPANY CAN NEITHER PREDICT NOR GUARANTEE
FUTURE INTEREST RATES.
The following illustration is an example of how interest will be credited to
the funds during your Guarantee Period.
NOTE: The following illustration assumes no withdrawals of any amount during
the entire five year period. A Market Value Adjustment and Withdrawal Charge
would apply to any such interim withdrawal in excess of the Preferred
Withdrawal Amount. The hypothetical interest rate is for illustrative purposes
only and is not intended to predict future interest rates to be declared under
the Contract. Actual interest rates declared for any given Guarantee Period may
be more or less than those shown.
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EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD
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Purchase Payment:................................................... $10,000.00
Guarantee Period: .................................................. 5 years
Effective Annual Rate: ............................................. 5.25%
</TABLE>
END OF CONTRACT YEAR:
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<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Account Value $10,000.00
X (1 + Effective Annual
Rate) 1.0525
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10,525.00
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Account Value at end of
Contract 10,525.00
year 1 X (1 + Effective
Annual Rate) 1.0525
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11,077.56
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Account Value at end of
Contract 11,077.56
year 2 X (1 + Effective
Annual Rate) 1.0525
----------
11,659.13
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Account Value at end of
Contract 11,659.13
year 3 X (1 + Effective
Annual Rate) 1.0525
----------
12,271.24
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Account Value at end of
Contract 12,271.24
year 4 X (1 + Effective
Annual Rate) 1.0525
----------
12,915.48
----------
</TABLE>
Total Interest Credited in Guarantee Period: $2,915.48 ($12,915.48 - $10,000)
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PARTIAL WITHDRAWALS AND SURRENDERS
You have the right to make a partial withdrawal or full surrender at any time
during the Accumulation Phase. A Preferred Withdrawal Amount free of Withdrawal
Charges and Market Value Adjustments will be available in each year. The
Preferred Withdrawal Amount is 10% of the amount of the Purchase Payment or
funds allocated to a Guarantee Period. Any Preferred Withdrawal Amount not
withdrawn in a year may not be carried over to increase the Preferred
Withdrawal Amount in a subsequent Contract year. Amounts withdrawn from the
Account Value in excess of the Preferred Withdrawal Amount will be adjusted by
any applicable Withdrawal Charge, Market Value Adjustment, and taxes.
The minimum partial withdrawal is $100.00. If a partial withdrawal reduces
the Account Value of the Contract to less than $1,000, the Company will treat
the request as a withdrawal of the entire Account Value and the Contract will
terminate.
Partial withdrawals may also be taken automatically through Systematic
Withdrawals. The Systematic Withdrawal program is not available for Qualified
Contracts issued pursuant to a Dean Witter Custodial Account.
Withdrawals and surrenders may be subject to income tax and a 10% tax
penalty. The tax and penalty are explained in "Federal Tax Matters" on page 13.
Subject to state approval, both the Withdrawal Charge and Market Value
Adjustment will be waived on withdrawals taken to satisfy IRS required
distribution rules for this Contract.
WITHDRAWAL CHARGE
A Withdrawal Charge will be applied to a full surrender or partial withdrawal
in excess of the Preferred Withdrawal Amount made prior to the end of the
initial Guarantee Period and will be deducted from the amount distributed.
Withdrawal Charges will be the lesser of:
a. one-half the interest crediting rate for the Guarantee Period
multiplied by the amount withdrawn in excess of the Preferred Withdrawal
Amount; or
b. interest earned on the amount withdrawn.
The Withdrawal Charge will not exceed 10%, reduced by 1% for every year the
Contract is in force, multiplied by the sum of: (1) the amount withdrawn; and
(2) the Market Value Adjustment.
No Withdrawal Charge will be applied to a withdrawal following the end of the
initial Guarantee Period.
MARKET VALUE ADJUSTMENT
The amount payable on a partial withdrawal or full surrender made prior to
the end of any Guarantee Period may be adjusted up or down, or not at all, by
the application of the Market Value Adjustment. The Market Value Adjustment
factor is applied to the amount withdrawn in excess of the Preferred Withdrawal
Amount. The Market Value Adjustment will reflect the relationship between the
current effective annual interest rate for the duration remaining in the
Guarantee Period at the time of the request for withdrawal or surrender, and
the effective annual interest rate guaranteed for that Guarantee Period.
Generally, if the effective annual interest rate for the Guarantee Period is
lower than the applicable current effective annual interest rate (interest rate
for a duration equal to the time remaining in the Guarantee Period), then the
Market Value Adjustment will result in a lower payment upon surrender.
Similarly, if the effective annual interest rate for the Guarantee Period is
higher than the applicable current effective annual interest rate, then the
Market Value Adjustment will result in a higher payment upon surrender.
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For example, the Owner purchases a Contract and selects a Guarantee Period of
five years, and the Company's effective annual rate for that duration is 5.25%.
Assume that at the end of 3 years, the Owner makes a partial withdrawal. If the
current interest rate for a 2-year Guarantee Period is 4.95%, then the Market
Value Adjustment will be positive, which will result in an increase in the
amount payable to the Owner upon the partial withdrawal. If the current
interest rate for a 2-year Guarantee Period is 5.55%, then the Market Value
Adjustment will be negative, resulting in a decrease in the amount payable to
the Owner upon the partial withdrawal.
Since current interest rates are based, in part, upon investment yields
available at the time, the effect of the Market Value Adjustment will be
closely related to the levels of such yields. It is theoretically possible,
therefore, that, should such yields increase significantly from the time the
Purchase Payment was made, coupled with the application of the Withdrawal
Charge, the amount received by the Owner upon full surrender of the Contract
would be less than the Purchase Payment plus interest at the minimum guaranteed
interest rate under the Contract. HOWEVER, THE COMPANY GUARANTEES THAT THE
AMOUNT RECEIVED UPON SURRENDER WILL BE AT LEAST EQUAL TO THE PURCHASE PAYMENT
LESS ANY PRIOR PARTIAL WITHDRAWALS. The renewal of any individual Sub-
Account(s) within the entire Contract does not in any way change the return of
Purchase Payment guarantee provided by this Contract. Upon Sub-Account renewal
the return of Purchase Payment guarantee will not be adjusted to include any
accrual interest, but will continue to apply to the Purchase Payment.
The formula for calculating the Market Value Adjustment is set forth in
Appendix A to this Prospectus, which also contains additional illustrations of
the application of the Market Value Adjustment.
WITHDRAWALS AT THE END OF A GUARANTEE PERIOD
During the first 10 days of a renewal Guarantee Period, any amount withdrawn
will not incur a Market Value Adjustment, nor will it reflect any interest
earned during this 10-day period.
TAXES
A premium tax deduction will be made, if provided under applicable law, on
full surrender, or upon annuitization of the Contract. Any other applicable
taxes will be deducted as well. Currently, no deductions are made because New
York does not charge premium taxes on annuities.
PAYMENT UPON PARTIAL WITHDRAWAL OR SURRENDER
The Company may defer payment of any partial withdrawal or Surrender for a
period not exceeding six months from the date of the receipt of the request.
DEATH BENEFITS
If any Owner or last surviving Annuitant dies prior to the Payout Start Date,
a Death Benefit may be paid.
If an Owner dies (first Owner's death) prior to the Payout Start Date, the
new Owner (any surviving Joint Owner(s), or if none, the Beneficiary) may
elect, within 180 days of the Date of Death, to receive the Death Benefit in a
lump sum or to apply the Death Benefit to an income plan. Payments from the
income plan must begin within one year of the Date of Death and must be over
the life of the new Owner, or a period not to exceed the life expectancy of the
new Owner.
If no election is made within 180 days of the Date of Death, the new Owner
may elect to receive the Settlement Value payable in a lump sum within five
years of the Date of Death. Any remaining Settlement Value will be distributed
at the end of the five-year period. An Annuitant is necessary to continue the
Contract between the date of the Owner's death and the final distribution. If
there is no Annuitant at that time, the new Annuitant will be the youngest new
Owner.
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If the new Owner is the surviving spouse of the deceased Owner, then the
spouse may continue the Contract in the Accumulation Phase as if the death had
not occurred. If there is no Annuitant at that time, the new Annuitant will be
the surviving spouse. The surviving spouse may also select one of the options
listed above.
If the new Owner is a non-natural person (other than a grantor trust), then
the Owner must receive a lump sum payment, and the options listed above are not
available. If the Company receives Due Proof of Death within 180 days of the
date of death, a Death Benefit will be paid. Otherwise, a Settlement Value will
be paid.
If the last surviving Annuitant, not also an Owner, dies prior to the Payout
Start Date, then in most cases and subject to state approval, the Owner has the
following three options:
continue the Contract as if the death had not occurred. The new Annuitant
will be the youngest Owner unless the Owner names a different Annuitant; or
receive the Death Benefit in a lump sum. The Death Benefit is equal to the
greater of the Account Value and the Cash Surrender Value; or
apply the Death Benefit to an Income Plan.
This section is intended to comply with Internal Revenue Code Section 72(s),
pertaining to required distributions upon death.
THE PAYOUT PHASE
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The Payout Phase is the second of the two phases in the Contract. The Payout
Phase begins on the Payout Start Date and continues until the Company makes the
last payment as provided by the income plan.
Unless the Owner notifies the Company in writing, the Payout Start Date will
be the later of the Annuitant's 85th birthday or the 10th anniversary date of
the Contract.
The Owner may change the Payout Start Date at any time by notifying the
Company in writing of the change at least 30 days before the current Payout
Start Date. The Payout Start Date must be no later than the oldest Annuitant's
85th birthday or the 10th anniversary date of the Contract, if later. The Owner
of a Qualified Contract may be limited by the plan under which the Contract is
issued with regard to a Payout Start Date after age 70 1/2.
INCOME PLANS
The Owner may elect an income plan which distributes Income Payments on a
scheduled basis. Up to 30 days before the Payout Start Date, the Owner may
change the income plan or request any other form of income plan agreeable to
both the Company and the Owner. If the Company does not receive a written
choice from the Owner, the income plan will be life income with 120 monthly
payments guaranteed. If an income plan is chosen which depends on the Annuitant
or Joint Annuitant's life, proof of age will be required before Income Payments
begin. If the sole surviving Owner dies after the Payout Start Date, the
Beneficiary will receive any guaranteed Income Payments scheduled to continue
under the income plan in effect.
The Account Value on the Payout Start Date, less any applicable tax, will be
applied to the income plan selected by the Owner. The income plans include:
INCOME PLAN 1--Life Income with Guaranteed Payments
Payments will be made to the Owner for as long as the Annuitant lives. If the
Annuitant dies
11
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before all the guaranteed payments have been made, the remainder of the
guaranteed payments will be paid to the Owner.
INCOME PLAN 2--Joint and Survivor Life Income with Guaranteed Payments
Payments beginning on the Payout Start Date will be made to the Owner for as
long as either the Annuitant or Joint Annuitant is living. If both the
Annuitant and Joint Annuitant die before all guaranteed payments have been
made, the remainder of the guaranteed payments will be made to the Owner.
INCOME PLAN 3--Guaranteed Payments for a Specified Period
Payments beginning on the Payout Start Date will be made to the Owner for a
specified period. Payments under this option do not depend on the continuation
of the Annuitant's life. The number of guaranteed months may be 60 to 360
months.
At the Company's discretion, other income plans may be available.
PAYOUT TERMS
The Contract, described in this Prospectus, contains life annuity tables that
provide for different benefit payments to men and women of the same age.
Nevertheless, in accordance with the U.S. Supreme Court's decision in Arizona
Governing Committee v. Norris, in certain employment-related situations,
annuity tables that do not vary on the basis of sex may be used. Accordingly,
if the Contract is to be used in connection with an employment-related
retirement or benefit plan, consideration should be given, in consultation with
legal counsel, to the impact of Norris on any such plan before making any
contributions under this Contract.
The duration of the income plan will generally affect the dollar amounts of
each Income Payment. For example, if an income plan guaranteed for life is
chosen, the Income Payments may be greater or less than Income Payments under
an income plan for a specified period depending on the life expectancy of the
Annuitant.
After the Account Value has been applied to an income plan on the Payout
Start Date, the income plan cannot be changed and no withdrawals can be made.
The Company may require proof that the Annuitant or Joint Annuitant is still
alive before the Company makes each payment that depends on the annuitant's
life.
If any Owner dies during the Payout Phase, Income Payments will continue as
scheduled, in accordance with the income plan in effect.
If the Account Value to be applied to an income plan is less than $2,000, or
if the monthly Income Payments determined under the income plan are less than
$20, the Company may pay the Account Value in a lump sum or change the payment
frequency to an interval which results in Income Payments of at least $20.
12
<PAGE>
AMENDMENT OF THE CONTRACT
- --------------------------------------------------------------------------------
The Company reserves the right to amend the Contract to meet the requirements
of applicable federal or State of New York laws or regulations. The Company
will notify the Owner of any such amendments.
DISTRIBUTION OF THE CONTRACT
- --------------------------------------------------------------------------------
The Contract will be distributed exclusively by Dean Witter which serves as
the principal underwriter of the Contract under a General Agents' Agreement
with the Company.
Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter of the
Contract. Dean Witter is located at Two World Trade Center, New York, New York.
Dean Witter is a member of the New York Stock Exchange and the National
Association of Securities Dealers, Inc.
The Company may pay up to a maximum sales commission of 8% both upon sale of
the Contract and upon renewal of a Guarantee Period.
The General Agents' Agreement between the Company and Dean Witter provides
that the Company will indemnify Dean Witter for certain damages that may be
caused by actions, statements or omissions by the Company.
CUSTOMER INQUIRIES
- --------------------------------------------------------------------------------
The Owner or any persons interested in the Contract may make inquiries
regarding the Contract by calling or writing their Dean Witter Account
Executive.
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION
The Contract was designed for use by individuals in retirement plans which
may or may not be plans qualified for special tax treatment under Section 401,
403, 408, or 457 of the Internal Revenue Code ("Code"). The ultimate effect of
federal income taxes on the Account Value, on Income Payments and on the
economic benefit to the Owner, the Annuitant or the Beneficiary depends on the
type of retirement plan for which the Contract is purchased, on the tax and
employment status of the individual concerned and on the Company's tax status.
Recipients of certain distributions from Qualified Plans may be subject to
special withholding rules. THE TAX DISCUSSION BELOW IS GENERAL AND IS NOT
INTENDED AS
TAX ADVICE. Any person concerned about these tax implications should consult a
competent tax adviser. This discussion is based upon the Company's
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to
the likelihood of continuation of these present federal income tax laws or of
the current interpretations by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code.
13
<PAGE>
The following discussion assumes that the Company will continue to be taxed as
a life insurance company under Part I of Subchapter L.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Contract will qualify as an annuity
Contract for federal income tax purposes. Such qualifications are discussed
below.
Generally, an annuity contract owner who is a natural person is not taxed on
increases in the Account Value until a distribution occurs. For federal income
tax purposes, distributions include the receipt of proceeds from loans and an
assignment or pledge of any portion of the value of the contract, as well as
withdrawals, Income Payments, or Death Benefits. The exception to this rule is
that Owners who are not natural persons generally must include in income any
increase during the taxable year in the Account Value (once the Account Value
exceeds the investment in the Contract). However, there are exceptions to this
non-natural owner rule and you should discuss these with your tax adviser. The
following discussion only applies to Contracts owned by natural persons.
Generally, in the case of a surrender, withdrawal, loan, assignment or pledge
under a Non-Qualified Contract, before the Payout Start Date, amounts received
are first treated as taxable income to the extent that the Account Value of the
Contract immediately before the surrender exceeds the "investment in the
contract" (as defined in the Code) at that time. Any additional amount is not
taxable.
The recipient of periodic Income Payments under the Contract is, in general,
taxed on a portion of each payment. Generally, for Income Payments there is no
tax on the amount of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the Income
Payments for the term of the payments; however, the remainder of each Income
Payment is taxable. After the Owner's investment in the Contract has been
recovered, the full amount of any additional payments will be taxed.
The taxable portion of a distribution (in the form of an Income Payment or a
lump sum payment) is taxed as ordinary income.
Premature distributions from Non-Qualified Contracts may be subject to a
penalty equal to ten percent (10%) of the amount treated as taxable income. The
penalty applies to the taxable portion of any distribution except those (1)
made on or after the Owner attains age 59 1/2; (2) made as a result of the
Owner's death or disability; (3) received in substantially equal installments
as a life annuity or over a period not exceeding the life expectancy of the
owner; or (4) allocable to investments in the Contract prior to August 14,
1982. Other tax penalties may apply to certain distributions under Qualified
Contracts.
All Non-Qualified deferred annuity contracts that are issued by the Company
(or its affiliates) to the same Owner during any calendar year will be aggre-
gated and treated as one annuity contract for purposes of determining the
amount includable in gross income under section 72(e) of the Code. Accordingly,
an Owner should consult a competent tax adviser when purchasing more than one
Non-Qualified deferred annuity contract in one calendar year.
Transfer of ownership of a Contract, the designation of an Annuitant or a
Beneficiary who is not also the Owner, or the exchange of a Contract may result
in certain tax consequences to the Owner that are not discussed herein. An
Owner contemplating any such transfer, assignment, or exchange of a Contract
should contact a competent tax adviser with respect to the potential tax
effects of such a transaction.
14
<PAGE>
In order to be treated as an annuity contract for federal income tax
purposes, Section 72(s) of the Code requires any Non-Qualified Contract issued
after January 18, 1985 to provide that (a) if any Owner dies on or after the
Payout Start Date but prior to the time the entire interest in the Contract has
been distributed, the remaining portion of such interest will be distributed at
least as rapidly under the method of distribution being used as of the date of
that Owner's death; and (b) if any Owner dies prior to the Payout Start Date,
the entire interest in the Contract will be distributed within five years after
the date of the Owner's death. These requirements shall be considered satisfied
with respect to any portion of the Owner's interest which is payable to or for
the benefit of a "designated beneficiary," if such portion is distributed over
the life of such "designated beneficiary" or over a period not extending beyond
the life expectancy of that Beneficiary and such distributions begin within one
year of that Owner's death. The Owner's "designated beneficiary" is the
surviving Owner(s) or the person(s) designated by such Owner as a Beneficiary.
The "designated beneficiary" is the person to whom ownership of the Contract
passes by reason of death and must be a natural person. If the Owner's
"designated beneficiary" is the surviving spouse of the Owner, the Contract may
be continued with the surviving spouse as the new Owner.
Non-Qualified Contracts contain provisions which are intended to comply with
the requirements of section 72(s) of the Code, although regulations
interpreting these requirements have not yet been issued. The Company intends
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Code section 72(s) when clarified by regulation
or otherwise.
Additional rules may apply to Qualified Contracts.
QUALIFIED PLANS
The Contract is designed for use with several types of qualified plans. The
tax rules applicable to participants in such qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2, distributions that do not conform to
specified commencement and minimum distribution rules, aggregate distributions
in excess of a specified annual amount and in other circumstances. Therefore,
the Company makes no attempt to provide more than general information about the
use of the Contracts with the various types of qualified plans. Owners and
participants under qualified plans as well as Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under qualified plans
may be subject to the terms and conditions of the plans themselves regardless
of the terms and conditions of the Contract issued in connection therewith.
Purchasers of the Contracts for use with any qualified plan should seek
competent advice regarding the suitability of the Contract.
(a) Section 403(b) Plans. Under Section 403(b) of the Code, payments made
by public school systems and certain not-for-profit organizations to
purchase annuity contracts for their employees are excludable from the
gross income of the employee, subject to certain limitations. In
accordance with the requirements of Section 403(b), any Contract used
for a Section 403(b) Plan will prohibit distributions of (i) elective
contributions made in years beginning after December 31, 1988, (ii)
earnings on those contributions, and (iii) earnings on amounts
attributable to elective contributions held as of the end of the last
year beginning before January 1, 1989. However, distributions of such
amounts
15
<PAGE>
will be allowed upon death of an employee, attainment of age 59 1/2,
separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in
the case of hardship.
(b) H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of
1962, as amended, commonly referred to as "H.R. 10," or "Keogh,"
permits self-employed individuals to establish qualified plans for
themselves and their employees. These plans are limited by law to
maximum permissible contributions, distribution dates, and
nonforfeitability of interests. In order to establish such a plan, a
plan document, usually in a form approved in advance by the Internal
Revenue Service, is adopted and implemented by the employer.
(c) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual
retirement program known as an "Individual Retirement Annuity."
Individual Retirement Annuities are subject to limitations on the
amount which may be contributed and on the time when distribution may
commence. In addition, distributions from certain other types of
qualified plans may be placed into an Individual Retirement Annuity on
a tax-deferred basis.
(d) Corporate Pension and Profit-Sharing Plans. Section 401(a) and 403(a)
of the Code permit corporate employers to establish various types of
retirement plans for employees. Such retirement plans may permit the
purchase of the Contract to provide benefits under the plans.
(e) State and Local Governments' Deferred Compensation Plans. Section 457
of the Code, while not actually providing for a qualified plan as that
term is normally used, provides for certain Deferred Compensation Plans
with respect to service to state governments, local governments,
political subdivisions, agencies, instrumentalities and certain
affiliates of such entities and certain tax exempt organizations which
enjoy special treatment. The Contract can be used with such plans.
Under such plans a participant may specify the form of investment in
which his or her participation will be made. All such investments,
however, are owned by and subject to the claims of general creditors of
the sponsoring employer.
OTHER CONSIDERATIONS
The Company is required to withhold federal income tax at a rate of 20% on
all distributions which constitute "eligible rollover distributions," unless
the recipient elects to rollover such amounts to another qualified plan or IRA
in a direct rollover. Eligible rollover distributions generally include all
distributions from qualified plans, excluding IRA's and 457 plans, with the ex-
ception of (1) minimum distributions pursuant to Section 401(a)(9), and (2) a
series of substantially equal periodic payments made over a period of at least
10 years, or the life (joint lives) of the participant (and beneficiaries). In
addition, some states require that state income tax be withheld.
For any distributions which do not constitute "eligible rollover distribu-
tions," the Company is required to withhold federal and, where required, state
income taxes on all distributions, unless the recipient elects not to have
taxes withheld and properly notifies the Company of that election.
The foregoing comments about the federal tax consequences under this Contract
are not
16
<PAGE>
exhaustive, and special rules are provided with respect to other tax situations
not discussed in this Prospectus. Before making an investment, a competent tax
adviser should be consulted. Further, the federal income tax consequences
discussed herein reflect current law.
Federal estate, state and local estate, inheritance, and other tax
consequences of ownership or receipt of distributions under the Contract depend
on the individual circumstances of each Owner or recipient of the distribution.
A competent tax adviser should be consulted for further information.
THE COMPANY
- --------------------------------------------------------------------------------
BUSINESS
The Company was incorporated in 1967 as a stock life insurance company under
the laws of New York and was known as "Financial Life Insurance Company" from
1967 to 1978. From 1978 to 1984, the Company was known as "PM Life Insurance
Company." The Company's operations consist of one business segment which is the
sale of individual annuities and life insurance. The Company is currently
licensed to operate in New York. The Company's home office is located in
Farmingville, New York.
The Company is an indirect, wholly-owned subsidiary of Allstate Insurance
Company ("Allstate") which is a stock property-liability insurance company
incorporated under the laws of Illinois. With the exception of directors'
qualifying shares, all of the outstanding capital stock of Allstate is owned by
The Allstate Corporation ("Corporation"). In June 1995, Sears, Roebuck and Co.
("Sears") distributed in a tax-free dividend to its stockholders its remaining
80.3% ownership interest of the Corporation. As a result of the distribution,
Sears no longer has an ownership interest in the Corporation.
INVESTMENTS BY THE COMPANY
The Company's general account assets must be invested in accordance with
applicable state laws. These laws govern the nature and quality of investments
that may be made by life insurance companies and the percentage of their assets
that may be committed to any particular type of investment. In general, these
laws permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred stocks, real estate mortgages, real estate and certain other
investments. All of the Company's general account assets are available to meet
the Company's obligations.
Purchase Payments under the Contract will be accounted for in a non-unitized
Separate Account of the Company. Owners have no priority claims on assets
accounted for in this Separate Account. All general account assets of the
Company, including those accounted for in this non-unitized Separate Account,
are available to meet the guarantees under the Contract.
The Company will primarily invest its general account assets in investment-
grade fixed income securities including the following:
Securities issued by the United States Government or its agencies or
instrumentalities, which may or may not be guaranteed by the United States
Government;
Debt instruments, including, but not limited to, issues of or guaranteed
by banks or bank holding companies, and of corporations, which are deemed
by the Company's management to have qualities appropriate for inclusion in
this portfolio;
Commercial mortgages, mortgage-backed securities collateralized by real
estate
17
<PAGE>
mortgage loans, or securities collateralized by other assets, that are
insured or guaranteed by the Federal Home Loan Mortgage Association, the
Federal National Mortgage Association or the Government National Mortgage
Association, or that have an investment grade at time of purchase within
the four highest grades assigned by Moody's Investors Services, Inc. (Aaa,
Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any
other nationally recognized rating service;
Commercial paper, cash, or cash equivalents, and other short-term
investments having a maturity of less than one year that are considered by
the Company's management to have investment quality comparable to
securities having the ratings stated above;
Participations in or assignments of loans made to business entities by
banks and other financial institutions (so long as the loan is one in which
the Company is permitted to invest directly) and/or collateralized loan
obligations. These are both typically floating-rate instruments so they
would be combined with a swap agreement to create a fixed-rate asset to
better match fixed-rate liabilities;
In addition, interest rate swaps, futures, options, rate caps, and other
hedging instruments may be used solely for non-speculative hedging
purposes. Anticipated use of these financial instruments shall be limited
to protecting the value of portfolio sales or purchases, or to enhance
yield through the creation of a synthetic security.
At inception, the Company will purchase only investment grade assets for the
non-unitized Separate Account; however, this position and the investment
strategy may be readdressed as market conditions change.
Additionally, the Company maintains certain unitized Separate Accounts which
invest in shares of an open-end investment company registered under the
Investment Company Act of 1940. These Separate Account assets do not support
the Company's obligations under the Contract.
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<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus beginning on page F-1.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-END FINANCIAL DATA 1995 1994 1993 1992 1991
- ----------------------- ---------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
For the Years Ended
December 31:
Revenues.................. $ 250,854 $ 186,249 $ 227,445 $ 203,809 $186,955
Income from Continuing
Operations............... 19,522 18,221 13,163 12,225 15,996
Net Income................ 19,522 18,221 13,163 12,225 15,996
As of December 31:
Total Assets.............. 1,842,969 1,449,993 1,410,895 1,162,763 943,871
</TABLE>
In 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 106 "Employers' Accounting for Postretirement
Benefits Other than Pensions," which resulted in a charge of $623 thousand on
an after tax basis. (See note 3 to the Financial Statements.) As of December
31, 1993, the Company adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Under SFAS No. 115, fixed income securities
classified as available for sale are carried at market value. In prior years,
these securities were carried at the lower of amortized cost or market,
determined in aggregate. (See note 3 to the Financial Statements.)
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The following highlights significant factors influencing results of opera-
tions and financial position.
Allstate Life Insurance Company of New York ("the Company"), which is wholly
owned by a wholly-owned subsidiary ("Parent") of Allstate Insurance Company
("Allstate"), markets life insurance and group and individual annuities in the
state of New York, with products consisting predominately of structured set-
tlement annuities sold through independent brokers. The Company also utilizes
Allstate agencies and direct marketing to distribute its traditional and uni-
versal life and accident and disability insurance products. Additionally,
flexible premium deferred variable annuity contracts and certain single and
flexible premium annuities are marketed to individuals through the account ex-
ecutives of Dean Witter Reynolds, Inc.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Statutory premiums and deposits.............. $ 216,361 $ 153,000 $ 226,993
========== ========== ==========
Invested assets (1).......................... 1,335,854 1,184,024 1,148,709
Separate Account assets (2).................. 220,141 175,918 145,866
---------- ---------- ----------
Invested assets, including Separate Account
assets...................................... 1,555,995 1,359,942 1,294,575
========== ========== ==========
Premium income and contract charges.......... 148,316 88,560 126,913
Net investment income........................ 104,384 96,911 95,956
Policy benefits.............................. 198,055 137,434 175,676
Operating expenses........................... 23,366 20,205 31,894
Early retirement program..................... 1,210
---------- ---------- ----------
Income from operations....................... 31,279 26,622 15,299
Income tax on operations..................... 10,557 8,907 5,110
---------- ---------- ----------
Net operating income......................... 20,722 17,715 10,189
Realized capital gains and losses, after tax. (1,200) 506 2,974
---------- ---------- ----------
Net income................................... $ 19,522 $ 18,221 $ 13,163
========== ========== ==========
</TABLE>
(1) Fixed income securities included in invested assets are carried at
amortized cost in the table above and at fair value in the statements of
financial position.
(2) Separate Accounts are included at fair value.
STATUTORY PREMIUMS AND DEPOSITS
Statutory premiums, which include premiums and deposits for all products,
increased $63.4 million or 41.4% in 1995 from 1994. The increase is primarily
due to growth in sales of individual annuities, which comprised 77.3% of stat-
utory premiums and deposits in 1995. Increased sales of structured settlement
annuities in 1995 were partially offset by a decrease in the sales of variable
annuities. In 1994, statutory premiums decreased 32.6% from 1993 levels. The
decrease was due primarily to lower sales of structured settlement annuities.
PREMIUM INCOME, CONTRACT CHARGES AND PROVISION FOR POLICY BENEFITS
Premium income and contract charges under generally accepted accounting
principles ("GAAP") increased 67.5% in 1995 and decreased 30.2% in 1994. Under
GAAP, revenues exclude deposits on most annuities and premiums on universal
life insurance policies. The changes in premium and contract charges in 1995
and 1994 reflect fluctuations primarily in the level of sales of structured
settlement annuities sold with life contingencies. Policy benefits increased
$60.6 million, or 44.1% during 1995, and decreased $38.2 million or 21.8% in
1994. These changes also reflect fluctuations primarily in the level of sales
of structured settlement annuities with life contingencies.
NET INVESTMENT INCOME
Pre-tax net investment income increased 7.7% in 1995 and was essentially un-
changed in 1994. The increase in 1995 was related to the 12.8% or $151.8 mil-
lion increase in invested assets resulting primarily from growth in new busi-
ness, partially offset by surrenders and other benefits paid.
OPERATING EXPENSES
Operating expenses increased by $2.0 million, or 9.1%, resulting from an in-
crease in amortization of deferred acquisition costs, partially offset by the
costs of an
20
<PAGE>
early retirement program recorded in 1994. The decrease of $10.5 million, or
32.9%, in 1994 operating expense is attributable to a decrease in amortization
of deferred acquisition costs, which were higher in 1993 as a result of annu-
ity contract surrenders.
In 1994, an after tax charge of $0.8 million related to the cost of an early
retirement program offered to certain home office employees was recorded. The
program provides one year of salary continuation and related benefits during
the salary continuation period, and an enhanced retirement benefit.
NET OPERATING INCOME
Net operating income increased 17.0% in 1995 from 1994, which in turn in-
creased 73.9% from 1993. The increase in net operating income in 1995 was pri-
marily due to higher margins and growth in revenues. The increase in 1994 over
1993 was primarily due to a decrease in operating expenses.
REALIZED CAPITAL GAINS AND LOSSES
Net realized capital losses were reported in 1995 as compared to net real-
ized capital gains in 1994. Capital losses in 1995 were realized primarily
from writedowns of mortgage loans, partially offset by gains on sales of fixed
income securities. Realized capital gains in 1994 decreased from gains real-
ized in 1993. While the Company experienced lower asset writedowns in 1994,
realized capital gains from sales of securities and bond calls were also sig-
nificantly lower than the prior year. Realized capital gains in 1993 included
the effect of sales related to repositioning a portion of the investment port-
folio to improve the matching of assets with related liabilities.
FINANCIAL POSITION
INVESTMENTS
The Company follows an investment strategy that combines the goals of safe-
ty, stability, liquidity, growth and total return. It seeks to balance preser-
vation of principal with after-tax yield while maintaining portfolio diversi-
fication. The composition of the portfolio is the result of various interre-
lated investment considerations including protection of principal, apprecia-
tion potential, tax consequences, and yield, as well as asset/liability man-
agement issues such as cash flow and duration matching. To achieve an economic
balance between assets and liabilities, the investment portfolios are
segmented by type of insurance product.
The composition of the investment portfolio at December 31, 1995 is pre-
sented in the table below (see Notes 2 and 6 to the financial statements for
investment accounting policies and additional information).
<TABLE>
<CAPTION>
($ IN THOUSANDS) PERCENT
TO TOTAL
<S> <C> <C>
Fixed income securities
Privately placed corporate bonds.......................... $ 466,208 30.2%
U.S. government and agencies.............................. 435,555 28.3
Publicly traded corporate bonds........................... 258,829 16.8
Mortgage-backed securities................................ 225,560 14.6
State and municipal....................................... 38,741 2.5
---------- -----
Total fixed income securities............................. $1,424,893 92.4
Mortgage loans............................................. 86,394 5.6
Policy loans............................................... 22,785 1.5
Short-term and other....................................... 7,257 .5
---------- -----
Total...................................................... $1,541,329 100.0%
========== =====
</TABLE>
FIXED INCOME SECURITIES
The Company generally holds its fixed income securities for the long term,
but has classified all of these securities at December 31, 1995, as "available
for sale" which are carried in the statement of financial position at fair
value, to allow maximum flexibility in portfolio management. At December 31,
1995, net unrealized capital gains on the fixed income securities portfolio
totaled $205.5 million compared to an unrealized capital loss of $11.5 million
as of December 31, 1994. The significant change in the unrealized gain/loss
position is primarily attributable to declining interest rates.
As of December 31, 1995, the fixed income securities portfolio included
$466.2 million or 30.2% of the portfolio invested in privately placed corpo-
rate obligations, stated at fair value. Compared to public securities, private
placements generally afford the advantages of higher yields, improved cash
flow predictability through pro-rata
21
<PAGE>
sinking funds on many bonds, and a combination of covenant and call protection
features designed to better protect the holder against losses resulting from
credit deterioration, reinvestment risk, and losses resulting from fluctua-
tions in interest rates. The relative disadvantages of private placements in-
clude the fact that the securities are generally less liquid than public secu-
rities and that access to information regarding privately placed securities is
generally more restricted than for public securities. The Company determines
the fair value of privately placed fixed income securities based on discounted
cash flows using current interest rates for similar securities.
At December 31, 1995 the Company had $225.6 million or 14.6% of the portfo-
lio invested in mortgage-backed securities ("MBS"). These securities provide
higher-than-average credit quality and liquidity. The Company mitigates credit
risk primarily by purchasing securities with underlying collateral that is
guaranteed by U.S. government entities.
MBS are subject to risks associated with repayment of principal, which may
result in the securities having a different actual maturity and yield than an-
ticipated at the time of purchase. Securities that have an amortized cost
greater than par value, will incur a decrease in yield if mortgages repay
faster than expected. Those securities that have an amortized cost lower than
par value generate an increase in yield if mortgages repay faster than expect-
ed. The degree to which a security is susceptible to changes in yield is in-
fluenced by the difference between its amortized cost and par value, the rela-
tive sensitivity to repayment of the underlying mortgages backing the securi-
ties in a changing interest rate environment, and the repayment priority of
the securities in the overall securitization structure. The Company attempts
to limit repayment risk by purchasing MBS whose cost does not significantly
exceed par value, and with repayment protection to provide a more certain cash
flow to the Company. At December 31, 1995, the amortized cost of the MBS port-
folio was below par value by $8.1 million.
The Company closely monitors its fixed income portfolio for declines in
value that are other than temporary. Securities are placed on non-accrual sta-
tus when they are in default or when the receipt of interest payments is in
doubt. The total pretax provisions for losses attributable to fixed income se-
curities for 1995, 1994 and 1993 were $2.4, $0.6 and $1.2 million, respective-
ly.
The Company monitors the quality of its fixed income portfolio, in part, by
categorizing certain investments as problem, restructured or potential prob-
lem. Problem fixed income securities are securities in default with respect to
principal and/or interest and/or securities issued by companies that went into
bankruptcy subsequent to acquisition of the security. Restructured fixed in-
come securities have modified terms and conditions that were not at current
market rates or terms at the time of the restructuring. Potential problem
fixed income securities are current with respect to contractual principal
and/or interest, but because of other facts and circumstances, management has
serious doubts regarding the borrower's ability to pay future interest and
principal, which causes management to believe these securities may be classi-
fied as problem or restructured in the future.
There were no problem and potential problem fixed income investments as of
December 31, 1995, compared to $7.0 million of potential problem fixed income
securities at December 31, 1994. The $7.0 million of potential problem fixed
income securities at December 31, 1994 related to a single security and has
been removed from the potential problem category due to its improved status.
FINANCIAL FUTURES CONTRACTS
As part of its asset/liability management, the Company generally utilizes
futures contracts to hedge its interest rate risk related to anticipatory in-
vestment purchases as well as to enhance asset/liability management. The Com-
pany does not hold or issue these instruments for trading purposes. At Decem-
ber 31, 1995, the Company had $22.9 million in notional amount of futures con-
tracts outstanding, all of which mature within one year.
MORTGAGE LOANS
The Company's $86.4 million investment in mortgage loans at December 31,
1995 is comprised primarily of loans secured by first mortgages on developed,
com-
22
<PAGE>
mercial real estate. Geographical and property type diversification are key
considerations used to manage the Company's mortgage loan risk.
The Company closely monitors its commercial mortgage loan portfolio on a
loan-by-loan basis. Loans with an estimated collateral value less than the
loan's balance, as well as loans with other characteristics indicative of a
higher than normal credit risk, are reviewed by financial and investment man-
agement for purposes of establishing valuation allowances and placing loans on
non-accrual status. The underlying collateral values are based upon discounted
property cash flow projections, which are updated at least annually or as con-
ditions change. The total pretax provisions for loan losses were $2.2, $0.7
and $1.2 million, during 1995, 1994 and 1993, respectively.
The Company defines problem commercial mortgage loans as loans that are in
foreclosure, loans for which a principal or interest payment is over 60 days
past due, or are current with respect to interest payments, but considered in-
substance foreclosed. Restructured commercial loans have modified terms and
conditions that were not at prevailing market rates or terms at the time of
the restructuring. Potential problem commercial mortgage loans are current
with respect to interest payments, or less than 60 days delinquent as to con-
tractual principal and interest payments, but because of other facts and cir-
cumstances, management has serious doubts regarding the borrower's ability to
pay future interest and principal which causes management to believe these
loans may be classified as problem or restructured in the future.
At December 31, 1995 and December 31, 1994 total problem, restructured and
potential problem loans, net of valuation allowances, were $9.6 million and
$8.4 million, respectively. The net carrying value of impaired loans (see Note
6 of the financial statements) at December 31, 1995 was $9.6 million. All
problem, restructured and potential problem loans were considered to be im-
paired at December 31, 1995.
SEPARATE ACCOUNTS
Separate Account balances increased 25.1% from $175.9 million at December
31, 1994 to $220.1 million at December 31, 1995 due to sales of flexible pre-
mium deferred variable annuity contracts, transfers from fixed annuities to
variable annuities and favorable investment performance of the Separate Ac-
counts, partially offset by surrenders.
RESERVE FOR LIFE INSURANCE POLICY BENEFITS
The reserve for life insurance policy benefits increased 33.4% to $838.7
million at December 31, 1995, resulting primarily from the sales of structured
settlement annuities with life contingencies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of funds consists primarily of premiums and
annuity deposits and collections of principal and income from the investment
portfolio. The Company generates substantial positive cash flows from operat-
ing activities. The major use of these funds are policyholder claims and bene-
fits, contract maturities, surrenders and other operating costs.
FINANCIAL RATINGS AND STRENGTH
Liquidity for life insurance companies is measured by their ability to pay
contractual benefits, pay operating expenses and fund investment commitments.
Independent insurance industry rating organizations rate life insurance compa-
nies based on their overall performance and ability to meet their policyholder
obligations over a long period of time. Such ratings are directed toward the
protection of policyholders, not investors. Claims-paying ability ratings at
December 31, 1995 assigned to the Company include AA+ and A+(g) from Standard
& Poor's and A.M. Best, respectively. In addition, Moody's assigns the Company
an Aa3 financial stability rating at December 31, 1995.
The National Association of Insurance Commissioners ("NAIC") has a standard
for assessing the solvency of insurance companies, which is referred to as
"risk-based capital" ("RBC"). The requirement consists of a formula for deter-
mining each insurer's RBC and a model law specifying regulatory actions if an
insurer's RBC falls below specified levels. The RBC formula for life insurance
companies establishes capital requirements relating to insurance risk, busi-
ness risk, asset risk and interest rate risk. At December 31, 1995, RBC for
the Company was significantly above levels which would require regulatory ac-
tion.
23
<PAGE>
COMPETITION
- --------------------------------------------------------------------------------
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other
entities competing in the sale of insurance and annuities. There are
approximately 2,000 stock, mutual and other types of insurers in business in
the United States. A.M. Best Company assigns A+r (Superior) to the Company.
Under Best's rating policy and procedure, the Company is assigned the Best's
rating of its parent company, and is based on the consolidated performance of
the parent and its subsidiary. Standard & Poor's Insurance Rating Services
assigns AA+ (Excellent) to the Company and Moody's assigns an Aa3 (Excellent)
financial stability rating to the Company. The Company shares the same ratings
of its parent.
EMPLOYEES
- --------------------------------------------------------------------------------
As of December 31, 1995, Allstate Life Insurance Company of New York had
approximately 80 employees at its Home Office in Farmingville, New York who
work on the Company's matters.
PROPERTIES
- --------------------------------------------------------------------------------
The Company occupies office space in Farmingville, New York. Expenses
associated with these offices are allocated to the Company.
STATE AND FEDERAL REGULATION
- --------------------------------------------------------------------------------
The insurance business of the Company is subject to comprehensive and
detailed regulation and supervision by the State of New York.
The laws of New York establish a supervisory agency with broad administrative
powers with respect to licensing to transact business, overseeing trade
practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements, and regulating the type and amounts
of investments permitted. Each insurance company is required to file detailed
annual reports with the supervisory agency and its operations and accounts are
subject to examination by such agency at regular intervals.
Under insurance guaranty fund law for the State of New York, insurers doing
business therein can be assessed up to prescribed limits for contract owner
losses incurred by insolvent companies. The amount of any future assessments on
the Company under these laws cannot be reasonably estimated. These laws do
provide, however, that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
In addition, the State of New York regulates affiliated groups of insurers,
such as the Company and its affiliates, under insurance holding company
24
<PAGE>
legislation. Under such laws, intercompany transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial positions of the companies.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit
regulation, controls on medical care costs, removal of barriers preventing
banks from engaging in the insurance business, tax law changes affecting the
taxation of insurance companies, the tax treatment of insurance products and
its impact on the relative desirability of various personal investment
vehicles, and proposed legislation to prohibit the use of gender in determining
insurance and pension rates and benefits.
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
The directors and executive officers are listed below, together with
information as to their ages, dates of election and principal business
occupations during the last five years (if other than their present business
occupations). Except as otherwise indicated, the directors and executive
officers of the Company have been associated with the Company more than five
years either in the position shown or in other positions.
LOUIS G. LOWER, II, 50, President and Chairman of the Board (1990)*
Louis G. Lower, II, is also President of Allstate Life Insurance Company;
President and Chairman of the Board of Northbrook Life Insurance Company,
Glenbrook Life Insurance Company, and Glenbrook Life and Annuity Company;
Chairman of the Board and Chief Executive Officer of Lincoln Benefit Life
Company and Surety Life Insurance Company; Chairman of the Board of Allstate
Settlement Corporation and a Director of Allstate Life Financial Services, Inc.
MICHAEL J. VELOTTA, 50, Vice President, Secretary, General Counsel, and
Director (1993)*
Michael J. Velotta is also Vice President, Secretary, General Counsel and
Director of Allstate Life Insurance Company, Northbrook Life Insurance Company,
Glenbrook Life Insurance Company, Glenbrook Life and Annuity Company; a
Director and General Counsel of Surety Life Insurance Company; and a Director
of Lincoln Benefit Life Company, Allstate Settlement Corporation and Allstate
Life Financial Services, Inc. Prior to 1993, he was Vice President, Assistant
General Counsel of Allstate Life Insurance Company and from 1986 to 1989, he
was Assistant Secretary and Assistant General Counsel of Allstate Insurance
Company.
PETER H. HECKMAN, 50, Vice President and Director (1989)*
Peter H. Heckman is also Vice President and Director of Allstate Life
Insurance Company, Northbrook Life Insurance Company, Glenbrook Life Insurance
Company and Glenbrook Life and Annuity Company; Director of Lincoln Benefit
Life Company, Surety Life Insurance Company, Allstate Settlement Corporation
and Allstate Life Financial Services, Inc. Prior to September 1, 1988 he was an
Assistant Vice President of Allstate Insurance Company.
CASEY J. SYLLA, 52, Chief Investment Officer (1995)
Casey J. Sylla is also Director of Allstate Insurance Company, Allstate
Indemnity Company, Allstate Property and Casualty Insurance Company, Deerbrook
Insurance Company, First Assurance Company, Northbrook Indemnity Company,
Northbrook National Insurance Company, Northbrook Property and Casualty
Insurance
25
<PAGE>
Company. He is also Chief Investment Officer of Glenbrook Life and Annuity
Company, Allstate Settlement Corporation, The Northbrook Corporation, Allstate
Insurance Company, Allstate Indemnity Company, Allstate Property and Casualty,
Deerbrook Insurance Company, First Assurance Company, Northbrook Indemnity
Company, Northbrook National Insurance Company, Northbrook Property and
Casualty Insurance Company. Prior to 1995, he was Senior Vice President and
Executive Officer of Investments for Northwestern Mutual Life Insurance
Company.
JAMES P. ZILS, 44, Treasurer (1995)
James P. Zils is also Treasurer of Allstate Life Financial Services, Inc.,
Allstate Settlement Corporation, Allstate Life Insurance Company, Glenbrook
Life and Annuity Company, Glenbrook Life Insurance Company, Northbrook Life
Insurance Company, The Northbrook Corporation. He is Treasurer and Vice
President of AEI Group, Inc., Allstate International Inc., Allstate Motor Club,
Inc., Direct Marketing Center, Inc., Enterprises Services Corporation, The
Allstate Foundation, Forestview Mortgage Insurance Company, Allstate Indemnity
Company, Allstate Property and Casualty, Deerbrook Insurance Company, First
Assurance Company, Northbrook Indemnity Company, Northbrook National Insurance
Company, Northbrook Property and Casualty Insurance Company. Prior to 1995 he
was Vice President of Allstate Life Insurance Company. Prior to 1993 he held
various management positions within Allstate.
JAMES J. BRAZDA, 51, Chief Administrative Officer and Director (1983)*
James J. Brazda is also a Department Manager for Allstate Life Insurance
Company.
MARCIA D. ALAZRAKI, 54, Director (1993)*
Marcia D. Alazraki is an attorney practicing with the firm of Simpson,
Thacher & Bartlett, New York, New York. Prior to 1991, she practiced with the
firm of Shea & Gould, New York, New York.
JOSEPH F. CARLINO, 78, Director (1983)*
Joseph F. Carlino is a self-employed practicing attorney in Mineola, New
York.
CLEVELAND JOHNSON, JR., 61, Director (1983)*
Cleveland Johnson, Jr. is currently a Business Development Advocate for the
Town of Islip, Division of Economic Development. Previously he was a Vice
President with State University of New York in Farmingdale, New York.
PHILLIP E. LAWSON, 42, Director (1994)*
Phillip E. Lawson is also a Regional Vice President of Allstate Insurance
Company.
GERARD F. MCDERMOTT, 49, Director (1995)
Gerard F. McDermott is also a Regional Vice President of Allstate Insurance
Company. Prior to 1986, he held various management positions.
JOSEPH P. MCFADDEN, 57, Director (1992)*
Joseph P. McFadden is also a Territorial Vice President of Allstate Insurance
Company. Prior to 1992, he was a Claim Vice President of Allstate Insurance
Company.
TIMOTHY H. PLOHG, 49, Director (1995)
Timothy H. Plohg is also Vice President and Director of Allstate Life
Insurance Company. Prior to 1995, he was Vice President of the ALSC; Assistant
Vice President Sales, Regional Vice President.
JOHN R. RABEN, JR., 50, Director (1988)*
John R. Raben, Jr. is a Vice President & Municipal Bond/Public Finance
Liaison with J.P. Morgan Securities, Inc.
THEODORE A. SCHNELL, 47, Director (1995)*
Theodore A. Schnell is also Assistant Treasurer of Glenbrook Life & Annuity
Company,
26
<PAGE>
Glenbrook Life Insurance Company and Allstate Life Insurance Company.
SALLY A. SLACKE, 62, Director (1983)*
Sally A. Slacke is also President of Slacke Test Boring, Inc.
BARRY S. PAUL, 40, Assistant Vice President and Controller
Barry S. Paul is also Assistant Vice President and Controller of Allstate
Life Insurance Company; Assistant Vice President and Controller of Northbrook
Life Insurance Company, Glenbrook Life Insurance Company and Glenbrook Life
and Annuity Company.
*Year elected to current office
EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
Some executive officers of the Company also serve as officers of the
Company's parent and receive no compensation directly from the Company. Some
of the officers also serve as officers of other companies affiliated with the
Company. Allocations have been made as to each individual's time devoted to
his duties as an executive officer of the Company. However, no officer's
compensation allocated to the Company exceeded $100,000 in 1995. The allocated
cash compensation of all officers of the Company as a group for services
rendered in all capacities to the Company during 1995 totalled $175,227.
Directors of the Company receive no compensation in addition to their
compensation as employees of the Company. Directors of the Company who are not
also employees of the Company receive compensation for services provided.
Marcia D. Alazraki, John R. Raben, Jr. and Sally A. Slacke receive $5,500
annually; Cleveland Johnson, Jr. receives $5,500 annually; and Joseph F.
Carlino receives $5,500 annually.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ --------------------- --------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) AWARD(S) SARS(#) ($) ($)
------------------ ---- -------- -------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II...... 1995 $416,000 $266,175 $17,044 $199,890 N/A $411,122 $5,250(1)
President and 1994 $389,050 $ 26,950 $25,889 $170,660 N/A 0 $1,890(1)
Chairman of the 1993 $374,200 $294,683 $52,443 $318,625 N/A $ 13,451 $6,296(1)
Board of Directors
James J. Brazda......... 1995 $115,870 $ 27,808 $ 175 0 N/A 0 $5,761(2)
Chief Administrative Of- 1994 $108,195 $ 21,707 0 $ 16,935 N/A 0 $1,608(2)
ficer and Director
</TABLE>
- -------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Profit Sharing Fund and to
its predecessor, The Savings and Profit Sharing Fund of Sears employees.
(2) Amount received by Mr. Brazda which represents the value allocated to his
account from employer contributions under The Profit Sharing Fund and to
its predecessor, The Savings and Profit Sharing Fund of Sears employees.
27
<PAGE>
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
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.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements and financial statement schedules of the Company
included in this prospectus have been audited by Deloitte & Touche LLP, Two
Prudential Plaza, 180 North Stetson Avenue, Chicago, IL 60601-6779, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Certain legal matters relating to the federal securities laws applicable to
the issue and sale of the Contract have been passed upon by Routier and
Johnson, P.C., of Washington , D.C. All matters of New York law pertaining to
the Contract, including the validity of the Contract and the Company's right to
issue such Contract under New York insurance law, have been passed upon by
Michael J. Velotta, General Counsel of the Company.
28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK:
We have audited the accompanying Statements of Financial Position of Allstate
Life Insurance Company of New York as of December 31, 1995 and 1994, and the
related Statements of Operations, Shareholder's Equity and Cash Flows for each
of the three years in the period ended December 31, 1995. Our audits also
included Schedule IV--Reinsurance and Schedule V--Valuation and Qualifying
Accounts. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstate Life Insurance Company of New York
as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule IV--Reinsurance and Schedule V--Valuation and Qualifying Accounts,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Note 3 to financial statements, in 1993 the Company changed
its method of accounting for investments in fixed income securities.
Deloitte & Touche LLP
Chicago, Illinois
March 1, 1996
F-1
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities
Available for sale, at fair value (amortized cost
$1,219,418 and $468,518)......................... $1,424,893 $ 457,018
Held to maturity, at amortized cost (fair value
$583,000)........................................ 601,359
Mortgage loans...................................... 86,394 86,435
Policy loans........................................ 22,785 20,500
Short-term.......................................... 7,257 7,212
---------- ----------
Total investments............................... 1,541,329 1,172,524
Deferred acquisition costs............................ 53,944 50,699
Accrued investment income............................. 18,828 16,518
Reinsurance recoverable............................... 3,331 10,365
Deferred income taxes................................. 17,443
Cash.................................................. 1,472 1,763
Other assets.......................................... 3,924 4,763
Separate Accounts..................................... 220,141 175,918
---------- ----------
Total assets.................................... $1,842,969 $1,449,993
========== ==========
LIABILITIES
Reserve for life insurance policy benefits............ $ 838,739 $ 626,316
Contractholder funds.................................. 499,548 483,812
Deferred income taxes................................. 23,659
Other liabilities and accrued expenses................ 8,950 13,304
Net payable to affiliates............................. 1,865 1,402
Separate Accounts..................................... 220,141 175,918
---------- ----------
Total liabilities............................... 1,592,902 1,300,752
---------- ----------
SHAREHOLDER'S EQUITY
Common stock, $25 par value, 80,000 shares authorized,
issued and outstanding............................... 2,000 2,000
Additional capital paid-in............................ 45,787 45,787
Unrealized net capital gains (losses)................. 74,413 (6,891)
Retained income....................................... 127,867 108,345
---------- ----------
Total shareholder's equity...................... 250,067 149,241
---------- ----------
Total liabilities and shareholder's equity...... $1,842,969 $1,449,993
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Premium income (net of reinsurance ceded of
$2,147, $2,198 and $4,929)...................... $126,713 $ 70,070 $110,051
Contract charges................................. 21,603 18,490 16,862
Net investment income............................ 104,384 96,911 95,956
Realized capital (losses) gains.................. (1,846) 778 4,576
-------- -------- --------
250,854 186,249 227,445
-------- -------- --------
Costs and expenses
Provision for policy benefits (net of reinsurance
recoveries of $1,581, $1,860 and $1,773)........ 198,055 137,434 175,676
Amortization of deferred acquisition costs ...... 5,502 3,875 10,319
Operating costs and expenses..................... 17,864 16,330 21,575
Early retirement program......................... 1,210
-------- -------- --------
221,421 158,849 207,570
-------- -------- --------
Income before income taxes......................... 29,433 27,400 19,875
Income tax expense................................. 9,911 9,179 6,712
-------- -------- --------
Net income......................................... $ 19,522 $ 18,221 $ 13,163
======== ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NET
ADDITIONAL CAPITAL
COMMON CAPITAL GAINS RETAINED
STOCK PAID-IN (LOSSES) INCOME TOTAL
------- ---------- ---------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.... $ 2,000 $45,787 -- $ 76,961 $124,748
Net income.................. 13,163 13,163
Change in unrealized net
capital gains and losses... $25,391 25,391
------- ------- ------- -------- --------
Balance, December 31, 1993.... 2,000 45,787 25,391 90,124 163,302
Net income.................. 18,221 18,221
Change in unrealized net
capital gains and losses... (32,282) (32,282)
------- ------- ------- -------- --------
Balance, December 31, 1994.... 2,000 45,787 (6,891) 108,345 149,241
Net income.................. 19,522 19,522
Change in unrealized net
capital gains and losses... 81,304 81,304
------- ------- ------- -------- --------
Balance, December 31, 1995.... $ 2,000 $45,787 $74,413 $127,867 $250,067
======= ======= ======= ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 19,522 $ 18,221 $ 13,163
Adjustments to reconcile net income to net
cash from operating activities:
Realized capital losses (gains)............ 1,846 (778) (4,576)
Depreciation, amortization and other non-
cash items................................ (22,348) (18,969) (14,618)
Interest credited to contractholder funds.. 26,924 27,233 26,476
Increase in reserve for policy benefits and
contractholder funds...................... 103,513 55,233 101,348
Increase in deferred acquisition costs..... (5,537) (6,850) (2,396)
Increase in accrued investment income...... (2,497) (102) (114)
Change in deferred income taxes............ (2,674) (5,993) 7,564
Changes in other operating assets and lia-
bilities.................................. 3,894 (18,082) (3,609)
-------- --------- ---------
Net cash from operating activities....... 122,643 49,913 123,238
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales
Fixed income securities available for sale. 13,526 49,903
Fixed income securities.................... 46,496
Investment collections
Fixed income securities available for sale. 30,871 54,796
Fixed income securities held to maturity... 3,067 17,186
Fixed income securities.................... 153,518
Mortgage loans............................. 6,499 9,744 2,382
Investment purchases
Fixed income securities available for sale. (142,205) (137,684)
Fixed income securities held to maturity... (32,046) (38,709)
Fixed income securities.................... (282,979)
Mortgage loans............................. (9,864) (10,132) (15,642)
Change in short-term investments, net........ (45) 41,528 4,254
Change in policy loans, net.................. (859) (2,133) 84
-------- --------- ---------
Net cash from investing activities....... (131,056) (15,501) (91,887)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contractholder fund deposits................. 76,543 57,468 84,024
Contractholder fund withdrawals.............. (68,412) (92,574) (115,698)
-------- --------- ---------
Net cash from financing activities....... 8,122 (35,106) (31,674)
-------- --------- ---------
Net decrease in cash........................... (291) (694) (323)
Cash at beginning of year...................... 1,763 2,457 2,780
-------- --------- ---------
Cash at end of year............................ $ 1,472 $ 1,763 $ 2,457
======== ========= =========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. ORGANIZATION AND NATURE OF OPERATIONS
Allstate Life Insurance Company of New York (the "Company") is wholly owned
by a wholly-owned subsidiary ("Parent") of Allstate Insurance Company
("Allstate"), a wholly-owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution").
The Company markets life insurance and group and individual annuities in the
state of New York, with products consisting predominately of structured
settlement annuities sold through independent brokers. The Company also
utilizes Allstate agencies and direct marketing to distribute its traditional
and universal life and accident and disability insurance products.
Additionally, flexible premium deferred variable annuity contracts and certain
single and flexible premium annuities are marketed to individuals through the
account executives of Dean Witter Reynolds, Inc. ("Dean Witter") (Note 4).
The Company utilizes various modeling techniques in managing the relationship
between assets and liabilities. Structured settlement annuity contracts issued
by the Company are long-term in nature and involve fixed guarantees relating to
the amount and timing of benefit payments. In addition, single and flexible
premium annuity contracts issued by the Company are subject to discretionary
withdrawal or surrender by the contractholder, subject to applicable surrender
charges. The fixed income securities supporting these obligations have been
selected to meet the anticipated cash flow requirements of the related
liabilities; however, in a low interest rate environment, funds from maturing
investments, particularly those supporting long-term structured settlement
annuity obligations, may be reinvested at substantially lower interest rates
than those which prevailed when the funds were previously invested. The Company
employs strategies to minimize exposure to interest rate risk and to maintain
investments which are sufficiently liquid to meet obligations to
contractholders in various interest rate scenarios.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Currently, there is proposed legislation
which would permit banks greater participation in securities businesses, which
could eventually present an increased level of competition for sales of the
Company's annuity contracts. Furthermore, the federal government may enact
changes which could possibly eliminate the tax-advantaged nature of annuities
or eliminate consumers' need for tax deferral, thereby reducing the incentive
for customers to purchase the Company's products. While it is not possible to
predict the outcome of such issues with certainty, management evaluates the
likelihood of various outcomes and develops strategies, as appropriate, to
respond to such challenges.
To conform with the 1995 presentation, certain items in the prior year's
financial statements and notes have been reclassified.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIFE INSURANCE ACCOUNTING
The Company writes traditional life, accident and disability insurance. The
Company also writes long-duration insurance contracts with terms that are not
fixed and guaranteed, including single premium life
F-6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
insurance contracts, which are considered universal life-type contracts. The
Company also sells long-duration contracts that do not involve significant risk
of policyholder mortality or morbidity (principally single and flexible premium
fixed and variable annuities and structured settlement annuities when sold
without life contingencies), which are considered investment contracts. Limited
payment contracts (policies with premiums paid over a period shorter than the
contract period) primarily consist of group annuities and structured settlement
annuities, when sold with life contingencies.
Premiums for traditional life insurance are recognized as revenue when due.
Accident and disability premiums are earned on a pro rata basis over the policy
period. Revenues on universal life-type contracts are comprised of contract
charges and fees and are recognized when assessed against the policyholder
account balance. Revenues on investment contracts include contract charges and
fees for contract administration and surrenders. These revenues are recognized
when levied against the contract balances. Gross premiums in excess of the net
premium on limited payment contracts are deferred and recognized over the
contract period.
The reserve for life insurance policy benefits, which relates to traditional
life, group annuities and structured settlement annuities with life
contingencies, and accident and disability insurance, is computed on the basis
of assumptions as to future investment yields, mortality, morbidity,
terminations and expenses. These assumptions, which for traditional life are
applied using the net level premium method, include provisions for adverse
deviation and generally vary by such characteristics as plan, year of issue and
policy duration. Reserve interest rates ranged from 6.2% to 9.5% during 1995.
To the extent that unrealized gains on available for sale securities would
result in a premium deficiency had those gains actually been realized, the
related increase in reserves is recorded as a reduction of the unrealized gains
included in shareholder's equity.
Contractholder funds arise from the issuance of individual contracts that
include an investment component, including most annuities and universal life-
type contracts. Payments received are recorded as interest-bearing liabilities.
Contractholder funds are equal to deposits received and interest accrued to the
benefit of the contractholder less withdrawals, mortality charges, and
administrative expenses. Credited interest rates on contractholder funds ranged
from 3.0% to 6.8% for those contracts with fixed interest rates and from 3.6%
to 8.5% for those with flexible rates during 1995.
Certain costs of acquiring insurance business, principally agents'
compensation, premium taxes, certain underwriting costs and direct mail
solicitation expenses, are deferred and amortized to income. For traditional
life, limited payment contracts and accident and disability, these costs are
amortized in proportion to the estimated revenues on such business. For
universal life-type and investment contracts, the costs are amortized in
relation to the present value of estimated gross profits on such business.
Changes in the amount or timing of estimated gross profits will result in
adjustments in the cumulative amortization of these costs. To the extent that
unrealized gains or losses on fixed income securities carried at fair value
would result in
F-7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
an adjustment of deferred acquisition costs had those gains or losses actually
been realized, the related unamortized deferred acquisition costs are recorded
as a reduction of the unrealized gains or losses included in shareholder's
equity.
SEPARATE ACCOUNTS
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 assets and liabilities of the
Separate Accounts. Assets and liabilities of the Separate Accounts represent
funds of Allstate Life of New York Variable Annuity Account and Allstate Life
of New York Variable Annuity Account II ("Separate Accounts"), unit investment
trusts registered with the Securities and Exchange Commission. The assets and
liabilities of the Separate Accounts are carried at fair value. Investment
income and realized capital gains and losses of the Separate Accounts accrue
directly to the contractholders and, therefore, are not included in the
accompanying statements of operations. Revenues to the Company from the
Separate Accounts consist of contract maintenance fees, administration fees and
mortality and expense risk charges.
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. Fixed
income securities which may be sold prior to their contractual maturity
("available for sale") are carried at fair value. The difference between
amortized cost and fair value, net of deferred income taxes, certain deferred
acquisition costs and reserves for life insurance policy benefits, is reflected
as a component of shareholder's equity. Fixed income securities which the
Company has both the ability and positive intent to hold to maturity ("held to
maturity") are carried at amortized cost. Provisions are made to write down the
value of fixed income securities for declines in value that are other than
temporary. Such writedowns are included in realized capital gains and losses.
Mortgage loans are carried at outstanding principal balance, net of
unamortized premium or discount and valuation allowances. Valuation allowances
are established for impaired loans when it is probable that contractual
principal and interest will not be collected. Valuation allowances for impaired
loans reduce the carrying value to the fair value of the collateral or the
present value of the loan's expected future repayment cash flows, discounted at
the loan's original effective interest rate. Valuation allowances on loans not
considered to be impaired are established based on consideration of the
underlying collateral, borrower financial strength, current and future market
conditions and other factors. While the Company believes its mortgage loans
were carried at appropriate levels at December 31, 1995, further allowances may
be required if market conditions or other circumstances surrounding the loans
change.
Short-term investments are carried at cost which approximates fair value.
Policy loans are carried at the unpaid principal balances.
F-8
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on estimated principal repayments. Accrual of
income is suspended for fixed income securities and mortgage loans that are in
default or when the receipt of interest payments is in doubt. Realized capital
gains and losses are determined on a specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company designates financial futures contracts as hedges of fixed income
securities and anticipated transactions when certain criteria are met. These
criteria require financial futures contracts to reduce the interest rate risk
associated with designated assets or anticipated transactions. In addition, at
the inception of the hedge and throughout the hedge period, high correlation
between changes in the market value of the financial future contract and the
fair value of, or interest income or expense associated with, the hedged item
must exist. The Company only hedges those anticipated transactions that are
probable of occurrence and whose significant terms and expected characteristics
can be identified.
When the hedged item is an existing asset, gains and losses on financial
futures contracts are deferred as an adjustment to the amortized cost basis of
the hedged item and are reported net of tax in shareholder's equity.
When the hedged item is an anticipated transaction, gains and losses on
financial futures contracts are deferred as other liabilities and accrued
expenses. Once the anticipated transaction occurs, the deferred gains or losses
are considered part of the amortized cost basis of the hedged asset.
Accordingly, they are recognized in net investment income over the life of the
hedged asset or are included in the recognition of gain or loss from
disposition of that asset.
Initial margin deposits are reported in short-term investments. Fees and
commissions on financial futures contracts are deferred as an adjustment to the
amortized cost basis of the hedged item.
If, subsequent to entering into a hedge transaction, the financial futures
contract becomes ineffective (including if the hedged item is sold or otherwise
extinguished), the Company terminates the contract position. Gains and losses
on these terminations are reported in realized capital gains (losses) in the
period they occur. The Company may also terminate financial futures contracts
as a result of other events or circumstances. Gains and losses on these
terminations are reported in shareholder's equity, consistent with the
accounting for the hedged item.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to extend mortgage loans have only off-balance-sheet risk because
their contractual amounts are not recorded in the Company's statements of
financial position.
F-9
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
REINSURANCE
Certain premiums and policy benefits are ceded and reflected net of such
cessions in the statements of operations. Reinsurance recoverable and the
related reserves for policy benefits are reported separately in the statements
of financial position. Reinsurance ceded arrangements do not discharge the
Company as the primary insurer.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted tax
rates. The principal assets and liabilities giving rise to such differences are
insurance reserves and deferred policy acquisition costs. Deferred income taxes
also arise from unrealized capital gains or losses on fixed income securities
carried at fair value.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTING CHANGES
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures." SFAS No. 114
defines impaired loans as loans in which it is probable that a creditor will be
unable to collect all amounts contractually due under the terms of a loan
agreement and requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price, or at the fair value of the
collateral. SFAS No. 118 amends SFAS No. 114 to allow a creditor to use
existing methods for recognizing interest income on impaired loans. The
adoption of these statements did not have a material impact on net income or
financial position.
Effective December 31, 1993, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which requires that
investments classified as available for sale be carried at fair value.
Previously, fixed income securities classified as available for sale were
carried at the lower of amortized cost or fair value, determined in the
aggregate. Unrealized holding gains and losses are reflected as a separate
component of shareholder's equity, net of deferred income taxes, certain life
deferred acquisition costs and reserves for life insurance policy benefits. The
net effect of adoption of this statement increased shareholder's equity at
December 31, 1993 by $25,391 and did not have a material impact on net income.
F-10
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company cedes business to the Parent under reinsurance treaties. Premiums
and policy benefits ceded totaled $1,259 and $278 in 1995, $1,181 and $1,877 in
1994, and $4,109 and $1,288 in 1993. Included in the reinsurance recoverable at
December 31, 1995 and 1994 are amounts due from the Parent of $1,212 and
$1,120, respectively.
STRUCTURED SETTLEMENT ANNUITIES
Allstate, through an affiliate, purchased $11,243, $7,568 and $24,778 of
structured settlement annuities from the Company in 1995, 1994 and 1993,
respectively. Included in premium income are $4,164, $1,221 and $7,170, for
1995, 1994 and 1993, respectively, for the amounts related to structured
settlement annuities with life contingencies. Additionally, the provision for
policy benefits was increased by approximately 94% of such premium received in
each of these years.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by Allstate in conducting its business activities. The Company
reimburses Allstate for the operating expenses incurred by Allstate on its
behalf. The cost to the Company is determined by various allocation methods and
is primarily related to the level of the services provided. Expenses allocated
to the Company were $21,288, $17,320 and $16,313 in 1995, 1994 and 1993,
respectively. A portion of these expenses related to the acquisition of
insurance business is deferred and amortized over the policy period.
DEAN WITTER
Dean Witter is the primary distributor of the Company's single and flexible
premium annuities. Dean Witter is also the distributor of flexible premium
deferred variable annuity contracts and the investment manager for the Dean
Witter Variable Investment Series, the fund in which the assets of the Separate
Accounts are invested. Additionally, Dean Witter loans funds to an affiliate of
the Parent under the terms of a strategic alliance.
5. INCOME TAXES
A consolidated federal income tax return will be filed by the Parent and its
life insurance subsidiaries, including the Company. Tax liabilities and
benefits realized by the consolidated group are allocated as generated by the
respective subsidiaries, whether or not such benefits generated by the
subsidiaries would be available on a separate return basis. The Corporation and
its domestic subsidiaries, including the Company, (the "Allstate Group"), will
be eligible to file a consolidated tax return beginning in the year 2000.
F-11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Prior to the Distribution, the Allstate Group joined with Sears and its
domestic business units (the "Sears Group") in the filing of a consolidated
federal income tax return (the "Sears Tax Group") and were parties to a federal
income tax allocation agreement (the "Tax Sharing Agreement"). As a member of
the Sears Tax Group, the Corporation was jointly and severally liable for the
consolidated income tax liability of the Sears Tax Group. Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Allstate Group in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Company filed a
separate return, except that items such as net operating losses, capital
losses, or similar items, which might not be immediately recognizable in a
separate return, were allocated according to the Tax Sharing Agreement and
reflected in the Company's provision to the extent that such items reduced the
Sears Tax Group's federal tax liability.
The Allstate Group and Sears Group have entered into an agreement which
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The
agreement provides that all Consolidated Tax Years will continue to be governed
by the Tax Sharing Agreement with respect to the Company's federal income tax
liability and taxes payable to or recoverable from the Sears Group.
The components of the deferred income tax assets and liabilities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred assets
Reserve for policy benefits............................... $ 25,562 $ 21,447
Difference in tax bases of investments.................... 1,536 1,708
Loss on disposal of discontinued operations............... 376 378
Reserve for postretirement benefits....................... 496 446
Unrealized loss on fixed income securities................ 3,711
Other assets.............................................. 1,701 2,402
-------- --------
Total deferred assets................................... 29,671 30,092
-------- --------
Deferred liabilities
Unrealized gain on fixed income securities................ (40,069)
Policy acquisition costs.................................. (12,655) (12,116)
Prepaid commission expense................................ (578) (520)
Other liabilities......................................... (28) (13)
-------- --------
Total deferred liabilities.............................. (53,330) (12,649)
-------- --------
Net deferred (liability) asset.......................... $(23,659) $ 17,443
======== ========
</TABLE>
F-12
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
The Company has not established a valuation reserve as it is more likely than
not that the Company will produce sufficient taxable income in the future to
realize the deferred tax asset.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current.............................................. $12,589 $15,172 $12,821
Deferred............................................. (2,678) (5,993) (6,109)
------- ------- -------
Income tax expense................................. $ 9,911 $ 9,179 $ 6,712
======= ======= =======
</TABLE>
The Company paid income taxes of $11,000, $27,682 and $13,079 in 1995, 1994
and 1993, respectively to the Parent under the Tax Sharing Agreement.
Additionally, the Company had income taxes payable to the Parent of $1,729 and
$141 at December 31, 1995 and 1994, respectively.
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1995 of approximately $389
will result in taxes payable of $136 if distributed to the Company's
shareholder. The Company has no plan to distribute amounts from the
policyholder surplus account, and no further additions to the account are
allowed by the Tax Reform Act of 1984.
6. INVESTMENTS
In 1995, the Company transferred its held to maturity fixed income securities
portfolio, with an amortized cost of $644,005 to the available for sale fixed
income portfolio. The fair value of these fixed income securities was $726,820,
resulting in an increase to shareholder's equity of $82,815 after adjustment
for deferred income taxes, certain deferred acquisition costs and reserves for
life insurance policy benefits. While the Company's investment philosophy has
not changed, management chose to transfer these fixed income securities to
available for sale to maximize the Company's flexibility in responding to
changes in market conditions.
F-13
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
FAIR VALUES
The amortized cost, fair value and gross unrealized gains and losses for
fixed income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- ----------------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Available for sale
U.S. government and agencies............ $ 336,331 $ 99,750 $ 526 $ 435,555
State and municipal..................... 36,002 2,831 92 38,741
Corporate............................... 633,731 92,073 767 725,037
Mortgage-backed securities.............. $ 213,354 12,370 164 225,560
---------- -------- ------- ----------
Total available for sale.............. $1,219,418 $207,024 $ 1,549 $1,424,893
========== ======== ======= ==========
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
DECEMBER 31, 1994 COST GAINS LOSSES VALUE
- ----------------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Available for sale
U.S. government and agencies............ $ 28,621 $ 299 $ 825 $ 28,095
State and municipal..................... 33,939 303 1,024 33,218
Corporate............................... 221,740 3,871 6,748 218,863
Mortgage-backed securities.............. 184,218 1,188 8,564 176,842
---------- -------- ------- ----------
Total available for sale.............. $ 468,518 $ 5,661 $17,161 $ 457,018
========== ======== ======= ==========
Held to maturity
U.S. government and agencies............ $ 267,521 $ 5,203 $24,723 $ 248,001
Corporate............................... 328,194 8,462 7,377 329,279
Mortgage-backed securities.............. 5,644 92 16 5,720
---------- -------- ------- ----------
Total held to maturity................ $ 601,359 $ 13,757 $32,116 $ 583,000
========== ======== ======= ==========
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due in one year or less.............................. $ 21,352 $ 21,841
Due after one year through five years................ 78,391 83,922
Due after five years through ten years............... 165,998 182,739
Due after ten years.................................. 740,323 910,831
---------- ----------
1,006,064 1,199,333
Mortgage-backed securities......................... 213,354 225,560
---------- ----------
Total............................................ $1,219,418 $1,424,893
========== ==========
</TABLE>
F-14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses on fixed income securities available
for sale included in shareholder's equity at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR UNREALIZED NET
COST VALUE GAINS/(LOSSES)
---------- ---------- --------------
<S> <C> <C> <C>
Fixed income securities available for
sale..................................... $1,219,418 $1,424,893 $205,475
========== ==========
Reserves for life insurance policy bene-
fits..................................... (89,600)
Deferred income taxes..................... (40,068)
Deferred acquisition costs................ (1,394)
--------
Total................................... $ 74,413
========
</TABLE>
The change in unrealized net capital gains and losses for fixed income
securities is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Fixed income securities available for sale.................. $216,975 $(52,740)
Reserves for life insurance policy benefits................. (89,600)
Deferred income taxes....................................... (43,779) 17,382
Deferred acquisition costs.................................. (2,292) 3,076
-------- --------
Change in unrealized net capital gains and losses......... $ 81,304 $(32,282)
======== ========
</TABLE>
INVESTMENT INCOME
Investment income by type of investment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Fixed income securities............................... $ 95,212 $88,149 $87,524
Mortgage loans........................................ 7,999 8,092 7,435
Policy loans.......................................... 1,309 1,153 1,017
Short-term............................................ 1,435 1,093 1,385
-------- ------- -------
Investment income, before expense..................... 105,955 98,487 97,361
Investment expense.................................... 1,571 1,576 1,405
-------- ------- -------
Net investment income................................. $104,384 $96,911 $95,956
======== ======= =======
</TABLE>
F-15
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on investments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Fixed income securities............................... $ 422 $1,570 $ 5,657
Mortgage loans........................................ (2,268) (792) (1,081)
------- ------ -------
Realized capital (losses) gains..................... (1,846) 778 4,576
Income tax (benefit) expense........................ (646) 272 1,602
------- ------ -------
Realized capital (losses) gains..................... $(1,200) $ 506 $ 2,974
======= ====== =======
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
The proceeds from sales of investments in fixed income securities, excluding
calls, and related gross realized gains and losses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Proceeds............................................. $13,526 $49,903 $46,496
------- ------- -------
Gross realized gains................................. $ 172 $ 1,743 $ 1,780
Gross realized losses................................ (105) (973) (30)
------- ------- -------
Net realized gains................................. $ 67 $ 770 $ 1,750
======= ======= =======
</TABLE>
INVESTMENT LOSS PROVISIONS AND VALUATION RESERVES
Pretax provisions for investment losses, principally relating to other than
temporary declines in value on fixed income securities, and valuation
allowances on mortgage loans were $2,448, $627 and $1,200 in 1995, 1994 and
1993, respectively.
MORTGAGE LOAN IMPAIRMENT
A mortgage loan is impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. The components of impaired loans at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
Net carrying value of impaired loans
With valuation allowances.............................. $ 9,353
Less: valuation allowances............................. (1,934)
Without valuation allowances........................... 2,228
-------
Total.............................................. $ 9,647
=======
</TABLE>
F-16
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
All impaired loans were measured at the fair value of the collateral at
December 31, 1995.
Activity in the valuation allowance for all mortgage loans for the year ended
December 31, 1995 is summarized as follows:
<TABLE>
<S> <C>
Balance at January 1.............................................. $1,179
Additions....................................................... 1,930
Direct write-downs.............................................. (1,157)
------
Balance at December 31............................................ $1,952
======
</TABLE>
Interest income is recognized on a cash basis for impaired loans carried at
the fair value of collateral, beginning at the time of impairment. For other
impaired loans, interest is accrued based on the net carrying value. The
Company recognized interest income of $1,398 on impaired loans during the
period, of which $1,193 was received in cash. The average recorded investment
in impaired loans during the period was $8,900.
INVESTMENT CONCENTRATION AND OTHER INVESTMENT INFORMATION
The Company maintains a diversified portfolio of municipal bonds. The largest
concentrations in the portfolio are presented below. Except for the following,
holdings in no other state exceed 5.0% of the carrying value of the portfolio
at December 31, 1995.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Ohio.......................................................... 26.8% 26.9%
California.................................................... 23.1 23.0
Illinois...................................................... 19.7 22.0
Maryland...................................................... 7.6 9.0
Maine......................................................... 5.7 5.9
New York...................................................... 5.3 6.1
Minnesota..................................................... 5.2 --
</TABLE>
The Company's mortgage loans are collateralized primarily by a variety of
commercial real estate property types, located throughout the United States.
Substantially all of the commercial mortgage loans are non-recourse to the
borrower. The three states with the largest portion of the commercial mortgage
loan portfolio are as listed below. Holdings in no other state exceed 5.0% of
the portfolio at December 31:
(% of commercial mortgage portfolio carrying value)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
California.................................................... 56.7% 58.5%
Illinois...................................................... 22.9 16.3
New York...................................................... 11.1 10.9
</TABLE>
F-17
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
The types of properties collateralizing the mortgage loans are as follows:
(% of commercial mortgage portfolio carrying value)
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Retail...................................................... 39.5% 31.4%
Warehouse................................................... 32.1 36.8
Office...................................................... 16.0 19.3
Industrial.................................................. 6.9 7.1
Apartment................................................... 4.5 4.4
Other....................................................... 1.0 1.0
----- -----
100.0% 100.0%
===== =====
</TABLE>
At December 31, 1995, fixed income securities with a carrying value of $1,988
were on deposit with regulatory authorities as required by law.
During 1995, the Company held one fixed income security which exceeded 10% of
shareholder's equity, the State of Israel Government Loan Trust, with a fair
value of $83,980. This security, issued through the United States Agency for
International Development, is secured by the credit of the United States
government and is backed by government guaranteed loans to Israel.
F-18
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
7. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving derivative financial instruments. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. As a number of the Company's significant assets,
including deferred acquisition costs and deferred income taxes, and
liabilities, including traditional and universal life-type life insurance
reserves, are not considered financial instruments, the disclosures that follow
do not reflect the fair value of the Company as a whole.
FINANCIAL ASSETS
<TABLE>
<CAPTION>
CARRYING
AT DECEMBER 31, 1995 VALUE FAIR VALUE
-------------------- ---------- ----------
<S> <C> <C>
Fixed income securities............................ $1,424,893 $1,424,893
Mortgage loans..................................... 86,394 89,517
Short-term investments............................. 7,257 7,257
Policy loans....................................... 22,785 22,785
Accrued investment income.......................... 18,828 18,828
Cash............................................... 1,472 1,472
Other financial assets............................. 7,169 7,169
Separate Accounts.................................. 220,141 220,141
<CAPTION>
CARRYING
AT DECEMBER 31, 1994 VALUE FAIR VALUE
-------------------- ---------- ----------
<S> <C> <C>
Fixed income securities............................ $1,058,377 $1,040,018
Mortgage loans..................................... 86,435 80,785
Short-term investments............................. 7,212 7,212
Policy loans....................................... 20,500 20,500
Accrued investment income.......................... 16,518 16,518
Cash............................................... 1,763 1,763
Other financial assets............................. 4,763 4,763
Separate Accounts.................................. 175,918 175,918
</TABLE>
Carrying value and fair value include the effects of derivative financial
instruments where applicable.
Fair value for fixed income securities are based on quoted market prices
where available. Non-quoted securities are valued based on discounted cash
flows using current interest rates for similar securities. Mortgage loans are
valued based on discounted contractual cash flows. Discount rates are selected
using
F-19
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
current rates at which loans would be made to borrowers with similar
characteristics, using similar properties as collateral. Loans that exceed 100%
loan-to-value are valued at the estimated fair value of the underlying
collateral. Short-term investments are highly liquid investments with
maturities of less than one year whose carrying value approximates fair value.
The fair value of policy loans is estimated at book value since the loan may be
repaid at any time. Accrued investment income and other financial assets are
valued at their carrying value as they are short-term in nature. Assets of the
Separate Accounts are carried in the statements of financial position at fair
value.
FINANCIAL LIABILITIES
The Company had the following financial liabilities:
<TABLE>
<CAPTION>
CARRYING FAIR
AT DECEMBER 31, 1995 VALUE VALUE
-------------------- -------- --------
<S> <C> <C>
Contractholder funds on investment contracts............ $366,481 $392,111
Other financial liabilities............................. 5,383 5,383
Separate Accounts....................................... 220,141 220,141
<CAPTION>
CARRYING FAIR
AT DECEMBER 31, 1994 VALUE VALUE
-------------------- -------- --------
<S> <C> <C>
Contractholder funds on investment contracts............ $368,780 $362,221
Other financial liabilities............................. 7,725 7,725
Separate Accounts....................................... 175,918 175,918
</TABLE>
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charge. The fair value of
immediate annuities and annuities without life contingencies with fixed terms
are estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Other
financial liabilities are generally valued at their carrying value due to their
short-term nature. Separate Accounts liabilities are carried at the fair value
of the underlying assets.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses financial futures contracts to reduce its exposure to
interest rate risk on its invested assets, as well as to improve
asset/liability management. The Company does not hold or issue these
instruments for trading purposes. The following table summarizes the contract
or notional amount and carrying value of the Company's financial futures
contracts:
F-20
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
CARRYING
CONTRACT/ VALUE
NOTIONAL ASSET/
AT DECEMBER 31, 1995 AMOUNT (LIABILITY)
-------------------- --------- ----------
<S> <C> <C>
Financial futures................................... $22,900 $576
<CAPTION>
CARRYING
CONTRACT/ VALUE
NOTIONAL ASSET/
AT DECEMBER 31, 1994 AMOUNT (LIABILITY)
-------------------- --------- ----------
<S> <C> <C>
Financial futures................................... $20,700 $(65)
</TABLE>
The contract or notional amounts are used to calculate the exchange of
contractual payments under the agreements and are not representative of the
potential gain or loss on these agreements.
Financial futures contracts are commitments to either purchase or sell
designated financial instruments at a future date for a specified price or
yield. They may be settled in cash or through delivery. As part of its
asset/liability management, the Company generally utilizes futures contracts to
hedge its interest rate risk related to anticipatory investment purchases.
Hedges of anticipatory transactions pertain to identified transactions which
are probable to occur and are generally completed within ninety days. Futures
contracts have limited off-balance-sheet credit exposure as they are executed
on organized exchanges and require security deposits, as well as the daily cash
settlement of margins.
Market risk is the risk that future changes in market conditions may cause an
instrument to become less valuable or more costly to settle. Market risk exists
for the financial futures contracts that the Company currently holds. The
Company mitigates this risk through established risk limits set by senior
management. In addition, the change in the value of the Company's financial
futures contracts are generally offset by the change in the value of certain
on-balance-sheet items or anticipated transactions.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to extend new mortgage loans are agreements to lend to a customer
provided there is no violation of any condition established in the contract.
The Company enters these agreements to commit to future loan fundings at a
predetermined interest rate. Commitments generally have fixed expiration dates
or other termination clauses. Commitments to extend mortgage loans, which are
secured by the underlying properties, are valued based on estimates of fees
charged by other institutions to make similar commitments to similar borrowers.
At December 31, 1994, the Company had $3,075 in mortgage loan commitments which
had a fair value of $31. No such commitments existed at December 31, 1995.
F-21
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
8. BENEFIT PLANS
PENSION PLANS
Defined benefit pension plans, sponsored by Allstate, cover all domestic
full-time employees and certain part-time employees. Benefits under the pension
plans are based upon the employee's length of service, average annual
compensation and estimated social security retirement benefits. Allstate's
funding policy for the pension plans is to make annual contributions in
accordance with accepted actuarial cost methods. The costs to the Company
included in income were $446, $344 and $340 for the pension plans in 1995, 1994
and 1993, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Allstate provides certain health care and life insurance benefits for retired
employees. Generally, qualified employees may become eligible for these
benefits if they retire in accordance with Allstate's established retirement
policy and are continuously insured under Allstate's group plans or other
approved plans for 10 or more years prior to retirement. Allstate shares the
cost of the retiree medical benefits with retirees based on years of service,
with the Company's share being subject to a 5% limit on annual medical cost
inflation after retirement. Allstate's postretirement benefit plans currently
are not funded. Allstate has the right to modify or terminate these plans.
PROFIT SHARING FUND
Employees of Allstate and its domestic subsidiaries are also eligible to
become members of the Savings and Profit Sharing Fund of Allstate Employees
("Allstate Plan"). Allstate contributions are based on 6% of consolidated
income, as defined, with Allstate contributions limited to 70% of eligible
deposits. The Allstate Plan includes an Employee Stock Ownership Plan
("Allstate ESOP") to pre-fund a portion of the Company's anticipated
contribution through 2004. The Allstate Plan and the Allstate ESOP split from
The Savings and Profit Sharing Fund of Sears Employees, which included a
leveraged employee stock ownership plan ("Sears ESOP") feature, on June 30,
1995, the date of the Distribution. Fifty percent of the unallocated shares of
the Sears ESOP and 50% of the amount of the Sears ESOP debt (payable to Sears)
were transferred to the Allstate Plan. In connection with this transfer,
Allstate paid Sears $327 million, an amount equal to 50% of the Sears ESOP
debt. Concurrently, Allstate received a note from the Allstate ESOP for a like
principal amount with interest rate and maturity identical to the debt
obligation transferred from the Sears ESOP. Allstate will make contributions to
the Allstate ESOP annually in the amount necessary to allow the Allstate ESOP
to fund interest and principal payments.
The Company's contribution to The Savings and Profit Sharing Fund of Allstate
Employees was $141 in 1995. The costs to the Company prior to the Distribution
and the split from the Savings and Profit Sharing Fund of Sears Employees were
$123 and $176 in 1994 and 1993, respectively.
F-22
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
EARLY RETIREMENT PROGRAM
During 1994, Allstate offered a voluntary early retirement incentive program
to eligible home office employees. The Company's portion of the total cost of
the program of $1,210 was charged to 1994 income.
9. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as
reported herein in conformity with generally accepted accounting principles
with statutory net income and capital and surplus, determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities:
<TABLE>
<CAPTION>
NET INCOME
-------------------------
YEAR ENDED DECEMBER 31, 1995 1994 1993
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
Balance per generally accepted accounting princi-
ples............................................... $19,522 $18,221 $13,163
Deferred acquisition costs........................ (5,537) (6,849) (2,397)
Income taxes...................................... (3,109) (8,337) (6,074)
Non-admitted assets and statutory reserves........ 12,786 6,900 20,157
Other postretirement and postemployment benefits.. 71 105 (54)
Other............................................. (533) 901 1,236
------- ------- -------
Balance per statutory accounting practices.......... $23,200 $10,941 $26,031
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S
EQUITY DECEMBER
31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Balance per generally accepted accounting principles........ $250,067 $149,241
Deferred acquisition costs................................ (53,944) (50,699)
Income taxes.............................................. 20,839 (17,443)
Unrealized net capital gains (losses)..................... (114,500) 11,500
Non-admitted assets and statutory reserves................ 43,624 31,074
Other postretirement and postemployment benefits.......... 1,058 1,036
Other..................................................... 1,153 106
-------- --------
Balance per statutory accounting practices.................. $148,297 $124,815
======== ========
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the New York
state insurance department. Prescribed statutory
F-23
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
accounting principles include a variety of publications of the National
Association of Insurance Commissioners, as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company does not
follow any permitted statutory accounting practices that have a material effect
on statutory surplus or risk-based capital.
DIVIDENDS
The ability of the Company to pay dividends is dependent, in part, on
business conditions, income, cash requirements of the Company and other
relevant factors and is subject to New York Insurance Regulations. Under New
York Insurance Law, a notice of intention to distribute any dividend must be
filed with the New York Superintendent of Insurance not less than 30 days prior
to the distribution. Such proposed declaration is subject to the
Superintendent's disapproval.
F-24
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1995 AMOUNT CEDED AMOUNT
- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Life insurance in force....................... $8,513,295 $ 398,025 $8,115,270
========== ========== ==========
Premiums and contract charges:
Life and annuities.......................... $ 146,732 $ 1,246 $ 145,486
Accident and health......................... 3,731 901 2,830
---------- ---------- ----------
$ 150,463 $ 2,147 $ 148,316
========== ========== ==========
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1994 AMOUNT CEDED AMOUNT
- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Life insurance in force....................... $7,598,374 $ 321,623 $7,276,751
========== ========== ==========
Premiums and contract charges:
Life and annuities.......................... $ 87,562 $ 1,193 $ 86,369
Accident and health......................... 3,276 1,005 2,271
---------- ---------- ----------
$ 90,838 $ 2,198 $ 88,640
========== ========== ==========
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1993 AMOUNT CEDED AMOUNT
- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Life insurance in force....................... $6,853,083 $1,746,724 $5,106,359
========== ========== ==========
Premiums and contract charges:
Life and annuities.......................... $ 128,816 $ 4,122 $ 124,694
Accident and health......................... 3,026 807 2,219
---------- ---------- ----------
$ 131,842 $ 4,929 $ 126,913
========== ========== ==========
</TABLE>
F-25
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTION OF PERIOD
- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for estimated losses on
mortgage loans.................... $1,179 $2,170 $1,397 $1,952
Year Ended December 31, 1994
Allowance for estimated losses on
mortgage loans.................... $2,297 $ 667 $1,785 $1,179
Year Ended December 31, 1993
Allowance for estimated losses on
mortgage loans.................... $2,531 $1,225 $1,459 $2,297
</TABLE>
F-26
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT 1
The Market Value Adjustment is based on the following:
I= the effective annual Interest Crediting Rate for that Guarantee Period;
N = the number of complete days from the withdrawal to the end of the
Guarantee Period; and
J= the current initial or current renewal interest rate credited for a
withdrawal from an initial or renewal guarantee period, respectively, on
the date the withdrawal request is received for a Guarantee Period of
duration N. If a Guarantee Period of duration N is not currently being
offered, J will be determined by linear interpolation (weighted average)
between the two nearest periods being offered. If N is less than or
equal to 365 days, J will be the rate for a Guarantee Period of duration
365.
For any withdrawal, if J is not available, J will be equal to the most
recent Moody's Corporate Bond Yield Average--Monthly Average Corporates
(for the applicable duration) as published by Moody's Investor Services,
Inc. In the event that the Moody's Corporate Bond Yield Average--Monthly
Average Corporates is no longer available, a suitable replacement index,
subject to the approval of the New York Insurance Department, would be
utilized.
The Market Value Adjustment factor is determined from the following
formula:
[.9 x (I-J) x (N/365)].
The amount withdrawn less any applicable Preferred Withdrawal Amount will be
multiplied by the Market Value Adjustment factor to determine the Market Value
Adjustment.
ILLUSTRATION
EXAMPLE OF MARKET VALUE ADJUSTMENT
<TABLE>
<S> <C>
Purchase Payment: .................................................... $10,000
Guarantee Period: .................................................... 5 years
Interest Rate: ....................................................... 5.25%
</TABLE>
<TABLE>
<S> <C>
Full Surrender: ......................................... End of Contract Year 3
</TABLE>
NOTE: This illustration assumes that premium taxes were not applicable.
EXAMPLE 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at End of Contract Year 3.
= 10,000.00 X (1.0525)/3/ = $11,659.13
Step 2: Calculate The Amount Withdrawn in Excess of the Preferred Withdrawal
Amount.
Amount Withdrawn: 11,659.13
Preferred Withdrawal Amount: .10 X 10,000.00 = 1,000.00
Amount Withdrawn in Excess of the Preferred Withdrawal Amount:
= 11,659.13 - 1,000.00 = $10,659.13
A-1
<PAGE>
Step 3: Calculate the Withdrawal Charge.
.02625 (represents 1/2 of interest crediting rate of .0525) X 10,659.13 =
$279.80
Step 4: Calculate the Market Value Adjustment.
I = 5.25%
J = 4.95%
N = 730 days
Market Value Adjustment Factor: .9 X (I - J) X (N/365)
= .9 X (.0525 - .0495) X (730/365) = .0054
Market Value Adjustment = Factor X Amount in Excess of Preferred Withdrawal
Amount.
= .0054 X 10,659.13 = $57.56
Step 5: Calculate The Net Surrender Value at End of Contract Year 3.
11,659.13 - 279.80 + 57.56 = $11,436.89
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3.
= 10,000.00 X (1.0525)/3/ = $11,659.13
Step 2: Calculate The Amount Withdrawn in Excess of the Preferred Withdrawal
Amount.
Amount Withdrawn: 11,659.13
Preferred Withdrawal Amount: .10 X 10,000.00 = 1,000.00
Amount Withdrawn in Excess of the Preferred Withdrawal Amount:
= 11,659.13 - 1,000.00 = $10,659.13
Step 3: Calculate the Withdrawal Charge.
.02625 X 10,659.13 = $279.80
Step 4: Calculate the Market Value Adjustment.
I = 5.25%
J = 5.55%
N = 730 days
Market Value Adjustment Factor: .9 X (I - J) X (N/365)
= .9 X (.0525 - .0555) X (730/365) = -.0054
Market Value Adjustment = Factor X Amount in Excess of Preferred Withdrawal
Amount.
= -.0054 X 10,659.13 = -$57.56
Step 5: Calculate The Net Surrender Value at End of Contract Year 3.
11,659.13 - 279.80 - 57.56 = $11,321.77
A-2
