FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-47245
33-65355
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of registrant as specified in its
charter)
NEW YORK 36-2608394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Allstate Drive
Farmingville, New York 11738
(Address of principal executive offices)(Zip Code)
800/256-9392
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes../X/.. No
Indicate the number of shares of each of the issuer's classes of common
stock, as of September 30, 1998; there were 80,000 shares of common capital
stock outstanding, par value $25 per share all of which shares are held by
Allstate Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Statements of Financial Position As Of
September 30, 1998(Unaudited)and December 31, 1997 3
Statements of Operations
Three Months Ended September 30, 1998
and September 30, 1997 (Unaudited)
Nine Months Ended September 30, 1998
and September 30, 1997 (Unaudited) 4
Statements of Cash Flows
Nine Months Ended September 30, 1998
and September 30, 1997(Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk* N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS* N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES* N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS* N/A
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE PAGE
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
September 30, December 31,
($ in thousands) 1998 1997
-------------------- ---------------------
(Unaudited)
<S> <C> <C>
Investments
Fixed income securities, at fair value (amortized cost
$1,628,116 and $1,510,110) $1,999,860 $1,756,257
Mortgage loans 131,584 114,627
Policy loans 28,759 27,600
Short-term 35,551 9,513
---------- ----------
Total investments 2,195,754 1,907,997
Deferred acquisition costs 77,486 71,946
Accrued investment income 20,558 21,725
Reinsurance recoverables 1,943 1,726
Cash - 393
Net receivable from affiliates 526 -
Other assets 8,817 6,167
Separate Accounts 322,658 308,595
---------- ----------
Total assets $2,627,742 $2,318,549
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits $1,220,121 $1,084,409
Contractholder funds 671,987 607,474
Income taxes payable 8,478 1,419
Deferred income taxes 34,189 16,990
Other liabilities and accrued expenses 33,078 10,985
Net payable to affiliates - 5,267
Separate Accounts 322,658 308,595
---------- ----------
Total liabilities 2,290,511 2,035,139
---------- ----------
Commitments and Contingent Liabilities (Note 3)
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
Retained income 192,653 171,144
Accumulated other comprehensive income:
Unrealized net capital gains 96,791 64,479
---------- ----------
Total accumulated other comprehensive income 96,791 64,479
---------- ----------
Total shareholder's equity 337,231 283,410
---------- ----------
Total liabilities and shareholder's equity $2,627,742 $2,318,549
========== ==========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------------- -----------------------------------
($ in thousands) 1998 1997 1998 1997
---------------- --------------- ---------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Premiums (net of reinsurance
ceded of $886 and $793,
$2,643 and $2,243) $ 20,388 $ 21,075 $ 63,642 $ 67,882
Contract charges 7,777 7,146 24,196 21,128
Net investment income 33,758 31,629 100,018 92,871
Realized capital gains and losses 53 817 4,157 742
--------- --------- --------- ----------
61,976 60,667 192,013 182,623
--------- --------- --------- ----------
COSTS AND EXPENSES
Contract benefits (net of reinsurance
recoveries of $254 and $950,
$756 and $1,632) 46,744 43,081 135,565 132,946
Amortization of deferred acquisition
costs 1,562 746 5,767 4,565
Operating costs and expenses 5,260 5,237 17,426 15,493
--------- --------- --------- ----------
53,566 49,064 158,758 153,004
--------- --------- --------- ----------
INCOME FROM OPERATIONS
BEFORE INCOME TAX EXPENSE 8,410 11,603 33,255 29,619
INCOME TAX EXPENSE 2,883 4,207 11,746 10,662
--------- --------- --------- ----------
NET INCOME $ 5,527 $ 7,396 $ 21,509 $ 18,957
========= ========= ========= ==========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------------------------
1998 1997
--------------------- ---------------------
($ in thousands) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 21,509 $ 18,957
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash items (26,588) (23,167)
Realized capital gains and losses (4,157) (742)
Interest credited to contractholder funds 27,537 25,025
Increase in reserve for life-contingent contract
benefits and contractholder funds 41,875 52,221
Increase in deferred policy acquisition costs (8,605) (7,222)
Decrease in accrued investment income 1,167 1,211
Changes in deferred income taxes (201) (1,492)
Changes in other operating assets and
liabilities (8,186) 18,840
---------- ---------
Net cash provided by operating activities 44,351 83,631
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed income securities 65,274 14,776
Investment collections
Fixed income securities 92,221 80,621
Mortgage loans 4,888 1,899
Investment purchases
Fixed income securities (248,209) (175,460)
Mortgage loans (14,312) (18,500)
Change in short-term investments, net (977) 14,950
Change in policy loans, net (1,159) (1,612)
---------- ---------
Net cash used in investing activities (102,274) (83,326)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 100,721 54,965
Contractholder fund withdrawals (43,191) (40,312)
---------- ---------
Net cash provided by financing activities 57,530 14,653
---------- ---------
NET (DECREASE) INCREASE IN CASH (393) 14,958
CASH AT BEGINNING OF PERIOD 393 1,027
---------- ---------
CASH AT END OF PERIOD $ - $ 15,985
========== =========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Allstate Life Insurance Company of New York (the "Company") is wholly owned
by a wholly owned subsidiary of Allstate Insurance Company, a wholly owned
subsidiary of The Allstate Corporation.
The financial statements and notes as of September 30, 1998 and for the
three month and nine month periods ended September 30, 1998 and 1997 are
unaudited. The financial statements reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management, necessary
for the fair presentation of the financial position, results of operations and
cash flows for the interim periods. These financial statements and notes should
be read in conjunction with the financial statements and notes thereto included
in the Allstate Life Insurance Company of New York Annual Report on Form 10-K
for 1997. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" under the guidance of
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." As a result of this adoption, the Company has recorded an
asset and corresponding liability representing the collateral received in
connection with the Company's securities lending program. The cash collateral
received is recorded in short-term investments with the offsetting liability
being reflected in other liabilities in the statements of financial position. In
accordance with SFAS No. 127, the statements of financial position for prior
periods have not been restated.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income is a measurement of certain changes
in shareholder's equity that result from transactions and other economic events
other than transactions with shareholders. For the Company, these consist of
changes in unrealized gains and losses on the investment portfolio, adjusted for
deferred acquisition costs and reserves for life insurance policy benefits.
These amounts, presented as other comprehensive income, net of related taxes,
are added to net income which results in comprehensive income. The cumulative
amount of these changes is reported in the statements of financial position as
accumulated other comprehensive income. The required disclosures are presented
in Note 2.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use. Specifically, certain external,
payroll and payroll related costs should be capitalized during the application
development stage of a software development project and depreciated over the
computer software's useful life. The Company has adopted the SOP effective
January 1, 1998.
-6-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
replaces the existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. The requirements of
this SFAS are effective for fiscal years beginning after June 15, 1999. Earlier
application of this SFAS is encouraged but is only permitted as of the beginning
of any fiscal quarter after issuance. This SFAS requires that all derivatives be
recognized on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings.
Additionally, the change in fair value of a derivative which is not effective as
a hedge will be immediately recognized in earnings. The Company is currently
reviewing these requirements and has not yet determined the impact or the
expected date of adoption.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP
is required to be adopted in 1999. The SOP provides guidance concerning when to
recognize a liability for insurance-related assessments and how those
liabilities should be measured. Specifically, insurance-related assessments
should be recognized as liabilities when all of the following criteria have been
met: 1) an assessment has been imposed or it is probable that an assessment will
be imposed, 2) the event obligating an entity to pay an assessment has occurred
and 3) the amount of the assessment can be reasonably estimated. The
requirements of this SOP are not expected to have a material impact on the
results of operations, liquidity or financial position of the Company. The
Company expects to adopt the SOP as of January 1, 1999.
-7-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Comprehensive Income
The components of other comprehensive income on a pretax and after -tax
basis are as follows:
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------------------------------------------------------
($ in thousands) 1998 1997
--------------------------------------- ---------------------------------------
Income Income
tax After- tax After-
Pretax effect tax Pretax effect tax
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding gains arising
during the period $ 88,775 $ (31,070) $ 57,705 $ 68,073 $ (23,825) $ 44,248
Adjustments to unrealized capital
gains and losses arising during
the period:
Deferred acquisition costs (2,495) 872 (1,623) (318) 111 (207)
Reserves for life insurance
policy benefits (48,181) 16,863 (31,318) (44,814) 15,684 (29,130)
--------- --------- -------- --------- --------- --------
Net unrealized holding gains
arising during the period 38,099 (13,335) 24,764 22,941 (8,030) 14,911
--------- --------- -------- --------- --------- --------
Less: reclassification adjustment
for realized net capital gains in-
cluded in net income 3,015 (1,055) 1,960 738 (259) 479
--------- --------- -------- --------- --------- --------
Other comprehensive income $ 35,084 $ (12,280) $ 22,804 $ 22,203 $ (7,771) $ 14,432
========= ========= -------- ========= ========= --------
Net income 5,527 7,396
-------- --------
Comprehensive income $ 28,331 $ 21,828
======== ========
</TABLE>
-8-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------------------------------------------------------
($ in thousands) 1998 1997
--------------------------------------- ----------------------------------------
Income Income
tax After- tax After-
Pretax effect tax Pretax effect tax
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding gains arising
during the period $ 130,282 $ (45,598) $ 84,684 $ 54,810 $ (19,184) $ 35,626
Adjustments to unrealized capital
gains and losses arising during
the period:
Deferred acquisition costs (3,066) 1,072 (1,994) (234) 82 (152)
Reserves for life insurance
policy benefits (73,283) 25,649 (47,634) (36,744) 12,860 (23,884)
--------- --------- -------- -------- --------- ---------
Net unrealized holding gains
arising during the period 53,933 (18,877) 35,056 17,832 (6,242) 11,590
--------- --------- -------- -------- --------- ---------
Less: reclassification adjustment
for realized net capital gains
included in net income 4,221 (1,477) 2,744 556 (195) 361
--------- --------- -------- -------- --------- ---------
Other comprehensive income $ 49,712 $ (17,400) $ 32,312 $ 17,276 $ (6,047) $ 11,229
========= ========= -------- ======== ========= ---------
Net income 21,509 18,957
-------- ---------
Comprehensive income $ 53,821 $ 30,186
======== =========
</TABLE>
3. Regulation and Legal Proceedings
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. Public and regulatory initiatives have
varied and have included employee benefit regulation, controls on medical care
costs, removal of barriers preventing banks from engaging in the securities and
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 rates and
benefits. The ultimate changes and eventual effects, if any, of these
initiatives are uncertain.
From time to time the Company is involved in pending and threatened
litigation in the normal course of its business in which claims for monetary
damages are asserted. In the opinion of management, the ultimate liability, if
any, arising from such pending or threatened litigation is not expected to have
a material effect on the results of operations, liquidity or financial position
of the Company.
-9-
<PAGE>
Allstate Life Insurance Company of New York
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion highlights significant factors influencing
results of operations and changes in financial position of Allstate Life
Insurance Company of New York (the "Company"). It should be read in conjunction
with the financial statements and notes thereto found under Part I. Item 1
contained herein and the discussion, analysis, financial statements and notes
thereto found under Part II. Item 7 and Item 8 of the Allstate Life Insurance
Company of New York Annual Report on Form 10-K for 1997.
The Company, which is wholly owned by a wholly owned subsidiary of Allstate
Insurance Company ("AIC"), a subsidiary of The Allstate Corporation (the
"Corporation"), markets a broad line of life insurance and annuity products in
the state of New York. Life insurance includes traditional products such as
whole life and term life insurance, as well as universal life and other
interest-sensitive life products. Annuities include deferred annuities, such as
variable annuities and fixed rate single and flexible premium annuities, and
immediate annuities such as structured settlement annuities. The Company
distributes its products using a combination of Allstate agents (which include
life specialists), banks, independent agents, brokers and direct response
marketing.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
($ in thousands)
Three months ended Nine months ended
September 30, September 30,
----------------------------------- ------------------------------------
1998 1997 1998 1997
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Statutory premiums and deposits $ 67,025 $ 45,682 $ 195,585 $ 149,446
============ ============ =========== ===========
Investments $ 2,195,754 $ 1,797,535 $ 2,195,754 $ 1,797,535
Separate Account assets 322,658 308,716 322,658 308,716
------------ ------------ ----------- -----------
Investments including
Separate Account assets $ 2,518,412 $ 2,106,251 $ 2,518,412 $ 2,106,251
============ ============ =========== ===========
Premiums and contract charges $ 28,165 $ 28,221 $ 87,838 $ 89,010
Net investment income 33,758 31,629 100,018 92,871
Contract benefits 46,744 43,081 135,565 132,946
Operating costs and expenses 6,787 5,983 22,735 20,058
------------ ------------ ----------- -----------
Income from operations 8,392 10,786 29,556 28,877
Income tax expense on
operations 2,877 3,921 10,451 10,402
------------ ------------ ----------- -----------
Operating income 5,515 6,865 19,105 18,475
Realized capital gains and
losses, after-tax (1) 12 531 2,404 482
------------ ------------ ----------- -----------
Net income $ 5,527 $ 7,396 $ 21,509 $ 18,957
============ ============ =========== ===========
</TABLE>
(1) Net of the effect of related amortization of deferred policy acquisition
costs in 1998.
-10-
<PAGE>
Allstate Life Insurance Company of New York
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Premiums, deposits, contract charges and contract benefits
Statutory premiums and deposits, which include premiums and deposits for
all products, increased 46.7% in the third quarter and 30.9% for the first nine
months of 1998 compared with the same periods last year. For the three month
period ended September 30, 1998, the increase was primarily attributable to
increased sales of fixed annuities and, to a lesser extent, structured
settlement annuities. For the nine-month period, the increase was primarily the
result of increased sales of fixed annuities.
Premiums and contract charges under generally accepted accounting
principles ("GAAP") decreased slightly in the third quarter and first nine
months of 1998 from the comparable 1997 periods. Under GAAP, revenues exclude
deposits on most annuity contracts and premiums on universal life insurance
policies and will vary with the mix of products sold during the period. In 1998,
increased revenues from universal and term life insurance were more than offset
by lower sales of life-contingent structured settlement annuities.
Operating income
Pretax net investment income increased 6.7% and 7.7% in the third quarter
and the first nine months of 1998, respectively, from the comparable 1997
periods, primarily due to higher investment balances, partially offset by lower
investment yields. Investments, excluding Separate Account assets and unrealized
gains on fixed income securities, grew by 9.8%. The overall portfolio yield
declined slightly, as proceeds from calls and maturities as well as positive
cash flows from operating activities were invested in securities yielding less
than the average portfolio rate. In relatively low interest rate environments,
funds from maturing investments may be reinvested at lower interest rates than
those which prevailed when the funds were previously invested.
Operating expenses, which includes the amortization of deferred policy
acquisition costs, increased $804 thousand or 13.4% and $2.7 million or 13.3%
for the three-month and nine-month periods ended September 30, 1998,
respectively. The increase for the three-month period ended September 30, 1998
was primarily due to increased amortization of deferred policy acquisition
costs. The increase for the nine-month period ended September 30, 1998 was
related to increased general expenses resulting from growth in the number of
customer policies and an increase in the amortization of deferred policy
acquisition costs. In both the three and nine month periods ended September 30,
1997, the amortization of deferred acquisition costs was reduced due to the
revised estimates of future gross profits on interest sensitive life products.
Operating income decreased 19.7% during the third quarter, and increased
3.4% during the first nine months of 1998 compared with the same periods in
1997. For the three month period, increased net investment income was more than
offset by increased costs and expenses. For the nine month period, income
generated from new and existing structured settlement annuity and life insurance
business was partially offset by increased costs and expenses.
Realized capital gains and losses
Net realized capital gains after-tax decreased to $12 thousand in the third
quarter as a result of lower gains on fixed income securities. The increase to
$2.4 million for the first nine months of 1998 is due primarily to gains arising
from the receipt of prepayments of fixed income securities.
-11-
<PAGE>
Allstate Life Insurance Company of New York
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
INVESTMENTS
The composition of the investment portfolio at September 30, 1998, at
financial statement carrying values, is presented in the table below.
Percent
($ in thousands) to total
--------
Fixed income securities (1) $1,999,860 91.1.%
Mortgage loans 131,584 6.0
Policy loans 28,759 1.3
Short-term 35,551 1.6
---------- -------
Total $2,195,754 100.0%
========== =======
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $1,628,116.
Total investments increased to $2.20 billion at September 30, 1998 from
$1.91 billion at December 31, 1997. The increase in investments is primarily due
to the increase in unrealized net capital gains on fixed income securities,
amounts invested from positive cash flows generated from financing and operating
activities, and the addition to short-term investments of $24.4 million of
collateral resulting from a change in accounting treatment for securities
lending programs. At September 30, 1998, unrealized net capital gains on the
fixed income securities portfolio were $371.7 million compared to $246.1 million
at December 31, 1997.
Fixed income securities
The Company's fixed income securities portfolio consists of
privately-placed securities, U.S. government bonds, publicly traded corporate
bonds, mortgage-backed securities, asset-backed securities and municipal bonds.
The Company generally holds its fixed income securities for the long term, but
has classified all of these securities as available for sale to allow maximum
flexibility in portfolio management.
Substantially all of the Company's fixed income securities portfolio is
rated investment grade, which is defined by the Company as a security having a
National Association of Insurance Commissioners rating of 1 or 2, a Moody's
rating of Aaa, Aa, A or Baa, or a comparable Company internal rating.
Short-term investments
The carrying value of the Company's short-term investment portfolio was
$35.6 million and $9.5 million at September 30, 1998 and December 31, 1997,
respectively. The Company generally invests available cash balances in taxable
short-term securities having a final maturity date or redemption date of one
year or less.
-12-
<PAGE>
Allstate Life Insurance Company of New York
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
SEPARATE ACCOUNTS
Separate Account assets and liabilities increased 4.6% from $308.6 million
at December 31, 1997 to $322.7 million at September 30, 1998 due primarily to
sales of variable annuity contracts and the favorable investment performance of
the Separate Account investment portfolios which were, to a large extent, offset
by variable annuity contract surrenders and withdrawals.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's principal sources of funds are collections of principal and
interest from the investment portfolio and the receipt of premiums and deposits.
The primary uses of these funds are to purchase investments and pay policyholder
claims, benefits, contract maturities and surrenders, and operating costs.
The maturity structure of the Company's fixed income securities, which
represent 91.1% of the Company's total investments, is managed to meet the
anticipated cash flow requirements of the underlying liabilities. A portion of
the Company's product portfolio, primarily fixed annuity and universal life
insurance products, is subject to discretionary surrender and withdrawal by
contractholders. Management believes its assets are sufficiently liquid to meet
future obligations to its life and annuity contractholders under various
interest rate scenarios.
YEAR 2000
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, policy and contract
administration, risk analysis, investment processing and other enterprise
systems. Since many of the Company's older computer software programs recognize
only the last two digits of the year in any date, some software may fail to
operate properly in or after the year 1999, if the software is not reprogrammed,
remediated, or replaced ("Year 2000"). Also, many systems and equipment that are
not typically thought of as computer-related (referred to as "non-IT") contain
imbedded hardware or software that may have a Year 2000 sensitive component. The
Company believes that many of its counterparties and suppliers also have Year
2000 issues and non-IT issues which could affect the Company.
In 1995, the Corporation commenced a plan consisting of four phases which
are intended to mitigate and/or prevent the adverse affects of the Year 2000
issues on its systems: (1) assessment and analysis of affected systems and
equipment; (2) remediation and compliance of systems and equipment through
strategies that include the enhancement of new and existing systems, upgrades to
operating systems already covered by maintenance agreements and modifications to
existing systems to make them Year 2000 compliant; (3) testing of systems and
equipment using clock-forward testing for both current and future dates and for
dates which trigger specific processing; and (4) contingency planning which will
address possible adverse scenarios and the potential financial impact to the
Company's results of operations, liquidity or financial position.
-13-
<PAGE>
Allstate Life Insurance Company of New York
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
The Corporation believes that the first step of this plan, assessment, is
complete, and is currently in the remediation phase for all systems and
equipment. The Corporation is relying on other remediation techniques for its
midrange and personal computer environments, and certain mainframe applications.
Management believes the majority of the Corporation's computer systems and
equipment will be remediated by the end of 1998, with the investment processing
systems and certain midrange computers to be remediated by the middle of 1999.
The third phase of the plan which includes clock-forward testing of the
Corporation's systems and non-IT, is scheduled to be largely complete by the end
of 1998. The Corporation is currently in the process of identifying key
processes and developing contingency plans in the event that the systems and
equipment supporting these processes are not Year 2000 compliant at the end of
1999. Management believes these contingency plans should be completed by
mid-1999. Until these plans are complete, management is unable to determine an
estimate of the most reasonably possible worst case scenario due to issues
relating to the Year 2000.
In addition the Company is actively working with its major external
counterparties and suppliers to assess their compliance efforts and the
Company's exposure to both their Year 2000 issues and non-IT issues. The Company
is currently soliciting its key external counterparties and suppliers to certify
that they are compliant with the Year 2000 issues or are taking actions they
believe will adequately prepare them for the Year 2000. The Company will
continue its efforts to receive responses on Year 2000 compliance from these
parties. If key vendors are unable to meet the Year 2000 requirement, the
Company intends to prepare contingency plans that will allow the Company to
continue to sell to and service its customers. Management believes these
contingency plans should be completed by mid-1999. The Company also has
investments which have been publicly and privately placed. The Company may also
be exposed to the risk that the issuers of these investments will be adversely
impacted by Year 2000 issues.
The Company presently believes that it will resolve the Year 2000 issue in
a timely manner, and the costs incurred to achieve Year 2000 compliance of
Company systems are not expected to be material to the Company's results of
operations, liquidity or financial position. Year 2000 costs are expensed as
incurred.
-14-
<PAGE>
Allstate Life Insurance Company of New York
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 replaces existing
pronouncements and practices with a single, integrated accounting framework for
derivatives and hedging activities. The requirements are effective for fiscal
years beginning after June 15, 1999. Earlier application is encouraged but is
only permitted as of the beginning of any fiscal quarter after issuance. This
SFAS requires that all derivatives be recognized on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Additionally, the change in fair value of a
derivative which is not effective as a hedge will be immediately recognized in
earnings. The Company is currently reviewing these requirements and has not yet
determined the impact or the expected date of adoption.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The requirements of this SOP are not
expected to have a material impact on the results of operations, liquidity or
financial position of the Company. The Company expects to adopt the SOP as of
January 1, 1999.
FORWARD-LOOKING STATEMENTS
The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.
-15-
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
The Company and its Board of Directors know of no material legal
proceedings pending to which the Company is a party or which would
materially affect the Company. The Company is involved in pending and
threatened litigation in the normal course of its business in which
claims for monetary damages are asserted. Management, after
consultation with legal counsel, does not anticipate the ultimate
liability arising from such pending or threatened litigation to have a
material effect on the financial condition of the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
(2) None
(3)(i) Articles of Incorporation*
(ii) By-laws*
(4) Allstate Life Insurance Company of New York
Single Premium Deferred Annuity Contract**
Allstate Life Insurance Company of New York Flexible
Premium Deferred Annuity Contract*
(10) None
(11) None
(15) None
(18) None
(19) None
(22) None
(23)(a)Consent of Independent Public Accountants***
(b)Consent of Attorneys****
(24) None
(27) Financial Data Schedule
(99) None
(b) Reports on 8-K
No reports on Form 8-K were filed during the third quarter of 1998.
* Previously filed in Form N-4 Registration Statement No.33-65381 dated
September 20, 1996 and incorporated by reference.
** Previously filed in Form S-1 Registration Statement No.33-47245 dated
November 13, 1992 and incorporated by reference.
*** Previously filed in Form S-1 Registration Statement No.33-47245 filed April
1, 1998 and incorporated by reference; Form S-1 Registration Statement No.
33-65355 filed April 1, 1998 and incorporated by reference.
**** Previously filed in Form S-1 Registration Statement No.33-47245 filed April
1, 1998 and Form S-1 Registration Statement No. 33-65355 filed April 1, 1998 and
incorporated by reference.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of November, 1998.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
-------------------------------------------
(Registrant)
/s/ LOUIS G. LOWER, II CHAIRMAN OF THE BOARD OF DIRECTORS
- ------------------------ AND CHIEF EXECUTIVE OFFICER
LOUIS G. LOWER, II (Principal Executive Officer)
/s/ KEITH A. HAUSCHILDT ASSISTANT VICE PRESIDENT AND CONTROLLER
- ------------------------ (Chief Accounting Officer)
KEITH A. HAUSCHILDT
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT SEPTEMBER 30, 1998; STATEMENTS OF
OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997; AND STATEMENTS
OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998.
</LEGEND>
<CIK> 0000839759
<NAME> ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1,999,860
<DEBT-CARRYING-VALUE> 0
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<POLICY-LOSSES> 0
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<POLICY-OTHER> 1,220,121
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<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
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63,642
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<INCOME-CONTINUING> 21,509
<DISCONTINUED> 0
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