UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
The registrant meets the conditions set forth in General Instruction I(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
For fiscal year ended December 31, 1997 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
P.O. Box 9095
Farmingville, New York 11738
(Address of Principal executive offices)(Zip Code)
516/451-5300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 31, 1997 there were 80,000 shares of common capital stock
outstanding, par value $25 per share all of which shares are held by ALIC.
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Allstate Life Insurance Company)
Annual Report for 1997 On Form 10-K
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business**........................................... 3
ITEM 2. Properties**......................................... 4
ITEM 3. Legal Proceedings.................................... 4
ITEM 4. Submission of Matters to a Vote of Security Holders*.N/A
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters.......................... 5
ITEM 6. Selected Financial Data*.............................N/A
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 6
ITEM 7A. Quantitiative and Qualitative Disclosures About
Market Risk..........................................15
ITEM 8. Financial Statements and Supplementary Data..........15
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................N/A
PART III
ITEM 10. Directors and Executive Officers of the Registrant*..N/A
ITEM 11. Executive Compensation*..............................N/A
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management*..........................................N/A
ITEM 13. Certain Relationships and Related Transactions*......N/A
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...................................F-24
Index to Financial Statement Schedules..........................15
Signatures......................................................16
* Omitted pursuant to General Instruction I(2) of Form 10-K.
**Item prepared in accordance with General Instruction I(2) of Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
Allstate Life Insurance Company of New York (hereinafter "Allstate Life
of New York" or the "Company") was incorporated in 1967 as a stock life
insurance company under the laws of the State 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." Since 1984, the Company has
done business as "Allstate Life Insurance Company of New York." Allstate Life of
New York's products, individual annuities and life insurance, have been approved
by the State of New York.
Allstate Life of New York is a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), a stock life insurance company incorporated under
the laws of Illinois. ALIC is a wholly owned subsidiary of Allstate Insurance
Company ("AIC"), 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 AIC is owned by The Allstate Corporation
("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.
Allstate Life of New York's operations consist of one business segment
which is the sale of life insurance and annuity products.
Allstate Life of New York's and ALIC'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.
Allstate Life of New York 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 1,700 stock, mutual and other types of insurers in
business in the United States. A.M. Best Company assigns Allstate Life of New
York the rating of A+(g). 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 an AA+ (Excellent) to the Company's claim
paying ability. Moody's Investors Service assigns an Aa2 (Excellent) financial
strength rating to the Company. The Company shares the same ratings of its
parent, ALIC.
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 measures which may significantly
affect the Company's insurance business relate to the taxation of insurance
companies and the tax treatment of insurance products and the removal of
barriers preventing banks from engaging in the securities and insurance
business.
3
<PAGE>
Allstate Life of New York is regulated by the Securities and Exchange
Commission ("SEC") as an issuer of registered products. The SEC also regulates
certain Allstate Life of New York Separate Accounts which together with the
Company issue variable annuity contracts.
ITEM 2. PROPERTIES
Allstate Life of New York occupies office space in Farmingville, New
York and Northbrook, Illinois.
ITEM 3. 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.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the Company's outstanding shares are owned by its parent,
ALIC. Allstate Life's outstanding shares are owned by AIC. With the exception of
director's qualifying shares, all of the outstanding capital stock of Allstate
is owned by the Corporation. On June 30, 1995, Sears distributed its 80.3%
ownership in the Corporation to Sears common shareholders through a tax-free
dividend.
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 related notes.
The Company, which is wholly owned by a wholly owned subsidiary of
Allstate Insurance Company ("AIC"), an affiliate of The Allstate 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.
FINANCIAL HIGHLIGHTS
($ in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory premiums and deposits $ 208,090 $ 235,634 $ 216,361
=============== =============== ===============
Investments $ 1,907,997 $ 1,636,654 $ 1,541,329
Separate Account assets 308,595 260,668 220,141
--------------- --------------- ---------------
Investments, including Separate Account assets $ 2,216,592 $ 1,897,322 $ 1,761,470
=============== =============== ===============
Premiums and contract charges $ 118,963 $ 117,106 $ 148,316
Net investment income 124,887 112,862 104,384
Life and annuity contract benefits 179,872 172,772 198,055
Operating costs and expenses 28,667 23,386 23,366
--------------- --------------- ---------------
Income from operations 35,311 33,810 31,279
Income tax expense on operations 13,051 12,221 10,557
--------------- --------------- ---------------
Operating income 22,260 21,589 20,722
Realized capital gains and losses, after-tax 456 (1,028) (1,200)
--------------- ---------------- ----------------
Net income $ 22,716 $ 20,561 $ 19,522
=============== ================ ================
</TABLE>
6
<PAGE>
Premiums, deposits, contract charges and contract benefits
Statutory premiums and deposits include premiums and deposits for all
products. Total statutory premiums and deposits decreased $27.5 million, or
11.7%, in 1997 from 1996. Increased sales of variable annuities, life insurance
policies and fixed annuities were more than offset by a reduction in premiums
relating to funding agreements. Funding agreements, a type of investment
contract first sold by the Company in 1996, are entered into based on the
Company's assessment of market opportunities. In 1996, total statutory premiums
and deposits increased $19.3 million, or 8.9%, compared to 1995 levels. The
increase was largely the result of the sale of a funding agreement, as well as
higher sales of variable annuities and life insurance policies, partially offset
by lower sales of structured settlement annuities.
Premiums and contract charges under generally accepted accounting
principles ("GAAP") increased slightly in 1997 and decreased 21.0% in 1996.
Under GAAP, revenues exclude deposits on most annuity contracts and premiums on
universal life insurance policies, and will vary with the mix of business sold
during the period. In 1997, an increase in contract charges on universal life
policies and variable annuity contracts was partially offset by a decrease in
sales of life-contingent structured settlement annuities. The decrease in 1996
arose primarily from a fluctuation in the level of sales of structured
settlement annuities sold with life contingencies. Provision for life and
annuity contract benefits increased $7.1 million, or 4.1%, during 1997, and
decreased $25.3 million, or 12.8%, during 1996. These changes resulted primarily
from fluctuations in the level of sales of structured settlement annuities with
life contingencies.
Operating income
Pretax net investment income increased 10.7% in 1997 and 8.1% in 1996.
The increases are due primarily to higher investment balances in each period.
Investments, excluding Separate Account assets and unrealized gains on fixed
income securities, grew 9.8% and 13.3% in 1997 and 1996, respectively. The
increases in net investment income were partially offset by slightly lower
portfolio yields. In low interest rate environments as have existed in 1997 and
1996, funds from maturing investments may be invested at substantially lower
interest rates than which prevailed when the funds were previously invested,
thereby reducing the average portfolio yield.
Operating costs and expenses increased $5.3 million, or 22.6%, for the
year ended December 31, 1997. The increase is related to growth in business and
the recognition of costs related to the relocation of the policy administration
function, offset by a reduction in amortization of deferred acquisition costs
due to the revised estimates of future gross profits on interest-sensitive life
products.
In 1997, the Company received approval from the State of New York
Insurance Department to relocate its policy administration function to an
affiliate's facility in Illinois. The move is scheduled for the second quarter
of 1998. The Company recognized an after-tax charge of $1.9 million in 1997 for
certain costs relating to the consolidation of these operations.
Operating income increased 3.1% in 1997 and 4.2% in 1996. The increase in
1997 is primarily due to favorable mortality experience on the structured
settlement annuity business and higher investment margins due to additional
sales of structured settlement annuities. The increase in 1996 is the result of
growth in investments partially offset by less favorable mortality experience on
life-contingent structured settlement annuities.
Realized capital gains and losses
The Company had realized capital gains of $456 thousand after tax in 1997
compared with realized capital losses of $1.0 million after tax in 1996. In
1997, increased gains on fixed income securities and reduced losses on other
investments were partially offset by increased writedowns on mortgage loans.
Realized capital losses in 1996 were 14.3% lower than those reported in 1995.
Reduced mortgage losses were partially offset by losses incurred on the sale of
fixed income securities to reposition a portion of the investment portfolio to
improve overall yield in 1996.
7
<PAGE>
INVESTMENTS
The composition of the investment portfolio at December 31, 1997 is
presented in the table below (see Notes 2 and 4 to the financial statements for
investment accounting policies and additional information).
Percent
($ in thousands) to total
Fixed income securities (1) $ 1,756,257 92.0%
Mortgage loans 114,627 6.0
Policy loans 27,600 1.5
Short-term 9,513 0.5
------------------ ------
Total $ 1,907,997 100.0%
================== ======
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $1,510,110 at December 31, 1997.
Total investments increased to $1.91 billion at December 31, 1997 from
$1.64 billion at December 31, 1996. The increase in the Company's investments
was primarily due to increased unrealized capital gains of $123.5 million on
fixed income securities and amounts invested from positive cash flows generated
from operations.
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 tax-exempt
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. At December 31, 1997,
unrealized net capital gains on the fixed income securities portfolio were
$246.1 million compared to $122.6 million as of December 31, 1996. The increase
in the unrealized gain position is primarily attributable to lower interest
rates.
At the end of 1997, 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 ("NAIC")
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal rating.
As of December 31, 1997, the fixed income securities portfolio contained
$540.9 million of privately-placed corporate obligations, compared with $492.8
million at December 31, 1996. The benefits of privately-placed securities as
compared to public securities are generally higher yields, improved cash flow
predictability through pro-rata 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
fluctuations in interest rates. A relative disadvantage of privately-placed
securities as compared to public securities is reduced liquidity. All of the
privately-placed securities are rated as investment grade by either the NAIC or
the Company's internal ratings. 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, 1997 and 1996, $228.7 million and $194.2 million,
respectively, of the fixed income securities portfolio were invested in
mortgage-backed securities ("MBS"). At December 31, 1997, all of the MBS were
investment grade and approximately 96% have underlying collateral that is
guaranteed by U.S. government entities, thus credit risk was minimal.
8
<PAGE>
MBS, however, are subject to interest rate risk as the duration and
ultimate realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate 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,
1997, the amortized cost of the MBS portfolio was below par value by $7.4
million and over 40% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against rising interest rates.
The fixed income securities portfolio contained $39.7 million and $31.5
million of asset-backed securities ("ABS") at December 31, 1997 and 1996,
respectively. ABS are subject to some of the same risks as MBS, but to a lesser
degree because of the nature of the underlying assets. The Company attempts to
mitigate these risks by primarily investing in highly-rated, publicly-traded,
intermediate term ABS at or below par value. At December 31, 1997, the amortized
cost of the ABS portfolio was below par value by $233 thousand. Over 43% of the
Company's ABS are invested in securitized credit card receivables. The remainder
of the portfolio is backed primarily by securitized manufactured housing, home
equity and recreational vehicles.
9
<PAGE>
The Company closely monitors its fixed income securities portfolio for
declines in value that are other than temporary. Securities are placed on
non-accrual status when they are in default or when the receipt of interest
payments is in doubt.
Mortgage loans
The Company's $114.6 million investment in mortgage loans at December 31,
1997 is comprised primarily of loans secured by first mortgages on developed
commercial real estate. Property type diversification is a key consideration
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
balance, as well as loans with other characteristics indicative of higher than
normal credit risk, are reviewed by financial and investment management at least
quarterly 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 as conditions change or at
least annually.
Short-term investments
The Company's short-term investment portfolio was $9.5 million and $25.9
million at December 31, 1997 and 1996, respectively. The Company invests
available cash balances in taxable short-term securities having a final maturity
date or redemption date of one year or less.
SEPARATE ACCOUNTS
Separate Account assets and liabilities increased 18.4% from $260.7
million at December 31, 1996 to $308.6 million at December 31, 1997 due
primarily to favorable investment performance of the Separate Account investment
portfolios and sales of flexible premium deferred variable annuity contracts,
partially offset by variable annuity contract surrenders and withdrawals.
MARKET RISK
Market risk is the risk that the Company will incur losses due to
adverse changes in market rates and prices. The Company's primary market risk
exposure is to changes in interest rates.
The active management of market risk is integral to the Company's
operations. The Company may use the following approaches to manage its exposure
to market risk within defined tolerance ranges: 1) rebalance its existing asset
or liability portfolios, 2) change the character of future investments purchased
or 3) use derivative instruments to modify the market risk characteristics of
existing assets and liabilities or assets expected to be purchased. See Note 5
to the financial statements for a more detailed discussion of these instruments.
10
<PAGE>
Corporate oversight
AIC administers and oversees investment risk management processes
primarily through three oversight bodies: the Boards of Directors and Investment
Committees of its operating subsidiaries, and the Credit and Risk Management
Committee ("CRMC"). The Boards of Directors and Investment Committees provide
executive oversight of investment activities. The CRMC is a senior management
committee consisting of the Chief Investment Officer, the Investment Risk
Manager, and other investment officers who are responsible for the day-to-day
management of market risk. The CRMC meets at least monthly to provide detailed
oversight of investment risk, including market risk.
AIC has investment guidelines that define the overall framework for
managing market and other investment risks, including the accountabilities and
controls over these activities. In addition, AIC has specific investment
policies for each of its affiliates, including the Company, that delineate the
investment limits and strategies that are appropriate given each entity's
liquidity, surplus, product and regulatory requirements.
AIC manages its exposure to market risk through asset allocation limits,
duration limits, value-at-risk limits, and, as appropriate, stress tests. Asset
allocation limits place restrictions on the aggregate fair value which may be
invested within an asset class. Duration limits on the life and annuity
investment portfolios, and, as appropriate, on individual components of these
portfolios (such as those of the Company), place restrictions on the amount of
interest rate risk which may be taken. Value-at-risk measures the potential loss
in fair value that could arise from adverse movements in the fixed income,
equity, and currency markets over a time interval, based on historical
volatilities and correlations between market risk factors. Stress tests measure
downside risk to fair value and earnings over longer time intervals and/or for
adverse market scenarios.
The day-to-day management of market risk within defined tolerance ranges
occurs as portfolio managers buy and sell within their respective markets based
upon the acceptable boundaries established by asset allocation, duration and
other limits, including but not limited to credit and liquidity.
Interest rate risk
Interest rate risk is the risk that the Company will incur economic
losses due to adverse changes in interest rates. This risk arises from the
Company's primary activities, as the Company invests substantial funds in
interest-sensitive assets and also has certain interest-sensitive liabilities.
The Company manages the interest rate risk inherent in its assets
relative to the interest rate risk inherent in its liabilities. One of the
measures the Company uses to quantify this exposure is duration. Duration
measures the sensitivity of the fair value of assets and liabilities to changes
in interest rates. For example, if interest rates increase 1%, the fair value of
an asset with a duration of 5 years is expected to decrease in value by
approximately 5%. At December 31, 1997, the difference between the Company's
liability and asset duration was approximately 2.8 years. This duration gap
indicates that the fair value of the Company's liabilities is more sensitive to
interest rate movements than the fair value of its assets.
The Company seeks to invest premiums and deposits on universal life
policies and investment contracts to create future cash flows that will fund
future claims, benefits and expenses, and earn stable margins across a wide
variety of interest rate and economic scenarios. In order to achieve this
objective and limit its exposure to interest rate risk, the Company adheres to a
philosophy of managing the duration of assets and related liabilities, and uses
financial futures to hedge the interest rate risk related to anticipatory
purchases and sales of investments and product sales to customers.
11
<PAGE>
To calculate duration, the Company projects asset and liability cash
flows, and discounts them to a net present value basis using a risk-free market
rate adjusted for credit quality, sector attributes, liquidity and other
specific risks. Duration is calculated by revaluing these cash flows at an
alternative level of interest rates, and determining the percentage change in
fair value from the base case. The cash flows used in the model reflect the
expected maturity and repricing characteristics of the Company's derivative
financial instruments, all other financial instruments (see Note 5 to the
financial statements), and certain non-financial instruments including
interest-sensitive annuity liabilities. The projections include assumptions
(based upon historical market and Company specific experience) reflecting the
impact of changing interest rates on the prepayment, lapse, leverage and/or
option features of instruments, where applicable. Such assumptions relate
primarily to mortgage-backed securities, collateralized mortgage obligations,
municipal bonds, municipal and corporate obligations, and fixed rate single and
flexible premium deferred annuities.
Based upon the information and assumptions the Company uses in its
duration calculation and in effect at December 31, 1997, management estimates
that a 100 basis point immediate, parallel increase in interest rates ("rate
shock") would decrease the net fair value of its assets and liabilities
identified above by approximately $16.8 million. The selection of a 100 basis
point immediate rate shock should not be construed as a prediction by the
Company's management of future market events; but rather, to illustrate the
potential impact of such an event.
To the extent that actual results differ from the assumptions utilized,
the Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources
The 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 determining 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, business, asset and interest rate risks. At December 31,
1997, RBC for the Company was significantly above a level that would require
regulatory action.
Financial ratings and strength
Claims-paying ability ratings at December 31, 1997 assigned to the
Company include AA+, A+(g) and Aa2 from Standard & Poor's, A.M. Best and
Moody's, respectively.
12
<PAGE>
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 92.0% 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 deferred 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.
OTHER DEVELOPMENTS
Final approval of the NAIC's proposed "Comprehensive Guide" on
statutory accounting principles is expected in early 1998. Implementation could
be as early as January 1, 1999. The requirements of the Comprehensive Guide are
not expected to have a material impact on statutory surplus.
YEAR 2000
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, risk management and policy
and contract administration. 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 or replaced, ("Year 2000 Issue"). The Company believes that
many of its counterparties and suppliers also have Year 2000 Issues which could
affect the Company. In 1995, AIC commenced a plan intended to mitigate and/or
prevent the adverse effects of Year 2000 Issues. These strategies include normal
development and 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. The plan also includes the Company
actively working with its major external counterparties and suppliers to assess
their compliance efforts and the Company's exposure to them. The Company
presently believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially affect its results of operations,
liquidity or financial position. Year 2000 costs are and will be expensed as
incurred.
PENDING ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 130 requires the presentation of comprehensive income in
the financial statements. Comprehensive income is a measurement of all changes
in equity that result from transactions and other economic events other than
transactions with stockholders. The requirements of this statement will be
adopted effective January 1, 1998.
SFAS No. 131 redefines how segments are determined and requires additional
segment disclosures for both annual and quarterly reporting. Under this
statement, segments are determined using the "management approach" for financial
statement reporting. The management approach is based on the way an enterprise
makes operating decisions and assesses performance of its businesses. The
Company is currently reviewing the requirements of this SFAS and has yet to
determine its impact on its current reporting segments. The requirements of this
statement will be adopted effective December 31, 1998.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments." 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: a) an assessment has been imposed or it is probable that an assessment will
be imposed, b) the event obligating an entity to pay an assessment has occurred
and c) the amount of the assessment can be reasonably estimated. The
requirements of this standard will be adopted in 1999 and are not expected to
have a material impact on the results of operations, cash flows or financial
position of the Company. The SOP is expected to be adopted in 1999.
13
<PAGE>
In March 1998, the Accounting Standards Executive Committee of the AICPA
issued 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 state of a project and depreciated over the computer
software's useful life. The Company currently expenses these costs as incurred
and is evaluating the effects of this SOP on its accounting for internally
developed software. The SOP is expected to be adopted in 1998.
FORWARD-LOOKING STATEMENTS
The statements contained in this Management's Discussion and Analysis
that are not historical information are forward-looking statements that are
based on management's estimates, assumptions and projections. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor under The
Securities Act of 1933 and The Securities Exchange Act of 1934 for
forward-looking statements.
14
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The pertinent provisions of Management's Discussion and Analysis of Financial
Condition and Results of Operations are herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
Index
-----
Page
----
Independent Auditors' Report...............................................F-1
Financial Statements:
Statements of Financial Position,
December 31, 1997 and 1996...............................F-2
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.........................F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1997, 1996 and 1995.........................F-4
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.........................F-5
Notes to Financial Statements...................................F-6
Schedule IV - Reinsurance for the Years Ended
December 31, 1997, 1996 and 1995.........................F-22
Schedule V - Valuation and Qualifying Accounts
December 31, 1997, 1996 and 1995.........................F-23
15
<PAGE>
INDEPENDENT AUDITORS' 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 (the "Company") as of December 31, 1997 and
1996, and the related Statements of Operations, Shareholder's Equity and Cash
Flows for each of the three years in the period ended December 31, 1997. 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 the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 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.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
F-1
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized cost
$1,510,110 and $1,378,155) $ 1,756,257 $ 1,500,783
Mortgage loans 114,627 84,657
Policy loans 27,600 25,359
Short-term 9,513 25,855
--------------- ---------------
Total investments 1,907,997 1,636,654
Deferred acquisition costs 71,946 61,559
Accrued investment income 21,725 20,321
Reinsurance recoverables 1,726 2,566
Cash 393 1,027
Other assets 6,167 7,489
Separate Accounts 308,595 260,668
--------------- ---------------
Total assets $ 2,318,549 $ 1,990,284
=============== ===============
LIABILITIES
Reserve for life-contingent contract benefits $ 1,084,409 $ 911,457
Contractholder funds 607,474 572,480
Income taxes payable 1,419 -
Deferred income taxes 16,990 3,692
Other liabilities and accrued expenses 10,985 6,405
Net payable to affiliates 5,267 2,515
Separate Accounts 308,595 260,668
--------------- ---------------
Total liabilities 2,035,139 1,757,217
--------------- -----------
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 64,479 36,852
Retained income 171,144 148,428
--------------- ---------------
Total shareholder's equity 283,410 233,067
--------------- ---------------
Total liabilities and shareholder's equity $ 2,318,549 $ 1,990,284
=============== ===============
</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,
-----------------------
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums (net of reinsurance
ceded of $3,087, $2,273 and $2,147) $ 90,366 $ 91,825 $ 126,713
Contract charges 28,597 25,281 21,603
Net investment income 124,887 112,862 104,384
Realized capital gains and losses 701 (1,581) (1,846)
------------- ------------- -------------
244,551 228,387 250,854
------------- ------------- -------------
COSTS AND EXPENSES
Contract benefits (net of reinsurance recoveries
of $1,985, $2,827 and $1,581) 179,872 172,772 198,055
Amortization of deferred acquisition costs 5,023 6,512 5,502
Operating costs and expenses 23,644 16,874 17,864
------------- ------------- -------------
208,539 196,158 221,421
------------- ------------- -------------
INCOME FROM OPERATIONS BEFORE
INCOME TAX EXPENSE 36,012 32,229 29,433
INCOME TAX EXPENSE 13,296 11,668 9,911
------------- ------------- -------------
NET INCOME $ 22,716 $ 20,561 $ 19,522
============= ============= =============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK $ 2,000 $ 2,000 $ 2,000
-------------- -------------- --------------
ADDITIONAL CAPITAL PAID-IN 45,787 45,787 45,787
-------------- -------------- --------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 36,852 74,413 (6,891)
Net change 27,627 (37,561) 81,304
-------------- -------------- --------------
Balance, end of year 64,479 36,852 74,413
-------------- -------------- --------------
RETAINED INCOME
Balance, beginning of year 148,428 127,867 108,345
Net income 22,716 20,561 19,522
-------------- -------------- --------------
Balance, end of year 171,144 148,428 127,867
-------------- -------------- --------------
Total shareholder's equity $ 283,410 $ 233,067 $ 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,
-----------------------
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22,716 $ 20,561 $ 19,522
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization and other
non-cash items (31,112) (26,172) (22,348)
Realized capital gains and losses (701) 1,581 1,846
Interest credited to contractholder funds 31,667 25,817 26,924
Increase in life-contingent contract
benefits and contractholder funds 68,114 75,217 103,513
Increase in deferred acquisition costs (10,781) (6,859) (5,537)
Increase in accrued investment income (1,404) (1,493) (2,497)
Change in deferred income taxes (1,578) 257 (2,677)
Changes in other operating assets and
liabilities 11,369 (4,234) 3,897
-------------- -------------- --------------
Net cash provided by operating
activities 88,290 84,675 122,643
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed income securities 15,723 28,454 13,526
Investment collections
Fixed income securities available for sale 120,061 72,751 30,871
Fixed income securities held to maturity - - 3,067
Mortgage loans 5,365 12,508 6,499
Investment purchases
Fixed income securities available for sale (236,984) (236,252) (142,205)
Fixed income securities held to maturity - - (32,046)
Mortgage loans (35,200) (10,325) (9,864)
Change in short-term investments, net 16,342 (18,598) (45)
Change in policy loans, net (2,241) (2,574) (859)
-------------- -------------- --------------
Net cash used in investing activities (116,934) (154,036) (131,056)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 79,384 115,420 76,534
Contractholder fund withdrawals (51,374) (46,504) (68,412)
-------------- -------------- --------------
Net cash provided by financing
activities 28,010 68,916 8,122
-------------- -------------- --------------
NET DECREASE IN CASH (634) (445) (291)
CASH AT BEGINNING OF YEAR 1,027 1,472 1,763
-------------- -------------- --------------
CASH AT END OF YEAR $ 393 $ 1,027 $ 1,472
============== ============== ==============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. General
Basis of presentation
The accompanying financial statements include the accounts of Allstate Life
Insurance Company of New York (the "Company"). The Company is wholly owned by a
wholly owned subsidiary ("Parent") of Allstate Insurance Company ("AIC"), 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"). These financial statements have been prepared in conformity
with generally accepted accounting principles.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
Nature of operations
The Company 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.
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. Single and flexible premium deferred annuity contracts issued by the
Company are subject to discretionary withdrawal or surrender by the customers,
subject to applicable surrender charges. 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 utilizes various modeling techniques in managing the relationship
between assets and liabilities. The fixed income securities supporting the
Company's obligations have been selected to meet, to the extent possible, the
anticipated cash flow requirements of the related liabilities. The Company
employs strategies to minimize its 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. There continues to be new and proposed federal
and state regulation and legislation that would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, consolidation within that
industry and specifically, a change in control of those entities with which the
Company partners, could affect the Company's sales.
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
F-6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed and asset-backed
securities. All fixed income securities are carried at fair value and may be
sold prior to their contractual maturity ("available for sale"). The difference
between amortized cost and fair value, net of deferred income taxes, certain
deferred acquisition costs, and reserves for life-contingent contract benefits,
is reflected as a component of shareholder's equity. Provisions are recognized
for declines in the value of fixed income securities 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 expected future
market conditions, and other factors.
Short-term investments are carried at amortized cost which approximates fair
value. Policy loans are carried at the unpaid principal balances.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed and asset-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 utilizes futures contracts which are derivative financial
instruments. When futures meet specific criteria they may be designated as
accounting hedges and accounted for on a deferral basis, depending upon the
nature of the hedge strategy and the method used to account for the hedged item.
If, subsequent to entering into a hedge transaction, the futures contract
becomes ineffective (including if the hedged item is sold or otherwise
extinguished or the occurrence of a hedged anticipatory transaction is no longer
probable), the Company terminates the derivative position. Gains and losses on
these terminations are reported in realized capital gains and losses in the
period they occur. The Company may also terminate derivatives as a result of
other events or circumstances. Gains and losses on these terminations are either
deferred and amortized over the remaining life of either the hedge or the hedged
item, whichever is shorter, or are reported in shareholder's equity, consistent
with the accounting for the hedged item. Futures contracts must reduce the
primary market risk exposure on an enterprise basis in conjunction with the
hedge strategy; be designated as a hedge at the inception of the transaction;
and be highly correlated with the fair value of, or interest income or expense
associated with, the hedged item at inception and throughout the hedge period.
Under deferral accounting, gains and losses on derivatives are deferred on the
statement of financial position and recognized in earnings in conjunction with
earnings on the hedged item. The Company accounts for interest rate futures
contracts as hedges using deferral accounting for anticipatory investment
purchases and sales when the criteria for futures (discussed above) are met. In
addition, anticipated transactions must be probable of occurrence and their
significant terms and characteristics identified.
Changes in fair values of these types of derivatives are initially deferred as
other liabilities and accrued expenses. Once the anticipated transaction occurs,
the deferred gains or losses are considered part of the cost basis of the asset
and reported net of tax in shareholder's equity or recognized as a gain or loss
from disposition of the asset, as appropriate. The Company reports initial
margin deposits on futures in short-term investments. Fees and commissions paid
on these derivatives are also deferred as an adjustment to the carrying value of
the hedged item.
F-7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Recognition of premium revenues and contract charges
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 interest-sensitive life insurance policies are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on most annuities, which are considered
investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. Gross premium in excess of the net premium on limited
payment contracts, primarily structured settlement annuities when sold with life
contingencies, are deferred and recognized over the contract period.
Reinsurance
Certain premiums and contract benefits are ceded and reflected net of such
cessions in the statements of operations. Reinsurance recoverable and the
related reserves for life-contingent contract benefits are reported separately
in the statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
Deferred acquisition costs
Certain costs of acquiring life and annuity business, principally agents'
remuneration, premium taxes, certain underwriting costs and direct mail
solicitation expenses are deferred and amortized to income. For traditional life
insurance, limited payment contracts and accident and disability insurance,
these costs are amortized in proportion to the estimated revenues on such
business. For universal life-type policies 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 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, net of deferred income taxes.
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 at the enacted tax
rates. The principal assets and liabilities giving rise to such differences are
insurance reserves and deferred acquisition costs. Deferred income taxes also
arise from unrealized capital gains and losses on fixed income securities
carried at fair value.
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 (Allstate Life of New York Variable Annuity Account, Allstate
Life of New York Variable Annuity Account II and Allstate Life of New York
Separate Account A, unit investment trusts registered with the Securities and
Exchange Commission).
The assets 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 Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administration fees and mortality and
expense risk charges.
F-8
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Reserves for life-contingent contract benefits
The reserve for life-contingent contract benefits, which relates to traditional
life insurance, group annuities and structured settlement annuities with life
contingencies, disability insurance and accident insurance, is computed on the
basis of assumptions as to future investment yields, mortality, morbidity,
terminations and expenses. These assumptions, which for traditional life
insurance are applied using the net level premium method, include provisions for
adverse deviation and generally vary by such characteristics as type of
coverage, year of issue and policy duration. Reserve interest rates ranged from
4.00% to 11.00% during 1997. To the extent that unrealized gains on fixed income
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, net of deferred income taxes.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. Credited interest rates on contractholder
funds ranged from 3.30% to 9.75% for those contracts with fixed interest rates
and from 3.25% to 7.75% for those with flexible rates during 1997.
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.
Use of estimates
The preparation of 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. Related Party Transactions
Reinsurance
The Company cedes business to the Parent under reinsurance treaties to limit
aggregate and single exposures on large risks. Premiums and policy benefits
ceded totaled $2,171 and $327 in 1997, $1,383 and $1,662 in 1996, and $1,259 and
$278 in 1995, respectively. Included in the reinsurance recoverable at December
31, 1997 and 1996 are amounts due from the Parent of $342 and $965,
respectively.
Structured settlement annuities
AIC, through an affiliate, purchased $12,766, $15,610 and $11,243 of structured
settlement annuities from the Company in 1997, 1996 and 1995, respectively. Of
these amounts, $3,468, $8,517 and $4,164 relate to structured settlement
annuities with life contingencies and are included in premium income in 1997,
1996 and 1995, respectively. Additionally, the reserve for life-contingent
contract 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 AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Expenses allocated to the Company
were $27,632, $23,134 and $21,288 in 1997, 1996 and 1995, respectively. A
portion of these expenses related to the acquisition of life and annuity
business is deferred and amortized over the contract period.
F-9
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
At December 31, 1997
- --------------------
U.S. government and agencies $ 416,203 $ 126,824 $ (212) $ 542,815
Municipal 35,382 2,449 (22) 37,809
Corporate 803,935 103,700 (479) 907,156
Mortgage-backed securities 215,465 13,442 (166) 228,741
Asset-backed securities 39,125 642 (31) 39,736
-------------- -------------- -------------- --------------
Total fixed income securities $ 1,510,110 $ 247,057 $ (910) $ 1,756,257
============== ============== ============== ==============
At December 31, 1996
- --------------------
U.S. government and agencies $ 387,806 $ 54,349 $ (2,642) $ 439,513
Municipal 36,158 1,883 (406) 37,635
Corporate 734,500 68,022 (4,592) 797,930
Mortgage-backed securities 188,480 6,793 (1,106) 194,167
Asset-backed securities 31,211 394 (67) 31,538
-------------- -------------- -------------- --------------
Total fixed income securities $ 1,378,155 $ 131,441 $ (8,813) $ 1,500,783
============== ============== ============== ==============
</TABLE>
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
-------------- ---------------
<S> <C> <C>
Due in one year or less $ 18,751 $ 18,839
Due after one year through five years 74,886 77,931
Due after five years through ten years 221,116 237,020
Due after ten years 940,767 1,153,990
--------------- ---------------
1,255,520 1,487,780
Mortgage- and asset-backed securities 254,590 268,477
--------------- ---------------
Total $ 1,510,110 $ 1,756,257
=============== ===============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
F-10
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Net investment income
Year ended December 31, 1997 1996 1995
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 116,763 $ 104,583 $ 95,212
Mortgage loans 7,896 7,113 7,999
Other 2,200 2,942 2,744
------------- ------------- -------------
Investment income, before expense 126,859 114,638 105,955
Investment expense 1,972 1,776 1,571
------------- ------------- -------------
Net investment income $ 124,887 $ 112,862 $ 104,384
============== ============= =============
Realized capital gains and losses
Year ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
Fixed income securities $ 922 $ (1,522) $ 422
Mortgage loans (221) (59) (2,268)
------------- ------------- -------------
Realized capital gains and losses 701 (1,581) (1,846)
Income tax expense (benefit) 245 (553) (646)
------------- ------------- -------------
Realized capital gains and losses, after tax $ 456 $ (1,028) $ (1,200)
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross gains of $471, $480 and $172 and gross
losses of $105, $2,308 and $105 were realized on sales of fixed income
securities during 1997, 1996 and 1995, respectively.
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
------------- ------------- -------------
<S> <C> <C> <C>
Fixed income securities $ 1,510,110 $ 1,756,257 $ 246,147
============= =============
Reserves for life insurance policy benefits (145,455)
Deferred income taxes (34,720)
Deferred acquisition costs and other (1,493)
-------------
Unrealized net capital gains $ 64,479
=============
Change in unrealized net capital gains
Year ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
Fixed income securities $ 123,519 $ (82,847) $ 216,975
Reserves for life insurance policy benefits (80,155) 24,300 (89,600)
Deferred income taxes (14,876) 20,224 (43,779)
Deferred acquisition costs and other (861) 762 (2,292)
------------- ------------- -------------
Increase (decrease) in unrealized net
capital gains $ 27,627 $ (37,561) $ 81,304
============= ============= =============
</TABLE>
F-11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Investment loss provisions and valuation allowances
Pretax provisions for investment losses, principally relating to other than
temporary declines in value of fixed income securities and valuation allowances
on mortgage loans were $261, $208 and $2,448 in 1997, 1996 and 1995,
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 Company had no impaired loans at December 31, 1997 and 1996. The net
carrying value of impaired loans at December 31, 1995 was $9,647, measured at
the fair value of the collateral. The total investment in impaired mortgage
loans before valuation allowance at December 31, 1995 was $11,581 and the
related allowance on these impaired loans was $1,934.
Activity in the valuation allowance for all mortgage loans for the years
ended December 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 225 $ 1,952 $ 1,179
Net additions (reductions) 261 (296) 1,923
Direct write-downs - (1,431) (1,150)
----------- -------- --------
Balance at December 31 $ 486 $ 225 $ 1,952
=========== ======== ========
</TABLE>
Interest income is recognized on a cash basis for impaired loans carried at the
fair value of the collateral, beginning at the time of impairment. For other
impaired loans, interest is accrued based on the net carrying value. There were
no impaired loans during 1997. The Company recognized interest income of $281
and $1,398 on impaired loans during 1996 and 1995, respectively, of which $281
and $1,194 was received in cash during 1996 and 1995, respectively. The average
recorded investment in impaired loans was $5,154 and $8,900 during 1996 and
1995, respectively.
F-12
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Investment concentration for municipal bond and commercial mortgage portfolios
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 exceeded 5% of the portfolio at December 31, 1997 and
1996:
(% of municipal bond portfolio carrying value) 1997 1996
---- ----
Ohio 28.4% 25.9%
California 22.7 24.3
Illinois 19.8 19.0
Maryland 8.0 7.8
Maine 5.6 5.7
Minnesota 5.5 5.3
New York 5.4 5.3
The Company's mortgage loans are collateralized 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 states with
the largest portion of the commercial mortgage loan portfolio are listed below.
Except for the following, holdings in no other state exceed 5% of the portfolio
at December 31, 1997 and 1996:
(% of commercial mortgage portfolio carrying value) 1997 1996
---- ----
California 47.7% 49.1%
New York 30.5 21.1
Illinois 15.3 21.3
The types of properties collateralizing the commercial mortgage loans at
December 31, are as follows:
(% of commercial mortgage portfolio carrying value) 1997 1996
---- ----
Retail 38.8% 39.1%
Warehouse 25.4 24.2
Office buildings 15.3 14.3
Apartment complex 14.9 14.6
Industrial 4.9 6.8
Other 0.7 1.0
------ ------
100.0% 100.0%
====== ======
The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 1997, for loans that were not in foreclosure are as follows:
Number of Loans Carrying Value Percent
--------------- --------------- -------
1999 3 $ 5,302 4.6%
2000 4 7,927 6.9
2001 5 7,340 6.4
2002 2 6,385 5.6
Thereafter 23 87,673 76.5
----- --------------- ------
Total 37 $ 114,627 100.0%
===== =============== ======
In 1997, $7.3 million of commercial mortgage loans were contractually due. Of
these, 20.9% were paid as due and 79.1% were refinanced at prevailing market
terms.
F-13
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of $1,981
were on deposit with regulatory authorities as required by law.
5. 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 and other off-balance-sheet 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. The disclosures that follow do not
reflect the fair value of the Company as a whole since a number of the Company's
significant assets (including deferred acquisition costs and reinsurance
recoverables) and liabilities (including reserve for life-contingent contract
benefits and deferred income taxes) are not considered financial instruments and
are not carried at fair value. Other assets and liabilities considered financial
instruments, accrued investment income and cash are generally of a short-term
nature. It is assumed that their carrying value approximates fair value.
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 1,756,257 $ 1,756,257 $ 1,500,783 $ 1,500,783
Mortgage loans 114,627 120,849 84,657 83,789
Short-term investments 9,513 9,513 25,855 25,855
Policy loans 27,600 27,600 25,359 25,359
Separate Accounts 308,595 308,595 260,668 260,668
</TABLE>
F-14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Carrying value and fair value include the effects of derivative financial
instruments where applicable.
Fair values 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 current
rates at which similar 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 carrying value of policy loans approximates its fair value. Separate
Accounts assets are carried in the statements of financial position at fair
value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 437,449 $ 466,136 $ 421,642 $ 430,696
Separate Accounts 308,595 308,595 260,668 260,668
</TABLE>
F-15
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
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 charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
Derivative financial instruments
The Company primarily uses derivative financial instruments to reduce its
exposure to market risk, specifically interest rate risk, in conjunction with
asset/liability management. The Company does not hold or issue these instruments
for trading purposes.
The following table summarizes the contract or notional amount, credit exposure,
fair value and carrying value of the Company's derivative financial instruments:
<TABLE>
<CAPTION>
Contract/ Carrying Value
Notional Credit Fair Assets/
Amount Exposure Value (Liabilities)
--------- -------- ----- --------------
At December 31, 1997
- --------------------
<S> <C> <C> <C> <C>
Financial futures contracts $ 29,800 $ - $ (153) $ (810)
At December 31, 1996
- --------------------
Financial futures contracts $ 6,700 $ 56 $ 56 $ 266
</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 for gain or loss on these agreements.
Credit exposure represents the Company's potential loss if all of the
counterparties failed to perform under the contractual terms of the contracts
and all collateral, if any, became worthless. This exposure is represented by
the fair value of contracts with a positive fair value at the reporting date
reduced by the effect, if any, of master netting agreements.
The Company manages its exposure to credit risk by utilizing highly rated
counterparties, establishing risk control limits, executing legally enforceable
master netting agreements and obtaining collateral where appropriate. To date,
the Company has not incurred any losses on derivative financial instruments due
to counterparty nonperformance.
Fair value is the estimated amount that the Company would receive (pay) to
terminate or assign the contracts at the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer and
exchange quotes are available for the Company's derivatives.
Financial futures 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 manage its
market risk related to fixed income securities and anticipatory investment
purchases and sales. Futures used as 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 risk as they are executed on organized exchanges and require security
deposits, as well as the daily cash settlement of margins.
F-16
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. Market risk exists for all of the derivative
financial instruments that the Company currently holds, as these instruments may
become less valuable due to adverse changes in market conditions. The Company
mitigates this risk through established risk limits set by senior management. In
addition, the change in the value of the Company's derivative financial
instruments designated as hedges are generally offset by the change in the value
of the related assets and liabilities.
Off-balance-sheet financial instruments
Commitments to extend mortgage loans are agreements to lend to a borrower
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, 1997 and 1996, the Company had $18,000 and $6,190 in mortgage
loan commitments which had a fair value of $180 and $62, respectively.
6. Income Taxes
The Company joins the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
and is party to a federal income tax allocation agreement (the "Tax Sharing
Agreement"). Under the Tax Sharing Agreement, the Company paid to or received
from the Corporation the amount, if any, by which the Allstate Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
F-17
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
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
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax assets and liabilities at December 31,
are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Deferred assets
<S> <C> <C>
Life-contingent contract reserves and
contractholder funds $ 34,084 $ 27,951
Difference in tax bases of investments 742 270
Loss on disposal of discontinued operations 364 375
Other postretirement benefits 352 524
Other assets 255 1,789
--------- --------
Total deferred assets 35,797 30,909
--------- --------
Deferred liabilities
Unrealized net capital gains (34,720) (19,844)
Deferred acquisition costs (15,821) (14,020)
Prepaid commission expense (792) (717)
Other liabilities (1,454) (20)
--------- --------
Total deferred liabilities (52,787) (34,601)
--------- --------
Net deferred liability $ (16,990) $ (3,692)
========= ========
</TABLE>
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 14,874 $ 11,411 $ 12,588
Deferred (1,578) 257 (2,677)
-------- -------- --------
Total income tax expense $ 13,296 $ 11,668 $ 9,911
======== ======== ========
</TABLE>
The Company paid income taxes of $13,350, $11,968 and $12,096 in 1997, 1996 and
1995, respectively. The Company had an income tax payable of $1,419 at December
31, 1997 and an income tax recoverable of $105 at December 31, 1996.
F-18
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income tax expense 2.2 2.4 2.3
Other (.3) (1.2) (1.3)
---- ---- ----
Effective income tax rate 36.9% 36.2% 36.0%
==== ==== ====
</TABLE>
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, 1997, approximately $389,
will result in federal income taxes payable of $136 if distributed by the
Company. No provision for taxes has been made as the Company has no plan to
distribute amounts from this account. No further additions to the account are
allowed under the Tax Reform Act of 1984.
7. Statutory Financial Information
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, 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:
Net Income
----------
1997 1996 1995
---- ---- ----
Balance per generally accepted accounting
principles $ 22,716 $ 20,561 $ 19,522
Deferred acquisition costs (10,782) (6,858) (5,537)
Deferred income taxes (1,578) 257 (2,677)
Statutory reserves 7,749 6,101 11,380
Other postretirement and postemployment
benefits (36) (34) 71
Other 522 (1,882) 441
-------- -------- --------
Balance per statutory accounting practices $ 18,591 $ 18,145 $ 23,200
======== ======== ========
Shareholder's Equity
--------------------
1997 1996
---- ----
Balance per generally accepted accounting principles $ 283,410 $ 233,067
Deferred acquisition costs (71,946) (61,559)
Deferred income taxes 16,990 3,692
Unrealized gain/loss on fixed income securities (246,147) (122,628)
Non-admitted assets (4,301) (2,739)
Statutory reserves 207,163 115,725
Other postretirement and postemployment benefits 1,007 1,074
Other (1,556) (1,613)
--------- ---------
Balance per statutory accounting practices $ 184,620 $ 165,019
========= =========
F-19
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
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
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), 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, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. 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.
8. Benefit Plans
Pension plans
Defined benefit pension plans, sponsored by the Corporation, cover 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. The
Corporation'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 net income were $597, $490 and $446 for the pension
plans in 1997, 1996 and 1995, respectively.
Postretirement benefits other than pensions
The Corporation provides certain health care and life insurance benefits for
retired employees. Qualified employees may become eligible for these benefits if
they retire in accordance with the Corporation's established retirement policy
and are continuously insured under the Corporation's group plans or other
approved plans for 10 or more years prior to retirement. The Corporation shares
the cost of the retiree medical benefits with retirees based on years of
service, with the Corporation's share being subject to a 5% limit on annual
medical cost inflation after retirement. The Corporation's postretirement
benefit plans currently are not funded. The Corporation has the right to modify
or terminate these plans.
F-20
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
($ IN THOUSANDS)
Profit sharing fund
Employees of the Corporation and its domestic subsidiaries are also eligible to
become members of The Savings and Profit Sharing Fund of Allstate Employees
("Allstate Plan"). The Corporation's contributions are based on the
Corporation's matching obligation and performance. The Allstate Plan includes an
Employee Stock Ownership Plan ("Allstate ESOP") to pre-fund a portion of the
Corporation's anticipated contribution. The Allstate Plan and the Allstate ESOP
split from The Savings and Profit Sharing Fund of Sears Employees ("Sears Plan")
on the date of the Distribution. In connection with this, the Corporation paid
Sears $327 million, and in return received a note from the Allstate ESOP for a
like principal amount and 50% of the unallocated shares. The note has a fixed
interest rate of 7.9% and matures in 2019. The Corporation expects to make net
contributions to the Allstate ESOP annually in the amount necessary to allow the
Allstate ESOP to fund interest and principal payments on the note after
considering the dividends paid on ESOP shares, which are available for debt
service.
The Company's defined contribution to the Allstate Plan was $164 and $111 in
1997 and 1996, respectively.
F-21
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
Gross Net
Year Ended December 31, 1997 Amount Ceded Amount
- ---------------------------- ------ ----- ------
Life insurance in force $11,339,990 $ 721,040 $10,618,950
=========== =========== ===========
Premiums and contract charges:
Life and annuities $ 116,167 $ 2,185 $ 113,982
Accident and health 5,846 864 4,982
----------- ----------- -----------
$ 122,013 $ 3,049 $ 118,964
=========== =========== ===========
Gross Net
Year Ended December 31, 1996 Amount Ceded Amount
- ---------------------------- ------ ----- ------
Life insurance in force $ 9,962,300 $ 553,628 $ 9,408,672
=========== =========== ===========
Premiums and contract charges: $ 114,296 $ 1,398 $ 112,898
Life and annuities 5,044 834 4,210
Accident and health ----------- ----------- -----------
$ 119,340 $ 2,232 $ 117,108
=========== =========== ===========
Gross Net
Year Ended December 31, 1995 Amount Ceded Amount
- ---------------------------- ------ ----- ------
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
=========== =========== ===========
F-22
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
---------- ---------- ---------- ----------
Year Ended December 31, 1997
<S> <C> <C> <C> <C>
Allowance for estimated losses
on mortgage loans $ 225 $ 261 $ - $ 486
============ ============ ============ ============
Year Ended December 31, 1996
Allowance for estimated losses
on mortgage loans $ 1,952 $ (296) $ 1,431 $ 225
============ ============ ============ ============
Year Ended December 31, 1995
Allowance for estimated losses
on mortgage loans $ 1,179 $ 1,923 $ 1,150 $ 1,952
============ ============ ============ ============
</TABLE>
F-23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report. The page
number, if any, listed opposite a document indicates the page number in the
sequential numbering system in the manually signed original of this Report where
such document can be found.
(1) The financial statements filed as part of this Report are listed
in Item 8.
(2) Financial Statement Schedules
Schedule IV - Reinsurance page F-22
Schedule V - Valuation and Qualifying Accounts page F-23
(3) Exhibits
Financial Data Schedule
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
By /s/ LOUIS G. LOWER, II
----------------------
Louis G. Lower, II
President and Chairman
(Principal Executive Officer)
Date March 30, 1998
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ LOUIS G. LOWER, II
----------------------
Louis G. Lower, II
President and Chairman
(Principal Executive Officer)
Date March 30, 1998
--------------
By /s/ MICHAEL J. VELOTTA
----------------------
Michael J. Velotta
Vice President, Secretary and General Counsel
Date March 30, 1998
--------------
By */s/ MARLA G. FRIEDMAN
----------------------
Marla G. Friedman
Vice President and Director
Date March 26, 1998
--------------
By */s/VINCENT A. FUSCO
---------------------
Vincent A. Fusco
Chief Operations Officer and Director
Date March 26, 1998
---------------
By */s/ GERARD F. McDERMOTT
-------------------------
Gerard F. McDermott
Director
Date March 27, 1998
----------------
<PAGE>
By */s/ TIMOTHY H. PLOHG
----------------------
Timothy H. Plohg
Vice President and Director
Date March 30, 1998
-----------------
By */s/ KEVIN R. SLAWIN
----------------------
Kevin R. Slawin
Vice President and Director
Date March 26, 1998
-----------------
By */s/ PATRICIA A. WILSON
-----------------------
Patricia A. Wilson
Assistant Vice President and Director
Date March 31, 1998
-----------------
By */s/ KEITH A. HAUSCHILDT
------------------------
Keith A. Hauschildt
Assistant Vice President and Controller
(Chief Accounting Officer)
Date March 25, 1998
------------------
*/Pursuant to Power of Attorney filed herewith.
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK AND THE FORM 10-K
Know all men by these presents that Gerard F. McDermott whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, his attorneys-in-fact, with power of substitution, and him in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 27, 1998
- -------------------------------
Date
/s/ GERARD F. McDERMOTT
- -------------------------------
Gerard F. McDermott
Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK AND THE FORM 10-K
Know all men by these presents that Marla G. Friedman whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, her attorneys-in-fact, with power of substitution, and her in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 26, 1998
- -------------------------------
Date
/s/ MARLA G. FRIEDMAN
- -------------------------------
Marla G. Friedman
Vice President and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK AND THE FORM 10-K
Know all men by these presents that Patricia A. Wilson whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, her attorneys-in-fact, with power of substitution, and her in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 31, 1998
- -------------------------------
Date
/s/ PATRICIA A. WILSON
- -------------------------------
Patricia A. Wilson
Assistant Vice President and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK AND THE FORM 10-K
Know all men by these presents that Vincent A. Fusco whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, his attorneys-in-fact, with power of substitution, and him in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 26, 1998
- -------------------------------
Date
/s/ VINCENT A. FUSCO
- -------------------------------
Vincent A. Fusco
Chief Operations Officer and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK AND THE FORM 10-K
Know all men by these presents that Timothy H. Plohg whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, his attorneys-in-fact, with power of substitution, and him in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 30, 1998
- -------------------------------
Date
/s/ TIMOTHY H. PLOHG
- -------------------------------
Timothy H. Plohg
Vice President and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK AND THE FORM 10-K
Know all men by these presents that Kevin R. Slawin whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, his attorneys-in-fact, with power of substitution, and him in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 26, 1998
- -------------------------------
Date
/s/ KEVIN R. SLAWIN
- -------------------------------
Kevin R. Slawin
Vice President and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY
OF NEW YORK AND THE FORM 10-K
Know all men by these presents that Keith A. Hauschildt whose signature appears
below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and
each of them, his attorneys-in-fact, with power of substitution, and him in any
and all capacities, to sign any reports and amendments thereto for the Form 10-K
for Allstate Life Insurance Company of New York and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
March 25, 1998
- -------------------------------
Date
/s/ KEITH A. HAUSCHILDT
- -------------------------------
Keith A. Hauschildt
Assistant Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT DECEMBER 31, 1997; STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997; STATEMENTS OF SHAREHOLDER'S EQUITY FOR THE
YEAR ENDED DECEMBER 31, 1997; AND STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000839759
<NAME> ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1,756,257
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 114,627
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,907,997
<CASH> 393
<RECOVER-REINSURE> 1,726
<DEFERRED-ACQUISITION> 71,946
<TOTAL-ASSETS> 2,318,549
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,084,409
<POLICY-HOLDER-FUNDS> 607,474
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 281,410
<TOTAL-LIABILITY-AND-EQUITY> 2,318,549
90,366
<INVESTMENT-INCOME> 124,887
<INVESTMENT-GAINS> 701
<OTHER-INCOME> 28,597
<BENEFITS> 179,872
<UNDERWRITING-AMORTIZATION> 5,023
<UNDERWRITING-OTHER> 23,644
<INCOME-PRETAX> 36,012
<INCOME-TAX> 13,296
<INCOME-CONTINUING> 22,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,716
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
