FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-47245
33-65355
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of registrant as specified in its charter)
NEW YORK 35-2608394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Allstate Drive
Farmingville, New York 11738
(Address of principal executive offices)(Zip Code)
800/256-9392
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes../X/.. No
Indicate the number of shares of each of the issuer's classes of common
stock, as of June 30, 1999; there were 80,000 shares of common capital stock
outstanding, par value $25 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Position
June 30, 1999(Unaudited) and December 31, 1998.................. 3
Statements of Operations
Three Months Ended June 30, 1999 and and June 30, 1998 and
Six Months Ended June 30, 1999 and June 30, 1998 (Unaudited).... 4
Statements of Cash Flows
Six Months Ended June 30, 1999 and
June 30, 1998 (Unaudited)................................. 5
Notes to Financial Statements................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 10
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*..................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................17
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*........................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................17
SIGNATURE PAGE...............................................................18
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
-2-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
($ in thousands) (UNAUDITED)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $1,742,959 and $1,648,972) ..... $ 1,899,368 $ 1,966,067
Mortgage loans .................................... 160,688 145,095
Short-term ........................................ 38,672 76,127
Policy loans ...................................... 30,392 29,620
------------ ------------
Total investments ........................... 2,129,120 2,216,909
Deferred acquisition costs ........................... 95,848 87,830
Accrued investment income ............................ 22,485 22,685
Reinsurance recoverables ............................. 1,992 2,210
Cash ................................................. 700 3,117
Other assets ......................................... 12,265 9,887
Separate Accounts .................................... 402,137 366,247
------------ ------------
TOTAL ASSETS ................................ $ 2,664,547 $ 2,708,885
============ ============
LIABILITIES
Reserve for life-contingent contract benefits ........ $ 1,137,543 $ 1,208,104
Contractholder funds ................................. 750,028 703,264
Current income taxes payable ......................... 15,705 14,029
Deferred income taxes ................................ 12,103 25,449
Other liabilities and accrued expenses ............... 36,453 23,463
Payable to affiliates, net ........................... 1,755 38,835
Separate Accounts .................................... 402,137 366,247
------------ ------------
TOTAL LIABILITIES ........................... 2,355,724 2,379,391
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 3)
SHAREHOLDER'S EQUITY
Common stock, $25 par value, 80,000 shares
authorized, issued and outstanding ............. 2,000 2,000
Additional capital paid-in ........................... 45,787 45,787
Retained income ...................................... 211,351 198,801
Accumulated other comprehensive income:
Unrealized net capital gains ..................... 49,685 82,906
------------ ------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME 49,685 82,906
------------ ------------
TOTAL SHAREHOLDER'S EQUITY .................. 308,823 329,494
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY .. $ 2,664,547 $ 2,708,885
============ ============
See notes to financial statements.
</TABLE>
3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
($ in thousands) 1999 1998 1999 1998
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Premiums and contract charges (net of reinsurance
ceded of $1,003 and $908; $2,167 and $1,757) $ 19,334 $ 33,001 $ 50,585 $ 59,672
Net investment income ........................... 36,447 33,691 72,007 66,260
Realized capital gains and losses ............... (1,101) 2,873 (748) 4,104
--------- --------- --------- ---------
54,680 69,565 121,844 130,036
--------- --------- --------- ---------
COSTS AND EXPENSES
Contract benefits (net of reinsurance recoveries
of $245 and $143; $782 and $503) ............. 37,733 47,561 86,213 88,821
Amortization of deferred acquisition costs ...... 2,647 2,120 4,826 4,205
Operating costs and expenses .................... 5,201 6,154 11,342 12,165
--------- --------- --------- ---------
45,581 55,835 102,381 105,191
--------- --------- --------- ---------
INCOME FROM OPERATIONS BEFORE
INCOME TAX EXPENSE ........................... 9,099 13,730 19,463 24,845
Income tax expense .............................. 3,234 4,884 6,913 8,863
--------- --------- --------- ---------
NET INCOME ...................................... $ 5,865 $ 8,846 $ 12,550 $ 15,982
========= ========= ========= =========
See notes to financial statements.
</TABLE>
4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
($ in thousands) 1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 12,550 $ 15,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and other non-cash items ........... (18,264) (17,177)
Realized capital gains and losses ............... 748 (4,104)
Interest credited to contractholder funds ....... 15,107 27,813
Changes in:
Reserve for life-contingent contract benefits
and contractholder funds ................ 22,241 23,270
Deferred acquisition costs .................. (6,023) (4,205)
Accrued investment income ................... 200 84
Income taxes payable ........................ 6,219 14,235
Other operating assets and liabilities ...... (269) (15,440)
------------ ------------
Net cash provided by operating activities 32,509 40,458
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed income securities ......... 65,333 53,721
Investment collections
Fixed income securities ......................... 6,259 78,609
Mortgage loans .................................. 3,742 2,824
Investments purchases
Fixed income securities ......................... (173,670) (157,249)
Mortgage loans .................................. (21,803) (21,794)
Change in short-term investments, net .................. 39,549 (22,867)
Change in policy loans, net ............................ (772) (850)
------------ ------------
Net cash used in investing activities ... (81,362) (67,606)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits ........................... 76,906 60,743
Contractholder fund withdrawals ........................ (30,470) (33,376)
------------ ------------
Net cash provided by financing activities 46,436 27,367
------------ ------------
NET INCREASE (DECREASE) IN CASH ........................ (2,417) 219
CASH AT THE BEGINNING OF YEAR .......................... 3,117 393
------------ ------------
CASH AT END OF YEAR .................................... $ 700 $ 612
============ ============
See notes to financial statements.
</TABLE>
5
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Allstate Life
Insurance Company of New York (the "Company"), a wholly owned subsidiary of
Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate
Corporation (the "Corporation"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
The financial statements and notes as of June 30, 1999 and for the
three month and six month periods ended June 30, 1999 and 1998 are
unaudited. The financial statements reflect all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of management,
necessary for the fair presentation of the financial position, results of
operations and cash flows for the interim periods. These financial
statements and notes should be read in conjunction with the financial
statements and notes thereto included in the Allstate Life Insurance
Company of New York Annual Report on Form 10-K for 1998. The results of
operations for the interim periods should not be considered indicative of
results to be expected for the full year.
Effective January 1, 1999, the Company adopted 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: 1) an assessment has been imposed or it is probable that an
assessment will be imposed, 2) the event obligating an entity to pay an
assessment has occurred and 3) the amount of the assessment can be
reasonably estimated. The adoption of this statement had an immaterial
impact to the Company's results of operations and financial position.
In July 1999, the Financial Accounting Standards Board ("FASB") delayed the
effective date of Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
replaces existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. The delay was
effected through the issuance of SFAS No. 137, which extends the effective
date of the SFAS No. 133 requirements to fiscal years beginning after June
15, 2000. As such, the Company plans to adopt the provisions of SFAS No.
133 as of January 1, 2001. Based on existing interpretations of the
requirements of SFAS No. 133, the impact of adoption is not expected to be
material to the results of operations or financial position of the Company.
To conform with the 1999 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
2. COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax
basis are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
($ in thousands) 1999 1998
-------------------------------- --------------------------------
AFTER- AFTER-
PRETAX TAX TAX PRETAX TAX TAX
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital
gains and losses:
Unrealized holding (losses) gains
arising during the period .... $(76,626) $ 26,819 $(49,807) $ 48,364 $(16,928) $ 31,436
Adjustments to unrealized
capital gains and losses
arising during the period:
Deferred acquisition costs 1,800 (629) 1,171 (313) 110 (203)
Reserves for life insurance
policy benefits ....... 63,192 (22,118) 41,074 (34,575) 12,101 (22,474)
-------- -------- -------- -------- -------- --------
Net unrealized holding
(losses) gains arising
during the period .... (11,634) 4,072 (7,562) 13,476 (4,717) 8,759
Less: reclassification
adjustment for realized
net capital (losses) gains
included in net income ...... (1,116) 391 (725) 2,887 (1,011) 1,876
-------- -------- -------- -------- -------- --------
Other comprehensive
(loss) income ............... $(10,518) $ 3,681 (6,837) $ 10,589 $ (3,706) 6,883
======== ======== ======== ========
Net income ...................... 5,865 8,846
-------- --------
Comprehensive
(loss) income ............... $ (972) $ 15,729
======== ========
</TABLE>
7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
2. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
($ in thousands) 1999 1998
-------------------------------- --------------------------------
AFTER- AFTER-
PRETAX TAX TAX PRETAX TAX TAX
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital
gains and losses:
Unrealized holding (losses) gains
arising during the period .... $(161,448) $ 56,507 $(104,941) $ 44,009 $(15,403) $ 28,606
Adjustments to unrealized
capital gains and losses
arising during the period:
Deferred acquisition costs 1,997 (699) 1,298 (110) 38 (72)
Reserves for life insurance
policy benefits ....... 107,580 (37,653) 69,927 (25,103) 8,786 (16,317)
-------- -------- -------- -------- -------- --------
Net unrealized holding
(losses) gains arising
during the period .... (51,871) 18,155 (33,716) 18,796 (6,579) 12,217
Less: reclassification
adjustment for realized
net capital (losses) gains
included in net income ...... (762) 267 (495) 4,168 (1,459) 2,709
-------- -------- -------- -------- -------- --------
Other comprehensive
(loss) income ............... $(51,109) $ 17,888 (33,221) $ 14,628 $ (5,120) 9,508
======== ======== ======== ========
Net income ...................... 12,550 15,982
-------- --------
Comprehensive
(loss) income ............... $(20,671) $ 25,490
======== ========
</TABLE>
8
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company is subject to the effects of a changing social, economic and
regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing
banks from engaging in the securities and insurance business, tax law
changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of
various personal investment vehicles, and proposed legislation to prohibit
the use of gender in determining insurance rates and benefits. The
ultimate changes and eventual effects, if any, of these initiatives are
uncertain.
Various other legal and regulatory actions are currently pending that
involve the Company and specific aspects of its conduct of business. In
the opinion of management, the ultimate liability, if any, in one or more
of these actions in excess of amounts currently reserved is not expected
to have a material effect on the results of operations, liquidity or
financial position of the Company.
9
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing results
of operations and changes in financial position of Allstate Life Insurance
Company of New York (the "Company"). It should be read in conjunction with
the financial statements and related notes thereto found under items 7 and
8 of Part II of the Allstate Life Insurance Company of New York Annual
Report on Form 10-K for the year ended December 31, 1998.
The Company, a wholly owned subsidiary of Allstate Life Insurance Company
("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a
wholly owned subsidiary of The Allstate Corporation (the "Corporation"),
markets life insurance and savings products in the State of New York. Life
Insurance products include traditional life products such as whole life and
term insurance, as well as universal life. Savings products consist of
fixed annuity products, including indexed, market value adjusted and
structured settlement annuities, as well as variable annuities. The
Company's products are distributed through a combination of Allstate agents
(which include life specialists), banks, brokers and direct marketing. The
Company has identified itself as a single segment entity.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
($ in thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statutory premiums and deposits $ 64,084 $ 70,434 $ 127,006 $ 128,560
=========== =========== =========== ===========
Investments .................... $ 2,129,120 $ 2,074,042 $ 2,129,120 $ 2,074,042
Separate Account assets ........ 402,137 346,605 402,137 346,605
----------- ----------- ----------- -----------
Investments, including Separate
Account assets ............... $ 2,531,257 $ 2,420,647 $ 2,531,257 $ 2,420,647
=========== =========== =========== ===========
Premium and contract charges ... $ 19,334 $ 33,001 $ 50,585 $ 59,672
Net investment income .......... 36,447 33,691 72,007 66,260
Contract benefits .............. 37,733 47,561 86,213 88,821
Operating costs and expenses ... 7,848 7,862 16,168 15,946
----------- ----------- ----------- -----------
Income from operations ......... 10,200 11,269 20,211 21,165
Income tax expense on operations 3,631 4,023 7,187 7,575
----------- ----------- ----------- -----------
Operating income ............... 6,569 7,246 13,024 13,590
Net realized capital losses and
gains, after-tax (1) ......... (704) 1,600 (474) 2,392
----------- ----------- ----------- -----------
Net income ..................... $ 5,865 $ 8,846 $ 12,550 $ 15,982
=========== =========== =========== ===========
</TABLE>
(1) After the effect of related amortization of deferred policy acquisitions
costs.
Statutory premiums and deposits include premiums and deposits for all
products. For the three month and six month periods ended June 30, 1999,
statutory premiums and deposits were $64.1 million and $127.0 million,
respectively, compared to $70.4 million and $128.6 million for the same
periods in 1998. For both periods ended June 30, 1999, increases in sales
of fixed and variable annuities and life products were more than offset by
lower structured settlement annuity sales.
10
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Under generally accepted accounting principles ("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. For the second quarter of 1999 and the first half of 1999 premiums
and contract charges under GAAP were $19.3 million and $50.6 million,
respectively, compared to $33.0 million and $59.7 million for the same
periods last year. Increases, primarily in universal life contract
charges, were more than offset by lower premiums from structured
settlement annuities with life contingencies for both periods. The lower
sales of structured settlement annuities with life contingencies similarly
impacted the reserve for life contingent contracts reported in contract
benefits.
Pretax net investment income increased 8.2% in the second quarter of 1999
and 8.7% in the first half of 1999 compared with the same periods last
year as higher investment balances were partially offset by lower
investment yields and higher investment expenses. Investments at June 30,
1999, excluding Separate Accounts and unrealized gains on fixed income
securities grew 10.3% from the same period last year. Lower investment
yields are due, in part, to the investment of proceeds from calls and
maturities and the investment of positive cash flows from operations in
securities yielding less than the average portfolio rate. In relatively
low interest rate environments, funds from called or maturing investments
may be reinvested at interest rates lower than those which prevailed when
the funds were previously invested, resulting in lower investment yields.
Operating income for the second quarter of 1999 was $6.6 million versus
$7.2 million for the second quarter of 1998. Operating income for the
first six months of 1999 was $13.0 million compared to $13.6 million for
the same period last year. For both periods in 1999, increases in contract
charges and investment income were more than offset by adverse mortality
experience.
Realized capital losses, after-tax, were $704 thousand for the
three months ended June 30, 1999, compared to realized capital gains,
after-tax, of $1.6 million for the same period last year. Realized capital
losses during the second quarter of 1999 were generated from the sale of
publicly-traded and privately-placed corporate obligations which were
intended to manage asset and liability duration and facilitate investing
in higher yielding securities. These losses more than offset realized
capital gains during the first quarter of 1999. Realized capital gains
during the second quarter and first half of 1998 related to gains arising
from the receipt of prepayments of fixed income securities.
11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVESTMENTS
The composition of the investment portfolio at June 30, 1999, at financial
statement carrying values, is presented in the table below:
PERCENT
($ in thousands) TO TOTAL
----------
Fixed income securities (1) $ 1,899,368 89.2%
Mortgage loans 160,688 7.6
Policy loans 30,392 1.4
Short-term 38,672 1.8
----------- ------
Total $2,129,120 100.0%
=========== ======
(1) Fixed income securities are carried at fair value. Amortized cost for
these securities was $1,742,959 at June 30, 1999.
Total investments were $2.13 billion at June 30, 1999 compared to $2.22
billion at December 31, 1998. Positive cash flows generated from
operations were more than offset by lower unrealized gains on fixed income
securities and a decrease in short-term investments. At June 30, 1999,
unrealized capital gains on the fixed income securities portfolio were
$156.4 million compared to $317.1 million at December 31, 1998. The
decrease in short-term investments resulted from the settlement of an
intercompany payable. At June 30, 1999, short-term investments included
$11.8 million of collateral received in connection with the Company's
securities lending program.
At June 30, 1999, 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.
SEPARATE ACCOUNTS
Separate Account assets and liabilities increased to $402.1 million at
June 30, 1999 from $366.2 million at December 31, 1998. The increase was
due primarily to flexible premium deferred variable annuity sales and
favorable performance of the Separate Account investment portfolios,
partially offset by variable annuity contract surrenders and withdrawals.
12
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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
represents 89.2% 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.
Surrenders and withdrawals were $14.1 million and $25.4 million for the
three and six month periods ended June 30, 1999, compared to $16.4 million
and $31.5 million for the same periods in 1998. As the Company's
interest-sensitive life policies and annuity contracts in force grow and
age, the dollar amount of surrenders and withdrawals could increase.
YEAR 2000
The Company is dependent upon certain services provided for it by the
Corporation including computer-related systems, and systems and equipment
not typically thought of as computer-related (referred to as "non-IT").
For this reason, the Company is reliant upon the Corporation for the
establishment and maintenance of its computer-related systems and non-IT.
The Corporation is heavily dependent upon complex computer systems and
equipment for all phases of its operations, including product
distribution, customer service, insurance processing, underwriting, loss
reserving, investments and other enterprise systems. Since many older
computer software programs recognize only the last two digits of the year
in any date, some software may fail to operate properly in or after the
year 1999 if the software is not reprogrammed, remediated, or replaced
("Year 2000"). Also, many systems and equipment that are not typically
thought of as computer-related (referred to as "non-IT") contain embedded
hardware or software that may have a Year 2000 sensitive component. The
Corporation believes that many of its counterparties and suppliers also
have Year 2000 issues and non-IT issues which could affect the
Corporation.
In 1995, the Corporation commenced a plan consisting of four phases which
are intended to mitigate and/or prevent the adverse effects of the Year
2000 issues on its systems and equipment: 1) inventory and assessment of
affected systems and equipment, 2) remediation and compliance of systems
and equipment through strategies that include the replacement or
enhancement of existing systems, upgrades to operating systems already
covered by maintenance agreements and modifications to existing systems to
make them Year 2000 compliant, 3) testing of systems and equipment using
clock-forward testing for both current and future dates and for dates
which trigger specific processing, and 4) contingency planning to address
possible adverse scenarios and the potential financial impact to the
Corporation's results of operations, liquidity or financial position.
13
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Corporation believes that the first three phases of this plan,
assessment, remediation and testing, including clock-forward testing which
was performed on the Corporation's systems and equipment and non-IT, are
complete. It is expected that the implementation and rollout of the
remediated personal computer environment will continue into the fourth
quarter of 1999. In addition, some systems and equipment and non-IT
related to discontinued or non-critical functions of the Corporation are
planned to be abandoned by the end of 1999.
The fourth phase of this plan, contingency planning, is currently in
process. Detailed plans have been created in the event that the systems
and equipment or major external counterparties and supplier supporting
critical processes are not Year 2000 compliant in or after the year 1999.
These plans, created by each corporate function and business unit of the
Corporation, identify and document the risks associated with the Year 2000
on their business processes. Appropriate plans have been developed to
mitigate those risks. A common inclusion in many of the plans is a
description of manual processes and personnel needed in the event of a
temporary Year 2000 failure. Contingency plans will be tested
appropriately by the corporate function or business unit for their
effective operation and for achieving their desired results. In addition,
during the third quarter of 1999, the Corporation's management is
reviewing all corporate function and business units' plans for accuracy
and comprehensiveness. Monitoring of these plans will continue throughout
the end of 1999 and beyond, as needed.
The Corporation has considered numerous risk scenarios during the
contingency planning phase. Through this planning, management believes
that the scenario which could be considered the worst case, is a
widespread, prolonged failure of public utility systems which would not
only cause power outages for the Corporation, but also cause
telecommunications, banking or external counterparty and supplier service
outages. While the corporation has assessed and will continue to assess
data on the utility, telecommunication and banking industries, it
acknowledges the possibility that a prolonged widespread outage in any or
all of these industries could lead to a worst case scenario. However, the
Corporation does not consider such prolonged widespread outages to be
reasonably likely. Therefore, the Corporation has focused its most
reasonably likely worst case scenario contingency planning on limited
scale outages in order to ensure the ability to deal with risks of likely
scenarios. Because the Corporation is prepared for outages on a localized
basis as part of normal business operations, the Corporation considers the
impacts of this most reasonably likely scenario to be immaterial to the
Corporation's results of operations, liquidity or financial position.
The Company markets its products through a variety of distribution
channels, including a broad-based network of exclusive agents (including
life specialist), banks, brokers and direct response marketing. The core
of the Company's distribution system, the exclusive agents, have had their
systems included in the Corporation's four phase plan, therefore
management believes that assessment, remediation, testing and the creation
of contingency plans are complete for the exclusive agency operations'
critical systems.
The Company also markets some of its products through Dean Witter Reynolds
Inc. ("Dean Witter"), a wholly owned subsidiary of Morgan Stanley Dean
Witter. Management believes that its interactions and interfaces with Dean
Witter are Year 2000 compliant. Therefore, the impacts of Year 2000,
related to this distribution channel, is expected to be immaterial to the
Company's results of operations, liquidity and financial position.
14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition, the Company markets a portion of its products through banks,
brokers and direct response marketing. These distribution channels are
considered major external counterparties of the Corporation. The
Corporation is actively working with its major external counterparties and
suppliers, including public utility companies, to assess their compliance
efforts and the Corporation's exposure to both their Year 2000 issues and
non-IT issues. This assessment has included soliciting external
counterparties and suppliers, evaluating responses received and testing
third party interfaces and interactions to determine compliance. Currently
the Corporation has solicited, and has received responses from, the
majority of its counterparties and suppliers. These responses generally
state that they believe they will be Year 2000 compliant and that no
transactions will be affected. However, certain vendors are also in
ongoing assessment and testing of their products whereby they are
currently unable to identify all potential problems in certain products
which are used by the Corporation. The Corporation believes that these
vendors will make no statements regarding their Year 2000 readiness other
than to publish declarations addressing specific compliance issues
identified with their products. The Corporation is working with these key
vendors and has procedures in place to stay aware of any compliance issues
encountered by these vendors. The Corporation has also decided to test
certain interfaces and interactions to gain additional assurance on third
party compliance. Currently, the Corporation does not have sufficient
information to determine whether all of its external counterparties and
suppliers will be Year 2000 compliant. If they are not Year 2000
compliant, the Corporation is not able to determine the impact of any
consequent losses on its results of operations, liquidity or financial
position.
The Corporation may be exposed to the risk that the issuers of investments
in its portfolio will be adversely impacted by Year 2000 issues. The
Corporation assesses the impact which Year 2000 issues have on the
Corporation's investments as part of due diligence for proposed new
investments and in its ongoing review of all current portfolio holdings.
Any recommended actions with respect to individual investments are
determined by taking into account the potential impact of Year 2000 on the
issuer. Based on its current review, the Corporation believes that
although Year 2000 issues may temporarily affect the market or individual
issuers, the potential impact of Year 2000 on its investment portfolio
will not be material.
The Corporation presently believes that it will resolve the Year 2000
issue in a timely manner. Year 2000 costs are expensed as incurred. The
majority of the expenses related to this project have been incurred as of
June 30, 1999. The Corporation estimates that approximately $125 million
in costs will be incurred between the years of 1995 and 2000. These
amounts include costs directly related to fixing Year 2000 issues, such as
modifying software and hiring Year 2000 solution providers, as well as
costs incurred to replace certain non-compliant systems which would not
have been otherwise replaced. A portion of these costs will be incurred by
the Company on a pro rata basis of usage of the computer-related systems
and equipment and non-IT, as compared to the usage of all entities which
share these services with the Corporation. These amounts are not expected
to be material to the results of operations of the Company.
15
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. In order to comply with the terms of the safe
harbor, the Company notes several important factors that could cause the
Company's actual results and experience with respect to forward-looking
statements to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements:
1. The Corporation presently believes that it will resolve the Year 2000
issues affecting its computer operations in a timely manner, and that
the costs incurred between the years of 1995 and 2000 in resolving
those issues will be approximately $125 million. However, the extent to
which the computer operations of the Corporation's external
counterparties and suppliers are adversely affected could, in turn,
affect the Corporation's ability to communicate with such
counterparties and suppliers, could increase the cost of resolving the
Year 2000 issues, and could materially affect the Corporation's results
of operations in any period or periods.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and its Board of Directors know of no material legal
proceedings pending to which the Company is a party or which would
materially affect the Company. The Company is involved in pending and
threatened litigation in the normal course of its business in which claims
for monetary damages are asserted. Management, after consultation with
legal counsel, does not anticipate the ultimate liability arising from such
pending or threatened litigation to have a material effect on the financial
condition of the Company.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
(2) None
(3)(i) Restated Certificate of Incorporation of Allstate Life Insurance Company
of New York (Incorporated herein by reference to the Company's Form 10-K
Annual Report for the year ended December 31, 1998)
(3)(ii) Amended By-laws of Allstate Life Insurance Company of New York
(Incorporated herein by reference to the Company's Form 10-K Annual Report
for the year ended December 31, 1998)
(4) None
(10) None
(11) Not Required
(15) None
(18) None
(19) None
(22) None
(23) Not required
(24) Power of Attorney - Samuel H. Pilch
(27) Financial Data Schedule
(b) Reports on 8-K
No reports on Form 8-K were filed during the first quarter of 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of August 1999.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
-------------------------------------------
(Registrant)
/s/ LOUIS G. LOWER, II CHAIRMAN OF THE BOARD OF DIRECTORS
- ------------------------ AND CHIEF EXECUTIVE OFFICER
LOUIS G. LOWER, II (Principal Executive Officer)
/s/ SAMUEL H. PILCH CONTROLLER
- ------------------------ (Chief Accounting Officer)
SAMUEL H. PILCH
18
<PAGE>
Exhibit Index
Exhibit No. Exhibit
(24) Power of Attorney - Samuel H. Pilch
(27) Financial Data Schedule
POWER OF ATTORNEY
WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY
OF NEW YORK
AND THE FORM 10-Q
Know all men by these presents that Samuel H. Pilch 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-Q
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.
August 1, 1999
- -------------------------------
Date
/s/ SAMUEL H. PILCH
- -------------------------------
Samuel H. Pilch
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT JUNE 30, 1999; STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 AND JUNE 30, 1998; AND STATEMENTS OF CASH FLOWS SIX MONTHS
ENDED JUNE 30, 1999.
</LEGEND>
<CIK> 0000839759
<NAME> ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1,899,368
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 160,688
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,129,120
<CASH> 700
<RECOVER-REINSURE> 1,992
<DEFERRED-ACQUISITION> 95,848
<TOTAL-ASSETS> 2,664,547
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,137,543
<POLICY-HOLDER-FUNDS> 750,028
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 306,823
<TOTAL-LIABILITY-AND-EQUITY> 2,664,547
50,585
<INVESTMENT-INCOME> 72,007
<INVESTMENT-GAINS> (748)
<OTHER-INCOME> 0
<BENEFITS> 86,213
<UNDERWRITING-AMORTIZATION> 4,826
<UNDERWRITING-OTHER> 11,342
<INCOME-PRETAX> 19,463
<INCOME-TAX> 6,913
<INCOME-CONTINUING> 12,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,550
<EPS-BASIC> 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>
