FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 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 September 30, 1999; there were 80,000 shares of common capital
stock outstanding, par value $25 per share all of which shares are held by
Allstate Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Position
September 30, 1999(Unaudited)
and December 31, 1998............................................. 3
Statements of Operations
Three Months Ended September 30, 1999 and
September 30, 1998 and Six Months Ended
September 30, 1999 and September 30, 1998 (Unaudited).......... 4
Statements of Cash Flows
Nine Months Ended September 30, 1999 and September 30,
1998 (Unaudited).................................................. 5
Notes to Financial Statements..................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 10
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*..................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................17
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*........................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................17
SIGNATURE PAGE...............................................................18
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
-2-
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
($ in thousands, except par value data) (UNAUDITED)
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $1,787,423 and $1,648,972) .... $1,899,766 $1,966,067
Mortgage loans ................................... 163,144 145,095
Short-term ....................................... 27,766 76,127
Policy loans ..................................... 30,561 29,620
---------- ----------
Total investments .......................... 2,121,237 2,216,909
Deferred acquisition costs .......................... 99,180 87,830
Accrued investment income ........................... 22,655 22,685
Reinsurance recoverables ............................ 2,093 2,210
Receivable from affiliates, net ..................... 5,530 --
Cash ................................................ 1,140 3,117
Other assets ........................................ 7,152 9,887
Separate Accounts ................................... 389,675 366,247
---------- ----------
TOTAL ASSETS ............................... $2,648,662 $2,708,885
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits ....... $1,129,003 $1,208,104
Contractholder funds ................................ 769,248 703,264
Current income taxes payable ........................ 20,158 14,029
Deferred income taxes ............................... 5,150 25,449
Other liabilities and accrued expenses .............. 30,720 23,463
Payable to affiliates, net .......................... -- 38,835
Separate Accounts ................................... 389,675 366,247
---------- ----------
TOTAL LIABILITIES .......................... 2,343,954 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 ..................................... 216,914 198,801
Accumulated other comprehensive income:
Unrealized net capital gains .................... 40,007 82,906
---------- ----------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME 40,007 82,906
---------- ----------
TOTAL SHAREHOLDER'S EQUITY ................. 304,708 329,494
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY . $2,648,662 $2,708,885
========== ==========
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
($ in thousands) 1999 1998 1999 1998
----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Premiums and contract charges (net of reinsurance
ceded of $909 and $903; $3,076 and $2,660) .. $ 26,442 $ 28,166 $ 77,027 $ 87,838
Net investment income ........................... 37,771 33,758 109,778 100,018
Realized capital gains and losses ............... (812) 53 (1,560) 4,157
--------- --------- --------- ---------
63,401 61,977 185,245 192,013
--------- --------- --------- ---------
COSTS AND EXPENSES
Contract benefits (net of reinsurance recoveries
of $309 and $1,245; $1,091 and $1,748) ....... 47,347 46,744 133,560 135,565
Amortization of deferred acquisition costs ...... 2,352 1,562 7,178 5,767
Operating costs and expenses .................... 5,068 5,261 16,410 17,426
--------- --------- --------- ---------
54,767 53,567 157,148 158,758
--------- --------- --------- ---------
INCOME FROM OPERATIONS BEFORE
INCOME TAX EXPENSE ........................... 8,634 8,410 28,097 33,255
Income tax expense .............................. 3,071 2,883 9,984 11,746
--------- --------- --------- ---------
NET INCOME ...................................... $ 5,563 $ 5,527 $ 18,113 $ 21,509
========= ========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
($ in thousands) 1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 18,113 $ 21,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and other non-cash items ........... (28,229) (26,588)
Realized capital gains and losses ............... 1,560 (4,157)
Interest credited to contractholder funds ....... 22,805 27,537
Changes in:
Reserve for life-contingent contract benefits
and contractholder funds ................ 34,045 41,875
Deferred acquisition costs .................. (9,169) (8,605)
Accrued investment income ................... 30 1,167
Income taxes payable ........................ 8,929 6,858
Other operating assets and liabilities ...... (10,859) (15,245)
--------- ---------
Net cash provided by operating activities 37,225 44,351
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed income securities ......... 141,505 65,274
Investment collections
Fixed income securities ......................... 14,685 92,221
Mortgage loans .................................. 6,264 4,888
Investments purchases
Fixed income securities ......................... (291,312) (248,209)
Mortgage loans .................................. (26,730) (14,312)
Change in short-term investments, net .................. 50,722 (977)
Change in policy loans, net ............................ (941) (1,159)
--------- ---------
Net cash used in investing activities ... (105,807) (102,274)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits ........................... 115,288 100,721
Contractholder fund withdrawals ........................ (48,683) (43,191)
--------- ---------
Net cash provided by financing activities 66,605 57,530
--------- ---------
NET INCREASE (DECREASE) IN CASH ........................ (1,977) (393)
CASH AT THE BEGINNING OF PERIOD ........................ 3,117 393
--------- ---------
CASH AT END OF PERIOD .................................. $ 1,140 $ --
========= =========
</TABLE>
See notes to financial statements.
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 September 30, 1999 and for the
three month and nine month periods ended September 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 SEPTEMBER 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 $ (44,903) $ 15,716 $ (29,187) $ 86,267 $(30,193) $ 56,074
Adjustments to unrealized
capital gains and losses
arising during the period:
Deferred acquisition costs 185 (65) 120 (2,956) 1,034 (1,922)
Reserves for life insurance
policy benefits 28,992 (10,147) 18,845 (48,180) 16,863 (31,317)
--------- --------- --------- -------- -------- --------
Net unrealized holding
(losses) gains arising
during the period (15,726) 5,504 (10,222) 35,131 (12,296) 22,835
Less: reclassification
adjustment for realized
net capital (losses) gains
included in net income (837) 293 (544) 47 (16) 31
--------- --------- -------- --------- -------- --------
Other comprehensive
(loss) income $ (14,889) $ 5,211 (9,678) $ 35,084 $(12,280) 22,804
========= ========= ========= ========
Net income 5,563 5,527
-------- -------
Comprehensive
(loss) income $ (4,115) $ 28,331
======== ========
</TABLE>
7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
2. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 $(206,351) $ 72,223 $(134,128) $ 130,276 $(45,596) $ 84,680
Adjustments to unrealized
capital gains and losses
arising during the period:
Deferred acquisition costs 2,182 (764) 1,418 (3,066) 1,072 (1,994)
Reserves for life insurance
policy benefits 136,572 (47,800) 88,772 (73,283) 25,649 (47,634)
--------- --------- --------- -------- -------- --------
Net unrealized holding
(losses) gains arising
during the period (67,597) 23,659 (43,938) 53,927 (18,875) 35,052
Less: reclassification
adjustment for realized
net capital (losses) gains
included in net income (1,599) 560 (1,039) 4,215 (1,475) 2,740
--------- --------- -------- --------- -------- --------
Other comprehensive
(loss) income $ (65,998) $ 23,099 (42,899) $ 49,712 $(17,400) 32,312
========= ========= ========= ========
Net income 18,113 21,509
-------- --------
Comprehensive
(loss) income $(24,786) $ 53,821
======== ========
</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
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
($ in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Statutory premiums and deposits $ 68,299 $ 67,025 $ 195,305 $ 195,585
========== ========== ========== ==========
Investments $2,121,237 $2,195,754 $2,121,237 $2,195,754
Separate Account assets 389,675 322,658 389,675 322,658
---------- ---------- ---------- -----------
Investments, including Separate
Account assets $2,510,912 $2,518,412 $2,510,912 $2,518,412
========== ========== ========== ==========
Premium and contract charges $ 26,442 $ 28,166 $ 77,027 $ 87,838
Net investment income 37,771 33,758 109,778 100,018
Contract benefits 47,347 46,744 133,560 135,565
Operating costs and expenses 7,420 6,789 23,588 22,735
---------- ---------- ----------- ----------
Income from operations 9,446 8,391 29,657 29,556
Income tax expense on operations 3,368 2,876 10,555 10,451
---------- ---------- ----------- ----------
Operating income 6,078 5,515 19,102 19,105
Net realized capital losses and
gains, after-tax (1) (515) 12 (989) 2,404
---------- ---------- ----------- ----------
Net income $ 5,563 $ 5,527 $ 18,113 $ 21,509
========== ========== =========== ==========
</TABLE>
(1) After the effect of related amortization of deferred policy
acquisitions costs.
Statutory premiums and deposits include premiums and deposits for all
products. Statutory premiums and deposits increased $1.3 million to $68.3
million in the third quarter of 1999 compared with the same period last
year. The increase was primarily due to higher sales of variable annuities
partially offset by lower structured settlement annuity sales. For the
nine months ended September 30, 1999, statutory premiums and deposits were
$195.3 million compared to $195.6 million for the same period last year as
higher sales of life and variable annuity 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
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
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 third quarter of 1999 and the first nine months of 1999
premiums and contract charges under GAAP were $26.4 million and $77.0
million, respectively, compared to $28.2 million and $87.8 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 in 1999
similarly caused a decrease in the change in reserve for life contingent
contracts which is a component of contract benefits reported in the
statement of operations.
Pretax net investment income increased $4.0 million in the third quarter
of 1999 to $37.8 million and $9.8 million in the first nine months of 1999
to $109.8 million compared with the same periods last year. For the third
quarter of 1999, the increase in net investment income was due to larger
investment balances and slightly higher investment yields partially offset
by increased investment expenses. For the nine months ended September 30,
1999, the increase in net investment income was primarily due to higher
investment balances partially offset by lower investment yields and higher
investment expenses. Investments at September 30, 1999, excluding Separate
Accounts and unrealized gains on fixed income securities grew 10.1% 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 increased $563 thousand to $6.1 million in the third
quarter of 1999, compared to the same period last year. The increase was
mainly due to net investment income which was partially offset by less
favorable mortality experience. For the nine months ended September 30,
1999, operating income was relatively unchanged compared to prior year
primarily due to net investment income being more than offset by less
favorable mortality experience.
Realized capital losses, after-tax, were $515 thousand for the three
months ended September 30, 1999, compared to realized capital gains,
after-tax, of $12 thousand for the same period last year. For the nine
months ended September 30, 1999, realized capital losses, after-tax, were
$989 thousand compared to realized capital gains, after-tax, of $2.4
million for the same period last year. For both periods in 1999, realized
capital losses were generated from the sale of publicly-traded corporate
securities. The sales were intended to manage asset and liability duration
and facilitate investing in higher yielding securities.
11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
INVESTMENTS
The composition of the investment portfolio at September 30, 1999, at
financial statement carrying values, is presented in the table below:
PERCENT
($ in thousands) TO TOTAL
--------
Fixed income securities (1) $1,899,766 89.6%
Mortgage loans 163,144 7.7
Policy loans 30,561 1.4
Short-term 27,766 1.3
---------- ------
Total $2,121,237 100.0%
========== ======
(1) Fixed income securities are carried at fair value. Amortized cost for
these securities was $1,787,423 at September 30, 1999.
Total investments were $2.12 billion at September 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 September 30,
1999, unrealized capital gains on the fixed income securities portfolio
were $112.3 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 September 30, 1999, short-term investments
included $11.8 million of collateral received in connection with the
Company's securities lending program.
At September 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 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 $389.7 million at
September 30, 1999 from $366.2 million at December 31, 1998. The increase
was due primarily to 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
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
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 89.6% 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 $18.9 million and $44.3 million for the
three and nine month periods ended September 30, 1999, compared to $14.0
million and $45.5 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 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
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
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 be completed by December
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 suppliers 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. This testing
will be complete by December 1999. In addition, the Corporation's
management is reviewing all corporate function and business units' plans
for accuracy and comprehensiveness. This review will also be complete by
December 1999. Monitoring of these plans will continue throughout the end
of 1999 and beyond, as needed.
The final step of the contingency planning phase includes the
establishment of a Year 2000 Command Center and wellness checks for the
Corporation's systems and equipment. The Command Center will be in
operation 24 hours a day for several days before and after January 1, 2000
and other critical Year 2000 dates, to serve as a center of expertise in
the event a Year 2000 problem is encountered by the Corporation. Wellness
checks will be performed by designated personnel throughout the
Corporation on specified systems and non-IT to determine that they are
functioning properly on or after January 1, 2000. The results of the
wellness checks will be reported to the Command Center.
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.
14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
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.
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 and banks and brokers, 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
September 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
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
PENDING ACCOUNTING STANDARDS
In July 1999, the Financial Accounting Standards Board 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 SFAS No. 133 requirements to fiscal years beginning after June 15,
2000. As such, the Company expects 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 the adoption is not expected
to be material to the results of operations or financial position of the
Company.
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 the following important factor 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:
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 12th day of September, 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
(27) Financial Data Schedule
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL POSITION AT SEPTEMBER 30, 1999; STATEMENTS OF OPERATIONS THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998; AND STATEMENTS OF CASH FLOWS NINE
MONTHS ENDED SEPTEMBER 30, 1999.
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<NAME> ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
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