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, 2000
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, 2000; there were 100,000 shares of common capital stock
outstanding, par value $25 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Position
June 30, 2000(Unaudited) and December 31, 1999.................. 3
Statements of Operations
Three Months Ended June 30, 2000 and and June 30, 1999 and
Six Months Ended June 30, 2000 and June 30, 1999 (Unaudited).... 4
Statements of Cash Flows
Six Months Ended June 30, 2000 and
June 30, 1999 (Unaudited)................................. 5
Notes to Financial Statements................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 10
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*..................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................17
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*........................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................17
SIGNATURE PAGE...............................................................18
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
2
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
----------------- -----------------
(Unaudited)
($ in thousands, except par value data)
<S> <C> <C>
Assets
Investments
Fixed income securities, at fair value
(amortized cost $2,082,876 and $1,858,216) $ 2,165,497 $ 1,912,545
Mortgage loans 191,055 166,997
Policy loans 31,521 31,109
Short-term 12,360 46,037
------- ------
Total investments 2,400,433 2,156,688
Cash 2,724 1,135
Deferred policy acquisition costs 128,968 106,932
Accrued investment income 26,936 25,712
Reinsurance recoverables, net 1,530 1,949
Other assets 9,398 7,803
Separate Accounts 497,624 443,705
-------- --------
Total assets $ 3,067,613 $ 2,743,924
=========== ===========
Liabilities
Reserve for life-contingent contract benefits $ 1,189,803 $ 1,098,016
Contractholder funds 1,016,504 839,157
Current income taxes payable 12,980 10,132
Deferred income taxes 2,666 3,077
Other liabilities and accrued expenses 35,533 41,218
Payable to affiliates, net 2,056 4,731
Separate Accounts 497,624 443,705
-------- --------
Total liabilities 2,757,166 2,440,036
--------- ---------
Commitments and Contingent Liabilities (Note 3)
Shareholder's equity
Common stock, $25 par value, 100,000 shares
authorized, issued and outstanding 2,500 2,500
Additional capital paid-in 45,787 45,787
Retained income 241,207 225,367
Accumulated other comprehensive income:
Unrealized net capital gains 20,953 30,234
------ ------
Total accumulated other comprehensive income 20,953 30,234
------ ------
Total shareholder's equity 310,447 303,888
------- -------
Total liabilities and shareholder's equity $ 3,067,613 $ 2,743,924
=========== ===========
See notes to financial statements.
</TABLE>
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- -------------------------------------
---------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
($ in thousands) 2000 1999 2000 1999
--------------- ----------------- ----------------- -----------------
---------------------------------- -------------------------------------
(Unaudited) (Unaudited)
Revenues
Premiums $ 14,852 $ 9,521 $ 42,432 $ 31,565
Contract charges 10,318 9,813 21,140 19,020
Net investment income 43,924 36,447 84,490 72,007
Realized capital losses (2,211) (1,101) (2,911) (748)
-------- ------- -------- --------
66,883 54,680 145,151 121,844
-------- ------- -------- --------
Costs and expenses
Contract benefits 45,680 37,733 105,200 86,213
Amortization of deferred policy acquisition costs 2,942 2,647 5,475 4,826
Operating costs and expenses 4,306 5,201 10,806 11,342
-------- ------ -------- --------
52,928 45,581 121,481 102,381
-------- ------- -------- --------
Income from operations
before income tax expense 13,955 9,099 23,670 19,463
Income tax expense 4,470 3,234 7,830 6,913
-------- ------ -------- --------
Net income $ 9,485 $ 5,865 $ 15,840 $ 12,550
======== ======= ======== ========
</TABLE>
See notes to financial statements.
4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
----------------------------------------
<S> <C> <C>
($ in thousands) 2000 1999
------------------ ------------------
----------------------------------------
(Unaudited)
Cash flows from operating activities
Net income $ 15,840 $ 12,550
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and other non-cash items (21,223) (18,264)
Realized capital gains and losses 2,911 748
Interest credited to contractholder funds 20,162 15,107
Changes in:
Life-contingent contract benefits and
contractholder funds 31,741 22,241
Deferred policy acquisition costs (22,036) (6,023)
Income taxes payable 2,848 6,219
Other operating assets and liabilities (2,111) (69)
-------- --------
Net cash provided by operating activities 28,132 32,509
-------- --------
Cash flows from investing activities
Proceeds from sales of fixed income securities 94,583 65,333
Investment collections
Fixed income securities 21,727 6,259
Mortgage loans 6,179 3,742
Investment purchases
Fixed income securities (324,537) (173,670)
Mortgage loans (30,333) (21,803)
Change in short-term investments, net 31,589 39,549
Change in policy loans, net (412) (772)
-------- --------
Net cash used in investing activities (201,204) (81,362)
-------- --------
Cash flows from financing activities
Contractholder fund deposits 235,462 76,906
Contractholder fund withdrawals (60,801) (30,470)
-------- --------
Net cash provided by financing activities 174,661 46,436
-------- --------
Net increase (decrease) in cash 1,589 (2,417)
Cash at the beginning of period 1,135 3,117
-------- --------
Cash at end of period $ 2,724 $ 700
======== ========
See notes to financial statements.
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
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 accounting principles generally
accepted in the United States of America.
The financial statements and notes as of June 30, 2000, and for the
six month periods ended June 30, 2000 and 1999, 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. The 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 1999. The results of operations for the interim
periods should not be considered indicative of results to be expected for
the full year.
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) 2000 1999
------------------------------------ --------------------------------------
After- After-
Pretax Tax tax Pretax Tax tax
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding gains (losses)
arising during the period $ (29,731) $10,406 $ (19,325) $ (11,605) $ 4,061 $ (7,544)
Less: reclassification adjustments (2,122) 743 ( 1,379) (1,087) 380 (707)
--------- ------- --------- --------- ------- --------
Other comprehensive income (loss) $ (27,609) $ 9,663 (17,946) $ (10,518) $ 3,681 (6,837)
========= ======= ========= =======
Net income 9,485 5,865
--------- --------
Comprehensive income (loss) $ (8,461) $ (972)
========= ========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
2. Comprehensive Income (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
($ in thousands) 2000 1999
------------------------------------ ---------------------------------------
After- After-
Pretax Tax tax Pretax Tax tax
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding gains (losses)
arising during the period $(17,036) $ 5,963 $(11,073) $ (51,842) $ 18,145 $ (33,697)
Less: reclassification adjustments (2,757) 965 (1,792) (733) 257 (476)
-------- ------- -------- --------- -------- ---------
Other comprehensive income (loss) $(14,279) $ 4,998 (9,281) $ (51,109) $ 17,888 (33,221)
======== ======= ========= ========
Net income 15,840 12,550
-------- ---------
Comprehensive income (loss) $ 6,559 $ (20,671)
======== =========
</TABLE>
3. Regulation and Legal Proceedings
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. Recent 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 and the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles. The ultimate
changes and eventual effects, if any, of these initiatives are uncertain.
In the normal course of its business, the Company is involved in
pending and threatened litigation and regulatory actions in which claims
for monetary damages are asserted. At this time, based on their present
status, it is in the opinion of management, that 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.
7
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
4. Reinsurance
The Company has reinsurance agreements with ALIC in order to limit
aggregate and single exposure on large risks. A portion of the Company's
premiums, policy benefits and certain costs and expenses are ceded to ALIC
and reflected net of such reinsurance in the statements of operations and
comprehensive income. Reinsurance recoverables and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues
to have primary liability as the direct insurer for risks reinsured.
The following amounts were ceded to ALIC under reinsurance agreements.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
($ in thousands) 2000 1999 2000 1999
---------------- ------------- ---------------- -----------------
Premiums $ 1,015 $ 793 $ 2,164 $ 1,745
Contract benefits 179 37 403 67
Certain costs and expenses 1 - 2 -
The Company also purchases reinsurance from non-affiliates. The
following table summarizes amounts that were ceded to third parties under
reinsurance agreements.
Three months ended Six months ended
June 30, June 30,
------------------------------ ----------------------------------
($ in thousands) 2000 1999 2000 1999
---------------- ------------- ---------------- -----------------
Premiums $ 227 $ 210 $ 448 $ 422
Contract benefits (296) 72 (147) 612
Certain costs and expenses 36 34 70 95
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
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 Part I. Item 1 contained herein and with the discussion, analysis,
financial statements and notes thereto in Part I. Item 1 and Part II. Items
7 and 8 of the Allstate Life Insurance Company of New York Annual Report on
Form 10-K for the year ended December 31, 1999.
The Company, a wholly owned subsidiary of Allstate Life Insurance
Company ("ALIC"), which is a wholly owned subsidiary of 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 through a combination of exclusive agencies, securities firms,
banks, specialized brokers and direct response marketing. Life insurance
products consist of traditional products, including term and whole life,
interest-sensitive life and immediate annuities with life contingencies.
Savings products include deferred annuities and immediate annuities without
life contingencies. Deferred annuities include fixed rate, market value
adjusted and variable annuities.
The Company has identified itself as a single segment entity.
The assets and liabilities related to variable annuity and variable
life contracts are legally segregated and reflected as Separate Accounts.
The assets of the Separate Accounts are carried at fair value. Separate
Accounts liabilities represent the contractholder's claim to the related
assets and are carried at the fair value of the assets. In the event that
the asset value of certain contractholder accounts are projected to be
below the value guaranteed by the Company, a liability is established
through a charge to earnings. 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.
9
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
Financial Highlights
<TABLE>
<CAPTION>
Three months Ended Six months Ended
June 30, June 30,
-------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
($ in thousands) 2000 1999 2000 1999
------------------ ---------------- -------------- ---------------
Statutory premiums and deposits $ 156,376 $ 64,084 $ 350,525 $ 127,006
=========== =========== =========== ===========
Investments $ 2,400,433 $ 2,129,120 $ 2,400,433 $ 2,129,120
Separate Account assets 497,624 402,137 497,624 402,137
----------- ----------- ----------- -----------
Investments, including Separate Account assets $ 2,898,057 $ 2,531,257 $ 2,898,057 $ 2,531,257
=========== =========== =========== ===========
GAAP Premiums $ 14,852 $ 9,521 $ 42,432 $ 31,565
Contract charges 10,318 9,813 21,140 19,020
Net investment income 43,924 36,447 84,490 72,007
Contract benefits 45,680 37,733 105,200 86,213
Amortization and Operating costs and expenses 7,248 7,848 16,281 16,168
----------- ----------- ----------- -----------
Operating income before tax 16,166 10,200 26,581 20,211
Income tax expense 5,244 3,619 8,849 7,175
----------- ----------- ----------- -----------
Operating income (1) 10,922 6,581 17,732 13,036
Realized capital losses, net of tax (1,437) (716) (1,892) (486)
----------- ----------- ----------- -----------
Net income $ 9,485 $ 5,865 $ 15,840 $ 12,550
=========== =========== =========== ===========
</TABLE>
[FN]
(1) The supplemental operating information presented above allows for
a more complete analysis of results of operations. The net effects of
realized capital gains and losses have been excluded due to the volatility
between periods and because such data is often excluded when evaluating the
overall financial performance of insurers. Operating income should not be
considered as a substitute for any GAAP measure of performance. Our method
of calculating operating income may be different from the method used by
other companies and therefore comparability may be limited.
</FN>
10
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
Statutory premiums and deposits
Statutory premiums and deposits, which include premiums and deposits for
all products, are used to analyze sales trends. The following table summarizes
statutory premiums and deposits by product line.
<TABLE>
<CAPTION>
Three months Ended Six months Ended
June 30, June 30,
--------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
($ in thousands) 2000 1999 2000 1999
------------------- ---------------- ------------- -------------
Life Products
Interest-sensitive $ 12,801 $ 12,227 $ 26,208 $ 24,355
Traditional 4,891 4,151 8,099 7,386
Other 1,769 1,433 3,488 2,772
--------- -------- -------- --------
Total life products $ 19,461 $ 17,811 $ 37,795 $ 34,513
--------- -------- -------- --------
Annuity Products
Fixed $ 56,483 $ 28,123 $179,307 $ 65,458
Variable 80,432 18,151 133,423 27,035
--------- -------- -------- --------
Total $ 156,376 $ 64,085 $350,525 $127,006
========= ======== ======== ========
</TABLE>
Statutory premiums and deposits increased $92.3 million or 144.0% for the
second quarter of 2000 compared with the same period last year, and $223.5
million or 176.0% for the first six months of 2000 compared with the same period
last year. The increases were primarily due to higher variable and fixed annuity
sales. Increases in variable annuities were primarily driven by $87.6 million of
sales from the new Putnam Allstate Advisor variable annuity product that was
launched in New York in January 2000. The increase in fixed annuity sales was
primarily due to new distribution outlets in the banking distribution channel.
11
<PAGE>
GAAP premiums and contract charges
Under accounting principles generally accepted in the United States of
America ("GAAP"), premiums represent revenue generated from traditional life
products with significant mortality risks. Revenues for interest-sensitive life
insurance and fixed and variable annuity contracts, for which deposits are
treated as liabilities, are reflected as contract charges. Immediate annuities
may be purchased with a life contingency whereby mortality risk is a significant
factor. For this reason the GAAP revenues generated on these contracts are
recognized as premiums. The following table summarizes GAAP premiums and
contract charges.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- ------------------------------
($ in thousands) 2000 1999 2000 1999
--------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Premiums
Traditional life $ 4,891 $ 4,151 $ 8,099 $ 7,386
Immediate annuities with life contingencies 8,197 3,953 30,840 21,243
Other 1,764 1,417 3,493 2,936
-------- -------- -------- --------
Total premiums $ 14,852 $ 9,521 $ 42,432 $ 31,565
-------- -------- -------- --------
Contract charges
Interest-sensitive life $ 7,757 $ 7,307 $ 15,816 $ 14,774
Variable annuities 2,041 1,939 4,062 3,331
Other 520 567 1,262 915
-------- -------- -------- --------
Total contract charges $ 10,318 $ 9,813 $ 21,140 $ 19,020
-------- -------- -------- --------
Total premiums and contract charges $ 25,170 $ 19,334 $ 63,572 $ 50,585
======== ======== ======== ========
</TABLE>
Total premiums for the three month and six month period ended June 30, 2000
increased 56.0% to $14.9 million and 34.4% to $42.4 million, respectively,
compared with the same periods last year due to higher sales of immediate
annuities with life contingencies.
Contract charges for the three month and six month periods ended June 30,
2000 increased 5.2% to $10.3 million and 11.2% to $21.1 million, respectively,
compared with the same period last year. The increases in both periods were
primarily due to higher interest-sensitive life contract charges which were the
result of growth in interest-sensitive life policies in force, increased charges
on immediate annuities without life contingencies due to higher sales, and
increased variable annuity deposits.
Operating income
Operating income for the three month and six month periods ended June 30,
2000 increased 66.0% to $10.9 million and 36.0% to $17.7 million, respectively,
compared with the same period last year. Increases in net investment income,
premiums, and contract charges were partially offset by higher contract
benefits.
12
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
Net investment income
Net investment income for the three month and six month periods ended June
30, 2000 increased 20.5% to $43.9 million and 17.3% to $84.5 million,
respectively, compared with the same period last year due to higher investment
balances resulting from increased sales in both periods.
Realized capital gains and losses
Realized capital losses, after-tax, were $1.4 million for the second
quarter of 2000 compared to $716 thousand for the second quarter of 1999.
Realized capital losses, after tax, were $1.9 million for the six months ended
June 30, 2000 compared to $486 thousand for the same period last year. Period to
period fluctuations in realized capital losses are largely the result of timing
of sales decisions reflecting management's decision on positioning the
portfolio, as well as assessments of individual securities and overall market
conditions.
Investments
The composition of the investment portfolio at June 30, 2000 is presented
in the table below:
Percent
($ in thousands) to total
--------
Fixed income securities (1) $2,165,497 90.2
Mortgage loans 191,055 8.0
Policy loans 31,521 1.3
Short-term 12,360 0.5
-------- -------
Total $2,400,433 100.0%
========== =======
[FN]
(1) Fixed income securities are carried at fair value. Amortized cost
for these securities was $2,082,876 at June 30, 2000.
</FN>
Total investments were $2.4 billion at June 30, 2000 compared to $2.16
billion at December 31, 1999. The increase was due to positive cash flows
generated from operations and increases in unrealized gains on fixed income
securities. At June 30, 2000, unrealized capital gains on the fixed income
securities portfolio were $82.6 million compared to $54.3 million at December
31, 1999.
At June 30, 2000, 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, A, Aa, Baa or a comparable Company
internal rating.
Separate Accounts
Separate Accounts assets and liabilities increased 12.2% to $497.6 million
at June 30, 2000 from the December 31, 1999 balance. The increases were
primarily attributable to sales of variable annuity contracts partially offset
by surrenders and withdrawals.
13
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
Liquidity and Capital Resources
The Company's principal sources of funds are the receipt of premiums and
deposits, collections of principal, interest and dividends from the investment
portfolio. The primary uses of these funds are to purchase investments and pay
policyholder claims, benefits, contract maturities, contract surrenders and
withdrawals and operating costs.
The maturity structure of the Company's fixed income securities, which
represent 90.2% 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 diversified product portfolio, primarily fixed deferred annuity
and interest-sensitive life insurance products, is subject to discretionary
surrender and withdrawal by contractholders. Total surrenders and withdrawals
for the three month and six month periods ended June 30, 2000 were $34.9 million
and $44.4 million compared with $23.3 million and $25.4 million for the same
periods last year. As the Company's interest-sensitive life policies and annuity
contracts in-force grow and age, the dollar amount of surrenders and withdrawals
will likely increase. While the overall amount of surrenders may increase in the
future, a significant increase in the level of surrenders relative to total
contractholder account balances is not anticipated.
Pending Accounting Standards
In June 1999, the Financial Accounting Standards Board delayed the
effective date of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
replaces existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. This statement
requires that all derivatives be recognized on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in the
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. Additionally, the change in fair value of a derivative
that is not effective as a hedge will be immediately recognized in earnings. The
delay was effected through the issuance of SFAS No. 137, which extends the SFAS
No. 133 requirements to fiscal years beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, which amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities. As such, the Company expects to adopt the provisions of SFAS No. 133
and SFAS 138 as of January 1, 2001. The impact of these statements is dependent
upon the Company's derivative positions and market conditions existing at the
date of adoption. Based on existing interpretations of the requirements of SFAS
No. 133 as amended, the impact at adoption is not expected to be material to the
results of operations or financial position of the Company.
14
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
Forward-looking Statements
The statements contained in this Management's Discussion and Analysis that are
not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.
Forward looking statements do not relate strictly to historical or current facts
and may be identified by their use of words like "plans," "expects," "will,"
"anticipates," "estimates," "intends," "believes," "likely," and other words
with similar meanings. These statements may address, among other things, our
strategy for growth, product development, regulatory approvals, market position,
expenses, financial results and reserves. Forward-looking statements are based
on management's current expectations and assumptions. We assume no obligation to
update any forward-looking statements as a result of new information or future
events or developments.
If the expectations or assumptions underlying our forward-looking statements
prove inaccurate or if risks or uncertainties arise, actual results could differ
materially from those communicated in our forward-looking statements. In
addition to the normal risks of business, the Company is subject to significant
risk factors, including those listed below which apply to it as an insurance
business.
o Changes in market interest rates can have adverse effects on the Company's
investment portfolio, investment income and product sales. Increases in
market interest rates have an adverse impact on the value of the investment
portfolio by decreasing unrealized capital gains on fixed income
securities. In addition, increases in market interest rates as compared to
rates offered on some of the Company's products could make those products
less attractive and therefore decrease sales or increase the level of
surrenders on these products. Declining market interest rates could have an
adverse impact on the Company's investment income as the Company reinvests
proceeds from positive cash flows from operations and maturing and called
investments in new investments that could be yielding less than the
portfolio's average rate. Additionally, the impact of decreasing Separate
Account balances resulting from fluctuating market conditions could cause
contract charges realized by the Company to decrease.
o In order to meet the anticipated cash flow requirements of its obligations
to policyholders, from time to time the Company adjusts the effective
duration of the assets and liabilities of the investment portfolio. Those
adjustments may have an impact on the value of the investment portfolio and
on investment income.
o State insurance regulatory authorities require insurance companies to
maintain specified levels of statutory capital and surplus. In addition,
competitive pressures require the Company to maintain financial strength or
claims-paying ability ratings. These restrictions affect the Company's
ability to use its capital.
o There is uncertainty involved in estimating the availability of reinsurance
and the collectibility of reinsurance recoverables. This uncertainty arises
from a number of factors, including segregation by the industry generally
of reinsurance exposure into separate legal entities.
o The Company distributes some of its products under agreements with other
financial services entities. Termination of such agreements due to changes
in control of these non-affiliated entities could have a detrimental effect
on the Company's sales. This risk may be increased due to the recent
enactment of the Gramm-Leach-Bliley Act of 1999, which eliminates many
federal and state law barriers to affiliations among banks, securities
firms, insurers and other financial service providers.
15
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
o A number of enacted and pending legislative measures may lead to increased
consolidation and increased competition in the financial services industry.
At the federal level, these measures include the recently enacted
Gramm-Leach-Bliley Act of 1999, which eliminates many federal and state law
barriers to affiliations among banks, securities firms, insurers and other
financial service providers. At the state level, these measures include
legislation to permit mutual insurance companies to convert to a hybrid
structure known as a mutual holding company, thereby allowing insurance
companies owned by their policyholders to become stock insurance companies
owned (through one or more intermediate holding companies) at least 51% by
their policyholders and potentially up to 49% by stockholders. Also several
large mutual life insurers have used or are expected to use existing state
laws and regulations governing the conversion of mutual insurance companies
into stock insurance companies (demutualization). These measures may also
increase competition for capital among financial service providers.
o Deferred annuities and interest-sensitive life insurance products receive
favorable policyholder taxation under current tax laws and regulations. Any
legislative or regulatory changes that adversely alter this treatment are
likely to negatively affect the demand for these products.
o The adoptions of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, is not expected to be material to the
results of operations of the Company. However, the impact is dependent upon
market conditions and our holdings existing at the date of adoption, which
for the Company will be January 1, 2001.
o Financial strength ratings have become an increasingly important factor in
establishing the competitive position of insurance companies and may
generally be expected to have an effect on an insurance company's business.
On an ongoing basis, rating organizations review the financial performance
and condition of insurers. Downgrades in one or more of the ratings of the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
16
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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) None
(27) Financial Data Schedule
(b) Reports on 8-K
No reports on Form 8-K were filed during the second quarter of 2000.
17
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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 14th day of August 2000.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
-------------------------------------------
(Registrant)
/s/ THOMAS J. WILSON, II PRESIDENT
------------------------ (Principal Executive Officer)
THOMAS J. WILSON, II
/s/ SAMUEL H. PILCH CONTROLLER
------------------------ (Chief Accounting Officer)
SAMUEL H. PILCH
18
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Exhibit Index
Exhibit No. Exhibit
(27) Financial Data Schedule
19
