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: 333-59765
333-59769
LINCOLN BENEFIT LIFE COMPANY
(Exact name of registrant as specified in its charter)
Nebraska 470221457
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 South 13th Street
Lincoln, Nebraska 68508
(Address of principal executive offices)(zip code)
1-800-525-9287
(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 25,000 shares of common capital stock
outstanding, par value $100 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
June 30, 1999 (Unaudited) and December 31,1998................ 3
Consolidated Statements of Operations
Three Months Ended June 30, 1999 and June 30, 1998,
and Six Months Ended June 30, 1999 and June 30, 1998
(Unaudited)................................................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and June 30, 1998
(Unaudited)................................................... 5
Notes to Financial Statements................................. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK*............................................ N/A
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS............................................ 17
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*................... N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*............................. N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS*..................................................... N/A
Item 5. OTHER INFORMATION............................................ 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 17
SIGNATURE PAGE........................................................... 19
<FN>
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
</FN>
</TABLE>
2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
------------- -------------
($ in thousands) (Unaudited)
Assets
Investments
Fixed income securities at fair value
(amortized cost $143,046 and $149,898) $ 144,746 $ 158,984
Short-term 15,605 3,675
------ -----
Total investments 160,351 162,659
Cash 1,115 1,735
Reinsurance recoverable from
Allstate Life Insurance Company 7,162,569 6,938,717
Reinsurance recoverable from non-affiliates 231,846 191,092
Receivable from affiliates, net 51,962 37,073
Other assets 26,989 25,286
Separate Accounts 1,004,983 763,416
--------- -------
Total assets $ 8,639,815 $ 8,119,978
=========== ===========
Liabilities
Reserve for life-contingent contract benefits $ 395,602 $ 338,069
Contractholder funds 6,989,125 6,785,070
Current income taxes payable 5,308 3,659
Deferred income taxes 2,982 5,546
Other liabilities and accrued expenses 83,729 64,440
Separate Accounts 1,004,983 763,416
--------- -------
Total liabilities 8,481,729 7,960,200
--------- ---------
Commitments and Contingent Liabilities (Note 4)
Shareholder's Equity
Common stock, $100 par value, 30,000 shares
authorized, 25,000 issued and outstanding 2,500 2,500
Additional capital paid-in 116,750 116,750
Retained income 37,731 34,622
Accumulated other comprehensive income:
Unrealized net capital gains 1,105 5,906
----- -----
Total accumulated other comprehensive income 1,105 5,906
----- -----
Total shareholder's equity 158,086 159,778
------- -------
Total liabilities and shareholder's equity $ 8,639,815 $ 8,119,978
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
($ in thousands) 1999 1998 1999 1998
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
Revenues
Net investment income $ 2,727 $ 2,619 $ 5,386 $ 5,179
Realized capital gains and losses (410) - (409) -
Other income (expense) (153) 35 (191) 54
---- -- ---- --
Income from operations before
income tax expense 2,164 2,654 4,786 5,233
Income tax expense 748 929 1,677 1,841
--- --- ----- -----
Net income $ 1,416 $ 1,725 $ 3,109 $ 3,392
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Six Months Ended
June 30,
---------------------
($ in thousands) 1999 1998
--------- ----------
(Unaudited)
Cash flows from operating activities
Net income $ 3,109 $ 3,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other non-cash items 7 -
Realized capital gains and losses 409 -
Changes in:
Reserve for life-contingent contract benefits
and contractholder funds (3,018) (6,728)
Income taxes payable 1,670 7,500
Other operating assets and liabilities 1,337 55,546
----- ------
Net cash provided by operating activities 3,514 59,710
----- ------
Cash flows from investing activities
Fixed income securities
Proceeds from sales 9,193 -
Investment collections 8,397 4,163
Investment purchases (9,805) (6,200)
Change in short-term investments, net (11,919) (4,846)
------- ------
Net cash used in investing activities (4,134) (6,883)
------ ------
Net (decrease) increase in cash (620) 52,827
Cash at the beginning of year 1,735 4,220
----- -----
Cash at end of year $ 1,115 $ 57,047
======= ========
</TABLE>
See notes to consolidated financial statemetns.
-5-
<PAGE>
Lincoln Benefit Life Company
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company ("LBL") and its wholly owned subsidiary, AFD, Inc.,
(formerly Allstate Financial Distributors, Inc.) a registered broker-dealer
(collectively, the ("Company"). LBL is 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 consolidated financial statements have been prepared in
conformity with generally accepted accounting principles.
The consolidated 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 consolidated 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 consolidated financial statements and
notes should be read in conjunction with the consolidated financial statements
and notes thereto included in the Lincoln Benefit Life Company 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 on the Company's results of operations and financial position.
To conform with the 1999 presentation, certain amounts in the prior years'
consolidated financial statements and notes have been reclassified.
2. Reinsurance
The Company has reinsurance agreements whereby premiums, contract charges,
credited interest, policy benefits and certain expenses are ceded, primarily to
ALIC and reflected net of such reinsurance in the consolidated statements of
operations. The amounts shown in the Company's consolidated statements of
operations relate to the investment of those assets of the Company that are not
transferred under reinsurance agreements. Reinsurance recoverable and the
related reserve for life-contingent contract benefits and contractholder funds
are reported separately in the consolidated
-6-
<PAGE>
Lincoln Benefit Life Company
Notes to Consolidated Financial Statements
(Unaudited)
statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits is not included in the
Company's consolidated financial statements as those assets are owned and
managed under the terms of reinsurance agreements. The following amounts were
ceded to ALIC under reinsurance agreements.
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
($ in thousands) 1999 1998 1999 1998
--------- -------- -------- ---------
Premiums $ 16,541 $ 8,815 $ 29,924 $ 17,963
Contract charges 29,041 25,307 60,938 49,876
Credited interest, policy
benefits, and certain
expenses 182,651 165,134 349,939 288,232
</TABLE>
-7-
<PAGE>
Lincoln Benefit Life Company
Notes to Consolidated Financial Statements
(Unaudited)
3. Comprehensive Income
<TABLE>
<CAPTION>
The components of other comprehensive income on a pretax and after-tax basis are
as follows:
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended June 30,
---------------------------------------------------
($ in thousands) 1999 1998
----------------------- -----------------------
After- After-
Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- ---
Unrealized capital
gains and losses:
Unrealized holding
(losses) gains arising
during the period $(4,630) $1,620 $(3,010) $ 895 $(313) $582
Less: reclassification
adjustment for realized
net capital losses
included in net
income (410) 143 (267) - - -
---- --- ---- ---- ---- ----
Unrealized net capital
(losses) gains (4,220) 1,477 (2,743) 895 (313) 582
------ ----- ------ --- ---- ----
Other comprehensive
(loss) income $(4,220) $1,477 (2,743) $ 895 $(313) 582
======= ======= ======= =======
Net income 1,416 1,725
----- -----
Comprehensive
(loss) income $(1,327) $2,307
======= ======
</TABLE>
-8-
<PAGE>
Lincoln Benefit Life Company
Notes to Consolidated Financial Statements
(Unaudited)
3. Comprehensive Income (continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30,
---------------------------------------------------
($ in thousands) 1999 1998
----------------------- -----------------------
After- After-
Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- ---
Unrealized capital
gains and losses:
Unrealized holding
(losses) gains arising
during the period $(7,795) $2,728 $(5,067) $ 918 $(321) $597
Less: reclassification
adjustment for realized
net capital losses
included in net
income (409) 143 (266) - - -
---- --- ---- ---- ---- ----
Unrealized net capital
(losses) gains (7,386) 2,585 (4,801) 918 (321) 597
------ ----- ------ --- ---- ----
Other comprehensive
(loss) income $(7,386) $2,585 (4,801) $ 918 $(321) 597
======= ======= ======= =======
Net income 3,109 3,392
----- -----
Comprehensive
(loss) income $(1,692) $3,989
======= ======
</TABLE>
4. 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 securities and insurance business, tax law changes affecting the
taxation of insurance companies, and tax treatment of insurance products and its
impact on the relative desirability of 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
-9-
<PAGE>
Lincoln Benefit Life Company
Notes to Consolidated Financial Statements
(Unaudited)
amounts currently reserved is not expected to have a material effect on the
results of operations, liquidity or financial position of the Company.
-10-
<PAGE>
Lincoln Benefit Life Company
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 Lincoln Benefit Life Company
("LBL") and its wholly owned subsidiary, AFD, Inc., ("AFDI", formerly Allstate
Financial Distributors, Inc. ) (collectively the "Company"). It should be read
in conjunction with the consolidated financial statements and related notes
thereto found under items 7 and 8 of Part II of the Lincoln Benefit Life Company
Annual Report on Form 10-K for the year ended December 31, 1998.
LBL is 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"). The Company markets
life insurance and savings products primarily through independent insurance
agents and brokers. Life insurance includes traditional life, such as term and
whole life insurance, as well as variable life and universal life products.
Savings products consist of fixed annuity products, including indexed and market
value adjusted annuities, as well as variable annuities. The Company has
identified itself as a single segment entity.
The assets and liabilities related to flexible premium deferred variable annuity
contracts and variable life policies are legally segregated and reflected as
Separate Account assets and liabilities and carried at fair value in the
consolidated statements of financial position. Investment income and realized
gains and losses of the Separate Accounts accrue directly to the contractholders
(net of fees) and, therefore, are not included in the Company's consolidated
statements of operations.
Consolidated Results of Operations
<TABLE>
<S> <C> <C> <C> <C>
($ in thousands) Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- --------- ----------
Net investment
income $ 2,727 $ 2,619 $ 5,386 $ 5,179
======== ========= ======= =======
Realized capital gains
and losses, after-tax $ (267) $ - $ (266) $ -
========= ======== ======== =======
Net income $ 1,416 $ 1,725 $ 3,109 $ 3,392
======== ======= ======== ========
Total investments $160,351 $156,904 $160,351 $156,904
======== ======== ======== ========
</TABLE>
The Company has reinsurance agreements under which contract and policy related
transactions are transferred primarily to ALIC. The Company's consolidated
results of operations include only net investment income and realized capital
gains and losses earned on the assets of the Company that are not transferred
under the reinsurance agreements. The results of AFDI and certain non-investment
related expenses which
-11-
<PAGE>
Lincoln Benefit Life Company
Management's Discussion and Analysis
of Financial Condition and Results of Operations
are not transferred under the reinsurance agreements are presented in other
revenues and expenses.
Net income for the second quarter of 1999 and first half of 1999 was $1.4
million and $3.1 million, respectively, compared to $1.7 million and $3.4
million for the comparable periods in 1998. The decrease in net income for both
periods was primarily due to realized capital losses arising from the sale of
publicly-traded corporate bonds in the second quarter of 1999.
Pretax net investment income for the second quarter of 1999 increased 4.1% to
$2.7 million compared to $2.6 million for the same period last year. For the
first six months of 1999, pretax net investment income increased $207 thousand
to $5.4 million compared to $5.2 million for the same period in 1998. For both
periods higher investment balances from positive cash flows generated from
operations were offset by lower investment yields and higher investment
expenses. Investments at June 30, 1999, excluding Separate Accounts and
unrealized gains on fixed income securities, grew 6.0% from the same period last
year. Lower investment yields are due, in part, to the investment of proceeds
from calls and maturities and the investment of positive cash flows from
operations in securities yielding less than the average portfolio rate. In
relatively low interest rate environments, funds from called or maturing
investments may be reinvested at interest rates lower than those which prevailed
when the funds were previously invested, resulting in lower investment yields.
Financial Position
<TABLE>
<S> <C> <C>
($ in thousands) June 30, December 31,
1999 1998
---------- ------------
Fixed income securities (1) $ 144,746 $ 158,984
Short-term investments 15,605 3,675
---------- -----------
Total investments $ 160,351 $ 162,659
---------- -----------
---------- -----------
Reinsurance recoverable from ALIC $7,162,569 $ 6,938,717
---------- -----------
---------- -----------
Separate Account assets and liabilities $1,004,983 $ 763,416
---------- -----------
---------- -----------
Contracholder funds $6,989,125 $ 6,785,070
---------- -----------
---------- -----------
</TABLE>
(1)Fixed income securities are carried at fair value. Amortized cost for these
securities was $143,046 and $149,898 at June 30, 1999 and December 31, 1998,
respectively.
Total investments were $160.4 million at June 30, 1999 compared to $162.7
million at December 31, 1998. Positive cash flows generated from operations were
more than offset by a decrease in unrealized capital gains on fixed income
securities. At June 30,
-12-
<PAGE>
Lincoln Benefit Life Company
Management's Discussion and Analysis
of Financial Condition and Results of Operations
1999, unrealized net capital gains on fixed income securities were $1.7 million
compared to $9.1 million at December 31, 1998.
At June 30, 1999, all of the Company's fixed income securities portfolio is
rated investment grade, with 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.
Contractholder funds grew $204.1 million to $6.99 billion at June 30, 1999,
primarily due to sales of indexed and market value adjusted annuity contracts
and higher levels of interest credited to contractholder balances, partially
offset by fixed annuity surrenders and withdrawals. Reinsurance recoverable from
ALIC at June 30, 1999 was $7.16 billion versus $6.94 billion at December 31,
1998. Reinsurance recoverable from ALIC relates to contract benefit obligations
ceded to ALIC.
Separate Account assets and liabilities increased $241.6 million to $1.00
billion at June 30, 1999. The increase was primarily attributable to sales of
flexible premium deferred variable annuity contracts and the favorable
investment performance of the Separate Account investment portfolios.
Liquidity and Capital Resources
Under the terms of reinsurance agreements, all premiums and deposits, excluding
those relating to Separate Accounts, are transferred primarily to ALIC, which
maintains the investment portfolios supporting the Company's products. Payments
of policyholder claims, benefits, contract maturities, contract surrenders and
withdrawals and certain operating costs are also reimbursed primarily by ALIC,
under the terms of the reinsurance agreements. The Company continues to have
primary liability as a direct insurer for risks reinsured. The Company's ability
to meet liquidity demands is dependent on ALIC's ability to meet those demands.
ALIC's financial strength was rated Aa2, AA+ and A+ by Moody's, Standard &
Poor's and A.M. Best, respectively, at June 30, 1999.
The primary source for the remainder of the Company's funds is the collection of
principal and interest from the investment portfolio. The Company may also
receive capital contributions from ALIC. The primary uses for the remainder of
the Company's funds are to purchase investments and pay costs associated with
the maintenance of the Company's investment portfolio.
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 equipment and non-IT.
-13-
<PAGE>
Lincoln Benefit Life Company
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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 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.
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 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 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 Year 2000 and 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.
-14-
<PAGE>
Lincoln Benefit Life Company
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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, includes a widespread, prolonged
failure of public utility systems which would not only cause power outages for
the Corporation, but also cause telecommunication, 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 products primarily through independent agencies, which are
independent of the Corporation, and have not been directly included in the
Corporation-wide four phase plan, and potentially may not be Year 2000 compliant
during or after the year 1999. Because the risk associated with this scenario is
diffused across thousands of appointed independent agencies, located throughout
the United States, using many different technologies, the impact on the
Company's results of operations, liquidity or financial condition is not
determinable.
In addition, the Corporation is actively working with its major external
counterparties and suppliers, including public utility companies and banks and
brokers involved in its distribution channel, 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 unable to determine the impact of any
consequent losses on its results of operations, liquidity or financial position.
-15-
<PAGE>
Lincoln Benefit Life Company
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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.
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 habor, 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, liquidity and financial
condition 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) Articles of Incorporation*
(ii) By-laws*
(4) Lincoln Benefit Life Company Flexible Premium Deferred
Annuity Contract and Application**
(10) Reinsurance Agreement between Lincoln Benefit Life
Company and Allstate Life Insurance Company*
(11) None
(15) None
(18) None
(19) None
(22) None
(23)(a) Consent of Independent Public Accountants***
(b) Consent of Attorneys***
(24) None
(27) Financial Data Schedule
(99) None
(b) Reports on 8-K
No reports on Form 8-K were filed during the second quarter of 1998.
*Incorporated herein by reference to the Registration Statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account (File No. 333-50545, 811-07924)
filed April 21, 1998.
**Incorporated herein by reference to the Registration Statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account (File No. 333-50545, 811-07924)
filed April 21, 1998. Incorporated herein by reference to the Registration
Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File
No. 333-50737, 811-07924) filed April 22, 1998.
***Incorporated herein by reference to the Post-effective Amendment #1 to
Registration Statement on Form S-1 for Lincoln Benefit life Company (File No.
333-59765) filed April 1,
-17-
<PAGE>
1999. Incorporated herein by reference to the Post-effective Amendment #1 to
Registration Statement on Form S-1 for Lincoln Benefit Life Company (File No.
333-59769) filed April 1, 1999.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of August, 1999.
LINCOLN BENEFIT LIFE COMPANY
(Registrant)
_____________________ PRESIDENT, CHIEF OPERATING
B. EUGENE WRAITH OFFICER AND DIRECTOR
(Principal Executive Officer)
_____________________ SENIOR VICE PRESIDENT
MARVIN P. EHLY TREASURER AND DIRECTOR
(Principal Financial Officer)
-19-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from statements
of financial position at June 30, 1999; Statements of Operations six months
ended June 30, 1999 and June 30, 1998; and Statements of Cash Flows six months
ended June 30, 1999 and June 30, 1998.
</LEGEND>
<CIK> 0000910739
<NAME> Lincoln Benefit Life Company
<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> 144,746
<DEBT-CARRYING-VALUE> 0
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<EQUITIES> 0
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<TOTAL-INVEST> 160,351
<CASH> 1,115
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0
0
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0
<INVESTMENT-INCOME> 5,386
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<DISCONTINUED> 0
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<EPS-BASIC> 0
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