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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-62193
33-91916
33-92842
333-00987
GLENBROOK LIFE AND ANNUITY COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 35-1113325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Sanders Road
Northbrook, Illinois 60062
(Address of principal executive offices)
(Zip Code)
847/402-2400
(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, 1997; there were 4,200 shares of common capital stock
outstanding, par value $500 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Position
June 30, 1997(Unaudited) and December 31, 1996.... ...............3
Statements of Operations
Three Months Ended June 30, 1997 and June 30, 1996 and Six Months
Ended June 30, 1997 and June 30, 1996 (Unaudited).................4
Statements of Cash Flows
Six Months Ended June 30, 1997 and June 30, 1996 (Unaudited)......5
Notes to Financial Statements (Unaudited).........................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................7
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*.....................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................10
Item 2. CHANGES IN SECURITIES*............................................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................10
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................10
SIGNATURE PAGE...............................................................11
*Omitted pursuant to General Instruction H(2) of Form 10Q.
-2-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
($ in thousands) 1997 1996
-------- -------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $67,945 and $46,925) $ 70,010 $ 49,389
Short-term 2,534 1,287
------------ ------------
Total investments 72,544 50,676
Reinsurance recoverable from Allstate Life Insurance Company 2,375,759 2,060,419
Cash 186 -
Net receivable from affiliates 4,980 19,206
Other assets 2,392 2,049
Separate Accounts 453,469 272,420
------------ ------------
Total assets $2,909,330 $2,404,770
============ ============
LIABILITIES
Contractholder funds $2,375,759 $2,060,419
Income taxes payable 2,154 653
Deferred income taxes 1,409 1,528
Separate Accounts 445,948 260,290
------------ -----------
Total liabilities 2,825,270 2,322,890
------------ -----------
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares authorized,
issued, and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Unrealized net capital gains 2,559 2,790
Retained income 9,760 7,349
------------- ------------
Total shareholder's equity 84,060 81,880
------------- ------------
Total liabilities and shareholder's equity $2,909,330 $2,404,770
============= ============
</TABLE>
See notes to financial statements.
-3-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands) 1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Net investment income $1,292 $ 941 $2,534 $1,864
Realized capital gains and losses 1,177 - 1,184 -
------ ------ ------ ------
INCOME BEFORE INCOME TAX
EXPENSE 2,469 941 3,718 1,864
INCOME TAX EXPENSE 866 336 1,307 665
------ ------ ------ ------
NET INCOME $1,603 $ 605 $2,411 $1,199
====== ====== ====== ======
</TABLE>
See notes to financial statements.
-4-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
($ in thousands) 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,411 $ 1,199
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Change in deferred income taxes 5 7
Realized capital gains and losses (1,184) -
Changes in other operating assets and liabilities (3,375) 3,012
------ -----
Net cash (used in) provided by operating
activities (2,143) 4,218
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 -
Investment collections 1,091 1,389
Investment purchases (23,572) (2,989)
Participation in Separate Accounts, net 4,652 (110)
Change in short-term investments, net (1,247) 32
------- ------
Net cash used in investing activities (17,671) (1,678)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 -
------- ------
Net cash provided by financing activities 20,000 -
------- ------
NET INCREASE IN CASH 186 2,540
CASH AT BEGINNING OF PERIOD - 264
-------- --------
CASH AT END OF PERIOD $ 186 $ 2,804
======== ========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements include the accounts of Glenbrook
Life and Annuity Company (the "Company") a wholly owned subsidiary of
Allstate Life Insurance Company ("ALIC"), which is wholly owned by
Allstate Insurance Company, a wholly owned subsidiary of The Allstate
Corporation.
The statements of financial position as of June 30, 1997, the statements
of operations for the three-month and six-month periods ended June 30,
1997 and 1996, and the statements of cash flows for the six-month
periods ended June 30, 1997 and 1996 are unaudited. The interim
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 should be read in conjunction with the financial statements
and notes thereto included in the Glenbrook Life and Annuity Company
Annual Report on Form 10K for 1996. The results of operations for the
interim period should not be considered indicative of results to be
expected for the full year.
2. Reinsurance
The Company and ALIC entered into a reinsurance agreement effective June
5, 1992. All business issued subsequent to that date is ceded to ALIC.
Life insurance in force prior to that date is ceded to non-affiliated
reinsurers. Contract charges and credited interest are ceded and shown
net of such cessions in the statements of operations. Under the
reinsurance agreement with ALIC, all premiums and deposits are
transferred to ALIC. The amounts shown in the Company's statements of
operations relate to the investment of those assets of the Company that
are not transferred to ALIC under the reinsurance agreement. Reinsurance
recoverable 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.
Premiums and contract charges ceded to ALIC under reinsurance agreements
were $2.5 million and $1.0 million for the three-month periods ending
June 30, 1997 and 1996, respectively and $4.6 million and $1.5 million
for the six-month periods ended June 30, 1997 and 1996, respectively.
Credited interest, policy benefits and expenses ceded to ALIC amounted
to $41.4 million and $27.6 million for the three-month periods ended
June 30, 1997 and 1996, respectively and $79.0 million and $52.8 million
for the six-month periods ended June 30, 1997 and 1996, respectively.
Investment income earned on the assets which support contractholder
funds is not included in the Company's financial statements as those
assets are owned and managed by ALIC under the terms of reinsurance
agreements.
-6-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing
results of operations and financial position of Glenbrook Life and Annuity
Company (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
Glenbrook Life and Annuity Company Annual Report on Form 10K for the year ended
December 31, 1996.
The Company is wholly owned by Allstate Life Insurance Company ("ALIC").
The Company markets life insurance contracts and annuity products through banks
and broker-dealers.
The Company and ALIC entered into a reinsurance agreement effective on
June 5, 1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers. The
Company's results of operations relate to the investment of those assets of the
Company that are not transferred to ALIC under the reinsurance agreement.
Separate Account assets and liabilities are carried at fair value in the
statements of financial position. Certain Separate Account investment portfolios
were initially funded with a $10.0 million seed money contribution from the
Company in 1995. Investment income and realized gains and losses of the Separate
Accounts, other than the portion related to the Company's participation, accrue
directly to the contractholders (net of fees) and, therefore, are not included
in the Company's statements of operations. The Company withdrew $6.0 million of
the Separate Account investment during the second quarter of 1997 realizing a
pretax gain of $1.2 million. The Company plans to redeem the balance of the
investment during the third quarter of 1997.
Results of Operations
- ---------------------
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net investment income $ 1,292 $ 941 $ 2,534 $ 1,864
======== ======== ======== ========
Realized capital gains, after tax $ 766 $ - $ 770 $ -
======== ======== ======== ========
Net income $ 1,603 $ 605 $ 2,411 $ 1,199
======== ======== ======== ========
Total investments $ 72,544 $ 49,414 $ 72,544 $ 49,414
======== ======== ======== ========
</TABLE>
Net income increased $1.0 million and $1.2 million for the three-month and
six-month periods ended June 30, 1997, respectively. The increase in income is
due to increased realized capital gains and increased net investment income.
-7-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As a result of the reinsurance agreements, the Company's results of
operations include only investment income earned on its investment portfolio.
Net investment income increased $351 thousand and $670 thousand for the
three-month and six-month periods ended June 1997, respectively. Increased
investment income was the result of the higher investment balance primarily
arising from a $20.0 million capital contribution received from ALIC in January
1997.
Realized capital gains after tax, increased $766 thousand and $770
thousand for the three-month and six-month periods ended June 30, 1997,
respectively. The realized capital gains are associated with the withdrawal of
investment in Separate Account portfolios.
<TABLE>
<CAPTION>
Financial Position
- ------------------
($ in thousands)
June 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Total investments $ 72,544 $ 50,676
============= =============
Separate Account assets $ 453,469 $ 272,420
============= =============
Contractholder funds $ 2,375,759 $ 2,060,419
============= =============
Reinsurance recoverable from ALIC $ 2,375,759 $ 2,060,419
============= =============
Separate Account liabilities $ 445,948 $ 260,290
============= =============
</TABLE>
The Company's fixed income securities portfolio consists of publicly
traded corporate bonds, mortgage-backed securities and U.S. government bonds.
The Company generally holds its fixed income securities for the long term, but
has classified all of these securities as available for sale to allow maximum
flexibility in portfolio management. Total investments increased to $72.5
million at June 30, 1997 from $50.7 million at December 31, 1996. The increase
in investments was primarily due to the $20.0 million capital contribution
received from ALIC in January 1997 and the reinvestment of the funds withdrawn
from the Separate Account offset in part by cash used for operating activities
and a decrease of $399 thousand in the unrealized gains on fixed income
securities. The decrease in the unrealized gain position is primarily
attributable to the impact of rising interest rates on fixed income securities.
All of the Company's fixed income securities portfolio is rated investment
grade, with a National Association of Insurance Commissioners rating of 1 or 2
and a Moody's rating of Aaa, Aa, A, or Baa or a comparable Company internal
rating.
During 1997, contractholder funds and amounts recoverable from ALIC under
the reinsurance agreement increased by $315.3 million. The increase resulted
primarily from increased sales of flexible premium deferred annuities, interest
credited to contractholders, and sales of single premium life insurance
policies, partially offset by higher surrenders, withdrawals and death benefits.
Reinsurance recoverable from ALIC relates to contract benefit obligations ceded
to ALIC.
-8-
<PAGE>
The increases in Separate Account assets and liabilities were attributable
to increased sales of flexible premium deferred variable annuity contracts and
the favorable investment performance of the Separate Account investment
portfolios, partially offset by variable annuity contract charges, surrenders
and withdrawals. The increase in Separate Account assets was also offset in part
by a decrease of $6.0 million due to the withdrawal of the investment in the
Separate Account investment funds.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In January 1997, a $20.0 million capital contribution from ALIC was
received, which was accrued at December 31, 1996.
Under the terms of intercompany reinsurance agreements, premiums and
deposits excluding those related to Separate Accounts, are transferred to ALIC,
which maintains the investment portfolios supporting the Company's products. The
Company continues to have primary liability as a direct reinsurer for risks
reinsured.
PENDING ACCOUNTING STANDARDS
- ----------------------------
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48 ("FRR 48") "Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments."
Effective in the second quarter of 1997, FRR 48 requires additional
disclosures in the footnotes to the financial statements about the Company's
accounting policies for derivative financial instruments. The Company
substantially adopted this requirement at December 31, 1996. In addition, FRR 48
requires annual disclosure of quantitative and qualitative information about the
market risk inherent in the Company's market risk sensitive instruments,
including but not limited to, equity and fixed income securities and derivative
financial instruments. The quantitative and qualitative disclosures are
effective for the Company's year-end 1997 reporting.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures
About Segments of an Enterprise and Related Information."
SFAS No. 130 requires the presentation of comprehensive income in the
financial statements. Comprehensive income is a measurement of all changes in
equity that result from transactions and other economic events other than
transactions with stockholders. The requirements of this statement will be
adopted in January 1998.
SFAS No. 131 redefines how segments are determined and requires
additional segment disclosures for both annual and quarterly reporting.
Under this statement, segments are determined using the management approach for
financial statement reporting. The management approach is how an enterprise
makes operating decisions and assesses performance of its businesses. The
requirements of this statement will be adopted in December 1998.
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements contained in this Management's Discussion and Analysis
that are not historical information are forward-looking statements that are
based on management's estimates, assumptions and projections. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor under The
Securities Act of 1933 and The Securities Exchange Act of 1934 for
forward-looking statements.
-9-
<PAGE>
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
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) Glenbrook Life and Annuity Company Flexible Premium
Deferred Annuity Contract and Application**
(10) Reinsurance Agreement between Glenbrook Life
and Annuity 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 1997.
* Previously filed in Form S-1 Registration Statement No.333-07275 dated June
28, 1996 and incorporated by reference.
** Previously filed in Form S-1 Registration Statement No. 33-91916 dated May
4, 1995 and incorporated by reference. Previously filed in Form S-1 Registration
Statement No. 33-92842 dated May 30, 1995 and incorporated by reference.
Previously filed in Form N-4 Registration Statement No. 33-62203 dated November
21, 1995 and incorporated by reference. Previously filed in Form N-4
Registration Statement No.333-00999 dated August 23, 1996 and incorporated by
reference.
*** Previously filed in Form S-1 Registration Statement No. 33-91916 dated May
1, 1997 and incorporated by reference. Previously filed in Form S-1 Registration
Statement No. 33-92842 dated April 1, 1997 and incorporated by reference.
Previously filed in Form S-1 Registration Statement No. 33-62193 dated April 1,
1997 and incorporated by reference. Previously filed in Form S-1 Registration
Statement No.333-00987 dated April 1, 1997 and incorporated by reference.
**** Previously filed in Pre-Effective Amendment No. 1 of Form N-4 Registration
Statement No. 33-91914 dated September 15, 1995 and incorporated by reference.
Previously filed in Form S-1 Registration Statement No. 33-92842 dated August 24,
1995 and incorporated by reference. Previously filed in Form S-1 Registration
Statement No. 33-62193 dated November 22, 1995 and incorporated by reference.
Previously filed in Form S-1 Registration Statement No.333-00987 dated August 23,
1996 and incorporated by reference.
</TABLE>
-10-
<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 11th day of August 1997.
GLENBROOK LIFE AND ANNUITY COMPANY
(Registrant)
/s/LOUIS G. LOWER, II CHAIRMAN OF THE BOARD OF DIRECTORS
- ------------------------------- AND CHIEF EXECUTIVE OFFICER
LOUIS G. LOWER, II (Principal Executive Officer)
/s/KEITH A. HAUSCHILDT ASSISTANT VICE PRESIDENT AND CONTROLLER
- ------------------------------- (Chief Accounting Officer)
KEITH A. HAUSCHILDT
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF FINANCIAL POSITION AT JUNE 30, 1997; STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 AND SIX MONTHS ENDED
JUNE 30, 1997 AND JUNE 30, 1996; AND STATEMENTS OF CASH FLOWS SIX MONTHS
ENDED JUNE 30, 1997.
</LEGEND>
<CIK> 0000945094
<NAME> GLENBROOK LIFE & ANNUITY COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 70,010
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 72,544
<CASH> 186
<RECOVER-REINSURE> 2,375,759
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 2,909,330
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,375,759
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,100
<OTHER-SE> 81,960
<TOTAL-LIABILITY-AND-EQUITY> 2,909,330
0
<INVESTMENT-INCOME> 2,534
<INVESTMENT-GAINS> 1,184
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 3,718
<INCOME-TAX> 1,307
<INCOME-CONTINUING> 2,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,411
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
