FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 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
333-07275
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 September 30, 1997; there were 4,200 shares of common capital stock
outstanding, par value $500 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Position
September 30, 1997(Unaudited) and December 31, 1996...............3
Statements of Operations
Three Months Ended September 30, 1997 and September 30, 1996 and
Nine Months Ended September 30, 1997 and
September 30, 1996 (Unaudited)....................................4
Statements of Cash Flows
Nine Months Ended September 30, 1997 and
September 30, 1996 (Unaudited)....................................5
Notes to Financial Statements (Unaudited).........................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................7
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*.....................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................11
Item 2. CHANGES IN SECURITIES*............................................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................11
SIGNATURE PAGE...............................................................12
*Omitted pursuant to General Instruction H(2) of Form 10Q.
-2-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
September 30, December 31,
($ in thousands) 1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $69,502 and $46,925) $ 73,108 $ 49,389
Short-term 2,342 1,287
---------- ----------
Total investments 75,450 50,676
Reinsurance recoverable from Allstate Life Insurance Company 2,511,208 2,060,419
Net receivable from affiliates 12,628 19,206
Other assets 2,532 2,049
Separate Accounts 560,966 272,420
---------- ----------
Total assets $3,162,784 $2,404,770
========== ==========
LIABILITIES
Contractholder funds $2,511,208 $2,060,419
Income taxes payable 3,494 653
Deferred income taxes 1,336 1,528
Separate Accounts 560,597 260,290
---------- ----------
Total liabilities 3,076,635 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 2,424 2,790
Retained income 11,984 7,349
---------- ----------
Total shareholder's equity 86,149 81,880
---------- ----------
Total liabilities and shareholder's equity $3,162,784 $2,404,770
========== ==========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
($ in thousands) 1997 1996 1997 1996
-------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Net investment income $ 1,304 $ 996 $ 3,838 $ 2,860
Realized capital gains and losses 2,121 - 3,305 -
-------- -------- -------- --------
INCOME BEFORE INCOME TAX
EXPENSE 3,425 996 7,143 2,860
INCOME TAX EXPENSE 1,201 348 2,508 1,013
-------- -------- -------- --------
NET INCOME $ 2,224 $ 648 $ 4,635 $ 1,847
======== ======== ======== ========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
($ in thousands) 1997 1996
------- -------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,635 $ 1,847
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Change in deferred income taxes 5 3
Realized capital gains and losses (3,305) -
Changes in other operating assets and liabilities (7,707) 2,510
--------- --------
Net cash (used in) provided by operating
activities (6,372) 4,360
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 -
Investment collections 1,508 2,288
Investment purchases (25,542) (3,785)
Participation in Separate Accounts, net 10,056 (208)
Change in short-term investments, net (1,055) (605)
--------- --------
Net cash used in investing activities (13,628) (2,310)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 -
--------- --------
Net cash provided by financing activities 20,000 -
--------- --------
NET INCREASE IN CASH - 2,050
CASH AT BEGINNING OF PERIOD - 264
--------- --------
CASH AT END OF PERIOD $ - $ 2,314
========= ========
</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 September 30, 1997, the
statements of operations for the three-month and nine-month periods
ended September 30, 1997 and 1996, and the statements of cash flows for
the nine-month periods ended September 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.
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. The following amounts were ceded to ALIC under reinsurance
agreements.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
($ in thousands) 1997 1996 1997 1996
----- ----- ----- ----
<S> <C> <C> <C> <C>
Premium and contract charges $ 3,072 $ 1,136 $ 7,692 $ 2,616
Credited interest, policy
benefits and expenses $ 44,967 $ 30,999 $124,030 $ 82,967
</TABLE>
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2
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.
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 $7.6 million and
$13.6 million of the Separate Account investment during the three-month and
nine-month periods ended September 30, 1997, respectively. The Company realized
a pretax realized capital gain of $2.1 million and $3.3 million on the
withdrawal for the three-month and nine-month periods, ended September 30, 1997,
respectively.
Results of Operations
- ---------------------
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- ------------
1997 1996 1997 1996
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net investment income $ 1,304 $ 996 $ 3,838 $ 2,860
======== ========= ======== =========
Realized capital gains, after tax $ 1,379 $ - $ 2,148 $ -
======== ========= ======== =========
Net income $ 2,224 $ 648 $ 4,635 $ 1,847
======== ========= ======== =========
Total investments $ 75,450 $ 49,971 $ 75,450 $ 49,971
======== ========= ======== =========
</TABLE>
Net income increased $1.6 million and $2.8 million for the three-month and
nine-month periods ended September 30, 1997, respectively. The increase in net
income is due to increased realized capital gains and increased net investment
income.
-7-
<PAGE>
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 $308 thousand and $978 thousand for the
three-month and nine-month periods ended September 30, 1997, respectively when
compared to the same periods in 1996. 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 $1.4 million and $2.1 million
for the three-month and nine-month periods ended September 30, 1997,
respectively when compared to the same periods in 1996. The realized capital
gains are associated with the withdrawal of investment in Separate Account
portfolios.
Financial Position
- ------------------
($ in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- ------------
<S> <C> <C>
Total investments $ 75,450 $ 50,676
============= ============
Reinsurance recoverable from ALIC $ 2,511,208 $ 2,060,419
============= ============
Separate Account assets $ 560,966 $ 272,420
============= ============
Contractholder funds $ 2,511,208 $ 2,060,419
============= ============
Separate Account liabilities $ 560,597 $ 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 $75.5
million at September 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, reinvestment of interest from
the current portfolio and an increase in the unrealized gain position. At
September 30, 1997, net unrealized capital gains on fixed income securities
totaled $3.6 million compared to $2.5 million as of December 31, 1996. The
increase in the unrealized gain position is primarily attributable to the impact
of lower 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.
Contractholder funds and amounts recoverable from ALIC under the
reinsurance agreement increased by $450.8 million in the first nine months of
1997. 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 increase in Separate Account assets and liabilities in 1997 was
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 $13.6 million due to the withdrawal of the seed
money from the Separate Account investment funds.
Liquidity and Capital Resources
- -------------------------------
In January 1997, a $20.0 million capital contribution that was accrued at
December 31, 1996 was received from ALIC.
Under the terms of intercompany reinsurance agreements, premiums and
deposits, net of benefits and expenses 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
Statement of Financial Accounting Standards ("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.
-9-
<PAGE>
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.
-10-
<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 third 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. 333-07275 dated May 16, 1997 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 Form S-1 Registration Statement No. 333-07275 dated June
28, 1996 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 Previously filed in Form S-1 Registration
Statement No. 333-07275 dated April 1, 1997 and incorporated by reference.
</TABLE>
-11
<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 November 1997.
GLENBROOK LIFE AND ANNUITY COMPANY
(Registrant)
/S/ LOUIS G. LOWER 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 SEPTEMBER 30, 1997; STATEMENTS OF
OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996; AND STATEMENTS OF
CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1997.
</LEGEND>
<CIK> 0000945094
<NAME> GLENBROOK LIFE & ANNUITY COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 73,108
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 75,450
<CASH> 0
<RECOVER-REINSURE> 2,511,208
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 3,162,784
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,511,208
<NOTES-PAYABLE> 0
0
0
<COMMON> 2100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 84,049
0
<INVESTMENT-INCOME> 3838
<INVESTMENT-GAINS> 3305
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 7143
<INCOME-TAX> 2508
<INCOME-CONTINUING> 4635
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4635
<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>
