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: March 31, 2000
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
333-50873
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 March 31, 2000; there were 5,000 shares of common capital stock
outstanding, par value $500 per share all of which shares are held by Allstate
Life Insurance Company.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Position
March 31, 2000(Unaudited) and December 31, 1999.................. 3
Statements of Operations
Three Months Ended March 31, 2000 and
March 31, 1999 (Unaudited)....................................... 4
Statements of Cash Flows
Three Months Ended March 31, 2000 and
March 31, 1999 (Unaudited)................................. 5
Notes to Financial Statements.................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 9
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*..................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................11
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*........................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................12
SIGNATURE PAGE
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
-2-
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION> MARCH 31, DECEMBER 31,
2000 1999
------------------- -------------------
------------------- -------------------
<S> <C> <C>
($ in thousands, except par value data) (UNAUDITED)
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $145,757 and $94,173 ) $ 145,182 $ 92,937
Short-term 3,156 53,063
----------- ----------
Total investments 148,338 146,000
Cash 10 9
Reinsurance recoverable from
Allstate Life Insurance Company 4,318,669 4,144,165
Deferred income taxes 49 293
Other assets 3,704 2,706
Separate Accounts 1,777,066 1,541,756
----------- -----------
TOTAL ASSETS $ 6,247,836 $ 5,834,929
=========== ===========
LIABILITIES
Reserve for life-contingent contract benefits $ 907 $ 800
Contractholder funds 4,317,762 4,143,365
Current income taxes payable 3,264 2,360
Payable to affiliates, net 4,177 4,122
Separate Accounts 1,777,066 1,541,756
----------- -----------
TOTAL LIABILITIES 6,103,176 5,692,403
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4)
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 10,000 shares
authorized, 5,000 issued and outstanding 2,500 2,500
Additional capital paid-in 119,241 119,241
Retained income 23,293 21,588
Accumulated other comprehensive loss:
Unrealized net capital losses (374) (803)
----------- -----------
TOTAL ACCUMULATED OTHER COMPREHENSIVE
LOSS (374) (803)
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 144,660 142,526
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 6,247,836 $ 5,834,929
=========== ===========
See notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
----------------------------------------
($ in thousands) 2000 1999
------------------ ------------------
------------------ ------------------
(UNAUDITED)
REVENUES
<S> <C> <C>
Net investment income $ 2,555 $ 1,578
Realized capital gains and losses 66 -
------- -------
INCOME FROM OPERATIONS
BEFORE INCOME TAX EXPENSE 2,621 1,578
Income tax expense 916 551
------- -------
NET INCOME $ 1,705 $ 1,027
======= =======
</TABLE>
See notes to financial statements.
4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
----------------------------------------
<S> <C> <C>
($ in thousands) 2000 1999
------------------ ------------------
----------------------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,705 $ 1,027
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items (317) -
Realized capital gains and losses (66) -
Changes in:
Income taxes payable 916 552
Other operating assets and liabilities (993) (253)
------- -------
Net cash provided by operating activities 1,245 1,326
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 2,178 -
Investment collections 408 1,891
Investment purchases (54,044) (5,958)
Change in short-term investments, net 50,214 2,741
------- -------
Net cash used in investing activities (1,244) (1,326)
------- -------
NET INCREASE IN CASH 1 -
CASH AT THE BEGINNING OF PERIOD 9 -
------- -------
CASH AT END OF PERIOD $ 10 $ -
======= =======
</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 ("AIC"), a wholly owned subsidiary of The
Allstate Corporation (the "Corporation"). These financial statements
have been prepared in conformity with generally accepted accounting
principles.
The financial statements and notes as of March 31, 2000 and for the
three month periods ended March 31, 2000 and 1999 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. The financial
statements and notes should be read in conjunction with the financial
statements and notes thereto included in the Glenbrook Life and Annuity
Company 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. REINSURANCE
The Company has reinsurance agreements whereby all contract charges,
credited interest, policy benefits and certain expenses are ceded to
ALIC and reflected net of such reinsurance in the statements of
operations. Reinsurance recoverable 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.
Investment income earned on the assets which support contractholder
funds and the reserve for life life-contingent contract benefits is not
included in the Company's 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>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
<S> <C> <C> <C>
($ in thousands) 2000 1999
------------------ -----------------
Contract charges $ 8,874 $ 5,670
Credited interest, policy benefits and certain expenses 83,572 56,245
</TABLE>
6
<PAGE>
3. COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax
basis for the three months ended March 31, are as follows:
<TABLE>
($ in thousands) 2000 1999
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AFTER- AFTER-
PRETAX TAX TAX PRETAX TAX TAX
------ --- --- ------ --- ---
UNREALIZED CAPITAL GAINS AND LOSSES
-----------------------------------
Unrealized holding gains
(losses) arising during the
period $ 661 $ (232) $ 429 $(2,129) $ 745 $(1,384)
Less: reclassification
adjustments - - - - - -
Unrealized net capital gains
(losses) 661 (232) 429 (2,129) 745 (1,384)
----- ------ ------ ------- ------ -------
Other comprehensive income
(loss) $ 661 $ (232) 429 $(2,129) $ 745 (1,384)
===== ====== ======= ======
Net income 1,705 1,027
------ -------
Comprehensive income (loss) $2,134 $ (357)
====== =======
</TABLE>
4. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. Public and regulatory initiatives
have varied and have included employee benefit regulations, removal of
barriers preventing banks from engaging in the securities and insurance
business, tax law changes affecting the taxation of insurance companies
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.
From time to time the Company is involved in pending and threatened
litigation in the normal course of its business in which claims for
monetary damages are asserted. In the opinion of management, the ultimate
liability, if any, arising from such pending or threatened litigation is
not expected to have a material effect on the results of operations,
liquidity or financial position of the Company.
7
<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 changes in 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 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 savings and life insurance products through banks and
securities firms. Savings products include deferred annuities and immediate
annuities without life contingencies. Deferred annuities include fixed rate,
market value adjusted, indexed and variable annuities. Life insurance consists
of interest-sensitive life and variable life insurance.
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 contractholders' 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
<TABLE>
<CAPTION>
<S> <C> <C>
RESULTS OF OPERATIONS
- --------------------
($ in thousands)
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------------- ------------------
Net investment income $ 2,555 $ 1,578
========= =========
Realized capital gains, after tax $ 43 $ -
========= =========
Net income $ 1,705 $ 1,027
========= =========
Total investments $ 148,338 $ 98,200
========= =========
</TABLE>
The Company has reinsurance agreements under which all contract and
policy related transactions are transferred to ALIC. The Company's 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.
8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for the first quarter of 2000 increased 66.0% to $1.7 million,
primarily due to increased net investment income. Pretax net investment income
for the three month period ended March 31, 2000 increased 61.9% to $2.6 million
primarily attributable to higher investment balances. Investments at March 31,
2000, excluding Separate Accounts and unrealized gains and losses on fixed
income securities, grew 59.4% from the same period last year.
<TABLE>
<CAPTION>
<S> <C> <C>
FINANCIAL POSITION
- ------------------
($ in thousands)
MARCH 31, DECEMBER 31,
2000 1999
----------------------- ----------------------
Fixed income securities (1) $ 145,182 $ 92,937
Short-term investments 3,156 53,063
------------ ------------
Total investments $ 148,338 $ 146,000
============ ============
Reinsurance recoverable from ALIC $ 4,318,669 $ 4,144,165
============ ============
Separate Account assets and liabilities $ 1,777,066 $ 1,541,756
============ ============
Contractholder funds $ 4,317,762 $ 4,143,365
============ ============
</TABLE>
[FN]
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $145,757 and $94,173 at March 31, 2000 and December 31, 1999,
respectively.
</FN>
Total investments were $148.3 million at March 31, 2000 compared to $146.0
million at December 31, 1999. The increase was due to positive cash flows
generated from operations and lower unrealized net capital losses on fixed
income securities. At March 31, 2000, unrealized net capital losses on fixed
income securities were $575 thousand compared to $1.2 million at December 31,
1999.
At March 31, 2000, 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, Aa, A or Baa, or a comparable Company internal rating.
During the three months ended March 31, 2000, contractholder funds and
amounts recoverable from ALIC increased by $174.4 million and $174.5 million,
respectively. The increase resulted from sales of the Company's fixed rate
annuity contracts, partially offset by surrenders and withdrawals and transfers
from the fixed account contract option to variable Separate Accounts funds.
Reinsurance recoverable from ALIC relates to contract benefit obligations ceded
to ALIC.
9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Separate Account assets and liabilities increased 15.3% to $1.78 billion
at March 31, 2000. The increases were primarily attributable to favorable
investment performance of Separate Account investment portfolios and sales of
variable annuity contracts.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Under the terms of reinsurance agreements, substantially all premiums and
deposits, excluding those relating to Separate Accounts, are transferred to
ALIC, which maintains the investment portfolios supporting the Company's
products. Substantially all payments of policyholder claims, benefits, contract
maturities, contract surrenders and withdrawals and certain operating costs are
also reimbursed 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 claims-paying ability was rated
Aa2, AA+ and A+ by Moody's, Standard and Poor's and A.M. Best, respectively, at
March 31, 2000.
The primary sources for the remainder of the Company's funds are
collection of principal and interest from the investment portfolio and 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.
At March 31, 2000, the Moody's and Standard and Poor's claims-paying
ratings for the Company were Aa2 and AA+, respectively.
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
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) Amended and Restated Articles of Incorporation and Articles of
Redomestication of Glenbrook Life and Annuity Company (Incorporated herein
by reference to the Company's Form 10-K Annual Report for the year ended
December 31, 1998)
(3)(ii) Amended and Restated By-laws of Glenbrook Life and Annuity Company
(Incorporated herein by reference to the Company's Form 10-K Annual Report
for the year ended December 31, 1998)
(4) None
(10)(a) Reinsurance Agreement between Glenbrook Life and Annuity Company and
Allstate Life Insurance Company effective June 5, 1992 along with Amendment
No. 1 thereto, dated June 8, 1995 and Amendment No. 2 thereto, dated
November 3, 1995 (Incorporated herein by reference to the Company's Initial
filing of Form S-1 Registration Statement (File No. 333-67275)
(10)(b)Amendment No. 1 to the Reinsurance Agreement between Glenbrook Life and
Annuity Company and Allstate Life Insurance Company, dated June 8, 1995
(Incorporated herein by reference to the initial filing of the Company's
Form S-1 Registration Statement (File No 333-07275) dated June 28, 1996)
(10)(c)Amendment No. 2 to the Reinsurance Agreement between Glenbrook Life and
Annuity Company and Allstate Life Insurance Company, dated November 3, 1995
(Incorporated herein by reference to the initial filing of the Company's
Form S-1 Registration Statement (File No 333-07275) dated June 28, 1996)
(10)(d)Amendment No. 3 to the Reinsurance Agreement between Glenbrook Life and
Annuity Company and Allstate Life Insurance Company, dated October 28, 1998
(10)(e)Modified Coinsurance Agreement between Glenbrook Life and Annuity Company
and Allstate Life Insurance Company, effective September 1, 1993
(10)(f)Amendment No. 1 to the Modified Coinsurance Agreement between Glenbrook
Life and Annuity Company and Allstate Life Insurance Company, dated June
28, 1995
(10)(g)Amendment No. 2 to the Modified Coinsurance Agreement between Glenbrook
Life and Annuity Company and Allstate Life Insurance Company, dated
November 3, 1995
(10)(h)Amendment No. 3 to the Modified Coinsurance Agreement between Glenbrook
Life and Annuity Company and Allstate Life Insurance Company, dated October
28, 1998
(11) Not Required
(15) None
(18) None
(19) None
11
<PAGE>
(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 first quarter of 1999.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 12th day of May 2000.
GLENBROOK LIFE AND ANNUITY COMPANY
----------------------------------
(Registrant)
/s/ THOMAS J. WILSON, II PRESIDENT AND CHIEF OPERATING OFFICER
- ------------------------ (Principal Executive Officer)
THOMAS J. WILSON, II
/s/ SAMUEL H. PILCH CONTROLLER
- ------------------------ (Chief Accounting Officer)
SAMUEL H. PILCH
15
<PAGE>
Exhibit Index
Exhibit No. Exhibit
(27) Financial Data Scehdule
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL POSITION AT MARCH 31, 2000; STATEMENTS OF OPERATIONS THREE MONTHS
ENDED MARCH 31, 2000; AND STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31,
2000.
</LEGEND>
<CIK> 0000945094
<NAME> GLENBROOK LIFE & ANNUITY COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 145,182
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 148,338
<CASH> 10
<RECOVER-REINSURE> 4,318,669
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 6,247,836
<POLICY-LOSSES> 907
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 4,317,762
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 142,160
<TOTAL-LIABILITY-AND-EQUITY> 6,247,836
0
<INVESTMENT-INCOME> 2,555
<INVESTMENT-GAINS> 66
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 2,621
<INCOME-TAX> 916
<INCOME-CONTINUING> 1,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,705
<EPS-BASIC> 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>
