-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVtZoMj+3cguD4m2XregxdHIDKJGlv9lVCRTIAJgvgiWYrj14oES+sn8wFATw4LE Vm31BiY9WlXZlV9ABHOcMQ== 0000945094-98-000158.txt : 19981116 0000945094-98-000158.hdr.sgml : 19981116 ACCESSION NUMBER: 0000945094-98-000158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLSTATE LIFE INSURANCE CO OF NEW YORK CENTRAL INDEX KEY: 0000839759 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 362608394 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-47245 FILM NUMBER: 98749185 BUSINESS ADDRESS: STREET 1: ONE ALLSTATE DR STREET 2: PO BOX 9095 CITY: FARMINGVILLE STATE: NY ZIP: 11738 BUSINESS PHONE: 5164515300 MAIL ADDRESS: STREET 1: ONE ALLSTATE DR STREET 2: PO BOX 9095 CITY: FARMINGVILLE STATE: NY ZIP: 11738 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-47245 33-65355 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK (Exact name of registrant as specified in its charter) NEW YORK 36-2608394 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Allstate Drive Farmingville, New York 11738 (Address of principal executive offices)(Zip Code) 800/256-9392 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes../X/.. No Indicate the number of shares of each of the issuer's classes of common stock, as of September 30, 1998; there were 80,000 shares of common capital stock outstanding, par value $25 per share all of which shares are held by Allstate Life Insurance Company. PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements Statements of Financial Position As Of September 30, 1998(Unaudited)and December 31, 1997 3 Statements of Operations Three Months Ended September 30, 1998 and September 30, 1997 (Unaudited) Nine Months Ended September 30, 1998 and September 30, 1997 (Unaudited) 4 Statements of Cash Flows Nine Months Ended September 30, 1998 and September 30, 1997(Unaudited) 5 Notes to Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosure about Market Risk* N/A PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS 16 Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS* N/A Item 3. DEFAULTS UPON SENIOR SECURITIES* N/A Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS* N/A Item 5. OTHER INFORMATION 16 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16 SIGNATURE PAGE *Omitted pursuant to General Instruction H(2) of Form 10-Q. ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF FINANCIAL POSITION
September 30, December 31, ($ in thousands) 1998 1997 -------------------- --------------------- (Unaudited) Investments Fixed income securities, at fair value (amortized cost $1,628,116 and $1,510,110) $1,999,860 $1,756,257 Mortgage loans 131,584 114,627 Policy loans 28,759 27,600 Short-term 35,551 9,513 ---------- ---------- Total investments 2,195,754 1,907,997 Deferred acquisition costs 77,486 71,946 Accrued investment income 20,558 21,725 Reinsurance recoverables 1,943 1,726 Cash - 393 Net receivable from affiliates 526 - Other assets 8,817 6,167 Separate Accounts 322,658 308,595 ---------- ---------- Total assets $2,627,742 $2,318,549 ========== ========== LIABILITIES Reserve for life-contingent contract benefits $1,220,121 $1,084,409 Contractholder funds 671,987 607,474 Income taxes payable 8,478 1,419 Deferred income taxes 34,189 16,990 Other liabilities and accrued expenses 33,078 10,985 Net payable to affiliates - 5,267 Separate Accounts 322,658 308,595 ---------- ---------- Total liabilities 2,290,511 2,035,139 ---------- ---------- Commitments and Contingent Liabilities (Note 3) SHAREHOLDER'S EQUITY Common stock, $25 par value, 80,000 shares authorized, issued and outstanding 2,000 2,000 Additional capital paid-in 45,787 45,787 Retained income 192,653 171,144 Accumulated other comprehensive income: Unrealized net capital gains 96,791 64,479 ---------- ---------- Total accumulated other comprehensive income 96,791 64,479 ---------- ---------- Total shareholder's equity 337,231 283,410 ---------- ---------- Total liabilities and shareholder's equity $2,627,742 $2,318,549 ========== ==========
See notes to financial statements. -3- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF OPERATIONS
Three months ended Nine months ended September 30, September 30, ----------------------------------- ----------------------------------- ($ in thousands) 1998 1997 1998 1997 ---------------- --------------- ---------------- --------------- (Unaudited) REVENUES Premiums (net of reinsurance ceded of $886 and $793, $2,643 and $2,243) $ 20,388 $ 21,075 $ 63,642 $ 67,882 Contract charges 7,777 7,146 24,196 21,128 Net investment income 33,758 31,629 100,018 92,871 Realized capital gains and losses 53 817 4,157 742 --------- --------- --------- ---------- 61,976 60,667 192,013 182,623 --------- --------- --------- ---------- COSTS AND EXPENSES Contract benefits (net of reinsurance recoveries of $254 and $950, $756 and $1,632) 46,744 43,081 135,565 132,946 Amortization of deferred acquisition costs 1,562 746 5,767 4,565 Operating costs and expenses 5,260 5,237 17,426 15,493 --------- --------- --------- ---------- 53,566 49,064 158,758 153,004 --------- --------- --------- ---------- INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 8,410 11,603 33,255 29,619 INCOME TAX EXPENSE 2,883 4,207 11,746 10,662 --------- --------- --------- ---------- NET INCOME $ 5,527 $ 7,396 $ 21,509 $ 18,957 ========= ========= ========= ==========
See notes to financial statements. -4- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF CASH FLOWS
Nine months ended September 30, ---------------------------------------------- 1998 1997 --------------------- --------------------- ($ in thousands) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 21,509 $ 18,957 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization and other non-cash items (26,588) (23,167) Realized capital gains and losses (4,157) (742) Interest credited to contractholder funds 27,537 25,025 Increase in reserve for life-contingent contract benefits and contractholder funds 41,875 52,221 Increase in deferred policy acquisition costs (8,605) (7,222) Decrease in accrued investment income 1,167 1,211 Changes in deferred income taxes (201) (1,492) Changes in other operating assets and liabilities (8,186) 18,840 ---------- --------- Net cash provided by operating activities 44,351 83,631 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of fixed income securities 65,274 14,776 Investment collections Fixed income securities 92,221 80,621 Mortgage loans 4,888 1,899 Investment purchases Fixed income securities (248,209) (175,460) Mortgage loans (14,312) (18,500) Change in short-term investments, net (977) 14,950 Change in policy loans, net (1,159) (1,612) ---------- --------- Net cash used in investing activities (102,274) (83,326) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Contractholder fund deposits 100,721 54,965 Contractholder fund withdrawals (43,191) (40,312) ---------- --------- Net cash provided by financing activities 57,530 14,653 ---------- --------- NET (DECREASE) INCREASE IN CASH (393) 14,958 CASH AT BEGINNING OF PERIOD 393 1,027 ---------- --------- CASH AT END OF PERIOD $ - $ 15,985 ========== =========
See notes to financial statements. -5- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Allstate Life Insurance Company of New York (the "Company") is wholly owned by a wholly owned subsidiary of Allstate Insurance Company, a wholly owned subsidiary of The Allstate Corporation. The financial statements and notes as of September 30, 1998 and for the three month and nine month periods ended September 30, 1998 and 1997 are unaudited. The financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the Allstate Life Insurance Company of New York Annual Report on Form 10-K for 1997. 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, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" under the guidance of SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." As a result of this adoption, the Company has recorded an asset and corresponding liability representing the collateral received in connection with the Company's securities lending program. The cash collateral received is recorded in short-term investments with the offsetting liability being reflected in other liabilities in the statements of financial position. In accordance with SFAS No. 127, the statements of financial position for prior periods have not been restated. Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income is a measurement of certain changes in shareholder's equity that result from transactions and other economic events other than transactions with shareholders. For the Company, these consist of changes in unrealized gains and losses on the investment portfolio, adjusted for deferred acquisition costs and reserves for life insurance policy benefits. These amounts, presented as other comprehensive income, net of related taxes, are added to net income which results in comprehensive income. The cumulative amount of these changes is reported in the statements of financial position as accumulated other comprehensive income. The required disclosures are presented in Note 2. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. Specifically, certain external, payroll and payroll related costs should be capitalized during the application development stage of a software development project and depreciated over the computer software's useful life. The Company has adopted the SOP effective January 1, 1998. -6- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (Unaudited) In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 replaces the existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities. The requirements of this SFAS are effective for fiscal years beginning after June 15, 1999. Earlier application of this SFAS is encouraged but is only permitted as of the beginning of any fiscal quarter after issuance. This SFAS requires that all derivatives be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Additionally, the change in fair value of a derivative which is not effective as a hedge will be immediately recognized in earnings. The Company is currently reviewing these requirements and has not yet determined the impact or the expected date of adoption. In December 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP is required to be adopted in 1999. 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 requirements of this SOP are not expected to have a material impact on the results of operations, liquidity or financial position of the Company. The Company expects to adopt the SOP as of January 1, 1999. -7- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. Comprehensive Income The components of other comprehensive income on a pretax and after -tax basis are as follows:
Three months ended September 30, -------------------------------------------------------------------------------- ($ in thousands) 1998 1997 --------------------------------------- --------------------------------------- Income Income tax After- tax After- Pretax effect tax Pretax effect tax ------ ------ ------ ------ ------ ------ Unrealized capital gains and losses: Unrealized holding gains arising during the period $ 88,775 $ (31,070) $ 57,705 $ 68,073 $ (23,825) $ 44,248 Adjustments to unrealized capital gains and losses arising during the period: Deferred acquisition costs (2,495) 872 (1,623) (318) 111 (207) Reserves for life insurance policy benefits (48,181) 16,863 (31,318) (44,814) 15,684 (29,130) --------- --------- -------- --------- --------- -------- Net unrealized holding gains arising during the period 38,099 (13,335) 24,764 22,941 (8,030) 14,911 --------- --------- -------- --------- --------- -------- Less: reclassification adjustment for realized net capital gains in- cluded in net income 3,015 (1,055) 1,960 738 (259) 479 --------- --------- -------- --------- --------- -------- Other comprehensive income $ 35,084 $ (12,280) $ 22,804 $ 22,203 $ (7,771) $ 14,432 ========= ========= -------- ========= ========= -------- Net income 5,527 7,396 -------- -------- Comprehensive income $ 28,331 $ 21,828 ======== ========
-8- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (Unaudited)
Nine months ended September 30, --------------------------------------------------------------------------------- ($ in thousands) 1998 1997 --------------------------------------- ---------------------------------------- Income Income tax After- tax After- Pretax effect tax Pretax effect tax ------ ------ ------ ------ ------ ------ Unrealized capital gains and losses: Unrealized holding gains arising during the period $ 130,282 $ (45,598) $ 84,684 $ 54,810 $ (19,184) $ 35,626 Adjustments to unrealized capital gains and losses arising during the period: Deferred acquisition costs (3,066) 1,072 (1,994) (234) 82 (152) Reserves for life insurance policy benefits (73,283) 25,649 (47,634) (36,744) 12,860 (23,884) --------- --------- -------- -------- --------- --------- Net unrealized holding gains arising during the period 53,933 (18,877) 35,056 17,832 (6,242) 11,590 --------- --------- -------- -------- --------- --------- Less: reclassification adjustment for realized net capital gains included in net income 4,221 (1,477) 2,744 556 (195) 361 --------- --------- -------- -------- --------- --------- Other comprehensive income $ 49,712 $ (17,400) $ 32,312 $ 17,276 $ (6,047) $ 11,229 ========= ========= -------- ======== ========= --------- Net income 21,509 18,957 -------- --------- Comprehensive income $ 53,821 $ 30,186 ======== =========
3. 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 regulation, controls on medical care costs, removal of barriers preventing banks from engaging in the securities and insurance business, tax law changes affecting the taxation of insurance companies, the tax treatment of insurance products and its impact on the relative desirability of various 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. 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. -9- Allstate Life Insurance Company of New York 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 Allstate Life Insurance Company of New York (the "Company"). It should be read in conjunction with the financial statements and notes thereto found under Part I. Item 1 contained herein and the discussion, analysis, financial statements and notes thereto found under Part II. Item 7 and Item 8 of the Allstate Life Insurance Company of New York Annual Report on Form 10-K for 1997. The Company, which is wholly owned by a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a subsidiary of The Allstate Corporation (the "Corporation"), markets a broad line of life insurance and annuity products in the state of New York. Life insurance includes traditional products such as whole life and term life insurance, as well as universal life and other interest-sensitive life products. Annuities include deferred annuities, such as variable annuities and fixed rate single and flexible premium annuities, and immediate annuities such as structured settlement annuities. The Company distributes its products using a combination of Allstate agents (which include life specialists), banks, independent agents, brokers and direct response marketing.
FINANCIAL HIGHLIGHTS ($ in thousands) Three months ended Nine months ended September 30, September 30, ----------------------------------- ------------------------------------ 1998 1997 1998 1997 --------------- ---------------- ---------------- ---------------- Statutory premiums and deposits $ 67,025 $ 45,682 $ 195,585 $ 149,446 ============ ============ =========== =========== Investments $ 2,195,754 $ 1,797,535 $ 2,195,754 $ 1,797,535 Separate Account assets 322,658 308,716 322,658 308,716 ------------ ------------ ----------- ----------- Investments including Separate Account assets $ 2,518,412 $ 2,106,251 $ 2,518,412 $ 2,106,251 ============ ============ =========== =========== Premiums and contract charges $ 28,165 $ 28,221 $ 87,838 $ 89,010 Net investment income 33,758 31,629 100,018 92,871 Contract benefits 46,744 43,081 135,565 132,946 Operating costs and expenses 6,787 5,983 22,735 20,058 ------------ ------------ ----------- ----------- Income from operations 8,392 10,786 29,556 28,877 Income tax expense on operations 2,877 3,921 10,451 10,402 ------------ ------------ ----------- ----------- Operating income 5,515 6,865 19,105 18,475 Realized capital gains and losses, after-tax (1) 12 531 2,404 482 ------------ ------------ ----------- ----------- Net income $ 5,527 $ 7,396 $ 21,509 $ 18,957 ============ ============ =========== ===========
(1) Net of the effect of related amortization of deferred policy acquisition costs in 1998. -10- Allstate Life Insurance Company of New York Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Premiums, deposits, contract charges and contract benefits Statutory premiums and deposits, which include premiums and deposits for all products, increased 46.7% in the third quarter and 30.9% for the first nine months of 1998 compared with the same periods last year. For the three month period ended September 30, 1998, the increase was primarily attributable to increased sales of fixed annuities and, to a lesser extent, structured settlement annuities. For the nine-month period, the increase was primarily the result of increased sales of fixed annuities. Premiums and contract charges under generally accepted accounting principles ("GAAP") decreased slightly in the third quarter and first nine months of 1998 from the comparable 1997 periods. Under GAAP, revenues exclude deposits on most annuity contracts and premiums on universal life insurance policies and will vary with the mix of products sold during the period. In 1998, increased revenues from universal and term life insurance were more than offset by lower sales of life-contingent structured settlement annuities. Operating income Pretax net investment income increased 6.7% and 7.7% in the third quarter and the first nine months of 1998, respectively, from the comparable 1997 periods, primarily due to higher investment balances, partially offset by lower investment yields. Investments, excluding Separate Account assets and unrealized gains on fixed income securities, grew by 9.8%. The overall portfolio yield declined slightly, as proceeds from calls and maturities as well as positive cash flows from operating activities were invested in securities yielding less than the average portfolio rate. In relatively low interest rate environments, funds from maturing investments may be reinvested at lower interest rates than those which prevailed when the funds were previously invested. Operating expenses, which includes the amortization of deferred policy acquisition costs, increased $804 thousand or 13.4% and $2.7 million or 13.3% for the three-month and nine-month periods ended September 30, 1998, respectively. The increase for the three-month period ended September 30, 1998 was primarily due to increased amortization of deferred policy acquisition costs. The increase for the nine-month period ended September 30, 1998 was related to increased general expenses resulting from growth in the number of customer policies and an increase in the amortization of deferred policy acquisition costs. In both the three and nine month periods ended September 30, 1997, the amortization of deferred acquisition costs was reduced due to the revised estimates of future gross profits on interest sensitive life products. Operating income decreased 19.7% during the third quarter, and increased 3.4% during the first nine months of 1998 compared with the same periods in 1997. For the three month period, increased net investment income was more than offset by increased costs and expenses. For the nine month period, income generated from new and existing structured settlement annuity and life insurance business was partially offset by increased costs and expenses. Realized capital gains and losses Net realized capital gains after-tax decreased to $12 thousand in the third quarter as a result of lower gains on fixed income securities. The increase to $2.4 million for the first nine months of 1998 is due primarily to gains arising from the receipt of prepayments of fixed income securities. -11- Allstate Life Insurance Company of New York Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) INVESTMENTS The composition of the investment portfolio at September 30, 1998, at financial statement carrying values, is presented in the table below. Percent ($ in thousands) to total -------- Fixed income securities (1) $1,999,860 91.1.% Mortgage loans 131,584 6.0 Policy loans 28,759 1.3 Short-term 35,551 1.6 ---------- ------- Total $2,195,754 100.0% ========== ======= (1) Fixed income securities are carried at fair value. Amortized cost for these securities was $1,628,116. Total investments increased to $2.20 billion at September 30, 1998 from $1.91 billion at December 31, 1997. The increase in investments is primarily due to the increase in unrealized net capital gains on fixed income securities, amounts invested from positive cash flows generated from financing and operating activities, and the addition to short-term investments of $24.4 million of collateral resulting from a change in accounting treatment for securities lending programs. At September 30, 1998, unrealized net capital gains on the fixed income securities portfolio were $371.7 million compared to $246.1 million at December 31, 1997. Fixed income securities The Company's fixed income securities portfolio consists of privately-placed securities, U.S. government bonds, publicly traded corporate bonds, mortgage-backed securities, asset-backed securities and municipal 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. Substantially all of the Company's fixed income securities portfolio is rated investment grade, which is defined by the Company as a security having a National Association of Insurance Commissioners rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company internal rating. Short-term investments The carrying value of the Company's short-term investment portfolio was $35.6 million and $9.5 million at September 30, 1998 and December 31, 1997, respectively. The Company generally invests available cash balances in taxable short-term securities having a final maturity date or redemption date of one year or less. -12- Allstate Life Insurance Company of New York Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) SEPARATE ACCOUNTS Separate Account assets and liabilities increased 4.6% from $308.6 million at December 31, 1997 to $322.7 million at September 30, 1998 due primarily to sales of variable annuity contracts and the favorable investment performance of the Separate Account investment portfolios which were, to a large extent, offset by variable annuity contract surrenders and withdrawals. LIQUIDITY AND CAPITAL RESOURCES Liquidity The Company's principal sources of funds are collections of principal and interest from the investment portfolio and the receipt of premiums and deposits. The primary uses of these funds are to purchase investments and pay policyholder claims, benefits, contract maturities and surrenders, and operating costs. The maturity structure of the Company's fixed income securities, which represent 91.1% of the Company's total investments, is managed to meet the anticipated cash flow requirements of the underlying liabilities. A portion of the Company's product portfolio, primarily fixed annuity and universal life insurance products, is subject to discretionary surrender and withdrawal by contractholders. Management believes its assets are sufficiently liquid to meet future obligations to its life and annuity contractholders under various interest rate scenarios. YEAR 2000 The Company is heavily dependent upon complex computer systems for all phases of its operations, including customer service, policy and contract administration, risk analysis, investment processing and other enterprise systems. Since many of the Company's 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, many systems and equipment that are not typically thought of as computer-related (referred to as "non-IT") contain imbedded hardware or software that may have a Year 2000 sensitive component. The Company believes that many of its counterparties and suppliers also have Year 2000 issues and non-IT issues which could affect the Company. In 1995, the Corporation commenced a plan consisting of four phases which are intended to mitigate and/or prevent the adverse affects of the Year 2000 issues on its systems: (1) assessment and analysis of affected systems and equipment; (2) remediation and compliance of systems and equipment through strategies that include the enhancement of new and 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 which will address possible adverse scenarios and the potential financial impact to the Company's results of operations, liquidity or financial position. -13- Allstate Life Insurance Company of New York Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Corporation believes that the first step of this plan, assessment, is complete, and is currently in the remediation phase for all systems and equipment. The Corporation is relying on other remediation techniques for its midrange and personal computer environments, and certain mainframe applications. Management believes the majority of the Corporation's computer systems and equipment will be remediated by the end of 1998, with the investment processing systems and certain midrange computers to be remediated by the middle of 1999. The third phase of the plan which includes clock-forward testing of the Corporation's systems and non-IT, is scheduled to be largely complete by the end of 1998. The Corporation is currently in the process of identifying key processes and developing contingency plans in the event that the systems and equipment supporting these processes are not Year 2000 compliant at the end of 1999. Management believes these contingency plans should be completed by mid-1999. Until these plans are complete, management is unable to determine an estimate of the most reasonably possible worst case scenario due to issues relating to the Year 2000. In addition the Company is actively working with its major external counterparties and suppliers to assess their compliance efforts and the Company's exposure to both their Year 2000 issues and non-IT issues. The Company is currently soliciting its key external counterparties and suppliers to certify that they are compliant with the Year 2000 issues or are taking actions they believe will adequately prepare them for the Year 2000. The Company will continue its efforts to receive responses on Year 2000 compliance from these parties. If key vendors are unable to meet the Year 2000 requirement, the Company intends to prepare contingency plans that will allow the Company to continue to sell to and service its customers. Management believes these contingency plans should be completed by mid-1999. The Company also has investments which have been publicly and privately placed. The Company may also be exposed to the risk that the issuers of these investments will be adversely impacted by Year 2000 issues. The Company presently believes that it will resolve the Year 2000 issue in a timely manner, and the costs incurred to achieve Year 2000 compliance of Company systems are not expected to be material to the Company's results of operations, liquidity or financial position. Year 2000 costs are expensed as incurred. -14- Allstate Life Insurance Company of New York Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) PENDING ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 replaces existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities. The requirements are effective for fiscal years beginning after June 15, 1999. Earlier application is encouraged but is only permitted as of the beginning of any fiscal quarter after issuance. This SFAS requires that all derivatives be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Additionally, the change in fair value of a derivative which is not effective as a hedge will be immediately recognized in earnings. The Company is currently reviewing these requirements and has not yet determined the impact or the expected date of adoption. In December 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP is required to be adopted in 1999. 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 requirements of this SOP are not expected to have a material impact on the results of operations, liquidity or financial position of the Company. The Company expects to adopt the SOP as of January 1, 1999. FORWARD-LOOKING STATEMENTS The statements contained in this Management's Discussion and Analysis that are not historical information are forward-looking statements that are based on management's estimates, assumptions and projections. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of 1933 and The Securities Exchange Act of 1934 for forward-looking statements. -15- 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 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 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) Allstate Life Insurance Company of New York Single Premium Deferred Annuity Contract** Allstate Life Insurance Company of New York Flexible Premium Deferred Annuity Contract* (10) None (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 1998. * Previously filed in Form N-4 Registration Statement No.33-65381 dated September 20, 1996 and incorporated by reference. ** Previously filed in Form S-1 Registration Statement No.33-47245 dated November 13, 1992 and incorporated by reference. *** Previously filed in Form S-1 Registration Statement No.33-47245 filed April 1, 1998 and incorporated by reference; Form S-1 Registration Statement No. 33-65355 filed April 1, 1998 and incorporated by reference. **** Previously filed in Form S-1 Registration Statement No.33-47245 filed April 1, 1998 and Form S-1 Registration Statement No. 33-65355 filed April 1, 1998 and incorporated by reference. -16- 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 13th day of November, 1998. ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK ------------------------------------------- (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 EX-27 2 FDS --
7 THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF FINANCIAL POSITION AT SEPTEMBER 30, 1998; STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997; AND STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998. 0000839759 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK 1,000 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 1,999,860 0 0 0 131,584 0 2,195,754 0 1,943 77,486 2,627,742 0 0 1,220,121 671,987 0 0 0 2,000 94,791 2,627,742 63,642 100,018 4,157 24,196 135,565 5,767 17,426 33,255 11,746 21,509 0 0 0 21,509 0 0 0 0 0 0 0 0 0
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