-----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, IQsss5bd6yMAVVVs4+s5Rw1N1T8cyaMfNo9NSzGl6Y6D18bR5KMBbNl1kaOp0emX eEoUdgsThRPmIbeWIhXFew== 0000945094-99-000261.txt : 19990816 0000945094-99-000261.hdr.sgml : 19990816 ACCESSION NUMBER: 0000945094-99-000261 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99688676 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-47245 33-65355 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK (Exact name of registrant as specified in its charter) NEW YORK 35-2608394 (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 June 30, 1999; there were 80,000 shares of common capital stock outstanding, par value $25 per share all of which shares are held by Allstate Life Insurance Company. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Statements of Financial Position June 30, 1999(Unaudited) and December 31, 1998.................. 3 Statements of Operations Three Months Ended June 30, 1999 and and June 30, 1998 and Six Months Ended June 30, 1999 and June 30, 1998 (Unaudited).... 4 Statements of Cash Flows Six Months Ended June 30, 1999 and June 30, 1998 (Unaudited)................................. 5 Notes to Financial Statements................................... 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 10 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK*..................................................N/A PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS..................................................17 Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*........................N/A Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A Item 5. OTHER INFORMATION..................................................17 Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................17 SIGNATURE PAGE...............................................................18 *Omitted pursuant to General Instruction H(2) of Form 10-Q. -2- ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF FINANCIAL POSITION
JUNE 30, DECEMBER 31, 1999 1998 ------------ ------------ ($ in thousands) (UNAUDITED) ASSETS Investments Fixed income securities, at fair value (amortized cost $1,742,959 and $1,648,972) ..... $ 1,899,368 $ 1,966,067 Mortgage loans .................................... 160,688 145,095 Short-term ........................................ 38,672 76,127 Policy loans ...................................... 30,392 29,620 ------------ ------------ Total investments ........................... 2,129,120 2,216,909 Deferred acquisition costs ........................... 95,848 87,830 Accrued investment income ............................ 22,485 22,685 Reinsurance recoverables ............................. 1,992 2,210 Cash ................................................. 700 3,117 Other assets ......................................... 12,265 9,887 Separate Accounts .................................... 402,137 366,247 ------------ ------------ TOTAL ASSETS ................................ $ 2,664,547 $ 2,708,885 ============ ============ LIABILITIES Reserve for life-contingent contract benefits ........ $ 1,137,543 $ 1,208,104 Contractholder funds ................................. 750,028 703,264 Current income taxes payable ......................... 15,705 14,029 Deferred income taxes ................................ 12,103 25,449 Other liabilities and accrued expenses ............... 36,453 23,463 Payable to affiliates, net ........................... 1,755 38,835 Separate Accounts .................................... 402,137 366,247 ------------ ------------ TOTAL LIABILITIES ........................... 2,355,724 2,379,391 ------------ ------------ 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 ...................................... 211,351 198,801 Accumulated other comprehensive income: Unrealized net capital gains ..................... 49,685 82,906 ------------ ------------ TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME 49,685 82,906 ------------ ------------ TOTAL SHAREHOLDER'S EQUITY .................. 308,823 329,494 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY .. $ 2,664,547 $ 2,708,885 ============ ============ See notes to financial statements.
3 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- ($ in thousands) 1999 1998 1999 1998 --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) REVENUES Premiums and contract charges (net of reinsurance ceded of $1,003 and $908; $2,167 and $1,757) $ 19,334 $ 33,001 $ 50,585 $ 59,672 Net investment income ........................... 36,447 33,691 72,007 66,260 Realized capital gains and losses ............... (1,101) 2,873 (748) 4,104 --------- --------- --------- --------- 54,680 69,565 121,844 130,036 --------- --------- --------- --------- COSTS AND EXPENSES Contract benefits (net of reinsurance recoveries of $245 and $143; $782 and $503) ............. 37,733 47,561 86,213 88,821 Amortization of deferred acquisition costs ...... 2,647 2,120 4,826 4,205 Operating costs and expenses .................... 5,201 6,154 11,342 12,165 --------- --------- --------- --------- 45,581 55,835 102,381 105,191 --------- --------- --------- --------- INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE ........................... 9,099 13,730 19,463 24,845 Income tax expense .............................. 3,234 4,884 6,913 8,863 --------- --------- --------- --------- NET INCOME ...................................... $ 5,865 $ 8,846 $ 12,550 $ 15,982 ========= ========= ========= ========= See notes to financial statements.
4 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, ---------------------------- ($ in thousands) 1999 1998 ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................. $ 12,550 $ 15,982 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and other non-cash items ........... (18,264) (17,177) Realized capital gains and losses ............... 748 (4,104) Interest credited to contractholder funds ....... 15,107 27,813 Changes in: Reserve for life-contingent contract benefits and contractholder funds ................ 22,241 23,270 Deferred acquisition costs .................. (6,023) (4,205) Accrued investment income ................... 200 84 Income taxes payable ........................ 6,219 14,235 Other operating assets and liabilities ...... (269) (15,440) ------------ ------------ Net cash provided by operating activities 32,509 40,458 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of fixed income securities ......... 65,333 53,721 Investment collections Fixed income securities ......................... 6,259 78,609 Mortgage loans .................................. 3,742 2,824 Investments purchases Fixed income securities ......................... (173,670) (157,249) Mortgage loans .................................. (21,803) (21,794) Change in short-term investments, net .................. 39,549 (22,867) Change in policy loans, net ............................ (772) (850) ------------ ------------ Net cash used in investing activities ... (81,362) (67,606) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Contractholder fund deposits ........................... 76,906 60,743 Contractholder fund withdrawals ........................ (30,470) (33,376) ------------ ------------ Net cash provided by financing activities 46,436 27,367 ------------ ------------ NET INCREASE (DECREASE) IN CASH ........................ (2,417) 219 CASH AT THE BEGINNING OF YEAR .......................... 3,117 393 ------------ ------------ CASH AT END OF YEAR .................................... $ 700 $ 612 ============ ============ See notes to financial statements.
5 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying financial statements include the accounts of Allstate Life Insurance Company of New York (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 June 30, 1999 and for the three month and six month periods ended June 30, 1999 and 1998 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 1998. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. Effective January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP provides guidance concerning when to recognize a liability for insurance-related assessments and how those liabilities should be measured. Specifically, insurance-related assessments should be recognized as liabilities when all of the following criteria have been met: 1) an assessment has been imposed or it is probable that an assessment will be imposed, 2) the event obligating an entity to pay an assessment has occurred and 3) the amount of the assessment can be reasonably estimated. The adoption of this statement had an immaterial impact to the Company's results of operations and financial position. In July 1999, the Financial Accounting Standards Board ("FASB") delayed the effective date of Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which replaces existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities. The delay was effected through the issuance of SFAS No. 137, which extends the effective date of the SFAS No. 133 requirements to fiscal years beginning after June 15, 2000. As such, the Company plans to adopt the provisions of SFAS No. 133 as of January 1, 2001. Based on existing interpretations of the requirements of SFAS No. 133, the impact of adoption is not expected to be material to the results of operations or financial position of the Company. To conform with the 1999 presentation, certain amounts in the prior years' financial statements and notes have been reclassified. 6 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 JUNE 30, -------------------------------------------------------------------- ($ in thousands) 1999 1998 -------------------------------- -------------------------------- AFTER- AFTER- PRETAX TAX TAX PRETAX TAX TAX -------- -------- -------- -------- -------- -------- Unrealized capital gains and losses: Unrealized holding (losses) gains arising during the period .... $(76,626) $ 26,819 $(49,807) $ 48,364 $(16,928) $ 31,436 Adjustments to unrealized capital gains and losses arising during the period: Deferred acquisition costs 1,800 (629) 1,171 (313) 110 (203) Reserves for life insurance policy benefits ....... 63,192 (22,118) 41,074 (34,575) 12,101 (22,474) -------- -------- -------- -------- -------- -------- Net unrealized holding (losses) gains arising during the period .... (11,634) 4,072 (7,562) 13,476 (4,717) 8,759 Less: reclassification adjustment for realized net capital (losses) gains included in net income ...... (1,116) 391 (725) 2,887 (1,011) 1,876 -------- -------- -------- -------- -------- -------- Other comprehensive (loss) income ............... $(10,518) $ 3,681 (6,837) $ 10,589 $ (3,706) 6,883 ======== ======== ======== ======== Net income ...................... 5,865 8,846 -------- -------- Comprehensive (loss) income ............... $ (972) $ 15,729 ======== ========
7 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2. COMPREHENSIVE INCOME (CONTINUED)
SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------------- ($ in thousands) 1999 1998 -------------------------------- -------------------------------- AFTER- AFTER- PRETAX TAX TAX PRETAX TAX TAX -------- -------- -------- -------- -------- -------- Unrealized capital gains and losses: Unrealized holding (losses) gains arising during the period .... $(161,448) $ 56,507 $(104,941) $ 44,009 $(15,403) $ 28,606 Adjustments to unrealized capital gains and losses arising during the period: Deferred acquisition costs 1,997 (699) 1,298 (110) 38 (72) Reserves for life insurance policy benefits ....... 107,580 (37,653) 69,927 (25,103) 8,786 (16,317) -------- -------- -------- -------- -------- -------- Net unrealized holding (losses) gains arising during the period .... (51,871) 18,155 (33,716) 18,796 (6,579) 12,217 Less: reclassification adjustment for realized net capital (losses) gains included in net income ...... (762) 267 (495) 4,168 (1,459) 2,709 -------- -------- -------- -------- -------- -------- Other comprehensive (loss) income ............... $(51,109) $ 17,888 (33,221) $ 14,628 $ (5,120) 9,508 ======== ======== ======== ======== Net income ...................... 12,550 15,982 -------- -------- Comprehensive (loss) income ............... $(20,671) $ 25,490 ======== ========
8 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 3. COMMITMENTS AND CONTINGENT LIABILITIES REGULATION AND LEGAL PROCEEDINGS The Company is subject to the effects of a changing social, economic and regulatory environment. Public and regulatory initiatives have varied and have included employee benefit regulations, removal of barriers preventing banks from engaging in 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. Various other legal and regulatory actions are currently pending that involve the Company and specific aspects of its conduct of business. In the opinion of management, the ultimate liability, if any, in one or more of these actions in excess of amounts currently reserved 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 related notes thereto found under items 7 and 8 of Part II of the Allstate Life Insurance Company of New York Annual Report on Form 10-K for the year ended December 31, 1998. 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"), markets life insurance and savings products in the State of New York. Life Insurance products include traditional life products such as whole life and term insurance, as well as universal life. Savings products consist of fixed annuity products, including indexed, market value adjusted and structured settlement annuities, as well as variable annuities. The Company's products are distributed through a combination of Allstate agents (which include life specialists), banks, brokers and direct marketing. The Company has identified itself as a single segment entity. FINANCIAL HIGHLIGHTS
($ in thousands) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Statutory premiums and deposits $ 64,084 $ 70,434 $ 127,006 $ 128,560 =========== =========== =========== =========== Investments .................... $ 2,129,120 $ 2,074,042 $ 2,129,120 $ 2,074,042 Separate Account assets ........ 402,137 346,605 402,137 346,605 ----------- ----------- ----------- ----------- Investments, including Separate Account assets ............... $ 2,531,257 $ 2,420,647 $ 2,531,257 $ 2,420,647 =========== =========== =========== =========== Premium and contract charges ... $ 19,334 $ 33,001 $ 50,585 $ 59,672 Net investment income .......... 36,447 33,691 72,007 66,260 Contract benefits .............. 37,733 47,561 86,213 88,821 Operating costs and expenses ... 7,848 7,862 16,168 15,946 ----------- ----------- ----------- ----------- Income from operations ......... 10,200 11,269 20,211 21,165 Income tax expense on operations 3,631 4,023 7,187 7,575 ----------- ----------- ----------- ----------- Operating income ............... 6,569 7,246 13,024 13,590 Net realized capital losses and gains, after-tax (1) ......... (704) 1,600 (474) 2,392 ----------- ----------- ----------- ----------- Net income ..................... $ 5,865 $ 8,846 $ 12,550 $ 15,982 =========== =========== =========== ===========
(1) After the effect of related amortization of deferred policy acquisitions costs. Statutory premiums and deposits include premiums and deposits for all products. For the three month and six month periods ended June 30, 1999, statutory premiums and deposits were $64.1 million and $127.0 million, respectively, compared to $70.4 million and $128.6 million for the same periods in 1998. For both periods ended June 30, 1999, increases in sales of fixed and variable annuities and life products were more than offset by lower structured settlement annuity sales. 10 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Under generally accepted accounting principles ("GAAP"), revenues exclude deposits on most annuity contracts and premiums on universal life insurance policies, and will vary with the mix of business sold during the period. For the second quarter of 1999 and the first half of 1999 premiums and contract charges under GAAP were $19.3 million and $50.6 million, respectively, compared to $33.0 million and $59.7 million for the same periods last year. Increases, primarily in universal life contract charges, were more than offset by lower premiums from structured settlement annuities with life contingencies for both periods. The lower sales of structured settlement annuities with life contingencies similarly impacted the reserve for life contingent contracts reported in contract benefits. Pretax net investment income increased 8.2% in the second quarter of 1999 and 8.7% in the first half of 1999 compared with the same periods last year as higher investment balances were partially offset by lower investment yields and higher investment expenses. Investments at June 30, 1999, excluding Separate Accounts and unrealized gains on fixed income securities grew 10.3% from the same period last year. Lower investment yields are due, in part, to the investment of proceeds from calls and maturities and the investment of positive cash flows from operations in securities yielding less than the average portfolio rate. In relatively low interest rate environments, funds from called or maturing investments may be reinvested at interest rates lower than those which prevailed when the funds were previously invested, resulting in lower investment yields. Operating income for the second quarter of 1999 was $6.6 million versus $7.2 million for the second quarter of 1998. Operating income for the first six months of 1999 was $13.0 million compared to $13.6 million for the same period last year. For both periods in 1999, increases in contract charges and investment income were more than offset by adverse mortality experience. Realized capital losses, after-tax, were $704 thousand for the three months ended June 30, 1999, compared to realized capital gains, after-tax, of $1.6 million for the same period last year. Realized capital losses during the second quarter of 1999 were generated from the sale of publicly-traded and privately-placed corporate obligations which were intended to manage asset and liability duration and facilitate investing in higher yielding securities. These losses more than offset realized capital gains during the first quarter of 1999. Realized capital gains during the second quarter and first half of 1998 related to gains arising from the receipt of prepayments of fixed income securities. 11 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INVESTMENTS The composition of the investment portfolio at June 30, 1999, at financial statement carrying values, is presented in the table below: PERCENT ($ in thousands) TO TOTAL ---------- Fixed income securities (1) $ 1,899,368 89.2% Mortgage loans 160,688 7.6 Policy loans 30,392 1.4 Short-term 38,672 1.8 ----------- ------ Total $2,129,120 100.0% =========== ====== (1) Fixed income securities are carried at fair value. Amortized cost for these securities was $1,742,959 at June 30, 1999. Total investments were $2.13 billion at June 30, 1999 compared to $2.22 billion at December 31, 1998. Positive cash flows generated from operations were more than offset by lower unrealized gains on fixed income securities and a decrease in short-term investments. At June 30, 1999, unrealized capital gains on the fixed income securities portfolio were $156.4 million compared to $317.1 million at December 31, 1998. The decrease in short-term investments resulted from the settlement of an intercompany payable. At June 30, 1999, short-term investments included $11.8 million of collateral received in connection with the Company's securities lending program. At June 30, 1999, 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 ("NAIC") rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company internal rating. SEPARATE ACCOUNTS Separate Account assets and liabilities increased to $402.1 million at June 30, 1999 from $366.2 million at December 31, 1998. The increase was due primarily to flexible premium deferred variable annuity sales and favorable performance of the Separate Account investment portfolios, partially offset by variable annuity contract surrenders and withdrawals. 12 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES 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 represents 89.2% 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 deferred 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. Surrenders and withdrawals were $14.1 million and $25.4 million for the three and six month periods ended June 30, 1999, compared to $16.4 million and $31.5 million for the same periods in 1998. As the Company's interest-sensitive life policies and annuity contracts in force grow and age, the dollar amount of surrenders and withdrawals could increase. YEAR 2000 The Company is dependent upon certain services provided for it by the Corporation including computer-related systems, and systems and equipment not typically thought of as computer-related (referred to as "non-IT"). For this reason, the Company is reliant upon the Corporation for the establishment and maintenance of its computer-related systems and non-IT. The Corporation is heavily dependent upon complex computer systems and equipment for all phases of its operations, including product distribution, customer service, insurance processing, underwriting, loss reserving, investments and other enterprise systems. Since many older computer software programs recognize only the last two digits of the year in any date, some software may fail to operate properly in or after the year 1999 if the software is not reprogrammed, remediated, or replaced ("Year 2000"). Also, many systems and equipment that are not typically thought of as computer-related (referred to as "non-IT") contain embedded hardware or software that may have a Year 2000 sensitive component. The Corporation believes that many of its counterparties and suppliers also have Year 2000 issues and non-IT issues which could affect the Corporation. In 1995, the Corporation commenced a plan consisting of four phases which are intended to mitigate and/or prevent the adverse effects of the Year 2000 issues on its systems and equipment: 1) inventory and assessment of affected systems and equipment, 2) remediation and compliance of systems and equipment through strategies that include the replacement or enhancement of existing systems, upgrades to operating systems already covered by maintenance agreements and modifications to existing systems to make them Year 2000 compliant, 3) testing of systems and equipment using clock-forward testing for both current and future dates and for dates which trigger specific processing, and 4) contingency planning to address possible adverse scenarios and the potential financial impact to the Corporation's results of operations, liquidity or financial position. 13 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Corporation believes that the first three phases of this plan, assessment, remediation and testing, including clock-forward testing which was performed on the Corporation's systems and equipment and non-IT, are complete. It is expected that the implementation and rollout of the remediated personal computer environment will continue into the fourth quarter of 1999. In addition, some systems and equipment and non-IT related to discontinued or non-critical functions of the Corporation are planned to be abandoned by the end of 1999. The fourth phase of this plan, contingency planning, is currently in process. Detailed plans have been created in the event that the systems and equipment or major external counterparties and supplier supporting critical processes are not Year 2000 compliant in or after the year 1999. These plans, created by each corporate function and business unit of the Corporation, identify and document the risks associated with the Year 2000 on their business processes. Appropriate plans have been developed to mitigate those risks. A common inclusion in many of the plans is a description of manual processes and personnel needed in the event of a temporary Year 2000 failure. Contingency plans will be tested appropriately by the corporate function or business unit for their effective operation and for achieving their desired results. In addition, during the third quarter of 1999, the Corporation's management is reviewing all corporate function and business units' plans for accuracy and comprehensiveness. Monitoring of these plans will continue throughout the end of 1999 and beyond, as needed. The Corporation has considered numerous risk scenarios during the contingency planning phase. Through this planning, management believes that the scenario which could be considered the worst case, is a widespread, prolonged failure of public utility systems which would not only cause power outages for the Corporation, but also cause telecommunications, banking or external counterparty and supplier service outages. While the corporation has assessed and will continue to assess data on the utility, telecommunication and banking industries, it acknowledges the possibility that a prolonged widespread outage in any or all of these industries could lead to a worst case scenario. However, the Corporation does not consider such prolonged widespread outages to be reasonably likely. Therefore, the Corporation has focused its most reasonably likely worst case scenario contingency planning on limited scale outages in order to ensure the ability to deal with risks of likely scenarios. Because the Corporation is prepared for outages on a localized basis as part of normal business operations, the Corporation considers the impacts of this most reasonably likely scenario to be immaterial to the Corporation's results of operations, liquidity or financial position. The Company markets its products through a variety of distribution channels, including a broad-based network of exclusive agents (including life specialist), banks, brokers and direct response marketing. The core of the Company's distribution system, the exclusive agents, have had their systems included in the Corporation's four phase plan, therefore management believes that assessment, remediation, testing and the creation of contingency plans are complete for the exclusive agency operations' critical systems. The Company also markets some of its products through Dean Witter Reynolds Inc. ("Dean Witter"), a wholly owned subsidiary of Morgan Stanley Dean Witter. Management believes that its interactions and interfaces with Dean Witter are Year 2000 compliant. Therefore, the impacts of Year 2000, related to this distribution channel, is expected to be immaterial to the Company's results of operations, liquidity and financial position. 14 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition, the Company markets a portion of its products through banks, brokers and direct response marketing. These distribution channels are considered major external counterparties of the Corporation. The Corporation is actively working with its major external counterparties and suppliers, including public utility companies, to assess their compliance efforts and the Corporation's exposure to both their Year 2000 issues and non-IT issues. This assessment has included soliciting external counterparties and suppliers, evaluating responses received and testing third party interfaces and interactions to determine compliance. Currently the Corporation has solicited, and has received responses from, the majority of its counterparties and suppliers. These responses generally state that they believe they will be Year 2000 compliant and that no transactions will be affected. However, certain vendors are also in ongoing assessment and testing of their products whereby they are currently unable to identify all potential problems in certain products which are used by the Corporation. The Corporation believes that these vendors will make no statements regarding their Year 2000 readiness other than to publish declarations addressing specific compliance issues identified with their products. The Corporation is working with these key vendors and has procedures in place to stay aware of any compliance issues encountered by these vendors. The Corporation has also decided to test certain interfaces and interactions to gain additional assurance on third party compliance. Currently, the Corporation does not have sufficient information to determine whether all of its external counterparties and suppliers will be Year 2000 compliant. If they are not Year 2000 compliant, the Corporation is not able to determine the impact of any consequent losses on its results of operations, liquidity or financial position. The Corporation may be exposed to the risk that the issuers of investments in its portfolio will be adversely impacted by Year 2000 issues. The Corporation assesses the impact which Year 2000 issues have on the Corporation's investments as part of due diligence for proposed new investments and in its ongoing review of all current portfolio holdings. Any recommended actions with respect to individual investments are determined by taking into account the potential impact of Year 2000 on the issuer. Based on its current review, the Corporation believes that although Year 2000 issues may temporarily affect the market or individual issuers, the potential impact of Year 2000 on its investment portfolio will not be material. The Corporation presently believes that it will resolve the Year 2000 issue in a timely manner. Year 2000 costs are expensed as incurred. The majority of the expenses related to this project have been incurred as of June 30, 1999. The Corporation estimates that approximately $125 million in costs will be incurred between the years of 1995 and 2000. These amounts include costs directly related to fixing Year 2000 issues, such as modifying software and hiring Year 2000 solution providers, as well as costs incurred to replace certain non-compliant systems which would not have been otherwise replaced. A portion of these costs will be incurred by the Company on a pro rata basis of usage of the computer-related systems and equipment and non-IT, as compared to the usage of all entities which share these services with the Corporation. These amounts are not expected to be material to the results of operations of the Company. 15 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The statements contained in this Management's Discussion and Analysis that are not historical information are forward-looking statements that are based on management's estimates, assumptions and projections. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes several important factors that could cause the Company's actual results and experience with respect to forward-looking statements to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements: 1. The Corporation presently believes that it will resolve the Year 2000 issues affecting its computer operations in a timely manner, and that the costs incurred between the years of 1995 and 2000 in resolving those issues will be approximately $125 million. However, the extent to which the computer operations of the Corporation's external counterparties and suppliers are adversely affected could, in turn, affect the Corporation's ability to communicate with such counterparties and suppliers, could increase the cost of resolving the Year 2000 issues, and could materially affect the Corporation's results of operations in any period or periods. 16 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) Restated Certificate of Incorporation of Allstate Life Insurance Company of New York (Incorporated herein by reference to the Company's Form 10-K Annual Report for the year ended December 31, 1998) (3)(ii) Amended By-laws of Allstate Life Insurance Company of New York (Incorporated herein by reference to the Company's Form 10-K Annual Report for the year ended December 31, 1998) (4) None (10) None (11) Not Required (15) None (18) None (19) None (22) None (23) Not required (24) Power of Attorney - Samuel H. Pilch (27) Financial Data Schedule (b) Reports on 8-K No reports on Form 8-K were filed during the first quarter of 1999. 17 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 August 1999. 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/ SAMUEL H. PILCH CONTROLLER - ------------------------ (Chief Accounting Officer) SAMUEL H. PILCH 18 Exhibit Index Exhibit No. Exhibit (24) Power of Attorney - Samuel H. Pilch (27) Financial Data Schedule EX-24 2 POWER OF ATTORNEY POWER OF ATTORNEY WITH RESPECT TO THE ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK AND THE FORM 10-Q Know all men by these presents that Samuel H. Pilch whose signature appears below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and each of them, his attorneys-in-fact, with power of substitution, and him in any and all capacities, to sign any reports and amendments thereto for the Form 10-Q for Allstate Life Insurance Company of New York and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. August 1, 1999 - ------------------------------- Date /s/ SAMUEL H. PILCH - ------------------------------- Samuel H. Pilch EX-27 3 FDS --
7 THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF FINANCIAL POSITION AT JUNE 30, 1999; STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998; AND STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1999. 0000839759 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 1,899,368 0 0 0 160,688 0 2,129,120 700 1,992 95,848 2,664,547 0 0 1,137,543 750,028 0 0 0 2,000 306,823 2,664,547 50,585 72,007 (748) 0 86,213 4,826 11,342 19,463 6,913 12,550 0 0 0 12,550 0 0 0 0 0 0 0 0 0
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