UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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.

ý	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
~~FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004~~
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

Commission file number: 333-100029

ALLSTATE LIFE INSURANCE COMPANY
OF
NEW YORK

(Exact name of registrant as specified in its charter)

New York		36-2608394
(State of Incorporation)		(I.R.S. Employer Identification No.)

100 Motor Parkway, Suite 132 Hauppauge, New York	11788	~~11788~~
(Address of principal executive offices)		(Zip Code)

~~Registrant's~~Registrant’s telephone number, including area code:631-357-8920

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

As of ~~July~~October 31, 2004 the Registrant had 100,000 common shares, $25 par value, outstanding, all of which are held by Allstate Life Insurance Company.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO QUARTERLY REPORT ON FORM 10-Q
~~June~~September 30, 2004

PART I.I
FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

Item 1.

Financial Statements
3
Condensed Statements of Operations for the Three-Month and ~~Six-Month~~Nine-Month Periods Ended ~~June~~September 30, 2004 and 2003 (unaudited)

3

Condensed Statements of Financial Position as of ~~June~~September 30, 2004 (unaudited) and December 31, 2003

4

Condensed Statements of Cash Flows for the ~~Six-Month~~Nine-Month Periods Ended ~~June~~September 30, 2004 and 2003 (unaudited)

5

Notes to Condensed Financial Statements (unaudited)

6

Report of Independent Registered Public Accounting Firm

14

Item 2.

~~Management's~~
Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 4.

Controls and Procedures

27

~~PART II.~~

~~OTHER INFORMATION~~

~~Item 1.~~
PART II

~~Legal Proceedings~~
OTHER INFORMATION

27

Item 1.
Legal Proceedings
27
Item 6.

Exhibits ~~and Reports on Form 8-K~~

27
2

PART I. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

(Unaudited)

(Unaudited)

Revenues

Premiums

$
24,800

$
14,189

$
61,420

$
44,451

Contract charges

15,446

12,721

44,134

39,394

Net investment income

77,126

67,259

220,197

195,913

Realized capital gains and losses

(4,805
)
(1,923
)
(8,344
)
(6,406
)

112,567

92,246

317,407

273,352

Costs and expenses

Contract benefits

50,474

38,278

138,314

119,712

Interest credited to contractholder funds

34,253

26,557

92,439

78,349

Amortization of deferred policy acquisition costs

6,590

7,527

15,298

23,649

Operating costs and expenses

10,004

11,452

30,262

26,788

101,321

83,814

276,313

248,498

(Loss) gain on disposition of operations

—

(4,312
)
1,058

(4,312
)

Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax

11,246

4,120

42,152

20,542

Income tax expense

3,644

1,267

14,738

6,934

Income before cumulative effect of change in accounting principle, after-tax

7,602

2,853

27,414

13,608

Cumulative effect of change in accounting principle, after-tax

—

—

(7,586
)
—

Net income

$
7,602

$
2,853

$
19,828

$
13,608

See notes to condensed financial statements.
3

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
CONDENSED STATEMENTS OF FINANCIAL POSITION
(in thousands, except par value data)

September 30,
2004

December 31,
2003

(Unaudited)

Assets

Investments

Fixed income securities, at fair value (amortized cost $4,648,546 and $3,935,447)

$
5,170,629

$
4,415,327

Mortgage loans

440,511

385,643

Short-term

114,874

22,756

Policy loans

34,572

34,107

Other

5,001

—

Total investments

5,765,587

4,857,833

Cash

25,004

10,731

Deferred policy acquisition costs

216,326

187,437

Accrued investment income

54,455

47,818

Reinsurance recoverables

6,755

4,584

Current income taxes receivable

1,602

8,170

Other assets

25,442

15,004

Separate Accounts

710,425

665,875

Total assets

$
6,805,596

$
5,797,452

Liabilities

Reserve for life-contingent contract benefits

$
1,760,334

$
1,683,771

Contractholder funds

3,416,919

2,658,325

Deferred income taxes

88,837

81,657

Other liabilities and accrued expenses

258,431

168,081

Payable to affiliates, net

2,594

5,061

Reinsurance payable to parent

1,071

1,108

Separate Accounts

710,425

665,875

Total liabilities

6,238,611

5,263,878

Commitments and Contingent Liabilities (Note 4)

Shareholder’s equity

Common stock, $25 par value, 100 thousand shares authorized and outstanding

2,500

2,500

Additional capital paid-in

55,787

55,787

Retained income

356,391

336,563

Accumulated other comprehensive income:

Unrealized net capital gains and losses and net gains and losses on derivative financial instruments

152,307

138,724

Total accumulated other comprehensive income

152,307

138,724

Total shareholder’s equity

566,985

533,574

Total liabilities and shareholder’s equity

$
6,805,596

$
5,797,452

See notes to condensed financial statements.
4

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended
September 30,

2004

2003

(in thousands)

(Unaudited)

Cash flows from operating activities

Net income

$
19,828

$
13,608

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization and other non-cash items

(37,624
)
(36,760
)
Realized capital gains and losses

8,344

6,406

(Gain) loss on disposition of operations

(1,058
)
4,312

Cumulative effect of change in accounting principle

7,586

—

Interest credited to contractholder funds

92,439

78,349

Changes in:

Life-contingent contract benefits and contractholder funds

28,950

13,382

Deferred policy acquisition costs

(47,149
)
(22,172
)
Income taxes payable

10,519

(7,083
)
Other operating assets and liabilities

(426
)
(6,009
)
Net cash provided by operating activities

81,409

44,033

Cash flows from investing activities

Proceeds from sales of fixed income securities

342,905

200,613

Investment collections

Fixed income securities

145,165

179,900

Mortgage loans

21,129

21,967

Investment purchases

Fixed income securities

(1,204,327
)
(805,583
)
Mortgage loans

(74,900
)
(69,214
)
Change in short-term investments, net

7,581

(32,976
)
Change in other investments, net

1,203

1,098

Net cash used in investing activities

(761,244
)
(504,195
)

Cash flows from financing activities

Contractholder fund deposits

895,148

579,411

Contractholder fund withdrawals

(201,040
)
(134,124
)
Net cash provided by financing activities

694,108

445,287

Net increase (decrease) in cash

14,273

(14,875
)
Cash at beginning of period

10,731

21,686

Cash at end of period

$
25,004

$
6,811

See notes to condensed financial statements.
5

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
~~CONDENSED STATEMENTS OF OPERATIONS~~

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

(unaudited)

Revenues
Premiums $ 19,969 $ 13,934 $ 36,620 $ 30,262
Contract charges 14,576 13,682 28,688 26,673
Net investment income 72,676 65,356 143,071 128,654
Realized capital gains and losses (2,886 ) 208 (3,539 ) (4,483 )

104,335 93,180 204,840 181,106

Costs and expenses
Contract benefits 44,916 43,046 87,840 81,434
Interest credited to contractholder funds 30,535 27,277 58,186 51,792
Amortization of deferred policy acquisition costs 8,817 9,453 8,708 16,122
�� Operating costs and expenses 10,300 5,610 20,258 15,336

94,568 85,386 174,992 164,684

Gain on disposition of operations — — 1,058 —

Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax

9,767

7,794

30,906

16,422

Income tax expense

3,592

2,706

11,094

5,667

Income before cumulative effect of change in accounting principle, after-tax 6,175 5,088 19,812 10,755

Cumulative effect of change in accounting principle, after-tax

—

—

(7,586
)

—

Net income $ 6,175 $ 5,088 $ 12,226 $ 10,755

~~See notes to condensed financial statements.~~

~~ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK~~
~~CONDENSED STATEMENTS OF FINANCIAL POSITION~~
(in thousands, except par value data)
June 30,
2004
December 31,
2003

(unaudited)

Assets
Investments
Fixed income securities, at fair value (amortized cost $4,365,670 and $3,935,447) $ 4,694,455 $ 4,415,327
Mortgage loans 403,725 385,643
Short-term 76,104 22,756
Policy loans 34,336 34,107
Other 7,285 —

Total investments 5,215,905 4,857,833

Cash

14,148

10,731
Deferred policy acquisition costs 243,019 187,437
Accrued investment income 51,291 47,818
Reinsurance recoverables 5,228 4,584
Current income taxes receivable 8,624 8,170
Other assets 51,580 15,004
Separate Accounts 710,363 665,875

Total assets $ 6,300,158 $ 5,797,452

Liabilities
Reserve for life-contingent contract benefits $ 1,659,453 $ 1,683,771
Contractholder funds 3,084,086 2,658,325
Deferred income taxes 64,924 81,657
Other liabilities and accrued expenses 259,257 168,081
Payable to affiliates, net 6,839 5,061
Reinsurance payable to parent 1,082 1,108
Separate Accounts 710,363 665,875

Total liabilities 5,786,004 5,263,878

Commitments and Contingent Liabilities (Note 4)
Shareholder's equity
Common stock, $25 par value, 100 thousand shares authorized and outstanding 2,500 2,500
Additional capital paid-in 55,787 55,787
Retained income 348,789 336,563
Accumulated other comprehensive income:
Unrealized net capital gains and losses and net gains and losses on derivative financial instruments 107,078 138,724

Total accumulated other comprehensive income 107,078 138,724

Total shareholder's equity 514,154 533,574

Total liabilities and shareholder's equity $ 6,300,158 $ 5,797,452

~~See notes to condensed financial statements.~~

~~ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK~~
~~CONDENSED STATEMENTS OF CASH FLOWS~~

Six Months Ended
June 30,

(in thousands)
2004
2003

(unaudited)

Cash flows from operating activities
Net income $ 12,226 $ 10,755
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items (24,511 ) (24,699 )
Realized capital gains and losses 3,539 4,483
Gain on disposition of operations (1,058 ) —
Cumulative effect of change in accounting principle 7,586 —
Interest credited to contractholder funds 58,186 51,792
Changes in:
Life-contingent contract benefits and contractholder funds 15,929 8,347
Deferred policy acquisition costs (28,212 ) (15,679 )
Income taxes payable 3,938 (4,151 )
Other operating assets and liabilities 11,026 (4,215 )

Net cash provided by operating activities 58,649 26,633

Cash flows from investing activities
Proceeds from sales of fixed income securities 233,910 97,988
Investment collections
Fixed income securities 102,448 136,319
Mortgage loans 6,403 4,287
Investment purchases
Fixed income securities (763,912 ) (578,200 )
Mortgage loans (24,474 ) (44,596 )
Change in short-term investments, net 4,884 19,149
Change in other investments, net 379 1,137

Net cash used in investing activities (440,362 ) (363,916 )

Cash flows from financing activities
Contractholder fund deposits 510,088 405,411
Contractholder fund withdrawals (124,958 ) (80,199 )

Net cash provided by financing activities 385,130 325,212

Net increase (decrease) in cash

3,417

(12,071
)
Cash at beginning of period 10,731 21,686

Cash at end of period $ 14,148 $ 9,615

~~See notes to condensed financial statements.~~

~~ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK~~
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.   Basis of Presentation

The accompanying condensed financial statements include the accounts of Allstate Life Insurance Company of New York (the ~~"Company"~~“Company”), a wholly owned subsidiary of Allstate Life Insurance Company ~~("ALIC"~~(“ALIC”), which is wholly-owned by Allstate Insurance Company ~~("AIC"~~(“AIC”), a wholly-owned subsidiary of The Allstate Corporation (the ~~"Corporation"~~“Corporation”).

The condensed financial statements and notes as of ~~June~~September 30, 2004, and for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2004 and 2003 are unaudited. The condensed 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 condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

To conform to the 2004 ~~and year-end 2003 presentations,~~presentation, certain amounts in the prior ~~year's~~year’s condensed financial statements have been reclassified.
Adopted accounting ~~standard~~standards
Statement of Position 03-1, ~~"Accounting~~“Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate ~~Accounts" ("~~Accounts” (“SOP ~~03-1"~~03-1”)

On January 1, 2004, the Company adopted SOP 03-1. The major provisions of the SOP affecting the Company require:
•
Establishment of reserves primarily related to death benefit and income benefit guarantees provided under variable annuity contracts;

•
Deferral of sales inducements that meet certain criteria, and amortization using the same method used for deferred policy acquisition costs ~~("DAC"~~(“DAC”).
Effects of adoption

The cumulative effect of the change in accounting principle from implementing SOP 03-1 was a loss of $7.6 million, after-tax ($11.7 million, pre-tax). It was comprised of an increase in contractholder funds and benefits reserves (primarily for variable annuity contracts) of $942 thousand, pre-tax, and a reduction in DAC and deferred sales inducements ~~("DSI"~~(“DSI”) of $10.7 million, pre-tax.

The SOP requires consideration of a range of potential results to estimate the cost of variable annuity death benefits and income benefits, which generally necessitates the use of stochastic modeling techniques. To maintain consistency with the assumptions used in the establishment of reserves for variable annuity guarantees, the Company utilized the results of this stochastic modeling to estimate expected gross profits, which form the basis for determining the amortization of DAC and DSI. This new modeling approach resulted in a lower estimate of expected gross profits, and therefore resulted in a write-down of DAC and DSI.

In 2004, DSI and related amortization is classified within the Condensed Statements of Financial Position and Operations as other assets and interest credited to contractholder funds, respectively. The amounts are provided below.
Liabilities for contract guarantees

The Company offers various guarantees to variable contractholders including a return of no less than (a) total deposits made on the contract less any customer withdrawals, (b) total deposits made on the contract less any customer withdrawals plus a minimum return or (c) the highest contract value on a specified anniversary date minus any customer withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (death benefits), upon annuitization (income benefits), or at specified dates during the accumulation period (accumulation benefits). ~~The Company hedges~~To manage the risk associated with its accumulation benefits, ~~for all contracts issued.~~the Company cedes 100% of these obligations to ALIC.
6

The table below presents information regarding the ~~Company's~~Company’s variable contracts with guarantees. The ~~Company's~~Company’s variable annuity contracts may offer more than one type of guarantee in each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity ~~contracts'~~contracts’ separate accounts with guarantees.
($ in millions)
June 30, 2004
In the event of death
Account value $ 709
Net amount at risk(1) $ 107
Average attained age of contractholders 63 years
At annuitization
Account value $ 37
Net amount at risk(2) $ —
Weighted average waiting period until annuitization options available 9 years
Accumulation at specified dates
Account value $ 12
Net amount at risk(3) $ —
Weighted average waiting period until guarantee date 11 years
($ in millions)

September 30,
2004

In the event of death

Account value

$
709

Net amount at risk(1)

$
111

Average attained age of contractholders

63 years

At annuitization

Account value

$
37

Net amount at risk(2)

$
—

Weighted average waiting period until annuitization options available

9 years

Accumulation at specified dates

Account value

$
53

Net amount at risk(3)

$
—

Weighted average waiting period until guarantee date

11 years

(1)
Defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date.

(2)
Defined as the present value of the minimum guaranteed annuity payments determined in accordance with the terms of the contract in excess of the current account balance.

(3)
Defined as the present value of the guaranteed minimum accumulation balance in excess of the current account balance.

Account balances of variable ~~contracts'~~contracts’ separate accounts with guarantees were invested as follows:
(in millions)
June 30, 2004
Equity securities (including mutual funds) $ 679
Cash and cash equivalents 30

Total variable contracts' separate account assets with guarantees $ 709

(in millions)

September 30, 2004

Equity securities (including mutual funds)

$
678

Cash and cash equivalents

31

Total variable contracts’ separate account assets with guarantees

$
709

The following summarizes the liabilities for guarantees:
(in thousands)
Liability for
guarantees
related to
death benefits
Liability for
guarantees
related to
income benefits
Total

Balance, January 1, 2004 $ 868 $ 74 $ 942
Incurred guaranteed benefits 910 3 913
Paid guarantee benefits (969 ) — (969 )

Balance, June 30, 2004(1) $ 809 $ 77 $ 886

(in thousands)

Liability for
guarantees
related to
death benefits

Liability for
guarantees
related to
income benefits

Total

Balance, January 1, 2004

$
868

$
74

$
942

Incurred guaranteed benefits

1,340

4

1,344

Paid guarantee benefits

(1,699
)
—

(1,699
)
Balance, September 30, 2004⁽¹⁾

$
509

$
78

$
587

(1)
Included in the total reserve balance are reserves for variable annuity death benefits of ~~$809~~$509 thousand, variable annuity income benefits of ~~$14~~$15 thousand and other guarantees of $63 thousand.

The liability for death and income benefit guarantees is established equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract benefit payments. The benefit ratio is calculated as the estimated present value of all expected contract benefits divided by the present value of all expected contract charges. For guarantees ~~in the event of~~related to death benefits, benefits represent the current guaranteed minimum death benefit payments in excess of the current account balance. For
7

guarantees ~~at annuitization,~~related to income benefits, benefits represent the present value of the minimum guaranteed annuity benefits in excess of the current account balance.

Projected benefits and contract charges used in determining the liability for guarantees are developed using models and stochastic scenarios that are also used in the development of estimated expected gross profits. Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based on factors such as the extent of benefit to the potential annuitant, eligibility conditions and the ~~annuitant's~~annuitant’s attained age.
The liability for guarantees will be re-evaluated periodically, and adjustments will be made to the liability balance through a charge or credit to contract benefits.
Guarantees related to accumulation benefits are considered to be derivative financial instruments; therefore, the liability for accumulation benefits is established based on its fair value.
Deferred sales inducements

Costs related to sales inducements offered on sales to new customers, principally on investment contracts and primarily in the form of additional credits to the ~~customer's~~customer’s account value or enhancements to interest credited for a specified period, which are beyond amounts currently being credited to existing contracts, are deferred and recorded as other assets. All other sales inducements are expensed as incurred and included in interest credited to contractholder funds on the Condensed Statements of Operations. DSI is amortized to income using the same methodology and assumptions as DAC, and included in interest credited to contractholder funds. DSI is periodically reviewed for recoverability and written down when necessary.

DSI activity for the ~~six~~nine months ended ~~June~~September 30, 2004 was as follows:
(in thousands)

Balance, January 1, 2004 $ 2,369
Sales inducements deferred 867
Amortization charged to income (384 )
Effects of unrealized gains and losses 465

Balance, June 30, 2004 $ 3,317

~~Pending accounting standard~~
(in thousands)

Balance, January 1, 2004

$
2,165

Sales inducements deferred

1,149

Amortization charged to income

(527
)
Effects of unrealized gains and losses

(65
)
Balance, September 30, 2004

$
2,722

Emerging Issues Task Force ~~Topic~~Issue No. 03-1, ~~"The~~“The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain ~~Investments" ("~~Investments” (“EITF 03-1”) and Financial Accounting Standards Board (“FASB”) Staff Position No. ~~03-1"~~EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP EITF 03-1-1”)

In March 2004, the Emerging Issues Task Force ~~("EITF"~~(“EITF”) reached a final consensus on EITF ~~No.~~ 03-1, which iswas to be effective for fiscal periods beginning after June 15, 2004. EITF ~~No.~~ 03-1 requires that when the fair value of an investment security is less than its carrying value an impairment exists for which a determination must be made as to whether the impairment is temporary or other-than-temporary. An impairment loss should be recognized equal to the difference between the ~~investment's~~investment’s carrying value and its fair value when an impairment is other-than-temporary. Subsequent to an other-than temporary impairment loss, a debt security should be accounted for in accordance with Statement of Position No. 03-3, ~~"Accounting~~“Accounting for Loans and Certain Debt Securities Acquired in a ~~Transfer"~~Transfer”, which allows the accretion of the discount between the carrying value and expected value of a security if the amount and timing of the ~~recognition~~receipt of ~~that difference in~~the expected cash flows is reasonably estimable. EITF 03-1 also indicates that although not presumptive, a pattern of selling investments prior to the forecasted recovery may call into question an ~~investor's~~investor’s intent to hold the security until it recovers in ~~value.~~value or otherwise matures.

The EITF 03-1 impairment model applies to all investment securities accounted for under Statement of Financial Accounting Standard ~~("SFAS"~~(“SFAS”) No. 115, ~~"Accounting~~“Accounting for Certain Investments in Debt and Equity ~~Securities"~~Securities” and to investment securities accounted for under the cost method to the extent an impairment indicator exists or the reporting entity has estimated the fair value of the investment security in connection with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments".
method. The final consensus on EITF 03-1 included additional disclosure requirements incremental to those adopted by the Company effective December 31, 2003 that ~~are~~will be effective ~~for fiscal years ending after June 15,~~December 31, 2004.
8

In September 2004, the FASB issued FSP EITF Issue 03-1-1, which deferred the effective date of the impairment measurement and recognition provisions contained in paragraphs 10-20 of EITF 03-1 until proposed FSP EITF 03-1-a is issued. (See Pending accounting standard.)
Pending and recently issued accounting standards
American Institute of Certified Public Accountants (“AICPA”) Technical Practice Aid (“TPA”) re. SOP 03-1
In September 2004, the staff of the AICPA, aided by industry experts, issued a set of technical questions and answers on financial accounting and reporting issues related to SOP 03-1 that will be included in the AICPA’s TPAs. The TPA addresses a number of issues related to SOP 03-1 including when it is necessary to establish a liability in addition to the account balance for certain contracts that meet the definition of an insurance contract and have amounts assessed against the contractholder in a manner that is expected to result in profits in earlier years and losses in subsequent years from the insurance benefit function. The Company is ~~currently~~in the process of evaluating the impact of the TPA. The impact of the TPA is not expected to be material to the Company’s Condensed Statements of Operations or Financial Position.
FSP EITF Issue 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP EITF Issue 03-1-a”)
In September 2004, the FASB issued proposed FSP EITF 03-1-a, that addresses the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired because of increases in interest rates, and/or credit sector spread. Thereafter, in connection with its decision to defer the effective date of paragraphs 10—20 of EITF 03-1 onthrough the issuance of FSP EITF Issue 03-1-1, the FASB requested from its ~~process for determining other-than-temporary impairment for~~constituents information about both the ~~affected securities. More specifically,~~issues set forth in FSP EITF 03-1-a as well as the issues that arose during the FSP EITF 03-1-b, “Effective Date of Paragraph 16 of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, comment letter process.
Due to the uncertainty as to how all of the relevant outstanding issues will be resolved, the Company is ~~analyzing whether subsequent~~unable to ~~adoption its portfolio management practices for certain securities classified as~~

~~available-for-sale pursuant to SFAS No. 115 could be interpreted as a pattern~~determine the impact of ~~selling thereby affecting its designated intent to hold such investments for the period necessary to allow for the forecasted recovery of fair value pursuant to the requirements~~adopting paragraphs 10-20 of EITF 03-1. As a result of this analysis, the Company may potentially reclassify to realized capital gains and losses the unrealized net capital gains and losses associated with certain securities classified as available-for-sale.
03-1 until final implementation guidance is issued. Adoption of ~~this standard may:~~
•
~~Accelerate~~paragraphs 10-20 of EITF 03-1 may have a material impact on the ~~timing~~Company’s Condensed Statements of ~~recognition of certain impairment losses or otherwise result in impairment losses being recognized when they previously may not have been;~~

•
~~Result in the designation of certain investment securities as trading;~~

•
~~Increase the volatility of net income due to:~~

•
~~The potential recognition of unrealized losses in situations where the Company anticipates a full recovery of certain unrealized losses~~Operation but ~~does not desire to elect a permanent intent to hold the affected securities, regardless of internal and external facts and circumstances, until such time as they fully recover or mature; and~~

•
~~Changes in the timing of the recognition of the difference between carrying value and expected settlement value of those debt securities for which an other-than-temporary impairment is taken.~~
        ~~Adoption of this standard~~ is not expected to have a material impact on ~~shareholder's equity~~the Company’s Condensed Statements of Financial Position since fluctuations in fair value are already recorded in accumulated other comprehensive income.
2. Other Investments

In 2004, the Company entered into interest rate cap agreements, financial futures contracts and foreign currency swap agreements that are used to reduce exposure to rising or falling interest rates relative to certain annuity contracts or to change the interest rate characteristics of existing assets or liabilities. All are used for asset-liability management.

In exchange for a premium, interest rate cap agreements provide the holder with the right to receive at a future date, the amount, if any, by which a specified market interest rate exceeds the fixed cap rate applied to a notional amount. Hedge accounting is not applied to these derivative contracts. The fair values of the instruments are reported as other investments and the related gains and losses from the changes in fair value and the accrued periodic settlements are recognized in realized capital gains and losses.

Financial futures contracts are commitments to purchase or sell designated financial instruments at a future date for a specified price or yield. Hedge accounting is not applied to these derivative contracts. The fair values of the instruments are reported as other investments or other liabilities and accrued expenses and the related gains and losses from the changes in fair value, some of which are recognized through daily cash settlements, are classified consistent with the risks being economically hedged and are reported as realized capital gains and losses or contract benefits.

Under cash flow hedge accounting, the Company designates its foreign currency swap agreements as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income. The ~~Company's~~Company’s cash flow exposure is associated with an existing asset. The fair value of the instruments is reported as other investments or other liabilities and accrued expenses and the changes in fair value of the instruments are reported in accumulated other comprehensive income on the Condensed Statements of Financial Position. Amounts are reclassified to net investment income or realized capital gains and losses as the hedge transaction affects net income. Accrued periodic settlements on instruments used in cash flow hedges are reported in net investment income.

June 30, 2004
(in thousands)
Notional
amount
Fair value
Realized
capital
gain (loss)
Interest rate cap agreements $ 129,200 $ 7,198 $ 1,755
Financial futures contracts 26,500 248 600
Foreign currency swap agreements 7,500 (240 ) —
9

September 30, 2004

Nine Months
Ended
September 30,
2004

(in thousands)

Notional
amount

Fair value

Realized capital
gain (loss)

Interest rate cap agreements

$
145,800

$
4,384

$
(1,058
)
Financial futures contracts

26,500

(45
)
1,366

Foreign currency swap agreements

7,500

—

—

3.   Reinsurance

The effects of reinsurance on premiums and contract charges are as follows:

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Premiums and contract charges
Direct $ 38,677 $ 29,565 $ 73,167 $ 60,540
Assumed—non-affiliate 117 64 302 107
Ceded
Affiliate (1,086 ) (1,142 ) (2,183 ) (2,290 )
Non-affiliate (3,163 ) (871 ) (5,978 ) (1,422 )

Premiums and contract charges, net of reinsurance $ 34,545 $ 27,616 $ 65,308 $ 56,935

(in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2004

2003

2004

2003

Premiums and contract charges

Direct

$
43,167

$
28,874

$
116,334

$
89,414

Assumed – non-affiliate

84

103

386

210

Ceded

Affiliate

8

(1,128
)
(2,175
)
(3,418
)
Non-affiliate

(3,013
)
(939
)
(8,991
)
(2,361
)
Premiums and contract charges, net of reinsurance

$
40,246

$
26,910

$
105,554

$
83,845

The effects of reinsurance on contract benefits are as follows:

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Contract benefits
Direct $ 46,370 $ 44,189 $ 90,728 $ 83,233
Assumed—non-affiliate 45 28 78 35
Ceded
Affiliate (1,034 ) (45 ) 17 (113 )
Non-affiliate (465 ) (1,126 ) (2,983 ) (1,721 )

Contract benefits, net of reinsurance $ 44,916 $ 43,046 $ 87,840 $ 81,434

(in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2004

2003

2004

2003

Contract benefits

Direct

$
52,576

$
40,791

$
143,304

$
124,024

Assumed – non-affiliate

57

1

135

36

Ceded

Affiliate

(283
)
(1,312
)
(266
)
(1,425
)
Non-affiliate

(1,876
)
(1,202
)
(4,859
)
(2,923
)
Contract benefits, net of reinsurance

$
50,474

$
38,278

$
138,314

$
119,712

4.   Guarantees and Contingent Liabilities
Guarantees
In the normal course of business, the Company provides standard indemnifications to counterparties in contracts in connection with numerous transactions, including indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature.   In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Because the obligated amounts of the indemnifications are not explicitly stated in many cases, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.

10

The aggregate liability balance related to all guarantees was not material as of ~~June~~September 30, 2004.
Regulation

The Company is subject to changing social, economic and regulatory conditions. Recent state and federal regulatory initiatives and proceedings have included efforts to remove barriers preventing banks from engaging in the securities and insurance businesses, change tax laws affecting the taxation of insurance companies and the tax treatment of insurance products or competing non-insurance products that may impact the relative desirability of various personal investment products and otherwise expand overall regulation of insurance products and the insurance industry. The ultimate changes and eventual effects of these initiatives on the ~~Company's~~Company’s business, if any, are uncertain.

Regulatory bodies have contacted the parent of the Company and have requested information relating to variable insurance products, including such areas as market timing and late trading and sales practices. The Company believes that these inquiries are similar to those made to many financial services companies as part of an industry-wide investigation by various regulatory agencies into the practices, policies and procedures relating to variable insurance products sales and subaccount trading practices. The ~~Company's~~Company’s parent has and will continue to respond to these information requests and investigations. The Company at the present time is not aware of any systemic problems with respect to such matters that may have a material adverse effect on the ~~Company's~~Company’s financial position.
Legal Proceedings
Background
The Company and certain of its affiliates are named as defendants in a number of lawsuits and other legal proceedings arising out of various aspects of its business. As background to the ~~"Proceedings" described~~“Proceedings” sub-section below, please note the following:
•
These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including but not limited to, the underlying facts of each matter, novel legal issues, variations between jurisdictions in which matters are being litigated, differences in applicable laws and judicial interpretations, the length of time before many of these matters might be resolved by settlement or through litigation and, in some cases, the timing of their resolutions relative to other similar cases brought against other companies, the fact that some of these matters are putative class actions in which a class has not been certified and in which the purported class may not be clearly defined, the fact that some of these matters involve multi-state class actions in which the applicable law(s) for the claims at issue is in dispute and therefore unclear, and the current challenging legal environment faced by large corporations and insurance companies.

•
In these matters, plaintiffs seek a variety of remedies including equitable relief in the form of injunctive and other remedies and monetary relief in the form of contractual and extra-contractual damages. In some cases, the monetary damages sought include punitive damages or are not specified. Often more specific information beyond the type of relief sought is not available because plaintiffs have not requested more specific relief in their court pleadings. In our experience, monetary demands in ~~plaintiffs'~~plaintiffs’ court pleadings bear little relation to the ultimate loss, if any, to the Company.

•
For the reasons specified above, it is not possible to make meaningful estimates of the amount or range of loss that could result from these matters at this time. The Company reviews these matters on an on-going basis and follows the provisions of SFAS No. 5, ~~"Accounting~~“Accounting for ~~Contingencies"~~Contingencies”, when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, the Company bases its decisions on its assessment of the ultimate outcome following all appeals.

•
In the opinion of the ~~Company's~~Company’s management, while some of these matters may be material to the ~~Company's~~Company’s operating results for any particular period if an unfavorable outcome results, none will have a material adverse effect on the financial condition of the Company.
11

Proceedings

Legal proceedings involving Allstate agencies and AIC may impact the Company, even when the Company is not directly involved, because the Company sells its products through a variety of distribution channels including Allstate agencies. Consequently, information about the more significant of these proceedings is provided below.

AIC is defending various lawsuits involving worker classification issues. A putative nationwide class action filed by former employee agents includes a worker classification issue; these agents are challenging certain amendments to the Agents Pension Plan and are seeking to have exclusive agent independent contractors treated as employees for benefit purposes. This matter was dismissed with prejudice in late March 2004 by the trial court but will be the subject of further proceedings on appeal. AIC has been vigorously defending this and various other worker classification lawsuits. The outcome of these disputes is currently uncertain.

AIC is ~~also~~ defending certain matters relating to its agency program reorganization announced in 1999. These matters include ~~an investigation by the U.S. Department of Labor,~~ a lawsuit filed in December 2001

by the U.S. Equal Employment Opportunity Commission ~~("EEOC"~~(“EEOC”) alleging retaliation under federal civil rights laws, ~~and~~ a class action filed in August 2001 by former employee agents alleging retaliation and age discrimination under the Age Discrimination in Employment Act, breach of contract and ERISA ~~violations.~~violations, and a lawsuit filed in October 2004 by the EEOC alleging age discrimination with respect to a policy limiting the rehire of agents affected by the agency program reorganization. AIC is also defending another action, in which a class was certified in June 2004, filed by former employee agents who terminated their employment prior to the agency program reorganization. These plaintiffs have asserted claims under ERISA and for constructive discharge, and are seeking the benefits provided in connection with the reorganization. AIC has asked the court to reconsider its class certification ruling.    In ~~April 2004, the U.S. Department of Labor notified AIC that it has closed its investigation and contemplates no further action on this matter at this time. In~~late March 2004, in the first EEOC lawsuit and class action ~~lawsuits,~~lawsuit, the trial court issued a memorandum and order that, among other things, certified classes of agents, including a mandatory class of agents who had signed a release, for purposes of effecting the ~~court's~~court’s declaratory judgment that the release is voidable at the option of the release signer. The court also ordered that an agent who voids the release must return to AIC ~~"any~~“any and all benefits received by the [agent] in exchange for signing the release."” The court also ~~"concluded~~“concluded that, on the undisputed facts of record, there is no basis for claims of age discrimination."” The EEOC and plaintiffs have asked the court to clarify and/or reconsider its memorandum and order. The case otherwise remains pending. A putative nationwide class action has also been filed by former employee agents alleging various violations of ERISA. This matter was dismissed with prejudice in March 2004 by the trial court but ~~may still~~will be the subject toof further proceedings on appeal. In these matters, plaintiffs seek compensatory and punitive damages, and equitable relief. AIC has been vigorously defending these lawsuits and other matters related to its agency program reorganization. The outcome of these disputes is currently uncertain.
Other ~~actions~~Matters

The Corporation and its affiliates have received interrogatories and demands to produce information from several regulatory and enforcement authorities. These authorities are seeking information relevant to on-going investigations into the possible violation of antitrust or insurance laws by unnamed parties and, in particular, are seeking information as to whether any person engaged in activities for the purpose of price fixing, market allocation, or bid rigging. Published press reports have indicated that numerous demands of this nature have been sent to insurance companies as part of industry-wide investigations. The Corporation intends to cooperate fully with these and any similar requests for information.
Various other legal and regulatory actions are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of ~~an increasing~~a number of lawsuits, some of which involve claims for substantial and/or indeterminate amounts. This litigation is based on a variety of issues including insurance and claim settlement practices. The outcome of these disputes is currently unpredictable.    However, at this time, based on their present status, it is the opinion of management that the ultimate liability, if any, in one or more of these other 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.
12

5.     Other Comprehensive Income

The components of other comprehensive income on a pretax and after-tax basis are as follows:

Three Months Ended June 30,

2004
2003
(in thousands)
Pretax
Tax
After-tax
Pretax
Tax
After-tax
Unrealized capital gains and losses
Unrealized holding gains (losses) arising during the period $ (87,752 ) $ 30,712 $ (57,040 ) $ 40,691 $ (14,244 ) $ 26,447
Less: reclassification adjustments (2,427 ) 848 (1,579 ) 216 (76 ) 140

Unrealized net capital gains (losses) (85,325 ) 29,864 (55,461 ) 40,475 (14,168 ) 26,307
Net gains (losses) on derivative financial instruments arising during the period — — — — — —
Less: reclassification adjustments (204 ) 71 (133 ) — — —

Unrealized net gains (losses) on derivative financial instruments 204 (71 ) 133 — — —

Other comprehensive income (loss) $ (85,121 ) $ 29,793 (55,328 ) $ 40,475 $ (14,168 ) 26,307

Net income

6,175

5,088

Comprehensive income (loss)

$
(49,153
)

$
31,395

Three Months Ended September 30,

2004

2003

(in thousands)

Pretax

Tax

After-tax

Pretax

Tax

After-tax

Unrealized capital gains and losses

Unrealized holding gains (losses) arising during the period

$
64,736

$
(22,658
)
$
42,078

$
(38,089
)
$
13,332

$
(24,757
)
Less: reclassification adjustments

(5,089
)
1,781

(3,308
)
(1,924
)
673

(1,251
)
Unrealized net capital gains (losses)

69,825

(24,439
)
45,386

(36,165
)
12,659

(23,506
)
Net gains (losses) on derivative financial instruments arising during the period

—

—

—

—

—

—
��
Less: reclassification adjustments for derivative instruments

240

(84
)
156

—

—

—

Unrealized net gains (losses) on derivative financial instruments

(240
)
84

(156
)
—

—

—

Other comprehensive income (loss)

$
69,585

$
(24,355
)
45,230

$
(36,165
)
$
12,659

(23,506
)

Net income

7,602

2,853

Comprehensive income (loss)

$
52,832

$
(20,653
)

Nine Months Ended September 30,

2004

2003

(in thousands)

Pretax

Tax

After-tax

Pretax

Tax

After-tax

Unrealized capital gains and losses

Unrealized holding gains (losses) arising during the period

$
14,564

$
(5,098
)
$
9,466

$
8,806

$
(3,081
)
$
5,725

Less: reclassification adjustments

(6,334
)
2,217

(4,117
)
(5,445
)
1,906

(3,539
)
Unrealized net capital gains (losses)

20,898

(7,315
)
13,583

14,251

(4,987
)
9,264

Net gains (losses) on derivative financial instruments arising during the period

—

—

—

—

—

—

Less: reclassification adjustments for derivative instruments

—

—

—

—

—

—

Unrealized net gains (losses) on derivative financial instruments

—

—

—

—

—

—

Other comprehensive income (loss)

$
20,898

$
(7,315
)
13,583

$
14,251

$
(4,987
)
9,264

Net income

19,828

13,608

Comprehensive income (loss)

$
33,411

$
22,872

13

Six Months Ended June 30,

2004
2003

(in thousands)
Pretax
Tax
After-tax
Pretax
Tax
After-tax

Unrealized capital gains and losses
Unrealized holding gains (losses) arising during the period $ (51,087 ) $ 17,881 $ (33,206 ) $ 45,806 $ (16,032 ) $ 29,774
Less: reclassification adjustments (2,160 ) 756 (1,404 ) (4,610 ) 1,614 (2,996 )

Unrealized net capital gains (losses) (48,927 ) 17,125 (31,802 ) 50,416 (17,646 ) 32,770
Net gains (losses) on derivative financial instruments arising during the period — — — — — —
Less: reclassification adjustments (240 ) 84 (156 ) — — —

Unrealized net gains (losses) on derivative financial instruments 240 (84 ) 156 — — —

Other comprehensive income (loss) $ (48,687 ) $ 17,041 (31,646 ) $ 50,416 $ (17,646 ) 32,770

Net income

12,226

10,755

Comprehensive income (loss)

$
(19,420
)

$
43,525

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Allstate Life Insurance Company of New York:

We have reviewed the accompanying condensed statement of financial position of Allstate Life Insurance Company of New York (the ~~"Company"~~“Company”, an affiliate of The Allstate Corporation) as of ~~June~~September 30, 2004, and the related condensed statements of operations for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2004 and 2003, and the condensed statements of cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2004 and 2003. These interim financial statements are the responsibility of the ~~Company's~~Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the statement of financial position of Allstate Life Insurance Company of New York as of December 31, 2003, and the related statements of operations and comprehensive income, ~~shareholder's~~shareholder’s equity, and cash flows for the year then ended, not presented herein. In our report dated February 4, 2004, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of financial position as of December 31, 2003 is fairly stated, in all material respects, in relation to the statement of financial position from which it has been derived.
~~/s/ Deloitte & Touche LLP~~
/s/ Deloitte & Touche LLP
Chicago, Illinois
November 10, 2004
~~Chicago, Illinois~~
~~August 10, 2004~~14

Item 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH AND ~~SIX-MONTH~~NINE-MONTH PERIODS ENDED ~~JUNE~~SEPTEMBER 30, 2004 AND 2003
OVERVIEW
The following discussion highlights significant factors influencing the financial position and results of operations of Allstate Life Insurance Company of New York (referred to in this document as ~~"we"~~“we”, ~~"our"~~“our”, ~~"us"~~“us” or the ~~"Company"~~“Company”). It should be read in conjunction with the condensed financial statements and notes thereto found under Part I. Item 1. contained herein, and with the discussion, analysis, financial statements and notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of the Allstate Life Insurance Company of New York Annual Report on Form 10-K for 2003. We operate as a single segment entity, consistent with the way in which we use financial information to evaluate business performance and to determine the allocation of resources.
RESULTS OF OPERATIONS

Premiumsrepresent revenues generated from traditional life, immediate annuities with life contingencies and other insurance products that have significant mortality or morbidity risk.

Contract charges are revenues generated from interest-sensitive life products, variable annuities, fixed annuities and other investment products for which deposits are classified as contractholder funds or separate accounts liabilities on the Condensed Statements of Financial Position. Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to the contractually specified dates. As a result, changes in contractholder funds and separate accounts liabilities are considered in the evaluation of growth and as indicators of future levels of revenues.

The following table summarizes premiums and contract charges by product.

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)
2004
2003
2004
2003
Premiums
Traditional life $ 5,746 $ 5,630 $ 11,201 $ 11,074
Immediate annuities with life contingencies 13,597 6,230 24,041 14,820
Other 626 2,074 1,378 4,368

Total premiums 19,969 13,934 36,620 30,262

Contract charges

Interest-sensitive life 9,982 9,957 19,410 19,446
Fixed annuities 1,495 1,390 3,032 2,601
Variable annuities 3,099 2,335 6,246 4,626

Total contract charges 14,576 13,682 28,688 26,673

Premiums and contract charges $ 34,545 $ 27,616 $ 65,308 $ 56,935

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Premiums

Traditional life

$
6,838

$
5,393

$
18,039

$
16,467

Immediate annuities with life contingencies

17,263

6,759

41,304

21,579

Other

699

2,037

2,077

6,405

Total premiums

24,800

14,189

61,420

44,451

Contract charges

Interest-sensitive life

10,611

8,727

30,021

28,173

Fixed annuities

1,462

1,389

4,494

3,990

Variable annuities

3,373

2,605

9,619

7,231

Total contract charges

15,446

12,721

44,134

39,394

Premiums and contract charges

$
40,246

$
26,910

$
105,554

$
83,845

15

The following table summarizes premiums and contract charges by distribution channel.

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)
2004
2003
2004
2003
Premiums
Allstate agencies $ 5,654 $ 5,545 $ 11,011 $ 10,909
Financial institutions and broker/dealers — 34 107 34
Specialized brokers 13,597 6,230 23,934 14,820
Independent agents 786 380 1,485 623
Direct response (68 ) 1,745 83 3,876

Total Premiums 19,969 13,934 36,620 30,262

Contract charges

Allstate agencies 10,073 10,152 19,556 19,726
Financial institutions and broker/dealers 3,513 2,577 6,946 5,122
Specialized brokers 934 916 2,062 1,761
Independent agents 56 37 124 64

Total contract charges 14,576 13,682 28,688 26,673

Premiums and contract charges $ 34,545 $ 27,616 $ 65,308 $ 56,935

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Premiums

Allstate agencies

$
6,731

$
5,310

$
17,742

$
16,219

Financial institutions and broker/dealers

—

—

107

34

Specialized brokers

17,262

6,724

41,196

21,544

Independent agents

865

476

2,350

1,099

Direct response

(58
)
1,679

25

5,555

Total premiums

24,800

14,189

61,420

44,451

Contract charges

Allstate agencies

10,201

8,789

29,757

28,515

Financial institutions and broker/dealers

4,397

2,961

11,343

8,083

Specialized brokers

782

922

2,844

2,683

Independent agents

66

49

190

113

Total contract charges

15,446

12,721

44,134

39,394

Premiums and contract charges

$
40,246

$
26,910

$
105,554

$
83,845

Total premiums increased ~~43.3%~~75.0% to ~~$20.0~~$24.8 million in the ~~second~~third quarter of 2004 and ~~21.0%~~38.2% to ~~$36.6~~$61.4 million in the first ~~six~~nine months of 2004 compared to the same periods of 2003. The increases in both periods were the result of increased premiums on immediate annuities with life contingencies partially offset by decreased premiums resulting from the disposal of the majority of our direct response distribution business.

Contract charges increased ~~6.5%~~21.4% to ~~$14.6~~$15.4 million in the ~~second~~third quarter of 2004 and ~~7.6%~~12.0% to ~~$28.7~~$44.1 million in the first ~~six~~nine months of 2004 compared to the same periods of 2003. The increases in both periods were primarily attributable to higher contract charges on interest-sensitive life products and variable annuities as a result of average higher account values in the current periods from new business and investment returns.

Contractholder funds represent interest-bearing liabilities arising from the sale of individual products, such as interest-sensitive life and fixed annuities. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract maturities, benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.
16

The following table shows the changes in contractholder funds.

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Contractholder funds, beginning balance $ 2,814,594 $ 2,189,330 $ 2,658,325 $ 2,051,429
Impact of adoption of SOP 03-1(1) — — 2,031 —

Deposits:

Fixed annuities (immediate and deferred) 257,012 195,439 402,399 302,725
Interest-sensitive life 26,210 13,803 51,032 27,782
Variable annuity and life deposits allocated to fixed accounts 31,098 37,420 56,657 74,904

Total deposits 314,320 246,662 510,088 405,411

Interest credited

30,235

27,277

57,951

51,792

Benefits, withdrawals and other adjustments

Benefits and withdrawals (56,205 ) (40,884 ) (104,193 ) (78,548 )
Contract charges (10,446 ) (10,073 ) (20,328 ) (19,593 )
Net transfers to separate accounts (9,927 ) (4,652 ) (21,394 ) (3,784 )
Other adjustments 1,515 (634 ) 1,606 319

Total benefits, withdrawals and other adjustments (75,063 ) (56,243 ) (144,309 ) (101,606 )

Contractholder funds, ending balance

$
3,084,086

$
2,407,026

$
3,084,086

$
2,407,026

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Contractholder funds, beginning balance

$
3,084,086

$
2,407,026

$
2,658,325

$
2,051,429

Impact of adoption of SOP 03-1(1)

—

—

2,031

—

Deposits:

Fixed annuities (immediate and deferred)

340,560

114,040

742,959

416,765

Interest-sensitive life

24,937

16,163

75,969

43,945

Variable annuity and life deposits allocated to fixed accounts

19,562

43,797

76,219

118,701

Total deposits

385,059

174,000

895,147

579,411

Interest credited

34,124

26,557

92,075

78,349

Benefits, withdrawals and other adjustments

Benefits and withdrawals

(66,800
)
(49,744
)
(170,993
)
(128,292
)
Contract charges

(10,756
)
(10,727
)
(31,084
)
(30,320
)
Net transfers to separate accounts

(9,388
)
(5,285
)
(30,782
)
(9,069
)
Other adjustments

594

3,572

2,200

3,891

Total benefits, withdrawals and other adjustments

(86,350
)
(62,184
)
(230,659
)
(163,790
)

Contractholder funds, ending balance

$
3,416,919

$
2,545,399

$
3,416,919

$
2,545,399

(1)
The increase in contractholder funds due to the adoption of AICPA Statement of Position 03-1, ~~"Accounting~~“Accounting and Reporting by Insurance Enterprises for Certain ~~Traditional~~Nontraditional Long-Duration Contracts and for Separate ~~Accounts" (SOP 03-1) primarily~~Accounts” (“SOP 03-1”) reflects the establishment of reserves for certain liabilities that are primarily related to death benefit and income benefit guarantees provided under variable annuity contracts and the reclassification of deferred sales inducements from contractholder funds to other assets.

Contractholder funds deposits increased ~~27.4%~~121.3% in the ~~second~~third quarter and ~~25.8%~~54.5% in the first ~~six months of 2004 compared to the same periods in 2003, and average contractholder funds, excluding the impact of adopting SOP 03-1, increased 28.3% in the second quarter and 28.8% in the first six~~nine months of 2004 compared to the same periods in 2003 due to ~~significant~~increased fixed annuity and interest-sensitive life deposits in both periods. These new deposits contributed to increases in ~~fixed annuity deposits.~~average contractholder funds, excluding the impact of adopting SOP 03-1, of 31.3% in the third quarter and 32.2% in the first nine months of 2004 compared to the same periods in 2003. Fixed annuity deposits increased ~~31.5%~~198.6% and ~~32.9%~~78.3% in the ~~second~~third quarter and first ~~six~~nine months of 2004, respectively, compared to the same periods in 2003. The increases were attributable to ~~higher~~strong consumer demand ~~resulting from increasing interest rates.~~and competitive pricing.

Benefits and withdrawals increased ~~37.5%~~34.3% in the ~~second~~third quarter and ~~32.7%~~33.3% in the first ~~six~~nine months of 2004 compared to the same periods in 2003. Benefits and withdrawals for the ~~second~~third quarter and first ~~six~~nine months of 2004 represent an annualized withdrawal rate of ~~8.0%~~8.7% and ~~7.8%~~8.6%, respectively, based on the beginning of period contractholder funds balance compared to ~~7.5% and 7.7%~~8.3% for both the ~~second~~third quarter and the first ~~six~~nine months of ~~2003, respectively. Surrenders~~2003. Benefits and withdrawals have been comparable to our pricing assumptions.

Separate accounts liabilities represent ~~contractholders'~~contractholders’ claims to the related legally segregated separate accounts assets.   Separate accounts liabilities primarily arise from the sale of variable annuity contracts and variable life insurance policies. The following table shows the changes in separate accounts liabilities.
17

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Separate accounts liabilities, beginning balance $ 686,639 $ 515,422 $ 665,875 $ 537,204

Variable annuity and life deposits

59,943

49,840

111,232

101,972

Variable annuity and life deposits allocated to fixed accounts (31,098 ) (37,420 ) (56,657 ) (74,904 )

Net deposits 28,845 12,420 54,575 27,068

Investment results

2,223

59,888

17,603

47,256

Contract charges (2,466 ) (1,891 ) (4,852 ) (3,658 )
Net transfers from fixed accounts 9,927 4,652 21,394 3,784
Surrenders and benefits (14,805 ) (14,807 ) (44,232 ) (35,970 )

Separate accounts liabilities, ending balance $ 710,363 $ 575,684 $ 710,363 $ 575,684

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Separate accounts liabilities, beginning balance

$
710,363

$
575,684

$
665,875

$
537,204

Variable annuity and life deposits

40,179

67,014

151,411

168,986

Variable annuity and life deposits allocated to fixed accounts

(19,562
)
(43,797
)
(76,219
)
(118,701
)
Net deposits

20,617

23,217

75,192

50,285

Investment results

(5,992
)
13,436

11,611

60,692

Contract charges

(2,614
)
(2,040
)
(7,466
)
(5,698
)
Net transfers from fixed accounts

9,388

5,285

30,782

9,069

Surrenders and benefits

(21,337
)
(27,130
)
(65,569
)
(63,100
)

Separate accounts liabilities, ending balance

$
710,425

$
588,452

$
710,425

$
588,452

Separate accounts liabilities increased ~~$23.7 million~~$62 thousand and ~~$44.5~~$44.6 million during the ~~second~~third quarter and first ~~six~~nine months of 2004, respectively, compared to ~~$60.3~~$12.8 million and ~~$38.5~~$51.2 million during the ~~second~~third quarter and first ~~six~~nine months of 2003, ~~respectively, as a result~~respectively. Net cash inflows were offset by surrenders and benefits and unfavorable investment results in the third quarter of 2004. Deposits, net ~~deposits,~~ transfers from fixed accounts and ~~positive~~favorable investment results were partially offset by surrenders and benefits ~~paid to contractholders~~ and contract ~~charges.~~charges during the first nine months of 2004.      Variable annuity contractholders often allocate a significant portion of their initial variable annuity deposits into a fixed rate investment option. The level of this activity is reflected above in the deposits allocated to the fixed accounts, while all other transfer activity between the fixed and separate accounts investments options is reflected in net transfers from fixed accounts. The liability for the fixed portion of variable annuity contracts is reflected in contractholder funds.

Net investment income increased ~~11.2%~~14.7% in ~~both~~ the ~~second~~third quarter of 2004 and 12.4% in the first ~~six~~nine months of 2004 compared to the same periods in ~~2003,~~2003. The increases in both periods were primarily ~~due to~~the result of the effect of higher portfolio balances, partially offset by lower portfolio yields. Higher portfolio balances resulted from the investment of cash flows from operating and financing activities. Total investments as of ~~June~~September 30, 2004 increased ~~8.9%~~19.3% from ~~June~~September 30, 2003 due primarily to contractholder deposits, partially offset by a decline in unrealized capital gains on fixed income securities. The lower portfolio yields were primarily due to purchases, including reinvestments, of fixed income securities with yields lower than the current portfolio average.
18

Net income analysis is presented in the following table.

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Premiums

$
24,800

$
14,189

$
61,420

$
44,451

Contract charges(1)

15,443

12,721

44,121

39,394

Net investment income

77,126

67,259

220,197

195,913

Periodic settlements and accruals on non-hedge derivative instruments(2)

141

—

217

—

Contract benefits

(50,474
)
(38,278
)
(138,314
)
(119,712
)
Interest credited to contractholder funds(3)

(34,110
)
(26,557
)
(91,912
)
(78,349
)
Gross margin

32,926

29,334

95,729

81,697

Amortization of DAC and DSI

(7,787
)
(7,925
)
(14,639
)
(22,493
)
Operating costs and expenses

(10,004
)
(11,452
)
(30,262
)
(26,788
)
Income tax expense

(5,037
)
(3,406
)
(17,922
)
(11,277
)
Realized capital gains and losses, after-tax

(3,067
)
(1,216
)
(5,298
)
(4,063
)
DAC and DSI amortization expense on realized capital gains and losses, after-tax

661

253

(745
)
(733
)
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

(90
)
—

(137
)
—

(Loss) gain on disposition of operations, after-tax

—

(2,735
)
688

(2,735
)
Cumulative effect of change in accounting principle, after-tax

—

—

(7,586
)
—

Net income

$
7,602

$
2,853

$
19,828

$
13,608

(1)

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Premiums $ 19,969 $ 13,934 $ 36,620 $ 30,262
Contract charges(1) 14,570 13,682 28,678 26,673
Net investment income 72,676 65,356 143,071 128,654
Periodic settlements and accruals on non-hedge derivative instruments 69 — 76 —
Contract benefits (44,916 ) (43,046 ) (87,840 ) (81,434 )
Interest credited to contractholder funds(2) (30,152 ) (27,277 ) (57,802 ) (51,792 )

Gross margin 32,216 22,649 62,803 52,363

Amortization of DAC and DSI

(8,401
)

(8,246
)

(6,852
)

(14,568
)
Operating costs and expenses (10,300 ) (5,610 ) (20,258 ) (15,336 )
Income tax expense (5,046 ) (3,069 ) (12,885 ) (7,871 )
Realized capital gains and losses, after-tax (1,797 ) 130 (2,231 ) (2,847 )
DAC and DSI amortization expense on realized capital gains and losses, after-tax (454 ) (766 ) (1,406 ) (986 )
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax (43 ) — (47 ) —
Gain on disposition of operations, after-tax — — 688 —
Cumulative effect of change in accounting principle, after-tax — — (7,586 ) —

Net income $ 6,175 $ 5,088 $ 12,226 $ 10,755

~~(1)~~
Beginning in 2004, amortization of deferred loads on interest-sensitive life products related to capital gains is excluded from contract charges for purposes of calculating gross margin. Amortization of deferred loads related to capital gains totaled $6$3 thousand and ~~$10~~$13 thousand for the ~~second~~third quarter and the first ~~six~~nine months of 2004.

(2)
          Periodic settlements and accruals of non-hedge derivative instruments are reflected as a component of realized capital gains and losses on the Condensed Statements of Operations.
(3)Beginning in 2004, amortization of DSI is excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled ~~$383~~$143 thousand in the ~~second~~third quarter of 2004 and ~~$384~~$527 thousand for the first ~~six~~nine months of 2004. ~~The prior period has~~Prior periods have not been restated.

Gross margin, a non-GAAP measure, represents premiums, contract charges and net investment income, less contract benefits and interest credited to contractholder funds. We use gross margin as a component of our evaluation of the profitability of our life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities, variable contracts, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of four components that are utilized to further analyze the business: investment margin, benefit margin, maintenance charges and surrender charges. We believe gross margin and its components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these margins. Gross margin is reconciled to GAAP net income in the table above.
The components of gross margin are reconciled to the corresponding financial statement line items in the following table.
19

Three Months Ended June 30,

Investment
Margin
Benefit Margin
Maintenance
Charges
Surrender
Charges
Gross
Margin

(in thousands)
2004
2003
2004
2003
2004
2003
2004
2003
2004
2003

Premiums $ — $ — $ 19,969 $ 13,934 $ — $ — $ — $ — $ 19,969 $ 13,934
Contract charges(1) — — 7,463 7,338 6,022 5,170 1,085 1,174 14,570 13,682
Net investment income 72,676 65,356 — — — — — — 72,676 65,356
Periodic settlements and accruals on non-hedge derivative instruments(2) 69 — — — — — — — 69 —
Contract benefits (23,908 ) (22,053 ) (21,008 ) (20,993 ) — — — — (44,916 ) (43,046 )
Interest credited to contractholder funds(3) (30,152 ) (27,277 ) — — — — — — (30,152 ) (27,277 )

$ 18,685 $ 16,026 $ 6,424 $ 279 $ 6,022 $ 5,170 $ 1,085 $ 1,174 $ 32,216 $ 22,649

Six Months Ended June 30,

Investment
Margin
Benefit Margin
Maintenance
Charges
Surrender
Charges
Gross
Margin

(in thousands)
2004
2003
2004
2003
2004
2003
2004
2003
2004
2003

Premiums $ — $ — $ 36,620 $ 30,262 $ — $ — $ — — $ 36,620 $ 30,262
Contract charges(1) — — 14,729 14,080 11,588 10,239 2,361 2,354 28,678 26,673
Net investment income 143,071 128,654 — — — — — — 143,071 128,654
Periodic settlements and accruals on non-hedge derivative instruments(2) 76 — — — — — — — 76 —
Contract benefits (48,581 ) (45,677 ) (39,259 ) (35,757 ) — — — — (87,840 ) (81,434 )
Interest credited to contractholder funds(3) (57,802 ) (51,792 ) — — — — — — (57,802 ) (51,792 )

$ 36,764 $ 31,185 $ 12,090 $ 8,585 $ 11,588 $ 10,239 $ 2,361 $ 2,354 $ 62,803 $ 52,363

Three Months Ended September 30,

(in thousands)

Investment
Margin

Benefit
Margin

Maintenance
Charges

Surrender
Charges

Gross
Margin

2004

2003

2004

2003

2004

2003

2004

2003

2004

2003

Premiums

$
—

$
—

$
24,800

$
14,189

$
—

$
—

$
—

$
—

$
24,800

$
14,189

Contract charges(1)

—

—

7,359

6,271

6,459

5,210

1,625

1,240

15,443

12,721

Net investment income

77,126

67,259

—

—

—

—

—

—

77,126

67,259

Periodic settlements and accruals on non-hedge derivative instruments(2)

141

—

—

—

—

—

—

—

141

—

Contract benefits

(24,519
)
(24,040
)
(25,955
)
(14,238
)
—

—

—

—

(50,474
)
(38,278
)
Interest credited to contractholder funds(3)

(34,110
)
(26,557
)
—

—

—

—

—

—

(34,110
)
(26,557
)

$
18,638

$
16,662

$
6,204

$
6,222

$
6,459

$
5,210

$
1,625

$
1,240

$
32,926

$
29,334

Nine Months Ended September 30,

(in thousands)

Investment
Margin

Benefit
Margin

Maintenance
Charges

Surrender
Charges

Gross
Margin

2004

2003

2004

2003

2004

2003

2004

2003

2004

2003

Premiums

$
—

$
—

$
61,420

$
44,451

$
-

$
—

$
-

$
—

$
61,420

$
44,451

Contract charges(1)

—

—

22,088

20,352

18,047

15,448

3,986

3,594

44,121

39,394

Net investment income

220,197

195,913

—

—

—

—

—

—

220,197

195,913

Periodic settlements and accruals on non-hedge derivative instruments(2)

217

—

—

—

—

—

—

—

217

—

Contract benefits

(73,100
)
(69,717
)
(65,214
)
(49,995
)
—

—

—

—

(138,314
)
(119,712
)
Interest credited to contractholder funds(3)

(91,912
)
(78,349
)
—

—

—

—

—

—

(91,912
)
(78,349
)

$
55,402

$
47,847

$
18,294

$
14,808

$
18,047

$
15,448

$
3,986

$
3,594

$
95,729

$
81,697

(1)
Beginning in 2004, amortization of deferred loads on interest-sensitive life products related to capital gains is excluded from contract charges for purposes of calculating gross margin. Amortization of deferred loads related to capital gains totaled $6$3 thousand and ~~$10~~$13 thousand for the ~~second~~third quarter and the first ~~six~~nine months of 2004.

(2)
Periodic settlements and accruals on non-hedge derivative instruments are reflected as a component of realized capital gains and losses on the Condensed Statements of Operations.

(3)
Beginning in 2004, amortization of DSI is excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled ~~$383~~$143 thousand in the ~~second~~third quarter of 2004 and ~~$384~~$527 thousand for the first ~~six~~nine months of 2004. ~~The prior period has~~Prior periods have not been restated.

20

Gross margin increased ~~42.2%~~12.2% in the ~~second~~third quarter of 2004 and ~~19.9%~~17.2% in the first ~~six~~nine months of 2004 compared to the same periods of 2003 due to increased ~~benefit margin,~~ investment margin and higher maintenance and surrender charges.

Investment marginis a component of gross margin, both of which are non-GAAP measures. Investment margin represents the excess of net investment income over interest credited to contractholder funds and the implied interest on life-contingent immediate annuities included in reserve for life-contingent contract benefits. We use investment margin to evaluate profitability related to the difference between investment returns on assets supporting certain products and amounts credited to customers ~~("spread"~~(“spread”) during ~~the~~a fiscal period.

Investment margin by product group is shown in the following table.

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)
2004
2003
2004
2003
Life insurance $ 2,782 $ 2,226 $ 5,682 $ 4,714
Annuities 15,903 13,800 31,082 26,471

Total investment margin $ 18,685 $ 16,026 $ 36,764 $ 31,185

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Life insurance

$
2,357

$
2,565

$
8,039

$
7,279

Annuities

16,281

14,097

47,363

40,568

Total investment margin

$
18,638

$
16,662

$
55,402

$
47,847

Investment margin increased ~~16.6%~~11.9% in the ~~second~~third quarter and ~~17.9%~~15.8% in the first ~~six~~nine months of 2004 compared to the same periods of ~~2003~~2003. The increases in both periods were primarily due to an increase in contractholder funds partially offset by declines in the fixed annuity and ~~improved~~interest-sensitive life investment spreads as investment yields were not fully offset by crediting rate reductions. In the first nine months of 2004, the yield decline on the investments supporting capital, traditional life and other ~~products. The increases in both periods were partially~~products also offset ~~by a decline in~~ the ~~interest-sensitive life investment spread, as investment yield declines were not fully offset by crediting rate reductions.~~increase due to growth compared to the first nine months of the prior year.

The following table summarizes the annualized weighted average investment yield, interest crediting rates and investment spreads for the three months ended ~~June~~September 30.

Weighted Average
Investment Yield
Weighted Average
Interest Crediting Rate
Weighted Average
Investment Spread

2004
2003
2004
2003
2004
2003

Interest-sensitive life 6.1 % 6.5 % 4.8 % 5.0 % 1.3 % 1.5 %
Fixed annuities—deferred 5.6 6.1 3.4 3.9 2.2 2.2
Fixed annuities—immediate 7.6 7.8 6.8 6.9 0.8 0.9
Investments supporting capital, traditional life and other products 5.9 4.8 n/a n/a n/a n/a

Weighted Average
Investment Yield

Weighted Average
Interest Crediting Rate

Weighted Average
Investment Spreads

2004

2003

2004

2003

2004

2003

Interest-sensitive life

6.0
%
6.6
%
4.9
%
4.9
%
1.1
%
1.7
%
Fixed annuities – deferred

5.6

6.0

3.6

3.7

2.0

2.3

Fixed annuities – immediate

7.6

7.8

6.8

6.9

0.8

0.9

Investments supporting capital, traditional life and other products

6.2

6.2

N/A

N/A

N/A

N/A

The following table summarizes the annualized weighted average investment yield, interest crediting rates and investment spreads for the ~~six~~nine months ended ~~June~~September 30.

Weighted Average
Investment Yield
Weighted Average
Interest Crediting Rate
Weighted Average
Investment Spread

2004
2003
2004
2003
2004
2003

Interest-sensitive life 6.2 % 6.7 % 4.8 % 5.0 % 1.4 % 1.7 %
Fixed annuities—deferred 5.6 6.2 3.4 4.0 2.2 2.2
Fixed annuities—immediate 7.6 7.8 6.8 6.9 0.8 0.9
Investments supporting capital, traditional life and other products 6.0 4.7 n/a n/a n/a n/a

Weighted Average
Investment Yield

Weighted Average
Interest Crediting Rate

Weighted Average
Investment Spreads

2004

2003

2004

2003

2004

2003

Interest-sensitive life

6.1
%
6.7
%
5.0
%
5.0
%
1.1
%
1.7
%
Fixed annuities – deferred

5.6

6.1

3.5

3.9

2.1

2.2

Fixed annuities – immediate

7.6

7.8

6.8

6.9

0.8

0.9

Investments supporting capital, traditional life and other products

6.1

6.3

N/A

N/A

N/A

N/A

21

The following table summarizes the liabilities for these contracts and policies.

June 30,
(in thousands)
2004
2003
Interest-sensitive life $ 342,433 $ 284,778
Fixed annuities—deferred 2,228,769 1,651,308
Fixed annuities—immediate 1,913,051 1,808,396

4,484,253 3,744,482

FAS 115/133 market value adjustment

154,940

250,610
Life-contingent contracts and other 104,346 99,415

Total contractholder funds and reserve for life-contingent contract benefits $ 4,743,539 $ 4,094,507

September 30,

(in thousands)

2004

2003

Interest-sensitive life

$
355,827

$
293,087

Fixed annuities – deferred

2,532,664

1,772,336

Fixed annuities – immediate

1,948,364

1,827,784

4,836,855

3,893,207

FAS 115/133 market value adjustment

232,530

192,510

Life-contingent contracts and other

107,858

102,361

Total contractholder funds and reserve for life-contingent contract benefits

$
5,177,243

$
4,188,078

Benefit marginis a component of gross margin, both of which are non-GAAP measures. Benefit marginrepresents premiums and cost of insurance contract charges less contract benefits. Benefit margin excludes the implied interest on life-contingent immediate annuities, which is included in the calculation of investment margin, and mortality charges on variable annuities, which are included as a component of maintenance charges. We use the benefit margin to evaluate underwriting performance, as it reflects the profitability of our products with respect to mortality or morbidity risk during a fiscal period.

Benefit margin by product group is shown in the following table.

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Life insurance $ 7,851 $ 1,743 $ 15,069 $ 10,154
Annuities (1,427 ) (1,464 ) (2,979 ) (1,569 )

Total benefit margin $ 6,424 $ 279 $ 12,090 $ 8,585

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Life insurance

$
8,351

$
7,710

$
23,420

$
17,864

Annuities

(2,147
)
(1,488
)
(5,126
)
(3,056
)
Total benefit margin

$
6,204

$
6,222

$
18,294

$
14,808

Benefit margin ~~increased $6.1 million~~decreased 0.3% in the ~~second~~third quarter of 2004 compared to the same period in 2003 ~~due to strengthening~~as growth from new business was partially offset by the disposal of ~~reserves for certain traditional life insurance policies in~~ the ~~second quarter~~majority of ~~2003.~~our direct response distribution business and fewer deaths on our life-contingent immediate annuities.   For the first ~~six~~nine months of 2004, the benefit margin increased ~~$3.5 million or 40.8% from~~23.5% compared to the ~~first six months~~same period of 2003 ~~due to~~as the disposal of the majority of our direct response distribution business and fewer deaths on our life-contingent immediate annuities ~~as well as~~had a less adverse impact on the ~~effects of~~2004 benefit margin than the reserve strengthening inon certain traditional life insurance policies had on the ~~second quarter of 2003.~~2003 benefit margin.

As required by SOP 03-1, as of January 1, 2004, a reserve was established for guaranteed minimum death benefits ~~("GMDBs"~~(“GMDBs”) and guaranteed minimum income benefits ~~("GMIBs"~~(“GMIBs”)~~, which in~~. In previous periods ~~in the case of~~ GMDBs were expensed as ~~paid.~~paid and no costs were recognizable for GMIBs. Under the SOP, we anticipate that the benefit margin will be less volatile in the future, as contract benefit expense pertaining to GMDBs and GMIBs will be proportionate to the related revenue rather than cash payments made during the period. Included in the benefit margin for the ~~second~~third quarter and first ~~six~~nine months of 2004 ~~is an addition~~are additions to the reserve for guarantees of ~~$0.5~~$0.4 million and ~~$0.9~~$1.3 million, respectively. Included in the benefit margin for the ~~second~~third quarter and first ~~six~~nine months of 2003 are GMDB payments of ~~$0.8~~$0.5 million and ~~$2.0~~$2.5 million, respectively. For further explanation of the impacts of the adoption of this accounting guidance, see Note 1 to the Condensed Financial Statements.

Amortization of DAC and DSI ~~increased 1.9%~~ decreased 1.7% in the ~~second~~third quarter of 2004 compared to the same period of 2003 as ~~higher gross margin on fixed annuities and variable products resulted in increased amortization, which was partially offset by~~ the elimination of DAC amortization on the direct response distribution business that was sold in January of ~~2004.~~2004 was largely offset by higher amortization reflective of increased gross margins on fixed and variable annuities.    Amortization of DAC and DSI decreased ~~53.0%~~34.9% in the first ~~six~~nine months of 2004 compared to the ~~first six months of 2003~~same period in the prior year due to a deceleration of amortization (commonly called ~~"DAC unlocking"~~
22

“DAC unlocking”) on interest-sensitive life and fixed annuities of $10.2 million in the

first quarter of 2004 compared to an acceleration of amortization of $325 thousand in the same period of 2003.

The adoption of SOP 03-1 required a new modeling approach for estimating expected future gross profits that are used when determining the amortization of DAC. Because of this new modeling approach, effective January 1, 2004, the variable annuity DAC and DSI assets were reduced by $10.7 million. This reduction was recognized as a cumulative effect of a change in accounting principle.

Operating costs and expenses ~~increased 83.6%~~ decreased 12.6% in the ~~second~~third quarter and ~~32.1%~~increased 13.0% for the first ~~six~~nine months of 2004 compared to the same periods ~~of 2003.~~in the prior year. The ~~increase~~decrease in total operating costs and expenses ~~reflects~~in the third quarter of 2004 compared to the same period in the prior year was primarily the result of the disposal of the majority of our direct response distribution business partially offset by higher non-deferrable sales ~~expenses in the second quarter of 2004 and reinsurance expense credits in the second quarter of 2003.~~expenses. For the first ~~six~~nine months of 2004 compared to ~~2003,~~the same period in the prior year, higher ~~trail commissions~~non-deferrable sales and employee expenses were partially offset by the disposal of the majority of our direct response distribution ~~business.~~business and reinsurance expense credits recognized in the second quarter of 2003.
INVESTMENTS

An important component of our financial results is the return on our investment portfolio. The investment portfolio is managed based upon the business and its corresponding liability structure. The composition of the investment portfolio at ~~June~~September 30, 2004 is presented in the table below.
(in thousands)
Carrying
value
Percent
of total

Fixed income securities(1) $ 4,694,455 90.0 %
Mortgage loans 403,725 7.7
Short-term 76,104 1.5
Policy loans 34,336 0.7
Other 7,285 0.1

Total $ 5,215,905 100.0 %

(in thousands)

Carrying
value

Percent
of total

Fixed income securities (1)

$5,170,629

89.7
%
Mortgage loans

440,511

7.6

Short-term

114,874

2.0

Policy loans

34,572

0.6

Other

5,001

0.1

Total

$5,765,587

100.0
%
(1)
Fixed income securities are carried at fair value. Amortized cost basis for these securities was ~~$4.37~~$4.65 billion.

Total investments increased to ~~$5.22~~$5.77 billion at ~~June~~September 30, 2004 from $4.86 billion at December 31, 2003 due to positive cash flows from operating and financing activities and increased funds associated with securities lending ~~partially offset by decreased~~and increased unrealized gains on fixed income securities.

Total investments at amortized costs related to collateral associated with securities lending increased to ~~$176.0~~$203.9 million at ~~June~~September 30, 2004 from $134.5 million at December 31, 2003.

At ~~June~~September 30, 2004, ~~96.1%~~96.2% of the fixed income securities portfolio was rated investment grade, which is defined as a security having a rating from the National Association of Insurance Commissioners ~~("NAIC"~~(“NAIC”) of 1 or 2, a ~~Moody's~~Moody’s equivalent rating of Aaa, Aa, A or Baa; an S&P equivalent rating of AAA, AA, A or BBB; or a comparable internal rating when an external rating is not ~~available.~~available.

The unrealized net capital gains on fixed income securities at ~~June~~September 30, 2004 were ~~$328.8~~$522.1 million, ~~a decrease~~an increase of ~~$151.1~~$42.2 million or ~~31.5%~~8.8 % since December 31, 2003. The net unrealized gain was comprised of ~~$389.3~~$538.0 million of unrealized gains and ~~$60.5~~$15.9 million of unrealized losses at ~~June~~September 30, 2004. This is compared to a net unrealized gain ~~for the fixed income portfolio~~ totaling $479.9 million at December 31, 2003, comprised of $498.8 million of unrealized gains and $18.9 million of unrealized losses. The total decrease in net unrealized gains for the fixed income portfolio was $151.1 million, of which $142.6 million or 94.4% was related to investment grade securities. The total increase in gross unrealized losses for the fixed income portfolio was $41.5 million, of which $35.7 million or 86.1% was related to investment grade securities.

Of the gross unrealized losses in the fixed income portfolio at ~~June~~September 30, 2004, ~~$51.9~~$12.4 million or ~~85.8%~~78.0% were related to investment grade securities and are believed to be primarily a result of the interest rate environment. Of the remaining ~~$8.6~~$3.5 million of losses in the fixed income portfolio, ~~$6.5~~$1.7 million or ~~75.6%~~48.6% was

concentrated in the corporate fixed income portfolio, ~~and~~$1.8 million or 51.4% was ~~primarily comprised of securities~~concentrated in the ~~transportation, consumer goods and energy sectors. The gross unrealized losses in these sectors were primarily company specific and interest rate related.~~asset backed securities portfolio. Approximately ~~$4.4~~$0.8 million of the gross unrealized losses in the
23

corporate fixed income portfolio were associated with the airline industry for which values were depressed due to company specific issues and economic issues related to fuel costs. We expect eventual recovery of these ~~securities and the related sectors.~~securities. Every security was included in our portfolio monitoring process.

Our portfolio monitoring process identifies and evaluates fixed income securities whose carrying value may be other than temporarily impaired. The process includes a quarterly review of all securities using a screening process to identify those securities whose fair value compared to amortized cost for fixed income securities is below established thresholds for certain time periods, or which are identified through other monitoring criteria such as ratings downgrades or payment defaults.

We also monitor the quality of our fixed income portfolio by categorizing certain investments as ~~"problem"~~“problem”, ~~"restructured"~~“restructured” or ~~"potential~~“potential problem."” Problem fixed income securities are securities in default with respect to principal or interest and/or securities issued by companies that have gone into bankruptcy subsequent to our acquisition of the security. Restructured fixed income securities have rates and terms that are not consistent with market rates or terms prevailing at the time of the restructuring. Potential problem fixed income securities are current with respect to contractual principal and/or interest, but because of other facts and circumstances, we have serious concerns regarding the ~~borrower's~~borrower’s ability to pay future principal and interest, which causes us to believe these securities may be classified as problem or restructured in the future.

The following table summarizes problem, restructured and potential problem fixed income securities.

June 30, 2004
December 31, 2003

(in thousands)
Amortized
cost
Fair
value
Percent
of total
Fixed
Income
portfolio
Amortized
cost
Fair
value
Percent
of total
Fixed
Income
portfolio

Problem $ 12,948 $ 12,308 0.3 % $ 13,186 $ 12,533 0.3 %
Restructured 5,399 5,893 0.1 5,701 6,303 0.1
Potential problem 15,709 14,698 0.3 17,899 17,843 0.4

Total net carrying value $ 34,056 $ 32,899 0.7 % $ 36,786 $ 36,679 0.8 %

Cumulative write-downs recognized $ 5,061 $ 4,817

(in thousands)

September 30, 2004

December 31, 2003

Amortized
cost

Fair
value

Percent
of total
Fixed
Income
portfolio

Amortized
cost

Fair
value

Percent
of total
Fixed
Income
portfolio

Problem

$
12,904

$
12,402

0.2
%
$
13,186

$
12,533

0.3
%
Restructured

5,390

6,109

0.1

5,701

6,303

0.1

Potential problem

16,907

15,095

0.3

17,899

17,843

0.4

Total net carrying value

$
35,201

$
33,606

0.6
%
$
36,786

$
36,679

0.8
%
Cumulative write-downs recognized

$
5,698

$
4,817

We have experienced a decrease in the amortized cost of fixed income securities categorized as problem, restructured and potential problem as of ~~June~~September 30, 2004 compared to December 31, 2003. The decrease was primarily related to the sale of holdings in these categories due to specific developments causing a change in our outlook and intent to hold those securities.

We also evaluated each of these securities through our portfolio monitoring process and recorded write-downs when appropriate. We further concluded that any remaining unrealized losses on these securities were temporary in nature. While these balances may increase in the future, particularly if economic conditions are unfavorable, we expect that the total amount of securities in these categories will remain low relative to the total fixed income securities portfolio.
24

Net Realized Capital Gains and Losses The following table presents the components of realized capital gains and losses and the related tax effect.

Three Months Ended
June 30,
Six Months Ended
June 30,

(in thousands)
2004
2003
2004
2003

Investment write-downs $ (245 ) $ (1,672 ) $ (884 ) $ (7,252 )
Dispositions (5,866 ) 1,527 (4,039 ) 1,626
Valuation of derivative instruments 2,563 (1,029 ) 708 (1,023 )
Settlement of derivative instruments 662 1,382 676 2,166

Realized capital gains and losses, pretax (2,886 ) 208 (3,539 ) (4,483 )
Income tax benefit (expense) 1,089 (78 ) 1,308 1,636

Realized capital gains and losses, after-tax $ (1,797 ) $ 130 $ (2,231 ) $ (2,847 )

Three Months Ended
September 30,

Nine Months Ended
September 30,

(in thousands)

2004

2003

2004

2003

Investment write-downs

$
(2,518
)
$
(295
)
$
(3,402
)
$
(7,547
)
Dispositions

739

(2,726
)
(3,300
)
(1,100
)
Valuation of derivative instruments

(3,934
)
81

(3,226
)
(942
)
Settlement of derivative instruments

908

1,017

1,584

3,183

Realized capital gains and losses, pretax

(4,805
)
(1,923
)
(8,344
)
(6,406
)
Income tax benefit

1,738

707

3,046

2,343

Realized capital gains and losses, after-tax

$
(3,067
)
$
(1,216
)
$
(5,298
)
$
(4,063
)
Dispositions in the above table ~~also~~ include sales and other transactions such as calls and prepayments. We may sell securities during the period in which fair value has declined below amortized ~~cost. Recognizing in~~cost for fixed income securities. In certain situations new factors such as negative developments, subsequent credit deterioration, relative value opportunities, market liquidity concerns and portfolio reallocations we can subsequently change our previous intent to continue holding a security.
        ~~The~~ Included in losses ~~on dispositions~~from written down investments is $2.5 million related to airline industry holdings, all of which was recognized in the ~~second~~third quarter of ~~2004 were related to sales of securities that were sold in recognition of relative value opportunities. The proceeds from these sales were reinvested in higher yielding securities.~~2004.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resourcesconsist of ~~shareholder's~~shareholder’s equity. The following table summarizes our capital resources.
(in thousands)
June 30, 2004
December 31, 2003
Common stock, retained earnings and other shareholder's equity items $ 407,076 $ 394,850
Accumulated other comprehensive income 107,078 138,724

Total shareholder's equity $ 514,154 $ 533,574

(in thousands)

September 30,
2004

December 31,
2003

Common stock, retained earnings and other shareholder’s equity items

$
414,678

$
394,850

Accumulated other comprehensive income

152,307

138,724

Total shareholder’s equity

$
566,985

$
533,574

~~Shareholder's~~Shareholder’s equity ~~decreased~~ increased in the first ~~six~~nine months of 2004 when compared to December 31, 2003 due to ~~decreased~~net income and increases in unrealized net capital gains on fixed income ~~securities partially offset by net income.~~securities.
Financial Ratings and Strength Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks and the current level of operating leverage. There have been no changes to our insurance financial strength ratings since December 31, 2003. However, in February 2004, A.M. Best revised the outlook to stable from positive for the insurance financial strength ratings of ALIC and certain rated ALIC subsidiaries and affiliates, including the Company.
Liquidity Sources and Uses

Increased operating cash flows in the first ~~six~~nine months of 2004 when compared to the first ~~six~~nine months of 2003 primarily relate to increases in premiums and investment income. Cash flows used in investing activities increased in the first ~~six~~nine months of 2004 as a result of the investment of higher financing cash flow and higher operating cash flows.

Higher cash flow from financing activities during the first ~~six~~nine months of 2004 when compared to the same period of 2003 reflects an increase in deposits received from contractholders, partially offset by

benefits and withdrawals from ~~contractholders'~~contractholders’ accounts. For quantification of the changes in contractholder funds, see the Results of Operations section of the MD&A.

25

We have entered into an inter-company loan agreement with The Allstate Corporation (the ~~"Corporation"~~“Corporation”). The amount of inter-company loans available to us is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. We had no amounts outstanding under the inter-company loan agreement at ~~June~~September 30, 2004 or December 31, 2003. The Corporation uses commercial paper borrowings and bank lines of credit to fund intercompany borrowings.
FORWARD-LOOKING STATEMENTS AND RISK FACTOR
This document contains ~~"forward-looking statements"~~“forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like ~~"plans," "seeks," "expects," "will," "should," "anticipates," "estimates," "intends," "believes," "likely," "targets"~~“plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, product development, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. Factors which could cause actual results to differ materially from those suggested by such forward-looking statements are incorporated in this Part I, Item 2 by reference to the information set forth in our Annual Report on Form 10-K, Part II, Item 7, under the caption ~~"Forward-Looking~~“Forward-Looking Statements and Risk Factors."”
Any decrease in our financial strength ratings may have an adverse effect on our competitive position.
•                  Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company’s business. On an ongoing basis, rating agencies review the financial performance and condition of insurers and could downgrade or change the outlook on an insurer’s ratings due to, for example, a change in an insurer’s statutory capital; a change in a rating agency’s determination of the amount of risk-adjusted capital required to maintain a particular rating; an increase in the perceived risk of an insurer’s investment portfolio; a reduced confidence in management or a host of other considerations that may or may not be under the insurer’s control. The insurance financial strength ratings of both Allstate Insurance Company and ALIC, as well as the Company, are A+, Aa2 and AA (from A.M. Best, Moody’s and Standard and Poor’s, respectively). Because all of these ratings are subject to continuous review, the retention of these ratings cannot be assured. A multiple level downgrade in any of these ratings could have a material adverse effect on our sales, our competitiveness, the marketability of our product offerings and our liquidity, operating results and financial condition.
26

Item 4. Controls and Procedures

With the participation of our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports filed with the Securities and Exchange Commission. However, the design of any system of controls and procedures is based in part upon assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and are effective at the ~~"reasonable assurance"~~“reasonable assurance” level.

During the fiscal quarter ended ~~June~~September 30, 2004, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
Information required for this Part II, Item 1 is incorporated by reference to the discussion under the heading ~~"Regulation"~~“Regulation” and under the heading ~~"Legal proceedings"~~“Legal proceedings” in Note 4 of the ~~Company's~~Company’s Condensed Financial Statements in Part I, Item 1, of this Form 10-Q.
Item 6.    Exhibits ~~and Reports on Form 8-K~~
~~(a)~~
~~Exhibits~~
An Exhibit Index has been filed as part of this report on page E-1.
~~(b)~~
~~Reports on Form 8-K~~
~~None.~~
SIGNATURE
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.

Allstate Life Insurance Company of New York
~~(Registrant)~~

~~August~~
(Registrant)
November 10, 2004

By

By
/s/ ~~SAMUEL H. PILCH~~
Samuel H. Pilch
Samuel H. Pilch
Group Vice President and Controller
(chief accounting officer and duly
authorized officer of the Registrant)
27

Exhibit No.
Description
~~10.1~~
Amended and Restated Service and Expense Agreement among Allstate Insurance Company. The Allstate Corporation and Certain Affiliates, effective January 1, 2004. (As of August 9, 2004, some regulatory approvals and board approval are pending.) Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company's Form 10-Q for the quarter ended June 30, 2004.

~~10.2~~
15

~~Automatic Annuity Reinsurance Agreement between Allstate Life Insurance Company of New York and Allstate Life Insurance Company, effective January 2, 2004.~~

15

Acknowledgement of awareness from Deloitte & Touche LLP dated ~~August~~November 10, 2004, concerning unaudited interim financial information.

~~31.1~~

31.1
Rule 15d-14(a) Certification of Principal Executive Officer

~~31.2~~

31.2
Rule 15d-14(a) Certification of Principal Financial Officer

32

32
Section 1350 Certifications
E-1


PART I.I	FINANCIAL INFORMATION
~~Item 1.~~	~~Financial Statements~~
Item 1.	Financial Statements	3

	Condensed Statements of Operations for the Three-Month and ~~Six-Month~~Nine-Month Periods Ended ~~June~~September 30, 2004 and 2003 (unaudited)		3

	Condensed Statements of Financial Position as of ~~June~~September 30, 2004 (unaudited) and December 31, 2003		4

	Condensed Statements of Cash Flows for the ~~Six-Month~~Nine-Month Periods Ended ~~June~~September 30, 2004 and 2003 (unaudited)		5

	Notes to Condensed Financial Statements (unaudited)		6

	Report of Independent Registered Public Accounting Firm		14

Item 2.	~~Management's~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 4.	Controls and Procedures		27
~~PART II.~~	~~OTHER INFORMATION~~
~~Item 1.~~ PART II	~~Legal Proceedings~~ OTHER INFORMATION		27

Item 1.	Legal Proceedings	27

Item 6.	Exhibits ~~and Reports on Form 8-K~~		27

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2004			2003			2004			2003
	(Unaudited)						(Unaudited)
Revenues
Premiums	$	24,800		$	14,189		$	61,420		$	44,451
Contract charges	15,446			12,721			44,134			39,394
Net investment income	77,126			67,259			220,197			195,913
Realized capital gains and losses	(4,805		)	(1,923		)	(8,344		)	(6,406		)
	112,567			92,246			317,407			273,352

Costs and expenses
Contract benefits	50,474			38,278			138,314			119,712
Interest credited to contractholder funds	34,253			26,557			92,439			78,349
Amortization of deferred policy acquisition costs	6,590			7,527			15,298			23,649
Operating costs and expenses	10,004			11,452			30,262			26,788
	101,321			83,814			276,313			248,498

(Loss) gain on disposition of operations	—			(4,312		)	1,058			(4,312		)

Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax	11,246			4,120			42,152			20,542

Income tax expense	3,644			1,267			14,738			6,934

Income before cumulative effect of change in accounting principle, after-tax	7,602			2,853			27,414			13,608

Cumulative effect of change in accounting principle, after-tax	—			—			(7,586		)	—

Net income	$	7,602		$	2,853		$	19,828		$	13,608

(in thousands, except par value data)	September 30, 2004		December 31, 2003
	(Unaudited)
Assets
Investments
Fixed income securities, at fair value (amortized cost $4,648,546 and $3,935,447)	$	5,170,629	$	4,415,327
Mortgage loans	440,511		385,643
Short-term	114,874		22,756
Policy loans	34,572		34,107
Other	5,001		—

Total investments	5,765,587		4,857,833

Cash	25,004		10,731
Deferred policy acquisition costs	216,326		187,437
Accrued investment income	54,455		47,818
Reinsurance recoverables	6,755		4,584
Current income taxes receivable	1,602		8,170
Other assets	25,442		15,004
Separate Accounts	710,425		665,875
Total assets	$	6,805,596	$	5,797,452

Liabilities
Reserve for life-contingent contract benefits	$	1,760,334	$	1,683,771
Contractholder funds	3,416,919		2,658,325
Deferred income taxes	88,837		81,657
Other liabilities and accrued expenses	258,431		168,081
Payable to affiliates, net	2,594		5,061
Reinsurance payable to parent	1,071		1,108
Separate Accounts	710,425		665,875
Total liabilities	6,238,611		5,263,878

Commitments and Contingent Liabilities (Note 4)

Shareholder’s equity
Common stock, $25 par value, 100 thousand shares authorized and outstanding	2,500		2,500
Additional capital paid-in	55,787		55,787
Retained income	356,391		336,563
Accumulated other comprehensive income:
Unrealized net capital gains and losses and net gains and losses on derivative financial instruments	152,307		138,724
Total accumulated other comprehensive income	152,307		138,724
Total shareholder’s equity	566,985		533,574
Total liabilities and shareholder’s equity	$	6,805,596	$	5,797,452

		Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)		2004			2003		2004			2003
		(unaudited)
Revenues
	Premiums	$	19,969		$	13,934	$	36,620		$	30,262
	Contract charges		14,576			13,682		28,688			26,673
	Net investment income		72,676			65,356		143,071			128,654
	Realized capital gains and losses		(2,886	)		208		(3,539	)		(4,483	)

			104,335			93,180		204,840			181,106

Costs and expenses
	Contract benefits		44,916			43,046		87,840			81,434
	Interest credited to contractholder funds		30,535			27,277		58,186			51,792
	Amortization of deferred policy acquisition costs		8,817			9,453		8,708			16,122
��	Operating costs and expenses		10,300			5,610		20,258			15,336

			94,568			85,386		174,992			164,684

Gain on disposition of operations			—			—		1,058			—
Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax			9,767			7,794		30,906			16,422
Income tax expense			3,592			2,706		11,094			5,667

Income before cumulative effect of change in accounting principle, after-tax			6,175			5,088		19,812			10,755
Cumulative effect of change in accounting principle, after-tax			—			—		(7,586	)		—

Net income		$	6,175		$	5,088	$	12,226		$	10,755

(in thousands, except par value data)				June 30, 2004		December 31, 2003
				(unaudited)
Assets
Investments
	Fixed income securities, at fair value (amortized cost $4,365,670 and $3,935,447)			$	4,694,455	$	4,415,327
	Mortgage loans				403,725		385,643
	Short-term				76,104		22,756
	Policy loans				34,336		34,107
	Other				7,285		—

		Total investments			5,215,905		4,857,833
Cash					14,148		10,731
Deferred policy acquisition costs					243,019		187,437
Accrued investment income					51,291		47,818
Reinsurance recoverables					5,228		4,584
Current income taxes receivable					8,624		8,170
Other assets					51,580		15,004
Separate Accounts					710,363		665,875

			Total assets	$	6,300,158	$	5,797,452

Liabilities
Reserve for life-contingent contract benefits				$	1,659,453	$	1,683,771
Contractholder funds					3,084,086		2,658,325
Deferred income taxes					64,924		81,657
Other liabilities and accrued expenses					259,257		168,081
Payable to affiliates, net					6,839		5,061
Reinsurance payable to parent					1,082		1,108
Separate Accounts					710,363		665,875

			Total liabilities		5,786,004		5,263,878

Commitments and Contingent Liabilities (Note 4)
Shareholder's equity
Common stock, $25 par value, 100 thousand shares authorized and outstanding					2,500		2,500
Additional capital paid-in					55,787		55,787
Retained income					348,789		336,563
Accumulated other comprehensive income:
	Unrealized net capital gains and losses and net gains and losses on derivative financial instruments				107,078		138,724

			Total accumulated other comprehensive income		107,078		138,724

			Total shareholder's equity		514,154		533,574

			Total liabilities and shareholder's equity	$	6,300,158	$	5,797,452

($ in millions)		June 30, 2004
In the event of death
	Account value	$	709
	Net amount at risk(1)	$	107
	Average attained age of contractholders		63 years
At annuitization
	Account value	$	37
	Net amount at risk(2)	$	—
	Weighted average waiting period until annuitization options available		9 years
Accumulation at specified dates
	Account value	$	12
	Net amount at risk(3)	$	—
	Weighted average waiting period until guarantee date		11 years

($ in millions)	September 30, 2004
In the event of death
Account value	$	709
Net amount at risk(1)	$	111
Average attained age of contractholders	63 years
At annuitization
Account value	$	37
Net amount at risk(2)	$	—
Weighted average waiting period until annuitization options available	9 years
Accumulation at specified dates
Account value	$	53
Net amount at risk(3)	$	—
Weighted average waiting period until guarantee date	11 years

(in millions)	June 30, 2004
Equity securities (including mutual funds)	$	679
Cash and cash equivalents		30

Total variable contracts' separate account assets with guarantees	$	709

(in millions)	September 30, 2004
Equity securities (including mutual funds)	$	678
Cash and cash equivalents	31
Total variable contracts’ separate account assets with guarantees	$	709

(in thousands)	Liability for guarantees related to death benefits			Liability for guarantees related to income benefits		Total
Balance, January 1, 2004	$	868		$	74	$	942
Incurred guaranteed benefits		910			3		913
Paid guarantee benefits		(969	)		—		(969	)

Balance, June 30, 2004(1)	$	809		$	77	$	886

(in thousands)
Balance, January 1, 2004	$	2,369
Sales inducements deferred		867
Amortization charged to income		(384	)
Effects of unrealized gains and losses		465

Balance, June 30, 2004	$	3,317

(in thousands)
Balance, January 1, 2004	$	2,165
Sales inducements deferred	1,149
Amortization charged to income	(527		)
Effects of unrealized gains and losses	(65		)
Balance, September 30, 2004	$	2,722

	June 30, 2004
(in thousands)	Notional amount		Fair value			Realized capital gain (loss)
Interest rate cap agreements	$	129,200	$	7,198		$	1,755
Financial futures contracts		26,500		248			600
Foreign currency swap agreements		7,500		(240	)		—

	September 30, 2004					Nine Months Ended September 30, 2004
(in thousands)	Notional amount		Fair value			Realized capital gain (loss)
Interest rate cap agreements	$	145,800	$	4,384		$	(1,058	)
Financial futures contracts	26,500		(45		)	1,366
Foreign currency swap agreements	7,500		—			—

	Three Months Ended September 30,
	2004									2003
(in thousands)	Pretax			Tax			After-tax			Pretax			Tax		After-tax
Unrealized capital gains and losses
Unrealized holding gains (losses) arising during the period	$	64,736		$	(22,658	)	$	42,078		$	(38,089	)	$	13,332	$	(24,757	)
Less: reclassification adjustments	(5,089		)	1,781			(3,308		)	(1,924		)	673		(1,251		)
Unrealized net capital gains (losses)	69,825			(24,439		)	45,386			(36,165		)	12,659		(23,506		)
Net gains (losses) on derivative financial instruments arising during the period	—			—			—			—			—		—		��
Less: reclassification adjustments for derivative instruments	240			(84		)	156			—			—		—
Unrealized net gains (losses) on derivative financial instruments	(240		)	84			(156		)	—			—		—
Other comprehensive income (loss)	$	69,585		$	(24,355	)	45,230			$	(36,165	)	$	12,659	(23,506		)

Net income							7,602								2,853

Comprehensive income (loss)							$	52,832							$	(20,653	)

	Nine Months Ended September 30,
	2004									2003
(in thousands)	Pretax			Tax			After-tax			Pretax			Tax			After-tax
Unrealized capital gains and losses
Unrealized holding gains (losses) arising during the period	$	14,564		$	(5,098	)	$	9,466		$	8,806		$	(3,081	)	$	5,725
Less: reclassification adjustments	(6,334		)	2,217			(4,117		)	(5,445		)	1,906			(3,539		)
Unrealized net capital gains (losses)	20,898			(7,315		)	13,583			14,251			(4,987		)	9,264
Net gains (losses) on derivative financial instruments arising during the period	—			—			—			—			—			—
Less: reclassification adjustments for derivative instruments	—			—			—			—			—			—
Unrealized net gains (losses) on derivative financial instruments	—			—			—			—			—			—
Other comprehensive income (loss)	$	20,898		$	(7,315	)	13,583			$	14,251		$	(4,987	)	9,264

Net income							19,828									13,608

Comprehensive income (loss)							$	33,411								$	22,872

	Three Months Ended June 30,
	Investment Margin						Benefit Margin						Maintenance Charges				Surrender Charges				Gross Margin
(in thousands)	2004			2003			2004			2003			2004		2003		2004		2003		2004			2003
Premiums	$	—		$	—		$	19,969		$	13,934		$	—	$	—	$	—	$	—	$	19,969		$	13,934
Contract charges(1)		—			—			7,463			7,338			6,022		5,170		1,085		1,174		14,570			13,682
Net investment income		72,676			65,356			—			—			—		—		—		—		72,676			65,356
Periodic settlements and accruals on non-hedge derivative instruments(2)		69			—			—			—			—		—		—		—		69			—
Contract benefits		(23,908	)		(22,053	)		(21,008	)		(20,993	)		—		—		—		—		(44,916	)		(43,046	)
Interest credited to contractholder funds(3)		(30,152	)		(27,277	)		—			—			—		—		—		—		(30,152	)		(27,277	)

	$	18,685		$	16,026		$	6,424		$	279		$	6,022	$	5,170	$	1,085	$	1,174	$	32,216		$	22,649

	Weighted Average Investment Yield				Weighted Average Interest Crediting Rate				Weighted Average Investment Spreads
	2004		2003		2004		2003		2004		2003
Interest-sensitive life	6.0	%	6.6	%	4.9	%	4.9	%	1.1	%	1.7	%
Fixed annuities – deferred	5.6		6.0		3.6		3.7		2.0		2.3
Fixed annuities – immediate	7.6		7.8		6.8		6.9		0.8		0.9
Investments supporting capital, traditional life and other products	6.2		6.2		N/A		N/A		N/A		N/A

	September 30,
(in thousands)	2004		2003

Interest-sensitive life	$	355,827	$	293,087
Fixed annuities – deferred	2,532,664		1,772,336
Fixed annuities – immediate	1,948,364		1,827,784
	4,836,855		3,893,207
FAS 115/133 market value adjustment	232,530		192,510
Life-contingent contracts and other	107,858		102,361
Total contractholder funds and reserve for life-contingent contract benefits	$	5,177,243	$	4,188,078

(in thousands)		Carrying value		Percent of total
Fixed income securities(1)		$	4,694,455	90.0	%
Mortgage loans			403,725	7.7
Short-term			76,104	1.5
Policy loans			34,336	0.7
Other			7,285	0.1

	Total	$	5,215,905	100.0	%

	June 30, 2004						December 31, 2003
(in thousands)	Amortized cost		Fair value		Percent of total Fixed Income portfolio		Amortized cost		Fair value		Percent of total Fixed Income portfolio
Problem	$	12,948	$	12,308	0.3	%	$	13,186	$	12,533	0.3	%
Restructured		5,399		5,893	0.1			5,701		6,303	0.1
Potential problem		15,709		14,698	0.3			17,899		17,843	0.4

Total net carrying value	$	34,056	$	32,899	0.7	%	$	36,786	$	36,679	0.8	%

Cumulative write-downs recognized	$	5,061					$	4,817

(in thousands)	September 30, 2004						December 31, 2003
	Amortized cost		Fair value		Percent of total Fixed Income portfolio		Amortized cost		Fair value		Percent of total Fixed Income portfolio
Problem	$	12,904	$	12,402	0.2	%	$	13,186	$	12,533	0.3	%
Restructured	5,390		6,109		0.1		5,701		6,303		0.1
Potential problem	16,907		15,095		0.3		17,899		17,843		0.4
Total net carrying value	$	35,201	$	33,606	0.6	%	$	36,786	$	36,679	0.8	%
Cumulative write-downs recognized	$	5,698					$	4,817

(in thousands)		June 30, 2004		December 31, 2003
Common stock, retained earnings and other shareholder's equity items		$	407,076	$	394,850
Accumulated other comprehensive income			107,078		138,724

	Total shareholder's equity	$	514,154	$	533,574

		Allstate Life Insurance Company of New York ~~(Registrant)~~
~~August~~		(Registrant)


November 10, 2004	By	By	/s/ ~~SAMUEL H. PILCH~~
	Samuel H. Pilch
		Samuel H. Pilch
		Group Vice President and Controller
		(chief accounting officer and duly
		authorized officer of the Registrant)

	Exhibit No.		Description
~~10.1~~		Amended and Restated Service and Expense Agreement among Allstate Insurance Company. The Allstate Corporation and Certain Affiliates, effective January 1, 2004. (As of August 9, 2004, some regulatory approvals and board approval are pending.) Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company's Form 10-Q for the quarter ended June 30, 2004.
~~10.2~~ 15		~~Automatic Annuity Reinsurance Agreement between Allstate Life Insurance Company of New York and Allstate Life Insurance Company, effective January 2, 2004.~~
15		Acknowledgement of awareness from Deloitte & Touche LLP dated ~~August~~November 10, 2004, concerning unaudited interim financial information.
~~31.1~~
31.1		Rule 15d-14(a) Certification of Principal Executive Officer
~~31.2~~
31.2		Rule 15d-14(a) Certification of Principal Financial Officer
32
32		Section 1350 Certifications