UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 2, 2007
Allstate Life Insurance Company
(Exact Name of Registrant as Specified in Charter)
Illinois |
| 0-31248 |
| 36-2554642 |
(State or Other |
| (Commission |
| (IRS Employer |
Jurisdiction of |
| File Number) |
| Identification |
Incorporation) |
|
|
| Number) |
3100 Sanders Road, Northbrook, Illinois |
| 60062 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (847) 402-5000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Section 2 — Financial Information
Item 2.02. Results of Operations and Financial Condition.
The registrant furnishes below its Consolidated Statements of Operations for the three years ended December 31, 2006, 2005 and 2004 and Consolidated Statements of Financial Position as of December 31, 2006 and December 31, 2005, prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and certain non-GAAP and operating measures:
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, |
| |||||||
|
| Est. |
|
|
|
|
| ||
|
| 2006 |
| 2005 |
| 2004 |
| ||
(in millions) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
Revenues |
|
|
|
|
|
|
| ||
Premiums |
| $ | 576 |
| 474 |
| $ | 637 |
|
Contract charges |
| 1,009 |
| 1,079 |
| 961 |
| ||
Net investment income |
| 4,057 |
| 3,707 |
| 3,260 |
| ||
Realized capital gains and losses |
| (79 | ) | 19 |
| (11 | ) | ||
|
| 5,563 |
| 5,279 |
| 4,847 |
| ||
|
|
|
|
|
|
|
| ||
Costs and expenses |
|
|
|
|
|
|
| ||
Contract benefits |
| 1,372 |
| 1,340 |
| 1,359 |
| ||
Interest credited to contractholder funds |
| 2,543 |
| 2,340 |
| 1,923 |
| ||
Amortization of deferred policy acquisition costs |
| 538 |
| 568 |
| 534 |
| ||
Operating costs and expenses |
| 374 |
| 432 |
| 457 |
| ||
Restructuring and related expenses |
| 24 |
| 1 |
| 5 |
| ||
|
| 4,851 |
| 4,681 |
| 4,278 |
| ||
|
|
|
|
|
|
|
| ||
Loss on disposition of operations |
| (88 | ) | (7 | ) | (24 | ) | ||
|
|
|
|
|
|
|
| ||
Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax |
| 624 |
| 591 |
| 545 |
| ||
|
|
|
|
|
|
|
| ||
Income tax expense |
| 196 |
| 174 |
| 189 |
| ||
|
|
|
|
|
|
|
| ||
Income before cumulative effect of change in accounting principle, after-tax |
| 428 |
| 417 |
| 356 |
| ||
|
|
|
|
|
|
|
| ||
Cumulative effect of change in accounting principle, after-tax |
| — |
| — |
| (175 | ) | ||
|
|
|
|
|
|
|
| ||
Net income |
| $ | 428 |
| 417 |
| $ | 181 |
|
1
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| December 31, |
| |||||
($ in millions, except par value data) |
| 2006(Est.) |
| 2005 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Investments |
|
|
|
|
| ||
Fixed income securities, at fair value (amortized cost $60,851 and $59,717) |
| $ | 62,439 |
| $ | 61,977 |
|
Mortgage loans |
| 8,690 |
| 8,108 |
| ||
Equity securities |
| 533 |
| 324 |
| ||
Short-term |
| 805 |
| 927 |
| ||
Policy loans |
| 752 |
| 729 |
| ||
Other |
| 941 |
| 691 |
| ||
|
|
|
|
|
| ||
Total investments |
| 74,160 |
| 72,756 |
| ||
|
|
|
|
|
| ||
Cash |
| 273 |
| 154 |
| ||
Deferred policy acquisition costs |
| 3,485 |
| 3,948 |
| ||
Reinsurance recoverables, net |
| 3,392 |
| 1,699 |
| ||
Accrued investment income |
| 689 |
| 648 |
| ||
Other assets |
| 585 |
| 582 |
| ||
Separate Accounts |
| 16,174 |
| 15,235 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 98,758 |
| $ | 95,022 |
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Contractholder funds |
| $ | 60,565 |
| $ | 58,190 |
|
Reserve for life-contingent contract benefits |
| 12,204 |
| 11,881 |
| ||
Unearned premiums |
| 34 |
| 35 |
| ||
Payable to affiliates, net |
| 84 |
| 98 |
| ||
Other liabilities and accrued expenses |
| 3,235 |
| 3,054 |
| ||
Deferred income taxes |
| 258 |
| 340 |
| ||
Note payable to parent |
| 500 |
| — |
| ||
Long-term debt |
| 206 |
| 181 |
| ||
Separate Accounts |
| 16,174 |
| 15,235 |
| ||
|
|
|
|
|
| ||
Total liabilities |
| 93,260 |
| 89,014 |
| ||
|
|
|
|
|
| ||
Shareholder’s Equity |
|
|
|
|
| ||
Redeemable preferred stock — series A, $100 par value, 1,500,000 shares authorized, 49,230 shares issued and outstanding |
| 5 |
| 5 |
| ||
Redeemable preferred stock — series B, $100 par value, 1,500,000 shares authorized, none issued |
| — |
| — |
| ||
Common stock, $227 par value, 23,800 shares authorized and outstanding |
| 5 |
| 5 |
| ||
Additional capital paid-in |
| 1,108 |
| 1,108 |
| ||
Retained income |
| 4,055 |
| 4,302 |
| ||
Accumulated other comprehensive income: |
|
|
|
|
| ||
Unrealized net capital gains and losses |
| 325 |
| 588 |
| ||
|
|
|
|
|
| ||
Total accumulated other comprehensive income |
| 325 |
| 588 |
| ||
|
|
|
|
|
| ||
Total shareholder’s equity |
| 5,498 |
| 6,008 |
| ||
|
|
|
|
|
| ||
Total liabilities and shareholder’s equity |
| $ | 98,758 |
| $ | 95,022 |
|
2
Definitions of Non-GAAP and Operating Measure
We believe that investors’ understanding of our performance is enhanced by our disclosure of the following non-GAAP financial measure. Our methods of calculating this measure may differ from those used by other companies and therefore comparability may be limited.
Operating income is net income excluding:
· realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments which are reported with realized capital gains and losses but included in operating income,
· amortization of deferred policy acquisition costs (“DAC”) and deferred sales inducements (“DSI”), to the extent that they resulted from the recognition of certain realized capital gains and losses,
· (loss) gain on disposition of operations, after-tax, and
· adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years.
Net income is the GAAP measure that is most directly comparable to operating income.
We use operating income to evaluate our results of operations. It reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, (loss) gain on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses and (loss) gain on disposition of operations may vary significantly between periods and are generally driven by business decisions and economic developments such as market conditions, the timing of which is unrelated to the insurance underwriting process. Consistent with our intent to protect results or earn additional income, we retain in operating income periodic settlements and accruals on certain derivative instruments, reported in realized capital gains and losses that do not qualify for hedge accounting, used for economic hedges and to replicate fixed income securities in a manner consistent with the economically hedged investments, product attributes (e.g. net investment income and interest credited to contractholder funds) or replicated investments and by doing so, appropriately reflect trends in our performance. Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends. Therefore, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We use adjusted measures of operating income in incentive compensation. Operating income should not be considered as a substitute for net income and does not reflect the overall profitability of our business. The following table reconciles operating income and net income.
| Year Ended December 31, |
| ||||||||
($ in millions)
|
| Est. |
|
|
|
|
| |||
Operating income |
| $ | 539 |
| $ | 551 |
| $ | 502 |
|
|
|
|
|
|
|
|
| |||
Realized capital gains and losses |
| (79 | ) | 19 |
| (11 | ) | |||
Income tax (expense) benefit |
| 28 |
| (7 | ) | 3 |
| |||
Realized capital gains and losses, after-tax |
| (51 | ) | 12 |
| (8 | ) | |||
DAC and DSI amortization relating to realized capital gains and losses, after-tax |
| 36 |
| (103 | ) | (89 | ) | |||
Reclassification of periodic settlements and accruals on non-hedgederivative instruments, after-tax |
| (36 | ) | (40 | ) | (32 | ) | |||
Loss on disposition of operations, after-tax |
| (60 | ) | (3 | ) | (17 | ) | |||
Income before cumulative effect of change in accounting principle, after-tax |
| 428 |
| 417 |
| 356 |
| |||
Cumulative effect of change in accounting principle, after-tax |
| — |
| — |
| (175 | ) | |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 428 |
| $ | 417 |
| $ | 181 |
|
3
Operating income return on equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of shareholder’s equity at the beginning and at the end of the 12-month period, after excluding the effect of unrealized net capital gains. We use it to supplement our evaluation of net income and return on equity. We believe that this measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management: the after-tax effects of realized and unrealized capital gains and losses and the cumulative effect of change in accounting principle, and non-recurring items that are not indicative of our business or economic trends. Return on equity is the most directly comparable GAAP measure. The following table shows the reconciliation.
($ in millions) |
| For the twelve months |
| ||||
|
| Est. 2006 |
| 2005 |
| ||
Return on equity |
|
|
|
|
| ||
Numerator: |
|
|
|
|
| ||
Net income |
| $ | 428 |
| $ | 417 |
|
Denominator: |
|
|
|
|
| ||
Beginning shareholder’s equity |
| 6,008 |
| 6,309 |
| ||
Ending shareholder’s equity |
| 5,498 |
| 6,008 |
| ||
Average shareholder’s equity |
| $ | 5,753 |
| $ | 6,159 |
|
Return on equity |
| 7.4 | % | 6.8 | % | ||
($ in millions) |
| For the twelve months |
| ||||
|
| Est. 2006 |
| 2005 |
| ||
Operating income return on equity |
|
|
|
|
| ||
Numerator: |
|
|
|
|
| ||
Operating income |
| $ | 539 |
| $ | 551 |
|
|
|
|
|
|
| ||
Denominator: |
|
|
|
|
| ||
Beginning shareholder’s equity |
| 6,008 |
| 6,309 |
| ||
Unrealized net capital gains |
| 588 |
| 1,013 |
| ||
Adjusted beginning shareholder’s equity |
| 5,420 |
| 5,296 |
| ||
Ending shareholder’s equity |
| 5,498 |
| 6,008 |
| ||
Unrealized net capital gains |
| 325 |
| 588 |
| ||
Adjusted ending shareholder’s equity |
| 5,173 |
| 5,420 |
| ||
Average adjusted shareholder’s equity |
| $ | 5,297 |
| $ | 5,358 |
|
Operating income return on equity |
| 10.2 | % | 10.3 | % | ||
4
Operating Measure
We believe that investors’ understanding of our performance is enhanced by our disclosure of the following operating financial measure. Our method of calculating this measure may differ from that used by other companies and therefore comparability may be limited.
Premiums and deposits is an operating measure that we use to analyze production trends for sales. It includes premiums on insurance policies and annuities and all deposits and other funds received from customers on deposit-type products, which we account for under GAAP as increases to liabilities rather than as revenue.
The following table illustrates where premiums and deposits are reflected in the consolidated financial statements.
| Year Ended December 31, |
| |||||||
($ in millions) |
| Est. |
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
Premiums and deposits excluding variable annuities |
| $ | 10,161 |
| 11,624 |
| $ | 13,902 |
|
Variable annuity deposits (1) |
| 678 |
| 1,746 |
| 1,631 |
| ||
Total premiums and deposits |
| 10,839 |
| 13,370 |
| 15,533 |
| ||
Deposits to contractholder funds |
| (9,541 | ) | (11,410 | ) | (13,076 | ) | ||
Deposits to separate accounts |
| (713 | ) | (1,482 | ) | (1,268 | ) | ||
Change in unearned premiums and other adjustments |
| (9 | ) | (4 | ) | (552 | ) | ||
Premiums |
| $ | 576 |
| 474 |
| $ | 637 |
|
(1) Disposed through reinsurance effective June 1, 2006.
5
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 | |||
|
| ||
| By | /s/ Samuel H. Pilch |
|
|
| ||
| Name: Samuel H. Pilch | ||
| Title: Group Vice President and Controller | ||
Date: February 2, 2007 |
| ||
6