FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-47245 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK (Exact name of registrant as specified in its charter) NEW YORK 36-2608394 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Allstate Drive P.O. Box 9095 Farmingville, New York 11738 (Address of principal executive offices) (Zip Code) 516/451-5300 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes../X/.. No Indicate the number of shares of each of the issuer's classes of common stock, as of September 30, 1996; there were 80,000 shares of common capital stock outstanding, par value $25 per share all of which shares are held by Allstate Life Insurance Company. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Financial Position As Of September 30, 1996(Unaudited)and December 31, 1995 3 Statements of Operations Three Months Ended September 30, 1996 and September 30, 1995 (Unaudited) Nine Months Ended September 30, 1996 and September 30, 1995 (Unaudited) 4 Statements of Cash Flows Nine Months Ended September 30, 1996 and September 30, 1995(Unaudited) 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature Page ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF FINANCIAL POSITION September 30, December 31, ($ in thousands) 1996 1995 (Unaudited) Assets Investments Fixed income securities available for sale, at fair value (amortized cost $1,286,435 and $1,219,418) $ 1,363,625 $1,424,893 Mortgage loans 81,116 86,394 Policy loans 24,557 22,785 Short-term 39,289 7,257 Total investments 1,508,587 1,541,329 Deferred acquisition costs 59,908 53,944 Accrued investment income 17,248 18,828 Reinsurance recoverables 2,911 3,331 Deferred income taxes 5,305 Cash 2,262 1,472 Other assets 3,552 3,924 Separate Accounts 243,863 220,141 Total assets $1,843,636 $ 1,842,969 Liabilities Reserve for life insurance policy benefits $ 855,141 $ 838,739 Contractholder funds 516,144 499,548 Deferred income taxes 23,659 Other liabilities and accrued expenses 10,211 8,950 Net payable to affiliates 959 1,865 Separate Accounts 243,863 220,141 Total liabilities 1,626,318 1,592,902 Shareholder's equity Common stock, $25 par value, 80,000 shares authorized, issued and outstanding 2,000 2,000 Additional capital paid-in 45,787 45,787 Unrealized net capital gains 26,585 74,413 Retained income 142,946 127,867 Total shareholder's equity 217,318 250,067 Total liabilities and shareholder's equity $1,843,636 $1,842,969 See notes to financial statements. 3 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, ($ in thousands) 1996 1995 1996 1995 (Unaudited) (Unaudited) Revenues Premium income (net of reinsurance ceded of $626 and $692; $1,820 and $1,758) $ 20,990 $ 23,519 $ 65,906 $100,126 Contract charges 6,567 5,676 18,872 15,514 Net investment income 28,528 26,622 83,952 77,304 Realized capital gains and (losses) (2,575) 324 (2,224) (1,809) 53,510 56,141 166,506 191,135 Costs and expenses Provision for policy benefits (net of reinsurance recoveries of $523 and $503; $2,693 and $681) 40,298 43,061 125,687 152,832 Amortization of deferred acquisition costs 1,498 1,740 4,463 3,500 Operating costs and expenses 4,265 4,060 12,679 13,981 46,061 48,861 142,829 170,313 Income from operations before income tax expense 7,449 7,280 23,677 20,822 Income tax expense 2,609 2,696 8,599 7,543 Net income $ 4,840 $ 4,584 $15,078 $13,279 -------- --------- -------- ------- See notes to financial statements. 4 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1996 1995 ($ in thousands) (Unaudited) Cash flows from operating activities Net income $ 15,078 $ 13,279 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization and other non-cash items (19,375) (16,430) Realized capital gains and losses 2,224 1,809 Interest credited to contractholder funds 18,178 19,798 Increase in reserve for policy benefits and contractholder funds 53,962 88,166 Increase in deferred policy acquisition costs (4,957) (4,429) Change in accrued investment income 1,580 (456) Change in deferred income taxes (3,212) (5,078) Change in other operating assets and liabilities 1,879 2,799 Net cash provided by operating activities 65,357 99,458 Cash flows from investing activities Proceeds from sales Fixed income securities available for sale 20,810 13,526 Investment collections Fixed income securities available for sale 50,223 21,582 Fixed income securities held to maturity 2,404 Mortgage loans 7,702 2,890 Investment purchases Fixed income securities available for sale (122,232) (84,910) Fixed income securities held to maturity (32,046) Mortgage loans (1,825) (3,074) Change in short-term investments, net (32,032) (20,614) Change in other investments, net (1,772) (215) Net cash used in investing activities (79,126) (100,457) Cash flows from financing activities Contractholder fund deposits 49,254 56,807 Contractholder fund withdrawals (34,695) (57,052) Net cash provided by (used in) financing activities 14,559 (245) Net increase (decrease) in cash 790 (1,244) Cash at beginning of period 1,472 1,763 ------------ ----------- Cash at end of period $ 2,262 $ 519 ------------ ----------- See notes to financial statements. 5 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Allstate Life Insurance Company of New York (the "Company") is wholly owned by a wholly-owned subsidiary ("Parent") of Allstate Insurance Company ("Allstate"), a wholly-owned subsidiary of The Allstate Corporation (the "Corporation"). The financial statements and notes as of September 30, 1996 and for the three-month and nine-month periods ended September 30, 1996 and 1995 are unaudited. These interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Allstate Life Insurance Company of New York Annual Report on Form 10K for 1995. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. To conform with the 1996 presentation, certain items in the prior year's financial statements have been reclassified. 6 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion highlights significant factors influencing results of operations and changes in financial position of Allstate Life Insurance Company of New York (the "Company"). It should be read in conjunction with the discussion and analysis and financial statements and notes thereto found under Items 7 and 8 of Part II of the Allstate Life Insurance Company of New York Annual Report on Form 10-K for the year ended December 31, 1995. The Company, which is wholly owned by a wholly-owned subsidiary ("Parent") of Allstate Insurance Company ("Allstate"), markets life insurance and group and individual annuities in the state of New York, with products consisting predominately of structured settlement annuities sold through independent brokers. The Company also utilizes Allstate agencies and direct marketing to distribute its traditional and universal life and accident and disability insurance products. Certain single and flexible premium annuities are marketed to individuals through the account executives of Dean Witter Reynolds Inc. The Company issues flexible premium deferred variable annuity contracts, also sold through the account executives of Dean Witter Reynolds Inc., the assets and liabilities of which are legally segregated and reflected in the accompanying statements of financial position as the assets and liabilities of the Separate Accounts. Dean Witter InterCapital Inc. manages the funds in which the assets of the Separate Accounts are invested. Separate Account assets and liabilities are carried at fair value in the statements of financial position. Investment income and realized gains and losses of the Separate Account investments accrue directly to the contractholders (net of fees) and, therefore are not included in the Company's statements of operations. 7 RESULTS OF OPERATIONS Three Months Nine Months Ended September 30, Ended September 30, ($ in thousands) 1996 1995 1996 1995 Statutory premiums and deposits $ 44,523 $ 45,982 $ 133,882 $ 164,732 Invested assets (1) $ 1,431,397 $ 1,299,304 $ 1,431,397 $ 1,299,304 Separate Account assets (1) 243,863 208,430 243,863 208,430 Invested assets including Separate Account assets $ 1,675,260 $ 1,507,734 $ 1,675,260 $ 1,507,734 Premium income and contract charges $ 27,557 $ 29,195 $ 84,778 $ 115,640 Net investment income 28,528 26,622 83,952 77,304 Policy benefits 40,298 43,061 125,687 152,832 Operating expenses 5,763 5,800 17,142 17,481 Income from operations 10,024 6,956 25,901 22,631 Income tax on operations 3,510 2,583 9,377 8,176 Net operating income 6,514 4,373 16,524 14,455 Realized capital gains and losses, after tax (1,674) 211 (1,446) (1,176) Net income $ 4,840 $ 4,584 $ 15,078 $ 13,279 ------------- ------------- ------------- ------------- (1) Fixed income securities are included in invested assets in the table above at amortized cost and are carried at fair value in the statements of financial position. Separate Account assets are included at fair value in both the table above and the statements of financial position. STATUTORY PREMIUMS AND DEPOSITS Statutory premiums, which include premiums and deposits for all products, decreased 3.2% and 18.7% for the third quarter and first nine months of 1996 compared with the same periods of 1995. The decreases for both periods are primarily due to lower sales of structured settlement annuities, partially offset by increased sales of variable annuity and life products. 8 PREMIUM INCOME, CONTRACT CHARGES AND PROVISION FOR POLICY BENEFITS Premium income and contract charges under generally accepted accounting principles ("GAAP") decreased 5.6% and 26.7% for the three-month and nine-month periods ended September 30, 1996 from the same periods in 1995. Under GAAP, revenues vary with the mix of products sold during the period because they exclude deposits on most annuities and premiums on universal life insurance policies. The decrease is due to decreased sales of life contingent annuities as a result of maintaining margins on new business throughout the year. Policy benefits decreased $2.76 million, or 6.4% during the third quarter of 1996, and decreased $27.15 million, or 17.8% for the nine months ended September 30, 1996, also reflecting the decrease in sales of structured settlement annuities with life contingencies, partially offset by higher mortality costs resulting from growth in the life insurance block of business. NET INVESTMENT INCOME Pre-tax net investment income increased 7.2% in the third quarter of 1996 and 8.6% for the nine months ended September 30, 1996, compared to the same periods in 1995. The increases were primarily related to the 10.2% or $132.09 million increase in invested assets. The overall portfolio yield declined slightly, as proceeds from calls and maturities as well as new premiums and deposits were invested in securities yielding less than the average portfolio rate. OPERATING EXPENSES Operating expenses decreased slightly in the third quarter of 1996 and decreased $339 thousand, or 1.9%, for the nine months ended September 30, 1996, compared to the same periods in 1995. The decreases were primarily attributable to reduced acquisition costs due to lower sales of structured settlement annuities. NET OPERATING INCOME Net operating income increased 49.0% during the third quarter of 1996 and increased 14.3% for the first nine months of 1996 compared to the same periods in 1995. The increases were due to growth in assets as well as favorable mortality margins on existing business. REALIZED CAPITAL GAINS AND LOSSES Net realized capital losses after-tax were $1.67 million during the third quarter of 1996 compared to after-tax gains of $211 thousand during the same period in 1995. Fixed income securities were sold at losses in the third quarter of 1996 to reposition a portion of the investment portfolio to improve overall investment yield. Net realized capital losses after-tax increased to $1.45 million for the first nine months of 1996 compared to after-tax losses of $1.18 million for the same period in 1995. The increased losses were due to higher losses on fixed income securities partially offset by reduced mortgage losses. 9 INVESTMENTS FIXED INCOME SECURITIES The Company monitors the quality of its fixed income securities portfolio, in part, by categorizing certain investments as problem, restructured or potential problem investments. Problem fixed income securities are securities in default with respect to principal or interest or securities issued by companies that went into bankruptcy subsequent to acquisition of the security. Restructured fixed income securities have modified terms and conditions that were not at current market rates or terms at the time of the restructuring. Potential problem fixed income securities are current with respect to contractual principal or interest, but because of other facts and circumstances, management has serious doubts regarding the borrower's ability to pay future interest and principal, which causes management to believe these securities may be classified as problem or restructured in the future. At September 30, 1996, problem, restructured and potential problem fixed income securities totaled $3.74 million. There were no problem, restructured, or potential problem fixed income securities at December 31, 1995. COMMERCIAL MORTGAGE LOANS The Company monitors the quality of its mortgage loans by categorizing certain loans as problem, restructured or potential problem. Problem commercial mortgage loans are loans that are in foreclosure, loans for which a principal or interest payment is over 60 days past due, or are current with respect to interest payments, but considered in-substance foreclosed. Restructured commercial mortgage loans have modified terms and conditions that were not at current market rates or terms at the time of the restructuring. Potential problem commercial mortgage loans include loans which are current with respect to interest payments, or less than 60 days delinquent as to contractual principal or interest payments, but because of other facts and circumstances, management has serious doubts regarding the borrower's ability to pay future interest and principal which causes management to believe these loans may be classified as problem or restructured in the future. Total problem, restructured and potential problem loans, net of valuation allowances of $1.52 million and $1.95 million, were $6.41 million and $9.65 million at September 30, 1996 and December 31, 1995, respectively. The carrying value of impaired loans was $4.35 million and $9.65 million as of September 30, 1996 and December 31, 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of funds consists primarily of premiums and annuity deposits and collections of principal and income from the investment portfolio. The Company generates substantial positive cash flows from operating activities. The major uses of these funds are policyholder claims and benefits, acquisition of investments, contract maturities, surrenders and other operating costs. 10 PART II - Other Information Item 1. Legal Proceedings The Company and its Board of Directors know of no material legal proceedings pending to which the Company is a party or which would materially affect the Company. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K (2) None (3)(i) Articles of Incorporation* (ii) By-laws* (4) Allstate Life Insurance Company of New York Single Premium Deferred Annuity Contract** Allstate Life Insurance Company of New York Flexible Premium Deferred Annuity Contract* (10) None (11) None (15) None (18) None (19) None (22) None (23)(a)Consent of Independent Public Accountants*** (b)Consent of Attorneys**** (24) None (27) Financial Data Schedule (99) None (b) Reports on 8-K No reports on Form 8-K were filed during the third quarter of 1996. * Previously filed in Form N-4 Registration Statement No.33-65381 dated September 20, 1996 and incorporated by reference. 11 ** Previously filed in Form S-1 Registration Statement No.33-47245 dated November 13, 1992 and incorporated by reference. *** Previously filed in Form S-1 Registration Statement No.33-47245 dated April 16, 1996 and incorporated by reference. **** Previously filed in Form S-1 Registration Statement No.33-47245 dated November 13, 1992 and incorporated by reference. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Allstate Life Insurance Company of New York (Registrant) November 13, 1996 /s/ LOUIS G. LOWER, II - ------------------ ----------------------- DATE LOUIS G. LOWER, II CHAIRMAN OF THE BOARD OF DIRECTORS and PRESIDENT (Principal Executive Officer) November 13, 1996 /s/ KEVIN R. SLAWIN - ----------------- -------------------- DATE KEVIN R. SLAWIN Director and Vice President (Chief Accounting Officer)