FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-47245
33-65355
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of registrant as specified in its charter)
NEW YORK 35-2608394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Allstate Drive
Farmingville, New York 11738
(Address of principal executive offices)(Zip Code)
800/256-9392
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes../X/.. No
Indicate the number of shares of each of the issuer's classes of common
stock, as of September 30, 2000; there were 100,000 shares of common capital
stock outstanding, par value $25 per share all of which shares are held by
Allstate Life Insurance Company.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Operations
Three Months Ended September 30, 2000 and
September 30, 1999 (Unaudited)
Nine Months Ended September 30, 2000 and
September 30, 1999 (Unaudited).................................... 3
Statements of Financial Position
September 30, 2000 (Unaudited)
and December 31, 1999............................................. 4
Statements of Cash Flows
Nine Months Ended September 30, 2000 and September 30,
1999 (Unaudited)..................................................
Notes to Financial Statements..................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 10
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK*..................................................N/A
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................18
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS*........................N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES*..................................N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*..............N/A
Item 5. OTHER INFORMATION..................................................18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................18
SIGNATURE PAGE...............................................................19
*Omitted pursuant to General Instruction H(2) of Form 10-Q.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
($ in thousands) 2000 1999 2000 1999
------------------ --------------- ------------- -----------------
(Unaudited) (Unaudited)
Revenues
Premiums $ 25,321 $ 16,835 $ 67,753 $ 48,400
Contract charges 10,410 9,607 31,550 28,627
Net investment income 45,201 37,771 129,691 109,778
Realized capital gains and losses 387 (812) (2,524) (1,560)
---------- -------- -------- --------
81,319 63,401 226,470 185,245
---------- -------- -------- --------
Costs and expenses
Contract benefits 57,321 47,347 162,521 133,560
Amortization of deferred policy acquisition costs 4,585 2,352 10,060 7,178
Operating costs and expenses 6,417 5,068 17,223 16,410
---------- -------- -------- --------
68,323 54,767 189,804 157,148
---------- -------- -------- --------
Income from operations
before income tax expense 12,996 8,634 36,666 28,097
Income tax expense 4,698 3,071 12,528 9,984
---------- ------- -------- --------
Net income $ 8,298 $ 5,563 $ 24,138 $ 18,113
========== ======= ======== ========
See notes to financial statements.
3
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
2000 1999
----------------- -----------------
----------------- -----------------
(Unaudited)
($ in thousands, except par value data)
Assets
Investments
Fixed income securities, at fair value
(amortized cost $2,149,376 and $1,858,216) $ 2,266,596 $ 1,912,545
Mortgage loans 196,675 166,997
Policy loans 31,605 31,109
Short-term 100,819 46,037
----------- ----------
Total investments 2,595,695 2,156,688
Cash 5,904 1,135
Deferred policy acquisition costs 127,183 106,932
Accrued investment income 26,582 25,712
Reinsurance recoverables, net 1,199 1,949
Other assets 8,137 7,803
Separate Accounts 556,048 443,705
----------- -----------
Total assets $ 3,320,748 $ 2,743,924
=========== ===========
Liabilities
Reserve for life-contingent contract benefits $ 1,211,789 $ 1,098,016
Contractholder funds 1,060,777 839,157
Current income taxes payable 18,134 10,132
Deferred income taxes 13,838 3,077
Other liabilities and accrued expenses 117,923 41,218
Payable to affiliates, net 1,248 4,731
Separate Accounts 556,048 443,705
----------- -----------
Total liabilities 2,979,757 2,440,036
----------- -----------
Commitments and Contingent Liabilities (Note 3)
Shareholder's equity
Common stock, $25 par value, 100,000 shares
authorized, issued and outstanding 2,500 2,500
Additional capital paid-in 45,787 45,787
Retained income 249,505 225,367
Accumulated other comprehensive income:
Unrealized net capital gains 43,199 30,234
----------- -----------
Total accumulated other comprehensive income 43,199 30,234
----------- -----------
Total shareholder's equity 340,991 303,888
----------- -----------
Total liabilities and shareholder's equity $ 3,320,748 $ 2,743,924
=========== ===========
See notes to financial statements.
4
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
----------------------------------------
----------------------------------------
($ in thousands) 2000 1999
------------------ ------------------
----------------------------------------
(Unaudited)
Cash flows from operating activities
Net income $ 24,138 $ 18,113
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and other non-cash items (32,119) (28,229)
Realized capital gains and losses 2,524 1,560
Interest credited to contractholder funds 35,897 22,805
Changes in:
Life-contingent contract benefits and
contractholder funds 46,372 34,045
Deferred policy acquisition costs (21,763) (9,169)
Income taxes payable 11,781 8,929
Other operating assets and liabilities (7,990) (10,829)
--------- ---------
Net cash provided by operating activities 58,840 37,225
--------- ---------
Cash flows from investing activities
Proceeds from sales of fixed income securities 116,102 141,505
Investment collections
Fixed income securities 35,058 14,685
Mortgage loans 12,153 6,264
Investment purchases
Fixed income securities (408,307) (291,312)
Mortgage loans (41,729) (26,730)
Change in short-term investments, net 21,455 50,722
Change in policy loans, net (496) (941)
--------- ---------
Net cash used in investing activities (265,764) (105,807)
--------- ---------
Cash flows from financing activities
Contractholder fund deposits 321,818 115,288
Contractholder fund withdrawals (110,125) (48,683)
--------- ---------
Net cash provided by financing activities 211,693 66,605
--------- ---------
Net increase (decrease) in cash 4,769 (1,977)
Cash at the beginning of period 1,135 3,117
--------- ---------
Cash at end of period $ 5,904 $ 1,140
========= =========
See notes to financial statements.
5
Allstate Life Insurance Company of New York
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying financial statements include the accounts of Allstate Life
Insurance Company of New York (the "Company"), a wholly owned subsidiary of
Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation
(the "Corporation").
The financial statements and notes as of September 30, 2000, and for the
three month and nine month periods ended September 30, 2000 and 1999, are
unaudited. The financial statements reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management, necessary
for the fair presentation of the financial position, results of operations and
cash flows for the interim periods. The financial statements and notes should be
read in conjunction with the financial statements and notes thereto included in
the Allstate Life Insurance Company of New York Annual Report on Form 10-K for
1999. The results of operations for the interim periods should not be considered
indicative of results to be expected for the full year.
Pending Accounting Standards
In June 1999, the Financial Accounting Standards Board delayed the
effective date of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
replaces existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. This statement
requires that all derivatives be recognized on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in the
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. Additionally, the change in fair value of a derivative
that is not effective as a hedge will be immediately recognized in earnings.
The delay was effected through the issuance of SFAS No. 137, which extends
the SFAS No. 133 requirements to fiscal years beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138, which amends the accounting and
reporting standards of SFAS 133 for certain derivative instruments and certain
hedging activities. As such, the Company will adopt the provisions of SFAS No.
133 and SFAS No. 138 as of January 1, 2001. The impact of these statements is
dependent upon the Company's derivative positions and market conditions existing
at the date of adoption. Based on existing interpretations of the requirements
of SFAS No. 133, the impact of adoption is not expected to be material to the
results of operations or financial position of the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
supercedes SFAS No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 140 changes the
circumstances under which a secured party must recognize certain financial
assets in which it has security interest. As a result, when the Company adopts
the provisions of SFAS No. 140, it will cease recognizing collateral previously
recognized under the guidance of SFAS No. 125. The provisions of SFAS No. 140
will be adopted effective January 1, 2001, and is not expected to have a
material impact on the financial position of the Company. Financial statements
for previous periods presented for comparative purposes will be restated
accordingly.
6
Allstate Life Insurance Company of New York
Notes to Financial Statements
(Unaudited)
2. Comprehensive Income
The components of other comprehensive income on a pretax and after-tax
basis are as follows:
Three Months Ended September 30,
---------------------------------------------------------------------------
($ in thousands) 2000 1999
------------------------------------ --------------------------------------
After- After-
Pretax Tax tax Pretax Tax tax
Unrealized capital gains and losses:
Unrealized holding gains (losses)
arising during the period $ 13,717 $ (4,801) $ 8,916 $ (15,726) $ 5,504 $ (10,222)
Less: reclassification adjustments 260 (91) 169 (837) 293 (544)
---------- -------- ---------- --------- ------- ---------
Other comprehensive income (loss) $ 13,457 $ (4,710) 8,747 $ (14,889) $ 5,211 (9,678)
========== ======== ========= =======
Net income 8,298 5,563
---------- ---------
Comprehensive income (loss) $ 17,045 $ (4,115)
========== =========
Nine Months Ended September 30,
----------------------------------------------------------------------------
($ in thousands) 2000 1999
------------------------------------ --------------------------------------
After- After-
Pretax Tax tax Pretax Tax tax
Unrealized capital gains and losses:
Unrealized holding gains (losses)
arising during the period $ (3,627) $ 1,270 $ (2,357) $ (67,597) $ 23,659 $ (43,938)
Less: reclassification adjustments (2,805) 982 (1,823) (1,599) 560 (1,039)
--------- ------- -------- --------- -------- ---------
Other comprehensive income (loss) $ (822) $ 288 (534) $ (65,998) $ 23,099 (42,899)
========= ======= ========== ========
Net income 24,138 18,113
-------- ----------
Comprehensive income (loss) $ 23,604 $ (24,786)
======== =========
7
Allstate Life Insurance Company of New York
Notes to Financial Statements
(Unaudited)
3. Regulation and Legal Proceedings
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. Recent public and regulatory
initiatives have varied and have included employee benefit regulations,
removal of barriers preventing banks from engaging in the securities and
insurance business, tax law changes affecting the taxation of insurance
companies and the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles. The ultimate
changes and eventual effects, if any, of these initiatives are uncertain.
In the normal course of its business, the Company is involved in
pending and threatened litigation and regulatory actions in which claims
for monetary damages are asserted. At this time, based on their present
status, it is in the opinion of management, that the ultimate liability, if
any, in one or more of these actions in excess of amounts currently
reserved is not expected to have a material effect on the results of
operations, liquidity or financial position of the Company.
8
Allstate Life Insurance Company of New York
Notes to Financial Statements
(Unaudited)
4. Reinsurance
The Company has reinsurance agreements with ALIC in order to limit
aggregate and single exposure on large risks. A portion of the Company's
premiums, policy benefits and certain costs and expenses are ceded to ALIC
and reflected net of such reinsurance in the statements of operations.
Reinsurance recoverables and the related reserve for life-contingent
contract benefits and contractholder funds are reported separately in the
statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
The following amounts were ceded to ALIC under reinsurance agreements.
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
($ in thousands) 2000 1999 2000 1999
---------------- ------------- --------------- ---------------
Premiums $ 1,463 $ 703 $ 3,627 $ 2,448
Contract benefits 30 251 433 318
Certain costs and expenses 1 -- 3 --
The Company also purchases reinsurance from non-affiliates. The
following table summarizes amounts that were ceded to third parties under
reinsurance agreements.
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
($ in thousands) 2000 1999 2000 1999
---------------- ------------- --------------- ---------------
Premiums $ 215 $ 206 $ 663 $ 628
Contract benefits 155 185 8 797
Certain costs and expenses 33 104 104 199
9
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
The following discussion highlights significant factors influencing results
of operations and changes in financial position of Allstate Life Insurance
Company of New York (the "Company"). It should be read in conjunction with the
financial statements and related notes thereto found under Part I. Item 1
contained herein and with the discussion, analysis, financial statements and
notes thereto in Part I. Item 1 and Part II. Items 7 and 8 of the Allstate Life
Insurance Company of New York Annual Report on Form 10-K for the year ended
December 31, 1999.
The Company, a wholly owned subsidiary of Allstate Life Insurance Company
("ALIC"), which is a wholly owned subsidiary of Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"), markets life insurance and savings products in the state of New
York through a combination of exclusive agencies, securities firms, banks,
specialized brokers and direct response marketing. Life insurance products
consist of traditional products, including term and whole life,
interest-sensitive life and immediate annuities with life contingencies. Savings
products include deferred annuities and immediate annuities without life
contingencies. Deferred annuities include fixed rate, market value adjusted and
variable annuities.
The Company has identified itself as a single segment entity.
The assets and liabilities related to variable annuity and variable life
contracts are legally segregated and reflected as Separate Accounts. The assets
of the Separate Accounts are carried at fair value. Separate Accounts
liabilities represent the contractholders' claims to the related assets and are
carried at the fair value of the assets. In the event that the asset value of
certain contractholder accounts are projected to be below the value guaranteed
by the Company, a liability is established through a charge to earnings.
Investment income and realized capital gains and losses of the Separate Accounts
accrue directly to the contractholders and therefore, are not included in the
Company's statements of operations.
10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
Financial Highlights
Three months Ended Nine months Ended
September 30, September 30,
------------------------------------- ----------------------------------
($ in thousands) 2000 1999 2000 1999
----------------- ---------------- -------------- ----------------
Statutory premiums and deposits $ 153,918 $ 68,299 $ 504,443 $ 195,305
=========== ========== ========== ===========
Investments $ 2,595,695 $ 2,121,237 $ 2,595,695 $ 2,121,237
Separate Accounts assets 556,048 389,675 556,048 389,675
----------- ----------- ----------- -----------
Investments, including Separate Accounts assets $ 3,151,743 $ 2,510,912 $ 3,151,743 $ 2,510,912
=========== =========== =========== ===========
GAAP Premiums $ 25,321 $ 16,835 $ 67,753 $ 48,400
Contract charges 10,410 9,607 31,550 28,627
Net investment income 45,201 37,771 129,691 109,778
Contract benefits 57,321 47,347 162,521 133,560
Amortization and Operating costs and expenses 10,863 7,420 27,144 23,588
------------ ----------- ----------- -----------
Operating income before tax 12,748 9,446 39,329 29,657
Income tax expense 4,634 3,368 13,484 10,555
------------ ----------- ----------- -----------
Operating income (1) 8,114 6,078 25,845 19,102
Realized capital gains and losses, net of tax 184 (515) (1,707) (989)
------------ ----------- ----------- -----------
Net income $ 8,298 $ 5,563 $ 24,138 $ 18,113
============ =========== =========== ===========
(1) The supplemental operating information presented above allows for a more
complete analysis of results of operations. The net effects of realized capital
gains and losses have been excluded due to the volatility between periods and
because such data is often excluded when evaluating the overall financial
performance of insurers. Operating income should not be considered as a
substitute for any GAAP measure of performance. Our method of calculating
operating income may be different from the method used by other companies and
therefore comparability may be limited.
11
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
Statutory premiums and deposits
Statutory premiums and deposits, which include premiums and deposits for
all products, are used to analyze sales trends. The following table summarizes
statutory premiums and deposits by product line.
Three months Ended Nine months Ended
September 30, September 30,
--------------------------------------- ------------------------------
($ in thousands) 2000 1999 2000 1999
------------------- ---------------- ------------- -------------
Life Products
Interest-sensitive $ 12,348 $ 12,369 $ 38,556 $ 36,724
Traditional 4,661 4,081 12,760 11,467
Other 1,885 1,594 5,373 4,366
--------- -------- --------- ---------
Total life products $ 18,894 $ 18,044 $ 56,689 $ 52,557
--------- -------- --------- ---------
Annuity Products
Fixed $ 57,159 $ 29,846 $ 236,466 $ 95,305
Variable 77,865 20,409 211,288 47,443
--------- -------- --------- ---------
Total $ 153,918 $ 68,299 $ 504,443 $ 195,305
========= ======== ========= =========
Statutory premiums and deposits increased $85.6 million or 125.4% for the
third quarter of 2000 compared with the same period last year, and $309.1
million or 158.3% for the first nine months of 2000 compared with the same
period last year. The increases were primarily due to higher variable and fixed
annuity sales. Increased variable annuity sales, for the first nine months of
2000, were primarily driven by $140.4 million of sales from the new Putnam
Allstate Advisor variable annuity product that was launched in New York in
January 2000. The large increase in fixed annuity sales resulted from new
distribution outlets in the banking distribution channel.
12
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
GAAP premiums and contract charges
Under accounting principles generally accepted in the United States of
America ("GAAP"), premiums represent revenue generated from traditional life
products with significant mortality risks. Revenues for interest-sensitive life
insurance and fixed and variable annuity contracts, for which deposits are
treated as liabilities, are reflected as contract charges. Immediate annuities
may be purchased with a life contingency whereby mortality risk is a significant
factor. For this reason the GAAP revenues generated on these contracts are
recognized as premiums. The following table summarizes GAAP premiums and
contract charges.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------
($ in thousands) 2000 1999 2000 1999
--------------- --------------- ------------ --------------
Premiums
Traditional life $ 4,414 $ 4,081 $ 12,514 $ 11,467
Immediate annuities with life contingencies 19,039 11,127 49,879 32,369
Other 1,868 1,627 5,360 4,564
-------- -------- -------- --------
Total premiums $ 25,321 $ 16,835 $ 67,753 $ 48,400
-------- -------- -------- --------
Contract charges
Interest-sensitive life $ 7,343 $ 7,430 $ 23,159 $ 22,204
Variable annuities 2,284 1,745 6,350 5,078
Other 783 432 2,041 1,345
-------- -------- -------- --------
Total contract charges $ 10,410 $ 9,607 $ 31,550 $ 28,627
-------- -------- -------- --------
Total premiums and contract charges $ 35,731 $ 26,442 $ 99,303 $ 77,027
======== ======== ======== ========
Total premiums for the three month and nine month period ended September
30, 2000 increased 50.4% to $25.3 million and 40.0% to $67.8 million,
respectively, compared with the same periods last year due to higher sales of
immediate annuities with life contingencies.
Contract charges for the three month and nine month periods ended September
30, 2000 increased 8.4% to $10.4 million and 10.2% to $31.5 million,
respectively, compared with the same period last year. The increase for the
third quarter was due to increased variable annuity deposits and increased
charges on immediate annuities without life contingencies due to higher sales.
The increases for the first nine months of 2000 were primarily due to higher
interest-sensitive life contract charges that were the result of growth in
interest-sensitive life policies in force, increased charges on immediate
annuities without life contingencies due to higher sales, and increased variable
annuity deposits.
Operating income
Operating income for the three month and nine month periods ended September
30, 2000 increased 33.5% to $8.1 million and 35.3% to $25.8 million,
respectively, compared with the same period last year. These increases were due
to increased net investment income, premiums, and contract charges partially
offset by higher contract benefits.
13
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
Net investment income
Net investment income for the three month and nine month periods ended
September 30, 2000 increased 19.7% to $45.2 million and 18.1% to $129.7 million,
respectively, compared with the same period last year due to higher investment
balances resulting from increased sales and increased cash flows from operations
in both periods.
Realized capital gains and losses
Realized capital gains, after-tax, were $184 thousand for the third quarter
of 2000 compared to realized capital losses, after-tax, of $515 thousand for the
third quarter of 1999. Realized capital losses, after tax, were $1.7 million for
the nine months ended September 30, 2000 compared to $989 thousand for the same
period last year. Period to period fluctuations in realized capital losses are
largely the result of timing of sales, reflecting management's decision on
positioning the portfolio, as well as assessments of individual securities and
overall market conditions.
Investments
The composition of the investment portfolio at September 30, 2000 is
presented in the table below:
Percent
($ in thousands) to total
--------
Fixed income securities (1) $ 2,266,596 87.3
Mortgage loans 196,675 7.6
Policy loans 31,605 1.2
Short-term 100,819 3.9
----------- -------
Total $ 2,595,695 100.0%
=========== =======
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $2,149,376 at September 30, 2000.
Total investments were $2.6 billion at September 30, 2000 compared to $2.2
billion at December 31, 1999. The increase was due to positive cash flows
generated from operations and increases in unrealized gains on fixed income
securities. At September 30, 2000, unrealized capital gains on the fixed income
securities portfolio were $117.2 million compared to $54.3 million at December
31, 1999.
At September 30, 2000, substantially all of the Company's fixed income
securities portfolio was rated investment grade, which is defined by the Company
as a security having a National Association of Insurance Commissioners ("NAIC")
rating of 1 or 2, a Moody's rating of Aaa, Aa, A, Baa or a comparable Company
internal rating.
Separate Accounts
Separate Accounts assets and liabilities increased 25.3% to $556.0 million
at September 30, 2000 from the December 31, 1999 balance. The increases were
primarily attributable to sales of variable annuity contracts partially offset
by surrenders and withdrawals.
14
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
Liquidity and Capital Resources
The Company's principal sources of funds are the receipt of premiums and
deposits and collections of principal and interest and dividends from the
investment portfolio. The primary uses of these funds are to purchase
investments and pay policyholder claims, benefits, contract maturities, contract
surrenders and withdrawals and operating costs.
The maturity structure of the Company's fixed income securities, which
represent 87.3% of the Company's total investments, is managed to meet the
anticipated cash flow requirements of the underlying liabilities. A portion of
the Company's diversified product portfolio, primarily fixed deferred annuity
and interest-sensitive life insurance products, is subject to discretionary
surrender and withdrawal by contractholders. Total surrenders and withdrawals
for the three month and nine month periods ended September 30, 2000 were $27.7
million and $72.1 million compared with $18.9 million and $44.3 million for the
same periods last year. As the Company's interest-sensitive life policies and
annuity contracts in-force grow and age, the dollar amount of surrenders and
withdrawals will likely increase. While the overall amount of surrenders may
increase in the future, a significant increase in the level of surrenders
relative to total contractholder account balances is not anticipated.
Pending Accounting Standards
In June 1999, the Financial Accounting Standards Board delayed the
effective date of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
replaces existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. This statement
requires that all derivatives be recognized on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in the
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. Additionally, the change in fair value of a derivative
that is not effective as a hedge will be immediately recognized in earnings.
The delay was effected through the issuance of SFAS No. 137, which extends
the SFAS No. 133 requirements to fiscal years beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138, which amends the accounting and
reporting standards of SFAS 133 for certain derivative instruments and certain
hedging activities. As such, the Company will adopt the provisions of SFAS No.
133 and SFAS No. 138 as of January 1, 2001. The impact of these statements is
dependent upon the Company's derivative positions and market conditions existing
at the date of adoption. Based on existing interpretations of the requirements
of SFAS No. 133, the impact of adoption is not expected to be material to the
results of operations or financial position of the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
supercedes SFAS No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 140 changes the
circumstances under which a secured party must recognize certain financial
assets in which it has security interest. As a result, when the Company adopts
the provisions of SFAS No. 140, it will cease recognizing collateral previously
recognized under the guidance of SFAS No. 125. The provisions of SFAS No. 140
will be adopted effective January 1, 2001, and is not expected to have a
material impact on the financial position of the Company. Financial statements
for previous periods presented for comparative purposes will be restated
accordingly.
15
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
Forward-looking Statements
The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.
Forward looking statements do not relate strictly to historical or current
facts and may be identified by their use of words like "plans," "expects,"
"will," "anticipates," "estimates," "intends," "believes," "likely," 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 and reserves. Forward-looking statements
are based on management's current expectations and assumptions. However, we
believe that our forward-looking statements are based on reasonable, current
expectations and assumptions. We assume no obligation to update any
forward-looking statements as a result of new information or future events or
developments.
If the expectations or assumptions underlying our forward-looking
statements prove inaccurate or if risks or uncertainties arise, actual results
could differ materially from those communicated in our forward-looking
statements. In addition to the normal risks of business, the Company is subject
to significant risk factors, including those listed below which apply to it as
an insurance business.
o Changes in market interest rates can have adverse effects on the Company's
investment portfolio, investment income, product sales and results of
operations. Increases in market interest rates have an adverse impact on
the value of the investment portfolio by decreasing unrealized capital
gains on fixed income securities. In addition, increases in market interest
rates as compared to rates offered on some of the Company's products could
make those products less attractive and lead to lower sales and/or increase
the level of surrenders on these products. Declining market interest rates
could have an adverse impact on the Company's investment income as the
Company reinvests proceeds from positive cash flows from operations and
from maturing and called investments into new investments that could be
yielding less than the portfolio's average rate. Additionally, the impact
of decreasing Separate Accounts balances resulting from fluctuating market
conditions could cause contract charges realized by the Company to
decrease.
o In order to meet the anticipated cash flow requirements of its obligations
to policyholders, from time to time the Company adjusts the effective
duration of the assets and liabilities of the Company's investment
portfolio. Those adjustments may have an impact on the value of the
investment portfolio and on investment income.
o State insurance regulatory authorities require insurance companies to
maintain specified levels of statutory capital and surplus. In addition,
competitive pressures require the Company to maintain financial strength or
claims-paying ability ratings. These restrictions affect the Company's
ability to use its capital.
o There is uncertainty involved in estimating the availability of reinsurance
and the collectibility of reinsurance recoverables. This uncertainty arises
from a number of factors, including segregation by the industry generally
of reinsurance exposure into separate legal entities.
o The Company distributes some of its products under agreements with other
financial services entities. Termination of such agreements due to changes
in control of these non-affiliated entities could have a detrimental effect
on the Company's sales. This risk may be increased due to the enactment of
the Gramm-Leach-Bliley Act of 1999, which eliminates many federal and state
law barriers to affiliations among banks, securities firms, insurers and
other financial service providers.
16
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2000 AND 1999
o A number of enacted and pending legislative measures may lead to increased
consolidation and increased competition in the financial services industry.
At the federal level, these measures include the Gramm-Leach-Bliley Act of
1999, which eliminates many federal and state law barriers to affiliations
among banks, securities firms, insurers and other financial service
providers. At the state level, these measures include legislation to permit
mutual insurance companies to convert to a hybrid structure known as a
mutual holding company, thereby allowing insurance companies owned by their
policyholders to become stock insurance companies owned (through one or
more intermediate holding companies) at least 51% by their policyholders
and potentially up to 49% by stockholders. Also several large mutual life
insurers have used or are expected to use existing state laws and
regulations governing the conversion of mutual insurance companies into
stock insurance companies (demutualization). These measures may also
increase competition for capital among financial service providers.
o Deferred annuities and interest-sensitive life insurance products receive
favorable policyholder taxation under current tax laws and regulations. Any
legislative or regulatory changes that adversely alter this treatment are
likely to negatively affect the demand for these products.
o The adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, is not expected to be material to the
results of operations of the Company. However, the impact is dependent upon
market conditions and our holdings existing at the date of adoption, which
for the Company will be January 1, 2001.
o Financial strength ratings have become an increasingly important factor in
establishing the competitive position of insurance companies and may
generally be expected to have an effect on an insurance company's business.
On an ongoing basis, rating organizations review the financial performance
and condition of insurers. Downgrades in one or more of the ratings of the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
17
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and its Board of Directors know of no material legal
proceedings pending to which the Company is a party or which would
materially affect the Company. The Company is involved in pending and
threatened litigation in the normal course of its business in which claims
for monetary damages are asserted. Management, after consultation with
legal counsel, does not anticipate the ultimate liability arising from such
pending or threatened litigation to have a material effect on the financial
condition of the Company.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
(2) None
(3)(i) Restated Certificate of Incorporation of Allstate Life Insurance Company
of New York (Incorporated herein by reference to the Company's Form 10-K
Annual Report for the year ended December 31, 1998)
(3)(ii) Amended By-laws of Allstate Life Insurance Company of New York
(Incorporated herein by reference to the Company's Form 10-K Annual Report
for the year ended December 31, 1998)
(4) None
(10) None
(11) Not Required
(15) None
(18) None
(19) None
(22) None
(23) Not required
(24) None
(27) Financial Data Schedule
(b) Reports on 8-K
No reports on Form 8-K were filed during the third quarter of 2000.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of November, 2000.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
-------------------------------------------
(Registrant)
/s/ THOMAS J. WILSON, II PRESIDENT
- ------------------------ (Principal Executive Officer)
THOMAS J. WILSON, II
/s/ SAMUEL H. PILCH CONTROLLER
- ------------------------ (Chief Accounting Officer)
SAMUEL H. PILCH
19
Exhibit Index
Exhibit No. Exhibit
(27) Financial Data Schedule