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.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-88870
GLENBROOK LIFE AND ANNUITY COMPANY
(Exact name of registrant as specified in its charter)
ARIZONA 35-1113325
(State of Incorporation) (I.R.S. Employer Identification No.)
3100 Sanders Road
Northbrook, Illinois 60062
(Address of principal executive offices) (zip code)
Registrant's telephone number, including are code: 847-402-5000
Registrant 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, and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
As of October 31, 2002, the Registrant had 5,000 common shares, $500 par value,
outstanding, all of which are held by Allstate Life Insurance Company.
GLENBROOK LIFE AND ANNUITY COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 2002
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations for the Three Month and Nine Month
Periods Ended September 30, 2002 and 2001 (unaudited) 3
Condensed Statements of Financial Position as of September 30, 2002
(unaudited) and December 31, 2001 4
Condensed Statements of Cash Flows for the Nine Month Periods Ended
September 30, 2002 and 2001 (unaudited) 5
Notes to Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
Certifications 18
2
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
GLENBROOK LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
(in thousands) 2002 2001 2002 2001
----------- ----------- ---------- ----------
(Unaudited) (Unaudited)
Revenues
Net investment income $ 2,587 $ 2,694 $ 7,736 $ 8,088
Realized capital gains and losses (1,076) 59 (1,022) 13
Administration fees - 28 - 85
--------- ---------- -------- ----------
1,511 2,781 6,714 8,186
Costs and expenses
Administration expenses - 21 - 64
--------- ---------- -------- ----------
Income from operations before income tax expense 1,511 2,760 6,714 8,122
Income tax expense 527 965 2,345 2,838
--------- ---------- -------- ----------
Net income $ 984 $ 1,795 $ 4,369 $ 5,284
========== ========== ======== ==========
See notes to condensed financial statements.
3
GLENBROOK LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
2002 2001
---------------- ----------------
(Unaudited)
(in thousands, except par value data)
Assets
Investments
Fixed income securities, at fair value (amortized cost $161,405 and $154,154) $ 175,799 $ 160,974
Short-term 1,881 6,592
--------------- ---------------
Total investments 177,680 167,566
Cash 1,308 -
Reinsurance recoverable from Allstate Life Insurance Company, net 6,097,768 5,378,036
Receivable from affiliates, net 1,028 -
Other assets 3,796 3,404
Separate Accounts 1,130,758 1,547,953
--------------- ---------------
Total assets $ 7,412,338 $ 7,096,959
=============== ===============
Liabilities
Contractholder funds $ 6,090,223 $ 5,370,475
Reserve for life-contingent contract benefits 7,545 7,561
Current income taxes payable 2,672 3,844
Deferred income taxes 4,930 2,610
Other liabilities and accrued expenses 4,600 -
Payable to affiliates, net - 2,198
Separate Accounts 1,130,758 1,547,953
--------------- ---------------
Total liabilities 7,240,728 6,934,641
--------------- ---------------
Commitments and Contingent Liabilities (Note 4)
Shareholder's equity
Common stock, $500 par value, 10,000 shares authorized, 5,000
shares issued and outstanding 2,500 2,500
Additional capital paid-in 119,241 119,241
Retained income 40,513 36,144
Accumulated other comprehensive income:
Unrealized net capital gains and losses 9,356 4,433
--------------- ---------------
Total accumulated other comprehensive income 9,356 4,433
--------------- ---------------
Total shareholder's equity 171,610 162,318
--------------- ---------------
Total liabilities and shareholder's equity $ 7,412,338 $ 7,096,959
=============== ===============
See notes to condensed financial statements.
4
GLENBROOK LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------------
(in thousands) 2002 2001
----------- -----------
(Unaudited)
Cash flows from operating activities
Net income $ 4,369 $ 5,284
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items 23 (5)
Realized capital gains and losses 1,022 (13)
Changes in:
Income taxes payable (1,503) 2,838
Receivable/payable to/from affiliates, net (3,226) (2,977)
Other operating assets and liabilities 4,208 (1,642)
--------- ----------
Net cash provided by operating activities 4,893 3,485
--------- ----------
Cash flows from investing activities
Fixed income securities
Proceeds from sales 2,940 4,238
Investment collections 14,216 6,520
Investments purchases (25,452) (22,691)
Change in short-term investments, net 4,711 (5,052)
--------- ----------
Net cash used in investing activities (3,585) (16,985)
--------- ----------
Net increase (decrease) in cash 1,308 (13,500)
Cash at beginning of period - 13,500
--------- ----------
Cash at end of period $ 1,308 $ -
========= ==========
See notes to condensed financial statements.
5
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed financial statements include the accounts
of Glenbrook Life and Annuity Company ("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 condensed financial statements and notes as of September 30, 2002,
and for the three-month and nine-month periods ended September 30, 2002 and
2001, 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
Glenbrook Life and Annuity Company Annual Report on Form 10-K for the year
ended December 31, 2001. 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 2002 and year-end 2001 presentations, certain
amounts in the prior year's condensed financial statements have been
reclassified.
New Accounting Standard
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and
other Intangible Assets", which eliminates the requirement to amortize
goodwill, and requires that goodwill and separately identified intangible
assets with indefinite lives be evaluated for impairment on an annual basis
(or more frequently if impairment indicators arise) on a fair value basis.
The Company adopted SFAS No. 142 effective January 1, 2002. The
non-amortization provisions of SFAS No. 142 had no impact on the Company as
all expenses of the Company, including goodwill amortization, are ceded to
ALIC pursuant to a reinsurance agreement. During the second quarter of
2002, the Company completed the initial goodwill impairment test required
by SFAS No. 142 and concluded that goodwill was not impaired.
Pending Accounting Standard
On July 31, 2002, the American Institute of Certified Public
Accountants issued an exposure draft Statement of Position ("SOP") entitled
"Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts". The
accounting guidance contained in the proposed SOP applies to several of the
Company's products and product features. The proposed effective date of the
SOP is fiscal years beginning after December 15, 2003, with earlier
adoption encouraged. Initial application should be as of the beginning of
the fiscal year; therefore, if adopted during an interim period of 2003,
prior interim periods should be restated. Most provisions of the proposed
SOP will have a minimal impact to the Company. With respect to guaranteed
minimum income benefits (contract features that guarantee a minimum amount
for annuitization), the Company's policy of not recognizing any liability
during the accumulation phase is consistent with the SOP. However, a
provision that requires the establishment of a liability in addition to the
account balance for contracts that contain death or other insurance
benefits, which are not currently recognized as a liability by the Company,
may have a material impact on the amounts ceded to and reinsurance
recoverable from ALIC depending on the market conditions at the time of
adoption. Contracts that would be affected by this provision of the SOP are
those that specify that the amounts assessed against the contractholder
each period for the insurance benefit feature are not proportionate to the
insurance coverage provided for the period. These contract provisions are
commonly referred to as guaranteed minimum death benefits.
6
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
2. Reinsurance
The Company has reinsurance agreements whereby all contract charges,
credited interest, policy benefits and certain expenses are ceded to ALIC
and are reflected net of such reinsurance in the condensed statements of
operations. Reinsurance recoverables and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the condensed statements of financial position. The Company
continues to have primary liability as the direct insurer for risks
reinsured.
Investment income earned on the assets which support contractholder
funds and the reserve for life-contingent contract benefits are not
included in the Company's condensed financial statements as those assets
are owned and managed by ALIC under terms of the reinsurance agreements.
The following table summarizes amounts ceded to ALIC under reinsurance
agreements:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2002 2001 2002 2001
---------- ------------ ------------ -----------
(in thousands)
Contract charges $ 7,829 $ 7,534 $ 23,604 $ 23,977
Credited interest, policy benefits
and certain expenses 106,446 90,958 283,418 286,984
3. 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) 2002 2001
--------------------------------------- ---------------------------------------
After- After-
Tax tax Pretax Tax tax
Pretax
--------- ---------- ---------- ---------- ---------- ---------
Unrealized capital gains and losses:
Unrealized holding gains arising
during the period $ 4,367 $ (1,528) $ 2,839 $ 4,958 $ (1,736) $ 3,222
Less: reclassification adjustments (1,076) 377 (699) 59 (21) 38
-------- -------- -------- --------- -------- --------
Unrealized net capital gains 5,443 (1,905) 3,538 4,899 (1,715) 3,184
-------- -------- -------- --------- -------- --------
Other comprehensive income $ 5,443 $ (1,905) 3,538 $ 4,899 $ (1,715) 3,184
======== ======== ========= ========
Net income 984 1,795
-------- --------
Comprehensive income $ 4,522 $ 4,979
======== ========
7
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Nine Months Ended September 30,
------------------------------------------------------------------------------------
(in thousands) 2002 2001
----------------------------------------- ---------------------------------------
After- After-
Tax tax Pretax Tax tax
Pretax
--------- ------------ --------- ---------- --------- ---------
Unrealized capital gains and losses:
Unrealized holding gains arising
during the period $ 6,552 $ (2,293) $ 4,259 $ 5,230 $(1,831) $ 3,399
Less: reclassification adjustments (1,022) 358 (664) 13 (5) 8
-------- --------- ------- --------- ------- --------
Unrealized net capital gains 7,574 (2,651) 4,923 5,217 (1,826) 3,391
-------- --------- ------- --------- ------- --------
Other comprehensive income $ 7,574 $ (2,651) 4,923 $ 5,217 $(1,826) 3,391
======== ========= ========= =======
Net income 4,369 5,284
------- --------
Comprehensive income $ 9,292 $ 8,675
======= ========
4. Commitments and Contingent Liabilities
Regulation and Legal Proceedings
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. State and federal regulatory
initiatives have varied and have included employee benefit regulations,
removal of barriers preventing banks from engaging in the securities and
insurance businesses, tax law changes affecting the taxation of insurance
companies, the tax treatment of insurance products which may impact the
relative desirability of various personal investment vehicles and the
overall expansion of regulation. The ultimate changes and eventual effects,
if any, of these initiatives are uncertain.
Various other legal and regulatory actions are currently pending that
involve the Company and specific aspects of its conduct of business. The
Company is defending various lawsuits that allege that it engaged in
business or sales practices inconsistent with state or federal law. The
Company has been vigorously defending these lawsuits, but their outcome is
currently uncertain. Like other members of the insurance industry, the
Company is the potential target of an increasing number of class action
lawsuits and other types of litigation based on a variety of issues, some
of which involve claims for substantial and/or indeterminate amounts
(including punitive and treble damages) and the outcomes of which are
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.
5. Third Party Administration Agreement
On July 18, 2001, the Company entered into an administrative services
agreement with American Maturity Life Insurance Company ("American
Maturity"), which was effective as of January 2, 2001, to administer
certain blocks of annuities that American Maturity reinsures to ALIC.
Pursuant to the terms of the agreement, the Company is to provide insurance
contract administration and financial services for all contracts covered
under the reinsurance agreement. The administrative services agreement can
be terminated by either the Company or American Maturity upon mutual
consent or as otherwise provided for in the terms of the agreement.
Beginning in the 4th quarter of 2001, all Administrative fees earned and
Administrative expenses incurred by the Company are ceded to ALIC in
accordance with reinsurance agreements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
The following discussion highlights significant factors influencing results
of operations and changes in financial position of Glenbrook Life and Annuity
Company (the "Company"). It should be read in conjunction with the condensed
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. Item 7. and Item 8. of the
Glenbrook Life and Annuity Company Annual Report on Form 10-K for the year ended
December 31, 2001, which includes a discussion of the Company's Critical
Accounting Policies.
OVERVIEW
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 a diversified group of products to meet consumers'
lifetime needs in the areas of protection and retirement solutions through
financial services firms. The Company's products include interest-sensitive life
insurance, including single premium life insurance and variable life insurance;
fixed deferred annuities including market value adjusted annuities, and
equity-indexed annuities; immediate annuities; and variable deferred annuities.
The Company has identified itself as a single segment entity.
The assets and liabilities related to variable 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. 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 condensed statements of operations. Revenues to the
Company from the Separate Accounts consist of contract maintenance and
administration fees and mortality, surrender and expense charges, all of which
are ceded to ALIC.
Absent any contract provision wherein the Company guarantees either a
minimum return or account value upon death or annuitization, variable annuity
and variable life insurance contractholders bear the investment risk that the
Separate Accounts' funds may not meet their stated objectives. The amounts that
represent these contract provisions are ceded to ALIC in accordance with the
reinsurance agreements.
RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
(in thousands) 2002 2001 2002 2001
------------ ------------ ------------ ------------
Net investment income $ 2,587 $ 2,694 $ 7,736 $ 8,088
Realized capital gains and losses (1,076) 59 (1,022) 13
Administration fees - 28 - 85
Administration expenses - 21 - 64
Income tax expense 527 965 2,345 2,838
---------- ----------- ---------- -----------
Net income $ 984 $ 1,795 $ 4,369 $ 5,284
========== =========== ========== ===========
The Company has reinsurance agreements under which all contract and policy
related liabilities are transferred to ALIC. The Company's results of operations
include net investment income and realized capital gains and losses earned on
the assets of the Company that are not transferred under the reinsurance
agreements.
Net income decreased 45.2% in the third quarter of 2002 compared to the
same period in 2001 due to realized capital losses in 2002 compared to realized
capital gains in 2001 as well as lower net investment income. Net income for the
first nine months of 2002 decreased 17.3% compared to the same period last year
due to realized capital losses compared to realized capital gains in the prior
period and a decrease in net investment income.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
Pretax net investment income in the third quarter of 2002 decreased 4.0%
compared to the same period in 2001. For the first nine months of 2002, pretax
net investment income decreased 4.4% compared to the same period last year. The
decrease in net investment income in both periods is due to lower investment
yields partially offset by increased investment balances. Lower portfolio yields
were due to funds from operations and reinvestments being invested at current
market rates. Investment balances at September 30, 2002, excluding Separate
Accounts and unrealized gains and losses on fixed income securities, increased
1.2% compared to September 30, 2001.
After-tax realized capital losses were $699 thousand in the third quarter
of 2002 compared to after-tax realized capital gains of $38 thousand in the same
period last year. After-tax realized capital losses were $664 thousand for the
nine months ended September 30, 2002 compared to after-tax realized capital
gains of $8 thousand for the comparable period in 2001. The losses are primarily
the result of a $650 thousand write-down on fixed income securities during the
third quarter of 2002. Realized capital gains and losses result from the sale or
write-down of fixed income securities. Period to period fluctuations in realized
capital gains and losses are the result of timing of sales decisions reflecting
management's decision on positioning the portfolio, assessments of individual
securities, overall market conditions and write-downs when the Company
determines that a decline in the value of a security is other than temporary.
FINANCIAL POSITION
(in thousands)
September 30, December 31,
2002 2001
----------------- ----------------
Fixed income securities (1) $ 175,799 $ 160,974
Short-term 1,881 6,592
---------------- ----------------
Total investments $ 177,680 $ 167,566
================ ================
Cash $ 1,308 $ -
================ ================
Reinsurance recoverable from ALIC, net $ 6,097,768 $ 5,378,036
================ ================
Contractholder funds $ 6,090,223 $ 5,370,475
================ ================
Reserve for life-contingent contract benefits $ 7,545 $ 7,561
================ ================
Separate Accounts assets and liabilities $ 1,130,758 $ 1,547,953
================ ================
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $ 161.4 million and $154.2 million at September 30, 2002 and
December 31, 2001, respectively.
Total investments were $177.7 million at September 30, 2002 compared to
$167.6 million at December 31, 2001. The increase was due to positive cash flows
generated from operations and increased unrealized gains on fixed income
securities. At September 30, 2002 unrealized gains on fixed income securities
were $14.4 million compared to $6.8 million at December 31, 2001.
At September 30, 2002, 97.4% of the Company's fixed income securities
portfolio was rated investment grade, which is defined by the Company as a
security having a rating from the National Association of Insurance
Commissioners ("NAIC") of 1 or 2, a Moody's equivalent rating of Aaa, Aa, A or
Baa, or a comparable Company internal rating.
The Company monitors the quality of its fixed income portfolio, in part, by
categorizing certain investments as problem, restructured, or potential problem.
Problem fixed income securities are generally securities in default with respect
to principal and/or interest and/or securities issued by companies that have
entered bankruptcy subsequent to the Company's acquisition of the security.
Restructured fixed income securities have modified terms and conditions that
were not reflective of current market rates or terms 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, the Company has concerns regarding the borrower's ability to pay
future interest and principal in accordance with contractual terms, which causes
the Company to believe these securities may be classified as problem or
restructured in the future. Provisions for losses are recognized for declines in
value of fixed income securities that are deemed other than temporary. The
following table summarizes the balances of problem and potential problem fixed
income securities.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands) September 30, 2002
------------------
Percent of
total Fixed
Amortized Fair value Income
cost portfolio
--------- ---------- -----------
Problem $ 3,004 $ 2,400 1.4%
Potential problem 1,452 917 0.5
-------- --------- ----
Total net carrying value $ 4,456 $ 3,317 1.9%
======== =========
Cumulative write-downs recognized $ 1,000
========
The Company has experienced an increase in its balance of fixed income
securities categorized as problem or potential problem as of September 30, 2002.
The Company did not have any fixed income securities categorized as restructured
at September 30, 2002. At December 31, 2001, the Company had no securities
categorized as problem, restructured or potential problem. Due to the continued
declining economic and market conditions during 2002, there is potential for
these balances to increase in the future, but the total amount of securities in
these categories is expected to remain a relatively low percentage of the total
fixed income securities portfolio.
In October 2002, the corporate bond market experienced the fifth worst
month on record for downgrades according to Moody's Investor Service.
Accordingly, securities in which the Company has holdings, may have been
adversely affected. These downgrades are indicative of a continued difficult
credit environment that may lead to increased recognition of realized capital
losses from investment write-downs and sales activities in subsequent periods.
The Company writes down to fair value a security that is classified as
other than temporarily impaired in the period the security is deemed to be other
than temporarily impaired. The assessment of other than temporary impairment is
performed on a case-by-case basis considering a wide range of factors. Inherent
in the Company's evaluation of a particular security are assumptions and
estimates about the operations of the issuer and its future earnings potential.
Some of the factors considered in evaluating whether a decline in fair value is
other than temporary are:
o The Company's ability and intent to retain the investment for a period
of time sufficient to allow for an anticipated recovery in value;
o The duration for and extent to which the fair value has been less than
amortized cost for fixed income securities;
o The financial condition, near-term prospects and long-term prospects
of the issuer; and
o The specific reasons that a security is in a significant unrealized
loss position.
There are a number of risks and uncertainties inherent in the process of
monitoring impairments and determining if impairment is other than temporary.
These risks and uncertainties include the risks that:
o The economic outlook is worse than anticipated and has a greater
adverse impact on a particular issuer than anticipated;
o The Company's assessment of a particular issuer's ability to meet all
of its contractual obligations changes; and
o New information is obtained or facts and circumstances change that
cause a change in the Company's ability or intent to hold a security
to maturity or until it recovers in value.
These risks and uncertainties could result in a charge to earnings in
future periods to the extent related losses are realized. The charge to earnings
would not have a significant impact on Shareholder's equity since the majority
of the portfolio is held at fair value and as a result, the related unrealized
gain (loss), net of tax, is currently reflected as Accumulated other
comprehensive income in Shareholder's equity.
The Company has a monitoring process to identify fixed income securities
whose carrying value may be other than temporarily impaired. This process
includes a quarterly review of all securities using a screening process to
identify those securities whose market value compared to amortized cost is below
established thresholds or are identified through other monitoring criteria such
as ratings downgrades or payment defaults. The securities identified, in
addition to other securities for which the Company may have concern, or
securities considered to be problem, restructured or potential problem
securities, are evaluated based on facts and circumstances for inclusion on the
"watchlist." Securities on the watchlist, are reviewed in detail to determine
whether any other than temporary impairment exists.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
The Company recorded losses on fixed income securities of $1.0 million for
the nine months ended September 30, 2002, which was driven by the write-down of
a security issued by a global energy company and power generator, which had
missed coupon payments in September due to severely constrained liquidity. Some
sectors of the utility industry are under severe fundamental and technical
pressure and we are monitoring the industry very closely.
At September 30, 2002, cash was $1.3 million compared to none at December
31, 2001. Cash increased due to a change in the cash processing for Separate
Accounts receipts and disbursements.
At September 30, 2002, Contractholder funds increased $719.7 million to
$6.09 billion from $5.37 billion at December 31, 2001 as the result of deposits
from fixed annuities and credited interest that were partially offset by
surrenders and withdrawals, death benefits and transfers to the Separate
Accounts. Reinsurance recoverable from ALIC increased correspondingly by $719.7
million due to the increase in contractholder funds.
At September 30, 2002 Separate Accounts assets and liabilities decreased
27.0% to $1.13 billion as compared to the December 31, 2001 balance. The
decrease was primarily attributable to declines in the fair value of the
Separate Accounts investment portfolios due to equity market conditions,
surrenders and withdrawals and expense charges, partially offset by sales of
variable annuity contracts and transfers from the fixed account contract option
to variable Separate Accounts funds.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The Company's capital resources consist of shareholder's equity. The
following table summarizes the Company's capital resources.
September 30, December 31,
(in thousands) 2002 2001
----------------- -----------------
Common stock and retained income $ 162,254 $ 157,885
Accumulated other comprehensive income 9,356 4,433
---------------- ----------------
Total shareholder's equity $ 171,610 $ 162,318
================ ================
Shareholder's equity
Shareholder's equity increased $9.3 million in the first nine months of
2002 when compared to December 31, 2001, due to an increase in unrealized net
capital gains and net income.
Debt
The Company had no outstanding debt at September 30, 2002 and December 31,
2001.
Financial Ratings and Strength
Insurance financial strength ratings are an important factor in
establishing the competitive position of insurance companies and generally may
be expected to have an effect on an insurance company's sales. On an ongoing
basis, rating agencies review the financial performance and condition of
insurers. A multiple level downgrade, while not expected, could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company shares the insurance financial strength ratings of its
parent, ALIC, due to the 100% reinsurance agreements. ALIC's insurance financial
strength was rated Aa2, AA+, and A+ by Moody's, Standard & Poor's and A.M. Best,
respectively, at September 30, 2002.
In October 2002, Standard & Poor's affirmed its ratings and its negative
outlook for ALIC and its rated subsidiaries and affiliates, including the
Company. The outlook had been changed in February 2002 from "stable" to
"negative" as part of an ongoing life insurance industry review being conducted
by Standard & Poor's. Since December 31, 2001, there have been no ratings
changes for ALIC or the Company from A.M. Best or Moody's.
Liquidity
The principal, potential sources of funds for the Company include the following
activities:
Premiums and deposits
Reinsurance recoveries
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
Receipts of principal, interest and dividends on investments
Sales of investments
Capital contributions from ALIC
Inter-company loans
The principal, potential uses of funds for the Company include the following
activities:
Payment of contract benefits, maturities, surrenders and withdrawals
Reinsurance cessions and payments
Operating expenses
Purchase of investments
Repayment of inter-company loans
Dividends to ALIC
Under the terms of reinsurance agreements, all premiums and deposits,
excluding those relating to Separate Accounts, are transferred to ALIC, which
maintains the investment portfolios supporting the Company's products. Payments
of policyholder claims, benefits, including guaranteed minimum income and death
benefits, contract maturities, contract surrenders and withdrawals and certain
operating costs, excluding investment-related expenses, are also reimbursed by
ALIC, under the terms of the reinsurance agreements. The Company continues to
have primary liability as a direct insurer for risks reinsured. The Company's
ability to meet liquidity demands is dependent on ALIC's ability to meet those
obligations under the reinsurance program.
The Company has entered into an inter-company loan agreement with the
Corporation. The amount of inter-company loans available to the Company 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. No amounts were outstanding for the Company
under the inter-company loan agreement at September 30, 2002 and December 31,
2001, respectively.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This document contains "forward-looking statements" that anticipate results
based on management's 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.
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,
the Company's strategy for growth, product development, regulatory approvals,
market position, expenses, financial results and reserves. Forward-looking
statements are based on management's current expectations of future events. The
Company cannot guarantee that any forward-looking statement will be accurate.
However, management believes 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 these 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 and a provider of other financial services.
o Currently, the Corporation is examining the potential exposure of its
insurance operations to acts of terrorism. The Corporation is also
examining how best to address this exposure considering the interests of
policyholders, shareholders, the lending community, regulators and others.
The Company's life insurance policies and annuities do not have exclusions
for terrorist events. In the event that a terrorist act occurs, the Company
may be adversely impacted, depending on the nature of the event. With
respect to
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
the Company's investment portfolio, in the event that commercial insurance
coverage for terrorism becomes unavailable or too expensive, there could be
significant adverse impacts on some portion of the Company's portfolio,
particularly in sectors such as airlines and real estate. For example,
certain debt obligations might be adversely affected due to the inability
to obtain coverage to restore the related real estate or other property,
thereby creating the potential for increased default risk.
o Changes in market interest rates can have an adverse impact on the value of
the investment portfolio and investment income. Increasing market interest
rates have an adverse impact on the value of the investment portfolio, for
example, by decreasing the fair values of fixed income securities.
Declining market interest rates could have an adverse impact on investment
income as the Company reinvests proceeds from positive cash flows from
operations and from maturities, calls and prepayments of investments into
new investments that could yield less than the portfolio's average rate.
o Changes in interest rates could also reduce the profitability of the
Company's spread-based products, particularly interest-sensitive life
insurance and investment products, as the difference between the amount
that the Company is required to pay on such products and the rate of return
earned on the related investments could be reduced. Changes in market
interest rates as compared to rates offered on some of the Company's
products could make those products less attractive if competitive
investment margins are not maintained, leading to lower sales and/or
changes in the level of surrenders and withdrawals for these products. The
Company's products generally have the flexibility to adjust crediting rates
to reflect higher or lower investment returns. However, this flexibility is
limited by contractual minimum crediting rates. Additionally, unanticipated
surrenders could cause acceleration of amortization of deferred policy
acquisition costs ("DAC") or impact the recoverability of DAC and thereby
increase expenses ceded to ALIC and reduce current period profitability of
ALIC. The Company seeks to limit its exposure to this risk by periodically
reviewing and revising crediting rates and providing for surrender charges
in the event of early withdrawal.
o The Company amortizes DAC related to interest-sensitive life insurance and
investment contracts in proportion to gross profits over the estimated
lives of the contract. Periodically, the Company updates the assumptions
underlying the estimated future gross profits, which include estimated
future contract charges, investment margins and expenses, in order to
reflect actual and expected experience and its potential impact to the
valuation of DAC. Updates to these assumptions could result in adjustment
to the cumulative amortization of DAC. For example, reduced estimated
future gross profits resulting from declines in contract charges assessed
against declining Separate Accounts' balances resulting from poor equity
market performance could result in accelerated amortization of DAC. An
adjustment, if any, may have a material effect on results of operations
ceded to ALIC.
o The impact of decreasing Separate Accounts balances resulting from volatile
market conditions, underlying fund performance and the performance of
distributors could cause contract charges earned by the Company and ceded
to ALIC to decrease and lead to an increase of exposure to pay guaranteed
minimum death and income benefits and could also result in increased
statutory reserves for these benefits ceded to ALIC, thereby leading to a
reduction of ALIC's statutory capital and surplus. In addition, it is
possible that the assumptions and projections used by the Company in
establishing prices for the guaranteed minimum death benefits and
guaranteed minimum income benefits on variable annuities, particularly
assumptions and projections about investment performance, do not accurately
anticipate the level of costs the Company will ultimately incur and cede to
ALIC in providing those benefits, resulting in adverse mortality margin
trends that may have a material effect on results of operations ceded to
ALIC.
o Conditions in the U.S. and international stock markets can have an impact
on the Company's variable annuity sales. In general, sales of variable
annuities increase when the stock markets are rising over an extended
period of time and decrease when stock markets are falling over an extended
period of time.
o In order to manage interest rate risk, from time to time the Company
manages the effective duration of assets in the investment portfolio.
Adjustments made to modify durations may have an impact on the value of the
investment portfolio and on investment income.
o Management believes the reserves for life-contingent contract benefits are
adequate to cover ultimate policy benefits, despite the underlying risks
and uncertainties associated with their determination when payments will
not be made until well into the future. Reserves are based on many
assumptions and estimates, including estimated premiums to be received over
the assumed life of the policy, the timing of the event covered by the
insurance policy, the amount of contract benefits to be paid and the
investment returns on the assets purchased with the premiums received. The
Company periodically reviews and revises its estimates. If future
experience differs from assumptions, it may have a material impact on
results of operations ceded to ALIC.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
o Under current U.S. tax law and regulations, deferred and immediate
annuities and life insurance, including interest-sensitive products, are
accorded favorable policyholder tax treatment. Any legislative or
regulatory changes that adversely alter this treatment are likely to
negatively affect the demand for these products. In addition, recent
changes in the federal estate tax laws may reduce the demand for the types
of life insurance used in estate planning.
o The Company is affiliated with various entities registered under the
federal securities laws as broker-dealers, investment advisers and/or
investment companies. These entities are subject to the regulatory
jurisdiction of the Securities and Exchange Commission, the National
Association of Securities Dealers and/or, in some cases, state securities
administrators. The laws regulating the securities products and activities
of the entities are complex, numerous and subject to change. As with any
highly regulated industry, there is some degree of risk of regulatory
non-compliance; however the Company has in place various legal and
compliance personnel, procedures and systems designed to reasonably assure
compliance with these requirements.
o The Company distributes its products under agreements with other members of
the financial services industry that are not affiliated with the Company.
Termination of one or more of these agreements due to, for example, changes
in control of any of these entities, could have a detrimental effect on the
Company's sales. This risk may be exacerbated due to the enactment of the
Gramm-Leach-Bliley Act of 1999, which eliminated many federal and state law
barriers to affiliations among banks, securities firms, insurers and other
financial service providers.
o The events of September 11, 2001, and the resulting disruption in the
financial markets revealed weaknesses in the physical and operational
infrastructure that underlies the U.S. and worldwide financial systems.
Those weaknesses did not impair the Company's liquidity in the wake of
September 11, 2001. However, if an event of similar or greater magnitude
occurred in the future and if the weaknesses in the physical and
operational infrastructure of the U.S. and worldwide financial systems are
not remedied, the Company could encounter significant difficulties in
transferring funds, buying and selling securities and engaging in other
financial transactions that support its liquidity.
o While positive operating cash flows are expected to continue to meet the
Corporation's liquidity requirements, the Corporation's liquidity could be
constrained by a catastrophe which results in extraordinary losses, a
downgrade of the Corporation's current long-term debt rating of A1 and A+
(from Moody's and Standard & Poor's, respectively) to non-investment grade
status of below Baa3/BBB-, a downgrade of AIC's insurance financial
strength rating from Aa2, AA and A+ (from Moody's, Standard & Poor's and
A.M. Best, respectively) to below Baa/BBB/B, or a downgrade in ALIC's or
the Company's insurance financial strength rating from Aa2, AA+ and A+
(from Moody's, Standard & Poor's and A.M. Best, respectively) to below
Aa3/AA-/A-. In the event of a downgrade of the Corporation's or AIC's
rating, ALIC and its subsidiaries including the Company, could also
experience a similar downgrade.
o Insurance financial strength ratings are an important factor in
establishing the competitive position of insurance companies and generally
may be expected to 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 a company's ratings due
to, for example, a decline in the value of a company's investment portfolio
or increased reserves due to additional minimum income or death benefit
exposure resulting from market declines. A multiple level downgrade of the
Corporation, AIC, ALIC or the Company, while not expected, could have a
material adverse affect on the Company's sales, including the
competitiveness of the Company's product offerings, its ability to market
products, and its financial condition and results of operations. Also, the
rating agencies have a variety of policies and practices regarding the
relationships among ratings of affiliated entities. As such, the ratings of
the Company or ALIC could be affected by changes in ratings of AIC and/or
the Corporation.
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 insurance financial
strength ratings. These restrictions affect the Company's ability to pay
shareholder dividends to ALIC and to use its capital in other ways.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
o The Company currently has Separate Accounts liabilities which contain death
benefit features covered by the exposure draft Statement of Position
("SOP") entitled "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts".
The Company does not currently hold liabilities for death benefit features
covered by the SOP. If the SOP is adopted, the Company's establishment of
liabilities with respect to the contracts could have a material impact on
the amounts ceded to and reinsurance recoverable from ALIC; however, the
market values at the time of adoption will affect the amount of the
liability required.
o Following enactment of the Gramm-Leach-Bliley Act of 1999, federal
legislation that allows mergers that combine commercial banks, insurers and
securities firms, state insurance regulators have been collectively
participating in a reexamination of the regulatory framework that currently
governs the United States insurance business in an effort to determine the
proper role of state insurance regulation in the U.S. financial services
industry. In addition, members of Congress have introduced or discussed
measures to permit optional federal chartering, and thus regulation, of
some types of insurance business, such as life insurance and annuities. We
cannot predict whether any state or federal measures will be adopted to
change the nature or scope of the regulation of the insurance business or
what effect any such measures would have on the Company.
o The Gramm-Leach-Bliley Act of 1999 permits mergers that combine commercial
banks, insurers and securities firms under one holding company. Until
passage of the Gramm-Leach-Bliley Act, the Glass Steagall Act of 1933 had
limited the ability of banks to engage in securities-related businesses and
the Bank Holding Company Act of 1956 had restricted banks from being
affiliated with insurers. With the passage of the Gramm-Leach-Bliley Act,
bank holding companies may acquire insurers and insurance holding companies
may acquire banks. In addition, grandfathered unitary thrift holding
companies, including The Allstate Corporation, may engage in activities
that are not financial in nature. The ability of banks to affiliate with
insurers may materially adversely affect all of the Company's product lines
by substantially increasing the number, size and financial strength of
potential competitors.
o Like other members of the insurance industry, the Company is the potential
target of an increasing number of class action lawsuits and other types of
litigation based on a variety of issues, some of which involve claims for
substantial and/or indeterminate amounts (including punitive and treble
damages) and the outcomes of which are unpredictable. Generally accepted
accounting principles ("GAAP") prescribe when the Company has a contingent
liability and may reserve for particular risks, including litigation
exposures. Therefore, results ceded to ALIC for a given period could be
significantly adversely affected when a reserve is established for
litigation.
o In some states, mutual insurance companies can convert to a hybrid
structure known as a mutual holding company. This process converts
insurance companies owned by their policyholders to become stock insurance
companies owned (through one or more intermediate holding companies)
partially by their policyholders and partially by stockholders. Also, some
states permit the conversion of mutual insurance companies into stock
insurance companies (demutualization). The ability of mutual insurance
companies to convert to mutual holding companies or to demutualize may
materially adversely affect all of our product lines by substantially
increasing competition for capital in the financial services industry.
o The design of any system of controls and procedures, including internal
controls and disclosure controls and procedures, is based in part upon
assumptions about the likelihood of future events. As a result, there can
be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote.
o The impact of The Sarbanes-Oxley Act of 2002 on the business of the Company
is being evaluated but cannot be completely determined at this time,
particularly as it relates to split-dollar life insurance products.
Item 4. Controls and Procedures
Within the 90 days prior to the date of the filing of this report and under
the supervision and with the participation of the Company's management,
including the principal executive officer and principal financial officer, the
Company evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures with respect to its quarterly reports on Form
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
10-Q and its current reports on Form 8-K to be filed with the Securities and
Exchange Commission ("SEC"). Based upon that evaluation, the principal executive
officer and the principal financial officer concluded that these disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company required to be included in the Company's
quarterly reports on Form 10-Q and its current reports on Form 8-K. "Disclosure
controls and procedures" are those controls and procedures that are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. They include controls and procedures designed to ensure
that information required to be disclosed by the Company in reports that it
files or submits under that Act is accumulated and communicated to the Company's
management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
In addition, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these internal
controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The discussion "Regulation and Legal Proceedings" in Part I,
Item 1, Note 4 of this Form 10-Q is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Glenbrook Life and Annuity Company
(Registrant)
November 14, 2002 By /s/Samuel H. Pilch
Samuel H. Pilch
(chief accounting officer and duly
authorized officer of the Registrant)
CERTIFICATIONS
I, Casey J. Sylla, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Glenbrook Life and
Annuity Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Casey J. Sylla
President and Chief Executive Officer
18
I, Steven E. Shebik, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Glenbrook Life and
Annuity Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Steven E. Shebik
Vice President and Chief Financial Officer
19
CERTIFICATION
Pursuant to 18 United States Code ss. 1350
Each of the undersigned hereby certifies that to his knowledge the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002 of
Glenbrook Life and Annuity Company (the "Company") filed with the Securities and
Exchange Commission fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information contained
in such report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: November 14, 2002 /s/ Casey J. Sylla
Casey J. Sylla
President and Chief Executive Officer
/s/ Steven E. Shebik
Steven E. Shebik
Vice President and Chief Financial
Officer
20