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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: 333-100029
Allstate Life Insurance Company of New York
(Exact name of registrant as specified in its charter)
New York 36-2608394
(State of Incorporation) (I.R.S. Employer Identification No.)
One Allstate Drive
Farmingville, New York 11738
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including are code: 516-451-5300
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 100,000 common shares, $25 par value,
outstanding, all of which are held by Allstate Life Insurance Company.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO QUARTERLY REPORT ON FORM 10-Q
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 11
Item 4. Controls and Procedures 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Certifications 28
2
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
(in thousands) 2002 2001 2002 2001
------------ ------------- ------------ ------------
(Unaudited) (Unaudited)
Revenues
Premiums $ 12,881 $ 29,445 $ 65,655 $ 76,438
Contract charges 12,930 10,150 37,537 30,621
Net investment income 59,188 51,377 170,569 150,072
Realized capital gains and losses (10,231) 2,804 (11,696) 352
------------ ------------ ---------- ---------
74,768 93,776 262,065 257,483
Costs and Expenses
Contract benefits 35,983 53,739 126,483 138,795
Interest credited to contractholder funds 23,042 18,965 64,472 53,557
Amortization of deferred policy acquisition costs 10,517 2,183 17,301 5,968
Operating costs and expenses 7,694 7,113 26,208 22,907
------------ ------------ ---------- ---------
77,236 82,000 234,464 221,227
------------ ------------ ---------- ---------
(Loss) income from operations before income tax
expense and cumulative effect of change in
accounting principle (2,468) 11,776 27,601 36,256
Income tax (benefit) expense (1,078) 4,128 9,274 12,585
------------ ------------ ---------- ---------
(Loss) income before cumulative effect of change in
accounting principle (1,390) 7,648 18,327 23,671
Cumulative effect of change in accounting for
derivative financial instruments, after-tax - - - (147)
------------ ------------- ---------- ---------
Net (loss) income $ (1,390) $ 7,648 $ 18,327 $ 23,524
============ ============= ========== =========
See notes to condensed financial statements.
3
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
CONDENSED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
(in thousands, except par value data) 2002 2001
------------------ ----------------
(Unaudited)
Assets
Investments
Fixed income securities, at fair value (amortized cost $3,116,198 and
$2,678,264) $ 3,507,153 $ 2,894,461
Mortgage Loans 290,377 242,727
Short-term 172,889 57,507
Policy Loans 33,233 33,160
----------------- ---------------
Total investments 4,003,652 3,227,855
Cash 16,109 7,375
Deferred policy acquisitions costs 163,218 156,615
Accrued investment income 39,922 33,601
Reinsurance recoverables 880 1,453
Other assets 13,390 13,800
Separate Accounts 511,227 602,657
----------------- ---------------
Total assets $ 4,748,398 $ 4,043,356
================= ===============
Liabilities
Reserve for life-contingent contract benefits $ 1,458,046 $ 1,303,810
Contractholder funds 1,930,745 1,442,119
Current income taxes payable 7,985 6,049
Deferred income taxes 87,309 64,612
Other liabilities and accrued expenses 232,545 164,399
Payable to affiliates, net 2,323 427
Reinsurance payable to affiliate, net 641 307
Separate Accounts 511,227 602,657
----------------- ---------------
Total liabilities 4,230,821 3,584,380
----------------- ---------------
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 310,021 291,694
Accumulated other comprehensive income:
Unrealized net capital gains and losses 159,269 118,995
----------------- ---------------
Total accumulated other comprehensive income 159,269 118,995
----------------- ---------------
Total shareholder's equity 517,577 458,976
----------------- ---------------
Total liabilities and shareholder's equity $ 4,748,398 $ 4,043,356
================= ================
See notes to condensed financial statements.
4
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------------
(in thousands) 2002 2001
----------- ------------
(Unaudited)
Cash flows from operating activities
Net income $ 18,327 $ 23,524
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items (36,046) (37,366)
Realized capital gains and losses 11,696 (352)
Cumulative effect of change in accounting for derivative financial
instruments - 147
Interest credited to contractholder funds 64,472 53,557
Changes in:
Life-contingent contract benefits and other insurance reserves 31,574 51,594
Deferred policy acquisition costs (24,101) (33,574)
Income taxes payable 2,947 8,576
Other operating assets and liabilities 10,372 (4,315)
------------ ------------
Net cash provided by operating activities 79,241 61,791
------------ ------------
Cash flows from investing activities
Proceeds from sales of fixed income securities 185,066 183,796
Investment collections
Fixed income securities 136,888 64,125
Mortgage loans 14,995 13,874
Investments purchases
Fixed income securities (759,169) (491,585)
Mortgage loans (62,276) (33,879)
Change in short-term investments, net (38,697) (16,244)
Change in other investments, net 1,238 (215)
Change in policy loans, net (73) (1,093)
------------ ------------
Net cash used in investing activities (522,028) (281,221)
------------ ------------
Cash flows from financing activities
Contractholder fund deposits 572,988 362,648
Contractholder fund withdrawals (121,467) (143,749)
------------ ------------
Net cash provided by financing activities 451,521 218,899
------------ ------------
Net increase (decrease) in cash 8,734 (531)
Cash at beginning of period 7,375 2,162
------------ ------------
Cash at end of period $ 16,109 $ 1,631
============ ============
See notes to condensed financial statements.
5
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed financial statements include the accounts of
Allstate Life Insurance Company of New York ("the Company"), 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 Allstate Life Insurance Company of
New York 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.
Non-cash transactions of $256 thousand have been excluded from prior period
investment purchases and collections on the condensed statements of cash flows
to conform to the current period presentation.
Non-cash investment exchanges and modifications, which reflect refinancings
of fixed income securities, totaled $5 million for the nine months ended
September 30, 2002. There were no exchanges for the nine months ended September
30, 2001.
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 and as a result, the Company's
2001 results do not reflect the impact of the non-amortization provisions of
SFAS No. 142. Had the Company adopted the non-amortization provisions on January
1, 2001, the impact would have been immaterial to Net income (unamortized
goodwill was $160 thousand at September 30, 2002). 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. The Company utilized
several widely accepted valuation techniques, including discounted cash flow and
market multiple and trading analyses, to estimate the fair value of its acquired
businesses.
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 condensed statement of operations
6
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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.
2. Reinsurance
The Company purchases reinsurance to limit aggregate and single losses on
large risks. The Company also cedes a portion of the mortality risk on certain
term life policies with a pool of reinsurers. The Company continues to have
primary liability as the direct insurer for risks reinsured. The Company follows
a comprehensive evaluation process involving credit scoring and capacity to
select reinsurers. Estimating amounts of reinsurance recoverable is impacted by
the uncertainties involved in the establishment of reserves for contract
benefits. Failure of reinsurers to honor their obligations could result in
losses to the Company.
Amounts recoverable from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. The Company has reinsurance agreements with its
parent, ALIC, to reinsure a portion of its premiums, contract charges and
contract benefits. No single non-affiliate reinsurer had a material obligation
to the Company nor is the Company's business substantially dependent upon any
reinsurance contract. The effects of reinsurance on Premiums and Contract
charges and Contract benefits were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(in thousands) 2002 2001 2002 2001
----------- ----------- ----------- -----------
Premiums and contract charges
Direct $ 27,860 $ 40,872 $ 108,965 $ 110,620
Assumed - non-affiliate 72 149 318 521
Ceded
Affiliate (1,756) (1,197) (5,281) (3,432)
Non-affiliate (365) (229) (810) (650)
------------- ------------- ------------- -------------
Premiums and contract charges, net
of reinsurance $ 25,811 $ 39,595 $ 103,192 $ 107,059
============= ============= ============= =============
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(in thousands) 2002 2001 2002 2001
----------- ----------- ----------- -----------
Contract benefits
Direct $ 36,616 $ 53,917 $ 128,233 $ 139,914
Assumed - non-affiliate 6 52 51 78
Ceded
Affiliate (225) (47) (791) (537)
Non-affiliate (414) (183) (1,010) (660)
------------- ------------- ------------- -------------
Contract benefits, net of reinsurance $ 35,983 $ 53,739 $ 126,483 $ 138,795
============= ============= ============= =============
7
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. 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 and its impact on 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.
The Company sells its products through a variety of distribution channels
including Allstate agencies. Consequently, the outcome of some legal proceedings
that involve AIC regarding the Allstate agencies may have an impact on the
Company.
AIC is defending various lawsuits involving worker classification issues.
Examples of these lawsuits include a number of putative class actions
challenging the overtime exemption claimed by AIC under the Fair Labor Standards
Act or state wage and hour laws. These class actions mirror similar lawsuits
filed recently against other carriers in the industry and other employers.
Another example involves the worker classification of staff working in agencies.
In this putative class action, plaintiffs seek damages under the Employee
Retirement Income Security Act ("ERISA") and the Racketeer Influenced and
Corrupt Organizations Act alleging that agency secretaries were terminated as
employees by AIC and rehired by agencies through outside staffing vendors for
the purpose of avoiding the payment of employee benefits. A putative nationwide
class action filed by former employee agents also includes a worker
classification issue; these agents are challenging certain amendments to the
Agents Pension Plan and are seeking to have exclusive agent independent
contractors treated as employees for benefit purposes. AIC has been vigorously
defending these and various other worker classification lawsuits. The outcome of
these disputes is currently uncertain.
In addition, on August 6, 2002, a petition was filed with the National
Labor Relations Board ("NLRB") by the United Exclusive Allstate Agents, Office
and Professional Employees International Union, seeking certification as the
collective bargaining representative of all Allstate agents in the United
States. AIC is opposing the petition on a number of grounds, including that the
agents are independent contractors and, therefore, the NLRB lacks jurisdiction
over the issue. The outcome is currently uncertain.
AIC is also defending certain matters relating to its agency program
reorganization announced in 1999. These matters include an investigation by the
U.S. Department of Labor and a lawsuit filed in December 2001 by the U.S. Equal
Employment Opportunity Commission ("EEOC") with respect to allegations of
retaliation under the Age Discrimination in Employment Act, the Americans with
Disabilities Act and Title VII of the Civil Rights Act of 1964. A putative
nationwide class action has also been filed by former employee agents alleging
various violations of ERISA, breach of contract and age discrimination. AIC has
been vigorously defending these lawsuits and other matters related to its agency
program reorganization. In addition, AIC is defending certain matters relating
to its life agency program reorganization announced in 2000. These matters
include an investigation by the EEOC with respect to allegations of age
discrimination and retaliation. AIC is cooperating fully with the agency
investigation and will continue to vigorously defend these and other claims
related to the life agency program reorganization. The outcome of these disputes
is currently uncertain.
The court has approved a settlement, which is not material, in a previously
reported, statewide class action that alleged that ALIC violated insurance
statues in the sale of credit insurance.
8
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Various other legal and regulatory actions are currently pending that
involve AIC and specific aspects of its conduct of business. 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, 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.
4. 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-
Pretax Tax tax Pretax Tax tax
----------- -------------- ---------- ---------- ------------ ----------
Unrealized capital gains and losses
and net gains and losses on
derivative financial instruments:
Unrealized holding gains arising during
the period $ 37,318 $ (13,061) $ 24,257 $ 28,868 $ (10,103) $ 18,765
Less: reclassification adjustments (9,783) 3,424 (6,359) 2,564 (897) 1,667
---------- ----------- ---------- ---------- ----------- ---------
Unrealized net capital gains 47,101 (16,485) 30,616 26,304 (9,206) 17,098
Net gains on derivative financial
instruments arising during the period 450 (157) 293 192 (67) 125
Less: reclassification adjustments 450 (157) 293 192 (67) 125
---------- ----------- ---------- ---------- ----------- ---------
Net gains on derivative financial
instruments - - - - - -
---------- ----------- ---------- ---------- ----------- ---------
Other comprehensive income $ 47,101 $ (16,485) 30,616 $ 26,304 $ (9,206) 17,098
========== =========== ========== ===========
Net (loss) income (1,390) 7,648
---------- ----------
Comprehensive income $ 29,226 $ 24,746
========== ==========
9
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Nine Months Ended September 30,
----------------------------------------------------------------------------------------
(in thousands) 2002 2001
---------------------------------------------- --------------------------------------
After- After-
Pretax Tax tax Pretax Tax tax
----------- -------------- ---------- ---------- ----------- -----------
Unrealized capital gains and losses and
net gains and losses on derivative
financial instruments:
Unrealized holding gains arising during
the period $ 51,445 $ (18,006) $ 33,439 $ 20,249 $ (7,088) $ 13,161
Less: reclassification adjustments (10,515) 3,680 (6,835) (772) 270 (502)
----------- ------------ ---------- ---------- ----------- -----------
Unrealized net capital gains 61,960 (21,686) 40,274 21,021 (7,358) 13,663
Net gains (losses) on derivative
financial instruments arising during
the period 1,243 435 808 (200) 70 (130)
Less: reclassification adjustments 1,243 (435) 808 (200) 70 (130)
----------- ------------ ---------- ---------- ----------- -----------
Net gains (losses) on derivative
financial instruments - - - - - -
----------- ------------ ---------- ---------- ----------- -----------
Other comprehensive income $ 61,960 $ (21,686) 40,274 $ 21,021 $ (7,358) 13,663
=========== ============ ========== ===========
Net income 18,327 23,524
---------- -----------
Comprehensive income $ 58,601 $ 37,187
========== ===========
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
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
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
Allstate Life Insurance Company of New York Annual Report on Form 10-K for the
year ended December 31, 2001, which includes a discussion of the Company's
Critical Accounting Policies. To conform with the 2002 and year-end 2001
presentation, certain prior year amounts have been reclassified.
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 in the state
of New York through Allstate agencies, financial services firms, direct
marketing and specialized brokers. The Company's products include term life
insurance; whole life insurance; annuities such as fixed deferred annuities,
market value adjusted annuities and treasury-linked annuities; variable deferred
annuities; immediate annuities; and other protection products such as accidental
death and hospital indemnity.
The Company has identified itself as a single segment entity.
The assets and liabilities related to variable annuity 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.
Absent any contract provision wherein the Company guarantees either a
minimum return or account value upon death, variable annuity contractholders
bear the investment risk that the Separate Accounts' funds may not meet their
stated objectives.
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
FINANCIAL HIGHLIGHTS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
(in thousands) 2002 2001 2002 2001
----------- ----------- ------------ -----------
Statutory premiums and deposits $ 317,187 $ 158,389 $ 723,660 $ 520,589
=========== =========== ============ ===========
Investments $ 4,003,652 $ 3,236,303 $ 4,003,652 $ 3,236,303
Separate Accounts Assets 511,227 529,094 511,227 529,094
----------- ----------- ------------ -----------
Investments, including Separate Accounts Assets $ 4,514,879 $ 3,765,397 $ 4,514,879 $ 3,765,397
=========== =========== ============ ===========
GAAP Premiums $ 12,881 $ 29,445 $ 65,655 $ 76,438
Contract charges 12,930 10,150 37,537 30,621
Net investment income 59,188 51,377 170,569 150,072
Contract benefits 35,983 53,629 126,483 138,795
Interest credited to contractholder funds 23,042 19,075 64,472 53,557
Amortization of deferred policy acquisition costs ("DAC") 11,368 1,476 18,441 4,079
Operating costs and expenses 7,694 7,113 26,208 22,907
----------- ----------- ------------ -----------
Operating income before tax 6,912 9,679 38,157 37,793
Income tax expense on operations 2,313 3,369 13,086 13,142
----------- ----------- ------------ -----------
Operating income (1) 4,599 6,310 25,071 24,651
Realized capital gains and losses, after-tax (2) (5,989) 1,338 (6,744) (980)
Cumulative effect of change in accounting principle,
after-tax - - - (147)
----------- ----------- ------------ -----------
Net (loss) income $ (1,390) $ 7,648 $ 18,327 $ 23,524
=========== =========== ============ ===========
(1) For a complete definition of operating income, see the operating income
discussion beginning on page 14
(2) Reconciliation of Realized capital gains and losses
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- -------------------------------
(in thousands) 2002 2001 2002 2001
------------- ---------------- --------------- ------------
Realized capital gains and losses $ (10,231) $ 2,804 $ (11,696) $ 352
Reclassification of Amortization of DAC 851 (707) 1,140 (1,889)
Reclassification of Income tax benefit (expense) 3,391 (759) 3,812 557
------------- ---------------- --------------- ------------
Realized capital gains and losses, after-tax $ (5,989) $ 1,338 $ (6,744) $ (980)
============= ================ =============== ============
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
Statutory premiums and deposits
Statutory premiums and deposits is a measure used by management to analyze
sales trends. Statutory premiums and deposits includes premiums on insurance
policies and premiums and deposits on annuities determined in conformity with
statutory accounting practices prescribed or permitted by the insurance
regulatory authorities of the state of New York, and all other funds received
from customers on deposit-type products which are accounted for by the Company
on a generally accepted accounting principles ("GAAP") basis as liabilities,
rather than as revenue. Statutory accounting practices, and the Company's
definition of statutory premiums and deposits, differ in material aspects from
GAAP. The Company's method of calculating statutory premiums and deposits may
also be different from the method used by other companies and therefore
comparability may be limited.
The following table summarizes statutory premiums and deposits by product
line:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
(in thousands) 2002 2001 2002 2001
----------- ----------- ------------ -----------
Life and other products
Interest-sensitive life $ 13,590 $ 11,451 $ 41,002 $ 35,460
Traditional 5,219 6,599 15,800 18,698
Other 2,078 2,127 6,576 6,330
----------- ----------- ----------- -----------
Total life and other products 20,887 20,177 63,378 60,488
----------- ----------- ----------- -----------
Investment Products
Fixed annuities 100,392 29,352 242,793 152,557
Immediate annuities 17,095 38,056 79,638 98,910
Variable annuities 178,813 70,804 337,851 208,634
----------- ----------- ----------- -----------
Total investment products 296,300 138,212 660,282 460,101
----------- ----------- ----------- -----------
Total statutory premiums and deposits $ 317,187 $ 158,389 $ 723,660 $ 520,589
=========== =========== =========== ===========
Total statutory premiums and deposits increased 100.3% to $317.2 million in
the third quarter of 2002 from $158.4 million in the third quarter of 2001. The
increase is due to growth in sales of fixed annuities and variable annuities
partially offset by decreased sales of immediate annuities.
Total statutory premiums and deposits increased 39.0% to $723.7 million in
the first nine months of 2002 from $520.6 million in the same period of 2001.
This increase was due to growth in sales of fixed annuities, variable annuities
and interest-sensitive life insurance, partially offset by decreased sales of
immediate annuities.
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
GAAP premiums and contract charges
Under GAAP, premiums represent premiums generated from traditional life and
other insurance products and immediate annuities which have significant
mortality or morbidity risk, and contract charges generated from
interest-sensitive life insurance products, variable annuities, fixed annuities
and other investment products for which deposits are classified as
contractholder funds or Separate Accounts liabilities. Contract charges are
assessed against the contractholder account balance for maintenance,
administration, cost of insurance and early surrender. The following table
summarizes GAAP premiums and contract charges:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
(in thousands) 2002 2001 2002 2001
--------- ------------ ----------- ------------
Premiums
Traditional life $ 5,296 $ 6,221 $ 15,856 $ 17,962
Immediate annuities with life contingencies (1) 5,503 21,119 43,225 52,130
Other 2,082 2,105 6,574 6,346
--------- ----------- --------- ------------
Total premiums 12,881 29,445 65,655 76,438
--------- ----------- --------- ------------
Contract charges
Interest-sensitive life 9,131 6,749 27,090 20,455
Variable annuities 2,923 2,496 8,209 7,092
Investment contracts 876 905 2,238 3,074
--------- ----------- --------- ------------
Total contract charges 12,930 10,150 37,537 30,621
--------- ----------- --------- ------------
Total GAAP premiums and contract charges $ 25,811 $ 39,595 $ 103,192 $ 107,059
========= =========== ========= ============
(1) Under GAAP accounting requirements, only those immediate annuities with
life contingencies are recognized in premiums. Those without life
contingencies, called period certain, are recorded directly as liabilities
and generate investment margins and contract charges.
In the third quarter and first nine months of 2002, total premiums
decreased 56.3% and 14.1% respectively, compared to the same period of 2001 due
to declines in sales of immediate annuities with life contingencies and
traditional life premiums. Declines in the sales of immediate annuities with
life contingencies were due to a change in the mix of immediate annuities sold
and due to market conditions. The decline in traditional life premiums is
related to the Company entering into a reinsurance agreement for certain of its
direct marketing credit life insurance products and lower term life insurance
premiums.
Total contract charges increased 27.4% during the third quarter of 2002,
and 22.6% for the first nine months of 2002, compared to the same periods in
2001 due to growth in interest-sensitive life account values in force and
contract charge rate increases. Contract charges on variable annuities, which
are generally calculated as a percentage of each account value, increased 17.1%
and 15.8% for the third quarter and first nine months of 2002, respectively, as
a result of increased sales of variable annuities and transfers from the fixed
account contract option more than offsetting declines in account values as a
result of equity market declines.
Operating income
Operating income is a measure used by the Company's management to evaluate
profitability. Operating income is defined as Income before the cumulative
effect of changes in accounting principles, after-tax, and excluding the
after-tax effects of realized capital gains and losses. In this management
measure, the effects of realized capital gains and losses and certain other
items have been excluded due to the volatility between periods and because such
data is often excluded when evaluating the overall financial performance and
profitability of insurers. These operating results should not be considered as a
substitute for any GAAP measure of performance. A reconciliation of operating
income to net income is provided in the table on page 12. The Company's method
of calculating operating income may be different from the method used by other
companies and therefore comparability may be limited.
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
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
(in thousands) 2002 2001 2002 2001
---------- ---------- ---------- ----------
Investment margin $ 11,921 $ 10,974 $ 37,011 $ 33,164
Mortality margin 7,548 1,044 26,909 14,178
Maintenance charges 5,200 5,323 15,377 14,649
Surrender charges 1,305 927 3,509 2,788
DAC amortization 11,369 1,476 18,442 4,079
Operating costs and expenses 7,693 7,113 26,207 22,907
Income tax expense on operations 2,313 3,369 13,086 13,142
---------- --------- ---------- -----------
Operating income $ 4,599 $ 6,310 $ 25,071 $ 24,651
========== ========= =========== ===========
Operating income decreased 27.1% in the third quarter of 2002 from the
third quarter of 2001 due primarily to an increase in deferred policy
acquisition costs ("DAC") amortization and higher Operating costs and expenses,
partly offset by increases in the investment and mortality margins. Operating
income increased 1.7% in the first nine months of 2002, over the same period in
the prior year, due to increases in the investment and mortality margins
partially offset by increased amortization of DAC and higher Operating costs and
expenses.
Investment margin, which represents the excess of net investment income
earned over interest credited to policyholders and contractholders, increased
8.6% in the third quarter of 2002 and 11.6% for the first nine months of 2002
compared to the same periods last year. The increase in both periods is a result
of growth in invested assets, driven by sales of fixed and immediate annuities,
less contract benefits and surrenders and withdrawals. Invested assets increased
22.8% as of September 30, 2002 compared to September 30, 2001. The impact of
this growth was partly offset by a decline in invested assets yields from lower
reinvestment rates resulting from market conditions. Management actions taken in
2001 and 2002 to reduce crediting rates where contractually allowed have
partially offset the impact on investment margin of the decline in invested
asset yields.
Mortality margin, which represents premiums and cost of insurance charges
less related policy benefits, increased 623.0% in the third quarter of 2002 and
89.8% for the first nine months of 2002 compared to the same periods last year.
The mortality margins in the third quarter and first nine months of 2001 reflect
the impact of the September 11, 2001 attack on the World Trade Center in New
York City. New premiums and cost of insurance contract charges on new business
have improved the mortality margin compared to the same periods in the prior
year. Mortality and morbidity loss experience can cause benefit payments to
fluctuate from period to period while underwriting and pricing guidelines are
based on a long-term view of the trends in mortality and morbidity.
Variable annuities have contract provisions that provide a benefit of a
minimum account value at death, which are referred to as guaranteed minimum
death benefits ("GMDBs"). In addition, certain variable annuity contracts have
provisions that provide for a future minimum income annuitization value used to
determine the contractholder's payout benefits, which are referred to as
guaranteed minimum income benefits ("GMIBs"). At any point in time, the value or
amount of these guarantees is dependent upon the investment performance of the
underlying Separate Accounts, and is not proportional to the amount of periodic
fees assessed against the contractholder for these benefits. The Company is
responsible for meeting these guaranteed benefits and receives any fees assessed
for these benefits. Net cash payments for GMDBs were $702 thousand and $2.0
million for the quarter and the nine months ended September 30, 2002,
respectively. This compares to net cash payments of $252 thousand and $545
thousand for the three and nine month periods ended September 30, 2001. The
aggregate amount of the Company's GMDB in excess of the related account values,
payable if all contractholders were to have died as of September 30, 2002, is
estimated to be $237.0 million compared to $120.5 million at December 31, 2001.
As of September 30, 2002, approximately two-thirds of this exposure is related
to the return of customer deposits while the remaining one-third is attributable
to some form of enhanced death benefit greater than customer deposits.
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
Amortization of DAC for the Company is dependent on the nature of the
insurance contract and requires judgment on both the period and rate of
amortization. DAC amortization periods for products with significant mortality
or morbidity risk are determined when the products are sold, and are related to
the periods in which premiums are received on these products. Amortization is
recognized in proportion to the pattern of expected gross profits for
interest-sensitive life insurance and investment products, which is dependent on
expected investment returns and product profitability experience and the
estimated lives of the contracts. The recoverability of DAC on
interest-sensitive life insurance and certain investment products is reviewed
regularly in the aggregate, using current assumptions. The average lives of the
contracts are considerably shorter than the stated amortization period due to
withdrawals, surrenders and other policy terminations. The average long-term
rate of assumed future investment yield of the Separate Accounts assets related
to variable annuity contracts used in estimating expected gross margin is 8.0%
after fees. When market returns vary from the 8% long-term expectation or mean,
the Company assumes a reversion to this mean over a seven-year period, which
includes two prior years and five future years. The assumed returns over this
period are limited to a range between 0% and 13.25% after fees.
The steep and sustained decline in the equity markets for the nine months
ended September 30, 2002 resulted in accelerated DAC amortization (called "DAC
unlocking") on variable annuities, totaling $6.9 million in the third quarter.
Improved persistency on fixed annuities partially offset the variable annuity
DAC unlocking, for a net pre-tax acceleration of DAC amortization adjustment of
$6.0 million in the third quarter of 2002. Future volatility in the equity
markets of similar or greater magnitude may result in non-symmetrical increases
or decreases in the amortization of DAC.
The following table summarizes the DAC asset balance by product.
Amortization September 30, December 31,
(in thousands) Period 2002 2001
---------------- ------------------- -----------------
Traditional Life 7-30 year $ 30,838 $ 27,757
Other various 3,345 3,946
------------------- -----------------
34,183 31,703
Interest-sensitive life 30 years 58,818 59,574
Fixed annuity 15 years 11,245 14,701
Variable annuity 15 years 58,972 50,637
------------------- -----------------
129,035 124,912
------------------- -----------------
Total DAC $ 163,218 $ 156,615
=================== =================
DAC amortization increased $9.9 million during the third quarter of 2002
and $14.4 million during the first nine months of 2002 compared to the same
periods of 2001 due DAC unlocking in the third quarter of 2002 and ongoing
growth of the business in force.
Operating costs and expenses increased 8.2% during the third quarter of
2002 and 14.4% for the first nine months of 2002 compared to the same periods in
2001 due to distribution expenses incurred on new growth initiatives and
increased administrative expenses.
Net investment income
Pretax net investment income increased 15.2% in the third quarter of 2002
compared to the same period in 2001. For the first nine months of 2002, pretax
net investment income increased 13.7% compared to the same period last year. The
increase was due to higher investment balances partially offset by slightly
lower portfolio yields. Lower portfolio yields were due to funds from operations
and reinvestments being invested at current market rates. At September 30, 2002
investment balances, excluding Separate Accounts and net unrealized gains and
losses on fixed income securities, increased 22.8% compared to September 30,
2001.
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
After-tax realized capital gains and losses
After-tax realized capital losses were $6.0 million for the third quarter
of 2002 compared to after-tax realized capital gains of $1.3 million in the same
period last year. After-tax realized capital losses were $6.7 million for the
first nine months of 2002 compared to $980 thousand in the same period last
year. After-tax realized capital gains and losses are presented net of the
effects of DAC amortization, to the extent that such effects resulted from the
recognition of realized capital gains and losses. The following table describes
the factors impacting the realized capital gains and losses results:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
(in thousands) 2002 2001 2002 2001
------------ ----------- ----------- -----------
Portfolio trading $ 1,584 $ 1,572 $ 1,262 $ 1,151
Investment write-downs (7,610) 94 (8,738) (798)
Valuation of derivative securities (506) 122 4 (128)
------------- ------------ ------------ ------------
Subtotal (6,532) 1,788 (7,472) 225
Reclassification of amortization of DAC 543 (450) 728 (1,205)
------------- ------------ ------------ ------------
Total realized capital gains and losses, after-tax $ (5,989) $ 1,338 $ (6,744) $ (980)
============= ============ ============ ============
For a further discussion of realized capital gains and losses, see page 19.
INVESTMENTS
The composition of the Company's investment portfolio at September 30, 2002
is presented in the following table:
Percent
(in thousands) to total
--------------
Fixed income securities (1) $ 3,507,153 87.6%
Mortgage loans 290,377 7.3
Short-term 172,889 4.3
Policy loans 33,233 0.8
---------------- --------------
Total $ 4,003,652 100.0%
================ ==============
(1) Fixed income securities are carried at fair value. Amortized cost for
these securities was $3.11 billion at September 30, 2002.
Total investments were $4.00 billion at September 30, 2002 compared to
$3.23 billion at December 31, 2001. The increase was due to amounts invested
from positive cash flows generated from operations and increased unrealized
capital gains. At September 30, 2002, unrealized capital gains on the fixed
income securities portfolio were $391.0 million compared to $216.2 million at
December 31, 2001.
At September 30, 2002, 96.9% 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, Baa
or a comparable Company internal rating.
Total investment balances related to the collateral from securities lending
increased to $181.1 million at September 30, 2002 from $140.3 million at
December 31, 2001.
Fixed income securities include bonds, mortgage-backed and asset-backed
securities. All fixed income securities are carried at fair value and are
classified as available for sale. The fair value of publicly traded fixed income
securities is based on quoted market prices or dealer quotes. The difference
between amortized cost and fair value of fixed income securities, net of
deferred income taxes, certain life and annuity deferred policy acquisition
costs, and certain reserves for life-contingent contract benefits, is reflected
as a component of other comprehensive income.
The fair value of non-publicly traded securities at September 30, 2002 was
$707.2 million. The fair value of non-publicly traded securities, which are
privately placed corporate obligations, is based on either widely accepted
pricing valuation models which utilize internally developed ratings and
independent third party data (e.g., term structures and current publicly traded
bond prices) as inputs or independent third party pricing sources. The valuation
models use indicative information such as ratings, industry, coupon, and
maturity along with related third party data and publicly traded bond prices to
determine security specific spreads. These spreads are then adjusted for
illiquidity based on historical analysis and broker surveys. Periodic changes in
fair values are reported as a component of other comprehensive income and are
reclassified to net income only when supported by the consummation of a
transaction with an unrelated third party.
17
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 table presents the amortized cost, gross unrealized gains and
losses and fair value for fixed income securities.
Amortized Gross unrealized Fair
cost gains losses value
--------- ----- ------ ------
(in thousands)
At September 30, 2002
U.S. government and agencies $ 594,464 $ 243,475 $ - $ 837,939
Municipal 95,300 8,611 (1) 103,910
Corporate 1,801,157 163,947 (55,702) 1,909,402
Mortgage-backed securities 568,920 32,233 (413) 600,740
Asset-backed securities 56,357 2,557 (3,752) 55,162
----------- ---------- ----------- ------------
Total fixed income securities $ 3,116,198 $ 450,823 $ (59,868) $ 3,507,153
=========== ========== =========== ============
At December 31, 2001
U.S. government and agencies $ 579,607 $ 117,918 $ (533) $ 696,992
Municipal 150,543 3,695 (47) 154,191
Corporate 1,467,635 96,974 (18,492) 1,546,117
Mortgage-backed securities 425,635 16,737 (228) 442,144
Asset-backed securities 54,844 1,081 (908) 55,017
----------- ----------- ----------- ------------
Total fixed income securities $ 2,678,264 $ 236,405 $ (20,208) $ 2,894,461
=========== =========== =========== ============
The net unrealized capital gain on fixed income securities at September 30,
2002 was $391 million. Unrealized losses were primarily concentrated in the
Corporate fixed income portfolios.
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.
(in thousands) September 30, 2002 December 31, 2001
------------------ -----------------
Percent of Percent of
total Fixed total Fixed
Amortized Fair Income Amortized Fair Income
cost value portfolio cost Value portfolio
--------- ----- ----------- --------- ----- -----------
Problem $ 25,610 $ 19,479 0.5% $ 6,711 $ 5,279 0.2%
Potential problem 3,407 3,106 0.1 - - -
-------- -------- ----------- --------- ------- -----------
Total net carrying value $ 29,017 $ 22,585 0.6% $ 6,711 $ 5,279 0.2%
======== ======== =========== ========= ======= ===========
Cumulative write-downs recognized $ 13,444 $ 174
======== =========
18
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 has experienced an increase in its balance of fixed income
securities categorized as problem or potential problem as of September 30, 2002
compared to December 31, 2001. The Company had no fixed income securities
categorized as restructured at September 30, 2002 or December 31, 2001. 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 are 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 has an 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 fair value compared to amortized cost is below
established thresholds or are identified through other monitoring criteria such
as ratings downgrades or payment defaults. Securities with an unrealized loss
greater than 20% of their amortized cost for fixed income securities for a
period of six consecutive months or more are identified through this process.
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.
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.
The following table describes the components of the realized capital gains and
losses.
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2002 2001 2002 2001
----------- ----------- ----------- -----------
Investment write-downs $ (11,920) $ 148 $ (13,676) $ (1,252)
Sales
Fixed income securities 1,221 2,419 319 1,757
Other 468 45 1,656 47
------------ ------------- ------------ -------------
Total sales (10,231) 2,612 (11,701) 552
Valuation of derivative instruments - 192 5 (200)
------------- ------------- ------------ -------------
Total realized capital gains and losses $ (10,231) $ 2,804 $ (11,696) $ 352
============= ============= ============ =============
The Company recorded, for the nine months ended September 30, 2002, $319
thousand in net gains from sales of securities, which is comprised of gross
gains of $6.7 million and gross losses of $6.4 million. Gross losses from sales
of securities of $6.4 million which, combined with investment write-downs of
$13.7 million, represent the total gross realized losses of $20.1 million on
fixed income securities for the nine months ended September 30, 2002.
The $6.4 million in losses from sales of fixed income securities primarily
related to a decision to reduce exposure to certain holdings due to severely
constrained liquidity conditions in the market and reductions of exposure to
deteriorating credits.
19
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 list details the five largest losses from write-downs by
issuer, the related circumstances giving rise to the loss and a discussion of
how those circumstances may have impacted other material investments held.
o A $6.96 million write-down on a global energy company and power
generator, which missed coupon payments in September due to severely
constrained liquidity.
o A $1.88 million write-down on senior unsecured securities issued by a
seismic data and related geophysical services company that has been
experiencing liquidity pressures. The circumstances of this impairment
are not expected to have a material impact on the other investments.
o A $1.66 million write-down on securities issued by a major U.S.
airline that filed for bankruptcy. We have no other securities of this
issuer and currently expect to hold our existing positions until they
recover in value or mature. The U.S. airline industry is under stress
and we are monitoring our investments in airlines closely,
particularly with regard to collateral values.
o A $1.43 million write-down on collateralized debt obligation notes.
The loss resulted from the decline in value of the portfolio of
high-yield bonds securing the notes.
o A $1.26 million write-down on a major U.S. airline that may file for
bankruptcy. The loss primarily relates to an unsecured issue whose
collateral value is insufficient.
There are a number of risks and uncertainties inherent in the process of
monitoring impairments and determining if an 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 that 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.
Separate Accounts
Separate Accounts assets and liabilities decreased 15.2% to $511.2 million
at September 30, 2002 from December 31, 2001. 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.
20
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
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 $ 358,308 $ 339,981
Accumulated other comprehensive income 159,269 118,995
----------------- ------------------
Total shareholder's equity $ 517,577 $ 458,976
================= ==================
Shareholder's equity
Shareholder's equity increased in the first nine months of 2002 when compared
to December 31, 2001, due to net income and an increase in unrealized net
capital gains.
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'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
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
Management believes that cash flows from operating and investing activities
of the Company are adequate to satisfy liquidity requirements of these
operations based on the current liability structure and considering a variety of
reasonably foreseeable stress scenarios.
21
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 maturity structure of the Company's fixed income securities, which
represent 87.6% 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 annuities and
interest-sensitive life insurance products, is subject to discretionary
surrenders and withdrawals by contractholders. Total surrenders and withdrawals
for the three month period and nine month period ended September 30, 2002 were
$45.5 million and $127.7 million compared with $27.1 million and $75.8 million
for the same periods last year. As the Company's interest-sensitive life
insurance policies and annuity contracts in-force grow and age, the dollar
amount of surrenders and withdrawals could 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.
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 New York requires insurers to participate in guaranty funds for impaired or
insolvent insurance companies. Such funds periodically assess losses to all
insurance companies doing business in the state. These assessments may be
material to the Company's financial results.
o There is uncertainty involved in estimating the availability of
non-affiliate reinsurance and the collectibility of reinsurance and
recoverables. This uncertainty arises from a number of factors, including
whether losses meet the qualifying conditions of the reinsurance contracts
and if the reinsurers have the financial capacity and willingness to pay.
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 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, investment income, product sales, results of
operations and retention of existing business. 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 the
Company's investment income as the Company reinvests proceeds from positive
cash flows from operations and proceeds from maturities, calls and
repayments of investments into new investments that could be yielding less
than the portfolio's average rate.
22
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 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 DAC or impact the
recoverability of DAC and thereby increase expenses and reduce current
period profitability. The Company seeks to limit its exposure to this risk
by offering a diverse group of products, 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 contracts. 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.
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 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, leading to a reduction of the Company'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 in providing those benefits, resulting in adverse
mortality margin trends that may have a material effect on results of
operations.
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 meet the anticipated cash flow requirements of its obligations
to policyholders, from time to time the Company manages the effective
duration gap between investments and liabilities for contractholder funds
and reserves for life-contingent contract benefits. Adjustments made to
modify durations may have an impact on the value of the investment
portfolio, investment income, interest credited to contractholder funds and
the investment margin.
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.
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.
23
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 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 liabilities due to additional GMDB and GMIB 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.
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 statement of operations; however, the market values at the time of
adoption will affect the amount of the liability required.
24
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 Portions of the non-exchange traded marketable investment securities are
accounted for at fair value using internally developed, widely accepted
valuation models and independent third party data as model inputs. Changes
in the fair value of any security could negatively impact the
Corporation's, AIC's, ALIC's and the Company's operating income, net
income, assets, liabilities, shareholder's equity or debt-to-capital ratio.
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. GAAP prescribes when
the Company has a contingent liability and may reserve for particular
risks, including litigation exposures. Therefore, results 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.
25
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
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
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.
26
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The discussion "Regulation and Legal Proceedings" in Part I,
Item 1, Note 3 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.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Allstate Life Insurance Company of New York
(Registrant)
November 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 Allstate Life Insurance
Company of New York;
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
28
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
Chairman of the Board and President
I. Steven E. Shebik, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Allstate Life Insurance
Company of New York;
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
29
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
Allstate Life Insurance Company of New York (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
Chairman of the Board and President
/s/ Steven E. Shebik
Steven E. Shebik
Vice President
30