-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RzPgOhxL1ykdf3misd1KPzEo4a6e18jD23y6kuDyrGnKUHB0jhkqDQ1X8wpT2PBe auMdQeuORSsBO7JbtoHrxA== 0000945094-99-000301.txt : 19991115 0000945094-99-000301.hdr.sgml : 19991115 ACCESSION NUMBER: 0000945094-99-000301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHBROOK LIFE INSURANCE CO CENTRAL INDEX KEY: 0000716791 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363001527 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-39268 FILM NUMBER: 99750793 BUSINESS ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 7084025000 MAIL ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 10-Q 1 NLIC 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-90272 33-84480 33-50884 NORTHBROOK LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) ARIZONA 36-3001527 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3100 Sanders Road Northbrook, Illinois 60062 (Address of principal executive offices) (Zip Code) 847/402-2400 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes../X/.. No Indicate the number of shares of each of the issuer's classes of common stock, as of September 30, 1999; there were 25,000 shares of common capital stock outstanding, par value $100 per share all of which shares are held by Allstate Life Insurance Company. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Statements of Financial Position As Of September 30, 1999 (Unaudited) and December 31, 1998 3 Statements of Operations Three Months Ended September 30, 1999 and September 30, 1998 (Unaudited) Nine Months Ended September 30, 1999 and September 30, 1998 (Unaudited) 4 Statements of Cash Flows Nine Months Ended September 30, 1999 and September 30, 1998(Unaudited) 5 Notes to Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure about Market Risk* N/A PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and use of Proceeds* N/A Item 3. Defaults Upon Senior Securities* N/A Item 4. Submission of Matters to a Vote of Security Holders* N/A Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature Page *Omitted pursuant to General Instruction H(2) of Form 10-Q NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------- ($ in thousands, except par value data) (UNAUDITED) ASSETS Investments Fixed income securities, at fair value (amortized cost $87,390 and $81,156) .......... $ 86,523 $ 86,336 Short-term ....................................... 4,047 5,083 ----------- ----------- Total investments .......................... 90,570 91,419 Reinsurance recoverable from Allstate Life Insurance Company .................. 2,020,444 2,148,091 Other assets ........................................ 6,525 6,705 Separate Accounts ................................... 7,313,227 7,031,083 ----------- ----------- TOTAL ASSETS ............................... $ 9,430,766 $ 9,277,298 =========== =========== LIABILITIES Reserve for life-contingent contract benefits ....... $ 146,183 $ 145,055 Contractholder funds ................................ 1,874,367 2,003,122 Current income taxes payable ........................ 1,828 1,830 Deferred income taxes ............................... 1,119 3,316 Payable to affiliates, net .......................... 6,766 5,085 Separate Accounts ................................... 7,313,227 7,031,083 ----------- ----------- TOTAL LIABILITIES .......................... 9,343,490 9,189,491 ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4) SHAREHOLDER'S EQUITY Common stock, $100 par value, 25,000 shares authorized, issued and outstanding ............ 2,500 2,500 Additional capital paid-in .......................... 56,600 56,600 Retained income ..................................... 28,739 25,340 Accumulated other comprehensive income: Unrealized net capital gains and losses ......... (563) 3,367 ----------- ----------- TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME (563) 3,367 ----------- ----------- TOTAL SHAREHOLDER'S EQUITY ................. 87,276 87,807 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY . $ 9,430,766 $ 9,277,298 =========== ===========
See notes to financial statements. 3 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ ($ in thousands) 1999 1998 1999 1998 ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) REVENUES Net investment income ........... $ 1,684 $ 1,457 $ 4,668 $ 4,267 Realized capital gains and losses (8) 12 557 12 ------- ------- ------- ------- INCOME BEFORE INCOME TAX EXPENSE 1,676 1,469 5,225 4,279 Income tax expense .............. 586 524 1,826 1,500 ------- ------- ------- ------- NET INCOME ...................... $ 1,090 $ 945 $ 3,399 $ 2,779 ======= ======= ======= ======= See notes to financial statements. 4
NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, --------------------- ($ in thousands) 1999 1998 -------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................ $ 3,399 $ 2,779 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash items ................................. 192 397 Realized capital gains and losses .................. (557) (12) Changes in: Reserve for life-contingent contract benefits and contractholder funds ................... 20 271 Income taxes payable ........................... (82) 922 Other operating assets and payable to affiliates 1,074 3,804 -------- -------- Net cash provided by operating activities .. 4,046 8,161 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed income securities Proceeds from sales ................................ 16,059 -- Investment collections ............................. 6,007 7,681 Investment purchases ............................... (27,244) (15,782) Change in short-term investments, net ..................... 1,132 (36) -------- -------- Net cash used in investing activities ...... (4,046) (8,137) -------- -------- NET INCREASE IN CASH ...................................... -- 24 CASH AT THE BEGINNING OF PERIOD ........................... -- -- -------- -------- CASH AT END OF PERIOD ..................................... $ -- $ 24 ======== ========
See notes to financial statements. 5 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying financial statements include the accounts of Northbrook Life Insurance 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"). These financial statements have been prepared in conformity with generally accepted accounting principles. The financial statements and notes as of September 30, 1999 and for the three month and nine month periods ended September 30, 1999 and 1998 are unaudited. The interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the Northbrook Life Insurance Company Annual Report on Form 10-K for 1998. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. Effective January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP provides guidance concerning when to recognize a liability for insurance-related assessments and how those liabilities should be measured. Specifically, insurance-related assessments should be recognized as liabilities when all of the following criteria have been met: 1) an assessment has been imposed or it is probable that an assessment will be imposed, 2) the event obligating an entity to pay an assessment has occurred and 3) the amount of the assessment can be reasonably estimated. The adoption of this statement had an immaterial impact on the Company's results of operations and financial position. To conform with the 1999 presentation, certain amounts in the prior years' financial statements and notes have been reclassified. 2. REINSURANCE The Company has reinsurance agreements whereby substantially all premiums, contract charges, credited interest, policy benefits and certain expenses are ceded to ALIC, and reflected net of such reinsurance in the statements of operations. The amounts shown in the Company's statements of operations relate to the investment of those assets of the Company that are not transferred under reinsurance agreements. Reinsurance recoverable and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the statements of financial position. The Company continues to have primary liability as the direct insurer for risks reinsured. 6 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Investment income earned on the assets which support contractholder funds and the reserve for life-contingent contract benefits is not included in the Company's financial statements as those assets are owned and managed by the assuming company under the terms of reinsurance agreements. The following amounts were ceded to ALIC under reinsurance agreements. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- ($ in thousands) 1999 1998 1999 1998 -------- -------- -------- -------- Premiums $ 175 $ 883 $ 2,117 $ 1,893 Contract charges 29,919 25,684 87,499 76,317 Credited interest, policy benefits, and certain expenses 57,864 56,435 171,725 162,165 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) 1999 1998 ------------------------------------ -------------------------------- AFTER- AFTER- PRETAX TAX TAX PRETAX TAX TAX ------ --- --- ------ --- --- Unrealized capital gains and losses: Unrealized holding (losses) gains arising during the period $ (1,213) $425 $ (788) $2,235 $(783) $ 1,452 Less: reclassification adjustment for realized net capital (losses)gains included in (8) 3 (5) 12 (4) 8 net income -------- -------- -------- -------- ------- -------- Unrealized net capital (losses) gains (1,205) 422 (783) 2,223 (779) 1,444 -------- -------- -------- -------- ------- -------- Other comprehensive (loss) income $ (1,205) $ 422 (783) $ 2,223 $ (779) 1,444 ======== ======== ======== ======= Net income 1,090 945 -------- -------- Comprehensive income $ 307 $2,389 ======== ========
7 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------- ($ in thousands) 1999 1998 ------------------------------------ -------------------------------- AFTER- AFTER- PRETAX TAX TAX PRETAX TAX TAX ------ --- --- ------ --- --- Unrealized capital gains and losses: Unrealized holding (losses) gains arising during the period $ (5,490) $1,922 $ (3,568) $2,653 $(929) $ 1,724 Less: reclassification adjustment for realized net capital gains included in 557 (195) 362 12 (4) 8 net income -------- -------- -------- -------- ------- -------- Unrealized net capital (losses) gains (6,047) 2,117 (3,930) 2,641 (925) 1,716 -------- -------- -------- -------- ------- -------- Other comprehensive (loss) income $ (6,047) $2,117 (3,930) $ 2,641 $ (925) 1,716 ======== ====== ======== ======= Net income 3,399 2,779 -------- -------- Comprehensive (loss) income $ (531) $4,495 ======== ========
4. COMMITMENTS AND CONTINGENT LIABILITIES REGULATION AND LEGAL PROCEEDINGS The Company is subject to the effects of a changing social, economic and regulatory environment. Public and regulatory initiatives have varied and have included employee benefit regulations, removal of barriers preventing banks from engaging in the securities and insurance business, tax law changes affecting the taxation of insurance companies, the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles, and proposed legislation to prohibit the use of gender in determining insurance rates and benefits. 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. In the opinion of management, the ultimate liability, if any, in one or more of these actions in excess of amounts currently reserved is not expected to have a material effect on the results of operations, liquidity or financial position of the Company. 8 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 The following discussion highlights significant factors influencing results of operations and changes in financial position of Northbrook Life Insurance Company (the "Company"). It should be read in conjunction with the financial statements and related notes thereto found under items 7 and 8 of Part II of the Northbrook Life Insurance Company Annual Report on Form 10-K for the year ended December 31, 1998. 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"), currently markets savings products and variable life insurance products through Dean Witter Reynolds Inc. ("Dean Witter"), a wholly owned subsidiary of Morgan Stanley Dean Witter. Savings products consist of fixed annuity products, including indexed and market value adjusted annuities, as well as variable annuities. The financial statements also include the impacts of structured settlement annuities, universal life and single premium life policies, which the Company no longer actively sells. The Company re-domesticated its operations from Illinois to Arizona in 1998. The Company has identified itself as a single segment entity. The assets and liabilities related to variable annuity contracts and variable life policies are legally segregated and reflected as Separate Account assets and liabilities and are carried at fair value in the statements of financial position. Investment income and realized gains and losses of the Separate Accounts accrue directly to the contractholders (net of fees) and, therefore, are not included in the Company's statements of operations. RESULTS OF OPERATIONS
($ in thousands) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------------- ---------------------------------- 1999 1998 1999 1998 --------------- -------------- --------------- --------------- Net investment income $ 1,684 $ 1,457 $ 4,668 $ 4,267 ======= ======= ======= ======= Realized capital gains and losses, after tax $ (5) $ 8 $ 362 $ 8 ======= ====== ====== ====== Net income $ 1,090 $ 945 $ 3,399 $ 2,779 ======= ====== ======= ======= Total investments $90,570 $90,392 $90,570 $90,392 ======= ======= ======= =======
The Company has reinsurance agreements under which substantially all contract and policy related transactions are transferred to ALIC. The Company's results of operations include only net investment income and realized capital gains and losses earned on the assets of the Company that are not transferred under the reinsurance agreements. 9 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 Net income for the third quarter of 1999 was $1.1 million compared with $945 thousand for the same period in 1998, primarily due to higher net investment income. For the first nine months of 1999, net income increased 22.3% to $3.4 million compared to the same period last year. The increase was driven by realized capital gains from the sale of mortgage-backed securities and higher net investment income. Pretax net investment income increased 15.6% in the third quarter of 1999 and 9.4% for the nine month period ended September 30, 1999 compared with the same periods last year. For the third quarter of 1999, the increase in net investment income was driven by larger investment balances and higher investment yields. Increases in net investment income for the nine month period ended September 30, 1999 was due to higher investment balances partially offset by increased investment expenses. Investments at September 30, 1999, excluding Separate Accounts and unrealized gains on fixed income securities, grew 9.1% from the same period last year. FINANCIAL POSITION ($ in thousands) SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------ ------------ Fixed income securities (1) $ 86,523 $ 86,336 Short-term investments 4,047 5,083 ----------- ----------- Total investments $ 90,570 $ 91,419 =========== ========= Reinsurance recoverable from ALIC $ 2,020,444 $ 2,148,091 =========== =========== Separate Account assets and liabilities $ 7,313,227 $ 7,031,083 =========== =========== Reserve for life-contingent contract benefits $ 146,183 $ 145,055 =========== ========== Contracholder funds $ 1,874,367 $ 2,003,122 =========== =========== (1) Fixed income securities are carried at fair value. Amortized cost for these securities was $87,390 and $81,156 at September 30, 1999 and December 31, 1998, respectively. Total investments were $90.6 million at September 30, 1999 compared to $91.4 million at December 31, 1998. The investment of positive cash flows generated from operations were more than offset by a decrease in unrealized net capital gains on fixed income securities. At September 30, 1999, unrealized net capital losses on fixed income securities were $867 thousand compared to unrealized net capital gains of $5.2 million at December 31, 1998. The significant change in the unrealized gain/loss position is primarily attributable to rising interest rates. 10 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 At September 30, 1999, all of the Company's fixed income securities portfolio is rated investment grade, which is defined by the Company as a security having a National Association of Insurance Commissioners rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company internal rating. During the nine months ended September 30, 1999, contractholder funds and reinsurance recoverable for ALIC decreased by $128.8 million and $127.6 million, respectively. Deposits and interest credited to contractholders were more than offset by fixed annuity surrenders and withdrawals and transfers to the Separate Accounts. Reinsurance recoverable from ALIC relates to contract benefit obligations ceded to ALIC. Separate Account assets and liabilities increased $282.1 million to $7.31 billion at September 30, 1999. The increase was primarily attributable to sales of variable annuity contracts and favorable investment performance of the Separate Account investment portfolios, partially offset by surrenders and withdrawals. LIQUIDITY AND CAPITAL RESOURCES Under the terms of reinsurance agreements, substantially all premiums and deposits, excluding those relating to Separate Accounts, are transferred to ALIC, which maintains the investment portfolios supporting the Company's products. Substantially all payments of policyholder claims, benefits, contract maturities, contract surrenders and withdrawals and certain operating costs 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 demands. ALIC's financial strength was rated Aa2, AA+ and A+ by Moody's, Standard & Poor's and A.M. Best, respectively, at September 30, 1999. The primary source for the remainder of the Company's funds is the collection of principal and interest from the investment portfolio. The Company may also receive capital contributions from ALIC. The primary uses for the remainder of the Company's funds are to purchase investments and pay costs associated with the maintenance of the Company's investment portfolio. 11 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 YEAR 2000 The Company is dependent upon certain services provided for it by the Corporation including computer-related systems, and systems and equipment not typically thought of as computer-related (referred to as "non-IT"). For this reason, the Company is reliant upon the Corporation for the establishment and maintenance of its computer-related systems and non-IT. The Corporation is heavily dependent upon complex computer systems and equipment for all phases of its operations, including product distribution, customer service, insurance processing, underwriting, loss reserving, investments and other enterprise systems. Since many older computer software programs recognize only the last two digits of the year in any date, some software may fail to operate properly in or after the year 1999 if the software is not reprogrammed, remediated, or replaced ("Year 2000"). Also, non-IT contain embedded hardware or software that may have a Year 2000 sensitive component. The Corporation believes that many of its counterparties and suppliers also have Year 2000 issues and non-IT issues which could affect the Corporation. In 1995, the Corporation commenced a plan consisting of four phases which are intended to mitigate and/or prevent the adverse effects of Year 2000 issues on its systems and equipment: 1) inventory and assessment of affected systems and equipment, 2) remediation and compliance of systems and equipment through strategies that include the replacement or enhancement of existing systems, upgrades to operating systems already covered by maintenance agreements and modifications to existing systems to make them Year 2000 compliant, 3) testing of systems and equipment using clock-forward testing for both current and future dates and for dates which trigger specific processing, and 4) contingency planning to address possible adverse scenarios and the potential financial impact to the Corporation's results of operations, liquidity or financial position. The Corporation believes that the first three phases of this plan, assessment, remediation and testing, including clock-forward testing which was performed on the Corporation's systems and equipment and non-IT, are complete. It is expected that the implementation and rollout of the remediated personal computer environment will be completed by December 1999. In addition, some systems and equipment and non-IT related to discontinued or non-critical functions of the Corporation are planned to be abandoned by the end of 1999. The fourth phase of this plan, contingency planning, is currently in process. Detailed plans have been created in the event that the systems and equipment or major external counterparties and suppliers supporting critical processes are not Year 2000 compliant in or after the year 1999. These plans, created by each corporate function and business unit of the Corporation, identify and document the risks associated with the Year 2000 on their business processes. Appropriate plans have been developed to mitigate those risks. A common inclusion in many of the plans is a description of manual processes and personnel needed in the event of a temporary Year 2000 failure. Contingency plans will be tested appropriately by the corporate function or business unit for their effective operation and for achieving their desired results. This testing will be complete by December 1999. In addition, the Corporation's management is reviewing all corporate function and business units' plans for accuracy and comprehensiveness. This review will also be complete by December 1999. Monitoring of these plans will continue throughout the end of 1999 and beyond, as needed. 12 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 The final step of the contingency planning phase includes the establishment of a Year 2000 Command Center and wellness checks for the Corporation's systems and equipment. The Command Center will be in operation 24 hours a day for several days before and after January 1, 2000 and other critical Year 2000 dates, to serve as a center of expertise in the event a Year 2000 problem is encountered at the Corporation. Wellness checks will be performed by designated personnel throughout the Corporation on specified systems and non-IT to determine that they are functioning properly on or after January 1, 2000. The results of the wellness checks will be reported to the Command Center. The Corporation has considered numerous risk scenarios during the contingency planning phase. Through this planning, management believes that the scenario which could be considered the worst case, includes a widespread, prolonged failure of public utility systems which would not only cause power outages for the Corporation, but also cause telecommunications, banking or external counterparty and supplier service outages. While the Corporation has assessed and will continue to assess data on the utility, telecommunication, and banking industries, it acknowledges the possibility that a prolonged widespread outage in any or all of these industries could lead to a worse case scenario. However, the Corporation does not consider such prolonged widespread outages to be reasonably likely. Therefore, the Corporation has focused its most reasonably likely worse case scenario contingency planning on limited scale outages in order to ensure the ability to deal with risks of likely scenarios. Because the Corporation is prepared for outages on a localized basis as part of normal business operations, the Corporation considers the impacts of this most reasonably likely scenario to be immaterial to the Corporation's results of operations, liquidity or financial position. The Company markets its products exclusively through Dean Witter. Management believes that its interactions and interfaces with Dean Witter are Year 2000 compliant. Therefore, the impacts of Year 2000 to the Company's results of operations, liquidity and financial position are expected to be immaterial. In addition, the Corporation is actively working with its major external counterparties and suppliers, including public utility companies and bank and brokers involved in its distribution channel, to assess their compliance efforts and the Corporation's exposure to both their Year 2000 issues and non-IT issues. This assessment has included soliciting external counterparties and suppliers, evaluating responses received and testing third party interfaces and interactions to determine compliance. Currently the Corporation has solicited, and has received responses from, the majority of its counterparties and suppliers. These responses generally state that they believe they will be Year 2000 compliant and that no transactions will be affected. However, certain vendors are also in ongoing assessment and testing of their products whereby they are currently unable to identify all potential problems in certain products which are used by the Corporation. The Corporation believes that these vendors will make no statements regarding their Year 2000 readiness other than to publish declarations addressing specific compliance issues identified with their products. The Corporation is working with these key vendors and has procedures in place to stay aware of any compliance issues encountered by these vendors. The Corporation has also decided to test certain interfaces and interactions to gain additional assurance on third party compliance. Currently, the Corporation does not have sufficient information to determine whether all of its external counterparties and suppliers will be Year 2000 compliant. If they are not Year 2000 compliant, the Corporation is not able to determine the impact of any consequent losses on its results of operations, liquidity or financial position. 13 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 The Corporation may be exposed to the risk that the issuers of investments in its portfolios will be adversely impacted by Year 2000 issues. The Corporation assesses the impact which Year 2000 issues have on the Corporation's investments as part of due diligence for proposed new investments and in its ongoing review of all current portfolio holdings. Any recommended actions with respect to individual investments are determined by taking into account the potential impact of Year 2000 on the issuer. Based on its current review, the Corporation believes that although Year 2000 issues may temporarily affect the market or individual issuers, the potential impact of Year 2000 on its investment portfolio will not be material. The Corporation presently believes that it will resolve the Year 2000 issue in a timely manner. Year 2000 costs are expensed as incurred. The majority of the expenses related to this project have been incurred as of September 30, 1999. The Corporation estimates that approximately $125 million in costs will be incurred between the years of 1995 and 2000. These amounts include costs directly related to fixing Year 2000 issues, such as modifying software and hiring Year 2000 solution providers, as well as costs to replace certain non-compliant systems which would not have been otherwise replaced. A portion of these costs will be incurred by the Company on a pro rata basis of usage of the computer-related systems and non-IT, as compared to the usage of all entities which share these services with the Corporation. These amounts are not expected to be material to the results of operations of the Company. PENDING ACCOUNTING STANDARDS In July 1999, the Financial Accounting Standards Board delayed the effective date of Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which replaces existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities. The delay was effected through the issuance of SFAS No. 137, which extends the effective date of SFAS No. 133 requirements to fiscal years beginning after June 15, 2000. As such, the Company expects to adopt the provisions of SFAS No. 133 as of January 1, 2001. Based on existing interpretations of the requirements of SFAS No. 133, the impact of adoption is not expected to be material to the operations or financial position of the Company. FORWARD-LOOKING STATEMENTS The statements contained in this Management's Discussion and Analysis that are not historical information are forward-looking statements that are based on management's estimates, assumptions and projections. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes the following important factor that could cause the Company's actual results and experience with respect to forward-looking statements to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statement: The Corporation presently believes that it will resolve the Year 2000 issues affecting its computer operations in a timely manner, and that the costs incurred between the years of 1995 and 2000 in resolving those issues will be approximately $125 million. However, the extent to which the computer operations of the Corporation's external counterparties and suppliers are adversely affected could, in turn, affect the Corporation's ability to communicate with such counterparties and suppliers, could increase the cost of resolving the Year 2000 issues, and could materially affect the Corporation's results of operations, liquidity and financial condition in any period or periods. 14 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company and its Board of Directors know of no material legal proceedings pending to which the Company is a party or which would materially affect the Company. The Company is involved in pending and threatened litigation in the normal course of its business in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate the ultimate liability arising from such pending or threatened litigation to have a material effect on the financial condition of the Company. Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K (2) None (3)(i) Amended and Restated Articles of Incorporation and Articles of Redomestication of Northbrook Life Insurance Company (Incorporated herein by reference to the Company's Form 10-K Annual Report for the year ended December 31, 1998) (3)(ii) Amended and Restated By-laws of Northbrook Life Insurance Company (Incorporated herein by reference to the Company's Form 10-K Annual Report for the year ended December 31, 1998) (4) None (10)(a) Reinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company (Incorporated herein by reference to the Company's Form S-1 Registration Statement (File No. 033-84480) dated April 1, 1997) (10)(b) Amendment No. 1 to the Reinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated June 6, 1991. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(c) Amendment No. 2 to the Reinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated September 28, 1993. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(d) Amendment No. 3 to the Reinsurance Agreement between Northbrook Life Insurance Company and allstate Life Insurance Company, dated February 23, 1995. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(e) Amendment No. 4 to the Reinsurance Agreement between Northbrook Life Insurance Company and Alstate Life Insurance Company, dated June 12, 1995. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(f) Amendment No. 5 to the Reinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated January 26, 1996. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(g) Amendment No. 6 to the Reinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated January 15, 1997. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(h) Amendment No. 7 to the Reinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated October 22, 1998. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(i) Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated October 20, 1987. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). 15 (10)(j) Amendment No. 1 to the Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated June 6, 1991. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(k) Amendment No. 2 to the Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated June 8, 1995. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(l) Amendment No. 3 to the Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated February 23, 1995. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(m) Amendment No. 4 to the Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, January 26, 1996. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(n) Amendment No. 5 to the Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated January 15, 1997. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (10)(o) Amendment No. 6 to the Modified Coinsurance Agreement between Northbrook Life Insurance Company and Allstate Life Insurance Company, dated October 22, 1998. (Incorporated herein by reference to the Company's Form 10-Q dated May 14, 1999). (11) Not Required (15) None (18) None (19) None (22) None (23) Not required (24) Power of Attorney - Samuel H. Pilch (27) Financial Data Schedule (b) Reports on 8-K No reports on Form 8-K were filed during the third quarter of 1999. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 12th day of November, 1999. NORTHBROOK LIFE INSURANCE COMPANY --------------------------------- (Registrant) /s/ LOUIS G. LOWER, II CHAIRMAN OF THE BOARD OF DIRECTORS - ------------------------ AND CHIEF EXECUTIVE OFFICER LOUIS G. LOWER, II (Principal Executive Officer) /s/ SAMUEL H. PILCH CONTROLLER - ------------------------ (Chief Accounting Officer) SAMUEL H. PILCH 17 Exhibit Index Exhibit No. Exhibit (27) Financial Data Scehdule EX-27 2 FDS --
7 THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF FINANCIAL POSITION AT SEPTEMBER 30, 1998; STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998; AND STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1999. 0000716791 NORTHBROOK LIFE INSURANCE COMPANY 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 86,523 0 0 0 0 0 90,570 0 2,020,444 0 9,430,766 0 0 146,183 1,874,367 0 0 0 2,500 84,776 9,430,766 0 4,668 557 0 0 0 0 5,225 1,826 3,399 0 0 0 3,399 0 0 0 0 0 0 0 0 0
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