** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

The registrant meets the conditions set forth inGeneral Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing thisForm with the reduced disclosure format.

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OFTHE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006**

**OR**

**o****      TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d)OFTHE SECURITIES EXCHANGE ACT OF 1934**

#####  

##### **Commission file number: 333-111553**

**LINCOLNBENEFIT LIFE COMPANY**

(Exact name ofregistrant as specified in its charter)
| **Nebraska**                              | **7-0221457**                         |
|-------------------------------------------|---------------------------------------|
| (State of  Incorporation)                 | (I.R.S. Employer  Identification No.) |
| **2940 South 84****th Street**       | ** **                            |
| **Lincoln,  Nebraska**                    | **68506**                             |
| (Address of  principal executive offices) | (Zip code)                            |

** **

**Registrant’s telephone number,including area code: 800-525-9287**

**Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days.**
| **Yes ****x** | **No ****o** |
|--------------------|-------------------|

** **

**Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.**
|        | **Large  accelerated filer** | **Accelerated  filer** | **Non-accelerated  filer** |
|--------|------------------------------|------------------------|----------------------------|
|   | **o**                        | **o**                  | **x**                      |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
| **Yes ****o** | **No ****x** |
|--------------------|-------------------|

** **

**None of the common equity of theregistrant is held by non-affiliates. Therefore, the aggregate market value of common equity held bynon-affiliates of the registrant is zero.**

**As of August 8, 2006, theRegistrant had 25,000 common shares, $100 par value, outstanding, all of whichare held by Allstate Life Insurance Company.**

 

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**LINCOLN BENEFITLIFE COMPANYINDEX TO QUARTERLY REPORT ON FORM 10-QJune 30, 2006**

 
| **PART I.**  | **FINANCIAL INFORMATION**                                                                                              |   |
|--------------|------------------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                                   |   |
| Item 1.      | Financial Statements                                                                                                   |   |
|         |                                                                                                                   |   |
|         | Condensed Statements of Operations for the  Three-Month and Six-Month Periods Ended June 30, 2006 and 2005 (unaudited) | 3      |
|         |                                                                                                                   |   |
|         | Condensed Statements of Financial Position as of  June 30, 2006 (unaudited) and December 31, 2005                      | 4      |
|         |                                                                                                                   |   |
|         | Condensed Statements of Cash Flows for the Six-Month  Periods Ended June 30, 2006 and 2005 (unaudited)                 | 5      |
|         |                                                                                                                   |   |
|         | Notes to Condensed Financial Statements (unaudited)                                                                    | 6      |
|         |                                                                                                                   |   |
| Item 2.      | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                            | 12     |
|         |                                                                                                                   |   |
| Item 4.      | Controls and Procedures                                                                                                | 15     |
|         |                                                                                                                   |   |
| **PART II.** | **OTHER INFORMATION**                                                                                                  |   |
|         |                                                                                                                   |   |
| Item 1.      | Legal Proceedings                                                                                                      | 16     |
|         |                                                                                                                   |   |
| Item 1A.     | Risk Factors                                                                                                           | 16     |
|         |                                                                                                                   |   |
| Item 6.      | Exhibits                                                                                                               | 16     |
|         |                                                                                                                   |   |

** **

 

2

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#### **PART I.FINANCIAL INFORMATION**

#### **ITEM 1.FINANCIAL STATEMENTS**

#### **LINCOLN BENEFIT LIFE COMPANYCONDENSED STATEMENTS OF OPERATIONS**

** **
|                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(in thousands)**                               | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                | ** ** |
| **Revenues**                                          |       |                             |       |                           |       |   |   |   |   |
| Net investment income                                 |       | $                                | 3,568      |                           | $          | 3,429 |   | $ | 6,957 |   | $ | 6,790 |   |
| Realized capital gains  and losses                    |       | (847                             | )          | (22                            | )          | (847 | ) | (117 | ) |
|                                                  |       |                             |       |                           |       |   |   |   |   |
| **Income from operations before  income tax expense** |       | 2,721                            |       | 3,407                          |       | 6,110 |   | 6,673 |   |
| Income tax expense                                    |       | 950                              |       | 1,191                          |       | 2,133 |   | 2,331 |   |
| **Net income**                                        |       | $                                | 1,771      |                           | $          | 2,216 |   | $ | 3,977 |   | $ | 4,342 |   |

** **

See notes to condensed financial statements.

3

 

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**LINCOLN BENEFIT LIFE COMPANY**

**CONDENSED STATEMENTS OF FINANCIAL POSITION**

 
|                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **($ in thousands, except par value data)**                                | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                               | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
|                                                                                                     |       |              |       |                  |       |
| **Assets**                                                                                               |       |              |       |                  |       |
| Investments                                                                                              |       |              |       |                  |       |
| Fixed income  securities, at fair value (amortized cost $271,728 and $266,457)                           |       | $                 | 264,965    |                  | $          | 267,545 |   |
| Short-term                                                                                               |       | 8,528             |       | 3,824                 |       |
| Total  investments                                                                                       |       | 273,493           |       | 271,369               |       |
|                                                                                                     |       |              |       |                  |       |
| Cash                                                                                                     |       | 35,116            |       | 8,349                 |       |
| Reinsurance recoverable  from Allstate Life Insurance Company                                            |       | 18,691,877        |       | 18,350,983            |       |
| Reinsurance recoverable  from non-affiliates                                                             |       | 1,092,567         |       | 1,019,850             |       |
| Receivable from  affiliates                                                                              |       | —            |       | 10,394                |       |
| Deferred income taxes                                                                                    |       | 2,157             |       | —                |       |
| Other assets                                                                                             |       | 90,635            |       | 96,059                |       |
| Separate Accounts                                                                                        |       | 2,874,282         |       | 2,718,509             |       |
| **Total  assets**                                                                                        |       | $                 | 23,060,127 |                  | $          | 22,475,513 |   |
| ** **                                                                                               |       |              |       |                  |       |
| ** Liabilities**                                                                                    |       |              |       |                  |       |
| Contractholder funds                                                                                     |       | $                 | 17,785,053 |                  | $          | 17,462,104 |   |
| Reserve for life-contingent  contract benefits                                                           |       | 1,985,918         |       | 1,892,194             |       |
| Current income taxes  payable                                                                            |       | 6,903             |       | 4,769                 |       |
| Unearned premiums                                                                                        |       | 26,278            |       | 26,992                |       |
| Deferred income taxes                                                                                    |       | —            |       | 591                   |       |
| Payable to affiliates,  net                                                                              |       | 9,019             |       | —                |       |
| Other liabilities and  accrued expenses                                                                  |       | 104,549           |       | 101,103               |       |
| Separate Accounts                                                                                        |       | 2,874,282         |       | 2,718,509             |       |
| **Total  liabilities**                                                                                   |       | 22,792,002        |       | 22,206,262            |       |
|                                                                                                     |       |              |       |                  |       |
| **Commitments and Contingent  Liabilities (Note 3)**                                                     |       |              |       |                  |       |
| ** **                                                                                               | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Shareholder’s equity**                                                                            |       |              |       |                  |       |
| Common stock, $100 par  value, 30 thousand shares authorized, 25 thousand shares issued and  outstanding |       | 2,500             |       | 2,500                 |       |
| Additional capital paid-in                                                                               |       | 180,000           |       | 180,000               |       |
| Retained income                                                                                          |       | 90,021            |       | 86,044                |       |
| Accumulated other  comprehensive income:                                                                 |       |              |       |                  |       |
| Unrealized net  capital gains and losses                                                                 |       | (4,396            | )          | 707                   |       |
| **Total  accumulated other comprehensive income**                                                        |       | (4,396            | )          | 707                   |       |
| **Total  shareholder’s equity**                                                                     |       | 268,125           |       | 269,251               |       |
| **Total liabilities and  shareholder’s equity**                                                     |       | $                 | 23,060,127 |                  | $          | 22,475,513 |   |

 

See notes to condensed financial statements.

4

 

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**LINCOLN BENEFIT LIFE COMPANY**

##### **CONDENSED STATEMENTS OF CASH FLOWS**

 
|                                                                                                           | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| **(in thousands)**                                                                                   | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| ** **                                                                                                | ** ** | **(Unaudited)**                               | ** ** |
|                                                                                                      |       |                                          |       |   |   |
| **Cash flows from operating  activities**                                                                 |       |                                          |       |   |   |
|                                                                                                      |       |                                          |       |   |   |
| Net income                                                                                                |       | $                                             | 3,977      |   | $ | 4,342 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:                        |       |                                          |       |   |   |
| Amortization and  other non-cash items                                                                    |       | 247                                           |       | 225 |   |
| Realized capital  gains and losses                                                                        |       | 847                                           |       | 117 |   |
| Changes in:                                                                                               |       |                                          |       |   |   |
| Reserve for  life-contingent contract benefits and contractholder funds, net of  reinsurance recoverables |       | 3,062                                         |       | 826 |   |
| Income taxes  payable                                                                                     |       | 2,133                                         |       | 2,331 |   |
| Receivable/payable  to affiliates, net                                                                    |       | 19,413                                        |       | 19,743 |   |
| Other operating  assets and liabilities                                                                   |       | 4,495                                         |       | (10,449 | ) |
| Net cash  provided by operating activities                                                                |       | 34,174                                        |       | 17,135 |   |
|                                                                                                      |       |                                          |       |   |   |
| **Cash flows from investing  activities**                                                                 |       |                                          |       |   |   |
|                                                                                                      |       |                                          |       |   |   |
| Fixed income securities                                                                                   |       |                                          |       |   |   |
| Proceeds from  sales                                                                                      |       | 10,877                                        |       | 3,099 |   |
| Investment  collections                                                                                   |       | 6,790                                         |       | 7,793 |   |
| Investment  purchases                                                                                     |       | (20,370                                       | )          | (43,288 | ) |
| Change in short-term  investments                                                                         |       | (4,704                                        | )          | 25,855 |   |
| Net cash used in  investing activities                                                                    |       | (7,407                                        | )          | (6,541 | ) |
|                                                                                                      |       |                                          |       |   |   |
| **Net increase in cash**                                                                                  |       | 26,767                                        |       | 10,594 |   |
| **Cash at beginning of period**                                                                           |       | 8,349                                         |       | 10,532 |   |
| **Cash at end of period**                                                                                 |       | $                                             | 35,116     |   | $ | 21,126 |   |

 

See notes to condensedfinancial statements.

5

 

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**LINCOLN BENEFITLIFE COMPANYNOTES TO CONDENSED FINANCIAL STATEMENTS(unaudited)**

## **1. Basisof Presentation**

The accompanyingcondensed financial statements include the accounts of Lincoln Benefit LifeCompany (the “Company”), a wholly owned subsidiary of Allstate Life InsuranceCompany (“ALIC”), which is wholly owned by Allstate Insurance Company (“AIC”),a wholly owned subsidiary of The Allstate Corporation (the “Corporation”).

The condensedfinancial statements and notes as of June 30, 2006, and for the three-month andsix-month periods ended June 30, 2006 and 2005, are unaudited.  The condensed financial statements reflectall adjustments (consisting only of normal recurring accruals) which are, inthe opinion of management, necessary for the fair presentation of the financialposition, results of operations and cash flows for the interim periods.  These condensed financial statements andnotes should be read in conjunction with the financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005.  The results ofoperations for the interim periods should not be considered indicative ofresults to be expected for the full year.

**Adopted accountingstandards**

*Financial Accounting Standards BoardStaff Position No. FAS 115-1, “The Meaning of Other-Than-Temporary Impairmentand Its Application to Certain Investments”  (“FSP FAS 115-1”)*

The Company adopted Financial Accounting StandardsBoard (“FASB”) FSP FAS 115-1 as of January 1, 2006.  FSP 115-1 nullifies the guidance inparagraphs 10-18 of Emerging Issues Task Force Issue No. 03-1 (“EITF Issue 03-1”),“The Meaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments” and references existing other than temporary impairment guidance.  FSP FAS 115-1 clarifies that an investorshould recognize an impairment loss no later than when the impairment is deemedother-than-temporary, even if a decision to sell the security has not beenmade, and also provides guidance on the subsequent accounting for incomerecognition on an impaired debt security. The adoption of FSP FAS 115-1 was required on a prospective basis anddid not have a material effect on the results of operations or financialposition of the Company.

*Statement of Financial Accounting Standards No. 154, “AccountingChanges and Error Corrections” (“SFAS No. 154”)*

TheCompany adopted SFAS No. 154 on January 1, 2006.  SFAS No. 154 replaces Accounting PrinciplesBoard (“APB”) Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “ReportingAccounting Changes in Interim Financial Statements”.  SFAS No. 154 requires retrospectiveapplication to prior periods’ financial statements for changes in accountingprinciple, unless determination of either the period specific effects or the cumulativeeffect of the change is impracticable or otherwise promulgated.  The Company had no accounting changes orerror corrections affected by the new standard.

**Pending accountingstandards**

*Statement of Position 05-01, “Accounting by InsuranceEnterprises for Deferred Acquisition Costs in Connection with Modifications orExchanges of Insurance Contracts”*

In October 2005, theAICPA issued SOP 05-1.   SOP 05-1provides accounting guidance for deferred policy acquisition costs associatedwith internal replacements of insurance and investment contracts other thanthose already described in SFAS No. 97, “Accounting and Reporting by InsuranceEnterprises for Certain Long-Duration Contracts and for Realized Gains andLosses from the Sale of Investments”. SOP 05-1 defines an internal replacement as a modification in productbenefits, features, rights or coverages that occurs by the exchange of acontract for a new contract, or by amendment, endorsement or rider to acontract, or by the election of a feature or coverage within a contract.  The provisions of SOP 05-1 are effective forinternal replacements occurring in fiscal years beginning after December 15,2006.  The Company is currently assessingthe impact of the SOP on its results of operations and financial position.  Any impact resulting from the adoption of SOP05-1 on the Company’s results of operations will be ceded to ALIC under theterms of the reinsurance agreements.

6

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*Financial Accounting Standards BoardInterpretation No. 48, “Accounting for Uncertainty in Income Taxes”, (“FIN 48”)*

InJuly 2006, the FASB issued FIN 48, which clarifies the accounting foruncertainty in income taxes recognized in an entity’s financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes”.  FIN 48 requires an entity to recognize thebenefit of tax positions only when it is more likely than not, based on theposition’s technical merits, that the position would be sustained uponexamination by the respective taxing authorities.  The tax benefit is measured as the largestbenefit that is more than fifty percent likely of being realized upon finalsettlement with the respective taxing authorities.   FIN 48 is effective for fiscal yearsbeginning after December 15, 2006.  FIN48 is not expected to have a material effect on the results of operations orfinancial position of the Company.

## **2. Reinsurance**

The Company hasreinsurance agreements under which it reinsures all of its business to ALIC orother non-affiliated reinsurers.  Underthe agreements, premiums, contract charges, interest credited to contractholderfunds, contract benefits and certain expenses are reinsured.  The Company continues to have primaryliability as the direct insurer for risks reinsured.

Investment incomeearned on the assets which support contractholder funds and the reserve forlife-contingent contract benefits is not included in the condensed financialstatements as those assets are owned and managed by ALIC or third partyreinsurers under terms of the reinsurance agreements.  The timing of the transfer of funds under thereinsurance agreements may result in fluctuations in net cash provided byoperating activities in the Condensed Statements of Cash Flows.

The effects ofreinsurance on premiums and contract charges are as follows:
|                                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                         | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(in thousands)**                            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                         | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Premiums  and contract charges**                 |       |                             |       |                           |       |   |   |   |   |
| Direct                                             |       | $                                | 233,381    |                           | $          | 203,888 |   | $ | 453,545 |   | $ | 401,596 |   |
| Assumed - non-affiliate                            |       | 2,900                            |       | 1,477                          |       | 4,921 |   | 2,603 |   |
| Ceded                                              |       |                             |       |                           |       |   |   |   |   |
| Affiliate                                          |       | (140,091                         | )          | (105,622                       | )          | (264,971 | ) | (222,455 | ) |
| Non-affiliate                                      |       | (96,190                          | )          | (99,743                        | )          | (193,495 | ) | (181,744 | ) |
| Premiums and  contract charges, net of reinsurance |       | $                                | —     |                           | $          | — |   | $ | — |   | $ | — |   |

 

7

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Theeffects of reinsurance on interest credited to contractholder funds, contractbenefits and certain other expenses are as follows:
|                                                                                                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(in thousands)**                                                                                       | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                    | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest  credited to contractholder funds, contract benefits and certain other  expenses**                 |       |                             |       |                           |       |   |   |   |   |
| Direct                                                                                                        |       | $                                | 419,324    |                           | $          | 451,593 |   | $ | 899,481 |   | $ | 1,036,412 |   |
| Assumed-non-affiliate                                                                                         |       | 2,827                            |       | 1,698                          |       | 4,877 |   | 3,118 |   |
| Ceded                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Affiliate                                                                                                     |       | (316,823                         | )          | (343,655                       | )          | (676,774 | ) | (797,967 | ) |
| Non-affiliate                                                                                                 |       | (105,328                         | )          | (109,636                       | )          | (227,584 | ) | (241,563 | ) |
| Interest  credited to contractholder funds, contract benefits and certain other  expenses, net of reinsurance |       | $                                | —     |                           | $          | — |   | $ | — |   | $ | — |   |

##  

**3. Guaranteesand Contingent Liabilities**

**Guarantees**

In the normalcourse of business, the Company provides standard indemnifications tocounterparties in contracts in connection with numerous transactions, includingacquisitions and divestitures.  The typesof indemnifications typically provided include indemnifications for breaches ofrepresentations and warranties, taxes and certain other liabilities, such asthird party lawsuits.  Theindemnification clauses are often standard contractual terms and were enteredinto in the normal course of business based on an assessment that the risk ofloss would be remote.  The terms of theindemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and thecontingencies triggering the obligation to indemnify have not occurred and arenot expected to occur.  Consequently, themaximum amount of the obligation under such indemnifications is notdeterminable.  Historically, the Companyhas not made any material payments pursuant to these obligations.

The aggregate liabilitybalance related to all guarantees was not material as of June 30, 2006.

**Regulation**

The Company is subject tochanging social, economic and regulatory conditions.  From time to time regulatory authorities orlegislative bodies seek to impose additional regulations regarding agent andbroker compensation and otherwise expand overall regulation of insuranceproducts and the insurance industry.  Theultimate changes and eventual effects of these initiatives on the Company’sbusiness, if any, are uncertain.

8

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**Legaland regulatory proceedings and inquiries**

**Background**

The Company and certainaffiliates are involved in a number of lawsuits, regulatory inquiries, andother legal proceedings arising out of various aspects of its business.  As background to the “Proceedings”sub-section below, please note the following:

·                  These matters raise difficult andcomplicated factual and legal issues and are subject to many uncertainties andcomplexities, including but not limited to, the underlying facts of each matter;novel legal issues; variations between jurisdictions in which matters are beinglitigated, heard or investigated; differences in applicable laws and judicialinterpretations; the length of time before many of these matters might beresolved by settlement, through litigation or otherwise and, in some cases, thetiming of their resolutions relative to other similar matters involving othercompanies; the fact that some of the lawsuits are putative class actions inwhich a class has not been certified and in which the purported class may notbe clearly defined; the fact that some of the lawsuits involve multi-stateclass actions in which the applicable law(s) for the claims at issue is indispute and therefore unclear; and the current challenging legal environmentfaced by large corporations and insurance companies.

·                  In the lawsuits, plaintiffs seek avariety of remedies including equitable relief in the form of injunctive andother remedies and monetary relief in the form of contractual and extra-contractualdamages.  In some cases, the monetarydamages sought include punitive damages. Often specific information about the relief sought, such as the amountof damages, is not available because plaintiffs have not requested specificrelief in their pleadings.  In ourexperience, when specific monetary demands are made in pleadings, they bearlittle relation to the ultimate loss, if any, to the Company.

·                  In connection with regulatoryexaminations and proceedings, government authorities may seek various forms ofrelief, including penalties, restitution and changes in businesspractices.  The Company may not beadvised of the nature and extent of relief sought until the final stages of theexamination or proceeding.

·                  For the reasons specified above, itis often not possible to make meaningful estimates of the amount or range ofloss that could result from the matters described below in the “Proceedings”subsection.  The Company reviews thesematters on an on-going basis and follows the provisions of SFAS No. 5, “Accountingfor Contingencies” when making accrual and disclosure decisions.  When assessing reasonably possible andprobable outcomes, the Company bases its decisions on its assessment of theultimate outcome following all appeals.

·                  Due to the complexity and scope ofthe matters disclosed in the “Proceedings” subsection below and the manyuncertainties that exist, the ultimate outcome of these matters cannot bereasonably predicted.  In the event of anunfavorable outcome in one or more of these matters, the ultimate liability maybe in excess of amounts currently reserved and may be material to the Company’soperating results or cash flows for a particular quarter or annual period.  However, based on information currently knownto it, management believes that the ultimate outcome of all matters describedbelow as they are resolved over time is not likely to have a material adverseeffect on the financial position of the Company.

**Proceedings**

Legal proceedings involving Allstate agencies and AICmay impact the Company, even when the Company is not directly involved, becausethe Company sells its products through a variety of distribution channelsincluding Allstate agencies. Consequently, information about the moresignificant of these proceedings is provided in the following paragraph.

AIC is defending certain matters relating to itsagency program reorganization announced in 1999. These matters include alawsuit filed in December 2001 by the U.S. Equal Employment OpportunityCommission (“EEOC”) alleging retaliation under federal civil rights laws, aclass action filed in August

9

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2001 by former employee agents alleging retaliationand age discrimination under the Age Discrimination in Employment Act, breachof contract and ERISA violations, and a lawsuit filed in October 2004 by theEEOC alleging age discrimination with respect to a policy limiting the rehireof agents affected by the agency program reorganization.  AIC is also defending a certified classaction filed by former employee agents who terminated their employment prior tothe agency program reorganization.  Theseplaintiffs have asserted breach of contract and ERISA claims and are seekingactual damages including benefits under Allstate employee benefit plans andpayments provided in connection with the reorganization, as well as punitivedamages.  In late March 2004, in thefirst EEOC lawsuit and class action lawsuit, the trial court issued amemorandum and order that, among other things, certified classes of agents,including a mandatory class of agents who had signed a release, for purposes ofeffecting the court’s declaratory judgment that the release is voidable at theoption of the release signer.  The courtalso ordered that an agent who voids the release must return to AIC “any andall benefits received by the [agent] in exchange for signing the release.”  The court also “concluded that, on theundisputed facts of record, there is no basis for claims of age discrimination.”  The EEOC and plaintiffs have asked the courtto clarify and/or reconsider its memorandum and order.  The case otherwise remains pending.  A putative nationwide class action has alsobeen filed by former employee agents alleging various violations of ERISA,including a worker classification issue. These plaintiffs are challenging certain amendments to the AgentsPension Plan and are seeking to have exclusive agent independent contractorstreated as employees for benefit purposes. This matter was dismissed with prejudice by the trial court, was thesubject of further proceedings on appeal, and was reversed and remanded to thetrial court in April 2005.  In thesematters, plaintiffs seek compensatory and punitive damages, and equitablerelief.  AIC has been vigorouslydefending these lawsuits and other matters related to its agency programreorganization. In addition, AIC has been defending certain matters relating toits life agency program reorganization announced in 2000. These matters havebeen the subject of an investigation by the EEOC with respect to allegations ofage discrimination and retaliation.  Aconciliation agreement relating to certain of these matters has been enteredinto between AIC and the EEOC.   Theoutcome of these disputes is currently uncertain.

**Other Matters**

The Corporation and some of its subsidiaries,including the Company, have received interrogatories and demands forinformation from regulatory and enforcement authorities relating to variousinsurance products and practices.  Theareas of inquiry include variable annuity market timing and late trading.  The Corporation and some of its subsidiaries,including the Company, have also received interrogatories and demands forinformation from authorities seeking information relevant to on-goinginvestigations into the possible violation of antitrust or insurance laws byunnamed parties and, in particular, seeking information as to whether anyperson engaged in activities for the purpose of price fixing, marketallocation, or bid rigging. The Company believes that these inquiries aresimilar to those made to many financial services companies as part ofindustry-wide investigations by various authorities into the practices,policies and procedures relating to insurance and financial servicesproducts.   The Corporation and itssubsidiaries have responded and will continue to respond to these inquiries.

## Various otherlegal and regulatory actions are currently pending that involve the Company andspecific aspects of its conduct of business. Like other members of theinsurance industry, the Company is the target of a number of lawsuits andproceedings, some of which involve claims for substantial or indeterminateamounts. These actions are based on a variety of issues and target a range ofthe Company’s practices. The outcome of these disputes is currently unpredictable.  However, based on information currently knownto it and the existence of the reinsurance agreements with ALIC, managementbelieves that the ultimate outcome of all matters described in this “OtherMatters” subsection in excess of amounts currently reserved, as they areresolved over time is not likely to have a material effect on the operatingresults, cash flows or financial condition of the Company.

 

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**4. OtherComprehensive (Loss) Income**

The components ofother comprehensive (loss) income on a pretax and after-tax basis are asfollows:
|                                                                         | ** ** | **Three Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------|------------|
| **(in thousands)**                                                 | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| ** **                                                              | ** ** | ** **                      | ** ** | ** ** | ** ** | **After-** | ** ** | ** ** | ** ** | ** ** | ** ** | **After-** | ** ** |
| ** **                                                              | ** ** | **Pretax**                      | ** ** | **Tax** | ** ** | **tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **tax** | ** ** |
| * *                                                                | * *   | * *                        | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Unrealized holding  (losses) gains arising during the period            |       | $                               | (3,306     | ) | $ | 1,157 |   | $ | (2,149 | ) | $ | 5,995 |   | $ | (2,097 | ) | $ | 3,898 |   |
| Less: reclassification  adjustment of realized capital gains and losses |       | (832                            | )          | 291 |   | (541 | ) | (22 | ) | 8 |   | (14 | ) |
| Other comprehensive  (loss) income                                      |       | $                               | (2,474     | ) | $ | 866 |   | (1,608 | ) | $ | 6,017 |   | $ | (2,105 | ) | 3,912 |   |
|                                                                    |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                              |       |                            |       |   |   | 1,771 |   |   |   |   |   | 2,216 |   |
|                                                                    |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                                    |       |                            |       |   |   | $ | 163 |   |   |   |   |   | $ | 6,128 |   |

 
|                                                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------|------------|
| **(in thousands)**                                                 | ** ** | **2006**                      | ** ** | **2005** | ** ** |
| ** **                                                              | ** ** | ** **                    | ** ** | ** ** | ** ** | **After-** | ** ** | ** ** | ** ** | ** ** | ** ** | **After-** | ** ** |
| ** **                                                              | ** ** | **Pretax**                    | ** ** | **Tax** | ** ** | **Tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **Tax** | ** ** |
| * *                                                                | * *   | * *                      | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Unrealized holding  (losses) gains arising during the period            |       | $                             | (8,683     | ) | $ | 3,039 |   | $ | (5,644 | ) | $ | 447 |   | $ | (156 | ) | $ | 291 |   |
| Less: reclassification  adjustment of realized capital gains and losses |       | (832                          | )          | 291 |   | (541 | ) | (117 | ) | 41 |   | (76 | ) |
| Other comprehensive  (loss) income                                      |       | $                             | (7,851     | ) | $ | 2,748 |   | (5,103 | ) | $ | 564 |   | $ | (197 | ) | 367 |   |
|                                                                    |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                              |       |                          |       |   |   | 3,977 |   |   |   |   |   | 4,342 |   |
|                                                                    |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive (loss) income                                             |       |                          |       |   |   | $ | (1,126 | ) |   |   |   |   | $ | 4,709 |   |

 

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**Item 2.**   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTHAND SIX-MONTH PERIODS ENDED JUNE 30, 2006 AND 2005

**Overview**

**The following discussion highlightssignificant factors influencing the financial position and results ofoperations of Lincoln Benefit Life Company (referred to in this document as“we”, “our”, “us” or the “Company”).  Itshould be read in conjunction with the condensed financial statements and notesthereto found under Part I. Item 1. contained herein, and with the discussion,analysis, financial statements and notes thereto in Part I. Item 1. and PartII. Item 7. and Item 8. of the Lincoln Benefit Life Company Annual Report onForm 10-K for 2005.  We operate as asingle segment entity, consistent with the way in which we use financialinformation to evaluate performance and to determine the allocation ofresources.**

**OPERATIONS**

|                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **June 30,**           | ** ** | **June 30,**              | ** ** |
| **(**in thousands)                 | ** ** | **2006**                    | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                               |       |                        |       |                           |       |   |   |   |   |
| Net investment income              |       | $                           | 3,568      |                           | $          | 3,429 |   | $ | 6,957 |   | $ | 6,790 |   |
| Realized capital gains  and losses |       | (847                        | )          | (22                            | )          | (847 | ) | (117 | ) |
| Income tax expense                 |       | (950                        | )          | (1,191                         | )          | (2,133 | ) | (2,331 | ) |
| Net income                         |       | $                           | 1,771      |                           | $          | 2,216 |   | $ | 3,977 |   | $ | 4,342 |   |

 

We have reinsurance agreements whereby all premiums,contract charges, interest credited to contractholder funds, contract benefitsand certain expenses are ceded to Allstate Life Insurance Company (“ALIC”) andcertain non-affiliated reinsurers, and reflected net of such reinsurance in theCondensed Statements of Operations.  Ourresults of operations include net investment income and realized capital gainsand losses on our assets that are not transferred under the reinsuranceagreements.

On June 1, 2006, ALIC, its subsidiary, Allstate LifeInsurance Company of New York, and The Allstate Corporation completed thedisposal of substantially all of their variable annuity business pursuant to a definitiveagreement with Prudential Financial, Inc. and its subsidiary, The PrudentialInsurance Company of America (“collectively Prudential”), which was enteredinto on March 8, 2006. The disposal was effected through a combination ofcoinsurance and modified coinsurance reinsurance agreements. The Company is nota direct participant in this agreement and its reinsurance agreements with ALICremain unchanged.

**Netincome** decreased 20.1% in the second quarter and 8.4% in thefirst six months of 2006 compared to the same periods in 2005.  The declines were due to higher net realizedcapital losses, partially offset by increased net investment income.

**Netinvestment income** increased 4.1% in the second quarter and2.5% in the first six months of 2006 compared to the same periods of 2005 dueto higher average portfolio balances. 

**Netrealized capital losses** increased $825 thousand and $730thousand in the second quarter and first six months of 2006, respectively, whencompared to 2005 due to higher losses on dispositions of fixed income securities.

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**FINANCIALPOSITION**

 

| (in thousands)                            | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Fixed income  securities (1)                   |       | $                 | 264,965    |                  | $          | 267,545 |   |
| Short-term                                     |       | 8,528             |       | 3,824                 |       |
| Total investments                              |       | $                 | 273,493    |                  | $          | 271,369 |   |
|                                           |       |              |       |                  |       |
| Cash                                           |       | $                 | 35,116     |                  | $          | 8,349 |   |
|                                           |       |              |       |                  |       |
| Reinsurance  recoverable from ALIC             |       | 18,691,877        |       | 18,350,983            |       |
|                                           |       |              |       |                  |       |
| Reinsurance  recoverable from non-affiliates   |       | 1,092,567         |       | 1,019,850             |       |
|                                           |       |              |       |                  |       |
| Contractholder  funds                          |       | 17,785,053        |       | 17,462,104            |       |
|                                           |       |              |       |                  |       |
| Reserve for life-contingent  contract benefits |       | 1,985,918         |       | 1,892,194             |       |
|                                           |       |              |       |                  |       |
| Separate Accounts  assets and liabilities      |       | 2,874,282         |       | 2,718,509             |       |

 

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(1)             Fixedincome securities are carried at fair value. Amortized cost basis for these securities was $271.7 million and $266.5million at June 30, 2006 and December 31, 2005, respectively.

Total investments increased to $273.5 million at June30, 2006 from $271.4 million at December 31, 2005 due to positive cash flowsfrom operating activities, partially offset by an unfavorable change inunrealized capital gains and losses on fixed income securities.        

At June 30, 2006, all securities in the fixed incomesecurities portfolio were rated investment grade, which is defined as asecurity having a rating from the National Association of InsuranceCommissioners (“NAIC”) of 1 or 2; a rating of Aaa, Aa, A or Baa from Moody’s ora rating of AAA, AA, A or BBB from S&P, Fitch or Dominion; or a comparableinternal rating if an externally provided rating is not available.

The unrealized net capital losses on fixed incomesecurities at June 30, 2006 were $6.8 million, compared to unrealized netcapital gains of $1.1 million at December 31, 2005.  The net unrealized losses were comprised of$9.5 million of unrealized losses and $2.7 million of unrealized gains at June30, 2006.  The unrealized gains atDecember 31, 2005 were comprised of $5.3 million of unrealized gains and $4.2million of unrealized losses.  

Of the total gross unrealized losses at June 30, 2006,$3.8 million or 40.2% were related to securities in our corporate fixed incomesecurities portfolio and are believed to be a result of a rising interest rateenvironment or company specific issues. These losses were primarily comprised of losses in the consumer goods,financial services and utilities sectors. Of the remaining $5.7 million ofunrealized losses, $3.1 million or 54.4% were related to securities in our U.S.government and government agencies portfolio and are believed to be interestrate related. 

Our portfolio monitoring process identifies andevaluates, on a case-by-case basis, fixed income securities whose carryingvalue may be other-than-temporarily impaired. The process includes a quarterly review of all securities using a screeningprocess to identify those securities whose fair value compared to amortizedcost is below established thresholds for certain time periods, or which areidentified through other monitoring criteria such as ratings downgrades orpayment defaults.  As a result ofapproved programs involving the disposition of investments such as changes induration and revisions to strategic asset allocations, and certain dispositionsanticipated by portfolio managers, we also conduct a portfolio review torecognize impairment on securities in an unrealized loss position for which wedo not have the intent and ability to hold until recovery.  All securities in an unrealized loss positionat June 30, 2006 were included in our portfolio monitoring process fordetermining which declines in value were not other-than-temporary.

We also monitor the quality of our fixed incomeportfolio by categorizing certain investments as “problem”, “restructured” or“potential problem.”  Problem fixedincome securities are securities in default with respect to principal or interestand/or securities issued by companies that have gone into bankruptcy subsequentto our acquisition of the security. Restructured fixed income securities have rates and terms that are notconsistent with market rates or terms prevailing at the time of therestructuring.  Potential problem fixedincome securities are current with respect to contractual principal and/orinterest, but because of other facts and circumstances, we have concernsregarding the borrower’s ability to pay future

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principal and interest, which causes us to believethese securities may be classified as problem or restructured in the future.

 

As of June 30, 2006 and December 31, 2005, we had nosecurities categorized as “problem”, “restructured” or “potential problem”.

**Net Realized Capital Gains and Losses**The following table presents the components of realized capital gains andlosses and the related tax effect.

|                                                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(in thousands)**                          | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Dispositions                                     |       | $                                | (847       | )                              | $          | (22 | ) | $ | (847 | ) | $ | (117 | ) |
| Realized capital gains  and losses, pretax       |       | (847                             | )          | (22                            | )          | (847 | ) | (117 | ) |
| Income tax benefit                               |       | 296                              |       | 8                              |       | 296 |   | 41 |   |
| **Realized capital gains and losses, after-tax** |       | $                                | (551       | )                              | $          | (14 | ) | $ | (551 | ) | $ | (76 | ) |

 

Dispositions in the above table include sales andother transactions such as calls and prepayments.  We may sell fixed income securities duringthe period in which fair value has declined below amortized cost.  In certain situations, new factors such asnegative developments, subsequent credit deterioration, relative valueopportunities, market liquidity concerns and portfolio reallocations cansubsequently change our previous intent to continue holding a security.

**Reinsurance recoverable,Contractholder funds and Reserve for life-contingent contract benefits**

Contractholder funds increased $322.9 million to$17.79 billion at June 30, 2006, from $17.46 billion at December 31, 2005 as aresult of new and additional deposits on fixed annuities and interest-sensitivelife products and interest credited to contractholder funds, partially offset by surrenders,withdrawals and benefit payments.  Thereserve for life-contingent contract benefits increased $93.7 million to $1.99billion at June 30, 2006 resulting from sales of immediate annuities with lifecontingencies and other life-contingent products, partially offset by benefitspaid and policy lapses.  Reinsurancerecoverable from ALIC and reinsurance recoverable from non-affiliates increasedcorrespondingly by $340.9 million and $72.7 million, respectively.

We purchase reinsurance after evaluating the financialcondition of the reinsurer, as well as the terms and price of coverage.  We reinsure certain of our risks tonon-affiliated reinsurers under yearly renewable term and coinsuranceagreements.  Yearly renewable term andcoinsurance agreements result in the passing of the agreed-upon portion of riskto the reinsurers in exchange for negotiated reinsurance premium payments.

**CAPITAL RESOURCESAND LIQUIDITY**

**Capital Resources**consistof shareholder’s equity.  The followingtable summarizes our capital resources:
| (in thousands)                                           | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Common stock,  additional capital paid-in and retained income |       | $                           | 272,521    |                            | $          | 268,544 |   |
| Accumulated  other comprehensive income                       |       | (4,396                      | )          | 707                             |       |
| Total  shareholder’s equity                              |       | $                           | 268,125    |                            | $          | 269,251 |   |

 

*Shareholder’s equity*declined in the first six months of 2006 due toan unfavorable change in unrealized capital gains and losses, partially offsetby net income.

**Financial Ratings and Strength**  We share the insurance financial strengthratings of our parent, ALIC, as our business is reinsured to ALIC.  ALIC’s ratings are influenced by many factorsincluding operating and financial performance, asset quality, liquidity,asset/liability management, overall portfolio mix, financial leverage (i.e.,debt), exposure to risks, the current level of operating leverage, AllstateInsurance Company’s (“AIC”) ratings and other factors.  There have been no changes to ALIC’sinsurance financial strength ratings since December 31, 2005.

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**Item 4. **                    Controls and Procedures

*Evaluation of Disclosure Controlsand Procedures. *Wemaintain disclosure controls and procedures as defined in Rule 13a-15(e) and15(d)-15(e) under the Securities Exchange Act of 1934.  Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness ofour disclosure controls and procedures as of the end of the period covered bythis report.  Based upon this evaluation,the principal executive officer and the principal financial officer concludedthat our disclosure controls and procedures are effective in providingreasonable assurance that material information required to be disclosed in ourreports filed with or submitted to the Securities and Exchange Commission underthe Securities Exchange Act is made known to management, including theprincipal executive officer and the principal financial officer, as appropriateto allow timely decisions regarding required disclosure.

*Changes in Internal Control overFinancial Reporting. *Duringthe fiscal quarter ended June 30, 2006, there were no changes in our internalcontrol over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

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**PART II.  OTHER INFORMATION**

**Item 1. LegalProceedings**

Information required for this Part II, Item 1, isincorporated by reference to the discussion under the heading “Regulation” andunder the heading “Legal and regulatory proceedings and inquires” in Note 3 ofthe Company’s Condensed Financial Statements in Part I, Item 1, of this Form10-Q.

**Item 1A. RiskFactors**

This document contains “forward-looking statements”that anticipate results based on our estimates, assumptions and plans that aresubject to uncertainty. These statements are made subject to the safe-harborprovisions of the Private Securities Litigation Reform Act of 1995. We assumeno obligation to update any forward-looking statements as a result of newinformation or future events or developments.

These forward-looking statements do not relate strictlyto historical or current facts and may be identified by their use of words like“plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,”“believes,” “likely,” “targets” and other words with similar meanings. Thesestatements may address, among other things, our strategy for growth, productdevelopment, regulatory approvals, market position, expenses, financialresults, litigation and reserves. We believe that these statements are based onreasonable estimates, assumptions and plans. However, if the estimates,assumptions or plans underlying the forward-looking statements prove inaccurateor if other risks or uncertainties arise, actual results could differmaterially from those communicated in these forward-looking statements. Riskfactors which could cause actual results to differ materially from thosesuggested by such forward-looking statements include but are not limited tothose discussed or identified in this document, in our public filings with theSecurities and Exchange Commission, and those in Part I, Item 1A of LincolnBenefit Life Company Annual Report on Form 10-K for 2005, which are herebyincorporated herein by reference.  Therehave been no material changes from the risk factors previously disclosed in ourAnnual Report on Form 10-K.

## **Item 6. Exhibits**

(a)  Exhibits

An Exhibit Index has been filed as part of this reporton page E-1.

16

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## **SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                | Lincoln Benefit Life  Company                                             |
|----------------|---------------------------------------------------------------------------|
|           |                                                                      |   |
|           | (Registrant)                                                              |
|           |                                                                      |
|           |                                                                      |
|           |                                                                      |
| August 8, 2006 |                                                                      |   |
|           | By                                                                        | /s/ Samuel H. Pilch |   |   |
|           |                                                                      |   |   |   |
|           | Samuel H. Pilch                                                           |
|           | Controller                                                                |   |
|           | (chief accounting officer and duly authorized  officer of the registrant) |   |
|                |                                                                           |  |  |  |  |  |

 

 

17

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** **

** **
| Exhibit No. | ** ** | **Description** |
|-------------|------------|-----------------|
|        |       |            |
| 10.1        |       |            | Administrative Services Agreement between Lincoln  Benefit Life Company and Allstate Life Insurance Company effective June 1,  2006. |
|        |       |            |   |
| 31.1        |       |            | Rule 15d-14(a) Certification of Principal Executive  Officer |
|        |       |            |   |
| 31.2        |       |            | Rule 15d-14(a) Certification of Principal Financial  Officer |
|        |       |            |   |
| 32          |       |            | Section 1350 Certifications |

 

 

E-1

----