**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

----

 

**FORM10-Q**

 

**Registrantmeets the conditions set forth in General Instruction H (1)(a) and (b) of Form10-Q and is therefore filing this Form with the reduced disclosure format.**

 

**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,2004**

 

**OR**

 

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

 

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

##### ** **

**LINCOLNBENEFIT LIFE COMPANY**

(Exact name of registrant as specified in itscharter)

 
| **Nebraska**                                  | ** ** | **47-0221457**                        |
|-----------------------------------------------|------------|---------------------------------------|
| (State of Incorporation)                      |       | (I.R.S. Employer Identification  No.) |
|                                          |       |                                  |
| **2940 South 84th Street  Lincoln, Nebraska** | ** ** | **68506**                             |
| (Address of principal executive  offices)     | ** ** | (Zip Code)                            |

 

Registrant’s telephone number, including areacode:** 800/525-9287**

 

**Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.**

 

| **Yes ****ý** | ** ** | **No  ****o** |
|-------------------------|------------|--------------------|

 

**Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.**

 

| **Yes ****o** | ** ** | **No  ****ý** |
|--------------------|------------|-------------------------|

 

**As of October 31, 2004, the registrant had 25,000 common shares, $100par value, outstanding, all of which are held by Allstate Life InsuranceCompany**

 

 

----

 

##### **LINCOLN BENEFIT LIFE COMPANY**

**INDEX TO QUARTERLY REPORT ON FORM 10-Q**

#### **September30, 2004**

####  

| **PART I**  | **FINANCIAL INFORMATION**                                                                                                     | ** ** |
|-------------|-------------------------------------------------------------------------------------------------------------------------------|------------|
|        |                                                                                                                          |       |
| Item 1.     | Financial Statements                                                                                                          | 3          |
|        |                                                                                                                          |       |
|        | Condensed Statements of Operations for the  Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003  (unaudited) | 3          |
|        |                                                                                                                          |       |
|        | Condensed Statements of Financial Position  as of September 30, 2004 (unaudited) and December 31, 2003                        | 4          |
|        |                                                                                                                          |       |
|        | Condensed Statements of Cash Flows for the  Nine-Month Periods Ended September 30, 2004 and 2003 (unaudited)                  | 5          |
|        |                                                                                                                          |       |
|        | Notes to Condensed Financial Statements  (unaudited)                                                                          | 6          |
|        |                                                                                                                          |       |
| Item 2.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                   | 13         |
|        |                                                                                                                          |       |
| Item 4.     | Controls  and Procedures                                                                                                      | 17         |
|        |                                                                                                                          |       |
| **PART II** | **OTHER INFORMATION**                                                                                                         | ** ** |
|        |                                                                                                                          |       |
| Item 1.     | Legal  Proceedings                                                                                                            | 17         |
|        |                                                                                                                          |       |
| Item 6.     | Exhibits                                                                                                                      | 17         |

 

2

----

 

#### **PART I. FINANCIALINFORMATION**

 

#### **ITEM 1. FINANCIALSTATEMENTS**

####  

#### **LINCOLN BENEFIT LIFE COMPANY**

####  

**CONDENSED STATEMENTS OF OPERATIONS**

 
|                                                  |       | **Three Months Ended  September 30,** |       | **Nine Months Ended  September 30,** |       |
|-------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| **(in thousands)**                                    |       | **2004**                              |       | **2003**                             |       | **2004** |   | **2003** |   |
| ** **                                            | ** ** | **(Unaudited)**                       | ** ** | **(Unaudited)**                      | ** ** |
| **Revenues**                                          |       |                                  |       |                                 |       |   |   |   |   |
| Net investment income                                 |       | $                                     | 2,817      |                                 | $          | 2,782 |   | $ | 8,382 |   | $ | 8,613 |   |
| Realized capital gains and losses                     |       | 5                                     |       | (66                                  | )          | 5 |   | 73 |   |
|                                                  |       |                                  |       |                                 |       |   |   |   |   |
| **Income from operations before income tax  expense** |       | 2,822                                 |       | 2,716                                |       | 8,387 |   | 8,686 |   |
| Income tax expense                                    |       | 986                                   |       | 948                                  |       | 2,929 |   | 3,033 |   |
| **Net income**                                        |       | $                                     | 1,836      |                                 | $          | 1,768 |   | $ | 5,458 |   | $ | 5,653 |   |

 

See notes to condensed financial statements.

 

3

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**LINCOLN BENEFIT LIFE COMPANY**

 

**CONDENSED STATEMENTS OF FINANCIAL POSITION**

 
| **(in thousands, except par value  data)**                                                              | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                              | ** ** | **(Unaudited)**         | ** ** | ** **             | ** ** |
|                                                                                                    |       |                    |       |                   |       |
| **Assets**                                                                                              |       |                    |       |                   |       |
| Investments                                                                                             |       |                    |       |                   |       |
| Fixed income securities, at fair value  (amortized cost $202,524 and $197,942)                          |       | $                       | 212,297    |                   | $          | 209,118 |   |
| Short-term                                                                                              |       | 910                     |       | 1,107                  |       |
|                                                                                                    |       |                    |       |                   |       |
| Total investments                                                                                       |       | 213,207                 |       | 210,225                |       |
|                                                                                                    |       |                    |       |                   |       |
| Cash                                                                                                    |       | 23,197                  |       | 23,456                 |       |
| Reinsurance recoverable from Allstate Life  Insurance Company, net                                      |       | 16,289,451              |       | 14,594,260             |       |
| Reinsurance recoverable from  non-affiliates, net                                                       |       | 793,959                 |       | 692,971                |       |
| Current income taxes receivable                                                                         |       | 2,537                   |       | 1,428                  |       |
| Other assets                                                                                            |       | 69,949                  |       | 69,968                 |       |
| Separate Accounts                                                                                       |       | 2,124,638               |       | 1,911,619              |       |
| **Total assets**                                                                                        |       | $                       | 19,516,938 |                   | $          | 17,503,927 |   |
|                                                                                                    |       |                    |       |                   |       |
| **Liabilities**                                                                                         |       |                    |       |                   |       |
| Contractholder funds                                                                                    |       | $                       | 15,463,022 |                   | $          | 13,802,815 |   |
| Reserve for life-contingent contract  benefits                                                          |       | 1,604,843               |       | 1,476,314              |       |
| Unearned premiums                                                                                       |       | 22,299                  |       | 19,974                 |       |
| Deferred income taxes                                                                                   |       | 3,670                   |       | 4,172                  |       |
| Payable to affiliates, net                                                                              |       | 12,690                  |       | 23,332                 |       |
| Other liabilities and accrued expenses                                                                  |       | 71,217                  |       | 55,688                 |       |
| Separate Accounts                                                                                       |       | 2,124,638               |       | 1,911,619              |       |
| **Total liabilities**                                                                                   |       | 19,302,379              |       | 17,293,914             |       |
|                                                                                                    |       |                    |       |                   |       |
| **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                                                                              |       | 130,305                 |       | 130,305                |       |
| Retained income                                                                                         |       | 75,401                  |       | 69,943                 |       |
| Accumulated other comprehensive income:                                                                 |       |                    |       |                   |       |
| Unrealized net capital gains and losses                                                                 |       | 6,353                   |       | 7,265                  |       |
| **Total accumulated other comprehensive  income**                                                       |       | 6,353                   |       | 7,265                  |       |
| **Total shareholder’s equity**                                                                     |       | 214,559                 |       | 210,013                |       |
| **Total liabilities and shareholder’s equity**                                                     |       | $                       | 19,516,938 |                   | $          | 17,503,927 |   |

 

See notes to condensed financial statements.

 

4

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#### **LINCOLNBENEFIT LIFE COMPANY**

####  

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

 
|                                                                                                     |   | **Nine Months Ended  September 30,** |       |
|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
| **(in thousands)**                                                                                       |   | **2004**                             | ** ** | **2003** |   |
|                                                                                                     |   | **(Unaudited)**                      |       |
| **Cash flows from operating activities**                                                                 |   |                                 |       |   |   |
| ** **                                                                                               |   |                                 |       |   |   |
| Net income                                                                                               |   | $                                    | 5,458      |   | $ | 5,653 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:                       |   |                                 |       |   |   |
| Amortization and other non-cash items                                                                    |   | 215                                  |       | (46 | ) |
| Realized capital gains and losses                                                                        |   | (5                                   | )          | (73 | ) |
| Changes in:                                                                                              |   |                                 |       |   |   |
| Reserve for life-contingent contract  benefits and contractholder funds, net of reinsurance recoverables |   | (7,443                               | )          | 290 |   |
| Income taxes payable                                                                                     |   | (1,120                               | )          | 22 |   |
| Receivable/payable to affiliates, net                                                                    |   | (10,642                              | )          | (97,383 | ) |
| Other operating assets and liabilities                                                                   |   | 17,873                               |       | 10,282 |   |
| Net cash provided by (used in) operating  activities                                                     |   | 4,336                                |       | (81,255 | ) |
|                                                                                                     |   |                                 |       |   |   |
| **Cash flows from investing activities**                                                                 |   |                                 |       |   |   |
| ** **                                                                                               |   |                                 |       |   |   |
| Fixed income securities                                                                                  |   |                                 |       |   |   |
| Proceeds from sales                                                                                      |   | 1,007                                |       | 19,930 |   |
| Investment collections                                                                                   |   | 9,791                                |       | 22,247 |   |
| Investment purchases                                                                                     |   | (15,590                              | )          | (53,239 | ) |
| Change in short-term investments                                                                         |   | 197                                  |       | (480 | ) |
| Net cash used in investing activities                                                                    |   | (4,595                               | )          | (11,542 | ) |
|                                                                                                     |   |                                 |       |   |   |
| **Net decrease in cash**                                                                                 |   | (259                                 | )          | (92,797 | ) |
| **Cash at beginning of period**                                                                          |   | 23,456                               |       | 130,249 |   |
| **Cash at end of period**                                                                                |   | $                                    | 23,197     |   | $ | 37,452 |   |

 

See notes to condensed financial statements.

 

5

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##  

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****              Basis ofPresentation**

 

Theaccompanying condensed financial statements include the accounts of LincolnBenefit Life Company (the “Company”), a wholly owned subsidiary of AllstateLife Insurance Company (“ALIC”), which is wholly owned by Allstate InsuranceCompany (“AIC”), a wholly owned subsidiary of The Allstate Corporation (the “Corporation”).

 

The condensedfinancial statements and notes as of September 30, 2004, and for thethree-month and nine-month periods ended September 30, 2004 and 2003 areunaudited.  The condensed financialstatements reflect all adjustments (consisting only of normal recurring accruals),which are, in the opinion of management, necessary for the fair presentation ofthe financial position, results of operations and cash flows for the interimperiods.  These condensed financialstatements and notes should be read in conjunction with the financialstatements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 31, 2003. The results of operations for the interim periods should not beconsidered indicative of results to be expected for the full year.

 

**Adoptedaccounting standards**

** **

*Statement ofPosition 03-1, “Accounting and Reporting by Insurance Enterprises for CertainNontraditional Long-Duration Contracts and for Separate Accounts” (“SOP 03-1”)*

 

On January 1,2004, the Company adopted SOP 03-1.  Themajor provisions of the SOP affecting the Company require:

 

•                  Establishment ofreserves primarily related to death benefit and income benefit guaranteesprovided under variable annuity contracts and annuitization guarantees oncertain fixed annuities, all of which are ceded to ALIC;

 

•                  Deferral ofsales inducements that meet certain criteria, and amortization using the samemethod used for deferred policy acquisition costs (“DAC”), all of which areceded to ALIC.

 

**Effects of adoption**

 

The cumulativeeffect of the change in accounting principle from implementing SOP 03-1 was aloss of $26.9 million, after-tax ($41.4 million, pre-tax) that was ceded toALIC under the terms of the reinsurance agreement.  It was comprised of increases incontractholder funds of $30.0 million, pre-tax, and reserves forlife-contingent contract benefits of $11.4 million, pre-tax.

 

**Liabilitiesfor contract guarantees**

 

The Companyoffers various guarantees to variable contractholders including a return of noless than (a) total deposits made on the contract less any customerwithdrawals, (b) total deposits made on the contract less any customerwithdrawals plus a minimum return or (c) the highest contract value on aspecified anniversary date minus any customer withdrawals following thecontract anniversary.  These guaranteesinclude benefits that are payable in the event of death (death benefits), uponannuitization (income benefits), or at specified dates during the accumulationperiod (accumulation benefits).  Thesebenefits are ceded to ALIC under the terms of the reinsurance agreement.

 

The tablebelow presents information regarding the Company’s variable contracts withguarantees.  The Company’s variableannuity contracts may offer more than one type of guarantee in each contract;therefore, the sum of amounts listed exceeds the total account balances ofvariable annuity contracts’ separate accounts with guarantees.

 

6

----

 
| **($ in millions)**                                               | ** ** | **September 30,  2004** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                             | ** ** | ** **              | ** ** |
| *In the event of death*                                                |       |                    |       |
| Account value                                                          |       | $                       | 1,634      |   |
| Net amount at risk(1)                                                  |       | $                       | 232        |   |
| Average attained age of contractholders                                |       | 60 years                |       |
| *At annuitization*                                                     |       |                    |       |
| Account value                                                          |       | $                       | 362        |   |
| Net amount at risk(2)                                                  |       | $                       | 1          |   |
| Weighted average waiting period until  annuitization options available |       | 4 years                 |       |
| *Accumulation at specified dates*                                      |       |                    |       |
| Account value                                                          |       | $                       | 52         |   |
| Net amount at risk(3)                                                  |       | $                       | —     |   |
| Weighted average waiting period until  guarantee date                  |       | 13 years                |       |

 

(1)          Defined as the current guaranteed minimumdeath benefit in excess of the current account balance at the balance sheetdate.

(2)          Defined as the present value of the minimumguaranteed annuity payments determined in accordance with the terms of thecontract in excess of the current account balance.

(3)          Defined as the present value of theguaranteed minimum accumulation balance in excess of the current accountbalance.

 

Accountbalances of variable contracts’ separate accounts with guarantees were investedas follows:

 

----

 
| **(in millions)**                                                       | ** ** | **September 30,  2004** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | ** **              | ** ** |
| Equity securities (including mutual funds)                              |       | $                       | 1,531      |   |
| Cash and cash equivalents                                               |       | 103                     |       |
| Total variable contracts’ separate account  assets with guarantees |       | $                       | 1,634      |   |

* *

*Emerging Issues TaskForce Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments” (“EITF 03-1”) and Financial AccountingStandards Board (“FASB”) Staff Position (“FSP”) EITF 03-1-1, “Effective Date ofParagraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments” (“FSP EITF 03-1-1”)*

 

In March 2004,the Emerging Issues Task Force (“EITF”) reached a final consensus on EITF 03-1,which was to be effective for fiscal periods beginning after June 15,2004.  EITF 03-1 requires that when thefair value of an investment security is less than its carrying value animpairment exists for which a determination must be made as to whether theimpairment is temporary or other-than-temporary.  An impairment loss should be recognized equalto the difference between the investment’s carrying value and its fair valuewhen an impairment is other-than-temporary. Subsequent to an other-thantemporary impairment loss, a debt security should be accounted for inaccordance with Statement of Position No. 03-3, “Accounting for Loans andCertain Debt Securities Acquired in a Transfer”, which allows the accretion ofthe discount between the carrying value and expected value of a security if theamount and timing of the receipt of expected cash flows is reasonablyestimable.  EITF 03-1 also indicates thatalthough not presumptive, a pattern of selling investments prior to theforecasted recovery may call into question an investor’s intent to hold thesecurity until it recovers in value or otherwise matures.

 

The EITF 03-1impairment model applies to all investment securities accounted for underStatement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting forCertain Investments in Debt and Equity Securities” and to investment securitiesaccounted for under the cost method. The final consensus on EITF 03-1 includedadditional disclosure requirements incremental to those adopted by the Companyeffective December 31, 2003 that will be effective December 31, 2004.

 

In September2004, the FASB issued FSP EITF Issue 03-1-1, which deferred the effective dateof the impairment measurement and recognition provisions contained inparagraphs 10-20 of EITF 03-1 until proposed FSP EITF 03-1-a is issued. (SeePending accounting standard.)

 

7

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**Pendingaccounting standard**

** **

*FSP EITF Issue 03-1-a, “Implementation Guidance for the Application ofParagraph 16 of EITF Issue No 03-1, “The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments” (“FSP EITF Issue 03-1-a”).*

 

In September2004, the FASB issued proposed FSP EITF 03-1-a, that addresses the applicationof paragraph 16 of EITF Issue 03-1 to debt securities that are impaired becauseof increases in interest rates, and/or credit sector spread.  Thereafter, in connection with its decision todefer the effective date of paragraphs 10–20 of EITF 03-1 through the issuanceof FSP EITF Issue 03-1-1, the FASB requested from its constituents informationabout both the issues set forth in FSP EITF 03-1-a as well as the issues thatarose during the FSP EITF 03-1-b, “Effective Date of Paragraph 16 of EITF IssueNo. 03-1, *“The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments”*,comment letter process.

 

Due to theuncertainty as to how all of the relevant outstanding issues will be resolved,the Company is unable to determine the impact of adopting paragraphs 10-20 ofEITF 03-1 until final implementation guidance is issued.  Adoption of paragraphs 10-20 of EITF 03-1 mayhave a material impact on the Company’s Condensed Statements of Operation butis not expected to have a material impact on the Company’s Condensed Statementsof Financial Position since fluctuations in fair value are already recorded inaccumulated other comprehensive income.

 

## **2.  Reinsurance**

##  

The Companyhas reinsurance agreements whereby all premiums, contract charges, interestcredited to contractholder funds, contract benefits and certain expenses areceded to ALIC and certain non-affiliates and are reflected net of suchreinsurance in the Condensed Statements of Operations.  The Company follows a comprehensiveevaluation process involving credit scoring and capacity to selectreinsurers.  Reinsurance recoverable andthe related reserve for life-contingent contract benefits and contractholderfunds are reported separately in the Condensed Statements of FinancialPosition.  The Company continues to haveprimary liability as the direct insurer for risks reinsured.

 

Investmentincome earned on the assets which support contractholder funds and the reservefor life-contingent contract benefits are not included in the Company’sCondensed Statements of Operations as those assets are owned and managed byALIC or third party reinsurers under terms of the reinsurance agreements.

 

The effects ofreinsurance on premiums and contract charges are as follows:

 
| ** **                                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| **(in thousands)**                                 | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                         |       |                                  |       |                                 |       |   |   |   |   |
| **Premiums and contract charges**                  |       |                                  |       |                                 |       |   |   |   |   |
| Direct                                             |       | $                                     | 183,494    |                                 | $          | 190,662 |   | $ | 531,449 |   | $ | 679,061 |   |
| Assumed-non-affiliate                              |       | 755                                   |       | —                               |       | 2,450 |   | — |   |
| Ceded                                              |       |                                  |       |                                 |       |   |   |   |   |
| Affiliate                                          |       | (97,214                               | )          | (114,074                             | )          | (286,491 | ) | (445,899 | ) |
| Non-affiliate                                      |       | (87,035                               | )          | (76,588                              | )          | (247,408 | ) | (233,162 | ) |
| Premiums and contract charges, net of  reinsurance |       | $                                     | —     |                                 | $          | — |   | $ | — |   | $ | — |   |

 

The effects of reinsurance on interest credited to contractholderfunds, contract benefits and certain expenses are as follows:

 

8

----

 
| ** **                                                                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| **(in thousands)**                                                                                     | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                             |       |                                  |       |                                 |       |   |   |   |   |
| **Interest credited to contractholder funds,  contract benefits and certain expenses**                 |       |                                  |       |                                 |       |   |   |   |   |
| Direct                                                                                                 |       | $                                     | 377,942    |                                 | $          | 374,392 |   | $ | 1,185,589 |   | $ | 1,179,518 |   |
| Assumed-non-affiliate                                                                                  |       | 1,177                                 |       | —                               |       | 3,440 |   | — |   |
| Ceded                                                                                                  |       |                                  |       |                                 |       |   |   |   |   |
| Affiliate                                                                                              |       | (275,680                              | )          | (298,008                             | )          | (912,340 | ) | (945,875 | ) |
| Non-affiliate                                                                                          |       | (103,439                              | )          | (76,384                              | )          | (276,689 | ) | (233,643 | ) |
| Interest credited to contractholder funds,  contract benefits and certain expenses, net of reinsurance |       | $                                     | —     |                                 | $          | — |   | $ | — |   | $ | — |   |

 

## **3.  Guarantees and Contingent Liabilities**

##  

## **Guarantees**

##  

The Companyhas issued universal life insurance contracts to third parties who finance thepremium payments on the universal life insurance contracts through a commercialpaper program.  The Company has issued arepayment guarantee on the outstanding commercial paper balance that is fullycollateralized by the cash surrender value of the universal life insurancecontracts.  At September 30, 2004, theamount due under the commercial paper program is $302 million and the cashsurrender value of the policies is $309 million.  The repayment guarantee expires April 30,2006.  These contracts are ceded to ALICunder the terms of the reinsurance agreements.

 

In the normalcourse of business, the Company provides standard indemnifications tocounterparties in contracts in connection with numerous transactions, includingindemnifications for breaches of representations and warranties, taxes andcertain other liabilities, such as third party lawsuits.  The indemnification clauses are oftenstandard contractual terms and were entered into in the normal course ofbusiness based on an assessment that the risk of loss would be remote.  The terms of the indemnifications vary induration and nature.   In many cases, themaximum obligation is not explicitly stated and the contingencies triggeringthe obligation to indemnify have not occurred and are not expected tooccur.  Because the obligated amounts ofthe indemnifications are not explicitly stated in many cases, the maximumamount of the obligation under such indemnifications is not determinable.  Historically, the Company has not made anymaterial payments pursuant to these obligations.

 

The aggregateliability balance related to all guarantees was not material as of September30, 2004.

 

## **Regulation**

##  

The Company is subject tochanging social, economic and regulatory conditions.  Recent state and federal regulatoryinitiatives and proceedings have included efforts to remove barriers preventingbanks from engaging in the securities and insurance businesses, change tax lawsaffecting the taxation of insurance companies and the tax treatment ofinsurance products or competing non-insurance products that may impact therelative desirability of various personal investment products and otherwiseexpand overall regulation of insurance products and the insurance industry. Theultimate changes and eventual effects of these initiatives on the Company’sbusiness, if any, are uncertain.

 

Regulatory bodies have contacted the parent of the Company and haverequested information relating to variable insurance products, including suchareas as market timing and late trading and sales practices. The Companybelieves that these inquiries are similar to those made to many financialservices companies as part of an industry-wide investigation by variousregulatory agencies into the practices, policies and procedures relating tovariable insurance products sales and subaccount trading practices. The Company’s

 

9

----

 

parent has and will continue torespond to these information requests and investigations. The Company at thepresent time is not aware of any systemic problems with respect to such mattersthat may have a material adverse effect on the Company’s financial position.

 

## **Legal Proceedings**

##  

## **Background**

##  

The Companyand certain of its affiliates are named as defendants in a number of lawsuitsand other legal proceedings arising out of various aspects of itsbusiness.  As background to the “Proceedings”sub-section below, please note the following:

 

•                  These mattersraise difficult and complicated factual and legal issues and are subject tomany uncertainties and complexities, including but not limited to, theunderlying facts of each matter, novel legal issues, variations betweenjurisdictions in which matters are being litigated, differences in applicablelaws and judicial interpretations, the length of time before many of thesematters might be resolved by settlement or through litigation and, in somecases, the timing of their resolutions relative to other similar cases broughtagainst other companies, the fact that some of these matters are putative classactions in which a class has not been certified and in which the purported classmay not be clearly defined, the fact that some of these matters 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 thesematters, plaintiffs seek a variety of remedies including equitable relief inthe form of injunctive and other remedies and monetary relief in the form ofcontractual and extra-contractual damages. In some cases, the monetary damages sought include punitive damages orare not specified.  Often more specificinformation beyond the type of relief sought is not available becauseplaintiffs have not requested more specific relief in their court pleadings. Inour experience, monetary demands in plaintiffs’ court pleadings bear littlerelation to the ultimate loss, if any, to the Company.

 

•                  For the reasonsspecified above, it is not possible to make meaningful estimates of the amountor range of loss that could result from these matters at this time.  The Company reviews these matters on anon-going basis and follows the provisions of SFAS No.5, “Accounting forContingencies” when making accrual and disclosure decisions. When assessingreasonably possible and probable outcomes, the Company bases its decisions onits assessment of the ultimate outcome following all appeals.

 

•                  In the opinionof the Company’s management, while some of these matters may be material to theCompany’s operating results for any particular period if an unfavorable outcomeresults, none will have a material adverse effect on the financial condition ofthe Company.

 

**Proceedings**

** **

Legal proceedings involvingAllstate agencies and AIC may impact the Company, even when the Company is notdirectly involved, because the Company sells its products through a variety ofdistribution channels including Allstate agencies. Consequently, informationabout the more significant of these proceedings is provided below.

 

AIC is defending variouslawsuits involving worker classification issues. A putative nationwide classaction filed by former employee agents includes a worker classification issue;these agents are challenging certain amendments to the Agents Pension Plan andare seeking to have exclusive agent independent contractors treated asemployees for benefit purposes. This matter was dismissed with prejudice inlate March 2004 by the trial court but will be the subject of furtherproceedings on appeal. AIC has been vigorously defending this and various otherworker classification lawsuits. The outcome of these disputes is currentlyuncertain.

 

10

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AIC isdefending certain matters relating to its agency program reorganizationannounced in 1999. These matters include a lawsuit filed in December 2001by the U.S. Equal Employment Opportunity Commission (“EEOC”) allegingretaliation under federal civil rights laws, a class action filed in August2001 by former employee agents alleging retaliation and age discriminationunder the Age Discrimination in Employment Act, breach of contract and ERISA violations, anda lawsuit filed in October 2004 by the EEOC alleging age discrimination withrespect to a policy limiting the rehire of agents affected by the agencyprogram reorganization. AIC is also defending another action, in which a classwas certified in June 2004, filed by former employee agents who terminatedtheir employment prior to the agency program reorganization. These plaintiffshave asserted claims under ERISA and for constructive discharge, and areseeking the benefits provided in connection with the reorganization.  AIC has asked the court to reconsider itsclass certification ruling.  In late March 2004, in the first EEOC lawsuitand class action lawsuit, the trial court issued a memorandum and order that,among other things, certified classes of agents, including a mandatory class ofagents who had signed a release, for purposes of effecting the court’sdeclaratory judgment that the release is voidable at the option of the releasesigner.  The court also ordered that anagent who voids the release must return to AIC “any and all benefits receivedby 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 hasalso been filed by former employee agents alleging various violations of ERISA.  Thismatter was dismissed with prejudice in late March 2004 by the trial court butwill be the subject of further proceedings on appeal.  Inthese matters, 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 is defending certain matters relating to itslife agency program reorganization announced in 2000. These matters include aninvestigation by the EEOC with respect to allegations of age discrimination andretaliation. AIC is cooperating fully with the agency investigation and willcontinue to vigorously defend these and other claims related to the life agencyprogram reorganization. The outcome of these disputes is currently uncertain.

 

The Company iscurrently defending a nationwide class action lawsuit, alleging among otherthings, breach of contract and breach of the implied covenant of good faith andfair dealing as a result of a change in the rate and cap on an annuityproduct.  The court certified the classand entered summary judgment in favor of the Company and against the certifiedclass.  Plaintiff filed notice of appealand the Company filed a cross appeal.  InJune 2004, the Rhode Island Supreme Court upheld the class certification orderbut reversed the summary judgment order, entering judgment for the plaintiffclass. The Company filed a Petition for Reargument in response to this Order.The Rhode Island Supreme Court denied the petition. The case will now betransferred back to the lower court for entry of an order in favor of theclass.

 

**OtherMatters**

 

TheCorporation and its affiliates, including the Company, have received interrogatoriesand demands to produce information from several regulatory and enforcementauthorities.  These authorities areseeking information relevant to on-going investigations into the possibleviolation of antitrust or insurance laws by unnamed parties and, in particular,are seeking information as to whether any person engaged in activities for thepurpose of price fixing, market allocation, or bid rigging.  Publishedpress reports have indicated that numerous demands of this nature have beensent to insurance companies as part of industry-wide investigations.  The Corporation intends to cooperate fullywith these and any similar requests for information.

 

Various other legal andregulatory actions are currently pending that involve the Company and specific aspectsof its conduct of business. Like other members of the insurance industry, theCompany is the target of a number of lawsuits, some of which involve claims forsubstantial or indeterminate amounts. This litigation is based on a variety ofissues including insurance and claim settlement practices. The outcome of thesedisputes is currently unpredictable. However, at this time, based on their present status and theexistence of the reinsurance agreement with ALIC, it is the opinion of management that the ultimate liability, if any,in one or more of these other actions in excess of amounts currently reservedis not expected to have a material effect on the results of operations,liquidity or financial position of the Company.

 

11

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## **4.   Other Comprehensive Income**

##  

The componentsof other comprehensive income on a pretax and after-tax basis are as follows:

 
| ** **                                                   | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| **(in thousands)**                                           | ** ** | **Pretax**                           | ** ** | **Tax** | ** ** | **After-  tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **After-  tax** | ** ** |
| ** **                                                   | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Unrealized capital gains and losses*                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) arising  during the period |       | $                                    | 4,783      |   | $ | (1,674 | ) | $ | 3,109 |   | $ | (4,287 | ) | $ | 1,501 |   | $ | (2,786 | ) |
| Less: reclassification adjustments                           |       | 5                                    |       | (2 | ) | 3 |   | (66 | ) | 23 |   | (43 | ) |
| Unrealized net capital gains (losses)                        |       | 4,778                                |       | (1,672 | ) | 3,106 |   | (4,221 | ) | 1,478 |   | (2,743 | ) |
| Other comprehensive income (loss)                            |       | $                                    | 4,778      |   | $ | (1,672 | ) | 3,106 |   | $ | (4,221 | ) | $ | 1,478 |   | (2,743 | ) |
|                                                         |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                   |       |                                 |       |   |   | 1,836 |   |   |   |   |   | 1,768 |   |
|                                                         |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss)                                  |       |                                 |       |   |   | $ | 4,942 |   |   |   |   |   | $ | (975 | ) |

 
| ** **                                                   | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                            | ** ** | **2003** | ** ** |
| **(in thousands)**                                           | ** ** | **Pretax**                          | ** ** | **Tax** | ** ** | **After-  Tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **After-  tax** | ** ** |
| ** **                                                   | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Unrealized capital gains and losses*                        |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) arising  during the period |       | $                                   | (1,398     | ) | $ | 489 |   | $ | (909 | ) | $ | (2,490 | ) | $ | 872 |   | $ | (1,618 | ) |
| Less: reclassification adjustments                           |       | 5                                   |       | (2 | ) | 3 |   | 124 |   | (43 | ) | 81 |   |
| Unrealized net capital gains (losses)                        |       | (1,403                              | )          | 491 |   | (912 | ) | (2,614 | ) | 915 |   | (1,699 | ) |
| Other comprehensive income (loss)                            |       | $                                   | (1,403     | ) | $ | 491 |   | (912 | ) | $ | (2,614 | ) | $ | 915 |   | (1,699 | ) |
|                                                         |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                   |       |                                |       |   |   | 5,458 |   |   |   |   |   | 5,653 |   |
|                                                         |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss)                                  |       |                                |       |   |   | $ | 4,546 |   |   |   |   |   | $ | 3,954 |   |

 

12

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**Item 2****.  MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHPERIODS ENDED SEPTEMBER 30, 2004 AND 2003.**

 

## **OVERVIEW**

 

The followingdiscussion highlights significant factors influencing the financial positionand results of operations of Lincoln Benefit Life Company (referred to in thisdocument as “we”, “our”, “us” or the “Company”).  It should be read in conjunction with thecondensed financial statements and notes thereto found under Part I. Item 1.contained herein, and with the discussion, analysis, financial statements andnotes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of theLincoln Benefit Life Company Annual Report on Form 10-K for 2003.  We operate as a single segment entity,consistent with the way in which we use financial information to evaluateperformance and to determine the allocation of resources.

 

## **RESULTS OF OPERATIONS**

 
| ** **                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| **(in thousands)**                | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                              |       |                                  |       |                                 |       |   |   |   |   |
| Net investment income             |       | $                                     | 2,817      |                                 | $          | 2,782 |   | $ | 8,382 |   | $ | 8,613 |   |
| Realized capital gains and losses |       | 5                                     |       | (66                                  | )          | 5 |   | 73 |   |
| Income tax expense                |       | 986                                   |       | 948                                  |       | 2,929 |   | 3,033 |   |
| Net income                        |       | $                                     | 1,836      |                                 | $          | 1,768 |   | $ | 5,458 |   | $ | 5,653 |   |
|                                   |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |  |

 

We havereinsurance agreements whereby all premiums, contract charges, interestcredited to contractholder funds, contract benefits and certain expenses areceded to Allstate Life Insurance Company (“ALIC”) and certain non-affiliatedreinsurers, and reflected net of such reinsurance in the Condensed Statementsof Operations.  Our results of operationsinclude net investment income and realized capital gains and losses on ourassets that are not transferred under the reinsurance agreements.

 

Net income inthe third quarter of 2004 was comparable to the same period last year due toincreases in net investment income and realized capital gains were partiallyoffset by higher income tax expense. Net income decreased $195 thousand to $5.5million for the first nine months of 2004 from $5.7 million for the same periodlast year as decreases in net investment income and realized capital gains,partially offset by lower income tax expense.

 

Net investmentincome increased 1.3% in the third quarter of 2004 compared to the same periodin 2003 primarily due to higher portfolio balances partially offset by lowerportfolio yields. Net investment income decreased 2.7% for the first ninemonths of 2004 compared to the same period in 2003 primarily due to lowerportfolio yields being partially offset by the effects of higher portfoliobalances from the investment of cash flows from operating activities.  Lower portfolio yields were due to purchasesof fixed income securities with yields lower than the current portfolioaverage. Total investments as of September 30, 2004 increased 0.7% fromSeptember 30, 2003 due primarily to positive cash flows from operatingactivities, partially offset by a decline in unrealized capital gains on fixedincome securities.

 

Pre-taxrealized capital gains and losses increased $71 thousand in the third quarterof 2004 and decreased $68 thousand for the first nine months of 2004 comparedto the same periods in 2003 primarily the result of dispositions of fixedincome securities.

 

13

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**FINANCIALPOSITION**

** **
| **(in thousands)**                                | ** ** | **September 30,  2004** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| Fixed income securities (1)                       |       | $                       | 212,297    |   |
| Short-term                                        |       | 910                     |       |
| Total investments                                 |       | $                       | 213,207    |   |
|                                              |       |                    |       |
| Cash                                              |       | $                       | 23,197     |   |
|                                              |       |                    |       |
| Reinsurance recoverable from ALIC, net            |       | 16,289,451              |       |
|                                              |       |                    |       |
| Reinsurance recoverable from  non-affiliates, net |       | 793,959                 |       |
|                                              |       |                    |       |
| Contractholder funds                              |       | 15,463,022              |       |
|                                              |       |                    |       |
| Reserve for life-contingent contract  benefits    |       | 1,604,843               |       |
|                                              |       |                    |       |
| Separate Accounts assets and liabilities          |       | 2,124,638               |       |

 

----

(1)          Fixed income securitiesare carried at fair value.  Amortizedcost basis for these securities was $202.5 million.

 

Totalinvestments increased to $213.2 million at September 30, 2004 from $210.2million at December 31, 2003 due to increased cash flows from operatingactivities, partially offset by decreased unrealized gains on fixed incomesecurities.

 

At September 30, 2004, the entire fixed income securities portfolio wasrated investment grade, which is defined as a security having a rating from theNational Association of Insurance Commissioners (“NAIC”) of 1 or 2, a Moody’sequivalent rating of Aaa, Aa, A or Baa; an S&P equivalent rating of AAA,AA, A or BBB; or a comparable internal rating when an external rating is notavailable.

 

The unrealized net capital gains on fixed income securities atSeptember 30, 2004 were $9.8 million, a decrease of $1.4 million or 12.6% sinceDecember 31, 2003.  The netunrealized gain was comprised of $11.1 million of unrealized gains and $1.3million of unrealized losses at September 30, 2004.  This is compared to a net unrealized gain forthe fixed income portfolio totaling $11.2 million at December 31, 2003,comprised of $12.8 million of unrealized gains and $1.6 million of unrealizedlosses. The gross unrealized losses were concentrated in the corporate,mortgage-backed and U.S. Government and agencies portfolios at September 30,2004. All of the gross unrealized losses were related to investment grade securitiesand were primarily interest rate related. Every security was included in ourportfolio monitoring process.

 

Our portfoliomonitoring process identifies and evaluates fixed income securities whosecarrying value may be other than temporarily impaired.  The process includes a quarterly review of allsecurities using a screening process to identify those securities whose fairvalue compared to amortized cost for fixed income securities is belowestablished thresholds for certain time periods, or which are identifiedthrough other monitoring criteria such as ratings downgrades or paymentdefaults.

 

We also monitor the quality of our fixed income portfolioby categorizing certain investments as “problem”, “restructured” or “potentialproblem.”  Problem fixed incomesecurities 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 seriousconcerns regarding the borrower’s ability to pay future principal and interest,which causes us to believe these securities may be classified as problem orrestructured in the future.

 

14

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As ofSeptember 30, 2004 and December 31, 2003, we had no securities categorizedas  “problem”, “restructured” or “potentialproblem”.

 

While we mayclassify securities as “problem”, “restructured” or “potential problem” in thefuture, particularly if economic conditions are unfavorable, we expect that thetotal amount of securities in these categories would be low relative to thetotal fixed income securities portfolio.

 

**NetRealized Capital Gains and Losses** The following tablepresents the components of realized capital gains and losses and the relatedtax effect.

 
| ** **                                        | ** ** | **Three Months  Ended  September 30,** | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| **(in thousands)**                                | ** ** | **2004**                               | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                              |       |                                   |       |                                  |       |   |   |   |   |
| Dispositions                                      |       | $                                      | 5          |                                  | $          | (66 | ) | $ | 5 |   | $ | 73 |   |
| Realized capital gains and losses, pretax         |       | 5                                      |       | (66                                   | )          | 5 |   | 73 |   |
| Income tax (expense) benefit                      |       | (2                                     | )          | 23                                    |       | (2 | ) | (26 | ) |
| **Realized capital gains and losses,  after-tax** |       | $                                      | 3          |                                  | $          | (43 | ) | $ | 3 |   | $ | 47 |   |
|                                                   |            |                                        |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

Dispositionsin the above table include sales and other transactions such as calls andprepayments.  We may sell securitiesduring the 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.

 

## **Reinsurancerecoverable, Contractholder funds and Reserve for life-contingent contractbenefits**

##  

Contractholderfunds increased to $15.46 billion at September 30, 2004, from $13.80 billion atDecember 31, 2003 as a result of deposits from fixed annuities andinterest-sensitive life policies, interest credited to contractholder funds andthe initial adoption of the provisions of Statement of Position 03-1*,*“Accounting and Reporting by InsuranceEnterprises for Certain Nontraditional Long-Duration Contracts and for SeparateAccounts” (“SOP 03-1”), partially offset by surrenders, withdrawals, benefitpayments and contract charges.  Thereserve for life-contingent contract benefits increased $129 million to $1.60billion at September 30, 2004 from $1.48 billion at December 31, 2003, from newsales of traditional life and long term care products, additional reservesrecorded due to the recognition of reserves for guaranteed minimum deathbenefits in conjunction with adopting the provisions of SOP 03-1*,* partially offset by benefits paid.  Reinsurance recoverable from ALIC andreinsurance recoverable from non-affiliates increased by $1.70 billion and $101million, respectively, consistent with the reserve increase since allcontractholder obligations and the net reserve for life-contingent contractbenefits are reinsured.

 

We purchasereinsurance after evaluating the financial condition of the reinsurer, as wellas the terms and price of coverage.  Wereinsure certain of our risks to non-affiliated reinsurers under yearlyrenewable term and coinsurance agreements. Yearly renewable term and coinsurance agreements result in passing theagreed-upon portion of risk to the reinsurers in exchange for negotiatedreinsurance premium payments.

 

15

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## **CAPITALRESOURCES AND LIQUIDITY**

##  

**CapitalResources**consist of shareholder’s equity.  The following table summarizes our capitalresources:

 
| **(in thousands)**                                            | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | ** **              | ** ** | ** **             | ** ** |
| Common stock, additional capital paid-in  and retained income |       | $                       | 208,206    |                   | $          | 202,748 |   |
| Accumulated other comprehensive income                        |       | 6,353                   |       | 7,265                  |       |
| Total shareholder’s equity                               |       | $                       | 214,559    |                   | $          | 210,013 |   |

 

*Shareholder’s equity*increased for the first nine months of 2004 when compared to December 31, 2003,due to net income, partially offset by decreases in net unrealized capitalgains.

 

**FinancialRatings and Strength** We share the insurance financialstrength ratings of our parent, ALIC, because business is reinsured to ALIC.There have been no changes in ALIC’s insurance financial strength ratings sinceDecember 31, 2003.  However, in February2004, A.M. Best revised the outlook to stable from positive for the insurancefinancial strength ratings of ALIC and certain rated subsidiaries andaffiliates, including the Company.

 

## **FORWARD-LOOKING STATEMENTS AND RISK FACTOR**

##  

This documentcontains “forward-looking statements” that anticipate results based on ourestimates, assumptions and plans that are subject to uncertainty.  These statements are made subject to thesafe-harbor provisions of the Private Securities Litigation Reform Act of 1995.  We assume no obligation to update anyforward-looking statements as a result of new information or future events ordevelopments.

 

Theseforward-looking statements do not relate strictly to historical or currentfacts 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. These statements may address, among other things, our strategy forgrowth, product development, regulatory approvals, market position, expenses, financialresults, litigation and reserves.  Webelieve that these statements are based on reasonable estimates, assumptionsand 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.  Factors which could cause actual results todiffer materially from those suggested by such forward-looking statements areincorporated in this Part I, Item 2 by reference to the information set forthin our Annual Report on Form 10-K, Part II, Item 7, under the caption  “Forward-Looking Statements and Risk Factors.”

 

**Any decreasein our financial strength rating may have an adverse effect on our competitiveposition**

** **

•                  Financialstrength ratings are important factors in establishing the competitive positionof insurance companies and generally will have an effect on an insurancecompany’s business.  On an ongoing basis,rating agencies review the financial performance and condition of insurers andcould downgrade or change the outlook on an insurer’s ratings due to, forexample, a change in an insurer’s statutory capital; a change in a ratingagency’s determination of the amount of risk-adjusted capital required tomaintain a particular rating; an increase in the perceived risk of an insurer’sinvestment portfolio; a reduced confidence in management or a host of otherconsiderations that may or may not be under the insurer’s control.  The insurance financial strength ratings ofboth Allstate Insurance Company and ALIC, as well as the Company, are A+, Aa2and AA (from A.M. Best, Moody’s and Standard and Poor’s, respectively).    Because all of these ratings are subject tocontinuous review, the retention of these ratings cannot be assured.  A multiple level downgrade in any of theseratings could have a material adverse effect on our sales, our competitiveness,the marketability of our product offerings and our liquidity, operating resultsand financial condition.

 

16

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## **Item 4**.  Controlsand Procedures

##  

With theparticipation of our principal executive officer and principal financialofficer, we carried out an evaluation of the effectiveness of the design andoperation of our disclosure controls and procedures as of the end of the periodcovered by this report.  Based upon thisevaluation, the principal executive officer and the principal financial officerconcluded that our disclosure controls and procedures are effective in timelyalerting them to material information required to be included in our periodicreports filed with the Securities and Exchange Commission.  However, the design of any system of controlsand procedures is based in part upon assumptions about the likelihood of futureevents and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions, regardless of howremote.  Our disclosure controls andprocedures are designed to provide reasonable assurance of achieving theirobjectives and are effective at the “reasonable assurance” level.

 

During thefiscal quarter ended September 30, 2004, there have been no changes in ourinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

## **PART II**. OTHER INFORMATION

 

## **Item 1**. Legal Proceedings

 

Informationrequired for this Part II, Item 1 is incorporated by reference to thediscussion under the heading “Regulation” and under the heading “Legalproceedings” in Note 3 of the Company’s Condensed Financial Statements in PartI, Item 1, of this Form 10-Q.

 

**Item 6****.  Exhibits**

 

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

 

 

## **SIGNATURE**

##  

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|              | Lincoln  Benefit Life Company                                             |
|-------------------|---------------------------------------------------------------------------|
|              |                                                                      |
|              |  (Registrant)                                                        |
|              |                                                                      |
| November 10, 2004 |                                                                      |
|              |                                                                      |
|              | By                                                                        | /s/ Samuel  H. Pilch |   |
|              | Samuel H.  Pilch                                                          |
|              | Group Vice  President and Controller                                      |
|              | (chief  accounting officer and duly authorized officer of the Registrant) |

 

17

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| **Exhibit No.** | ** ** | **Description** |
|-----------------|------------|-----------------|
|            |       |            |
| 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

----