** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

----

 

**FORM 10-Q**

 

**Registrantmeets the conditions set forth in General Instruction H (1)(a) and (b) ofForm 10-Q and is therefore filing this Form with the reduceddisclosure format.**

 

**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)**

**OF**

**THESECURITIES EXCHANGE ACT OF 1934**

 

**FOR THE QUARTERLY PERIOD ENDED MARCH 31,2005**

 

**OR**

 

**o****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)**

**OF**

**THESECURITIES 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’stelephone number, including area code:  **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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject 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 ExchangeAct.**

 

**Yes ****o****                                                        ****No ****ý**

 

**As of April 29, 2005, the registrant had 25,000 common shares,$100 par value, outstanding, all of which are held by Allstate Life InsuranceCompany**

** **

** **

----

** **

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

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

##### **March 31, 2005**

##### ** **

| **PART I.**  | **FINANCIAL INFORMATION**                                                                                      | ** ** |
|-------------------|----------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                           |       |
| Item 1.           | Financial Statements                                                                                           |       |
|              |                                                                                                           |       |
|              | Condensed Statements of Operations for the Three-Month Periods Ended  March 31, 2005 and 2004 (unaudited) | 3          |
|              |                                                                                                           |       |
|              | Condensed Statements of Financial Position as of March 31, 2005  (unaudited) and December 31, 2004   | 4          |
|              |                                                                                                           |       |
|              | Condensed Statements of Cash Flows for the Three-Month Periods Ended  March 31, 2005 and 2004 (unaudited) | 5          |
|              |                                                                                                           |       |
|              | Notes to Condensed Financial Statements (unaudited)                                                            | 6          |
|              |                                                                                                           |       |
| Item 2.           | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                    | 11         |
|              |                                                                                                           |       |
| Item 4.           | Controls and Procedures                                                                                        | 15         |
|              |                                                                                                           |       |
| **PART II.** | **OTHER INFORMATION**                                                                                          | ** ** |
|              |                                                                                                           |       |
| Item 1.           | Legal Proceedings                                                                                              | 15         |
|              |                                                                                                           |       |
| Item 6.           | Exhibits                                                                                                       | 15         |

** **

**2**

----

** **

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

####  

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

####  

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

** **

**CONDENSED STATEMENTS OF OPERATIONS**

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **March 31,**     | ** ** |
| **(in thousands)**                                    | ** ** | **2005**               | ** ** | **2004** | ** ** |
| ** **                                            | ** ** | **(Unaudited)**        | ** ** |
| **Revenues**                                          |       |                   |       |   |   |
| Net investment income                                 |       | $                      | 3,361      |   | $ | 2,774 |   |
| Realized capital gains and losses                     |       | (95                    | )          | — |   |
|                                                  |       |                   |       |   |   |
| **Income from operations before income tax  expense** |       | 3,266                  |       | 2,774 |   |
| **Income tax expense**                                |       | 1,140                  |       | 968 |   |
| **Net income**                                        |       | $                      | 2,126      |   | $ | 1,806 |   |

 

See notes to condensed financial statements.

 

3

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**LINCOLN BENEFIT LIFE COMPANY**

 

**CONDENSED STATEMENTS OF FINANCIAL POSITION**

 
| ** **                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(in thousands, except par value data)**                                                               | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| ** **                                                                                              | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
|                                                                                                    |       |               |       |                  |       |
| **Assets**                                                                                              |       |               |       |                  |       |
| Investments                                                                                             |       |               |       |                  |       |
| Fixed income securities, at fair value  (amortized cost $257,885 and $234,371)                          |       | $                  | 260,860    |                  | $          | 242,799 |   |
| Short-term                                                                                              |       | 9,337              |       | 30,408                |       |
| Total investments                                                                                       |       | 270,197            |       | 273,207               |       |
|                                                                                                    |       |               |       |                  |       |
| Cash                                                                                                    |       | 13,211             |       | 10,532                |       |
| Reinsurance recoverable from Allstate Life  Insurance Company                                           |       | 17,522,751         |       | 17,083,056            |       |
| Reinsurance recoverable from non-affiliates                                                             |       | 907,436            |       | 839,738               |       |
| Receivable from affiliates                                                                              |       | —             |       | 27,449                |       |
| Current income taxes receivable                                                                         |       | —             |       | 38                    |       |
| Other assets                                                                                            |       | 79,284             |       | 83,853                |       |
| Separate Accounts                                                                                       |       | 2,365,229          |       | 2,368,312             |       |
| **Total assets**                                                                                        |       | $                  | 21,158,108 |                  | $          | 20,686,185 |   |
|                                                                                                    |       |               |       |                  |       |
| **Liabilities**                                                                                         |       |               |       |                  |       |
| Contractholder funds                                                                                    |       | $                  | 16,669,665 |                  | $          | 16,231,489 |   |
| Reserve for life-contingent contract  benefits                                                          |       | 1,737,909          |       | 1,671,729             |       |
| Current income taxes payable                                                                            |       | 1,102              |       | —                |       |
| Unearned premiums                                                                                       |       | 23,926             |       | 23,362                |       |
| Deferred income taxes                                                                                   |       | 1,349              |       | 3,257                 |       |
| Payable to affiliates, net                                                                              |       | 21,091             |       | —                |       |
| Other liabilities and accrued expenses                                                                  |       | 74,020             |       | 122,800               |       |
| Separate Accounts                                                                                       |       | 2,365,229          |       | 2,368,312             |       |
| **Total liabilities**                                                                                   |       | 20,894,291         |       | 20,420,949            |       |
|                                                                                                    |       |               |       |                  |       |
| **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                                                                                         |       | 79,383             |       | 77,257                |       |
| Accumulated other comprehensive income:                                                                 |       |               |       |                  |       |
| Unrealized net capital gains and losses                                                                 |       | 1,934              |       | 5,479                 |       |
| **Total accumulated other comprehensive  income**                                                       |       | 1,934              |       | 5,479                 |       |
| **Total shareholder’s equity**                                                                     |       | 263,817            |       | 265,236               |       |
| **Total liabilities and shareholder’s equity**                                                     |       | $                  | 21,158,108 |                  | $          | 20,686,185 |   |

 

See notes to condensed financial statements.

 

4

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#### **LINCOLNBENEFIT LIFE COMPANY**

####  

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

 
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                                                                       | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                                                                               | ** ** | **(Unaudited)**                        | ** ** |
|                                                                                                     |       |                                   |       |   |   |
| **Cash flows from operating activities**                                                                 |       |                                   |       |   |   |
| ** **                                                                                               |       |                                   |       |   |   |
| Net income                                                                                               |       | $                                      | 2,126      |   | $ | 1,806 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:                       |       |                                   |       |   |   |
| Amortization and other non-cash items                                                                    |       | 109                                    |       | 73 |   |
| Realized capital gains and losses                                                                        |       | 95                                     |       | — |   |
| Changes in:                                                                                              |       |                                   |       |   |   |
| Reserve for life-contingent contract  benefits and contractholder funds, net of reinsurance recoverables |       | (3,037                                 | )          | (3,064 | ) |
| Income taxes payable                                                                                     |       | 1,140                                  |       | 968 |   |
| Receivable/payable to affiliates, net                                                                    |       | 48,540                                 |       | (24,616 | ) |
| Other operating assets and liabilities                                                                   |       | (42,886                                | )          | 29,814 |   |
| Net cash provided by operating activities                                                                |       | 6,087                                  |       | 4,981 |   |
|                                                                                                     |       |                                   |       |   |   |
| **Cash flows from investing activities**                                                                 |       |                                   |       |   |   |
| ** **                                                                                               |       |                                   |       |   |   |
| Fixed income securities                                                                                  |       |                                   |       |   |   |
| Proceeds from sales                                                                                      |       | 2,040                                  |       | — |   |
| Investment collections                                                                                   |       | 4,925                                  |       | 6,535 |   |
| Investment purchases                                                                                     |       | (31,444                                | )          | (6,633 | ) |
| Change in short-term investments                                                                         |       | 21,071                                 |       | (4,886 | ) |
| Net cash used in investing activities                                                                    |       | (3,408                                 | )          | (4,984 | ) |
|                                                                                                     |       |                                   |       |   |   |
| **Net increase (decrease) in cash**                                                                      |       | 2,679                                  |       | (3 | ) |
| **Cash at beginning of period**                                                                          |       | 10,532                                 |       | 23,456 |   |
| **Cash at end of period**                                                                                |       | $                                      | 13,211     |   | $ | 23,453 |   |

##  

See notes to condensed financial statements.

 

5

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**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

## **1.   Basis of Presentation**

 

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 March 31, 2005, and for thethree-month periods ended March 31, 2005 and 2004, 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 theyear ended December 31, 2004.  Theresults of operations for the interim periods should not be consideredindicative of results to be expected for the full year.

 

## **Pending accounting standard**

##  

*Financial AccountingStandards Board Staff Position re. Emerging Issues Task Force Issue 03-1-a,Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,“The Meaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments” (“FSP EITF Issue 03-1-a”).*

 

In September 2004, the Financial Accounting Standards Board (“FASB”)issued proposed FSP EITF 03-1-a to address the application ofparagraph 16 of Emerging Issues Task Force Issue No. 03-1, “TheMeaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments”*(“*EITF Issue 03-1”)to debt securities that are impaired because of increases in interest rates,and/or sector spreads.  Thereafter, inconnection with its decision to defer the effective date of paragraphs 10–20 ofEITF 03-1 through the issuance of FSP EITF 03-1-1, “EffectiveDate of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaningof Other-Than-Temporary Impairment and Its Application to Certain Investments”(“FSP EITF Issue 03-1-1”), the FASB requested from its constituentscomments on the issues set forth in FSP EITF 03-1-a and the issuesthat arose during the comment letter process for FSP EITF 03-1-b, “EffectiveDate of Paragraph 16 of EITF Issue No. 03-1, The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments”.

 

Due to theuncertainty as to how the outstanding issues will be resolved, the Company isunable to determine the impact of adopting paragraphs 10-20 of EITF 03-1until final implementation guidance is issued. Adoption of paragraphs 10-20 of EITF 03-1 may have amaterial impact on the Company’s Condensed Statements of Operations but is notexpected to have a material impact on the Company’s Condensed Statements ofFinancial Position as fluctuations in fair value are already recorded inaccumulated other comprehensive income.

 

## **2.  Reinsurance**

##  

The Companyhas entered into reinsurance agreements under which it reinsures all of itsbusiness to ALIC or other non-affiliated reinsurers.  Under the agreements, premiums, contractcharges, interest credited to contractholder funds, contract benefits andcertain expenses are reinsured.  TheCompany continues to have primary liability as the direct insurer for risksreinsured.

 

Investmentincome earned on the assets which support contractholder funds and the reservefor life-contingent contract benefits is not included in the condensedfinancial statements as those assets are owned and managed by ALIC or thirdparty reinsurers under terms of the reinsurance agreements.

 

6

----

 

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

 
| ** **                                         | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                 | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                         |       |                                   |       |   |   |
| **Premiums and contract charges**                  |       |                                   |       |   |   |
| Direct                                             |       | $                                      | 197,708    |   | $ | 168,305 |   |
| Assumed - non-affiliate                            |       | 1,126                                  |       | 650 |   |
| Ceded                                              |       |                                   |       |   |   |
| Affiliate                                          |       | (116,833                               | )          | (89,406 | ) |
| Non-affiliate                                      |       | (82,001                                | )          | (79,549 | ) |
| Premiums and contract charges, net of  reinsurance |       | $                                      | —     |   | $ | — |   |

 

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

 
| ** **                                                                                                   | ** ** | **Three months ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                                                                           | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                                                                                   |       |                                   |       |   |   |
| **Interest credited to contractholder funds,  contract benefits and certain other expenses**                 |       |                                   |       |   |   |
| Direct                                                                                                       |       | $                                      | 584,819    |   | $ | 414,452 |   |
| Assumed - non-affiliate                                                                                      |       | 1,420                                  |       | 461 |   |
| Ceded                                                                                                        |       |                                   |       |   |   |
| Affiliate                                                                                                    |       | (454,312                               | )          | (331,422 | ) |
| Non-affiliate                                                                                                |       | (131,927                               | )          | (83,491 | ) |
| Interest credited to contractholder funds,  contract benefits and certain other expenses, net of reinsurance |       | $                                      | —     |   | $ | — |   |

 

Effective January 1,2004, the Company adopted Statement of Position 03-1, “Accounting andReporting by Insurance Enterprises for Certain Nontraditional Long-DurationContracts and for Separate Accounts” (“SOP 03-1”) and, in connectiontherewith, recorded a cumulative effect of change in accounting principle of$26.9 million, after-tax ($41.4 million, pre-tax) that was ceded to ALIC.

 

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

##  

## **Guarantees**

##  

The Company has issued universal lifeinsurance contracts to third parties who finance the premium payments on theuniversal life insurance contracts through a commercial paper program.  The Company has issued a repayment guaranteeon the outstanding commercial paper balance that is fully collateralized by thecash surrender value of the universal life insurance contracts.  At March 31, 2005, the amount due underthe commercial paper program is $301 million and the cash surrender value ofthe policies is $307 million.  Therepayment guarantee expires April 30, 2006.  These contracts are ceded to ALIC under theterms of the reinsurance agreements.

 

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 notexplicitly stated and the contingencies triggering the obligation to indemnifyhave not occurred and are not expected to occur.  Consequently, the maximum 

 

7

----

 

amount of the obligation undersuch indemnifications is not determinable. Historically, the Company has not made any material payments pursuant tothese obligations.

 

The aggregateliability balance related to all guarantees was not material as of March 31,2005.

 

## **Regulation**

##  

The Company is subject to changing social, economic and regulatoryconditions.  Recent state and federalregulatory initiatives and proceedings have included efforts to imposeadditional regulations regarding agent and broker compensation 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.

 

**Legal and Regulatory Proceedings andInquiries**

 

**Background**

 

The Company and certain of its affiliates arenamed as defendants in a number of lawsuits and other legal proceedings arisingout of various aspects of its business. As background to the “Proceedings” sub-section below, please notethe 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 eachmatter, novel legal issues, variations between jurisdictions in which mattersare being litigated, differences in applicable laws and judicialinterpretations, the length of time before many of these matters might beresolved by settlement or through litigation and, in some cases, the timing oftheir resolutions relative to other similar cases brought against othercompanies, the fact that some of these matters 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 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 these matters, plaintiffs seek avariety of remedies including equitable relief in the form of injunctive andother remedies and monetary relief in the form of contractual andextra-contractual damages.  In somecases, the monetary damages sought include punitive damages or are notspecified.  Often more specificinformation beyond the type of relief sought is not available becauseplaintiffs have not requested more specific relief in their courtpleadings.  In our experience, monetarydemands in plaintiffs’ court pleadings bear little relation to the ultimateloss, if any, to the Company.

 

•      For the reasons specified above, it is notpossible to make meaningful estimates of the amount or range of loss that couldresult from these matters at this time. The Company reviews these matters on an on-going basis and follows theprovisions of Statement of Financial Accounting Standards 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.

 

•      In the opinion of the Company’smanagement, while some of these matters may be material to the Company’soperating results for any particular period if an unfavorable outcome results,none will have a material adverse effect on the financial condition of theCompany.

 

**Proceedings**

 

Legal proceedings involving Allstate agencies andAIC may impact the Company, even when the Company is not directly involved,because the Company sells its products through a variety of distribution 

 

8

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channels including Allstateagencies. Consequently, information about the more significant of theseproceedings is provided below.

 

## **AIC is defending various lawsuits involving workerclassification issues. A putative nationwide class action filed by formeremployee agents includes a worker classification issue; these agents arechallenging certain amendments to the Agents Pension Plan and are seeking tohave exclusive agent independent contractors treated as employees for benefitpurposes.  This matter was dismissed withprejudice by the trial court, was the subject of further proceedings on appeal,and has been reversed and remanded to the trial court in April 2005.  AIC has been vigorously defending this andvarious other worker classification lawsuits. The outcome of these disputes iscurrently uncertain.**

##  

**AIC is defendingcertain matters relating to its agency program reorganization announced in1999. These matters include a lawsuit filed in December 2001 by the U.S.Equal Employment Opportunity Commission (“EEOC”) alleging retaliation under federalcivil rights laws, a class action filed in August 2001 by former employeeagents alleging retaliation and age discrimination under**the Age Discrimination in Employment Act, breach of contract andERISA violations, and a lawsuit filed in October 2004 by the EEOC allegingage discrimination with respect to a policy limiting the rehire of agentsaffected by the agency program reorganization. AIC is also defending another action, in which a class was certified in June 2004,filed by former employee agents who terminated their employment prior to theagency program reorganization.  Theseplaintiffs have asserted claims under ERISA, and are seeking benefits providedin connection with the reorganization. In late March 2004, in the first EEOC lawsuit and class actionlawsuit, the trial court issued a memorandum and order that, among otherthings, certified classes of agents, including a mandatory class of agents whohad signed a release, for purposes of effecting the court’s declaratoryjudgment that the release is voidable at the option of the release signer.  The court also ordered that an agent whovoids the release must return to AIC “any and all benefits received by the[agent] in exchange for signing the release.” The court also “concluded that, on the undisputed facts of record, thereis no basis for claims of age discrimination.” The EEOC and plaintiffs have asked the court to clarify and/orreconsider its memorandum and order.  Thecase otherwise remains pending.  A putative nationwide class action has also beenfiled by former employee agents alleging various violations of ERISA.  This matter was dismissed with prejudice bythe trial court, was the subject of further proceedings on appeal, and has beenreversed and remanded to the trial court in April 2005.  In these matters,plaintiffs seek compensatory and punitive damages, and equitable relief.  AIChas been vigorously defending these lawsuits and other matters related to itsagency program reorganization. In addition, AIC has been defending certainmatters relating to its life agency program reorganization announced in 2000.These matters have been the subject of an investigation by the EEOC withrespect to allegations of age discrimination and retaliation and conciliationdiscussions between Allstate and the EEOC.  The outcome 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 services products.  The Corporation and its subsidiaries haveresponded and will continue to respond to these inquiries.**

##  

## **Various other legal and regulatory actions are currentlypending that involve the Company and specific aspects of its conduct ofbusiness. Like other members of the insurance industry, the Company is thetarget of a number of lawsuits and proceedings, some of which involve claimsfor substantial or indeterminate**

## ** **

9

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## **amounts. These actions arebased on a variety of issues and target a range of the company’s practices. Theoutcome of these disputes is currently unpredictable.  However, at this time, based on their presentstatus** and the existence of the reinsuranceagreements with ALIC related to policy liabilities, it is the opinion of management that the ultimateliability, if any, in one or more of the actions described in this “OtherMatters” subsection in excess of amounts currently reserved is notexpected to have a material effect on the results of operations, liquidity orfinancial condition of the Company.

##  

## **4.   Other Comprehensive Income**

##  

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

 
| ** **                                                   | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | ** **                            | ** ** | ** ** | ** ** | **After-** | ** ** | ** ** | ** ** | ** ** | ** ** | **After-** | ** ** |
| **(in thousands)**                                           | ** ** | **Pretax**                            | ** ** | **Tax** | ** ** | **tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **tax** | ** ** |
| ** **                                                   | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Unrealized capital gains and losses*                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) arising  during the period |       | $                                     | (5,548     | ) | $ | 1,941 |   | $ | (3,607 | ) | $ | 3,742 |   | $ | (1,310 | ) | $ | 2,432 |   |
| Less: reclassification adjustments                           |       | (95                                   | )          | 33 |   | (62 | ) | — |   | — |   | — |   |
| Unrealized net capital gains (losses)                        |       | (5,453                                | )          | 1,908 |   | (3,545 | ) | 3,742 |   | (1,310 | ) | 2,432 |   |
| Other comprehensive income (loss)                            |       | $                                     | (5,453     | ) | $ | 1,908 |   | (3,545 | ) | $ | 3,742 |   | $ | (1,310 | ) | 2,432 |   |
|                                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                   |       |                                  |       |   |   | 2,126 |   |   |   |   |   | 1,806 |   |
|                                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss)                                  |       |                                  |       |   |   | $ | (1,419 | ) |   |   |   |   | $ | 4,238 |   |

##  

10

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**Item2.  MANAGEMENT’S DISCUSSION****AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2005 AND 2004**

 

## **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. Item1. contained herein, and with the discussion, analysis, financial statementsand notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8.of the Lincoln Benefit Life Company Annual Report on Form 10-K for2004.  We operate as a single segmententity, based on the manner in which financial information is used internallyto evaluate performance and determine the allocation of resources.

 

## **RESULTS OF OPERATIONS**

 
| ** **                        | ** ** | **Three months ended** | ** ** |
|-----------------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **March 31,**     | ** ** |
| **(in thousands)**                | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                              |       |                   |       |   |   |
| Net investment income             |       | $                      | 3,361      |   | $ | 2,774 |   |
| Realized capital gains and losses |       | (95                    | )          | — |   |
| Income tax expense                |       | 1,140                  |       | 968 |   |
| Net income                        |       | $                      | 2,126      |   | $ | 1,806 |   |

 

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.

 

**Netincome** increased $320 thousand to $2.1 million in thefirst quarter of 2005 from $1.8 million in the same period last year due toincreases in net investment income, partially offset by higher income taxexpense and realized capital losses recorded in the current period.

 

**Netinvestment income** increased 21.2% in the first quarterof 2005 compared to the same period in 2004, primarily due the effect of higherportfolio balances, partially offset by lower portfolio yields.  Higher portfolio balances resulted from acapital contribution from ALIC in 2004 and the investment of cash flows fromoperating activities.  Lower portfolioyields were primarily due to purchases, including reinvestments, of fixedincome securities with yields lower than the current portfolio average.

 

**Realizedcapital losses** of $95 thousand were recorded in thefirst quarter of 2005 as a result of sales of fixed income securities. Therewere no realized capital gains or losses in the first quarter of 2004.

 

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**FINANCIALPOSITION**

 
| ** **                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(in thousands)**                             | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Fixed income securities (1)                    |       | $                  | 260,860    |                  | $          | 242,799 |   |
| Short-term                                     |       | 9,337              |       | 30,408                |       |
| Total investments                              |       | $                  | 270,197    |                  | $          | 273,207 |   |
|                                           |       |               |       |                  |       |
| Cash                                           |       | $                  | 13,211     |                  | $          | 10,532 |   |
|                                           |       |               |       |                  |       |
| Reinsurance recoverable from ALIC              |       | 17,522,751         |       | 17,083,056            |       |
|                                           |       |               |       |                  |       |
| Reinsurance recoverable from non-affiliates    |       | 907,436            |       | 839,738               |       |
|                                           |       |               |       |                  |       |
| Contractholder funds                           |       | 16,669,665         |       | 16,231,489            |       |
|                                           |       |               |       |                  |       |
| Reserve for life-contingent contract  benefits |       | 1,737,909          |       | 1,671,729             |       |
|                                           |       |               |       |                  |       |
| Separate Accounts assets and liabilities       |       | 2,365,229          |       | 2,368,312             |       |

 

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(1)  Fixed income securities arecarried at fair value.  Amortized costbasis for these securities was $257.9 million and $234.4 million at March 31,2005 and December 31, 2004, respectively.

 

Totalinvestments decreased to $270.2 million at March 31, 2005 from $273.2million at December 31, 2004 primarily due to decreased net unrealizedgains on fixed income securities, partially offset by positive cash flows fromoperating activities.

 

At March 31, 2005, all securities in the fixed income securitiesportfolio were rated investment grade, which is defined as a security having arating from the National Association of Insurance Commissioners (“NAIC”) of 1or 2; a rating of Aaa, Aa, A or Baa from Moody’s or a rating of AAA, AA, A orBBB from S&P, Fitch or Dominion; or a comparable internal rating if anexternally provided rating is not available.

 

The unrealized net capital gains on fixed income securities at March 31,2005 were $3.0 million, a decrease of $5.5 million or 64.7% since December 31,2004.  The net unrealizedgain was comprised of $6.8 million of unrealized gains and $3.8 million ofunrealized losses at March 31, 2005. This is compared to a net unrealized gain for the fixed income portfoliototaling $8.4 million at December 31, 2004, comprised of $9.7 million ofunrealized gains and $1.3 million of unrealized losses.  Of the gross unrealized losses in the fixedincome portfolio, 46.0% were concentrated in the corporate fixed incomeportfolio.  The losses were primarilycomprised of securities in the consumer goods, capital goods and utilitiessectors.  The gross unrealized losses inthese sectors were primarily interest rate related.  While we expect eventual recovery of thesesecurities and the related sectors, we included every security in our portfoliomonitoring process.

 

Our portfoliomonitoring process identifies and evaluates fixed income securities whose carryingvalue may be other than temporarily impaired. The process includes a quarterly review of all securities using ascreening process to identify those securities whose fair value compared toamortized cost is below established thresholds for certain time periods, orwhich are identified through other monitoring criteria such as ratingsdowngrades or payment defaults.

 

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.

 

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As of March 31,2005 and December 31, 2004, we had no securities categorized as  “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  March 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                              |       |                                   |       |   |   |
| Dispositions                                      |       | $                                      | (95        | ) | $ | — |   |
| Realized capital gains and losses, pretax         |       | (95                                    | )          | — |   |
| Income tax benefit                                |       | 33                                     |       | — |   |
| **Realized capital gains and losses,  after-tax** |       | $                                      | (62        | ) | $ | — |   |

 

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 $16.67 billion at March 31, 2005, from $16.23 billionat December 31, 2004 as a result of deposits from fixed annuities andinterest-sensitive life policies and interest credited to contractholder funds*,* partially offset by surrenders,withdrawals, benefit payments and contract charges.  The reserve for life-contingent contractbenefits increased $66.2 million to $1.74 billion at March 31, 2005resulting from sales of immediate annuities and other life-contingent products,partially offset by benefits paid and policy lapses.  Reinsurance recoverable from ALIC andreinsurance recoverable from non-affiliates increased correspondingly by $439.7million and $67.7 million, respectively, because all contractholder obligationsare 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 the passingof the agreed-upon portion of risk to the reinsurers in exchange for negotiatedreinsurance premium payments.

 

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## **CAPITALRESOURCES AND LIQUIDITY**

##  

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

 
| **(in thousands)**                                            | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Common stock, additional capital paid-in  and retained income |       | $                        | 261,883    |                        | $          | 259,757 |   |
| Accumulated other comprehensive income                        |       | 1,934                    |       | 5,479                       |       |
| Total shareholder’s equity                               |       | $                        | 263,817    |                        | $          | 265,236 |   |

 

*Shareholder’s equity*decreased in the first quarter of 2005 when compared to December 31, 2004,as net income was more than offset by a decline in unrealized net capitalgains.

 

**FinancialRatings and Strength** We share the insurance financialstrength ratings of our parent, ALIC, as our business is reinsured toALIC.   ALIC’s ratings are influenced bymany factors including operating and financial performance, asset quality,liquidity, asset/liability management, overall portfolio mix, financialleverage (i.e., debt), exposure to risks such as the current level of operatingleverage.  There have been no changes inALIC’s insurance financial strength ratings since December 31, 2004.

 

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## **Item 4.**        Controls andProcedures

##  

*Evaluation of Disclosure Controls and Procedures. *We maintaindisclosure controls and procedures as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934. Under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, weconducted an evaluation of the effectiveness of our disclosure controls andprocedures as of the end of the period covered by this report.  Based upon this evaluation, the principalexecutive officer and the principal financial officer concluded that ourdisclosure controls and procedures are effective in providing reasonableassurance that material information required to be disclosed in our reportsfiled with or submitted to the Securities and Exchange Commission under theSecurities Exchange Act is made known to management, including the principalexecutive officer and the principal financial officer, as appropriate to allowtimely decisions regarding required disclosure.

 

*Changes in Internal Control over Financial Reporting. *During the fiscalquarter ended March 31, 2005, 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.

 

## **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 “Legal andRegulatory Proceedings and Inquires” in Note 3 of the Company’s CondensedFinancial Statements in Part I, Item 1, of this Form 10-Q.

 

## **Item 6. Exhibits**

##  

(a) Exhibits

 

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

 

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## **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)                                                               |
| May 6, 2005 |                                                                       |
|             |                                                                       |
|             | By                                                                         | /s/ Samuel  H. Pilch |   |
|             |                                                                       |
|             | Samuel H.  Pilch                                                           |
|             | Controller                                                                 |
|             | (chief  accounting officer and duly  authorized officer of the registrant) |

 

16

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| **Exhibit No.** | ** ** | **Description** |
|----------------------|------------|-----------------|
| 10.1                 |       |            | Amended and Restated Service and Expense Agreement between Allstate  Insurance Company, The Allstate Corporation and certain affiliates, effective  January 1, 2004. Incorporated herein by reference to Exhibit 10.1 to Allstate  Life Insurance Company's Quarterly Report on Form 10-Q for quarter ended  March 31, 2005. |
|                 |       |            |   |
| 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

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