**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

----

**FORM 10-Q**

 

**TheRegistrant meets the conditions set forth in General Instruction H (1)(a) and(b) of Form 10-Q and is therefore filing this Form with thereduced disclosure format.**

 

**x QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009**

 

**OR**

 

**oTRANSITION REPORT PURSUANT 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 its charter)

 

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

 

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

 

**Indicate 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  ****x****   No  ****o**

 

**Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (****§****232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).**

 

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

 

**Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  See definitionof “large accelerated filer,” “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act.**

 
| **Large accelerated filer**                       | ** ** | ** ** | **Accelerated filer** | ** ** | ** ** | **Non-accelerated filer** | ** ** | ** ** | **Smaller reporting company** |   |
|---------------------------------------------------|------------|------------|-----------------------|------------|------------|---------------------------|------------|------------|-------------------------------|--------|
| o                                                 |       |       | o                     |       |       | x                         |       |       | o                             |   |
| **(Do not check if a smaller reporting company)** |

 

**Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).**

 

**Yes  ****o****   No  ****x**

 

**As of May 12, 2009, the Registrant had 25,000common shares, $100 par value, outstanding, all of which are held by AllstateLife Insurance Company.**

 

 

 

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

**INDEXTO QUARTERLY REPORT ON FORM 10-Q**

##### **March 31, 2009**

 
| **PART I.**  | **FINANCIAL  INFORMATION**                                                                                      | ** ** |
|-------------------|-----------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                            |       |
| Item 1.           | Financial Statements                                                                                            |       |
|              |                                                                                                            |       |
|              | Condensed Statements of  Operations for the Three-Month Periods Ended March 31, 2009 and 2008  (unaudited) | 1          |
|              |                                                                                                            |       |
|              | Condensed Statements of  Financial Position as of March 31, 2009 (unaudited) and  December 31, 2008   | 2          |
|              |                                                                                                            |       |
|              | Condensed Statements of  Cash Flows for the Three-Month Periods EndedMarch 30, 2009 and 2008  (unaudited)  | 3          |
|              |                                                                                                            |       |
|              | Notes to Condensed  Financial Statements (unaudited)                                                            | 4          |
|              |                                                                                                            |       |
| Item 2.           | Management’s Discussion  and Analysis of Financial Condition and Results ofOperations                      | 14         |
|              |                                                                                                            |       |
| Item 4.           | Controls and Procedures                                                                                         | 21         |
|              |                                                                                                            |       |
| **PART II.** | **OTHER  INFORMATION**                                                                                          | ** ** |
|              |                                                                                                            |       |
| Item 1.           | Legal Proceedings                                                                                               | 22         |
|              |                                                                                                            |       |
| Item 1A.          | Risk Factors                                                                                                    | 22         |
|              |                                                                                                            |       |
| Item 6.           | Exhibits                                                                                                        | 22         |
|              |                                                                                                            |       |

 

----

 

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

####  

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

####  

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

####  

**CONDENSED STATEMENTS OF OPERATIONS**

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **March 31,**               | ** ** |
| **($ in thousands)**                       | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| ** **                                           | ** ** | **(Unaudited)**                  | ** ** |
| **Revenues**                                         |       |                             |       |   |   |
| Net investment income                                |       | $                                | 2,655      |   | $ | 3,640 |   |
| Realized capital gains and losses                    |       | 799                              |       | (254 | ) |
|                                                 |       |                             |       |   |   |
| **Income from operations before income tax expense** |       | 3,454                            |       | 3,386 |   |
| Income tax expense                                   |       | 1,192                            |       | 1,161 |   |
| **Net income**                                       |       | $                                | 2,262      |   | $ | 2,225 |   |

 

See notes to condensedfinancial statements.

 

1

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**LINCOLN BENEFIT LIFE COMPANY**

 

**CONDENSED STATEMENTS OF FINANCIALPOSITION**

 
| ** **                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **($ in thousands, except par value data)**                               | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ** **                                                                                              | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                                              |       |               |       |                  |       |
| Investments                                                                                             |       |               |       |                  |       |
| Fixed income securities, at fair value (amortized cost $292,603 and  $229,667)                          |       | $                  | 293,507    |                  | $          | 229,328 |   |
| Short-term, at fair value (amortized cost $21,705 and $80,705)                                          |       | 21,705             |       | 80,703                |       |
| Total investments                                                                                       |       | 315,212            |       | 310,031               |       |
|                                                                                                    |       |               |       |                  |       |
| Cash                                                                                                    |       | 2,310              |       | 3,145                 |       |
| Reinsurance recoverable from Allstate Life Insurance Company                                            |       | 18,643,580         |       | 18,791,710            |       |
| Reinsurance recoverable from non-affiliates                                                             |       | 1,756,112          |       | 1,613,685             |       |
| Other assets                                                                                            |       | 105,841            |       | 113,637               |       |
| Separate Accounts                                                                                       |       | 1,652,658          |       | 1,823,163             |       |
| **Total assets**                                                                                        |       | $                  | 22,475,713 |                  | $          | 22,655,371 |   |
|                                                                                                    |       |               |       |                  |       |
| **Liabilities**                                                                                         |       |               |       |                  |       |
| Contractholder funds                                                                                    |       | $                  | 17,756,085 |                  | $          | 17,787,376 |   |
| Reserve for life-contingent contract benefits                                                           |       | 2,625,582          |       | 2,581,186             |       |
| Unearned premiums                                                                                       |       | 23,052             |       | 24,169                |       |
| Deferred income taxes                                                                                   |       | 452                |       | —                |       |
| Payable to affiliates, net                                                                              |       | 27,743             |       | 36,029                |       |
| Current income taxes payable                                                                            |       | 8,192              |       | 7,017                 |       |
| Other liabilities and accrued expenses                                                                  |       | 80,317             |       | 97,870                |       |
| Separate Accounts                                                                                       |       | 1,652,658          |       | 1,823,163             |       |
| **Total liabilities**                                                                                   |       | 22,174,081         |       | 22,356,810            |       |
| **Commitments and Contingent Liabilities (Note 5)**                                                     |       |               |       |                  |       |
|                                                                                                    |       |               |       |                  |       |
| **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                                                                                         |       | 118,545            |       | 116,283               |       |
| Accumulated other comprehensive income (loss):                                                          |       |               |       |                  |       |
| Unrealized net capital gains and losses                                                                 |       | 587                |       | (222                  | )          |
| **Total accumulated other comprehensive income  (loss)**                                                |       | 587                |       | (222                  | )          |
| **Total shareholder’s equity**                                                                     |       | 301,632            |       | 298,561               |       |
| **Total liabilities and shareholder’s equity**                                                     |       | $                  | 22,475,713 |                  | $          | 22,655,371 |   |

 

See notes to condensedfinancial statements.

 

2

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

####  

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

 
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **($ in thousands)**                                                                           | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| ** **                                                                                               | ** ** | **(Unaudited)**                                  | ** ** |
| **Cash flows from operating activities**                                                                 |       |                                             |       |   |   |
| Net income                                                                                               |       | $                                                | 2,262      |   | $ | 2,225 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                       |       |                                             |       |   |   |
| Amortization and other non-cash items                                                                    |       | 179                                              |       | 36 |   |
| Realized capital gains and losses                                                                        |       | (799                                             | )          | 254 |   |
| Changes in:                                                                                              |       |                                             |       |   |   |
| Reserve for life-contingent contract benefits and contractholder  funds, net of reinsurance recoverables |       | 18,808                                           |       | 11,664 |   |
| Income taxes                                                                                             |       | 1,192                                            |       | 1,159 |   |
| Receivable/payable to affiliates, net                                                                    |       | (8,286                                           | )          | (10,610 | ) |
| Other operating assets and liabilities                                                                   |       | (10,874                                          | )          | (9,021 | ) |
| Net cash provided by (used in) operating activities                                                      |       | 2,482                                            |       | (4,293 | ) |
|                                                                                                     |       |                                             |       |   |   |
| **Cash flows from investing activities**                                                                 |       |                                             |       |   |   |
| Proceeds from sales of fixed income securities                                                           |       | 16,622                                           |       | — |   |
| Collections on fixed income securities                                                                   |       | 4,604                                            |       | 6,549 |   |
| Purchases of fixed income securities                                                                     |       | (83,540                                          | )          | — |   |
| Change in short-term investments                                                                         |       | 58,997                                           |       | (10,316 | ) |
| Net cash used in investing activities                                                                    |       | (3,317                                           | )          | (3,767 | ) |
|                                                                                                     |       |                                             |       |   |   |
| **Net decrease in cash**                                                                                 |       | (835                                             | )          | (8,060 | ) |
| **Cash at beginning of period**                                                                          |       | 3,145                                            |       | 18,612 |   |
| **Cash at end of period**                                                                                |       | $                                                | 2,310      |   | $ | 10,552 |   |

 

See notes tocondensed financial statements.

 

3

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**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

## **1.   General**

** **

## **Basis of Presentation**

 

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

 

The condensed financialstatements and notes as of March 31, 2009, and for the three-month periodsended March 31, 2009 and 2008 are unaudited.  The condensed financial statements reflectall adjustments (consisting only of normal recurring accruals) which are, inthe opinion of management, necessary for the fair presentation of the financialposition, results of operations and cash flows for the interim periods.  These condensed financial statements andnotes should be read in conjunction with the financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2008.  Theresults of operations for the interim periods should not be consideredindicative of results to be expected for the full year.

 

To conform to the 2009presentation, certain amounts in the prior year condensed financial statementsand notes have been reclassified.

 

## **Adoptedaccounting standards**

 

*Statement of Financial Accounting Standards No. 157,Fair Value Measurements (“SFAS No. 157”)*

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,which redefines fair value as the price that would be received to sell an assetor paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date, establishes a framework for measuringfair value in accounting principles generally accepted in the United States ofAmerica (“GAAP”), and expands disclosures about fair value measurements.  SFAS No. 157 establishes a three-levelhierarchy for fair value measurements based upon the nature of the inputs tothe valuation of an asset or liability. SFAS No. 157 applies where other accounting pronouncements requireor permit fair value measurements.  In February 2008,the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASBStatement No. 157” (“FSP FAS 157-2”), which permits the deferral of theeffective date of SFAS No. 157 to fiscal years beginning after November 15,2008 for all non-financial assets and liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis.  The Company adopted theprovisions of SFAS No. 157 for financial assets and financial liabilitiesrecognized or disclosed at fair value on a recurring or non-recurring basis asof January 1, 2008.  Consistent withthe provisions of FSP FAS 157-2, the Company adopted SFAS No. 157 fornon-financial assets and liabilities measured at fair value on a non-recurringbasis on January 1, 2009.  In October 2008,the FASB issued FASB Staff Position No. FAS 157-3, “Determining the FairValue of a Financial Asset When the Market for That Asset Is Not Active” (“FSPFAS 157-3”), which clarifies the application of SFAS 157 in a market that isnot active.  The Company adopted theprovisions of FSP FAS 157-3 as of September 30, 2008.  The adoption of SFAS No. 157 and FSP FAS157-3 did not have a material effect on the Company’s results of operations orfinancial position (see Note 2).

 

*SFAS No. 161, Disclosures about Derivative Instrumentsand Hedging Activities - an amendment of FASB Statement No. 133 (“SFAS No. 161”)*

 

In March 2008, theFASB issued SFAS No. 161, which amends and expands the disclosurerequirements for derivatives currently accounted for in accordance with SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). The new disclosures are designed to enhance the understanding of how and why anentity uses derivative instruments and how derivative instruments affect anentity’s financial position, results of operations, and cash flows.  Thestandard requires, on a quarterly basis, quantitative disclosures about thepotential cash outflows associated with the triggering of credit-risk-contingentfeatures, if any; tabular disclosures about the classification and fair valueamounts of derivative instruments reported in the statement of financialposition; disclosure of the location and amount of gains and losses onderivative instruments reported in the statement of operations; and qualitativeinformation about how and why an entity uses derivative instruments and howderivative instruments and related hedged items affect the entity’s financialstatements.  SFAS No. 161 is effective for fiscal periods beginningafter November 15, 2008, and is to be applied on a prospective basisonly.  SFAS No. 161 affects disclosures and therefore implementationhad no impact on the Company’s results of operations or financial position (seeNote 3).

 

4

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**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

*SFAS No. 159, The Fair Value Option for FinancialAssets and Financial Liabilities - Including an amendment of FASB Statement No. 115(“SFAS No. 159”)*

 

In February 2007,the FASB issued SFAS No. 159 which provides reporting entities, on anongoing basis, an option to report selected financial assets, includinginvestment securities, and financial liabilities, including most insurance contracts,at fair value through earnings.  SFAS No. 159establishes presentation and disclosure requirements designed to facilitatecomparisons between companies that choose different measurement alternativesfor similar types of financial assets and liabilities.  The standard also requires additionalinformation to aid financial statement users’ understanding of the impacts of areporting entity’s decision to use fair value on its earnings and requiresentities to display, on the face of the statement of financial position, thefair value of those assets and liabilities for which the reporting entity haschosen to measure at fair value.  SFAS No. 159was effective as of the beginning of a reporting entity’s first fiscal yearbeginning after November 15, 2007. The Company did not apply the fair value option to any existingfinancial assets or liabilities as of January 1, 2008 and did not elect toapply the option prospectively to any financial assets or liabilities acquiredsubsequent to the effective date.  Consequently,the adoption of SFAS No. 159 had no impact on the Company’s results ofoperations or financial position.

 

**Pendingaccounting standards**

 

*FSP No. FAS 115-2 and FAS 124-2, Recognition andPresentation of Other-Than-Temporary Impairments (“FSP FAS 115-2 and FAS 124-2”)*

 

In April 2009, theFASB issued FSP FAS 115-2 and FAS 124-2 which amends SFAS No. 115 andSFAS No. 124 “Accounting for Certain Investments Held by Not-for-ProfitOrganizations”, to provide recognition guidance for debt securities classifiedas available-for-sale and held-to-maturity and subject to other-than-temporaryimpairment (“OTTI”) guidance.  If thefair value of a debt security is less than its amortized cost basis at thereporting date, an entity shall assess whether the impairment is an OTTI.  FSP FAS 115-2 and FAS 124-2 definesthe situations under which an OTTI should be considered to have occurred.  When an entity intends to sell the securityor more likely than not it will be required to sell the security beforerecovery of its amortized cost basis, an OTTI is recognized in earnings.  When the entity does not expect to recoverthe entire amortized cost basis of the security even if it does not intend tosell the security, the entity must consider a number of factors and use itsbest estimate of the present value of cash flows expected to be collected fromthe debt security in order to determine whether a credit loss exists, and theperiod over which the debt security is expected to recover.  The amount of total OTTI related to thecredit loss shall be recognized in earnings while the amount of the total OTTIrelated to other factors shall be recognized in other comprehensiveincome.  Both the statement of operationsand the statement of accumulated other comprehensive income are required todisplay the OTTI related to credit losses and the OTTI related to other factorson the face of each statement.

 

FSP FAS 115-2 andFAS 124-2 expands the disclosure requirements of SFAS No. 115 (forboth debt and equity securities) and requires a more detailed, risk-orientedbreakdown of security types and related information, and requires the annualdisclosures to be made for interim periods. In addition, new disclosures are required to help users of financialstatements understand the significant inputs used in determining a credit lossas well as a rollforward of that amount each period.  FSP FAS 115-2 and FAS 124-2 iseffective for interim periods ending after June 15, 2009 with earlyadoption permitted in conjunction with the early adoption of FSP No. FAS157-4, “Determining Fair Value When the Volume and Level of Activity for theAsset or Liability Have Significantly Decreased and Identifying TransactionsThat Are Not Orderly” (“FSP FAS 157-4”). The disclosures are not required for earlier periods presented forcomparative purposes.  FSP FAS 115-2and FSP 124-2 shall be applied to existing and new investments held by anentity as of the beginning of the interim period in which it is adopted.  A cumulative effect adjustment to the openingbalance of retained earnings will be recognized for debt securities with anexisting OTTI at the beginning of the interim period in which the FSP isadopted.  The Company will adopt theprovisions of FSP FAS 115-2 and FAS 124-2 as of April 1,2009.  The specific requirements of theFSP applicable to the Company’s portfolio are being interpreted, studied andassessed.  The potential cumulativeeffect to retained income as of April 1, 2009 is not yet reliablyestimable since the Company is still assessing the requirements; however, theCompany expects that it will not be material.

 

5

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**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

*FSP FAS 157-4, Determining Fair Value When the Volume andLevel of Activity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly (“FSP FAS 157-4”)*

 

In April 2009, theFASB issued FSP FAS 157-4, which amends SFAS No. 157, to provideadditional guidance for estimating fair value when the volume and level ofactivity for an asset or liability have significantly decreased. Guidance onidentifying circumstances that indicate a transaction is not orderly is alsoprovided.  If it is concluded that therehas been a significant decrease in the volume and level of market activity foran asset or liability in relation to normal market activity for an asset orliability, transactions or quoted prices may not be determinative of fairvalue, and further analysis of the transactions or quoted prices may beneeded.   A significant adjustment to thetransactions or quoted prices may be necessary to estimate fair value which maybe determined based on the point within a range of fair value estimates that ismost representative of fair value under the current market conditions.  Determination of whether the transaction isorderly is based on the weight of the evidence. The disclosure requirements of SFAS No. 157 are increased sincedisclosures of the inputs and valuation technique(s) used to measure fairvalue and a discussion of changes in valuation techniques and related inputsduring the reporting period are required.

 

FSP FAS 157-4defines the disclosures required for major categories by SFAS No. 157 tobe the major security types as defined in FASB Statement No. 115.  FSP FAS 157-4 does not requiredisclosures for earlier periods presented for comparative purposes at initialadoption.  FSP FAS 157-4 iseffective for interim periods ending after June 15, 2009 with early adoptionpermitted but only in conjunction with the early adoption of FSP FAS 115-2and FAS 124-2.  Revisions resultingfrom a change in valuation technique or its application shall be accounted foras a change in accounting estimate and disclosed, along with a quantificationof the total effect of the change in valuation technique and related inputs, ifpracticable, by major category.  TheCompany will adopt the provisions of FSP FAS 157-4 as of April 1,2009.  Quantification of the estimatedeffects of the application of the FSP FAS 157-4 requirements will be basedon the market conditions and portfolio holdings at the time of adoption and aretherefore not yet reliably estimable; however, the Company does not expect amaterial impact to its results of operations or financial position uponadoption.

 

*FSP No. FAS 107-1 and APB 28-1, InterimDisclosures about Fair Value of Financial Instruments (“FSP FAS   107-1 and APB 28-1”)*

 

In April 2009, theFASB issued FSP FAS 107-1 and APB 28-1 which amends FASB Statement No. 107,“Disclosures about Fair Value of Financial Instruments”, to require disclosuresabout fair value of financial instruments for interim reporting periods as wellas in annual financial statements; and amends Accounting Principals BoardOpinion No. 28, “Interim Financial Reporting”, to require thosedisclosures in summarized financial information at interim reportingperiods.  FSP FAS 107-1 andAPB 28-1 is effective for interim periods ending after June 15,2009.  The disclosures are not required forearlier periods presented for comparative purposes and earlier adoption ispermitted in conjunction with the early adoption of FSP FAS 115-2 andFAS 124-2 and FSP FAS 157-4. The Company will adopt the provisions of FSP FAS 107-1 andAPB 28-1 for second quarter 2009. FSP FAS 107-1 and APB 28-1 affects disclosures and thereforeimplementation will not impact the Company’s results of operations or financialposition.

 

**2.  Fair Value of Assets and Liabilities**

 

The Company adopted theprovisions of SFAS No. 157 as of January 1, 2008 for its financialassets and liabilities that are measured at fair value and as of January 1,2009 for its non-financial assets and liabilities measured at fair value on anon-recurring basis.  SFAS No. 157established a hierarchy for inputs used in determining fair value that maximizethe use of observable inputs and minimizes the use of unobservable inputs byrequiring that observable inputs be used when available.

 

Assets and liabilitiesrecorded on the Condensed Statements of Financial Position at fair value arecategorized in the fair value hierarchy based on the observability of inputs tothe valuation techniques as follows:

 

*Level 1:** *Assets and liabilities whose values are based onunadjusted quoted prices for identical assets or liabilities in an activemarket that the Company can access.

 

6

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**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

*Level 2:*** **Assets and liabilities whose values are based on thefollowing:

 

a)  Quoted prices for similar assets orliabilities in active markets;

b)  Quoted prices for identical or similar assetsor liabilities in non-active markets; or

c)  Valuation models whose inputs are observable,directly or indirectly, for substantially the full term of the asset orliability.

 

*Level 3:** *Assets and liabilities whose values are based onprices or valuation techniques that require inputs that are both unobservableand significant to the overall fair value measurement.  These inputs reflect the Company’s estimatesof the assumptions that market participants would use in valuing the assets andliabilities.

 

The availability ofobservable inputs varies by instrument. In situations where fair value is based on internally developed pricingmodels or inputs that are unobservable in the market, the determination of fairvalue requires more judgment.  The degreeof judgment exercised by the Company in determining fair value is typicallygreatest for instruments categorized in Level 3.  In many instances, valuation inputs used tomeasure fair value fall into different levels of the fair valuehierarchy.  The category level in thefair value hierarchy is determined based on the lowest level input that issignificant to the fair value measurement in its entirety.  The Company uses prices and inputs that arecurrent as of the measurement date, including during periods of marketdisruption.  In periods of marketdisruption, the ability to observe prices and inputs may be reduced for many instruments.  This condition could cause an instrument tobe reclassified from Level 1 to Level 2, or from Level 2 to Level 3.  As of March 31, 2009, 8.8% of totalassets are measured at fair value and 0.4% of total liabilities are measured atfair value.

 

The following tablesummarizes the Company’s assets and liabilities measured at fair value on arecurring basis as of March 31, 2009:

 
| ** **                                | ** ** | **Quoted prices  in active  markets for  identical assets** | ** ** | **Significant  other  observable  inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of  March 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|
| **($ in thousands)**            | ** ** | **(Level 1)**                                                              | ** ** | **(Level 2)**                         | ** ** | **(Level 3)**                    | ** ** | **2009**                                    | ** ** |
| **Assets:**                               | ** ** | ** **                                                                      | ** ** | ** **                                 | ** ** | ** **                            | ** ** | ** **                                  | ** ** |
| Fixed income securities                   |       | $                                                                               | 47,411     |                                       | $          | 244,453                               |       | $                                           | 1,643      |   | $ | 293,507 |   |
| Short-term investments                    |       | 21,655                                                                          |       | 50                                         |       | —                                |       | 21,705                                      |       |
| Separate account assets                   |       | 1,652,658                                                                       |       | —                                     |       | —                                |       | 1,652,658                                   |       |
| **Total recurring basis assets**          |       | 1,721,724                                                                       |       | 244,503                                    |       | 1,643                                 |       | 1,967,870                                   |       |
|                                      |       |                                                                            |       |                                       |       |                                  |       |                                        |       |
| **Total assets at fair value**            |       | $                                                                               | 1,721,724  |                                       | $          | 244,503                               |       | $                                           | 1,643      |   | $ | 1,967,870 |   |
| % of total assets at fair value           |       | 87.5                                                                            | %          | 12.4                                       | %          | 0.1                                   | %          | 100.0                                       | %          |
|                                      |       |                                                                            |       |                                       |       |                                  |       |                                        |       |
| **Liabilities:**                          |       |                                                                            |       |                                       |       |                                  |       |                                        |       |
| Contractholder funds:                     |       |                                                                            |       |                                       |       |                                  |       |                                        |       |
| Derivatives embedded in annuity contracts |       | $                                                                               | —     |                                       | $          | (45,719                               | )          | $                                           | (40,143    | ) | $ | (85,862 | ) |
| **Total liabilities at fair value**       |       | $                                                                               | —     |                                       | $          | (45,719                               | )          | $                                           | (40,143    | ) | $ | (85,862 | ) |
| % of total liabilities at fair value      |       | —                                                                          | %          | 53.2                                       | %          | 46.8                                  | %          | 100.0                                       | %          |

 

7

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

The following tablesummarizes the Company’s assets and liabilities measured at fair value on arecurring basis as of December 31, 2008:

 
| ** **                                | ** ** | **Quoted prices  in active  markets for  identical assets** | ** ** | **Significant  other  observable  inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of  December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------|------------|
| **($ in thousands)**            | ** ** | **(Level 1)**                                                              | ** ** | **(Level 2)**                         | ** ** | **(Level 3)**                    | ** ** | **2008**                                       | ** ** |
| **Assets:**                               | ** ** | ** **                                                                      | ** ** | ** **                                 | ** ** | ** **                            | ** ** | ** **                                     | ** ** |
| Fixed income securities                   |       | $                                                                               | 48,085     |                                       | $          | 173,934                               |       | $                                              | 7,309      |   | $ | 229,328 |   |
| Short-term investments                    |       | 30,657                                                                          |       | 50,046                                     |       | —                                |       | 80,703                                         |       |
| Separate account assets                   |       | 1,823,163                                                                       |       | —                                     |       | —                                |       | 1,823,163                                      |       |
| **Total recurring basis assets**          |       | 1,901,905                                                                       |       | 223,980                                    |       | 7,309                                 |       | 2,133,194                                      |       |
|                                      |       |                                                                            |       |                                       |       |                                  |       |                                           |       |
| **Total assets at fair value**            |       | $                                                                               | 1,901,905  |                                       | $          | 223,980                               |       | $                                              | 7,309      |   | $ | 2,133,194 |   |
| % of total assets at fair value           |       | 89.2                                                                            | %          | 10.5                                       | %          | 0.3                                   | %          | 100.0                                          | %          |
|                                      |       |                                                                            |       |                                       |       |                                  |       |                                           |       |
| **Liabilities:**                          |       |                                                                            |       |                                       |       |                                  |       |                                           |       |
| Contractholder funds:                     |       |                                                                            |       |                                       |       |                                  |       |                                           |       |
| Derivatives embedded in annuity contracts |       | $                                                                               | —     |                                       | $          | (33,466                               | )          | $                                              | (36,544    | ) | $ | (70,010 | ) |
| **Total liabilities at fair value**       |       | $                                                                               | —     |                                       | $          | (33,466                               | )          | $                                              | (36,544    | ) | $ | (70,010 | ) |
| % of total liabilities at fair value      |       | —                                                                          | %          | 47.8                                       | %          | 52.2                                  | %          | 100.0                                          | %          |

 

As required by SFAS No. 157,when the inputs used to measure fair value fall within different levels of thehierarchy, the level within which the fair value measurement is categorized isbased on the lowest level input that is significant to the fair valuemeasurement in its entirety.  Thus, aLevel 3 fair value measurement may include inputs that are observable (Level 1or Level 2) and unobservable (Level 3).

 

The following tableprovides a summary of changes in fair value during the three months ended March 31,2009 of Level 3 assets and liabilities held at fair value on a recurringbasis.  Net transfers in and/or out ofLevel 3 are reported as having occurred at the beginning of the quarter thetransfer occurred; therefore, for all transfers into Level 3, all realized andchanges in unrealized gains and losses in the quarter of transfer are reflectedin the table below.

 
| ** **                                 | ** ** | ** **                                           | ** ** | **Total realized and unrealized** | ** ** | ** **                                              | ** ** | ** **                                        | ** ** | ** **                                                 | ** ** | **Total gains  (losses)  included in**  | ** ** |
|--------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                 | ** ** | ** **                                           | ** ** | **gains (losses) included in:**   | ** ** | **Purchases,**                                          | ** ** | **Net**                                           | ** ** | ** **                                                 | ** ** | **Net income for**                      | ** ** |
| **($ in thousands)**             | ** ** | **Balance as of  December 31,  2008** | ** ** | **Net  income(1)**                               | ** ** | **OCI on  Statement of  Financial  Position** | ** ** | **sales, issuances  and  settlements,  net** | ** ** | **transfers  in and/or  (out) of  Level 3** | ** ** | **Balance as of  March 31,  2009** | ** ** | **instruments  still held at  March 31,  2009 (1)** | ** ** |
| **Assets**                                 |       |                                                 |       |                                             |       |                                                    |       |                                              |       |                                                       |       |                                              |       |   |   |
| Fixed income  securities                   |       | $                                                    | 7,309      |                                             | $          | 288                                                     |       | $                                                 | (90        | )                                                          | $          | (6,487                                            | )          | $ | 623 |   | $ | 1,643 |   | $ | — |   |
| **Total  recurring Level 3 assets**        |       | $                                                    | 7,309      |                                             | $          | 288                                                     |       | $                                                 | (90        | )                                                          | $          | (6,487                                            | )          | $ | 623 |   | $ | 1,643 |   | $ | — |   |
|                                       |       |                                                 |       |                                             |       |                                                    |       |                                              |       |                                                       |       |                                              |       |   |   |
| **Liabilities**                            |       |                                                 |       |                                             |       |                                                    |       |                                              |       |                                                       |       |                                              |       |   |   |
| Contractholder  funds:                     |       |                                                 |       |                                             |       |                                                    |       |                                              |       |                                                       |       |                                              |       |   |   |
| Derivatives  embedded in annuity contracts |       | $                                                    | (36,544    | )                                                | $          | (3,502                                                  | )          | $                                                 | —     |                                                       | $          | (97                                               | )          | $ | — |   | $ | (40,143 | ) | $ | (3,502 | ) |
| **Total  recurring Level 3 liabilities**   |       | $                                                    | (36,544    | )                                                | $          | (3,502                                                  | )          | $                                                 | —     |                                                       | $          | (97                                               | )          | $ | — |   | $ | (40,143 | ) | $ | (3,502 | ) |

 

----

(1)   The amount above attributableto fixed income securities is reported in the Condensed Statements ofOperations as realized capital gains and losses.  The amount above attributable to derivativesembedded in annuity contracts is reported as a component of contract benefitsand is ceded in accordance with the Company’s reinsurance agreements.

 

8

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

The following tableprovides a summary of changes in fair value during the three months ended March 31,2008 of Level 3 assets and liabilities held at fair value on a recurring basis.

 
| ** **                                 | ** ** | ** **                                         | ** ** | **Total realized and unrealized** | ** ** | ** **                                              | ** ** | ** **                                        | ** ** | **Total gains  (losses)  included in**  | ** ** |
|--------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                 | ** ** | ** **                                         | ** ** | **gains (losses) included in:**   | ** ** | **Purchases,**                                          | ** ** | ** **                                        | ** ** | **Net income for**                      | ** ** |
| **($ in thousands)**             | ** ** | **Balance as of  January 1,  2008** | ** ** | **Net  income(1)**                               | ** ** | **OCI on  Statement of  Financial  Position** | ** ** | **sales, issuances  and  settlements,  net** | ** ** | **Balance as of  March 31,  2008** | ** ** | **instruments  still held at  March 31,  2008 (1)** | ** ** |
| **Assets**                                 |       |                                               |       |                                             |       |                                                    |       |                                              |       |                                              |       |   |   |
| Fixed income  securities                   |       | $                                                  | 11,984     |                                             | $          | (3                                                      | )          | $                                                 | 178        |                                              | $          | (192 | ) | $ | 11,967 |   | $ | (3 | ) |
| **Total  recurring Level 3 assets**        |       | $                                                  | 11,984     |                                             | $          | (3                                                      | )          | $                                                 | 178        |                                              | $          | (192 | ) | $ | 11,967 |   | $ | (3 | ) |
|                                       |       |                                               |       |                                             |       |                                                    |       |                                              |       |                                              |       |   |   |
| **Liabilities**                            |       |                                               |       |                                             |       |                                                    |       |                                              |       |                                              |       |   |   |
| Contractholder  funds:                     |       |                                               |       |                                             |       |                                                    |       |                                              |       |                                              |       |   |   |
| Derivatives  embedded in annuity contracts |       | $                                                  | (256       | )                                                | $          | (979                                                    | )          | $                                                 | —     |                                              | $          | — |   | $ | (1,235 | ) | $ | (979 | ) |
| **Total  recurring Level 3 liabilities**   |       | $                                                  | (256       | )                                                | $          | (979                                                    | )          | $                                                 | —     |                                              | $          | — |   | $ | (1,235 | ) | $ | (979 | ) |

 

----

(1)   The amount above attributable to fixed incomesecurities is reported in the Condensed Statements of Operations as netinvestment income.  The amount aboveattributable to derivatives embedded in annuity contracts is reported as acomponent of contract benefits and is ceded in accordance with the Company’sreinsurance agreements.

 

**3.  Derivative Financial Instruments**

 

The Company hasderivatives embedded in non-derivative “host” contracts, which are required tobe separated from the host contract and accounted for at fair value asderivative instruments.  The Company doesnot use derivatives for trading purposes. The Company’s embedded derivatives are equity options in annuity productcontracts, which provide equity returns to contractholders; and guaranteedminimum accumulation and withdrawal benefits related to the Company’s variableannuity contracts.

 

None of the Company’sembedded derivatives are designated as accounting hedging instruments.  The notional amounts of the Company’sembedded derivatives totaled $4.09 billion as of March 31, 2009.  The fair value of the Company’s embeddedderivatives of $85.9 million as of March 31, 2009 is reflected as acomponent of contractholder funds on the Condensed Statements of FinancialPosition.  The loss recognized on theCompany’s embedded derivatives of $15.9 million in the three months ended March 31,2009 is ceded to ALIC and is reflected as a component of contract benefitsceded to affiliate in Note 4.

 

## **4.  Reinsurance**

##  

The Company hasreinsurance agreements under which it reinsures all of its business to ALIC orother non-affiliated reinsurers. Under the agreements, premiums, contractcharges, interest credited to contractholder funds, contract benefits andsubstantially all expenses are reinsured. The Company continues to have primary liability as the direct insurerfor risks reinsured.

 

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

 

9

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

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

 
| ** **                                        | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| **($ in thousands)**                    | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| **Premiums and contract charges**                 |       |                                             |       |   |   |
| Direct                                            |       | $                                                | 288,226    |   | $ | 265,791 |   |
| Assumed - non-affiliate                           |       | 1,762                                            |       | 1,932 |   |
| Ceded                                             |       |                                             |       |   |   |
| Affiliate                                         |       | (177,288                                         | )          | (156,797 | ) |
| Non-affiliate                                     |       | (112,700                                         | )          | (110,926 | ) |
| Premiums and contract charges, net of reinsurance |       | $                                                | —     |   | $ | — |   |

 

The effects ofreinsurance on interest credited to contractholder funds, contract benefits andexpenses are as follows:

 
| ** **                                                                                     | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **($ in thousands)**                                                                 | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| **Interest credited to contractholder funds,  contract benefits and expenses**                 |       |                                             |       |   |   |
| Direct                                                                                         |       | $                                                | 511,630    |   | $ | 358,797 |   |
| Assumed - non-affiliate                                                                        |       | 2,458                                            |       | 1,906 |   |
| Ceded                                                                                          |       |                                             |       |   |   |
| Affiliate                                                                                      |       | (373,305                                         | )          | (222,706 | ) |
| Non-affiliate                                                                                  |       | (140,783                                         | )          | (137,997 | ) |
| Interest credited to contractholder funds, contract benefits and  expenses, net of reinsurance |       | $                                                | —     |   | $ | — |   |

 

## **5.  Guarantees and Contingent Liabilities**

##  

## **Guarantees**

##  

In the normal course ofbusiness, the Company provides standard indemnifications to contractual counterpartiesin connection with numerous transactions, including acquisitions anddivestitures.  The types ofindemnifications 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 are enteredinto in the normal course of business based on an assessment that the risk ofloss would be remote.  The terms of theindemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and thecontingencies triggering the obligation to indemnify have not occurred and arenot expected to occur.  Consequently, themaximum amount of the obligation under such indemnifications is notdeterminable.  Historically, the Companyhas not made any material payments pursuant to these obligations.

 

The aggregate liabilitybalance related to all guarantees was not material as of March 31, 2009.

##  

## **Regulation**

##  

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

 

10

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

**Legaland regulatory proceedings and inquiries**

 

***Background***

 

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

 

·      These matters raise difficult andcomplicated factual and legal issues and are subject to many uncertainties andcomplexities, including the underlying facts of each matter; novel legalissues; variations between jurisdictions in which matters are being litigated,heard, or investigated; differences in applicable laws and judicialinterpretations; the length of time before many of these matters might beresolved by settlement, through litigation or otherwise; the fact that some ofthe lawsuits are putative class actions in which a class has not been certifiedand in which the purported class may not be clearly defined; the fact that someof the lawsuits involve multi-state class actions in which the applicable law(s) forthe claims at issue is in dispute and therefore unclear; and the currentchallenging legal environment faced by large corporations and insurancecompanies.

 

·      The outcome of these matters may also be affected bydecisions, verdicts, and settlements, and the timing of such decisions,verdicts and settlements, in other individual and class action lawsuits thatinvolve the Company, other insurers, or other entities and by other legal,governmental, and regulatory actions that involve the Company, other insurersor other entities.

 

·      In the lawsuits, plaintiffs seek avariety of remedies including equitable relief in the form of injunctive andother remedies and monetary relief in the form of contractual andextra-contractual damages.  In some cases,the monetary damages sought include punitive damages.  Often specific information about the reliefsought, such as the amount of damages, is not available because plaintiffs havenot requested specific relief in their pleadings. In the Company’s experience,when specific monetary demands are made in pleadings, they bear little relationto the ultimate loss, if any, to the Company.

 

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

 

·      For the reasons specified above, it isoften not possible to make meaningful estimates of the amount or range of lossthat could result from the matters described below in the “Proceedings” subsection.  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 assessing reasonably possible andprobable outcomes, the Company bases its decisions on its assessment of theultimate outcome following all appeals.

 

·      Due to the complexity and scope of thematters disclosed in the “Proceedings” subsection below and the manyuncertainties that exist, the ultimate outcome of these matters cannot bereasonably predicted.  In the event of anunfavorable outcome in one or more of these matters, the ultimate liability maybe in excess of amounts currently reserved, if any, and may be material to theCompany’s operating results or cash flows for a particular quarterly or annualperiod.  However, based on informationcurrently known to it, management believes that the ultimate outcome of allmatters described below as they are resolved over time is not likely to have amaterial adverse effect on the financial position of the Company.

 

***Proceedings***

 

Legal proceedingsinvolving Allstate agencies and AIC may impact the Company, even when theCompany is not directly involved, because the Company sells its productsthrough a variety of distribution channels including Allstate agencies.Consequently, information about the more significant of these proceedings isprovided in the following paragraph.

 

11

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

AIC is defending certainmatters relating to its agency program reorganization announced in 1999. Thesematters are in various stages of development.

 

·      These matters include a lawsuit filed in2001 by the U.S. Equal Employment Opportunity Commission (“EEOC”) allegingretaliation under federal civil rights laws (the “EEOC I” suit) and a classaction filed in 2001 by former employee agents alleging retaliation and agediscrimination under the Age Discrimination in Employment Act (“ADEA”), breachof contract and ERISA violations (the “Romero I” suit).   In 2004, in the consolidated EEOC I andRomero I litigation, the trial court issued a memorandum and order that, amongother things, certified classes of agents, including a mandatory class ofagents who had 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 stated that, “on the undisputed facts of record, there isno basis for claims of age discrimination.” The EEOC and plaintiffs have asked the court to clarify and/orreconsider its memorandum and order and in January 2007, the judge deniedtheir request.  In June 2007, thecourt granted AIC’s motions for summary judgment.  Following plaintiffs’ filing of a notice ofappeal, the Third Circuit issued an order in December 2007 stating thatthe notice of appeal was not taken from a final order within the meaning of thefederal law and thus not appealable at this time.   In March 2008, the Third Circuitdecided that the appeal should not summarily be dismissed and that the questionof whether the matter is appealable at this time will be addressed by the Courtalong with the merits of the appeal.

 

·      The EEOC also filed another lawsuit in2004 alleging age discrimination with respect to a policy limiting the rehireof agents affected by the agency program reorganization (the “EEOC II”suit).  In EEOC II, in 2006, the courtgranted partial summary judgment to the EEOC. Although the court did not determine that AIC was liable for agediscrimination under the ADEA, it determined that the rehire policy resulted ina disparate impact, reserving for trial the determination on whether AIC hadreasonable factors other than age to support the rehire policy.  AIC’s interlocutory appeal from the partialsummary judgment was granted.  In June 2008,the Eighth Circuit Court of Appeals affirmed summary judgment in the EEOC’sfavor.  In September 2008, the Courtof Appeals granted AIC’s petition for rehearing *en banc*and vacated its earlier decision affirming the trialcourt’s grant of summary judgment in favor of the EEOC.  The Court of Appeals then dismissed theappeal, determining that it lacked jurisdiction to consider the appeal at thisstage in the litigation.

 

·      A putative nationwide class action has also been filedby former employee agents alleging various violations of ERISA, including aworker classification issue.  Theseplaintiffs are challenging certain amendments to the Agents Pension Plan andare seeking to have exclusive agent independent contractors treated asemployees for benefit purposes.  Thismatter was dismissed with prejudice by the trial court, was the subject offurther proceedings on appeal, and was reversed and remanded to the trial courtin 2005.  In June 2007, the courtgranted AIC’s motion to dismiss the case. Following plaintiffs’ filing of a notice of appeal, the Third Circuitissued an order in December 2007 stating that the notice of appeal was nottaken from a final order within the meaning of the federal law and thus notappealable at this time.  In March 2008,the Third Circuit decided that the appeal should not summarily be dismissed andthat the question of whether the matter is appealable at this time will beaddressed by the Court along with the merits of the appeal.

 

In all of these variousmatters, plaintiffs seek compensatory and punitive damages, and equitablerelief.  AIC has been vigorouslydefending these lawsuits and other matters related to its agency programreorganization.

 

## ***Other Matters***

##  

Various other legal,governmental, and regulatory actions, including state market conduct exams, andother governmental and regulatory inquiries are currently pending that involvethe Company and specific aspects of its conduct of business.  Like other members of the insurance industry,the Company is the target of a number of lawsuits and proceedings, some ofwhich involve claims for substantial or indeterminate amounts.  These actions are based on a variety ofissues and target a range of the Company’s practices.  The outcome of these disputes is currentlyunpredictable.  However, based oninformation currently known to it and the existence of the reinsuranceagreements with ALIC, management believes that the ultimate outcome of all mattersdescribed in this “Other Matters”subsection, in excess of amounts currently reserved, if any, as they areresolved over time is not likely to have a material effect on the operatingresults, cash flows or financial position of the Company.

 

12

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

**6.  Other ComprehensiveIncome**

 

## The components of other comprehensive income on a pre-tax and after-taxbasis are as follows:

 
| ** **                                                              | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **($ in thousands)**                                               | ** ** | **Pre-tax**                           | ** ** | **Tax** | ** ** | **After-  tax** | ** ** | **Pre-tax** | ** ** | **Tax** | ** ** | **After-  tax** | ** ** |
|                                                                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains arising during the  period                     |       | $                                     | 2,044      |   | $ | (716 | ) | $ | 1,328 |   | $ | 3,120 |   | $ | (1,092 | ) | $ | 2,028 |   |
| Less: reclassification adjustment of  realized capital gains and losses |       | 799                                   |       | (280 | ) | 519 |   | (254 | ) | 89 |   | (165 | ) |
| Unrealized net capital gains and losses                                 |       | 1,245                                 |       | (436 | ) | 809 |   | 3,374 |   | (1,181 | ) | 2,193 |   |
| Other comprehensive income                                              |       | $                                     | 1,245      |   | $ | (436 | ) | 809 |   | $ | 3,374 |   | $ | (1,181 | ) | 2,193 |   |
|                                                                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                              |       |                                  |       |   |   | 2,262 |   |   |   |   |   | 2,225 |   |
| Comprehensive income                                                    |       |                                  |       |   |   | $ | 3,071 |   |   |   |   |   | $ | 4,418 |   |

 

13

----

 
| **ITEM 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR  THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND 2008** |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

## **OVERVIEW**

##  

Thefollowing discussion highlights significant factors influencing the condensedfinancial position and results of operations of Lincoln Benefit Life Company(referred to in this document 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 for2008.  We operate as a single segmententity based on the manner in which we use financial information to evaluateperformance and to determine the allocation of resources.

 

## **OPERATIONS**

 
| ** **                        | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| **($ in thousands)**         | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Net investment income             |       | $                                      | 2,655      |   | $ | 3,640 |   |
| Realized capital gains and losses |       | 799                                    |       | (254 | ) |
| Income tax expense                |       | (1,192                                 | )          | (1,161 | ) |
| Net income                        |       | $                                      | 2,262      |   | $ | 2,225 |   |

 

Wehave reinsurance agreements whereby all premiums, contract charges, interestcredited to contractholder funds, contract benefits and substantially allexpenses are ceded to Allstate Life Insurance Company (“ALIC”) and certainnon-affiliated reinsurers, and are reflected net of such reinsurance in theCondensed Statements of Operations.  Ourresults of operations include net investment income and realized capital gainsand losses on our assets that are not transferred under the reinsuranceagreements.

 

**Net income** increased 1.7% or $37 thousand in the first quarter of 2009 comparedto the same period in the prior year due to net realized capital gains in thefirst quarter of 2009 compared to net realized capital losses in the firstquarter of 2008, partially offset by lower net investment income.

 

**Net investment income** decreased 27.1% or $985 thousand in thefirst quarter of 2009 compared to the same period in the prior year dueprimarily to lower yields on fixed income securities and short-terminvestments, partially offset by higher average fixed income securitybalances.  The following table presentsnet investment income by asset type.

 
| ** **                        | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| **($ in thousands)**         | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Fixed income securities           |       | $                                      | 2,699      |   | $ | 3,352 |   |
| Short-term and other              |       | 64                                     |       | 375 |   |
| Investment income, before expense |       | 2,763                                  |       | 3,727 |   |
| Investment expense                |       | (108                                   | )          | (87 | ) |
| Net investment income             |       | $                                      | 2,655      |   | $ | 3,640 |   |

 

**Net realized capital gains**of $799 thousand in the first quarter of 2009compared to net realized capital losses of $254 thousand in the same period inthe prior year.  The net realized capitalgains in the first quarter of 2009 were primarily related to sales of fixedincome securities.  The net realizedcapital losses in the first quarter of 2008 were recognized in anticipation ofdispositions of fixed income securities in unrealized loss positions.  The following table presents realized capitalgains and losses and the related tax effect.

 
| ** **                                    | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|
| **($ in thousands)**                     | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Realized capital gains and losses, pre-tax    |       | $                                      | 799        |   | $ | (254 | ) |
| Income tax (expense) benefit                  |       | (280                                   | )          | 89 |   |
| Realized capital gains and losses,  after-tax |       | $                                      | 519        |   | $ | (165 | ) |

 

14

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**FINANCIAL POSITION**

** **
| ** **                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **($ in thousands)**                      | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| Fixed income securities (1)                    |       | $                  | 293,507    |                  | $          | 229,328 |   |
| Short-term (2)                                 |       | 21,705             |       | 80,703                |       |
| Total investments                              |       | $                  | 315,212    |                  | $          | 310,031 |   |
|                                           |       |               |       |                  |       |
| Cash                                           |       | $                  | 2,310      |                  | $          | 3,145 |   |
| Reinsurance recoverable from ALIC              |       | 18,643,580         |       | 18,791,710            |       |
| Reinsurance recoverable from non-affiliates    |       | 1,756,112          |       | 1,613,685             |       |
| Contractholder funds                           |       | 17,756,085         |       | 17,787,376            |       |
| Reserve for life-contingent contract  benefits |       | 2,625,582          |       | 2,581,186             |       |
| Separate Accounts assets and liabilities       |       | 1,652,658          |       | 1,823,163             |       |

 

----

(1)          Fixed income securities are carried at fairvalue.  Amortized cost basis for thesesecurities was $292.6 million and $229.7 million at March 31, 2009 and December 31,2008, respectively.

(2)          Short-term investments are carried at fairvalue.  Amortized cost basis for thesesecurities was $21.7 million and $80.7 million at March 31, 2009 and December 31,2008, respectively.

 

**Investments**

 

Totalinvestments increased to $315.2 million at March 31, 2009 from $310.0million at December 31, 2008 due primarily to positive cash flows fromoperating activities and net unrealized capital gains on fixed incomesecurities at March 31, 2009 compared to net unrealized capital losses onfixed income securities at December 31, 2008.

 

AtMarch 31, 2009, all of the fixed income securities portfolio was ratedinvestment grade, which is defined as a security having a rating from theNational Association of Insurance Commissioners (“NAIC”) of 1 or 2; a rating ofAaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from Standard andPoor’s (“S&P”), Fitch or Dominion or a rating of aaa, aa, a or bbb from A.M.Best; or a comparable internal rating if an externally provided rating is notavailable.

 

Unrealizednet capital gains totaled $904 thousand as of March 31, 2009, compared tounrealized net capital losses of $341 thousand at December 31, 2008.

 

Unrealizednet capital gains on fixed income securities of $904 thousand as of March 31,2009 comprised $7.4 million of unrealized gains and $6.5 million of unrealizedlosses.  Unrealized net capital losses onfixed income securities of $339 thousand at December 31, 2008 comprised$6.0 million of unrealized gains and $6.3 million of unrealized losses.

 

Ofthe gross unrealized losses in the fixed income portfolio at March 31,2009, $4.7 million or 72.4% were related to commercial mortgage-backedsecurities (“CMBS”) with an amortized cost and fair value of $22.9 million and$18.2 million, respectively.  Theunrealized capital losses on CMBS were the result of widening credit spreadsdue to deteriorating macro economic conditions and continued credit marketdeterioration.  Of the remaining $1.8million of gross unrealized capital losses in the fixed income portfolio, $1.5million related to securities in our corporate fixed income securitiesportfolio and were primarily comprised of losses on securities in the bankingand financial services sectors.  Thegross unrealized losses in these sectors were generally the result of wideningcredit spreads since the time of initial purchase.

 

Wehave a comprehensive portfolio monitoring process to identify and evaluate, ona case-by-case basis, fixed income securities whose carrying value may beother-than-temporarily impaired.  Theprocess includes a quarterly review of all securities using a screening processto identify situations where the fair value, compared to amortized cost, isbelow established thresholds for certain time periods, or which are identifiedthrough other monitoring criteria such as ratings, ratings downgrades orpayment defaults.  The securities identified,in addition to other securities for which we may have a concern, are evaluatedbased on facts and circumstances for inclusion on our watch-list.  All investments in an unrealized lossposition at March 31, 2009 were included in our portfolio monitoringprocess for determining whether declines in value were other than temporary.

 

15

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Wealso conduct a portfolio review to recognize impairment on securities in anunrealized loss position for which we do not have the intent and ability tohold until recovery as a result of approved programs involving the dispositionof investments for reasons such as negative developments that would change theview of long term investors and their intent to continue to hold theinvestment, subsequent credit deterioration of an issuer or holding, subsequentfurther deterioration of capital markets (i.e. debt and equity) and of economicconditions, subsequent further deterioration in the financial services and realestate industries, changes in duration, revisions to strategic assetallocations, liquidity needs, unanticipated federal income tax situationsinvolving capital gains and capital loss carrybacks and carryforwards withspecific expiration dates, investment risk mitigation actions, and other newfacts and circumstances that would cause a change in our previous intent tohold a security to recovery or maturity.

 

Wealso monitor the quality of our fixed income portfolio by categorizing certaininvestments as “problem”, “restructured” or “potential problem.”  Problem fixed income securities are indefault with respect to principal or interest and/or are investments issued bycompanies that have gone into bankruptcy subsequent to our acquisition.  Restructured fixed income securities haverates and terms that are not consistent with market rates or terms prevailingat the time of the restructuring. Potential problem fixed income securities are current with respect tocontractual principal and/or interest, but because of other facts andcircumstances, we have concerns regarding the borrower’s ability to pay futureprincipal and interest according to the original terms, which causes us tobelieve these investments may be classified as problem or restructured in thefuture.

 

Asof March 31, 2009 and December 31, 2008, we had no securitiescategorized as “problem”, “restructured” or “potential problem.”

 

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

##  

Contractholderfunds decreased $31.3 million to $17.76 billion at March 31, 2009 from$17.79 billion at December 31, 2008 as a result of new and additionaldeposits on fixed annuities and interest-sensitive life insurance products, andinterest credited to contractholder funds being more than offset by surrenders,withdrawals and benefit payments.  Thereserve for life-contingent contract benefits increased $44.4 million to $2.63billion at March 31, 2009 from $2.58 billion at December 31, 2008resulting from sales of immediate annuities with life contingencies and otherlife-contingent products, partially offset by benefits paid and policylapses.  Reinsurance recoverable fromALIC decreased by $148.1 million and reinsurance recoverable from non-affiliatesincreased by $142.4 million.

 

Wepurchase reinsurance after evaluating the financial condition of the reinsurer,as well as the terms and price of coverage. We reinsure certain of our risks to non-affiliated reinsurers underyearly renewable term and coinsurance agreements.  Yearly renewable term and coinsuranceagreements result in the passing of the agreed-upon portion of risk to thereinsurer in exchange for negotiated reinsurance premium payments.

 

16

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**Fair Value of Assets and Liabilities**

 

Thefollowing table provides additional details regarding Level 1, 2 and 3 assetsand liabilities by their classification in the Condensed Statement of FinancialPosition at March 31, 2009.  Forfurther discussion of Level 1, 2 and 3 assets and liabilities, see Note 2 ofthe condensed financial statements.

 
| ** **                                | ** ** | **Quoted prices  in active  markets for  identical assets** | ** ** | **Significant  other  observable  inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of  March 31,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|
| **($ in thousands)**                 | ** ** | **(Level 1)**                                               | ** ** | **(Level 2)**                              | ** ** | **(Level 3)**                         | ** ** | **2009**                          | ** ** |
| **Assets**                                |       |                                                        |       |                                       |       |                                  |       |                              |       |
| Fixed income securities:                  |       |                                                        |       |                                       |       |                                  |       |                              |       |
| U.S. government and agencies              |       | $                                                           | 47,411     |                                       | $          | 52,697                                |       | $                                 | —     |   | $ | 100,108 |   |
| Municipal                                 |       | —                                                      |       | 513                                        |       | —                                |       | 513                               |       |
| Corporate - public                        |       | —                                                      |       | 101,878                                    |       | 1,091                                 |       | 102,969                           |       |
| Corporate privately placed securities     |       | —                                                      |       | 14,358                                     |       | —                                |       | 14,358                            |       |
| MBS                                       |       | —                                                      |       | 57,345                                     |       | —                                |       | 57,345                            |       |
| CMBS                                      |       | —                                                      |       | 17,662                                     |       | 552                                   |       | 18,214                            |       |
| Total fixed income securities             |       | 47,411                                                      |       | 244,453                                    |       | 1,643                                 |       | 293,507                           |       |
| Short-term investments:                   |       |                                                        |       |                                       |       |                                  |       |                              |       |
| Commercial paper and other                |       | —                                                      |       | 50                                         |       | —                                |       | 50                                |       |
| Money market funds                        |       | 21,655                                                      |       | —                                     |       | —                                |       | 21,655                            |       |
| Total short-term investments              |       | 21,655                                                      |       | 50                                         |       | —                                |       | 21,705                            |       |
| Separate account assets                   |       | 1,652,658                                                   |       | —                                     |       | —                                |       | 1,652,658                         |       |
| **Total recurring basis assets**          |       | 1,721,724                                                   |       | 244,503                                    |       | 1,643                                 |       | 1,967,870                         |       |
| **Total assets at fair value**            |       | $                                                           | 1,721,724  |                                       | $          | 244,503                               |       | $                                 | 1,643      |   | $ | 1,967,870 |   |
| % of total assets at fair value           |       | 87.5                                                        | %          | 12.4                                       | %          | 0.1                                   | %          | 100.0                             | %          |
|                                      |       |                                                        |       |                                       |       |                                  |       |                              |       |
| **Liabilities**                           |       |                                                        |       |                                       |       |                                  |       |                              |       |
| Contractholder funds:                     |       |                                                        |       |                                       |       |                                  |       |                              |       |
| Derivatives embedded in annuity contracts |       | $                                                           | —     |                                       | $          | (45,719                               | )          | $                                 | (40,143    | ) | $ | (85,862 | ) |
| **Total liabilities at fair value**       |       | $                                                           | —     |                                       | $          | (45,719                               | )          | $                                 | (40,143    | ) | $ | (85,862 | ) |
| % of total liabilities at fair value      |       | —                                                      | %          | 53.2                                       | %          | 46.8                                  | %          | 100.0                             | %          |

 

17

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Thefollowing table provides additional details regarding Level 1, 2 and 3 assetsand liabilities by their classification as of December 31, 2008.

 
| ** **                                | ** ** | **Quoted prices  in active  markets for  identical assets** | ** ** | **Significant  other  observable  inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of  December 31,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| **($ in thousands)**                 | ** ** | **(Level 1)**                                               | ** ** | **(Level 2)**                              | ** ** | **(Level 3)**                         | ** ** | **2008**                             | ** ** |
| **Assets**                                |       |                                                        |       |                                       |       |                                  |       |                                 |       |
| Fixed income securities:                  |       |                                                        |       |                                       |       |                                  |       |                                 |       |
| U.S. government and agencies              |       | $                                                           | 48,085     |                                       | $          | 30,731                                |       | $                                    | —     |   | $ | 78,816 |   |
| Municipal                                 |       | —                                                      |       | 499                                        |       | —                                |       | 499                                  |       |
| Corporate - public                        |       | —                                                      |       | 67,882                                     |       | 1,307                                 |       | 69,189                               |       |
| Corporate privately placed securities     |       | —                                                      |       | 6,514                                      |       | —                                |       | 6,514                                |       |
| MBS                                       |       | —                                                      |       | 48,351                                     |       | —                                |       | 48,351                               |       |
| CMBS                                      |       | —                                                      |       | 18,960                                     |       | —                                |       | 18,960                               |       |
| ABS                                       |       | —                                                      |       | —                                     |       | 6,002                                 |       | 6,002                                |       |
| ABS - Credit card                         |       | —                                                      |       | 997                                        |       | —                                |       | 997                                  |       |
| Total fixed income securities             |       | 48,085                                                      |       | 173,934                                    |       | 7,309                                 |       | 229,328                              |       |
| Short-term investments:                   |       |                                                        |       |                                       |       |                                  |       |                                 |       |
| Commercial paper and other                |       | —                                                      |       | 50,046                                     |       | —                                |       | 50,046                               |       |
| Money market funds                        |       | 30,657                                                      |       | —                                     |       | —                                |       | 30,657                               |       |
| Total short-term investments              |       | 30,657                                                      |       | 50,046                                     |       | —                                |       | 80,703                               |       |
| Separate account assets                   |       | 1,823,163                                                   |       | —                                     |       | —                                |       | 1,823,163                            |       |
| **Total recurring basis assets**          |       | 1,901,905                                                   |       | 223,980                                    |       | 7,309                                 |       | 2,133,194                            |       |
| **Total assets at fair value**            |       | $                                                           | 1,901,905  |                                       | $          | 223,980                               |       | $                                    | 7,309      |   | $ | 2,133,194 |   |
| % of total assets at fair value           |       | 89.2                                                        | %          | 10.5                                       | %          | 0.3                                   | %          | 100.0                                | %          |
|                                      |       |                                                        |       |                                       |       |                                  |       |                                 |       |
| **Liabilities**                           |       |                                                        |       |                                       |       |                                  |       |                                 |       |
| Contractholder funds:                     |       |                                                        |       |                                       |       |                                  |       |                                 |       |
| Derivatives embedded in annuity contracts |       | $                                                           | —     |                                       | $          | (33,466                               | )          | $                                    | (36,544    | ) | $ | (70,010 | ) |
| **Total liabilities at fair value**       |       | $                                                           | —     |                                       | $          | (33,466                               | )          | $                                    | (36,544    | ) | $ | (70,010 | ) |
| % of total liabilities at fair value      |       | —                                                      | %          | 47.8                                       | %          | 52.2                                  | %          | 100.0                                | %          |

 

18

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Thefollowing table provides a summary of changes in fair value during thethree-month period ended March 31, 2009 of Level 3 assets and liabilitiesheld at fair value on a recurring basis.

 
| ** **                                | ** ** | ** **                                                 | ** ** | **Total realized and unrealized   gains (losses) included in:** | ** ** | ** **                                                                  | ** ** | ** **                                                          | ** ** | ** **                                                                              | ** ** | **Total   gains (losses)  included in**        | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| **($ in thousands)**            | ** ** | **Balance as of  December 31,   2008** | ** ** | **Net income (1)**                                                                       | ** ** | **OCI on   Statement   of   Financial   Position** | ** ** | **Purchases,  sales,  issuances and   settlements,  net** | ** ** | **Net   transfers   in and/or   (out) of   Level 3** | ** ** | **Balance as of   March 31,   2009** | ** ** | **Net income for  instruments   still held at  March 31,  2009 (1)** | ** ** |
| **Assets**                                |       |                                                       |       |                                                                                               |       |                                                                        |       |                                                                |       |                                                                                    |       |                                                          |       |   |   |
| Fixed income securities:                  |       |                                                       |       |                                                                                               |       |                                                                        |       |                                                                |       |                                                                                    |       |                                                          |       |   |   |
|  Corporate                           |       | $                                                          | 1,307      |                                                                                               | $          | —                                                                      |       | $                                                                   | —     |                                                                                    | $          | (216                                                          | )          | $ | — |   | $ | 1,091 |   | $ | — |   |
|  CMBS                                |       | —                                                     |       | —                                                                                             |       | (71                                                                         | )          | —                                                              |       | 623                                                                                     |       | 552                                                           |       | — |   |
|  ABS                                 |       | 6,002                                                      |       | 288                                                                                                |       | (19                                                                         | )          | (6,271                                                              | )          | —                                                                                  |       | —                                                        |       | — |   |
| **Total recurring Level 3 assets**        |       | $                                                          | 7,309      |                                                                                               | $          | 288                                                                         |       | $                                                                   | (90        | )                                                                                       | $          | (6,487                                                        | )          | $ | 623 |   | $ | 1,643 |   | $ | — |   |
|                                      |       |                                                       |       |                                                                                               |       |                                                                        |       |                                                                |       |                                                                                    |       |                                                          |       |   |   |
| **Liabilities**                           |       |                                                       |       |                                                                                               |       |                                                                        |       |                                                                |       |                                                                                    |       |                                                          |       |   |   |
| Contractholder funds:                     |       |                                                       |       |                                                                                               |       |                                                                        |       |                                                                |       |                                                                                    |       |                                                          |       |   |   |
| Derivatives embedded in annuity contracts |       | $                                                          | (36,544    | )                                                                                                  | $          | (3,502                                                                      | )          | $                                                                   | —     |                                                                                    | $          | (97                                                           | )          | $ | — |   | $ | (40,143 | ) | $ | (3,502 | ) |
| **Total recurring Level 3 liabilities**   |       | $                                                          | (36,544    | )                                                                                                  | $          | (3,502                                                                      | )          | $                                                                   | —     |                                                                                    | $          | (97                                                           | )          | $ | — |   | $ | (40,143 | ) | $ | (3,502 | ) |

 

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(1)          The amount above attributable to fixed income securities is reported inthe Condensed Statements of Operations as realized capital gains andlosses.  The amount above attributable toderivatives embedded in annuity contracts is reported as a component ofcontract benefits and is ceded in accordance with the Company’s reinsuranceagreements.

 

Thefollowing table provides a summary of changes in fair value during thethree-month period ended March 31, 2008 of Level 3 assets and liabilitiesheld at fair value on a recurring basis.

 
| ** **                                | ** ** | ** **                                         | ** ** | **Total realized and unrealized  gains (losses) included in:** | ** ** | ** **                                                            | ** ** | ** **                                                    | ** ** | **Total  gains (losses)  included in**  | ** ** |
|-------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------|------------|
| **($ in thousands)**            | ** ** | **Balance as of  January 1,  2008** | ** ** | **Net income (1)**                                                                 | ** ** | **OCI on   Statement   of  Financial   Position** | ** ** | **Purchases,  sales,  issuances and  settlements,  net** | ** ** | **Balance as of  March 31,  2008** | ** ** | **Net income for  instruments  still held at  March 31,   2008 (1)** | ** ** |
| **Assets**                                |       |                                               |       |                                                                                         |       |                                                                  |       |                                                          |       |                                              |       |   |   |
| Fixed income securities:                  |       |                                               |       |                                                                                         |       |                                                                  |       |                                                          |       |                                              |       |   |   |
|  Corporate                           |       | $                                                  | 1,500      |                                                                                         | $          | —                                                                |       | $                                                             | —     |                                              | $          | (192 | ) | $ | 1,308 |   | $ | — |   |
|  ABS                                 |       | 10,484                                             |       | (3                                                                                           | )          | 178                                                                   |       | —                                                        |       | 10,659                                            |       | (3 | ) |
| **Total recurring Level 3 assets**        |       | $                                                  | 11,984     |                                                                                         | $          | (3                                                                    | )          | $                                                             | 178        |                                              | $          | (192 | ) | $ | 11,967 |   | $ | (3 | ) |
|                                      |       |                                               |       |                                                                                         |       |                                                                  |       |                                                          |       |                                              |       |   |   |
| **Liabilities**                           |       |                                               |       |                                                                                         |       |                                                                  |       |                                                          |       |                                              |       |   |   |
| Contractholder funds:                     |       |                                               |       |                                                                                         |       |                                                                  |       |                                                          |       |                                              |       |   |   |
| Derivatives embedded in annuity contracts |       | $                                                  | (256       | )                                                                                            | $          | (979                                                                  | )          | $                                                             | —     |                                              | $          | — |   | $ | (1,235 | ) | $ | (979 | ) |
| **Total recurring Level 3 liabilities**   |       | $                                                  | (256       | )                                                                                            | $          | (979                                                                  | )          | $                                                             | —     |                                              | $          | — |   | $ | (1,235 | ) | $ | (979 | ) |

 

----

(1)          The amount above attributable to fixed income securities is reported inthe Condensed Statements of Operations as net investment income.   The amount above attributable to derivativesembedded in annuity contracts is reported as a component of contract benefitsand is ceded in accordance with the Company’s reinsurance agreements.

 

Net transfers in and/or out of Level 3 are reported as having occurredat the beginning of the quarter the transfer occurred; therefore, for alltransfers into Level 3, all realized and changes in unrealized gains and lossesin the quarter of transfer are reflected in the table above.

 

Dueto the reduced availability of actual market prices or relevant marketobservable inputs as a result of the decrease in liquidity that has beenexperienced in the market, certain CMBS are categorized as Level 3.  Transfers into Level 3 during the threemonths ended March 31, 2009 are attributable to a change in theavailability of market observable information for individual securities.

 

19

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The following table presents fair value as a percent of par value andamortized cost for Level 3 investments at March 31, 2009.

 
| **($ in thousands)** | ** ** | **Fair   value** | ** ** | **Fair value as   a percent of  par value** | ** ** | **Fair value as a  percent of   amortized cost** | ** ** |
|--------------------------------|------------|-----------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| Corporate                      |       | $                     | 1,091      |                                                                      | 100.4      | %                                                                              | 100.0      | % |
| CMBS                           |       | 552                   |       | 27.6                                                                      |       | 27.5                                                                           |       |
| **Total Level 3 investments**  |       | $                     | 1,643      |                                                                      | 53.2       |                                                                           | 53.1       |   |

 

## **CAPITALRESOURCES AND LIQUIDITY**

##  

**Capital Resources**consist of shareholder’s equity. The following table summarizes our capital resources.

 
| **($ in thousands)**                                | ** ** | **March 31,   2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|
| Common stock, additional capital paid-in  and retained income |       | $                              | 301,045    |                        | $          | 298,783 |   |
| Accumulated other comprehensive income  (loss)                |       | 587                            |       | (222                        | )          |
| Total shareholder’s equity                               |       | $                              | 301,632    |                        | $          | 298,561 |   |

 

*Shareholder’s equity* increased in the first three months of 2009due to net income of $2.3 million and a favorable change in unrealized netcapital gains and losses totaling $809 thousand.

 

**Financial ratings and strength** Weshare the insurance financial strength ratings of our parent, ALIC, as ourbusiness is reinsured to ALIC.  ALIC’sratings are influenced by many factors including operating and financialperformance, asset quality, liquidity, asset/liability management, overallportfolio mix, financial leverage (i.e., debt), exposure to risks, the currentlevel of operating leverage and AIC’s ratings.

 

OnFebruary 2, 2009, A.M. Best affirmed ALIC’s A+ financial strengthrating.  On January 29, 2009,S&P downgraded ALIC’s financial strength rating to AA- from AA.  The outlook for the rating remainednegative.  On January 29, 2009,Moody’s downgraded ALIC’s financial strength rating to A1 from Aa3.  The outlook for the rating was revised tostable from negative.

 

20

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## **Item 4.    Controls andProcedures**

##  

*Evaluation of Disclosure Controls and Procedures. *We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934.  Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness ofour disclosure controls and procedures as of the end of the period covered bythis report.  Based upon this evaluation,the principal executive officer and the principal financial officer concludedthat our disclosure controls and procedures are effective in providingreasonable assurance that material information required to be disclosed in ourreports filed with or submitted to the Securities and Exchange Commission underthe Securities Exchange Act is made known to management, including theprincipal executive officer and the principal financial officer, as appropriateto allow timely decisions regarding required disclosure.

 

*Changes in Internal Control over Financial Reporting. *During the fiscal quarter ended March 31, 2009, there have been nochanges in our internal control over financial reporting that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

21

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## **PART II.  OTHERINFORMATION**

##  

## **Item 1.  LegalProceedings**

##  

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 4 of the condensed financialstatements in Part I, Item 1, of this Form 10-Q.

 

**Item 1A. Risk Factors**

 

Thisdocument contains “forward-looking statements” that anticipate results based onour estimates, assumptions and plans that are subject to uncertainty.  These statements are made subject to thesafe-harbor provisions of the Private Securities Litigation Reform Act of1995.  We assume no obligation to updateany forward-looking statements as a result of new information or future eventsor developments.

 

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,financial results, litigation and reserves. We believe that these statements are based on reasonable estimates,assumptions and plans.  However, if theestimates, assumptions or plans underlying the forward-looking statements proveinaccurate or if other risks or uncertainties arise, actual results coulddiffer materially from those communicated in these forward-lookingstatements.  Risk factors which couldcause actual results to differ materially from those suggested by suchforward-looking statements include but are not limited to those discussed oridentified in this document (including the risks described below), in ourpublic filings with the Securities and Exchange Commission, and thoseincorporated by reference in Part I, Item 1A of Lincoln Benefit LifeCompany’s Annual Report on Form 10-K for 2008.

 

**A large scale pandemic, the continued threat of terrorism,and ongoing military actions may adversely affect the level of claim losses weincur and cede to ALIC and the value of our investment portfolio**

 

Aglobal pandemic and the continued threat of terrorism, both within the UnitedStates and abroad, and ongoing military and other actions and heightenedsecurity measures in response to these types of threats, may cause significantvolatility and losses from declines in the equity markets and from interestrate changes in the United States, Europe and elsewhere, and result in loss oflife, disruptions to commerce and reduced economic activity.  Some of the assets in our investmentportfolio may be adversely affected by declines in the equity markets andreduced economic activity caused by a global pandemic or the continued threatof terrorism.  Additionally, in the eventthat a global pandemic or a terrorist act occurs, we could be adversely affected,depending on the nature of the event.

 

## **Item6.  Exhibits**

##  

(a) Exhibits

 

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

 

22

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## **SIGNATURE**

##  

Pursuantto the 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 12,  2009 |                                |
|               |                                |
|               | By  /s/ Samuel H. Pilch             |
|               |                                |
|               | Samuel  H. Pilch                    |
|               | (Controller)                        |
|               | (chief  accounting officer and duly |
|               | authorized  officer of Registrant)  |

 

23

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| **Exhibit No.** | ** ** | **Description** |
|----------------------|------------|-----------------|
|                 |       |            |
| 31                   | (i)        |            | Rule 15d-14(a) Certification  of Principal Executive Officer |
|                 |       |            |
| 31                   | (i)        |            | Rule 15d-14(a) Certification  of Principal Financial Officer |
|                 |       |            |
|                 | 32         |            | Section 1350  Certifications |

 

E-1

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