** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

----

 

**FORM 10-Q**

 

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

 

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

**OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THEQUARTERLY PERIOD ENDED JUNE 30, 2005**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

**Commission file number: 333-111553**

 

**LINCOLN BENEFIT LIFE COMPANY**

(Exact name of registrant as specified in itscharter)

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

 

Registrant’stelephone number, including area code:  **800/525-9287**

 

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

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

 

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

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

 

**As of July 29, 2005, the registrant had 25,000 common shares, $100 parvalue, outstanding, all of which are held by Allstate Life Insurance Company**

 

 

----

 

**LINCOLN BENEFIT LIFE COMPANY**

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

**June 30, 2005**

 
| ** **   | ** **                                                                                                             | **Page**   |
|--------------|------------------------------------------------------------------------------------------------------------------------|------------|
| **PART I.**  | **FINANCIAL INFORMATION**                                                                                              | ** ** |
|         |                                                                                                                   |       |
| Item 1.      | Financial Statements                                                                                                   |       |
|         |                                                                                                                   |       |
|         | Condensed Statements of Operations for the Three-Month and Six-Month  Periods Ended June 30, 2005 and 2004 (unaudited) | 3          |
|         |                                                                                                                   |       |
|         | Condensed Statements of Financial Position as of June 30, 2005  (unaudited) and December 31, 2004                      | 4          |
|         |                                                                                                                   |       |
|         | Condensed Statements of Cash Flows for the Six-Month Periods Ended  June 30, 2005 and 2004 (unaudited)                 | 5          |
|         |                                                                                                                   |       |
|         | Notes to Condensed Financial Statements (unaudited)                                                                    | 6          |
|         |                                                                                                                   |       |
| Item 2.      | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                            | 11         |
|         |                                                                                                                   |       |
| Item 4.      | Controls and Procedures                                                                                                | 15         |
|         |                                                                                                                   |       |
| **PART II.** | **OTHER INFORMATION**                                                                                                  | ** ** |
|         |                                                                                                                   |       |
| Item 1.      | Legal Proceedings                                                                                                      | 15         |
|         |                                                                                                                   |       |
| Item 6.      | Exhibits                                                                                                               | 15         |

 

2

----

 

**PART I. FINANCIAL INFORMATION**

 

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

 

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

 

**CONDENSED STATEMENTS OF OPERATIONS**

 

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                            | ** ** | **June 30,**           | ** ** | **June 30,**         | ** ** |
| **(in thousands)**                                    | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                            | ** ** | **(unaudited)**        | ** ** | **(unaudited )**     | ** ** |
| **Revenues**                                          |       |                   |       |                 |       |   |   |   |   |
| Net investment income                                 |       | $                      | 3,429      |                 | $          | 2,791 |   | $ | 6,790 |   | $ | 5,565 |   |
| Realized capital gains and losses                     |       | (22                    | )          | —               |       | (117 | ) | — |   |
|                                                  |       |                   |       |                 |       |   |   |   |   |
| **Income from operations before income tax  expense** |       | 3,407                  |       | 2,791                |       | 6,673 |   | 5,565 |   |
|                                                  |       |                   |       |                 |       |   |   |   |   |
| Income tax expense                                    |       | 1,191                  |       | 975                  |       | 2,331 |   | 1,943 |   |
| **Net income**                                        |       | $                      | 2,216      |                 | $          | 1,816 |   | $ | 4,342 |   | $ | 3,622 |   |

 

See notes to condensed financial statements.

 

3

----

 

**LINCOLN BENEFIT LIFE COMPANY**

 

**CONDENSED STATEMENTS OF FINANCIAL POSITION**

 
| ** **                                                                                              | ** ** | **June 30,**    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| **(in thousands, except par value  data)**                                                              | ** ** | **2005**        | ** ** | **2004**         | ** ** |
| ** **                                                                                              | ** ** | **(Unaudited)** | ** ** | ** **       | ** ** |
|                                                                                                    |       |            |       |             |       |
| **Assets**                                                                                              |       |            |       |             |       |
| Investments                                                                                             |       |            |       |             |       |
| Fixed income securities, at fair value  (amortized cost $258,826 and $234,371)                          |       | $               | 267,818    |             | $          | 242,799 |   |
| Short-term                                                                                              |       | 4,553           |       | 30,408           |       |
| Total investments                                                                                       |       | 272,371         |       | 273,207          |       |
|                                                                                                    |       |            |       |             |       |
| Cash                                                                                                    |       | 21,126          |       | 10,532           |       |
| Reinsurance recoverable from Allstate Life  Insurance Company                                           |       | 17,865,257      |       | 17,083,056       |       |
| Reinsurance recoverable from non-affiliates                                                             |       | 919,413         |       | 839,738          |       |
| Receivable from affiliates                                                                              |       | 7,706           |       | 27,449           |       |
| Current income taxes receivable                                                                         |       | —          |       | 38               |       |
| Other assets                                                                                            |       | 83,303          |       | 83,853           |       |
| Separate Accounts                                                                                       |       | 2,455,496       |       | 2,368,312        |       |
| **Total assets**                                                                                        |       | $               | 21,624,672 |             | $          | 20,686,185 |   |
|                                                                                                    |       |            |       |             |       |
| **Liabilities**                                                                                         |       |            |       |             |       |
| Contractholder funds                                                                                    |       | $               | 17,002,871 |             | $          | 16,231,489 |   |
| Reserve for life-contingent contract  benefits                                                          |       | 1,763,049       |       | 1,671,729        |       |
| Current income taxes payable                                                                            |       | 2,293           |       | —           |       |
| Unearned premiums                                                                                       |       | 24,679          |       | 23,362           |       |
| Deferred income taxes                                                                                   |       | 3,455           |       | 3,257            |       |
| Other liabilities and accrued expenses                                                                  |       | 102,884         |       | 122,800          |       |
| Separate Accounts                                                                                       |       | 2,455,496       |       | 2,368,312        |       |
| **Total liabilities**                                                                                   |       | 21,354,727      |       | 20,420,949       |       |
|                                                                                                    |       |            |       |             |       |
| **Commitments and Contingent Liabilities  (Note 3)**                                                    |       |            |       |             |       |
|                                                                                                    |       |            |       |             |       |
| **Shareholder’s equity**                                                                           |       |            |       |             |       |
| Common stock, $100 par value, 30 thousand  shares authorized, 25 thousand shares issued and outstanding |       | 2,500           |       | 2,500            |       |
| Additional capital paid-in                                                                              |       | 180,000         |       | 180,000          |       |
| Retained income                                                                                         |       | 81,599          |       | 77,257           |       |
| Accumulated other comprehensive income:                                                                 |       |            |       |             |       |
| Unrealized net capital gains and losses                                                                 |       | 5,846           |       | 5,479            |       |
| **Total accumulated other comprehensive  income**                                                       |       | 5,846           |       | 5,479            |       |
| **Total shareholder’s equity**                                                                     |       | 269,945         |       | 265,236          |       |
| **Total liabilities and shareholder’s equity**                                                     |       | $               | 21,624,672 |             | $          | 20,686,185 |   |

 

See notes to condensed financial statements.

 

4

----

 

#### **LINCOLNBENEFIT LIFE COMPANY**

 

**CONDENSED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                               | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| **(in thousands)**                                                                                       | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| ** **                                                                                               | ** ** | **(Unaudited)**                | ** ** |
|                                                                                                     |       |                           |       |   |   |
| **Cash flows from operating activities**                                                                 |       |                           |       |   |   |
| ** **                                                                                               |       |                           |       |   |   |
| Net income                                                                                               |       | $                              | 4,342      |   | $ | 3,622 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:                       |       |                           |       |   |   |
| Amortization and other non-cash items                                                                    |       | 225                            |       | 140 |   |
| Realized capital gains and losses                                                                        |       | 117                            |       | — |   |
| Changes in:                                                                                              |       |                           |       |   |   |
| Reserve for life-contingent contract  benefits and contractholder funds, net of reinsurance recoverables |       | 826                            |       | (1,605 | ) |
| Income taxes payable                                                                                     |       | 2,331                          |       | 33 |   |
| Receivable/payable to affiliates, net                                                                    |       | 19,743                         |       | 5,859 |   |
| Other operating assets and liabilities                                                                   |       | (10,449                        | )          | 13,931 |   |
| Net cash provided by operating activities                                                                |       | 17,135                         |       | 21,980 |   |
|                                                                                                     |       |                           |       |   |   |
| **Cash flows from investing activities**                                                                 |       |                           |       |   |   |
| ** **                                                                                               |       |                           |       |   |   |
| Fixed income securities                                                                                  |       |                           |       |   |   |
| Proceeds from sales                                                                                      |       | 3,099                          |       | — |   |
| Investment collections                                                                                   |       | 7,793                          |       | 8,993 |   |
| Investment purchases                                                                                     |       | (43,288                        | )          | (13,542 | ) |
| Change in short-term investments                                                                         |       | 25,855                         |       | 694 |   |
| Net cash used in investing activities                                                                    |       | (6,541                         | )          | (3,855 | ) |
|                                                                                                     |       |                           |       |   |   |
| **Net increase in cash**                                                                                 |       | 10,594                         |       | 18,125 |   |
| **Cash at beginning of period**                                                                          |       | 10,532                         |       | 23,456 |   |
| **Cash at end of period**                                                                                |       | $                              | 21,126     |   | $ | 41,581 |   |

 

See notes to condensed financial statements.

 

5

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1.   Basis of Presentation**

 

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

 

The condensedfinancial statements and notes as of June 30, 2005, and for the three-month andsix-month periods ended June 30, 2005 and 2004, are unaudited.  The condensed financial statements reflectall adjustments (consisting only of normal recurring accruals) which are, inthe opinion of management, necessary for the fair presentation of the financialposition, results of operations and cash flows for the interim periods.  These condensed financial statements andnotes should be read in conjunction with the financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2004.  The results ofoperations for the interim periods should not be considered indicative ofresults to be expected for the full year.

 

**2.   Reinsurance**

 

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

 

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

 

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

 
| ** **                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                         | ** ** | **June 30,**           | ** ** | **June 30,**         | ** ** |
| ** **                                         | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| **(in thousands)**                                 |       |                   |       |                 |       |   |   |   |   |
| **Premiums and contract charges**                  |       |                   |       |                 |       |   |   |   |   |
| Direct                                             |       | $                      | 203,888    |                 | $          | 179,650 |   | $ | 401,596 |   | $ | 347,955 |   |
| Assumed-non-affiliate                              |       | 1,477                  |       | 1,045                |       | 2,603 |   | 1,695 |   |
| Ceded                                              |       |                   |       |                 |       |   |   |   |   |
| Affiliate                                          |       | (105,622               | )          | (99,871              | )          | (222,455 | ) | (189,277 | ) |
| Non-affiliate                                      |       | (99,743                | )          | (80,824              | )          | (181,744 | ) | (160,373 | ) |
| Premiums and contract charges, net of  reinsurance |       | $                      | —     |                 | $          | — |   | $ | — |   | $ | — |   |

 

6

----

 

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

 
| ** **                                                                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                                   | ** ** | **June 30,**           | ** ** | **June 30,**         | ** ** |
| ** **                                                                                                   | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| **(in thousands)**                                                                                           |       |                   |       |                 |       |   |   |   |   |
| **Interest credited to contractholder funds,  contract benefits and certain other expenses**                 |       |                   |       |                 |       |   |   |   |   |
| Direct                                                                                                       |       | $                      | 451,593    |                 | $          | 393,195 |   | $ | 1,036,412 |   | $ | 807,647 |   |
| Assumed-non-affiliate                                                                                        |       | 1,698                  |       | 1,802                |       | 3,118 |   | 2,263 |   |
| Ceded                                                                                                        |       |                   |       |                 |       |   |   |   |   |
| Affiliate                                                                                                    |       | (343,655               | )          | (305,238             | )          | (797,967 | ) | (636,660 | ) |
| Non-affiliate                                                                                                |       | (109,636               | )          | (89,759              | )          | (241,563 | ) | (173,250 | ) |
| Interest credited to contractholder funds,  contract benefits and certain other expenses, net of reinsurance |       | $                      | —     |                 | $          | — |   | $ | — |   | $ | — |   |

 

EffectiveJanuary 1, 2004, the Company adopted Statementof Position 03-1, “Accounting and Reporting by Insurance Enterprises forCertain Nontraditional Long-Duration Contracts and for Separate Accounts” (“SOP03-1”) and, in connection therewith, recorded a cumulative effect ofchange in accounting principle of $26.9 million, after-tax ($41.4 million,pre-tax) that was ceded to ALIC.

 

**3.   Guarantees and Contingent Liabilities**

 

**Guarantees**

 

The Company has issued universal lifeinsurance contracts to third parties who finance the premium payments on theuniversal life insurance contracts through a commercial paper program.  The Company has issued a repayment guaranteeon the outstanding commercial paper balance that is fully collateralized by thecash surrender value of the universal life insurance contracts.  At June 30, 2005, the amount due under thecommercial paper program is $301 million and the cash surrender value of thepolicies is $306 million.  Therepayment guarantee expires April 30, 2006. These contracts are ceded to ALIC under the terms of the reinsuranceagreements.

 

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

 

The aggregateliability balance related to all guarantees was not material as of June 30,2005.

 

**Regulation**

 

The Company is subject to changing social, economic and regulatoryconditions.  Recent state and federalregulatory initiatives and proceedings have included efforts to imposeadditional regulations regarding agent and broker compensation and otherwiseexpand overall regulation of insurance products and the insuranceindustry.  The ultimate changes andeventual effects of these initiatives on the Company’s business, if any, areuncertain.

 

7

----

 

**Legal and Regulatory Proceedings andInquiries**

 

**Background**

 

The Company and certain of its affiliates arenamed as defendants in a number of lawsuits and other legal proceedings arisingout of various aspects of its business. In addition, from time to time regulatory examinations or inquiries arepending involving the Company.  Asbackground to the “Proceedings” sub-section below, please note the following:

 

•                  These mattersraise difficult and complicated factual and legal issues and are subject tomany uncertainties and complexities, including but not limited to, theunderlying facts of each matter, novel legal issues, variations betweenjurisdictions in which matters are being litigated, differences in applicable lawsand judicial interpretations, the length of time before many of these mattersmight be resolved by settlement or through litigation and, in some cases, thetiming of their resolutions relative to other similar cases brought againstother companies, the fact that some of these matters are putative class actionsin which a class has not been certified and in which the purported class maynot be clearly defined, the fact that some of these matters involve multi-stateclass actions in which the applicable law(s) for the claims at issue is indispute and therefore unclear, and the current challenging legal environmentfaced by large corporations and insurance companies.

 

•                  In thesematters, plaintiffs seek a variety of remedies including equitable relief in theform of injunctive and other remedies and monetary relief in the form ofcontractual and extra-contractual damages. In some cases, the monetary damages sought include punitive damages orare not specified.  Often more specificinformation beyond the type of relief sought is not available becauseplaintiffs have not requested more specific relief in their courtpleadings.  In our experience, monetarydemands in plaintiffs’ court pleadings bear little relation to the ultimateloss, if any, to the Company.

 

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

 

•                  In the opinionof the Company’s management, while the ultimate liability in some of thesematters in excess of amounts currently reserved may be material to the Company’soperating results for any particular period if an unfavorable outcome results,none will have a material adverse effect on the financial condition of theCompany.

 

**Proceedings**

 

Legal proceedings involving Allstate agencies and AIC may impact theCompany, even when the Company is not directly involved, because the Companysells its products through a variety of distribution channels includingAllstate agencies.  Consequently,information about the more significant of these proceedings is provided in thefollowing paragraph.

 

AIC is defending certain matters relating toits agency program reorganization announced in 1999. These matters include alawsuit filed in December 2001 by the U.S. Equal Employment OpportunityCommission (“EEOC”) alleging retaliation under federal civil rights laws, aclass action filed in August 2001 by former employee agents allegingretaliation and age discrimination under the Age Discrimination in EmploymentAct, breach of contract and ERISA violations, and a lawsuit filed in October2004 by the EEOC alleging age discrimination with respect to a policy limitingthe rehire of agents affected by the agency program reorganization.  AIC is also defending another action, inwhich a class was certified, filed

 

8

----

 

by formeremployee agents who terminated their employment prior to the agency programreorganization.  These plaintiffs haveasserted breach of contract and ERISA claims and are seeking actual damagesincluding benefits under Allstate employee benefit plans and payments providedin connection with the reorganization, as well as punitive damages.  In late March 2004, in the first EEOC lawsuitand class action lawsuit, the trial court issued a memorandum and order that,among other things, certified classes of agents, including a mandatory class ofagents who had signed a release, for purposes of effecting the court’sdeclaratory judgment that the release is voidable at the option of the releasesigner.  The court also ordered that anagent who voids the release must return to AIC “any and all benefits receivedby the [agent] in exchange for signing the release.”  The court also “concluded that, on theundisputed facts of record, there is no basis for claims of age discrimination.”  The EEOC and plaintiffs have asked the courtto clarify and/or reconsider its memorandum and order.  The case otherwise remains pending.  A putative nationwide class action has alsobeen filed by former employee agents alleging various violations of ERISA,including a worker classification issue. These plaintiffs are challenging certain amendments to the AgentsPension Plan and are seeking to have exclusive agent independent contractorstreated as employees for benefit purposes. This matter was dismissed with prejudice by the trial court, was thesubject of further proceedings on appeal, and has been reversed and remanded tothe trial court in April 2005.  In thesematters, plaintiffs seek compensatory and punitive damages, and equitablerelief.  AIC has been vigorouslydefending these lawsuits and other matters related to its agency programreorganization.  In addition, AIC hasbeen defending certain matters relating to its life agency programreorganization announced in 2000.  Thesematters have been the subject of an investigation by the EEOC with respect toallegations of age discrimination and retaliation and conciliation discussionsbetween AIC and the EEOC.  The outcome ofthese disputes is currently uncertain.

##  

**Other Matters**

 

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

 

## **Various other legal and regulatory actionsare currently pending that involve the Company and specific aspects of itsconduct of business.  Like other membersof the insurance industry, the Company is the target of a number of lawsuitsand proceedings, some of which involve claims for substantial or indeterminateamounts. These actions are based on a variety of issues and target a range ofthe Company’s practices. The outcome of these disputes is currentlyunpredictable.**

 

## **However, at this time, based on their presentstatus and the existence of the reinsurance agreements with ALIC related topolicy liabilities, it is the opinion of management that the ultimateliability, if any, in one or more of the actions described in this “OtherMatters” subsection in excess of amounts currently reserved is not expected tohave a material effect on the results of operations, liquidity or financialcondition of the Company.**

 

9

----

 

**4.   Other Comprehensive Income**

 

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

 
| ** **                                                   | ** ** | **Three Months Ended June 30,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------|------------|
| **(in thousands)**                                           | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | ** **                      | ** ** | ** ** | ** ** | **After-** | ** ** | ** ** | ** ** | ** ** | ** ** | **After-** | ** ** |
| ** **                                                   | ** ** | **Pretax**                      | ** ** | **Tax** | ** ** | **tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **tax** | ** ** |
| Unrealized holding gains (losses) arising  during the period |       | $                               | 5,995      |   | $ | (2,097 | ) | $ | 3,898 |   | $ | (9,923 | ) | $ | 3,473 |   | $ | (6,450 | ) |
| Less: reclassification adjustments                           |       | (22                             | )          | 8 |   | (14 | ) | — |   | — |   | — |   |
| Other comprehensive income (loss)                            |       | $                               | 6,017      |   | $ | (2,105 | ) | 3,912 |   | $ | (9,923 | ) | $ | 3,473 |   | (6,450 | ) |
|                                                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                   |       |                            |       |   |   | 2,216 |   |   |   |   |   | 1,816 |   |
| Comprehensive income (loss)                                  |       |                            |       |   |   | $ | 6,128 |   |   |   |   |   | $ | (4,634 | ) |

 
| ** **                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------|------------|
| **(in thousands)**                                           | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | ** **                    | ** ** | ** ** | ** ** | **After-** | ** ** | ** ** | ** ** | ** ** | ** ** | **After-** | ** ** |
| ** **                                                   | ** ** | **Pretax**                    | ** ** | **Tax** | ** ** | **Tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **tax** | ** ** |
| Unrealized holding gains (losses) arising  during the period |       | $                             | 447        |   | $ | (156 | ) | $ | 291 |   | $ | (6,181 | ) | $ | 2,163 |   | $ | (4,018 | ) |
| Less: reclassification adjustments                           |       | (117                          | )          | 41 |   | (76 | ) | — |   | — |   | — |   |
| Other comprehensive income (loss)                            |       | $                             | 564        |   | $ | (197 | ) | 367 |   | $ | (6,181 | ) | $ | 2,163 |   | (4,018 | ) |
|                                                         |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                   |       |                          |       |   |   | 4,342 |   |   |   |   |   | 3,622 |   |
| Comprehensive income (loss)                                  |       |                          |       |   |   | $ | 4,709 |   |   |   |   |   | $ | (396 | ) |

 

10

----

 

**Item 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THETHREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004**

 

**OVERVIEW**

 

The followingdiscussion highlights significant factors influencing the financial positionand results of operations of Lincoln Benefit Life Company (referred to in thisdocument as “we”, “our”, “us” or the “Company”).  It should be read in conjunction with thecondensed financial statements and notes thereto found under Part I. Item 1.contained herein, and with the discussion, analysis, financial statements andnotes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of theLincoln Benefit Life Company Annual Report on Form 10-K for 2004.  We operate as a single segment entity,consistent with the way in which we use financial information to evaluateperformance and to determine the allocation of resources.

 

## **OPERATIONS**

 
| ** **                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                        | ** ** | **June 30,**           | ** ** | **June 30,**         | ** ** |
| **(in thousands)**                | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                              |       |                   |       |                 |       |   |   |   |   |
| Net investment income             |       | $                      | 3,429      |                 | $          | 2,791 |   | $ | 6,790 |   | $ | 5,565 |   |
| Realized capital gains and losses |       | (22                    | )          | —               |       | (117 | ) | — |   |
| Income tax expense                |       | (1,191                 | )          | (975                 | )          | (2,331 | ) | (1,943 | ) |
| Net income                        |       | $                      | 2,216      |                 | $          | 1,816 |   | $ | 4,342 |   | $ | 3,622 |   |

 

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

 

**Netincome** increased 22.0% in the three months ended June30, 2005 and 19.9% in the first six months of 2005 compared to the same periodsin 2004. The increases were due to improved net investment income, partiallyoffset by realized capital losses recorded in the current period.

 

**Netinvestment income** increased 22.9% in the three monthsended June 30, 2005 and 22.0% in the first six months of 2005 compared to thesame periods of 2004.  The increases inboth periods were primarily due to the effect of higher portfolio balances,partially offset by lower portfolio yields. Higher portfolio balances resulted from a capital contribution from ALICin 2004 and the investment of cash flows from operating activities.  Lower portfolio yields were due to purchases,including reinvestments, of fixed income securities with yields lower than thecurrent portfolio average.

 

**Realizedcapital losses** of $22 thousand and $117 thousand wererecorded in the second quarter and for the first six months of 2005,respectively, resulting from sales of fixed income securities.

 

11

----

 

**FINANCIALPOSITION**

 
| **(in thousands)**                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|--------------|------------|------------------|------------|
| ** **                                     | ** ** | **2005**     | ** ** | **2004**         | ** ** |
| Fixed income securities (1)                    |       | $            | 267,818    |             | $          | 242,799 |   |
| Short-term                                     |       | 4,553        |       | 30,408           |       |
| Total investments                              |       | $            | 272,371    |             | $          | 273,207 |   |
|                                           |       |         |       |             |       |
| Cash                                           |       | $            | 21,126     |             | $          | 10,532 |   |
|                                           |       |         |       |             |       |
| Reinsurance recoverable from ALIC              |       | 17,865,257   |       | 17,083,056       |       |
|                                           |       |         |       |             |       |
| Reinsurance recoverable from non-affiliates    |       | 919,413      |       | 839,738          |       |
|                                           |       |         |       |             |       |
| Contractholder funds                           |       | 17,002,871   |       | 16,231,489       |       |
|                                           |       |         |       |             |       |
| Reserve for life-contingent contract  benefits |       | 1,763,049    |       | 1,671,729        |       |
|                                           |       |         |       |             |       |
| Separate Accounts assets and liabilities       |       | 2,455,496    |       | 2,368,312        |       |

 

----

(1) Fixed income securities arecarried at fair value.  Amortized costbasis for these securities was $258.8 million and $234.4 million at June 30,2005 and December 31, 2004, respectively.

 

Totalinvestments of $272.4 million at June 30, 2005 were slightly down from $273.2million at December 31, 2004 as cash inflows from operating activities were yetto be invested at June 30, 2005.

 

At June 30, 2005, 100% of the fixed income securities portfolio wasrated investment grade, which is defined as a security having a rating from theNational Association of Insurance Commissioners (“NAIC”) of 1 or 2, a Moody’sequivalent rating of Aaa, Aa, A or Baa; an S&P equivalent rating of AAA,AA, A or BBB; or a comparable internal rating when an external rating is notavailable.

 

The unrealized net capital gains on fixed income securities at June 30,2005 were $9.0 million, an increase of $564 thousand or 6.7% since December 31,2004.  The net unrealizedgain was comprised of $9.8 million of unrealized gains and $841 thousand ofunrealized losses at June 30, 2005.  Thisis compared to a net unrealized gain for the fixed income portfolio totaling $8.4million at December 31, 2004, comprised of $9.7 million of unrealized gains and$1.3 million of unrealized losses.  Ofthe gross unrealized losses in the fixed income portfolio, 56.2% wereconcentrated in the corporate fixed income portfolio.  The losses were primarily comprised ofsecurities in the capital goods, transportation and financial servicessectors.  The gross unrealized losses inthese sectors were primarily interest rate related.  While we expect eventual recovery of thesesecurities and the related sectors, we included every security in our portfoliomonitoring process.

 

Our portfoliomonitoring process identifies and evaluates fixed income securities whosecarrying value may be other than temporarily impaired.  The process includes a quarterly review ofall securities using a screening process to identify those securities whosefair value compared to amortized cost for fixed income securities is belowestablished thresholds for certain time periods, or which are identifiedthrough other monitoring criteria such as ratings downgrades or paymentdefaults.  We also recognize impairmenton securities in an unrealized loss position for which we do not have theintent and ability to hold until recovery.

 

We also monitor the quality of our fixed income portfolioby categorizing certain investments as “problem”, “restructured” or “potentialproblem.”  Problem fixed incomesecurities are securities in default with respect to principal or interestand/or securities issued by companies that have gone into bankruptcy subsequentto our acquisition of the security. Restructured fixed income securities have rates and terms that are notconsistent with market rates or terms prevailing at the time of therestructuring.  Potential problem fixedincome securities are current with respect to contractual principal and/orinterest, but because of other facts and circumstances, we have seriousconcerns regarding the borrower’s ability to pay future principal and interest,which causes us to believe these securities may be classified as problem orrestructured in the future.

 

12

----

 

As of June 30,2005 and December 31, 2004, we had no securities categorized as “problem”, “restructured”or “potential problem.”

 

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

 

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

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **June 30,**           | ** ** | **June 30,**         | ** ** |
| **(in thousands)**                                | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                              |       |                   |       |                 |       |   |   |   |   |
| Dispositions                                      |       | $                      | (22        | )                    | $          | — |   | $ | (117 | ) | $ | — |   |
| Realized capital gains and losses, pretax         |       | (22                    | )          | —               |       | (117 | ) | — |   |
| Income tax benefit                                |       | 8                      |       | —               |       | 41 |   | — |   |
| **Realized capital gains and losses,  after-tax** |       | $                      | (14        | )                    | $          | — |   | $ | (76 | ) | $ | — |   |

 

Dispositions in the above table include salesand other transactions such as calls and prepayments.  We may sell securities during the period inwhich fair value has declined below amortized cost.  Recognizing in certain situations new factorssuch as negative developments, subsequent credit deterioration, relative valueopportunities, market liquidity concerns and portfolio reallocations, we cansubsequently change our previous intent to continue holding a security.

 

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

 

Contractholderfunds increased $771.4 million to $17.0 billion at June 30, 2005, from $16.23billion at December 31, 2004 as a result of deposits from fixed annuities andinterest-sensitive life policies, and interest credited to contractholder funds, partially offset by surrenders,withdrawals, benefit payments and contract charges.  The reserve for life-contingent contractbenefits increased $91.3 million to $1.76 billion at June 30, 2005 resultingfrom sales of immediate annuities with life contingencies and traditional lifeproducts.  Correspondingly, reinsurancerecoverable from ALIC and reinsurance recoverable from non-affiliates increasedby $782.2 million and $79.7 million, respectively, during the first six monthsof 2005 since all contractholder obligations are reinsured.

 

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

 

13

----

 

**CAPITALRESOURCES AND LIQUIDITY**

 

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

 
| **(in thousands)**                                            | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| Common stock, additional capital paid-in  and retained income |       | $                 | 264,099    |                  | $          | 259,757 |   |
| Accumulated other comprehensive income                        |       | 5,846             |       | 5,479                 |       |
| Total shareholder’s equity                               |       | $                 | 269,945    |                  | $          | 265,236 |   |

 

*Shareholder’s equity*increased for the first six months of 2005 when compared to December 31, 2004,due to net income and, to a much lesser extent, higher net unrealized capitalgains.

 

**FinancialRatings and Strength** We share the insurance financial strength ratings of our parent, ALIC,as our business is reinsured to ALIC. ALIC’s ratings are influenced by many factors including operating andfinancial performance, asset quality, liquidity, asset/liability management,overall portfolio mix, financial leverage (i.e., debt), and exposure to riskssuch as the current level of operating leverage.  There have been no changes in ALIC’sinsurance financial strength ratings since December 31, 2004.

 

14

----

 

**Item 4.    Controls and Procedures**

 

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

 

*Changes in Internal Control over FinancialReporting. *Duringthe fiscal quarter ended June 30, 2005, there were no changes in our internalcontrol over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

**PARTII.  OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

Informationrequired for this Part II, Item 1, is incorporated by reference to thediscussion under the heading “Regulation” and under the heading “Legal andRegulatory Proceedings and Inquires” in Note 3 of the Company’s CondensedFinancial Statements in Part I, Item 1, of this Form 10-Q.

 

**Item 6. Exhibits**

 

(a)  Exhibits

 

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

 

15

----

 

## **SIGNATURE**

 

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

 
|           | Lincoln  Benefit Life Company                                              |
|----------------|----------------------------------------------------------------------------|
|           |                                                                       |
|           | (Registrant)                                                               |
| August 8, 2005 |                                                                       |
|           |                                                                       |
|           | By                                                                         | /s/ Samuel  H. Pilch |   |
|           |                                                                       |
|           | Samuel H.  Pilch                                                           |
|           | Controller                                                                 |
|           | (chief  accounting officer and duly authorized  officer of the registrant) |

 

16

----

 
| **Exhibit No.** | ** ** | **Description** |
|-----------------|------------|-----------------|
|            |       |            |
| 31.1            |       |            | Rule 15d-14(a) Certification of Principal Executive Officer |
|            |       |            |   |
| 31.2            |       |            | Rule 15d-14(a) Certification of Principal Financial Officer |
|            |       |            |   |
| 32              |       |            | Section 1350 Certifications |

 

E-1

----