** **

**UNITED STATES**

**SECURITIES AND 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 the reduced disclosureformat.**

 

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

**OF**

**THESECURITIES EXCHANGE ACT OF 1934**

**FORTHE QUARTERLY PERIOD ENDED MARCH 31, 2006**

 

**OR**

 

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

**OF**

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

 

**Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months, and (2) has been subject to such filingrequirements for the past 90 days.**

** **

**Yes****ý        No****o**

 

**Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.**

 
| ** ** | **Large accelerated filer** | **Accelerated filer** | **Non-accelerated filer** |
|------------|-----------------------------|-----------------------|---------------------------|
| ** ** | **o**                       | **o**                 | **ý**                |

 

**Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).**

** **

**Yes****o        No****ý**

** **

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

 

**As of May 8, 2006, 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**

##### **March 31, 2006**

 
| **PART I.**  | **FINANCIAL INFORMATION**                                                                                 | ** ** |
|--------------|-----------------------------------------------------------------------------------------------------------|------------|
|         |                                                                                                      |       |
| Item 1.      | Financial Statements                                                                                      |       |
|         |                                                                                                      |       |
|         | Condensed Statements of Operations for the Three-Month Periods Ended  March 31, 2006 and 2005 (unaudited) | 1          |
|         |                                                                                                      |       |
|         | Condensed Statements of Financial Position as of March 31, 2006  (unaudited) and December 31, 2005        | 2          |
|         |                                                                                                      |       |
|         | Condensed Statements of Cash Flows for the Three-Month Periods Ended  March 31, 2006 and 2005 (unaudited) | 3          |
|         |                                                                                                      |       |
|         | Notes to Condensed Financial Statements (unaudited)                                                       | 4          |
|         |                                                                                                      |       |
| Item 2.      | Management’s Discussion and Analysis of Financial Condition and  Results of Operations               | 9          |
|         |                                                                                                      |       |
| Item 4.      | Controls and Procedures                                                                                   | 13         |
|         |                                                                                                      |       |
| **PART II.** | **OTHER INFORMATION**                                                                                     | ** ** |
|         |                                                                                                      |       |
| Item 1.      | Legal Proceedings                                                                                         | 14         |
|         |                                                                                                      |       |
| Item 1A.     | Risk Factors                                                                                              | 14         |
|         |                                                                                                      |       |
| Item 6.      | Exhibits                                                                                                  | 14         |

** **

----

####  

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

####  

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

####  

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

####  

**CONDENSEDSTATEMENTS OF OPERATIONS**

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **March 31,**               | ** ** |
| **(in thousands)**                               | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | **(Unaudited)**                  | ** ** |
| **Revenues**                                          |       |                             |       |   |   |
| Net investment income                                 |       | $                                | 3,389      |   | $ | 3,361 |   |
| Realized capital gains and losses                     |       | —                           |       | (95 | ) |
|                                                  |       |                             |       |   |   |
| **Income from operations before income tax  expense** |       | 3,389                            |       | 3,266 |   |
| Income tax expense                                    |       | 1,183                            |       | 1,140 |   |
| **Net income**                                        |       | $                                | 2,206      |   | $ | 2,126 |   |

 

See notes to condensed financial statements.

 

1

----

 

**LINCOLN BENEFIT LIFE COMPANY**

 

**CONDENSEDSTATEMENTS OF FINANCIAL POSITION**

 
| ** **                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(in thousands, except par value data)**                                      | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| ** **                                                                                              | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
|                                                                                                    |       |               |       |                  |       |
| **Assets**                                                                                              |       |               |       |                  |       |
| Investments                                                                                             |       |               |       |                  |       |
| Fixed income securities, at fair value  (amortized cost $266,369 and $266,457)                          |       | $                  | 262,080    |                  | $          | 267,545 |   |
| Short-term                                                                                              |       | 7,368              |       | 3,824                 |       |
| Total investments                                                                                       |       | 269,448            |       | 271,369               |       |
|                                                                                                    |       |               |       |                  |       |
| Cash                                                                                                    |       | 7,474              |       | 8,349                 |       |
| Reinsurance recoverable from Allstate Life  Insurance Company                                           |       | 18,577,750         |       | 18,350,983            |       |
| Reinsurance recoverable from non-affiliates                                                             |       | 1,060,623          |       | 1,019,850             |       |
| Receivable from affiliates                                                                              |       | 21,849             |       | 10,394                |       |
| Deferred income taxes                                                                                   |       | 1,263              |       | —                |       |
| Other assets                                                                                            |       | 90,665             |       | 96,059                |       |
| Separate Accounts                                                                                       |       | 2,890,255          |       | 2,718,509             |       |
| **Total assets**                                                                                        |       | $                  | 22,919,327 |                  | $          | 22,475,513 |   |
|                                                                                                    |       |               |       |                  |       |
| **Liabilities**                                                                                         |       |               |       |                  |       |
| Contractholder funds                                                                                    |       | $                  | 17,687,591 |                  | $          | 17,462,104 |   |
| Reserve for life-contingent contract  benefits                                                          |       | 1,931,788          |       | 1,892,194             |       |
| Current income taxes payable                                                                            |       | 5,924              |       | 4,769                 |       |
| Unearned premiums                                                                                       |       | 27,037             |       | 26,992                |       |
| Deferred income taxes                                                                                   |       | —             |       | 591                   |       |
| Other liabilities and accrued expenses                                                                  |       | 108,770            |       | 101,103               |       |
| Separate Accounts                                                                                       |       | 2,890,255          |       | 2,718,509             |       |
| **Total liabilities**                                                                                   |       | 22,651,365         |       | 22,206,262            |       |
|                                                                                                    |       |               |       |                  |       |
| **Commitments and Contingent Liabilities  (Note 3)**                                                    |       |               |       |                  |       |
|                                                                                                    |       |               |       |                  |       |
| **Shareholder’s equity**                                                                           |       |               |       |                  |       |
| Common stock, $100 par value, 30 thousand  shares authorized, 25 thousand shares issued and outstanding |       | 2,500              |       | 2,500                 |       |
| Additional capital paid-in                                                                              |       | 180,000            |       | 180,000               |       |
| Retained income                                                                                         |       | 88,250             |       | 86,044                |       |
| Accumulated other comprehensive income:                                                                 |       |               |       |                  |       |
| Unrealized net capital gains and losses                                                                 |       | (2,788             | )          | 707                   |       |
| **Total accumulated other comprehensive  income**                                                       |       | (2,788             | )          | 707                   |       |
| **Total shareholder’s equity**                                                                     |       | 267,962            |       | 269,251               |       |
| **Total liabilities and shareholder’s equity**                                                     |       | $                  | 22,919,327 |                  | $          | 22,475,513 |   |

 

See notes to condensed financial statements.

 

2

----

 

#### **LINCOLNBENEFIT LIFE COMPANY**

####  

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

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                                            | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                                  | ** ** |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from operating activities**                                           |       |                                             |       |   |   |
|                                                                               |       |                                             |       |   |   |
| Net income                                                                         |       | $                                                | 2,206      |   | $ | 2,126 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                             |       |   |   |
| Amortization and other non-cash items                                              |       | 122                                              |       | 109 |   |
| Realized capital gains and losses                                                  |       | —                                           |       | 95 |   |
| Changes in:                                                                        |       |                                             |       |   |   |
| Contract benefits and other insurance  reserves, net of reinsurance recoverables   |       | (2,459                                           | )          | (3,037 | ) |
| Income taxes payable                                                               |       | 1,183                                            |       | 1,140 |   |
| Receivable/payable to affiliates, net                                              |       | (11,455                                          | )          | 48,540 |   |
| Other operating assets and liabilities                                             |       | 13,106                                           |       | (42,886 | ) |
| Net cash provided by operating activities                                          |       | 2,703                                            |       | 6,087 |   |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from investing activities**                                           |       |                                             |       |   |   |
|                                                                               |       |                                             |       |   |   |
| Fixed income securities                                                            |       |                                             |       |   |   |
| Proceeds from sales                                                                |       | —                                           |       | 2,040 |   |
| Investment collections                                                             |       | 6,123                                            |       | 4,925 |   |
| Investment purchases                                                               |       | (6,157                                           | )          | (31,444 | ) |
| Change in short-term investments                                                   |       | (3,544                                           | )          | 21,071 |   |
| Net cash used in investing activities                                              |       | (3,578                                           | )          | (3,408 | ) |
|                                                                               |       |                                             |       |   |   |
| **Net (decrease) increase in cash**                                                |       | (875                                             | )          | 2,679 |   |
| **Cash at beginning of period**                                                    |       | 8,349                                            |       | 10,532 |   |
| **Cash at end of period**                                                          |       | $                                                | 7,474      |   | $ | 13,211 |   |

 

See notes to condensed financial statements.

 

3

----

 

**LINCOLN BENEFIT LIFE COMPANY**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

## **1.**Basis of Presentation

##  

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

 

The condensedfinancial statements and notes as of March 31, 2006, and for the three-monthperiods ended March 31, 2006 and 2005, are unaudited. The condensed financialstatements reflect all adjustments (consisting only of normal recurringaccruals) which are, in the opinion of management, necessary for the fairpresentation of the financial position, results of operations and cash flowsfor the interim periods. These condensed financial statements and notes shouldbe read in conjunction with the financial statements and notes thereto includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2005. The results of operations for the interim periods should not beconsidered indicative of results to be expected for the full year.

 

### **Adoptedaccounting standards**

### ** **

*Financial Accounting Standards Board StaffPosition No. FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments”   (“FSPFAS 115-1”)*

 

The Companyadopted Financial Accounting Standards Board (“FASB”) FSP FAS 115-1 as ofJanuary 1, 2006. FSP 115-1 nullifies the guidance in paragraphs 10-18 of EITFIssue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Applicationto Certain Investments” and references existing other than temporary impairmentguidance. FSP FAS 115-1 clarifies that an investor should recognize animpairment loss no later than when the impairment is deemedother-than-temporary, even if a decision to sell the security has not beenmade, and also provides guidance on the subsequent accounting for incomerecognition on an impaired debt security. The adoption of FSP FAS 115-1 wasrequired on a prospective basis and did not have a material effect on theresults of operations or financial position of the Company.

 

*Statementof Financial Accounting Standards No. 154, “Accounting Changes and ErrorCorrections” (“SFAS No. 154”)*

 

TheCompany adopted SFAS No. 154 on January 1, 2006. SFAS No. 154 replacesAccounting Principles Board (“APB”) Opinion No. 20, “Accounting Changes”, andSFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFASNo. 154 requires retrospective application to prior periods’ financialstatements for changes in accounting principle, unless determination of eitherthe period specific effects or the cumulative effect of the change isimpracticable or otherwise promulgated. The Company had no accounting changesor error corrections in the current period affected by the new standard.

 

**Pendingaccounting standard**

** **

***Statement of Position 05-1, “Accounting by InsuranceEnterprises for Deferred Acquisition Costs in Connection with Modifications orExchanges of Insurance Contracts” (“SOP 05-1”)***

** **

InOctober 2005, the AICPA issued SOP 05-1. SOP 05-1 provides accounting guidancefor deferred policy acquisition costs associated with internal replacements ofinsurance and investment contracts other than those already described in SFASNo. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-DurationContracts and for Realized Gains and Losses from the Sale of Investments”. SOP05-1 defines an internal replacement as a modification in product benefits,features, rights or coverages that occurs by the exchange of a contract for anew contract, or by amendment, endorsement or rider to a contract, or by theelection of a feature or coverage within a contract. The provisions of SOP 05-1are effective for internal replacements occurring in fiscal years beginningafter December 15, 2006. The Company is currently assessing the impact of theSOP on its results of operations and financial position. Any impact resultingfrom the adoption of SOP 05-1 on the Company’s results of operations will beceded to ALIC under the terms of the reinsurance agreements.

 

4

----

 

## **2. Reinsurance**

##  

The Companyhas reinsurance agreements under which it reinsures all of its business to ALICor other non-affiliated reinsurers. Under the agreements, premiums, contractcharges, interest credited to contractholder funds, contract benefits andcertain expenses are reinsured. The Company continues to have primary liabilityas the direct insurer for risks reinsured.

 

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  March 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                         | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **(in thousands)**                                 |       |                                             |       |   |   |
| **Premiums and contract charges**                  |       |                                             |       |   |   |
| Direct                                             |       | $                                                | 220,164    |   | $ | 197,708 |   |
| Assumed - non-affiliate                            |       | 2,021                                            |       | 1,126 |   |
| Ceded                                              |       |                                             |       |   |   |
| Affiliate                                          |       | (124,880                                         | )          | (116,833 | ) |
| Non-affiliate                                      |       | (97,305                                          | )          | (82,001 | ) |
| Premiums and contract charges, net of  reinsurance |       | $                                                | —     |   | $ | — |   |

 

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

 
| ** **                                                                                                   | ** ** | **Three months ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **(in thousands)**                                                                                           |       |                                             |       |   |   |
| **Interest credited to contractholder funds,  contract benefits and certain other expenses**                 |       |                                             |       |   |   |
| Direct                                                                                                       |       | $                                                | 480,157    |   | $ | 584,819 |   |
| Assumed - non-affiliate                                                                                      |       | 2,050                                            |       | 1,420 |   |
| Ceded                                                                                                        |       |                                             |       |   |   |
| Affiliate                                                                                                    |       | (359,951                                         | )          | (454,312 | ) |
| Non-affiliate                                                                                                |       | (122,256                                         | )          | (131,927 | ) |
| Interest credited to contractholder funds,  contract benefits and certain other expenses, net of reinsurance |       | $                                                | —     |   | $ | — |   |

 

5

----

 

## **3. Guaranteesand Contingent Liabilities**

##  

## **Guarantees**

##  

In the normalcourse of business, the Company provides standard indemnifications tocounterparties in contracts in connection with numerous transactions, includingacquisitions and divestitures. The types of indemnifications typically providedinclude indemnifications for breaches of representations and warranties, taxesand certain other liabilities, such as third 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 the indemnifications vary in duration andnature. 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, the maximum amount of the obligation undersuch indemnifications is not determinable. Historically, the Company has notmade any material payments pursuant to these obligations.

 

The aggregateliability balance related to all guarantees was not material as of March 31,2006.

 

## **Regulation**

##  

TheCompany is subject to changing social, economic and regulatory conditions. Fromtime to time regulatory authorities seek to impose additional regulationsregarding agent and broker compensation and otherwise expand overall regulationof insurance products and the insurance industry. The ultimate changes andeventual effects of these initiatives on the Company’s business, if any, areuncertain.

 

**Legal and regulatory proceedings andinquiries**

 

**Background**

 

The Company and certain affiliates areinvolved in a number of lawsuits, regulatory inquiries, and other legalproceedings arising out of various aspects of its business. As background tothe “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, heard or investigated;differences in applicable laws and judicial interpretations; the length of timebefore many of these matters might be resolved by settlement, throughlitigation or otherwise and, in some cases, the timing of their resolutionsrelative to other similar matters involving other companies; the fact that someof the 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 applicablelaw(s) for the claims at issue is in dispute and therefore unclear; and thecurrent challenging legal environment faced by large corporations and insurancecompanies.

 

•                  In the lawsuits,plaintiffs seek a variety of remedies including equitable relief in the form ofinjunctive and other remedies and monetary relief in the form of contractualand extra-contractual damages. In some cases, the monetary damages soughtinclude punitive damages. Often specific information about the relief sought,such as the amount of damages, is not available because plaintiffs have notrequested specific relief in their pleadings. In our experience, when specificmonetary demands are made in pleadings, they bear little relation to theultimate loss, if any, to the Company.

 

•                  In connectionwith regulatory examinations and proceedings, government authorities may seekvarious forms of relief, including penalties, restitution and changes inbusiness practices. The Company may not be advised of the nature and extent ofrelief sought until the final stages of the examination or proceeding.

 

•                  For the reasonsspecified above, it is often not possible to make meaningful estimates of theamount or range of loss that could result from the matters described below inthe “Proceedings” subsection. The Company reviews these matters on an on-goingbasis and follows the provisions of SFAS No. 5, “Accounting for Contingencies”when making accrual and disclosure decisions.

 

6

----

 

When assessingreasonably possible and probable outcomes, the Company bases its decisions onits assessment of the ultimate outcome following all appeals.

 

•                  Due to thecomplexity and scope of the matters disclosed in the “Proceedings” subsectionbelow and the many uncertainties that exist, the ultimate outcome of thesematters cannot be reasonably predicted. In the event of an unfavorable outcomein one or more of these matters, the ultimate liability may be in excess ofamounts currently reserved and may be material to the Company’s operatingresults or cash flows for a particular quarter or annual period. However, basedon information currently known to it, management believes that the ultimateoutcome of all matters described below as they are resolved over time is notlikely to have a material adverse effect on the financial position of theCompany.

 

**Proceedings**

 

Legal proceedings involving Allstate agencies andAIC may impact the Company, even when the Company is not directly involved,because the Company sells its products through a variety of distributionchannels including Allstate agencies. Consequently, information about the moresignificant of these proceedings is provided in the following paragraph.

 

AIC isdefending certain matters relating to its agency program reorganizationannounced in 1999. These matters include a lawsuit filed in December 2001by the U.S. Equal Employment Opportunity Commission (“EEOC”) allegingretaliation under federal civil rights laws, a class action filed in August2001 by former employee agents alleging retaliation and age discriminationunder the Age Discrimination in Employment Act, breach of contract and ERISAviolations, and a lawsuit filed in October 2004 by the EEOC alleging agediscrimination with respect to a policy limiting the rehire of agents affectedby the agency program reorganization. AIC is also defending a certified class actionfiled by former employee agents who terminated their employment prior to theagency program reorganization. These plaintiffs have asserted breach ofcontract and ERISA claims and are seeking actual damages including benefitsunder Allstate employee benefit plans and payments provided in connection withthe reorganization, as well as punitive damages. In late March 2004, in thefirst EEOC lawsuit and class action lawsuit, the trial court issued amemorandum and order that, among other things, certified classes of agents,including a mandatory class of agents who had signed a release, for purposes ofeffecting the court’s declaratory judgment that the release is voidable at theoption of the release signer. The court also ordered that an agent who voids therelease must return to AIC “any and all benefits received by the [agent] inexchange for signing the release.”  Thecourt also “concluded that, on the undisputed facts of record, there is nobasis for claims of age discrimination.” The EEOC and plaintiffs have asked the court to clarify and/orreconsider its memorandum and order. The case otherwise remains pending. Aputative nationwide class action has also been filed by former employee agentsalleging various violations of ERISA, including a worker classificationissue. 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 dismissedwith prejudice by the trial court, was the subject of further proceedings onappeal, and was reversed and remanded to the trial court in April 2005. Inthese matters, plaintiffs seek compensatory and punitive damages, and equitablerelief. AIC has been vigorously defending these lawsuits and other mattersrelated to its agency program reorganization. In addition, AIC has beendefending certain matters relating to its life agency program reorganizationannounced in 2000. These matters have been the subject of an investigation by theEEOC with respect to allegations of age discrimination and retaliation andconciliation discussions between AIC and the EEOC. The outcome of thesedisputes 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. The areas of inquiry include variable annuitymarket 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

 

7

----

 

rigging. The Company believes that these inquiries are similar to thosemade to many financial services companies as part of industry-wideinvestigations by various authorities into the practices, policies andprocedures relating to insurance and financial services products. TheCorporation and its subsidiaries have responded and will continue to respond tothese inquiries.

 

## **Various other legal and regulatory actions are currentlypending that involve the Company and specific aspects of its conduct ofbusiness. Like other members of the insurance industry, the Company is thetarget of a number of lawsuits and proceedings, some of which involve claimsfor substantial or indeterminate amounts. These actions are based on a varietyof issues and target a range of the Company’s practices. The outcome of thesedisputes is currently unpredictable. However, based on information currentlyknown to it** and the existence ofthe reinsurance agreements with ALIC, management believes that the ultimate outcome of all mattersdescribed in this “Other Matters” subsection in excess of amounts currentlyreserved, as they are resolved over time is not likely to have a materialeffect on the operating results, cash flows or financial condition of theCompany.

##  

## **4. Other Comprehensive Loss**

##  

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

 
| ** **                                                              | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands)**                                                 | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **                                                              | ** ** | ** **                                           | ** ** | ** ** | ** ** | **After-** | ** ** | ** ** | ** ** | ** ** | ** ** | **After-** | ** ** |
| ** **                                                              | ** ** | **Pretax**                                           | ** ** | **Tax** | ** ** | **tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **tax** | ** ** |
|                                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding losses arising during  the period                    |       | $                                                    | (5,377     | ) | $ | 1,882 |   | $ | (3,495 | ) | $ | (5,548 | ) | $ | 1,941 |   | $ | (3,607 | ) |
| Less: reclassification adjustment of  realized capital gains and losses |       | —                                               |       | — |   | — |   | (95 | ) | 33 |   | (62 | ) |
| Other comprehensive loss                                                |       | $                                                    | (5,377     | ) | $ | 1,882 |   | (3,495 | ) | $ | (5,453 | ) | $ | 1,908 |   | (3,545 | ) |
|                                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                              |       |                                                 |       |   |   | 2,206 |   |   |   |   |   | 2,126 |   |
|                                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                                      |       |                                                 |       |   |   | $ | (1,289 | ) |   |   |   |   | $ | (1,419 | ) |

 

8

----

 

**Item2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODSENDED MARCH 31, 2006 AND 2005**

 

## **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 inconjunction with the condensed financial statements and notes thereto foundunder Part I. Item 1. contained herein, and with the discussion, analysis,financial statements and 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 for2005. We operate as a single segment entity, based on the manner in which weuse financial information to evaluate performance and to determine theallocation of resources.

 

## **OPERATIONS**

 
| ** **                        | ** ** | **Three months ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **March 31,**               | ** ** |
| **(in thousands)**           | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                              |       |                             |       |   |   |
| Net investment income             |       | $                                | 3,389      |   | $ | 3,361 |   |
| Realized capital gains and losses |       | —                           |       | (95 | ) |
| Income tax expense                |       | 1,183                            |       | 1,140 |   |
| Net income                        |       | $                                | 2,206      |   | $ | 2,126 |   |

 

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 operations include net investment income andrealized capital gains and losses on our assets that are not transferred underthe reinsurance agreements.

 

**Netincome** increased $80 thousand to $2.2 million in thefirst quarter of 2006 from $2.1 million in the same period in the prior yeardue to net realized capital losses that were recognized in the prior period andhigher net investment income in the first quarter of 2006 compared to the sameperiod in the prior year.

 

**Netinvestment income** increased 0.8% in the first quarterof 2006 compared to the same period in 2005 due to higher average portfoliobalances, partially offset by lower yields on fixed income securities. Higherportfolio balances resulted from the investment of cash flows from operatingactivities.

 

**Realizedcapital losses** of $95 thousand were recorded in thefirst quarter of 2005 as a result of sales of fixed income securities. Therewere no realized capital gains or losses in the first quarter of 2006.

 

9

----

** **

**FINANCIALPOSITION**

** **
| **(in thousands)**                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Fixed income securities (1)                    |       | $                  | 262,080    |                  | $          | 267,545 |   |
| Short-term                                     |       | 7,368              |       | 3,824                 |       |
| Total investments                              |       | $                  | 269,448    |                  | $          | 271,369 |   |
|                                           |       |               |       |                  |       |
| Cash                                           |       | $                  | 7,474      |                  | $          | 8,349 |   |
|                                           |       |               |       |                  |       |
| Reinsurance recoverable from ALIC              |       | 18,577,750         |       | 18,350,983            |       |
|                                           |       |               |       |                  |       |
| Reinsurance recoverable from non-affiliates    |       | 1,060,623          |       | 1,019,850             |       |
|                                           |       |               |       |                  |       |
| Contractholder funds                           |       | 17,687,591         |       | 17,462,104            |       |
|                                           |       |               |       |                  |       |
| Reserve for life-contingent contract  benefits |       | 1,931,788          |       | 1,892,194             |       |
|                                           |       |               |       |                  |       |
| Separate Accounts assets and liabilities       |       | 2,890,255          |       | 2,718,509             |       |

 

----

(1) Fixed income securities are carried at fair value.Amortized cost basis for these securities was $266.4 million and $266.5 millionat March 31, 2006 and December 31, 2005, respectively.

 

Totalinvestments decreased $1.9 million in the first quarter of 2006 as a result ofnet unrealized capital losses on fixed income securities at March 31, 2006compared to net unrealized capital gains at December 31, 2005.

 

At March 31, 2006, all securities in the fixed income securitiesportfolio were rated investment grade, which is defined as a security having arating from the National Association of Insurance Commissioners (“NAIC”) of 1or 2; a rating of Aaa, Aa, A or Baa from Moody’s or a rating of AAA, AA, A orBBB from S&P, Fitch or Dominion; or a comparable internal rating if anexternally provided rating is not available.

 

Unrealized net capital losses on fixed income securities at March 31,2006 were $4.3 million, compared to unrealized net capital gains of $1.1million at December 31, 2005. The net unrealized losses were comprisedof $7.9 million of unrealized losses and $3.6 million of unrealized gains atMarch 31, 2006. The unrealized gains at December 31, 2005 were comprised of$5.3 million of unrealized gains and $4.2 million of unrealized losses.

 

At March 31,2006, all of the gross unrealized losses were related to investment gradesecurities in our corporate fixed income securities portfolio. Within thisportfolio, the capital goods, consumer goods and utilities sectors had thehighest concentration of unrealized losses. The gross unrealized losses inthese sectors were primarily interest rate related or company specific.

 

Our portfoliomonitoring process identifies and evaluates, on a case-by-case basis, fixedincome securities whose carrying value may be other than temporarily impaired. Theprocess includes a quarterly review of all securities using a screening processto identify those securities whose fair value compared to amortized cost isbelow established thresholds for certain time periods, or which are identifiedthrough other monitoring criteria such as ratings downgrades or paymentdefaults. As a result of approved programs involving the disposition ofinvestments such as changes in duration and revisions to strategic assetallocations, and certain dispositions anticipated by portfolio managers, 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. All securities in an unrealized loss position atMarch 31, 2006 were included in our portfolio monitoring process wherein it wasdetermined that the declines in value were not other than temporary.

 

We also monitor the quality of our fixed incomeportfolio by categorizing certain investments as “problem”, “restructured” or “potentialproblem.”  Problem fixed incomesecurities are securities in default with respect to principal or interestand/or securities issued by companies that have gone into bankruptcy

 

10

----

 

subsequent to ouracquisition of the security. Restructured fixed income securities have ratesand terms that are not consistent with market rates or terms prevailing at thetime of the restructuring. Potential problem fixed income securities are currentwith respect to contractual principal and/or interest, but because of otherfacts and circumstances, we have concerns regarding the borrower’s ability topay future principal and interest, which causes us to believe these securitiesmay be classified as problem or restructured in the future.

 

As of March31, 2006 and December 31, 2005, we had no securities categorized as “problem”, “restructured”or “potential problem”.

 

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

 
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                           | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
|                                              |       |                                             |       |   |   |
| Dispositions                                      |       | $                                                | —     |   | $ | (95 | ) |
| Realized capital gains and losses, pretax         |       | —                                           |       | (95 | ) |
| Income tax benefit                                |       | —                                           |       | 33 |   |
| **Realized capital gains and losses,  after-tax** |       | $                                                | —     |   | $ | (62 | ) |

 

Dispositionsin the above table include sales and other transactions such as calls andprepayments. We may sell fixed income securities during the period in whichfair value has declined below amortized cost. In certain situations new factorssuch as negative developments, subsequent credit deterioration, relative valueopportunities, market liquidity concerns and portfolio reallocations cansubsequently change our previous intent to continue holding a security.

 

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

##  

Contractholderfunds increased to $17.69 billion at March 31, 2006, from $17.46 billion atDecember 31, 2005 primarily as a result of new and additional deposits on fixedannuities and interest-sensitive life products and interest credited tocontractholder funds partially offset by surrenders, withdrawals and benefitpayments. The reserve for life-contingent contract benefits increased $39.6million to $1.93 billion at March 31, 2006 resulting from sales of immediateannuities with life contingencies and other life-contingent products, partiallyoffset by benefits paid and policy lapses. Reinsurance recoverable from ALICand reinsurance recoverable from non-affiliates increased correspondingly by$226.8 million and $40.8 million, respectively.

 

We purchasereinsurance after evaluating the financial condition of the reinsurer, as wellas the terms and price of coverage. We reinsure certain of our risks tonon-affiliated reinsurers under yearly renewable term and coinsuranceagreements. Yearly renewable term and coinsurance agreements result in thepassing of the agreed-upon portion of risk to the reinsurers in exchange fornegotiated reinsurance premium payments.

 

11

----

##  

## **CAPITALRESOURCES AND LIQUIDITY**

##  

**CapitalResources**consist of shareholder’s equity. Thefollowing table summarizes our capital resources:

 
| **(in thousands)**                                       | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Common stock, additional capital paid-in  and retained income |       | $                        | 270,750    |                        | $          | 268,544 |   |
| Accumulated other comprehensive income                        |       | (2,788                   | )          | 707                         |       |
| Total shareholder’s equity                               |       | $                        | 267,962    |                        | $          | 269,251 |   |

 

*Shareholder’s equity*declined in the first quarter of 2006 due to an unfavorable change inunrealized capital gains and losses, partially offset by net income.

 

**FinancialRatings and Strength** We share the insurance financialstrength ratings of our parent, ALIC, as our business 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, AIC’s ratings and other factors. There have beenno changes to ALIC’s insurance financial strength ratings since December 31,2005.

 

12

----

##  

## **Item 4.    Controls and Procedures**

##  

*Evaluation of Disclosure Controls and Procedures.*Wemaintain disclosure controls and procedures as defined in Rule 13a-15(e) and15(d)-15(e) under the Securities Exchange Act of 1934. Under the supervisionand with the participation of our management, including our principal executiveofficer and principal financial officer, we conducted an evaluation of theeffectiveness of our disclosure controls and procedures as of the end of theperiod 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 the SecuritiesExchange Act is made known to management, including the principal executiveofficer and the principal financial officer, as appropriate to allow timelydecisions regarding required disclosure.

 

*Changes in Internal Control over Financial Reporting.*Duringthe fiscal quarter ended March 31, 2006, there were no changes in our internalcontrol over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

13

----

##  

## **PART II. OTHER INFORMATION**

##  

## **Item 1. Legal Proceedings**

##  

Informationrequired for this Part II, Item 1, is incorporated by reference to thediscussion under the heading “Regulation” and under the heading “Legal and regulatoryproceedings and inquires” in Note 3 of the Company’s 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. Thesestatements are made subject to the safe-harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. We assume no obligation to update anyforward-looking statements as a result of new information or future events ordevelopments.

Theseforward-looking statements do not relate strictly to historical or currentfacts and may be identified by their use of words like “plans,” “seeks,” “expects,”“will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets”and other words with similar meanings. These statements may address, amongother things, our strategy for growth, product development, regulatoryapprovals, market position, expenses, financial results, litigation andreserves. We believe that these statements are based on reasonable estimates,assumptions and plans. However, if the estimates, assumptions or plansunderlying the forward-looking statements prove inaccurate or if other risks oruncertainties arise, actual results could differ materially from thosecommunicated in these forward-looking statements. 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, in our public filings with the Securities andExchange Commission, and those incorporated by reference in Part I, Item 1A of LincolnBenefit Life Company Annual Report on Form 10-K for 2005. There have been nomaterial changes from the risk factors previously disclosed in our AnnualReport on Form 10-K.

 

## **Item 6. Exhibits**

##  

| (a)    |   | Exhibits                                                            |
|--------|--------|---------------------------------------------------------------------|
|   |   |                                                                |
|   |   | An Exhibit Index has been filed as part of this report on page E-1. |

 

 

14

----

 

## **SIGNATURE**

##  

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

 
|        | Lincoln  Benefit Life Company                                              |
|-------------|----------------------------------------------------------------------------|
|        |                                                                       |
|        | (Registrant)                                                               |
|        |                                                                       |
| May 8, 2006 |                                                                       |
|        |                                                                       |
|        | By                                                                         | /s/ Samuel  H. Pilch |   |
|        |                                                                       |
|        | Samuel H.  Pilch                                                           |
|        | (chief  accounting officer and duly  authorized officer of the registrant) |

 

15

----

 
| **Exhibit No.** | ** ** | **Description**                                                                          |
|----------------------|------------|------------------------------------------------------------------------------------------|
|                 |       |                                                                                     |
| 3.2                  |       | Amended and Restated By-Laws of Lincoln Benefit Life Company,  effective March 10, 2006. |
|                 |       |                                                                                     |
| 31.1                 |       | Rule 15d-14(a) Certification of Principal Executive Officer                              |
|                 |       |                                                                                     |
| 31.2                 |       | Rule 15d-14(a) Certification of Principal Financial Officer                              |
|                 |       |                                                                                     |
| 32                   |       | Section 1350 Certifications                                                              |

 

E-1

----