** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

----

 

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

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

 

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

**OF**

**THESECURITIES EXCHANGE ACT OF 1934**

**FORTHE QUARTERLY PERIOD ENDED MARCH 31, 2005**

** **

**OR**

** **

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

**OF**

**THESECURITIES EXCHANGE ACT OF 1934**

** **

##### **Commission file number: 333-100029**

##### ** **

###### **ALLSTATE LIFE INSURANCE COMPANYOFNEW YORK**

 

**(Exact name of registrant as specified in itscharter)**

 
| **New York**                                               | ** ** | **36—2608394**                   |
|------------------------------------------------------------|------------|---------------------------------------|
| (State of Incorporation)                                   |       | (I.R.S. Employer Identification  No.) |
|                                                       |       |                                  |
| **100 Motor Parkway, Suite 132  Hauppauge, New York** | ** ** | **11788**                             |
| (Address of principal executive  offices)                  |       | (Zip Code)                            |

 

Registrant’s telephone number, including areacode: 631-357-8920

 

Indicate by check mark whether the registrant: (1) has filed allreports 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                                               Noo

 

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

Yes o                                               Noý

 

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

 

 

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##### **ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK**

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

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

##### ** **

 
| **PART 1.**  | **FINANCIAL INFORMATION**                                                                                      | ** ** |
|-------------------|----------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                           |       |
| Item 1.           | Financial Statements                                                                                           |       |
|              |                                                                                                           |       |
|              | Condensed Statements of Operations for the Three-Month Periods Ended  March 31, 2005 and 2004 (unaudited) | 3          |
|              |                                                                                                           |       |
|              | Condensed Statements of Financial Position as of March 31, 2004  (unaudited) and December 31, 2004   | 4          |
|              |                                                                                                           |       |
|              | Condensed Statements of Cash Flows for the Three-Month Periods Ended  March 31, 2005 and 2004 (unaudited) | 5          |
|              |                                                                                                           |       |
|              | Notes to Condensed Financial Statements (unaudited)                                                            | 6          |
|              |                                                                                                           |       |
|              | Report of Independent Registered Public Accounting Firm                                                        | 11         |
|              |                                                                                                           |       |
| Item 2.           | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                    | 12         |
|              |                                                                                                           |       |
| Item 4.           | Controls and Procedures                                                                                        | 23         |
|              |                                                                                                           |       |
| **PART II.** | **OTHER INFORMATION**                                                                                          | ** ** |
|              |                                                                                                           |       |
| Item 1.           | Legal Proceedings                                                                                              | 23         |
|              |                                                                                                           |       |
| Item 6.           | Exhibits                                                                                                       | 23         |
|              |                                                                                                           |       |

 

2

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#### **PART 1. FINANCIAL INFORMATION**

####  

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

####  

#### **ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK**

**CONDENSED STATEMENTS OF OP****ERATIONS**

 
| ** **                                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                                                                                       | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                                                                                               | ** ** | **(unaudited)**                        | ** ** |
| **Revenues**                                                                                                             |       |                                   |       |   |   |
| Premiums (net of reinsurance ceded of  $4,468 and $3,912)                                                                |       | $                                      | 19,993     |   | $ | 16,651 |   |
| Contract charges                                                                                                         |       | 15,259                                 |       | 14,112 |   |
| Net investment income                                                                                                    |       | 86,492                                 |       | 70,395 |   |
| Realized capital gains and losses                                                                                        |       | (5,877                                 | )          | (653 | ) |
|                                                                                                                     |       | 115,867                                |       | 100,505 |   |
|                                                                                                                     |       |                                   |       |   |   |
| **Costs and expenses**                                                                                                   |       |                                   |       |   |   |
| Contract benefits                                                                                                        |       | 47,083                                 |       | 42,924 |   |
| Interest credited to contractholder funds                                                                                |       | 36,226                                 |       | 27,651 |   |
| Amortization of deferred policy acquisition  costs                                                                       |       | 931                                    |       | (109 | ) |
| Operating costs and expenses                                                                                             |       | 9,192                                  |       | 9,958 |   |
|                                                                                                                     |       | 93,432                                 |       | 80,424 |   |
|                                                                                                                     |       |                                   |       |   |   |
| **Gain on disposition of operations**                                                                                    |       | —                                 |       | 1,058 |   |
|                                                                                                                     |       |                                   |       |   |   |
| **Income from operations before income tax  expense and cumulative effect of change in accounting principle, after-tax** |       | 22,435                                 |       | 21,139 |   |
|                                                                                                                     |       |                                   |       |   |   |
| Income tax expense                                                                                                       |       | 8,550                                  |       | 7,502 |   |
|                                                                                                                     |       |                                   |       |   |   |
| **Income before cumulative effect of change  in accounting principle, after-tax**                                        |       | 13,885                                 |       | 13,637 |   |
|                                                                                                                     |       |                                   |       |   |   |
| Cumulative effect of change in accounting  principle, after-tax                                                          |       | —                                 |       | (7,586 | ) |
|                                                                                                                     |       |                                   |       |   |   |
| **Net income**                                                                                                           |       | $                                      | 13,885     |   | $ | 6,051 |   |

 

See notes to condensed financial statements.

 

3

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**ALLSTATE LIFE INSURANCE COMPANY OFNEW YORK**

**CONDENSED STATEMENTS OF FINANCIAL POSITI****ON**

 
| **(in thousands, except par value  data)**                                         | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                         | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                         |       |                     |       |                        |       |
| Investments                                                                        |       |                     |       |                        |       |
| Fixed income securities, at fair value  (amortized cost $5,303,672 and $5,012,977) |       | $                        | 5,755,899  |                        | $          | 5,545,647 |   |
| Mortgage loans                                                                     |       | 520,218                  |       | 480,280                     |       |
| Short-term                                                                         |       | 133,443                  |       | 111,509                     |       |
| Policy loans                                                                       |       | 35,488                   |       | 34,948                      |       |
| Other                                                                              |       | 4,818                    |       | 4,638                       |       |
| Total investments                                                                  |       | 6,449,866                |       | 6,177,022                   |       |
|                                                                               |       |                     |       |                        |       |
| Cash                                                                               |       | 16,141                   |       | 8,624                       |       |
| Deferred policy acquisition costs                                                  |       | 294,745                  |       | 238,173                     |       |
| Accrued investment income                                                          |       | 59,822                   |       | 55,821                      |       |
| Reinsurance recoverables                                                           |       | 9,047                    |       | 8,422                       |       |
| Current income taxes receivable                                                    |       | —                   |       | 367                         |       |
| Other assets                                                                       |       | 58,965                   |       | 17,665                      |       |
| Separate Accounts                                                                  |       | 809,274                  |       | 792,550                     |       |
| **Total assets**                                                                   |       | $                        | 7,697,860  |                        | $          | 7,298,644 |   |
|                                                                               |       |                     |       |                        |       |
| **Liabilities**                                                                    |       |                     |       |                        |       |
| Reserve for life-contingent contract  benefits                                     |       | $                        | 1,804,604  |                        | $          | 1,782,451 |   |
| Contractholder funds                                                               |       | 4,033,796                |       | 3,802,846                   |       |
| Deferred income taxes                                                              |       | 73,555                   |       | 90,760                      |       |
| Current income taxes payable                                                       |       | 8,360                    |       | —                      |       |
| Other liabilities and accrued expenses                                             |       | 335,941                  |       | 180,904                     |       |
| Payable to affiliates, net                                                         |       | 7,484                    |       | 8,831                       |       |
| Reinsurance payable to parent                                                      |       | 1,015                    |       | 1,067                       |       |
| Separate Accounts                                                                  |       | 809,274                  |       | 792,550                     |       |
| **Total liabilities**                                                              |       | 7,074,029                |       | 6,659,409                   |       |
|                                                                               |       |                     |       |                        |       |
| **Commitments and Contingent Liabilities  (Note 3)**                               |       |                     |       |                        |       |
|                                                                               |       |                     |       |                        |       |
| **Shareholder’s equity**                                                      |       |                     |       |                        |       |
| Common stock, $25 par value, 100 thousand  shares authorized and outstanding       |       | 2,500                    |       | 2,500                       |       |
| Additional capital paid-in                                                         |       | 120,000                  |       | 120,000                     |       |
| Retained income                                                                    |       | 375,329                  |       | 361,480                     |       |
| Accumulated other comprehensive income:                                            |       |                     |       |                        |       |
| Unrealized net capital gains and losses                                            |       | 126,002                  |       | 155,255                     |       |
| **Total accumulated other comprehensive  income**                                  |       | 126,002                  |       | 155,255                     |       |
| **Total shareholder’s equity**                                                |       | 623,831                  |       | 639,235                     |       |
| **Total liabilities and shareholder’s equity**                                |       | $                        | 7,697,860  |                        | $          | 7,298,644 |   |
|                                                                                    |            |                          |            |                             |            |  |  |  |  |  |

 

See notes to condensed financial statements.

 

4

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#### **ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK**

**CONDENSEDSTATEMENTS OF CASH****FLOWS**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                                                 | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                        | ** ** |
| **Cash flows from operating activities**                                           |       |                                   |       |   |   |
| Net income                                                                         |       | $                                      | 13,885     |   | $ | 6,051 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                   |       |   |   |
| Amortization and other non-cash items                                              |       | (14,281                                | )          | (12,004 | ) |
| Realized capital gains and losses                                                  |       | 5,877                                  |       | 653 |   |
| Gain on disposition of operations                                                  |       | —                                 |       | (1,058 | ) |
| Cumulative effect of change in accounting  principle                               |       | —                                 |       | 7,586 |   |
| Interest credited to contractholder funds                                          |       | 36,226                                 |       | 27,651 |   |
| Changes in:                                                                        |       |                                   |       |   |   |
| Life-contingent contract benefits and  contractholder funds                        |       | 11,203                                 |       | 6,809 |   |
| Deferred policy acquisition costs                                                  |       | (19,933                                | )          | (14,546 | ) |
| Income taxes payable                                                               |       | 7,293                                  |       | 6,252 |   |
| Other operating assets and liabilities                                             |       | (4,566                                 | )          | 5,584 |   |
| Net cash provided by operating activities                                          |       | 35,704                                 |       | 32,978 |   |
|                                                                               |       |                                   |       |   |   |
| **Cash flows from investing activities**                                           |       |                                   |       |   |   |
| Proceeds from sales of fixed income  securities                                    |       | 109,133                                |       | 90,702 |   |
| Investment collections                                                             |       |                                   |       |   |   |
| Fixed income securities                                                            |       | 33,124                                 |       | 46,547 |   |
| Mortgage loans                                                                     |       | 12,531                                 |       | 3,237 |   |
| Investment purchases                                                               |       |                                   |       |   |   |
| Fixed income securities                                                            |       | (362,866                               | )          | (267,897 | ) |
| Mortgage loans                                                                     |       | (51,932                                | )          | (3,000 | ) |
| Change in short-term investments, net                                              |       | 27,097                                 |       | (39,594 | ) |
| Change in other investments, net                                                   |       | 2,295                                  |       | (163 | ) |
| Net cash used in investing activities                                              |       | (230,618                               | )          | (170,168 | ) |
|                                                                               |       |                                   |       |   |   |
| **Cash flows from financing activities**                                           |       |                                   |       |   |   |
| Contractholder fund deposits                                                       |       | 286,595                                |       | 195,768 |   |
| Contractholder fund withdrawals                                                    |       | (84,164                                | )          | (58,987 | ) |
| Net cash provided by financing activities                                          |       | 202,431                                |       | 136,781 |   |
|                                                                               |       |                                   |       |   |   |
| **Net increase (decrease) in cash**                                                |       | 7,517                                  |       | (409 | ) |
| **Cash at beginning of period**                                                    |       | 8,624                                  |       | 10,731 |   |
| **Cash at end of period**                                                          |       | $                                      | 16,141     |   | $ | 10,322 |   |

 

See notes to condensed financial statements.

 

5

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**ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK**

**NOTES TO CONDENSED FINANCIAL****STATEMENTS**

**(unaudited)**

 

### **1.  Basis of Presentation**

 

Theaccompanying condensed financial statements include the accounts of AllstateLife Insurance Company of New York (the “Company”), a wholly owned subsidiaryof Allstate Life Insurance Company (“ALIC”), which is wholly-owned by AllstateInsurance Company (“AIC”), a wholly-owned subsidiary of The AllstateCorporation (the “Corporation”).

 

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

 

To conform tothe 2005 presentation, certain amounts in the prior year’s condensed financialstatements and notes have been reclassified.

 

### **Pending accounting standard**

 

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

* *

* *InSeptember 2004, the Financial Accounting Standards Board (“FASB”) issuedproposed FSP EITF 03-1-a to address the application of paragraph 16 of EmergingIssues Task Force Issue No. 03-1, “The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments” (“EITF Issue 03-1”) todebt securities that are impaired because of increases in interest rates,and/or sector spreads.  Thereafter, inconnection with its decision to defer the effective date of paragraphs 10–20 ofEITF 03-1 through the issuance of FSP EITF Issue 03-1-1, “Effective Date ofParagraphs 10-20 of EITF Issue No. 03-1, The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments” (“FSPEITF Issue 03-1-1”), the FASB requested from its constituents comments on theissues set forth in FSP EITF 03-1-a and the issues that arose during thecomment letter process for FSP EITF 03-1-b, “Effective Date of Paragraph 16 ofEITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments*”. * 

 

Due to theuncertainty as to how the outstanding issues will be resolved, the Company isunable to determine the impact of adopting paragraphs 10-20 of EITF 03-1 untilfinal implementation guidance is issued. Adoption of paragraphs 10-20 of EITF 03-1 may have a material impact onthe Company’s Condensed Statements of Operations but is not expected to have amaterial impact on the Company’s Condensed Statements of Financial Position asfluctuations in fair value are already recorded in accumulated othercomprehensive income.  

 

6

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### **2.  Reinsurance**

 

The effects of reinsurance on premiums andcontract charges are as follows:

 
| ** **                                         | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                 | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Premiums and contract charges**                  |       |                                   |       |   |   |
| Direct                                             |       | $                                      | 39,670     |   | $ | 34,490 |   |
| Assumed – non-affiliate                       |       | 212                                    |       | 185 |   |
| Ceded                                              |       |                                   |       |   |   |
| Affiliate                                          |       | (1,180                                 | )          | (1,097 | ) |
| Non-affiliate                                      |       | (3,450                                 | )          | (2,815 | ) |
| Premiums and contract charges, net of  reinsurance |       | $                                      | 35,252     |   | $ | 30,763 |   |

 

The effects of reinsurance on contractbenefits are as follows:

 
| ** **                            | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                    | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Contract benefits**                 |       |                                   |       |   |   |
| Direct                                |       | $                                      | 49,041     |   | $ | 44,358 |   |
| Assumed – non-affiliate          |       | 60                                     |       | 33 |   |
| Ceded                                 |       |                                   |       |   |   |
| Affiliate                             |       | (462                                   | )          | 1,051 |   |
| Non–affiliate                    |       | (1,556                                 | )          | (2,518 | ) |
| Contract benefits, net of reinsurance |       | $                                      | 47,083     |   | $ | 42,924 |   |

 

In addition to amounts included in the table above are aggregatereinsurance premiums ceded to ALIC of $701 thousand and $671 thousand for thethree months ended March 31, 2005 and 2004, respectively, under the termsof the structured settlement annuity reinsurance agreement.  

 

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

###  

**Guarantees**

 

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

 

The aggregate liability balance related to all guarantees was notmaterial as of March 31, 2005.

 

**Regulation**

 

The Company is subject tochanging social, economic and regulatory conditions.  Recent state and federal regulatoryinitiatives and proceedings have included efforts to impose additionalregulations regarding agent and broker compensation and otherwise expandoverall regulation of insurance products and the insurance industry. Theultimate changes and eventual effects of these initiatives on the Company’sbusiness, if any, are uncertain.

 

7

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**Legal and Regulatory Proceedings and Inquiries**

 

**Background**

 

The Company and certain of its affiliates are named as defendants in anumber of lawsuits and other legal proceedings arising out of various aspectsof its business.  As background to the “Proceedings”sub-section below, please note the following:

 

•                  These mattersraise difficult and complicated factual and legal issues and are subject tomany uncertainties and complexities, including but not limited to, theunderlying facts of each matter, novel legal issues, variations betweenjurisdictions in which matters are being litigated, differences in applicablelaws and judicial interpretations, the length of time before many of thesematters might be resolved by settlement or through litigation and, in somecases, the timing of their resolutions relative to other similar cases broughtagainst other companies, the fact that some of these matters are putative classactions in which a class has not been certified and in which the purportedclass may not be clearly defined, the fact that some of these matters involvemulti-state class actions in which the applicable law(s) for the claims atissue is in dispute and therefore unclear, and the current challenging legalenvironment faced by large corporations and insurance companies.  

 

•                  In thesematters, plaintiffs seek a variety of remedies including equitable relief inthe form of injunctive and other remedies and monetary relief in the form ofcontractual and extra-contractual damages. In some cases, the monetary damages sought include punitive damages orare not specified.  Often more specificinformation beyond the type of relief sought is not available becauseplaintiffs have not requested more specific relief in their 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 AccountingStandards No. 5, “Accounting for Contingencies” when making accrual anddisclosure decisions.  When assessingreasonably possible and probable outcomes, the Company bases its decisions on itsassessment of the ultimate outcome following all appeals.  

 

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

 

**Proceedings**

 

Legal proceedings 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 below.  

 

8

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

 

AIC is 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 rightslaws, a class action filed in August 2001 by former employee agentsalleging retaliation and age discrimination under the Age Discriminationin Employment Act, breach ofcontract and ERISA violations, and a lawsuit filed in October 2004 by theEEOC alleging age discrimination with respect to a policy limiting the rehireof agents affected by the agency program reorganization.  AIC is also defending another action, inwhich a class was certified in June 2004, filed by former employee agentswho terminated their employment prior to the agency programreorganization.  These plaintiffs haveasserted claims under ERISA, and are seeking benefits provided in connectionwith the reorganization.  In late March 2004,in the first 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 courtalso ordered that an agent who voids the release must return to AIC “any andall benefits received by the [agent] in exchange for signing the release.”  The court also “concluded that, on theundisputed facts of record, there is no basis for claims of age discrimination.”  The EEOC and plaintiffs have asked the courtto clarify and/or reconsider its memorandum and order.  The case otherwise remains pending.  A putative nationwide class action hasalso been filed by former employee agents alleging various violations of ERISA.  Thismatter was dismissed with prejudice by the trial court, was the subject offurther proceedings on appeal, and has been reversed and remanded to the trialcourt in April 2005.  In these matters, plaintiffs seekcompensatory and punitive damages, and equitable relief.  AIC has been vigorously defendingthese lawsuits and other matters related to its agency program reorganization.The outcome of these disputes is currently uncertain. 

 

**Other Matters**

 

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

 

Various otherlegal and regulatory actions are currently pending that involve the Company andspecific aspects of its conduct of business. Like other members of the insurance industry, the Company is the targetof a number of lawsuits and proceedings, some of which involve claims forsubstantial or indeterminate amounts. These actions are based on a variety of issues and target a range of theCompany’s practices.  The outcome of these disputes is currentlyunpredictable.  However, at thistime, based on their present status, it is the opinion of management that theultimate liability, if any, in one or more of the actions described in this “Other Matters” subsection inexcess of amounts currently reserved is not expected to have a material effecton the results of operations, liquidity or financial condition of the Company.

 

9

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**4.****                                      OtherComprehensive Income**

 

The components of othercomprehensive income on a pretax and after-tax basis are as follows:

 
| ** **                                                   | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| **(in thousands)**                                           | ** ** | **Pretax**                            | ** ** | **Tax** | ** ** | **After-  tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **After-  tax** | ** ** |
|                                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding (losses) gains arising  during the period |       | $                                     | (53,830    | ) | $ | 18,840 |   | $ | (34,990 | ) | $ | 35,782 |   | $ | (12,523 | ) | $ | 23,259 |   |
| Less: reclassification adjustments                           |       | (8,826                                | )          | 3,089 |   | (5,737 | ) | (652 | ) | 229 |   | (423 | ) |
| Unrealized net capital (losses) gains                        |       | (45,004                               | )          | 15,751 |   | (29,253 | ) | 36,434 |   | (12,752 | ) | 23,682 |   |
|                                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive (loss) income                            |       | $                                     | (45,004    | ) | $ | 15,751 |   | (29,253 | ) | $ | 36,434 |   | $ | (12,752 | ) | 23,682 |   |
|                                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                   |       |                                  |       |   |   | 13,885 |   |   |   |   |   | 6,051 |   |
|                                                         |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive (loss) income                                  |       |                                  |       |   |   | $ | (15,368 | ) |   |   |   |   | $ | 29,733 |   |

 

10

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**REPORT OF INDEPENDENT REGISTERED****PUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and Shareholder of 

Allstate Life Insurance Company of New York:

 

We have reviewed theaccompanying condensed statement of financial position of Allstate LifeInsurance Company of New York (the “Company”, an affiliate of The AllstateCorporation) as of March 31, 2005, and the related condensed statements ofoperations and cash flows for the three-month periods ended March 31, 2005and 2004.  These interim financialstatements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with standards of the PublicCompany Accounting Oversight Board (United States).  A review of interim financial informationconsists principally of applying analytical procedures and making inquiries ofpersons responsible for financial and accounting matters.  It is substantially less in scope than anaudit conducted in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the objective of which is theexpression of an opinion regarding the financial statements taken as awhole.  Accordingly, we do not expresssuch an opinion.

 

Based on our reviews, we are not aware of any material modificationsthat should be made to such condensed interim financial statements for them tobe in conformity with accounting principles generally accepted in the UnitedStates of America.

 

We have previously audited, in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the statement of financial position of Allstate Life Insurance Companyof New York as of December 31, 2004, and the related statements ofoperations and comprehensive income, shareholder’s equity, and cash flows forthe year then ended, not presented herein. In our report dated February 24, 2005, which report includes anexplanatory paragraph relating to a change in the Company’s method ofaccounting for certain nontraditional long-duration contracts and for separateaccounts in 2004, we expressed an unqualified opinion on those financialstatements.  In our opinion, theinformation set forth in the accompanying condensed statement of financialposition as of December 31, 2004 is fairly stated, in all materialrespects, in relation to the statement of financial position from which it hasbeen derived.

 

 
| /s/ Deloitte & Touche LLP |   |   |
|------------------------------------|--------|--------|
|                               |   |
| Chicago, Illinois                  |   |
| May 6, 2005                   |   |

 

11

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**Item 2****.    MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTHPERIODS ENDED MARCH 31, 2005 AND 2004**

###  

### **OVERVIEW**

 

The followingdiscussion highlights significant factors influencing the financial positionand results of operations of Allstate Life Insurance Company of New York(referred to in this document as “we”, “our”, “us” or the “Company”).  It should be read in conjunction with thecondensed financial statements and notes thereto found under Part I. Item1. contained herein, and with the discussion, analysis, financial statementsand notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8.of the Allstate Life Insurance Company of New York Annual Report on Form 10-Kfor 2004.  We operate as a single segmententity, based on the manner in which financial information is used internallyto evaluate performance and determine the allocation of resources.

 

### **RESULTS OFOPERATIONS**

 

**Premiums**representrevenues generated from traditional life, immediate annuities with lifecontingencies and other insurance products that have significant mortality ormorbidity risk.  

 

**Contract charges**are revenues generated from interest-sensitive life products, variable andfixed annuities and other investment products for which deposits are classifiedas contractholder funds or separate accounts liabilities.  Contract charges are assessed against thecontractholder account values for maintenance, administration, cost ofinsurance and surrender prior to the contractually specified dates.  As a result, changes in contractholder fundsand separate accounts liabilities are considered in the evaluation of growthand as indicators of future levels of revenues.

 

The following table summarizes premiums andcontract charges by product.

 
| ** **                                  | ** ** | **Three Months Ended   March 31,** | ** ** |
|---------------------------------------------|------------|-----------------------------------------|------------|
| **(in thousands)**                          | ** ** | **2005**                                | ** ** | **2004** | ** ** |
|                                        |       |                                    |       |   |   |
| **Premiums**                                | ** ** | ** **                              | ** ** | ** ** | ** ** |
| Traditional life                            |       | $                                       | 5,860      |   | $ | 5,455 |   |
| Immediate annuities with life contingencies |       | 13,219                                  |       | 10,444 |   |
| Accident and health and other               |       | 914                                     |       | 752 |   |
| **Total premiums**                          |       | 19,993                                  |       | 16,651 |   |
|                                        |       |                                    |       |   |   |
| **Contract charges**                        |       |                                    |       |   |   |
| Interest-sensitive life                     |       | 9,945                                   |       | 9,428 |   |
| Fixed annuities                             |       | 1,793                                   |       | 1,537 |   |
| Variable annuities                          |       | 3,521                                   |       | 3,147 |   |
| **Total contract charges**                  |       | 15,259                                  |       | 14,112 |   |
|                                        |       |                                    |       |   |   |
| **Premiums and contract charges**           |       | $                                       | 35,252     |   | $ | 30,763 |   |

 

12

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The followingtable summarizes premiums and contract charges by distribution channel.

 
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                              |       |                                   |       |   |   |
| **Premiums**                      | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Allstate agencies                 |       | $                                      | 5,738      |   | $ | 5,357 |   |
| Broker dealers                    |       | 36                                     |       | 107 |   |
| Specialized brokers               |       | 13,182                                 |       | 10,337 |   |
| Independent agents                |       | 1,037                                  |       | 699 |   |
| Direct marketing                  |       | —                                 |       | 151 |   |
| **Total premiums**                |       | 19,993                                 |       | 16,651 |   |
|                              |       |                                   |       |   |   |
| **Contract charges**              |       |                                   |       |   |   |
| Allstate agencies                 |       | 9,706                                  |       | 9,483 |   |
| Broker dealers                    |       | 2,743                                  |       | 2,718 |   |
| Banks                             |       | 1,800                                  |       | 715 |   |
| Specialized brokers               |       | 911                                    |       | 1,128 |   |
| Independent agents                |       | 99                                     |       | 68 |   |
| **Total contract charges**        |       | 15,259                                 |       | 14,112 |   |
|                              |       |                                   |       |   |   |
| **Premiums and contract charges** |       | $                                      | 35,252     |   | $ | 30,763 |   |

 

Total premiums increased 20.1% to $20.0 million in the first quarter of2005 compared to the same period of 2004. The increase was primarily the result of increased premiums on immediateannuities with life contingencies sold through specialized brokers.

 

Contract charges increased 8.1% to $15.3 million in the first quarterof 2005 compared to the same period of 2004. The increase was due to higher contract charges on interest-sensitivelife products, variable annuities and, to a lesser extent, fixed annuities.  The increase in the interest-sensitive lifecontracts was attributable to in-force business growth resulting from depositsand credited interest more than offsetting surrenders and benefits.  Higher variable annuity contract charges werethe result of increased average account values during the first quarter of 2005compared to the first quarter of 2004. Fixed annuity contract charges for the first quarter of 2005 reflecthigher surrender charges compared with the first quarter of 2004. 

 

13

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*Contractholder funds* representinterest-bearing liabilities arising from the sale of fixed annuities,  interest-sensitive life and variable annuityand life deposits allocated to fixed accounts. The balance of contractholder funds is equal to the cumulative depositsreceived and interest credited to the contractholder less cumulative contractmaturities, benefits, surrenders, withdrawals and contract charges formortality or administrative expenses.

 

The followingtable shows the changes in contractholder funds.

 
| ** **                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Contractholder funds, beginning balance**                     |       | $                                      | 3,802,846  |   | $ | 2,658,325 |   |
|                                                            |       |                                   |       |   |   |
| Impact of adoption of SOP 03-1(1)                               |       | —                                 |       | 2,031 |   |
|                                                            |       |                                   |       |   |   |
| **Deposits:**                                                   |       |                                   |       |   |   |
| Fixed annuities (immediate and deferred)                        |       | 243,944                                |       | 145,387 |   |
| Interest-sensitive life                                         |       | 22,187                                 |       | 24,822 |   |
| Variable annuity and life deposits  allocated to fixed accounts |       | 19,111                                 |       | 25,559 |   |
| Total deposits                                                  |       | 285,242                                |       | 195,768 |   |
|                                                            |       |                                   |       |   |   |
| **Interest credited**                                           |       | 39,664                                 |       | 27,716 |   |
|                                                            |       |                                   |       |   |   |
| **Benefits, withdrawals and other adjustments**                 |       |                                   |       |   |   |
| Benefits                                                        |       | (16,597                                | )          | (8,745 | ) |
| Surrenders and partial withdrawals                              |       | (58,316                                | )          | (39,243 | ) |
| Contract charges                                                |       | (10,112                                | )          | (9,882 | ) |
| Net transfers to separate accounts                              |       | (9,215                                 | )          | (11,467 | ) |
| Other adjustments                                               |       | 284                                    |       | 91 |   |
| Total benefits, withdrawals and other  adjustments              |       | (93,956                                | )          | (69,246 | ) |
|                                                            |       |                                   |       |   |   |
| **Contractholder funds, ending balance**                        |       | $                                      | 4,033,796  |   | $ | 2,814,594 |   |

 

----

(1)          Theincrease in contractholder funds due to the adoption of SOP 03-1 reflects theestablishment of reserves for certain liabilities that are primarily related toincome benefit guarantees provided under variable annuities and thereclassification of deferred sales inducements (“DSI”) from contractholderfunds to other assets.

 

Contractholderfunds deposits increased 45.7% in the first quarter of 2005 compared to thesame period of 2004 due to greater deposits of fixed annuities. Averagecontractholder funds, excluding the impact of adopting SOP 03-1, increased43.1% in the first quarter of 2005 compared to the same period of 2004.  Fixed annuity deposits increased 67.8% in thefirst quarter of 2005 compared to the same period in the prior year due tostrong consumer demand, competitive pricing and effective distribution effortsin our bank channel.

 

Benefits,surrenders and partial withdrawals increased 56.1% in the first quarter of 2005compared to the same period of 2004 reflecting an annualized withdrawal rate of7.9% for the first quarter of 2005 based on the beginning of periodcontractholder funds balance.  Thiscompares to an annualized withdrawal rate of 7.2% for the first quarter of2004.  Surrenders and withdrawals mayvary with changes in interest rates and equity market conditions and the agingof our in-force contracts.   

 

14

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*Separate accounts liabilities* representcontractholders’ claims to the related separate accounts assets.   Separate accounts liabilities primarilyarise from the sale of variable annuity contracts and variable life insurancepolicies.  

 

The followingtable shows the changes in separate accounts liabilities.

 
| ** **                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Separate accounts liabilities, beginning  balance**           |       | $                                      | 792,550    |   | $ | 665,875 |   |
|                                                            |       |                                   |       |   |   |
| Variable annuity and life deposits                              |       | 56,831                                 |       | 51,289 |   |
| Variable annuity and life deposits  allocated to fixed accounts |       | (19,111                                | )          | (25,559 | ) |
| Net deposits                                                    |       | 37,720                                 |       | 25,730 |   |
| Investment results                                              |       | (11,802                                | )          | 15,380 |   |
| Contract charges                                                |       | (2,986                                 | )          | (2,386 | ) |
| Net transfers from fixed accounts                               |       | 9,215                                  |       | 11,467 |   |
| Surrenders and benefits                                         |       | (15,423                                | )          | (29,427 | ) |
|                                                            |       |                                   |       |   |   |
| **Separate accounts liabilities, ending  balance**              |       | $                                      | 809,274    |   | $ | 686,639 |   |

 

Separateaccounts liabilities increased $16.7 million as of March 31, 2005 comparedto December 31, 2004. The increase was attributable to net deposits andtransfers from fixed accounts, partially offset by surrenders and benefits,unfavorable investment results and contract charges since December 31,2004. Variable annuity contractholders often allocate a significant portion oftheir initial variable annuity contract deposit into a fixed rate investmentoption.  The level of this activity isreflected above in the deposits allocated to the fixed accounts, while allother transfer activity between the fixed and separate accounts investmentsoptions is reflected in net transfers from fixed accounts.  The liability for the fixed portion ofvariable annuity contracts is reflected in contractholder funds.

 

**Net investment income**increased 22.9% in the first quarter of 2005 compared to the same period in2004, primarily due to the effect of higher portfolio balances, partiallyoffset by lower portfolio yields. Higher portfolio balances resulted from theinvestment of cash flows from operating and financing activities.Investment balances as of March 31, 2005 increased 4.4% from December 31,2004.  The lower portfolio yields wereprimarily due to purchases, including reinvestments of fixed income securitieswith yields lower than the current portfolio average.

 

15

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**Net income** analysisis presented in the following table.

 
| ** **                                                                                            | ** ** | **Three Months Ended   March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| **(in thousands)**                                                                                    | ** ** | **2005**                                | ** ** | **2004** | ** ** |
|                                                                                                  |       |                                    |       |   |   |
| Premiums                                                                                              |       | $                                       | 19,993     |   | $ | 16,651 |   |
| Contract charges(1)                                                                                   |       | 15,259                                  |       | 14,105 |   |
| Net investment income                                                                                 |       | 86,492                                  |       | 70,395 |   |
| Periodic settlements and accruals on non-hedge  derivative instruments(2)                             |       | 214                                     |       | 7 |   |
| Contract benefits                                                                                     |       | (47,083                                 | )          | (42,924 | ) |
| Interest credited to contractholder funds(3)                                                          |       | (35,994                                 | )          | (27,647 | ) |
| Gross margin                                                                                          |       | 38,881                                  |       | 30,587 |   |
|                                                                                                  |       |                                    |       |   |   |
| Amortization of DAC and DSI                                                                           |       | (3,503                                  | )          | 1,549 |   |
| Operating costs and expenses                                                                          |       | (9,192                                  | )          | (9,958 | ) |
| Income tax expense                                                                                    |       | (9,919                                  | )          | (7,839 | ) |
| Realized capital gains and losses, after-tax                                                          |       | (3,735                                  | )          | (434 | ) |
| DAC and DSI amortization expense related to  realized capital gains and losses, after-tax             |       | 1,489                                   |       | (952 | ) |
| Reclassification of periodic settlements  and accruals on non-hedge derivative instruments, after-tax |       | (136                                    | )          | (4 | ) |
| Gain on disposition of operations, after-tax                                                          |       | —                                  |       | 688 |   |
| Cumulative effect of change in accounting  principle, after-tax                                       |       | —                                  |       | (7,586 | ) |
| **Net income**                                                                                        |       | $                                       | 13,885     |   | $ | 6,051 |   |

 

----

(1) Amortization ofdeferred loads on interest-sensitive life products related to realized capitalgains and losses is excluded from contract charges for purposes of calculatinggross margin.  Amortization of deferredloads related to realized capital gains and losses totaled $7 thousand in thefirst quarter of 2004.  There was noamortization of deferred loads related to realized capital gains and losses inthe first quarter of 2005.  

 

(2) Periodic settlements and accruals on non-hedgederivative instruments are reflected as a component of realized capital gainsand losses on the Condensed Statements of Operations.   

 

(3) Amortization of DSI is excluded from interestcredited to contractholder funds for purposes of calculating gross margin.  Amortization of DSI totaled $232 thousand and$4 thousand in the first quarter of 2005 and 2004, respectively.

 

*Gross margin*, a non-GAAP measure, representspremiums, contract charges and net investment income and periodic settlementsand accruals on non-hedge derivative instruments, less contract benefits andinterest credited to contractholder funds excluding amortization of DSI.  We reclassify periodic settlements andaccruals on non-hedge derivative instruments into gross margin to report themin a manner consistent with the economically hedged investments, replicatedassets or product attributes (e.g. net investment income or interest creditedto contractholder funds) and by doing so, appropriately reflect trends inproduct performance.  We use gross marginas a component of our evaluation of the profitability of our life insurance andfinancial product portfolio. Additionally, for many of our products, including fixed annuities,variable life and annuities, and interest-sensitive life insurance, theamortization of DAC and DSI is determined based on actual and expected grossmargin.  Gross margin is comprised ofthree components that are utilized to further analyze the business: investmentmargin, benefit margin, and contract charges and fees.  We believe gross margin and its componentsare useful to investors because they allow for the evaluation of incomecomponents separately and in the aggregate when reviewing performance.  Gross margin, investment margin and benefitmargin should not be considered as a substitute for net income and do notreflect the overall profitability of the business.  Net income is the GAAP measure that is mostdirectly comparable to these margins. Gross margin is reconciled to GAAP net income in the table above.

 

16

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The componentsof gross margin are reconciled to the corresponding financial statement lineitems in the following table.

 
| ** **                                                                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                           | ** ** | **Investment  Margin**                | ** ** | **Benefit  Margin** | ** ** | **Contract Charges and  Fees** | ** ** | **Gross  Margin** | ** ** |
| **(in thousands)**                                                                   | ** ** | **2005**                              | ** ** | **2004  (4)** | ** ** | **2005** | ** ** | **2004  (4)** | ** ** | **2005** | ** ** | **2004  (4)** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Premiums                                                                             |       | $                                     | —     |   | $ | — |   | $ | 19,993 |   | $ | 16,651 |   | $ | — |   | $ | — |   | $ | 19,993 |   | $ | 16,651 |   |
| Contract charges  (1)                                                           |       | —                                |       | — |   | 7,845 |   | 7,479 |   | 7,414 |   | 6,626 |   | 15,259 |   | 14,105 |   |
| Net investment income                                                                |       | 86,492                                |       | 70,395 |   | — |   | — |   | — |   | — |   | 86,492 |   | 70,395 |   |
| Periodic settlements and accruals on non-hedge  derivative instruments (2) |       | 214                                   |       | 7 |   | — |   | — |   | — |   | — |   | 214 |   | 7 |   |
| Contract benefits                                                                    |       | (25,407                               | )          | (24,676 | ) | (21,676 | ) | (18,248 | ) | — |   | — |   | (47,083 | ) | (42,924 | ) |
| Interest credited to contractholder funds(3)                                         |       | (35,994                               | )          | (27,647 | ) | — |   | — |   | — |   | — |   | (35,994 | ) | (27,647 | ) |
|                                                                                 |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |       | $                                     | 25,305     |   | $ | 18,079 |   | $ | 6,162 |   | $ | 5,882 |   | $ | 7,414 |   | $ | 6,626 |   | $ | 38,881 |   | $ | 30,587 |   |

 

----

(1)  Amortization ofdeferred loads on interest-sensitive life products related to realized capitalgains and losses is excluded from contract charges for purposes of calculatinggross margin.  Amortization of deferredloads related to realized capital gains and losses totaled $7 thousand in thefirst quarter of 2004.  There was noamortization of deferred loads related to realized capital gains and losses inthe first quarter of 2005.  

 

(2)  Periodic settlements and accruals on non-hedge derivativeinstruments are reflected as a component of realized capital gains and losseson the Condensed Statements of Operations.  

 

(3)    Amortizationof DSI is excluded from interest credited to contractholder funds for purposesof calculating gross margin. Amortization of DSI totaled $232 thousand and $4 thousand in the firstquarter of 2005 and 2004, respectively.

 

(4)  Theprior period has been restated to conform to the current periodpresentation.  In connection therewith,contract charges related to guaranteed minimum death, income, accumulation andwithdrawal benefits on variable annuities have been reclassified to benefitmargin from maintenance charges. Additionally, amounts previously presented as maintenance charges andsurrender charges are now presented in the aggregate as contract charges andfees.  These reclassifications did notresult in a change in gross margin.

 

Gross marginincreased 27.1% during the first quarter of 2005 compared to the same period of2004 as growth from new business resulted in increased investment margin,benefit margin and contract charges and fees.

 

*Investment margin*****isa component of gross margin, both of which are non-GAAP measures. Investmentmargin represents the excess of net investment income and periodic settlementsand accruals on non-hedge derivative instruments over interest credited tocontractholder funds excluding amortization of DSI and the implied interest onlife-contingent immediate annuities included in the reserve for life-contingentcontract benefits.  We use investmentmargin to evaluate our profitability related to the difference betweeninvestment returns on assets supporting certain products and amounts creditedto customers (“spread”) during the fiscal period.  

 

Investmentmargin by product group is shown in the following table.

 
| ** **              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------|------------|----------------------------------------|------------|
| **(in thousands)**      | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Life insurance          |       | $                                      | 2,294      |   | $ | 2,900 |   |
| Annuities               |       | 23,011                                 |       | 15,179 |   |
| Total investment margin |       | $                                      | 25,305     |   |   | $ | 18,079 |   |
|                         |            |                                        |            |  |  |  |  |  |

** **

Investment margin increased 40.0% in the first quarter of 2005 comparedto the same period of 2004 due to the 43.1% increase in average contractholderfunds.  Our fixed annuity investmentspreads showed a modest improvement over the prior year as favorable spreads onfixed annuity contracts issued during the

 

17

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past 12months and crediting rate actions were effective in offsetting the investmentyield decline.  We were unable to offsetthe effects of declining yields on investment portfolios supporting capital,traditional life and other products and slightly lower investment spreads oninterest-sensitive life products compared to prior year.  

 

The followingtable summarizes the weighted average investment yield, interest creditingrates and investment spreads for the three months ended March 31.

** **
| ** **                                                                      | ** ** | **Weighted Average  Investment Yield** | ** ** | **Weighted Average  Interest Crediting Rate** | ** ** | **Weighted Average  Investment Spread** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                               | ** ** | **2004**                                      | ** ** | **2005**                                | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Interest-sensitive life                                                         |       | 5.7                                    | %          | 6.3                                           | %          | 4.4                                     | %          | 4.9 | % | 1.3 | % | 1.4 | % |
| Fixed annuities – deferred annuities                                       |       | 5.5                                    |       | 5.7                                           |       | 3.1                                     |       | 3.4 |   | 2.4 |   | 2.3 |   |
| Fixed annuities – immediate annuities with  and without life contingencies |       | 7.5                                    |       | 7.6                                           |       | 6.7                                     |       | 6.8 |   | 0.8 |   | 0.8 |   |
| Investments supporting capital, traditional  life and other products            |       | 6.1                                    |       | 6.2                                           |       | N/A                                     |       | N/A |   | N/A |   | N/A |   |

 

The following table summarizes the liabilities for these contracts andpolicies.

 
| ** **                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                                     | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Fixed annuities – immediate annuities with  life contingencies    |       | $                                      | 1,702,412  |   | $ | 1,659,670 |   |
| Other life contingent contracts and other                              |       | 102,192                                |       | 94,737 |   |
| Reserve for life-contingent contract  benefits                         |       | $                                      | 1,804,604  |   | $ | 1,754,407 |   |
|                                                                   |       |                                   |       |   |   |
| Interest-sensitive life                                                |       | $                                      | 381,824    |   | $ | 324,623 |   |
| Fixed annuities – deferred annuities                              |       | 3,089,790                              |       | 1,985,925 |   |
| Fixed annuities – immediate annuities  without life contingencies |       | 562,408                                |       | 503,983 |   |
| Other                                                                  |       | (226                                   | )          | 63 |   |
| Contractholder funds                                                   |       | $                                      | 4,033,796  |   | $ | 2,814,594 |   |

 

*Benefit margin*is a component of gross margin,both of which are non-GAAP measures. Benefit margin represents life and life-contingent immediate annuitypremiums, cost of insurance contract charges and variable annuity contractcharges for contract guarantees less contract benefits.  Benefit margin excludes the implied intereston life-contingent immediate annuities, which is included in the calculation ofinvestment margin.  We use the benefitmargin to evaluate our underwriting performance, as it reflects theprofitability of our products with respect to mortality or morbidity risk duringa fiscal period.                                          

 

Benefit marginby product group is shown in the following table.

 
| ** **           | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------|------------|----------------------------------------|------------|
| **(in thousands)**   | ** ** | **2005**                               | ** ** | **2004 (1)** | ** ** |
| Life insurance       |       | $                                      | 7,191      |   | $ | 7,218 |   |
| Annuities            |       | (1,029                                 | )          | (1,336 | ) |
| Total benefit margin |       | $                                      | 6,162      |   | $ | 5,882 |   |

 

----

(1) The priorperiod has been restated to conform to the current period presentation.  

 

18

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Benefit margin increased 4.8% in the first quarter of 2005 compared tothe same period of 2004.  The increasewas primarily the result of growth, partially offset by higher life benefitsand an increase in the reserve for variable contract guarantees related tovariable contracts of $174 thousand. This increase resulted from our annual comprehensive evaluation of theassumptions used in our valuation models which resulted in a refinedmeasurement of exposure, partially offset by better than anticipated equitymarket performance.  There was nocomparable 2004 adjustment to reserves for variable contract guarantees,because the reserves were established in the first quarter of 2004 as part ofthe cumulative effect of the change in accounting for such guarantees.

 

Upon the adoption of Statement of Position No. 03-1, “Accountingand Reporting by Insurance Enterprises for Certain Nontraditional Long-DurationContracts and for Separate Accounts”, on January 1, 2004, reserves wereestablished for death and income benefits provided under variable annuities andother secondary guarantees.  In priorperiods, death benefits were expensed as paid and no expense was recognizablefor the other guarantees.  Annuitybenefit margin will continue to be adversely impacted by certain closed blocksof life-contingent immediate annuities whose benefit payments are anticipated toextend beyond their original pricing expectations.  The annuity benefit margin in future periodswill fluctuate based on the timing of annuitant deaths on these life-contingentimmediate annuities and the annual evaluationof assumptions used in our valuation models for variable annuity guarantees.

 

*Amortizationof DAC and DSI*,excluding amortization related to realized capital gains and losses, increased$5.1 million in the first quarter of 2005 compared to the same period in 2004as a result of adjustments recorded in connection with our annual comprehensiveevaluation of the assumptions used in our valuation models for all investmentproducts, including variable and fixed annuities and interest-sensitive andvariable life products.  DAC and DSIamortization related to realized capital gains and losses, after-tax, was $1.5million, favorable to net income, for the first quarter of 2005 compared to $952thousand, unfavorable to net income, for the same period in the prioryear.  The change was due to increasedrealized capital losses on investments supporting our investment products.

 

In the first quarter of2005, as a result of our annual evaluation of assumptions, we recorded DAC andDSI deceleration (commonly referred to as “DAC and DSI unlocking”) of $7.3million, which included deceleration of $2.8 million on interest-sensitive andvariable life products and deceleration of $4.5 million for variableannuities.  The amortization decelerationon variable annuities was mostly attributable to better than anticipated equitymarket performance and persistency.

 

In the first quarter of2004, the comparable DAC and DSI unlocking was a net deceleration ofamortization of $10.2 million.  Thisdeceleration of amortization was the result of favorable projected mortality onour interest-sensitive life products and resulted in the total DAC and DSIamortization being favorable relative to net income.

 

*Operating costs and expenses* decreased 7.7% inthe first quarter of 2005 compared to the first quarter of 2004.  The decline was primarily attributable tolower guaranty fund assessments and expenses related to taxes, licenses andfees.

 

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### **INVESTMENTS**

###  

An importantcomponent of our financial results is the return on our investmentportfolio.  The composition of theinvestment portfolio at March 31, 2005 is presented in the table below. 

 
| **(in thousands)**          | ** ** | **Carrying  value** | ** ** | **Percent  of total** | ** ** |
|-----------------------------|------------|---------------------|------------|-----------------------|------------|
|                        |       |                |       |                  |       |   |
| Fixed income securities (1) |       | $                   | 5,755,899  |                  | 89.2       | % |
| Mortgage loans              |       | 520,218             |       | 8.1                   |       |
| Short-term                  |       | 133,443             |       | 2.1                   |       |
| Policy loans                |       | 35,488              |       | 0.5                   |       |
| Other                       |       | 4,818               |       | 0.1                   |       |
| Total                       |       | $                   | 6,449,866  |                  | 100.0      | % |

 

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(1) Fixedincome securities are carried at fair value. Amortized cost basis for these securities was $5.3 billion.

 

Totalinvestments increased to $6.45 billion at March 31, 2005 from $6.18billion at December 31, 2004 due to positive cash flows from operating andfinancing activities and increased funds associated with securities lendingtransactions, partially offset by decreased net unrealized gains on fixedincome securities.

 

Totalinvestments at amortized cost related to collateral, due to securities lendingtransactions, increased to $244 million at March 31, 2005 from $133million at December 31, 2004.

 

At March 31,2005, 96.4% of the fixed income securities portfolio was rated investmentgrade, which is defined as a security having a rating from the NationalAssociation of Insurance Commissioners (“NAIC”) of 1 or 2, a rating of Aaa, Aa,A or Baa from Moody’s or a rating of AAA, AA, A or BBB from S&P, Fitch orDominion; or a comparable internal rating if an externally provided rating isnot available.

 

The unrealized net capital gains on fixed income securities at March 31,2005 were $452.2 million, a decrease of $80.4 million or 15.1% since December 31,2004.   The net unrealized gain was comprised of$486.6 million of unrealized gains and $34.4 million of unrealized losses at March 31,2005.  This is compared to a netunrealized gain for the fixed income portfolio totaling $532.7 million at December 31,2004, comprised of $545.5 million of unrealized gains and $12.8 million ofunrealized losses.

 

Of the gross unrealized losses in the fixed income portfolio at March 31,2005, $30.6 million or 89.1% were related to investment grade securities andare believed to be primarily a result of a rising interest rateenvironment.  Of the remaining $3.8million of losses in the fixed income portfolio, $3.2 million or 84.9% were inthe corporate fixed income portfolio. The $3.2 million of corporate fixed income gross unrealized losses wereprimarily comprised of securities in the utilities, communications andtransportation sectors.  The grossunrealized losses in these sectors were primarily company specific and interestrate related.  We expect eventualrecovery of these securities.  Everysecurity was included in our portfolio monitoring process.

 

Our portfolio monitoring process identifies and evaluates fixed incomesecurities whose carrying 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 is below established thresholds forcertain time periods, or which are identified through other monitoring criteriasuch as ratings downgrades or payment defaults.

 

We also monitor the quality of our fixed income portfolio bycategorizing 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 concernsregarding the borrower’s ability to pay future principal and interest, whichcauses us to believe these securities may be classified as problem orrestructured in the future.

 

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The followingtable summarizes problem, restructured and potential problem fixed incomesecurities.

 
| ** **                        | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-----------------------------------|------------|-------------------------|------------|----------------------------|------------|
| **(in thousands)**                | ** ** | **Amortized  cost**     | ** ** | **Fair  value**            | ** ** | **Percent  of total  Fixed  Income  portfolio** | ** ** | **Amortized  cost** | ** ** | **Fair  value** | ** ** | **Percent  of total  Fixed  Income  portfolio** | ** ** |
| Problem                           |       | $                       | 10,613     |                       | $          | 11,508 |   | 0.2 | % | $ | 10,637 |   | $ | 10,813 |   | 0.2 | % |
| Restructured                      |       | 5,387                   |       | 4,505                      |       | 0.1 |   | 5,396 |   | 6,151 |   | 0.1 |   |
| Potential problem                 |       | 11,013                  |       | 10,845                     |       | 0.2 |   | 11,231 |   | 10,539 |   | 0.2 |   |
| Total net carrying value          |       | $                       | 27,013     |                       | $          | 26,858 |   | 0.5 | % | $ | 27,264 |   | $ | 27,503 |   | 0.5 | % |
| Cumulative write-downs recognized |       | $                       | 4,606      |                       |       |   |   |   | $ | 4,606 |   |   |   |   |   |

 

We haveexperienced a slight decrease in the amortized cost of fixed income securitiescategorized as problem, restructured and potential problem as of March 31,2005 compared to December 31, 2004. 

 

We alsoevaluated each of these securities through our portfolio monitoring process at March 31,2005 and recorded write-downs when appropriate. We further concluded that any remaining unrealized losses on thesesecurities were temporary in nature. While these balances may increase in the future, particularly ifeconomic conditions are unfavorable, management expects that the total amountof securities in these categories will remain low relative to the total fixedincome securities portfolio.

 

**Net Realized Capital Gains and Losses**The following table presents the components of realized capital gains andlosses and the related tax effect.

 
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                              |       |                                   |       |   |   |   |   |
| Write-downs                                       |       | $                                      | (393       | ) | $ | (639 | ) |
| Anticipated disposition write-downs               |       | (5,566                                 | )          | — |   |
| Dispositions                                      |       | (2,457                                 | )          | 1,827 |   |
| Valuation of derivative instruments               |       | 241                                    |       | (1,184 | ) |
| Settlement of derivative instruments              |       | 2,298                                  |       | (657 | ) |
| Realized capital gains and losses, pretax         |       | (5,877                                 | )          | (653 | ) |
| Income tax benefit                                |       | 2,142                                  |       | 219 |   |
| **Realized capital gains and losses,  after-tax** |       | $                                      | (3,735     | ) | $ | (434 | ) |

 

Dispositions in the above table include sales and other transactionssuch as calls and prepayments.  We maysell securities during the period in which fair value has declined belowamortized cost.  In certain situationsnew factors such as negative developments, subsequent credit deterioration,relative value opportunities, market liquidity concerns and portfolio reallocationscan subsequently change our previous intent to continue holding a security. 

 

A changing interest rate environment will also drive changes in ourportfolio duration targets at a tactical level. A duration target and range is established with an economic view ofliabilities relative to a long-term portfolio view.  Tactical duration adjustments withinmanagement’s approved ranges are accomplished through both cash markettransactions and derivative activities that generate realized gains and lossesand through new purchases.  As a componentof our approach to managing portfolio duration, realized gains and losses onderivative instruments are most appropriately considered in conjunction with

 

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the unrealized gains and losses on the fixed income portfolio.  This approach mitigates the impacts ofgeneral interest rate changes to the overall financial condition of thecorporation.

** **

Because of rising interest rates, continued asset-liability managementstrategies and on-going comprehensive reviews of our portfolios, changes weremade in the first quarter of 2005 to our duration.  In addition, we also pursued yieldenhancement strategies.  These changesprimarily resulted in anticipated disposition write-downs of certain securitieswith unrealized loss positions due to a change in intent to hold thesesecurities until recovery.  ** **

** **

### **CAPITAL RESOURCES AND LIQUIDITY**

 

**CapitalResources**consist of shareholder’s equity,representing funds deployed or available to be deployed to support businessoperations.  The following tablesummarizes our capital resources.

 
| **(in thousands)**                                                         | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                                       |       |                     |       |                        |       |   |   |
| Common stock, retained earnings and other  shareholder’s equity items |       | $                        | 497,829    |                        | $          | 483,980 |   |
|                                                                       |       |                     |       |                        |       |   |   |
| Accumulated other comprehensive income                                     |       | 126,002                  |       | 155,255                     |       |
| Total shareholder’s equity                                            |       | $                        | 623,831    |                        | $          | 639,235 |   |

 

*Shareholder’s equity* declined in the first quarter of 2005 whencompared to December 31, 2004, primarily as a result of lower unrealizedcapital gains, partially offset by net income.

 

**Financial Ratings and Strength**Our ratings are influenced by many factors including our operating andfinancial performance, asset quality, liquidity, asset/liability management,overall portfolio mix, financial leverage (i.e., debt), exposure to risks andthe current level of operating leverage. There have been no changes to ourinsurance financial strength ratings since December 31, 2004. 

 

**LiquiditySources and Uses *** *Asreflected in our Condensed Statements of Cash Flows, higher operating cashflows in the first quarter of 2005 when compared to the first quarter of 2004primarily relate to increased interest received and premium collections,partially offset by policy benefits and acquisition costs paid.  Cash flows used in investing activitiesincreased in the first quarter of 2005 due to the investment of higherfinancing and operating cash flows.  

 

Higher cashflow from financing activities during the first quarter of 2005 when comparedto the first quarter of 2004 reflect increased deposits of fixed annuities,partially offset by higher fixed annuity withdrawals.  For quantification of the changes incontractholder funds, see the Results of Operations section of theMD&A. 

 

We haveentered into an inter-company loan agreement with the Corporation.  The amount of inter-company loans availableto us is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to allits eligible subsidiaries at any given point in time is limited to $1.00 billion.  We had no amounts outstanding under theinter-company loan agreement at March 31, 2005 or December 31,2004.  The Corporation uses commercialpaper borrowings and bank lines of credit to fund intercompany borrowings.

 

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### **Item 4**.         Controls andProcedures

 

*Evaluationof Disclosure Controls and Procedures. *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.

 

*Changesin Internal Control over Financial Reporting. *During the fiscal quarter ended March 31, 2005,there were no changes in our internal control over financial reporting thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

### **PART II**.  OTHER INFORMATION

 

### **Item 1**.           LegalProceedings

 

Information required for this Part II, Item 1, isincorporated by reference to the discussion under the heading “Regulation” andunder the heading “Legal and Regulatory Proceedings and Inquiries” in Note 3 ofthe Company’s Condensed Financial Statements in Part I, Item 1, of this Form 10-Q.

 

### **Item 6**.           Exhibits

 

(a)          Exhibits

 

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

 

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### **SIGNATURE**

 

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

 
|              | Allstate  Life Insurance Company of New York                               |
|-------------------|----------------------------------------------------------------------------|
|              | (Registrant)                                                               |
|              |                                                                       |
| May 6,  2005 | By                                                                         | /s/ Samuel  H. Pilch |   |
|              | Samuel H.  Pilch                                                           |
|              | Controller                                                                 |
|              | (chief  accounting officer and duly  authorized officer of the registrant) |

 

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| **Exhibit No.** | ** ** | **Description** |
|----------------------|------------|-----------------|
| 10.1                 |       |            | Amendment  No. 1 to Automatic Annuity Reinsurance Agreement between Allstate Life  Insurance Company of New York and Allstate Life Insurance Company, effective  January 1, 2005. |
|                 |       |            |   |
| 15                   |       |            | Acknowledgement  of awareness from Deloitte & Touche LLP dated May 6, 2005,  concerning unaudited interim financial information. |
|                 |       |            |   |
| 31.1                 |       |            | Rule 13a-14(a) Certification  of Principal Executive Officer |
|                 |       |            |   |
| 31.2                 |       |            | Rule 13d-14(a) Certification  of Principal Financial Officer |
|                 |       |            |   |
| 32                   |       |            | Section 1350  Certifications |

 

E-1

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