** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

###### **FORM10-Q**

**The Registrant meets theconditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q andis therefore filing this Form with the reduced disclosure format.**

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

**THESECURITIES EXCHANGE ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDED MARCH31, 2007**

**OR**

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

###### **THESECURITIES EXCHANGE ACT OF 1934**

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

**ALLSTATELIFE INSURANCE COMPANY OF NEW YORK**

(Exact name of registrant as specified in its charter)

| **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’stelephone number, including area code: 631-357-8920**

**Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.**

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

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler” in Rule 12b-2 of the Exchange.**
| **La****rge accelerated filer** | ** ** | **Accelerated  filer** | ** ** | **Non-accelerated  filer** |
|---------------------------------|------------|------------------------|------------|----------------------------|
| **o**                           | ** ** | **o**                  | ** ** | **x**                      |

 

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

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

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

**As of May 7, 2007, the registrant had 100,000 common shares,$25 par value, outstanding, all of which are held by Allstate Life InsuranceCompany.**

 

 

----

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

**INDEX TOQUARTERLY REPORT ON FORM 10-Q**

##### **March 31, 2007**

| **PART 1.**  | ** ** | **FINANCIAL INFORMATION**                                                                                 |   |   |
|--------------|------------|-----------------------------------------------------------------------------------------------------------|--------|--------|
|         |       |                                                                                                      |   |   |
| Item 1.      |       | Financial Statements                                                                                      |   |   |
|         |       |                                                                                                      |   |   |
|         |       | Condensed Statements of Operations for the Three-Month  Periods Ended March 31, 2007 and 2006 (unaudited) |   | 1      |
|         |       |                                                                                                      |   |   |
|         |       | Condensed Statements of Financial Position as of  March 31, 2007 (unaudited) and December 31, 2006        |   | 2      |
|         |       |                                                                                                      |   |   |
|         |       | Condensed Statements of Cash Flows for the  Three-Month Periods Ended March 31, 2007 and 2006 (unaudited) |   | 3      |
|         |       |                                                                                                      |   |   |
|         |       | Notes to Condensed Financial Statements (unaudited)                                                       |   | 4      |
|         |       |                                                                                                      |   |   |
|         |       | Report of Independent Registered Public Accounting  Firm                                                  |   | 13     |
|         |       |                                                                                                      |   |   |
| Item 2.      |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operation                |   | 14     |
|         |       |                                                                                                      |   |   |
| Item 4.      |       | Controls and Procedures                                                                                   |   | 24     |
|         |       |                                                                                                      |   |   |
| **PART II.** | ** ** | **OTHER INFORMATION**                                                                                     |   |   |
|         |       |                                                                                                      |   |   |
| Item 1.      |       | Legal Proceedings                                                                                         |   | 25     |
|         |       |                                                                                                      |   |   |
| Item 1A.     |       | Risk Factors                                                                                              |   | 25     |
|         |       |                                                                                                      |   |   |
| Item 6.      |       | Exhibits                                                                                                  |   | 25     |

 

----

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

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

#### **ALLSTATE LIFEINSURANCE COMPANY OF NEW YORK**

**CONDENSED STATEMENTS OF OPERATIONS**
|                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                               | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                            | ** ** | **(unaudited)**                                  | ** ** |
| **Revenues**                                          |       |                                             |       |   |   |
| Premiums                                              |       | $                                                | 17,732     |   | $ | 14,069 |   |
| Contract charges                                      |       | 14,398                                           |       | 17,587 |   |
| Net investment income                                 |       | 93,968                                           |       | 92,893 |   |
| Realized capital gains  and losses                    |       | (1,905                                           | )          | (15,136 | ) |
|                                                  |       | 124,193                                          |       | 109,413 |   |
|                                                  |       |                                             |       |   |   |
| **Costs and expenses**                                |       |                                             |       |   |   |
| Contract benefits                                     |       | 42,833                                           |       | 43,330 |   |
| Interest credited to  contractholder funds            |       | 43,650                                           |       | 41,874 |   |
| Amortization of  deferred policy acquisition costs    |       | 17,760                                           |       | 420 |   |
| Operating costs and  expenses                         |       | 9,144                                            |       | 13,886 |   |
|                                                  |       | 113,387                                          |       | 99,510 |   |
|                                                  |       |                                             |       |   |   |
| Loss on disposition of  operations                    |       | (385                                             | )          | — |   |
|                                                  |       |                                             |       |   |   |
| **Income from operations before  income tax expense** |       | 10,421                                           |       | 9,903 |   |
|                                                  |       |                                             |       |   |   |
| Income tax expense                                    |       | 3,748                                            |       | 3,631 |   |
|                                                  |       |                                             |       |   |   |
| Net income                                            |       | $                                                | 6,673      |   | $ | 6,272 |   |

 

 

See notes tocondensed financial statements

1

----

**ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK**

**CONDENSEDSTATEMENTS OF FINANCIAL POSITION**
|                                                                                    | ** ** | ** **            | ** ** | ** **             | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | ** **            | ** ** | ** **             | ** ** |
| ** **

**(in thousands, except par value  data)**                             | ** ** | **March 31,****2007** | ** ** | **December 31,  2006** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**       | ** ** | ** **             | ** ** |
| **Assets**                                                                         |       |                  |       |                   |       |
| Investments                                                                        |       |                  |       |                   |       |
| Fixed income  securities, at fair value (amortized cost $5,671,379 and $5,542,227) |       | $                     | 6,026,532  |                   | $          | 5,887,139 |   |
| Mortgage loans                                                                     |       | 693,015               |       | 708,449                |       |
| Short-term                                                                         |       | 217,711               |       | 142,334                |       |
| Policy loans                                                                       |       | 37,484                |       | 38,168                 |       |
| Other                                                                              |       | 2,495                 |       | 3,784                  |       |
| Total  investments                                                                 |       | 6,977,237             |       | 6,779,874              |       |
|                                                                               |       |                  |       |                   |       |
| Cash                                                                               |       | 12,613                |       | 7,090                  |       |
| Deferred policy  acquisition costs                                                 |       | 258,560               |       | 278,625                |       |
| Accrued investment  income                                                         |       | 62,289                |       | 63,843                 |       |
| Reinsurance  recoverables                                                          |       | 422,707               |       | 437,422                |       |
| Current income tax  receivable                                                     |       | —                |       | 862                    |       |
| Other assets                                                                       |       | 54,368                |       | 42,488                 |       |
| Separate Accounts                                                                  |       | 1,004,489             |       | 1,009,784              |       |
| **Total  assets**                                                                  |       | $                     | 8,792,263  |                   | $          | 8,619,988 |   |
|                                                                               |       |                  |       |                   |       |
| **Liabilities**                                                                    |       |                  |       |                   |       |
| Contractholder funds                                                               |       | $                     | 4,696,297  |                   | $          | 4,708,428 |   |
| Reserve for life-contingent  contract benefits                                     |       | 1,940,362             |       | 1,926,492              |       |
| Deferred income taxes                                                              |       | 43,223                |       | 47,940                 |       |
| Other liabilities and  accrued expenses                                            |       | 438,813               |       | 243,338                |       |
| Payable to affiliates,  net                                                        |       | 5,181                 |       | 30,031                 |       |
| Current income taxes  payable                                                      |       | 6,016                 |       | —                 |       |
| Reinsurance payable to  parent                                                     |       | —                |       | 979                    |       |
| Separate Accounts                                                                  |       | 1,004,489             |       | 1,009,784              |       |
| **Total  liabilities**                                                             |       | 8,134,381             |       | 7,966,992              |       |
|                                                                               |       |                  |       |                   |       |
| **Commitments and Contingent  Liabilities (Note 4)**                               |       |                  |       |                   |       |
|                                                                               |       |                  |       |                   |       |
| **Shareholder’s equity**                                                      |       |                  |       |                   |       |
| Common stock, $25 par  value, 100 thousand shares authorized and outstanding       |       | 2,500                 |       | 2,500                  |       |
| Additional capital paid-in                                                         |       | 140,000               |       | 140,000                |       |
| Retained income                                                                    |       | 437,948               |       | 432,458                |       |
| Accumulated other  comprehensive income:                                           |       |                  |       |                   |       |
| Unrealized net  capital gains and losses                                           |       | 77,434                |       | 78,038                 |       |
| **Total  accumulated other comprehensive income**                                  |       | 77,434                |       | 78,038                 |       |
| **Total  shareholder’s equity**                                               |       | 657,882               |       | 652,996                |       |
| **Total liabilities and  shareholder’s equity**                               |       | $                     | 8,792,263  |                   | $          | 8,619,988 |   |

 

See notes to condensed financial statements.

2

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**ALLSTATE LIFE INSURANCE COMPANYOF NEW YORK**

**CONDENSEDSTATEMENTS OF CASH FLOWS**
|                                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                                  | ** ** |
| **Cash flows from operating  activities**                                          |       |                                             |       |   |   |
| Net income                                                                         |       | $                                                | 6,673      |   | $ | 6,272 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                             |       |   |   |
| Amortization and  other non-cash items                                             |       | (18,666                                          | )          | (16,340 | ) |
| Realized capital  gains and losses                                                 |       | 1,905                                            |       | 15,136 |   |
| Loss on  disposition of operations                                                 |       | 385                                              |       | — |   |
| Interest  credited to contractholder funds                                         |       | 43,650                                           |       | 41,874 |   |
| Changes in:                                                                        |       |                                             |       |   |   |
| Contract  benefits and other insurance reserves                                    |       | (199                                             | )          | 4,693 |   |
| Deferred policy  acquisition costs                                                 |       | 8,933                                            |       | (14,916 | ) |
| Income taxes  payable                                                              |       | 3,123                                            |       | 2,784 |   |
| Other operating  assets and liabilities                                            |       | (34,195                                          | )          | (3,360 | ) |
| Net cash  provided by operating activities                                         |       | 11,609                                           |       | 36,143 |   |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from investing  activities**                                          |       |                                             |       |   |   |
| Proceeds from sales of  fixed income securities                                    |       | 71,336                                           |       | 180,165 |   |
| Investment collections                                                             |       |                                             |       |   |   |
| Fixed income  securities                                                           |       | 32,988                                           |       | 37,256 |   |
| Mortgage loans                                                                     |       | 20,576                                           |       | 16,718 |   |
| Investment purchases                                                               |       |                                             |       |   |   |
| Fixed income  securities                                                           |       | (137,178                                         | )          | (251,851 | ) |
| Mortgage loans                                                                     |       | (4,977                                           | )          | (33,250 | ) |
| Change in short-term  investments, net                                             |       | 34,715                                           |       | (33,552 | ) |
| Change in other  investments, net                                                  |       | (115                                             | )          | 892 |   |
| Net cash  provided by (used in) investing activities                               |       | 17,345                                           |       | (83,622 | ) |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from financing  activities**                                          |       |                                             |       |   |   |
| Contractholder fund  deposits                                                      |       | 94,928                                           |       | 185,735 |   |
| Contractholder fund  withdrawals                                                   |       | (118,359                                         | )          | (135,920 | ) |
| Net cash (used  in) provided by financing activities                               |       | (23,431                                          | )          | 49,815 |   |
|                                                                               |       |                                             |       |   |   |
| **Net increase in cash**                                                           |       | 5,523                                            |       | 2,336 |   |
| **Cash at beginning of period**                                                    |       | 7,090                                            |       | 3,818 |   |
| **Cash at end of period**                                                          |       | $                                                | 12,613     |   | $ | 6,154 |   |

 

See notes tocondensed financial statements.

3

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**ALLSTATELIFE INSURANCE COMPANY OF NEW YORK**

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

### **1. General**

### **Basisof 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 condensed financial statements and notes as ofMarch 31, 2007, and for the three-month periods ended March 31, 2007 and 2006are unaudited.  The condensed financialstatements reflect all adjustments (consisting only of normal recurringaccruals), which are, in the opinion of management, necessary for the fairpresentation of the financial position, results of operations and cash flowsfor the interim periods.  These condensedfinancial statements and notes should be read in conjunction with the financialstatements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 31, 2006. The results of operations for the interim periods should not beconsidered indicative of results to be expected for the full year.

### **Adopted accounting standards**

***Statement of Position 05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs inConnection with Modifications or Exchanges of Insurance Contracts (“SOP 05-1”)***

In October 2005, theAmerican Institute of Certified Pubic Accountants (“AICPA”) issued SOP 05-1.  SOP 05-1 provides accounting guidance fordeferred policy acquisition costs associated with internal replacements ofinsurance and investment contracts other than those already described in SFASNo. 97, “Accounting and Reporting by Insurance Enterprises for CertainLong-Duration Contracts and for Realized Gains and Losses from the Sale ofInvestments”.  SOP 05-1 defines aninternal replacement as a modification in product benefits, features, rights orcoverages that occurs through the exchange of an existing contract for a newcontract, or by amendment, endorsement or rider to an existing contract, or bythe election of a feature or coverage within an existing contract.  In February 2007, the AICPA issued TechnicalPractice Aids (“TPAs”) that provide interpretive guidance to be used inapplying the SOP.  The Company adoptedthe provisions of SOP 05-1 on January 1, 2007, for internal replacementsoccurring in fiscal years beginning after December 15, 2006.  The adoption resulted in a $1.2 millionafter-tax adjustment to unamortized DAC and DSI related to the impact on futureestimated gross profits from the changes in accounting for certain costsassociated with contract continuations that no longer qualify for deferralunder SOP 05-1.  This adjustment wasrecorded as a reduction of retained income at January 1, 2007, and a reductionof DAC and DSI balances of $1.8 million, pretax.  The ongoing effects of SOP 05-1 are notexpected to have a material impact on the Company’s results of operations orfinancial position.

*SFASNo. 155, Accounting for Certain Hybrid Financial Instruments — an amendment ofFASB Statements No. 133 and 140 (“SFAS No. 155”)*

In February 2006, theFASB issued SFAS No. 155, which permits the fair value remeasurement at thedate of adoption of any hybrid financial instrument containing an embeddedderivative that otherwise would require bifurcation under paragraph 12 or 13 ofSFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”;clarifies which interest-only strips and principal-only strips are not subjectto the requirements of SFAS No. 133; establishes a requirement to evaluateinterests in securitized financial assets to identify interests that arefreestanding derivatives or hybrid financial instruments that contain embeddedderivatives requiring bifurcation; and clarifies that concentrations of creditrisk in the form of subordination are not embedded derivatives. The Companyadopted the provisions of SFAS No. 155 on January 1, 2007, which are effectivefor all financial instruments acquired, issued or subject to a remeasurementevent occurring after the beginning of the first fiscal year that begins afterSeptember 15, 2006.  The Company electednot to remeasure existing hybrid financial instruments at the date of adoptionthat contained embedded derivatives requiring bifurcation pursuant to paragraph12 or 13 of SFAS No. 133.  The adoptionof SFAS No. 155 did not have a material effect on the results of operations orfinancial position of the Company.

4

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*Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes, (“FIN 48”)*

InJuly 2006, the FASB issued FIN 48, which clarifies the accounting foruncertainty in income taxes recognized in an entity’s financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes”.  FIN 48 requires an entity to recognize thetax benefit of uncertain tax positions only when it is more likely than not,based on the position’s technical merits, that the position would be sustainedupon examination by the respective taxing authorities.  The tax benefit is measured as the largestbenefit that is more than fifty-percent likely of being realized upon finalsettlement with the respective taxing authorities.  The Company adopted the provisions of FIN 48,which are effective for fiscal years beginning after December 15, 2006, onJanuary 1, 2007.  No cumulative effect ofa change in accounting principle or adjustment to the liability forunrecognized tax benefits was recognized as a result of the adoption of FIN48.  Accordingly, the adoption of FIN 48did not have an effect on the results of operations or financial position ofthe Company.

TheCompany had no liability for net unrecognized tax benefits at January 1, 2007,and does not believe that it is reasonably possible that this balance willsignificantly change within the next 12 months.

TheInternal Revenue Service (“IRS”) completed its review of the Company’s federalincome tax returns through the 2002 tax year and the statute of limitations hasexpired on those years.  The IRS iscurrently examining the Company’s federal income tax returns for the 2003 and2004 tax years

*Securities and ExchangeCommission (“SEC”) Staff Accounting Bulletin No. 108, Considering the Effectsof Prior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements (“SAB 108”)*

In September 2006, theSEC issued SAB 108 in order to eliminate the diversity of practice in theprocess by which misstatements are quantified for purposes of assessingmateriality on the financial statements. SAB 108 is intended to eliminate the potential for the build up ofimproper amounts on the balance sheet due to the limitations of certain methodsof materiality assessment utilized in current practice.  SAB 108 establishes a single quantificationframework wherein the significance measurement is based on the effects of themisstatements on each of the financial statements as well as the relatedfinancial statement disclosures.  If acompany’s existing methods for assessing the materiality of misstatements arenot in compliance with the provisions of SAB 108, the initial application ofthe provisions may be adopted by restating prior period financial statementsunder certain circumstances or otherwise by recording the cumulative effect ofinitially applying the provisions of SAB 108 as adjustments to the carryingvalues of assets and liabilities as of January 1, 2006 with an offsettingadjustment recorded to the opening balance of retained income.  The provisions of SAB 108 must be applied nolater than the annual financial statements issued for the first fiscal yearending after November 15, 2006. The Company’s adoption of SAB 108 in the fourthquarter of 2006 did not have any effect on its results of operations orfinancial position.

*Financial Accounting Standards BoardStaff Position No. FAS 115-1, The Meaning of Other-Than-Temporary Impairmentand Its Application to Certain Investments (“FSP FAS 115-1”)*

The Companyadopted Financial Accounting Standards Board (“FASB”) FSP FAS 115-1 as ofJanuary 1, 2006.  FSP FAS 115-1 nullifiesthe guidance in paragraphs 10-18 of EITF Issue 03-1, “The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments” andreferences existing other-than-temporary impairment guidance.  FSP FAS 115-1 clarifies that an investorshould recognize an impairment loss no later than when the impairment is deemedother-than-temporary, even if a decision to sell the security has not beenmade, and also provides guidance on the subsequent accounting for incomerecognition on an impaired debt security. The adoption of FSP FAS 115-1 was required on a prospective basis anddid not have a material effect on the results of operations or financialposition of the Company.

5

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*Statement of Financial Accounting Standards No.154, Accounting Changes and Error Corrections (“SFAS No.  154”)*

TheCompany adopted SFAS No. 154 on January 1, 2006.  SFAS No. 154 replaces Accounting PrinciplesBoard (“APB”) Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “ReportingAccounting Changes in Interim Financial Statements”.  SFAS No. 154 requires retrospectiveapplication to prior periods’ financial statements for changes in accountingprinciple, unless determination of either the period specific effects or thecumulative effect of the change is impracticable or otherwise promulgated.  The Company had no accounting changes orerror corrections affected by the new standard.

**Pendingaccounting standards**

*SFAS No. 157, Fair Value Measurements(“SFAS No. 157”)*

In September 2006, the FASB issued SFAS No. 157 whichredefines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles (“GAAP”), and expands disclosuresabout fair value measurements.  SFAS No.157 applies where other accounting pronouncements require or permit fair valuemeasurements.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007.  The effects of adoption will be determined bythe types of instruments carried at fair value in the Company’s financialstatements at the time of adoption as well as the methods utilized to determinetheir fair values prior to adoption. Based on the Company’s current use of fair value measurements, SFAS No.157 is not expected to have a material effect on the results of operations orfinancial position of the Company.

*SFAS No. 159, The Fair ValueOption for Financial Assets and Financial Liabilities (“SFAS No. 159”)*

InFebruary 2007, the FASB issued SFAS No. 159 which provides reporting entitiesan option to report selected financial assets, including investment securitiesdesignated as available for sale, and liabilities, including most insurancecontracts, at fair value.  SFAS No. 159establishes presentation and disclosure requirements designed to facilitatecomparisons between companies that choose different measurement attributes forsimilar types of assets and liabilities. The standard also requires additional information to aid financialstatement users’ understanding of a reporting entity’s choice to use fair valueon its earnings and also requires entities to display on the face of thebalance sheet the fair value of those assets and liabilities for which thereporting entity has chosen to measure at fair value.  SFAS No. 159 is effective as of the beginningof a reporting entity’s first fiscal year beginning after November 15,2007.  Early adoption is permitted as of the beginning of the previousfiscal year provided the entity makes that choice in the first 120 days of thatfiscal year and also elects to apply the provisions of SFAS No. 157.  Because application of the standard isoptional, any impacts are limited to those financial assets and liabilities towhich SFAS No. 159 would be applied, which have yet to be determined.

6

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**2.  Supplemental Cash Flow Information**

Liabilitiesfor collateral received in conjunction with the Company’s securities lendingbusiness activities are reported in other liabilities and accrued expenses inthe Condensed Statements of Financial Position. The accompanying cash flows areincluded in cash flows from operating activities in the Condensed Statements ofCash Flows along with the activities resulting from management of the proceeds,which for the three months ended March 31 are as follows: 
|                                                                        | ** ** | **Three months ended   March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(in thousands)**                                                | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
|                                                                   | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| **Net  change in proceeds managed**                                    |       |                                                   |       |   |   |
| Net change in  fixed income securities                                 |       | $                                                      | (72,717    | ) | $ | (93,008 | ) |
| Net change in  short-term investments                                  |       | (107,174                                               | )          | (76,545 | ) |
| Operating cash flow used                                               |       | $                                                      | (179,891   | ) | $ | (169,553 | ) |
|                                                                   |       |                                                   |       |   |   |
| **Net  change in liabilities**                                         |       |                                                   |       |   |   |
| Liabilities for  collateral and security repurchase, beginning of year |       | $                                                      | (199,486   | ) | $ | (149,465 | ) |
| Liabilities for  collateral and security repurchase, end of period     |       | (379,377                                               | )          | (319,018 | ) |
| Operating cash  flow provided                                          |       | $                                                      | 179,891    |   | $ | 169,553 |   |

 

### **3. Reinsurance**

The effects ofreinsurance on premiums and contract charges are as follows:
|                                                    | ** ** | **Three months ended   March 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(in thousands)**                            | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
| **Premiums  and contract charges**                 |       |                                                   |       |   |   |
| Direct                                             |       | $                                                      | 41,689     |   | $ | 37,857 |   |
| Assumed —  non-affiliate                      |       | 338                                                    |       | 360 |   |
| Ceded                                              |       |                                                   |       |   |   |
| Affiliate                                          |       | (992                                                   | )          | (1,358 | ) |
| Non-affiliate                                      |       | (8,905                                                 | )          | (5,203 | ) |
| Premiums and  contract charges, net of reinsurance |       | $                                                      | 32,130     |   | $ | 31,656 |   |

 

The effects of reinsurance on contractbenefits are as follows:
|                                        | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Contract  benefits**                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Direct                                 |       | $                                                | 48,092     |   | $ | 47,125 |   |
| Assumed —  non-affiliate          |       | 252                                              |       | 97 |   |
| Ceded                                  |       |                                             |       |   |   |
| Affiliate                              |       | (1,175                                           | )          | 110 |   |
| Non-affiliate                          |       | (4,336                                           | )          | (4,002 | ) |
| Contract benefits, net  of reinsurance |       | $                                                | 42,833     |   | $ | 43,330 |   |

 

7

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The effects of reinsurance on interestcredited to contractholder funds are as follows:
|                                                               | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                       | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Interest credited to  contractholder funds**                |       |                                             |       |   |   |
| Direct                                                        |       | $                                                | 47,140     |   | $ | 41,830 |   |
| Assumed — non-affiliate                                  |       | 6                                                |       | 44 |   |
| Ceded — non-affiliate                                    |       | (3,496                                           | )          | — |   |
| Interest credited to contractholder funds, net of reinsurance |       | $                                                | 43,650     |   | $ | 41,874 |   |

 

In addition toamounts included in the tables above are reinsurance premiums ceded to ALIC of$778 thousand and $739 thousand for the three months ended March 31, 2007 and2006, respectively, under the terms of the structured settlement annuityreinsurance agreement.

*Variable Annuity Business*

On June 1, 2006, in accordance with the terms of thedefinitive Master Transaction Agreement and related agreements (“collectivelythe “Agreement”) the Company, its parent ALIC, and the Corporation, completedthe disposal through reinsurance of all of the Company’s variable annuitybusiness to Prudential Financial, Inc. and its subsidiary, The PrudentialInsurance Company of America (collectively “Prudential”).  For the Company, this disposal achieved theeconomic benefit of transferring to Prudential the future rights andobligations associated with this business.

The disposal was effected through reinsuranceagreements (the “Reinsurance Agreements”) which include both coinsurance andmodified coinsurance provisions. Coinsurance and modified coinsurance provisions are commonly used in thereinsurance of variable annuities because variable annuities generally includeboth separate account and general account liabilities.  When contractholders make a variable annuitydeposit, they must choose how to allocate their account balances between aselection of variable-return mutual funds that must be held in a separateaccount and fixed-return funds held in the Company’s general account.  In addition, variable annuity contractsinclude various benefit guarantees that are general account obligations of theCompany.  The Reinsurance Agreements donot extinguish the Company’s primary liability under the variable annuitycontracts.

Variable annuity balances invested in variable-returnmutual funds are held in separate accounts, which are legally segregated assetsand available only to settle separate account contract obligations.  Because the separate account assets mustremain with the Company under insurance regulations, modified coinsurance istypically used when parties wish to transfer future economic benefits of suchbusiness.  Under the modified coinsuranceprovisions, the separate account assets remain on the Company’s CondensedStatements of Financial Position, but the related results of operations arefully reinsured and presented net of reinsurance on the Condensed  Statements of Operations.

The coinsurance provisions of the ReinsuranceAgreements were used to transfer the future rights and obligations related tofixed-return fund options and benefit guarantees. $440.0 million of assetssupporting general account liabilities have been transferred to Prudential, netof consideration, under the coinsurance provisions as of the transactionclosing date.  General account liabilities of $399.2 million at March 31,2007 and $415.7 million as of December 31, 2006, however, remain on the Statementsof Financial Position with a corresponding reinsurance recoverable.

For purposes of presentation in the Statements of CashFlows, the Company treated the reinsurance of its variable annuity business asa disposition of operations, consistent with the substance of the transactionwhich was the disposition of a block of business accomplished throughreinsurance.  Accordingly, the netconsideration transferred to Prudential of $388.4 million (computed as $440.0million of general account insurance liabilities transferred to Prudential onthe closing date less consideration of $51.6 million) and the costs ofexecuting the transaction of $1.2 million, pretax, were classified as adisposition of operations in the cash flows from investing activities sectionof the Statements of Cash Flows.

8

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Under the Agreement, the Company, ALIC and theCorporation have indemnified Prudential for certain pre-closing contingentliabilities (including extra-contractual liabilities of the Company and ALICand liabilities specifically excluded from the transaction) that the Companyand ALIC have agreed to retain.  Inaddition, the Company, ALIC and the Corporation will each indemnify Prudentialfor certain post-closing liabilities that may arise from the acts of theCompany and ALIC, and their agents, including in connection with the Company’sand ALIC’s provision of transition services. The Reinsurance Agreements contain no limits or indemnifications withregard to insurance risk transfer, and transferred all of the future risks andresponsibilities for performance on the underlying variable annuity contractsto Prudential, including those related to benefit guarantees, in accordancewith the provisions of SFAS No. 113 “Accounting and Reporting for Reinsuranceof Short-Duration and Long-Duration Contracts”.

 The terms of the Agreement give Prudential theright to be the exclusive provider of its variable annuity products through theAllstate proprietary agency force for three years and a non-exclusive preferredprovider for the following two years.  During a transition period, theCompany and ALIC will continue to issue new variable annuity contracts, acceptadditional deposits on existing business from existing contractholders onbehalf of Prudential and, for a period of twenty-four months or less from theeffective date of the transaction, service the reinsured business whilePrudential prepares for the migration of the business onto its servicingplatform.

Pursuantto the Agreement, the consideration was $51.6 million.  The disposal resulted in a reinsurance lossof $9.3 million, pretax. This reinsurance loss and other transactional expensesincurred are included as a component of loss on disposition of operations onthe Statements of Operations and Comprehensive Income and amounted to $10.7million, pretax ($7.0 million, after-tax) during 2006 and $385 thousand in thefirst quarter of 2007.  DAC and DSI werereduced by $79.7 million and $6.2 million, respectively, as of the effectivedate of the transaction for balances related to the variable annuity businesssubject to the Reinsurance Agreements.

The separate account balances related to the modifiedcoinsurance were $1.00 billion as of March 31, 2007 and $1.01 billion as ofDecember 31, 2006.  Separate account balances totaling approximately $3.0million at March 31, 2007 and $2.7 million at December 31, 2006 relate to thevariable life business that is being retained. In the first quarter of 2006 prior to its disposition, the Company’svariable annuity business generated approximately $4.4 million in contractcharges.

### **4. Guarantees and Contingent Liabilities**

**Guarantees**

In the normal course of business, the Company providesstandard indemnifications to counterparties in contracts in connection withnumerous transactions, including acquisitions and divestures.  The types of indemnifications typicallyprovided include indemnifications for breaches of representations andwarranties, taxes and certain other liabilities, such as third partylawsuits.  The indemnification clausesare often standard contractual terms and were entered into in the normal courseof business based on an assessment that the risk of loss would be remote.  The terms of the indemnifications vary induration and nature.  In many cases, themaximum obligation is not explicitly stated and the contingencies triggeringthe obligation to indemnify have not occurred and are not expected tooccur.  Consequently, the maximum amountof the obligation under such indemnifications is not determinable.  Historically, the Company has not made anymaterial payments pursuant to these obligations.

The aggregate liability balance related to allguarantees was not material as of March 31, 2007.

**Regulation**

The Company is subject to changing social, economicand regulatory conditions.  From time totime, regulatory authorities or legislative bodies seek to impose additionalregulations regarding agent and broker compensation and otherwise expandoverall regulation of insurance products and the insurance industry.  The ultimate changes and eventual effects ofthese initiatives on the Company’s business, if any, are uncertain.

9

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**Legal and regulatory proceedings and inquiries**

**Background**

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

·                  These matters raise difficult andcomplicated factual and legal issues and are subject to many uncertainties andcomplexities, including but not limited to, the underlying facts of each matter;novel legal issues; variations between jurisdictions in which matters are beinglitigated, heard or investigated; differences in applicable laws and judicialinterpretations; the length of time before many of these matters might beresolved by settlement, through litigation or otherwise and, in some cases, thetiming of their resolutions relative to other similar matters involving othercompanies; the fact that some of the lawsuits are putative class actions inwhich a class has not been certified and in which the purported class may notbe clearly defined; the fact that some of the lawsuits involve multi-stateclass actions in which the applicable law(s) for the claims at issue is indispute and therefore unclear; and the current challenging legal environmentfaced by large corporations and insurance companies.

·                  In the lawsuits, plaintiffs seek avariety of remedies including equitable relief in the form of injunctive andother remedies and monetary relief in the form of contractual and extra-contractualdamages.  In some cases, the monetarydamages sought include punitive damages. Often specific information about the relief sought, such as the amountof damages, is not available because plaintiffs have not requested specificrelief in their pleadings.  In ourexperience, when specific monetary demands are made in pleadings, they bearlittle relation to the ultimate loss, if any, to the Company.

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

·                  For the reasons specified above, itis often not possible to make meaningful estimates of the amount or range ofloss that could result from the matters described below in the “Proceedings”subsection.  The Company reviews thesematters on an on-going basis and follows the provisions of SFAS No. 5, “Accountingfor Contingencies” when making accrual and disclosure decisions.  When assessing reasonably possible andprobable outcomes, the Company bases its decisions on its assessment of theultimate outcome following all appeals.

·                  Due to the complexity and scope ofthe matters disclosed in the “Proceedings” subsection below and the manyuncertainties that exist, the ultimate outcome of these matters cannot bereasonably predicted.  In the event of anunfavorable outcome in one or more of these matters, the ultimate liability maybe in excess of amounts currently reserved and may be material to the Company’soperating results or cash flows for a particular quarter or annual period.  However, based on information currently knownto it, management believes that the ultimate outcome of all matters describedbelow as they are resolved over time is not likely to have a material adverseeffect on the financial position of the Company.

10

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**Proceedings**

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

AICis defending certain matters relating to its agency program reorganizationannounced in 1999. These matters include a lawsuit filed in December 2001by the U.S. Equal Employment Opportunity Commission (“EEOC”) alleging retaliationunder federal civil rights laws (the “EEOC” I suit) and a class action filed inAugust 2001 by former employee agents alleging retaliation and agediscrimination under the Age Discrimination in Employment Act (“ADEA”), breachof contract and ERISA violations (the “Romero I” suit).  In March 2004, in the consolidated EEOC I andRomero I litigation, the trial court issued a memorandum and order that, amongother things, certified classes of agents, including a mandatory class ofagents who had signed a release, for purposes of effecting the court’sdeclaratory judgment that the release is voidable at the option of the releasesigner.  The court also ordered that anagent who voids the release must return to AIC “any and all benefits receivedby the [agent] in exchange for signing the release.”  The court also stated that, “on theundisputed facts of record, there is no basis for claims of age discrimination.”The EEOC and plaintiffs have asked the court to clarify and/or reconsider itsmemorandum and order and on January 16, 2007, the judge denied their request.On March 21, 2007, the judge entered a memorandum and order tentativelyindicating that he intends to dismiss most or all of the claims asserted in theconsolidated EEOC 1 and Romero I litigation.  The case otherwise remains pending. The EEOCalso filed another lawsuit in October 2004 alleging age discrimination withrespect to a policy limiting the rehire of agents affected by the agencyprogram reorganization (the “EEOC II” suit). In EEOC II, in October 2006, the court granted partial summary judgmentto the EEOC.  Although the court did notdetermine that AIC was liable for age discrimination under the ADEA, itdetermined that the rehire policy resulted in a disparate impact, reserving fortrial the determination on whether AIC had reasonable factors other than age tosupport the rehire policy.  AIC’spetitions for interlocutory review of the trial court’s summary judgment orderwere granted. AIC’s interlocutory appeal is now pending in the Court of Appealsfor the Eighth Circuit. AIC is also defending a certified class action filed byformer employee agents who terminated their employment prior to the agencyprogram reorganization.  These plaintiffshave asserted breach of contract and ERISA claims.  A putative nationwide class action has alsobeen filed by former employee agents alleging various violations of ERISA,including a worker classification issue. These plaintiffs are challenging certain amendments to the AgentsPension Plan and are seeking to have exclusive agent independent contractorstreated as employees for benefit purposes. This matter was dismissed with prejudice by the trial court, was thesubject of further proceedings on appeal, and was reversed and remanded to thetrial court in April 2005.  On March 21,2007, the trial judge entered a memorandum and order tentatively indicatingthat he intends to dismiss most or all of the claims asserted in thiscase.  In all of these various matters,plaintiffs seek compensatory and punitive damages, and equitable relief.  AIC has been vigorously defending theselawsuits and other matters related to its agency program reorganization.  The outcome of these disputes is currentlyuncertain.

TheCompany recently concluded a periodic examination by state insuranceregulators.  Regulators focused, as theyhave with other insurers, on the Company’s compliance with the state’sreplacement sales and record-keeping processes with regard to life insuranceand annuities among other issues.  Theyfound that the Company failed to meet the requirements of applicableregulations.  The Company has settledthis examination and has substantially completed customer remediation relatedto replacement sales and is completing its other obligations arising from theexamination.

11

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**Other Matters**

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

Various other legal and regulatory actions arecurrently pending that involve the Company and specific aspects of its conductof business.  Like other members of theinsurance industry, the Company is the target of a number of lawsuits andproceedings, some of which involve claims for substantial or indeterminateamounts.  These actions are based on avariety of issues and target a range of the Company’s practices.  The outcome of these disputes is currentlyunpredictable.

Oneor more of these matters could have an adverse effect on the Company’soperating results or cash flows for a particular quarter or annual period.  However, based on information currently knownto it, management believes that the ultimate outcome of all matters describedin this “Other Matters” subsection, in excess of amounts currently reserved, asthey are resolved over time is not likely to have a material effect on theoperating results, cash flows or financial position of the Company.

**5.  Other Comprehensive Income**

Thecomponents of other comprehensive loss on a pretax and after-tax basis are asfollows:
|                                                                         | ** ** | Three months ended March 31, | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** (in thousands)**                                           | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                              | ** ** | **Pretax**                                       | ** ** | **Tax** | ** ** | **After-  tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **After-  tax** | ** ** |
| Unrealized holding  gains (losses) arising during the period            |       | $                                                | 211        |   | (74 | ) | $ | 137 |   | $ | (106,593 | ) | $ | 37,307 |   | $ | (69,286 | ) |
| Less: reclassification  adjustment of realized capital gains and losses |       | 1,140                                            |       | (399 | ) | 741 |   | (18,075 | ) | 6,326 |   | (11,749 | ) |
|                                                                    |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive  loss                                               |       | $                                                | (929       | ) | 325 |   | (604 | ) | $ | (88,518 | ) | $ | 30,981 |   | (57,537 | ) |
|                                                                    |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                              |       |                                             |       |   |   | 6,673 |   |   |   |   |   | 6,272 |   |
|                                                                    |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss)                                             |       |                                             |       |   |   | $ | 6,069 |   |   |   |   |   | $ | (51,265 | ) |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directorsand Shareholder of

AllstateLife Insurance Company of New York:

We have reviewed the accompanying condensed statement of financialposition of Allstate Life Insurance Company of New York (the “Company”, anaffiliate of The Allstate Corporation) as of March 31, 2007, and the relatedcondensed statements of operations and cash flows for the three-month periodsended March 31, 2007 and 2006.  Theseinterim financial statements are the responsibility of the Company’smanagement.

We conducted our reviews in accordance with the 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 Company AccountingOversight Board (United States), the objective of which is the expression of anopinion regarding the financial statements taken as a whole.  Accordingly, we do not express such anopinion.

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 accordance with the standards of thePublic Company Accounting Oversight Board (United States), the statement offinancial position of Allstate Life Insurance Company of New York as ofDecember 31, 2006, and the related statements of operations andcomprehensive income, shareholder’s equity, and cash flows for the year thenended (not presented herein); and in our report dated March 9, 2007, whichreport includes an explanatory paragraph relating to a change in the Company’smethod of accounting for certain nontraditional long-duration contracts andseparate accounts in 2004, we expressed an unqualified opinion on thosefinancial statements.  In our opinion,the information set forth in the accompanying condensed statement of financialposition as of December 31, 2006 is fairly stated, in all material respects, inrelation to the statement of financial position from which it has been derived.

 

 

 
| /s/ Deloitte & Touche LLP |   |
|-------------------------------|--------|
|                          |   |
|                          |   |
| Chicago, Illinois             |   |
| May 4, 2007                   |   |

 

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**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION FOR THETHREE-MONTH PERIODS ENDED MARCH 31, 2007 AND 2006**

### **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”, “ALNY”, “our”, “us” or the “Company”).  It should be read in conjunction with thecondensed financial statements and notes thereto found under Part I. Item 1.contained herein, and with the discussion, analysis, financial statements andnotes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of theAllstate Life Insurance Company of New York Annual Report on Form 10-K for2006.  We operate as a single segmententity based on the manner in which we use financial information to evaluateand determine the allocation of resources.

### **OPERATIONS**

Effective June 1,2006, we disposed of our variable annuity business through reinsurance. Thefollowing table presents the results of operations attributable to the variableannuity business for the period of 2006 prior to the disposition.
| (in thousands)                                                        | ** ** | **Three Months  Ended  March 31, 2006** | ** ** | **Three Months   Ended  June 30, 2006** | ** ** | **Six Months   Ended  June 30, 2006** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| **Favorable/(unfavorable)**                                                |       |                                                   |       |                                                        |       |                                                      |       |
| Contract charges                                                           |       | $                                                      | 4,428      |                                                        | $          | 3,675                                                     |       | $ | 8,103 |   |
| Net investment income                                                      |       | 5,235                                                  |       | 3,554                                                       |       | 8,789                                                     |       |
| Periodic settlements  and accruals on non-hedge derivative instruments (1) |       | 9                                                      |       | 24                                                          |       | 33                                                        |       |
| Contract benefits                                                          |       | (1,861                                                 | )          | (256                                                        | )          | (2,117                                                    | )          |
| Interest credited to  contractholder funds (2)                             |       | (4,173                                                 | )          | (2,742                                                      | )          | (6,915                                                    | )          |
| Gross margin (3)                                                           |       | 3,638                                                  |       | 4,255                                                       |       | 7,893                                                     |       |
| Realized capital gains  and losses                                         |       | (3,638                                                 | )          | (474                                                        | )          | (4,112                                                    | )          |
| Amortization of DAC and  DSI(2)                                            |       | 10,261                                                 |       | (2,477                                                      | )          | 7,784                                                     |       |
| Operating costs and  expenses                                              |       | (2,522                                                 | )          | (872                                                        | )          | (3,394                                                    | )          |
| Loss on disposition of  operations                                         |       | —                                                 |       | (7,748                                                      | )          | (7,748                                                    | )          |
| Income from  operations before income tax expense                          |       | $                                                      | 7,739      |                                                        | $          | (7,316                                                    | )          | $ | 423 |   |
|                                                                       |       |                                                   |       |                                                        |       |                                                      |       |
| Investment margin                                                          |       | $                                                      | 1,071      |                                                        | $          | 836                                                       |       | $ | 1,907 |   |
| Benefit margin                                                             |       | (1,605                                                 | )          | 485                                                         |       | (1,120                                                    | )          |
| Contract charges and  fees                                                 |       | 4,172                                                  |       | 2,934                                                       |       | 7,106                                                     |       |
| Gross margin (3)                                                           |       | $                                                      | 3,638      |                                                        | $          | 4,255                                                     |       | $ | 7,893 |   |

 

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

(2)          For purposes of calculating gross margin,amortization of deferred sales inducements (“DSI”) is excluded from interestcredited to contractholder funds and aggregated with amortization of DAC due tothe similarity in the substance of the two items.  Amortization of DSI for variable annuitiestotaled $595 thousand (favorable to income) in the first quarter of 2006 and$(88) thousand in the second quarter of 2006.

(3)          Grossmargin and its components are measures that are not based on generally acceptedaccounting principals (“non-GAAP”). Gross margin, investment margin and benefit margin are defined on pages17, 18 and 19, respectively.

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

**Contractcharges******are revenuesgenerated from interest-sensitive life, fixed annuities and variableannuities  for which deposits areclassified as 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 fundsare considered in the evaluation of growth and as indicators of future levels ofrevenues.  Subsequent to the close of ourreinsurance transaction with Prudential Financial Inc. (“Prudential”) on June1, 2006, variable 

14

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annuity contractcharges on the business subject to the transaction are fully reinsured toPrudential and presented net of reinsurance on the Condensed Statements ofOperations (see Note 3 to the Condensed Financial Statements).

The following table summarizes premiums andcontract charges by product.
|                                              | ** ** | **Three Months Ended   March 31,** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------------|------------|
| **(in thousands)**                      | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
|                                         |       |                                                   |       |   |   |
| **Premiums**                                 | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Traditional life                             |       | $                                                      | 6,384      |   | $ | 4,609 |   |
| Immediate annuities  with life contingencies |       | 9,799                                                  |       | 8,264 |   |
| Accident and health and  other               |       | 1,549                                                  |       | 1,196 |   |
| **Total premiums**                           |       | 17,732                                                 |       | 14,069 |   |
|                                         |       |                                                   |       |   |   |
| **Contract charges**                         |       |                                                   |       |   |   |
| Interest-sensitive life                      |       | 12,251                                                 |       | 11,230 |   |
| Fixed annuities                              |       | 2,147                                                  |       | 1,929 |   |
| Variable annuities                           |       | —                                                 |       | 4,428 |   |
| **Total contract charges**                   |       | 14,398                                                 |       | 17,587 |   |
|                                         |       |                                                   |       |   |   |
| **Premiums and contract charges**            |       | $                                                      | 32,130     |   | $ | 31,656 |   |

 

Total premiums increased 26.0% to $17.7 million in the first quarter of2007 compared to the same period of 2006. The increase was due to higher sales of traditional life products andimmediate annuities with life contingencies.

Contract chargesdecreased 18.1% to $14.4 million in the first quarter of 2007 compared to thesame period of 2006.   Excluding contractcharges on variable annuities, all of which are reinsured to Prudentialeffective June 1, 2006, contract charges increased 9.4% in the first quarter of2007 compared to the first quarter of 2006. The increase was due to higher contract charges on interest-sensitivelife products resulting from growth of business in force.

15

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*Contractholderfunds* represent interest-bearing liabilities arising from thesale of fixed annuities, interest-sensitive life products 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 for mortalityor administrative expenses.

 The following table shows the changes incontractholder funds.
|                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Contractholder funds, beginning  balance**                    |       | $                                                | 4,708,428  |   | $ | 4,349,395 |   |
|                                                            |       |                                             |       |   |   |
| **Deposits**                                                    |       |                                             |       |   |   |
| Fixed annuities                                                 |       | 69,632                                           |       | 146,827 |   |
| Interest-sensitive life                                         |       | 23,129                                           |       | 24,284 |   |
| Variable annuity and  life deposits allocated to fixed accounts |       | 15                                               |       | 9,341 |   |
| Total deposits                                                  |       | 92,776                                           |       | 180,452 |   |
|                                                            |       |                                             |       |   |   |
| **Interest credited**                                           |       | 44,214                                           |       | 44,331 |   |
|                                                            |       |                                             |       |   |   |
| **Benefits, withdrawals and other  adjustments**                |       |                                             |       |   |   |
| Benefits                                                        |       | (38,056                                          | )          | (35,691 | ) |
| Surrenders and partial  withdrawals                             |       | (80,303                                          | )          | (89,438 | ) |
| Contract charges                                                |       | (11,692                                          | )          | (10,784 | ) |
| Net transfers to  separate accounts                             |       | —                                           |       | (10,791 | ) |
| Other adjustments                                               |       | (19,070                                          | )          | (481 | ) |
| Total benefits,  withdrawals and other adjustments              |       | (149,121                                         | )          | (147,185 | ) |
|                                                            |       |                                             |       |   |   |
| **Contractholder funds, ending balance**                        |       | $                                                | 4,696,297  |   | $ | 4,426,993 |   |

 

Contractholder funds decreased 0.3% and increased 1.8%in the first quarter of 2007 and 2006, respectively.  Average contractholder funds increased 7.2%and 12.0% in the first quarters of 2007 and 2006, respectively, compared to thesame periods in the prior years.

Contractholderdeposits decreased 48.6% in the first quarter of 2007 compared to the same periodof 2006 due to lower deposits on fixed annuities and the absence in the firstquarter of 2007 of variable annuity deposits allocated to fixed accounts due tothe reinsurance of the business effective June 1, 2006.  Subsequent to the effective date of thetransaction, the net change in contractholder funds due to the reinsuredvariable annuity business is reflected as a component of other adjustments inthe table above.  Fixed annuity depositsin the first quarter of 2007 were $69.6 million a decrease of 52.6% compared tothe same period in the prior year.  Thisdecrease is indicative of lower industry-wide fixed annuity sales and reflectsreduced consumer demand as competing short-term and equity-based investmentalternatives continued to be relatively attractive during the quarter.  Our strategy to raise returns on the capitalthat supports these products also contributed to the decline.

Surrendersand partial withdrawals on deferred fixed annuities and interest-sensitive lifeproducts decreased 10.2% in the first quarter of 2007 compared to the sameperiod in 2006, and the annualized withdrawal rate, based on the beginning ofthe period contractholder funds balance, decreased to 8.6% in the first quarterof 2007 compared to 9.4% for the first quarter of 2006.

16

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**Netinvestment income** increased 1.2% in the first quarter of 2007compared to the same period in 2006 due to higher average fixed income securitybalances and increased yields on fixed income securities.  Higher average fixed income security balancesresulted primarily from the investment of cash flows from operating activities,including increased funds associated with securities lending businessactivities.

**Net income** analysisis presented in the following table.
|                                                                                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                                                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                                                                   |       |                                             |       |   |   |
| Premiums                                                                                               |       | $                                                | 17,732     |   | $ | 14,069 |   |
| Contract charges(1)                                                                                    |       | 14,398                                           |       | 17,588 |   |
| Net investment income                                                                                  |       | 93,968                                           |       | 92,893 |   |
| Periodic settlements  and accruals on non-hedge derivative instruments(2)                              |       | 760                                              |       | 424 |   |
| Contract benefits                                                                                      |       | (42,833                                          | )          | (43,330 | ) |
| Interest credited to  contractholder funds(3)                                                          |       | (41,319                                          | )          | (40,478 | ) |
| Gross margin                                                                                           |       | 42,706                                           |       | 41,166 |   |
|                                                                                                   |       |                                             |       |   |   |
| Amortization of DAC and  DSI (3) (4)                                                                   |       | (19,370                                          | )          | (13,410 | ) |
| Operating costs and  expenses                                                                          |       | (9,144                                           | )          | (13,886 | ) |
| Income tax expense                                                                                     |       | (5,170                                           | )          | (5,156 | ) |
| Realized capital gains  and losses, after-tax                                                          |       | (1,181                                           | )          | (9,317 | ) |
| DAC and DSI  amortization expense related to realized capital gains and losses, after-tax (4)          |       | (447                                             | )          | 7,136 |   |
| Reclassification of  periodic settlements and accruals on non-hedge derivative instruments,  after-tax |       | (471                                             | )          | (261 | ) |
| Loss in disposition of  operations, after-tax                                                          |       | (250                                             | )          | — |   |
| **Net income**                                                                                         |       | $                                                | 6,673      |   | $ | 6,272 |   |

 

(1)          Loads charged to contractholders at the inception of interest-sensitivelife contracts are deferred and amortized to income in a manner consistent withdeferred policy acquisition costs (“DAC”). Amortization of deferred loads on interest-sensitive life productsrelated to realized capital gains and losses is excluded from contract chargesfor purposes of calculating gross margin. There was no amortization of deferred loads related to realized capitalgains and losses in the first quarter of 2007. Amortization of deferred loads related to realized capital gains andlosses totaled $1 thousand in the first quarter of 2006.

(2)          Periodic settlements and accruals onnon-hedge derivative instruments are reflected as a component of realizedcapital gains and losses on the Condensed Statements of Operations.

(3)          For the purposes of calculating gross margin,amortization of deferred sales inducements (“DSI”) is excluded from interestcredited to contractholder funds and aggregated with amortization of DAC due tothe similarity in substance of the two items. Amortization of DSI totaled $2.3 million and $1.4 million in the firstquarters of 2007 and 2006, respectively.

(4)          Amortization of DAC and DSI related to realized capital gains and lossesis analyzed separately because realized capital gains and losses may varysignificantly between periods and obscure trends in our business.  Amortization of DAC and DSI relating torealized capital gains and losses was $(721) thousand and $11.6 million in thefirst quarters of 2007 and 2006, respectively.

----

*Gross margin*, a non-GAAP measure, is comprised of premiums and contract charges, andnet investment income, less contract benefits and interest credited tocontractholder funds excluding amortization of DSI. Gross margin alsoincludes periodic settlements and accruals on certain non-hedge derivativeinstruments (see additional discussion under “*investmentmargin*”). We use grossmargin as a component of our evaluation of the profitability of our lifeinsurance and financial 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

17

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margin, investment margin and benefit margin should not be considered asa substitute for net income and do not reflect the overall profitability of thebusiness.  Net income is the GAAP measurethat is most directly comparable tothese margins.  Gross margin is reconciledto GAAP net income in the table above.

The components ofgross margin are reconciled to the corresponding financial statement line itemsin the following table. 
|                                                                            | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **Investment   Margin**                         | ** ** | **Benefit   Margin** | ** ** | **Contract   Charges and   Fees** | ** ** | **Gross  Margin** | ** ** |
| **(in thousands)**                                                    | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Premiums                                                                   |       | $                                                    | —     |   | $ | — |   | $ | 17,732 |   | $ | 14,069 |   | $ | — |   | $ | — |   | $ | 17,732 |   | $ | 14,069 |   |
| Contract charges (1)                                                       |       | —                                               |       | — |   | 8,303 |   | 7,980 |   | 6,095 |   | 9,608 |   | 14,398 |   | 17,588 |   |
| Net investment income                                                      |       | 93,968                                               |       | 92,893 |   | — |   | — |   | — |   | — |   | 93,968 |   | 92,893 |   |
| Periodic settlements and  accruals on non-hedge derivative instruments (2) |       | 760                                                  |       | 424 |   | — |   | — |   | — |   | — |   | 760 |   | 424 |   |
| Contract benefits                                                          |       | (26,607                                              | )          | (25,520 | ) | (16,226 | ) | (17,810 | ) | — |   | — |   | (42,833 | ) | (43,330 | ) |
| Interest credited to contractholder  funds(3)                              |       | (41,319                                              | )          | (40,478 | ) | — |   | — |   | — |   | — |   | (41,319 | ) | (40,478 | ) |
|                                                                       |       | $                                                    | 26,802     |   | $ | 27,319 |   | $ | 9,809 |   | $ | 4,239 |   | $ | 6,095 |   | $ | 9,608 |   | $ | 42,706 |   | $ | 41,166 |   |

 

(1)          Loads charged to contractholders at theinception of interest-sensitive life contracts are deferred and amortized toincome in a manner consistent with DAC. Amortization of deferred loads on interest-sensitive life productsrelated to realized capital gains and losses is excluded from contract chargesfor purposes of calculating gross margin. There was no amortization of deferred loads related to realized capitalgains and losses in the first quarter of 2007. Amortization of deferred loads related to realized capital gains andlosses totaled $1 thousand in the first quarter of 2006.

(2)          Periodic settlements and accruals onnon-hedge derivative instruments are reflected as a component of realizedcapital gains and losses on the Condensed Statements of Operations.

(3)          For the purposes of calculating gross margin,amortization of DSI is excluded from interest credited to contractholder fundsand aggregated with amortization of DAC due to similarity in the substance ofthe two items.  Amortization of DAC andDSI relating to realized capital gains and losses was $(721) thousand and $11.6million in the first quarters of 2007 and 2006, respectively.

----

The increase in grossmargin of 3.7% in the first quarter of 2007 compared to the same period in theprior year includes the impact of gross margin on variable annuities, whichwere fully reinsured effective June 1, 2006. Excluding the impact of the reinsured variable annuity business, grossmargin increased 13.8% due to higher benefit and investment margin as well asincreased contract charges and fees.

*Investmentmargin*****is a componentof gross margin, both of which are non-GAAP measures. Investment marginrepresents the excess of net investment income and periodic settlements andaccruals on non-hedge derivative instruments over interest credited tocontractholder funds and the implied interest on life-contingent immediateannuities included in the reserve for life-contingent contract benefits.  Weutilize derivative instruments as economic hedges of investments orcontractholder funds or to replicate fixed income securities.  These instruments do not qualify for hedgeaccounting or are not designated as hedges for accounting purposes.  Such derivatives are accounted for at fairvalue, and reported in realized capital gains and losses.  Periodic settlements and accruals on thesederivative instruments are included as a component of gross margin, consistentwith their intended use to enhance or maintain investment income and margin,and together with the economically hedged investments or product attributes(e.g., net investment income or interest credited to contractholders funds) orreplicated investments, to appropriately reflect trends in product performance**. **Amortizationof DSI is excluded from interest credited to contractholder funds for purposesof calculating investment margin. We use investment margin to evaluate ourprofitability related to the difference between investment returns on assetssupporting certain products and amounts credited to customers (“spread”) duringthe fiscal period.

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Investment marginby product group is shown in the following table.  
|                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)** | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Annuities               |       | $                                                | 24,092     |   | $ | 24,904 |   |
| Life insurance          |       | 2,710                                            |       | 2,415 |   |
| Total investment margin |       | $                                                | 26,802     |   | $ | 27,319 |   |

 

Investmentmargin decreased 1.9% in the first quarter of 2007 compared to the same periodin the prior year, which included investment margin on variable annuities thatwas fully reinsured effective June 1, 2006. Excluding the impact of the reinsured variable annuity business,investment margin increased 2.1% due to growth in business in force.

The following tablesummarizes the weighted average investment yield, interest crediting rates andinvestment spreads for the three months ended March 31.  
|                                                                     | ** ** | **Weighted Average  Investment Yield** | ** ** | **Weighted Average   Interest Crediting Rate** | ** ** | **Weighted Average  Investment Spread** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **2007**                                         | ** ** | **2006**                                                           | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Interest-sensitive life                                             |       | 5.6                                              | %          | 5.6                                                                | %          | 4.7                                               | %          | 4.5 | % | 0.9 | % | 1.1 | % |
| Deferred fixed  annuities                                           |       | 5.6                                              |       | 5.4                                                                |       | 3.3                                               |       | 3.1 |   | 2.3 |   | 2.3 |   |
| Immediate fixed  annuities with and without life contingencies      |       | 7.3                                              |       | 7.4                                                                |       | 6.6                                               |       | 6.7 |   | 0.7 |   | 0.7 |   |
| Investments supporting capital, traditional life and other products |       | 5.6                                              |       | 6.2                                                                |       | N/A                                               |       | N/A |   | N/A |   | N/A |   |

 

The following tablesummarizes the liabilities for these contracts and policies.
|                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Immediate fixed  annuities with life contingencies              |       | $                                                | 1,579,403  |   | $ | 1,514,713 |   |
| Other life contingent  contracts and other                      |       | 360,959                                          |       | 323,496 |   |
| Reserve for  life-contingent contract benefits                  |       | $                                                | 1,940,362  |   | $ | 1,838,209 |   |
|                                                            |       |                                             |       |   |   |
| Interest-sensitive life                                         |       | $                                                | 486,415    |   | $ | 439,815 |   |
| Deferred fixed  annuities                                       |       | 3,642,861                                        |       | 3,441,421 |   |
| Immediate fixed  annuities without life contingencies and other |       | 567,021                                          |       | 545,757 |   |
| Contractholder funds                                            |       | $                                                | 4,696,297  |   | $ | 4,426,993 |   |

 

*Benefit margin* is a component ofgross margin, both of which are non-GAAP measures.  Benefit margin represents life andlife-contingent immediate annuity premiums, cost of insurance contract chargesand, prior to the disposal of all of our variable annuity business throughreinsurance, variable annuity contract charges for contract guarantees lesscontract benefits.  Benefit marginexcludes the implied interest on life-contingent immediate annuities, which isincluded in the calculation of investment margin.  We use benefit margin to evaluate ourunderwriting performance, as it reflects the profitability of our products withrespect to mortality or morbidity risk during a fiscal period.

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Benefit margin by productgroup is shown in the following table.
|                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)** | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Life insurance          |       | $                                                | 7,153      |   | $ | 5,551 |   |
| Annuities               |       | 2,656                                            |       | (1,312 | ) |
| Total benefit margin    |       | $                                                | 9,809      |   | $ | 4,239 |   |

 

Benefitmargin increased 131.4% in the first quarter of 2007 compared to the sameperiod in the prior year.  The prior yearwas impacted by a negative benefit margin on variable annuities, which werefully reinsured effective June 1, 2006. Excluding the impact of the reinsured variable annuity business, benefitmargin increased 67.8% in the first quarter of 2007 compared to the same periodin the prior year due to growth of life insurance in-force and favorablemortality experience on immediate annuities with life contingencies.

*Amortization of DAC and DSI*,excluding amortization related to realized capital gains and losses, increased44.4% or $6.0 million in the first quarter of 2007 compared to the same periodin the prior year due to higher amortization acceleration relating to ourannual review of DAC and DSI assumptions (commonly referred to as “unlocking”).  DAC and DSI amortization accelerationrelating to our annual review of assumptions totaled $6.7 million and $544thousand in the first quarter of 2007 and 2006, respectively.  DAC and DSI amortization related to realizedcapital gains and losses, after-tax, changed by an unfavorable $7.6 million inthe first quarter of 2007 compared to the same period in the prior year.  The impact of realized capital gains andlosses on amortization of DAC and DSI is dependent upon the relationshipbetween the assets that give rise to the gain or loss and the product liabilitysupported by the assets.  Fluctuationsresult from changes in the impact of realized capital gains and losses onactual and expected gross profits.

The DAC and DSI assets werereduced by $79.7 million and $6.2 million, respectively, in 2006 as a result ofthe disposition of our variable annuity business (See Note 3 to the CondensedFinancial Statements).

*Operating costs and expenses*declined 34.1% in the first quarter of 2007 compared to the same period of2006.  The decrease was primarilyattributable to the absence in the first quarter of 2007 of expenses related tovariable annuities, which were fully reinsured effective June 1, 2006.  Excluding the impact of the reinsuredvariable annuities, expenses declined 19.5% due to lower guarantee fundassessments and lower restructuring and related charges resulting from therecognition in the prior year of charges relating to the Voluntary TerminationOffer.

### **INVESTMENTS**

An important component of our financial results is thereturn on our investment portfolio.  Thecomposition of the investment portfolio at March 31, 2007 is presented in thetable below.
| (in thousands)          | ** ** | **Carrying  value** | ** ** | **Percent  of total** | ** ** |
|------------------------------|------------|---------------------|------------|----------------------------|------------|
|                         |       |                |       |                       |       |
| Fixed income securities  (1) |       | $                   | 6,026,532  |                       | 86.4       | % |
| Mortgage loans               |       | 693,015             |       | 9.9                        |       |
| Short-term                   |       | 217,711             |       | 3.1                        |       |
| Policy loans                 |       | 37,484              |       | 0.5                        |       |
| Other                        |       | 2,495               |       | 0.1                        |       |
| Total                        |       | $                   | 6,977,237  |                       | 100.0      | % |

 

(1)                                 Fixed income securities are carried atfair value.  Amortized cost basis forthese securities was $5.67 billion at March 31, 2007.

----

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Total investments increased to $6.98 billion at March31, 2007 from $6.78 billion at December 31, 2006, primarily due to positivecash flows from operating activities, including increased funds associated withsecurities lending business activities.

Total investments at amortized cost related tocollateral received in connection with securities lending business activitiesincreased to $379.4 million at March 31, 2007, from $199.5 million at December31, 2006.

At March 31, 2007, 96.6% of the fixed incomesecurities portfolio was rated investment grade, which is defined as a securityhaving a rating from the National Association 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, Aor BBB from Standard & Poor’s (“S&P”), Fitch or Dominion; or a ratingof aaa, aa, a, or bbb from A.M. Best; or a comparable internal rating if anexternally provided rating is not available.

The unrealized net capitalgains on fixed income securities at March 31, 2007 were $355.2 million, anincrease of $10.2 million or 3.0% since December 31, 2006.   The net unrealized gain was comprised of$398.7 million of unrealized gains and $43.5 million of unrealized losses atMarch 31, 2007.  This is compared to anet unrealized gain totaling $344.9 million at December 31, 2006, comprised of$399.2 million of unrealized gains and $54.3 million of unrealized losses.

Of the gross unrealized losses at March 31, 2007,$41.0 million or 94.3% were related to investment grade securities and arebelieved to be primarily a result of rising interest rate environment.  The remaining $2.5 million of unrealizedlosses were in the corporate fixed income portfolio and were primarilycomprised of securities in the consumer goods, capital goods, utilities andbasic industry sectors.  The grossunrealized losses in these sectors were primarily company specific and interestrate related.

Our portfolio monitoring process identifies andevaluates, on a case-by-case basis, fixed income securities whose carryingvalue may be other-than-temporarily impaired. The process includes a quarterly review of all securities using ascreening process to identify those securities for which fair value compared toamortized cost is below established thresholds for certain time periods, orwhich are identified through other monitoring criteria such as ratingsdowngrades or payment defaults.  Thesecurities identified, in addition to other securities for which we may have aconcern, are evaluated based on facts and circumstances for inclusion on ourwatch list.  As a result of approvedprograms involving the disposition of investments such as changes in duration,revisions to strategic asset allocations and liquidity actions, as well ascertain dispositions anticipated by portfolio managers, we also conduct aportfolio review to recognize impairment on securities in an unrealized lossposition for which we do not have the intent and ability to hold untilrecovery.  All securities in anunrealized loss position at March 31, 2007 were included in our portfoliomonitoring process for determining which declines in value were notother-than-temporary.

  We alsomonitor the quality of our fixed income portfolio by categorizing certaininvestments as “problem”, “restructured” or “potential problem.”  Problem fixed income securities aresecurities in default with respect to principal or interest and/or securitiesissued by companies that have gone into bankruptcy subsequent to ouracquisition 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 following table summarizes problem, restructuredand potential problem fixed income securities.
| (in thousands)                   | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Amortized   cost**    | ** ** | **Fair   value**           | ** ** | **Percent  of total   Fixed  Income  portfolio** | ** ** | **Amortized   cost** | ** ** | **Fair   value** | ** ** | **Percent  of total   Fixed  Income  portfolio** | ** ** |
| Problem                               |       | $                            | 3,062      |                            | 6,892      |   | 0.1 | % | $ | 3,444 |   | $ | 6,883 |   | 0.1 | % |
| Restructured                          |       | —                       |       | —                          |       | — |   | — |   | — |   | — |   |
| Potential problem                     |       | —                       |       | —                          |       | — |   | 2 |   | — |   | — |   |
| Total net carrying  value             |       | $                            | 3,062      |                            | 6,892      |   | 0.1 | % | $ | 3,446 |   | $ | 6,883 |   | 0.1 | % |
| Cumulative write-downs recognized (1) |       | $                            | 2,444      |                            |       |   |   |   | $ | 2,491 |   |   |   |   |   |

 

(1)          Cumulative write-downs only reflectwrite-downs related to securities within the problem, potential problem andrestructured categories.

----

 

We also evaluated each of these securities through ourportfolio monitoring process at March 31, 2007 and recorded write-downs ifappropriate.  We further concluded thatany remaining unrealized losses on these securities were temporary in natureand that we have the intent and ability to hold until recovery.  While these balances may increase in thefuture, particularly if economic conditions are unfavorable, management expectsthat the total amount of securities in these categories will remain lowrelative to the total fixed income securities portfolio.

**NetRealized Capital Gains and Losses** The following tablepresents the components of realized capital gains and losses and the relatedtax effect.
|                                                  | ** ** | **Three Months Ended  March 31,** | ** **               |
|--------------------------------------------------|------------|--------------------------------------------------|--------------------------|
| **(in thousands)**                          | ** ** | **2007**                                         | ** **               | **2006** | ** ** |
|                                             |       |                                             |                     |   |   |
| Investment write-downs                           |       | $                                                | —                   |   | $ | (258 | ) |
| Dispositions                                     |       | 1,309                                            |                     | (16,417 | ) |
| Valuation of derivative  instruments             |       | (2,025                                           | )                        | 781 |   |
| Settlement of  derivative instruments            |       | (1,189                                           | )                        | 758 |   |
| Realized capital gains  and losses, pretax       |       | (1,905                                           | )                        | (15,136 | ) |
| Income tax benefit                               |       | 724                                              |                     | 5,819 |   |
| **Realized capital gains and losses, after-tax** |       | $                                                |    (1,181 | ) | $ | (9,317 | ) |

 

Dispositions in the above table include sales, lossesrecognized in anticipation of dispositions and other transactions such as callsand prepayments.  We may sell impairedfixed income securities that were in an unrealized loss position at theprevious reporting date in situations where new factors such as negativedevelopments, subsequent credit deterioration, changing liquidity needs, andnewly identified market opportunities cause a change in our previous intent tohold a security until recovery or maturity.

A changing interest rate environment will drivechanges in our portfolio duration targets at a tactical level.  A duration target and range is establishedwith an economic view of liabilities 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 acomponent of our approach to managing portfolio duration, realized gains andlosses on certain derivative instruments are most appropriately considered inconjunction with the unrealized gains and losses on the fixed incomeportfolio.  This approach mitigates theimpacts of general interest rate changes to the overall financial condition ofthe Company.

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In the first quarter of 2007, we recognized $1.3million of losses related to a change in our intent to hold certain securitieswith unrealized losses until they recover in value.  The change in our intent is primarily relatedto liquidity strategies and ongoing comprehensive reviews of ourportfolio.  We identified $44.4 millionof securities for which we did not have the intent to hold until recovery toachieve these objectives.

### **CAPITAL RESOURCES AND LIQUIDITY**

**Capital Resources**consist ofshareholder’s equity, representing funds deployed or available to be deployedto support business operations.  Thefollowing table summarizes our capital resources.
| (in thousands)                                                      | ** ** | **March 31,   2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|
|                                                                     |       |                           |       |                        |       |
| Common stock, retained  income and other shareholder’s equity items |       | $                              | 580,448    |                        | $          | 574,958 |   |
| Accumulated other  comprehensive income                                  |       | 77,434                         |       | 78,038                      |       |
| Total shareholder’s  equity                                         |       | $                              | 657,882    |                        | $          | 652,996 |   |

 

*Shareholder’s equity*increased in the first quarter of 2007 due primarily to net income, partiallyoffset by a reduction in retained income due to the impact of the Company’sadoption of Statement of Position 05-1, “Accounting by Insurance Enterprisesfor Deferred Acquisition Costs in Connection with Modifications or Exchanges ofInsurance Contracts” (see Note 1 to the Condensed Financial Statements).

**Financial Ratings and Strength**Our ratings are influenced by many factors including our operating andfinancial performance, asset quality, liquidity, asset/liability management, overallportfolio mix, financial leverage (i.e., debt), exposure to risks, the currentlevel of operating leverage, ALIC’s and AIC’s ratings and other factors. Therehave been no changes to our insurance financial strength ratings since December31, 2006.

**Liquidity Sources and Uses *** *As reflected in ourCondensed Statements of Cash Flows, lower operating cash flows in the firstquarter of 2007, compared to the first quarter of 2006, were primarily theresult of the settlement of an intercompany obligation in the first quarter of2007.

Investing activities reflected a source of cash in thefirst quarter of 2007 compared to a use of cash in the first quarter of2006.  The change was mostly due to lowerpurchases of fixed income securities and mortgage loans in the first quarter of2007 compared to the same period in the prior year as well as the net change inshort-term investments.

# Financing activitiesreflected a use of cash in the first quarter of 2007 compared to a source ofcash in the first quarter of 2006 as a decrease in contractholder fund depositsresulted in withdrawals exceeding deposits in the first quarter of 2007.  For quantification of the changes incontractholder funds, see the Operations section of the MD&A.

We have entered into an inter-company loan agreementwith The Allstate Corporation. The amount of inter-company loans available tous is at the discretion of The Allstate Corporation.  The maximum amount of loans The AllstateCorporation will have outstanding to all its eligible subsidiaries at any givenpoint in time is limited to $1.00 billion. We had no amounts outstanding under the inter-company loan agreement atMarch 31, 2007 or December 31, 2006.  TheAllstate Corporation uses commercial paper borrowings and bank lines of creditto fund intercompany borrowings.

Asdescribed in Note 1 to the Condensed Financial Statements, in accordance withFinancial Accounting Standards Board Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (“FIN 48”), the Company had no liability for unrecognizedtax benefits at January 1, 2007, and does not believe that it is reasonablypossible that this balance will significantly change within the next 12 months.

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**Item4.  Controls and Procedures**

*Evaluationof Disclosure Controls and Procedures. *Wemaintain disclosure controls and procedures as defined in Rule 13a-15(e) and15(d)-15(e) under the Securities Exchange Act of 1934.  Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness ofour disclosure controls and procedures as of the end of the period covered bythis report.  Based upon this evaluation,the principal executive officer and the principal financial officer concludedthat our disclosure controls and procedures are effective in providingreasonable assurance that material information required to be disclosed in ourreports filed with or submitted to the Securities and Exchange Commission underthe Securities Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified by the Securities Exchange Act and made knownto management, including the principal executive officer and the principalfinancial officer, as appropriate to allow timely decisions regarding requireddisclosure.

*Changesin Internal Control over Financial Reporting. *During the fiscal quarter ended March 31, 2007, therehave been no changes in our internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

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### **PARTII.  OTHER INFORMATION**

### **Item1.    Legal Proceedings**

Informationrequired for this Part II, Item 1, is incorporated by reference to thediscussion under the heading “Regulation” and under the heading “Legal andregulatory proceedings and inquiries” in Note 4 of the Company’s CondensedFinancial Statements in Part I, Item 1, of this Form 10-Q.

**Item 1A.Risk Factors**

This document contains “forward-looking statements”that anticipate results based on our estimates, assumptions and plans that aresubject to uncertainty. These statements are made subject to the safe-harborprovisions of the Private Securities Litigation Reform Act of 1995. We assumeno obligation to update any forward-looking statements as a result of newinformation or future events or developments.

These forward-looking statements do not relatestrictly to historical or current facts and may be identified by their use ofwords like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,”“intends,” “believes,” “likely,” “targets” and other words with similarmeanings. These statements may address, among other things, our strategy forgrowth, product development, regulatory approvals, market position, expenses,financial results, litigation and reserves. We believe that these statementsare based on reasonable estimates, assumptions and plans. However, if theestimates, assumptions or plans underlying the forward-looking statements proveinaccurate or if other risks or uncertainties arise, actual results coulddiffer materially from those communicated in these forward-looking statements.Risk factors which could cause actual results to differ materially from thosesuggested by such forward-looking statements include but are not limited tothose discussed or identified in this document, in our public filings with theSecurities and Exchange Commission, and those in Part I, Item 1A of AllstateLife Insurance Company of New York Annual Report on Form 10-K for 2006, whichare hereby incorporated herein by reference.

**Thechange in our unrecognized tax benefit during the next 12 months is subject touncertainty.**

As required by Financial Accounting Standards BoardInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”),which was adopted as of January 1, 2007, we have disclosed that the Company hadno liability for unrecognized tax benefits at January 1, 2007 and does notbelieve that it is reasonably possible that this balance will significantlychange within the next 12 months.  Webelieve that this estimate has been appropriately established based onavailable facts and information, however, actual results may differ from ourestimate for reasons such as changes in our position on specific issues,  developments with respect to the governments’interpretations of income tax laws or changes in judgment resulting from newinformation obtained in audits or the appeals process.

### **Item6.    Exhibits**

(a)   Exhibits

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

 

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### **SIGNATURE**

Pursuant to therequirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|             | Allstate Life Insurance Company of New York |
|-------------|---------------------------------------------|
|        | (Registrant)                                |
|        |                                        |   |
| May 7, 2007 | By                                          | /s/ Samuel H. Pilch |   |
|        | Samuel H. Pilch                             |   |
|        | (Controller)                                |   |
|             |                                             |  |  |  |

 

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| Exhibit No. | ** ** | **Description**                                                                                                                      |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                 |
| 15          |       | Acknowledgement of awareness from Deloitte &  Touche LLP dated May 7, 2007, concerning unaudited interim financial  information. |
|        |       |                                                                                                                                 |
| 31.1        |       | Rule 15d-14(a) Certification of Principal Executive  Officer                                                                         |
|        |       |                                                                                                                                 |
| 31.2        |       | Rule 15d-14(a) Certification of Principal Financial  Officer                                                                         |
|        |       |                                                                                                                                 |
| 32          |       | Section 1350 Certifications                                                                                                          |

 

 

E-1

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