** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

----

 

###### **FORM 10-Q**

###### ** **

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

 

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

**THESECURITIES EXCHANGE ACT OF 1934**

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

 

**OR**

 

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

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

###### ** **

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

 

**ALLSTATELIFE INSURANCE COMPANY OF NEW YORK**

(Exact name of registrant as specified in itscharter)

 

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

 

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

 

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

**Yes****ý****    No****o**

 

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

 

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

**Yes****o****    No****ý**

 

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

 

**As of May 8, 2006, 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 TO QUARTERLY REPORT ON FORM 10-Q**

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

 
| **PART 1.**  | **FINANCIAL INFORMATION**                                                                                 | ** ** |
|--------------|-----------------------------------------------------------------------------------------------------------|------------|
|         |                                                                                                      |       |
| Item 1.      | Financial Statements                                                                                      |       |
|         |                                                                                                      |       |
|         | Condensed Statements of Operations for the Three-Month Periods Ended  March 31, 2006 and 2005 (unaudited) | 1          |
|         |                                                                                                      |       |
|         | Condensed Statements of Financial Position as of March 31, 2006  (unaudited) and December 31, 2005        | 2          |
|         |                                                                                                      |       |
|         | Condensed Statements of Cash Flows for the Three-Month Periods Ended  March 31, 2006 and 2005 (unaudited) | 3          |
|         |                                                                                                      |       |
|         | Notes to Condensed Financial Statements (unaudited)                                                       | 4          |
|         |                                                                                                      |       |
|         | Report of Independent Registered Public Accounting Firm                                                   | 10         |
|         |                                                                                                      |       |
| Item 2.      | Management’s Discussion and Analysis of Financial Condition and  Results of Operations               | 11         |
|         |                                                                                                      |       |
| Item 4.      | Controls and Procedures                                                                                   | 22         |
|         |                                                                                                      |       |
| **PART II.** | **OTHER INFORMATION**                                                                                     | ** ** |
|         |                                                                                                      |       |
| Item 1.      | Legal Proceedings                                                                                         | 23         |
|         |                                                                                                      |       |
| Item 1A.     | Risk Factors                                                                                              | 23         |
|         |                                                                                                      |       |
| Item 6.      | Exhibits                                                                                                  | 23         |

 

----

 

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

#### ** **

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

#### ** **

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

 

**CONDENSEDSTATEMENTS OF OPERATIONS**

 
| ** **                                            | ** ** | **Three  Months Ended  March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|
| **(in thousands)**                                    | ** ** | **2006**                           | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | **(unaudited)**                    | ** ** |
| **Revenues**                                          |       |                               |       |   |   |
| Premiums                                              |       | $                                  | 14,069     |   | $ | 19,993 |   |
| Contract  charges                                     |       | 17,587                             |       | 15,259 |   |
| Net  investment income                                |       | 92,893                             |       | 86,492 |   |
| Realized  capital gains and losses                    |       | (15,136                            | )          | (5,877 | ) |
|                                                  |       | 109,413                            |       | 115,867 |   |
| **Costs  and expenses**                               |       |                               |       |   |   |
| Contract  benefits                                    |       | 43,330                             |       | 47,083 |   |
| Interest  credited to contractholder funds            |       | 41,874                             |       | 36,226 |   |
| Amortization  of deferred policy acquisition costs    |       | 420                                |       | 931 |   |
| Operating  costs and expenses                         |       | 13,886                             |       | 9,192 |   |
|                                                  |       | 99,510                             |       | 93,432 |   |
|                                                  |       |                               |       |   |   |
| **Income  from operations before income tax expense** |       | 9,903                              |       | 22,435 |   |
| ** **                                            | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Income tax  expense                                   |       | 3,631                              |       | 8,550 |   |
| ** **                                            | ** ** | ** **                         | ** ** | ** ** | ** ** |
| **Net  income**                                       |       | $                                  | 6,272      |   | $ | 13,885 |   |

 

See notes to condensed financial statements.

 

1

----

 

**ALLSTATE LIFE INSURANCE COMPANY OFNEW YORK**

 

**CONDENSEDSTATEMENTS OF FINANCIAL POSITION**

 
| ** **                                                                         | ** ** | **March  31,**  | ** ** | **December  31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------|------------|-------------------|------------|
| **(in thousands, except par value data)**                                          | ** ** | **2006**        | ** ** | **2005**          | ** ** |
| ** **                                                                         | ** ** | **(unaudited)** | ** ** | ** **        | ** ** |
| **Assets**                                                                         |       |            |       |              |       |
| Investments                                                                        |       |            |       |              |       |
| Fixed income securities, at fair value  (amortized cost $5,642,946 and $5,535,396) |       | $               | 5,924,532  |              | $          | 5,989,263 |   |
| Mortgage loans                                                                     |       | 651,699         |       | 633,789           |       |
| Short-term                                                                         |       | 196,572         |       | 63,057            |       |
| Policy loans                                                                       |       | 36,727          |       | 36,698            |       |
| Other                                                                              |       | 4,585           |       | 3,740             |       |
| Total investments                                                                  |       | 6,814,115       |       | 6,726,547         |       |
|                                                                               |       |            |       |              |       |
| Cash                                                                               |       | 6,154           |       | 3,818             |       |
| Deferred  policy acquisition costs                                                 |       | 365,538         |       | 318,551           |       |
| Accrued  investment income                                                         |       | 62,462          |       | 62,452            |       |
| Reinsurance  recoverables                                                          |       | 15,575          |       | 12,729            |       |
| Other assets                                                                       |       | 41,947          |       | 35,760            |       |
| Separate  Accounts                                                                 |       | 980,399         |       | 928,824           |       |
| **Total assets**                                                                   |       | $               | 8,286,190  |              | $          | 8,088,681 |   |
|                                                                               |       |            |       |              |       |
| **Liabilities**                                                                    |       |            |       |              |       |
| Contractholder  funds                                                              |       | $               | 4,426,993  |              | $          | 4,349,395 |   |
| Reserve for  life-contingent contract benefits                                     |       | 1,838,209       |       | 1,869,875         |       |
| Deferred  income taxes                                                             |       | 42,529          |       | 73,399            |       |
| Current  income taxes payable                                                      |       | 8,084           |       | 5,412             |       |
| Other  liabilities and accrued expenses                                            |       | 365,272         |       | 188,123           |       |
| Payable to  affiliates, net                                                        |       | 7,564           |       | 5,249             |       |
| Reinsurance  payable to parent                                                     |       | 972             |       | 971               |       |
| Separate  Accounts                                                                 |       | 980,399         |       | 928,824           |       |
| **Total liabilities**                                                              |       | 7,670,022       |       | 7,421,248         |       |
|                                                                               |       |            |       |              |       |
| **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                                                                   |       | 402,237         |       | 395,965           |       |
| Accumulated  other comprehensive income:                                           |       |            |       |              |       |
| Unrealized net capital gains and losses                                            |       | 71,431          |       | 128,968           |       |
| **Total accumulated other comprehensive  income**                                  |       | 71,431          |       | 128,968           |       |
| **Total shareholder’s equity**                                                |       | 616,168         |       | 667,433           |       |
| **Total liabilities and shareholder’s equity**                                |       | $               | 8,286,190  |              | $          | 8,088,681 |   |

 

See notes to condensed financial statements.

 

2

----

 

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

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Three  Months Ended   March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| **(in thousands)**                                                                 | ** ** | **2006**                            | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                     | ** ** |
| **Cash  flows from operating activities**                                          | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                   | 6,272      |   | $ | 13,885 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                |       |   |   |
| Amortization and other non-cash items                                              |       | (16,340                             | )          | (14,281 | ) |
| Realized capital gains and losses                                                  |       | 15,136                              |       | 5,877 |   |
| Interest credited to contractholder funds                                          |       | 41,874                              |       | 36,226 |   |
| Changes in:                                                                        |       |                                |       |   |   |
| Contract benefits and other insurance  reserves                                    |       | 4,693                               |       | 11,203 |   |
| Deferred policy acquisition costs                                                  |       | (14,916                             | )          | (19,933 | ) |
| Income taxes payable                                                               |       | 2,784                               |       | 7,293 |   |
| Other operating assets and liabilities                                             |       | (3,360                              | )          | (4,566 | ) |
| Net cash provided by operating activities                                          |       | 36,143                              |       | 35,704 |   |
| ** **                                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities**                                          |       |                                |       |   |   |
| Proceeds  from sales of fixed income securities                                    |       | 180,165                             |       | 109,133 |   |
| Investment  collections                                                            |       |                                |       |   |   |
| Fixed income securities                                                            |       | 37,256                              |       | 33,124 |   |
| Mortgage loans                                                                     |       | 16,718                              |       | 12,531 |   |
| Investment  purchases                                                              |       |                                |       |   |   |
| Fixed income securities                                                            |       | (251,851                            | )          | (362,866 | ) |
| Mortgage loans                                                                     |       | (33,250                             | )          | (51,932 | ) |
| Change in  short-term investments, net                                             |       | (33,552                             | )          | 27,097 |   |
| Change in  other investments, net                                                  |       | 892                                 |       | 2,295 |   |
| Net cash used in investing activities                                              |       | (83,622                             | )          | (230,618 | ) |
|                                                                               |       |                                |       |   |   |
| **Cash  flows from financing activities**                                          | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Contractholder  fund deposits                                                      |       | 185,735                             |       | 286,595 |   |
| Contractholder  fund withdrawals                                                   |       | (135,920                            | )          | (84,164 | ) |
| Net cash provided by financing activities                                          |       | 49,815                              |       | 202,431 |   |
|                                                                               |       |                                |       |   |   |
| **Net  increase in cash**                                                          |       | 2,336                               |       | 7,517 |   |
| **Cash at  beginning of period**                                                   |       | 3,818                               |       | 8,624 |   |
| **Cash at  end of period**                                                         |       | $                                   | 6,154      |   | $ | 16,141 |   |

 

See notes to condensed financial statements.

 

3

----

 

**ALLSTATE LIFEINSURANCE COMPANY OF NEW YORK**

**NOTES TO CONDENSEDFINANCIAL STATEMENTS**

**(unaudited)**

 

### **1. General**

 

### **Basis of presentation**

###  

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

 

The condensed financial statements and notes as of March 31, 2006, andfor the three-month periods ended March 31, 2006 and 2005 are unaudited. Thecondensed financial statements reflect all adjustments (consisting only ofnormal recurring accruals), which are, in the opinion of management, necessaryfor the fair presentation of the financial position, results of operations andcash flows for the interim periods. These condensed financial statements andnotes should be read in conjunction with the financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005. The results of operations for the interim periods should notbe considered indicative of results to be expected for the full year.

 

To conform to the 2006 presentation, certain amounts in the prior yearcondensed financial statements and notes have been reclassified.

 

### **Adopted accounting standards**

###  

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

 

The Companyadopted Financial Accounting Standards Board (“FASB”) FSP FAS 115-1 as ofJanuary 1, 2006. FSP 115-1 nullifies the guidance in paragraphs 10-18 of EmergingIssues Task Force Issue No. 03-1 (“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 115-1clarifies that an investor should recognize an impairment loss no later thanwhen the impairment is deemed other-than-temporary, even if a decision to sellthe security has not been made, and also provides guidance on the subsequentaccounting for income recognition on an impaired debt security. The adoption ofFSP FAS 115-1 was required on a prospective basis and did not have a materialeffect on the results of operations or financial position of the Company.

 

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

 

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

 

**Pending accounting standards**

** **

***Statement ofPosition 05-1, “Accounting by Insurance Enterprises for Deferred AcquisitionCosts in Connection with Modifications or Exchanges of Insurance Contracts” (“SOP05-1”)***

** **

InOctober 2005, the AICPA issued SOP 05-1. SOP 05-1 provides accounting guidancefor deferred policy acquisition costs associated with internal replacements ofinsurance and investment contracts other than those already described in SFASNo. 97, “Accounting and Reporting by Insurance Enterprises for CertainLong-Duration Contracts and for Realized Gains and Losses from the Sale ofInvestments”. SOP 05-1 defines an internal replacement as a modification inproduct benefits, features, rights or coverages that occurs by the exchange ofa contract for a new contract, or by amendment, endorsement or rider to acontract, or by the election of a feature or coverage within a contract. Theprovisions of SOP 05-1 are effective for internal replacements occurring infiscal years beginning after December 15, 2006. The Company is currently assessingthe impact of the SOP on its results of operations and financial position.

 

4

----

 

*SFAS No. 155, “Accountingfor Certain Hybrid Financial Instruments – an amendment of FASB Statements No.133 and 140” (“SFAS No. 155”)*

 

In February 2006, the FASB issued SFAS No. 155, which, among otherthings, permits the fair value remeasurement of any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcationunder SFAS No. 133; clarifies which interest-only strips and principal-onlystrips are not subject to the requirements of SFAS No. 133; and establishes arequirement to evaluate interests in securitized financial assets to identifyinterests that are freestanding derivatives or hybrid financial instrumentsthat contain an embedded derivative requiring bifurcation. At the date ofinitial adoption, the Company must decide whether or not to remeasure itshybrid financial instruments in accordance with SFAS No. 155 or retain its currentaccounting under SFAS No. 133. All securities acquired on or after January 1,2007 must be accounted for in accordance with the new guidance. The Companyexpects to adopt SFAS No.155 as of January 1, 2007, and has not yet determinedif it will utilize the option to remeasure hybrid contracts owned at the dateof adoption and subject to SFAS No. 133.

 

### **2. Supplemental Cash Flow Information**

###  

Liabilities for collateral received in conjunction with securitieslending 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 related changes in investments, which are as follows:

 
| ** **                                                             | ** ** | **Three  months ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|
| **(in thousands)**                                                     | ** ** | **2006**                           | ** ** | **2005** | ** ** |
| ** **                                                             | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Net change in fixed income securities                                  |       | $                                  | (93,008    | ) | $ | (47,892 | ) |
| Net change in short-term investments                                   |       | (76,545                            | )          | (63,083 | ) |
| Operating cash flow used                                               |       | $                                  | (169,553   | ) | $ | (110,975 | ) |
|                                                                   |       |                               |       |   |   |
| Liabilities for collateral and security  repurchase, beginning of year |       | $                                  | (149,465   | ) | $ | (133,368 | ) |
| Liabilities for collateral and security  repurchase, end of period     |       | (319,018                           | )          | (244,343 | ) |
| Operating cash flow provided                                           |       | $                                  | 169,553    |   | $ | 110,975 |   |

 

### **3. Reinsurance**

###  

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

 
| ** **                                         | ** ** | **Three  months ended  March 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------|------------|
| **(in  thousands)**                                | ** ** | **2006**                           | ** ** | **2005** | ** ** |
| **Premiums  and contract charges**                 | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Direct                                             |       | $                                  | 37,857     |   | $ | 39,670 |   |
| Assumed –  non-affiliate                      |       | 360                                |       | 212 |   |
| Ceded                                              |       |                               |       |   |   |
| Affiliate                                          |       | (1,358                             | )          | (1,180 | ) |
| Non-affiliate                                      |       | (5,203                             | )          | (3,450 | ) |
| Premiums and contract charges, net of  reinsurance |       | $                                  | 31,656     |   | $ | 35,252 |   |

 

5

----

 

The effects of reinsurance on contract benefitsare as follows:

 
| ** **                             | ** ** | **Three  months ended   March 31,** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|
| **(in thousands)**                     | ** ** | **2006**                            | ** ** | **2005** | ** ** |
| **Contract  benefits**                 | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Direct                                 |       | $                                   | 47,125     |   | $ | 49,041 |   |
| Assumed –  non-affiliate          |       | 97                                  |       | 60 |   |
| Ceded                                  |       |                                |       |   |   |
| Affiliate                              |       | 110                                 |       | (462 | ) |
| Non-affiliate                          |       | (4,002                              | )          | (1,556 | ) |
| Contract  benefits, net of reinsurance |       | $                                   | 43,330     |   | $ | 47,083 |   |

 

In addition toamounts included in the table above are aggregate reinsurance premiums ceded toALIC of $739 thousand and $701 thousand for the three months ended March 31,2006 and 2005, respectively, under the terms of the structured settlementannuity reinsurance agreement.

 

On March 8, 2006, the Company, its parent,ALIC, and the Corporation, entered into a definitive agreement (“Agreement”)with Prudential Financial, Inc. and its subsidiary The PrudentialInsurance Company of America (collectively “Prudential”) to dispose, through acombination of coinsurance and modified coinsurance reinsurance, ofsubstantially all of its variable annuity business.

 

As a result of the modified coinsurance reinsurance,the separate account assets will remain on the Company’s statements offinancial position, but the related results of operations will be fullyreinsured to Prudential.  In contrast, the assets supporting generalaccount liabilities will be transferred to Prudential, net of consideration,under the coinsurance reinsurance provisions.

 

Under the Agreement, the Company, ALIC and theCorporation will each indemnify 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.  In addition, the Company, ALIC and theCorporation will each indemnify Prudential for certain post-closing liabilitiesthat may arise from the acts of the Company, ALIC and their agents, includingin connection with the Company’s and ALIC’s provision of transition services.

 

 The terms of the Agreement will givePrudential the right to be the exclusive provider of its variable annuityproducts through the Allstate proprietary agency force for three years and anon-exclusive preferred provider for the following two years.  During atransition period, the Company and ALIC will continue to issue new variableannuity contracts, accept additional deposits on existing business fromexisting contractholders on behalf of Prudential and, for a period oftwenty-four months or less, service the reinsured business while Prudentialprepares for the migration of the business onto its servicing platform. The Company and ALIC have also agreed to continue to issue variable annuitycontracts in the financial institutions channel for a period of at leastthirty-three months and cede the results of operations to Prudential.  Totalconsideration is expected to be approximately $50 million.

 

In the first quarter of 2006, the Company’s variableannuity business generated approximately $4 million in contract charges onseparate account balances of $979 million.  In 2005, the Company’s variableannuity business generated approximately $17 million in contract charges onseparate account balances of $927 million.

 

The Agreementis subject to regulatory approval and is expected to close in the secondquarter of 2006. The disposition is expected to result in an insignificant gainat closing related to the reinsurance agreement. A level of cash or cashequivalents in an amount equal to the fixed (general) account liabilities ofapproximately $395 million, net of the consideration, will be needed to settlethe obligation to Prudential at closing under the coinsurance portion of theAgreement.  The source of these funds will primarily be from sales ofexisting investments, and therefore $14 million of pre-tax realized capitallosses were recognized in the first quarter of 2006 due to a change in intentto hold the related fixed income securities.

 

6

----

 

### **4.  Guaranteesand Contingent Liabilities**

 

**Guarantees**

 

In the normal course of business, the Company provides standardindemnifications to counterparties in contracts in connection with numeroustransactions, including acquisitions and divestures. The types ofindemnifications typically provided include indemnifications for breaches ofrepresentations and warranties, taxes and certain other liabilities, such asthird party lawsuits. The indemnification clauses are often standardcontractual terms and were entered into in the normal course of business basedon an assessment that the risk of loss would be remote. The terms of theindemnifications vary in duration and nature. In many cases, the maximumobligation is not explicitly stated and the contingencies triggering theobligation to indemnify have not occurred and are not expected to occur. Consequently,the maximum amount of the obligation under such indemnifications is notdeterminable. Historically, the Company has not made any material paymentspursuant to these obligations.

 

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

 

**Regulation**

 

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

 

**Legal and regulatory proceedings and inquiries**

 

**Background**

 

The Company and certain affiliates areinvolved in a number of lawsuits, regulatory inquiries, and other legalproceedings arising out of various aspects of its business. As background tothe “Proceedings” sub-section below, please note the following:

 

•                  These mattersraise difficult and complicated factual and legal issues and are subject tomany uncertainties and complexities, including but not limited to, theunderlying facts of each matter; novel legal issues; variations betweenjurisdictions in which matters are being litigated, heard or investigated;differences in applicable laws and judicial interpretations; the length of timebefore many of these matters might be resolved by settlement, throughlitigation or otherwise and, in some cases, the timing of their resolutions relativeto other similar matters involving other companies; the fact that some of thelawsuits are putative class actions in which a class has not been certified andin which the purported class may not be clearly defined; the fact that some ofthe lawsuits involve multi-state class actions in which the applicable law(s)for the claims at issue is in dispute and therefore unclear; and the currentchallenging legal environment faced by large corporations and insurancecompanies.

 

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

 

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

 

7

----

 

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

 

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

 

**Proceedings**

 

Legalproceedings involving Allstate agencies and AIC may impact the Company, evenwhen the Company is not directly involved, because the Company sells itsproducts through a variety of distribution channels including Allstate agencies.Consequently, information about the more significant of these proceedings isprovided in the following paragraph.

 

AIC is defending certainmatters relating to its agency program reorganization announced in 1999. Thesematters include a lawsuit filed in December 2001 by the U.S. EqualEmployment Opportunity Commission (“EEOC”) alleging retaliation under federalcivil rights laws, a class action filed in August 2001 by former employeeagents alleging retaliation and age discrimination under the Age Discriminationin Employment Act, breach of contract and ERISA violations, and a lawsuit filedin October 2004 by the EEOC alleging age discrimination with respect to apolicy limiting the rehire of agents affected by the agency programreorganization. AIC is also defending a certified class action filed by formeremployee agents who terminated their employment prior to the agency program reorganization.These plaintiffs have asserted breach of contract and ERISA claims and areseeking actual damages including benefits under Allstate employee benefit plansand payments provided in connection with the reorganization, as well aspunitive damages. In late March 2004, in the first EEOC lawsuit and classaction lawsuit, the trial court issued a memorandum and order that, among otherthings, certified classes of agents, including a mandatory class of agents whohad signed a release, for purposes of effecting the court’s declaratoryjudgment that the release is voidable at the option of the release signer. Thecourt also ordered that an agent who voids the release must return to AIC “anyand all benefits received by the [agent] in exchange for signing the release.”  The court also “concluded that, on theundisputed facts of record, there is no basis for claims of age discrimination.”  The EEOC and plaintiffs have asked the courtto clarify and/or reconsider its memorandum and order. The case otherwise remainspending. A putative nationwide class action has also been filed by formeremployee agents alleging various violations of ERISA, including a workerclassification issue. These plaintiffs are challenging certain amendments tothe Agents Pension Plan and are seeking to have exclusive agent independentcontractors treated as employees for benefit purposes. This matter wasdismissed with prejudice by the trial court, was the subject of furtherproceedings on appeal, and was reversed and remanded to the trial court inApril 2005. In these matters, plaintiffs seek compensatory and punitivedamages, and equitable relief. AIC has been vigorously defending these lawsuitsand other matters related to its agency program reorganization. The outcome ofthese disputes is currently uncertain.

 

The Company is currentlyundergoing a periodic market conduct examination by state insurance regulators.Regulators are focusing, as they have with other insurers, on the Company’scompliance with the state’s replacement sales and record-keeping processes withregard to life insurance and annuities among other issues. They have allegedthat the Company failed to meet the requirements of applicable regulations. Inrelation to this examination the Company accrued $17 million of additionalbenefits. The outcome of this examination including potential customerremediation related to replacement sales is currently under discussion with theNew York State Department of Insurance.

 

8

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**Other Matters**

 

The Corporation and someof its subsidiaries, including the Company, have received interrogatories anddemands for information from regulatory and enforcement authorities relating tovarious insurance products and practices. The areas of inquiry include variableannuity market timing and late trading. The Corporation and some of itssubsidiaries, including the Company, have also received interrogatories anddemands for information from authorities seeking information relevant toon-going investigations into the possible violation of antitrust or insurancelaws by unnamed parties and, in particular, seeking information as to whetherany person 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 services products. TheCorporation and its subsidiaries have responded and will continue to respond tothese inquiries.

 

Various other legal and regulatory actionsare currently pending that involve the Company and specific aspects of itsconduct of business. Like other members of the insurance industry, the Companyis the target of a number of lawsuits and proceedings, some of which involveclaims for substantial or indeterminate amounts. These actions are basedon a variety of issues and target a range of the Company’s practices. Theoutcome of these disputes is currently unpredictable.

 

One or more of thesematters could have an adverse effect on the Company’s operating results or cashflows for a particular quarter or annual period. However, based on informationcurrently known to it, management believes that the ultimate outcome of allmatters described in this “Other Matters” subsection in excess of amountscurrently reserved, as they are resolved over time is not likely to have amaterial effect on the operating results, cash flows or financial position ofthe Company.

 

**5.****         OtherComprehensive Loss**

 

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

 
| ** **                                                              | ** ** | **Three  months ended March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------|------------|
| **(in thousands)**                                                      | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| ** **                                                              | ** ** | **Pretax**                        | ** ** | **Tax** | ** ** | **After-  tax** | ** ** | **Pretax** | ** ** | **Tax** | ** ** | **After-  tax** | ** ** |
| * *                                                                | * *   | * *                          | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Unrealized holding losses arising during  the period                    |       | $                                 | (106,593   | ) | $ | 37,307 |   | $ | (69,286 | ) | $ | (53,830 | ) | $ | 18,840 |   | $ | (34,990 | ) |
| Less: reclassification adjustment of  realized capital gains and losses |       | (18,075                           | )          | 6,326 |   | (11,749 | ) | (8,826 | ) | 3,089 |   | (5,737 | ) |
|                                                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive loss                                                |       | $                                 | (88,518    | ) | $ | 30,981 |   | (57,537 | ) | $ | (45,004 | ) | $ | 15,751 |   | (29,253 | ) |
|                                                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                              |       |                              |       |   |   | 6,272 |   |   |   |   |   | 13,885 |   |
|                                                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                                      |       |                              |       |   |   | $ | (51,265 | ) |   |   |   |   | $ | (15,368 | ) |
|                                                                         |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

9

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

To the Board of Directors and Shareholder of

Allstate Life Insurance Company of New York:

 

 

We have reviewed theaccompanying condensed statement of financial position of Allstate LifeInsurance Company of New York (the “Company”, an affiliate of The AllstateCorporation) as of March 31, 2006, and the related condensed statements ofoperations and cash flows for the three-month periods ended March 31, 2006 and2005. These interim 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 interimfinancial information consists principally of applying analytical proceduresand making inquiries of persons responsible for financial and accountingmatters. It is substantially less in scope than an audit conducted in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the objective of which is the expression of an opinion regarding thefinancial 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 accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the statement of financial position of Allstate Life Insurance Companyof New York as of December 31, 2005, and the related statements of operationsand comprehensive income, shareholder’s equity, and cash flows for the yearthen ended, not presented herein. In our report dated March 10, 2006, 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 theaccompanying condensed statement of financial position as of December 31, 2005is fairly stated, in all material respects, in relation to the statement offinancial position from which it has been derived.

 

 
| /s/ Deloitte & Touche LLP |   |
|-------------------------------|--------|

 

Chicago, Illinois

May 8, 2006

 

10

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| **Item 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR  THE THREE-MONTH PERIODS ENDED MARCH 31, 2006 AND 2005** |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

### **OVERVIEW**

###  

The followingdiscussion highlights significant factors influencing the financial positionand results of operations of Allstate Life Insurance Company of New York(referred to in this document as “we”, “our”, “us” or the “Company”). It shouldbe read in conjunction with the condensed financial statements and notesthereto found under Part I. Item 1. contained herein, and with the discussion,analysis, financial statements and notes thereto in Part I. Item 1. and PartII. Item 7. and Item 8. of the Allstate Life Insurance Company of New YorkAnnual Report on Form 10-K for 2005. We operate as a single segment entity,based on the manner in which we use financial information to evaluate businessperformance and to determine the allocation of resources.

 

### **OPERATIONS**

###  

**Premiums **represent revenues generated from traditional life, immediateannuities with life contingencies, accident and health and other insuranceproducts that have significant mortality or morbidity risk.

 

**Contract charges******are revenues generated from interest-sensitive life,variable annuities and fixed annuities for which deposits are classified ascontractholder funds or separate accounts liabilities. Contract charges areassessed against the contractholder account values for maintenance,administration, cost of insurance and surrender prior to the contractuallyspecified dates. As a result, changes in contractholder funds and separateaccounts liabilities are considered in the evaluation of growth and asindicators of future levels of revenues. After the close of our reinsurancetransaction with Prudential, the reinsured separate account assets andliabilities will remain on the Company’s statements of financial position, butthe related contract charges will be fully reinsured to Prudential (see Note 3to the Condensed Financial Statements).

 

The following table summarizes premiums andcontract charges by product.

 
| ** **                                   | ** ** | **Three  Months Ended   March 31,** | ** ** |
|----------------------------------------------|------------|-------------------------------------|------------|
| **(in thousands)**                           | ** ** | **2006**                            | ** ** | **2005** | ** ** |
|                                         |       |                                |       |   |   |
| **Premiums**                                 | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Traditional  life                            |       | $                                   | 4,609      |   | $ | 5,860 |   |
| Immediate  annuities with life contingencies |       | 8,264                               |       | 13,219 |   |
| Accident and  health and other               |       | 1,196                               |       | 914 |   |
| **Total  premiums**                          |       | 14,069                              |       | 19,993 |   |
| ** **                                   | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **Contract  charges**                        | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Interest-sensitive  life                     |       | 11,230                              |       | 9,945 |   |
| Fixed  annuities                             |       | 1,929                               |       | 1,793 |   |
| Variable  annuities                          |       | 4,428                               |       | 3,521 |   |
| **Total  contract charges**                  |       | 17,587                              |       | 15,259 |   |
| ** **                                   | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **Premiums  and contract charges**           |       | $                                   | 31,656     |   | $ | 35,252 |   |

 

11

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The followingtable summarizes premiums and contract charges by distribution channel.

 
| ** **                         | ** ** | **Three Months Ended   March 31,** | ** ** |
|------------------------------------|------------|------------------------------------|------------|
| **(in thousands)**                 | ** ** | **2006**                           | ** ** | **2005** | ** ** |
|                               |       |                               |       |   |   |
| **Premiums**                       | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Allstate  agencies                 |       | $                                  | 4,525      |   | $ | 5,738 |   |
| Financial  institutions            |       | —                             |       | 36 |   |
| Specialized  brokers               |       | 8,264                              |       | 13,182 |   |
| Independent  agents                |       | 1,280                              |       | 1,037 |   |
| **Total  premiums**                |       | 14,069                             |       | 19,993 |   |
| ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** |
| **Contract  charges**              | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Allstate  agencies                 |       | 10,805                             |       | 9,706 |   |
| Financial  institutions            |       | 6,176                              |       | 4,543 |   |
| Specialized  brokers               |       | 452                                |       | 911 |   |
| Independent  agents                |       | 154                                |       | 99 |   |
| **Total  contract charges**        |       | 17,587                             |       | 15,259 |   |
| ** **                         | ** ** | ** **                         | ** ** | ** ** | ** ** |
| **Premiums  and contract charges** |       | $                                  | 31,656     |   | $ | 35,252 |   |

 

Total premiums decreased 29.6% to $14.1 million in the first quarter of2006 compared to the same period of 2005. Lower premiums on immediate annuitieswith life contingencies and traditional life products were partially offset byincreased accident and health and other premiums.

 

Contract charges increased 15.3% to $17.6 million in the first quarterof 2006 compared to the same period of 2005. The increase was due to highercontract charges on interest-sensitive life and variable annuities and, to alesser extent, fixed annuities. The increase in theinterest-sensitive life contracts was attributable to in-force business growthresulting from deposits and credited interest more than offsetting surrendersand benefits. Higher variable annuity contract charges were the result of higheraccount values. Fixed annuity contract charges for the first quarter of 2006reflect higher surrender charges compared with the first quarter of 2005.

 

12

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*Contractholder funds* representinterest-bearing liabilities arising from the sale of fixed annuities,interest-sensitive life and variable annuity and life deposits allocated tofixed accounts. The balance of contractholder funds is equal to the cumulativedeposits received and interest credited to the contractholder less cumulativecontract 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)**                                              | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| **Contractholder  funds, beginning balance**                    |       | $                                 | 4,349,395  |   | $ | 3,802,846 |   |
|                                                            |       |                              |       |   |   |
| **Deposits:**                                                   | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Fixed  annuities                                                |       | 146,827                           |       | 243,944 |   |
| Interest-sensitive  life                                        |       | 24,284                            |       | 22,187 |   |
| Variable  annuity and life deposits allocated to fixed accounts |       | 9,341                             |       | 19,111 |   |
| Total  deposits                                                 |       | 180,452                           |       | 285,242 |   |
|                                                            |       |                              |       |   |   |
| **Interest  credited**                                          |       | 44,331                            |       | 39,664 |   |
|                                                            |       |                              |       |   |   |
| **Benefits,  withdrawals and other adjustments**                | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Benefits                                                        |       | (23,921                           | )          | (16,597 | ) |
| Surrenders  and partial withdrawals                             |       | (101,208                          | )          | (58,316 | ) |
| Contract  charges                                               |       | (10,784                           | )          | (10,112 | ) |
| Net  transfers to separate accounts                             |       | (10,791                           | )          | (9,215 | ) |
| Other  adjustments                                              |       | (481                              | )          | 284 |   |
| Total  benefits, withdrawals and other adjustments              |       | (147,185                          | )          | (93,956 | ) |
|                                                            |       |                              |       |   |   |
| **Contractholder  funds, ending balance**                       |       | $                                 | 4,426,993  |   | $ | 4,033,796 |   |

 

Average contractholderfunds increased 12.0% and 43.1% in the first quarters of 2006 and 2005,respectively, compared to the same periods in the prior years. The reduction inthe growth rate of contractholder funds during the first quarter of 2006 wasdue to lower contractholder deposits and, to a lesser extent, increasedsurrenders and partial withdrawals.

 

Contractholder deposits decreased 36.7% in the first quarter of 2006compared to the same period of 2005 due mostly to lower deposits on fixedannuities. Fixed annuity deposits declined 39.8% in the first quarter of 2006compared to the same period in the prior year. The decline was attributable toreduced consumer demand for traditional fixed annuities relative tocertificates of deposit and other short-term investments driven by increasesin short-term interest rates without increases in longer term rates of similarmagnitude, and our continued focus on improving fixed annuity product returns.

 

Surrenders and partial withdrawals increased 73.6% in the first quarterof 2006 compared to the same period of 2005 reflecting an annualized withdrawalrate of 9.3% for the first quarter of 2006 based on the beginning of periodcontractholder funds balance. This compares to an annualized withdrawal rate of6.1% for the first quarter of 2005. The declining and relatively low interestrate environment of the prior three years contributed to favorable withdrawalrates in 2005, and also resulted in an increased level of policies with littleor no surrender charge protection. The increase in the withdrawal rate in thefirst quarter of 2006 is consistent with management’s expectation that in anincreasing interest rate environment contractholders whose contracts haverelatively low surrender charges may choose to move their funds to competinginvestment alternatives. The aging of our in-force business may cause thistrend to continue. In addition, we have implemented crediting rate strategiesfor renewal business to improve investment spreads on selected contracts thatmay also have contributed to the increased withdrawal rate.

 

13

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*Separate accounts liabilities* representcontractholders’ claims to the related separate accounts assets. Separateaccounts liabilities primarily arise from the sale of variable annuitycontracts and variable life insurance policies.

 

The followingtable shows the changes in separate accounts liabilities. 

 
| ** **                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------|------------|
| **(in thousands)**                                              | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| **Separate  accounts liabilities, beginning balance**           |       | $                                 | 928,824    |   | $ | 792,550 |   |
|                                                            |       |                              |       |   |   |
| Variable  annuity and life deposits                             |       | 41,628                            |       | 56,831 |   |
| Variable  annuity and life deposits allocated to fixed accounts |       | (9,341                            | )          | (19,111 | ) |
| Net deposits                                                    |       | 32,287                            |       | 37,720 |   |
| Investment  results                                             |       | 39,131                            |       | (11,802 | ) |
| Contract  charges                                               |       | (3,876                            | )          | (2,986 | ) |
| Net  transfers from fixed accounts                              |       | 10,791                            |       | 9,215 |   |
| Surrenders  and benefits                                        |       | (26,758                           | )          | (15,423 | ) |
| ** **                                                      | ** ** | ** **                        | ** ** | ** ** | ** ** |
| **Separate  accounts liabilities, ending balance**              |       | $                                 | 980,399    |   | $ | 809,274 |   |

 

Separateaccounts liabilities increased 5.6% as of March 31, 2006 compared to December31, 2005. This is compared to an increase of 2.1% in the first quarter of 2005.The improvement was primarily attributable to favorable investment results inthe current period compared to unfavorable investment results in the priorperiod partially offset by higher surrenders and benefits and lower netdeposits. Variable annuity and life deposits vary with equity marketconditions, product investment allocation decisions and consumer preferencesrelated to product features.

 

**Net investment income**increased 7.4% in the first quarter of 2006 compared to the same period in2005, primarily due to higher average portfolio balances. Higher averageportfolio balances resulted from the investment of cash flows from operatingactivities and financing activities related primarily to deposits from fixedannuities.

 

14

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

 
| ** **                                                                                            | ** ** | **Three Months Ended   March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| **(in thousands)**                                                                                    | ** ** | **2006**                           | ** ** | **2005** | ** ** |
|                                                                                                  |       |                               |       |   |   |
| Premiums                                                                                              |       | $                                  | 14,069     |   | $ | 19,993 |   |
| Contract charges(1)                                                                                   |       | 17,588                             |       | 15,259 |   |
| Net investment income                                                                                 |       | 92,893                             |       | 86,492 |   |
| Periodic settlements and accruals on  non-hedge derivative instruments(2)                             |       | 424                                |       | 214 |   |
| Contract benefits                                                                                     |       | (43,330                            | )          | (47,083 | ) |
| Interest credited to contractholder  funds(3)                                                         |       | (40,478                            | )          | (35,994 | ) |
| Gross margin                                                                                          |       | 41,166                             |       | 38,881 |   |
|                                                                                                  |       |                               |       |   |   |
| Amortization of DAC and DSI                                                                           |       | (13,410                            | )          | (3,503 | ) |
| Operating costs and expenses                                                                          |       | (13,886                            | )          | (9,192 | ) |
| Income tax expense                                                                                    |       | (5,156                             | )          | (9,919 | ) |
| Realized capital gains and losses,  after-tax                                                         |       | (9,317                             | )          | (3,735 | ) |
| DAC and DSI amortization expense related to  realized capital gains and losses, after-tax             |       | 7,136                              |       | 1,489 |   |
| Reclassification of periodic settlements  and accruals on non-hedge derivative instruments, after-tax |       | (261                               | )          | (136 | ) |
| **Net income**                                                                                        |       | $                                  | 6,272      |   | $ | 13,885 |   |

 

----

(1)          Loadscharged to contractholders at the inception of interest-sensitive lifecontracts are deferred and amortized to income in a manner consistent withdeferred policy acquisition costs (“DAC”). Amortization of deferred loadsrelated to realized capital gains and losses is excluded from contract chargesfor purposes of calculating gross margin. Amortization of deferred loadsrelated to realized capital gains and losses totaled $1 thousand in the firstquarter of 2006. There was no amortization of deferred loads related torealized capital gains and losses in the first quarter of 2005.

(2)          Periodicsettlements and accruals on non-hedge derivative instruments are reflected as acomponent of realized capital gains and losses on the Condensed Statements ofOperations.

(3)          Amortization of deferredsales inducements (“DSI”) is excluded from interest credited to contractholderfunds for purposes of calculating gross margin. Amortization of DSI totaled$1,396 thousand and $232 thousand in the first quarters of 2006 and 2005,respectively.

 

*Gross margin*, a non-GAAP measure, representspremiums and contract charges, net investment income and periodic settlementsand accruals on non-hedge derivative instruments, less contract benefits andinterest credited to contractholder funds excluding amortization of DSI. Wereclassify periodic settlements and accruals on non-hedge derivativeinstruments into gross margin to report them in a manner consistent with theeconomically hedged investments, replicated assets or product attributes (e.g.net investment income or interest credited to contractholder funds) and bydoing so, appropriately reflect trends in product performance. We use grossmargin as a component of our evaluation of the profitability of our lifeinsurance and financial product portfolio. Additionally, for many of ourproducts, including fixed annuities, variable life and annuities, andinterest-sensitive life insurance, the amortization of DAC and DSI isdetermined based on actual and expected gross margin. Gross margin is comprisedof three components that are utilized to further analyze the business:investment margin, benefit margin, and contract charges and fees. We believegross margin and its components are useful to investors because they allow forthe evaluation of income components separately and in the aggregate whenreviewing performance. Gross margin, investment margin and benefit marginshould not be considered as a substitute for net income and do not reflect theoverall profitability of the business. Net income is the GAAP measure that ismost directly comparable to these margins. Gross margin is reconciled to GAAPnet income in the table above.

 

15

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

 
| ** **                                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                 | ** ** | **Investment  Margin**           | ** ** | **Benefit  Margin** | ** ** | **Contract   Charges and   Fees** | ** ** | **Gross  Margin** | ** ** |
| **(in thousands**                                                          | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Premiums                                                                   |       | $                                | —     |   | $ | — |   | $ | 14,069 |   | $ | 19,993 |   | $ | — |   | $ | — |   | $ | 14,069 |   | $ | 19,993 |   |
| Contract charges  (1)                                                 |       | —                           |       | — |   | 7,980 |   | 7,845 |   | 9,608 |   | 7,414 |   | 17,588 |   | 15,259 |   |
| Net investment income                                                      |       | 92,893                           |       | 86,492 |   | — |   | — |   | — |   | — |   | 92,893 |   | 86,492 |   |
| Periodic settlements and accruals on  non-hedge derivative instruments (2) |       | 424                              |       | 214 |   | — |   | — |   | — |   | — |   | 424 |   | 214 |   |
| Contract benefits                                                          |       | (25,520                          | )          | (25,407 | ) | (17,810 | ) | (21,676 | ) | — |   | — |   | (43,330 | ) | (47,083 | ) |
| Interest credited to contractholder  funds(3)                              |       | (40,478                          | )          | (35,994 | ) | — |   | — |   | — |   | — |   | (40,478 | ) | (35,994 | ) |
|                                                                       |       | $                                | 27,319     |   | $ | 25,305 |   | $ | 4,239 |   | $ | 6,162 |   | $ | 9,608 |   | $ | 7,414 |   | $ | 41,166 |   | $ | 38,881 |   |

 

----

(1)          Loadscharged to customers at the inception of interest-sensitive life contracts aredeferred and amortized to income in a manner consistent with DAC. Amortizationof deferred loads related to realized capital gains and losses is excluded fromcontract charges for purposes of calculating gross margin. Amortization ofdeferred loads related to realized capital gains and losses totaled $1 thousandin the first quarter of 2006. There was no amortization of deferred loadsrelated to realized capital gains and losses in the first quarter of 2005.

(2)          Periodicsettlements and accruals on non-hedge derivative instruments are reflected as acomponent of realized capital gains and losses on the Condensed Statements ofOperations.

(3)          Amortization of DSI isexcluded from interest credited to contractholder funds for purposes ofcalculating gross margin. Amortization of DSI totaled $1,396 thousand and $232thousand in the first quarters of 2006 and 2005, respectively.

 

Gross marginincreased 5.9% during the first quarter of 2006 compared to the same period of2005 due to higher investment margin and contract charges and fees, partiallyoffset by lower benefit margin. The anticipated disposition of substantiallyall of our variable annuity business is expected to result in lower grossmargin in the future, which is expected to be mostly offset by lower DAC andDSI amortization and operating expenses.

 

*Investment margin*****isa component of gross margin, both of which are non-GAAP measures. Investmentmargin represents the excess of net investment income and periodic settlementsand accruals on non-hedge derivative instruments over interest credited tocontractholder funds and the implied interest on life-contingent immediateannuities included in the reserve for life-contingent contract benefits. 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.

 

Investmentmargin by product group is shown in the following table. 

 
| ** **               | ** ** | **Three Months Ended   March 31,** | ** ** |
|--------------------------|------------|------------------------------------|------------|
| **(in thousands)**       | ** ** | **2006**                           | ** ** | **2005** | ** ** |
| Annuities                |       | $                                  | 24,904     |   | $ | 23,011 |   |
| Life  insurance          |       | 2,415                              |       | 2,294 |   |
| Total  investment margin |       | $                                  | 27,319     |   | $ | 25,305 |   |

** **

**16**

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** **

Investment margin increased 8.0% in the first quarter of 2006 comparedto the same period of 2005 due to growth in contractholder funds partially offsetby lower weighted average investment spreads. Future investment margin growthwill be reduced by the anticipated disposition of substantially all of ourvariable annuity business until investment margin resulting from new sales ofother products replaces the margins on the business subject to the disposition.

 

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

** **
| ** **                                                           | ** ** | **Weighted Average  Investment Yield** | ** ** | **Weighted Average   Interest Crediting Rate** | ** ** | **Weighted Average  Investment Spread** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                               | ** ** | **2005**                                       | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Interest-sensitive life                                              |       | 5.6                                    | %          | 5.7                                            | %          | 4.5                                     | %          | 4.4 | % | 1.1 | % | 1.3 | % |
| Deferred fixed annuities                                             |       | 5.4                                    |       | 5.5                                            |       | 3.1                                     |       | 3.1 |   | 2.3 |   | 2.4 |   |
| Immediate fixed annuities with and without  life contingencies       |       | 7.4                                    |       | 7.5                                            |       | 6.7                                     |       | 6.7 |   | 0.7 |   | 0.8 |   |
| Investments supporting capital, traditional  life and other products |       | 6.2                                    |       | 6.1                                            |       | N/A                                     |       | N/A |   | N/A |   | N/A |   |

 

The following table summarizes the liabilities for these contracts andpolicies.

 
| ** **                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------|------------|
| **(in thousands)**                                              | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| Immediate  fixed annuities with life contingencies              |       | $                                 | 1,514,713  |   | $ | 1,460,845 |   |
| Other life contingent contracts and other                       |       | 323,496                           |       | 343,759 |   |
| Reserve for life-contingent contract  benefits                  |       | $                                 | 1,838,209  |   | $ | 1,804,604 |   |
|                                                            |       |                              |       |   |   |
| Interest-sensitive  life                                        |       | $                                 | 439,815    |   | $ | 381,824 |   |
| Deferred  fixed annuities                                       |       | 3,441,421                         |       | 3,089,790 |   |
| Immediate  fixed annuities without life contingencies and other |       | 545,757                           |       | 562,182 |   |
| Contractholder funds                                            |       | $                                 | 4,426,993  |   | $ | 4,033,796 |   |

 

*Benefit margin*is acomponent of gross margin, both of which are non-GAAP measures. Benefit marginrepresents life and life-contingent immediate annuity premiums, cost ofinsurance contract charges and variable annuity contract charges for contractguarantees less contract benefits. Benefit margin excludes the implied intereston life-contingent immediate annuities, which is included in the calculation ofinvestment margin. We use benefit margin to evaluate our underwritingperformance, as it reflects the profitability of our products with respect tomortality or morbidity risk during a fiscal period.

 

Benefit marginby product group is shown in the following table.

 
| ** **            | ** ** | **Three Months Ended   March 31,** | ** ** |
|-----------------------|------------|------------------------------------|------------|
| **(in thousands)**    | ** ** | **2006**                           | ** ** | **2005** | ** ** |
| Life  insurance       |       | $                                  | 5,551      |   | $ | 7,191 |   |
| Annuities             |       | (1,312                             | )          | (1,029 | ) |
| Total  benefit margin |       | $                                  | 4,239      |   | $ | 6,162 |   |

 

Benefit margin declined 31.2% in the first quarter of 2006 compared tothe same period of 2005. The reduction in the life insurance benefit margin wasprimarily the result of unfavorable mortality experience and a prospectivechange in our calculation to reclassify $701 thousand to contract charges andfees, partially offset by in-force business growth. The unfavorable change inthe annuity benefit margin was the result of increasingly unfavorable mortalityexperience.

 

17

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*Amortizationof DAC and DSI*,excluding amortization related to realized capital gains and losses, increased$9.9 million in the first quarter of 2006 compared to the same period in theprior year primarily due to the recognition of amortization acceleration(commonly referred to as “DAC and DSI unlocking”) in the first quarter of 2006of $544 thousand compared to the prior period recognition of amortizationdeceleration of $7.3 million. The credit to net income resulting from DAC andDSI amortization related to realized capital gains and losses, after-tax,increased $5.6 million in the first quarter of 2006 compared to the same periodin 2005 due to higher net realized capital losses.

 

DAC and DSI amortization is expected to decline in the future as aresult of the anticipated disposition of substantially all of our variableannuity business. This decline is expected to be offset by the absence of grossmargin on the business subject to the disposition.

 

*Operating costs and expenses* increased 51.1%in the first quarter of 2006 compared to the same period of 2005. The increasewas primarily attributable to higher guaranty fund assessments andrestructuring and related charges in the first quarter of 2006 related to theVoluntary Termination Offer accepted by employees located at Allstate’sheadquarters. Additionally, operating costs and expenses reflected modestlyhigher costs to support the continued growth in our in-force business.

 

### **INVESTMENTS**

###  

An importantcomponent of our financial results is the return on our investment portfolio. Thecomposition of the investment portfolio at March 31, 2006 is presented in thetable below.

 
| ** **                   | ** ** | **Carrying** | ** ** | **Percent**  | ** ** |
|------------------------------|------------|--------------|------------|--------------|------------|
| **(in thousands)**           | ** ** | **value**    | ** ** | **of total** | ** ** |
|                         |       |         |       |         |       |
| Fixed income  securities (1) |       | $            | 5,924,532  |         | 86.9       | % |
| Mortgage  loans              |       | 651,699      |       | 9.6          |       |
| Short-term                   |       | 196,572      |       | 2.9          |       |
| Policy loans                 |       | 36,727       |       | 0.5          |       |
| Other                        |       | 4,585        |       | 0.1          |       |
| Total                        |       | $            | 6,814,115  |         | 100.0      | % |

 

----

(1)          Fixedincome securities are carried at fair value. Amortized cost basis for thesesecurities was $5.64 billion.

 

Totalinvestments increased to $6.81 billion at March 31, 2006 from $6.73 billion atDecember 31, 2005 due to positive cash flows from operating and financingactivities and increased funds associated with securities lending, partiallyoffset by decreased net unrealized gains on fixed income securities.

 

Totalinvestments at amortized cost related to collateral received in connection withsecurities lending transactions increased to $319.0 million at March 31, 2006from $149.5 million at December 31, 2005.

 

At March 31, 2006, 96.8% 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 S&P, Fitch or Dominion; or a comparable internal rating if anexternally provided rating is not available.

 

The unrealized net capital gains on fixed income securities at March31, 2006 were $281.6 million, a decrease of $172.3 million or 38.0% sinceDecember 31, 2005. The net unrealized gain was comprised of$372.9 million of unrealized gains and $91.3 million of unrealized losses atMarch 31, 2006. This is compared to net unrealized gains totaling $453.9million at December 31, 2005, comprised of $497.4 million of unrealized gainsand $43.5 million of unrealized losses.

 

Of the gross unrealized losses at March 31,2006, $88.5 million or 96.9% were related to investment grade securities andare believed to be primarily a result of a rising interest rate environment. Theremaining $2.8 million of losses in the fixed income portfolio were in thecorporate fixed income portfolio and were primarily 

 

18

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comprised of securities in the energy andcapital goods sectors. The gross unrealized losses in these sectors wereprimarily company specific and interest rate related.

 

Our portfolio monitoring process identifies and evaluates, on acase-by-case basis, fixed income securities whose carrying value may be otherthan temporarily impaired. The process includes a quarterly review of allsecurities using a screening process to identify those securities whose fairvalue compared to amortized cost is below established thresholds for certaintime periods, or which are identified through other monitoring criteria such asratings downgrades or payment defaults. As a result of approved programsinvolving the disposition of investments such as changes in duration andrevisions to strategic asset allocations, and certain dispositions anticipatedby portfolio managers, we also conduct a portfolio review to recognize impairmenton securities in an unrealized loss position for which we do not have theintent and ability to hold until recovery. All securities in anunrealized loss position at March 31, 2006 were included in our portfoliomonitoring process wherein it was determined that the declines in value werenot other than temporary.

 

We also monitor the quality of our fixedincome portfolio by categorizing certain investments as “problem”, “restructured”or “potential problem.”  Problem fixedincome securities are securities in default with respect to principal orinterest and/or securities issued by companies that have gone into bankruptcysubsequent to our acquisition of the security. Restructured fixed incomesecurities have rates and terms that are not consistent with market rates orterms prevailing at the time of the restructuring. 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.

 

The followingtable summarizes problem, restructured and potential problem fixed income securities.

 
| **(in thousands)**                | ** ** | **March 31, 2006**   | ** ** | **December 31, 2005** | ** ** |
|-----------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **Amortized   cost** | ** ** | **Fair  value**       | ** ** | **Percent   of total   Fixed   Income  portfolio** | ** ** | **Amortized  cost** | ** ** | **Fair   value** | ** ** | **Percent   of total   Fixed   Income   portfolio** | ** ** |
| Problem                           |       | $                    | 4,032      |                  | $          | 6,197 |   | 0.1 | % | $ | 14,373 |   | $ | 17,762 |   | 0.3 | % |
| Restructured                      |       | 147                  |       | 147                   |       | — |   | 163 |   | 163 |   | — |   |
| Potential problem                 |       | 5,616                |       | 5,660                 |       | 0.1 |   | 5,609 |   | 5,640 |   | 0.1 |   |
| Total net carrying value          |       | $                    | 9,795      |                  | $          | 12,004 |   | 0.2 | % | $ | 20,145 |   | $ | 23,565 |   | 0.4 | % |
| Cumulative write-downs recognized |       | $                    | 5,440      |                  |       |   |   |   | $ | 5,455 |   |   |   |   |   |

 

We have experienced a decrease in the amortized cost of fixed incomesecurities categorized as problem as of March 31, 2006 compared to December 31,2005. The decrease was primarily due to a disposition and the removal ofsecurities upon improving conditions. 

 

We alsoevaluated each of these securities through our portfolio monitoring process atMarch 31, 2006 and recorded write-downs when appropriate. We further concludedthat any remaining unrealized losses on these securities were temporary innature and that we have the intent and ability to hold until recovery. Whilethese balances may increase in the future, particularly if economic conditionsare unfavorable, management expects that the total amount of securities inthese categories will remain low relative to the total fixed income securitiesportfolio.

 

19

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

 
| ** **                                        | ** ** | **Three Months Ended   March 31,** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|
| **(in thousands)**                                | ** ** | **2006**                           | ** ** | **2005** | ** ** |
|                                              |       |                               |       |   |   |
| Investment  write-downs                           |       | $                                  | (258       | ) | $ | (393 | ) |
| Dispositions                                      |       | (16,417                            | )          | (8,023 | ) |
| Valuation of  derivative instruments              |       | 781                                |       | 241 |   |
| Settlement  of derivative instruments             |       | 758                                |       | 2,298 |   |
| Realized  capital gains and losses, pretax        |       | (15,136                            | )          | (5,877 | ) |
| Income tax  benefit                               |       | 5,819                              |       | 2,142 |   |
| **Realized  capital gains and losses, after-tax** |       | $                                  | (9,317     | ) | $ | (3,735 | ) |

 

Dispositions in the above table includesales, losses recognized in anticipation of dispositions and other transactionssuch as calls and prepayments. We may sell fixed income securities during theperiod in which fair value has declined below amortized cost. In certainsituations, new factors such as negative developments, subsequent creditdeterioration, relative value opportunities, market liquidity concerns andportfolio reallocations can subsequently change our previous intent to continueholding a security

A changing interest rate environment will also drive changes in ourportfolio duration targets at a tactical level. A duration target and range isestablished with an economic view of liabilities relative to a long-termportfolio view. Tactical duration adjustments within management’s approvedranges are accomplished through both cash market transactions and derivativeactivities that generate realized gains and losses and through new purchases. Asa component of our approach to managing portfolio duration, realized gains andlosses on derivative instruments are most appropriately considered inconjunction with the unrealized gains and losses on the fixed income portfolio.This approach mitigates the impacts of general interest rate changes to theoverall financial condition of the Company.

Inthe first quarter of 2006, we recognized $15 million of losses related to achange in our intent to hold certain securities with unrealized losses untilthey recover in value. The change in our intent is primarily related to $442million of securities which had unrealized losses totaling $14 million that maybe used to fund net general account liabilities to be transferred at theclosing of our variable annuity reinsurance agreement with Prudential. Additionally,continued implementation of yield enhancement strategies, strategic assetallocations and comprehensive reviews of our portfolio resulted in theidentification of $34 million of securities that had unrealized losses of $1million which may be sold to achieve these objectives.

 

### **CAPITAL RESOURCES AND LIQUIDITY**

###  

**Capital Resources**consist of shareholder’s equity, representing fundsdeployed or available to be deployed to support business operations. Thefollowing table summarizes our capital resources.

 
| **(in thousands)**                                                         | ** ** | **March 31,   2006** | ** ** | **December 31,   2005** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------|------------|-------------------------|------------|
|                                                                       |       |                 |       |                    |       |
| Common stock,  retained earnings and other shareholder’s equity items |       | $                    | 544,737    |                    | $          | 538,465 |   |
| Accumulated  other comprehensive income                                    |       | 71,431               |       | 128,968                 |       |
| Total shareholder’s equity                                            |       | $                    | 616,168    |                    | $          | 667,433 |   |

 

*Shareholder’s equity* declined in the first quarter of 2006 dueto lower unrealized net capital gains on fixed income securities, partiallyoffset by net income.

 

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**Financial Ratings and Strength**Our ratings are influenced by many factors including our operating andfinancial performance, asset quality, liquidity, asset/liability management,overall portfolio mix, financial leverage (i.e., debt), exposure to risks, thecurrent level of operating leverage, ALIC’s and AIC’s ratings and otherfactors. There have been no changes to our insurance financial strength ratingssince December 31, 2005.

 

**LiquiditySources and Uses *** *Asreflected in our Condensed Statements of Cash Flows, slightly higher operatingcash flows in the first quarter of 2006, compared to the first quarter of 2005,primarily related to higher investment income, partially offset by lowerpremiums.

 

Cash flowsused in investing activities decreased in the first quarter of 2006 compared tothe same period in the prior year due to lower investment purchases resultingfrom decreased cash provided by financing activities, partially offset by theinvestment of higher operating cash flows.

 

# **Lowercash flows provided by financing activities during the first quarter of 2006were primarily attributable to lower deposits of fixed annuities and increasedsurrenders and partial withdrawals. For quantification of the changes incontractholder funds, see the Operations section of the MD&A.**

# ** **

We haveentered into an inter-company loan agreement with The Allstate Corporation (the“Corporation”). The amount of inter-company loans available to us is at thediscretion of the Corporation. The maximum amount of loans the Corporation willhave outstanding to all its eligible subsidiaries at any given point in time islimited to $1.00 billion. We had no amounts outstanding under the inter-companyloan agreement at March 31, 2006 or December 31, 2005. The Corporation usescommercial paper borrowings and bank lines of credit to fund intercompanyborrowings.

 

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

###  

*Evaluationof Disclosure Controls and Procedures.*We maintain disclosurecontrols and procedures as defined in Rule 13a-15(e) and 15(d)-15(e) under theSecurities 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 andthe principal financial officer concluded that our disclosure controls andprocedures are effective in providing reasonable assurance that materialinformation required to be disclosed in our reports filed with or submitted tothe Securities and Exchange Commission under the Securities Exchange Act ismade known to management, including the principal executive officer and theprincipal financial officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

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

 

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

###  

### **Item 1.**    Legal Proceedings

###  

Information required for this Part II, Item 1, is incorporatedby reference to the discussion under the heading “Regulation” and under theheading “Legal and regulatory proceedings and inquiries” in Note 4 of theCompany’s Condensed Financial Statements in Part I, Item 1, of this Form 10-Q.

 

**Item 1A. Risk Factors**

 

Thisdocument contains “forward-looking statements” that anticipate results based onour estimates, assumptions and plans that are subject to uncertainty. Thesestatements are made subject to the safe-harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. We assume no obligation to update anyforward-looking statements as a result of new information or future events ordevelopments.

Theseforward-looking statements do not relate strictly to historical or currentfacts and may be identified by their use of words like “plans,” “seeks,” “expects,”“will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets”and other words with similar meanings. These statements may address, amongother things, our strategy for growth, product development, regulatoryapprovals, market position, expenses, financial results, litigation andreserves. We believe that these statements are based on reasonable estimates,assumptions and plans. However, if the estimates, assumptions or plansunderlying the forward-looking statements prove inaccurate or if other risks oruncertainties arise, actual results could differ materially from thosecommunicated in these forward-looking statements. Risk factors which couldcause actual results to differ materially from those suggested by suchforward-looking statements include but are not limited to those discussed oridentified in this document, in our public filings with the Securities andExchange Commission, and those incorporated by reference in Part I, Item 1A of AllstateLife Insurance Company of New York Annual Report on Form 10-K for 2005. Therehave been no material changes from the risk factors previously disclosed in ourAnnual Report on Form 10-K.

 

### **Item 6.**    Exhibits

###  

(a)   Exhibits

 

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

 

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### **SIGNATURE**

###  

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

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

 

24

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                         |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |       | Amendment Number One to the Principal  Underwriting Agreement between Allstate Life Insurance Company of New York  and Allstate Distributors, L.L.C. dated May 1, 2000. |
|            |       |                                                                                                                                                                    |
| 15              |       | Acknowledgement of awareness from Deloitte  & Touche LLP dated May 6, 2005, 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

----