UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                   Form 10-K

             Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

The registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K and is therefore  filing this Form with the reduced  disclosure
format.

For fiscal year ended December 31, 1998  Commission file numbers: 033-50884
                                                                  033-84480
                                                                  033-90272
                                                                  333-25057
                                                                  033-35412
                                                                  002-82511

                       Northbrook Life Insurance Company
                       ---------------------------------
            (Exact name of registrant as specified in its charter)

            Illinois                                      36-300152
            ---------                                     -----------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

                               3100 Sanders Road
                          Northbrook, Illinois 60062
              (Address of Principal executive offices)(Zip Code)

                                 847/402-5000
             (Registrant's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Act: None
      Securities registered pursuant to Section 12(g) of the Act: None

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

               Yes       x                  No
                      ---------                     ---------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

  As of December  31, 1998,  there were 25,000  shares of common  capital  stock
outstanding,  par value $100 per share all of which  shares are held by Allstate
Life Insurance Company.

<PAGE>

                       NORTHBROOK LIFE INSURANCE COMPANY  
             (A wholly owned subsidiary of Allstate Life Insurance Company)

                      Annual Report for 1998 On Form 10-K

                               TABLE OF CONTENTS

                                                                    PAGE
                                                                    ----

PART I

ITEM 1.       Business**............................................ 3
ITEM 2.       Properties**.......................................... 4
ITEM 3.       Legal Proceedings..................................... 4
ITEM 4.       Submission of Matters to a Vote of Security Holders*..N/A

PART II

ITEM 5.       Market for Registrant's Common Equity and
              Related Stockholder Matters........................... 5
ITEM 6.       Selected Financial Data*..............................N/A
ITEM 7.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations................... 6
ITEM 7A.      Quantitative and Qualitative Disclosures About
              Market Risk...........................................13 
ITEM 8.       Financial Statements and Supplementary Data...........13
ITEM 9.       Changes in and Disagreements with Accountants on 
              Accounting and Financial Disclosure...................13

PART III

ITEM 10.      Directors and Executive Officers of the Registrant*...N/A
ITEM 11.      Executive Compensation*...............................N/A
ITEM 12.      Security Ownership of Certain Beneficial Owners and
              Management*...........................................N/A
ITEM 13.      Certain Relationships and Related Transactions*.......N/A

PART IV

ITEM 14.      Exhibits, Financial Statement Schedules, and
              Reports on Form 8-K...................................14

Index to Financial Statement Schedules..............................15
Signatures..........................................................16
Exhibit Index.......................................................E-1

*  Omitted pursuant to General Instruction I(2) of Form 10-K.
** Item prepared in accordance with General Instruction I(2) of Form 10-K.


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

     Northbrook Life Insurance  Company  (hereinafter  "Northbrook  Life" or the
"Company"),  incorporated  in 1978 as a stock life  insurance  company under the
laws of the State of Illinois and  redomesticated to Arizona in December,  1998.
The  Company  has  done  business   continuously   since  its  incorporation  as
"Northbrook Life Insurance Company."

     Northbrook  Life is a wholly owned  subsidiary of Allstate  Life  Insurance
Company ("ALIC"),  a stock life insurance company incorporated under the laws of
Illinois.  ALIC is a wholly  owned  subsidiary  of  Allstate  Insurance  Company
("AIC"),  a stock  property-liability  insurance company  incorporated under the
laws of Illinois.  All of the  outstanding  capital stock of AIC is owned by The
Allstate Corporation ("Corporation").

     Northbrook Life's  operations  consist of one business segment which is the
sale of life insurance and savings products.

     Northbrook  Life and ALIC entered into  reinsurance  agreements,  effective
December 31, 1987,  under which Northbrook Life reinsures  substantially  all of
its  business  with  ALIC.  Under  the  agreements,   purchase   payments  under
substantially  all general account  contracts are transferred to ALIC and become
invested with the assets of ALIC,  and ALIC accepts 100% of the liability  under
such  contracts.   However,  the  obligations  of  ALIC  under  the  reinsurance
agreements are to the Company. In addition, assets of the Company that relate to
insurance  in-force  excluding  Separate Account assets are transferred to ALIC.
Therefore,  the funds  necessary  to support the  operations  of the Company are
provided by ALIC and the Company is not required to obtain additional capital to
support in-force or future business.

     Under the Company's reinsurance agreements with ALIC, the Company reinsures
substantially all reserve  liabilities with ALIC except for variable  contracts.
The Company's  variable  contract  assets and  liabilities  are held in legally-
segregated, unitized Separate Accounts and are retained by the Company. However,
the transactions  related to such variable contracts such as premiums,  expenses
and benefits are transferred to ALIC.




                                       3
<PAGE>



     Northbrook  Life's and ALIC's  general  account  assets must be invested in
accordance with applicable  state laws. These laws govern the nature and quality
of investments  that may be made by life insurance  companies and the percentage
of their assets that may be committed to any particular  type of investment.  

     Northbrook Life is engaged in a business that is highly competitive because
of the large  number of stock and  mutual  life  insurance  companies  and other
entities   competing  in  the  sale  of  insurance  and  annuities.   There  are
approximately 1,700 stock, mutual and other types of insurers in business in the
United States.  Several  independent  rating  agencies  regularly  evaluate life
insurer's claims paying ability,  quality of investments and overall  stability.
A.M. Best Company assigns A+(Superior) to ALIC which automatically reinsures all
net business of Northbrook Life. A.M. Best Company also assigns  Northbrook Life
the rating of A+(r) because Northbrook Life automatically reinsures all business
with Allstate Life.  Standard & Poor's  Insurance  Rating  Services  assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's Investors Service
assigns an Aa2 (excellent) financial strength rating to the Company.  Northbrook
Life shares the same ratings of its parent, ALIC.

     Although the federal  government  generally does not directly  regulate the
business of insurance,  federal initiatives often have an impact on the business
in a variety of ways.  Current and  proposed  measures  which may  significantly
affect the  Company's  insurance  business  relate to the  taxation of insurance
companies,  the tax treatment of insurance  products and the removal of barriers
preventing banks from engaging in the insurance business.

     Northbrook Life is registered  with the Securities and Exchange  Commission
("SEC") as an issuer of  registered  products.  The SEC also  regulates  certain
Northbrook  Life  Separate  Accounts  which issue  variable  life  contracts or,
together with the Company, issue variable annuity contracts.

ITEM 2.  PROPERTIES

     Northbrook  Life  occupies  office  space  provided  by AIC in  Northbrook,
Illinois.  Expenses  associated  with these  offices are allocated to Northbrook
Life.

ITEM 3.  LEGAL PROCEEDINGS

     The  Company  and  its  Board  of  Directors  know  of  no  material  legal
proceedings  pending to which the Company is a party or which  would  materially
affect the Company. The Company is involved in pending and threatened litigation
in the normal  course of its business in which  claims for monetary  damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate  liability  arising from such pending or  threatened  litigation to
have a material effect on the position or results of operations of the Company.




                                       4
<PAGE>



                                 PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     All of the Company's  outstanding shares are owned by its parent, ALIC. All
of ALIC's  outstanding shares are owned by AIC. All of the outstanding shares of
AIC are owned by The Corporation.  






                                       5
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS



      The  following  discussion  highlights   significant  factors  influencing
results of  operations  and changes in  financial  position of  Northbrook  Life
Insurance  Company (the  "Company").  It should be read in conjunction  with the
financial statements and related notes.

      The Company,  a wholly owned subsidiary of Allstate Life Insurance Company
("ALIC"),  which is wholly owned by Allstate Insurance Company ("AIC"), a wholly
owned  subsidiary  of The  Allstate  Corporation  (the  "Corporation"),  markets
savings products and life insurance  products through Dean Witter Reynolds Inc.,
a wholly owned subsidiary of Morgan Stanley Dean Witter. Life insurance includes
universal life and variable life products.  Savings  products  include  deferred
annuities such as variable  annuities and fixed rate single and flexible premium
annuities,  and immediate annuities.  The Company re-domesticated its operations
from Illinois to Arizona in 1998. The Company has identified  itself as a single
segment entity.

      The assets and liabilities  related to flexible premium deferred  variable
annuity  contracts  and  variable  life  policies  are  legally  segregated  and
reflected as Separate  Account  assets and  liabilities  and are carried at fair
value in the statements of financial  position.  Investment  income and realized
gains and losses of the Separate Accounts accrue directly to the contractholders
(net of fees) and,  therefore,  are not included in the Company's  statements of
operations and comprehensive income.


RESULTS OF OPERATIONS

($ in thousands)

                                                 1998        1997       1996 
                                               --------    --------   --------
Net investment income                          $  5,691    $  5,146   $  4,888
                                               ========    ========   ========
Realized capital gains and losses, after-tax   $      1    $    (44)  $    (13)
                                               ========    ========   ========
Net income                                     $  3,698    $  3,322   $  3,202
                                               ========    ========   ========
Total investments                              $ 91,419    $ 79,433   $ 74,069
                                               ========    ========   ========

      The Company has  reinsurance  agreements  under  which  substantially  all
contract and policy related  transactions are transferred to ALIC. The Company's
results of operations  include only net investment  income and realized  capital
gains and losses  earned on the assets of the Company  that are not  transferred
under reinsurance agreements.

     Net income for 1998 and 1997  increased  $376  thousand and $120  thousand,
respectively, primarily as a result of increased net investment income.

      Pretax net investment  income  increased 10.6% to $5.7 million in 1998 and
5.3% to $5.1 million in 1997. For both years, the additional  investment  income
was earned on higher  investment  balances arising from positive cash flows from
operating  activities.  In addition, in 1998, positive cash flows from operating
activities  were  favorably  impacted  by  changes in  inter-company  settlement
procedures.   Lower  investment  expenses  contributed   favorably  to  the  net
investment  income  increase in 1998.  In 1997,  the increase in net  investment
income was partially offset by increased investment expenses.

      Realized  capital  gains,  after-tax,  were  $1,000  in 1998  compared  to
realized capital losses,  after-tax,  of $44 thousand in 1997. In 1998, realized
capital gains resulted from gains on calls of fixed income securities  partially
offset by losses on fixed  income  security  sales.  In 1997,  the losses  arose
principally from the sale of fixed income securities.  Year-to-year fluctuations
in  realized  capital  gains and losses are  largely the result of the timing of
sales  decisions  reflecting  management's  view of  individual  securities  and
overall market conditions.

                                       6
<PAGE>


FINANCIAL POSITION

($ in thousands)

                                             1998         1997
                                          ----------   ----------
Fixed income securities (1)               $   86,336   $   76,402
Short-term investments                         5,083        3,031
                                          ----------   ----------
         Total investments                $   91,419   $   79,433
                                          ==========   ==========
Reinsurance recoverable from ALIC         $2,148,091   $2,293,094
                                          ==========   ==========
Separate Account assets and liabilities   $7,031,083   $5,719,203
                                          ==========   ==========
Contractholder funds                      $2,003,122   $2,148,555
                                          ==========   ==========

(1)  Fixed income securities are carried at fair value. Amortized cost for these
     securities  was  $81,156  and  $72,491  at  December  31,  1998  and  1997,
     respectively.

      Total  investments  increased  to $91.4  million at December 31, 1998 from
$79.4  million at December  1997.  The  increase  was  primarily  due to amounts
invested from positive cash flows generated from operations.  In 1998,  positive
cash flows from  operating  activities  were  favorably  impacted  by changes in
inter-company cash settlement procedures.

FIXED INCOME SECURITIES The Company's fixed income securities portfolio consists
of mortgage-backed securities,  publicly traded corporate bonds, U.S. government
bonds and tax-exempt  municipal  bonds.  The Company  generally  holds its fixed
income  securities for the long term, but has classified all of these securities
as available for sale to allow maximum flexibility in portfolio  management.  At
December 31, 1998,  unrealized net capital gains on the fixed income  securities
portfolio totaled $5.2 million compared to $3.9 million as of December 31, 1997.
The increase in the unrealized gain position is primarily  attributable to lower
interest rates.

     At  December  31,  1998,  all  of the  Company's  fixed  income  securities
portfolio  was rated  investment  grade,  which is defined  by the  Company as a
security  having a National  Association  of  Insurance  Commissioners  ("NAIC")
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal  rating.  The  quality mix of the  Company's  fixed  income  securities
portfolio at December 31, 1998 is presented below.

($ in thousands)

    NAIC
  RATINGS     MOODY'S EQUIVALENT DESCRIPTION      FAIR VALUE    PERCENT TO TOTAL
  -------     ------------------------------      ----------    ----------------
     1        Aaa/Aa/A                            $   84,176           97.5%
     2        Baa                                      2,160            2.5  
                                                  ----------       --------- 
                                                  $   86,336          100.0%
                                                  ==========       =========

                                       7
<PAGE>


      At  December  31,  1998  and  1997,   $40.0  million  and  $39.0  million,
respectively,   of  the  fixed  income  securities  portfolio  was  invested  in
mortgage-backed  securities  ("MBS").  At December 31, 1998,  all of the MBS are
investment  grade and have  underlying  collateral  that is  guaranteed  by U.S.
government entities; thus credit risk is minimal.

      MBS,  however,  are  subject to  interest  rate risk as the  duration  and
ultimate  realized yield are affected by the rate of repayment of the underlying
mortgages.  The Company  attempts to limit  interest rate risk by purchasing MBS
where  cost  does  not  significantly  exceed  par  value,  and  with  repayment
protection  to provide more  certain cash flows to the Company.  At December 31,
1998,  the  amortized  cost of the MBS  portfolio  was  below  par value by $1.3
million and over 17% of the MBS portfolio  was invested in planned  amortization
class  bonds.  This type of MBS is purchased  to provide  additional  protection
against declining interest rates.

      The Company  closely  monitors its fixed income  securities  portfolio for
declines  in value  that are other  than  temporary.  Securities  are  placed on
non-accrual  status  when they are in  default or when the  receipt of  interest
payments is in doubt.

SHORT TERM INVESTMENTS The Company's  short-term  investment  portfolio was $5.1
million  and $3.0  million at  December  31,  1998 and 1997,  respectively.  The
Company  invests  available  cash  balances   primarily  in  taxable  short-term
securities having a final maturity date or redemption date of one year or less.

CONTRACTHOLDER  FUNDS  AND  REINSURANCE   RECOVERABLE  FROM  ALIC  During  1998,
contractholder  funds  decreased by $145.4 million and  reinsurance  recoverable
from ALIC under  reinsurance  agreements  decreased by $145.0 million.  Sales of
fixed annuity contracts and interest credited to contractholders  were more than
offset by fixed annuity  surrenders,  withdrawals,  policyholder  transfers from
fixed annuity contracts to flexible premium deferred variable annuity contracts,
and benefits paid. Reinsurance recoverable from ALIC relates to contract benefit
obligations ceded to ALIC.

SEPARATE  ACCOUNTS  Separate  Account assets and liabilities  increased 22.9% to
$7.0 billion in 1998.  The increases were  primarily  attributable  to increased
sales of flexible  premium  deferred  variable  annuity  contracts and favorable
investment performance of the Separate Accounts investment portfolios, partially
offset by variable annuity surrenders and withdrawals.

MARKET RISK

      Market risk is the risk that the Company  will incur losses due to adverse
changes in equity prices or interest  rates.  The Company's  primary market risk
exposure is to changes in interest rates,  although the Company also has certain
exposures to changes in equity prices.

INTEREST  RATE RISK  Interest  rate risk is the risk that the Company will incur
economic losses due to adverse changes in interest rates, as the Company invests
substantial funds in interest-sensitive assets.

      One way to quantify  this  exposure is  duration.  Duration  measures  the
sensitivity  of the fair  value of assets to  changes  in  interest  rates.  For
example,  if  interest  rates  increase  1%,  the fair  value of an asset with a
duration of 5 years is expected  to  decrease in value by  approximately  5%. At
December 31, 1998, the Company's asset duration was  approximately  4.1 years, a
slight decrease from the 4.7 years reported for December 31, 1997.

                                       8

<PAGE>

      To  calculate  duration,  the  Company  projects  asset  cash  flows,  and
discounts  them to a net  present  value  basis  using a  risk-free  market rate
adjusted for credit  quality,  sector  attributes,  liquidity and other specific
risks.  Duration is calculated by revaluing  these cash flows at an  alternative
level of interest rates,  and  determining  the percentage  change in fair value
from the base case. The projections  include  assumptions (based upon historical
market and  Company  specific  experience)  reflecting  the  impact of  changing
interest rates on the prepayment  and/or option features of  instruments,  where
applicable.  Such assumptions  relate primarily to  mortgage-backed  securities,
collateralized mortgage obligations, and municipal and corporate obligations.

      Based  upon  the  information  and  assumptions  the  Company  uses in its
duration  calculation  and  interest  rates in  effect  at  December  31,  1998,
management  estimates  that a 100 basis point  immediate,  parallel  increase in
interest  rates ("rate  shock") would  decrease the net fair value of its assets
identified above by approximately $3.5 million, an amount essentially  unchanged
from the amount  reported for December  31, 1997.  The  selection of a 100 basis
point  immediate  rate shock  should not be  construed  as a  prediction  by the
Company's  management of future market  events;  but rather,  to illustrate  the
potential impact of such an event.

      To the extent that actual  results differ from the  assumptions  utilized,
the Company's duration and rate shock measures could be significantly  impacted.
Additionally,  the Company's  calculation assumes that the current  relationship
between  short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result,  these  calculations may not
fully  capture  the  impact of  non-parallel  changes in the term  structure  of
interest rates and/or large changes in interest rates.

EQUITY  PRICE RISK  Equity  price risk is the risk that the  Company  will incur
economic  losses due to adverse  changes in equity prices.  At December 31, 1998
the Company had variable annuity and variable life funds with balances  totaling
$7.0 billion.  The Company  earns  mortality and expense fees as a percentage of
fund balance.  In the event of an immediate  decline of 10% in the fund balances
due to equity market declines, the Company would earn approximately $9.5 million
less in annualized fee income which would be ceded to ALIC.

CORPORATE  OVERSIGHT In formulating and implementing  policies for investing new
and existing  funds,  AIC, an indirect  parent of the Company,  administers  and
oversees investment risk management  processes primarily through three oversight
bodies:  the Boards of Directors  and  Investment  Committees  of its  operating
subsidiaries,  and the Credit and Risk Management Committee ("CRMC"). The Boards
of Directors and Investment Committees provide executive oversight of investment
activities.  The CRMC is a senior management  committee  consisting of the Chief
Investment Officer,  the Investment Risk Manager,  and other investment officers
who are responsible for the day-to-day management of market risk. The CRMC meets
at least monthly to provide  detailed  oversight of investment  risk,  including
market risk.

      AIC has  investment  guidelines  that  define the  overall  framework  for
managing market and other investment risks,  including the  accountabilities and
controls  over  these  activities.  In  addition,  AIC has  specific  investment
policies for each of its affiliates,  including the Company,  that delineate the
investment  limits  and  strategies  that  are  appropriate  for  the  Company's
liquidity, surplus, product and regulatory requirements.

                                       9

<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

      Under the terms of reinsurance agreements,  substantially all premiums and
deposits,  excluding  those relating to Separate  Accounts,  are  transferred to
ALIC,  which  maintains  the  investment  portfolios  supporting  the  Company's
products.  Substantially all payments of policyholder claims, benefits, contract
maturities,  contract surrenders and withdrawals and certain operating costs are
also  reimbursed by ALIC,  under the terms of the  reinsurance  agreements.  The
Company  continues  to have  primary  liability  as a direct  insurer  for risks
reinsured.  The  Company's  ability to meet  liquidity  demands is  dependant on
ALIC's ability to meet those  demands.  ALIC's  claims-paying  ability was rated
Aa2, AA+ and A+ by Moody's, Standard and Poor's and A.M. Best, respectively,  at
December 31, 1998.

         The  primary  sources  for the  remainder  of the  Company's  funds are
collection of principal and interest from the  investment  portfolio and capital
contributions  from ALIC.  The primary uses for the  remainder of the  Company's
funds are to purchase  investments and pay costs associated with the maintenance
of the Company's investment portfolio.

      At  December  31,  1998,  the Moody's and  Standard  and Poor's  financial
strength ratings for the Company were Aa2 and AA+, respectively.

      The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC").  The requirement consists of
a  formula  for  determining  each  insurer's  RBC  and a model  law  specifying
regulatory  actions if an insurer's RBC falls below  specified  levels.  The RBC
formula for life insurance companies  establishes capital requirements  relating
to insurance, business, asset and interest rate risks. At December 31, 1998, RBC
for the Company was  significantly  above a level that would require  regulatory
action.


YEAR 2000

     The Company is  dependent  upon  certain  services  provided  for it by the
Corporation including  computer-related  systems, and systems and equipment that
are not typically thought of as computer-related  (referred to as "non-IT"). For
this reason,  the Company is reliant upon the Corporation for the  establishment
and maintenance of its computer-related systems and non-IT.

     The Corporation is heavily  dependent upon complex computer systems for all
phases of its operations,  including  customer  service,  insurance  processing,
underwriting,  loss reserving,  investments and other enterprise systems.  Since
many of the Corporation's  older computer  software programs  recognize only the
last two  digits  of the year in any date,  some  software  may fail to  operate
properly  in or after  the  year  1999,  if the  software  is not  reprogrammed,
remediated,  or replaced  ("Year  2000").  Also,  non-IT often contain  embedded
hardware  or  software  that  may  have a Year  2000  sensitive  component.  The
Corporation  believes that many of its  counterparties  and suppliers  also have
Year 2000 issues and non-IT issues which could affect the Corporation.

     In 1995, the  Corporation  commenced a plan consisting of four phases which
are  intended to mitigate  and/or  prevent the adverse  affects of the Year 2000
issues on its  systems:  1) inventory  and  assessment  of affected  systems and
equipment,  2)  remediation  and  compliance  of systems and  equipment  through
strategies  that include the  replacement or  enhancement  of existing  systems,
upgrades to operating  systems  already  covered by  maintenance  agreements and
modifications to existing  systems to make them Year 2000 compliant,  3) testing
of systems using clock-forward testing for both current and future dates and for
dates which trigger specific processing,  and 4) contingency planning which will
address  possible  adverse  scenarios and the potential  financial impact to the
Corporation's results of operations, liquidity or financial position.


                                       10
<PAGE>


     The  Corporation  believes  that  the  first  three  steps  of  this  plan,
assessment,  remediation and testing,  including  clock-forward testing which is
being performed on the Corporation's systems and non-IT, are mostly complete for
the Corporation's critical systems. In April 1998, the Corporation announced its
main premium application system,  ALERT, which manages more than 20 million auto
and homeowners policies,  is Year 2000 compliant.  The Corporation is relying on
other   remediation   techniques   for  its  midrange   and  personal   computer
environments, and certain mainframe applications.

     Certain  investment  processing  systems,  midrange  computers and personal
computer  enviornments  are planned to be remediated by the middle of 1999,  and
some systems and non-IT related to discontinued or non-critical functions of the
Corporation are planned to be abandoned by the end of 1999.

     The  Corporation is currently in the process of  identifying  key processes
and developing  contingency plans in the event that the systems supporting these
key  processes  are not  Year  2000  compliant  at the end of  1999.  Management
believes these  contingency  plans should be completed by mid-1999.  Until these
plans are  complete,  management  is unable to determine an estimate of the most
reasonably possible worst case scenario due to issues relating to the Year 2000.

     In addition,  the  Corporation is actively  working with its major external
counterparties  and  suppliers  to  assess  their  compliance  efforts  and  the
Corporation's  exposure to both their Year 2000 issues and non-IT  issues.  This
assessment  has  included  the  solicitation  of  external   counterparties  and
suppliers,  evaluating responses received and testing third party interfaces and
interactions  to determine  compliance.  Currently the Corporation has solicited
approximately  1,500, and has received  responses from  approximately 75% of its
counterparties  and  suppliers.  The  Corporation  will  continue its efforts to
solicit  responses on Year 2000 compliance  from these parties.  The majority of
these responses have stated that the  counterparties  and suppliers believe that
they will be Year 2000  compliant  and that no  transactions  will be  affected.
However,  some key vendors have not provided affirmative  responses to date. The
Corporation has also decided to test certain interfaces and interactions to gain
additional  assurance  on third party  compliance.  If key vendors are unable to
meet the Year 2000 requirement,  the Corporation is preparing  contingency plans
that will allow the  Corporation to continue to sell its products and to service
its customers.  Management  believes these contingency plans should be completed
by mid-1999.  The Corporation currently does not have sufficient  information to
determine whether or not all of its external  counterparties  and suppliers will
be Year 2000 ready.

     The  Corporation  is  currently  assessing  the  level  of Year  2000  risk
associated with certain personal lines policies that have been issued.  To date,
no  changes  have  been  made in the  coverages  provided  by the  Corporation's
personal auto and homeowners lines policies to specifically exclude coverage for
Year 2000 related claims.  This does not mean that all losses, or any particular
type of loss,  that might be related to Year 2000 will be covered.  Rather,  all
claims will  continue  to be  evaluated  on a  case-by-case  basis to  determine
whether  coverage is available  for a  particular  loss in  accordance  with the
applicable terms and conditions of the policy in force.

     The Corporation also has investments which have been publicly and privately
placed.  The  Corporation  may be exposed to the risk that the  issuers of these
investments  will be  adversely  impacted by Year 2000 issues.  The  Corporation
assesses the impact which Year 2000 issues have on the Corporation's investments
as part of due diligence for proposed new investments, and in its ongoing review
of all current  portfolio  holdings.  Any  recommended  actions  with respect to
individual  investments  are  determined  by taking into  account the  potential
impact of Year 2000 on the issuer.  Contingency  plans are being created for any
securities held whose issuer is determined to not be Year 2000 compliant.

                                       11

<PAGE>


     The Corporation presently believes that it will resolve the Year 2000 issue
in a timely  manner.  Year 2000 costs are  expensed as incurred,  therefore  the
majority  of the  expenses  related to this  project  have been  incurred  as of
December 31, 1998. The Corporation  estimates that approximately $125 million in
costs will be incurred between the years of 1995 and 2000. These amounts include
costs directly  related to fixing Year 2000 issues,  such as modifying  software
and hiring Year 2000  solution  providers.  These  amounts  also  include  costs
incurred  to replace  certain  non-compliant  systems  which would not have been
otherwise replaced.  A portion of these costs will be incurred by the Company on
a pro rata  basis  of  usage of the  computer-related  systems  and  non-IT,  as
compared  to the usage of all  entities  which  share  these  services  with the
Corporation.  These  amounts  are not  expected to be material to the results of
operations of the Company.


PENDING ACCOUNTING STANDARDS

      In December  1997,  the Accounting  Standards  Executive  Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position  ("SOP")  97-3,  "Accounting  by Insurance  and Other  Enterprises  for
Insurance-related  Assessments."  The SOP is required to be adopted in 1999. The
SOP  provides   guidance   concerning   when  to   recognize  a  liability   for
insurance-related  assessments  and how those  liabilities  should be  measured.
Specifically,  insurance-related assessments should be recognized as liabilities
when all of the  following  criteria  have been met: 1) an  assessment  has been
imposed or it is  probable  that an  assessment  will be  imposed,  2) the event
obligating an entity to pay an assessment  has occurred and 3) the amount of the
assessment can be reasonably estimated.  The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying  alternatives  for  estimating  the  accrual.  In  addition,
industry  groups are working to improve the information  available.  Adoption of
this  standard is not  expected to be material to the results of  operations  or
financial position of the Company.


FORWARD-LOOKING STATEMENTS

      The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking  statements that are based on
management's  estimates,  assumptions and  projections.  The Private  Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.

                                       12

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The pertinent  provisions of  Management's  Discussion and Analysis of Financial
Condition and Results of Operations on pages 8 to 9 are herein  incorporated  by
reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements filed with this Report.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.
 
No disclosure required by this Item.



                                       13
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a) DOCUMENTS FILED AS PART OF THIS REPORT

     1. FINANCIAL STATEMENTS. The Registrants financial statements, for the year
ended December 31, 1998, together with the Report of Independent Accountants are
set forth on pages F-1 - F-16 of this report.

     2. FINANCIAL STATEMENT SCHEDULES.  The following are included in Part IV of
this report:

     Schedule IV - Reinsurance page F-17

     All other  schedules  have been omitted  because they are not applicable or
not required or because the required  information  is included in the  financial
statements or notes thereto.

     3.  EXHIBITS.  The exhibits  required to be filed by Item 601 of Regulation
S-K are listed under the caption "Exhibits" in Item 14(c).

     (b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed for the quarter ended December 31, 1998.

     (c) EXHIBITS

Exhibit No.    Description

3(i)           Amended and Restated Articles of Incorporation and Articles of
               Redomestication of Northbrook Life Insurance Company 
               (filed herewith)

3(ii)          Amended and Restated By-laws of Northbrook Life Insurance 
               Company (filed herewith)

27             Financial Data Schedule (filed herewith)


                                       14
<PAGE>




                              Financial Statements

                                     Index
                                     -----

                                                                            Page
                                                                            ----

Independent Auditors' Report............................................... F-1

Financial Statements:


     Statements of Financial Position
      December 31, 1998 and 1997........................................... F-2

     Statements of Operations and Comprehensive Income for the Years Ended
      December 31, 1998, 1997 and 1996..................................... F-3

     Statements of Shareholder's Equity for the Years Ended
      December 31, 1998, 1997 and 1996..................................... F-4

     Statements of Cash Flows for the Years Ended
      December 31, 1998, 1997 and 1996..................................... F-5

     Notes to Financial Statements......................................... F-6

     Schedule IV - Reinsurance for the Years Ended
      December 31, 1998, 1997 and 1996..................................... F-17

 


                                      15
<PAGE>

                                              







INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:

We have audited the accompanying  Statements of Financial Position of Northbrook
Life Insurance Company (the "Company", an affiliate of The Allstate Corporation)
as of December 31, 1998 and 1997,  and the related  Statements of Operations and
Comprehensive Income,  Shareholder's Equity and Cash Flows for each of the three
years in the period ended December 31, 1998.  Our audits also included  Schedule
IV - Reinsurance.  These financial  statements and financial  statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  and  financial  statement
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of the  Company as of December  31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the  period  ended  December  31,  1998 in  conformity  with  generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial  statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.




/s/ Deloitte & Touche LLP

Chicago, Illinois
February 19, 1999

                                      F-1

<PAGE>
                                       F-2



<TABLE>
<CAPTION>


                                       NORTHBROOK LIFE INSURANCE COMPANY
                                        STATEMENTS OF FINANCIAL POSITION

                                                                                         December 31,
                                                                                         ------------
($ in thousands)                                                                       1998        1997
                                                                                       ----        ----
<S>                                                                                <C>          <C>    

ASSETS
Investments
    Fixed income securities, at fair value
       (amortized cost $81,156 and $72,491)                                        $   86,336   $   76,402
    Short-term                                                                          5,083        3,031
                                                                                   ----------   ----------
    Total investments                                                                  91,419       79,433

Reinsurance recoverable from Allstate Life
    Insurance Company                                                               2,148,091    2,293,094
Receivable from affiliates, net                                                          --          1,467
Other assets                                                                            8,206        5,033
Separate Accounts                                                                   7,031,083    5,719,203
                                                                                   ----------   ----------   
    TOTAL ASSETS                                                                   $9,278,799   $8,098,230
                                                                                   ==========   ==========

LIABILITIES
Reserve for life-contingent contract benefits                                      $  145,055   $  144,352
Contractholder funds                                                                2,003,122    2,148,555
Current income taxes payable                                                            1,830          162
Deferred income taxes                                                                   3,316        2,674
Payable to affiliates, net                                                              6,586         --
Separate Accounts                                                                   7,031,083    5,719,203
                                                                                   ----------   ----------   
    TOTAL LIABILITIES                                                               9,190,992    8,014,946
                                                                                   ----------   ----------   

COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10)

SHAREHOLDER'S EQUITY
Common stock, $100 par value, 25,000 shares
  authorized, issued and outstanding                                                    2,500        2,500
Additional capital paid-in                                                             56,600       56,600
Retained income                                                                        25,340       21,642

Accumulated other comprehensive income:
  Unrealized net capital gains                                                          3,367        2,542
                                                                                   ----------   ----------   
    Total accumulated other comprehensive income                                        3,367        2,542
                                                                                   ----------   ----------   
    TOTAL SHAREHOLDER'S EQUITY                                                         87,807       83,284
                                                                                   ----------   ----------   
    TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                                     $9,278,799   $8,098,230
                                                                                   ==========   ==========

<FN>

See notes to financial statements.

</FN>
</TABLE>



<PAGE>
                                       F-3




<TABLE>
<CAPTION>


                        NORTHBROOK LIFE INSURANCE COMPANY
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                                                                                    Year Ended December 31,
                                                                                    -----------------------
($ in thousands)                                                                 1998        1997       1996
                                                                                 ----        ----       ----
<S>                                                                             <C>        <C>        <C>     

REVENUES
Net investment income                                                           $ 5,691    $ 5,146    $ 4,888
Realized capital gains and losses                                                     2        (68)       (20)
                                                                                -------    -------    -------
                                                                                                                            
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE                                  5,693      5,078      4,868
Income tax expense                                                                1,995      1,756      1,666
                                                                                -------    -------    -------    

NET INCOME                                                                        3,698      3,322      3,202
                                                                                -------    -------    -------    

OTHER COMPREHENSIVE INCOME, AFTER-TAX
  Change in unrealized net capital gains and losses                                 825      1,256     (1,371)
                                                                                -------    -------    -------    

COMPREHENSIVE INCOME                                                            $ 4,523    $ 4,578    $ 1,831
                                                                                =======    =======    =======

<FN>

See notes to financial statements.

</FN>
</TABLE>


<PAGE>
                                       F-4



<TABLE>
<CAPTION>

                        NORTHBROOK LIFE INSURANCE COMPANY
                       STATEMENTS OF SHAREHOLDER'S EQUITY



                                                                                      December 31,
                                                                                      ------------  
($ in thousands)                                                               1998      1997        1996
                                                                               ----      ----        ----
<S>                                                                          <C>        <C>        <C>    

COMMON STOCK                                                                 $  2,500   $  2,500   $  2,500
                                                                             --------   --------   --------

ADDITIONAL CAPITAL PAID-IN                                                     56,600     56,600     56,600
                                                                             --------   --------   --------    

RETAINED INCOME
Balance, beginning of year                                                     21,642     18,320     15,118
Net income                                                                      3,698      3,322      3,202
                                                                             --------   --------   --------    
Balance, end of year                                                           25,340     21,642     18,320
                                                                             --------   --------   --------    

ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year                                                      2,542      1,286      2,657
Change in unrealized net capital gains and losses                                 825      1,256     (1,371)
                                                                             --------   --------   -------- 
Balance, end of year                                                            3,367      2,542      1,286
                                                                             --------   --------   --------    

     Total shareholder's equity                                              $ 87,807   $ 83,284   $ 78,706
                                                                             ========   ========   ========


<FN>

See notes to financial statements.

</FN>
</TABLE>


<PAGE>
                                       F-5



<TABLE>
<CAPTION>

                        NORTHBROOK LIFE INSURANCE COMPANY
                            STATEMENTS OF CASH FLOWS


                                                              Year Ended December 31,
                                                              -----------------------
  ($ in thousands)                                          1998       1997         1996
                                                            ----       ----         ----
<S>                                                       <C>         <C>         <C>    

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                $  3,698    $  3,322    $  3,202
Adjustments to reconcile net income to net
  cash provided by operating activities
       Depreciation, amortization and
         other non-cash items                                  518         516         782
       Realized capital gains and losses                        (2)         68          20
       Changes in:
        Life-contingent contract benefits and
          contractholder funds                                 273         205        (198)
        Income taxes payable                                 1,866        (480)        346
        Other operating assets and liabilities               4,126        (264)        542
                                                          --------    --------    --------
          Net cash provided by operating activities         10,479       3,367       4,694
                                                          --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
       Proceeds from sales                                   1,922       1,606       3,522
       Investment collections                               10,253      10,036       5,770
       Investment purchases                                (20,690)    (18,568)    (15,532)
Change in short-term investments, net                       (1,964)      3,559       1,459
                                                          --------    --------    --------
          Net cash used in investing activities            (10,479)     (3,367)     (4,781)
                                                          --------    --------    --------

NET DECREASE IN CASH                                          --          --           (87)
CASH AT THE BEGINNING OF YEAR                                 --          --            87
                                                          --------    --------    --------
CASH AT END OF YEAR                                       $   --      $   --      $     --
                                                          ========    ========    ========

<FN>
        See notes to financial statements.

</FN>
</TABLE>



<PAGE>
                                       F-6


                        NORTHBROOK LIFE INSURANCE COMPANY
                          NOTES TO FINANCIAL STATEMENTS
                                ($ IN THOUSANDS)

1.    GENERAL

BASIS OF PRESENTATION
The accompanying  financial  statements  include the accounts of Northbrook Life
Insurance  Company (the  "Company"),  a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"),  which is wholly owned by Allstate Insurance Company
("AIC"),   a  wholly  owned   subsidiary  of  The  Allstate   Corporation   (the
"Corporation"). These financial statements have been prepared in conformity with
generally accepted accounting principles.

To conform  with the 1998  presentation,  certain  amounts  in the prior  years'
financial statements and notes have been reclassified.

NATURE OF OPERATIONS  
The Company markets savings products and life insurance exclusively through Dean
Witter Reynolds Inc. ("Dean Witter") (see Note 4), a wholly owned  subsidiary of
Morgan Stanley Dean Witter. Savings products include deferred annuities, such as
variable  annuities and fixed rate single and flexible  premium  annuities,  and
immediate  annuities.  Life insurance  includes universal life and variable life
products.  In 1998,  substantially all of the Company's  statutory  premiums and
deposits were from annuities.  The Company  re-domesticated  its operations from
Illinois to Arizona in 1998.

Annuity contracts and life insurance  policies issued by the Company are subject
to  discretionary  surrenders or withdrawal by customers,  subject to applicable
surrender  charges.  These  policies and contracts are reinsured  primarily with
ALIC (see Note 3),  which  invests  premiums  and deposits to provide cash flows
that will be used to fund future benefits and expenses.

The  Company  monitors  economic  and  regulatory  developments  which  have the
potential to impact its  business.  There  continues to be proposed  federal and
state  regulation  and  legislation  that, if passed,  would allow banks greater
participation in securities and insurance businesses.  Such events would present
an  increased  level  of  competition  for  sales  of  the  Company's  products.
Furthermore,  the market for  deferred  annuities  and  interest-sensitive  life
insurance is enhanced by the tax  incentives  available  under  current law. Any
legislative  changes  which lessen  these  incentives  are likely to  negatively
impact the demand for these products.

Additionally,  traditional  demutualizations  of mutual insurance  companies and
enacted and pending state  legislation to permit mutual  insurance  companies to
convert to a hybrid  structure  known as a mutual  holding  company could have a
number  of  significant  effects  on  the  Company  by (1)  increasing  industry
competition through  consolidation caused by mergers and acquisitions related to
the new  corporate  form of  business;  and (2)  increasing  competition  in the
capital markets.

The Company is authorized to sell life and savings products in all states except
New York,  as well as in the  District  of  Columbia  and Puerto  Rico.  The top
geographic  locations  for  statutory  premiums and deposits for the Company are
California,  Florida and Texas for the year ended  December 31,  1998.  No other
jurisdiction  accounted  for more than 5% of statutory  premiums  and  deposits.
Substantially  all premiums  and  deposits  are ceded to ALIC under  reinsurance
agreements.

<PAGE>
                                       F-7

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS   
Fixed income securities include bonds and mortgage-backed  securities. All fixed
income  securities  are  carried  at fair  value and may be sold  prior to their
contractual  maturity  ("available for sale").  The difference between amortized
cost and fair value,  net of deferred  income taxes, is reflected as a component
of shareholder's equity.  Provisions are recognized for declines in the value of
fixed income  securities  that are other than  temporary.  Such  writedowns  are
included  in  realized  capital  gains and losses.  Short-term  investments  are
carried at cost or amortized cost, which approximates fair value.

Investment  income  consists  primarily of interest and  dividends on short-term
investments.  Interest  is  recognized  on an accrual  basis and  dividends  are
recorded at the ex-dividend date. Interest income on mortgage-backed  securities
is determined on the effective  yield method,  based on the estimated  principal
repayments.  Accrual of income is suspended for fixed income securities that are
in  default or when the  receipt  of  interest  payments  is in doubt.  Realized
capital gains and losses are determined on a specific identification basis.

REINSURANCE
The Company has  reinsurance  agreements  whereby  substantially  all  premiums,
contract charges,  credited  interest,  policy benefits and certain expenses are
ceded to  ALIC.  Such  amounts  are  reflected  net of such  reinsurance  in the
statements  of operations  and  comprehensive  income.  The amounts shown in the
Company's  statements  of  operations  and  comprehensive  income  relate to the
investment  of  those  assets  of the  Company  that are not  transferred  under
reinsurance  agreements.  Reinsurance  recoverable  and the related  reserve for
life-contingent   contract  benefits  and  contractholder   funds  are  reported
separately in the  statements of financial  position.  The Company  continues to
have primary liability as the direct insurer for risks reinsured.

RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal  life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment  contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract  balance.  All premium  revenues and contract charges are primarily
reinsured with ALIC.

INCOME TAXES
The income tax provision is calculated  under the liability method and presented
net of  reinsurance.  Deferred tax assets and  liabilities are recorded based on
the  difference  between  the  financial  statement  and tax bases of assets and
liabilities  at  the  enacted  tax  rates.  Deferred  income  taxes  arise  from
unrealized  capital gains and losses on fixed income securities  carried at fair
value and differences in the tax bases of investments.

<PAGE>
                                       F-8


SEPARATE ACCOUNTS
The Company issues flexible premium deferred  variable annuity and variable life
policies,  the  assets  and  liabilities  of which are  legally  segregated  and
reflected in the  accompanying  statements  of financial  position as assets and
liabilities of the Separate  Accounts.  The Company's  Separate Accounts consist
of: Northbrook Variable Annuity Account,  Northbrook Variable Annuity Account II
and  Northbrook  Life  Variable  Life  Separate  Account A. Each of the Separate
Accounts are unit investment  trusts registered with the Securities and Exchange
Commission.

The assets of the Separate Accounts are carried at fair value. Investment income
and realized  capital gains and losses of the Separate  Accounts accrue directly
to the  contractholders  and,  therefore,  are  not  included  in the  Company's
statements of operations and comprehensive income.  Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance  charges,  all of which
are reinsured with ALIC.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent  contract benefits,  which relates to structured
settlement  annuities  with  life  contingencies,  is  computed  on the basis of
assumptions as to future investment yields, mortality,  morbidity,  terminations
and expenses.  These  assumptions  include  provisions for adverse deviation and
generally vary by such  characteristics  as type of coverage,  year of issue and
policy duration. Reserve interest rates ranged from 4.00% to 11.00% during 1998.

CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment  component,  including most fixed annuities
and universal life policies.  Payments received are recorded as interest-bearing
liabilities.  Contractholder  funds are equal to deposits  received and interest
credited  to the  benefit  of the  contractholder  less  withdrawals,  mortality
charges and  administrative  expenses.  During 1998,  credited interest rates on
contractholder  funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.25% to 6.50% for those with flexible rates.

USE OF ESTIMATES
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

NEW ACCOUNTING STANDARDS
In 1998,  the  Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS") No. 130, "Reporting  Comprehensive  Income."  Comprehensive income is a
measurement  of  certain  changes  in  shareholder's  equity  that  result  from
transactions   and  other   economic   events  other  than   transactions   with
shareholders.  For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 9).

In 1998,  the Company  adopted SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information."  SFAS No. 131  redefines how segments are
determined  and  requires  additional  segment  disclosures  for both annual and
interim  financial  reporting.  The  Company has  identified  itself as a single
operating segment.

<PAGE>
                                       F-9


PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting  Standards  Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP")   97-3,   "Accounting   by   Insurance   and   Other   Enterprises   for
Insurance-related  Assessments."  The SOP is required to be adopted in 1999. The
SOP  provides   guidance   concerning   when  to   recognize  a  liability   for
insurance-related  assessments  and how those  liabilities  should be  measured.
Specifically,  insurance-related assessments should be recognized as liabilities
when all of the  following  criteria  have been met: 1) an  assessment  has been
imposed or it is  probable  that an  assessment  will be  imposed,  2) the event
obligating an entity to pay an assessment  has occurred and 3) the amount of the
assessment can be reasonably estimated.  The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying  alternatives  for  estimating  the  accrual.  In  addition,
industry  groups are working to improve the information  available.  Adoption of
this  standard is not  expected to be material to the results of  operations  or
financial position of the Company.


3.    RELATED PARTY TRANSACTIONS

REINSURANCE
The Company has  reinsurance  agreements  whereby  substantially  all  premiums,
contract charges,  credited  interest,  policy benefits and certain expenses are
ceded  to ALIC  and  reflected  net of such  reinsurance  in the  statements  of
operations  and  comprehensive  income.  The  amounts  shown  in  the  Company's
statements of operations  and  comprehensive  income relate to the investment of
those  assets  of  the  Company  that  are  not  transferred  under  reinsurance
agreements.  Reinsurance recoverable and the related reserve for life-contingent
contract  benefits  and  contracholder  funds  are  reported  separately  in the
statements  of  financial  position.  The  Company  continues  to  have  primary
liability as the direct insurer for risks reinsured.

Investment  income earned on the assets which support  contractholder  funds and
the  reserve  for  life-contingent  contract  benefits  is not  included  in the
Company's  financial  statements as those assets are owned and managed under the
terms of reinsurance agreements.  The following amounts were ceded to ALIC under
reinsurance agreements.

                                           YEAR ENDED DECEMBER 31,
                                           -----------------------
($ in thousands)                         1998      1997       1996
                                         ----      ----       ----

Premiums                              $  2,528   $  1,979   $  3,775
Contract charges                       102,218     83,559     60,744
Credited interest, policy benefits,
     and certain expenses              217,428    201,526    218,088


BUSINESS  OPERATIONS 
The Company utilizes services  provided by AIC and ALIC and business  facilities
owned or leased, and operated by AIC in conducting its business activities.  The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided.  Operating expenses,
including  compensation and retirement and other benefit programs,  allocated to
the  Company  were  $26,230,  $23,978  and  $26,583  in  1998,  1997  and  1996,
respectively.  Of these costs, the Company retains  investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.

<PAGE>
                                       F-10


4.  EXCLUSIVE DISTRIBUTION AGREEMENT

The  Company  and ALIC have a  strategic  alliance  with Dean Witter to develop,
market and distribute  proprietary  annuity and life insurance  products through
Morgan Stanley Dean Witter Financial Advisors. Affiliates of Dean Witter are the
investment  managers  for the Morgan  Stanley  Dean Witter  Variable  Investment
Series, Morgan Stanley Universal Funds, Inc. and the Van Kampen American Capital
Life Investment  Trust,  the funds in which the assets of the Separate  Accounts
are invested.

Under the terms of the  strategic  alliance,  the Company has agreed to use Dean
Witter as an  exclusive  distribution  channel for the  Company's  products.  In
addition to the Company's  products,  Dean Witter  markets other  products which
compete with those of the  Company.  The  strategic  alliance is  cancelable  by
either party,  however, the Company believes the benefits derived by Dean Witter
will preserve the alliance.  If Dean Witter would choose to cancel the alliance,
existing contracts and policies would not be affected.


5.  INVESTMENTS

FAIR VALUES
The amortized cost, gross unrealized gains and losses,  and fair value for fixed
income securities are as follows:

<TABLE>
<CAPTION>

                                                              GROSS UNREALIZED  
                                                            --------------------
                                                   AMORTIZED                         FAIR
                                                     COST      GAINS     LOSSES      VALUE
                                                  ----------   -------   -------    -------
<S>                                                  <C>       <C>       <C>        <C>    

AT DECEMBER 31, 1998
U.S. government and agencies                         $ 8,648   $ 1,469   $    --    $10,117
Municipal                                                590        11        --        601
Corporate                                             33,958     1,634       (16)    35,576
Mortgage-backed securities                            37,960     2,250      (168)    40,042
                                                     -------   -------   -------    -------   
     Total fixed income securities                   $81,156   $ 5,364   $  (184)   $86,336
                                                     =======   =======   =======    =======

AT DECEMBER 31, 1997
U.S. government and agencies                         $ 8,638   $   823   $    --    $ 9,461
Municipal                                              1,143        28        --      1,171
Corporate                                             25,913       897       (12)    26,798
Mortgage-backed securities                            36,797     2,315      (140)    38,972
                                                     -------   -------   -------    -------   
     Total fixed income securities                   $72,491   $ 4,063   $  (152)   $76,402
                                                     =======   =======   =======    =======
</TABLE>

<PAGE>
                                       F-11


SCHEDULED MATURITIES
The scheduled  maturities for fixed income securities are as follows at December
31, 1998:

                                                    AMORTIZED    FAIR
                                                      COST      VALUE

Due in one year or less                              $ 1,443   $ 1,452
Due after one year through five years                  7,546     7,950
Due after five years through ten years                26,008    27,429
Due after ten years                                    8,199     9,463
                                                     -------   -------   
                                                      43,196    46,294
Mortgage-backed securities                            37,960    40,042
                                                     -------   -------   
      Total                                          $81,156   $86,336
                                                     =======   =======

Actual  maturities may differ from those scheduled as a result of prepayments by
the issuers.


NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31,                             1998      1997        1996
                                                    ----      ----        ----

Fixed income securities                            $ 5,616   $ 5,364    $ 4,675
Short-term investments                                 190        84        390
                                                   -------   -------    -------
    Investment income, before expense                5,806     5,448      5,065
    Investment expense                                 115       302        177
                                                   -------   -------    -------
    Net investment income                          $ 5,691   $ 5,146    $ 4,888
                                                   =======   =======    =======

REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31,                             1998      1997       1996
                                                    ----      ----       ----

Fixed income securities                            $     2   $   (70)   $   (22)
Short-term investments                                  --         2          2
                                                   -------   -------    -------
    Realized capital gains and losses                    2       (68)       (20)
    Income tax                                          (1)       24          7
                                                   -------   -------    -------
    Realized capital gains and losses, after tax   $     1   $   (44)   $   (13)
                                                   =======   =======    =======

Excluding calls and  prepayments,  gross losses of $9, $70 and $32 were realized
on sales of fixed income securities during 1998, 1997 and 1996, respectively.

<PAGE>
                                       F-12


UNREALIZED NET CAPITAL GAINS
Unrealized   net  capital   gains  on  fixed  income   securities   included  in
shareholder's equity at December 31, 1998 are as follows:

<TABLE>
<CAPTION>

                                 COST/
                               AMORTIZED     FAIR      GROSS UNREALIZED     UNREALIZED
                                 COST        VALUE      GAINS     LOSSES     NET GAINS
                               --------    --------   --------   --------    --------
<S>                            <C>         <C>        <C>        <C>         <C>    

Fixed income securities        $ 81,156    $ 86,336   $  5,364   $   (184)   $  5,180
                               ========    ========   ========   ========
Deferred income taxes                                                          (1,813)
                                                                             --------
Unrealized net capital gains                                                 $  3,367
                                                                             ========

</TABLE>

CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31,                    1998       1997       1996
                                          -------    -------    -------

  Fixed income securities                 $ 1,269    $ 1,932    $(2,108)
  Deferred income taxes                      (444)      (676)       737
                                          -------    -------    -------
  Increase (decrease) in unrealized net
   capital gains                          $   825    $ 1,256    $(1,371)
                                          =======    =======    =======


SECURITIES ON DEPOSIT
At December 31, 1998,  fixed income  securities  with a carrying value of $9,188
were on deposit with regulatory authorities as required by law.

6.    FINANCIAL INSTRUMENTS

In the normal  course of  business,  the  Company  invests in various  financial
assets and incurs various  financial  liabilities.  The fair value  estimates of
financial  instruments  presented  below are not  necessarily  indicative of the
amounts  the  Company  might  pay or  receive  in  actual  market  transactions.
Potential  taxes  and  other  transaction  costs  have  not been  considered  in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole  since a number of the  Company's  significant  assets
(including   reinsurance   recoverable)  and  liabilities  (including  universal
life-type  insurance  reserves and  deferred  income  taxes) are not  considered
financial  instruments  and are not  carried  at fair  value.  Other  assets and
liabilities considered financial instruments, such as accrued investment income,
are  generally  of a short-term  nature.  Their  carrying  values are assumed to
approximate fair value.

FINANCIAL ASSETS
The  carrying  value and fair value of  financial  assets at December 31, are as
follows:

                                  1998                      1997
                                  ----                      ----
                           CARRYING       FAIR       CARRYING      FAIR
                            VALUE         VALUE        VALUE       VALUE
                            -----         -----        -----       -----

Fixed income securities   $   86,336   $   86,336   $   76,402   $   76,402
Short-term investments         5,083        5,083        3,031        3,031
Separate Accounts          7,031,083    7,031,083    5,719,203    5,719,203

<PAGE>
                                       F-13


Fair values for fixed income  securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid  investments  with  maturities of less than one year whose carrying value
approximates fair value.  Separate Accounts assets are carried in the statements
of financial position at fair value based on quoted market prices.


FINANCIAL LIABILITIES
The carrying  value and fair value of financial  liabilities at December 31, are
as follows:
                                    1998                      1997
                                    ----                      ----
                             CARRYING      FAIR        CARRYING      FAIR
                              VALUE        VALUE         VALUE       VALUE
                              -----        -----         -----       -----
Contractholder funds on
     investment contracts   $1,839,114   $1,814,684   $1,977,479   $1,951,214
Separate Accounts            7,031,083    7,031,083    5,719,203    5,719,203

The fair value of contractholder  funds on investment  contracts is based on the
terms of the  underlying  contracts.  Reserves on investment  contracts  with no
stated maturities  (single premium and flexible premium deferred  annuities) are
valued  at the  account  balance  less  surrender  charges.  The  fair  value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated  using  discounted  cash flow  calculations  based on  interest  rates
currently  offered for  contracts  with similar  terms and  durations.  Separate
Accounts liabilities are carried at the fair value of the underlying assets.


7.    INCOME TAXES

The Company joins the Corporation and its other eligible  domestic  subsidiaries
(the "Allstate Group") in the filing of a consolidated federal income tax return
and is party to a federal  income tax  allocation  agreement  (the "Allstate Tax
Sharing Agreement").  Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the  Corporation  the amount,  if any, by which the Allstate
Group's  federal  income tax liability is affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this results
in the Company's annual income tax provision being computed,  with  adjustments,
as if the Company filed a separate return.

Prior to Sears, Roebuck and Co.'s ("Sears")  distribution ("Sears distribution")
on  June  30,  1995  of  its  80.3%   ownership  in  the  Corporation  to  Sears
shareholders,  the Allstate  Group  joined with Sears and its domestic  business
units (the "Sears  Group") in the filing of a  consolidated  federal  income tax
return  (the  "Sears  Tax  Group")  and were  parties  to a federal  income  tax
allocation  agreement  (the "Tax  Sharing  Agreement").  Under  the Tax  Sharing
Agreement,  the Company,  through the Corporation,  paid to or received from the
Sears Group the amount,  if any, by which the Sears Tax Group's  federal  income
tax  liability  was  affected  by  virtue of  inclusion  of the  Company  in the
consolidated federal income tax return.

<PAGE>
                                       F-14


As a result of the Sears distribution, the Allstate Group was no longer included
in  the  Sears  Tax  Group,  and  the  Tax  Sharing  Agreement  was  terminated.
Accordingly,  the Allstate  Group and Sears Group entered into a new tax sharing
agreement,  which adopts many of the principles of the Tax Sharing Agreement and
governs their  respective  rights and obligations with respect to federal income
taxes for all periods prior to the Sears  distribution,  including the treatment
of audits of tax returns for such periods.

The Internal  Revenue  Service  ("IRS") has completed its review of the Allstate
Group's  federal  income tax returns  through the 1993 tax year.  Any adjustment
that may result from IRS  examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.

The components of the deferred income tax assets and liabilities at December 31,
are as follows:

                                              1998       1997 
                                              ----       ---- 

DEFERRED ASSETS
    Separate Accounts                        $  --      $   149
                                             -------    -------

DEFERRED LIABILITIES
    Difference in tax bases of investments    (1,503)    (1,454)
    Unrealized net capital gains              (1,813)    (1,369)
                                             -------    -------
         Total deferred liabilities           (3,316)    (2,823)
                                             -------    -------
         Net deferred liability              $(3,316)   $(2,674)
                                             =======    =======

The  components  of income tax  expense for the year ended  December  31, are as
follows:

                                 1998     1997       1996
                                 ----     ----       ----

Current                        $ 1,797   $ 1,843    $ 1,642
Deferred                           198       (87)        24
                               -------   -------    -------
    Total income tax expense   $ 1,995   $ 1,756    $ 1,666
                               =======   =======    =======

The Company paid income taxes of $129, $2,236 and $2,308 in 1998, 1997 and 1996,
respectively.  The Company had a current income tax liability of $1,830 and $162
at December 31, 1998 and 1997, respectively.

<PAGE>
                                       F-15


A  reconciliation  of the  statutory  federal  income tax rate to the  effective
income tax rate on income from  operations for the year ended December 31, is as
follows:

                                        1998        1997      1996
                                       ------      ------    ------

Statutory federal income tax rate       35.0%      35.0%      35.0%
Tax-exempt income                       (0.2)      (0.4)      (0.6)
Other                                    0.2        --        (0.2)
                                       ------     ------     ------
Effective income tax rate               35.0%      34.6%      34.2%
                                       ======     ======     ======

Prior to January 1, 1984,  the Company was entitled to exclude  certain  amounts
from taxable  income and  accumulate  such amounts in a  "policyholder  surplus"
account.  The balance in this account at December 31, 1998,  approximately  $16,
will result in federal income taxes payable of $6 if distributed by the Company.
No  provision  for taxes has been made as the Company has no plan to  distribute
amounts  from this  account.  No  further  additions  to the  account  have been
permitted since the Tax Reform Act of 1984.

8.       STATUTORY FINANCIAL INFORMATION

PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company  prepares its statutory  financial  statements  in  accordance  with
accounting  principles  and  practices  prescribed  or  permitted by the Arizona
Department of Insurance.  Prescribed  statutory  accounting  practices include a
variety of publications of the National  Association of Insurance  Commissioners
("NAIC"), as well as state laws,  regulations and general  administrative rules.
Permitted statutory  accounting practices encompass all accounting practices not
so prescribed.  The Company does not follow any permitted  statutory  accounting
practices that have a significant  impact on statutory  surplus or statutory net
income.

The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting  principles.  While the NAIC has approved a January 1, 2001
implementation date for the newly developed  guidance,  companies must adhere to
the implementation date adopted by their state of domicile.  The Company's state
of domicile,  Arizona,  is continuing its comparison of codification and current
statutory  accounting  requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.

<PAGE>
                                       F-16


DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder  dividends by the Company without the prior approval of the state
insurance  regulator  is  limited  to  formula  amounts  based on net income and
capital  and  surplus,   determined  in  accordance  with  statutory  accounting
practices,  as well as the timing and amount of dividends  paid in the preceding
twelve  months.  The maximum amount of dividends that the Company can distribute
during 1999 without  prior  approval of the Arizona  Department  of Insurance is
$3,518.

9.    OTHER COMPREHENSIVE INCOME

The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:

<TABLE>
<CAPTION>


                                                 1998                            1997                           1996
                                 --------------------------------    ----------------------------  -----------------------------
                                                           After-                         After-                         After-
                                     Pretax      Tax        tax      Pretax      Tax       tax      Pretax       Tax      tax
                                     ------      ---        ---      ------      ---       ---      ------       ---      ---
<S>                                 <C>        <C>        <C>        <C>       <C>        <C>       <C>        <C>       <C>

Unrealized capital gains
 and losses:
---------------------------------
Unrealized holding gains
   (losses) arising during
   the period                       $ 1,271    $  (445)   $   826    $ 1,862   $  (652)   $ 1,210   $(2,130)   $   745   $(1,385)
Less:  reclassification
   adjustment for realized
   net capital gains
   included in net income                 2         (1)         1        (70)       24        (46)      (22)         8       (14)
                                    -------    -------    -------    -------   -------    -------   -------    -------   -------
Unrealized net capital
   gains (losses)                     1,269       (444)       825      1,932      (676)     1,256    (2,108)       737    (1,371)
                                    -------    -------    -------    -------   -------    -------   -------    -------   -------
Other comprehensive
   income                           $ 1,269    $  (444)   $   825    $ 1,932   $  (676)   $ 1,256   $(2,108)   $   737   $(1,371)
                                    =======    =======    =======    =======   =======    =======   =======    =======   =======

</TABLE>


10.      COMMITMENTS AND CONTINGENT LIABILITIES

REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social,  economic
and regulatory  environment.  Public and regulatory  initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from  engaging  in the  securities  and  insurance  business,  tax  law  changes
affecting  the taxation of insurance  companies,  the tax treatment of insurance
products  and its  impact  on the  relative  desirability  of  various  personal
investment  vehicles,  and proposed legislation to prohibit the use of gender in
determining  insurance  rates and  benefits.  The ultimate  changes and eventual
effects, if any, of these initiatives are uncertain.

From time to time the Company is involved in pending and  threatened  litigation
in the normal  course of its business in which  claims for monetary  damages are
asserted. In the opinion of management,  the ultimate liability, if any, arising
from such pending or  threatened  litigation  is not expected to have a material
effect on the results of  operations,  liquidity  or  financial  position of the
Company.



<PAGE>
                                       F-17

                        NORTHBROOK LIFE INSURANCE COMPANY
                            SCHEDULE IV--REINSURANCE
                                ($ IN THOUSANDS)


                                   GROSS                     NET   
YEAR ENDED DECEMBER 31, 1998       AMOUNT      CEDED        AMOUNT
----------------------------       ------      -----        ------

Life insurance in force          $ 494,256   $ 494,256    $   --
                                 =========   =========    =========

Premiums and contract charges:
         Life and annuities      $ 104,746   $ 104,746    $   --
                                 =========   =========    =========


                                   GROSS                     NET   
YEAR ENDED DECEMBER 31, 1998       AMOUNT      CEDED        AMOUNT
----------------------------       ------      -----        ------

Life insurance in force          $ 515,890   $ 515,890    $   --
                                 =========   =========    ========= 
                                                                          
Premiums and contract charges:
         Life and annuities      $  85,538   $  85,538    $   --
                                 =========   =========    =========
 
                                   GROSS                     NET   
YEAR ENDED DECEMBER 31, 1998       AMOUNT      CEDED        AMOUNT
----------------------------       ------      -----        ------


Life insurance in force          $ 556,242   $ 556,242    $   --
                                 =========   =========    ==========

Premiums and contract charges: 
         Life and annuities      $  64,519   $  64,519    $   --
                                 =========   =========    ==========

<PAGE>

                                  SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                        NORTHBROOK LIFE INSURANCE COMPANY


                        By      /s/ LOUIS G. LOWER, II
                                ----------------------
                                Louis G. Lower, II
                                Chairman of the Board,Chief Executive Officer
                                   and Director
                                (Principal Executive Officer)
 
                        Date    March 3, 1999
                                ------------------
  

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

By       /s/ LOUIS G. LOWER, II
         ----------------------
         Louis G. Lower, II
         Chairman of the Board,Chief Executive Officer
           and Director
         (Principal Executive Officer)

Date     March 3, 1999
         ------------------


By       /s/ PETER H. HECKMAN
         ----------------------
         Peter H. Heckman
         President, Chief Operating Officer
           and Director
          

Date     March 4, 1999
         -------------------


By       /s/ MICHAEL J. VELOTTA
         ----------------------
         Michael J. Velotta
         Vice President, Secretary,
           General Counsel and Director

Date     March 3, 1999
         -------------------


By       /s/ KEVIN R. SLAWIN
         --------------------
         Kevin R. Slawin
         Vice President and Director

Date     March 1, 1999
         -------------------


By       /s/ KEITH A. HAUSCHILDT
         ------------------------
         Keith A. Hauschildt
         Assistant Vice President and Controller
         (Chief Accounting Officer)

Date     March 4, 1999
         -------------------

By       /s/ SARAH R. DONAHUE
         --------------------      
         Sarah R. Donahue
         Assistant Vice President and Director

Date     March 8, 1999
         --------------------
 
                                      16
<PAGE>

By       /s/ JOHN R. HUNTER
         ------------------
         John R. Hunter
         Assistant Vice President and Director

Date     March 4, 1999
         --------------------

By       /s/ CASEY J. SYLLA
         --------------------
         Casey J. Sylla
         Chief Investment Officer and Director

Date     March 4, 1999
         --------------------

By       /s/ TIMOTHY N. VANDER PAS
         -------------------------
         Timothy N. Vander Pas
         Assistant Vice President and Director

Date     March 3, 1999
         --------------------

By       /s/ THOMAS J. WILSON, II
         ------------------------
         Thomas J. Wilson, II
         Vice Chairman and Director

Date     March  5, 1999
         --------------------



                                       17
<PAGE>

                                  EXHIBIT INDEX

               The Northbrook Life Insurance Company Form 10-K for
                        the year ended December 31, 1998

Exhibit No.                Description

3(i)         Amended and Restated Articles of Incorporation and Articles of
             Redomestication of Northbrook Life Insurance Company 
             (filed herewith)

3(ii)        Amended and Restated By-laws of Northbrook Life Insurance Company 
             (filed herewith)

27           Financial Data Schedule (filed herewith)




                                      E-1