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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 0-31248

ALLSTATE LIFE INSURANCE COMPANY(Exact name of registrant as specified in its charter)

Illinois(State of Incorporation)

36-2554642(I.R.S. Employer Identification No.)3100 Sanders Road
Northbrook, Illinois(Address of principal executive offices)

60062(Zip Code)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:847/402-5000

INDICATE BY CHECKMARK WHETHER THE REGISTRANT: 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 o NO ý

AS
OF JULY 31, 2002, THE REGISTRANT HAD 23,800 COMMON SHARES, $227 PAR VALUE, OUTSTANDING.

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ALLSTATE LIFE INSURANCE COMPANY

INDEX TO QUARTERLY REPORT ON FORM 10-Q

JUNE 30, 2002

|        |  |                                                                                                                                    |  | PAGE
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                                              |  |     
|Item 1. |  | Financial Statements                                                                                                               |  |     
|        |  | Condensed Consolidated Statements of Operations for the Three Month and Six Month Periods Ended June 30, 2002 and 2001 (unaudited) |  | 1   
|        |  | Condensed Consolidated Statements of Financial Position as of June 30, 2002 (unaudited) and December 31, 2001                      |  | 2   
|        |  | Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2002 and 2001 (unaudited)                 |  | 3   
|        |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 4   
|        |  | Independent Accountants' Review Report                                                                                             |  | 10  
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                              |  | 11  
|PART II |  | OTHER INFORMATION                                                                                                                  |  |     
|Item 1. |  | Legal Proceedings                                                                                                                  |  | 32  
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                   |  | 32  

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                   |  | Three Months Ended
June 30, |       | Six Months Ended
June 30, |  
|------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ----- | ------------------------- | -
|
|
|
|Revenues                                                                                                           |  |                             |       |                           |  
|Premiums                                                                                                           |  | $                           | 266   |                           | $
|Contract charges                                                                                                   |  |                             | 217   |                           |  
|Net investment income                                                                                              |  |                             | 742   |                           |  
|Realized capital gains and losses                                                                                  |  |                             | (32   | )                         |  
|                                                                                                                   |  |                             |       |                           |  
|                                                                                                                   |  |                             | 1,193 |                           |  
|                                                                                                                   |  |                             |       |                           |  
|Costs and expenses                                                                                                 |  |                             |       |                           |  
|Contract benefits                                                                                                  |  |                             | 391   |                           |  
|Interest credited to contractholder funds                                                                          |  |                             | 418   |                           |  
|Amortization of deferred policy acquisition costs                                                                  |  |                             | 105   |                           |  
|Operating costs and expenses                                                                                       |  |                             | 120   |                           |  
|                                                                                                                   |  |                             |       |                           |  
|                                                                                                                   |  |                             | 1,034 |                           |  
|Loss on disposition of operations                                                                                  |  |                             |      |                           |  
|                                                                                                                   |  |                             |       |                           |  
|Income from operations before income tax expense and cumulative effect of change in accounting principle           |  |                             | 159   |                           |  
|Income tax expense                                                                                                 |  |                             | 52    |                           |  
|                                                                                                                   |  |                             |       |                           |  
|Income before cumulative effect of change in accounting principle, after tax                                       |  |                             | 107   |                           |  
|Cumulative effect of change in accounting for derivatives and embedded derivative financial instruments, after-tax |  |                             |      |                           |  
|                                                                                                                   |  |                             |       |                           |  
|Net income                                                                                                         |  | $                           | 107   |                           | $
|                                                                                                                   |  |                             |       |                           |  

See
notes to condensed consolidated financial statements.

1

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ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

|                                                                                                                          |                                                                             | June 30,
2002     |                                              | December 31,
2001 |       
|------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------- | -------------------------------------------- | ----------------- | ------
|
|
|Assets                                                                                                                    |                                                                             |                   |                                              |                   |       
|Investments                                                                                                               |                                                                             |                   |                                              |                   |       
|                                                                                                                          | Fixed income securities, at fair value (amortized cost $39,444 and $35,718) |                   | $                                            | 41,117            |       
|                                                                                                                          | Mortgage loans                                                              |                   |                                              | 5,553             |       
|                                                                                                                          | Equity securities, at fair value (cost $250 and $196)                       |                   |                                              | 243               |       
|                                                                                                                          | Short-term                                                                  |                   |                                              | 1,888             |       
|                                                                                                                          | Policy loans                                                                |                   |                                              | 674               |       
|                                                                                                                          | Other                                                                       |                   |                                              | 164               |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|                                                                                                                          |                                                                             | Total investments |                                              |                   | 49,639
|Cash                                                                                                                      |                                                                             |                   | 185                                          |                   |       
|Deferred policy acquisition costs                                                                                         |                                                                             |                   | 3,057                                        |                   |       
|Reinsurance recoverables, net                                                                                             |                                                                             |                   | 1,000                                        |                   |       
|Accrued investment income                                                                                                 |                                                                             |                   | 550                                          |                   |       
|Other assets                                                                                                              |                                                                             |                   | 204                                          |                   |       
|Separate Accounts                                                                                                         |                                                                             |                   | 12,655                                       |                   |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|                                                                                                                          |                                                                             |                   | Total assets                                 |                   | $     
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|Liabilities                                                                                                               |                                                                             |                   |                                              |                   |       
|Contractholder funds                                                                                                      |                                                                             | $                 | 35,795                                       |                   | $     
|Reserve for life-contingent contract benefits                                                                             |                                                                             |                   | 8,834                                        |                   |       
|Unearned premiums                                                                                                         |                                                                             |                   | 10                                           |                   |       
|Payable to affiliates, net                                                                                                |                                                                             |                   | 75                                           |                   |       
|Other liabilities and accrued expenses                                                                                    |                                                                             |                   | 3,583                                        |                   |       
|Deferred income taxes                                                                                                     |                                                                             |                   | 595                                          |                   |       
|Separate Accounts                                                                                                         |                                                                             |                   | 12,655                                       |                   |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|                                                                                                                          |                                                                             |                   | Total liabilities                            |                   |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|Commitments and Contingent Liabilities (Note 3)                                                                           |                                                                             |                   |                                              |                   |       
|Shareholder's Equity                                                                                                      |                                                                             |                   |                                              |                   |       
|Redeemable preferred stockseries A, $100 par value, 1,500,000 shares authorized, 1,035,610 shares issued and outstanding |                                                                             |                   | 104                                          |                   |       
|Redeemable preferred stockseries A subscriptions receivable                                                              |                                                                             |                   |                                             |                   |       
|Common stock, $227 par value, 23,800 shares authorized and outstanding                                                    |                                                                             |                   | 5                                            |                   |       
|Additional capital paid-in                                                                                                |                                                                             |                   | 867                                          |                   |       
|Retained income                                                                                                           |                                                                             |                   | 4,097                                        |                   |       
|Accumulated other comprehensive income:                                                                                   |                                                                             |                   |                                              |                   |       
|                                                                                                                          | Unrealized net capital gains and losses                                     |                   |                                              | 669               |       
|                                                                                                                          | Unrealized foreign currency translation adjustments                         |                   |                                              | 1                 |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|                                                                                                                          |                                                                             |                   | Total accumulated other comprehensive income |                   |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|                                                                                                                          |                                                                             |                   | Total shareholder's equity                   |                   |       
|                                                                                                                          |                                                                             |                   |                                              |                   |       
|                                                                                                                          |                                                                             |                   | Total liabilities and shareholder's equity   |                   | $     
|                                                                                                                          |                                                                             |                   |                                              |                   |       

See
notes to condensed consolidated financial statements.

2

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ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                                        | Six Months Ended
June 30,                     |                                          
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | --------------------------------------------- | -----------------------------------------
|
|
|
|Cash flows from operating activities                 |                                                                                                        |                                               |                                          
|Net income                                           |                                                                                                        | $                                             | 194                                      
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities:                      |                                               |                                          
|                                                     | Amortization and other non-cash items                                                                  |                                               |                                          
|                                                     | Realized capital gains and losses                                                                      |                                               |                                          
|                                                     | Loss on disposition of operations                                                                      |                                               |                                          
|                                                     | Cumulative effect of change in accounting for derivative and embedded derivative financial instruments |                                               |                                          
|                                                     | Interest credited to contractholder funds                                                              |                                               |                                          
|                                                     | Changes in:                                                                                            |                                               |                                          
|                                                     |                                                                                                        | Contract benefit and other insurance reserves |                                          
|                                                     |                                                                                                        | Unearned premiums                             |                                          
|                                                     |                                                                                                        | Deferred policy acquisition costs             |                                          
|                                                     |                                                                                                        | Reinsurance recoverables                      |                                          
|                                                     |                                                                                                        | Income taxes payable                          |                                          
|                                                     |                                                                                                        | Other operating assets and liabilities        |                                          
|                                                     |                                                                                                        |                                               |                                          
|                                                     |                                                                                                        |                                               | Net cash provided by operating activities
|                                                     |                                                                                                        |                                               |                                          
|Cash flows from investing activities                 |                                                                                                        |                                               |                                          
|Proceeds from sales                                  |                                                                                                        |                                               |                                          
|                                                     | Fixed income securities                                                                                |                                               |                                          
|                                                     | Equity securities                                                                                      |                                               |                                          
|Investment collections                               |                                                                                                        |                                               |                                          
|                                                     | Fixed income securities                                                                                |                                               |                                          
|                                                     | Mortgage loans                                                                                         |                                               |                                          
|Investments purchases                                |                                                                                                        |                                               |                                          
|                                                     | Fixed income securities                                                                                |                                               |                                          
|                                                     | Equity securities                                                                                      |                                               |                                          
|                                                     | Mortgage loans                                                                                         |                                               |                                          
|Acquisitions, net of cash received                   |                                                                                                        |                                               |                                         
|Change in short-term investments, net                |                                                                                                        |                                               | (280                                     
|Change in other investments, net                     |                                                                                                        |                                               | (58                                      
|                                                     |                                                                                                        |                                               |                                          
|                                                     |                                                                                                        |                                               | Net cash used in investing activities    
|                                                     |                                                                                                        |                                               |                                          
|Cash flows from financing activities                 |                                                                                                        |                                               |                                          
|Proceeds from issuance of redeemable preferred stock |                                                                                                        |                                               | 14                                       
|Redemption of preferred stock                        |                                                                                                        |                                               |                                         
|Capital contributions                                |                                                                                                        |                                               | 150                                      
|Contractholder fund deposits                         |                                                                                                        |                                               | 4,629                                    
|Contractholder fund withdrawals                      |                                                                                                        |                                               | (1,932                                   
|Dividends paid                                       |                                                                                                        |                                               | (45                                      
|                                                     |                                                                                                        |                                               |                                          
|                                                     |                                                                                                        |                                               | Net cash provided by financing activities
|                                                     |                                                                                                        |                                               |                                          
|Net increase in cash                                 |                                                                                                        |                                               | 55                                       
|Cash at beginning of period                          |                                                                                                        |                                               | 130                                      
|                                                     |                                                                                                        |                                               |                                          
|Cash at end of period                                |                                                                                                        | $                                             | 185                                      
|                                                     |                                                                                                        |                                               |                                          

See
notes to condensed consolidated financial statements.

3

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ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Allstate Life Insurance Company ("ALIC") and its wholly owned subsidiaries
(together with ALIC, the "Company"). ALIC is wholly owned by Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation").

The
condensed consolidated financial statements and notes as of June 30, 2002, and for the three-month and six-month periods ended June 30, 2002 and 2001, are unaudited.
The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals), which are, in the opinion of management, necessary for the fair presentation of
the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements and notes should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 2001 included in the Form 10 filed April 24, 2002. The results of operations for the interim periods should
not be considered indicative of results to be expected for the full year.

To
conform to the 2002 and year-end 2001 presentations, certain amounts in the prior year's condensed consolidated financial statements have been reclassified.
Non-cash transactions of $132 million have been excluded from prior period investment purchases and sales on the Condensed Consolidated Statements of Cash Flows to conform to the
current period presentation.

Non-cash
investment exchanges, primarily refinancings of fixed income securities and mergers completed with equity securities, totaled $78 million and
$64 million for the six months ended June 30, 2002 and 2001, respectively.

New accounting standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and
other Intangible Assets", which eliminates the requirement to amortize goodwill, and requires that goodwill and separately identified intangible assets with indefinite lives be evaluated for
impairment on an annual basis (or more frequently if impairment indicators arise) on a fair value basis. The Company adopted SFAS No. 142 effective January 1, 2002 and as a result, the
Company's 2001 results do not reflect the impact of the non-amortization provisions of SFAS No. 142. Had the Company adopted the non-amortization provisions on
January 1, 2001, the impact would have been immaterial to Net income (unamortized goodwill totaled $8 million at June 30, 2002). During the second quarter of 2002, the Company
completed the initial goodwill impairment test required by SFAS No. 142 and concluded that goodwill was not impaired. The Company utilized several widely accepted valuation techniques,
including discounted cash flow and market multiple and trading multiple analyses, to estimate the fair value of its acquired businesses.

Pending accounting standards

On July 31, 2002, the AICPA issued an exposure draft Statement of Position ("SOP") entitled "Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts". The accounting guidance contained in the proposed SOP applies to several of the Company's products and product features.
The proposed effective date of the SOP is fiscal years beginning after December 15, 2003, with earlier adoption encouraged. Initial application should be as of the beginning of the fiscal year;
therefore, if adopted during an interim period of 2003, prior interim periods should be restated. Most provisions of the proposed SOP will have a minimal impact to the Company, however, a provision
that requires the establishment of a liability in addition to the account balance for contracts that contain death or other insurance benefits may have a material impact on the condensed consolidated
statement of operations depending on the market conditions at the time of adoption. Contracts affected are those that contain provisions wherein the amounts assessed against the contractholder each
period for the insurance benefit feature are not proportionate to the insurance coverage provided for the period. These contract provisions are commonly referred to as guaranteed minimum death
benefits. The SOP concludes, in accordance with the Company's

4

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policy,
that no liability should be recognized during the accumulation phase for contract features that guarantee a minimum amount for annuitization, upon election by the contractholder, at a
contractually specified future date. These product features are commonly referred to as guaranteed minimum income benefits.

2. Reinsurance

The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company also cedes a portion of the mortality risk on certain term life
policies to a pool of reinsurers. The Company continues to have primary liability as the direct insurer for risks reinsured. The Company follows a comprehensive evaluation process involving credit
scoring and capacity to select reinsurers. Estimating amounts of reinsurance recoverable is impacted by the uncertainties involved in the establishment of loss reserves. Failure of reinsurers to honor
their obligations could result in losses to the Company.

Amounts
recoverable from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. No
single reinsurer had a material obligation to the Company nor is the Company's business substantially dependent upon any reinsurance contract.

The
effects of reinsurance on premiums and contract charges are as follows:

|                              |               | Three Months Ended
June 30,                       |     | Six Months Ended
June 30, |    
|----------------------------- | ------------- | ------------------------------------------------- | --- | ------------------------- | ---
|
|
|Premiums and Contract Charges |               |                                                   |     |                           |    
|Direct premiums               |               | $                                                 | 331 |                           | $  
|Assumed                       |               |                                                   |     |                           |    
|                              | Affiliate     |                                                   |     | 9                         |    
|                              | Non-affiliate |                                                   |     | 20                        |    
|Cedednon-affiliate           |               |                                                   | (94 | )                         |    
|                              |               |                                                   |     |                           |    
|                              |               | Premiums net of reinsurance                       |     |                           | 266
|Direct contract charges       |               |                                                   | 214 |                           |    
|Assumed                       |               |                                                   |     |                           |    
|                              | Affiliate     |                                                   |     | 2                         |    
|                              | Non-affiliate |                                                   |     | 1                         |    
|                              |               |                                                   |     |                           |    
|                              |               | Contract charges net of reinsurance               |     |                           | 217
|                              |               |                                                   |     |                           |    
|                              |               | Premiums and contract charges, net of reinsurance |     | $                         | 483
|                              |               |                                                   |     |                           |    

The
effects of reinsurance on contract benefits are as follows:

|                    |               | Three Months Ended
June 30,           |     | Six Months Ended
June 30, |    
|------------------- | ------------- | ------------------------------------- | --- | ------------------------- | ---
|
|
|Contract Benefits   |               |                                       |     |                           |    
|Direct              |               | $                                     | 461 |                           | $  
|Assumed             |               |                                       |     |                           |    
|                    | Affiliate     |                                       |     | 4                         |    
|                    | Non-affiliate |                                       |     | 12                        |    
|Cedednon-affiliate |               |                                       | (86 | )                         |    
|                    |               |                                       |     |                           |    
|                    |               | Contract benefits, net of reinsurance |     | $                         | 391
|                    |               |                                       |     |                           |    

5

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3. Commitments and Contingent Liabilities

Regulations and legal proceedings

The Company's business is subject to the effects of a changing social, economic and regulatory environment. State and federal regulatory initiatives have varied
and have included employee benefit regulations, removal of barriers preventing banks from engaging in the securities and insurance businesses, 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 the overall expansion of regulation. The ultimate changes
and eventual effects, if any, of these initiatives are uncertain.

The
Company sells its products through a variety of distribution channels including Allstate agencies. Consequently, the outcome of some legal proceedings that involve AIC regarding the
Allstate agencies may have an impact on the Company.

AIC
is defending various lawsuits involving worker classification issues. Examples of these lawsuits include a number of putative class actions challenging the overtime exemption claimed
by AIC under the Fair Labor Standards Act or state wage and hour laws. These class actions mirror similar lawsuits filed recently against other carriers in the industry and other employers. Another
example involves the worker classification of staff working in agencies. In this putative class action, plaintiffs seek damages under the Employee Retirement Income Security Act ("ERISA") and the
Racketeer Influenced and Corrupt Organizations Act alleging that agency secretaries were terminated as employees by AIC and rehired by agencies through outside staffing vendors for the purpose of
avoiding the payment of employee benefits. A putative nationwide class action filed by former employee agents also includes a worker classification issue; these agents are challenging certain
amendments to the Agents Pension Plan and are seeking to have exclusive agent independent contractors treated as employees for benefit
purposes. AIC has been vigorously defending these and various other worker classification lawsuits. The outcome of these disputes is currently uncertain.

In
addition, on August 6, 2002 a petition was filed with the National Labor Relations Board by the United Exclusive Allstate Agents, Office and Professional Employees
International Union, seeking certification as the collective bargaining representative of all Allstate agents in the United States. AIC is opposing the petition on a number of grounds, including that
the agents are independent contractors and, therefore, the NLRB lacks jurisdiction over the issue. The outcome is currently uncertain.

AIC
is also defending certain matters relating to its agency program reorganization announced in 1999. These matters include an investigation by the U.S. Department of Labor and a
lawsuit filed in December 2001 by the U.S. Equal Employment Opportunity Commission ("EEOC") with respect to allegations of retaliation under the Age Discrimination in Employment Act, the
Americans with Disabilities Act and Title VII of the Civil Rights Act of 1964. A putative nationwide class action has also been filed by former employee agents alleging various violations of ERISA,
breach of contract and age discrimination. AIC has been vigorously defending these lawsuits and other matters related to its agency program reorganization. In addition, the Company is defending
certain matters relating to its life agency program reorganization announced in 2000. These matters include an investigation by the EEOC with respect to allegations of age discrimination and
retaliation. The Company is cooperating fully with the agency investigation and will continue to vigorously defend these and other claims related to the life agency program reorganization. The outcome
of these disputes is currently uncertain.

The
Company is defending various lawsuits that allege that it engaged in business or sales practices inconsistent with state or federal law. The Company has been vigorously defending
these lawsuits, but their outcome is currently uncertain. The judge has granted a partial summary judgment against the Company in one statewide class action that alleged that the Company violated
insurance statutes in the sale of credit insurance; however, the Company has settled that case, subject to court approval, for an amount that is not material to the Company.

6

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Various
other legal and regulatory actions are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry,
the Company is the target of an increasing number of class action lawsuits and other types of litigation based on a variety of issues, some of which involve claims for substantial and/or indeterminate
amounts (including punitive and treble damages) and the outcomes of which are unpredictable. However, at this time, based on their present status, it is the opinion of management that the ultimate
liability, if any, in one or more of these other actions in excess of amounts currently reserved is not expected to have a material effect on the results of operations, liquidity or financial position
of the Company.

4. Business Segments

Summarized financial performance data for each of the Company's reportable segments for the three months and six months ended June 30 are as follows:

|                                                                                                   |                                                                                                                                  | Three Months Ended
June 30,                                                                                     |     | Six Months Ended
June 30, |    
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | --- | ------------------------- | ---
|
|
|Income from operations before income taxes and cumulative effect of change in accounting principle |                                                                                                                                  |                                                                                                                 |     |                           |    
|Retail                                                                                             |                                                                                                                                  |                                                                                                                 |     |                           |    
|Premiums and contract charges                                                                      |                                                                                                                                  | $                                                                                                               | 372 |                           | $  
|Net investment income                                                                              |                                                                                                                                  |                                                                                                                 | 455 |                           |    
|Realized capital gains and losses                                                                  |                                                                                                                                  |                                                                                                                 | (26 | )                         |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |     |                           |    
|                                                                                                   | Total Retail revenues                                                                                                            |                                                                                                                 |     | 801                       |    
|Contract benefits                                                                                  |                                                                                                                                  |                                                                                                                 | 167 |                           |    
|Interest credited to contractholder funds                                                          |                                                                                                                                  |                                                                                                                 | 306 |                           |    
|Amortization of deferred policy acquisition costs                                                  |                                                                                                                                  |                                                                                                                 | 104 |                           |    
|Operating costs and expenses                                                                       |                                                                                                                                  |                                                                                                                 | 108 |                           |    
|Loss on disposition of operations                                                                  |                                                                                                                                  |                                                                                                                 |    |                           |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |     |                           |    
|                                                                                                   | Retail income from operations before income taxes and cumulative effect of change in accounting principle                        |                                                                                                                 |     | 116                       |    
|Structured Financial Products                                                                      |                                                                                                                                  |                                                                                                                 |     |                           |    
|Premiums and contract charges                                                                      |                                                                                                                                  |                                                                                                                 | 111 |                           |    
|Net investment income                                                                              |                                                                                                                                  |                                                                                                                 | 287 |                           |    
|Realized capital gains and losses                                                                  |                                                                                                                                  |                                                                                                                 | (6  | )                         |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |     |                           |    
|                                                                                                   | Total Structured Financial Products revenues                                                                                     |                                                                                                                 |     | 392                       |    
|Contract benefits                                                                                  |                                                                                                                                  |                                                                                                                 | 224 |                           |    
|Interest credited to contractholder funds                                                          |                                                                                                                                  |                                                                                                                 | 112 |                           |    
|Amortization of deferred policy acquisition costs                                                  |                                                                                                                                  |                                                                                                                 | 1   |                           |    
|Operating costs and expenses                                                                       |                                                                                                                                  |                                                                                                                 | 12  |                           |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |     |                           |    
|                                                                                                   | Structured Financial Products income from operations before income taxes and cumulative effect of change in accounting principle |                                                                                                                 |     | 43                        |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |     |                           |    
|                                                                                                   |                                                                                                                                  | Consolidated income from operations before income taxes and cumulative effect of change in accounting principle |     | $                         | 159
|                                                                                                   |                                                                                                                                  |                                                                                                                 |     |                           |    

7

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5. Comprehensive Income

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

|                                                                                                      |                                                                                  | Three Months Ended June 30, |    
|----------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | --------------------------- | ---
|
|
|
|Unrealized net capital gains and losses and net gains and losses on derivative financial instruments: |                                                                                  |                             |    
|Unrealized holding gains (losses) arising during the period                                           |                                                                                  | $                           | 134
|Less: reclassification adjustments                                                                    |                                                                                  |                             | 39 
|                                                                                                      |                                                                                  |                             |    
|Unrealized net capital gains (losses)                                                                 |                                                                                  |                             | 95 
|                                                                                                      | Net (losses) gains on derivative financial instruments arising during the period |                             |    
|                                                                                                      | Less: reclassification adjustments                                               |                             |    
|                                                                                                      |                                                                                  |                             |    
|Net losses on derivative financial instruments                                                        |                                                                                  |                             | (3 
|                                                                                                      |                                                                                  |                             |    
|Unrealized net capital gains and losses and net gains and losses on derivative financial instruments  |                                                                                  |                             | 92 
|Unrealized foreign currency translation adjustments                                                   |                                                                                  |                             |   
|                                                                                                      |                                                                                  |                             |    
|Other comprehensive income (loss)                                                                     |                                                                                  | $                           | 92 
|                                                                                                      |                                                                                  |                             |    
|Net income                                                                                            |                                                                                  |                             |    
|                                                                                                      |                                                                                  |                             |    
|Comprehensive income                                                                                  |                                                                                  |                             |    
|                                                                                                      |                                                                                  |                             |    

8

---

|                                                                                                      |                                                                                                        | Six Months Ended June 30, |    
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------- | ---
|
|
|
|Unrealized net capital gains and losses and net gains and losses on derivative financial instruments: |                                                                                                        |                           |    
|Unrealized holding gains (losses) arising during the period                                           |                                                                                                        | $                         | 174
|Less: reclassification adjustments                                                                    |                                                                                                        |                           | 120
|                                                                                                      |                                                                                                        |                           |    
|Unrealized net capital gains                                                                          |                                                                                                        |                           | 54 
|                                                                                                      | Cumulative effect of change in accounting for derivative and embedded derivative financial instruments |                           |    
|                                                                                                      | Net (losses) gains on derivative financial instruments arising during the period                       |                           |    
|                                                                                                      | Less: reclassification adjustments                                                                     |                           |    
|                                                                                                      |                                                                                                        |                           |    
|Net losses on derivative financial instruments                                                        |                                                                                                        |                           | (3 
|                                                                                                      |                                                                                                        |                           |    
|Unrealized net capital gains and losses and net gains and losses on derivative financial instruments  |                                                                                                        |                           | 51 
|Unrealized foreign currency translation adjustments                                                   |                                                                                                        |                           |   
|                                                                                                      |                                                                                                        |                           |    
|Other comprehensive income                                                                            |                                                                                                        | $                         | 51 
|                                                                                                      |                                                                                                        |                           |    
|Net income                                                                                            |                                                                                                        |                           |    
|                                                                                                      |                                                                                                        |                           |    
|Comprehensive income                                                                                  |                                                                                                        |                           |    
|                                                                                                      |                                                                                                        |                           |    

9

---

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

To the Board of Directors and Shareholder of
Allstate Life Insurance Company:

We have reviewed the accompanying condensed consolidated statement of financial position of Allstate Life Insurance Company and subsidiaries (the "Company", an
affiliate of The Allstate Corporation) as of June 30, 2002, and the related condensed consolidated statements of operations for the three-month and six-month periods ended
June 30, 2002 and 2001, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2002 and 2001. These financial statements are the
responsibility of the Company's management.

We
conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally
of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based
on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.

We
have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated statement of financial position of Allstate Life
Insurance Company and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, comprehensive income, shareholder's equity, and cash flows for the year then
ended, not presented herein. In our report dated February 20, 2002 (March 28, 2002 as to Note 18), we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31,
2001 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

/s/
Deloitte & Touche LLP

Chicago,
Illinois
August 9, 2002

10

---

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001

The following discussion highlights significant factors influencing results of operations and changes in financial position of Allstate
Life Insurance Company ("Allstate Life") and its wholly owned subsidiaries (together with Allstate Life, the "Company"). Allstate Life is wholly owned by Allstate Insurance Company ("AIC"), a wholly
owned subsidiary of The Allstate Corporation (the "Corporation"). It should be read in conjunction with the condensed consolidated financial statements and notes thereto found under Part I.
Item 1. contained herein, and with the discussion, analysis, consolidated financial statements and related notes thereto for the year ended December 31, 2001 in Item 2. and Item 13. on
Form 10 for the year ended December 31, 2001, which includes a discussion of the Company's Critical Accounting Policies.

EXECUTIVE SUMMARY OF RESULTS

The Company experienced an 18.9% increase in net income in the second quarter of 2002 as compared to the second quarter of 2001 and a 23.6% increase in net income
for the first six months of 2002 as compared to the same period last year.

The
increase in net income for both periods is primarily due to increased operating results in both the Retail and Structured Financial Products segments. The Retail segment experienced
an increase in operating results in the second quarter of 2002 due to favorable mortality and investment margins while for the first six months of 2002, the increase in operating results was primarily
due to favorable mortality margin as compared to the same periods in 2001. In both periods, the Structured Financial Products segment experienced an increase in operating results primarily due to
favorable investment margins partially offset by a decline in mortality margins.

CONSOLIDATED REVENUES

|                                                            |  | Three Months Ended
June 30, |       | Six Months Ended
June 30, |  
|----------------------------------------------------------- |  | --------------------------- | ----- | ------------------------- | -
|
|
|Retail premiums and contract charges                        |  | $                           | 372   |                           | $
|Structured Financial Products premiums and contract charges |  |                             | 111   |                           |  
|Net investment income                                       |  |                             | 742   |                           |  
|Realized capital gains and losses                           |  |                             | (32   | )                         |  
|                                                            |  |                             |       |                           |  
|Total consolidated revenues                                 |  | $                           | 1,193 |                           | $
|                                                            |  |                             |       |                           |  

Consolidated
revenues increased 3.4% in the second quarter of 2002, as compared to the second quarter of 2001, and increased 2.7% in the first six months of 2002, as compared to the same
period in 2001. During the second quarter, decreases in premiums and contract charges in both the Retail and Structured Financial Products segments were offset by an increase in Net investment income
and decreased realized net capital losses. During the first six months of 2002, increases in Net investment income and Structured Financial Products premiums and contract charges were partially offset
by a decrease in Retail premiums and contract charges. Net investment income increased 5.0% in the second quarter of 2002, as compared to the second quarter of 2001, and increased 3.2% in the first
six months of 2002, as compared to the same period in 2001. In both periods, Net investment income increased primarily due to increased investment balances, partially offset by lower portfolio yields.

CONSOLIDATED NET INCOME

|                              |                               | Three Months Ended
June 30, |     | Six Months Ended
June 30,
|----------------------------- | ----------------------------- | --------------------------- | --- | -------------------------
|
|
|Net income                    |                               |                             |     |                          
|                              | Retail                        |                             | $   | 80                       
|                              | Structured Financial Products |                             |     | 27                       
|                              |                               |                             |     |                          
|Total consolidated net income |                               | $                           | 107 |                          
|                              |                               |                             |     |                          

11

---

The
Company experienced an 18.9% increase in Net income in the second quarter of 2002 as compared to the second quarter of 2001. Net income for the first six months of 2002 increased
23.6% compared to the first six months of 2001. In both periods, the increase in Net income was due to increased operating results in the Structured Financial Products business due to investment
margin growth and lower realized net capital losses and increased operating results in the Retail business due to favorable mortality margins partly offset by increased realized net capital losses and
higher amortization of deferred policy acquisition costs.

RETAIL OPERATIONS

OverviewThe Retail segment offers a diversified group of products to meet consumers' lifetime needs in the areas of
protection and retirement solutions through a variety of distribution channels. The Retail segment offers protection products, which consists of life insurance products and other insurance products,
and retirement products, otherwise referred to as investment products. Life insurance products include: term life, whole life, credit life, universal life, variable life, variable universal life and
single premium life. Other insurance products include long-term care, accidental death, hospital indemnity and credit disability. Investment products include fixed annuities (including
market value adjusted annuities, equity-indexed annuities and treasury-linked annuities), immediate annuities, and variable annuities.

Retail
products are sold through a variety of distribution channels including Allstate agencies, financial services firms, independent agent broker/dealers including master brokerage
agencies and direct marketing.

Summarized
financial data and key operating measures for the Retail operations are presented in the following table.

|                                                               |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|-------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|
|Statutory premiums and deposits(1)                             |  | $                           | 2,113  |                           | $
|                                                               |  |                             |        |                           |  
|Investments                                                    |  | $                           | 29,817 |                           | $
|Separate Accounts assets                                       |  |                             | 12,280 |                           |  
|                                                               |  |                             |        |                           |  
|Investments, including Separate Accounts assets                |  | $                           | 42,097 |                           | $
|                                                               |  |                             |        |                           |  
|GAAP Premiums                                                  |  | $                           | 159    |                           | $
|Contract charges                                               |  |                             | 213    |                           |  
|Net investment income                                          |  |                             | 455    |                           |  
|                                                               |  |                             |        |                           |  
|                                                               |  |                             | 827    |                           |  
|                                                               |  |                             |        |                           |  
|Contract benefits                                              |  |                             | 167    |                           |  
|Interest credited to contractholder funds                      |  |                             | 306    |                           |  
|Amortization of deferred policy acquisition costs ("DAC")      |  |                             | 94     |                           |  
|Operating costs and expenses                                   |  |                             | 108    |                           |  
|                                                               |  |                             |        |                           |  
|                                                               |  |                             | 675    |                           |  
|                                                               |  |                             |        |                           |  
|Operating income before tax                                    |  |                             | 152    |                           |  
|Income tax expense                                             |  |                             | 49     |                           |  
|                                                               |  |                             |        |                           |  
|Operating income(2)                                            |  |                             | 103    |                           |  
|Loss on disposition of operations, after-tax                   |  |                             |       |                           |  
|Realized capital gains and losses, after-tax(3)                |  |                             | (23    | )                         |  
|Cumulative effect of change in accounting principle, after-tax |  |                             |       |                           |  
|                                                               |  |                             |        |                           |  
|Net income                                                     |  | $                           | 80     |                           | $
|                                                               |  |                             |        |                           |  

---

12

---

|                                             |  | Three Months Ended
June 30, |     | Six Months Ended
June 30, |  
|-------------------------------------------- |  | --------------------------- | --- | ------------------------- | -
|
|
|Realized capital gains and losses            |  | $                           | (26 | )                         | $
|Reclassification of DAC Amortization         |  |                             | (10 | )                         |  
|Income tax benefit (expense)                 |  |                             | 13  |                           |  
|                                             |  |                             |     |                           |  
|Realized capital gains and losses, after-tax |  | $                           | (23 | )                         | $
|                                             |  |                             |     |                           |  

Statutory premiums and depositsis a measure used by management to analyze sales trends. Statutory premiums and deposits
includes premiums on insurance policies, and premiums and deposits on annuities, determined in conformity with statutory accounting practices prescribed or permitted by the insurance regulatory
authorities of the states in which Allstate Life and its insurance subsidiaries are domiciled, and all other funds received from customers on deposit-type products which are accounted for
by the Company as liabilities. The statutory accounting practices, and the Company's definition of statutory premiums and deposits, differ in material aspects from generally accepted accounting
principles ("GAAP"). The Company's method of calculating statutory premiums and deposits may also be different from the method used by other companies and therefore comparability may be limited.

The
following table summarizes statutory premiums and deposits for the Retail segment by product line:

|                                      |                               | Three Months Ended
June 30, |       | Six Months Ended
June 30,
|------------------------------------- | ----------------------------- | --------------------------- | ----- | -------------------------
|
|
|Life and other products               |                               |                             |       |                          
|                                      | Interest-sensitive life       |                             | $     | 250                      
|                                      | Traditional life              |                             |       | 101                      
|                                      | Other                         |                             |       | 42                       
|                                      |                               |                             |       |                          
|                                      | Total life and other products |                             |       | 393                      
|Investment products                   |                               |                             |       |                          
|                                      | Fixed annuities               |                             |       | 1,131                    
|                                      | Variable annuities            |                             |       | 589                      
|                                      |                               |                             |       |                          
|                                      | Total investment products     |                             |       | 1,720                    
|                                      |                               |                             |       |                          
|Total statutory premiums and deposits |                               | $                           | 2,113 |                          
|                                      |                               |                             |       |                          

Total
Retail statutory premiums and deposits increased 14.6% to $2.11 billion in the second quarter of 2002 from $1.84 billion in the second quarter of
2001. Total statutory premiums and deposits increased 3.1% to $3.74 billion in the first six months of 2002 from $3.63 billion in the same period of 2001. In both periods, the increases
were due to growth in sales of fixed annuities, partly offset by declines in variable annuity sales. The decline in variable annuity sales is a reflection of the continuing overall decline in the
variable annuity market caused by economic and market conditions during the period.

13

---

The
following table summarizes statutory premiums and deposits for the Retail segment by distribution channel:

|                                      |  | Three Months Ended
June 30, |       | Six Months Ended
June 30,
|------------------------------------- |  | --------------------------- | ----- | -------------------------
|
|
|Allstate agencies                     |  | $                           | 471   |                          
|Independent agents                    |  |                             | 599   |                          
|Financial services firms              |  |                             | 952   |                          
|Direct marketing                      |  |                             | 91    |                          
|                                      |  |                             |       |                          
|Total statutory premiums and deposits |  | $                           | 2,113 |                          
|                                      |  |                             |       |                          

GAAP premiums and contract chargesrepresent premium generated from traditional life and other insurance products which have
significant mortality or morbidity risk, and contract charges generated from interest-sensitive life products, variable annuities, fixed annuities and other investment products for which deposits are
classified as contractholder funds. Contract charges are assessed against the contractholder account balance for maintenance, administration, cost of insurance and early surrender.

The
following table summarizes GAAP premiums and contract charges for the Retail segment:

|                                         |                         | Three Months Ended
June 30, |     | Six Months Ended
June 30,
|---------------------------------------- | ----------------------- | --------------------------- | --- | -------------------------
|
|
|Premiums                                 |                         |                             |     |                          
|                                         | Traditional life        |                             | $   | 102                      
|                                         | Other                   |                             |     | 57                       
|                                         |                         |                             |     |                          
|                                         | Total premiums          |                             |     | 159                      
|                                         |                         |                             |     |                          
|Contract charges                         |                         |                             |     |                          
|                                         | Interest-sensitive life |                             |     | 151                      
|                                         | Variable annuities      |                             |     | 56                       
|                                         | Investment contracts    |                             |     | 6                        
|                                         |                         |                             |     |                          
|                                         | Total contract charges  |                             |     | 213                      
|                                         |                         |                             |     |                          
|Total GAAP Premiums and Contract Charges |                         | $                           | 372 |                          
|                                         |                         |                             |     |                          

Total
Retail premiums decreased 10.2% in the second quarter of 2002 and decreased 10.7% during the first six months of 2002, due to a decline in Other premiums as compared to the same
periods in 2001. Declines in Other premiums during both periods are related to the Company entering a reinsurance agreement for certain of its direct marketing credit insurance products.

Total
Retail contract charges increased 7.0% during the second quarter of 2002 and 6.6% for the first six months of 2002 compared to the same periods in 2001 due to growth in
interest-sensitive life account value inforce and contract charge rate increases. Contract charges on variable annuities, which are generally calculated as a percentage of each account value, were
consistent with the prior year periods as growth from sales was offset by declines in account value as a result of market declines.

14

---

The
following table summarizes GAAP premiums and contract charges for the segment by distribution channel:

|                                    |                          | Three Months Ended
June 30, |     | Six Months Ended
June 30,
|----------------------------------- | ------------------------ | --------------------------- | --- | -------------------------
|
|
|Premiums                            |                          |                             |     |                          
|                                    | Allstate agencies        |                             | $   | 71                       
|                                    | Independent agents       |                             |     | 2                        
|                                    | Direct marketing         |                             |     | 86                       
|                                    |                          |                             |     |                          
|                                    |                          | Total premiums              |     |                          
|                                    |                          |                             |     |                          
|Contract charges                    |                          |                             |     |                          
|                                    | Allstate agencies        |                             |     | 143                      
|                                    | Independent agents       |                             |     | 18                       
|                                    | Financial services firms |                             |     | 52                       
|                                    |                          |                             |     |                          
|                                    |                          | Total contract charges      |     |                          
|                                    |                          |                             |     |                          
|Total premiums and contract charges |                          | $                           | 372 |                          
|                                    |                          |                             |     |                          

Operating income

Operating income is a measure used by the Company's management to evaluate the profitability of each segment. Operating income is defined as Income before the
cumulative effect of change in accounting principles, after-tax, and excluding the after-tax effects of realized capital gains and losses. In this management measure, the
effects of realized capital gains and losses and certain other items have been excluded due to the volatility between periods and because such data is often excluded when evaluating the overall
financial performance and profitability of insurers. These operating results should not be considered as a substitute for any GAAP measure of performance. A reconciliation of operating income to net
income is provided in the table on page 12. The Company's method of calculating operating income may be different from the method used by other companies and therefore comparability may be limited.

|                                 |  | Three Months Ended
June 30, |      | Six Months Ended
June 30, |  
|-------------------------------- |  | --------------------------- | ---- | ------------------------- | -
|
|
|Investment margin                |  | $                           | 149  |                           | $
|Mortality margin                 |  |                             | 109  |                           |  
|Maintenance charges              |  |                             | 76   |                           |  
|Surrender charges                |  |                             | 20   |                           |  
|DAC amortization                 |  |                             | (94  | )                         |  
|Operating costs and expenses     |  |                             | (108 | )                         |  
|Income tax expense on operations |  |                             | (49  | )                         |  
|                                 |  |                             |      |                           |  
|Operating income                 |  | $                           | 103  |                           | $
|                                 |  |                             |      |                           |  

Operating
income for the Retail segment increased 4.0% during the second quarter of 2002, compared to the second quarter of 2001, and increased 7.1% during the first six months of 2002,
as compared to the same period in the prior year. Increases in operating income in both periods were primarily due to increases in mortality margins partially offset by increases in DAC amortization.

Investment margin,which represents the excess of net investment income earned over interest credited to policyholders and
contractholders, increased 4.9% for this segment during the second quarter of 2002,compared to the same period of 2001. During the first six months of 2002, the investment margin was comparable to the
same period in 2001. The increase in the second quarter is a result of growth in invested assets driven by sales of fixed annuities, less contract benefits, surrenders and withdrawals. Invested assets
increased 16.5% as of June 30, 2002 compared to June 30, 2001. The impact of this growth was partly offset by a decline in invested asset yields from lower reinvestment rates resulting
from market conditions, and increased sales of investment products with lower investment

15

---

margins,
such as market value adjusted annuities ("MVAAs"). The slight decrease in the first six months of 2002 is a result of the growth in invested assets being more than offset by a decline in
invested asset yields from lower reinvestment rates and a change in the product mix to products with lower investment margins. Management actions taken in 2001 and the first half of 2002 to reduce
crediting rates where contractually allowed have partially offset the decline in invested asset yields.

Mortality margin,which represents premiums and cost of insurance charges in excess of related policy benefits, increased 13.5% for this
segment during the second quarter of 2002, compared to the same period of 2001, and 20.4% during the first six months of 2002, compared the same period in 2001. During the second quarter of 2002,
increased premiums on new business offset the increase in policy benefits, while for the first six months of 2002 increased premiums and lower benefits on variable annuities contributed to the growth
in the mortality margin compared to the same period of 2001. Mortality and morbidity loss experience can cause benefit payments to fluctuate from period to period while underwriting and pricing
guidelines are based on a long-term view of the trends in mortality and morbidity.

DAC amortizationfor the Retail segment is dependent on the nature of the insurance contract and requires judgment on both the period and
rate of amortization. DAC amortization periods for products with significant mortality or morbidity risk are determined when the products are sold, and are related to the periods in which premiums are
received on these products. Amortization is recognized in proportion to the pattern of expected gross profits for interest-sensitive life and investment products, which is dependent on expected
investment returns and product profitability experience and the estimated lives of the contract periods. The estimated average lives of the contracts are considerably shorter than the stated
amortization period due to withdrawals, surrenders and other policy terminations. The average long-term rate of assumed future investment yield of the Separate Accounts used in estimating
expected gross margins is 8.0% plus 1.15% to 1.45% for fees at June 30, 2002. If actual results differ from estimated gross margins, deferred acquisition costs amortization is adjusted. Bonus
interest and other sales incentives are deferred and reflected as an offset to contractholder funds.

The
following table summarizes the DAC asset balance for the Retail segment by product.

|                        |  | Amortization
Period |  | June 30,
2002 |       | December 31,
2001
|----------------------- |  | ------------------- |  | ------------- | ----- | -----------------
|
|Traditional life        |  | 7 to 30 years       |  | $             | 667   |                  
|Other                   |  | Various             |  |               | 94    |                  
|                        |  |                     |  |               |       |                  
|                        |  |                     |  |               | 761   |                  
|Interest-sensitive life |  | 30 years            |  |               | 982   |                  
|Fixed annuity           |  | 15 years            |  |               | 267   |                  
|Variable annuity        |  | 15 years            |  |               | 1,032 |                  
|                        |  |                     |  |               |       |                  
|                        |  |                     |  |               | 2,281 |                  
|                        |  |                     |  |               |       |                  
|Total DAC               |  |                     |  | $             | 3,042 |                  
|                        |  |                     |  |               |       |                  

DAC
amortization increased 13.3% during the second quarter of 2002, and 9.4% during the first six months of 2002, compared to the same periods in 2001 due to overall growth in business
and improved margins on investment and interest-sensitive life contracts.

Operating costs and expensesincreased 7.0% during the second quarter of 2002 compared to the same period of 2001, and decreased 1.5%
during the first six months of 2002, compared to the same period in 2001, due to lower operating costs and expenses offset by a reserve established for a class action legal settlement.

16

---

RETAIL INVESTMENT RESULTS

Pretax net investment incomeincreased 7.1% for the Retail segment in the second quarter of 2002, and 5.9% in the
first six months of 2002, as compared to the same periods in 2001. The increases were due to increased Retail investment balances, partially offset by lower portfolio yields. Retail investment
balances, excluding assets invested in Separate Accounts and unrealized capital gains on fixed income securities, increased 16.5% from the June 30, 2001 level.

After-tax realized capital losseswere $23 million in the second quarter of 2002 compared to $12 million in the
second quarter of 2001. During the first six months of 2002, after-tax realized capital losses were $56 million compared to $48 million in the first six months of last year.
After-tax realized capital gains and losses are presented net of the effects of DAC amortization and additional future policy benefits to the extent that such effects resulted from the
recognition of realized capital gains and losses.

The
following table describes the factors driving the after-tax realized capital gains and losses results.

|                                             |  | Three Months Ended
June 30, |     | Six Months Ended
June 30, |  
|-------------------------------------------- |  | --------------------------- | --- | ------------------------- | -
|
|
|Investment write-downs                       |  | $                           | (15 | )                         | $
|Portfolio trading                            |  |                             | 2   |                           |  
|Valuation of derivative securities           |  |                             | (3  | )                         |  
|                                             |  |                             |     |                           |  
|Subtotal                                     |  | $                           | (16 | )                         | $
|Reclassification of amortization of DAC      |  |                             | (7  | )                         |  
|                                             |  |                             |     |                           |  
|Realized capital gains and losses, after-tax |  | $                           | (23 | )                         | $
|                                             |  |                             |     |                           |  

17

---

STRUCTURED FINANCIAL PRODUCTS OPERATIONS

OverviewThe Structured Financial Products segment offers a variety of spread-based and fee-based products to
qualified investment buyers. Spread-based products are designed to generate income based
on the difference ("spread") between investment returns on the supporting assets and the guaranteed returns provided to customers. Fee-based products are designed to generate income based
on various fees or charges assessed against the account values. While spread-based products provide guaranteed rates of return to customers, fee-based products provide only a limited
guarantee to customers. Spread-based products include guaranteed investment contracts ("GICs") and funding agreements. Synthetic GICs are the primary fee-based product offered by the
segment. These products are sold to qualified investment buyers. Funding agreements are sold to special purpose entities ("SPEs") issuing medium-term notes, and are also sold through
specialized brokers, consultants and financial intermediaries. Structured Financial Products include fixed annuity investment products such as single premium structured settlement annuities sold
through brokers who specialize in settlement of injury and other liability cases and other immediate annuities.

Summarized
financial data and key operating measures for the Structured Financial Products operations are presented in the following table.

|                                                               |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|-------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|
|Statutory premiums and deposits(1)                             |  | $                           | 958    |                           | $
|                                                               |  |                             |        |                           |  
|Investments                                                    |  | $                           | 19,822 |                           | $
|Separate Accounts assets                                       |  |                             | 375    |                           |  
|                                                               |  |                             |        |                           |  
|Investments, including Separate Accounts assets                |  | $                           | 20,197 |                           | $
|                                                               |  |                             |        |                           |  
|GAAP Premiums                                                  |  | $                           | 107    |                           | $
|Contract charges                                               |  |                             | 4      |                           |  
|Net investment income                                          |  |                             | 287    |                           |  
|                                                               |  |                             |        |                           |  
|                                                               |  |                             | 398    |                           |  
|                                                               |  |                             |        |                           |  
|Contract benefits                                              |  |                             | 224    |                           |  
|Interest credited to contractholder funds                      |  |                             | 112    |                           |  
|Amortization of DAC                                            |  |                             | 1      |                           |  
|Operating costs and expenses                                   |  |                             | 12     |                           |  
|                                                               |  |                             |        |                           |  
|                                                               |  |                             | 349    |                           |  
|                                                               |  |                             |        |                           |  
|Operating income before tax                                    |  |                             | 49     |                           |  
|Income tax expense                                             |  |                             | 17     |                           |  
|                                                               |  |                             |        |                           |  
|Operating income(2)                                            |  |                             | 32     |                           |  
|Realized capital gains and losses, after-tax(3)                |  |                             | (5     | )                         |  
|Cumulative effect of change in accounting principle, after-tax |  |                             |       |                           |  
|                                                               |  |                             |        |                           |  
|Net income                                                     |  | $                           | 27     |                           | $
|                                                               |  |                             |        |                           |  

---

18

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|                                             |  | Three Months Ended
June 30, |    | Six Months Ended
June 30, |  
|-------------------------------------------- |  | --------------------------- | -- | ------------------------- | -
|
|
|Realized capital gains and losses            |  | $                           | (6 | )                         | $
|Income tax benefit (expense)                 |  |                             | 1  |                           |  
|                                             |  |                             |    |                           |  
|Realized capital gains and losses, after-tax |  | $                           | (5 | )                         | $
|                                             |  |                             |    |                           |  

Statutory premiums and depositsis a measure used by management to analyze sales trends. Statutory premiums and deposits includes premiums
on insurance policies, and premiums and deposits on annuities, determined in conformity with statutory accounting practices prescribed or permitted by the insurance regulatory authorities of the
states in which Allstate Life and its insurance subsidiaries are domiciled, and all other funds received from customers on deposit-type products which are accounted for by the Company as
liabilities. The statutory accounting practices, and the Company's definition of statutory premiums and deposits, differ in material aspects from GAAP. The Company's method of calculating statutory
premiums and deposits may also be different from the method used by other companies and therefore comparability may be limited.

The
following table summarizes statutory premiums and deposits for the Structured Financial Products segment by product line:

|                                      |                                 | Three Months Ended
June 30, |     | Six Months Ended
June 30,
|------------------------------------- | ------------------------------- | --------------------------- | --- | -------------------------
|
|
|Interest-sensitive life               |                                 | $                           | 3   |                          
|Investment contracts                  |                                 |                             |     |                          
|                                      | Funding agreements              |                             |     | 754                      
|                                      | Structured settlement annuities |                             |     | 171                      
|                                      | Guaranteed investment contracts |                             |     | 30                       
|                                      |                                 |                             |     |                          
|                                      | Total investment contracts      |                             |     | 955                      
|                                      |                                 |                             |     |                          
|Total statutory premiums and deposits |                                 | $                           | 958 |                          
|                                      |                                 |                             |     |                          

Total
statutory premiums and deposits in the second quarter of 2002 decreased 3.9% as compared to the second quarter of 2001, and decreased 2.1% during the first six months of 2002 as
compared to the same period of 2001. In the second quarter, increased sales of funding agreements to SPEs issuing medium-term notes were more than offset by declining sales of structured
settlement annuities and GICs. In the first half of 2002, the increase in sales of structured settlement annuities was more than offset by lower sales of funding agreements and GICs. Period to period
fluctuations in sales of structured financial products will occur as the sales of these products are primarily made on management's assessment of market opportunities.

GAAP premiums and contract chargesrepresent premium generated from immediate annuities with life contingencies including certain
structured settlement annuities which have significant mortality or morbidity risk and contract charges generated from funding agreements, structured settlement annuities and GICs for which deposits
are classified as contractholder funds. Contract charges are assessed against the contractholder account balance for maintenance, administration, cost of issuance and early surrender.

In
the second quarter of 2002, premiums from structured settlement annuities with life contingencies in the amount of $107 million were comparable to the $108 million in
the second quarter of 2001, and increased 14.0% to $187 million during the first six months of 2002, as compared to $164 million in the same period of 2001. Structured settlement
annuities are a type of immediate annuity. Under GAAP accounting requirements, only immediate annuities with life contingencies are recognized in premiums. Those without life contingencies, or period

19

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certain,
are directly recorded as contractholder funds and generate contract charges. Market conditions and consumer preferences drive the mix of immediate annuities sold with or without life
contingencies, which causes fluctuations in the overall level of GAAP premiums.

Contract
charges of $4 million during the second quarter of 2002 and $12 million during the first six months of 2002 were comparable to the same periods in the prior year.

Operating incomeis a measure used by the Company's management to evaluate the profitability of each segment. Operating income is defined
as Income before the cumulative effect of changes in accounting principles, after-tax, and excluding the after-tax effects of realized capital gains and losses. In this
management measure, the effects of realized capital gains and losses and certain other items have been excluded due to the volatility between periods and because such data is often excluded when
evaluating the overall financial performance and profitability of insurers. These operating results should not be considered as a substitute for any GAAP measure of performance. A reconciliation of
operating income to net income is provided in the table on page 18. The Company's method of calculating
operating income may be different from the method used by other companies and therefore comparability may be limited.

|                                 |  | Three Months Ended
June 30, |     | Six Months Ended
June 30, |  
|-------------------------------- |  | --------------------------- | --- | ------------------------- | -
|
|
|Investment margin                |  | $                           | 54  |                           | $
|Mortality margin                 |  |                             | (5  | )                         |  
|Maintenance charges              |  |                             | 13  |                           |  
|Surrender charges                |  |                             |    |                           |  
|DAC amortization                 |  |                             | (1  | )                         |  
|Operating costs and expenses     |  |                             | (12 | )                         |  
|Income tax expense on operations |  |                             | (17 | )                         |  
|                                 |  |                             |     |                           |  
|Operating income                 |  | $                           | 32  |                           | $
|                                 |  |                             |     |                           |  

Operating
income for the Structured Financial Products segment increased 33.3% during the second quarter of 2002, compared to the second quarter of 2001, and 27.1% during the first six
months of 2002, compared to the same period in 2001. Increases in both periods are due to growth in the investment margin partially offset by a decline in mortality margins.

Investment margin,which represents the excess of net investment income earned over interest credited to policyholders and
contractholders, increased 50.0% for this segment during the second quarter of 2002, compared to the same period of 2001, and 49.3% during the first six months of 2002, compared to the same period
last year. The increase in both periods is a result of growth in invested assets driven by sales of Funding agreements and structured settlement annuities, less contract benefits, maturities and
withdrawals. Invested assets increased 16.6% as of June 30, 2002 compared to June 30, 2001. The differences between average investment yields and interest-crediting rates were comparable
by product in the second quarter and for the first six months of 2002 when compared to the same periods last year.

Mortality margin,which represents premiums and cost of insurance charges in excess of related policy benefits, declined
$12 million to a loss of $5 million in the second quarter of 2002 when compared to the same period of 2001, and $16 million to a loss of $4 million in the year to date period compared to
the same period in 2001. The declines in both periods were due to a lower death rate than anticipated in the policyholder benefit liability assumptions for immediate annuities with life contingencies.
For immediate annuities with life contingencies an increase in the death rate reduces the number of contract benefit payments to be made under these contracts to be less than anticipated in the
premium. Conversely, life insurance contracts are negatively affected by increases in death rates because beneficiaries receive full death benefits but premiums were collected over a shorter period of
time than expected when the product was priced. The effects of mortality can cause benefits to fluctuate from period to period while

20

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underwriting
and pricing guidelines utilize a long-term view when determining premium rates. As a result, the segment expects to experience fluctuations in mortality margin.

DAC amortizationwas comparable for the second quarter of 2002 and the first six months of 2002 compared to the same periods in the
prior year. The DAC balance for the Structured Financial Products segment was $15 million and $21 million at June 30, 2002 and December 31, 2001, respectively.

Operating costs and expenseswere unchanged during the second quarter of 2002, compared to the second quarter of 2001, and increased 23.8%
to $26 million for the first six months of 2002 compared to the same period of 2001. The increase during the first six months of 2002 over the same period in 2001 is consistent with
management's expectations and reflect the growth within this segment.

STRUCTURED FINANCIAL PRODUCTS INVESTMENT RESULTS

Pretax net investment incomefor the Structured Financial Products segment increased 1.8% in the second quarter of
2002 compared to the same period in 2001, and decreased 0.9% during the first six months of 2002 compared to the same period last year. In the second quarter of 2002, increased Structured Financial
Products investment balances were partly offset by lower portfolio yields as compared to the second quarter of 2001. During the first six months of 2002, increased Structured Financial Products
investment balances were more than offset by lower portfolio yields as compared to the same period in 2001. In the twelve-month period ended June 30, 2002, Structured Financial Products
investment balances, excluding assets invested in Separate Accounts and unrealized capital gains on fixed income securities, increased 16.6%.

After-tax realized capital lossesdecreased to $5 million in the second quarter of 2002 compared to $18 million
in the same period of 2001, and decreased to $23 million in the first six months of 2002 compared to $32 million in the first six months of 2001.

The
following table describes the factors driving the after-tax realized capital gains and losses results.

|                                             |  | Three Months Ended
June 30, |    | Six Months Ended
June 30, |  
|-------------------------------------------- |  | --------------------------- | -- | ------------------------- | -
|
|
|Investment write-downs                       |  | $                           | (6 | )                         | $
|Portfolio trading                            |  |                             | 8  |                           |  
|Valuation of derivative securities           |  |                             | (7 | )                         |  
|                                             |  |                             |    |                           |  
|Realized capital gains and losses, after-tax |  | $                           | (5 | )                         | $
|                                             |  |                             |    |                           |  

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INVESTMENTS

The composition of the investment portfolio for the Company at June 30, 2002 is presented in the table below:

|                           |       | Retail |        | Structured Financial
Products |      | Total |  
|-------------------------- | ----- | ------ | ------ | ----------------------------- | ---- | ----- | -
|
|
|Fixed income securities(1) |       | $      | 24,185 |                               | 81.1 | %     | $
|Mortgage loans             |       |        | 3,163  |                               | 10.6 |       |  
|Equity securities          |       |        | 202    |                               | 0.7  |       |  
|Short-term                 |       |        | 1,554  |                               | 5.2  |       |  
|Policy loans               |       |        | 568    |                               | 1.9  |       |  
|Other                      |       |        | 145    |                               | 0.5  |       |  
|                           |       |        |        |                               |      |       |  
|                           | Total |        | $      | 29,817                        |      | 100.0 | %
|                           |       |        |        |                               |      |       |  

---

Retail
investments were $29.82 billion at June 30, 2002 compared to $26.40 billion at December 31, 2001. The increases in investments were primarily
attributable to amounts invested from positive cash flows from higher balances of security repurchase agreements, positive cash flows generated from operations, and increased unrealized gains on fixed
income securities.

Structured
Financial Products investments were $19.82 billion at June 30, 2002 compared to $17.90 billion at December 31, 2001. The increases in investments
were primarily attributable to amounts invested from positive cash flows from higher balances of security repurchase agreements, positive cash flows generated from operations, and increased unrealized
gains on fixed income securities.

Total
investment balances related to security repurchase agreements, which include the collateral from securities lending and dollar rolls, increased to $2.62 billion at
June 30, 2002 from $1.47 billion at December 31, 2001.

Approximately
92.7% of the Company's fixed income securities portfolio is rated investment grade, which is defined by the Company as a security having a rating from the National
Association of Insurance Commissioners ("NAIC") of 1 or 2, a Moody's rating of Aaa, Aa, A, Baa or a comparable Company internal rating.

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.

The
Company monitors the quality of its fixed income portfolio, in part, by categorizing certain investments as problem, restructured or potential problem. Problem fixed income
securities are securities in default with respect to principal and/or interest and/or securities issued by companies that have gone into bankruptcy subsequent to the Company's acquisition of the
security. Restructured fixed income securities have modified terms and conditions that were not at current market rates or terms at the time of the restructuring. Potential problem fixed income
securities are current with respect to contractual principal and/or interest, but because of other facts and circumstances, management has serious concerns regarding the borrower's ability to pay
future interest and principal, which causes management to believe these securities may be classified as problem or restructured in the

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future.
Provisions for losses are recognized for declines in the value of fixed income securities that are deemed other than temporary. Such write-downs are included in realized capital gains and
losses.

The
following table summarizes the balances of problem, restructured and potential problem fixed income securities.

|                                  |  | June 30, 2002 |     | December 31, 2001 |  
|--------------------------------- |  | ------------- | --- | ----------------- | -
|
|
|Problem                           |  | $             | 151 |                   | $
|Restructured                      |  |               | 3   |                   |  
|Potential problem                 |  |               | 182 |                   |  
|                                  |  |               |     |                   |  
|Total net carrying value          |  | $             | 336 |                   | $
|                                  |  |               |     |                   |  
|Cumulative write-downs recognized |  | $             | 159 |                   |  
|                                  |  |               |     |                   |  

The
Company has experienced an increase in its balance of securities categorized as problem, restructured or potential problem as of June 30, 2002 compared to December 31,
2001. Due to the continued declining economic and market conditions during the first half of 2002, increases in these balances are expected to continue in the future, but the total amount of
securities in these categories are expected to remain a relatively low percentage of the total fixed income securities portfolio.

Commencing
in late July 2002, deterioration of U.S. credit markets significantly escalated. For example, in July the Lehman Brothers U.S. Investment-Grade Credit Index
under-performed U.S. Treasuries by 259 basis points, its second-worst month ever. In particular, the telecommunications, airlines, and energy sectors, in which the Company has holdings, have been
adversely affected. This deterioration, along with reduced market liquidity, could also extend to other segments of the economy and is expected to lead to increased recognition of realized capital
losses from investment write-downs and portfolio trading in subsequent periods.

SEPARATE ACCOUNTS

Separate Accounts assets and liabilities decreased 6.9% to $12.66 billion at June 30, 2002 from $13.59 billion at December 31, 2001.
The decrease was primarily attributable to negative investment performance of Separate Account assets, and surrenders and withdrawals, partly offset by sales of new variable annuity contracts. During
2002, sales of variable annuities continue to be adversely impacted by market volatility.

The
assets and liabilities related to variable annuities, variable life contracts and certain guaranteed investment contracts are legally segregated and reflected as Separate Accounts.
The assets of the Separate Accounts are carried at fair value. Separate Accounts liabilities represent the contractholders' claims to the related assets and are carried at the fair value of the
assets. 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 condensed consolidated statements of operations.

Variable
annuities have contract provisions that provide a benefit of a minimum account value at death, which are referred to as guaranteed minimum death benefits. In addition, certain
variable annuity contracts have provisions that provide for a future minimum income annuitization value used to determine the contractholder's payout benefits, which are referred to as guaranteed
minimum income benefits. At any point in time, the value or amount of these guarantees is dependent upon the investment performance of the underlying Separate Accounts funds, and is not proportional
to the amount of periodic fees assessed against the contractholder for these benefits. The general account is responsible for meeting these guaranteed benefits and receives any fees assessed for these
benefits.

23

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CAPITAL RESOURCES AND LIQUIDITY

Capital resourcesconsist of shareholder's equity. The following table summarizes the Company's capital resources:

|                                       |                            | June 30,
2002 |       | December 31,
2001 |  
|-------------------------------------- | -------------------------- | ------------- | ----- | ----------------- | -
|
|Redeemable preferred stock             |                            | $             | 104   |                   | $
|Stock subscriptions receivable         |                            |               |      |                   |  
|Common stock and retained income       |                            |               | 4,969 |                   |  
|Accumulated other comprehensive income |                            |               | 670   |                   |  
|                                       |                            |               |       |                   |  
|                                       | Total shareholder's equity |               | $     | 5,743             |  
|                                       |                            |               |       |                   |  

Shareholder's equityincreased at June 30, 2002 due to net income, additional capital paid-in, and an increase in
unrealized capital gains.

On
June 28, 2002, Allstate Life increased additional capital paid-in due to the receipt of a $150 million capital contribution from AIC. The cash contribution
was made to strengthen Allstate Life statutory surplus, following the impact of Allstate Life's realized capital losses, an increase in the statutory reserves required for the variable annuity
guaranteed minimum death benefits and growth from new business.

DebtThe Company had no outstanding debt at June 30, 2002 and December 31, 2001, respectively.

Financial Ratings and StrengthThe Company's financial strength ratings are influenced by many factors including the amount
of financial leverage (i.e. debt) and exposure to risks, as well as the current level of operating leverage.

In
February 2002, Standard & Poor's affirmed its December 31, 2001 ratings. Standard & Poor's further revised its outlook for Allstate Life and its rated
subsidiaries and affiliates to "negative" from "stable." This revision is part of an ongoing life insurance industry review being conducted by Standard & Poor's. Moody's and A.M. Best
reaffirmed all of the Company's ratings and outlooks.

24

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LiquidityThe principal sources of funds for the Company include the following activities:



The
principal uses of funds for the Company include the following activities:



Dividends
to Allstate Life from its domestic insurance subsidiaries and dividends Allstate Life can pay to AIC are subject to restriction under the insurance company holding act of the
insurance company's state of domicile. The payment of dividends by Allstate Life is limited by Illinois insurance law to formula amounts based on statutory net income and statutory surplus, as well as
the timing and amount of dividends paid in the preceding twelve months. Based on the greater of 2001 statutory net income or 10% of statutory surplus, the maximum amount of dividends Allstate Life
will be able to pay without prior Illinois Department of Insurance approval at a given point in time during 2002 is $273 million, less dividends paid during the preceding twelve months measured
at that point in time. In the twelve-month period ending June 30, 2002, Allstate Life has paid a total of $185 million. Notification and approval of inter-company lending activities is
also required by the Illinois Department of Insurance for those transactions that exceed formula amounts based on statutory admitted assets and statutory surplus.

Allstate
Life's insurance subsidiaries are domiciled in Illinois, New York, Arizona and Nebraska. Except for those domiciled in New York and one in Nebraska, Allstate Life has 100%
intercompany reinsurance agreements in place with its domestic insurance subsidiaries. Only assets supporting capital and Separate Accounts remain in these subsidiaries. The maximum amount of
dividends Allstate Life's domestic insurance subsidiaries will be able to pay without prior approval of their respective departments of insurance in 2002 is $45 million. In the twelve-month
period ended June 30, 2002, Allstate Life's domestic insurance subsidiaries paid dividends of $45 million, which represented an extraordinary dividend from a subsidiary no longer writing
new business.

A
portion of the Company's diversified product portfolio, primarily fixed annuity and interest-sensitive life insurance products, is subject to discretionary surrender and withdrawal by
contractholders. Total surrender and withdrawal amounts for the Company were $761 million and $725 million in the second quarter of 2002 and 2001, respectively, and were
$1.42 billion and $1.55 billion during the first six months of 2002 and 2001, respectively. As the Company's interest-sensitive life policies and annuity contracts in force grow and age,
the dollar amount of surrenders and withdrawals could increase. While the overall amount of surrenders may increase in the future from

25

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the
aging of the policies and interest rate changes, a significant increase in the level of surrenders relative to total contractholder account balances is not anticipated.

The
Company has entered into an inter-company loan agreement with the Corporation. The amount of inter-company loans available to the Company is at the discretion of the Corporation. The
maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. No amounts were outstanding for the
Company under the inter-company loan agreement at June 30, 2002 and December 31, 2001, respectively.

The
Corporation maintains three credit facilities totaling $1.20 billion as a potential source of funds to meet short-term liquidity requirements. The Company is a
party with the Corporation and AIC to the
following two credit facilities which can be accessed upon the request of the Corporation: a $575 million five-year revolving line of credit expiring in 2006 and a
$575 million 364-day revolving line of credit which was renewed during the second quarter of 2002. The rights to borrow on the five-year and 364-day lines of
credit are subject to requirements that are customary for facilities of this size, type and purpose. For example, the Corporation's ratio of total debt to total capital (as defined in the agreements)
cannot exceed a designated level. This requirement is currently being met and management expects to continue to meet it in the future. The Company has direct access to the two $575 million
dollar lines of credit. There were no borrowings under any of these lines of credit during 2002. The total amount outstanding at any point in time for the Corporation and its subsidiaries, including
the Company, under the combination of the Corporation's commercial paper program and the three credit facilities is limited to $1.20 billion.

The
Company utilizes two SPEs, Allstate Life Funding, LLC and Allstate Financial Global Funding, LLC, exclusively for the issuance of funding agreements supporting
medium-term note programs. The assets and liabilities of Allstate Life Funding, LLC are included in the condensed consolidated statements of financial position. The Company classifies the
medium-term notes issued by Allstate Life Funding, LLC as contractholder funds, using similar accounting treatment as its other investment products. The assets and liabilities of Allstate
Financial Global Funding, LLC are not consolidated on the condensed consolidated statements of financial position due to the existence of a sufficient equity ownership interest by unrelated third
parties in this entity. The Company classifies the funding agreements issued to Allstate Financial Global Funding, LLC as contractholder funds. The Corporation's management does not have an ownership
interest in the SPEs.

At
June 30, 2002, Allstate Financial Global Funding, LLC, the SPE used to issue global medium-term notes, had liabilities of $2.52 billion and in excess of
$76 million of unrelated third party equity. The funding agreements issued by Allstate Life to this SPE are reported on the condensed consolidated statements of financial position as a
component of contractholder funds.

The
Company has inter-company agreements in place that relate to insurance, reinsurance, loans, capitalization and the performance of various services (generally at cost). All material
inter-company transactions have appropriately been eliminated in consolidation. Inter-company transactions among insurance subsidiaries and affiliates have been approved by the applicable domiciliary
state department of insurance as required under applicable laws.

RECENT DEVELOPMENTS

Allstate Life is currently evaluating the benefits of, and taking preliminary steps towards, merging Northbrook Life Insurance Company ("NLIC"), one of its wholly
owned subsidiaries, into the Allstate Life. Substantially all premiums, contract charges, interest credited, policyholder benefits and expenses of NLIC are already ceded to Allstate Life under
existing reinsurance agreements between Allstate Life and NLIC.

26

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FORWARD-LOOKING STATEMENTS AND RISK FACTORS AFFECTING ALLSTATE

This document contains "forward-looking statements" that anticipate results based on management's plans that are subject to uncertainty. These statements are made
subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking
statements do not relate strictly to historical or current facts and may be identified by their use of words like "plans," "expects," "will," "anticipates," "estimates,"
"intends," "believes," "likely" and other words with similar meanings. These statements may address, among other things, the Company's strategy for growth, product development, regulatory approvals,
market position, expenses, financial results and reserves. Forward-looking statements are based on management's current expectations of future events. The Company cannot guarantee that any
forward-looking statement will be accurate. However, management believes that our forward-looking statements are based on reasonable, current expectations and assumptions. We assume no obligation to
update any forward-looking statements as a result of new information or future events or developments.

If
the expectations or assumptions underlying the forward-looking statements prove inaccurate or if risks or uncertainties arise, actual results could differ materially from those
communicated in these forward-looking statements. In addition to the normal risks of business, the Company is subject to significant risk factors, including those listed below which apply to it as an
insurance business and a provider of other financial services.



27

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28

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29

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30

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31

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The
discussion "Regulation and Legal Proceedings" in Part I, Item 1, Note 3 of this Form 10-Q is incorporated herein by reference. That discussion
updates the discussion "Regulation and Legal Proceedings" beginning on page 55 of Allstate Life Insurance Company's Form 10 for the year ended December 31, 2001 dated April 24,
2002.

Item 6. Exhibits and Reports on Form 8-K





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SIGNATURE

Pursuant to the requirements 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.



|August 14, 2002 |  | By |  | /s/ Samuel H. PilchSamuel H. Pilch
Group Vice President and Controller
(chief accounting officer and duly
authorized officer of Registrant)
|--------------- |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------

33

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|Exhibit No. |  | Description                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*       |  | Form of The Allstate Corporation 2001 Equity Incentive Plan Option Award Agreement. Incorporated by reference to Exhibit 10.1 to The Allstate Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002.            
|10.2*       |  | The Allstate Corporation Deferred Compensation Plan, as amended and restated as of June 1, 2002. Incorporated by reference to Exhibit 10.1 to The Allstate Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

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