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

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FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

OR

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

Commission file number 0-31248

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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)


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

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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 MAY 15, 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
March 31, 2002

|        |  |                                                                                                                       |  | PAGE
|------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                                 |  |     
|Item 1. |  | Financial Statements                                                                                                  |  |     
|        |  | Condensed Consolidated Statements of Operations for the Three Month Periods Ended March 31, 2002 and 2001 (unaudited) |  | 1   
|        |  | Condensed Consolidated Statements of Financial Position as of March 31, 2002 (unaudited) and December 31, 2001        |  | 2   
|        |  | Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2002 and 2001 (unaudited) |  | 3   
|        |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                      |  | 4   
|        |  | Independent Accountants' Review Report                                                                                |  | 9   
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 10  
|PART II |  | OTHER INFORMATION                                                                                                     |  |     
|Item 1. |  | Legal Proceedings                                                                                                     |  | 28  

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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
March 31, |      
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | -----
|
|
|
|Revenues                                                                                                           |  |                              |      
|Premiums                                                                                                           |  | $                            | 231  
|Contract charges                                                                                                   |  |                              | 213  
|Net investment income                                                                                              |  |                              | 710  
|Realized capital gains and losses                                                                                  |  |                              | (85  
|                                                                                                                   |  |                              |      
|                                                                                                                   |  |                              | 1,069
|Costs and expenses                                                                                                 |  |                              |      
|Contract benefits                                                                                                  |  |                              | 328  
|Interest credited to contractholders' funds                                                                        |  |                              | 413  
|Amortization of deferred policy acquisition costs                                                                  |  |                              | 87   
|Operating costs and expenses                                                                                       |  |                              | 108  
|                                                                                                                   |  |                              |      
|                                                                                                                   |  |                              | 936  
|Income from operations before income tax expense and cumulative effect of change in accounting principle           |  |                              | 133  
|Income tax expense                                                                                                 |  |                              | 46   
|                                                                                                                   |  |                              |      
|Income before cumulative effect of change in accounting principle                                                  |  |                              | 87   
|Cumulative effect of change in accounting for derivatives and embedded derivative financial instruments, after-tax |  |                              |     
|                                                                                                                   |  |                              |      
|Net income                                                                                                         |  | $                            | 87   
|                                                                                                                   |  |                              |      

See
notes to condensed consolidated financial statements.

1

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ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

|(in millions, except par value data)                                                                                      |                                                                             | March 31,
2002                               |        | December 31,
2001 |       
|------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | ------ | ----------------- | ------
|
|Assets                                                                                                                    |                                                                             |                                              |        |                   |       
|Investments                                                                                                               |                                                                             |                                              |        |                   |       
|                                                                                                                          | Fixed income securities, at fair value (amortized cost $37,136 and $35,718) |                                              | $      | 38,428            |       
|                                                                                                                          | Mortgage loans                                                              |                                              |        | 5,403             |       
|                                                                                                                          | Equity securities, at fair value (cost $218 and $196)                       |                                              |        | 217               |       
|                                                                                                                          | Short-term                                                                  |                                              |        | 1,131             |       
|                                                                                                                          | Policy loans                                                                |                                              |        | 673               |       
|                                                                                                                          | Other                                                                       |                                              |        | 79                |       
|                                                                                                                          |                                                                             |                                              |        |                   |       
|                                                                                                                          |                                                                             | Total investments                            |        |                   | 45,931
|Cash                                                                                                                      |                                                                             |                                              | 188    |                   |       
|Deferred policy acquisition costs                                                                                         |                                                                             |                                              | 3,151  |                   |       
|Reinsurance recoverables, net                                                                                             |                                                                             |                                              | 1,005  |                   |       
|Accrued investment income                                                                                                 |                                                                             |                                              | 508    |                   |       
|Other assets                                                                                                              |                                                                             |                                              | 249    |                   |       
|Separate Accounts                                                                                                         |                                                                             |                                              | 13,799 |                   |       
|                                                                                                                          |                                                                             |                                              |        |                   |       
|                                                                                                                          |                                                                             | Total assets                                 |        | $                 | 64,831
|                                                                                                                          |                                                                             |                                              |        |                   |       
|Liabilities                                                                                                               |                                                                             |                                              |        |                   |       
|Contractholders' funds                                                                                                    |                                                                             | $                                            | 33,775 |                   | $     
|Reserve for life-contingent contract benefits                                                                             |                                                                             |                                              | 8,584  |                   |       
|Unearned premiums                                                                                                         |                                                                             |                                              | 10     |                   |       
|Payable to affiliates, net                                                                                                |                                                                             |                                              | 73     |                   |       
|Other liabilities and accrued expenses                                                                                    |                                                                             |                                              | 2,621  |                   |       
|Deferred income taxes                                                                                                     |                                                                             |                                              | 542    |                   |       
|Separate Accounts                                                                                                         |                                                                             |                                              | 13,799 |                   |       
|                                                                                                                          |                                                                             |                                              |        |                   |       
|                                                                                                                          |                                                                             | Total liabilities                            |        |                   | 59,404
|                                                                                                                          |                                                                             |                                              |        |                   |       
|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                                                                                                |                                                                             |                                              | 717    |                   |       
|Retained income                                                                                                           |                                                                             |                                              | 3,991  |                   |       
|Accumulated other comprehensive income:                                                                                   |                                                                             |                                              |        |                   |       
|                                                                                                                          | Unrealized net capital gains and losses                                     |                                              |        | 609               |       
|                                                                                                                          | Unrealized foreign currency translation adjustments                         |                                              |        | 1                 |       
|                                                                                                                          |                                                                             |                                              |        |                   |       
|                                                                                                                          |                                                                             | Total accumulated other comprehensive income |        |                   | 610   
|                                                                                                                          |                                                                             |                                              |        |                   |       
|                                                                                                                          |                                                                             | Total shareholder's equity                   |        |                   | 5,427 
|                                                                                                                          |                                                                             |                                              |        |                   |       
|                                                                                                                          |                                                                             | Total liabilities and shareholder's equity   |        | $                 | 64,831
|                                                                                                                          |                                                                             |                                              |        |                   |       

See
notes to condensed consolidated financial statements.

2

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ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |                                                                                                        | Three Months Ended
March 31,                  |                                          
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | --------------------------------------------- | -----------------------------------------
|
|
|
|Cash flows from operating activities                                              |                                                                                                        |                                               |                                          
|Net income                                                                        |                                                                                                        | $                                             | 87                                       
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                                        |                                               |                                          
|                                                                                  | Amortization and other non-cash items                                                                  |                                               |                                          
|                                                                                  | Realized capital gains and losses                                                                      |                                               |                                          
|                                                                                  | Cumulative effect of change in accounting for derivative and embedded derivative financial instruments |                                               |                                          
|                                                                                  | Interest credited to contractholders' 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                                             |                                                                                                        |                                               | (183                                     
|Change in other investments, net                                                  |                                                                                                        |                                               | (12                                      
|                                                                                  |                                                                                                        |                                               |                                          
|                                                                                  |                                                                                                        |                                               | Net cash used in investing activities    
|                                                                                  |                                                                                                        |                                               |                                          
|Cash flows from financing activities                                              |                                                                                                        |                                               |                                          
|Proceeds from issuance of redeemable preferred stock                              |                                                                                                        |                                               | 14                                       
|Contractholder fund deposits                                                      |                                                                                                        |                                               | 2,099                                    
|Contractholder fund withdrawals                                                   |                                                                                                        |                                               | (971                                     
|Dividends paid                                                                    |                                                                                                        |                                               | (44                                      
|                                                                                  |                                                                                                        |                                               |                                          
|                                                                                  |                                                                                                        |                                               | Net cash provided by financing activities
|                                                                                  |                                                                                                        |                                               |                                          
|Net increase in cash                                                              |                                                                                                        |                                               | 58                                       
|Cash at beginning of period                                                       |                                                                                                        |                                               | 130                                      
|                                                                                  |                                                                                                        |                                               |                                          
|Cash at end of period                                                             |                                                                                                        | $                                             | 188                                      
|                                                                                  |                                                                                                        |                                               |                                          

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 March 31, 2002, and for the three month periods ended March 31, 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 included in the Form 10 for the year ended December 31, 2001 dated 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.

New accounting standards

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("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 as opposed to an undiscounted basis. With respect to goodwill amortization, the Company adopted SFAS No. 142
effective January 1, 2002. The result of the application of the non-amortization provisions of SFAS 142 for goodwill is not material for the three months ended
March 31, 2002. At March 31, 2002, the Company had goodwill of $8 million. Pursuant to transition provisions of SFAS No. 142, the Company will complete its test for
goodwill impairment during the second quarter 2002 and, if impairment is indicated, record such impairment as a cumulative effect of accounting change effective January 1, 2002. The cumulative
effect of accounting change recorded will not be material to the consolidated results of operations or financial position of the Company.

2.    Reinsurance

The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company continues to have primary liability as the direct insurer for
risks reinsured. 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. The Company cedes a portion of the mortality risk on certain term life policies with a pool of reinsurers.

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.

4

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

|                              |                                                   | Three Months Ended
March 31, |    
|----------------------------- | ------------------------------------------------- | ---------------------------- | ---
|
|
|Premiums and Contract Charges |                                                   |                              |    
|Direct                        |                                                   | $                            | 511
|Assumed                       |                                                   |                              |    
|                              | Affiliate                                         |                              |    
|                              | Non-affiliate                                     |                              |    
|Cedednon-affiliate           |                                                   |                              | (93
|                              |                                                   |                              |    
|                              | Premiums and contract charges, net of reinsurance |                              | $  
|                              |                                                   |                              |    

The
effects of reinsurance on contract benefits are as follows:

|                  |               | Three Months Ended
March 31,          |    
|----------------- | ------------- | ------------------------------------- | ---
|
|
|Contract Benefits |               |                                       |    
|Direct            |               | $                                     | 420
|Assumed           |               |                                       |    
|                  | Affiliate     |                                       |    
|                  | Non-affiliate |                                       |    
|Ceded             |               |                                       |    
|                  | Affiliate     |                                       |    
|                  | Non-affiliate |                                       |    
|                  |               |                                       |    
|                  |               | Contract benefits, net of reinsurance |    
|                  |               |                                       |    

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. Public and 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 is defending various lawsuits that allege that it engaged in business or sales practices inconsistent with various state insurance statutes. One statewide class action
alleges that the Company violated Florida insurance statutes in the sale of credit insurance. The judge has granted a partial summary judgment against the Company; however, damages have not yet been
determined. The Company is vigorously defending these lawsuits. The outcome of these disputes is currently uncertain.

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, some of which involve claims for substantial and/or indeterminate amounts (including punitive
and treble damages) and the outcomes of which are unpredictable. This litigation is based on a variety of issues. 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.

5

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4.    Business Segments

Summarized financial performance data for each of the Company's reportable segments for the three months ended March 31, are as follows:

|                                                                                                   |                                                                                                                                  | Three months Ended
March 31,                                                                                    |    
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ---
|
|
|Income from operations before income taxes and cumulative effect of change in accounting principle |                                                                                                                                  |                                                                                                                 |    
|Retail                                                                                             |                                                                                                                                  |                                                                                                                 |    
|Premiums and contract charges                                                                      |                                                                                                                                  | $                                                                                                               | 356
|Net investment income                                                                              |                                                                                                                                  |                                                                                                                 | 438
|Realized capital gains and losses                                                                  |                                                                                                                                  |                                                                                                                 | (57
|Contract benefits                                                                                  |                                                                                                                                  |                                                                                                                 | 150
|Interest credited to contractholders' funds                                                        |                                                                                                                                  |                                                                                                                 | 291
|Amortization of deferred policy acquisition costs                                                  |                                                                                                                                  |                                                                                                                 | 86 
|Operating costs and expenses                                                                       |                                                                                                                                  |                                                                                                                 | 94 
|                                                                                                   |                                                                                                                                  |                                                                                                                 |    
|                                                                                                   | Retail income from operations before income taxes and cumulative effect of change in accounting principle                        |                                                                                                                 |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |    
|Structured Financial Products                                                                      |                                                                                                                                  |                                                                                                                 |    
|Premiums and contract charges                                                                      |                                                                                                                                  |                                                                                                                 | 88 
|Net investment income                                                                              |                                                                                                                                  |                                                                                                                 | 272
|Realized capital gains and losses                                                                  |                                                                                                                                  |                                                                                                                 | (28
|Contract benefits                                                                                  |                                                                                                                                  |                                                                                                                 | 178
|Interest credited to contractholders' funds                                                        |                                                                                                                                  |                                                                                                                 | 122
|Amortization of deferred policy acquisition costs                                                  |                                                                                                                                  |                                                                                                                 | 1  
|Operating costs and expenses                                                                       |                                                                                                                                  |                                                                                                                 | 14 
|                                                                                                   |                                                                                                                                  |                                                                                                                 |    
|                                                                                                   | Structured Financial Products income from operations before income taxes and cumulative effect of change in accounting principle |                                                                                                                 |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |    
|                                                                                                   |                                                                                                                                  | Consolidated income from operations before income taxes and cumulative effect of change in accounting principle |    
|                                                                                                   |                                                                                                                                  |                                                                                                                 |    

6

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Summarized
revenue data for each of the Company's reportable segments for the three months ended March 31, are as follows:

|                                  |                                     | Three months ended
March 31, |    
|--------------------------------- | ----------------------------------- | ---------------------------- | ---
|
|
|Revenues                          |                                     |                              |    
|Retail                            |                                     |                              |    
|Premiums and contract charges     |                                     | $                            | 356
|Net investment income             |                                     |                              | 438
|Realized capital gains and losses |                                     |                              | (57
|                                  |                                     |                              |    
|                                  | Total Retail                        |                              |    
|                                  |                                     |                              |    
|Structured Financial Products     |                                     |                              |    
|Premiums and contract charges     |                                     |                              | 88 
|Net investment income             |                                     |                              | 272
|Realized capital gains and losses |                                     |                              | (28
|                                  |                                     |                              |    
|                                  | Total Structured Financial Products |                              |    
|                                  |                                     |                              |    
|                                  | Consolidated Revenues               |                              | $  
|                                  |                                     |                              |    

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 March 31, |    
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------- | ---
|
|
|
|Unrealized net capital gains and losses and net gains on derivative financial instruments |                                                                                |                              |    
|                                                                                          | Unrealized holding (losses) gains arising during the period                    |                              | $  
|                                                                                          | Less: reclassification adjustments                                             |                              |    
|                                                                                          |                                                                                |                              |    
|Unrealized net capital gains and losses                                                   |                                                                                |                              | (42
|                                                                                          | Cumulative effect of change in accounting for derivative financial instruments |                              |    
|                                                                                          | Net gains on derivative financial instruments arising during the period        |                              |    
|                                                                                          | Less: reclassification adjustments                                             |                              |    
|                                                                                          |                                                                                |                              |    
|Net gains on derivative financial instruments                                             |                                                                                |                              |   
|                                                                                          |                                                                                |                              |    
|Unrealized net capital (losses) gains and net gains on derivative financial instruments   |                                                                                |                              | (42
|                                                                                          |                                                                                |                              |    
|Other comprehensive income                                                                |                                                                                | $                            | (42
|                                                                                          |                                                                                |                              |    
|Net income                                                                                |                                                                                |                              |    
|                                                                                          |                                                                                |                              |    
|Comprehensive income                                                                      |                                                                                |                              |    
|                                                                                          |                                                                                |                              |    

8

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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 March 31, 2002, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 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
May 9, 2002

9

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Month Periods Ended March 31, 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 in Item 2. and Item 13. on Form 10 for the year ended
December 31, 2001.

Consolidated Revenues

|For the three months ended March 31,                        |  | 2002 |       | 2001 |  
|----------------------------------------------------------- |  | ---- | ----- | ---- | -
|
|Retail premiums and contract charges                        |  | $    | 356   |      | $
|Structured Financial Products premiums and contract charges |  |      | 88    |      |  
|Net investment income                                       |  |      | 710   |      |  
|Realized capital gains and losses                           |  |      | (85   | )    |  
|                                                            |  |      |       |      |  
|Total consolidated revenues                                 |  | $    | 1,069 |      | $
|                                                            |  |      |       |      |  

Consolidated
revenues increased 2.0% in the first quarter of 2002 when compared to the first quarter of 2001. Increased premiums and contract charges in the Structured Financial Products
segment as well as increases in contract charges in the Retail segment were offset by decreases in premiums in the Retail segment. Net investment income increased 1.4% primarily due to increased
investment balances, partially offset by lower portfolio yields.

Consolidated Net Income

|For the three months ended March 31, |                               | 2002 |    | 2001 |  
|------------------------------------ | ----------------------------- | ---- | -- | ---- | -
|
|Net income                           |                               |      |    |      |  
|                                     | Retail                        |      | $  | 76   |  
|                                     | Structured Financial Products |      |    | 11   |  
|                                     |                               |      |    |      |  
|Total consolidated net income        |                               | $    | 87 |      | $
|                                     |                               |      |    |      |  

The
Company experienced a 29.9% increase in net income in the first quarter of 2002 as compared to the first quarter of 2001. This is due to increased operating results in the Structured
Financial Products business due to investment margin growth and increased operating results in the Retail business due to improved mortality margins and lower operating expenses.

10

---

RETAIL OPERATIONS

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

|For the three months ended March 31,                           |  | 2002 |        | 2001 |  
|-------------------------------------------------------------- |  | ---- | ------ | ---- | -
|
|Statutory premiums and deposits(1)                             |  | $    | 1,625  |      | $
|                                                               |  |      |        |      |  
|Investments                                                    |  | $    | 27,223 |      | $
|Separate Accounts assets                                       |  |      | 13,422 |      |  
|                                                               |  |      |        |      |  
|Investments, including Separate Accounts assets                |  | $    | 40,645 |      | $
|                                                               |  |      |        |      |  
|GAAP Premiums                                                  |  | $    | 151    |      | $
|Contract charges                                               |  |      | 205    |      |  
|Net investment income                                          |  |      | 438    |      |  
|                                                               |  |      |        |      |  
|                                                               |  |      | 794    |      |  
|                                                               |  |      |        |      |  
|Contract benefits                                              |  |      | 150    |      |  
|Interest credited to contractholders' funds                    |  |      | 291    |      |  
|Amortization of deferred policy acquisition costs ("DAC")      |  |      | 92     |      |  
|Operating costs and expenses                                   |  |      | 94     |      |  
|                                                               |  |      |        |      |  
|                                                               |  |      | 627    |      |  
|                                                               |  |      |        |      |  
|Operating income before tax                                    |  |      | 167    |      |  
|Income tax expense                                             |  |      | 58     |      |  
|                                                               |  |      |        |      |  
|Operating income(2)                                            |  |      | 109    |      |  
|Realized capital gains and losses, after-tax(3)                |  |      | (33    | )    |  
|Cumulative effect of change in accounting principle, after-tax |  |      |       |      |  
|                                                               |  |      |        |      |  
|Net income                                                     |  | $    | 76     |      | $
|                                                               |  |      |        |      |  

---

|For the Three Months Ended March 31,         |  | 2002 |     | 2001 |  
|-------------------------------------------- |  | ---- | --- | ---- | -
|
|Realized capital gains and losses            |  | $    | (57 | )    | $
|Reclassification of Amortization of DAC      |  |      | 6   |      |  
|Reclassification of Income tax benefit       |  |      | 18  |      |  
|                                             |  |      |     |      |  
|Realized capital gains and losses, after-tax |  | $    | (33 | )    | $
|                                             |  |      |     |      |  

11

---

Statutory premiums and deposits

Statutory premiums and deposits is 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 treated as liabilities. The statutory accounting practices
differ in certain, material aspects from generally accepted accounting principles in the United States of America ("GAAP").

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

|For the three months ended March 31,  |                            | 2002            |       | 2001 
|------------------------------------- | -------------------------- | --------------- | ----- | -----
|
|Life products                         |                            |                 |       |      
|                                      | Interest-sensitive         |                 | $     | 212  
|                                      | Traditional life           |                 |       | 87   
|                                      | Other                      |                 |       | 75   
|                                      |                            |                 |       |      
|                                      | Total life products        |                 |       | 374  
|Investment contracts                  |                            |                 |       |      
|                                      |                            | Fixed annuities |       |      
|                                      | Variable Separate Accounts |                 |       | 607  
|                                      |                            |                 |       |      
|                                      | Total investment products  |                 |       | 1,251
|                                      |                            |                 |       |      
|Total statutory premiums and deposits |                            | $               | 1,625 |      
|                                      |                            |                 |       |      

Total
Retail statutory premiums and deposits decreased 8.8% to $1.63 billion in the first quarter of 2002 from $1.78 billion in the first quarter of 2001. This decrease was
due primarily to declines in Variable Separate Accounts product sales. These declines were partly offset by increased sales of fixed annuities and interest-sensitive life products. The decline in
Variable Separate Accounts product sales is a reflection of the continuing overall decline in the variable annuity market caused by economic and market conditions during the quarter.

The
Company's sales for this segment during 2002 continue to reflect changes in consumer preferences. Through the use of multiple distribution channels and a wide range of product
offerings, the Company is well positioned to meet changing consumer needs.

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

|For the three months ended March 31,  |  | 2002 |       | 2001
|------------------------------------- |  | ---- | ----- | ----
|
|Allstate agencies                     |  | $    | 352   |     
|Independent agents                    |  |      | 400   |     
|Financial services firms              |  |      | 793   |     
|Direct marketing                      |  |      | 80    |     
|                                      |  |      |       |     
|Total statutory premiums and deposits |  | $    | 1,625 |     
|                                      |  |      |       |     

12

---

GAAP premiums and contract charges

GAAP premiums and contract charges represent premium generated from traditional life products which have significant mortality or morbidity risk, and contract
charges generated from interest-sensitive life products and investment contracts which classify deposits 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:

|For the three months ended March 31,     |                            | 2002                   |     | 2001
|---------------------------------------- | -------------------------- | ---------------------- | --- | ----
|
|Premiums                                 |                            |                        |     |     
|                                         | Traditional life           |                        | $   | 95  
|                                         | Other                      |                        |     | 56  
|                                         |                            |                        |     |     
|                                         |                            | Total premiums         |     |     
|                                         |                            |                        |     |     
|Contract charges                         |                            |                        |     |     
|                                         | Interest-sensitive life    |                        |     | 139 
|                                         | Variable Separate Accounts |                        |     | 47  
|                                         | Investment contracts       |                        |     | 19  
|                                         |                            |                        |     |     
|                                         |                            | Total contract charges |     |     
|                                         |                            |                        |     |     
|Total GAAP Premiums and Contract Charges |                            | $                      | 356 |     
|                                         |                            |                        |     |     

In
the first quarter of 2002, total Retail premiums decreased 11.2% compared to the same period of 2001 due to a decrease in other premiums. The decrease in other premiums is comprised
of a decrease in accident and health premiums that result from a reinsurance agreement with an alliance partner entered into during the fourth quarter of 2001.

Total
Retail contract charges increased 6.2% during the first quarter of 2002 compared to the same period in 2001 due to net new deposits, partly offset by declines in account balances
due to market conditions. Contract charges on Variable Separate Accounts products are generally calculated as a percentage of each account value and therefore are impacted by market volatility.

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

|For the three months ended March 31, |                        | 2002 |     | 2001
|------------------------------------ | ---------------------- | ---- | --- | ----
|
|Premiums                             |                        |      |     |     
|                                     | Allstate agencies      |      | $   | 52  
|                                     | Independent agents     |      |     | 15  
|                                     | Direct marketing       |      |     | 84  
|                                     |                        |      |     |     
|                                     | Total premiums         |      |     | 151 
|                                     |                        |      |     |     
|Contract charges                     |                        |      |     |     
|Allstate agencies                    |                        |      | 91  |     
|Independent agents                   |                        |      | 65  |     
|Financial services firms             |                        |      | 49  |     
|                                     | Total contract charges |      |     | 205 
|                                     |                        |      |     |     
|Total premiums and contract charges  |                        | $    | 356 |     
|                                     |                        |      |     |     

13

---

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 changes in accounting principle, after-tax, excluding the after-tax effects of realized capital gains and losses. In this management measure, the effects
of realized capital gains and losses 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 11. The Company's method of calculating operating income may be different from the method used by other companies and therefore comparability may be limited.

|For the three months ended March 31, |  | 2002 |      | 2001 |  
|------------------------------------ |  | ---- | ---- | ---- | -
|
|Investment margin                    |  | $    | 141  |      | $
|Mortality margin                     |  |      | 121  |      |  
|Maintenance charges                  |  |      | 74   |      |  
|Surrender charges                    |  |      | 17   |      |  
|Operating costs and expenses         |  |      | (186 | )    |  
|Income tax expense on operations     |  |      | (58  | )    |  
|                                     |  |      |      |      |  
|Operating income                     |  | $    | 109  |      | $
|                                     |  |      |      |      |  

In
the first quarter of 2002, operating income for the Retail segment increased 10.1% over the first quarter of 2001 due primarily to increases in the mortality margin and lower
operating costs and expenses partially offset by a decrease in the investment margin.

Investment margin,which represents the excess of investment income earned over interest credited to policyholders and contractholders and
interest expense, decreased 6.0% for this segment during the first quarter of 2002 compared to the same period of 2001. The decrease is a result of a decline in invested asset yields during the period
partially offset by a 10.8% growth in invested assets compared to the first quarter of 2001 as well as lower crediting rates. In late 2001 and the first quarter of 2002, management has been more
aggressive in reducing crediting rates on some products, in accordance with policy contract terms, to reflect the general decline in invested asset yields. The differences between average investment
yields and interest-crediting rates were comparable by product in the first quarter of 2002 and the prior year first quarter.

Mortality margin,which represents premiums and cost of insurance charges in excess of related policy benefits, increased 27.4% for this
segment during the first quarter of 2002 compared to the same period of 2001due to increased revenue growth from new business and lower death benefits on Variable Separate Accounts contracts.
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.

Costs and expensesdecreased 2.6% during the first quarter of 2002 compared to the same period of 2001 due to higher DAC amortization
being more than offset by lower distribution expenses incurred on growth initiatives and back office operations.

14

---

RETAIL INVESTMENT RESULTS

Pretax net investment incomeincreased 4.8% for the Retail segment in the first quarter of 2002 compared to the same period in 2001. The increase was
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 10.8%.

After-tax realized capital lossesfor this segment were $33 million in the first quarter of 2002, a decrease of 8.3%
compared to the first quarter of 2001. 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.

|For the three months ended March 31,         |  | 2002 |     | 2001 |  
|-------------------------------------------- |  | ---- | --- | ---- | -
|
|Investment write-downs                       |  | $    | (11 | )    | $
|Portfolio trading                            |  |      | (18 | )    |  
|Valuation of derivative securities           |  |      | (8  | )    |  
|                                             |  |      |     |      |  
|Subtotal                                     |  |      | (37 | )    |  
|Reclassification of amortization of DAC      |  |      | 4   |      |  
|                                             |  |      |     |      |  
|Realized capital gains and losses, after-tax |  | $    | (33 | )    | $
|                                             |  |      |     |      |  

15

---

STRUCTURED FINANCIAL PRODUCTS OPERATIONS

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

|For the three months ended March 31,                           |  | 2002 |        | 2001 |  
|-------------------------------------------------------------- |  | ---- | ------ | ---- | -
|
|Statutory premiums and deposits(1)                             |  | $    | 990    |      | $
|                                                               |  |      |        |      |  
|Investments                                                    |  | $    | 18,708 |      | $
|Separate Accounts assets                                       |  |      | 377    |      |  
|                                                               |  |      |        |      |  
|Investments, including Separate Accounts assets                |  | $    | 19,085 |      | $
|                                                               |  |      |        |      |  
|GAAP Premiums                                                  |  | $    | 80     |      | $
|Contract charges                                               |  |      | 8      |      |  
|Net investment income                                          |  |      | 272    |      |  
|                                                               |  |      |        |      |  
|                                                               |  |      | 360    |      |  
|                                                               |  |      |        |      |  
|Contract benefits                                              |  |      | 178    |      |  
|Interest credited to contractholders' funds                    |  |      | 122    |      |  
|Amortization of deferred policy acquisition costs              |  |      | 1      |      |  
|Operating costs and expenses                                   |  |      | 14     |      |  
|                                                               |  |      |        |      |  
|                                                               |  |      | 315    |      |  
|                                                               |  |      |        |      |  
|Operating income before tax                                    |  |      | 45     |      |  
|Income tax expense                                             |  |      | 16     |      |  
|                                                               |  |      |        |      |  
|Operating income(2)                                            |  |      | 29     |      |  
|Realized capital gains and losses, after-tax(3)                |  |      | (18    | )    |  
|Cumulative effect of change in accounting principle, after-tax |  |      |       |      |  
|                                                               |  |      |        |      |  
|Net income                                                     |  | $    | 11     |      | $
|                                                               |  |      |        |      |  

---

|For the Three Months Ended March 31,         |  | 2002 |     | 2001 |  
|-------------------------------------------- |  | ---- | --- | ---- | -
|
|Realized capital gains and losses            |  | $    | (28 | )    | $
|Reclassification of Amortization of DAC      |  |      |    |      |  
|Reclassification of Income tax benefit       |  |      | 10  |      |  
|                                             |  |      |     |      |  
|Realized capital gains and losses, after-tax |  | $    | (18 | )    | $
|                                             |  |      |     |      |  

16

---

Statutory premiums and deposits

Statutory premiums and deposits is 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 treated as liabilities. The statutory accounting practices differ in certain, material aspects from GAAP.

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

|For the three months ended March 31,  |                                 | 2002 |     | 2001
|------------------------------------- | ------------------------------- | ---- | --- | ----
|
|Investment contracts                  |                                 |      |     |     
|                                      | Funding agreements              |      | $   | 798 
|                                      | Structured settlement annuities |      |     | 182 
|                                      | Guaranteed investment contracts |      |     | 9   
|                                      | Other                           |      |     | 1   
|                                      |                                 |      |     |     
|Total statutory premiums and deposits |                                 | $    | 990 |     
|                                      |                                 |      |     |     

Total
statutory premiums and deposits in the first quarter of 2002 were comparable to the same period of 2001. The increase in sales of structured settlement annuities was more than
offset by lower sales of funding agreements to special purpose entities ("SPEs") issuing medium-term notes, as compared to the relatively high level during the first quarter of 2001 as
well as a decrease in sales of guaranteed investment contracts. Period to period fluctuations in sales of structured financial products, including funding agreements, are largely due to management's
assessment of market opportunities.

GAAP premiums and contract charges

GAAP premiums and contract charges represent 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 contractholder funds. Contract charges are assessed against the contractholder account balance for maintenance,
administration, cost of issuance and early withdrawal.

In
the first quarter of 2002, premiums from structured settlement annuities with life contingencies increased 42.9% to $80 million compared to 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 immediate annuities without
life contingencies are directly recorded as liabilities and therefore 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 were $8 million during the first quarter of 2002 compared to $6 million in the same period of 2001.

17

---

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 changes in accounting principle, after-tax, excluding the after-tax effects of realized capital gains and losses. In this management measure, the effects
of realized capital gains and losses 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 16. The Company's method of calculating operating income may be different from the method used by other companies and therefore comparability may be limited.

|For the three months ended March 31, |  | 2002 |     | 2001 |  
|------------------------------------ |  | ---- | --- | ---- | -
|
|Investment margin                    |  | $    | 52  |      | $
|Mortality margin                     |  |      | 1   |      |  
|Maintenance charges                  |  |      | 7   |      |  
|Operating costs and expenses         |  |      | (15 | )    |  
|Income tax expense on operations     |  |      | (16 | )    |  
|                                     |  |      |     |      |  
|Operating income                     |  | $    | 29  |      | $
|                                     |  |      |     |      |  

In
the first quarter of 2002, operating income for the Structured Financial Products segment increased 20.8% due primarily to increases in the investment margin partially offset by
increases in operating costs and expenses.

Investment margin,which represents the excess of investment income earned over interest credited to policyholders and contractholders and
interest expense, increased 48.6% for this segment during the first quarter of 2002 compared to the same period of 2001. The increase is a result of a 17.3% growth in invested assets compared to the
first quarter of 2001 as well as lower crediting rates offered to structured financial products' customers partially offset by a decline in invested asset yields. The growth in invested assets
reflects the net growth in in-force business during the year from new sales, less contract benefits and maturities.

Mortality margin,which represents premiums and cost of insurance charges in excess of related policy benefits, decreased 80.0% for this
segment to $1 million during the first quarter of 2002 compared to the same period of 2001 due to unfavorable mortality results on immediate annuities, which for these products indicate a lower
death rate. Most life insurance contracts are negatively affected by increases in death rates as policyholders receive their full death benefits even though premiums are collected over a shorter
period of time than priced for based on their life expectancy from actuarial mortality tables. The immediate annuities sold with a life contingency through the Structured Financial Products segment
act as a hedge or offset to this risk. An increase in the death rate reduces the number of contract payments to be made under these contracts, while the premium, priced and collected
up-front, is determined using the expected number of payments based on their life expectancy from actuarial mortality tables. Mortality loss experience can cause benefits to fluctuate from
period to period while underwriting and pricing guidelines utilize a long-term view of the trends in mortality when determining premium rates. Therefore, the segment expects some
short-term fluctuations in mortality margin.

Costs and expensesincreased 50.0% to $15 million during the first quarter of 2002 compared to the same period of 2001. The
increase is consistent with management's expectations and is at an appropriate level to support growth initiatives.

18

---

STRUCTURED FINANCIAL PRODUCTS INVESTMENT RESULTS

Pretax net investment incomefor the Structured Financial Products segment decreased 3.5% in the first quarter of
2002 compared to the same period in 2001. The decrease was due to increased Structured Financial Products investment balances more than offset by lower portfolio yield from declines in short-term
interest rates on securities used to support the short-term rates on the funding agreements. Structured Financial Products investment balances, excluding assets invested in Separate Accounts and
unrealized capital gains on fixed income securities, increased 17.3%.

After-tax realized capital lossesincreased to $18 million in the first quarter of 2002 compared to $14 million
in the same period of 2001. 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.

|For the three months ended March 31,         |  | 2002 |     | 2001 |  
|-------------------------------------------- |  | ---- | --- | ---- | -
|
|Investment write-downs                       |  | $    | (6  | )    | $
|Portfolio trading                            |  |      | (13 | )    |  
|Valuation of derivative securities           |  |      | 1   |      |  
|                                             |  |      |     |      |  
|Realized capital gains and losses, after-tax |  | $    | (18 | )    | $
|                                             |  |      |     |      |  

INVESTMENTS

The composition of the investment portfolio for the Company at March 31, 2002 is presented in the table below:

|(in millions)              |       |   |        | Percent
to total |     
|-------------------------- | ----- | - | ------ | ---------------- | ----
|Fixed income securities(1) |       | $ | 38,428 |                  | 83.6
|Mortgage loans             |       |   | 5,403  |                  | 11.7
|Equity securities          |       |   | 217    |                  | 0.5 
|Short-term                 |       |   | 1,131  |                  | 2.5 
|Policy loans               |       |   | 673    |                  | 1.5 
|Other                      |       |   | 79     |                  | 0.2 
|                           |       |   |        |                  |     
|                           | Total |   | $      | 45,931           |     
|                           |       |   |        |                  |     

---

Total
investments increased to $45.93 billion at March 31, 2002 from $44.30 billion at December 31, 2001. The increase was due to positive cash flows
generated from operations, partially offset by decreased unrealized capital gains on fixed income securities.

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.

19

---

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 that lead management to believe these securities may be classified as problem or restructured in the 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 problem, restructured and potential problem fixed income securities at March 31, 2002 and 2001.

|                                  |  | 2002 |     | 2001 |  
|--------------------------------- |  | ---- | --- | ---- | -
|
|Problem                           |  | $    | 127 |      | $
|Restructured                      |  |      | 12  |      |  
|Potential problem                 |  |      | 103 |      |  
|                                  |  |      |     |      |  
|Total net carrying value          |  | $    | 242 |      | $
|                                  |  |      |     |      |  
|Cumulative write-downs recognized |  | $    | 141 |      |  
|                                  |  |      |     |      |  

While
the Company has a larger balance of securities categorized as problem, restructured or potential problem as of March 31, 2002 compared to a year earlier, primarily due to
economic and market conditions during the year, the total amount of securities in these categories remains a relatively low percentage of the total fixed income securities portfolio.

SEPARATE ACCOUNTS

Separate Accounts assets and liabilities increased 1.6% to $13.80 billion at March 31, 2002 from December 31, 2001. The increase was
primarily attributable to sales of variable annuity contracts, transfers from the general account, unrealized gains in the Separate Accounts' investment portfolios, partially offset by surrenders and
withdrawals. During 2002, sales of variable annuity contracts 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.

Certain
variable annuity contracts have provisions wherein the Company contractually guarantees either a minimum return or account value upon death or annuitization.

20

---

CAPITAL RESOURCES AND LIQUIDITY

Capital resources

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

|(in millions)                          |                            | March 31, 2002 |       | December 31, 2001
|-------------------------------------- | -------------------------- | -------------- | ----- | -----------------
|Redeemable preferred stock             |                            | $              | 104   |                  
|Common stock and retained income       |                            |                | 4,713 |                  
|Accumulated other comprehensive income |                            |                | 610   |                  
|                                       |                            |                |       |                  
|                                       | Total shareholder's equity |                | $     | 5,427            
|                                       |                            |                |       |                  

Shareholder's equity

Shareholder's equity increased at March 31, 2002 due to Net income and the issuance of additional shares of redeemable preferred
stockSeries A partially offset by a decrease in unrealized capital gains and a dividend of $44 million paid to AIC.

Debt

The Company had no outstanding debt at March 31, 2002 and December 31, 2001, respectively. 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 March 31, 2002
and December 31, 2001, respectively. The Corporation uses commercial paper borrowings and can use bank lines of credit to fund inter-company borrowings.

Financial Ratings and Strength

Financial strength ratings have become an increasingly important factor in establishing the competitive position of insurance companies and, generally, may be
expected to have an effect on an insurance company's sales. On an ongoing basis, rating agencies review the financial performance and condition of insurers. A multiple level downgrade, while not
expected, could have a material adverse effect on the Company's business, financial condition and results of operations.

In
February 2002, Standard & Poor's affirmed its December 31, 2001 ratings. Standard & Poor's 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 recently initiated by Standard & Poor's. Moody's and A.M. Best reaffirmed
all of the Company's ratings and outlooks.

21

---

Liquidity

The 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 2001 statutory net income, 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. At March 31, 2002, Allstate Life has paid a total of $185 million during the preceding twelve months.

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 the relevant state departments of insurance in 2002 is $45 million, less dividends paid
during the preceeding twelve months measured at that point in time. In the twelve-month period beginning April 1, 2001, Allstate Life's domestic insurance subsidiaries paid dividends of
$45 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.

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 $664 million and $827 million in the first quarter 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

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in
the future, a significant increase in the level of surrenders relative to total contractholder account balances is not anticipated.

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 to the following two credit facilities: a $575 million five-year revolving line of credit expiring in 2006 and a $575 million 364-day revolving line of
credit expiring in 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 either of these
lines of credit during 2002. The Corporation guarantees payment of all amounts due under the agreements. The total amount outstanding at any point in time by 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's use of off-balance sheet arrangements is limited to one SPE used to issue global medium- term notes ("GMTNs") to institutional investors. Management of the
Corporation has not invested in the SPE. At March 31, 2002, the SPE used to issue GMTNs had assets of $2.27 billion, liabilities of $2.20 billion and in excess of
$68 million of unrelated third party equity. The funding agreements issued by the Company to the SPE are reported on the 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 state's of
domicile department of insurance as required under applicable laws.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

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.

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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.

|             | Allstate Life Insurance Company
(Registrant)                            
|------------ | ------------------------------------------------------------------------
|             |                                                                         
|May 14, 2002 | By                                                                      
|             | Samuel H. Pilch, Group Vice President and
Controller                    
|             | (Principal Accounting Officer and duly
authorized Officer of Registrant)

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