---

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

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FORM 10-Q

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

|(Mark One)                                   |                                                                                         
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
|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                                                                       |  | 36-2554642                          
|------------------------------------------------------------------------------ |  | ------------------------------------
|(State of Incorporation)                                                       |  | (I.R.S. Employer Identification No.)
|3100 Sanders Road
Northbrook, Illinois(Address of principal executive offices) |  | 60062(Zip code)                     

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

---

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ý    No o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

As
of July 31, 2003, the registrant had 23,800 common shares, $227 par value, outstanding, all of which are held by Allstate Insurance Company.

---

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ALLSTATE LIFE INSURANCE COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2003

|PART I  |  | FINANCIAL INFORMATION                                                                                                              |  | PAGE
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Item 1. |  | Financial Statements                                                                                                               |  |     
|        |  | Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended June 30, 2003 and 2002 (unaudited) |  | 1   
|        |  | Condensed Consolidated Statements of Financial Position as of June 30, 2003 (unaudited) and December 31, 2002                      |  | 2   
|        |  | Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2003 and 2002 (unaudited)                 |  | 3   
|        |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 4   
|        |  | Independent Accountants' Review Report                                                                                             |  | 10  
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                              |  | 11  
|Item 4. |  | Controls and Procedures                                                                                                            |  | 23  
|PART II |  | OTHER INFORMATION                                                                                                                  |  |     
|Item 1. |  | Legal Proceedings                                                                                                                  |  | 24  
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                   |  | 24  

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PART I. FINANCIAL INFORMATION  ITEM 1. FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                  |  | Three Months Ended
June 30, |       | Six Months Ended
June 30, |  
|------------------------------------------------- |  | --------------------------- | ----- | ------------------------- | -
|
|
|Revenues                                          |  |                             |       |                           |  
|Premiums                                          |  | $                           | 204   |                           | $
|Contract charges                                  |  |                             | 219   |                           |  
|Net investment income                             |  |                             | 762   |                           |  
|Realized capital gains and losses                 |  |                             | (42   | )                         |  
|                                                  |  |                             |       |                           |  
|                                                  |  |                             | 1,143 |                           |  
|                                                  |  |                             |       |                           |  
|Costs and expenses                                |  |                             |       |                           |  
|Contract benefits                                 |  |                             | 378   |                           |  
|Interest credited to contractholder funds         |  |                             | 440   |                           |  
|Amortization of deferred policy acquisition costs |  |                             | 85    |                           |  
|Operating costs and expenses                      |  |                             | 118   |                           |  
|                                                  |  |                             |       |                           |  
|                                                  |  |                             | 1,021 |                           |  
|Income from operations before income tax expense  |  |                             | 122   |                           |  
|Income tax expense                                |  |                             | 37    |                           |  
|                                                  |  |                             |       |                           |  
|Net income                                        |  | $                           | 85    |                           | $
|                                                  |  |                             |       |                           |  

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)                                                                                                |                                                                                                      | June 30,
2003 |        | December 31,
2002
|----------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------- | ------ | -----------------
|
|Assets                                                                                                                              |                                                                                                      |               |        |                  
|Investments                                                                                                                         |                                                                                                      |               |        |                  
|                                                                                                                                    | Fixed income securities, at fair value (amortized cost $45,521 and $41,723)                          |               | $      | 49,868           
|                                                                                                                                    | Mortgage loans                                                                                       |               |        | 6,110            
|                                                                                                                                    | Equity securities                                                                                    |               |        | 160              
|                                                                                                                                    | Short-term                                                                                           |               |        | 1,654            
|                                                                                                                                    | Policy loans                                                                                         |               |        | 683              
|                                                                                                                                    | Other                                                                                                |               |        | 308              
|                                                                                                                                    |                                                                                                      |               |        |                  
|                                                                                                                                    | Total investments                                                                                    |               |        | 58,783           
|Cash                                                                                                                                |                                                                                                      |               | 400    |                  
|Deferred policy acquisition costs                                                                                                   |                                                                                                      |               | 2,765  |                  
|Reinsurance recoverables, net                                                                                                       |                                                                                                      |               | 1,114  |                  
|Accrued investment income                                                                                                           |                                                                                                      |               | 557    |                  
|Other assets                                                                                                                        |                                                                                                      |               | 384    |                  
|Separate Accounts                                                                                                                   |                                                                                                      |               | 11,823 |                  
|                                                                                                                                    |                                                                                                      |               |        |                  
|                                                                                                                                    | Total assets                                                                                         |               | $      | 75,826           
|                                                                                                                                    |                                                                                                      |               |        |                  
|Liabilities                                                                                                                         |                                                                                                      |               |        |                  
|Contractholder funds                                                                                                                |                                                                                                      | $             | 41,393 |                  
|Reserve for life-contingent contract benefits                                                                                       |                                                                                                      |               | 10,525 |                  
|Unearned premiums                                                                                                                   |                                                                                                      |               | 9      |                  
|Payable to affiliates, net                                                                                                          |                                                                                                      |               | 189    |                  
|Other liabilities and accrued expenses                                                                                              |                                                                                                      |               | 4,195  |                  
|Deferred income taxes                                                                                                               |                                                                                                      |               | 905    |                  
|Separate Accounts                                                                                                                   |                                                                                                      |               | 11,823 |                  
|                                                                                                                                    |                                                                                                      |               |        |                  
|                                                                                                                                    | Total liabilities                                                                                    |               |        | 69,039           
|                                                                                                                                    |                                                                                                      |               |        |                  
|Commitments and Contingent Liabilities (Note 3)                                                                                     |                                                                                                      |               |        |                  
|Shareholder's Equity                                                                                                                |                                                                                                      |               |        |                  
|Redeemable preferred stockseries A, $100 par value, 1,500,000 shares authorized, 851,830 and 930,650 shares issued and outstanding |                                                                                                      |               | 85     |                  
|Common stock, $227 par value, 23,800 shares authorized and outstanding                                                              |                                                                                                      |               | 5      |                  
|Additional capital paid-in                                                                                                          |                                                                                                      |               | 1,067  |                  
|Retained income                                                                                                                     |                                                                                                      |               | 4,199  |                  
|Accumulated other comprehensive income:                                                                                             |                                                                                                      |               |        |                  
|                                                                                                                                    | Unrealized net capital gains and losses and net gains and losses on derivative financial instruments |               |        | 1,431            
|                                                                                                                                    |                                                                                                      |               |        |                  
|Total accumulated other comprehensive income                                                                                        |                                                                                                      |               | 1,431  |                  
|                                                                                                                                    |                                                                                                      |               |        |                  
|Total shareholder's equity                                                                                                          |                                                                                                      |               | 6,787  |                  
|                                                                                                                                    |                                                                                                      |               |        |                  
|Total liabilities and shareholder's equity                                                                                          |                                                                                                      | $             | 75,826 |                  
|                                                                                                                                    |                                                                                                      |               |        |                  

See
notes to condensed consolidated financial statements.

2

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

|                                                                  |                                                                                   | Six Months Ended
June 30,                 |                                              
|----------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------
|
|
|Cash flows from operating activities                              |                                                                                   |                                           |                                              
|Net income                                                        |                                                                                   | $                                         | 124                                          
|                                                                  | Adjustments to reconcile net income to net cash provided by operating activities: |                                           |                                              
|                                                                  |                                                                                   | Amortization and other non-cash items     |                                              
|                                                                  |                                                                                   | Realized capital gains and losses         |                                              
|                                                                  |                                                                                   | Interest credited to contractholder funds |                                              
|                                                                  |                                                                                   | Changes in:                               |                                              
|                                                                  |                                                                                   |                                           | Contract benefit and other insurance reserves
|                                                                  |                                                                                   |                                           | Unearned premiums                            
|                                                                  |                                                                                   |                                           | Deferred policy acquisition costs            
|                                                                  |                                                                                   |                                           | Reinsurance recoverables                     
|                                                                  |                                                                                   |                                           | Income taxes payable                         
|                                                                  |                                                                                   |                                           | Other operating assets and liabilities       
|                                                                  |                                                                                   |                                           |                                              
|                                                                  |                                                                                   |                                           |                                              
|                                                                  |                                                                                   |                                           |                                              
|Cash flows from investing activities                              |                                                                                   |                                           |                                              
|Proceeds from sales                                               |                                                                                   |                                           |                                              
|                                                                  | Fixed income securities                                                           |                                           |                                              
|                                                                  | Equity securities                                                                 |                                           |                                              
|Investment collections                                            |                                                                                   |                                           |                                              
|                                                                  | Fixed income securities                                                           |                                           |                                              
|                                                                  | Mortgage loans                                                                    |                                           |                                              
|Investment purchases                                              |                                                                                   |                                           |                                              
|                                                                  | Fixed income securities                                                           |                                           |                                              
|                                                                  | Equity securities                                                                 |                                           |                                              
|                                                                  | Mortgage loans                                                                    |                                           |                                              
|Change in short-term investments, net                             |                                                                                   |                                           | 521                                          
|Change in other investments, net                                  |                                                                                   |                                           | (44                                          
|                                                                  |                                                                                   |                                           |                                              
|                                                                  |                                                                                   |                                           | Net cash used in investing activities        
|                                                                  |                                                                                   |                                           |                                              
|Cash flows from financing activities                              |                                                                                   |                                           |                                              
|Increase in short-term borrowings                                 |                                                                                   |                                           | 95                                           
|Proceeds from (redemption) issuance of redeemable preferred stock |                                                                                   |                                           | (8                                           
|Capital contributions                                             |                                                                                   |                                           |                                             
|Contractholder fund deposits                                      |                                                                                   |                                           | 4,303                                        
|Contractholder fund withdrawals                                   |                                                                                   |                                           | (2,480                                       
|Dividends paid                                                    |                                                                                   |                                           | (1                                           
|                                                                  |                                                                                   |                                           |                                              
|                                                                  |                                                                                   |                                           | Net cash provided by financing activities    
|                                                                  |                                                                                   |                                           |                                              
|Net increase in cash                                              |                                                                                   |                                           | 148                                          
|Cash at beginning of the period                                   |                                                                                   |                                           | 252                                          
|                                                                  |                                                                                   |                                           |                                              
|Cash at end of period                                             |                                                                                   | $                                         | 400                                          
|                                                                  |                                                                                   |                                           |                                              

See
notes to condensed consolidated financial statements.

3

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ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    Basis of Presentation

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

The
condensed consolidated financial statements and notes as of June 30, 2003, and for the three-month and six-month periods ended June 30, 2003 and 2002, 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. These condensed consolidated financial statements and notes should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for
the interim periods should not be considered indicative of results to be expected for the full year.

In
2003, the Company changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change. The resulting single segment of the
Company is defined based upon the manner in which financial information is used internally to evaluate performance and determine the allocation of resources.

Non-cash
investment exchanges and modifications, which primarily reflect refinancings of fixed income securities, totaled $34 million and $78 million for the
six months ended June 30, 2003 and 2002, respectively.

In
June 2003, the Company paid a $69 million dividend of investment securities to AIC.

Pending accounting standards

In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities". FIN 46 addresses issues related to the consolidation of variable interest entities ("VIEs"). The effective date of this interpretation is the first fiscal year or interim period
beginning after June 15, 2003. The Company has one unconsolidated special purpose entity ("SPE") and one consolidated SPE that fall within the scope of FIN 46. The unconsolidated SPE is used to
issue Global Medium Term Notes ("GMTNs") to unrelated third parties. The consolidated SPE is used to issue Euro Medium Term Notes ("EMTNs"). The SPE used to issue GMTNs will likely not require
consolidation as described below. The Company believes the SPE currently consolidated under existing authoritative accounting guidance will be deconsolidated under FIN 46 as described below.

ALIC
issues funding agreements to the SPE (which the Company believes would be considered a VIE under FIN 46) used to issue GMTNs to unrelated third parties. The Company believes
the GMTNs and certain equity interests issued by the SPE, to the extent they are exposed to all the risks and rewards of the funding agreements that collateralize the GMTNs, would be considered
variable interests in a VIE. Applying the FIN 46 consolidation model, any entity exposed to a majority of the residual risks or possessing rights to a majority of the residual returns of the VIE is
required to consolidate the entity. Because the Company owns none of the variable interests issued by the VIE it should not be required to consolidate the SPE but rather would continue to classify
funding agreements issued to the VIE as a component of Contractholder funds. The same FIN 46 consolidation

4

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determination
will apply to the Company's EMTN program as of July 1, 2003, and consistent with the GMTN program, will result in the deconsolidation of the EMTNs and recognition of the funding
agreements issued to the VIE as a component of Contractholder funds, which is equivalent to the existing accounting for this program.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". The statement amends, clarifies and codifies
financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and utilized for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement applies only to certain derivative contracts and embedded derivatives entered into after June 30, 2003. The impact
of adopting those provisions of the statement will not be material to the Company's Consolidated Statements of Operations or Financial Position.

In
July 2003, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 03-01 entitled "Accounting and Reporting by Insurance
Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts". The accounting guidance contained in the SOP applies to several of the Company's insurance products and product features.
The effective date of the SOP is for fiscal years beginning after December 15, 2003, with earlier adoption encouraged. If adopted early, the provisions of the SOP must be applied as of the
beginning of the fiscal year. Accordingly, if the SOP were adopted during an interim period of 2003, prior interim periods would be restated. A provision of the SOP requires the establishment of a
liability in addition to the account balance for contracts and contract features that provide guaranteed death or other insurance benefits and guaranteed income benefits. These liabilities are not
currently recognized by the Company, and their establishment may have a material impact on the Condensed Consolidated Statements of Operations depending on the market conditions at the time of
adoption, but is not expected to have a material impact on the Company's Condensed Consolidated Statements of Financial Position.

Proposed standards

The Emerging Issues Task Force ("EITF") issued Topic No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments", which attempts to define other-than-temporary impairment and highlight its application to investment securities accounted for under both
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments
in Common Stocks". The current issue summary, which has yet to be finalized, proposes that if, at the evaluation date, the fair value of an investment security is less than its carrying value then an
impairment exists for which a determination must be made as to whether that impairment is other-than-temporary. If it is determined that an impairment is
other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment's carrying value and its fair value at the reporting date. In
its most recent deliberations, the EITF discussed different models to assess whether impairment is other-than-temporary for different types of investments (e.g. SFAS 115
marketable equity securities, SFAS 115 debt securities, and equity and cost method investments subject to APB Opinion No. 18). Due to the uncertainty of the final model or models that
may be adopted, the estimated impact to the Company's Condensed Consolidated Statements of Operations and Financial Position is presently not determinable.

2.    Reinsurance

The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company follows a comprehensive evaluation process involving credit
scoring and capacity to select reinsurers. 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

5

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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 non-affiliated 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.

The
effects of reinsurance on premiums are as follows:

|                    |                              | Three months ended
June 30, |      | Six months ended
June 30, |  
|------------------- | ---------------------------- | --------------------------- | ---- | ------------------------- | -
|
|Premiums            |                              |                             |      |                           |  
|Direct              |                              | $                           | 284  |                           | $
|Assumed             |                              |                             |      |                           |  
|                    | Affiliate                    |                             |      | 4                         |  
|                    | Non-affiliate                |                             |      | 21                        |  
|Cedednon-affiliate |                              |                             | (105 | )                         |  
|                    |                              |                             |      |                           |  
|                    | Premiums, net of reinsurance |                             | $    | 204                       |  
|                    |                              |                             |      |                           |  

The
effects of reinsurance on contract benefits are as follows:

|                  |               | Three months ended
June 30,           |     | Six months ended
June 30, |    
|----------------- | ------------- | ------------------------------------- | --- | ------------------------- | ---
|
|Contract benefits |               |                                       |     |                           |    
|Direct            |               | $                                     | 453 |                           | $  
|Assumed           |               |                                       |     |                           |    
|                  | Affiliate     |                                       |     | 2                         |    
|                  | Non-affiliate |                                       |     | 10                        |    
|Ceded             |               |                                       |     |                           |    
|                  | Non-affiliate |                                       |     | (87                       | )  
|                  |               |                                       |     |                           |    
|                  |               | Contract benefits, net of reinsurance |     | $                         | 378
|                  |               |                                       |     |                           |    

3.    Regulation, Legal Proceedings and Guarantees

Regulation

The Company is subject to changing social, economic and regulatory conditions. State and federal regulatory initiatives and proceedings have varied and have
included efforts to remove barriers preventing banks from engaging in the securities and insurance businesses, to change tax laws affecting the taxation of insurance companies and the tax treatment of
insurance products which may impact the relative desirability of various personal investment products and to expand overall regulation. The ultimate changes and eventual effects, if any, of these
initiatives are uncertain.

Legal proceedings

Legal proceedings involving Allstate agencies and AIC may impact the Company, even when the Company is not directly involved, because the Company sells its
products through a variety of

6

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distribution
channels including Allstate agencies. Consequently, information about the more significant of these proceedings is provided below.

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

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

The
Company is defending various lawsuits and regulatory proceedings that allege that it engaged in business or sales practices inconsistent with state or federal law. The Company has
been vigorously defending these matters but their outcome 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 including insurance and claim settlement practices. 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.

Guarantees

The Company owns certain fixed income securities which contain credit default swaps or credit guarantees which contain obligations to exchange credit risk or to
forfeit principal due, depending on the nature or occurrence of specified credit events for the referenced entities. In the event of a specified credit event, the Company's maximum amount at risk,
assuming the value of the referenced credits become worthless, is $112 million at June 30, 2003. The credit default swaps and credit guarantees contained in these fixed income securities
expire at various times during the next four years.

7

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Lincoln
Benefit Life Company ("LBL"), a wholly owned subsidiary of ALIC has issued universal life insurance contracts to third parties who finance the premium payments on
the universal life insurance contracts through a commercial paper program. LBL has issued a repayment guarantee on the outstanding commercial paper balance which is fully collateralized by the cash
surrender value of the universal life insurance contracts. At June 30, 2003, the amount due under the commercial paper program is $299 million and the cash surrender value of the
policies is $306 million. The repayment guarantee expires April 30, 2006.

In
the normal course of business, the Company provides standard indemnifications to counterparties in contracts in connection with numerous transactions, including indemnifications for
breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and were entered into in
the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not
explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Because the obligated amounts of the indemnifications are not explicitly
stated in many cases, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.

In
addition, the Company and its subsidiaries indemnify their respective directors, officers and other individuals serving at the request of the Company as a director or officer or in a
similar capacity in another entity to the extent provided in their charters and by-laws. Since these indemnifications are generally not subject to limitation with respect to duration or
amount, the Company does not believe that it is possible to determine the maximum potential amount due under these indemnifications.

The
aggregate liability balance related to all guarantees was not material as of June 30, 2003.

4.    Other Comprehensive Income

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

|                                                                                                     |  | Three months ended June 30, |    
|---------------------------------------------------------------------------------------------------- |  | --------------------------- | ---
|
|
|
|Unrealized net capital gains and losses and
net gains and losses on derivative financial instruments |  |                             |    
|Unrealized holding gains (losses) arising during the period                                          |  | $                           | 391
|Less: reclassification adjustments                                                                   |  |                             | (43
|                                                                                                     |  |                             |    
|Unrealized net capital gains (losses)                                                                |  |                             | 434
|                                                                                                     |  |                             |    
|Net gains (losses) on derivative financial instruments arising during the period                     |  |                             |   
|Less: reclassification adjustments                                                                   |  |                             | (1 
|                                                                                                     |  |                             |    
|Net gains (losses) on derivative financial instruments                                               |  |                             | (1 
|                                                                                                     |  |                             |    
|Other comprehensive income (loss)                                                                    |  | $                           | 433
|                                                                                                     |  |                             |    
|Net income                                                                                           |  |                             |    
|                                                                                                     |  |                             |    
|Comprehensive income                                                                                 |  |                             |    
|                                                                                                     |  |                             |    

8

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

|                                                                                                     |  | Six months ended June 30, |    
|---------------------------------------------------------------------------------------------------- |  | ------------------------- | ---
|
|
|
|Unrealized net capital gains and losses and
net gains and losses on derivative financial instruments |  |                           |    
|Unrealized holding gains (losses) arising during the period                                          |  | $                         | 486
|Less: reclassification adjustments                                                                   |  |                           | (99
|                                                                                                     |  |                           |    
|Unrealized net capital gains (losses)                                                                |  |                           | 585
|                                                                                                     |  |                           |    
|Net gains (losses) on derivative financial instruments arising during the period                     |  |                           |   
|Less: reclassification adjustments                                                                   |  |                           | (1 
|                                                                                                     |  |                           |    
|Net gains (losses) on derivative financial instruments                                               |  |                           | (1 
|                                                                                                     |  |                           |    
|Other comprehensive income (loss)                                                                    |  | $                         | 584
|                                                                                                     |  |                           |    
|Net income                                                                                           |  |                           |    
|                                                                                                     |  |                           |    
|Comprehensive income                                                                                 |  |                           |    
|                                                                                                     |  |                           |    

9

---

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

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

We have reviewed the accompanying condensed consolidated statement of financial position of Allstate Life Insurance Company and subsidiaries (the "Company", an
affiliate of The Allstate Corporation) as of June 30, 2003, and the related condensed consolidated statements of operations for the three-month and six-month periods ended
June 30, 2003 and 2002, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2003 and 2002. These financial statements are the
responsibility of the Company's management.

We
conducted our reviews 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 reviews, 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, 2002, and the related consolidated statements of operations and comprehensive income, shareholder's equity, and cash flows for the year
then ended, not presented herein. In our report dated February 5, 2003, 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, 2002 is fairly stated, in all material respects, in relation to the consolidated statement of
financial position from which it has been derived.

/s/
Deloitte & Touche LLP

Chicago,
Illinois
August 14, 2003

10

---



Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2003  AND 2002

The following discussion highlights significant factors influencing results of operations and changes in financial position of Allstate
Life Insurance Company ("ALIC") and its wholly owned subsidiaries (together with ALIC, the "Company"). 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 notes thereto in Part I. Item 1. and Part II. Item
7. and Item 8. of the Allstate Life Insurance Company Annual Report on Form 10-K for 2002.

In 2003, the Company changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change. Accordingly,
the Company has restated prior periods to conform to this change. The resulting single segment of the Company is defined based upon the manner in which financial information is used internally to
evaluate performance and determine the allocation of resources.

HIGHLIGHTS



11

---



CONSOLIDATED NET INCOME

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

|                                                |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|----------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|Premiums                                        |  | $                           | 204    |                           | $
|Contract charges                                |  |                             | 219    |                           |  
|Net investment income                           |  |                             | 762    |                           |  
|Contract benefits                               |  |                             | (378   | )                         |  
|Interest credited to contractholder funds       |  |                             | (440   | )                         |  
|Amortization of DAC                             |  |                             | (73    | )                         |  
|Operating costs and expenses                    |  |                             | (118   | )                         |  
|Income tax expense                              |  |                             | (56    | )                         |  
|Realized capital gains and losses, after-tax(1) |  |                             | (35    | )                         |  
|                                                |  |                             |        |                           |  
|Net income                                      |  | $                           | 85     |                           | $
|                                                |  |                             |        |                           |  
|Investments                                     |  |                             | 58,783 |                           |  
|Separate Accounts assets                        |  |                             | 11,823 |                           |  
|                                                |  |                             |        |                           |  
|Investments, including Separate Accounts assets |  | $                           | 70,606 |                           | $
|                                                |  |                             |        |                           |  

---

CONSOLIDATED REVENUES

|                                  |  | Three Months Ended
June 30, |       | Six Months Ended
June 30, |  
|--------------------------------- |  | --------------------------- | ----- | ------------------------- | -
|
|Premiums                          |  | $                           | 204   |                           | $
|Contract charges                  |  |                             | 219   |                           |  
|Net investment income             |  |                             | 762   |                           |  
|Realized capital gains and losses |  |                             | (42   | )                         |  
|                                  |  |                             |       |                           |  
|Total consolidated revenues       |  | $                           | 1,143 |                           | $
|                                  |  |                             |       |                           |  

Total
consolidated revenues decreased 4.2% in the second quarter of 2003 compared to the second quarter of 2002. The decrease was due to lower Premiums partly offset by increased Net
investment income. Total consolidated revenues increased 5.5% in the first six months of 2003 compared to the first six months of 2002. The increase was due to higher Net investment income, decreased
net realized capital losses and increased Premiums.

OPERATIONS

Premiumsincluded in the Condensed Consolidated Statements of Operations, represent premiums generated from
traditional life and other insurance products and immediate annuities with life contingencies which have significant mortality or morbidity risk.

Contract chargesare generated from interest-sensitive life products, variable annuities, fixed annuities and other investment products
for which deposits are classified as Contractholder funds or Separate Accounts liabilities. Contract charges are assessed against the contractholder account balance for maintenance, administration,
cost of insurance and surrender prior to contractually specified dates.

12

---

The
following table summarizes Premiums and Contract charges.

|                       |                                                                | Three Months Ended
June 30,         |   | Six Months Ended
June 30,
|---------------------- | -------------------------------------------------------------- | ----------------------------------- | - | -------------------------
|
|Premiums               |                                                                |                                     |   |                          
|Life insurance         |                                                                |                                     |   |                          
|                       | Traditional life                                               |                                     | $ | 96                       
|                       | Other                                                          |                                     |   | 40                       
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total life insurance                |   |                          
|                       |                                                                |                                     |   |                          
|Annuities              |                                                                |                                     |   |                          
|                       | Fixed annuitiesimmediate annuities with life contingencies    |                                     |   | 68                       
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total annuities                     |   |                          
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total Premiums                      |   |                          
|Contract charges       |                                                                |                                     |   |                          
|Life insurance         |                                                                |                                     |   |                          
|                       | Interest-sensitive life                                        |                                     |   | 154                      
|                       | Other                                                          |                                     |   | 1                        
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total life insurance                |   |                          
|                       |                                                                |                                     |   |                          
|Annuities              |                                                                |                                     |   |                          
|                       | Fixed annuitiesdeferred                                       |                                     |   | 6                        
|                       | Fixed annuitiesimmediate annuities without life contingencies |                                     |   | 5                        
|                       | Variable annuities                                             |                                     |   | 50                       
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total annuities                     |   |                          
|                       |                                                                |                                     |   |                          
|Institutional products |                                                                |                                     | 3 |                          
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total Contract charges              |   |                          
|                       |                                                                |                                     |   |                          
|                       |                                                                | Total Premiums and Contract charges |   | $                        
|                       |                                                                |                                     |   |                          

Total
Premiums decreased 23.3% to $204 million in the second quarter of 2003 from $266 million in the second quarter of 2002. The decline is due to lower sales of immediate
annuities with life contingencies, the discontinuance of direct-marketed credit life insurance and reduced traditional whole
life premiums due to lower business in force. The decline in sales of immediate annuities with life contingencies is due to consumer preference and market and competitive conditions that drive the
level and mix of immediate annuities sold with or without life contingencies.

Total
Contract charges were $219 million in the second quarter of 2003 compared to $217 million in the second quarter of 2002. Higher interest-sensitive life insurance
contract charges offset a decline in variable annuities. Variable annuity average account values during the second quarter of 2003 were lower than the average account values during the second quarter
of 2002, as poor equity market performance during the prior year and surrenders offset growth from new business.

For
the first six months of 2003, Premiums and Contract charges increased 2.4% compared to the first six months of 2002. The increase is due to increased sales of immediate annuities,
partially offset by the discontinuance of direct-marketed credit life insurance and a decline in traditional whole life insurance premiums due to lower business inforce.

13

---

The
following table summarizes Premiums and Contract charges by distribution channel.

|                 |                                                                      | Three Months Ended
June 30,         |   | Six Months Ended
June 30,
|---------------- | -------------------------------------------------------------------- | ----------------------------------- | - | -------------------------
|
|Premiums         |                                                                      |                                     |   |                          
|                 | Allstate agencies                                                    |                                     | $ | 56                       
|                 | Specialized brokers                                                  |                                     |   | 68                       
|                 | Independent agents                                                   |                                     |   | 7                        
|                 | Direct marketing                                                     |                                     |   | 73                       
|                 |                                                                      |                                     |   |                          
|                 |                                                                      | Total Premiums                      |   |                          
|Contract charges |                                                                      |                                     |   |                          
|                 | Allstate agencies                                                    |                                     |   | 108                      
|                 | Specialized brokers                                                  |                                     |   | 9                        
|                 | Independent agents                                                   |                                     |   | 56                       
|                 | Financial services firms (financial institutions and broker/dealers) |                                     |   | 46                       
|                 |                                                                      |                                     |   |                          
|                 |                                                                      | Total Contract charges              |   |                          
|                 |                                                                      |                                     |   |                          
|                 |                                                                      | Total Premiums and Contract charges |   | $                        
|                 |                                                                      |                                     |   |                          

Policy and contractholder obligations,included on the Condensed Consolidated Statements of Financial Position, reflect the trends in the
Company's product deposits and sales of insurance products. The following table shows the balances of these obligations.

|(in millions)                                 |  | June 30,
2003 |        | December 31,
2002 |   | June 30,
2002 |  | December 31,
2001
|--------------------------------------------- |  | ------------- | ------ | ----------------- | - | ------------- |  | -----------------
|Reserve for life-contingent contract benefits |  | $             | 10,525 |                   | $ | 9,747         |  | $                
|Contractholder funds                          |  |               | 41,393 |                   |   | 38,858        |  |                  
|Separate Accounts                             |  |               | 11,823 |                   |   | 11,125        |  |                  

The
following table shows changes in these obligations.

|                                              |  | Change from March 31
to June 30, |       | Change from prior
year-end
to June 30, |  
|--------------------------------------------- |  | -------------------------------- | ----- | -------------------------------------- | -
|
|Reserve for life-contingent contract benefits |  | $                                | 487   |                                        | $
|Contractholder funds                          |  |                                  | 1,513 |                                        |  
|Separate Accounts                             |  |                                  | 1,270 |                                        |  

Reserve
for life-contingent contract benefits increased at a higher rate in the second quarter of 2003 and the first six months of 2003 compared to the same periods in the
prior year primarily due to sales of immediate annuities with life contingencies, partially offset by benefit payments.

Contractholder
funds increased at a lower rate in the second quarter of 2003 and the first six months of 2003 compared to the same periods in the prior year primarily due to lower
deposits and higher maturities of funding agreements backing medium term notes, partially offset by higher deposits from fixed annuities. Deposits from funding agreements backing medium term notes
reflect management's assessment of market conditions and are only pursued when profit expectations can be met, therefore the level of deposits fluctuates significantly from period to period. The
increase in Contractholder funds due to fixed annuities reflects deposits and interest credited to contracts, partially

14

---

offset
by surrenders and maturities of in-force contracts during both periods. Fixed annuities include the Allstate® Treasury-Linked Annuity and, although management
constrained deposits of the Allstate® Treasury-Linked Annuity due to the low interest rate environment, deposits in the second quarter of 2003 were comparable to the first quarter of 2003.
The Allstate® Treasury-Linked Annuity was introduced late in the first quarter of 2002, resulting in significant increases in deposits during 2003 relative to the prior year.

Separate
Accounts increased in the second quarter of 2003 and in the first six months of 2003 after declining in the comparable periods last year. These increases were due to favorable
equity market performance compared to the prior year and variable annuity deposits, partially offset by surrenders and withdrawals. The level of variable annuity deposits declined in both periods when
compared to prior year, reflecting consumers' preferences for fixed rate guarantees over variable annuities during this period of uncertain equity market performance. The ongoing introduction of the
Allstate® Advisor Variable annuity suite of products and the improved equity market performance in the second quarter of 2003 have resulted in six sequential monthly increases in variable
annuity deposits in 2003. Monthly variable annuity deposits are now at a level comparable to the end of the second quarter of last year.

Net investment incomeincreased 2.7% in the second quarter and 5.0% in the first six months of 2003 compared to the same periods last
year. The increase in both periods was due to higher portfolio balances resulting from positive cash flows from product sales and deposits, partially offset by lower portfolio yields. Lower portfolio
yields result when new investments are made at rates lower than the current portfolio yields reflecting the low interest rate environment. The portfolio balance as of June 30, 2003, excluding
assets invested in Separate Accounts and unrealized net capital gains on fixed income securities, increased 13.5% from June 30, 2002.

Analysis of net incomeis presented in the following table.

|                                             |  | Three Months Ended
June 30, |      | Six Months Ended
June 30, |  
|-------------------------------------------- |  | --------------------------- | ---- | ------------------------- | -
|
|Investment margin                            |  | $                           | 193  |                           | $
|Mortality margin                             |  |                             | 75   |                           |  
|Maintenance charges                          |  |                             | 81   |                           |  
|Surrender charges                            |  |                             | 18   |                           |  
|Amortization of DAC                          |  |                             | (73  | )                         |  
|Operating costs and expenses                 |  |                             | (118 | )                         |  
|Income tax expense                           |  |                             | (56  | )                         |  
|Realized capital gains and losses, after-tax |  |                             | (35  | )                         |  
|                                             |  |                             |      |                           |  
|Net income                                   |  | $                           | 85   |                           | $
|                                             |  |                             |      |                           |  

Investment margin, which represents the excess of investment income earned over interest credited to policyholders and contractholders and
interest expense, decreased 4.9% in the second quarter of 2003 compared to the same period in 2002 and increased 0.3% in the first six months of 2003 compared to the first six months of 2002.
Management actions to reduce crediting rates on in-force contracts with discretionary crediting rates have partially offset the decline in the Company's investment portfolio yield. These
actions, however, have not been sufficient to offset the overall portfolio yield decline as crediting rates on certain of the Company's products cannot be adjusted and reductions in the yield on
assets supporting the Company's capital, traditional life and other products directly impact investment margin.

15

---

For
interest-sensitive fixed annuities and life products where management has the ability to modify crediting rates, the rolling weighted average interest crediting rate is approximately
100 basis points above the long-term underlying guaranteed rate as of June 30, 2003.

The
following table summarizes the annualized weighted average investment yield, interest crediting rates and investment spreads for the three months ended June 30.

|                                                                    |  | Weighted Average
Investment Yield |   | Weighted Average
Interest Crediting Rate |   | Weighted Average
Investment Spreads |  
|------------------------------------------------------------------- |  | --------------------------------- | - | ---------------------------------------- | - | ----------------------------------- | -
|
|Interest-sensitive life                                             |  | 6.9                               | % | 7.3                                      | % | 4.9                                 | %
|Fixed annuitiesdeferred                                            |  | 6.4                               |   | 7.2                                      |   | 4.7                                 |  
|Fixed annuitiesimmediate                                           |  | 7.9                               |   | 8.3                                      |   | 7.2                                 |  
|Institutionalfixed rate contracts                                  |  | 6.7                               |   | 7.8                                      |   | 6.1                                 |  
|Institutionalfloating rate contracts                               |  | 2.6                               |   | 3.1                                      |   | 1.6                                 |  
|Investments supporting capital, traditional life and other products |  | 6.0                               |   | 7.3                                      |   | N/A                                 |  

The
following table summarizes the annualized weighted average investment yield, interest crediting rates and investment spreads for the six months ended June 30.

|                                                                    |  | Weighted Average
Investment Yield |   | Weighted Average
Interest Crediting Rate |   | Weighted Average
Investment Spreads |  
|------------------------------------------------------------------- |  | --------------------------------- | - | ---------------------------------------- | - | ----------------------------------- | -
|
|Interest-sensitive life                                             |  | 7.0                               | % | 7.3                                      | % | 4.9                                 | %
|Fixed annuitiesdeferred                                            |  | 6.6                               |   | 7.2                                      |   | 4.7                                 |  
|Fixed annuitiesimmediate                                           |  | 7.9                               |   | 8.2                                      |   | 7.2                                 |  
|Institutionalfixed rate contracts                                  |  | 6.7                               |   | 7.6                                      |   | 6.1                                 |  
|Institutionalfloating rate contracts                               |  | 2.6                               |   | 3.2                                      |   | 1.6                                 |  
|Investments supporting capital, traditional life and other products |  | 6.1                               |   | 7.2                                      |   | N/A                                 |  

The
following table summarizes Contractholder funds and the Reserve for life-contingent contract benefits associated with the weighted average investment yield and weighted
average interest crediting rates at June 30.

|(in millions)                                                                |  | 2003 |        | 2002 |  
|---------------------------------------------------------------------------- |  | ---- | ------ | ---- | -
|Interest-sensitive life                                                      |  | $    | 6,091  |      | $
|Fixed annuitiesdeferred                                                     |  |      | 23,282 |      |  
|Fixed annuitiesimmediate                                                    |  |      | 9,788  |      |  
|Institutionalfixed rate contracts                                           |  |      | 1,917  |      |  
|Institutionalfloating rate contracts                                        |  |      | 6,706  |      |  
|                                                                             |  |      |        |      |  
|                                                                             |  |      | 47,784 |      |  
|FAS 115/133 market value adjustment                                          |  |      | 1,803  |      |  
|Ceded reserves                                                               |  |      | (287   | )    |  
|Life-contingent contracts and other                                          |  |      | 2,618  |      |  
|                                                                             |  |      |        |      |  
|Total Contractholder funds and Reserve for life-contingent contract benefits |  | $    | 51,918 |      | $
|                                                                             |  |      |        |      |  

16

---

The
following table summarizes investment margin by product group.

|                       |  | Three Months Ended
June 30, |     | Six Months Ended
June 30,
|---------------------- |  | --------------------------- | --- | -------------------------
|
|Life insurance         |  | $                           | 40  |                          
|Annuities              |  |                             | 130 |                          
|Institutional products |  |                             | 23  |                          
|                       |  |                             |     |                          
|Investment margin      |  | $                           | 193 |                          
|                       |  |                             |     |                          

Mortality margin, which represents premiums and cost of insurance charges less related policy benefits was $29 million or 27.9%
lower in the second quarter of 2003 compared to the second quarter of 2002. Variable annuity guaranteed minimum death benefits ("GMDB") payments and mortality losses on life contingent immediate
annuities drove the decrease as these factors more than offset the growth from new business. GMDB payments of $27 million net of reinsurance, hedging losses and other contractual arrangements
("net GMDB payments") in the second quarter of 2003 increased $18 million compared to the same period in 2002 and increased $6 million compared to the first quarter of 2003.

The
overall objective of the GMDB hedging program, the results of which are included in net GMDB payments, is to reduce the impact of changing equity markets on the mortality margin. For
example, in rising equity markets, the Company's GMDB exposure declines, however the hedging program is expected to result in realized losses. Hedging losses were $7 million in the second
quarter of 2003 compared to hedging gains of $6 million in the second quarter of 2002 and $2 million in the first quarter of 2003.

For
the first six months of 2003, mortality margin was $63 million or 27.9% below the first six months of 2002. GMDBs in the first six months of 2003 compared to the same period
of 2002 represents $44 million of this decline. In addition to the unfavorable variable annuity product performance in the first six months of 2003, a high level of life claims in the first
quarter of 2003 offset the expected growth in the mortality margin during the first six months from new business.

The
following table summarizes mortality margin by product group.

|                       |  | Three Months Ended
June 30, |     | Six Months Ended
June 30, |  
|---------------------- |  | --------------------------- | --- | ------------------------- | -
|
|Life insurance         |  | $                           | 114 |                           | $
|Annuities              |  |                             | (39 | )                         |  
|Institutional products |  |                             |    |                           |  
|                       |  |                             |     |                           |  
|Mortality margin       |  | $                           | 75  |                           | $
|                       |  |                             |     |                           |  

Amortization of DACfor Allstate Financial decreased 23.2% in the second quarter of 2003 compared to the same period in 2002 as lower than
expected margins, primarily from the unfavorable mortality results on variable annuities, slowed the DAC amortization. Amortization of DAC increased 23.4% in the first six months of 2003 compared to
the first six months of 2002 due to the acceleration of amortization, commonly known as DAC unlocking, in the first quarter of 2003 and ongoing growth of business, partially offset by lower than
expected margins.

Operating costs and expensesdecreased 1.7% during the second quarter of 2003 compared to the second quarter of 2002. Although investments
in technology and employee related benefit expenses

17

---

were
higher in the second quarter of 2003, the increase was more than offset by lower litigation expenses. Operating costs and expenses increased 4.8% during the first six months of 2003 compared to
the same period of 2002 due to increased employee related benefit expenses and continuing investments in technology.

Realized capital gains and lossesare presented in the following table. After-tax realized capital gains and losses are
presented net of the effects of DAC amortization to the extent that such amortization effects resulted from the recognition of realized capital gains and losses.

|                                             |                                    | Three Months Ended
June 30, |     | Six Months Ended
June 30, |  
|-------------------------------------------- | ---------------------------------- | --------------------------- | --- | ------------------------- | -
|
|Investment write-downs                       |                                    | $                           | (61 | )                         | $
|Sales                                        |                                    |                             |     |                           |  
|                                             | Fixed income and equity securities |                             |     | 38                        |  
|                                             | Other                              |                             |     | 2                         |  
|                                             |                                    |                             |     |                           |  
|                                             | Total sales                        |                             |     | 40                        |  
|Valuation of derivative instruments          |                                    |                             | (17 | )                         |  
|Settlement of derivative instruments         |                                    |                             | (4  | )                         |  
|                                             |                                    |                             |     |                           |  
|Realized capital gains and losses, pretax    |                                    |                             | (42 | )                         |  
|Reclassification of amortization of DAC      |                                    |                             | (11 | )                         |  
|Income tax benefit                           |                                    |                             | 18  |                           |  
|                                             |                                    |                             |     |                           |  
|Realized capital gains and losses, after-tax |                                    | $                           | (35 | )                         | $
|                                             |                                    |                             |     |                           |  

For
further discussion of realized capital gains and losses, see "Investments".

INVESTMENTS

The composition of the investment portfolio at June 30, 2003 is presented in the table below.

(in millions)

Investments

Percent to
totalFixed income securities(1)

$
49,868

84.8
%Mortgage loans


6,110

10.4Equity securities


160

0.3Short-term


1,654

2.8Policy loans


683

1.2Other including derivatives


308

0.5Total

$
58,783

100.0
%


---

Total
investments increased to $58.78 billion at June 30, 2003 from $52.67 billion at December 31, 2002 due to positive cash flows from operating and
financing activities, increased funds associated with securities lending and dollar roll programs and increased unrealized gains on fixed income securities.

Total
investment balances related to funds associated with securities lending and dollar roll programs increased to $2.96 billion at June 30, 2003 from $1.24 billion
at December 31, 2002.

18

---

The
Unrealized net capital gains on fixed income and equity securities at June 30, 2003 were $4.35 billion, an increase of $1.28 million or 41.5% since
December 31, 2002. The net unrealized gain for the fixed income portfolio totaled $4.35 billion, comprised of $4.60 billion of unrealized gains and $249 million of
unrealized losses at June 30, 2003, compared to a net unrealized gain for the fixed income portfolio totaling $3.08 billion at December 31, 2002, comprised of $3.48 billion
of unrealized gains and $393 million of unrealized losses. At June 30, 2003, the unrealized losses for the fixed income portfolio were concentrated in the corporate fixed income
portfolio. Corporate fixed income net unrealized gains totaled $2.56 billion, comprised of $2.73 billion of unrealized gains and $171 million of unrealized losses. The unrealized
losses for the corporate fixed income portfolio were concentrated in the transportation, basic industry, public utilities and capital goods sectors. These sectors comprised $100 million or
58.5% of the unrealized losses and $1.04 billion or 38.1% of unrealized gains in the corporate fixed income portfolio.

The
net unrealized gain for the equity portfolio totaled $4 million, comprised of $7 million of unrealized gains and $3 million of unrealized losses at
June 30, 2003, compared to net unrealized losses in the
equity portfolio totaling $8 million at December 31, 2002, comprised of $4 million of unrealized gains and $12 million of unrealized losses.

Securities
with an unrealized loss greater than or equal to 20% of cost for equity securities or amortized cost for fixed income securities for a period of six or more consecutive months
but less than 12 consecutive months had unrealized losses of $31 million at June 30, 2003, compared to $46 million of unrealized losses at December 31, 2002. This decrease
was primarily related to decreased unrealized losses in this category for the utility sector, partially offset by an increase in unrealized losses in the transportation sector. There were no
securities with an unrealized loss greater than or equal to 20% of cost for equity securities or amortized cost for fixed income securities for 12 or more consecutive months at June 30, 2003
compared to $5 million at December 31, 2002.

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 equivalent rating of Aaa, Aa, A or Baa, a Standard & Poor's equivalent rating of AAA, AA, A or BBB, or a comparable Company
internal rating.

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 principal and interest in accordance with the contractual terms of the security, which causes management to believe these securities may be classified as problem or restructured in the future.

19

---

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

|(in millions)                     |  | June 30, 2003 |     | December 31, 2002 |  
|--------------------------------- |  | ------------- | --- | ----------------- | -
|
|Problem                           |  | $             | 165 |                   | $
|Restructured                      |  |               | 36  |                   |  
|Potential problem                 |  |               | 328 |                   |  
|                                  |  |               |     |                   |  
|Total net carrying value          |  | $             | 529 |                   | $
|                                  |  |               |     |                   |  
|Cumulative write-downs recognized |  | $             | 321 |                   |  
|                                  |  |               |     |                   |  

As
of June 30, 2003, the balance of fixed income securities that the Company categorizes as problem and potential problem declined from the balance as of year-end
2002. The decrease was related to the sale of holdings in these categories due to specific developments in the first six months of the year causing a change in the Company's outlook and intent to hold
those securities, and an improvement in conditions for certain other holdings previously classified in these categories. The Company expects the eventual recovery of these securities but evaluated
each security through its watch list process at June 30, 2003 and recorded write-downs where appropriate. Approximately $20 million of net unrealized losses at June 30, 2003 are
related to securities that the Company has included in the problem, restructured or potential problem categories. These securities represent 1.0% of the fixed income portfolio. The Company concluded,
through its watch list monitoring process, that these unrealized losses were temporary in nature. While it is possible for these balances to increase in the future if economic conditions are
unfavorable, the total amount of securities in these categories is expected to remain a relatively low percentage of the total fixed income securities portfolio.

The
components of realized capital gains and losses are described in the table on page 18. Sales of fixed income securities in the second quarter and first six months of 2003 resulted
from actions taken to reduce credit exposure to certain issuers or industries and to provide liquidity for the purchase of investments that better meet certain investment objectives.

CAPITAL RESOURCES AND LIQUIDITY

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

|(in millions)                                                      |                            | June 30, 2003 |       | December 31, 2002
|------------------------------------------------------------------ | -------------------------- | ------------- | ----- | -----------------
|Redeemable preferred stock                                         |                            | $             | 85    |                  
|Common stock, retained income and other shareholder's equity items |                            |               | 5,271 |                  
|Accumulated other comprehensive income                             |                            |               | 1,431 |                  
|                                                                   |                            |               |       |                  
|                                                                   | Total shareholder's equity |               | $     | 6,787            
|                                                                   |                            |               |       |                  

Shareholder's equityincreased $425 million in the second quarter of 2003 when compared to year-end 2002 due to
increases in net unrealized capital gains and net income partially offset by a dividend of investment securities to Allstate Insurance Company ("AIC") of $69 million. The balance of Redeemable
preferred stock declined during the first six months of 2003 due to the reduction of investment by a strategic alliance partner.

DebtThe Company has an inter-company loan agreement with The Allstate Corporation (the "Corporation") whereby the amount of
inter-company loans available is at the discretion of the

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Corporation.
The maximum amount of loans the Corporation can have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. At June 30, 2003,
the Corporation had outstanding commercial paper borrowings of $95 million that were allocated to the Company under the inter-company loan agreement to cover short-term cash needs.
There was no debt outstanding at December 31, 2002.

Financial Ratings and StrengthIn June 2003, Standard & Poor's revised the insurance financial strength rating
of ALIC and its rated subsidiaries and affiliates from AA+ to AA and revised the rating outlook from negative to stable. Standard & Poor's stated that the rating change was due to several
factors including their negative outlook on the life insurance industry, the recent decline in ALIC's Net income and their view that a subsidiary's rating cannot exceed the rating of its parent.
ALIC's rating is now the same rating as AIC, its parent. Moody's and A.M. Best's insurance financial strength rating of ALIC and AIC remains unchanged. In reaffirming the A+ ratings of ALIC and
AIC, A.M. Best assigned a positive rating outlook for these companies' ratings.



The Company's operations typically generate substantial positive cash flows from operations as most premiums and deposits are received in advance of the time when
benefit payments are required. These positive operating cash flows are expected to continue to meet the liquidity requirements of the Company.

Dividends
to ALIC from its insurance subsidiaries and dividends ALIC 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 ALIC 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. In the twelve-month period ending June 30, 2003, ALIC has paid $69 million in common stock dividends. Based on the greater of 2002 statutory net
income or 10% of statutory surplus, the maximum amount of dividends ALIC will be able to pay without prior Illinois Department of Insurance approval at a given point in time during 2003 is
$315 million, less dividends paid during the preceding twelve months measured at that point in time. 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.

ALIC's
insurance subsidiaries are domiciled in Illinois, New York, Arizona and Nebraska. Except for those domiciled in New York and one in Nebraska, ALIC has 100% inter-company
reinsurance agreements in place with its insurance subsidiaries. Only invested assets supporting capital and relating to Separate Accounts remain in these subsidiaries.

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. The total amount of surrenders and withdrawals for the three-month and six-month periods ending June 30, 2003 were $545 million and $1.03 billion, net
of surrender charges, compared with $468 million and $963 million for the same periods last year. The total amount of surrenders and withdrawals for the first six months of 2003
represented 2.5% of the Contractholder funds balance at June 30, 2003, compared to 2.7% in the first six months of last year.

The
Corporation has access to additional borrowing to support liquidity as follows:



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OFF-BALANCE SHEET ARRANGEMENTS

The Company's use of off-balance sheet arrangements is limited to a special purpose entity ("SPE") used to issue global medium-term notes
("GMTNs") to institutional investors. Management of the Company has not invested in this SPE.

At
June 30, 2003, this SPE had assets of $2.89 billion, liabilities of $2.80 billion and unrelated third party equity of $90 million. The funding agreements
issued by the Company to the SPE, and which serve as collateral for the notes issued by the SPE, are reported on the Company's Condensed Consolidated Statements of Financial Position as a component of
Contractholder funds.

The
Company is in the process of assessing if this SPE meets the criteria to be considered a variable interest entity pursuant to the pending accounting guidance of Financial Accounting
Standards Board ("FASB") Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities" and will require consolidation. Based on this assessment, this SPE will likely not require
consolidation.

FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" that anticipate results based on management's estimates, assumptions and 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. The Company assumes no obligation to update any
forward-looking statements as a result of new information or future events or developments.

These
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. Management believes that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates,
assumptions or plans underlying the forward-looking statements prove inaccurate or if other 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 risks and uncertainties, including those listed below which apply to it as an insurance
business and a provider of other financial services.

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RISK FACTORS

The following risk factor should be considered in addition to the risk factors identified in the Management's Discussion and Analysis of Financial Condition and
Results of Operations, under the heading "Forward-Looking Statements and Risk Factors Affecting The Company," in Part II Item 7 of the Company's Form 10-K filed
March 31, 2003.



Item 4. Controls and Procedures

With the participation of our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer
concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports filed with the Securities and
Exchange Commission. However, the design of any system of controls and procedures is based in part upon assumptions about the likelihood of future events and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Our disclosure controls and procedures are designed to provide reasonable assurance of
achieving their objectives and are effective at the "reasonable assurance" level.

During
the last fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The discussion "Regulation, Legal Proceedings and Guarantees" in Part I, Item 1, Note 3 of this Form 10-Q is incorporated herein
by reference.

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)
|--------------- |  | --------------------------------------------
|August 14, 2003 |  | By:                                         

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|Exhibit No. |  | Description                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|15          |  | Acknowledgment of awareness from Deloitte & Touche LLP, dated August 14, 2003, concerning unaudited interim financial information.
|31.1        |  | Rule 13a-14(a) Certification of Principal Executive Officer                                                                       
|31.2        |  | Rule 13a-14(a) Certification of Principal Financial Officer                                                                       
|32          |  | Section 1350 Certifications                                                                                                       

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