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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.

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

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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 October 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
September 30, 2003

|        |  |                                                                                                                                          |  | PAGE
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                                                    |  |     
|Item 1. |  | Financial Statements                                                                                                                     |  |     
|        |  | Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2003 and 2002 (unaudited) |  | 1   
|        |  | Condensed Consolidated Statements of Financial Position as of September 30, 2003 (unaudited) and December 31, 2002                       |  | 2   
|        |  | Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 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                                                                                                                  |  | 25  
|PART II |  | OTHER INFORMATION                                                                                                                        |  |     
|Item 1. |  | Legal Proceedings                                                                                                                        |  | 26  
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                         |  | 26  

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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
September 30, |       | Nine Months Ended
September 30, |  
|----------------------------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- | -
|
|
|Revenues                                                          |  |                                  |       |                                 |  
|Premiums                                                          |  | $                                | 204   |                                 | $
|Contract charges                                                  |  |                                  | 214   |                                 |  
|Net investment income                                             |  |                                  | 785   |                                 |  
|Realized capital gains and losses                                 |  |                                  |      |                                 |  
|                                                                  |  |                                  |       |                                 |  
|                                                                  |  |                                  | 1,203 |                                 |  
|Costs and expenses                                                |  |                                  |       |                                 |  
|Contract benefits                                                 |  |                                  | 351   |                                 |  
|Interest credited to contractholder funds                         |  |                                  | 447   |                                 |  
|Amortization of deferred policy acquisition costs                 |  |                                  | 98    |                                 |  
|Operating costs and expenses                                      |  |                                  | 122   |                                 |  
|                                                                  |  |                                  |       |                                 |  
|                                                                  |  |                                  | 1,018 |                                 |  
|Loss on disposition of operations                                 |  |                                  | (13   | )                               |  
|                                                                  |  |                                  |       |                                 |  
|Income (loss) from operations before income tax expense (benefit) |  |                                  | 172   |                                 |  
|Income tax expense (benefit)                                      |  |                                  | 53    |                                 |  
|                                                                  |  |                                  |       |                                 |  
|Net income                                                        |  | $                                | 119   |                                 | $
|                                                                  |  |                                  |       |                                 |  

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)                                                                                                    |                                                                                                      | September 30,
2003 |        | December 31,
2002
|--------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------ | ------ | -----------------
|
|Assets                                                                                                                                  |                                                                                                      |                    |        |                  
|Investments                                                                                                                             |                                                                                                      |                    |        |                  
|                                                                                                                                        | Fixed income securities, at fair value (amortized cost $47,114 and $41,723)                          |                    | $      | 50,734           
|                                                                                                                                        | Mortgage loans                                                                                       |                    |        | 6,256            
|                                                                                                                                        | Equity securities                                                                                    |                    |        | 162              
|                                                                                                                                        | Short-term                                                                                           |                    |        | 1,763            
|                                                                                                                                        | Policy loans                                                                                         |                    |        | 688              
|                                                                                                                                        | Other                                                                                                |                    |        | 337              
|                                                                                                                                        |                                                                                                      |                    |        |                  
|                                                                                                                                        | Total investments                                                                                    |                    |        | 59,940           
|Cash                                                                                                                                    |                                                                                                      |                    | 99     |                  
|Deferred policy acquisition costs                                                                                                       |                                                                                                      |                    | 2,998  |                  
|Reinsurance recoverables, net                                                                                                           |                                                                                                      |                    | 1,156  |                  
|Accrued investment income                                                                                                               |                                                                                                      |                    | 585    |                  
|Other assets                                                                                                                            |                                                                                                      |                    | 325    |                  
|Separate Accounts                                                                                                                       |                                                                                                      |                    | 12,177 |                  
|                                                                                                                                        |                                                                                                      |                    |        |                  
|                                                                                                                                        | Total assets                                                                                         |                    | $      | 77,280           
|                                                                                                                                        |                                                                                                      |                    |        |                  
|Liabilities                                                                                                                             |                                                                                                      |                    |        |                  
|Contractholder funds                                                                                                                    |                                                                                                      | $                  | 43,479 |                  
|Reserve for life-contingent contract benefits                                                                                           |                                                                                                      |                    | 10,397 |                  
|Unearned premiums                                                                                                                       |                                                                                                      |                    | 9      |                  
|Payable to affiliates, net                                                                                                              |                                                                                                      |                    | 77     |                  
|Other liabilities and accrued expenses                                                                                                  |                                                                                                      |                    | 3,589  |                  
|Deferred income taxes                                                                                                                   |                                                                                                      |                    | 842    |                  
|Debt                                                                                                                                    |                                                                                                      |                    | 44     |                  
|Separate Accounts                                                                                                                       |                                                                                                      |                    | 12,177 |                  
|                                                                                                                                        |                                                                                                      |                    |        |                  
|                                                                                                                                        | Total liabilities                                                                                    |                    |        | 70,614           
|                                                                                                                                        |                                                                                                      |                    |        |                  
|Commitments and Contingent Liabilities (Note 3)                                                                                         |                                                                                                      |                    |        |                  
|Shareholder's Equity                                                                                                                    |                                                                                                      |                    |        |                  
|Redeemable preferred stock  series A, $100 par value, 1.5 million shares authorized, 815,460 and 930,650 shares issued and outstanding |                                                                                                      |                    | 82     |                  
|Common stock, $227 par value, 23,800 shares authorized and outstanding                                                                  |                                                                                                      |                    | 5      |                  
|Additional capital paid-in                                                                                                              |                                                                                                      |                    | 1,067  |                  
|Retained income                                                                                                                         |                                                                                                      |                    | 4,293  |                  
|Accumulated other comprehensive income:                                                                                                 |                                                                                                      |                    |        |                  
|                                                                                                                                        | Unrealized net capital gains and losses and net gains and losses on derivative financial instruments |                    |        | 1,219            
|                                                                                                                                        |                                                                                                      |                    |        |                  
|                                                                                                                                        | Total accumulated other comprehensive income                                                         |                    |        | 1,219            
|                                                                                                                                        |                                                                                                      |                    |        |                  
|                                                                                                                                        | Total shareholder's equity                                                                           |                    |        | 6,666            
|                                                                                                                                        |                                                                                                      |                    |        |                  
|                                                                                                                                        | Total liabilities and shareholder's equity                                                           |                    | $      | 77,280           
|                                                                                                                                        |                                                                                                      |                    |        |                  

See notes to condensed consolidated financial statements.

2

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

|                                                    |                                                                                   | Nine Months Ended
September 30,           |                                              
|--------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------
|
|
|Cash flows from operating activities                |                                                                                   |                                           |                                              
|Net income                                          |                                                                                   | $                                         | 243                                          
|                                                    | 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, net                
|                                                    |                                                                                   |                                           | 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               |                                                                                   |                                           | 321                                          
|Change in other investments, net                    |                                                                                   |                                           | (50                                          
|                                                    |                                                                                   |                                           |                                              
|                                                    |                                                                                   |                                           |                                              
|                                                    |                                                                                   |                                           |                                              
|Cash flows from financing activities                |                                                                                   |                                           |                                              
|(Redemption) issuance of redeemable preferred stock |                                                                                   |                                           | (11                                          
|Capital contributions                               |                                                                                   |                                           |                                             
|Contractholder fund deposits                        |                                                                                   |                                           | 7,492                                        
|Contractholder fund withdrawals                     |                                                                                   |                                           | (3,889                                       
|Dividends paid                                      |                                                                                   |                                           | (27                                          
|                                                    |                                                                                   |                                           |                                              
|                                                    |                                                                                   |                                           |                                              
|                                                    |                                                                                   |                                           |                                              
|Net (decrease) increase in cash                     |                                                                                   |                                           | (153                                         
|Cash at beginning of the period                     |                                                                                   |                                           | 252                                          
|                                                    |                                                                                   |                                           |                                              
|Cash at end of period                               |                                                                                   | $                                         | 99                                           
|                                                    |                                                                                   |                                           |                                              

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 September 30, 2003 and for the three-month and nine-month periods ended September 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 $38 million and $90 million for the
nine months ended September 30, 2003 and 2002, respectively.

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

Adopted accounting standards

FASB Interpretation No. 46

In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities". FIN 46 addresses whether certain types of entities, referred to as variable interest entities ("VIEs"), should be consolidated in a company's financial statements. A VIE is an entity in
which the equity investors lack certain essential characteristics of a controlling financial interest or which lacks sufficient equity to finance its own activities without financial support provided
by other entities. An enterprise must consolidate a VIE if it has a variable interest that will absorb a majority of the expected losses, receive a majority of the expected returns or both.

Adoption
is required for relationships with VIEs entered into on or after February 1, 2003. For VIEs existing prior to that date, the effective date of the interpretation was
delayed through the issuance of FASB Staff Position ("FSP") FIN 46-6, until the end of the first interim or annual period ending after December 15, 2003. However, FIN 46 may be
applied before the end of the deferral period to some or all affected VIEs.

Effective
July 1, 2003, the Company has applied the guidance in FIN 46 on a prospective basis as follows:



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SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities"

In April 2003, the FASB issued Statement of Financial Accounting Standards ("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". While this statement applies primarily to certain derivative
contracts and embedded derivatives entered into or modified after June 30, 2003, it also codifies conclusions previously reached by the FASB at various dates on certain implementation issues.
The impact of adopting the provisions of this statement were not material to the Company's Condensed Consolidated Statements of Operations or Financial Position.

Pending Accounting Standards

Statement of Position 03-01

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 addresses three areas:
separate accounts presentation and valuation, accounting for sales inducements such as bonus interest, and the classification and valuation of certain long duration liabilities. The effective date of
the SOP is for fiscal years beginning after December 15, 2003, with earlier adoption encouraged.

Based
on management's review of the SOP, the most significant impact to the Company is the provision of the SOP that 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. This liability will be determined based on models that involve
numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The Company does not currently
recognize these liabilities. The Company is currently evaluating the provisions of the statement. The Company plans to adopt the provisions of the statement no later than January 1, 2004. The
effect of adoption may have a material impact on the Condensed Consolidated Statements of Operations. However, the amounts may vary based on market conditions. Adoption is not expected to have a
material impact on the Company's Condensed Consolidated Statements of Financial Position.

Proposed standards

EITF Topic No. 03-01

The Emerging Issues Task Force ("EITF") discussed 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
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 establishment of loss reserves. Failure of reinsurers to honor their

5

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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
September 30, |     | Nine months ended
September 30, |  
|------------------- | ---------------------------- | -------------------------------- | --- | ------------------------------- | -
|
|Premiums            |                              |                                  |     |                                 |  
|Direct              |                              | $                                | 276 |                                 | $
|Assumed             |                              |                                  |     |                                 |  
|                    | Affiliate                    |                                  |     | 2                               |  
|                    | Non-affiliate                |                                  |     | 21                              |  
|Cedednon-affiliate |                              |                                  | (95 | )                               |  
|                    |                              |                                  |     |                                 |  
|                    | Premiums, net of reinsurance |                                  | $   | 204                             |  
|                    |                              |                                  |     |                                 |  

The
effects of reinsurance on contract benefits are as follows:

|                  |               | Three months ended
September 30,      |     | Nine months ended
September 30, |    
|----------------- | ------------- | ------------------------------------- | --- | ------------------------------- | ---
|
|Contract benefits |               |                                       |     |                                 |    
|Direct            |               | $                                     | 426 |                                 | $  
|Assumed           |               |                                       |     |                                 |    
|                  | Affiliate     |                                       |     | 2                               |    
|                  | Non-affiliate |                                       |     | 14                              |    
|Ceded             |               |                                       |     |                                 |    
|                  | Non-affiliate |                                       |     | (91                             | )  
|                  |               |                                       |     |                                 |    
|                  |               | Contract benefits, net of reinsurance |     | $                               | 351
|                  |               |                                       |     |                                 |    

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
either
insurance products or competing non-insurance products that 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 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. These lawsuits include a number of putative class actions and one certified class action challenging the
overtime exemption claimed by AIC under the

6

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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 lawsuit involves
the worker classification of staff working in agencies. In this putative class action, plaintiffs seek damages under the Employee Retirement Income Security Act ("ERISA") and the Racketeer Influenced
and Corrupt Organizations Act alleging that agency secretaries were terminated as employees by AIC and rehired by agencies through outside staffing vendors for the purpose of avoiding the payment of
employee benefits. A putative nationwide class action filed by former employee agents also includes a worker classification issue; these agents are challenging certain amendments to the Agents Pension
Plan and are seeking to have exclusive agent independent contractors treated as employees for benefit purposes. AIC has been vigorously defending these and various other worker classification
lawsuits. The outcome of these disputes is currently uncertain.

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 $110 million at September 30, 2003. The credit default swaps and credit guarantees contained in these fixed income
securities expire at various times during the next seven years.

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 September 30, 2003, the amount due under the commercial paper program is $300 million and the cash surrender value of the
policies is $308 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

7

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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 September 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 September 30, |     
|---------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----
|
|
|Unrealized net capital gains and losses and
net gains and losses on derivative financial instruments |  |                                  |     
|Unrealized holding gains (losses) arising during the period                                          |  | $                                | (325
|Less: reclassification adjustments                                                                   |  |                                  | 1   
|                                                                                                     |  |                                  |     
|Unrealized net capital gains (losses)                                                                |  |                                  | (326
|                                                                                                     |  |                                  |     
|Net gains (losses) on derivative financial instruments arising during the period                     |  |                                  |    
|Less: reclassification adjustments                                                                   |  |                                  |    
|                                                                                                     |  |                                  |     
|Net gains (losses) on derivative financial instruments                                               |  |                                  |    
|                                                                                                     |  |                                  |     
|Other comprehensive income (loss)                                                                    |  | $                                | (326
|                                                                                                     |  |                                  |     
|Net income                                                                                           |  |                                  |     
|                                                                                                     |  |                                  |     
|Comprehensive income (loss)                                                                          |  |                                  |     
|                                                                                                     |  |                                  |     

8

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

|                                                                                                     |  | Nine months ended September 30, |    
|---------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---
|
|
|Unrealized net capital gains and losses and net
gains and losses on derivative financial instruments |  |                                 |    
|Unrealized holding gains (losses) arising during the period                                          |  | $                               | 190
|Less: reclassification adjustments                                                                   |  |                                 | (66
|                                                                                                     |  |                                 |    
|Unrealized net capital gains (losses)                                                                |  |                                 | 256
|                                                                                                     |  |                                 |    
|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)                                                                    |  | $                               | 257
|                                                                                                     |  |                                 |    
|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 September 30, 2003, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended
September 30, 2003 and 2002, and the condensed consolidated statements of cash flows for the nine-month periods ended September 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
November 13, 2003

10

---

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED
SEPTEMBER 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 is presented in the following table.

|                                                |  | Three Months Ended
September 30, |        | Nine Months Ended
September 30, |  
|----------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | -
|
|Premiums                                        |  | $                                | 204    |                                 | $
|Contract charges                                |  |                                  | 214    |                                 |  
|Net investment income                           |  |                                  | 785    |                                 |  
|Contract benefits                               |  |                                  | (351   | )                               |  
|Interest credited to contractholder funds       |  |                                  | (447   | )                               |  
|Amortization of DAC                             |  |                                  | (92    | )                               |  
|Operating costs and expenses                    |  |                                  | (122   | )                               |  
|Income tax expense                              |  |                                  | (60    | )                               |  
|Realized capital gains and losses, after-tax(1) |  |                                  | (4     | )                               |  
|Loss on disposition of operations, after-tax    |  |                                  | (8     | )                               |  
|                                                |  |                                  |        |                                 |  
|Net income                                      |  | $                                | 119    |                                 | $
|                                                |  |                                  |        |                                 |  
|Investments                                     |  |                                  | 59,940 |                                 |  
|Separate Accounts assets                        |  |                                  | 12,177 |                                 |  
|                                                |  |                                  |        |                                 |  
|Investments, including Separate Accounts assets |  | $                                | 72,117 |                                 | $
|                                                |  |                                  |        |                                 |  

---

CONSOLIDATED REVENUES

|                                  |  | Three Months Ended
September 30, |       | Nine Months Ended
September 30, |  
|--------------------------------- |  | -------------------------------- | ----- | ------------------------------- | -
|
|Premiums                          |  | $                                | 204   |                                 | $
|Contract charges                  |  |                                  | 214   |                                 |  
|Net investment income             |  |                                  | 785   |                                 |  
|Realized capital gains and losses |  |                                  |      |                                 |  
|                                  |  |                                  |       |                                 |  
|Total consolidated revenues       |  | $                                | 1,203 |                                 | $
|                                  |  |                                  |       |                                 |  

Consolidated
revenues increased 20.1% in the third quarter of 2003 when compared to the third quarter of 2002 and increased 10.0% for the nine months ended September 30, 2003 from
the first nine months of 2002. The increases were primarily due to lower realized capital losses and higher net investment income.

OPERATIONS

Premiumsincluded in the Condensed Consolidated Statements of Operations, represent premiums generated from
traditional life, immediate annuities with life contingencies and other insurance products that 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 these contractholder account values for maintenance, administration,
cost of insurance and surrender prior to contractually specified dates. As a result, changes in Contractholder funds and Separate Accounts are considered in the evaluation of growth and as indicators
of future levels of revenues.

12

---

The
following table summarizes Premiums and Contract charges by product.

|                       |                                                                | Three Months Ended
September 30,    |   | Nine Months Ended
September 30,
|---------------------- | -------------------------------------------------------------- | ----------------------------------- | - | -------------------------------
|
|Premiums               |                                                                |                                     |   |                                
|Life insurance         |                                                                |                                     |   |                                
|                       | Traditional life                                               |                                     | $ | 101                            
|                       | Other                                                          |                                     |   | 36                             
|                       |                                                                |                                     |   |                                
|                       |                                                                | Total life insurance                |   |                                
|Annuities              |                                                                |                                     |   |                                
|                       | Fixed annuitiesimmediate annuities with life contingencies    |                                     |   | 67                             
|                       |                                                                |                                     |   |                                
|                       |                                                                | Total Premiums                      |   |                                
|Contract charges       |                                                                |                                     |   |                                
|Life insurance         |                                                                |                                     |   |                                
|                       | Interest-sensitive life                                        |                                     |   | 152                            
|                       | Other                                                          |                                     |   |                               
|                       |                                                                |                                     |   |                                
|                       |                                                                | Total life insurance                |   |                                
|Annuities              |                                                                |                                     |   |                                
|                       | Fixed annuitiesdeferred                                       |                                     |   | 3                              
|                       | Fixed annuitiesimmediate annuities without life contingencies |                                     |   | 7                              
|                       | Variable annuities                                             |                                     |   | 52                             
|                       |                                                                |                                     |   |                                
|                       |                                                                | Total annuities                     |   |                                
|Institutional products |                                                                |                                     |  |                                
|                       |                                                                |                                     |   |                                
|                       |                                                                | Total Contract charges              |   |                                
|                       |                                                                |                                     |   |                                
|                       |                                                                | Total Premiums and Contract charges |   | $                              
|                       |                                                                |                                     |   |                                

13

---

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

|                 |                                                                      | Three Months Ended
September 30,    |   | Nine Months Ended
September 30,
|---------------- | -------------------------------------------------------------------- | ----------------------------------- | - | -------------------------------
|
|Premiums         |                                                                      |                                     |   |                                
|                 | Allstate agencies                                                    |                                     | $ | 58                             
|                 | Specialized brokers                                                  |                                     |   | 63                             
|                 | Independent agents                                                   |                                     |   | 18                             
|                 | Direct marketing                                                     |                                     |   | 65                             
|                 |                                                                      |                                     |   |                                
|                 |                                                                      | Total Premiums                      |   |                                
|Contract charges |                                                                      |                                     |   |                                
|                 | Allstate agencies                                                    |                                     |   | 110                            
|                 | Specialized brokers                                                  |                                     |   | 7                              
|                 | Independent agents                                                   |                                     |   | 50                             
|                 | Financial services firms (financial institutions and broker/dealers) |                                     |   | 45                             
|                 | Direct marketing                                                     |                                     |   | 2                              
|                 |                                                                      |                                     |   |                                
|                 |                                                                      | Total Contract charges              |   |                                
|                 |                                                                      |                                     |   |                                
|                 |                                                                      | Total Premiums and Contract charges |   | $                              
|                 |                                                                      |                                     |   |                                

Total
Premiums increased 4.1% to $204 million in the third quarter of 2003 from $196 million in the third quarter of 2002. The increase was primarily the result of higher
premiums from immediate annuities with life contingencies, partially offset by declines in premiums due to the discontinuance of direct response credit insurance. The increase of immediate annuities
with life contingencies was due to consumer preference as well as market and competitive conditions, which drive the level and mix of immediate annuities sold with or without life contingencies.

Total
Contract charges were $214 million in the third quarter of 2003 compared to $210 million in the third quarter of 2002. Higher interest-sensitive life insurance
contract charges from in-force business growth were mostly offset by lower surrender charges.

For
the first nine months of 2003, premiums and contract charges increased 2.6% compared to the first nine months of 2002. Premiums increased 4.6% in the first nine months of 2003
compared to the same period in the prior year as a result of higher premiums from immediate annuities with life contingencies, partially offset by the discontinuance of direct response credit
insurance and lower traditional life premiums. Contract charges were consistent with the prior year as higher interest-sensitive life contract charges resulting from in-force business
growth were mostly offset by lower variable annuity contract charges, which resulted from lower average variable annuity account balances during the period.

14

---

Contractholder
funds, included in the Condensed Consolidated Statements of Financial Position, represent interest-bearing liabilities arising from the sale of individual products, such
as interest-sensitive life and fixed annuities, and institutional products, such as funding agreements and guaranteed investment contracts. The balance of Contractholder funds is equal to the
cumulative deposits received and interest credited to the contractholder less cumulative contract maturities, surrenders, withdrawals and contract charges for mortality or administrative expenses.

The
following table shows the changes in Contractholder funds.

|                                                |                                          | Changes from July 1 to
September 30, |        | Changes from January 1 to
September 30, |  
|----------------------------------------------- | ---------------------------------------- | ------------------------------------ | ------ | --------------------------------------- | -
|
|Contractholder funds, beginning balance         |                                          | $                                    | 41,393 |                                         | $
|Deposits:                                       |                                          |                                      |        |                                         |  
|                                                | Fixed annuities (immediate and deferred) |                                      |        | 1,578                                   |  
|                                                | Funding agreements                       |                                      |        | 1,076                                   |  
|                                                | Other products(1)                        |                                      |        | 535                                     |  
|Interest credited                               |                                          |                                      | 447    |                                         |  
|Maturities, surrenders and other adjustments(2) |                                          |                                      | (1,550 | )                                       |  
|                                                |                                          |                                      |        |                                         |  
|Contractholder funds, ending balance            |                                          | $                                    | 43,479 |                                         | $
|                                                |                                          |                                      |        |                                         |  

---

Contractholder
funds deposits increased in the third quarter and first nine months of 2003 compared to the same periods in the prior year due to significant increases in funding
agreement and fixed annuity deposits. Period to
period fluctuations in funding agreement deposits are largely due to management's assessment of market opportunities. Average Contractholder funds increased 15.6% in the third quarter and 17.7% in the
first nine months of 2003 compared to the same periods in the prior year.

Separate
Accounts liabilities, included in the Condensed Consolidated Statements of Financial Position, are legally segregated from the Company's general accounts and represent the
contractholders' claims to the related Separate Accounts assets. Separate Accounts liabilities primarily arise from the sale of variable annuities and variable life insurance. The balance of the
Separate Accounts liabilities is equal to the cumulative deposits received plus the investment performance of the related assets less the cumulative contract surrenders, withdrawals, net transfers
to/from the general account and cumulative contract charges for mortality or administrative expenses.

15

---

The
following table shows the changes in Separate Accounts liabilities.

|                                                 |                                  | Changes from July 1 to
September 30, |        | Changes from January 1 to
September 30, |  
|------------------------------------------------ | -------------------------------- | ------------------------------------ | ------ | --------------------------------------- | -
|
|Separate Accounts liabilities, beginning balance |                                  | $                                    | 11,823 |                                         | $
|                                                 | Deposits                         |                                      |        | 368                                     |  
|                                                 | Investment results               |                                      |        | 296                                     |  
|                                                 | Contract charges                 |                                      |        | (54                                     | )
|                                                 | Surrenders and other adjustments |                                      |        | (256                                    | )
|                                                 |                                  |                                      |        |                                         |  
|Separate Accounts liabilities, ending balance    |                                  | $                                    | 12,177 |                                         | $
|                                                 |                                  |                                      |        |                                         |  

Separate
Accounts liabilities increased $354 million during the third quarter of 2003 compared to a $1.86 billion decline in the third quarter of 2002, reflecting
significant improvement in investment results, lower surrenders as well as higher variable annuity deposits. Improved market results and the ongoing effect of the introduction of the Allstate Advisor
variable annuity products have resulted in a sequential quarterly increase in variable annuity deposits.

For
the first nine months of 2003 compared to the same period in the prior year, higher Separate Account liabilities reflect significant improvement in investment results, partially
offset by lower variable annuity deposits and higher surrenders.

Net investment incomeincreased 3.7% in the third quarter and 4.6% in the first nine months of 2003, compared to the same periods in the
prior 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. The lower
portfolio yields were primarily due to purchases of fixed income securities with interest rates lower than the current portfolio average. Investments as of September 30, 2003, excluding
unrealized net capital gains, increased 13.5% from December 31, 2002.

Analysis of net incomeis presented in the following table.

|                                             |  | Three Months Ended
September 30, |      | Nine Months Ended
September 30, |  
|-------------------------------------------- |  | -------------------------------- | ---- | ------------------------------- | -
|
|Investment margin                            |  | $                                | 211  |                                 | $
|Mortality margin                             |  |                                  | 97   |                                 |  
|Maintenance charges                          |  |                                  | 79   |                                 |  
|Surrender charges                            |  |                                  | 18   |                                 |  
|Amortization of DAC                          |  |                                  | (92  | )                               |  
|Operating costs and expenses                 |  |                                  | (122 | )                               |  
|Income tax expense                           |  |                                  | (60  | )                               |  
|Realized capital gains and losses, after-tax |  |                                  | (4   | )                               |  
|Loss on disposition of operations, after-tax |  |                                  | (8   | )                               |  
|                                             |  |                                  |      |                                 |  
|Net income                                   |  | $                                | 119  |                                 | $
|                                             |  |                                  |      |                                 |  

Investment marginrepresents the excess of investment income earned over interest credited to policyholders and contractholders and
interest expense. Investment margin increased 15.3% in the third quarter of 2003 and 5.0% in the first nine months of 2003 compared to the same periods in prior year due to

16

---

growth
of in-force business and management actions to reduce crediting rates where possible, partially offset by the decline in the fixed income securities portfolio yields. For
interest-sensitive fixed annuities and life products in which management has the ability to modify crediting rates, the weighted average interest crediting rate was approximately 85 basis points above
the long-term underlying guaranteed rate as of September 30, 2003.

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

|                                                                    |  | Weighted Average
Investment Yield |   | Weighted Average
Interest Crediting Rate |   | Weighted Average
Investment Spreads |  
|------------------------------------------------------------------- |  | --------------------------------- | - | ---------------------------------------- | - | ----------------------------------- | -
|
|Interest-sensitive life                                             |  | 6.8                               | % | 7.1                                      | % | 5.1                                 | %
|Fixed annuitiesdeferred                                            |  | 6.3                               |   | 7.0                                      |   | 4.5                                 |  
|Fixed annuitiesimmediate                                           |  | 7.8                               |   | 8.2                                      |   | 7.1                                 |  
|Institutionalfixed rate contracts                                  |  | 6.8                               |   | 7.1                                      |   | 6.4                                 |  
|Institutionalfloating rate contracts                               |  | 2.4                               |   | 3.2                                      |   | 1.3                                 |  
|Investments supporting capital, traditional life and other products |  | 7.1                               |   | 7.1                                      |   | N/A                                 |  

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

|                                                                    |  | Weighted Average
Investment Yield |   | Weighted Average
Interest Crediting Rate |   | Weighted Average
Investment Spreads |  
|------------------------------------------------------------------- |  | --------------------------------- | - | ---------------------------------------- | - | ----------------------------------- | -
|
|Interest-sensitive life                                             |  | 6.9                               | % | 7.2                                      | % | 5.0                                 | %
|Fixed annuitiesdeferred                                            |  | 6.5                               |   | 7.1                                      |   | 4.6                                 |  
|Fixed annuitiesimmediate                                           |  | 7.9                               |   | 8.2                                      |   | 7.0                                 |  
|Institutionalfixed rate contracts                                  |  | 6.7                               |   | 7.4                                      |   | 6.2                                 |  
|Institutionalfloating rate contracts                               |  | 2.6                               |   | 3.2                                      |   | 1.5                                 |  
|Investments supporting capital, traditional life and other products |  | 6.5                               |   | 7.1                                      |   | N/A                                 |  

Declines in the weighted average investment spreads for fixed annuities-immediate in both periods were the result of lower fixed income securities
portfolio yields. Declines in the lower weighted average investment spreads for institutional-fixed rate contracts in both periods were due to lower fixed income securities portfolio yields and higher
average crediting rates resulting from maturities of contracts with lower crediting rates than those remaining in force.

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 September 30.

17

---



|(in millions)                                                                |  | 2003 |        | 2002 |  
|---------------------------------------------------------------------------- |  | ---- | ------ | ---- | -
|Interest-sensitive life                                                      |  | $    | 6,208  |      | $
|Fixed annuitiesdeferred                                                     |  |      | 24,669 |      |  
|Fixed annuitiesimmediate                                                    |  |      | 9,900  |      |  
|Institutionalfixed rate contracts                                           |  |      | 1,621  |      |  
|Institutionalfloating rate contracts                                        |  |      | 7,560  |      |  
|                                                                             |  |      |        |      |  
|                                                                             |  |      | 49,958 |      |  
|FAS 115/133 market value adjustment                                          |  |      | 1,473  |      |  
|Ceded reserves                                                               |  |      | (1,147 | )    |  
|Life-contingent contracts and other                                          |  |      | 3,592  |      |  
|                                                                             |  |      |        |      |  
|Total Contractholder funds and Reserve for life-contingent contract benefits |  | $    | 53,876 |      | $
|                                                                             |  |      |        |      |  

The following table summarizes investment margin by product group.

Three Months Ended
September 30,

Nine Months Ended
September 30,(in millions)

2003

2002

2003

2002Life insurance

$
43

$
42

$
124

$
137Annuities


141


110


408


360Institutional products


27


31


76


82Investment margin

$
211

$
183

$
608

$
579


Mortality margin, which represents premiums and cost of insurance contract charges less related policy benefits was $97 million or
12.6% lower in the third quarter of 2003 compared to the third quarter of 2002. During the quarter, higher variable annuity guaranteed minimum death benefit ("GMDBs") payments and the effect of the
discontinuance of direct response credit insurance more than offset new business growth. Third quarter 2003 GMDB payments of $18 million, net of reinsurance, hedging losses and other
contractual arrangements ("net GMDB payments"), were $7 million higher than the third quarter of 2002, but $9 million lower compared to the second quarter of 2003. The
non-renewal of direct response credit insurance resulted in a $3 million decline in the mortality margin during the third quarter of 2003 compared to the third quarter of 2002.

For
the first nine months of 2003, the mortality margin was $260 million or 22.8% below the first nine months of 2002. The impact of GMDBs in the first nine months of 2003
compared to the same period of 2002 represents $51 million of the $77 million decline. The remaining decline was due to a large number of life claims in the first quarter of 2003 and the
effect of the discontinuance of direct response credit insurance, partially offset by higher mortality margin from new interest-sensitive life business.

The
following table summarizes mortality margin by product group.

Three Months Ended
September 30,

Nine Months Ended
September 30,(in millions)

2003

2002

2003

2002Life insurance

$
118

$
127

$
348

$
371Annuities


(21
)

(14
)

(88
)

(34
)Institutional products





(2
)




Mortality margin

$
97

$
111

$
260

$
337


Amortization of DACdecreased 36.1% and 2.4% in the third quarter and first nine months of 2003, respectively, compared to the same
periods in 2002. The decline in the third quarter of 2003 compared to the same period in the prior year was primarily due to the recognition in the prior period of a net $65 million
acceleration of amortization, commonly known as DAC unlocking. The decline in the first nine months of

18

---

2003
compared to the same period in the prior year was due to lower amortization on variable annuities and certain fixed annuities, resulting from lower gross margins, partially offset by higher net
DAC unlocking.

Operating costs and expensesincreased 8.9% during the third quarter of 2003 compared to the third quarter of 2002. The increase was
primarily attributable to higher employee related benefit and technology related expenses as well as increased non-deferrable commissions. Operating costs and expenses increased 6.2%
during the first nine months of 2003 compared to the same period of 2002 due to higher employee related benefit and technology expenses as well as increased non-deferrable commissions,
partly offset by lower litigation related expenses.

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
September 30,

Nine Months Ended
September 30,(in millions)

2003

2002

2003

2002Investment write-downs

$
(26
)
$
(106
)
$
(144
)
$
(165
)SalesFixed income and equity securities


(14
)

(51
)

37


(92
)Other


1


2


5


8Total sales


(13
)

(49
)

42


(84
)Valuation of derivative instruments


33


3


11


(23
)Settlement of derivative instruments


6


(9
)

4


(6
)Realized capital gains and losses, pretax





(161
)

(87
)

(278
)Reclassification of amortization of DAC


(6
)

6


(31
)

2Income tax benefit


2


56


42


98Realized capital gains and losses, after-tax

$
(4
)
$
(99
)
$
(76
)
$
(178
)


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

INVESTMENTS

The composition of the investment portfolio at September 30, 2003 is presented in the following table.

|(in millions)               |  | Investments |        | Percent to
total |      
|--------------------------- |  | ----------- | ------ | ---------------- | -----
|Fixed income securities(1)  |  | $           | 50,734 |                  | 84.7 
|Mortgage loans              |  |             | 6,256  |                  | 10.4 
|Equity securities           |  |             | 162    |                  | 0.3  
|Short-term                  |  |             | 1,763  |                  | 2.9  
|Policy loans                |  |             | 688    |                  | 1.1  
|Other including derivatives |  |             | 337    |                  | 0.6  
|                            |  |             |        |                  |      
|Total                       |  | $           | 59,940 |                  | 100.0
|                            |  |             |        |                  |      

---

Total
investments increased to $59.94 billion at September 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 generated in a lower interest rate
environment.

19

---

Total
investment balances related to funds associated with securities lending and dollar roll programs increased to $2.78 billion at September 30, 2003, from
$1.24 billion at December 31, 2002.

The
Unrealized net capital gains on fixed income and equity securities at September 30, 2003 were $3.63 billion, an increase of $551 million or 17.9% since
December 31, 2002. The net unrealized gain for the fixed income portfolio totaled $3.62 billion, comprised of $3.89 billion of unrealized gains and $269 million of
unrealized losses at September 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 September 30, 2003, 60.2% of the unrealized losses for the fixed income portfolio were in the corporate
fixed income portfolio. Corporate fixed income net unrealized gains totaled $2.15 billion comprised of $2.32 billion of unrealized gains and $162 million of unrealized losses. The
unrealized losses for the corporate fixed income portfolio were concentrated in the transportation, basic industry and banking sectors. These sectors comprised $81 million or 50.0% of the
unrealized losses and $565 million or 24.4% of unrealized gains in the corporate fixed income portfolio. No other sector accounted for more than 10% of unrealized losses in the corporate fixed
income portfolio.

The
net unrealized gain for the equity portfolio totaled $5 million, comprised of $8 million of unrealized gains and $3 million of unrealized losses at
September 30, 2003, compared to a 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 $32 million at September 30, 2003, compared to $46 million of unrealized losses at December 31, 2002. This
decrease was primarily related to a decline in unrealized losses in this category for the utility sector, partially offset by an increase in unrealized losses for the transportation and basic industry
sectors. 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 had unrealized
losses of $7 million at September 30, 2003 compared to unrealized losses of $5 million at December 31, 2002.

Approximately
92.6% 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.

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

|(in millions)                     |  | September 30, 2003 |     | December 31, 2002 |  
|--------------------------------- |  | ------------------ | --- | ----------------- | -
|
|Problem                           |  | $                  | 140 |                   | $
|Restructured                      |  |                    | 31  |                   |  
|Potential problem                 |  |                    | 282 |                   |  
|                                  |  |                    |     |                   |  
|Total net carrying value          |  | $                  | 453 |                   | $
|                                  |  |                    |     |                   |  
|Cumulative write-downs recognized |  | $                  | 227 |                   |  
|                                  |  |                    |     |                   |  

As
of September 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 primarily to the sale of holdings in these categories due to specific developments in the first nine months of the year causing a change in the Company's outlook and
intent to hold those securities. The Company evaluated each of these securities through its watch list process at September 30, 2003 and recorded write-downs on securities that are deemed to be
other than temporarily impaired. Approximately $15 million of net unrealized losses at September 30, 2003 are related to securities that the Company has included in the problem,
restructured or potential problem categories. These securities represent 0.9% of the fixed income portfolio. The Company concluded, through its watch list monitoring process, that these unrealized
losses were temporary in nature. While these balances may increase in the future, particularly if economic conditions are unfavorable, management expects that the total amount of securities in these
categories will 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 19. Sales of fixed income securities in the third quarter and first nine 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 investment objectives.

CAPITAL RESOURCES AND LIQUIDITY

Capital resourcesconsist of shareholder's equity and debt representing funds deployed or available to be deployed to support business operations. The
following table summarizes the Company's capital resources.

|(in millions)                                                      |                            | September 30, 2003 |       | December 31, 2002
|------------------------------------------------------------------ | -------------------------- | ------------------ | ----- | -----------------
|Redeemable preferred stock                                         |                            | $                  | 82    |                  
|Common stock, retained income and other shareholder's equity items |                            |                    | 5,365 |                  
|Accumulated other comprehensive income                             |                            |                    | 1,219 |                  
|                                                                   |                            |                    |       |                  
|                                                                   | Total shareholder's equity |                    |       | 6,666            
|Debt                                                               |                            |                    | 44    |                  
|                                                                   |                            |                    |       |                  
|                                                                   | Total capital resources    |                    | $     | 6,710            
|                                                                   |                            |                    |       |                  

Shareholder's equityincreased $304 million in the first nine months of 2003 when compared to year-end 2002 due to
increases in net unrealized capital gains and net income partially offset by dividends to Allstate Insurance Company ("AIC") of $94 million. The balance of Redeemable preferred stock declined
during the first nine months of 2003 due to the reduction of investment by a strategic alliance partner.

Debtas of September 30, 2003 reflects the impact of the adoption of Financial Accounting Standards Board ("FASB") Interpretation
No. 46 ("FIN 46"), which required the Company to consolidate $44 million

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of
the debt of a previously unconsolidated investment security. For more information about FIN 46 see Note 1 of the Condensed Consolidated Financial Statements.

The
Company has an intercompany loan agreement with The Allstate Corporation (the "Corporation") whereby the amount of intercompany loans available is at the discretion of the
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 September 30,
2003, the Corporation had no outstanding commercial paper borrowings that were allocated to the Company under the intercompany 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 outlook for these companies' ratings.

LiquidityThe 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 September 30, 2003, ALIC paid $94 million in dividends. Based on the greater of 2002 statutory net income or 10% of
statutory surplus, the maximum amount of dividends ALIC is 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 intercompany 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 surrender and withdrawal at the discretion
of contractholders and therefore represents a significant potential use of cash in each fiscal period. These surrenders and withdrawals for the three-month and nine-month periods ending
September 30, 2003 were $597 million and $1.63 billion compared with $515 million and $1.48 billion for the same periods last year. These surrenders and withdrawals
for the first nine months of 2003 represented 3.7% of the Contractholder funds balance at September 30, 2003, compared to 3.9% in the first nine months of last year.

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



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RECENT DEVELOPMENTS



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," "seeks," "expects," "will," "should,"
"anticipates," "estimates," "intends," "believes," "likely," "targets" 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. Factors which could cause actual results to differ materially from those suggested by such forward-looking statements, include but are not
limited to those discussed or identified in this document (including the risk factors described below) and in the Company's public filings with the SEC.



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.



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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)
|----------------- |  | --------------------------------------------
|November 14, 2003 |  | By                                          

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|Exhibit No. |  | Description                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|15          |  | Acknowledgment of awareness from Deloitte & Touche LLP, dated November 13, 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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