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 JUNE 30, 2004
|OR                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|Commission file number: 000-31248           

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

|Illinois(State of Incorporation)                                               |  | 36-2554642(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------ |  | ----------------------------------------------
|3100 Sanders Road
Northbrook, Illinois(Address of principal executive offices) |  | 60062(Zip code)                               

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

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

Yes ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).

Yes o    No ý

As of July 31, 2004, the registrant had 23,800 common shares, $227 par value, outstanding, all of which are held by Allstate Insurance
Company.



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ALLSTATE LIFE INSURANCE COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2004

|        |  |                                                                                                                                    |  | PAGE
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                                              |  |     
|Item 1. |  | Financial Statements                                                                                                               |  |     
|        |  | Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended June 30, 2004 and 2003 (unaudited) |  | 1   
|        |  | Condensed Consolidated Statements of Financial Position as of June 30, 2004 (unaudited) and December 31, 2003                      |  | 2   
|        |  | Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2004 and 2003 (unaudited)                 |  | 3   
|        |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 4   
|        |  | Report of Independent Registered Public Accounting Firm                                                                            |  | 12  
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                              |  | 13  
|Item 4. |  | Controls and Procedures                                                                                                            |  | 26  
|PART II |  | OTHER INFORMATION                                                                                                                  |  |     
|Item 1. |  | Legal Proceedings                                                                                                                  |  | 27  
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                   |  | 27  

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PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                    |  | Three Months Ended
June 30, |       | Six Months Ended
June 30, |  
|------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | ------------------------- | -
|
|
|Revenues                                                                                                            |  |                             |       |                           |  
|Premiums                                                                                                            |  | $                           | 151   |                           | $
|Contract charges                                                                                                    |  |                             | 236   |                           |  
|Net investment income                                                                                               |  |                             | 795   |                           |  
|Realized capital gains and losses                                                                                   |  |                             | (68   | )                         |  
|                                                                                                                    |  |                             |       |                           |  
|                                                                                                                    |  |                             | 1,114 |                           |  
|Costs and expenses                                                                                                  |  |                             |       |                           |  
|Contract benefits                                                                                                   |  |                             | 313   |                           |  
|Interest credited to contractholder funds                                                                           |  |                             | 463   |                           |  
|Amortization of deferred policy acquisition costs                                                                   |  |                             | 109   |                           |  
|Operating costs and expenses                                                                                        |  |                             | 123   |                           |  
|                                                                                                                    |  |                             |       |                           |  
|                                                                                                                    |  |                             | 1,008 |                           |  
|Loss on disposition of operations                                                                                   |  |                             | (14   | )                         |  
|                                                                                                                    |  |                             |       |                           |  
|Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax |  |                             | 92    |                           |  
|Income tax expense                                                                                                  |  |                             | 37    |                           |  
|                                                                                                                    |  |                             |       |                           |  
|Income before cumulative effect of change in accounting principle, after-tax                                        |  |                             | 55    |                           |  
|Cumulative effect of change in accounting principle, after-tax                                                      |  |                             |      |                           |  
|                                                                                                                    |  |                             |       |                           |  
|Net income (loss)                                                                                                   |  | $                           | 55    |                           | $
|                                                                                                                    |  |                             |       |                           |  

See notes to condensed consolidated financial statements.

1

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

|(in millions, except par value data)                                                                                                 |                                                                             | June 30,
2004                                                                                        |        | December 31,
2003
|------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------ | -----------------
|
|Assets                                                                                                                               |                                                                             |                                                                                                      |        |                  
|Investments                                                                                                                          |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     | Fixed income securities, at fair value (amortized cost $52,594 and $48,401) |                                                                                                      | $      | 54,624           
|                                                                                                                                     | Mortgage loans                                                              |                                                                                                      |        | 6,854            
|                                                                                                                                     | Equity securities                                                           |                                                                                                      |        | 273              
|                                                                                                                                     | Short-term                                                                  |                                                                                                      |        | 1,448            
|                                                                                                                                     | Policy loans                                                                |                                                                                                      |        | 702              
|                                                                                                                                     | Other                                                                       |                                                                                                      |        | 520              
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     |                                                                             | Total investments                                                                                    |        |                  
|Cash                                                                                                                                 |                                                                             |                                                                                                      | 108    |                  
|Deferred policy acquisition costs                                                                                                    |                                                                             |                                                                                                      | 3,347  |                  
|Reinsurance recoverables, net                                                                                                        |                                                                             |                                                                                                      | 1,365  |                  
|Accrued investment income                                                                                                            |                                                                             |                                                                                                      | 574    |                  
|Other assets                                                                                                                         |                                                                             |                                                                                                      | 617    |                  
|Separate Accounts                                                                                                                    |                                                                             |                                                                                                      | 13,564 |                  
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     | Total assets                                                                |                                                                                                      | $      | 83,996           
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|Liabilities                                                                                                                          |                                                                             |                                                                                                      |        |                  
|Contractholder funds                                                                                                                 |                                                                             | $                                                                                                    | 49,365 |                  
|Reserve for life-contingent contract benefits                                                                                        |                                                                             |                                                                                                      | 10,533 |                  
|Unearned premiums                                                                                                                    |                                                                             |                                                                                                      | 30     |                  
|Payable to affiliates, net                                                                                                           |                                                                             |                                                                                                      | 65     |                  
|Other liabilities and accrued expenses                                                                                               |                                                                             |                                                                                                      | 3,933  |                  
|Deferred income taxes                                                                                                                |                                                                             |                                                                                                      | 438    |                  
|Short-term debt                                                                                                                      |                                                                             |                                                                                                      | 55     |                  
|Long-term debt                                                                                                                       |                                                                             |                                                                                                      | 116    |                  
|Separate Accounts                                                                                                                    |                                                                             |                                                                                                      | 13,564 |                  
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     | Total liabilities                                                           |                                                                                                      |        | 78,099           
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|Commitments and Contingent Liabilities (Note 5)                                                                                      |                                                                             |                                                                                                      |        |                  
|Shareholder's Equity                                                                                                                 |                                                                             |                                                                                                      |        |                  
|Redeemable preferred stockseries A, $100 par value, 1.5 million shares authorized, 49,230 and 815,460 shares issued and outstanding |                                                                             |                                                                                                      | 5      |                  
|Common stock, $227 par value, 23,800 shares authorized and outstanding                                                               |                                                                             |                                                                                                      | 5      |                  
|Additional capital paid-in                                                                                                           |                                                                             |                                                                                                      | 1,077  |                  
|Retained income                                                                                                                      |                                                                             |                                                                                                      | 4,143  |                  
|Accumulated other comprehensive income:                                                                                              |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     |                                                                             | Unrealized net capital gains and losses and net gains and losses on derivative financial instruments |        |                  
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     | Total accumulated other comprehensive income                                |                                                                                                      |        | 667              
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     | Total shareholder's equity                                                  |                                                                                                      |        | 5,897            
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  
|                                                                                                                                     | Total liabilities and shareholder's equity                                  |                                                                                                      | $      | 83,996           
|                                                                                                                                     |                                                                             |                                                                                                      |        |                  

See notes to condensed consolidated financial statements.

2

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

|                                                     |                                                                                   | Six Months Ended
June 30,                           |                                              
|---------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------
|
|
|Cash flows from operating activities                 |                                                                                   |                                                     |                                              
|Net (loss) income                                    |                                                                                   | $                                                   | (29                                          
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                     |                                              
|                                                     |                                                                                   | Amortization and other non-cash items               |                                              
|                                                     |                                                                                   | Realized capital gains and losses                   |                                              
|                                                     |                                                                                   | Cumulative effect of change in accounting principle |                                              
|                                                     |                                                                                   | 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                |                                                                                   |                                                     | (2                                           
|Change in other investments, net                     |                                                                                   |                                                     | (47                                          
|                                                     |                                                                                   |                                                     |                                              
|                                                     |                                                                                   |                                                     |                                              
|                                                     |                                                                                   |                                                     |                                              
|Cash flows from financing activities                 |                                                                                   |                                                     |                                              
|Change in short-term debt, net                       |                                                                                   |                                                     | 55                                           
|Redemption of mandatorily redeemable preferred stock |                                                                                   |                                                     | (7                                           
|Contractholder fund deposits                         |                                                                                   |                                                     | 6,331                                        
|Contractholder fund withdrawals                      |                                                                                   |                                                     | (2,907                                       
|Dividends paid                                       |                                                                                   |                                                     | (51                                          
|                                                     |                                                                                   |                                                     |                                              
|                                                     |                                                                                   |                                                     |                                              
|                                                     |                                                                                   |                                                     |                                              
|Net (decrease) increase in cash                      |                                                                                   |                                                     | (13                                          
|Cash at beginning of the period                      |                                                                                   |                                                     | 121                                          
|                                                     |                                                                                   |                                                     |                                              
|Cash at end of period                                |                                                                                   | $                                                   | 108                                          
|                                                     |                                                                                   |                                                     |                                              

See notes to condensed consolidated financial statements.

3

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

1.     Basis of Presentation

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

The
condensed consolidated financial statements and notes as of June 30, 2004, and for the three-month and six-month periods ended June 30, 2004 and 2003 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, 2003. The results of operations for
the interim periods should not be considered indicative of results to be expected for the full year.

To
conform to the 2004 presentation, certain amounts in the prior year's condensed consolidated financial statements and notes have been reclassified.

In
August 2004, the boards of directors of ALIC and Glenbrook Life and Annuity Company ("GLAC") approved the merger of GLAC, a consolidated subsidiary of ALIC, into ALIC, expected
to be effective January 1, 2005. ALIC will be the surviving legal entity and GLAC will cease to exist as an independent entity. ALIC and GLAC expect to receive all required regulatory
approvals.

Equity
securities include common stocks, non-redeemable preferred stocks and limited partnership interests. Common stocks and non-redeemable preferred stocks had
a carrying value of $157 million and $83 million, and cost of $147 million and $79 million at June 30, 2004 and December 31, 2003, respectively. Investments
in limited partnership interests had a carrying value of $116 million and $81 million at June 30, 2004 and December 31, 2003, respectively.

Non-cash
investment exchanges and modifications, which primarily reflect refinancings of fixed income securities and mergers completed with equity securities, totaled
$33 million and $34 million for the six months ended June 30, 2004 and 2003, respectively.

Adopted Accounting Standard

Statement of Position No. 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate Accounts" ("SOP 03-1")

On January 1, 2004, the Company adopted SOP 03-1. The major provisions of the SOP affecting the Company require:





The cumulative effect of the change in accounting principle from implementing SOP 03-1 was a loss of $175 million, after-tax
($269 million, pre-tax). It was comprised of an increase
in benefits reserves (primarily for variable annuity contracts) of $145 million, pre-tax, and a reduction in DAC and deferred sales inducements ("DSI") of $124 million,
pre-tax.

The
SOP requires consideration of a range of potential results to estimate the cost of variable annuity death benefits and income benefits, which generally necessitates the use of
stochastic modeling techniques. To maintain consistency with the assumptions used in the establishment of reserves for variable annuity guarantees, the

4

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Company
utilized the results of this stochastic modeling to estimate expected gross profits, which form the basis for determining the amortization of DAC and DSI. This new modeling approach resulted
in a lower estimate of expected gross profits, and therefore resulted in a write-down of DAC and DSI.

In
2004, DSI and related amortization is classified within the Condensed Consolidated Statements of Financial Position and Operations as other assets and interest credited to
contractholder funds, respectively. The amounts are provided below.

The
Company reclassified $204 million of separate accounts assets and liabilities to investments and contractholder funds, respectively.



The Company offers various guarantees to variable contractholders including a return of no less than (a) total deposits made on the contract less any
customer withdrawals, (b) total deposits made on the contract less any customer withdrawals plus a minimum return or (c) the highest contract value on a specified anniversary date minus
any customer withdrawals following the contract anniversary. These guarantees include benefits that are payable in the event of death (death benefits), upon annuitization (income benefits), or at
specified dates during the accumulation period (accumulation benefits). To manage the risk associated with a portion of its minimum guaranteed death and income benefits, the Company acquired
reinsurance for policies issued prior to January 1, 2000. Additionally, the Company hedges death benefits for substantially all contracts issued since January 1, 2003 and accumulation
benefits for all contracts issued.

The
table below presents information regarding the Company's variable contracts with guarantees. The Company's variable annuity contracts may offer more than one type of guarantee in
each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity contracts' separate accounts with guarantees.

($ in millions)

June 30, 2004In the event of deathAccount value

$
13,330Net amount at risk(1)

$
2,284Average attained age of contractholders


63 yearsAt annuitizationAccount value

$
3,710Net amount at risk(2)

$
70Weighted average waiting period until annuitization options available


8 yearsAccumulation at specified datesAccount value

$
86Net amount at risk(3)

$
Weighted average waiting period until guarantee date


11 years


---

Account
balances of variable contracts' separate accounts with guarantees were invested as follows:

(in millions)

June 30, 2004Equity securities (including mutual funds)

$
12,694Cash and cash equivalents


636Total variable contracts' separate account assets with guarantees

$
13,330


5

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The following table summarizes the liabilities for guarantees:

(in millions)

Liability for
guarantees related
to death benefits

Liability for
guarantees related
to income benefits

TotalBalance at January 1, 2004

$
117

$
41

$
158Less reinsurance recoverables


(11
)

(2
)

(13
)Net balance at January 1, 2004


106


39


145Incurred guaranteed benefits


17


3


20Paid guarantee benefits


(30
)




(30
)Net change


(13
)

3


(10
)Net balance at June 30, 2004


93


42


135Plus reinsurance recoverables


9





9Balance, June 30, 2004 (1)

$
102

$
42

$
144


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The
liability for death and income benefit guarantees is established equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract
benefit payments. The benefit ratio is calculated as the estimated present value of all expected contract benefits divided by the present value of all expected contract charges. For guarantees in the
event of death, benefits represent the current guaranteed minimum death payments in excess of the current account balance. For guarantees at annuitization, benefits represent the present value of the
minimum guaranteed annuity benefits in excess of the current account balance.

Projected
benefits and contract charges used in determining the liability for guarantees are developed using models and stochastic scenarios that are also used in the development of
estimated expected gross profits. Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based on factors such as the extent of benefit to
the potential annuitant, eligibility conditions and the annuitant's attained age.

The
liability for guarantees will be re-evaluated periodically, and adjustments will be made to the liability balance through a charge or credit to contract benefits.



Costs related to sales inducements offered on sales to new customers, principally on investment contracts and primarily in the form of additional credits to the
customer's account value or enhancements to interest credited
for a specified period, which are beyond amounts currently being credited to existing contracts, are deferred and recorded as other assets. All other sales inducements are expensed as incurred and
included in interest credited to contractholder funds on the Condensed Consolidated Statements of Operations. DSI is amortized to income using the same methodology and assumptions as DAC, and included
in interest credited to contractholder funds. DSI is periodically reviewed for recoverability and written down when necessary.

DSI
activity for the six months ended June 30, 2004 was as follows:

(in millions)Balance, January 1, 2004

$
182Sales inducements deferred


25Amortization charged to income


(21
)Effects of unrealized gains and losses


(32
)Balance, June 30, 2004

$
154


6

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Pending Accounting Standards

Emerging Issues Task Force Topic No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-1")

In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus on EITF 03-1, which is effective for fiscal periods beginning
after June 15, 2004. EITF 03-1 requires that when the fair value of an investment security is less than its carrying value an impairment exists for which a determination must be
made as to whether the impairment is other-than-temporary. An impairment loss should be recognized equal to the difference between the investment's carrying value and its fair
value when an impairment is other-than-temporary. Subsequent to an other-than temporary impairment loss, a debt security should be accounted for in accordance with
Statement of Position No. 03-3, "Accounting for Loans and Certain Debt Securities Acquired in a Transfer", which allows the accretion of the discount between the carrying value and
expected value of a security if the amount and timing of the recognition of that difference in cash is reasonably estimable. EITF 03-1 also indicates that although not presumptive a
pattern of selling investments prior to the forecasted recovery may call into question an investor's intent to hold the security until it recovers in value.

The
EITF 03-1 impairment model applies to all investment securities accounted for under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and to investment securities accounted for under the cost method to the extent an impairment indicator exists or the reporting entity has estimated
the fair value of the investment security in connection with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments".

The
final consensus on EITF 03-1 included additional disclosure requirements incremental to those adopted by the Company effective December 31, 2003 that are effective
for fiscal years ending after June 15, 2004.

The
Company is currently evaluating the impact of EITF 03-1 on its process for determining other-than-temporary impairment for the affected
securities. More specifically, the Company is analyzing whether subsequent to adoption its portfolio management practices for certain securities classified as
available-for-sale pursuant to SFAS No. 115 could be interpreted as a pattern of selling thereby affecting its designated intent to hold such investments for the period
necessary to allow for the forecasted recovery of fair value pursuant to the requirements of EITF 03-1. As a result of this analysis, the Company may potentially reclassify to realized
capital gains and losses the unrealized net capital gains and losses associated with certain securities classified as available-for-sale.

Adoption
of this standard may:



Adoption
of this standard is not expected to have a material impact on shareholder's equity since fluctuations in fair value are already recorded in accumulated other comprehensive
income.

2.     Disposition

The Company disposed of the majority of its direct response distribution business in the first quarter of 2004 and is in the process of disposing of its remaining
direct response distribution business. In connection with those disposal activities, the Company recorded an additional loss on disposition of $17 million pre-tax
($11 million after-tax) for the six months ended June 30, 2004.

7

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3.     Reinsurance

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

Three months ended
June 30,

Six months ended
June 30,(in millions)

2004

2003

2004

2003Premiums and contract chargesDirect

$
509

$
501

$
1,025

$
1,104AssumedAffiliate


5


5


9


11Non-affiliate


(1
)

22


4


44Cedednon-affiliate


(126
)

(105
)

(266
)

(210
)Premiums and contract charges, net of reinsurance

$
387

$
423

$
772

$
949


The effects of reinsurance on contract benefits are as follows:

Three months ended
June 30,

Six months ended
June 30,(in millions)

2004

2003

2004

2003Contract benefitsDirect

$
416

$
453

$
831

$
983AssumedAffiliate


5


2


7


2Non-affiliate


3


10


3


20Ceded Non-affiliate


(111
)

(87
)

(192
)

(160
)Contract benefits, net of reinsurance

$
313

$
378

$
649

$
845


Included in income tax expense on the Condensed Consolidated Statement of Operations is $6 million of expense related to the write-off of a tax
receivable resulting from the termination of a reinsurance agreement with a nonconsolidated affiliate who does not file with ALIC in the consolidated tax return.

4.     Debt

As of June 30, 2004, debt includes $70 million of mandatorily redeemable preferred stock ("preferred stock") that was reclassified to
long-term debt during the second quarter in accordance with the provisions of Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity". The reclassification occurred as a result of changes to contractual arrangements between the Company and the holders of the preferred stock resulting
in the preferred stock becoming mandatorily redeemable. As of December 31, 2003, the balance of the preferred stock subject to reclassification amounted to $77 million. During the second
quarter of 2004, $7 million of this mandatorily redeemable preferred stock was redeemed.

5.     Guarantees and Contingent Liabilities

Guarantees

The Company owns certain fixed income securities that obligate the Company 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 all such specified credit events were to occur, the Company's maximum amount at risk on these fixed income securities,
as measured by the par value, was $95 million at June 30, 2004. The obligations associated with 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 that is fully collateralized by the cash
surrender value of the universal life insurance contracts. At June 30,

8

---



2004,
the amount due under the commercial paper program is $300 million and the cash surrender value of the policies is $309 million. The repayment guarantee expires April 30,
2006.

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

The
aggregate liability balance related to all guarantees was not material as of June 30, 2004.

Regulation

The Company is subject to changing social, economic and regulatory conditions. Recent state and federal regulatory initiatives and proceedings have included
efforts to remove barriers preventing banks from engaging in the securities and insurance businesses, change tax laws affecting the taxation of insurance companies and the tax treatment of insurance
products or competing non-insurance products that may impact the relative desirability of various personal investment products and otherwise expand overall regulation of insurance products
and the insurance industry. The ultimate changes and eventual effects of these initiatives on the Company's business, if any, are uncertain.

Regulatory
bodies have contacted the Company and have requested information relating to variable insurance products, including such areas as market timing and late trading and sales
practices. The Company believes that these inquiries are similar to those made to many financial services companies as part of an industry-wide investigation by various regulatory agencies
into the practices, policies and procedures relating to variable insurance products sales and subaccount trading practices. The Company has and will continue to respond to these information requests
and investigations. The Company at the present time is not aware of any systemic problems with respect to such matters that may have a material adverse effect on the Company's condensed consolidated
financial position.

Legal proceedings

Background

The Company and certain of its affiliates are named as defendants in a number of lawsuits and other legal proceedings arising out of various aspects of its
business. As background to the "Proceedings" described below, please note the following:



9

---







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. A putative nationwide class action filed by former employee agents 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 this 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") alleging retaliation under federal civil rights laws and a class action filed in August 2001
by former employee agents alleging retaliation and age discrimination under the Age Discrimination in Employment Act, breach of contract and ERISA violations. In April 2004, the U.S. Department
of Labor notified AIC that it has closed its investigation and contemplates no further action on this matter at this time. In late March 2004, in the EEOC and class action lawsuits, the trial
court issued a memorandum and order that, among other things, certified classes of agents, including a mandatory class of agents who had signed a release, for purposes of effecting the court's
declaratory judgment that the release is voidable at the option of the release signer. The court also ordered that an agent who voids the release must return to AIC "any and all benefits received by
the [agent] in exchange for signing the release." The court also "concluded that, on the undisputed facts of record, there is no basis for claims of age discrimination." The
EEOC and plaintiffs have asked the court to clarify and/or reconsider its memorandum and order. The case otherwise remains pending. A putative nationwide class action has also been filed by former
employee agents alleging various violations of ERISA. This matter was dismissed with prejudice in late March 2004 by the trial court but will be the subject of further proceedings on appeal. In
these matters, plaintiffs seek compensatory and punitive damages, and equitable relief. 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. In addition, the
company is defending several lawsuits brought by annuitants challenging trading restrictions the company adopted to limit market-timing activity. Plaintiffs seek a variety of remedies including
monetary and equitable relief. The Company has been vigorously defending these matters, but their outcome is currently uncertain.

Other actions

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

10

---



number
of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts. This litigation is based on a variety of issues including
insurance and claim settlement practices. The outcome of these disputes is currently unpredictable. However, at this time, based on their present status, it is the opinion of management that the
ultimate liability, if any, in one or more of these other actions in excess of amounts currently reserved is not expected to have a material effect on the results of operations, liquidity or financial
position of the Company.

6.     Other Comprehensive Income

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

|                                                                                                     |  | Three months ended
June 30, |     
|---------------------------------------------------------------------------------------------------- |  | --------------------------- | ----
|
|
|Unrealized net capital gains and losses and net gains and losses on derivative financial instruments |  |                             |     
|Unrealized holding gains (losses) arising during the period                                          |  | $                           | (907
|Less: reclassification adjustments                                                                   |  |                             | (58 
|                                                                                                     |  |                             |     
|Unrealized net capital gains (losses)                                                                |  |                             | (849
|                                                                                                     |  |                             |     
|Net gains (losses) on derivative financial instruments arising during the period                     |  |                             |    
|Less: reclassification adjustments                                                                   |  |                             | (4  
|                                                                                                     |  |                             |     
|Net gains (losses) on derivative financial instruments                                               |  |                             | 4   
|                                                                                                     |  |                             |     
|Other comprehensive income (loss)                                                                    |  | $                           | (845
|                                                                                                     |  |                             |     
|Net income (loss)                                                                                    |  |                             |     
|                                                                                                     |  |                             |     
|Comprehensive income (loss)                                                                          |  |                             |     
|                                                                                                     |  |                             |     

|                                                                                                     |  | Six months ended
June 30, |     
|---------------------------------------------------------------------------------------------------- |  | ------------------------- | ----
|
|
|Unrealized net capital gains and losses and net gains and losses on derivative financial instruments |  |                           |     
|Unrealized holding gains (losses) arising during the period                                          |  | $                         | (657
|Less: reclassification adjustments                                                                   |  |                           | (62 
|                                                                                                     |  |                           |     
|Unrealized net capital gains (losses)                                                                |  |                           | (595
|                                                                                                     |  |                           |     
|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)                                                                    |  | $                         | (594
|                                                                                                     |  |                           |     
|Net income (loss)                                                                                    |  |                           |     
|                                                                                                     |  |                           |     
|Comprehensive income (loss)                                                                          |  |                           |     
|                                                                                                     |  |                           |     

11

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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") as of June 30, 2004,
and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 2004 and 2003, and the condensed consolidated statements of
cash flows for the six-month periods ended June 30, 2004 and 2003. These interim financial statements are the responsibility of the Company's management.

We
conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), 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 interim 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 of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of
Allstate Life Insurance Company and subsidiaries as of December 31, 2003, 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 4, 2004, which report includes an explanatory paragraph as to changes in the Company's methods of accounting for
embedded derivatives in modified coinsurance agreements and variable interest entities in 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, 2003 is fairly stated, in all material respects, in relation to the
consolidated statement of financial position from which it has been derived.



/s/
Deloitte & Touche LLP

Chicago,
Illinois
August 10, 2004

12

---



Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED
JUNE 30, 2004 AND 2003

OVERVIEW

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of Allstate Life Insurance
Company (referred to in this document as "we", "our", "us", or 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 2003. We operate as a single segment entity, consistent with the way in which
we use financial information to evaluate business performance and to determine the allocation of resources.

HIGHLIGHTS



(in millions)

Three Months
Ended June 30, 2004
Compared to the Same
Period in the Prior Year

Six Months
Ended June 30, 2004
Compared to the Same
Period in the Prior YearTotal revenues

$
(54
)
$
(108
)Contract benefits


24


47Amortization of DAC


7


15Operating costs and expenses


18


34Loss on disposition of operations


(2
)

(5
)Income tax expense


2


6Net income

$
(5
)
$
(11
)


13

---



OPERATIONS

Premiumsrepresent revenues generated from traditional life, immediate annuities with life contingencies and other
insurance products that have significant mortality or morbidity risk.

Contract chargesare revenues 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 on the Condensed Consolidated Statements of Financial Position. Contract charges are assessed
against the 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 liabilities are considered in the evaluation of growth and as indicators of future levels of revenues.

The
following table summarizes premiums and contract charges by product.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003PremiumsTraditional life

$
85

$
96

$
159

$
187Immediate annuities with life contingencies


66


68


143


251Other





40





83Total premiums


151


204


302


521Contract chargesInterest-sensitive life


161


154


321


304Fixed annuities


14


11


28


18Variable annuities


61


50


121


97Institutional products





3





6Other





1





3Total contract charges


236


219


470


428Total premiums and contract charges

$
387

$
423

$
772

$
949


The
following table summarizes premiums and contract charges by distribution channel.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003PremiumsAllstate agencies

$
74

$
56

$
127

$
109Specialized brokers


51


68


114


251Independent agents


11


7


31


14Direct response


15


73


30


147Total premiums


151


204


302


521Contract chargesAllstate agencies


116


108


229


217Specialized brokers


5


9


12


16Independent agents


58


56


117


105Financial institutions and broker/dealers


57


46


112


90Total contract charges


236


219


470


428Total premiums and contract charges

$
387

$
423

$
772

$
949


14

---



Total
premiums decreased 26.0% to $151 million in the second quarter of 2004 and 42.0% to $302 million in the first six months of 2004 compared to the same periods of 2003.
The decrease in the second quarter of 2004 compared to the same period in the prior year was attributable to the disposal of the majority of our direct response distribution business, which resulted
in lower traditional life and other premiums. The decrease in the first six months of 2004 compared to the same period in the prior year was primarily due to the disposal of the majority of our direct
response distribution business and lower premiums on immediate annuities with life contingencies. The declines in immediate annuities with life contingencies were primarily the result of stricter
underwriting actions, which reduced sales of large individual contracts.

Contract
charges increased 7.8% to $236 million in the second quarter of 2004 and 9.8% to $470 million in the first six months of 2004 compared to the same periods of 2003.
The increase in both periods was primarily due to higher contract charges on variable annuities as a result of overall higher account values in the current periods and increased contract charges on
interest-sensitive life products resulting from in force business growth. The higher account values in the current periods were primarily attributable to favorable investment results during 2003 and
net deposits, partially offset by surrenders and benefits.

Contractholder fundsrepresent interest-bearing liabilities arising from the sale of individual products, such as interest-sensitive life
and fixed annuities, or institutional products, such as funding agreements. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder
less cumulative contract maturities, benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.

The
following table shows the changes in contractholder funds.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Contractholder funds, beginning balance

$
46,997

$
39,880

$
44,914

$
38,858Impact of adoption of SOP 03-1(1)








421


DepositsFixed annuities (immediate and deferred)


1,635


1,463


2,851


2,472Institutional products


1,499


632


2,600


986Interest-sensitive life


303


225


609


435Variable annuity and life deposits allocated to fixed accounts


151


237


271


409Total deposits


3,588


2,557


6,331


4,302Interest credited


463


440


907


872Maturities, benefits, withdrawals and other adjustmentsMaturities of institutional products


(584
)

(696
)

(1,095
)

(1,093
)Benefits and withdrawals


(828
)

(650
)

(1,583
)

(1,257
)Contract charges


(145
)

(145
)

(287
)

(278
)Net transfers to separate accounts


(103
)

(119
)

(234
)

(142
)Fair value hedge adjustments for institutional products


(135
)

71


(112
)

87Other adjustments


112


55


103


44Total maturities, benefits, withdrawals and other adjustments


(1,683
)

(1,484
)

(3,208
)

(2,639
)Contractholder funds, ending balance

$
49,365

$
41,393

$
49,365

$
41,393


---

15

---



Contractholder
deposits increased 40.3% in the second quarter and 47.2% in the first six months of 2004 compared to the same periods in 2003, and average contractholder funds, excluding
the impact of adopting SOP 03-1, increased 18.6% in the second quarter and 17.0% in the first six months of 2004 compared to the same periods in 2003 due to increases in institutional
product and fixed annuity deposits. Institutional product deposits increased 137.2% and 163.7% in the second quarter and first six months of 2004, respectively, compared to the same periods in 2003,
largely due to our assessment of market opportunities. Institutional product deposits included the inaugural offering during the second quarter of 2004 of our newly registered program totaling
$800 million. Fixed annuity deposits increased 11.8% and 15.3% in the second quarter and first six months of 2004, respectively, compared to the same periods in 2003. The increases were
attributable to higher consumer demand resulting from increasing market interest rates.

Benefits
and withdrawals increased 27.4% in the second quarter and 25.9% in the first six months of 2004 compared to the same periods in 2003. Benefits and withdrawals for the second
quarter and first six months of 2004 represent an annualized withdrawal rate of 9.2% and 9.0%, respectively, based on the beginning of period contractholder funds balance excluding institutional
product reserves, compared to 8.4% for the second quarter and first six months of 2003. Institutional product maturities declined 16.1% in the second quarter of 2004 compared to the same period in the
prior year and were slightly higher in the first six months of 2004 compared to the same period in the prior year.

Separate accounts liabilitiesrepresent contractholders' claims to the related legally segregated separate accounts assets. Separate
accounts liabilities primarily arise from the sale of variable annuity contracts and variable life insurance policies. The following table shows the changes in separate accounts liabilities.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Separate accounts liabilities, beginning balance

$
13,550

$
10,553

$
13,425

$
11,125Impact of adoption of SOP 03-1(1)








(204
)

Variable annuity and life deposits


474


575


961


1,000Variable annuity and life deposits allocated to fixed accounts


(151
)

(237
)

(271
)

(409
)Net deposits


323


338


690


591Investment results


45


1,238


361


970Contract charges


(63
)

(54
)

(125
)

(106
)Net transfers from fixed accounts


103


119


234


142Surrenders and benefits


(394
)

(371
)

(817
)

(899
)Separate accounts liabilities, ending balance

$
13,564

$
11,823

$
13,564

$
11,823


---

Separate
accounts liabilities, excluding the impact of adopting SOP 03-1, increased $14 million and $343 million during the second quarter and first six months
of 2004, respectively, compared to $1.27 billion and $698 million during the second quarter and first six months of 2003, respectively, as a result of net deposits, transfers from fixed
accounts and positive investment results, partially offset by surrenders, benefits paid to contractholders and contract charges. Variable annuity contractholders often allocate a significant portion
of their initial variable annuity contract deposit into a fixed rate investment option. The level of this activity is reflected above in the deposits allocated to the fixed accounts, while all other
transfer activity between the fixed and separate accounts investment options is reflected in net transfers from fixed accounts. The liability for the fixed portion of variable annuity contracts is
reflected in contractholder funds.

16

---



Net investment incomeincreased 4.6% in the second quarter of 2004 and 3.8% in the first six months of 2004 compared to the same periods
in 2003. The increases in both periods were the result of the effect of higher portfolio balances and increased income on partnership interests, partially offset by lower portfolio yields. Higher
portfolio balances resulted from the investment of cash flows from operating and financing activities. Total investments as of June 30, 2004, increased 9.6% from June 30, 2003 due
primarily to contractholder deposits, partially offset by a decline in unrealized capital gains on fixed income securities. The lower portfolio yields were primarily due to purchases of fixed income
securities with yields lower than the current portfolio average.

Net incomeanalysis is presented in the following table.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Premiums

$
151

$
204

$
302

$
521Contract charges


236


219


470


428Net investment income


795


760


1,578


1,520Periodic settlements and accruals on non-hedge derivative instruments


12


2


18


5Contract benefits


(313
)

(378
)

(649
)

(845
)Interest credited to contractholder funds(1)


(455
)

(440
)

(891
)

(872
)Gross margin


426


367


828


757Amortization of DAC and DSI


(112
)

(73
)

(225
)

(232
)Operating costs and expenses


(123
)

(118
)

(225
)

(239
)Income tax expense


(73
)

(56
)

(136
)

(90
)Realized capital gains and losses, after-tax


(44
)

(27
)

(61
)

(53
)DAC and DSI amortization relating to realized capital gains and losses, after-tax


(3
)

(7
)

(13
)

(16
)Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax


(7
)

(1
)

(11
)

(3
)Loss on disposition of operations, after-tax


(9
)




(11
)

Cumulative effect of change in accounting principle, after-tax








(175
)

Net income (loss)

$
55

$
85

$
(29
)
$
124


---

Gross margin, a non-GAAP measure, represents premiums and contract charges and net investment income, less contract benefits
and interest credited to contractholder funds. We use gross margin as a component of our evaluation of the profitability of our life insurance and financial product portfolio. Additionally, for many
of our products, including fixed annuities, variable contracts, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross
margin is comprised of four components that are utilized to further analyze the business: investment margin, benefit margin, maintenance charges and surrender charges. We believe gross margin and its
components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit
margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these
margins. Gross margin is reconciled to GAAP net income in the table above.

17

---



The
components of gross margin are reconciled to the corresponding financial statement line items in the following table.

|                                                                         |  | Three Months Ended June 30, |     
|------------------------------------------------------------------------ |  | --------------------------- | ----
|
|
|Premiums                                                                 |  | $                           |    
|Contract charges                                                         |  |                             |    
|Net investment income                                                    |  |                             | 795 
|Periodic settlements and accruals on non-hedge derivative instruments(1) |  |                             | 12  
|Contract benefits                                                        |  |                             | (125
|Interest credited to contractholder funds(2)                             |  |                             | (455
|                                                                         |  |                             |     
|                                                                         |  | $                           | 227 
|                                                                         |  |                             |     



|                                                                         |  | Six Months Ended June 30, |      
|------------------------------------------------------------------------ |  | ------------------------- | -----
|
|
|Premiums                                                                 |  | $                         |     
|Contract charges                                                         |  |                           |     
|Net investment income                                                    |  |                           | 1,578
|Periodic settlements and accruals on non-hedge derivative instruments(1) |  |                           | 18   
|Contract benefits                                                        |  |                           | (256 
|Interest credited to contractholder funds(2)                             |  |                           | (891 
|                                                                         |  |                           |      
|                                                                         |  | $                         | 449  
|                                                                         |  |                           |      

---

Gross margin increased 16.1% in the second quarter and 9.4% in the first six months of 2004 compared to the same periods of 2003. The increase in
the second quarter was due to increased investment margin, benefit margin and maintenance charges. The increase in the first six months was due to increased investment margin and higher maintenance
charges, partly offset by a decrease in the benefit margin.

Investment marginis a component of gross margin, both of which are non-GAAP measures. Investment margin represents the excess
of net investment income over interest credited to contractholder funds and the implied interest on life-contingent immediate annuities included in the reserve for
life-contingent contract

18

---



benefits.
We use investment margin to evaluate our profitability related to the difference between investment returns on assets supporting certain products and amounts credited to customers ("spread")
during a fiscal period.

Investment
margin by product group is shown in the following table.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Life insurance

$
41

$
40

$
85

$
81Annuities


156


130


304


267Institutional products


30


23


60


49Total investment margin

$
227

$
193

$
449

$
397


Investment
margin increased 17.6% in the second quarter of 2004 and 13.1% in the first six months of 2004 compared to the same periods of 2003. The increases in both
periods were primarily due to an increase in contractholder funds and improved yields on investments supporting capital, traditional life and other products.

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

Weighted Average
Investment Yield

Weighted Average
Interest Crediting Rate

Weighted Average
Investment Spreads2004

2003

2004

2003

2004

2003Interest-sensitive life

6.6
%
6.9
%
4.7
%
4.9
%
1.9
%
2.0
%Fixed annuitiesdeferred

5.8

6.5

4.1

4.7

1.7

1.8Fixed annuitiesimmediate

7.6

7.9

6.9

7.2

0.7

0.7Institutional

2.8

3.6

1.8

2.7

1.0

0.9Investments supporting capital, traditional life and other products

6.8

6.0

N/A

N/A

N/A

N/A


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

Weighted Average
Investment Yield

Weighted Average
Interest Crediting Rate

Weighted Average
Investment Spreads2004

2003

2004

2003

2004

2003Interest-sensitive life

6.6
%
7.0
%
4.7
%
5.0
%
1.9
%
2.0
%Fixed annuitiesdeferred

5.8

6.6

4.1

4.7

1.7

1.9Fixed annuitiesimmediate

7.6

7.9

6.9

7.2

0.7

0.7Institutional

2.9

3.7

1.9

2.7

1.0

1.0Investments supporting capital, traditional life and other products

6.9

6.1

N/A

N/A

N/A

N/A


In
the second quarter and first six months of 2004 compared to the same periods in the prior year, the yield on the capital, traditional life and other products
investment portfolio improved due to more effective cash management and higher investment income realized on investments accounted for using the equity method of accounting. These increases were
partially offset by a decline in fixed annuity investment spreads as investment yield declines were not fully offset by crediting rate reductions in each of the comparable periods. The weighted
average interest crediting rates on fixed annuity and interest-sensitive life products in force, excluding market value adjusted annuities, were approximately 45 basis points more than the underlying
long-term guaranteed rates on these products as of June 30, 2004. The crediting rate on approximately 50% of these contracts was at the contractually guaranteed minimum rate as of
June 30, 2004.

19

---



The following table summarizes the liabilities for these contracts and policies.

June 30,(in millions)

2004

2003Interest-sensitive life

$
6,923

$
6,217Fixed annuitiesdeferred


27,804


23,282Fixed annuitiesimmediate


10,280


9,662Institutional


11,187


8,62356,194


47,784Life-contingent contracts


3,141


3,112FAS 133 market value adjustment


458


513Ceded reserves and other


105


509Total contractholder funds and reserve for life-contingent contract benefits

$
59,898

$
51,918


Benefit marginis a component of gross margin, both of which are non-GAAP measures. Benefit margin represents premiums and
cost of insurance contract charges less contract benefits. Benefit margin excludes the implied interest on life-contingent immediate annuities, which is included in the calculation of
investment margin, and mortality charges on variable annuities, which are included as a component of maintenance charges. We use the benefit margin to evaluate our underwriting performance, as it
reflects the profitability of our products with respect to mortality or morbidity risk during a fiscal period.

Benefit
margin by product group is shown in the following table.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Life insurance

$
104

$
114

$
195

$
230Annuities


(13
)

(39
)

(36
)

(67
)Total benefit margin

$
91

$
75

$
159

$
163


Benefit
margin increased 21.3% in the second quarter of 2004 compared to the same period in the prior year as the decline resulting from the disposal of the majority of our direct
response distribution business was more than offset by lower expenses related to guaranteed minimum death benefits ("GMDBs") on variable annuities and growth and lower mortality benefits on our
traditional and interest-sensitive life products. Benefit margin declined 2.5% in the first six months of 2004 compared to the same period in 2003 as the disposal of the majority of our direct
response distribution business more than offset growth and lower mortality benefits on our traditional and interest-sensitive life products and lower expenses related to GMDBs on variable annuities.

As
required by SOP 03-1, as of January 1, 2004, a reserve was established for GMDBs and guaranteed minimum income benefits ("GMIBs"), which in previous periods, in the
case of GMDBs, were expensed as paid. Under the SOP, we anticipate that the benefit margin will be less volatile in the future, as
contract benefit expense pertaining to GMDBs and GMIBs will be proportionate to the related revenue rather than cash payments made during the period. Included in the benefit margin for the second
quarter and first six months of 2004 are additions to the reserve for guarantees of $5 million and $20 million, respectively, net of reinsurance. Included in the benefit margin for the
second quarter and first six months of 2003 are GMDB payments of $27 million and $48 million, respectively, net of reinsurance, hedging gains and losses and other contractual
arrangements. For further explanation of the impacts of the adoption of this accounting guidance, see Note 1 to the Condensed Consolidated Financial Statements.

Amortization of DAC and DSIincreased 53.4% in the second quarter of 2004 compared to the same period in the prior year as higher gross
margin on fixed annuities and variable products resulted in increased amortization, which was partially offset by the elimination of DAC amortization on the direct response distribution business that
was sold in January of 2004. Amortization of DAC and DSI decreased 3.0% in the first six months of 2004 compared to the same period in the prior year as higher amortization due to increased gross
margin on fixed annuities and variable products was more than offset by amortization acceleration

20

---



(commonly
referred to as "DAC unlocking") totaling $89 million in the first six months of 2003 and the elimination of DAC amortization on the direct response distribution business sold in
January of 2004.

The
adoption of SOP 03-1 required a new modeling approach for estimating expected future gross profits that are used when determining the amortization of DAC. Because of this
new modeling approach, effective January 1, 2004, the variable annuity DAC and DSI assets were reduced by $124 million. This reduction was recognized as a cumulative effect of a change
in accounting principle.

Operating costs and expensesincreased 4.2% in the second quarter of 2004 compared to the same period in the prior year and decreased 5.9%
in the first six months of 2004 compared to the same period in the prior year. The following table summarizes operating costs and expenses.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Non-deferrable acquisition costs

$
38

$
32

$
69

$
82Other operating costs and expenses


85


86


156


157Total operating costs and expenses

$
123

$
118

$
225

$
239


The
increase in total operating costs and expenses in the second quarter of 2004 compared to the same period in the prior year was primarily the result of higher
non-deferrable commissions, such as renewal and trail commissions, partially offset by the disposal of the majority of our direct response distribution business. For the first six months
of 2004 compared to the same period in the prior year, total operating costs and expenses decreased as the disposal of the majority of our direct response distribution business more than offset the
higher non-deferrable commissions and higher employee expenses.

INVESTMENTS

The composition of the investment portfolio at June 30, 2004 is presented in the table below.

(in millions)

Investments

Percent to
totalFixed income securities(1)

$
54,624

84.8
%Mortgage loans


6,854

10.6Equity securities


273

0.4Short-term


1,448

2.3Policy loans


702

1.1Other including derivatives


520

0.8Total

$
64,421

100.0
%


---

Total
investments increased to $64.42 billion at June 30, 2004 from $59.99 billion at December 31, 2003 primarily due to positive cash flows from operating
and financing activities and increased funds associated with securities lending, partially offset by decreased unrealized gains on fixed income securities.

Total
investments at amortized cost related to collateral, primarily due to securities lending, increased to $3.04 billion at June 30, 2004, from $1.92 billion at
December 31, 2003.

At
June 30, 2004, 92.8% of the consolidated fixed income securities portfolio was rated investment grade, which is defined 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; an S&P equivalent rating of AAA, AA, A or BBB; or a comparable internal rating, when an
external rating is not available.

The
unrealized net capital gains on fixed income and equity securities at June 30, 2004 were $2.03 billion, a decrease of $1.15 billion or 36.1% since
December 31, 2003. The net unrealized gain for the fixed income portfolio totaled $2.03 billion, comprised of $2.61 billion of unrealized gains and $580 million of
unrealized losses at June 30, 2004. This is compared to a net unrealized gain for the fixed income portfolio totaling $3.18

21

---



billion
at December 31, 2003, comprised of $3.47 billion of unrealized gains and $294 million of unrealized losses. Increases in gross unrealized losses were primarily
attributable to rising market interest rates. The total decrease in net unrealized gains for the fixed income portfolio was $1.15 billion, of which $1.08 billion or 94.5% was related to
investment grade securities. The total increase in gross unrealized losses for the fixed income portfolio was $286 million, of which $286 million or 100.0% was related to investment
grade securities.

Of
the gross unrealized losses in the fixed income portfolio at June 30, 2004, $507 million or 87.4% were related to investment grade securities and are believed to be a
result of the interest rate environment. Of the remaining $73 million of losses in the fixed income portfolio, $56 million or 76.7% was concentrated in the corporate fixed income
portfolio and was primarily comprised of securities in the transportation, consumer goods and basic industry sectors. The gross unrealized losses in these sectors were primarily company specific or
interest rate related. Approximately $27 million of the gross unrealized losses on the corporate fixed income portfolio and $8 million of the gross unrealized losses in the asset-backed
securities portfolio were associated with the airline industry for which values were depressed due to company specific issues and economic issues related to fuel costs. We expect eventual recovery of
these securities and the related sectors. Every security was included in our portfolio monitoring process.

The
net unrealized gain for the equity portfolio totaled $10 million, comprised of $12 million of unrealized gains and $2 million of unrealized losses at
June 30, 2004. This is compared to a net unrealized gain for the equity portfolio totaling $4 million at December 31, 2003. Within the equity portfolio, the losses were primarily
concentrated in the consumer goods and technology sectors. The losses in these sectors were company and sector specific. We expect eventual recovery of these securities and the related sectors. Every
security was included in our portfolio monitoring process.

Our
portfolio monitoring process identifies and evaluates fixed income and equity securities whose carrying value may be other than temporarily impaired. The process includes a quarterly
review of all securities using a screening process to identify those securities whose fair value compared to cost for equity securities or amortized cost for fixed income securities is below
established thresholds for certain time periods, or which are identified through other monitoring criteria such as ratings downgrades or payment defaults.

We
also monitor the quality of our fixed income portfolio by categorizing certain investments as "problem", "restructured" or "potential problem." Problem fixed income securities are
securities in default with respect to principal or interest and/or securities issued by companies that have gone into bankruptcy subsequent to our acquisition of the security. Restructured fixed
income securities have rates and terms that are not consistent with market rates or terms prevailing 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, we have serious concerns regarding the borrower's ability to pay future principal and interest, which
causes us to believe these securities may be classified as problem or restructured in the future.

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

(in millions)

June 30, 2004

December 31, 2003Amortized
cost

Fair
value

Percent of
total Fixed
Income
portfolio

Amortized
cost

Fair
value

Percent of
total Fixed
Income
portfolioProblem

$
128

$
126

0.2
%
$
167

$
155

0.3
%Restructured


46


48

0.1


42


46

0.1Potential problem


237


243

0.5


259


255

0.5Total net carrying value

$
411

$
417

0.8
%
$
468

$
456

0.9
%Cumulative write-downs recognized

$
244






$
228


We
have experienced a decrease in the amortized cost of fixed income securities categorized as problem and potential problem as of June 30, 2004 compared to December 31,
2003. The decrease was primarily related to the sale of holdings in these categories due to specific developments causing a change in our outlook and intent to hold those securities.

We
also evaluated each of these securities through our portfolio monitoring process and recorded write-downs when appropriate. We further concluded that any remaining unrealized losses
on these securities were temporary in nature. While these balances may increase in the future, particularly if economic conditions are

22

---



unfavorable,
we expect that the total amount of securities in these categories will remain low relative to the total fixed income securities portfolio.

Net Realized Capital Gains and LossesThe following table presents the components of realized capital gains and losses and
the related tax effect.

Three Months Ended
June 30,

Six Months Ended
June 30,(in millions)

2004

2003

2004

2003Investment write-downs

$
(11
)
$
(61
)
$
(45
)
$
(118
)Dispositions


(47
)

40


(12
)

55Valuation of derivative instruments


(18
)

(19
)

(38
)

(25
)Settlement of derivative instruments


8








6Realized capital gains and losses, pretax


(68
)

(40
)

(95
)

(82
)Income tax benefit


24


13


34


29Realized capital gains and losses, after-tax

$
(44
)
$
(27
)
$
(61
)
$
(53
)


Dispositions
in the above table include sales and other transactions such as calls and prepayments. We may sell securities during the period in which fair value has declined below
amortized cost for fixed income securities or cost for equity securities. Recognizing in certain situations new factors such as negative developments, subsequent credit deterioration, relative value
opportunities, market liquidity concerns and portfolio reallocations, we can subsequently change our previous intent to continue holding a security.

The
losses on dispositions in the second quarter of 2004 were related to sales of securities that were sold in recognition of relative value opportunities. The proceeds from these sales
were reinvested in higher yielding securities.

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 our capital resources.

(in millions)

June 30, 2004

December 31, 2003Redeemable preferred stock

$
5

$
82Common stock, retained earnings and other shareholder's equity items


5,225


5,294Accumulated other comprehensive income


667


1,053Total shareholder's equity


5,897


6,429Debt


171


45Total capital resources

$
6,068

$
6,474


Shareholder's equitydecreased $532 million as of June 30, 2004 when compared to December 31, 2003, primarily as a
result of a decrease in unrealized net capital gains on fixed income securities, a net loss, dividends to Allstate Insurance Company ("AIC") totaling $50 million and the reclassification of a
portion of redeemable preferred stock to long-term debt.

Debtas of June 30, 2004, includes $70 million of mandatorily redeemable preferred stock that was reclassified to
long-term debt during the second quarter of 2004 in accordance with the provisions of Statement of Financial Accounting Standard No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". The reclassification occurred as a result of changes to contractual arrangements between us and the holder of the stock. These changes
resulted in the stock, which was formerly reflected as a component of redeemable preferred stock on the condensed consolidated statements of financial position, becoming mandatorily redeemable. As of
December 31, 2003, the balance of the stock subject to reclassification amounted to $77 million. During the second quarter of 2004, $7 million of this stock was redeemed.

23

---



In
addition, debt as of June 30, 2004, also reflects $46 million related to the debt of an investment security consolidated under the provisions of Financial Accounting
Standards Board Interpretation No. 46 and short-term debt of $55 million issued to The Allstate Corporation (the "Corporation") pursuant to an intercompany loan. For the
consolidated investment security, we have no legal ownership of the assets and no obligation to repay the debt, and the holders of this debt have no recourse to the equity of the Company, as the sole
source of payment of the liabilities is the assets. The intercompany loan agreement is at the discretion of the Corporation and the maximum amount of loans the Corporation will have outstanding to all
of its eligible subsidiaries at any given point in time is limited to $1.00 billion.

Financial Ratings and StrengthOur ratings are influenced by many factors including our operating and financial performance,
asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as catastrophes and the current level of operating leverage. There
have been no changes to our insurance financial strength ratings since December 31, 2003. However, in February 2004, A.M. Best revised the outlook to stable from positive for the
insurance financial strength ratings of the Company and certain rated subsidiaries and affiliates.

Liquidity Sources and UsesAs reflected in our condensed consolidated statements of cash flows, lower operating cash flows in
the first six months of 2004 when compared to the first six months of 2003 primarily relate to
declines in premiums, partially offset by increases in investment income. Cash flows used in investing activities increased in the first six months of 2004 as the investment of higher financing cash
flow from contractholder funds was partially offset by lower operating cash flows.

Higher
cash flow from financing activities during the first six months of 2004 when compared to the first six months of 2003 reflects an increase in deposits received from
contractholders, partially offset by maturities of institutional products and benefits and withdrawals from contractholders' accounts. For quantification of the changes in contractholder funds, see
the Operating section of the MD&A.

We
have access to additional borrowing to support liquidity through an intercompany loan agreement with the Corporation, which includes the following funding sources:



24

---





FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" that anticipate results based on our 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. We assume 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, our strategy for growth, product
development, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe 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 are incorporated in this
Part I, Item 2 by reference to the information set forth in our Annual Report on Form 10-K, Part II, Item 7, under the caption "Forward-Looking Statements and Risk
Factors."

25

---



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 fiscal quarter ended June 30, 2004, 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.

26

---



PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

Information required for this Part II, Item 1 is incorporated by reference to the discussion under the heading "Regulation" and under the heading "Legal
proceedings" in Note 3 of the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Item 6.    Exhibits and Reports on Form 8-K



27

---





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                |  | Allstate Life Insurance Company
(Registrant)
|--------------- |  | --------------------------------------------
|                |  |                                             
|August 10, 2004 |  | By                                          

28

---





|Exhibit No. |  | Description                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1        |  | Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and Certain Affiliates, effective January 1, 2004. (As of August 9, 2004, some regulatory approvals
and board approval are pending.)
|10.2        |  | Administrative Services Agreement between Allstate Life Insurance Company and Columbia Universal Life Insurance Company, effective June 1, 2004.                                                                                                  
|10.3        |  | Reinsurance Agreement between Allstate Life Insurance Company and Columbia Universal Life Insurance Company, effective June 1, 2004.                                                                                                              
|10.4        |  | First Amendment to Reinsurance Agreement between Allstate Life Insurance Company and Columbia Universal Life Insurance Company, effective July 1, 2004.                                                                                           
|10.5        |  | Amended and Restated Reinsurance Agreement between Allstate Life Insurance Company and Columbia Universal Life Insurance Company, effective June 1, 2004.                                                                                         
|10.6        |  | First Amendment to Amended and Restated Reinsurance Agreement between Allstate Life Insurance Company and Columbia Universal Life Insurance Company, effective July 1, 2004.                                                                      
|15          |  | Acknowledgment of awareness from Deloitte & Touche LLP, dated August 10, 2004, 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                                                                                                                                                                                                                       

E-1

---