<Page>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                       OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

                                       OR

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

                       COMMISSION FILE NUMBER: 333-100029

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

              NEW YORK                                  36-2608394
        (State of Incorporation)            (I.R.S. Employer Identification No.)

     100 MOTOR PARKWAY, SUITE 132
          HAUPPAUGE, NEW YORK                             11788
(Address of principal executive offices)                (Zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 631-357-8920

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934: NONE

INDICATE BY CHECK MARK IF REGISTRANT IS A WELL-KNOWN SEASONED ISSUER, AS DEFINED
IN RULE 405 OF THE SECURITIES ACT. YES |_|  NO |X|

INDICATE BY CHECK MARK IF THE REGISTRANT IS NOT REQUIRED TO FILE REPORTS
PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES ACT. YES |_|  NO |X|

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 |X|  NO |_|

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR OTHER INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. |X|

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN
ACCELERATED FILER, A NON-ACCELERATED FILER, OR A SMALLER REPORTING COMPANY. SEE
THE DEFINITIONS OF "LARGE ACCELERATED FILER", "ACCELERATED FILER" AND "SMALLER
REPORTING COMPANY" IN RULE 12b-2 OF THE EXCHANGE ACT. (CHECK ONE):

<Table>
<Caption>
LARGE ACCELERATED FILER   ACCELERATED FILER   NON-ACCELERATED FILER   SMALLER REPORTING COMPANY
<S>                              <C>                   <C>                      <C>
         |_|                     |_|                   |X|                      |_|
</Table>
                                               (DO NOT CHECK IF A
                                            SMALLER REPORTING COMPANY)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN
RULE 12b-2 OF THE EXCHANGE ACT). YES |_|  NO |X|

NONE OF THE COMMON EQUITY OF THE REGISTRANT IS HELD BY NON-AFFILIATES.
THEREFORE, THE AGGREGATE MARKET VALUE OF COMMON EQUITY HELD BY NON-AFFILIATES OF
THE REGISTRANT IS ZERO.

AS OF MARCH 14, 2008, THE REGISTRANT HAD 100,000 COMMON SHARES, $25 PAR VALUE,
OUTSTANDING, ALL OF WHICH ARE HELD BY ALLSTATE LIFE INSURANCE COMPANY.

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                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                   PAGE
                                                                                                   ----
<S>                                                                                                 <C>
PART I
Item 1.    Business                                                                                   1
Item 1A.   Risk Factors                                                                               2
Item 2.    Properties                                                                                 7
Item 3.    Legal Proceedings                                                                          7
Item 4.    Submission of Matters to a Vote of Security Holders *                                    N/A
PART II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
              Purchases of Equity Securities                                                          8
Item 6.    Selected Financial Data *                                                                N/A
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operation       9
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk                                37
Item 8.    Financial Statements and Supplementary Data                                               38
Item 9.    Change in and Disagreements With Accountants on Accounting and Financial Disclosure       76
Item 9A.   Controls and Procedures                                                                   76
Item 9B.   Other Information                                                                         76
PART III
Item 10.   Directors, Executive Officers and Corporate Governance *                                 N/A
Item 11.   Executive Compensation *                                                                 N/A
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related
              Stockholder Matters *                                                                 N/A
Item 13.   Certain Relationships and Related Transactions, and Director Independence *              N/A
Item 14.   Principal Accounting Fees and Services                                                    77

PART IV
Item 15.   Exhibits and Financial Statement Schedules                                                78
           Signatures                                                                                82
           Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d)
           of the Securities Exchange Act of 1934 by Registrants Which Have Not Registered
           Securities Pursuant to Section 12 of the Securities Exchange Act of 1934                  83
           Financial Statement Schedules                                                            S-1
</Table>

*    Omitted pursuant to General Instruction I(2) of Form 10-K

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PART I

ITEM 1. BUSINESS

     Allstate Life Insurance Company of New York ("Allstate Life of New York",
"ALNY", the "Company", "we", "us" or "our") was incorporated in 1967 as a stock
life insurance company under the laws of the State of New York. In 1984, ALNY
was purchased by Allstate Life Insurance Company ("ALIC"). Allstate Life of New
York is a wholly owned subsidiary of ALIC, a stock life insurance company
incorporated under the laws of the State of Illinois. ALIC is a wholly owned
subsidiary of Allstate Insurance Company, a stock property-liability insurance
company organized under the laws of the State of Illinois. All of the
outstanding capital stock of Allstate Insurance Company ("AIC") is owned by The
Allstate Corporation (the "Corporation" or "Allstate"), a publicly owned holding
company incorporated under the laws of the State of Delaware. The Allstate
Corporation is the largest publicly held personal lines insurer in the United
States. Widely known through the "You're In Good Hands With Allstate (R)"
slogan, Allstate provides insurance products to more than 17 million households
through a distribution network that utilizes a total of 14,900 exclusive
agencies and exclusive financial specialists in the United States and Canada.
Allstate is the second-largest personal property and casualty insurer in the
United States on the basis of 2006 statutory premiums earned. In addition,
according to A.M. Best, it is the nation's 12th largest issuer of life insurance
business on the basis of 2006 ordinary life insurance in force and 16th largest
on the basis of 2006 statutory admitted assets.

     In this annual report on Form 10-K, we occasionally refer to statutory
financial information that has been prepared in accordance with the National
Association of Insurance Commissioners Accounting Practices and Procedure Manual
("Manual"). All domestic United States insurance companies are required to
prepare statutory-basis financial statements in accordance with the Manual. As a
result, industry data is available that enables comparisons between insurance
companies, including competitors that are not subject to the requirement to
prepare financial statements in conformity with accounting principles generally
accepted in the United States ("GAAP"). We frequently use industry publications
containing statutory financial information to assess our competitive position.

     The Company provides life insurance, retirement and investment products to
individuals. Our principal products are fixed annuities, including deferred and
immediate; interest-sensitive, traditional and variable life insurance; and
voluntary accident and health insurance. We also distribute variable annuities
through our bank distribution partners; however this product is fully reinsured
with an unaffiliated entity.

     We sell products through multiple intermediary distribution channels,
including Allstate exclusive agencies and exclusive financial specialists,
independent agents (including workplace enrolling agents), banks, broker-dealers
and specialized structured settlement brokers.

     We compete on a wide variety of factors, including the scope of our
distribution systems, the breadth of our product offerings, the recognition of
our brand, our financial strength and ratings, our differentiated product
features and prices, and the level of customer service that we provide.

     The market for life insurance, retirement and investment products continues
to be highly fragmented and competitive. As of December 31, 2007, there were
approximately 720 groups of life insurance companies in the United States, most
of which offered one or more similar products. In addition, because many of
these products include a savings or investment component, our competition
includes domestic and foreign securities firms, investment advisors, mutual
funds, banks and other financial institutions. Competitive pressure continues to
grow due to several factors, including cross marketing alliances between
unaffiliated businesses, as well as consolidation activity in the financial
services industry.

     Allstate Life of New York is subject to extensive regulation, primarily,
but not exclusively, from the New York State Insurance Department. The method,
extent and substance of such regulation generally has its source in statutes
that establish standards and requirements for conducting the business of
insurance and that delegate regulatory authority to the New York State Insurance
Department. In general, such regulation is intended for the protection of those
who purchase or use our insurance products. These rules have a substantial
effect on our business and relate to a wide variety of matters including
insurance company licensing and examination, agent and adjuster licensing, price
setting, trade practices, policy forms, accounting methods, the nature and
amount of investments, claims practices, participation in guaranty funds,
reserve adequacy, insurer solvency, transactions with affiliates, the payment of
dividends, and underwriting standards. For a discussion of statutory financial
information, see Note 13 of the Financial Statements. For a discussion of
regulatory contingencies, see Note 11 of the Financial Statements. Notes 11 and
13 are incorporated in this Part I, Item 1 by reference.


                                        1

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     In recent years the state insurance regulatory framework has come under
increased federal scrutiny. Legislation that would provide for federal
chartering of insurance companies has been proposed. In addition, state
legislators and insurance regulators continue to examine the appropriate nature
and scope of state insurance regulation. We cannot predict whether any specific
state or federal measures will be adopted to change the nature or scope of the
regulation of the insurance business or what effect any such measures would have
on Allstate Life of New York.

ITEM 1A. RISK FACTORS

     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.

     In addition to the normal risks of business, we are subject to significant
risks and uncertainties, including those listed below, which apply to us as an
insurer and a provider of other financial services. These risks constitute our
cautionary statements under the Private Securities Litigation Reform Act of 1995
and readers should carefully review such cautionary statements as they identify
certain important factors that could cause actual results to differ materially
from those in the forward-looking statements and historical trends. These
cautionary statements are not exclusive and are in addition to other factors
discussed elsewhere in this document, in our filings with the Securities and
Exchange Commission ("SEC") or in materials incorporated therein by reference.
Our business operations could also be affected by additional factors that are
not presently known to us or that we currently consider to be immaterial to our
operations.

CHANGES IN UNDERWRITING AND ACTUAL EXPERIENCE COULD MATERIALLY AFFECT
PROFITABILITY

     Our product pricing includes long-term assumptions regarding investment
returns, mortality, morbidity, persistency and operating costs and expenses of
the business. Management establishes target returns for each product based upon
these factors and the average amount of capital that the company must hold to
support in-force contracts, satisfy rating agencies and meet regulatory
requirements. We monitor and manage our pricing and overall sales mix to achieve
target returns on a portfolio basis, which could result in the discontinuation
of products or distribution relationships and a decline in sales. Profitability
from new business emerges over a period of years depending on the nature and
life of the product and is subject to variability as actual results may differ
from pricing assumptions.

     Our profitability depends on the adequacy of investment spreads, the
management of market and credit risks associated with investments, the
sufficiency of premiums and contract charges to cover mortality and morbidity
benefits, the persistency of policies to ensure recovery of acquisition
expenses, and the management of operating costs and expenses within anticipated
pricing allowances. Legislation and regulation of the insurance marketplace and
products could also affect our profitability.

CHANGES IN RESERVE ESTIMATES MAY REDUCE PROFITABILITY

     Reserve for life-contingent contract benefits is computed on the basis of
long-term actuarial assumptions of future investment yields, mortality,
morbidity, policy terminations and expenses. We periodically review the adequacy
of these reserves on an aggregate basis and if future experience differs
significantly from assumptions, adjustments to reserves and deferred acquisition
costs may be required which could have a material adverse effect on our
operating results and financial condition.


                                        2

<Page>

CHANGES IN MARKET INTEREST RATES MAY LEAD TO A SIGNIFICANT DECREASE IN THE SALES
AND PROFITABILITY OF SPREAD-BASED PRODUCTS

     Our ability to manage our spread-based products, such as fixed annuities,
is dependent upon maintaining profitable spreads between investment yields and
interest crediting rates. When market interest rates decrease or remain at low
levels, proceeds from investments that have matured or have been prepaid or sold
may be reinvested at lower yields, reducing investment spread. Lowering interest
crediting rates in such an environment can offset decreases in investment yield
on some products. However, these changes could be limited by market conditions,
regulatory or contractual minimum rate guarantees on many contracts and may not
match the timing or magnitude of changes in asset yields. Decreases in the rates
offered on products could make those products less attractive, leading to lower
sales and/or changes in the level of policy loans surrenders and withdrawals.
Non-parallel shifts in interest rates, such as increases in short-term rates
without accompanying increases in medium- and long-term rates, can influence
customer demand for fixed annuities, which could impact the level and
profitability of new customer deposits. Increases in market interest rates can
also have negative effects, for example by increasing the attractiveness of
other investments to our customers, which can lead to higher surrenders at a
time when the fixed income investment asset values are lower as a result of the
increase in interest rates. For certain products, principally fixed annuity and
interest-sensitive life products, the earned rate on assets could lag behind
market yields. We may react to market conditions by increasing crediting rates,
which could narrow spreads and reduce profitability. Unanticipated surrenders
could result in accelerated amortization of deferred policy acquisition cost
("DAC") or affect the recoverability of DAC and thereby increase expenses and
reduce profitability.

CHANGES IN ESTIMATES OF PROFITABILITY ON INTEREST-SENSITIVE LIFE, FIXED
ANNUITIES AND OTHER INVESTMENT CONTRACTS MAY HAVE AN ADVERSE EFFECT ON RESULTS
THROUGH INCREASED AMORTIZATION OF DAC

     DAC related to interest-sensitive life, fixed annuities and other
investment contracts is amortized in proportion to actual historical gross
profits and estimated future gross profits ("EGP") over the estimated lives of
the contracts. Assumptions underlying EGP, including those relating to margins
from mortality, investment margin, contract administration, surrender and other
contract charges, are updated from time to time in order to reflect actual and
expected experience and its potential effect on the valuation of DAC. Updates to
these assumptions could result in amortization acceleration/deceleration
(commonly referred to as "DAC unlocking"), which in turn could adversely affect
our net income and financial condition.

A LOSS OF KEY PRODUCT DISTRIBUTION RELATIONSHIPS COULD MATERIALLY AFFECT SALES

     Certain products are distributed under agreements with other members of the
financial services industry that are not affiliated with us. Termination of one
or more of these agreements due to, for example, a change in control of one of
these distributors, could have a detrimental effect on sales.

CHANGES IN TAX LAWS MAY DECREASE SALES AND PROFITABILITY OF PRODUCTS

     Under current federal and state income tax law, certain products we offer,
primarily life insurance and annuities, receive favorable tax treatment. This
favorable treatment may give certain of our products a competitive advantage
over noninsurance products. Congress from time to time considers legislation
that would reduce or eliminate the favorable policyholder tax treatment
currently applicable to life insurance and annuities. Congress also considers
proposals to reduce the taxation of certain products or investments that may
compete with life insurance and annuities. Legislation that increases the
taxation on insurance products or reduces the taxation on competing products
could lessen the advantage or create a disadvantage for certain of our products
making them less competitive. Such proposals, if adopted, could have a material
adverse effect on our financial position or ability to sell such products and
could result in the surrender of some existing contracts and policies. In
addition, changes in the federal estate tax laws could negatively affect the
demand for the types of life insurance used in estate planning.


                                        3

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RISKS RELATING TO INVESTMENTS

WE ARE SUBJECT TO MARKET RISK AND DECLINES IN CREDIT QUALITY

     We are subject to the risk that we will incur losses due to adverse changes
in interest rates and equity prices. Our primary market risk exposures are to
changes in interest rates and, to a lesser degree, equity prices. In addition,
we are subject to potential declines in credit quality, either related to issues
specific to certain industries or to a weakening in the economy in general. For
additional information on market risk, see the "Market Risk" section of
Management's Discussion and Analysis.

     A decline in market interest rates could have an adverse effect on our
investment income as we invest cash in new investments that may yield less than
the portfolio's average rate. In a declining interest rate environment,
borrowers may prepay or redeem securities more quickly than expected as they
seek to refinance at lower rates. A decline could also lead us to purchase
longer-term or otherwise riskier assets in order to obtain adequate investment
yields resulting in a duration gap when compared to the duration of liabilities.
An increase in market interest rates could have an adverse effect on the value
of our investment portfolio by decreasing the fair values of the fixed income
securities that comprise a substantial majority of our investment portfolio. A
decline in the quality of our investment portfolio as a result of adverse
economic conditions or otherwise could cause additional realized losses on
securities, including realized losses relating to derivative strategies.

DETERIORATING FINANCIAL PERFORMANCE ON SECURITIES COLLATERALIZED BY MORTGAGE
LOANS AND COMMERCIAL MORTGAGE LOANS MAY LEAD TO WRITE-DOWNS

     We continue to believe that the unrealized losses on securities
collateralized by mortgage loans and commercial mortgage loans are not
necessarily predictive of the performance of the underlying collateral, and
that, in the absence of further deterioration in the collateral relative to our
positions in the securities' respective capital structure, we expect the
unrealized losses should reverse over the remaining lives of the securities.
However, future market conditions could cause us to alter that outlook. Changes
in mortgage delinquency or recovery rates, credit rating changes by rating
agencies, bond insurer strength or rating, and the quality of service provided
by service providers on securities in our portfolios could lead us to determine
that write-downs are appropriate in the future.

CONCENTRATION OF OUR INVESTMENT PORTFOLIO IN ANY PARTICULAR SEGMENT OF THE
ECONOMY MAY HAVE ADVERSE EFFECTS

     The concentration of our investment portfolio in any particular industry,
group of related industries or geographic sector could have an adverse effect on
our investment portfolio and consequently on our results of operations and
financial position. While we seek to mitigate this risk by having a broadly
diversified portfolio, events or developments that have a negative impact on any
particular industry, group of related industries or geographic region may have a
greater adverse effect on the investment portfolio to the extent that the
portfolio is concentrated rather than diversified.

RISKS RELATING TO THE INSURANCE INDUSTRY

OUR FUTURE RESULTS ARE DEPENDENT IN PART ON OUR ABILITY TO SUCCESSFULLY OPERATE
IN AN INSURANCE INDUSTRY THAT IS HIGHLY COMPETITIVE

     The insurance industry is highly competitive. Our competitors include other
insurers and, because many of our products include a savings or investment
component, securities firms, investment advisers, mutual funds, banks and other
financial institutions. Many of our competitors have well-established national
reputations and market similar products. Because of the competitive nature of
the insurance industry, including competition for producers such as exclusive
and independent agents, there can be no assurance that we will continue to
effectively compete with our industry rivals, or that competitive pressure will
not have a material adverse effect on our business, operating results or
financial condition. Furthermore, certain competitors operate using a mutual
insurance company structure and therefore, may have dissimilar profitability and
return targets. Our ability to successfully operate may also be impaired if we
are not effective in filling critical leadership positions, in developing the
talent and skills of our human resources, in assimilating new executive talent
into our organization, or in deploying human resource talent consistently with
our business goals.


                                        4

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WE MAY SUFFER LOSSES FROM LITIGATION

     As is typical for a large company, we are involved in a substantial amount
of litigation, including class action litigation challenging a range of company
practices and coverage provided by our insurance products. In the event of an
unfavorable outcome in one or more of these matters, the ultimate liability may
be in excess of amounts currently reserved and may be material to our operating
results or cash flows for a particular quarter or annual period. For a
description of our current legal proceedings, see Note 11 of the financial
statements.

     In some circumstances, we, or others in the Allstate Group, may be able to
collect on third-party insurance that we carry to recover all or part of the
amounts that we pay in judgments, settlements and litigation expenses. However,
we, or others in the Allstate Group, may not be able to resolve issues
concerning the availability, if any, or the ability to collect such insurance
concurrently with the underlying litigation. Consequently, the timing of the
resolution of a particular piece of litigation and the determination of our
insurance recovery with respect to that litigation may not coincide and,
therefore, may be reflected in our financial statements in different fiscal
quarters.

WE ARE SUBJECT TO EXTENSIVE REGULATION AND POTENTIAL FURTHER RESTRICTIVE
REGULATION MAY INCREASE OUR OPERATING COSTS AND LIMIT OUR GROWTH

     As an insurance company with separate accounts that are regulated as
investment companies, we are subject to extensive laws and regulations. These
laws and regulations are complex and subject to change. Moreover, they are
administered and enforced by a number of different governmental authorities,
including state insurance regulators, state securities administrators, the SEC,
Financial Industry Regulatory Authority, the U.S. Department of Justice, and
state attorneys general, each of which exercises a degree of interpretive
latitude. Consequently, we are subject to the risk that compliance with any
particular regulator's or enforcement authority's interpretation of a legal
issue may not result in compliance with another's interpretation of the same
issue, particularly when compliance is judged in hindsight. In addition, there
is risk that any particular regulator's or enforcement authority's
interpretation of a legal issue may change over time to our detriment, or that
changes in the overall legal environment may, even absent any particular
regulator's or enforcement authority's interpretation of a legal issue changing,
cause us to change our views regarding the actions we need to take from a legal
risk management perspective, thus necessitating changes to our practices that
may, in some cases, limit our ability to grow and improve the profitability of
our business. Furthermore, in some cases, these laws and regulations are
designed to protect the interests of a specific constituency rather than a range
of constituencies. For example, state insurance laws and regulations are
generally intended to protect or benefit purchasers or users of insurance
products. In many respects, these laws and regulations limit our ability to grow
and improve the profitability of our business.

     In recent years, the state insurance regulatory framework has come under
public scrutiny and members of Congress have discussed proposals to provide for
optional federal chartering of insurance companies. We can make no assurances
regarding the potential impact of state or federal measures that may change the
nature or scope of insurance regulation.

REINSURANCE MAY BE UNAVAILABLE AT CURRENT LEVELS AND PRICES, WHICH MAY LIMIT OUR
ABILITY TO WRITE NEW BUSINESS

     Market conditions beyond our control determine the availability and cost of
the reinsurance we purchase. No assurances can be made that reinsurance will
remain continuously available to us to the same extent and on the same terms and
rates as are currently available. If we were unable to maintain our current
level of reinsurance or purchase new reinsurance protection in amounts that we
consider sufficient and at prices that we consider acceptable, we would have to
either accept an increase in our exposure risk, reduce our insurance writings,
or develop or seek other alternatives.

REINSURANCE SUBJECTS US TO THE CREDIT RISK OF OUR REINSURERS AND MAY NOT BE
ADEQUATE TO PROTECT US AGAINST LOSSES ARISING FROM CEDED INSURANCE

     The collectibility of reinsurance recoverables is subject to uncertainty
arising from a number of factors, including whether insured losses meet the
qualifying conditions of the reinsurance contract and whether reinsurers, or
their affiliates, have the financial capacity and willingness to make payments
under the terms of a reinsurance treaty or contract. Our inability to collect a
material recovery from a reinsurer could have a material adverse effect on our
operating results and financial condition.


                                        5

<Page>

THE CONTINUED THREAT OF TERRORISM AND ONGOING MILITARY ACTIONS MAY ADVERSELY
AFFECT THE LEVEL OF CLAIM LOSSES WE INCUR AND THE VALUE OF OUR INVESTMENT
PORTFOLIO

     The continued threat of terrorism, both within the United States and
abroad, and ongoing military and other actions and heightened security measures
in response to these types of threats, may cause significant volatility and
losses from declines in the equity markets and from interest rate changes in the
United States, Europe and elsewhere, and may result in loss of life, disruptions
to commerce and reduced economic activity. Some of the assets in our investment
portfolio may be adversely affected by declines in the equity markets and
reduced economic activity caused by the continued threat of terrorism. We seek
to mitigate the potential impact of terrorism on our commercial mortgage
portfolio by limiting geographical concentrations in key metropolitan areas and
by requiring terrorism insurance to the extent that it is commercially
available. Additionally, in the event that a terrorist acts occur, we could be
adversely affected, depending on the nature of the event.

ANY DECREASE IN OUR FINANCIAL STRENGTH RATINGS MAY HAVE AN ADVERSE EFFECT ON OUR
COMPETITIVE POSITION

     Financial strength ratings are important factors in establishing the
competitive position of insurance companies and generally have an effect on an
insurance company's business. On an ongoing basis, rating agencies review the
financial performance and condition of insurers and could downgrade or change
the outlook on an insurer's ratings due to, for example, a change in an
insurer's statutory capital; a change in a rating agency's determination of the
amount of risk-adjusted capital required to maintain a particular rating; an
increase in the perceived risk of an insurer's investment portfolio; a reduced
confidence in management or a host of other considerations that may or may not
be under the insurer's control. The insurance financial strength ratings of
ALNY, ALIC and AIC are A+, AA and Aa2 from A.M. Best, Standard & Poor's and
Moody's, respectively. Because all of these ratings are subject to continuous
review, the retention of these ratings cannot be assured. A multiple level
downgrade in any of these ratings could have a material adverse effect on our
sales, our competitiveness, the marketability of our product offerings, and our
liquidity, operating results and financial condition.

CHANGES IN ACCOUNTING STANDARDS ISSUED BY THE FINANCIAL ACCOUNTING STANDARDS
BOARD ("FASB") OR OTHER STANDARD-SETTING BODIES MAY ADVERSELY AFFECT OUR
FINANCIAL STATEMENTS

     Our financial statements are subject to the application of generally
accepted accounting principles, which is periodically revised and/or expanded.
Accordingly, we are required to adopt new guidance or interpretations, or could
be subject to existing guidance as we enter into new transactions, which may
have a material adverse effect on our results of operations and financial
condition that is either unexpected or has a greater impact than expected. For a
description of changes in accounting standards that are currently pending and,
if known, our estimates of their expected impact, see Note 2 of the financial
statements.

THE CHANGE IN OUR UNRECOGNIZED TAX BENEFIT DURING THE NEXT 12 MONTHS IS SUBJECT
TO UNCERTAINTY

     As required by FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes", which was adopted as of January 1, 2007, we have disclosed our
estimate of net unrecognized tax benefits and the reasonably possible increase
or decrease in its balance during the next 12 months. However, actual results
may differ from our estimate for reasons such as changes in our position on
specific issues, developments with respect to the governments' interpretations
of income tax laws or changes in judgment resulting from new information
obtained in audits or the appeals process.

THE OCCURRENCE OF EVENTS UNANTICIPATED IN OUR DISASTER RECOVERY SYSTEMS AND
MANAGEMENT CONTINUITY PLANNING COULD IMPAIR OUR ABILITY TO CONDUCT BUSINESS
EFFECTIVELY

     In the event of a disaster such as a natural catastrophe, an industrial
accident, a terrorist attack or war, events unanticipated in our disaster
recovery systems could have an adverse impact on our ability to conduct business
and on our results of operations and financial condition, particularly if those
events affect our computer-based data processing, transmission, storage and
retrieval systems. In the event that a significant number of our managers could
be unavailable in the event of a disaster, our ability to effectively conduct
our business could be severely compromised.

CHANGING CLIMATE CONDITIONS MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION,
RESULTS OF OPERATIONS OR CASH FLOWS

     Allstate recognizes the scientific view that the world is getting warmer.
To the extent that climate change impacts mortality rates and those changes do
not match the long-term mortality assumptions in our product pricing, the
Company would be impacted.


                                        6

<Page>

LOSS OF KEY VENDOR RELATIONSHIPS COULD AFFECT OUR OPERATIONS

     We rely on services and products provided by many vendors in the United
States and abroad. These include, for example, vendors of computer hardware and
software and vendors of services such as human resource benefits management
services. In the event that one or more of our vendors suffers a bankruptcy or
otherwise becomes unable to continue to provide products or services, we may
suffer operational impairments and financial losses.

ITEM 2. PROPERTIES

     Allstate Life of New York occupies office space in Hauppauge, New York and
Northbrook, Illinois that is owned or leased by AIC. Expenses associated with
these facilities are allocated to us on both a direct and indirect basis,
depending on the nature and use. We believe that these facilities are
suitable and adequate for our operations.

ITEM 3. LEGAL PROCEEDINGS

     Information required for Item 3 is incorporated by reference to the
discussion under the headings "Regulation" and "Legal and regulatory proceedings
and inquiries" in Note 11 of our financial statements.


                                        7

<Page>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

     No established public trading market exists for our common stock. All of
our outstanding common stock is owned by our parent, ALIC. ALIC's outstanding
common stock is owned by AIC. All of the outstanding common stock of AIC is
owned by the Corporation. Within the past three years, we have not sold or
repurchased any of our equity securities.

     In 2007 and 2006, we paid no dividends on our common stock to ALIC.

     For additional information on dividends, including restrictions on the
payment of dividends, see the discussion under the heading "Dividends" in Note
13 of our financial statements, which is incorporated herein by reference.


                                        8

<Page>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     The following discussion highlights significant factors influencing the
financial position and results of operations of Allstate Life Insurance Company
of New York (referred to in this document as "we", "ALNY", "our", "us" or the
"Company"). It should be read in conjunction with the financial statements and
related notes found under Part II Item 8 contained herein. We operate as a
single segment entity based on the manner in which we use financial information
to evaluate and determine the allocation of resources.

     Our goal is to reinvent protection and retirement for the consumers. To
achieve this goal, we are focused on the following operating priorities:
consumer focus, operational excellence, enterprise risk and return, and capital
management.

     The most important factors we monitor to evaluate the financial condition
and performance of our Company include:

     -    For operations: premiums and deposits, benefit and investment spread,
          amortization of deferred policy acquisition costs, expenses, operating
          income, net income, and invested assets, product returns and
          profitably growing distribution partner relationships;

     -    For investments: credit quality/experience, stability of long-term
          returns, total returns, cash flows and asset and liability duration;
          and

     -    For financial condition: our financial strength ratings, operating
          leverage, debt leverage and return on equity.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to adopt accounting policies and make estimates and assumptions that
affect amounts reported in the consolidated financial statements. The most
critical estimates include those used in determining:

     -    Investment Fair Value and Impairment

     -    Derivative Instrument Hedge Accounting and Fair Value

     -    Deferred Policy Acquisition Cost ("DAC") Amortization

     -    Reserve for Life-Contingent Contract Benefits Estimation

     In applying these policies, management makes subjective and complex
judgments that frequently require estimates about matters that are inherently
uncertain. Many of these policies, estimates and related judgments are common in
the insurance and financial services industries; others are specific to the
Company's businesses and operations. It is reasonably likely that changes in
these estimates could occur from period to period and result in a material
impact on our consolidated financial statements.

     A brief summary of each of these critical accounting estimates follows. For
a more detailed discussion of the effect of these estimates on our financial
statements, and the judgments and assumptions related to these estimates, see
the referenced sections of this document. For a complete summary of our
significant accounting policies, see Note 2 of the financial statements.

INVESTMENT FAIR VALUE AND IMPAIRMENT The fair value of our investments in fixed
income securities is based on observable market quotations, other market
observable data, or is derived from such quotations and market observable data.
We utilize third party pricing servicers, brokers and internal valuation models
to determine fair value. We gain assurance of the overall reasonableness and
consistent application of the assumptions and methodologies and compliance with
accounting standards for fair value determination through our ongoing monitoring
of the fair values received or derived internally. Our exposure to changes in
market conditions is discussed more fully in the Market Risk section of the
MD&A.

     We are responsible for the determination of fair value and the supporting
assumptions and methodologies. We employ independent third party pricing
servicers to gather, analyze, and interpret market information and derive fair
values based upon relevant assumptions and methodologies for each applicable
security. In situations where sufficient market observable information is not
available for a particular security through the sources as agreed to with us, no
quote is provided by the service providers. For these securities, fair value is
determined either by requesting brokers who are knowledgeable about these
securities to provide a quote or we internally determine fair values employing
widely accepted pricing valuation models. Changing market conditions in the
fourth quarter of 2007, were incorporated into valuation assumptions and
reflected in the fair values, which were validated by calibration and other
analytical techniques to available market observable data.


                                        9

<Page>

     Third party pricing servicers consolidate market transactions and other key
valuation model inputs from multiple sources and provide pricing information in
the form of a single fair value for each security for which a fair value request
is agreed. Fair values provided are derived from their proprietary pricing
models. The sources used by these servicers include, but are not limited to,
market prices from recently completed transactions and transactions of
comparable securities, interest rate yield curves, credit spreads, currency
rates, and other market-observable information as applicable, as well as widely
accepted valuation models developed on a proprietary basis. Their proprietary
pricing models are based on discounted cashflow methodology and they may take
into account, among other things, market observable information as of the
measurement date from the sources described above; and the specific attributes
of the security being valued including its term, interest rate and credit rating
(consistent with those we use to report our holdings by credit rating); industry
sector, and where applicable, collateral quality and other issue or issuer
specific information. To operate these models effectively requires seasoned
professional judgment and experience. In the cases where market transactions or
other market observable data is limited, the degree of judgment varies with the
availability of market observable information.

     For approximately 4.0% of our holdings, where our third party pricing
servicers cannot provide fair value determinations, we obtain quotes from
brokers familiar with the security who may consider transactions or activity in
similar securities, if any, among other information, similar to our third party
pricing servicers. The brokers providing the quotes are generally from the
brokerage divisions of leading financial institutions with market making,
underwriting and distribution expertise.

     The fair value of securities such as privately-placed securities, where our
pricing servicers or brokers cannot provide fair value determinations, is
determined using widely accepted valuation methods and models. These internally
developed models are appropriate for each class of security, involve some degree
of judgment, and include inputs that may not be market observable.

     Our models are based on discounted cash flow methodology and calculate a
single best estimate of fair value for each security. Our internally developed
pricing models use credit ratings and liquidity risk associated with
privately-placed securities, which are difficult to independently observe and
verify. Inputs used in these fair value estimates include specific attributes of
the security being valued including; coupon rate, weighted average life, an
internal credit rating assigned by us (which is consistent with any external
ratings and those we use to report our holdings by credit rating), sector of the
issuer, and call provisions. Our assumptions incorporate market information as
of the measurement date that represents what we believe independent third
parties would use to determine fair value, which include: interest rate yield
curves, quoted market prices of comparable securities, credit spreads, estimated
liquidity premiums and other applicable market data. Our assumption for
liquidity risk associated with privately-placed securities reduces the value of
these securities to reflect their reduced liquidity as compared to similar
securities that are publicly traded. Additionally, no assumption is included in
the valuation of privately placed securities for an increase to the value to
reflect the generally enhanced structural features of the securities, such as
covenants or change of control protection. However, judgment is required in
developing these estimates and, as a result, the estimated fair value of these
securities may differ from amounts that would be realized upon an orderly sale
of the securities at the measurement date. The use of different assumptions may
have a material effect on the estimated fair values.

     We employ control processes to determine the reasonableness of the fair
value of our fixed income securities. Our processes are designed to assure the
values provided are accurately recorded and that the data and the valuation
method utilized is appropriate and consistently applied and that the assumptions
are reasonable and representative of fair value. For example, we may validate
the reasonableness of prices by comparing the information obtained from our
pricing vendors to other third party pricing sources for certain securities. Our
control processes also include reviews, when fair value determinations are
expected to be more variable, by management with relevant expertise and
management who are independent of those charged with executing investing
transactions, of these fair value determinations to validate their
reasonableness.


                                       10

<Page>

     The following table identifies those investments carried at fair value as
of December 31, 2007 by method of determination:

<Table>
<Caption>
                                                           INVESTMENTS
                                                      ---------------------
(IN THOUSANDS)                                         CARRYING     PERCENT
                                                         VALUE     TO TOTAL
                                                      ----------   --------
<S>                                                   <C>           <C>
Fair value based on internal sources                  $1,062,563     15.1%
Fair value based on external sources                   5,208,565     73.8
                                                      ----------    -----
   Total fixed income securities                       6,271,128     88.9
                                                      ----------    -----
Fair value of derivatives                                      3       --
Mortgage loans, policy loans, and other investments
  valued at cost and amortized cost                      786,498     11.1
                                                      ----------    -----
Total                                                 $7,057,629    100.0%
                                                      ==========    =====
</Table>

     For investments classified as available for sale, the difference between
fair value and amortized cost, net of certain other items and deferred income
taxes (as disclosed in Note 6), is reported as a component of accumulated other
comprehensive income on the Statements of Financial Position and is not
reflected in the operating results of any period until reclassified to net
income upon the consummation of a transaction with an unrelated third party or
when declines in fair values are deemed other-than-temporary. The assessment of
other-than-temporary impairment of a security's fair value is performed on a
portfolio review as well as a case-by-case basis considering a wide range of
factors.

     For our portfolio review evaluations, we ascertain whether there are any
approved programs involving the disposition of investments such as changes in
duration, revision to strategic asset allocations and liquidity actions, as well
as any dispositions anticipated by the portfolio managers. In these instances,
we recognize impairment on securities designated as subject to these approved
anticipated actions if the security is in an unrealized loss position. There are
a number of assumptions and estimates inherent in evaluating impairments and
determining if they are other-than-temporary, including 1) our ability and
intent to hold the investment for a period of time sufficient to allow for an
anticipated recovery in value; 2) the expected recoverability of principal and
interest; 3) the length of time and extent to which the fair value has been less
than amortized cost; 4) the financial condition, near-term and long-term
prospects of the issuer, including relevant industry conditions and trends, and
implications of rating agency actions and offering prices; and 5) the specific
reasons that a security is in a significant unrealized loss position, including
market conditions which could affect liquidity. Additionally, once assumptions
and estimates are made, any number of changes in facts and circumstances could
cause us to subsequently determine that an impairment is other-than-temporary,
including 1) general economic conditions that are worse than previously
forecasted or that have a greater adverse effect on a particular issuer or
industry sector than originally estimated; 2) changes in the facts and
circumstances related to a particular issue or issuer's ability to meet all of
its contractual obligations; and 3) changes in facts and circumstances or new
information obtained which causes a change in our ability or intent to hold a
security to maturity or until it recovers in value. Changes in assumptions,
facts and circumstances could result in additional charges to earnings in future
periods to the extent that losses are realized. The charge to earnings, while
potentially significant to net income, would not have a significant effect on
shareholder's equity since the majority of our portfolio is designated as
available-for -sale and carried at fair value and as a result, any related net
unrealized loss would already be reflected as a component of accumulated other
comprehensive income in shareholder's equity.

     The determination of the amount of impairment is an inherently subjective
process based on periodic evaluation of the factors described above. Such
evaluations and assessments are revised as conditions change and new information
becomes available. We update our evaluations regularly and reflect changes in
impairments in results of operations as such evaluations are revised. The use of
different methodologies and assumptions as to the determination of the fair
value of investments and the timing and amount of impairments may have a
material effect on the amounts presented within the financial statements.

     For a more detailed discussion of the risks relating to changes in
investment values and levels of investment impairment as well as the potential
causes of such changes, see Note 6 of the financial statements and the
Investments, Market Risk, and Forward-looking Statements and Risk Factors
sections of this document.


                                       11

<Page>

DEFERRED POLICY ACQUISITION COST AMORTIZATION We incur significant costs in
connection with acquiring business. In accordance with GAAP, costs that vary
with and are primarily related to acquiring business are deferred and recorded
as an asset on the Statements of Financial Position.

     DAC related to traditional life insurance is amortized over the premium
paying period of the related policies in proportion to the estimated revenues on
such business. Significant assumptions relating to estimated premiums,
investment returns, which include investment income and realized capital gains
and losses, as well as mortality, persistency and expenses to administer the
business are established at the time the policy is issued and are generally not
revised during the life of the policy. The assumptions for determining DAC
amortization and recoverability are consistent with the assumptions used to
calculate reserves for life-contingent contract benefits. Any deviations from
projected business in force resulting from actual policy terminations differing
from expected levels and any estimated premium deficiencies may result in a
change to the rate of amortization in the period such events occur. Generally,
the amortization period for these contracts approximates the estimated lives of
the policies. The recovery of DAC is dependent upon the future profitability of
this business. We periodically review the adequacy of reserves and
recoverability of DAC for these contracts on an aggregate basis using actual
experience. In the event actual experience is significantly adverse compared to
the original assumptions any remaining unamortized DAC balance must be expensed
to the extent not recoverable and a premium deficiency reserve may be required
if the remaining DAC balance is insufficient to absorb the deficiency.

     DAC related to interest-sensitive life and annuities is amortized in
proportion to the incidence of the total present value of gross profits, which
includes both actual historical gross profits ("AGP") and estimated future gross
profits ("EGP") expected to be earned over the estimated lives of the contracts.
The amortization is net of interest on the prior period DAC balance using rates
established at the inception of the contracts. Actual amortization periods range
from 15-30 years; however, incorporating estimates of customer surrender rates,
partial withdrawals and deaths generally results in the majority of the DAC
being amortized during the surrender charge period. The cumulative DAC
amortization is reestimated and adjusted by a cumulative charge or credit to
results of operations when there is a difference between the incidence of actual
versus expected gross profits in a reporting period or when there is a change in
total EGP.

     AGP and EGP consist of the following components: benefit margins primarily
from cost of insurance contract charges less mortality, investment margins
including realized capital gains and losses; and expense margins including
surrender and other contract charges, less maintenance expenses. The amount of
EGP is principally dependent on assumptions for investment returns, including
capital gains and losses on assets supporting contract liabilities, interest
crediting rates to policyholders, the effect of any hedges, persistency,
mortality and expenses. Of these factors, we anticipate that investment returns,
credited interest, persistency, mortality, and expenses are reasonably likely to
have the greatest impact on the amount of DAC amortization. Changes in these
assumptions can be offsetting and the Company is unable to predict their future
movements or offsetting impacts over time.

     Each reporting period, DAC amortization is recognized in proportion to AGP
for that period adjusted for interest on the prior period DAC balance. This
amortization process includes an assessment of AGP compared to EGP, the actual
amount of business remaining in-force and realized capital gains and losses on
investments supporting the product liability. The impact of realized capital
gains and losses on amortization of DAC depends upon which product liability is
supported by the assets that give rise to the gain or loss. If the AGP is less
than EGP in the period, but the total EGP is unchanged, the amount of DAC
amortization will generally decrease, resulting in a current period increase to
earnings. The opposite result generally occurs when the AGP exceeds the EGP in
the period, but the total EGP is unchanged.

     Annually we review all assumptions underlying the projections of EGP,
including investment returns, interest crediting rates, mortality, persistency,
and expenses. Management annually updates assumptions used in the calculation of
EGP. At each reporting period we assess whether any revisions to assumptions
used to determine DAC amortization are required. These reviews and updates may
result in amortization acceleration or deceleration, which are commonly referred
to as "DAC unlocking".

     If the update of assumptions causes total EGP to increase, the rate of DAC
amortization will generally decrease, resulting in a current period increase to
earnings. A decrease to earnings generally occurs when the assumption update
causes the total EGP to decrease.

     Over the past three years, our most significant DAC assumption updates that
resulted in a change to EGP and the amortization of DAC have been revisions to
expected future investment returns, expenses, mortality and in-force or
persistency assumptions resulting in net DAC amortization acceleration of $5.8
million in 2007, net DAC amortization deceleration of $146 thousand in 2006, and
net DAC amortization deceleration of $7.5 million in 2005. The 2005 amortization
deceleration included $4.3 million related to our subsequently disposed variable
annuity business for which we no longer have any DAC.


                                       12

<Page>

     For quantification of the impact of these estimates and assumptions, see
the Operations, and Forward-looking Statements and Risk Factors sections of this
document and Note 2 and 10 of the financial statements.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS ESTIMATION Benefits for these
contracts are payable over many years; accordingly, the reserves are calculated
as the present value of future expected benefits to be paid, reduced by the
present value of future expected net premiums. Long-term actuarial assumptions
of future investment yields, mortality, morbidity, policy terminations and
expenses are used when establishing the reserve for life-contingent contract
benefits payable under insurance policies including traditional life insurance,
life-contingent annuities and voluntary health products. These assumptions,
which for life-contingent annuities and traditional life insurance are applied
using the net level premium method, include provisions for adverse deviation and
generally vary by such characteristics as type of annuity benefit or coverage,
year of issue and policy duration. Future investment yield assumptions are
determined based upon prevailing investment yields as well as estimated
reinvestment yields. Mortality, morbidity and policy termination assumptions are
based on our experience and industry experience. Expense assumptions include the
estimated effects of inflation and expenses to be incurred beyond the
premium-paying period. These assumptions are established at the time the policy
is issued, are consistent with assumptions for determining DAC amortization for
these contracts, and are generally not changed during the policy coverage
period. However, if actual experience emerges in a manner that is significantly
adverse relative to the original assumptions, adjustments to DAC or reserves may
be required resulting in a charge to earnings which could have a material
adverse effect on our operating results and financial condition. We periodically
review the adequacy of these reserves and recoverability of DAC for these
contracts on an aggregate basis using actual experience. In the event that
actual experience is significantly adverse compared to the original assumptions
any remaining unamortized DAC balance must be expensed to the extent not
recoverable and the establishment of a premium deficiency reserve may be
required. The effects of changes in reserve estimates are reported in the
results of operations in the period in which the changes are determined. The
company has not recognized a charge of this nature in the three years ended
December 31, 2007. We anticipate that mortality, investment and reinvestment
yields, and policy terminations are the factors that would be most likely to
require adjustment to these reserves or related DAC.

     For further discussion of these polices, see Note 8 of the financial
statements and the Forward-looking Statements and Risk Factors section of this
document.

OPERATIONS

     Effective June 1, 2006, we disposed of our variable annuity business
through reinsurance with Prudential Financial Inc. ("Prudential"). The following
table presents the results of operations attributable to our variable annuity
business for the period of 2006 prior to the disposition and 2005.

(IN THOUSANDS)                                2006       2005
                                            --------   -------
Contract charges                            $  8,127   $16,728
Net investment income                          8,789    23,781
Realized capital gains and losses             (4,079)     (231)
                                            --------   -------
   Total revenues                             12,837    40,278
Contract benefits                              2,281    10,401
Interest credited to contractholder funds      6,408    18,744
Amortization of deferred policy
   acquisition costs                          (7,277)    6,746
Operating costs and expenses                   4,233     7,789
                                            --------   -------
   Total costs and expenses                    5,645    43,680
Loss on disposition of operations            (10,694)       --
                                            --------   -------
Income from operations before income
   tax expense(1)                           $ (3,502)  $(3,402)
                                            ========   =======

----------
(1)  For 2006 and 2005, income from operations before income tax expense
     attributable to the variable annuity business reinsured to Prudential
     included an investment spread of $2.4 million and $5.0 million,
     respectively, and benefit spread of $(1.3) million and $(9.0) million,
     respectively.


                                       13

<Page>

OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation
(the "Corporation"). We provide life insurance, retirement and investment
products, and voluntary accident and health insurance to individual customers.
Our mission is to reinvent retirement and protection for the middle market
consumer.

     To achieve our mission and reach our financial goals, our primary
objectives are to deepen financial services relationships with Allstate
customers and build consumer-driven innovation capabilities and culture. We will
continue to drive scale through non-proprietary distribution channel
relationships and leverage future innovations across those channels. We will
also enhance our operational excellence. In addition to focusing on higher
return markets, products, and distribution channels, we will improve our
financial performance through capital efficiency and enterprise risk and return
management capabilities and practices.

     Our strategy provides a platform designed to profitably grow our business.
Based upon Allstate's strong financial position and brand, our customers look to
us to help meet their retirement and protection needs through trusted
relationships. We have unique access to potential customers through cross-sell
opportunities within the Allstate exclusive agencies. Our investment expertise,
strong operating platform and solid relationships with leading distribution
partners provide a foundation to deliver value to our customers.

     We plan to continue offering a suite of products that provides financial
protection primarily to middle market consumers and help them better prepare for
retirement. Our products include fixed annuities, including deferred, and
immediate; interest-sensitive, traditional and variable life insurance; and
voluntary accident and health insurance. Our products are sold through several
distribution channels including Allstate exclusive agencies, which include
exclusive financial specialists, independent agents (including master brokerage
agencies and workplace enrolling agents), and financial service firms such as
banks, broker-dealers and specialized structured settlement brokers.

     Summarized financial data for the years ended December 31, is presented in
the following table.

(IN THOUSANDS)                                2007         2006         2005
                                           ----------   ----------   ----------
REVENUES
Premiums                                   $   69,124   $   84,313       68,538
Contract charges                               59,530       63,426       66,280
Net investment income                         386,738      373,064      356,162
Realized capital gains and losses                (831)     (22,085)      (5,192)
                                           ----------   ----------   ----------
Total revenues                                514,561      498,718      485,788
COSTS AND EXPENSES
Contract benefits                            (181,803)    (190,506)    (183,227)
Interest credited to contractholder funds    (177,407)    (167,171)    (161,936)
Amortization of DAC                           (53,445)     (31,672)     (41,663)
Operating costs and expenses                  (37,624)     (46,578)     (43,497)
                                           ----------   ----------   ----------
Total costs and expenses                     (450,279)    (435,927)    (430,323)
Gain (loss) on disposition of operations          429      (10,694)           1
Income tax expense                            (22,802)     (17,755)     (20,945)
                                           ----------   ----------   ----------
Net income                                 $   41,909   $   34,342   $   34,521
                                           ==========   ==========   ==========
Investments at December 31                 $7,057,629   $6,779,874   $6,726,547
                                           ==========   ==========   ==========

NET INCOME in 2007 increased 22.0% compared to 2006 as higher revenues more than
offset higher total costs and expenses, and 2006 included losses relating to the
disposition of our variable annuity business. Net income in 2006 was comparable
to 2005 as higher revenues and lower income tax expense were offset by the
losses related to the disposition of our variable annuity business in 2006 and
higher total costs and expenses.

ANALYSIS OF REVENUES Total revenues increased 3.2% or $15.8 million in 2007
compared to 2006, due to lower net realized capital losses and higher net
investment income, partially offset by lower premiums and contract charges.
Total revenues increased 2.7% or $12.9 million in 2006 compared to 2005, due to
higher premiums and net investment income, partially offset by higher net
realized capital losses and lower contract charges.


                                       14

<Page>

PREMIUMS represent revenues generated from traditional life, immediate annuities
with life contingencies, and voluntary accident and health insurance products
that have significant mortality or morbidity risk.

CONTRACT CHARGES are revenues generated from interest-sensitive and variable
life insurance, fixed annuities and variable annuities for which deposits are
classified as contractholder funds or separate accounts liabilities. Contract
charges are assessed against the contractholder account values for maintenance,
administration, cost of insurance and surrender prior to the contractually
specified dates. As a result, changes in contractholder funds are considered in
the evaluation of growth and as indicators of future levels of revenues.
Subsequent to the close of our reinsurance transaction with Prudential on June
1, 2006, variable annuity contract charges on the business subject to the
transaction are fully reinsured to Prudential and presented net of reinsurance
on the Statements of Operations and Comprehensive Income (see Note 3 to the
financial statements).

     The following table summarizes premiums and contract charges by product.

(IN THOUSANDS)                                  2007       2006       2005
                                              --------   --------   --------
PREMIUMS
Traditional life                              $ 24,997   $ 24,298   $ 26,067
Immediate annuities with life contingencies     37,491     54,877     38,322
Accident and health, and other                   6,636      5,138      4,149
                                              --------   --------   --------
TOTAL PREMIUMS                                  69,124     84,313     68,538
CONTRACT CHARGES
Interest-sensitive life                         51,155     46,448     42,315
Fixed annuities                                  8,375      8,851      7,237
Variable annuities                                  --      8,127     16,728
                                              --------   --------   --------
TOTAL CONTRACT CHARGES(1)                       59,530     63,426     66,280
                                              --------   --------   --------
TOTAL PREMIUMS AND CONTRACT CHARGES           $128,654   $147,739   $134,818
                                              ========   ========   ========

----------
(1)  Contract charges for 2007, 2006 and 2005 include contract charges related
     to the cost of insurance totaling $35.2 million, $32.2 million and $33.2
     million, respectively.

     Total premiums decreased 18.0% in 2007 compared to 2006 as a result of a
decline in sales of life contingent immediate annuities due to market
competitiveness.

     Total premiums increased 23.0% in 2006 compared to 2005 due primarily to
increased premiums on immediate annuities with life contingencies, due to
certain pricing refinements and a more favorable pricing environment in 2006.

     Contract charges decreased 6.1% in 2007 compared to 2006 due to the
disposal of our variable annuity business through reinsurance effective June 1,
2006. Excluding contract charges on variable annuities, all of which are
reinsured to Prudential effective June 1, 2006, contract charges increased 7.7%
in 2007 compared to 2006. This increase reflects growth in interest-sensitive
life insurance policies in force.

     Contract charges decreased 4.3% in 2006 compared to 2005. Excluding
contract charges on variable annuities, contract charges increased 11.6% in 2006
compared to 2005. The increase was due to higher contract charges on
interest-sensitive life products resulting from growth of business in force, and
increased contract charges on fixed annuities due to increased surrender
charges.


                                       15

<Page>

CONTRACTHOLDER FUNDS represent interest-bearing liabilities arising from the
sale of fixed annuities, interest-sensitive life insurance policies and variable
annuity and life deposits allocated to fixed accounts. 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.

<Table>
<Caption>
(IN THOUSANDS)                                         2007         2006         2005
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
CONTRACTHOLDER FUNDS, BEGINNING BALANCE             $4,708,428   $4,349,395   $3,802,846
DEPOSITS
Fixed annuities                                        431,832      694,085      726,332
Interest-sensitive life                                105,854       95,221      100,355
Variable annuity and life deposits allocated
   to fixed accounts                                        69       15,519       57,127
                                                    ----------   ----------   ----------
Total deposits                                         537,755      804,825      883,814
INTEREST CREDITED                                      179,417      178,493      173,984
BENEFITS, WITHDRAWALS AND OTHER ADJUSTMENTS
Benefits                                             (146,828)     (137,090)    (168,813)
Surrenders and partial withdrawals                   (316,399)     (361,670)    (270,161)
Contract charges                                      (49,086)      (44,954)     (41,856)
Net transfers to separate accounts                         (2)      (18,127)     (39,765)
Other adjustments (1)                                 (64,824)      (62,444)       9,346
                                                    ----------   ----------   ----------
Total benefits, withdrawals and other adjustments    (577,139)     (624,285)    (511,249)
                                                    ----------   ----------   ----------
CONTRACTHOLDER FUNDS, ENDING BALANCE                $4,848,461   $4,708,428   $4,349,395
                                                    ==========   ==========   ==========
</Table>

----------
(1)  The table above illustrates the changes in contractholder funds, which are
     presented gross of reinsurance recoverables on the Statements of Financial
     Position. The table above is intended to supplement our discussion and
     analysis of revenues, which are presented net of reinsurance on the
     Statements of Operations and Comprehensive Income. As a result, the net
     change in contractholder funds associated with products reinsured to third
     parties is reflected as a component of the other adjustments line. This
     includes, but is not limited to, the net change in contractholder funds
     associated with the reinsured variable annuity business subsequent to the
     effective date of our reinsurance agreements with Prudential (see Note 3 to
     the financial statements).

     Contractholder funds increased 3.0%, 8.3% and 14.4% in 2007, 2006 and 2005,
respectively. Average contractholder funds increased 5.5% in 2007 compared to
2006, 11.1% in 2006 compared to 2005 and 26.2% in 2005 compared to 2004.

     Contractholder deposits decreased 33.2% in 2007 compared to 2006 due to
lower deposits on fixed annuities and the classification of the net change in
variable annuity contractholder funds as "other adjustments" subsequent to the
effective date of our reinsurance agreement with Prudential. The decline of
37.8% in fixed annuity deposits in 2007 compared to 2006 was due to our strategy
to raise new business returns for these products combined with lower
industry-wide fixed annuity sales. The decline in variable annuity and life
deposits allocated to fixed accounts was due to the reinsured variable annuity
business. Subsequent to the reinsurance of our variable annuity business
effective June 1, 2006, the net change in contractholder funds attributable to
variable annuities is included as a component of the "other adjustments" line in
the table above.

     Contractholder deposits decreased 8.9% in 2006 compared to 2005 due
primarily to lower variable annuity and life deposits allocated to fixed
accounts due to the reinsured variable annuity business. Also contributing to
the decline were lower deposits on fixed annuities due to lower deposits on
traditional deferred annuities and market value adjusted annuities, partially
offset by a $42.2 million increase in deposits on Allstate(R) Treasury-Linked
Annuity contracts. Lower deposits on traditional deferred annuities and market
value adjusted annuities were primarily attributable to our actions to improve
new business returns and reduced consumer demand. Consumer demand for fixed
annuities is influenced by market interest rates on short-term deposit products
and equity market conditions, which can increase the relative attractiveness of
competing investment alternatives.


                                       16

<Page>

     Surrenders and partial withdrawals decreased 12.5% in 2007 compared to
2006. This decline was due to the classification of the net change in variable
annuity contractholder funds as "other adjustments" subsequent to the effective
date of our reinsurance agreements with Prudential and, to a lesser extent, a
decline in surrenders and partial withdrawals on fixed annuities. Surrenders and
partial withdrawals for 2006 include $30.5 million related to the reinsured
variable annuity business. The surrender and partial withdrawal rate on deferred
fixed annuities and interest-sensitive life insurance products, based on the
beginning of period contractholder funds, was 8.5% in 2007 compared to 10.1% in
2006.

     Surrenders and partial withdrawals increased 33.9% in 2006 compared to
2005, while the surrender and partial withdrawal rate increased to 10.1% for
2006 from 8.3% for 2005. The increase in the surrender rate in 2006 was
influenced by multiple factors, including the relatively low interest rate
environment during the preceding years, which reduced reinvestment opportunities
and increased the number of policies with little or no surrender charge
protection. Also influencing the increase were our crediting rate strategies
related to renewal business implemented to improve investment spreads on
selected contracts.

NET INVESTMENT INCOME increased 3.7% in 2007 compared to 2006 and 4.7% in 2006
compared to 2005. The increase in both periods was primarily due to higher
average portfolio balances. Higher average portfolio balances in both years
resulted from the investment of cash flows from operating and financing
activities related primarily to deposits on fixed annuities and
interest-sensitive life policies.

REALIZED CAPITAL GAINS AND LOSSES reflected net losses of $831 thousand, $22.1
million and $5.2 million in 2007, 2006 and 2005, respectively. For further
discussion of realized capital gains and losses, see the Investments section of
MD&A.

ANALYSIS OF COSTS AND EXPENSES Total costs and expenses increased 3.3% or $14.4
million in 2007 compared to 2006 due to higher amortization of DAC and interest
credited to contractholder funds, partially offset by lower contract benefits
and operating costs and expenses. Total costs and expenses increased 1.3% or
$5.6 million in 2006 compared to 2005 due to higher contract benefits, interest
credited to contractholder funds and operating costs and expenses, partially
offset by lower amortization of DAC.

CONTRACT BENEFITS decreased 4.6% or $8.7 million in 2007 compared to 2006 due to
lower sales of immediate annuities with life contingencies and the absence in
2007 of contract benefits on the reinsured variable annuity business, partially
offset by an increase in the implied interest on immediate annuities with life
contingencies. This implied interest totaled $107.5 million and $103.9 million
in 2007 and 2006, respectively.

     Contract benefits increased 4.0% or $7.3 million in 2006 compared to 2005
due primarily to higher sales of immediate annuities with life contingencies as
well as higher implied interest on immediate annuities with life contingencies,
partially offset by the accrual in 2005 of additional variable annuity contract
benefits related to a regulatory matter and the absence in 2006 of contract
benefits related to the reinsured variable annuity business in the period
subsequent to the effective date of the reinsurance agreement. The implied
interest on immediate annuities with life contingencies totaled $103.9 million
and $101.0 million in 2006 and 2005, respectively.

     We analyze our mortality and morbidity results using the difference between
premiums, contract charges earned for the cost of insurance and contract
benefits excluding the portion related to the implied interest on immediate
annuities with life-contingencies ("benefit spread"). The benefit spread by
product group is disclosed in the following table.

(IN THOUSANDS)           2007      2006      2005
                       -------   -------   --------
Life insurance         $28,820   $27,536   $ 34,558
Annuities                1,243     2,338    (15,075)
                       -------   -------   --------
Total benefit spread   $30,063   $29,874   $ 19,483
                       =======   =======   ========

INTEREST CREDITED TO CONTRACTHOLDER FUNDS increased 6.1% or $10.2 million in
2007 compared to 2006 and 3.2% or $5.2 million in 2006 compared to 2005. Both
increases were due primarily to growth in average contractholder funds,
partially offset by the impact of the reinsured variable annuity business. The
increase in 2007 compared to 2006 was also influenced by higher weighted average
interest crediting rates on deferred fixed annuities, which are detailed in the
table on the next page. Excluding the impact of the reinsured variable annuity
business, interest credited to contractholder funds increased 10.4% in 2007
compared to 2006 and 12.3% in 2006 compared to 2005.


                                       17

<Page>

     In order to analyze the impact of net investment income and interest
credited to policyholders on net income, we review the difference between net
investment income and the sum of interest credited to contractholder funds and
the implied interest on life-contingent immediate annuities which is included as
a component of contract benefits on the Statements of Operations and
Comprehensive Income ("investment spread"). The investment spread by product
group is shown in the following table.

<Table>
<Caption>
(IN MILLIONS)                                               2007       2006       2005
                                                          --------   --------   -------
<S>                                                       <C>          <C>      <C>
Annuities                                                 $ 60,162   $ 63,903   $56,772
Life insurance                                               3,064      2,737     2,526
Net investment income on investments supporting capital     38,611     35,349    33,932
                                                          --------   --------   -------
Total investment spread                                   $101,837   $101,989   $93,230
                                                          ========   ========   =======
</Table>

     To further analyze investment spreads, the following table summarizes the
weighted average investment yield on assets supporting product liabilities and
capital, interest crediting rates on investment type products and investment
spreads on those products during 2007, 2006 and 2005.

<Table>
<Caption>
                                          WEIGHTED AVERAGE        WEIGHTED AVERAGE       WEIGHTED AVERAGE
                                          INVESTMENT YIELD    INTEREST CREDITING RATE   INVESTMENT SPREADS
                                         ------------------   -----------------------   ------------------
                                         2007   2006   2005      2007   2006   2005     2007   2006   2005
                                         ----   ----   ----      ----   ----   ----     ----   ----   ----
<S>                                      <C>    <C>    <C>       <C>    <C>    <C>      <C>    <C>    <C>
Interest-sensitive life products         5.7%   5.6%   5.7%      4.6%   4.5%   4.6%     1.1%   1.1%   1.1%
Deferred fixed annuities                 5.7    5.6    5.4       3.4    3.2    3.3      2.3    2.4    2.1
Immediate fixed annuities with and
   without life contingencies            7.4    7.5    7.4       6.6    6.7    6.7      0.8    0.8    0.7
Investments supporting capital,
   traditional life and other products   6.0    6.2    6.2       N/A    N/A    N/A      N/A    N/A    N/A
</Table>

     The following table summarizes our product liabilities as of December 31
and indicates the account value of those contracts and policies for which an
investment spread is generated.

<Table>
<Caption>
(IN THOUSANDS)                                         2007         2006         2005
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
Immediate fixed annuities with life contingencies   $1,619,758   $1,567,821   $1,502,918
Other life contingent contracts and other              397,213      358,671      366,957
                                                    ----------   ----------   ----------
   Reserve for life-contingent contracts            $2,016,971   $1,926,492   $1,869,875
                                                    ==========   ==========   ==========
Interest-sensitive life                             $  530,763   $  476,729   $  427,523
Deferred fixed annuities                             3,733,197    3,667,459    3,381,034
Immediate fixed annuities without life
   contingencies and other                             584,501      564,240      540,838
                                                    ----------   ----------   ----------
   Contractholder funds                             $4,848,461   $4,708,428   $4,349,395
                                                    ==========   ==========   ==========
</Table>


                                       18

<Page>

AMORTIZATION OF DAC increased 68.7% or $21.8 million in 2007 compared to 2006
and decreased 24.0% or $10.0 million in 2006 compared to 2005. The components of
amortization of DAC are shown in the following table.

(IN THOUSANDS)                                   2007       2006       2005
                                               --------   --------   --------
Amortization of DAC before amortization
   relating to realized capital gains and
   losses and changes in assumptions (1)       $(47,431)  $(45,957)  $(45,520)
Amortization relating to realized capital
   gains and losses (2)                            (196)    14,139     (3,670)
Amortization (acceleration) deceleration for
   changes in assumptions
   ("DAC unlocking") (3)                         (5,818)       146      7,527
                                               --------   --------   --------
   Total amortization of DAC                   $(53,445)  $(31,672)  $(41,663)
                                               ========   ========   ========

----------
(1)  Amortization of DAC before amortization relating to realized capital gains
     and losses and changes in assumptions for 2006 and 2005 includes $(4.6)
     million and $(9.8) million, respectively, relating to the reinsured
     variable annuity business.

(2)  Amortization relating to realized capital gains and losses for 2006 and
     2005 includes $11.9 million and $(1.2) million, respectively, relating to
     the reinsured variable annuity business.

(3)  Amortization (acceleration) deceleration for changes in assumptions ("DAC
     unlocking") for 2005 includes $4.3 million relating to the reinsured
     variable annuity business. There was no DAC unlocking related to variable
     annuities in 2006.

     The increase of 68.7% in the amortization of DAC in 2007 compared to 2006
was in part due to the impact of the reinsured variable annuity business.
Excluding the impact of the reinsured variable annuity business, amortization of
DAC increased 37.2% or $14.5 million in 2007 compared to 2006 due primarily to
an increase in amortization acceleration on fixed annuities resulting from our
annual comprehensive review of DAC assumptions (commonly referred to as "DAC
unlocking") and higher gross profits on fixed annuities.

     The decrease in amortization of DAC in 2006 compared to 2005 was due to the
impact of the reinsured variable annuity business, which for 2006 reflected a
credit to income of $7.3 million compared to a charge to income of $6.7 million
for 2005. Excluding the impact of the reinsured variable annuity business, DAC
amortization increased 11.6% or $4.0 million in 2006 compared to 2005 due to
higher gross profits on fixed annuities.

     The impact of realized capital gains and losses on amortization of DAC is
dependent upon the relationship between the assets that give rise to the gain or
loss and the product liability supported by the assets. Fluctuations result from
changes in the impact of realized capital gains and losses on actual and
expected gross profits.

     The DAC asset was reduced by $79.7 million in 2006 as a result of the
disposition of our variable annuity business. The changes in the DAC asset are
summarized in the following tables.

<Table>
<Caption>
                                                              AMORTIZATION
                                                              BEFORE EFFECT   AMORTIZATION    AMORTIZATION
                                                               OF REALIZED      RELATING     (ACCELERATION)
                                                              CAPITAL GAINS        TO         DECELERATION     EFFECT OF
                     BEGINNING                                 AND LOSSES       REALIZED       FOR CHANGES    UNREALIZED    ENDING
                      BALANCE     IMPACT OF    ACQUISITION     AND CHANGES       CAPITAL           IN           CAPITAL     BALANCE
                      DECEMBER   ADOPTION OF      COSTS            IN           GAINS AND    ASSUMPTIONS(2)   GAINS AND    DECEMBER
(IN THOUSANDS)        31, 2006   SOP 05-1(1)     DEFERRED    ASSUMPTIONS(2)     LOSSES(2)          (3)          LOSSES     31, 2007
                     ---------   -----------   -----------   --------------   ------------   --------------   ----------   --------
<S>                   <C>          <C>           <C>            <C>              <C>             <C>            <C>        <C>
Traditional life
   and other          $ 37,582     $    --       $ 7,835        $ (3,849)        $  --           $    --        $   --     $ 41,568
Interest-sensitive
   life                 83,849          --        15,443          (8,394)          350             1,446           167       92,861
Fixed annuities        157,194      (1,577)       24,297         (35,188)         (546)           (7,264)        7,319      144,235
                      --------     -------       -------        --------         -----           -------        ------     --------
Total                 $278,625     $(1,577)      $47,575        $(47,431)        $(196)          $(5,818)       $7,486     $278,664
                      ========     =======       =======        ========         =====           =======        ======     ========
</Table>


                                       19

<Page>

<Table>
<Caption>
                                                            AMORTIZATION
                                                            BEFORE EFFECT                   AMORTIZATION
                                                             OF REALIZED    AMORTIZATION   (ACCELERATION)
                                 IMPACT OF                  CAPITAL GAINS   RELATING TO     DECELERATION     EFFECT OF
                     BEGINNING    DISPOSAL                    AND LOSSES       REALIZED      FOR CHANGES    UNREALIZED    ENDING
                       BALANCE       OF      ACQUISITION     AND CHANGES       CAPITAL           IN           CAPITAL     BALANCE
                      DECEMBER    VARIABLE       COSTS           IN           GAINS AND    ASSUMPTIONS(2)   GAINS AND    DECEMBER
(IN THOUSANDS)        31, 2005   ANNUITIES     DEFERRED    ASSUMPTIONS(2)     LOSSES(2)          (3)          LOSSES     31, 2006
                     ---------   ---------   -----------   --------------   ------------   --------------   ----------   --------
<S>                   <C>        <C>           <C>            <C>             <C>             <C>            <C>         <C>
Traditional life
   and other          $ 36,166   $     --      $ 4,576        $ (3,160)       $     --        $    --        $    --     $ 37,582
Interest-sensitive
   life                 77,308         --        9,553          (7,871)            165          2,122          2,572       83,849
Fixed annuities        136,923         --       43,995         (30,326)          2,097         (1,976)         6,481      157,194
Variable annuities      68,154    (79,670)       4,813          (4,600)         11,877             --           (574)          --
                      --------   --------      -------        --------        --------        -------        -------     --------
Total                 $318,551   $(79,670)     $62,937        $(45,957)       $ 14,139        $   146        $ 8,479     $278,625
                      ========   ========      =======        ========        ========        =======        =======     ========
</Table>

----------
(1)  The adoption of Statement of Position 05-1, "Accounting by Insurance
     Enterprises for Deferred Acquisition Costs in Connection with Modifications
     or Exchanges of Insurance Contracts" ("SOP 05-1"), resulted in a $1.0
     million after-tax adjustment to unamortized DAC related to the impact on
     future estimated gross profits from the changes in accounting for certain
     costs associated with contract continuations that no longer qualify for
     deferral under SOP 05-1. The adjustment was recorded as a reduction of
     retained income at January 1, 2007 and a reduction of the DAC balance of
     $1.6 million, pretax.

(2)  Included as a component of amortization of DAC on the Statements of
     Operations and Comprehensive Income.

(3)  Commonly referred to as "DAC unlocking"

OPERATING COSTS AND EXPENSES decreased 19.2% or $9.0 million in 2007 compared to
2006. This decrease was attributable to the absence in 2007 of expenses related
to the reinsured variable annuity business, lower restructuring and employee
benefit related expenses, decreased insurance department assessments and lower
non-deferrable commissions, partially offset by an increased investment in
technology. Subsequent to the effective date of the reinsurance agreement for
the variable annuity business, operating costs and expenses benefited from a
servicing fee paid by Prudential for our servicing of the business during a 24
month or less transition period following the effective date of the reinsurance
agreement.

     Operating costs and expenses increased 7.1% or $3.1 million in 2006
compared to 2005. The increase in 2006 was attributable to higher guaranty fund
assessments, restructuring charges and employee benefit expenses, partially
offset by the absence of expenses related to the reinsured variable annuity
business in the period subsequent to the effective date of the reinsurance
agreement, and lower technology related expenses.

GAIN (LOSS) ON DISPOSITION OF OPERATIONS reflected a gain of $429 thousand in
2007 compared to a loss of $10.7 million in 2006 and a gain of $1 thousand in
2005. The loss in 2006 was attributable to our reinsured variable annuity
business.

INCOME TAX EXPENSE increased by 28.4% or $5.0 million in 2007 compared to 2006
and decreased by 15.2% or $3.2 million in 2006 compared to 2005. The increase in
2007 compared to 2006 was due to increased income from operations before income
tax expense and, to a lesser extent, an increase in the effective tax rate. The
decrease in 2006 compared to 2005 was due to a decline in the effective tax rate
and lower income from operations before income tax expense.

     The Company's effective tax rate is impacted by tax favored investment
income such as dividends qualifying for the dividends received deduction
("DRD"). In 2007, the Internal Revenue Service ("IRS") announced its intention
to issue regulations dealing with certain computational aspects of the DRD
related to separate account assets ("separate accounts DRD"). The ultimate
timing and substance of any such regulations are unknown at this time, but may
result in the elimination of some or all of the separate accounts DRD tax
benefit reflected as a component of the Company's income tax expense. The
Company recognized a tax benefit from the separate accounts DRD of $3.1 million,
$3.7 million and $2.7 million in 2007, 2006 and 2005, respectively.


                                       20

<Page>

REINSURANCE CEDED We enter into reinsurance agreements with ALIC and
unaffiliated reinsurers to limit our risk of mortality and morbidity losses and
re-investment risk. In addition, the Company has used reinsurance to effect the
acquisition or disposition of certain blocks of business. We retain primary
liability for all risks reinsured.

     As of December 31, 2007 and 2006, for certain term life insurance policies,
we ceded up to 90% of the mortality risk depending on the length of the term.
Further, we ceded the mortality risk associated with coverage in excess of $250
thousand per life to ALIC. As of December 31, 2007 and 2006, 39.8% and 39.4%,
respectively, of our face amount of life insurance in force is reinsured to
non-affiliates and ALIC. We cede all of the risk associated with variable
annuity contracts to Prudential (see Note 3 to the financial statements).

     The estimation of reinsurance recoverables is impacted by the uncertainties
involved in the establishment of reserves.

     Our reinsurance recoverables, summarized by reinsurer as of December 31,
are shown in the following table.

                                                                REINSURANCE
                                           S&P FINANCIAL    RECOVERABLE ON PAID
(IN THOUSANDS)                            STRENGTH RATING    AND UNPAID CLAIMS
                                          ---------------   -------------------
                                                              2007       2006
                                                            --------   --------
Prudential Insurance Company of America         AA          $353,948   $415,709
Transamerica Financial Life Insurance           AA            13,335      9,321
RGA Reinsurance Company                         AA-            5,082      4,262
Allstate Life Insurance Company                 AA             3,649      2,437
Triton Insurance Company                        NR               950      1,614
Security Life of Denver                         AA               780        638
Generali USA                                     A               763        722
Canada Life                                     AA               745        549
Swiss Re Life and Health America, Inc.          AA-              743        713
American United Life                            AA-              675        634
Scottish Re Group                               BB+              461        531
Minnesota Mutual                                AA-               96         87
Cologne Re                                      AAA               88        130
Metropolitan Life                               AA                64         75
Mutual of Omaha                                 AA-               52         --
                                                            --------   --------
Total                                                       $381,431   $437,422
                                                            ========   ========

     We continuously monitor the creditworthiness of reinsurers in order to
determine our risk of recoverability on an individual and aggregate basis, and a
provision for uncollectible reinsurance is recorded if needed. No amounts have
been deemed unrecoverable in the three years ended December 31, 2007.

     We have a reinsurance treaty through which we cede re-investment related
risk on our structured settlement annuities to ALIC. The terms of this treaty
meet the accounting definition of a derivative under Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Accordingly, the treaty is recorded in the Statements
of Financial Position at fair value, and changes in the fair value of the treaty
and premiums paid to ALIC are recognized in realized capital gains and losses.

OUTLOOK

-    We plan to increase sales of our financial products by Allstate exclusive
     agencies by developing and bringing to market new innovative,
     consumer-driven financial products and features targeted to middle market
     customers.

-    We expect operating costs and expenses to increase over the prior year as a
     result of increased spending for the development of innovative products,
     additional marketing and growth of our Allstate exclusive agency
     distribution channel as well as a reduction in the variable annuity
     servicing fee from Prudential. We expect that these expense increases will
     be partially mitigated by our continuing focus on operating efficiency.

-    We plan to balance targeted new business return improvement with
     investments in growth initiatives and sales. Initially, investments in
     growth are expected to slow the improvement of returns and may reduce the
     price competitiveness of certain products, such as our fixed annuities, and
     slow or reduce the growth in sales and net income.

-    The transition of our investment objective from primarily income generation
     to increased focus on increasing total returns may result in increased
     volatility in net investment income and realized capital gains and losses
     from period to period.


                                       21

<Page>

INVESTMENTS

OVERVIEW AND STRATEGY An important component of our financial results is the
return on our investment portfolio. The investment portfolio is managed based
upon the nature of our business and our corresponding liability structure.

     Our investment strategy has historically focused on the need for
risk-adjusted spread to support the underlying liabilities to achieve return on
capital and profitable growth. We believe investment spread is maximized by
selecting assets that perform favorably on a long-term basis and by disposing of
certain assets to minimize the effect of downgrades and defaults. We believe
this strategy maintains the investment spread necessary to sustain income over
time. The portfolio management approach employs a combination of recognized
market, analytical and proprietary modeling, including a strategic asset
allocation model, as the primary basis for the allocation of interest sensitive,
illiquid and credit assets as well as for determining overall below investment
grade exposure and diversification requirements. Within the ranges set by the
strategic asset allocation model, tactical investment decisions are made in
consideration of prevailing market conditions. We will be adding a total return
framework to the management of our assets to further enhance long-term returns
and leverage our active management capabilities.

     In conjunction with our priority of optimizing the returns we realize for
the risks we accept, we will be undertaking selected new investment strategies.
As a result of these strategies and enterprise asset allocation, there may be a
different mix in the reporting of returns between investment income, realized
capital gains and losses, unrealized capital gains and losses and higher
investment expenses. Additionally, these strategies may result in increased
leverage from investing activities.

     As a result of tactical decisions, we may sell fixed income securities
during the period in which fair value has declined below amortized cost.
Portfolio monitoring, which includes identifying securities that are
other-than-temporarily impaired and recognizing other-than-temporary impairments
on securities in an unrealized loss position for which we do not have the intent
and ability to hold until recovery, are conducted regularly. For more
information, see the Portfolio Monitoring section of the MD&A.

PORTFOLIO COMPOSITION The composition of the investment portfolio at December
31, 2007 is presented in the table below. Also see Notes 2 and 6 to the
financial statements for investment accounting policies and additional
information.

                                             PERCENT
(IN THOUSANDS)                INVESTMENTS   OF TOTAL
                              -----------   --------
Fixed income securities (1)    $6,271,128     88.9%
Mortgage loans                    725,301     10.3
Short-term                         22,688      0.3
Policy loans                       38,509      0.5
Other                                   3       --
                               ----------    -----
   Total                       $7,057,629    100.0%
                               ==========    =====

----------
(1)  Fixed income securities are carried at fair value. Amortized cost basis for
     these securities was $5.93 billion.

     Total investments increased to $7.06 billion at December 31, 2007 from
$6.78 billion at December 31, 2006, primarily due to positive cash flows from
operating and financing activities.

     Total investments at amortized cost related to collateral received in
connection with securities lending business activities decreased to $198.1
million at December 31, 2007 from $199.5 million at December 31, 2006. As of
December 31, 2007 and 2006, these investments were carried at fair value and
classified in fixed income securities totaling $183 million and $115 million,
respectively, and short-term investments totaling $13 million and $87 million,
respectively.

     Securities lending activities are primarily used as an investment yield
enhancement, and are conducted with third parties such as brokerage firms. We
obtain collateral, typically in the form of cash, in an amount generally equal
to 102% of the securities and monitor the market value of the securities loaned
on a daily basis with additional collateral obtained as necessary. The cash we
receive is invested in short-term and fixed income investments, and an
offsetting liability to return the collateral is recorded in other liabilities
and accrued expenses.


                                       22

<Page>

FIXED INCOME SECURITIES See Note 6 of the financial statements for a table
showing the amortized cost, unrealized gains, unrealized losses and fair value
for each type of fixed income security for the years ended December 31, 2007 and
2006.

     The following table shows fixed income securities by type at December 31.

                                              FAIR VALUE
                                        -----------------------
(IN THOUSANDS)                             2007         2006
                                        ----------   ----------
U.S. government and agencies            $  797,191   $  729,111
Municipal                                  433,307      323,003
Corporate                                3,378,811    3,304,762
Foreign government                         333,540      304,947
Mortgage-backed securities                 419,617      433,196
Commercial mortgage-backed securities      791,941      673,179
Asset-backed securities                    106,877      109,022
Redeemable preferred stock                   9,844        9,919
                                        ----------   ----------
Total fixed income securities           $6,271,128   $5,887,139
                                        ==========   ==========

     During 2007, certain financial markets experienced decreased liquidity.
This was particularly evident in the markets for securities collateralized by
sub-prime residential mortgages. We experienced this illiquidity particularly in
our asset-backed residential mortgage-backed securities ("ABS RMBS") and Alt-A
residential mortgage-backed securities ("Alt-A") and commercial real estate
collateralized debt obligations ("CRE CDO") portfolios. These portfolios totaled
$138.0 million or less than 2% of our total investments at December 31, 2007.
Certain other asset-backed and real estate-backed securities markets experienced
illiquidity, but to a lesser degree.

     The fair values of securities comprising the illiquid portfolios are
obtained from our contracted third-party pricing servicers and brokers. We
evaluated the reasonableness of the fair value of these portfolios as of
December 31, 2007 by comparing vendor prices to alternative third-party pricing
and valuation servicers, both of which consider available market information
including, but not limited to, collateral quality, anticipated cash flows,
credit enhancements, default rates, loss severities, and credit ratings from
rating agencies. In addition, we also considered the reasonableness of security
values based upon the securities' relative position within their respective
capital structures in determining the reasonableness of fair values, on a
portfolio basis, for the above referenced securities as of December 31, 2007.

     MUNICIPAL BONDS, including tax-exempt and taxable securities, totaled
$433.3 million, all of which were rated investment grade at December 31, 2007.

     As of December 31, 2007, approximately $246.9 million or 57.0% of our
municipal bond portfolio is insured by five bond insurers and 96.9% have a
Moody's equivalent rating of Aaa. Our practices for acquiring and monitoring
municipal bonds primarily take into consideration the quality of the underlying
security. As of December 31, 2007, we believe that the valuations already
reflect a significant decline in the value of the insurance, and further such
declines, if any, are not expected to be material. While the valuation of these
holdings may be temporarily impacted by negative market developments, we
continue to have the intent and ability to hold the bonds and expect to receive
all of the contractual cash flows. As of December 31, 2007, 49.4% of our insured
municipal bond portfolio was insured by MBIA, 20.7% by AMBAC, 9.8% by FSA and
14.6% by FGIC. In total, we hold $273.0 million of fixed income securities that
are insured by bond insurers, including $19.2 million of our ABS RMBS.

     Included in our municipal bond portfolio at December 31, 2007 are $133.7
million of auction rate securities ("ARS") that have long-term stated
maturities, with the interest rate reset based on auctions every 7, 28 or 35
days depending on the specific security. At the auction date, if the quantity of
sell orders exceeds the quantity of purchase orders, the auction "fails" and the
issuers are forced to pay a "maximum rate" as defined for each issue. The
maximum rate is designed so that its prolonged use is an incentive to the issuer
to call and refinance the long-term bonds. When auctions are successfully
completed, the interest rate reset normally corresponds with the short-term rate
associated with the reset period. Our holdings primarily have a Moody's or
equivalent rating of Aaa and fair value was estimated at the corresponding par
value at December 31, 2007. We make our investment decisions based on the
underlying credit of each security, which for approximately 93% of our holdings
are pools of student loans for which at least 85% of the collateral is insured
by the U.S. Department of Education. In 2008 through March 13, dealers were no
longer supporting auctions with their own bids as they had in the past and we
experienced failed auctions for all


                                       23

<Page>

of our ARS holdings as of March 13, 2008 for which we are currently receiving
the maximum rate. We anticipate that failed auctions may persist. Auctions
will continue to be conducted as scheduled for each of the securities. While
these developments continue in the market, par value of these holdings may
not be representative of the fair value of these securities. Accordingly,
subsequent auctions could be more successful resulting in interest rates
being more in line with the 7, 28 or 35 day reset periods.

     CORPORATE BONDS totaled $3.38 billion and 94.1% were rated investment grade
at December 31, 2007. As of December 31, 2007, $1.52 billion or 45.1% of the
portfolio consisted of privately placed securities compared to $1.50 billion or
45.4% at December 31, 2006. Privately placed securities primarily consist of
corporate issued senior debt securities that are in unregistered form and are
directly negotiated with the borrower. All privately placed corporate securities
are rated by The National Association of Insurance Commissioners ("NAIC") based
on information provided to them and are also internally rated. Additionally,
approximately 34.3% of the privately placed corporate securities in our
portfolio are rated by an independent rating agency. The following table
summarizes the privately placed corporate securities portfolio by credit quality
as of December 31, 2007.

(IN THOUSANDS)

<Table>
<Caption>
                                                                             PERCENT
                                              FAIR      NET UNREALIZED    OF FAIR VALUE
NAIC RATING   MOODY'S EQUIVALENT RATING      VALUE     GAINS AND LOSSES      TO TOTAL
-----------   -------------------------   ----------   ----------------   -------------
<S>                    <C>                <C>              <C>               <C>
     1                 Aaa/Aa/A           $  738,582       $26,358            48.4%
     2                 Baa                   684,768        17,582            44.9
     3                 Ba                     95,303        (3,163)            6.3
     4                 B                       5,992          (650)            0.4
                                          ----------       -------           -----
                       Total              $1,524,645       $40,127           100.0%
                                          ==========       =======           =====
</Table>

     The Company's portfolio of privately placed securities are broadly
diversified by issuer, industry sector, and by country. The portfolio is made up
of approximately 210 issues with an average security value of approximately $7.2
million. Privately placed corporate obligations generally benefit from increased
yields and structural security features such as financial covenants and call
protections that provide investors greater protection against credit
deterioration, reinvestment risk or fluctuations in interest rates than those
typically found in publicly registered debt securities. Additionally,
investments in these securities are made after extensive due diligence of the
issuer, typically including direct discussions with senior management and
on-site visits to company facilities. Ongoing monitoring includes direct
periodic dialog with senior management of the issuer and continuous monitoring
of operating performance and financial position. Every issue is internally rated
with a formal rating affirmation once a year.

     Hybrid securities are carried at fair value and total $224.5 million and
$184.0 million at December 31, 2007 and 2006, respectively. For further
discussion on hybrid securities, see Note 2 to the financial statements.

     FOREIGN GOVERNMENT securities totaled $333.5 million and all were rated
investment grade at December 31, 2007.

     MORTGAGE-BACKED SECURITIES ("MBS") totaled $419.6 million, all of which
were rated investment grade at December 31, 2007. The credit risk associated
with MBS is mitigated due to the fact that 81.4% of the portfolio consists of
securities that were issued by, or have underlying collateral that is
guaranteed by U.S. government agencies or U.S. government sponsored entities
("U.S. Agency"). The MBS portfolio is subject to interest rate risk since
price volatility and the ultimate realized yield are affected by the rate of
prepayment of the underlying mortgages.


                                       24

<Page>

     The following table shows MBS by type and Moody's equivalent rating at
December 31, 2007.

                   FAIR      % TO TOTAL
(IN THOUSANDS)     VALUE    INVESTMENTS    AAA
                 --------   -----------   -----
MBS
U.S. Agency      $341,446       4.8%      100.0%
Prime              49,334       0.7       100.0
Alt-A              28,837       0.4       100.0
                 --------       ---
   Total MBS     $419,617       5.9%
                 ========       ===

     All of our Alt-A mortgage-backed securities are at fixed rates and include
certain securities that are collateralized by residential mortgage loans issued
to borrowers with stronger credit profiles than sub-prime borrowers, but do not
qualify for prime financing terms due to high loan-to-value ratios or limited
supporting documentation. Fair value represents 97.4% of the amortized cost of
these securities. At December 31, 2007, the Alt-A portfolio had net unrealized
losses of $767 thousand, which were comprised of $100 thousand of gross
unrealized gains and $867 thousand of gross unrealized losses.

     COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS") totaled $791.9 million and
all were rated investment grade at December 31, 2007. Approximately 93.2% of the
CMBS investments are pools of commercial mortgages, broadly diversified across
property types and geographical area. The CMBS portfolio is subject to credit
risk, but unlike other structured products, is generally not subject to
prepayment risk due to protections within the underlying commercial mortgages,
whereby borrowers are effectively restricted from prepaying their mortgages due
to changes in interest rates. Credit defaults can result in credit directed
prepayments.

     The following table shows CMBS by type and Moody's equivalent rating at
December 31, 2007.

                               % TO TOTAL
(IN THOUSANDS)   FAIR VALUE   INVESTMENTS    AAA    AA      A    BAA
                 -----------  -----------   ----   ----   ----   ---
CMBS              $758,874       10.8%      74.2%  18.3%   7.0%  0.5%
CRE CDO             33,067        0.4       24.4   45.2   24.3   6.1
                  --------       ----
Total CMBS        $791,941       11.2%
                  ========       ====

     CRE CDO are investments secured primarily by commercial mortgage-backed
securities and other commercial mortgage debt obligations. These securities are
generally less liquid and have a higher risk profile than other commercial
mortgage-backed securities. Fair value represents 97.6% of the amortized cost of
these securities. At December 31, 2007, CRE CDO had gross unrealized losses of
$5.2 million and no gross unrealized gains. In addition to the quality of the
loans and securities collateralizing the CRE CDOs, influential factors in our
analysis are the adequacy of subordination and strength of the CRE CDO
management team.

     ASSET-BACKED SECURITIES ("ABS") totaled $106.9 million and 99.6% were rated
investment grade at December 31, 2007. Credit risk is managed by monitoring the
performance of the collateral. In addition, many of the securities in the ABS
portfolio are credit enhanced with features such as over-collateralization,
subordinated structures, reserve funds, guarantees and/or insurance. A portion
of the ABS portfolio is also subject to interest rate risk since, for example,
price volatility and ultimate realized yields are affected by the rate of
prepayment of the underlying assets.

     The following table shows ABS by type at December 31, 2007.

<Table>
<Caption>
                                          FAIR      % TO TOTAL                               BA OR
(IN THOUSANDS)                            VALUE    INVESTMENTS    AAA    AA      A     BAA   LOWER
                                        --------   -----------   ----   ----   ----   ----   -----
<S>                                     <C>            <C>       <C>    <C>    <C>    <C>     <C>
ABS
ABS RMBS                                $ 76,109       1.1%      95.0%   0.7%   2.3%    --%   2.0%
Other collateralized debt obligations     30,768       0.4       49.3   12.8   27.8   10.1     --
                                        --------       ---
   Total ABS                            $106,877       1.5%
                                        ========       ===
</Table>


                                       25

<Page>

     The following table presents additional information about our ABS RMBS
portfolio including a summary by first and second lien collateral at December
31, 2007.

(IN THOUSANDS)                  FAIR     % TO TOTAL
                               VALUE    INVESTMENTS
                              -------   -----------
ABS RMBS
FIRST LIEN:
   FIXED RATE (1)             $13,779       0.2%
   VARIABLE RATE (1)           38,138       0.5
                              -------       ---
      TOTAL FIRST LIEN (2)     51,917       0.7
SECOND LIEN:
   INSURED                     17,109       0.3
   OTHER                        7,083       0.1
                              -------       ---
      TOTAL SECOND LIEN (3)    24,192       0.4
                              -------       ---
      TOTAL ABS RMBS          $76,109       1.1%
                              =======       ===

----------
(1)  Fixed rate and variable rate refer to the primary interest rate
     characteristic of the underlying mortgages at the time of issuance.

(2)  The credit ratings of the first lien ABS RMBS were 99.0% Aaa, and 1.0% Aa
     at December 31, 2007.

(3)  The credit ratings of the second lien ABS RMBS were 86.4% Aaa, 7.1% A and
     6.5% Ba at December 31, 2007.

     ABS RMBS portfolio includes securities that are collateralized by mortgage
loans issued to borrowers that cannot qualify for prime or alternative financing
terms due in part to an impaired or limited credit history. It also includes
securities that are collateralized by certain second lien mortgages regardless
of the borrower's credit profile. Fair value represents 91.5% of the amortized
cost of these securities. As of December 31, 2007, the ABS RMBS portfolio had
gross unrealized losses of $7.1 million and no gross unrealized gains.

     At December 31, 2007, $72.3 million or 95.0% of the total ABS RMBS
securities that are rated Aaa are currently insured by 4 bond insurers. $67.8
million or 89.0% of the portfolio consisted of securities that were issued
during 2005, 2006 and 2007. At December 31, 2007, 94.3% of these securities were
rated Aaa, 0.8% rated Aa, 2.6% were rated A and 2.3% were rated Ba.

     During 2007, one second lien ABS RMBS with a value of $1.7 million was
downgraded within the investment grade ratings. Two second lien securities with
a fair value of $1.6 million were downgraded from investment grade to below
investment grade ratings.

     During 2007, we sold $679 thousand of ABS RMBS, recognizing a loss of $3
thousand. We also collected $26.4 million of principal repayments consistent
with the expected cash flows. These repayments represent approximately 36.1% of
the amortized cost of our outstanding portfolio at December 31, 2006.

     We continue to believe that the unrealized losses on these securities are
not necessarily predictive of the performance of the underlying collateral. In
the absence of further deterioration in the collateral relative to our positions
in the securities' respective capital structures, which could require
other-than-temporary impairments, the unrealized losses should reverse over the
remaining lives of the securities.

     OTHER COLLATERALIZED DEBT OBLIGATIONS totaled $30.8 million and all were
rated investment grade at December 31, 2007. Other collateralized debt
obligations consist primarily of obligations secured by high yield and
investment grade corporate credits including $5.8 million of collateralized loan
obligations; $9.4 million of primarily bank trust preferred CDOs; $8.6 million
of project finance bonds; $3.9 million of market value CDOs and $3.1 million of
collateralized bond obligations. As of December 31, 2007, net unrealized losses
on the other collateralized debt obligations were $1.2 million.


                                       26

<Page>

     We may utilize derivative financial instruments to help manage the exposure
to interest rate risk, and to a lesser extent, currency and credit risks, from
the fixed income securities portfolio. For a more detailed discussion of
interest rate, and currency risks and our use of derivative financial
instruments, see the Net Realized Capital Gains and Losses and Market Risk
sections of MD&A and Note 7 to the consolidated financial statements.

     The following table summarizes the credit quality of the fixed income
securities portfolio at December 31, 2007.

(IN THOUSANDS)

 NAIC                                FAIR       PERCENT
RATING     MOODY'S EQUIVALENT        VALUE     OF TOTAL
------   ----------------------   ----------   --------
  1      Aaa/Aa/A                 $4,580,229     73.0%
  2      Baa                       1,492,290     23.8
                                  ----------    -----
         Investment grade (1)      6,072,519     96.8
  3      Ba                          169,117      2.7
  4      B                            28,194      0.5
  5      Caa or lower                  1,298       --
                                  ----------    -----
         Below investment grade      198,609      3.2
                                  ----------    -----
         Total                    $6,271,128    100.0%
                                  ==========    =====

----------
(1)  Defined as a security having a rating from the NAIC of 1 or 2; a rating of
     Aaa, Aa, A or Baa from Moody's or a rating of AAA, AA, A or BBB from
     Standard & Poor's, Fitch or Dominion or a rating of aaa, aa, a or bbb from
     A.M. Best; or a comparable internal rating if an externally provided rating
     is not available.

MORTGAGE LOANS Our mortgage loan portfolio was $725.3 million at December 31,
2007 and $708.4 million at December 31, 2006, and was comprised primarily of
loans secured by first mortgages on developed commercial real estate.
Geographical and property type diversification are key considerations used to
manage our exposure.

     We closely monitor our commercial mortgage loan portfolio on a loan-by-loan
basis. Loans with an estimated collateral value less than the loan balance, as
well as loans with other characteristics indicative of higher than normal credit
risks, are reviewed by financial and investment management at least quarterly
for purposes of establishing valuation allowances and placing loans on
non-accrual status when and if necessary. The underlying collateral values are
based upon either discounted property cash flow projections or a commonly used
valuation method that utilizes a one-year projection of expected annual income
divided by a market based expected rate of return. We had no realized capital
losses related to write-downs on mortgage loans for the years ended December 31,
2007, 2006 and 2005.

SHORT-TERM INVESTMENTS Our short-term investment portfolio was $22.7 million and
$142.3 million at December 31, 2007 and 2006, respectively. We invest available
cash balances primarily in taxable short-term securities having a final maturity
date or redemption date of less than one year.

POLICY LOANS Our policy loan portfolio was $38.5 million and $38.2 million at
December 31, 2007 and 2006, respectively. Policy loans are carried at the unpaid
principal balances.

UNREALIZED GAINS AND LOSSES See Note 6 of the financial statements for further
disclosures regarding unrealized losses on fixed income securities and factors
considered in determining whether the securities are not other-than-temporarily
impaired. The unrealized net capital gains on fixed income securities at
December 31, 2007 totaled $342.2 million, a decrease of $2.7 million since
December 31, 2006. The decrease in net unrealized capital gains was related
primarily to increased unrealized losses on investment grade fixed income
securities, resulting from widening credit spreads and credit exposure related
to collateralized securities, which more than offset the effects of declining
interest rates.

     Credit spreads are the additional yield on fixed income securities above
the risk-free rate (typically defined as the yield on U.S. treasury securities),
that market participants require to compensate them for assuming credit,
liquidity and or repayment risks for fixed income securities with consistent
terms. Credit spreads vary with the market's perception of risk and liquidity in
specific fixed income markets. Credit spreads can widen (increase) or tighten
(decrease) and may offset or add to the effects of risk-free interest rate
changes in the valuation of fixed income securities from period to period.


                                       27

<Page>

     Gross unrealized gains and losses on fixed income securities by type and
sector are provided in the table below.

<Table>
<Caption>
(IN THOUSANDS)                                                 GROSS UNREALIZED
                                                 AMORTIZED   -------------------      FAIR
                                                   COST        GAINS     LOSSES       VALUE
                                                ----------   --------   --------   ----------
<S>                                             <C>          <C>        <C>        <C>
AT DECEMBER 31, 2007
Corporate:
   Utilities                                    $  679,792   $ 40,092   $ (4,590)  $  715,294
   Banking                                         482,858     10,853    (14,611)     479,100
   Consumer goods (cyclical and non-cyclical)      442,783     10,073     (5,613)     447,243
   Financial services                              392,113      6,255    (13,116)     385,252
   Capital goods                                   358,664      6,993     (6,069)     359,588
   Communications                                  197,362      8,950     (1,279)     205,033
   Transportation                                  202,496      6,478     (3,344)     205,630
   Basic industry                                  151,090      4,002     (1,030)     154,062
   Other                                           163,952     15,901     (1,748)     178,105
   Energy                                          155,493      4,682     (1,203)     158,972
   Technology                                       88,342      2,296       (106)      90,532
                                                ----------   --------   --------   ----------
Total corporate fixed income portfolio           3,314,945    116,575    (52,709)   3,378,811
U.S. government and agencies                       576,892    220,299         --      797,191
Municipal                                          421,755     14,814     (3,262)     433,307
Foreign government                                 259,851     73,689         --      333,540
Asset-backed securities                            115,203        485     (8,811)     106,877
Mortgage-backed securities                         419,730      4,399     (4,512)     419,617
Commercial mortgage-backed securities              811,191      6,803    (26,053)     791,941
Redeemable preferred stock                           9,332        512         --        9,844
                                                ----------   --------   --------   ----------
   Total fixed income securities                $5,928,899   $437,576   $(95,347)  $6,271,128
                                                ==========   ========   ========   ==========
</Table>

     The banking, financial services and capital goods sectors had the highest
concentration of gross unrealized losses in our corporate fixed income
securities portfolio at December 31, 2007. The gross unrealized losses in these
sectors were primarily company specific and the result of widening credit
spreads. As of December 31, 2007, $41.9 million or 79.5% of the gross unrealized
losses in the corporate fixed income portfolio and $42.0 million or 98.6% of the
gross unrealized losses on the remaining fixed income securities, related to
securities rated investment grade. Unrealized losses on investment grade
securities are principally related to rising interest rates or changes in credit
spreads since the securities were acquired.

     All securities in an unrealized loss position at December 31, 2007 were
included in our portfolio monitoring process for determining which declines in
value are other-than-temporary.

     The following table shows the composition by credit quality of the fixed
income securities with gross unrealized losses at December 31, 2007.

         (IN THOUSANDS)
 NAIC                             UNREALIZED    PERCENT                 PERCENT
RATING   MOODY'S EQUIVALENT          LOSS      OF TOTAL   FAIR VALUE   OF TOTAL
                                  ----------   --------   ----------   --------
  1      Aaa/Aa/A                  $(59,445)     62.4%    $1,491,424     69.5%
  2      Baa                        (24,514)     25.7        545,215     25.4
                                   --------     -----     ----------    -----
         Investment grade           (83,959)     88.1      2,036,639     94.9
  3      Ba                          (9,821)     10.3         84,675      3.9
  4      B                           (1,355)      1.4         22,517      1.1
  5      Caa or lower                  (212)      0.2          1,298      0.1
                                   --------     -----     ----------    -----
         Below investment grade     (11,388)     11.9        108,490      5.1
                                   --------     -----     ----------    -----
         Total                     $(95,347)    100.0%    $2,145,129    100.0%
                                   ========     =====     ==========    =====


                                       28

<Page>

     The table above includes 10 securities with a fair value totaling $48.6
million and an unrealized loss of $1.8 million that have not yet received an
NAIC rating, for which we have assigned a comparable internal rating. Due to
lags between the funding of an investment, execution of final legal documents,
filing with the Securities Valuation Office ("SVO") of the NAIC, and rating by
the SVO, we generally have a small number of securities that have a pending
rating.

     Unrealized losses on investment grade securities principally relate to
changes in interest rates or changes in credit spreads, which reflect liquidity
conditions of the related markets, since the securities were acquired. Of the
unrealized losses on below investment grade securities, there were no
significant loss positions (greater than or equal to 20% of amortized cost) for
six or more consecutive months prior to December 31, 2007. Included among the
securities rated below investment grade are high-yield bonds and securities that
were investment grade when originally acquired. We mitigate the credit risk of
investing in below investment grade fixed income securities by limiting the
percentage of our fixed income portfolio invested in such securities, through
diversification of the portfolio, active credit monitoring and portfolio
management.

     The scheduled maturity dates for fixed income securities in an unrealized
loss position at December 31, 2007 are shown below. Actual maturities may differ
from those scheduled as a result of prepayments by the issuers.

<Table>
<Caption>
(IN THOUSANDS)                              UNREALIZED   PERCENT                 PERCENT
                                               LOSS      OF TOTAL   FAIR VALUE   OF TOTAL
                                            ----------   --------   ----------   --------
<S>                                          <C>            <C>     <C>             <C>
Due in one year or less                      $   (375)      0.4%    $   58,007      2.7%
Due after one year through five years          (8,729)      9.2        267,465     12.5
Due after five years through ten years        (16,239)     17.0        434,486     20.2
Due after ten years                           (56,681)     59.4      1,036,264     48.3
Mortgage- and asset- backed securities(1)     (13,323)     14.0        348,907     16.3
                                             --------     -----     ----------    -----
Total                                        $(95,347)    100.0%    $2,145,129    100.0%
                                             ========     =====     ==========    =====
</Table>

----------
(1)  Because of the potential for prepayment, these securities are not
     categorized based on their contractual maturities.

PORTFOLIO MONITORING We have a comprehensive portfolio monitoring process to
identify and evaluate, on a case-by-case basis, fixed income 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
situations where the fair value compared to amortized cost, is below established
thresholds for certain time periods, or which are identified through other
monitoring criteria such as ratings downgrades or payment defaults. The
securities identified, in addition to other securities for which we may have a
concern, are evaluated based on facts and circumstances for inclusion on our
watch-list. We also conduct a portfolio review to recognize impairment on
investments in an unrealized loss position for which we do not have the intent
and ability to hold until recovery as a result of approved programs involving
the disposition of investments for reasons such as changes in duration,
revisions to strategic asset allocations and liquidity actions, as well as
certain dispositions anticipated by portfolio managers. All investments in an
unrealized loss position at December 31, 2007 were included in our portfolio
monitoring process for determining whether declines in value were
other-than-temporary.


                                       29

<Page>

     The following table summarizes fixed income securities in a gross
unrealized loss position according to significance, aging and investment grade
classification.

<Table>
<Caption>
                                              DECEMBER 31, 2007                      DECEMBER 31, 2006
                                    ------------------------------------   ------------------------------------
                                                    BELOW                                  BELOW
(IN THOUSANDS, EXCEPT NUMBER OF     INVESTMENT   INVESTMENT                INVESTMENT   INVESTMENT
 ISSUES)                               GRADE        GRADE        TOTAL        GRADE        GRADE        TOTAL
                                    ----------   ----------   ----------   ----------   ----------   ----------
<S>                                 <C>           <C>         <C>          <C>           <C>         <C>
Category (i): Unrealized
   loss less than 20% of cost(1)
      Number of Issues                     381          60           441          373          36           409
      Fair Value                    $2,014,259    $103,660    $2,117,919   $2,194,069    $ 66,656    $2,260,725
      Unrealized                    $  (74,751)   $ (8,180)   $  (82,931)  $  (51,285)   $ (2,991)   $  (54,276)

Category (ii): Unrealized loss
   greater than or equal to 20%
   of cost for a period of less
   than 6 consecutive months(1)
      Number of Issues                       9           5            14           --          --            --
      Fair Value                    $   22,380    $  4,830    $   27,210   $       --    $     --    $       --
      Unrealized                    $   (9,208)   $ (3,208)   $  (12,416)  $       --    $     --    $       --
                                    ----------    --------    ----------   ----------    --------    ----------
Total Number of Issues
                                           390          65           455          373          36           409
                                    ==========    ========    ==========   ==========    ========    ==========
Total Fair Value                    $2,036,639    $108,490    $2,145,129   $2,194,069    $ 66,656    $2,260,725
                                    ==========    ========    ==========   ==========    ========    ==========
Total Unrealized Losses             $  (83,959)   $(11,388)   $  (95,347)  $  (51,285)   $ (2,991)   $  (54,276)
                                    ==========    ========    ==========   ==========    ========    ==========
</Table>

----------
(1)  Cost represents amortized cost.

     The largest individual unrealized loss was $1.7 million for category (i) as
of December 31, 2007 and $2.5 million for category (ii) as of December 31, 2007.

     Categories (i) and (ii) have generally been adversely affected by overall
economic conditions including interest rate increases and the market's
evaluation of certain sectors. The degree to which and/or length of time that
the securities have been in an unrealized loss position does not suggest that
these securities pose a high risk of being other-than-temporarily impaired.

     Whenever our initial analysis indicates that a fixed income security's
unrealized loss of 20% or more for at least 36 months is temporary, additional
evaluations and management approvals are required to substantiate that a
write-down is not appropriate. As of December 31, 2007, no security met this
criteria.

     The following table contains the individual securities with the largest
unrealized losses as of December 31, 2007. No other fixed income security had an
unrealized loss of or greater than $1.2 million or 1.3% of the total unrealized
loss on fixed income securities.

                                                                      UNREALIZED
(IN THOUSANDS)                        UNREALIZED     FAIR     NAIC       LOSS
                                         LOSS       VALUE    RATING    CATEGORY
                                      ----------   -------   ------   ----------
Financial Services                     $ (2,474)   $ 7,335      2         II
Commercial Mortgage Backed Security      (2,157)     3,727      2         II
Financial Services                       (2,050)     2,950      3         II
Commercial Mortgage Backed Security      (1,694)    13,238      1          I
Financial Services                       (1,594)     8,054      1          I
Commercial Mortgage Backed Security      (1,489)     8,321      1          I
Construction Supply Company              (1,463)     4,148      2         II
Cash Flow CBO                            (1,451)     8,549      1          I
Commercial Mortgage Backed Security      (1,223)     8,827      1          I
                                       --------    -------
   Total                               $(15,595)   $65,149
                                       ========    =======


                                       30

<Page>

     We 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 or loan. 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 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.

     We had no problem, restructured or potential problem fixed income
securities as of December 31, 2007. The fixed income securities categorized as
problem and potential problem as of December 31, 2006, were disposed of in 2007.

     We evaluated each of these securities through our portfolio monitoring
process at December 31, 2007 and recorded write-downs when appropriate. We
further concluded that any remaining unrealized losses on these securities were
temporary in nature and that we have the intent and ability to hold the security
until recovery. While these balances may increase in the future, particularly if
economic conditions are unfavorable, management expects that the total amount of
securities in these categories will remain low relative to the total fixed
income securities portfolio.

NET INVESTMENT INCOME The following table presents net investment income for the
year ended December 31.

(IN THOUSANDS)                        2007       2006
                                    --------   --------
Fixed income securities             $358,547   $343,115
Mortgage loans                        40,916     38,576
Short-term and other                  14,487     14,763
                                    --------   --------
Investment income, before expense    413,950    396,454
Investment expense                   (27,212)   (23,390)
                                    --------   --------
Net investment income               $386,738   $373,064
                                    ========   ========

NET REALIZED CAPITAL GAINS AND LOSSES The following table presents the
components of realized capital gains and losses and the related tax effect for
the years ended December 31.

(IN THOUSANDS)                                   2007      2006       2005
                                               -------   --------   -------
Investment write-downs                         $    --   $   (258)  $(1,543)
Dispositions                                     3,528    (21,568)   (2,053)
Valuation of derivative instruments             (8,166)    (5,429)   (4,469)
Settlement of derivative instruments             3,807      5,170     2,873
                                               -------   --------   -------
Realized capital gains and losses, pretax         (831)   (22,085)   (5,192)
Income tax benefit                                 308      8,216     1,972
                                               -------   --------   -------
Realized capital gains and losses, after-tax   $  (523)  $(13,869)  $(3,220)
                                               =======   ========   =======

     Dispositions in the above table include sales, losses recognized in
anticipation of dispositions and other transactions such as calls and
prepayments. We may sell impaired fixed income securities that were in an
unrealized loss position at the previous reporting date, or other investments
where the fair value has declined below the carrying value, in situations where
new factors such as negative developments, subsequent credit deterioration,
changing liquidity needs, and newly identified market opportunities cause a
change in our previous intent to hold a security to recovery or maturity.

     Dispositions in 2007 included net realized gains on sales and other
transactions such as calls and prepayments of $10.3 million and losses recorded
in connection with anticipated dispositions of $6.8 million. The net realized
gains on sales and other transactions were comprised of gross gains of $17.6
million and gross losses of $7.3 million.

     Net realized capital losses related to the valuation of derivative
instruments increased 50.4% in 2007 compared to 2006 due primarily to lower
valuations of interest rate cap agreements resulting from decreased market
interest rates.
                                       31

<Page>

     Dispositions in 2006 included net realized losses on sales and other
transactions such as calls and prepayments of $5.1 million and losses recorded
in connection with anticipated dispositions of $16.5 million. The net realized
losses on sales and other transactions were comprised of gross gains of $13.9
million and gross losses of $19.0 million.

     During our comprehensive portfolio reviews, we determine whether there are
any approved programs involving the expected disposition of investments such as
changes in duration, revision to strategic asset allocation and liquidity
actions, as well as any dispositions anticipated by the portfolio managers
resulting from their on-going comprehensive reviews of the portfolios. Upon
approval of such programs, we identify a population of suitable investments,
typically larger than needed to accomplish the objective, from which specific
securities are selected to sell. Due to our change in intent to hold until
recovery, we recognize impairments on investments within the population that are
in an unrealized loss position. When the objectives of the programs are
accomplished, any remaining securities are redesignated as intent to hold until
recovery.

     For the year ended December 31, 2007, we recognized $6.8 million of losses
related to a change in our intent to hold certain securities with unrealized
losses until they recover in value. The change in our intent was primarily
related to strategic asset allocation decisions and ongoing comprehensive
reviews of our portfolio. At December 31, 2007, the fair value of securities for
which we did not have the intent to hold until recovery totaled $86.4 million.

     For the year ended December 31, 2006, we recognized $16.5 million of losses
related to a change in our intent to hold certain securities with unrealized
losses until they recover in value. The change in our intent was driven by
certain approved programs, including funding for the disposition through
reinsurance of our variable annuity business reinsurance agreement. These
programs were completed during 2006. Additionally, ongoing comprehensive reviews
of our portfolio resulted in the identification of anticipated dispositions by
the portfolio managers. At December 31, 2006, the fair value of securities for
which we did not have the intent to hold until recovery totaled $13.7 million.

     A changing interest rate environment will drive changes in our portfolio
duration targets at a tactical level. A duration target and range is established
with an economic view of liabilities relative to a long-term portfolio view.
Tactical duration management is accomplished through both cash market
transactions including new purchases and derivative activities that generate
realized gains and losses. As a component of our approach to managing portfolio
duration, realized gains and losses on certain derivative instruments are most
appropriately considered in conjunction with the unrealized gains and losses on
the fixed income portfolio. This approach mitigates the impacts of general
interest rate changes to the overall financial condition of the Company as shown
in the Market Risk section of the MD&A.

     The ten largest losses from sales of individual securities for the year
ended December 31, 2007 totaled $5.0 million with the largest loss being $1
million and the smallest loss being $283 thousand.

     The circumstances of the above losses are considered to be security
specific or issue specific and are not expected to have a material effect on
other holdings in our portfolio.

MARKET RISK

     Market risk is the risk that we will incur losses due to adverse changes in
interest rates or equity prices. Our primary market risk exposure is to changes
in interest rates, although we also have certain exposures to changes in equity
prices.

     The active management of market risk is integral to our results of
operations. We may use the following approaches to manage our exposure to market
risk within defined tolerance ranges: 1) rebalancing existing asset or liability
portfolios, 2) changing the character of investments purchased in the future or
3) using derivative instruments to modify the market risk characteristics of
existing assets and liabilities or assets expected to be purchased. For a more
detailed discussion of our use of derivative financial instruments, see Note 7
of the financial statements.

OVERVIEW We generate substantial investible funds from our business. In
formulating and implementing guidelines for investing funds, we seek to earn
returns that enhance our ability to offer competitive rates and prices to
customers while contributing to attractive and stable profits and long-term
capital growth. Accordingly, our investment decisions and objectives are a
function of our underlying risks and product profiles.

     Investment policies define the overall framework for managing market and
other investment risks, including accountability and control over these risk
management activities. These investment activities follow policies that have
been approved by our board of directors. These investment policies specify the
investment limits and strategies that are appropriate given our liquidity,
surplus, product profile, and regulatory requirements. Executive oversight of
investment activities is conducted primarily through our board of directors and
investment committee. Asset-liability management ("ALM") policies further define
the overall framework for managing market and investment risks. ALM focuses on
strategies to enhance yields, mitigate market risks and optimize capital to
improve profitability and returns.


                                       32

<Page>

ALM activities follow asset-liability policies that have been approved by our
board of directors. These ALM policies specify limits, ranges and/or targets for
investments that best meet our business objectives in light of our product
liabilities.

     We manage our exposure to market risk through the use of asset allocation,
duration and value-at-risk limits, simulation and, as appropriate, through the
use of stress tests. We have asset allocation limits that place restrictions on
the total funds that may be invested within an asset class. We have duration
limits on our investment portfolio, and, as appropriate, on individual
components of the portfolio. These duration limits place restrictions on the
amount of interest rate risk that may be taken. Our value-at-risk limits are
intended to restrict the potential loss in fair value that could arise from
adverse movements in the fixed income, equity, and currency markets based on
historical volatilities and correlations among market risk factors.
Comprehensive day-to-day management of market risk within defined tolerance
ranges occurs as portfolio managers buy and sell within their respective markets
based upon the acceptable boundaries established by the investment policies.
This day-to-day management is integrated with and informed by the activities of
the ALM organization. This integration results in a prudent, methodical and
effective adjudication of market risk and return, conditioned by the unique
demands and dynamics of our product liabilities and supported by the continuous
application of advanced risk technology and analytics.

INTEREST RATE RISK is the risk that we will incur loss due to adverse changes in
interest rates relative to the interest rate characteristics of interest bearing
assets and liabilities. This risk arises from many of our primary activities, as
we invest substantial funds in interest-sensitive assets and issue
interest-sensitive liabilities. Interest rate risk includes risks related to
changes in U.S. Treasury yields and other key benchmarks as well as changes in
interest rates resulting from the widening credit spreads and credit exposure to
collateralized securities.

     We manage the interest rate risk in our assets relative to the interest
rate risk inherent in our liabilities. One of the measures used to quantify this
exposure is duration. Duration measures the price sensitivity of the assets and
liabilities to changes in interest rates. For example, if interest rates
increase by 100 basis points, the fair value of an asset with a duration of 5 is
expected to decrease in value by approximately 5%. At December 31, 2007, the
difference between our asset and liability duration was approximately 0.62,
compared to a (0.45) gap at December 31, 2006. A positive duration gap indicates
that the fair value of our assets is more sensitive to interest rate movements
than the fair value of our liabilities. A negative duration gap indicates that
the fair value of our liabilities is more sensitive to interest rate movements
than the fair value of our assets.

     We seek to invest premiums, contract charges and deposits to generate
future cash flows that will fund future claims, benefits and expenses, and that
will earn stable spreads across a wide variety of interest rate and economic
scenarios. To achieve this objective and limit interest rate risk, we adhere to
a philosophy of managing the duration of assets and related liabilities within
predetermined tolerance levels. This philosophy may include using futures to
reduce the interest rate risk resulting from mismatches between existing assets
and liabilities, and financial futures to hedge the interest rate risk of
anticipated purchases and sales of investments and product sales to customers.

     To calculate the duration gap between assets and liabilities, we project
asset and liability cash flows and calculate their net present value using a
risk-free market interest rate adjusted for credit quality, sector attributes,
liquidity and other specific risks. Duration is calculated by revaluing these
cash flows at alternative interest rates and determining the percentage change
in aggregate fair value. The cash flows used in this calculation include the
expected maturity and repricing characteristics of our derivative financial
instruments, all other financial instruments (as described in Note 7 of the
financial statements) and certain other items including interest-sensitive
liabilities and annuity liabilities. The projections include assumptions (based
upon historical market experience and our experience) that reflect the effect of
changing interest rates on the prepayment, lapse, leverage and/or option
features of instruments, where applicable. The preceding assumptions relate
primarily to mortgage-backed securities, collateralized mortgage obligations,
municipal housing bonds, callable municipal and corporate obligations, and fixed
rate single and flexible premium deferred annuities.

     Based upon the information and assumptions we use in this duration
calculation, and interest rates in effect at December 31, 2007, we estimate that
a 100 basis point immediate, parallel increase in interest rates ("rate shock")
would decrease the net fair value of the assets and liabilities by approximately
$97.2 million, compared to $23.1 million at December 31, 2006. The selection of
a 100 basis point immediate parallel change in interest rates should not be
construed as our prediction of future market events, but only as an illustration
of the potential effect of such an event. There were $458.1 million of assets
supporting life insurance products such as traditional and interest-sensitive
life, which are not considered financial instruments. These assets and the
associated liabilities have not been included in the above estimate. The $458.1
million of assets excluded from the calculation has increased from $393.2
million reported at December 31, 2006 due to an increase in the in-force account
value of interest-sensitive life products. Based on assumptions described above,
in the event of a 100 basis point immediate increase in interest rates, the
assets


                                       33

<Page>

supporting life insurance products would decrease in value by $32.8 million,
compared to a decrease of $29.3 million at December 31, 2006.

     To the extent that conditions differ from the assumptions we used in these
calculations, duration and rate shock measures could be significantly impacted.
Additionally, our calculations assume that the current relationship between
short-term and long-term interest rates (the term structure of interest rates)
will remain constant over time. As a result, these calculations may not fully
capture the effect of non-parallel changes in the term structure of interest
rates and/or large changes in interest rates.

EQUITY PRICE RISK is the risk that we will incur losses due to adverse changes
in general levels of the equity markets. At December 31, 2007 and 2006, we had
separate accounts assets related to variable annuity and variable life contracts
with account values totaling $948.4 million and $1.01 billion, respectively.
Equity risk exists for contract charges based on separate account balances and
guarantees for death and/or income benefits provided by our variable products.
In 2006, we disposed of all of the variable annuity business through a
reinsurance agreement with Prudential as described in Note 3 of the financial
statements, and therefore mitigated this aspect of our risk. Equity risk of our
variable life business relates to contract charges and policyholder benefits.
Total variable life contract charges for 2007 and 2006 were $1.2 million and
$830 thousand, respectively. Separate account liabilities related to variable
life contracts were $4.1 million and $2.7 million in December 31, 2007 and 2006,
respectively.

CAPITAL RESOURCES AND LIQUIDITY

CAPITAL RESOURCES consist of shareholder's equity. The following table
summarizes our capital resources at December 31.

(IN THOUSANDS)                                   2007       2006       2005
                                               --------   --------   --------
Common stock, additional capital paid-in and
   retained income                             $615,684   $574,958   $538,465
Accumulated other comprehensive income           65,188     78,038    128,968
                                               --------   --------   --------
      Total shareholder's equity               $680,872   $652,996   $667,433
                                               ========   ========   ========

     SHAREHOLDER'S EQUITY increased in 2007 due primarily to net income,
partially offset by lower unrealized net capital gains on fixed income
securities. Shareholder's equity decreased in 2006 due to lower unrealized net
capital gains on fixed income securities, partially offset by net income and a
gain recorded to retained income related to the recapture of a reinsurance
treaty with ALIC.

FINANCIAL RATINGS AND STRENGTH The following table summarizes our financial
strength ratings at December 31, 2007.

           RATING AGENCY                        RATING
           -------------                        ------
           Moody's Investors Service, Inc.      Aa2 ("Excellent")
           Standard & Poor's Ratings Services   AA ("Very Strong")
           A.M. Best Company, Inc.              A+ ("Superior")

     Our 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), risk exposures,
operating leverage, ALIC's ratings, AIC's ratings and other factors. There were
no changes to the ratings listed above during 2007.

     State laws specify regulatory actions if an insurer's risk-based capital
("RBC"), a measure of an insurer's solvency, falls below certain levels. The
NAIC has a standard formula for annually assessing RBC. The formula for
calculating RBC for life companies takes into account factors relating to
insurance, business, asset, and interest rate risks. At December 31, 2007, our
RBC was above levels that would require regulatory actions.

     The NAIC has also developed a set of financial relationships or tests known
as the Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or action from insurance regulatory
authorities. The NAIC analyzes financial data provided by insurance companies
using prescribed ratios, each with defined "usual ranges." Generally, regulators
will begin to monitor an insurance company if its ratios fall outside the usual
ranges for four or more of the ratios. If an insurance company has insufficient
capital, regulators may act to reduce the amount of insurance it can issue. Our
ratios are within these ranges.


                                       34

<Page>

LIQUIDITY SOURCES AND USES Our potential sources of funds principally include
the following activities:

          -    Receipt of insurance premiums

          -    Contractholder fund deposits

          -    Reinsurance recoveries

          -    Receipts of principal and interest on investments

          -    Sales of investments

          -    Funds from securities lending

          -    Inter-company loans

          -    Capital contributions from parent

     Our potential uses of funds principally include the following activities:

          -    Payment of contract benefits, surrenders and withdrawals

          -    Reinsurance cessions and payments

          -    Operating costs and expenses

          -    Purchases of investments

          -    Repayment of securities lending

          -    Payment or repayment of inter-company loans

          -    Tax payments/settlements

          -    Dividends to parent

     As reflected in our Statements of Cash Flows, lower operating cash flows in
2007, compared to 2006, primarily related to a settlement of an intercompany
obligation in 2007, lower premiums received and lower contract charges on the
reinsured variable annuity business, partially offset by higher net investment
income. Higher operating cash flows in 2006, compared to 2005, primarily related
to higher interest received on investments and premiums received, partially
offset by higher contract benefits and expenses paid.

     Decreased cash flows used in investing activities in 2007, compared to
2006, were the result of lower cash provided by financing activities and, to a
lesser extent, operating activities. Lower cash flows used in investing
activities in 2006, compared to 2005, were due to lower cash provided by
financing activities, partially offset by increased cash provided by operating
activities. Cash flows used in investing activities in 2006 also included the
settlements related to the disposition through reinsurance of our variable
annuity business.

     Cash flows from financing activities decreased in 2007, compared to 2006,
as a result of lower contractholder fund deposits, partially offset by lower
contractholder fund withdrawals. Lower cash flows provided by financing
activities in 2006, compared to 2005, were the result of lower contractholder
fund deposits and higher withdrawals. For quantification of the changes in
contractholder funds, see the Operations section of MD&A.

     A portion of our product portfolio, including fixed annuities and
interest-sensitive life insurance, is subject to surrender and withdrawal at
the discretion of contractholders. As of December 31, 2007, contractholder
funds totaling $585.1 million were not subject to discretionary withdrawal,
$3.80 billion were subject to discretionary withdrawal with adjustments and
$466.6 million were subject to discretionary withdrawal without adjustment.
Of the contractholder funds subject to discretionary withdrawal with
adjustments, $1.78 billion had a contractual surrender charge of less than 5%
of the accounts balance.

     To ensure we have the appropriate level of liquidity, we perform actuarial
tests on the impact to cash flows of policy surrenders and other actions under
various scenarios. Depending upon the years in which certain policy types were
sold with specific surrender provisions, our cash flow could vary due to higher
surrender of policies exiting their surrender charge periods.

     We have an inter-company loan agreement with The Allstate Corporation. The
amount of inter-company loans available to us is at the discretion of The
Allstate Corporation. The maximum amount of loans The Allstate Corporation will
have outstanding to all its eligible subsidiaries at any given point in time is
limited to $1.00 billion. We had no amounts outstanding under the inter-company
loan agreement at December 31, 2007 or 2006. The Allstate Corporation uses
commercial paper borrowings and bank lines of credit to fund inter-company
borrowings.

     Certain remote events and circumstances could constrain our or The Allstate
Corporation's liquidity. Those events and circumstances include, for example, a
catastrophe resulting in extraordinary losses, a downgrade in The Allstate
Corporation's long-term debt rating of A1, A+ and a (from Moody's, Standard &
Poor's and A.M. Best, respectively) to non-investment grade status of below
Baa3/BBB-/bb, a downgrade in AIC's financial strength rating from Aa2, AA and A+
(from Moody's, Standard & Poor's and A.M. Best, respectively) to below
Baa/BBB/A-, or a downgrade in our financial strength ratings from Aa2, AA and A+
(from Moody's, Standard & Poor's and A.M. Best, respectively) to below
Aa3/AA-/A-. The rating agencies also consider the interdependence of the The
Allstate Corporation's individually rated entities, therefore, a rating change
in one entity could potentially affect the ratings of other related entities.


                                       35

<Page>

CONTRACTUAL OBLIGATIONS AND COMMITMENTS Our contractual obligations as of
December 31, 2007 and the payments due by period are shown in the following
table.

<Table>
<Caption>
                                                            LESS THAN                               OVER 5
($ IN THOUSANDS)                                 TOTAL       1 YEAR      1-3 YEARS    4-5 YEARS      YEARS
                                              -----------   ---------   ----------   ----------   ----------
<S>                                           <C>           <C>         <C>          <C>          <C>
Securities lending (1)                        $   198,138    $198,138   $       --   $       --   $       --
Contractholder funds(2)                         6,394,810     473,360    1,661,600      998,654    3,261,196
Reserve for life-contingent contract
   benefits(3)                                  6,101,024     145,293      445,027      301,768    5,208,936
Payable to affiliates, net                          8,035       8,035           --           --           --
Reinsurance payable to parent                         987         987           --           --           --
Other liabilties and accrued expenses(4)(5)        28,274      25,623        1,419          388          844
                                              -----------    --------   ----------   ----------   ----------
Total Contractual Cash Obligations            $12,731,268    $851,436   $2,108,046   $1,300,810   $8,470,976
                                              ===========    ========   ==========   ==========   ==========
</Table>

----------
(1)  Liabilities for securities lending are typically fully secured with cash.
     We manage our short-term liquidity position to ensure the availability of a
     sufficient amount of liquid assets to extinguish short-term liabilities as
     they come due in the normal course of business, including utilizing
     potential sources of liquidity as disclosed previously.

(2)  Contractholder funds represent interest-bearing liabilities arising from
     the sale of products such as interest-sensitive life, fixed annuities,
     including immediate annuities without life contingencies. The reserve for
     life-contingent contract benefits relates primarily to traditional life and
     immediate annuities with life contingencies. These amounts reflect the
     present value of estimated cash payments to be made to contractholders and
     policyholders. Certain of these contracts, such as immediate annuities
     without life contingencies, involve payment obligations where the amount
     and timing of the payment is essentially fixed and determinable. These
     amounts relate to (i) policies or contracts where we are currently making
     payments and will continue to do so and (ii) contracts where the timing of
     a portion or all of the payments has been determined by the contract. Other
     contracts, such as interest-sensitive life, fixed deferred annuities,
     traditional life and immediate annuities with life contingencies, involve
     payment obligations where a portion or all of the amount and timing of
     future payments is uncertain. For these contracts, the Company is not
     currently making payments and will not make payments until (i) the
     occurrence of an insurable event, such as death, or illness or (ii) the
     occurrence of a payment triggering event such as the surrender of or
     partial withdrawal on a policy or deposit contract, which is outside of the
     control of the Company. We have estimated the timing of payments related to
     these contracts based on historical experience and our expectation of
     future payment patterns. Uncertainties relating to these liabilities
     include mortality, morbidity, expenses, customer lapse and withdrawal
     activity, estimated additional deposits for interest-sensitive life
     contracts, and renewal premium for life policies, which may significantly
     impact both the timing and amount of future payments. Such cash outflows
     reflect adjustments for the estimated timing of mortality, retirement, and
     other appropriate factors, but are undiscounted with respect to interest.
     As a result, the sum of the cash outflows shown for all years in the table
     exceeds the corresponding liabilities of $4.85 billion for contractholder
     funds and $2.02 billion for reserve for life-contingent contract benefits
     as included in the Statements of Financial Position as of December 31,
     2007. The liability amount in the Statements of Financial Position reflects
     the discounting for interest as well as adjustments for the timing of other
     factors as described above.

(3)  Other liabilities primarily include accrued expenses and certain benefit
     obligations and claim payments and other checks outstanding.

(4)  Balance sheet liabilities not included in the table above include unearned
     and advanced premiums of $573 thousand and deferred tax liabilities netted
     in the net deferred tax asset of $40 million. These items were excluded as
     they do not meet the definition of a contractual liability as we are not
     contractually obligated to pay these amounts to third parties. Rather, they
     represent an accounting mechanism that allows us to present our financial
     statements on an accrual basis. In addition, other liabilities of $15
     million were not included in the table above because they did not represent
     a contractual obligation or the amount and timing of their eventual payment
     was sufficiently uncertain.

     At December 31, 2007, we had $16 million in contractual conditional
commitments to invest in private placements and mortgage loans that were due
in less than one year.

REGULATION AND LEGAL PROCEEDINGS

     We are subject to extensive regulation and we are involved in various legal
and regulatory actions, all of which have an effect on specific aspects of our
business. For a detailed discussion of the legal and regulatory actions in which
we are involved, see Note 11 of the financial statements.

 PENDING ACCOUNTING STANDARDS

     There are several pending accounting standards that we have not implemented
either because the standard had not been finalized or the implementation date
has not yet occurred. For a discussion of these pending standards, see Note 2 of
the financial statements.

     The effect of implementing certain accounting standards on our financial
results and financial condition is often based in part on market conditions at
the time of implementation of the standard and other factors we are unable to


                                       36

<Page>

determine prior to implementation. For this reason, we are sometimes unable to
estimate the effect of certain pending accounting standards until the relevant
authoritative body finalizes these standards or until we implement them.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Information required for Item 7A is incorporated by reference to the
material under the caption "Market Risk" in Part II, Item 7 of this report.


                                       37

<Page>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

<Table>
<Caption>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                   ------------------------------
(IN THOUSANDS)                                                                       2007       2006       2005
                                                                                   --------   --------   --------
<S>                                                                                <C>        <C>        <C>
REVENUES
Premiums (net of reinsurance ceded of $21,020, $20,837 and $16,046)                $ 69,124   $ 84,313   $ 68,538
Contract charges (net of reinsurance ceded of $21,158, $12,295 and $835)             59,530     63,426     66,280
Net investment income                                                               386,738    373,064    356,162
Realized capital gains and losses                                                      (831)   (22,085)    (5,192)
                                                                                   --------   --------   --------
                                                                                    514,561    498,718    485,788
                                                                                   --------   --------   --------
COSTS AND EXPENSES
Contract benefits (net of reinsurance recoveries of $16,913, $16,085 and $8,510)    181,803    190,506    183,227
Interest credited to contractholder funds (net of reinsurance recoveries of
   $13,508, $9,698 and zero)                                                        177,407    167,171    161,936
Amortization of deferred policy acquisition costs                                    53,445     31,672     41,663
Operating costs and expenses                                                         37,624     46,578     43,497
                                                                                   --------   --------   --------
                                                                                    450,279    435,927    430,323
Gain (loss) on disposition of operations                                                429    (10,694)         1
                                                                                   --------   --------   --------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE                                     64,711     52,097     55,466
Income tax expense                                                                   22,802     17,755     20,945
                                                                                   --------   --------   --------
NET INCOME                                                                           41,909     34,342     34,521
                                                                                   --------   --------   --------
OTHER COMPREHENSIVE LOSS, AFTER TAX
Change in unrealized net capital gains and losses                                   (12,850)   (50,930)   (26,287)
                                                                                   --------   --------   --------
COMPREHENSIVE INCOME (LOSS)                                                        $ 29,059   $(16,588)  $  8,234
                                                                                   ========   ========   ========
</Table>

                       See notes to financial statements.


                                       38

<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                        STATEMENTS OF FINANCIAL POSITION

 <Table>
<Caption>
                                                                                             DECEMBER 31,
                                                                                       -----------------------
(IN THOUSANDS, EXCEPT PAR VALUE DATA)                                                     2007         2006
                                                                                       ----------   ----------
<S>                                                                                    <C>          <C>
ASSETS
Investments
   Fixed income securities, at fair value (amortized cost $5,928,899 and $5,542,227)   $6,271,128   $5,887,139
   Mortgage loans                                                                         725,301      708,449
   Short-term                                                                              22,688      142,334
   Policy loans                                                                            38,509       38,168
   Other                                                                                        3        3,784
                                                                                       ----------   ----------
      Total investments                                                                 7,057,629    6,779,874
Cash                                                                                        7,356        7,090
Deferred policy acquisition costs                                                         278,664      278,625
Accrued investment income                                                                  64,514       63,843
Reinsurance recoverables                                                                  381,431      437,422
Current income taxes receivable                                                               146          862
Other assets                                                                               47,079       42,488
Separate Accounts                                                                         948,358    1,009,784
                                                                                       ----------   ----------
         TOTAL ASSETS                                                                  $8,785,177   $8,619,988
                                                                                       ==========   ==========
LIABILITIES
Reserve for life-contingent contract benefits                                          $2,016,971   $1,926,492
Contractholder funds                                                                    4,848,461    4,708,428
Deferred income taxes                                                                      39,737       47,940
Other liabilities and accrued expenses                                                    241,756      243,338
Payable to affiliates, net                                                                  8,035       30,031
Reinsurance payable to parent                                                                 987          979
Separate Accounts                                                                         948,358    1,009,784
                                                                                       ----------   ----------
         TOTAL LIABILITIES                                                              8,104,305    7,966,992
                                                                                       ----------   ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 11)
SHAREHOLDER'S EQUITY
Common stock, $25 par value, 100 thousand shares authorized, issued and outstanding         2,500        2,500
Additional capital paid-in                                                                140,000      140,000
Retained income                                                                           473,184      432,458
Accumulated other comprehensive income:
   Unrealized net capital gains and losses                                                 65,188       78,038
                                                                                       ----------   ----------
         Total accumulated other comprehensive income                                      65,188       78,038
                                                                                       ----------   ----------
         TOTAL SHAREHOLDER'S EQUITY                                                       680,872      652,996
                                                                                       ----------   ----------
         TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                                    $8,785,177   $8,619,988
                                                                                       ==========   ==========
</Table>

                       See notes to financial statements.


                                       39

<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                       STATEMENTS OF SHAREHOLDER'S EQUITY

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                         ------------------------------
(IN THOUSANDS)                                             2007       2006       2005
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
COMMON STOCK                                             $  2,500   $  2,500   $  2,500
                                                         --------   --------   --------
ADDITIONAL CAPITAL PAID IN
Balance, beginning of year                                140,000    140,000    120,000
Capital contribution                                           --         --     20,000
                                                         --------   --------   --------
Balance, end of year                                      140,000    140,000    140,000
                                                         --------   --------   --------
RETAINED INCOME
Balance, beginning of year                                432,458    395,965    361,480
Net income                                                 41,909     34,342     34,521
Cumulative effect of change in accounting principle        (1,183)        --         --
Gain on recapture of reinsurance agreement with parent         --      2,151         --
Dividend-in-kind                                               --         --        (36)
                                                         --------   --------   --------
Balance, end of year                                      473,184    432,458    395,965
                                                         --------   --------   --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year                                 78,038    128,968    155,255
Change in unrealized net capital gains and losses         (12,850)   (50,930)   (26,287)
                                                         --------   --------   --------
Balance, end of year                                       65,188     78,038    128,968
                                                         --------   --------   --------
TOTAL SHAREHOLDER'S EQUITY                               $680,872   $652,996   $667,433
                                                         ========   ========   ========
</Table>
                       See notes to financial statements.


                                       40

<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                    -----------------------------------
(IN THOUSANDS)                                                                         2007        2006          2005
                                                                                    ---------   ---------   -----------
<S>                                                                                 <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                          $  41,909   $  34,342   $    34,521
Adjustments to reconcile net income to net cash provided by operating activities:
   Amortization and other non-cash items                                              (75,534)    (72,250)      (58,887)
   Realized capital gains and losses                                                      831      22,085         5,192
   (Gain) loss on disposition of operations                                              (429)     10,694            (1)
   Interest credited to contractholder funds                                          177,407     167,171       161,936
   Changes in:
      Reserve for life-contingent contract benefits and contractholder funds           13,877      26,648        36,533
      Deferred policy acquisition costs                                                 5,871     (31,265)      (26,542)
      Income taxes                                                                         69      (5,467)        2,591
      Other operating assets and liabilities                                          (39,455)     23,605       (15,285)
                                                                                    ---------   ---------   -----------
         Net cash provided by operating activities                                    124,546     175,563       140,058
                                                                                    ---------   ---------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed income securities                                        409,552     877,430       481,745
Investment collections
   Fixed income securities                                                            108,565     115,003       160,281
   Mortgage loans                                                                      61,128      73,110        54,795
Investment purchases
   Fixed income securities                                                           (762,846)   (954,087)   (1,086,370)
   Mortgage loans                                                                     (77,854)   (144,267)     (205,389)
Change in short-term investments, net                                                  55,621     (28,239)       29,687
Change in other investments, net                                                        2,850       3,486         2,305
Disposition of operations                                                                (243)   (389,601)           --
Change in policy loans                                                                   (341)     (1,470)       (1,750)
                                                                                    ---------   ---------   -----------
         Net cash used in investing activities                                       (203,568)   (448,635)     (564,696)
                                                                                    ---------   ---------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution                                                                       --          --        20,000
Contractholder fund deposits                                                          542,517     793,233       878,614
Contractholder fund withdrawals                                                      (463,229)   (516,889)     (478,782)
                                                                                    ---------   ---------   -----------
         Net cash provided by financing activities                                     79,288     276,344       419,832
                                                                                    ---------   ---------   -----------
NET INCREASE (DECREASE) IN CASH                                                           266       3,272        (4,806)
CASH AT BEGINNING OF YEAR                                                               7,090       3,818         8,624
                                                                                    ---------   ---------   -----------
CASH AT END OF YEAR                                                                 $   7,356   $   7,090   $     3,818
                                                                                    =========   =========   ===========
</Table>

                       See notes to financial statements.


                                       41

<Page>

NOTES TO FINANCIAL STATEMENTS

1.GENERAL

BASIS OF PRESENTATION

     The accompanying financial statements include the accounts of Allstate Life
Insurance Company of New York (the "Company"), a wholly owned subsidiary of
Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation
(the "Corporation"). These financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("GAAP"). Management has identified the Company as a single segment entity.

     To conform to the current year presentation, certain amounts in the prior
years' financial statements and notes have been reclassified.

     The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

NATURE OF OPERATIONS

     The Company sells life insurance, retirement and investment products and
voluntary accident and health insurance products to individual customers in the
state of New York. The principal products are traditional, interest-sensitive
and variable life insurance, voluntary accident and health insurance, and fixed
annuities. The following table summarizes premiums and contract charges by
product.

($ IN THOUSANDS)                         2007      2006       2005
                                      --------   --------   --------
PREMIUMS
Traditional life insurance            $ 24,997   $ 24,298   $ 26,067
Immediate annuities with life
 contingencies                          37,491     54,877     38,322
Other                                    6,636      5,138      4,149
                                      --------   --------   --------
TOTAL PREMIUMS                          69,124     84,313     68,538

CONTRACT CHARGES
Interest-sensitive life insurance       51,155     46,448     42,315
Fixed annuities                          8,375      8,851      7,237
Variable annuities                          --      8,127     16,728
                                      --------   --------   --------
TOTAL CONTRACT CHARGES                  59,530     63,426     66,280
                                      --------   --------   --------
TOTAL PREMIUMS AND CONTRACT           $128,654   $147,739   $134,818
                                      ========   ========   ========

     The Company distributes its products to individuals through multiple
distribution channels, including Allstate exclusive agencies, independent agents
(including master brokerage agencies and workplace enrolling agents), and
financial services firms, such as broker-dealers and specialized structured
settlement brokers.

     The Company monitors economic and regulatory developments that have the
potential to impact its business. The ability of banks to affiliate with
insurers may have a material adverse effect on all of the Company's product
lines by substantially increasing the number, size and financial strength of
potential competitors. The Company currently benefits from agreements with
financial services entities that market and distribute its products; change in
control of these non-affiliated entities could negatively impact the Company's
sales. Furthermore, federal and state laws and regulations affect the taxation
of insurance companies and life insurance and annuity products. Congress and
various state legislatures have considered proposals that, if enacted, could
impose a greater tax burden on the Company or could have an adverse impact on
the tax treatment of some insurance products offered by the Company, including
favorable policyholder tax treatment currently applicable to life insurance and
annuities. Legislation that reduced the federal income tax rates applicable to
certain dividends and capital gains realized by individuals, or other proposals,
if adopted, that reduce the taxation, or permit the establishment, of certain
products or investments that may compete with life insurance or annuities could
have an adverse effect on the Company's financial position or ability to sell
such products and could result in the surrender of some existing contracts and
policies. In addition, changes in the federal estate tax laws could negatively
affect the demand for the types of life insurance used in estate planning.


                                       42

<Page>

NOTES TO FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

     Fixed income securities include bonds, commercial mortgage-backed
securities, asset-backed securities, mortgage-backed securities and redeemable
preferred stocks. Fixed income securities may be sold prior to their contractual
maturity, are designated as available for sale and are carried at fair value.
The fair value of fixed income securities is based upon observable market
quotations, other market observable data or is derived from such quotations and
market observable data. The fair value of privately placed fixed income
securities is generally based on widely accepted pricing valuation models, which
are developed internally. The valuation models use security specific information
such as the credit rating of the insurer, industry sector of the issuer,
maturity, estimated duration, call provisions, sinking fund requirements, coupon
rate, quoted market prices of comparable securities and estimated liquidity
premiums to determine security specific credit spreads. These spreads are then
adjusted for illiquidity based on historical analysis and broker surveys. The
difference between amortized cost and fair value, net of deferred income taxes,
certain life and annuity deferred policy acquisition costs, certain deferred
sales inducement costs, and certain reserves for life-contingent contract
benefits, is reflected as a component of accumulated other comprehensive income.
Cash received from calls, principal payments and make-whole payments is
reflected as a component of proceeds from sales and cash received from
maturities and pay-downs is reflected as a component of investment collections
within Statement of Cash Flows.

     Reported in fixed income securities are hybrid securities which have
characteristics of fixed income securities and equity securities. Many of these
securities have attributes most similar to those of fixed income securities such
as a stated interest rate, a mandatory redemption date or a punitive interest
rate step-up feature which, in most cases would compel the issuer to redeem the
security at a specified call date. Hybrid securities are carried at fair value
and amounted to $224.5 million and $184.0 million at December 31, 2007 and 2006,
respectively.

     Mortgage loans are carried at outstanding principal balances, net of
unamortized premium or discount and valuation allowances. Valuation allowances
are established for impaired loans when it is probable that contractual
principal and interest will not be collected. Valuation allowances for impaired
loans reduce the carrying value to the fair value of the collateral or the
present value of the loan's expected future repayment cash flows discounted at
the loan's original effective interest rate.

     Short-term investments are carried at cost or amortized cost that
approximates fair value. Policy loans are carried at the unpaid principle
balances. Other investments consist primarily of derivative financial
instruments.

     In connection with Company's securities lending business activities, funds
received in connection with securities repurchase agreements are invested and
classified as short-term investments or fixed income securities available for
sale as applicable. For the Company's securities lending business activities,
the Company records an offsetting liability in other liabilities and accrued
expenses for the Company's obligation to return the collateral or funds
received.

     Investment income consists primarily of interest and is recognized on an
accrual basis using the effective yield method. Interest income for
mortgage-backed securities, commercial mortgage-backed securities and asset
backed-securities is determined considering estimated principal repayments
obtained from widely accepted third party data sources and internal estimates.
Accrual of income is suspended for fixed income securities and mortgage loans
that are in default or when the receipt of interest payments is in doubt.

     Realized capital gains and losses include gains and losses on investment
dispositions, write-downs in value due to other-than-temporary declines in fair
value and periodic changes in the fair value and settlements of certain
derivatives including hedge ineffectiveness. Dispositions include sales, losses
recognized in anticipation of dispositions and other transactions such as calls
and prepayments. Realized capital gains and losses on investment dispositions
are determined on a specific identification basis.

     The Company recognizes other-than-temporary impairment losses on fixed
income securities and short-term investments when the decline in fair value is
deemed other-than-temporary (see Note 6).

DERIVATIVE AND EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS

     Derivative financial instruments include foreign currency swaps, interest
rate caps, interest rate futures, and re-investment related and equity market
risk transfer reinsurance agreements with ALIC that meet the accounting
definition of a derivative (see Note 5). Foreign currency swaps involve the
future exchange or delivery of foreign currency on terms negotiated at the
inception of the contract. Interest rate cap agreements give the holder the
right to receive at a future date, the amount, if any, by which a specified
market interest rate exceeds the fixed cap, applied to a notional amount.
Interest rate futures are defined as commitments to buy or sell designated
financial


                                       43

<Page>

NOTES TO FINANCIAL STATEMENTS

instruments based on specified prices or yields. Derivatives that are required
to be separated from the host instrument and accounted for as derivative
financial instruments ("subject to bifurcation") are embedded in certain
variable life and annuity contracts.

     All derivatives are accounted for on a fair value basis and reported as
other investments, reinsurance recoverables, other assets, other liabilities and
accrued expenses or contractholder funds. Embedded derivative instruments
subject to bifurcation are also accounted for on a fair value basis and are
reported together with the host contracts. The change in the fair value of
derivatives embedded in liabilities and subject to bifurcation is reported in
contract benefits or realized capital gains and losses.

     When derivatives meet specific criteria, they may be designated as
accounting hedges and accounted for as fair value, cash flow, foreign currency
fair value or foreign currency cash flow hedges. The hedged item may be either
all or a specific portion of a recognized asset, liability or an unrecognized
firm commitment attributable to a particular risk. At the inception of the
hedge, the Company formally documents the hedging relationship and risk
management objective and strategy. The documentation identifies the hedging
instrument, the hedged item, the nature of the risk being hedged and the
methodology used to assess the effectiveness of the hedging instrument in
offsetting the exposure to changes in the hedged item's fair value attributable
to the hedged risk. In the case of a cash flow hedge, this documentation
includes the exposure to changes in the hedged item's or transaction's
variability in cash flows attributable to the hedged risk. The Company does not
exclude any component of the change in fair value of the hedging instrument from
the effectiveness assessment. At each reporting date, the Company confirms that
the hedging instrument continues to be highly effective in offsetting the hedged
risk. Ineffectiveness in fair value hedges and cash flow hedges is reported in
realized capital gains and losses. There was no hedge ineffectiveness in 2007,
2006 or 2005.

     CASH FLOW HEDGES The Company designates its foreign currency swap contracts
as cash flow hedges when the hedging instrument is highly effective in
offsetting the exposure of variations in cash flows for the hedged risk that
could affect net income. The Company's cash flow exposure may be associated with
an existing asset, liability, or a forecasted transaction. Anticipated
transactions must be probable of occurrence and their significant terms and
specific characteristics must be identified.

     For hedging instruments used in cash flow hedges, the changes in fair value
of the derivatives are reported in accumulated other comprehensive income.
Amounts are reclassified to net investment income or realized capital gains and
losses as the hedged or forecasted transaction affects net income. Accrued
periodic settlements on derivatives used in cash flow hedges are reported in net
investment income. The amount reported in accumulated other comprehensive income
for a hedged transaction is limited to the lesser of the cumulative gain or loss
on the derivative less the amount reclassified to net income; or the cumulative
gain or loss on the derivative needed to offset the cumulative change in the
expected future cash flows on the hedged transaction from inception of the hedge
less the derivative gain or loss previously reclassified from accumulated other
comprehensive income to net income. If the Company expects at any time that the
loss reported in accumulated other comprehensive income would lead to a net loss
on the combination of the hedging instrument and the hedged transaction which
may not be recoverable, a loss is recognized immediately in realized capital
gains and losses. If an impairment loss is recognized on an asset or an
additional obligation is incurred on a liability involved in a hedge
transaction, any offsetting gain in accumulated other comprehensive income is
reclassified and reported together with the impairment loss or recognition of
the obligation.

     TERMINATION OF HEDGE ACCOUNTING If, subsequent to entering into a hedge
transaction, the derivative becomes ineffective (including if the hedged item is
sold or otherwise extinguished, the occurrence of a hedged or forecasted
transaction is no longer probable, or the hedged asset becomes other than
temporarily impaired), the Company may terminate the derivative position. The
Company may also terminate derivative instruments or redesignate them as
non-hedge as a result of other events or circumstances. If the derivative
financial instrument is not terminated when a fair value hedge is no longer
effective, the future gains and losses recognized on the derivative are reported
in realized capital gains and losses. When a fair value hedge is no longer
effective, is redesignated as a non-hedge, or when the derivative has been
terminated, the fair value gain or loss on the hedged asset, liability or
portion thereof which has already been recognized in income while the hedge was
in place and used to adjust the amortized cost for fixed income securities, the
carrying value for mortgage loans or the carrying amount for the liability, is
amortized over the remaining life of the hedged asset, liability or portion
thereof, and reflected in net investment income or interest credited to
contractholder funds beginning in the period that hedge accounting is no longer
applied. If the hedged item in a fair value hedge is an asset, which has become
other-than-temporarily impaired, or is a liability which an increase has been
recognized for the obligation, the adjustment made to the amortized cost for
fixed income securities, the carrying value for mortgage loans or the


                                       44

<Page>

NOTES TO FINANCIAL STATEMENTS

carrying amount for the liability is subject to the accounting policies applied
to other-than-temporarily impaired assets.

     When a derivative financial instrument used in a cash flow hedge of an
existing asset or liability is no longer effective or is terminated, the gain or
loss recognized on the derivative is reclassified from accumulated other
comprehensive income to net income as the hedged risk impacts net income,
beginning in the period hedge accounting is no longer applied or the derivative
instrument is terminated. If the derivative financial instrument is not
terminated when a cash flow hedge is no longer effective, the future gains and
losses recognized on the derivative are reported in realized capital gains and
losses. When a derivative financial instrument used in a cash flow hedge of a
forecasted transaction is terminated because the forecasted transaction is no
longer probable, the gain or loss recognized on the derivative is immediately
reclassified from accumulated other comprehensive income to realized capital
gains and losses in the period that hedge accounting is no longer applied. If
the cash flow hedge is no longer effective, the gain or loss recognized on the
derivative is reclassified from accumulated other comprehensive income to net
income as the remaining hedged item affects net income.

     NON-HEDGE DERIVATIVE FINANCIAL INSTRUMENTS The Company also has certain
derivatives that are used in interest rate and equity price risk management
strategies for which hedge accounting is not applied. These derivatives consist
of interest rate caps, financial futures contracts, and re-investment related
and equity market risk transfer reinsurance agreements with ALIC that meet the
accounting definition of a derivative.

     Based upon the type of derivative instrument and strategy, the income
statement effects of these derivatives are reported in a single line item with
the results of the associated risk. Therefore, the derivatives' fair value gains
and losses and accrued periodic settlements are recognized together in one of
the following line items during the reporting period: realized capital gains and
losses or contract benefits. Cash flows from embedded derivatives requiring
bifurcation and derivatives receiving hedge accounting are reported consistently
with the host contracts and hedged risks respectively within the Statements of
Cash Flows. Cash flows from other derivatives are reported in cash flows from
investing activities within the Statements of Cash Flows.

SECURITIES LOANED

     The Company's business activities include securities lending transactions,
which are used primarily to generate net investment income. These transactions
are short-term in nature, usually 30 days or less.

     The Company receives collateral for securities loaned in an amount
generally equal to 102% of the fair value of securities and records the related
obligations to return the collateral in other liabilities and accrued expenses.
The carrying value of these obligations approximates fair value because of their
relatively short-term nature. The Company monitors the market value of
securities loaned on a daily basis and obtains additional collateral as
necessary under the terms of the agreements to mitigate counterparty credit
risk. The Company maintains the right and ability to redeem the securities
loaned on short notice. Substantially all of the Company's securities loaned are
placed with large brokerage firms.

RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES, AND RELATED BENEFITS AND
INTEREST CREDITED

     Traditional life insurance products consist principally of products with
fixed and guaranteed premiums and benefits, primarily term and whole life
insurance products. Premiums from these products are recognized as revenue when
due from policyholders. Benefits are reflected in contract benefits and
recognized in relation to premiums so that profits are recognized over the life
of the policy.

     Immediate annuities with life contingencies, including certain structured
settlement annuities, provide insurance protection over a period that extends
beyond the period during which premiums are collected. Premiums from these
products are recognized as revenue when received at the inception of the
contract. Benefits and expenses are recognized in relation to premiums so that
profits are recognized over the life of the policy.

     Interest-sensitive life contracts, such as universal life and single
premium life, are insurance contracts whose terms are not fixed and guaranteed.
The terms that may be changed include premiums paid by the contractholder,
interest credited to the contractholder account balance and contract charges
assessed against the contractholder account balance. Premiums from these
contracts are reported as contractholder fund deposits. Contract charges consist
of fees assessed against the contractholder account balance for cost of
insurance (mortality risk), contract administration and early surrender. These
contract charges are recognized as revenues when assessed against the
contractholder account balance. Contract benefits include life-contingent
benefit payments in excess of the contractholder account balance.

     Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed annuities,
including market value adjusted annuities and immediate annuities


                                       45

<Page>

NOTES TO FINANCIAL STATEMENTS

without life contingencies are considered investment contracts. Consideration
received for such contracts is reported as contractholder fund deposits.
Contract charges for investment contracts consist of fees assessed against the
contractholder account balance for maintenance, administration, and surrender of
the contract prior to contractually specified dates, and are recognized when
assessed against the contractholder account balance.

     Interest credited to contractholder funds represents interest accrued or
paid on interest-sensitive life contracts and investment contracts. Crediting
rates for certain fixed annuities and interest-sensitive life contracts are
adjusted periodically by the Company to reflect current market conditions
subject to contractually guaranteed minimum rates. Interest credited also
includes amortization of deferred sales inducement ("DSI") expenses. DSI is
amortized into interest credited using the same method used to amortize deferred
policy acquisition costs ("DAC").

     Contract charges for variable life and variable annuity products consist of
fees assessed against the contractholder account values for contract
maintenance, administration, mortality, expense and early surrender. Contract
benefits incurred include guaranteed minimum death, income, withdrawal and
accumulation benefits. Subsequent to our disposal of all of our variable annuity
business through reinsurance agreements with Prudential in 2006 (see Note 3),
the contract charges and contract benefits related thereto are reported net of
reinsurance ceded.

DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS

     Costs that vary with and are primarily related to acquiring life insurance
and investment contracts are deferred and recorded as DAC. These costs are
principally agents' and brokers' remuneration and certain underwriting costs.
DSI costs, which are deferred and recorded as other assets, relate to sales
inducements offered on sales to new customers, principally on annuities 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 in excess of
the rates currently being credited to similar contracts without sales
inducements. All other acquisition costs are expensed as incurred and included
in operating costs and expenses on the Statements of Operations and
Comprehensive Income. DAC is amortized to income and included in amortization of
deferred policy acquisition costs on the Statements of Operations and
Comprehensive Income. DSI is reported in other assets and amortized to income
using the same methodology and assumptions as DAC and is included in interest
credited to contractholder funds on the Statements of Operations and
Comprehensive Income. DAC and DSI are periodically reviewed for recoverability
and adjusted if necessary.

     For traditional life insurance, DAC is amortized over the premium paying
period of the related policies in proportion to the estimated revenues on such
business. Assumptions used in amortization of DAC and reserve calculations are
established at the time the policy is issued and are generally not revised
during the life of the policy. Any deviations from projected business in force
resulting from actual policy terminations differing from expected levels and any
estimated premium deficiencies may result in a change to the rate of
amortization in the period such events occur. Generally, the amortization period
for these contracts approximates the estimated lives of the policies.

     For interest-sensitive life, annuities and other investment contracts, DAC
and DSI are amortized in proportion to the incidence of the total present value
of gross profits, which includes both actual historical gross profits ("AGP")
and estimated future gross profits ("EGP") expected to be earned over the
estimated lives of the contracts. The amortization is net of interest on the
prior DAC balance and uses rates established at the inception of the contracts.
Actual amortization periods generally range from 15-30 years; however,
incorporating estimates of customer surrender rates, partial withdrawals and
deaths generally result in the majority of DAC being amortized over the
surrender charge period. The rate of amortization during this term is matched to
the pattern of total gross profits.

     AGP and EGP consists primarily of the following components: the excess of
contract charges for the cost of insurance over mortality and other benefits;
investment income and realized capital gains and losses over interest credited;
and surrender and other contract charges over maintenance expenses. The
principal assumptions for determining the amount of EGP are investment returns,
including capital gains and losses on assets supporting contract liabilities,
interest crediting rates to policyholders, the effect of any hedges used,
persistency, mortality and expenses.

     Changes in the amount or timing of EGP result in adjustments to the
cumulative amortization of DAC and DSI. All such adjustments are reflected in
the current results of operations.

     The Company performs quarterly reviews of DAC and DSI recoverability for
interest-sensitive life, annuities and other investment contracts in the
aggregate using current assumptions. If a change in the amount of EGP is
significant, it could result in the unamortized DAC and DSI not being
recoverable, resulting in a charge which is


                                       46

<Page>

NOTES TO FINANCIAL STATEMENTS

included as a component of amortization of deferred policy acquisition costs or
interest credited to contractholder funds, respectively, on the Statements of
Operations and Comprehensive Income.

     Any amortization of DAC or DSI that would result from changes in unrealized
gains or losses had those gains or losses actually been realized during the
reporting period is recorded net of tax in other comprehensive income.

     Customers of the Company may exchange one insurance policy or investment
contract for another offered by the Company, or make modifications to an
existing investment or life contract issued by the Company. These transactions
are identified as internal replacements for accounting purposes. Internal
replacement transactions that are determined to result in replacement contracts
that are substantially unchanged from the replaced contract are accounted for as
continuations of the replaced contracts. Unamortized DAC and DSI related to the
replaced contract continue to be deferred and amortized in connection with the
replacement contract. For interest-sensitive life insurance and investment
contracts, the EGP of the replacement contract is treated as revisions to the
EGP of the replaced contract in the determination of amortization of DAC and
DSI. For traditional life policies, any changes to unamortized DAC and benefit
reserves that result from the replacement contract are treated as prospective
revisions. Any costs associated with the issuance of the replacement contract
are characterized as maintenance costs and expensed as incurred.

     Internal replacement transactions that are determined to result in a
substantial change to the replaced contracts are accounted for as an
extinguishment of the replaced contracts, and any unamortized DAC and DSI
related to the replaced contracts are eliminated with a corresponding charge to
the Statements of Operations and Comprehensive Income.

REINSURANCE

     In the normal course of business, the Company seeks to limit aggregate and
single exposure to losses on large risks by purchasing reinsurance (see Note 9).
The Company has also used reinsurance to effect the disposition of its variable
annuity business (see Note 3). The amounts reported in the Statements of
Financial Position as reinsurance recoverables include amounts billed to
reinsurers on losses paid as well as estimates of amounts expected to be
recovered from reinsurers on insurance liabilities and contractholder funds that
have not yet been paid. Reinsurance recoverables on unpaid losses are estimated
based upon assumptions consistent with those used in establishing the
liabilities related to the underlying reinsured contracts. Insurance liabilities
are reported gross of reinsurance recoverables. Reinsurance premiums are
generally reflected in income in a manner consistent with the recognition of
premiums on the reinsured contracts. Reinsurance does not extinguish the
Company's primary liability under the policies written. Therefore, the Company
regularly evaluates the financial condition of its reinsurers and establishes
allowances for uncollectible reinsurance recoverables as appropriate.

     The Company has a reinsurance treaty with ALIC through which it cedes
primarily re-investment related risk on its structured settlement annuities. The
terms of the treaty meet the accounting definition of a derivative under
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities". Accordingly, the treaty is
recorded in the Statement of Financial Position at fair value. Changes in the
fair value of the treaty and premiums paid to ALIC are recognized in realized
capital gains and losses (see Note 5).

     Prior to the Company's disposition of the variable annuity business through
reinsurance with Prudential effective June 1, 2006 (see Note 3), the Company had
a reinsurance treaty through which it ceded contract benefits on its guaranteed
minimum accumulation benefits ("GMABs"), guaranteed minimum withdrawal benefits
("GMWBs") and certain guaranteed minimum death benefits ("GMDBs") to ALIC. The
terms of the treaty met the accounting definition of a derivative under
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities". Accordingly, the treaty was
recorded in the Statement of Financial Position at fair value. Changes in the
fair value of the treaty were recognized in contract benefits. The reinsurance
treaty was recaptured in 2006 (see Note 5).

INCOME TAXES

     The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates. The principal assets and liabilities giving rise to such differences are
unrealized capital gains and losses on fixed income securities, insurance
reserves and DAC. A deferred tax asset valuation allowance is established when
there is uncertainty that such assets would be realized.


                                       47

<Page>

NOTES TO FINANCIAL STATEMENTS

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS

     The reserve for life-contingent contract benefits payable under insurance
policies including traditional life insurance, life-contingent fixed annuities
and voluntary health products, is computed on the basis of long-term actuarial
assumptions as to future investment yields, mortality, morbidity, policy
terminations and expenses (see Note 8). These assumptions, which for traditional
life insurance, life-contingent fixed annuities and voluntary health products
are applied using the net level premium method, include provisions for adverse
deviation and generally vary by such characteristics as type of coverage, year
of issue and policy duration. To the extent that unrealized gains on fixed
income securities would result in a premium deficiency had those gains actually
been realized, the related increase in reserves for certain immediate annuities
with life contingencies is recorded net of tax as a reduction of the unrealized
net capital gains included in accumulated other comprehensive income.

CONTRACTHOLDER FUNDS

     Contractholder funds represent interest-bearing liabilities arising from
the sale of products, such as interest-sensitive life, fixed annuities, and
variable annuity and life deposits allocated to fixed accounts. Contractholder
funds are comprised primarily of deposits received and interest credited to the
benefit of the contractholder less surrenders and withdrawals, mortality charges
and administrative expenses (see Note 8). Contractholder funds also include
reserves for secondary guarantees on variable annuities, which were reinsured to
Prudential in 2006.

SEPARATE ACCOUNTS

     Separate accounts assets are carried at fair value. Separate accounts
liabilities are carried at the account values, which are equal to the carrying
value of the corresponding assets. The assets of the separate accounts are
legally segregated and available only to settle separate account contract
obligations. Separate accounts liabilities represent the contractholders' claims
to the related assets. Investment income and realized capital gains and losses
of the separate accounts accrue directly to the contractholders and therefore,
are not included in the Company's Statements of Operations and Comprehensive
Income. Deposits to, and surrenders and withdrawals from, the separate accounts
are reflected in separate accounts liabilities and are not included in cash
flows.

     Absent any contract provision wherein the Company provides a guarantee,
variable annuity and variable life insurance contractholders bear the investment
risk that the separate accounts' funds may not meet their stated investment
objectives. All of the Company's variable annuity business was reinsured to
Prudential in 2006.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

     Commitments to extend mortgage loans and purchase private placement
securities have off-balance-sheet risk because their contractual amounts are not
recorded in the Company's Statements of Financial Position (see Note 7).

ADOPTED ACCOUNTING STANDARDS

STATEMENT OF POSITION 05-1, ACCOUNTING BY INSURANCE ENTERPRISES FOR DEFERRED
ACQUISITION COSTS IN CONNECTION WITH MODIFICATIONS OR EXCHANGES OF INSURANCE
CONTRACTS ("SOP 05-1")

     In October 2005, the American Institute of Certified Public Accountants
("AICPA") issued SOP 05-1. SOP 05-1 provides accounting guidance for DAC
associated with internal replacements of insurance and investment contracts
other than those already described in Statement of Financial Accounting Standard
("SFAS") No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments". SOP 05-1 defines an internal replacement as a modification in
product benefits, features, rights or coverages that occurs through the exchange
of an existing contract for a new contract, or by amendment, endorsement or
rider to an existing contract, or by the election of a feature or coverage
within an existing contract. The Company adopted the provisions of SOP 05-1 on
January 1, 2007 for internal replacements occurring in fiscal years beginning
after December 15, 2006. The adoption resulted in a $1.2 million after-tax
reduction to retained income to reflect the impact on EGP from the changes in
accounting for certain costs associated with contract continuations that no
longer qualify for deferral under SOP 05-1 and a reduction of DAC and DSI
balances of $1.8 million pre-tax as of January 1, 2007.

SFAS NO. 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS - AN AMENDMENT
OF FASB STATEMENTS NO. 133 AND 140 ("SFAS NO. 155")

     In February 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 155, which permits the fair value remeasurement at the date of adoption
of any hybrid financial instrument containing an embedded


                                       48

<Page>

NOTES TO FINANCIAL STATEMENTS

derivative that otherwise would require bifurcation under paragraph 12 or 13 of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities"("SFAS No.133"); clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS No. 133;
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or hybrid financial
instruments that contain embedded derivatives requiring bifurcation; and
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives. The Company adopted the provisions of SFAS No. 155 on
January 1, 2007, which were effective for all financial instruments acquired,
issued or subject to a remeasurement event occurring after the beginning of the
first fiscal year beginning after September 15, 2006. The Company elected not to
remeasure existing hybrid financial instruments that contained embedded
derivatives requiring bifurcation at the date of adoption pursuant to paragraph
12 or 13 of SFAS No. 133. The adoption of SFAS No. 155 did not have a material
effect on the results of operations or financial position of the Company.

FASB INTERPRETATION NO. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES- AN
INTERPRETATION OF FASB STATEMENT NO. 109 AND FASB STAFF POSITION NO. FIN 48-1,
DEFINITION OF SETTLEMENT IN FASB INTERPRETATION NO. 48 ("FIN 48")

     The FASB issued the interpretation in July 2006 and the staff position in
May 2007. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with SFAS No. 109,
"Accounting for Income Taxes". FIN 48 requires an entity to recognize the tax
benefit of uncertain tax positions only when it is more likely than not, based
on the position's technical merits, that the position would be sustained upon
examination by the respective taxing authorities. The tax benefit is measured as
the largest benefit that is more than fifty-percent likely of being realized
upon final settlement with the respective taxing authorities. On January 1,
2007, the Company adopted the provisions of FIN 48, which were effective for
fiscal years beginning after December 15, 2006. No cumulative effect of a change
in accounting principle or adjustment to the liability for unrecognized tax
benefits was recognized as a result of the adoption of FIN 48. Accordingly, the
adoption of FIN 48 did not have an effect on the results of operations or
financial position of the Company (see Note 12)

SECURITIES AND EXCHANGE COMMISSION ("SEC") STAFF ACCOUNTING BULLETIN NO. 108,
CONSIDERING THE EFFECTS OF PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING
MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS ("SAB 108")

     In September 2006, the SEC issued SAB 108 to eliminate the diversity of
practice in the way misstatements are quantified for purposes of assessing their
materiality in the financial statements. SAB 108 was intended to eliminate the
potential build up of improper amounts on the balance sheet due to the
limitations of certain methods of assessing materiality previously utilized by
some reporting entities. SAB 108 establishes a single quantification framework
wherein the significance determination is based on the effects of the
misstatements on each of the financial statements as well as the related
financial statement disclosures. On December 31, 2006, the Company adopted the
provisions of SAB 108 which were effective for the first fiscal year ending
after November 15, 2006. The adoption of SAB 108 did not have any effect on the
results of operations or financial position of the Company.

FASB STAFF POSITION NO. FAS 115-1, THE MEANING OF OTHER-THAN-TEMPORARY
IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS ("FSP FAS 115-1")

     FSP FAS 115-1 nullifies the guidance in paragraphs 10-18 of Emerging Issues
Task Force Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" and references existing other-than-temporary
impairment guidance. FSP FAS 115-1 clarifies that an investor should recognize
an impairment loss no later than when the impairment is deemed
other-than-temporary, even if a decision to sell the security has not been made,
and also provides guidance on the subsequent income recognition for impaired
debt securities. The Company adopted FSP FAS 115-1 as of January 1, 2006 on a
prospective basis. The effects of adoption did not have a material effect on the
results of operations or financial position of the Company.

SFAS NO. 154, ACCOUNTING CHANGES AND ERROR CORRECTIONS- A REPLACEMENT OF APB
OPINION NO.20 AND FASB STATEMENT NO.3 ("SFAS NO. 154")

     SFAS No. 154 replaces Accounting Principles Board ("APB") Opinion No. 20,
"Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements". SFAS No. 154 requires retrospective application to prior
periods' financial statements for changes in accounting principle, unless
determination of either the period specific effects or the cumulative effect of
the change is impracticable or otherwise not required. The Company adopted SFAS
No. 154 on January 1, 2006. The adoption of SFAS No.


                                       49

<Page>

NOTES TO FINANCIAL STATEMENTS

154 did not have any effect on the results of operations or financial position
of the Company.

PENDING ACCOUNTING STANDARDS

SFAS NO. 157, FAIR VALUE MEASUREMENTS ("SFAS NO. 157")

     In September 2006, the FASB issued SFAS No. 157, which redefines fair value
as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date, establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements. Specifically, SFAS No. 157
establishes a three-level hierarchy for fair value measurements based upon the
nature of the inputs to the valuation of an asset or liability. SFAS No. 157
applies where other accounting pronouncements require or permit fair value
measurements. Additional disclosures and modifications to current fair value
disclosures will be required upon adoption of SFAS No. 157. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. In February 2008,
the FASB issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement
No. 157", which permits the deferral of the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. The Company plans to utilize the
deferral for non-financial assets and liabilities. The adoption of SFAS No. 157
is not expected to have a material effect on the Company's results of operations
or financial position.

SFAS NO. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL
LIABILITIES-INCLUDING AN AMENDMENT OF FASB STATEMENT NO.115 ("SFAS NO. 159")

     In February 2007, the FASB issued SFAS No. 159 which provides reporting
entities an option to report selected financial assets, including investment
securities designated as available for sale, and financial liabilities,
including most insurance contracts, at fair value. SFAS No. 159 establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement alternatives for similar
types of financial assets and liabilities. The standard also requires additional
information to aid financial statement users' understanding of the impact of a
reporting entity's decision to use fair value on its earnings and requires
entities to display, on the face of the statement of financial position, the
fair value of those assets and liabilities for which the reporting entity has
chosen to measure at fair value. SFAS No. 159 is effective as of the beginning
of a reporting entity's first fiscal year beginning after November 15, 2007. The
Company does not expect to apply the fair value option to any existing financial
assets or liabilities as of January 1, 2008. Consequently, the initial adoption
of SFAS No. 159 is expected to have no impact on the Company's results of
operations or financial position.

SOP 07-1, CLARIFICATION OF THE SCOPE OF THE AUDIT AND ACCOUNTING GUIDE,
INVESTMENT COMPANIES ("THE GUIDE") AND ACCOUNTING BY PARENT COMPANIES AND EQUITY
METHOD INVESTORS FOR INVESTMENTS IN INVESTMENT COMPANIES ("SOP 07- 1")

     In June 2007, the AICPA issued SOP 07-1 which provides guidance for
determining whether an entity falls within the scope of the Guide and whether
investment company accounting should be retained by a parent company upon
consolidation of an investment company subsidiary or by an equity method
investor in an investment company. SOP 07-1 was to be effective for fiscal years
beginning on or after December 15, 2007, however in February 2008, the FASB
issued FASB Staff Position No. SOP 07-1, "Effective Date of AICPA Statement of
Position 07-1", which amends SOP 07-1 to (1) delay indefinitely the effective
date of the SOP and (2) prohibit adoption of the SOP for an entity that did not
early adopt the SOP before December 15, 2007. The Company did not early adopt
this standard. Consequently, the standard is expected to have no impact on the
Company's results of operations or financial position.

FASB STAFF POSITION NO. 39-1, AMENDMENT OF FASB INTERPRETATION NO. 39 ("FSP FIN
39-1")

     In April 2007, the FASB issued FSP FIN 39-1, which amends FASB
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts". FSP
FIN 39-1 replaces the terms "conditional contracts" and "exchange contracts"
with the term "derivative instruments" and requires a reporting entity to offset
fair value amounts recognized for the right to reclaim cash collateral or the
obligation to return cash collateral against fair value amounts recognized for
derivative instruments executed with the same counterparty under the same master
netting arrangement that have been offset in the statement of financial
position. FSP FIN 39-1 is effective for fiscal years beginning after November
15, 2007, with early adoption permitted. The effects of applying FSP FIN 39-1
will be recorded as a change in accounting principle through retrospective
application unless such application is


                                       50

<Page>

NOTES TO FINANCIAL STATEMENTS

determined to be impractical. The adoption of FSP FIN 39-1 is not expected to
have a material impact on the Company's results of operations or financial
position based on the current level of derivative activity.

3. DISPOSITION

     On June 1, 2006, in accordance with the terms of the definitive Master
Transaction Agreement and related agreements (collectively the "Agreement") the
Company, its parent ALIC, and the Corporation, completed the disposal through
reinsurance of all of the Company's variable annuity business to Prudential
Financial, Inc. and its subsidiary, The Prudential Insurance Company of America
(collectively "Prudential"). For the Company, this disposal achieved the
economic benefit of transferring to Prudential the future rights and obligations
associated with this business.

     The disposal was effected through reinsurance agreements (the "Reinsurance
Agreements") which include both coinsurance and modified coinsurance provisions.
Coinsurance and modified coinsurance reinsurance are commonly used in the
reinsurance of variable annuities because variable annuities generally include
both separate account and general account liabilities. When contractholders make
a variable annuity deposit, they must choose how to allocate their account
balances between a selection of variable-return mutual funds that must be held
in a separate account and fixed-return funds held in the Company's general
account. In addition, variable annuity contracts include various benefit
guarantees that are general account obligations of the Company. The Reinsurance
Agreements do not extinguish the Company's primary liability under the variable
annuity contracts.

     Variable annuity balances invested in variable-return mutual funds are held
in separate accounts, which are legally segregated assets and available only to
settle separate account contract obligations. Because the separate account
assets must remain with the Company under insurance regulations, modified
coinsurance is typically used when parties wish to transfer future economic
benefits of such business. Under the modified coinsurance provisions, the
separate account assets remain on the Company's Statements of Financial
Position, but the related results of operations are fully reinsured and
presented net of reinsurance on the Statements of Operations and Comprehensive
Income.

     The coinsurance provisions of the Reinsurance Agreements were used to
transfer the future rights and obligations related to fixed-return fund options
and benefit guarantees. $440.0 million of assets supporting general account
liabilities have been transferred to Prudential, net of consideration, under the
coinsurance reinsurance provisions as of the transaction closing date. General
account liabilities of $353.9 million and $415.7 million as of December 31, 2007
and 2006, respectively, however, remain on the Statements of Financial Position
with a corresponding reinsurance recoverable.

     For purposes of presentation in the Statements of Cash Flows, the Company
treated the reinsurance of its variable annuity business to Prudential as a
disposition of operations, consistent with the substance of the transaction
which was the disposition of a block of business accomplished through
reinsurance. Accordingly, the net consideration transferred to Prudential of
$388.4 million (computed as $440.0 million of general account insurance
liabilities transferred to Prudential on the closing date less consideration of
$51.6 million) and the costs of executing the transaction of $1.2 million,
pre-tax, were classified as a disposition of operations in the cash flows from
investing activities section of the Statements of Cash Flows.

     Under the Agreement, the Company, ALIC and the Corporation have indemnified
Prudential for certain pre-closing contingent liabilities (including
extra-contractual liabilities of the Company and ALIC and liabilities
specifically excluded from the transaction) that the Company and ALIC have
agreed to retain. In addition, the Company, ALIC and the Corporation will each
indemnify Prudential for certain post-closing liabilities that may arise from
the acts of the Company and ALIC, and their agents, including in connection with
the Company's and ALIC's provision of transition services. The Reinsurance
Agreements contain no limits or indemnifications with regard to insurance risk
transfer, and transferred all of the future risks and responsibilities for
performance on the underlying variable annuity contracts to Prudential,
including those related to benefit guarantees, in accordance with the provisions
of SFAS No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts".

     The terms of the Agreement give Prudential the right to be the exclusive
provider of its variable annuity products through the Allstate proprietary
agency force for three years and a non-exclusive preferred provider for the
following two years. During a transition period, the Company and ALIC will
continue to issue new variable annuity contracts, accept additional deposits on
existing business from existing contractholders on behalf of Prudential and, for
a period of twenty-four months or less from the effective date of the
transaction, service the reinsured business while Prudential prepares for the
migration of the business onto its servicing platform.

     Pursuant to the Agreement, the Consideration was $51.6 Million. The
disposal resulted in a reinsurance loss of $9.3 million, pretax. This
reinsurance loss and other transactional expenses incurred were included as a


                                       51

<Page>

NOTES TO FINANCIAL STATEMENTS

component of loss on disposition of operations on the statements of operations
and comprehensive income and amounted to $10.7 million, pretax ($7.0 million,
after-tax) during 2006. DAC and DSI were reduced by $79.7 million and $6.2
million, respectively, as of the effective date of the transaction for balances
related to the variable annuity business subject to the Reinsurance Agreements.

     The separate account balances related to the modified coinsurance
reinsurance were $944.2 million and $1.01 billion as of December 31, 2007 and
2006, respectively. Separate account balances totaling approximately $4.1
million and $2.7 million at December 31, 2007 and 2006, respectively, related to
the variable life business retained by the Company. In the five months of 2006
prior to its disposition, the Company's variable annuity business generated
approximately $7.5 million in contract charges, and $16.7 million in 2005.

4. SUPPLEMENTAL CASH FLOW INFORMATION

     Non-cash investment exchanges and modifications, which reflect refinancings
of fixed income securities, totaled $162 thousand, $5.8 million and $4.5 million
for the years ended December 31, 2007, 2006 and 2005, respectively.

     Liabilities for collateral received in conjunction with the Company's
securities lending business activities were $198.1 million, $199.5 million and
$149.5 million at December 31, 2007, 2006 and 2005, respectively, and are
reported as a component of other liabilities and accrued expenses in Statements
of Financial Position. The accompanying cash flows are included in cash flows
from operating activities in the Statements of Cash Flows along with the
activities resulting from management of the proceeds, which for the years ended
December 31 are as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                         2007        2006        2005
                                                      ---------   ---------   ---------
<S>                                                   <C>         <C>         <C>
NET CHANGE IN PROCEEDS MANAGED
Net change in fixed income securities                 $ (73,464)  $ (10,816)  $ (36,652)
Net change in short-term investments                     74,812     (39,205)     20,555
                                                      ---------   ---------   ---------
   Operating cash flow provided (used)                $   1,348   $ (50,021)  $ (16,097)
                                                      =========   =========   =========
NET CHANGE IN LIABILITIES
Liabilities for collateral and security repurchase,
   beginning of year                                  $(199,486)  $(149,465)  $(133,368)
Liabilities for collateral and security repurchase,
   end of year                                         (198,138)   (199,486)   (149,465)
                                                      ---------   ---------   ---------
   Operating cash flow (used) provided                $  (1,348)  $  50,021   $  16,097
                                                      =========   =========   =========
</Table>

5. RELATED PARTY TRANSACTIONS

BUSINESS OPERATIONS

     The Company utilizes services performed by its affiliates, AIC, ALIC and
Allstate Investments LLC, and business facilities owned or leased and operated
by AIC in conducting its business activities. In addition, the Company shares
the services of employees with AIC. The Company reimburses its affiliates for
the operating expenses incurred on behalf of the Company. The Company is charged
for the cost of these operating expenses based on the level of services
provided. Operating expenses, including compensation, retirement and other
benefit programs, allocated to the Company were $54.5 million, $53.7 million and
$53.8 million in 2007, 2006 and 2005, respectively. A portion of these expenses
relate to the acquisition of business, which are deferred and amortized into
income as described in Note 2.

STRUCTURED SETTLEMENT ANNUITIES

     The Company issued $12.7 million, $15.0 million and $16.0 million of
structured settlement annuities, a type of immediate annuity, in 2007, 2006 and
2005, respectively, at prices based upon interest rates in effect at the time of
issuance, to fund structured settlements in matters involving AIC. Of these
amounts, $1.5 million, $1.5 million and $2.0 million relate to structured
settlement annuities with life contingencies and are included in premium income
for 2007, 2006 and 2005, respectively. In most cases, these annuities were
issued under a "qualified assignment," whereby prior to July 1, 2001 Allstate
Settlement Corporation ("ASC"), and subsequent to July 1, 2001 Allstate
Assignment Corporation ("AAC"), both wholly owned subsidiaries of ALIC,
purchased annuities from the Company and assumed AIC's obligation to make future
payments.


                                       52

<Page>

NOTES TO FINANCIAL STATEMENTS

     Reserves recorded by the Company for annuities issued to ASC and AAC,
including annuities to fund structured settlements in matters involving AIC,
were $1.93 billion and $1.86 billion at December 31, 2007 and 2006,
respectively.

BROKER/DEALER AGREEMENTS

     The Company has a service agreement with Allstate Distributors, L.L.C.
("ADLLC"), a broker-dealer company owned by ALIC, whereby ADLLC promotes and
markets the fixed and variable annuities sold by the Company to unaffiliated
financial services firms. In addition, ADLLC also acts as the underwriter of
variable annuities sold by the Company. In return for these services, the
Company recorded commission expense of $4.0 million, $6.0 million and $7.1
million for the years ended December 31, 2007, 2006 and 2005, respectively.

     The Company receives distribution services from Allstate Financial
Services, LLC ("AFS"), an affiliated broker-dealer company, for certain variable
annuity and variable life insurance contracts sold by Allstate exclusive
agencies. The Company incurred $971 thousand, $1.4 million and $1.3 million of
commission and other distribution expenses for the years ended December 31,
2007, 2006 and 2005, respectively.

REINSURANCE TRANSACTIONS

     The Company has reinsurance agreements with unaffiliated reinsurers and
ALIC in order to limit aggregate and single exposure on large risks. A portion
of the Company's premiums and policy benefits are ceded to ALIC and reflected
net of such reinsurance in the Statements of Operations and Comprehensive
Income. Reinsurance recoverables and the related reserve for life-contingent
contract benefits and contractholder funds are reported separately in the
Statements of Financial Position. The Company continues to have primary
liability as the direct insurer for risks reinsured (see Note 9).

     Additionally, the Company entered into a reinsurance treaty through which
it primarily cedes re-investment related risk on its structured settlement
annuities to ALIC. Under the terms of the treaty, the Company pays a premium to
ALIC that varies with the aggregate structured settlement annuity statutory
reserve balance. In return, ALIC guarantees that the yield on the portion of the
Company's investment portfolio that supports structured settlement annuity
liabilities will not fall below contractually determined rates. The Company
ceded premium related to structured settlement annuities to ALIC of $3.2
million, $3.0 million and $2.9 million for the years ended December 31, 2007,
2006 and 2005, respectively. At December 31, 2007 and 2006, the carrying value
of the structured settlement reinsurance treaty was $(1.7) million and $(1.9)
million, respectively, which is recorded in other assets. The premiums ceded and
changes in the fair value of the reinsurance treaty are reflected as a component
of realized capital gains and losses on the Statements of Operations and
Comprehensive Income as the treaty is recorded as a derivative instrument
pursuant to the requirements of SFAS No. 133.

     Prior to the Company's disposition of the variable annuity business through
reinsurance with Prudential effective June 1, 2006 (see Note 3), the Company had
a reinsurance treaty through which it ceded contract benefits on its GMABs,
GMWBs and certain GMDBs to ALIC. The reinsurance treaty was recaptured in 2006
and, in accordance therewith, the Company received cash in excess of the
liabilities subject to the treaty resulting in a pre-tax gain of $3.3 million.
The after-tax gain of $2.2 million was recorded as an adjustment to retained
income since the transaction was between affiliates under common control.

CAPITAL CONTRIBUTION

     The Company received a cash capital contribution from ALIC of $20.0 million
in 2005, which was recorded as additional capital paid-in on the Statements of
Financial Position.

DEBT

     The Company has an intercompany loan agreement with The Allstate
Corporation. The amount of intercompany loans available to the Company is at the
discretion of The Allstate Corporation. The maximum amount of loans The Allstate
Corporation will have outstanding to all its eligible subsidiaries at any given
point in time is limited to $1.00 billion. The Company had no amounts
outstanding under the inter-company loan agreement at December 31, 2007 and
2006. The Allstate Corporation uses commercial paper borrowings, bank lines of
credit and repurchase agreements to fund inter-company borrowings.

INCOME TAXES

     The Company is a party to a federal income tax allocation agreement with
the Corporation (see Note 12).


                                       53

<Page>

NOTES TO FINANCIAL STATEMENTS

6. INVESTMENTS

FAIR VALUES

     The amortized cost, gross unrealized gains and losses, and fair value for
fixed income securities are as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                       GROSS UNREALIZED
                                                     -------------------
                                         AMORTIZED                            FAIR
                                           COST        GAINS     LOSSES       VALUE
                                        ----------   --------   --------   ----------
<S>                                     <C>          <C>        <C>        <C>
AT DECEMBER 31, 2007
U.S. government and agencies            $  576,892   $220,299   $     --   $  797,191
Municipal                                  421,755     14,814     (3,262)     433,307
Corporate                                3,314,945    116,575    (52,709)   3,378,811
Foreign government                         259,851     73,689         --      333,540
Mortgage-backed securities                 419,730      4,399     (4,512)     419,617
Commercial mortgage-backed securities      811,191      6,803    (26,053)     791,941
Asset-backed securities                    115,203        485     (8,811)     106,877
Redeemable preferred stock                   9,332        512         --        9,844
                                        ----------   --------   --------   ----------
   Total fixed income securities        $5,928,899   $437,576   $(95,347)  $6,271,128
                                        ==========   ========   ========   ==========

AT DECEMBER 31, 2006
U.S. government and agencies            $  541,877   $187,234   $     --   $  729,111
Municipal                                  314,768     12,979     (4,744)     323,003
Corporate                                3,214,504    125,379    (35,121)   3,304,762
Foreign government                         244,544     60,614       (211)     304,947
Mortgage-backed securities                 439,938      2,514     (9,256)     433,196
Commercial mortgage-backed securities      669,303      8,192     (4,316)     673,179
Asset-backed securities                    107,922      1,728       (628)     109,022
Redeemable preferred stock                   9,371        548         --        9,919
                                        ----------   --------   --------   ----------
   Total fixed income securities        $5,542,227   $399,188   $(54,276)  $5,887,139
                                        ==========   ========   ========   ==========
</Table>

SCHEDULED MATURITIES

The scheduled maturities for fixed income securities are as follows at December
31, 2007:

                                          AMORTIZED      FAIR
($ IN THOUSANDS)                            COST         VALUE
                                         ----------   ----------
Due in one year or less                  $  132,057   $  132,495
Due after one year through five years     1,052,141    1,074,405
Due after five years through ten years    1,300,761    1,421,624
Due after ten years                       2,909,007    3,116,110
                                         ----------   ----------
                                          5,393,966    5,744,634
Mortgage- and asset-backed securities       534,933      526,494
                                         ----------   ----------
   Total                                 $5,928,899   $6,271,128
                                         ==========   ==========

     Actual maturities may differ from those scheduled as a result of
prepayments by the issuers. Because of the potential for prepayment on mortgage-
and asset-backed securities, they are not categorized by contractual maturity.
The commercial mortgage-backed securities are categorized by contractual
maturity because they generally are not subject to prepayment risk.


                                       54

<Page>

NOTES TO FINANCIAL STATEMENTS

NET INVESTMENT INCOME

     Net investment income for the years ended December 31 is as follows:

($ IN THOUSANDS)                         2007       2006       2005
                                       --------   --------   --------
Fixed income securities                $358,547   $343,115   $330,567
Mortgage loans                           40,916     38,576     33,373
Other                                    14,487     14,763      6,723
                                       --------   --------   --------
   Investment income, before expense    413,950    396,454    370,663
   Investment expense                    27,212     23,390     14,501
                                       --------   --------   --------
      Net investment income            $386,738   $373,064   $356,162
                                       ========   ========   ========

REALIZED CAPITAL GAINS AND LOSSES, AFTER-TAX

     Realized capital gains and losses by security type for the years ended
December 31 are as follows:

($ IN THOUSANDS)                          2007      2006       2005
                                        -------   --------   -------
Fixed income securities                 $ 3,614   $(25,398)  $(6,596)
Mortgage loans                              (86)     3,572     3,000
Derivatives                              (4,359)      (259)   (1,596)
                                         ------       ----    ------
   Realized capital gains and losses,
      pre-tax                              (831)   (22,085)   (5,192)
   Income tax benefit                       308      8,216     1,972
                                         ------       ----    ------
   Realized capital gains and losses,
      after-tax                         $  (523)  $(13,869)  $(3,220)
                                        =======   ========   =======

     Realized capital gains and losses by transaction type for the years ended
December 31 are as follows:

($ IN THOUSANDS)                          2007      2006       2005
                                        -------   --------   -------
Write-downs                             $    --   $   (258)  $(1,543)
Dispositions (1)                          3,528    (21,568)   (2,053)
Valuation of derivative instruments      (8,166)    (5,429)   (4,469)
Settlement of derivative instruments      3,807      5,170     2,873
                                        -------   --------   -------
   Realized capital gains and losses,
      pre-tax                              (831)   (22,085)   (5,192)
   Income tax benefit                       308     8,216      1,972
                                        -------   --------   -------
   Realized capital gains and losses,
      after-tax                         $  (523)  $(13,869)  $(3,220)
                                        =======   ========   =======

----------
(1)  Dispositions include sales, losses recognized in anticipation of
     dispositions and other transactions such as calls and prepayments. The
     Company recognized losses of $6.8 million, $16.5 million and $6.8 million
     in 2007, 2006 and 2005, respectively, due to a change in intent to hold
     impaired securities.

     Gross gains of $4.0 million, $5.9 million and $5.8 million and gross losses
of $7.2 million, $18.8 million and $7.4 million were realized on sales of fixed
income securities during 2007, 2006 and 2005, respectively.

UNREALIZED NET CAPITAL GAINS AND LOSSES

     Unrealized net capital gains and losses included in accumulated other
comprehensive income are as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                              GROSS UNREALIZED
                                                            --------------------
                                                  FAIR                             UNREALIZED
AT DECEMBER 31, 2007                              VALUE       GAINS      LOSSES     NET GAINS
                                               ----------   --------   ---------   ----------
<S>                                            <C>          <C>        <C>          <C>
Fixed income securities                        $6,271,128   $437,576   $(95,347)    $ 342,229
Derivative instruments and other investments         (766)        --       (766)         (766)
                                                                                    ---------
   Total                                                                              341,463

Amounts recognized for: (1)
   Premium deficiency reserve                                                        (261,846)
   Deferred policy acquisition and sales
      inducements costs                                                                20,672
                                                                                    ---------
      Total                                                                          (241,174)
Deferred income taxes                                                                 (35,101)
                                                                                    ---------
Unrealized net capital gains and losses                                             $  65,188
                                                                                    =========
</Table>


                                       55

<Page>

NOTES TO FINANCIAL STATEMENTS

<Table>
<Caption>
($ IN THOUSANDS)                                                          GROSS UNREALIZED
                                                              FAIR      -------------------  UNREALIZED
AT DECEMBER 31, 2006                                         VALUE       GAINS      LOSSES   NET GAINS
                                                           ----------   --------   --------  ----------
<S>                                                        <C>          <C>        <C>        <C>
Fixed income securities                                    $5,887,139   $399,188   $(54,276) $ 344,912
Derivative instruments and other investments                     (892)        --       (892)      (892)
                                                                                             ---------
   Total                                                                                       344,020
Amounts recognized for: (1)
   Premium deficiency reserve                                                                 (235,656)
   Deferred policy acquisition and sales inducement costs                                       11,694
                                                                                             ---------
      Total                                                                                   (223,962)
Deferred income taxes                                                                          (42,020)
                                                                                             ---------
Unrealized net capital gains and losses                                                      $  78,038
                                                                                             =========
</Table>

----------
(1)  See Note 2 for Deferred policy acquisition and sales inducement costs and
     Reserves for life-contingent contract benefits.

CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES

      The change in unrealized net capital gains and losses for the years
ended December 31 is as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                        2007        2006       2005
                                                      --------   ---------   --------
<S>                                                   <C>        <C>         <C>
Fixed income securities                               $ (2,683)  $(108,955)  $(78,803)
Derivative instruments and other investments               126        (738)       566
                                                      --------   ---------   --------
   Total                                                (2,557)   (109,693)   (78,237)
Amounts recognized for:
   Premium deficiency reserve                          (26,190)     21,817    (17,063)
   Deferred policy acquisition and sales inducement
      costs                                              8,978       9,522     54,858
                                                      --------   ---------   --------
      Total                                            (17,212)     31,339     37,795
Deferred income taxes                                    6,919      27,424     14,155
                                                      --------   ---------   --------
Decrease in unrealized net capital gains and losses   $(12,850)  $ (50,930)  $(26,287)
                                                      ========   =========   ========
</Table>

PORTFOLIO MONITORING

     Inherent in the Company's evaluation of a particular security are
assumptions and estimates about the financial condition of the issue or issuer
and its future earnings potential. Some of the factors considered in evaluating
whether a decline in fair value is other-than-temporary are: 1) the Company's
ability and intent to retain the investment for a period of time sufficient to
allow for an anticipated recovery in value; 2) the recoverability of principal
and interest; 3) the length of time and extent to which the fair value has been
less than amortized cost; 4) the financial condition, near-term and long-term
prospects of the issue or issuer, including relevant industry conditions and
trends, and implications of rating agency actions and offering prices; and 5)
the specific reasons that a security is in a significant unrealized loss
position, including market conditions which could affect access to liquidity.


                                       56

<Page>

NOTES TO FINANCIAL STATEMENTS

     The following table summarizes the gross unrealized losses and fair value
of fixed income securities by the length of time that individual securities have
been in a continuous unrealized loss position.

<Table>
<Caption>
                                      LESS THAN 12 MONTHS                   12 MONTHS OR MORE
                             -----------------------------------   -----------------------------------
                                                                                                           TOTAL
($ IN THOUSANDS)               NUMBER      FAIR       UNREALIZED    NUMBER       FAIR       UNREALIZED   UNREALIZED
AT DECEMBER 31, 2007         OF ISSUES     VALUE        LOSSES     OF ISSUES     VALUE        LOSSES       LOSSES
                             ---------   ----------   ----------   ---------   ----------   ----------   ----------
<S>                          <C>         <C>          <C>          <C>         <C>          <C>          <C>
Fixed income securities
   Municipal                     18      $   89,222   $ (2,067)         2      $   15,945    $ (1,195)   $ (3,262)
   Corporate                    211         828,136    (35,241)        86         453,194     (17,468)    (52,709)
   Mortgage-backed
      securities                 12         116,542     (1,182)        16         137,987      (3,330)     (4,512)
   Commercial
      mortgage-backed
      securities                 41         345,338    (22,882)        12          64,387      (3,171)    (26,053)
   Asset-backed securities       51          71,873     (6,664)         6          22,505      (2,147)     (8,811)
                                ---      ----------   --------        ---      ----------    --------    --------
      Total                     333      $1,451,111   $(68,036)       122      $  694,018    $(27,311)   $(95,347)
                                ===      ==========   ========        ===      ==========    ========    ========
Investment grade fixed
   income securities            283      $1,379,124   $(60,798)       107      $  657,515    $(23,161)   $(83,959)
Below investment grade
   fixed income
   securities                    50          71,987     (7,238)        15          36,503      (4,150)    (11,388)
                                ---      ----------   --------        ---      ----------    --------    --------
      Total fixed income
         securities             333      $1,451,111   $(68,036)       122      $  694,018    $(27,311)   $(95,347)
                                ===      ==========   ========        ===      ==========    ========    ========
AT DECEMBER 31, 2006
Fixed income securities
   Municipal                     19      $   85,322   $ (2,417)        10      $   52,910    $ (2,327)   $ (4,744)
   Corporate                    118         619,716     (8,721)       164         775,483     (26,400)    (35,121)
   Foreign government             1           4,934        (41)         2          10,067        (170)       (211)
   Mortgage-backed
     securities                   7          57,005       (701)        28         267,323      (8,555)     (9,256)
   Commercial
      mortgage-backed
      securities                 18         166,545       (831)        33         192,775      (3,485)     (4,316)
   Asset-backed securities        6          16,010       (283)         3          12,635        (345)       (628)
                                ---      ----------   --------        ---      ----------    --------    --------
      Total                     169      $  949,532   $(12,994)       240      $1,311,193    $(41,282)   $(54,276)
                                ===      ==========   ========        ===      ==========    ========    ========
Investment grade fixed
   income securities            153      $  919,918   $(12,448)       220      $1,274,151    $(38,837)   $(51,285)
Below investment grade
   fixed income securities       16          29,614       (546)        20          37,042      (2,445)     (2,991)
                                ---      ----------   --------        ---      ----------    --------    --------
Total fixed income
   securities                   169      $  949,532   $(12,994)       240      $1,311,193    $(41,282)   $(54,276)
                                ===      ==========   ========        ===      ==========    ========    ========
</Table>

     As of December 31, 2007, $82.9 million of the unrealized losses are related
to securities with an unrealized loss position less than 20% of amortized cost,
the degree of which suggests that these securities do not pose a high risk of
being other than temporarily impaired. Of the $95.3 million of unrealized losses
on fixed income securities, $84.0 million are related to unrealized losses on
investment grade securities. Investment grade is defined as a security having a
rating from the National Association of Insurance Commissioners ("NAIC") of 1 or
2; a rating of Aaa, Aa, A or Baa from Moody's or a rating of AAA, AA, A or BBB
from Standard & Poor's ("S&P"), Fitch or Dominion, or a rating of aaa, aa, a or
bbb from A.M. Best; or a comparable internal rating if an externally provided
rating is not available. Unrealized losses on investment grade securities are
principally related to rising interest rates or changes in credit spreads since
the securities were acquired.

     Unrealized losses on mortgage-backed, asset-backed and commercial
mortgage-backed holdings were evaluated based on credit ratings, as well as the
performance of the underlying collateral relative to the securities' positions
in the securities' respective capital structure. The unrealized losses on
municipal bonds and asset-backed securities that had credit enhancements from
bond insurers were evaluated on the quality of the underlying security. These
investments were determined to have adequate resources to fulfill contractual
obligations.

     As of December 31, 2007, the Company had the intent and ability to hold the
fixed income securities with unrealized losses for a period of time sufficient
for them to recover.

MORTGAGE LOAN IMPAIRMENT

     A mortgage loan is impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Interest income for impaired loans is recognized on an accrual basis
if payments are expected to continue to be received; otherwise a cash basis is
used. The Company had no impaired loans in 2007, 2006 or 2005.


                                       57

<Page>

NOTES TO FINANCIAL STATEMENTS

INVESTMENT CONCENTRATION FOR MUNICIPAL BOND AND COMMERCIAL MORTGAGE PORTFOLIOS

     The Company maintains a diversified portfolio of municipal bonds. The
following table shows the principal geographic distribution of municipal bond
issuers represented in the Company's portfolio. No other state represented more
than 5% of the portfolio at December 31, 2007 and 2006.

(% OF MUNICIPAL BOND PORTFOLIO CARRYING VALUE)   2007    2006
                                                 -----   -----
California                                        30.6%   30.2%
Texas                                             14.3    10.9
Delaware                                           8.5     1.3
Oregon                                             5.8     7.2
Virginia                                           5.0     6.3
New York                                           4.1     5.8
Missouri                                           4.0     5.4
Connecticut                                        0.8     5.0

     The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States. Substantially
all of the commercial mortgage loans are non-recourse to the borrower. The
following table shows the principal geographic distribution of commercial real
estate represented in the Company's mortgage portfolio. No other state
represented more than 5.0% of the portfolio at December 31, 2007 and 2006.

(% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE)   2007    2006
                                                      ----    ----
California                                            21.7%   18.9%
Illinois                                              12.7    14.0
Pennsylvania                                           8.3     8.6
Texas                                                  7.6     7.2
New York                                               5.5     5.6
Arizona                                                5.4     5.6
New Jersey                                             5.1     4.6
Ohio                                                   5.0     5.2

     The types of properties collateralizing the commercial mortgage loans at
December 31 are as follows:

(% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE)    2007     2006
                                                      -----    -----
Warehouse                                              32.6%    30.6%
Office buildings                                       31.4     31.4
Apartment complex                                      17.1     17.0
Retail                                                 15.3     17.1
Industrial                                               --      1.0
Other                                                   3.6      2.9
                                                      -----    -----
   Total                                              100.0%   100.0%
                                                      =====    =====

     The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 2007 for loans that were not in foreclosure are as follows:

                         NUMBER OF
                           LOANS      CARRYING VALUE   PERCENT
                       ------------   --------------   -------
($ IN THOUSANDS)
          2008               1           $  4,604        0.6%
          2009              15             58,625        8.1
          2010              19             94,072       13.0
          2011              17             83,079       11.5
          2012              14             61,768        8.5
          Thereafter        85            423,153       58.3
                           ---           --------      -----
               Total       151           $725,301      100.0%
                           ===           ========      =====


                                       58

<Page>

NOTES TO FINANCIAL STATEMENTS

     In 2007, $9.8 million of commercial mortgage loans were contractually due.
Of these, 74.6% were paid as due and 25.4% were refinanced at prevailing market
terms. None were foreclosed or are in the process of foreclosure, and none were
in the process of refinancing or restructuring discussions.

CONCENTRATION OF CREDIT RISK

     At December 31, 2007, the Company is not exposed to any credit
concentration risk of a single issuer and its affiliates greater than 10% of the
Company's shareholder's equity.

SECURITIES LOANED

     The Company's business activities include securities lending programs with
third parties, mostly large brokerage firms. At December 31, 2007 and 2006,
fixed income securities with a carrying value of $193.8 million and $191.9
million, respectively, were on loan under these agreements. In return, the
Company receives cash that it invests and includes in short-term investments and
fixed income securities, with an offsetting liability recorded in other
liabilities and accrued expenses to account for the Company's obligation to
return the collateral. Interest income on collateral, net of fees, was $1.4
million, $455 thousand and $430 thousand, for the years ending December 31,
2007, 2006 and 2005, respectively.

OTHER INVESTMENT INFORMATION

     Included in fixed income securities are below investment grade assets
totaling $198.6 million and $186.9 million at December 31, 2007 and 2006,
respectively.

     At December 31, 2007, fixed income securities with a carrying value of $2.6
million were on deposit with regulatory authorities as required by law.

     At December 31, 2007, there were no fixed income securities or other
investments that were non-income producing.

7. FINANCIAL INSTRUMENTS

     In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving derivative financial instruments and other off-balance-sheet financial
instruments. The fair value estimates of financial instruments presented below
are not necessarily indicative of the amounts the Company might pay or receive
in actual market transactions. Potential taxes and other transaction costs have
not been considered in estimating fair value. The disclosures that follow do not
reflect the fair value of the Company as a whole since a number of the Company's
significant assets (including DAC and DSI and certain reinsurance recoverables)
and liabilities (including reserve for life-contingent contract benefits,
contractholder funds pertaining to interest-sensitive life contracts and
deferred income taxes) are not included in accordance with SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". Other assets and
liabilities considered financial instruments such as accrued investment income
and cash are generally of a short-term nature, and as such their carrying values
are deemed to approximate fair value.

FINANCIAL ASSETS

<Table>
<Caption>
 ($ IN THOUSANDS)                             DECEMBER 31, 2007       DECEMBER 31, 2006
                                          -----------------------   -----------------------
                                           CARRYING       FAIR       CARRYING       FAIR
                                             VALUE       VALUE        VALUE        VALUE
                                          ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>
Fixed income securities                   $6,271,128   $6,271,128   $5,887,139   $5,887,139
Mortgage loans                               725,301      721,602      708,449      711,866
Short-term investments                        22,688       22,688      142,334      142,334
Policy loans                                  38,509       38,509       38,168       38,168
Reinsurance recoverables on investment
   contracts                                 353,921      348,257      415,709      403,902
Separate accounts                            948,358      948,358    1,009,784    1,009,784
</Table>


                                       59

<Page>

NOTES TO FINANCIAL STATEMENTS

     Fair values of fixed income securities are based upon observable market
quotations, observable market data or are derived from such quotations or data.
The fair value of privately placed fixed income securities is generally based on
widely accepted pricing valuation models, which are developed internally.
Mortgage loans are valued based on discounted contractual cash flows. Discount
rates are selected using current rates at which similar loans would be made to
borrowers with similar characteristics, using similar properties as collateral.
Loans that exceed 100% loan-to-value are valued at the estimated fair value of
the underlying collateral. Short-term investments are highly liquid investments
with maturities of one year or less whose carrying values are deemed to
approximate fair value. The carrying value of policy loans is deemed to
approximate fair value. The fair value of reinsurance recoverables on investment
contracts is determined based on the fair value of the underlying annuity
contract account liabilities, adjusted for credit risk. Separate accounts assets
are carried in the Statements of Financial Position at fair value based on
observable market prices.

FINANCIAL LIABILITIES

<Table>
<Caption>
                                                   DECEMBER 31, 2007        DECEMBER 31, 2006
                                               -----------------------   -----------------------
                                                CARRYING       FAIR       CARRYING        FAIR
($ IN THOUSANDS)                                 VALUE         VALUE        VALUE        VALUE
                                               ----------   ----------   ----------   ----------
<S>                                            <C>          <C>          <C>          <C>
Contractholder funds on investment contracts   $4,317,697   $4,191,239   $4,231,688   $4,099,923
Liability for collateral                          198,138      198,138      199,486      199,486
Separate accounts                                 948,358      948,358    1,009,784    1,009,784
</Table>

     Contractholder funds include interest-sensitive life insurance contracts
and investment contracts. Interest-sensitive life insurance contracts are not
considered financial instruments subject to fair value disclosure requirements.
The fair value of investment contracts is based on the terms of the underlying
contracts. Fixed annuities are valued at the account balance less surrender
charges. Immediate annuities without life contingencies are valued at the
present value of future benefits using current interest rates. Market value
adjusted annuities' fair value is estimated to be the market adjusted surrender
value. Liability for collateral is valued at carrying value due to its
short-term nature. Separate accounts liabilities are carried at the account
values, which are equal to the carrying value of the assets.

DERIVATIVE FINANCIAL INSTRUMENTS

     The Company primarily uses derivatives for risk reduction. In addition, the
Company has derivatives embedded in financial instruments, which are required to
be separated and accounted for as derivative instruments. With the exception of
embedded derivatives, all of the Company's derivatives are evaluated for their
on-going effectiveness as either accounting or non-hedge derivative financial
instruments on at least a quarterly basis (see Note 2). The Company does not use
derivatives for trading purposes. Non-hedge accounting is used for "portfolio"
level hedging strategies where the terms of the individual hedged items do not
meet the strict homogeneity requirements prescribed in SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") to permit the
application of SFAS 133's hedge accounting model. The principal benefit of a
"portfolio" level strategy is in its cost savings through its ability to use
fewer derivatives with larger notional amounts.

     Asset-liability management is a risk management strategy that is
principally employed to align the respective interest-rate sensitivities of
assets and liabilities. Depending upon the attributes of the assets acquired and
liabilities issued, derivative instruments such as interest rate caps are
acquired to change the interest rate characteristics of existing assets and
liabilities to ensure a properly matched relationship is maintained and to
reduce exposure to rising or falling interest rates. The Company uses financial
futures to hedge anticipated asset and liability purchases.

     The notional amounts specified in the contracts are used to calculate the
exchange of contractual payments under the agreements and are generally not
representative of the potential for gain or loss on these agreements.

     Fair value, which is equal to the carrying value, is the estimated amount
that the Company would receive (pay) to terminate the derivative contracts at
the reporting date. The fair value of exchange traded derivative contracts is
based on observable market quotations in active markets, whereas the fair value
of non-exchange traded derivative contracts is determined using widely accepted
valuation models and other appropriate valuation methods.


                                       60

<Page>

NOTES TO FINANCIAL STATEMENTS

     The following table summarizes the notional amount, fair value and carrying
value of the Company's derivative financial instruments at December 31, 2007.

<Table>
<Caption>
                                                               CARRYING      CARRYING
                                       NOTIONAL      FAIR       VALUE          VALUE
($ IN THOUSANDS)                        AMOUNT      VALUE     ASSETS(1)   (LIABILITIES)(1)
                                       --------    -------    ---------   ----------------
<S>                                    <C>         <C>        <C>             <C>
AT DECEMBER 31, 2007
Financial futures contracts            $ 32,200    $   107    $   107         $    --
Interest rate cap agreements            347,300     (2,845)        --          (2,845)
                                       --------    -------    -------         -------
Total interest rate contracts          $379,500    $(2,738)   $   107         $(2,845)
                                       ========    =======    =======         =======
Foreign currency swap agreements       $  7,500    $  (766)   $    --         $  (766)
                                       ========    =======    =======         =======
Structured settlement annuity
   reinsurance agreement               $     --    $(1,733)   $(1,733)        $    --
                                       ========    =======    =======         =======
Guaranteed accumulation benefits(2)    $256,610    $   210    $    --         $   210
                                       ========    =======    =======         =======
Guaranteed withdrawal benefits(2)      $ 60,591    $   (37)   $    --         $   (37)
                                       ========    =======    =======         =======
Other embedded derivative financial
   instruments(2)                      $  1,762    $    (3)   $    --         $    (3)
                                       ========    =======    =======         =======
</Table>

----------
(1)  Carrying value includes the effects of legally enforceable master netting
     agreements. Fair value and carrying value of the assets and liabilities
     exclude accrued periodic settlements, which are reported in accrued
     investment income or other invested assets.

(2)  These embedded derivative financial instruments relate to the company's
     variable annuity business, which was fully reinsured by Prudential
     effective June 1, 2006 (see Note 3).

     The following table summarizes the notional amount, fair value and carrying
value of the Company's derivative financial instruments at December 31, 2006.

<Table>
<Caption>
                                                            CARRYING       CARRYING
                                      NOTIONAL     FAIR       VALUE          VALUE
($ IN THOUSANDS)                       AMOUNT     VALUE     ASSETS(1)   (LIABILITIES)(1)
                                      --------   -------   ----------   ----------------
<S>                                   <C>        <C>         <C>            <C>
AT DECEMBER 31, 2006
Financial futures contracts           $194,100   $    50     $    93        $   (43)
Interest rate cap agreements           264,300     1,410       1,920           (510)
                                      ========   =======     =======        =======
Total interest rate contracts         $458,400   $ 1,460     $ 2,013        $  (553)
                                      ========   =======     =======        =======
Foreign currency swap agreements      $  7,500   $  (892)    $    --        $  (892)
                                      ========   =======     =======        =======
Structured settlement annuity
   reinsurance agreement              $     --   $(1,927)    $(1,927)        $   --
                                      ========   =======     =======        =======
Guaranteed accumulation benefits(2)   $251,825   $ 1,304     $    --         $1,304
                                      ========   =======     =======        =======
Guaranteed withdrawal benefits(2)     $ 52,757   $   (50)    $    --         $  (50)
                                      ========   =======     =======        =======
Other embedded derivative financial
   instruments(2)                     $  1,501   $    (3)    $    --         $   (3)
                                      ========   =======     =======        =======
</Table>

----------
(1)  Carrying value includes the effects of legally enforceable master netting
     agreements. Fair value and carrying value of the assets and liabilities
     exclude accrued periodic settlements, which are reported in accrued
     investment income or other invested assets.

(2)  These embedded derivative financial instruments relate to the company's
     variable annuity business, which was fully reinsured by Prudential
     effective June 1, 2006 (see Note 3).

     The Company manages its exposure to credit risk primarily by establishing
risk control limits. The Company uses master netting agreements for
over-the-counter derivative transactions, including foreign currency swap and
interest rate cap agreements. These agreements permit either party to net
payments due for transactions covered by the agreements. Under the provisions of
the agreements, collateral is either pledged or obtained when certain
predetermined exposure limits are exceeded. The Company has not incurred any
losses on derivative financial


                                       61

<Page>

NOTES TO FINANCIAL STATEMENTS

instruments due to counterparty nonperformance. Futures contracts are traded on
organized exchanges, which require margin deposits and guarantee the execution
of trades, thereby mitigating any potential credit risk associated with
transactions executed on organized exchanges.

     Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. Market risk exists for all of the derivative
financial instruments the Company currently holds, as these instruments may
become less valuable due to adverse changes in market conditions. To limit this
risk, the Company's senior management has established risk control limits. In
addition, changes in fair value of the derivative financial instruments that the
Company uses for risk management purposes are generally offset by the change in
the fair value or cash flows of the hedged risk component of the related assets,
liabilities or forecasted transactions.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

     The contractual amounts and fair values of off-balance-sheet financial
instruments at December 31 are as follows:

<Table>
<Caption>
                                                 2007                       2006
                                       ------------------------   ------------------------
                                       CONTRACTUAL                CONTRACTUAL
                                         AMOUNT      FAIR VALUE      AMOUNT     FAIR VALUE
                                       -----------   ----------   -----------   ----------
($ IN THOUSANDS)
<S>                                      <C>             <C>        <C>            <C>
Commitments to extend mortgage loans     $ 5,750         $58        $14,723        $147
Private placement commitments             10,000          --             --          --
</Table>

     In the above table, the contractual amounts represent the amount at risk if
the contract is fully drawn upon, the counterparty defaults and the value of any
underlying security becomes worthless. Unless noted otherwise, the Company does
not require collateral or other security to support off-balance-sheet financial
instruments with credit risk.

     Commitments to extend mortgage loans are agreements to lend to a borrower
provided there is no violation of any condition established in the contract. The
Company enters into these agreements to commit to future loan fundings at a
predetermined interest rate. Commitments generally have fixed expiration dates
or other termination clauses. Commitments to extend mortgage loans, which are
secured by the underlying properties, are valued based on estimates of fees
charged by other institutions to make similar commitments to similar borrowers.

     Private placement commitments represent conditional commitments to purchase
private placement debt and equity securities at a specified future date. The
Company regularly enters into these agreements in the normal course of business.
The fair value of these commitments generally cannot be estimated on the date
the commitment is made as the terms and conditions of the underlying private
placement securities are not yet final.

8. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS

     At December 31, the reserve for life-contingent contract benefits consists
of the following:

($ IN THOUSANDS)                                            2007         2006
                                                         ----------   ----------
Immediate fixed annuities:
   Structured settlement annuities                       $1,870,663   $1,793,706
   Other immediate fixed annuities                           10,987        9,815
Traditional life                                            127,994      117,419
Other                                                         7,327        5,552
                                                         ----------   ----------
   Total reserve for life-contingent contract benefits   $2,016,971   $1,926,492
                                                         ==========   ==========


                                       62

<Page>

NOTES TO FINANCIAL STATEMENTS

     The following table highlights the key assumptions generally used in
calculating the reserve for life-contingent contract benefits:

<Table>
<Caption>
          PRODUCT                       MORTALITY                INTEREST RATE         ESTIMATION METHOD
--------------------------   ------------------------------   ------------------   -------------------------
<S>                          <C>                              <C>                  <C>
Structured settlement        U.S. population with projected   Interest rate        Present value of
annuities                    calendar year improvements;      assumptions range    contractually specified
                             mortality rates adjusted for     from 4.6% to 9.5%    future benefits
                             each impaired life based on
                             reduction in life expectancy
                             and nature of impairment

Other immediate fixed        1983 group annuity mortality     Interest rate        Present value of expected
annuities                    table                            assumptions range    future benefits based on
                             1983 individual annuity          from 2.4% to 11.5%   historical experience
                             mortality table
                             1983-a individual annuity
                             mortality table
                             Annuity 2000 mortality table

Traditional life insurance   Actual company experience plus   Interest rate        Net level premium reserve
                             loading                          assumptions range    method using the
                                                              from 4.0% to 8.0%    Company's withdrawal
                                                                                   experience rates

Other:

   Variable annuity          90% of 1994 group annuity        Interest rate        Projected benefit ratio
   guaranteed minimum        mortality table with internal    assumptions range    applied to cumulative
   death benefits(1)         modifications                    from 6.5% to 7.0%    assessments

   Accident and health       Actual company experience plus                        Unearned premium;
                             loading                                               additional contract
                                                                                   reserves for traditional
                                                                                   life insurance
</Table>

----------
(1)  In 2006, the Company disposed of its variable annuity business through
     reinsurance agreements with Prudential (see Note 3).

     To the extent that unrealized gains on fixed income securities would result
in a premium deficiency had those gains actually been realized, a premium
deficiency reserve has been recorded for certain immediate annuities with life
contingencies. A liability of $261.9 million and $235.7 million is included in
the reserve for life-contingent contract benefits with respect to this
deficiency as of December 31, 2007 and 2006, respectively. The offset to this
liability is recorded as a reduction of the unrealized net capital gains
included in accumulated other comprehensive income.
     At December 31, contractholder funds consists of the following:

                                      2007          2006
                                   ----------   -----------
($ IN THOUSANDS)
Interest-sensitive life            $  530,763   $  476,729
Investment contracts:
   Fixed annuities                  3,733,197    3,667,459
   Immediate annuities and other      584,501      564,240
                                   ----------   ----------
      Total contractholder funds   $4,848,461   $4,708,428
                                   ==========   ==========


                                       63

<Page>

NOTES TO FINANCIAL STATEMENTS

     The following table highlights the key contract provisions relating to
contractholder funds:

<Table>
<Caption>
           PRODUCT                      INTEREST RATE                   WITHDRAWAL/SURRENDER CHARGES
----------------------------   -----------------------------   ---------------------------------------------
<S>                            <C>                             <C>
Interest-sensitive life        Interest rates credited range   Either a percentage of account balance or
insurance                      from 2.7% to 5.5%               dollar amount grading off generally over 20
                                                               years

Fixed annuities                Interest rates credited range   Either a declining or a level percentage
                               from 1.8% to 11.5% for          charge generally over nine years or less.
                               immediate annuities and 3.1%    Additionally, approximately 5.9% of fixed
                               to 6.0% for other fixed         annuities are subject to a market value
                               annuities                       adjustment for discretionary withdrawals

Other:
   Variable guaranteed         Interest rates used in          Withdrawal and surrender charges are based on
      minimum income           establishing reserves range     the terms of the related variable annuity or
      benefit and secondary    from 1.8% to 10.3%              interest-sensitive life contract
      guarantees on
      variable annuities(1)
</Table>

----------
(1)  In 2006, the Company disposed its variable annuity business through
     reinsurance agreements with Prudential (see Note 3).

     Contractholder funds activity for the years ended December 31 is as
follows:

($ IN THOUSANDS)                        2007         2006
                                     ----------   ----------
BALANCE, BEGINNING OF YEAR           $4,708,428   $4,349,395
Deposits                                537,755      804,825
Interest credited                       179,417      178,493
Benefits                               (146,828)    (137,090)
Surrenders and partial withdrawals     (316,399)    (361,670)
Contract charges                        (49,086)     (44,954)
Net transfers to separate accounts           (2)     (18,127)
Other adjustments                       (64,824)     (62,444)
                                     ----------   ----------
BALANCE, END OF YEAR                 $4,848,461   $4,708,428
                                     ==========   ==========

     The Company offers various guarantees to variable annuity contractholders.
Liabilities for variable contract guarantees related to death benefits are
included in the reserve for life-contingent contract benefits and the
liabilities related to the income, withdrawal and accumulation benefits are
included in contractholder funds in the Statements of Financial Position. All
liabilities for variable contract guarantees are reported on a gross basis on
the balance sheet with a corresponding reinsurance recoverable (see Note 3).

     Absent any contract provision wherein the Company guarantees either a
minimum return or account value upon death, a specified contract anniversary
date, partial withdrawal or annuitization, variable annuity and variable life
insurance contractholders bear the investment risk that the separate accounts'
funds may not meet their stated investment objectives. The account balances of
variable annuities contracts' separate accounts with guarantees included $891.5
million and $954.2 million of equity, fixed income and balanced mutual funds and
$50.4 million and $51.0 million of money market mutual funds at December 31,
2007 and 2006, respectively.


                                       64

<Page>

NOTES TO FINANCIAL STATEMENTS

     The table below presents information regarding the Company's variable
annuity 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.

<Table>
<Caption>
                                                                                DECEMBER 31,
                                                                           ---------------------
($ IN MILLIONS)                                                              2007         2006
                                                                           ---------   ---------
IN THE EVENT OF DEATH
<S>                                                                        <C>         <C>
   Separate account value                                                  $   942.0   $ 1,005.2
   Net amount at risk(1)                                                   $    22.6   $    24.4
   Average attained age of contractholders                                  67 years    67 years

AT ANNUITIZATION (INCLUDES INCOME BENEFIT GUARANTEES)
   Separate account value                                                  $    35.0   $    39.4
   Net amount at risk(2)                                                   $      --   $      --

   Weighted average waiting period until annuitization options available     6 years     7 years

FOR CUMULATIVE PERIODIC WITHDRAWALS
   Separate account value                                                  $    60.5   $    50.3
   Net amount at risk(3)                                                   $      --   $      --

ACCUMULATION AT SPECIFIED DATES
   Separate account value                                                  $   255.9   $   249.2
   Net amount at risk(4)                                                   $      --   $      --
   Weighted average waiting period until guarantee date                      9 years    10 years
</Table>

----------
(1)  Defined as the estimated current guaranteed minimum death benefit in excess
     of the current account balance at the balance sheet date.

(2)  Defined as the estimated present value of the guaranteed minimum annuity
     payments in excess of the current account balance.

(3)  Defined as the estimated current guaranteed minimum withdrawal balance
     (initial deposit) in excess of the current account balance at the balance
     sheet date.

(4)  Defined as the estimated present value of the guaranteed minimum
     accumulation balance in excess of the current account balance.

     The liability for death and income benefit guarantees is 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. The
establishment of reserves for these guarantees requires the projection of
future separate account fund performance, mortality, persistency and customer
benefit utilization rates. These assumptions are periodically reviewed and
updated. For guarantees related to death benefits, benefits represent the
current guaranteed minimum death benefit payments in excess of the current
account balance. For guarantees related to income benefits, benefits
represent the present value of the minimum guaranteed annuitization benefits
in excess of the current account balance.

     Projected benefits and contract charges used in determining the
liability for certain 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 is re-evaluated
periodically, and adjustments are made to the liability balance through a
charge or credit to life and annuity contract benefits.

     Guarantees related to withdrawal and accumulation benefits are
considered to be derivative financial instruments: therefore, the liability
for these benefits is established based on its fair value.

                                       65

<Page>

NOTES TO FINANCIAL STATEMENTS

     The following summarizes the liabilities for guarantees:

<Table>
<Caption>
                                                                        LIABILITY FOR
                                                                         GUARANTEES
                                        LIABILITY FOR   LIABILITY FOR    RELATED TO
                                          GUARANTEES     GUARANTEES     ACCUMULATION
                                          RELATED TO     RELATED TO          AND
($ IN THOUSANDS)                            DEATH          INCOME         WITHDRAWAL
                                           BENEFITS       BENEFITS         BENEFITS      TOTAL
                                        -------------   -------------   -------------   ------
<S>                                        <C>              <C>             <C>         <C>
Balance at December 31, 2005 (1)           $   264          $ 105           $  (551)    $ (182)
   Less reinsurance recoverables              (104)            --               551        447
                                           -------          -----           -------     ------
Net balance at December 31, 2005               160            105                --        265

Variable annuity business disposition
   related reinsurance recoverables           (304)           (97)               --       (401)
Incurred guaranteed benefits                   648             (7)               --        641
Paid guarantee benefits                       (504)            (1)               --       (505)
                                           -------          -----           -------     ------
   Net change                                 (160)          (105)               --       (265)
Net balance at December 31, 2006                --             --                --         --
   Plus reinsurance recoverables             1,026             99            (1,353)      (228)
                                           -------          -----           -------     ------
Balance, December 31, 2006 (2)             $ 1,026          $  99           $(1,353)    $ (228)
                                           =======          =====           =======     ======
   Less reinsurance recoverables            (1,026)           (99)            1,353        228
                                           -------          -----           -------     ------
Net balance at December 31, 2006                --             --                --         --
Incurred guaranteed benefits                    --             --                --         --
Paid guarantee benefits                         --             --                --         --
                                           -------          -----           -------     ------
   Net change                                   --             --                --         --
Net balance at December 31, 2007                --             --                --         --
   Plus reinsurance recoverables             2,002            102              (174)     1,930
                                           -------          -----           -------     ------
Balance, December 31, 2007 (3)             $ 2,002          $ 102           $  (174)    $1,930
                                           =======          =====           =======     ======
</Table>

----------
(1)  Included in the total liability balance at December 31, 2005 are reserves
     for variable annuity death benefits of $264 thousand, variable annuity
     income benefits of $46 thousand, variable annuity accumulation benefits of
     $(553) thousand, variable annuity withdrawal benefits of $2 thousand and
     other guarantees of $59 thousand.

(2)  Included in the total liability balance at December 31, 2006 are reserves
     for variable annuity death benefits of $1.03 million, variable annuity
     income benefits of $58 thousand, variable annuity accumulation benefits of
     $(1.3) million and other guarantees of $41 thousand.

(3)  Included in the total liability balance at December 31, 2007 are reserves
     for variable annuity death benefits of $2.0 million, variable annuity
     income benefits of $68 thousand, variable annuity accumulation benefits of
     $(174) thousand and other guarantees of $34 thousand.

9. REINSURANCE

     The Company reinsures certain of its risks to unaffiliated reinsurers and
ALIC under yearly renewable term, coinsurance and modified coinsurance. These
agreements result in a passing of the agreed-upon percentage of risk to the
reinsurer in exchange for negotiated reinsurance premium payments.

     Mortality risk on policies in excess of $250 thousand per life is ceded to
ALIC. As of December 31, 2007 and 2006, 39.8% and 39.4%, respectively, of our
face amount of life insurance in force was reinsured to non-affiliates and ALIC.

     In addition, the Company has used reinsurance to effect the disposition of
certain blocks of business. The Company had reinsurance recoverables of $353.9
million and $415.7 million at December 31, 2007 and 2006, respectively, due from
Prudential related to the disposal of our variable annuity business that was
effected through Reinsurance Agreements (see Note 3). In 2007, premiums and
contract charges of $21.2 million, contract benefits of $2.9 million, interest
credited to contractholder funds of $13.5 million, and operating costs and
expenses of $4.8 million were ceded to Prudential pursuant to the Reinsurance
Agreements. In 2006, premiums and contract charges of $11.6 million, contract
benefits of $1.6 million, interest credited to contractholder funds of $9.7
million, and operating costs and expenses of $4.8 million were ceded to
Prudential pursuant to the Reinsurance Agreements. Prior to this disposal, the
Company ceded 100% of the mortality and certain other risks related to product
features on certain in-force variable annuity contracts. In addition, as of
December 31, 2007 and 2006, the Company had reinsurance recoverables of $1.0
million and $1.6 million, respectively, due from subsidiaries of Citigroup and
Scottish Re (U.S.) Inc. in connection with the disposition of the direct
response distribution business in 2003.


                                       66

<Page>

NOTES TO FINANCIAL STATEMENTS

     The effects of reinsurance on premiums and contract charges for the years
ended December 31 are as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                           2007       2006       2005
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
PREMIUMS AND CONTRACT CHARGES
Direct                                                   $169,559   $179,504   $150,749
Assumed - non-affiliate                                     1,273      1,367        950
Ceded
   Affiliate                                               (3,982)    (4,614)    (4,795)
   Non-affiliate                                          (38,196)   (28,518)   (12,086)
                                                         --------   --------   --------
      Premiums and contract charges, net of reinsurance  $128,654   $147,739   $134,818
                                                         ========   ========   ========
</Table>

     The effects of reinsurance on contract benefits for the years ended
December 31 are as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                           2007       2006      2005
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
CONTRACT BENEFITS
Direct                                                   $197,929   $205,834   $191,366
Assumed - non-affiliate                                       787        757        371
Ceded
   Affiliate                                               (3,830)    (1,427)    (1,154)
   Non-affiliate                                          (13,083)   (14,658)    (7,356)
                                                         --------   --------   --------
      Contract benefits, net of reinsurance              $181,803   $190,506   $183,227
                                                         ========   ========   ========
</Table>

     The effects of reinsurance on interest credited to contractholder funds for
the years ended December 31 are as follows:

<Table>
<Caption>
($ IN THOUSANDS)                                           2007       2006      2005
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
INTEREST CREDITED TO CONTRACTHOLDER FUNDS
Direct                                                   $190,882   $176,799   $161,911
Assumed - non-affiliate                                        33         70         25
Ceded
   Affiliate                                                   --         --         --
   Non-affiliate                                          (13,508)    (9,698)        --
                                                         --------   --------   --------
      Interest credited to contractholder funds, net of
       reinsurance                                       $177,407   $167,171   $161,936
                                                         ========   ========   ========
</Table>

     In addition to amounts included in the table above are reinsurance premium
ceded to ALIC of $3.2 million, $3.0 million and $2.9 million during 2007, 2006
and 2005, respectively, under the terms of the structured settlement annuity
reinsurance agreement (See Note 5).


                                       67

<Page>

NOTES TO FINANCIAL STATEMENTS

10. DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS

     Deferred policy acquisitions costs for the years ended December 31 are as
follows:

($ IN THOUSANDS)                             2007       2006       2005
                                           --------   --------   --------
BALANCE, BEGINNING OF YEAR                 $278,625   $318,551   $238,173
 Impact of adoption of SOP 05-1 (1)          (1,577)        --         --
 Disposition of operation (2)                    --    (79,670)        --
 Acquisition costs deferred                  47,575     62,937     68,205
 Amortization charged to income             (53,445)   (31,672)   (41,663)
 Effect of unrealized gains and losses        7,486      8,479     53,836
                                           --------   --------   --------
BALANCE, END OF YEAR                       $278,664   $278,625   $318,551
                                           ========   ========   ========

----------
(1)  The adoption of SOP 05-1 resulted in a $1.6 million adjustment to
     unamortized DAC related to the impact on future estimated gross profits
     from the changes in accounting for certain costs associated with contract
     continuations that no longer qualify for deferral. (see Note 2).

(2)  In 2006, DAC was reduced in connection with the disposition through
     reinsurance agreements of the Company's variable annuity business (see Note
     3).

     Net amortization charged to income, due to realization of capital (gains)
and losses, includes $(196) thousand, $14.1 million and $(3.7) million in 2007,
2006 and 2005, respectively.

     As disclosed in Note 3, DAC and DSI balances were reduced during 2006
related to the disposal through reinsurance agreements of all of the variable
annuity business. During 2005, DAC and DSI amortization was estimated using
stochastic modeling and was significantly impacted by the anticipated return on
the underlying funds. The Company's long-term expectation of separate accounts
fund performance, net of fees, was approximately 7% in 2005. Whenever actual
separate accounts fund performance based on the two most recent years varied
from the expectation, the Company projected performance levels over the next
five years such that the mean return over a seven-year period equaled the
long-term expectation. This approach is commonly referred to as "reversion to
the mean" and is commonly used by the life insurance industry as an appropriate
method for amortizing variable annuity and life DAC and DSI. In applying the
reversion to the mean process, the Company did not allow the future mean rates
of return including fees projected over the five-year period to exceed 12.75% or
fall below 0%. The Company periodically evaluated the results of utilization of
this process to confirm that it was reasonably possible that variable annuity
and life fund performance would revert to the expected long-term mean within
this time horizon.

     DSI activity, which primarily relates to fixed annuities, for the twelve
months ended December 31 was as follows:

(IN THOUSANDS)                            2007      2006      2005
                                        -------   -------   -------
BALANCE, BEGINNING OF YEAR              $24,731   $18,527   $ 2,955
Impact of adoption of SOP 05-1 (1)         (243)       --        --
Disposition of operation (2)                 --    (6,162)       --
Sales inducements deferred                8,511    15,740    16,923
Amortization charged to income           (6,500)   (4,417)   (2,373)
Effect of unrealized gains and losses     1,492     1,043     1,022
                                        -------   -------   -------
BALANCE, END OF YEAR                    $27,991   $24,731   $18,527
                                        =======   =======   =======

----------
(1)  The adoption of SOP 05-1 resulted in a $243 thousand adjustment to
     unamortized DSI related to the impact on future estimated gross profits
     from the changes in accounting for certain costs associated with contract
     continuations that no longer qualify for deferral (see Note 2).

(2)  In 2006, DSI was reduced in connection with the disposition through
     reinsurance agreements of the Company's variable annuity business (see Note
     3).


                                       68

<Page>

NOTES TO FINANCIAL STATEMENTS

11. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES

GUARANTY FUNDS

     Under state insurance guaranty fund laws, insurers doing business in a
state can be assessed, up to prescribed limits, for certain obligations of
insolvent insurance companies to policyholders and claimants. Amounts assessed
to each company are typically related to its proportion of business written in a
particular state.

     The New York Liquidation Bureau (the "Bureau") has publicly reported that
Executive Life Insurance Company of New York ("Executive Life"), currently under
its jurisdiction as part of a 1992 court-ordered rehabilitation plan, may only
be able to meet future obligations of its annuity contracts for the next fifteen
years due to an estimated $600 million shortfall in assets to fund those
obligations. If Executive Life were to be declared insolvent in the future, the
Company would likely have exposure to guaranty fund assessments or other costs.

     Based on currently available information, the outcome of this situation is
uncertain at this time. The Bureau may eventually take actions to address this
situation that may lead to guaranty fund assessments or other costs to the
Company. Under current law, the Company may be allowed to recoup a portion of
the amount of any additional guaranty fund assessment in periods subsequent to
the recognition of the assessment by offsetting future premium taxes. The
Company's market share in New York was approximately 5.5% in 2006 based on
industry annuity premium.

GUARANTEES

     In the normal course of business, the Company provides standard
indemnifications to contractual counterparties in connection with numerous
transactions, including acquisitions and divestures. The types of
indemnifications typically provided include 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 are 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.
Consequently, 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 December 31, 2007.

REGULATION

     The Company is subject to changing social, economic and regulatory
conditions. From time to time regulatory authorities or legislative bodies seek
to impose additional regulations regarding agent and broker compensation 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.

LEGAL AND REGULATORY PROCEEDINGS AND INQUIRIES

BACKGROUND

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

     -    These matters raise difficult and complicated factual and legal issues
          and are subject to many uncertainties and complexities, including the
          underlying facts of each matter; novel legal issues; variations
          between jurisdictions in which matters are being litigated, heard or
          investigated; differences in applicable laws and judicial
          interpretations; the length of time before many of these matters might
          be resolved by settlement, through litigation or otherwise; the fact
          that some of the lawsuits are putative class actions in which a class
          has not been certified and in which the purported class may not be
          clearly defined; the fact that some of the lawsuits involve
          multi-state class actions in which the applicable law(s) for the
          claims at issue is in dispute and therefore unclear; and the current
          challenging legal environment faced by large corporations and
          insurance companies.

     -    The outcome on these matters may also be affected by decisions,
          verdicts, and settlements, and the timing of such decisions, verdicts,
          and settlements, in other individual and class action lawsuits that
          involve the Company, other insurers, or other entities and by other
          legal, governmental, and regulatory actions that involve the Company,
          other insurers, or other entities.


                                       69

<Page>

NOTES TO FINANCIAL STATEMENTS

     -    In the lawsuits, plaintiffs seek a variety of remedies including
          equitable relief in the form of injunctive and other remedies and
          monetary relief in the form of contractual and extra-contractual
          damages. In some cases, the monetary damages sought include punitive
          damages. Often specific information about the relief sought, such as
          the amount of damages, is not available because plaintiffs have not
          requested specific relief in their pleadings. In our experience, when
          specific monetary demands are made in pleadings, they bear little
          relation to the ultimate loss, if any, to the Company.

     -    In connection with regulatory examinations and proceedings, government
          authorities may seek various forms of relief, including penalties,
          restitution and changes in business practices. The Company may not be
          advised of the nature and extent of relief sought until the final
          stages of the examination or proceeding.

     -    For the reasons specified above, it is often not possible to make
          meaningful estimates of the amount or range of loss that could result
          from the matters described below in the "Proceedings" subsection. The
          Company reviews these matters on an ongoing basis and follows the
          provisions of SFAS No. 5, "Accounting for Contingencies" when making
          accrual and disclosure decisions. When assessing reasonably possible
          and probable outcomes, the Company bases its decisions on its
          assessment of the ultimate outcome following all appeals.

     -    Due to the complexity and scope of the matters disclosed in the
          "Proceedings" subsection below and the many uncertainties that exist,
          the ultimate outcome of these matters cannot be reasonably predicted.
          In the event of an unfavorable outcome in one or more of these
          matters, the ultimate liability may be in excess of amounts currently
          reserved and may be material to the Company's operating results or
          cash flows for a particular quarterly or annual period. However, based
          on information currently known to it, management believes that the
          ultimate outcome of all matters described below as they are resolved
          over time is not likely to have a material adverse effect on the
          financial position of the Company.

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 in the following paragraph.

     AIC is defending certain matters relating to its agency program
reorganization announced in 1999. These matters are in various stages of
development.

     -    These matters include a lawsuit filed in 2001 by the U.S. Equal
          Employment Opportunity Commission ("EEOC") alleging retaliation under
          federal civil rights laws (the "EEOC I" suit) and a class action filed
          in 2001 by former employee agents alleging retaliation and age
          discrimination under the Age Discrimination in Employment Act
          ("ADEA"), breach of contract and ERISA violations (the "Romero I"
          suit). In 2004, in the consolidated EEOC I and Romero I litigation,
          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 stated
          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 and in January
          2007, the judge denied their request. In June 2007, the court granted
          AIC's motions for summary judgment. Following plaintiffs' filing of a
          notice of appeal, the Third Circuit issued an order in December 31,
          2007 stating that the notice of appeal was not taken from a final
          order within the meaning of the federal law and thus not appealable at
          this time. Responses to the order were filed in mid-December.

     -    The EEOC also filed another lawsuit in 2004 alleging age
          discrimination with respect to a policy limiting the rehire of agents
          affected by the agency program reorganization (the "EEOC II" suit). In
          EEOC II, in 2006, the court granted partial summary judgment to the
          EEOC. Although the court did not determine that AIC was liable for age
          discrimination under the ADEA, it determined that the rehire policy
          resulted in a disparate impact, reserving for trial the determination
          on whether AIC had reasonable factors other


                                       70

<Page>

NOTES TO FINANCIAL STATEMENTS

          than age to support the rehire policy. AIC's interlocutory appeal of
          the trial court's summary judgment order is now pending in the United
          States Court of Appeals for the Eighth Circuit.

     -    AIC is also defending a certified class action filed by former
          employee agents who terminated their employment prior to the agency
          program reorganization. These plaintiffs have asserted breach of
          contract and ERISA claims. The court approved the form of class notice
          which was sent to approximately 1,800 potential class members in
          November 2007. Fifteen individuals opted out. AIC has moved for
          judgment on the pleadings and summary judgment.

     -    A putative nationwide class action has also been filed by former
          employee agents alleging various violations of ERISA, including a
          worker classification issue. These plaintiffs are challenging certain
          amendments to the Agents Pension Plan and are seeking to have
          exclusive agent independent contractors treated as employees for
          benefit purposes. This matter was dismissed with prejudice by the
          trial court, was the subject of further proceedings on appeal, and was
          reversed and remanded to the trial court in 2005. In June 2007, the
          court granted AIC's motion to dismiss the case. Following plaintiffs'
          filing of a notice of appeal, the Third Circuit issued an order in
          December 2007 stating that the notice of appeal was not taken from a
          final order within the meaning of the federal law and thus not
          appealable at this time. Responses to the order were filed in mid-
          December.

     In all of these various 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.

OTHER MATTERS

     Various other legal, governmental, and regulatory actions, including state
market conduct exams, and other governmental and regulatory inquiries 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 a number of lawsuits and proceedings, some of which involve claims for
substantial or indeterminate amounts. These actions are based on a variety of
issues and target a range of the Company's practices. The outcome of these
disputes is currently unpredictable. One or more of these matters could have an
adverse effect on the Company's operating results or cash flows for a particular
quarterly or annual period. However, based on information currently known to it,
management believes that the ultimate outcome of all matters described in this
"Other Matters" subsection in excess of amounts currently reserved, as they are
resolved over time is not likely to have a material effect on the operating
results, cash flows or financial position of the Company.

12.  INCOME TAXES

     The Company joins the Corporation and its other domestic subsidiaries (the
"Allstate Group") in the filing of a consolidated federal income tax return and
is party to a federal income tax allocation agreement (the "Allstate Tax Sharing
Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays to or
receives from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability is affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.

     The Internal Revenue Service ("IRS") is currently examining the Company's
2005 and 2006 federal income tax returns. The IRS has completed its examination
of the Company's federal income tax returns through 2004 and the statute of
limitations has expired on years prior to 2003. Any adjustments that may result
from IRS examinations of tax returns are not expected to have a material impact
on the results of operations, cash flows or financial position of the Company.

     The Company adopted the provisions of FIN 48 on January 1, 2007. The
Company had no liability for unrecognized tax benefits at January 1, 2007 or
December 31, 2007, and believes it is reasonably possible that the liability
balance will not significantly increase or decrease within the next twelve
months. No amounts have been accrued for interest or penalties.


                                       71

<Page>

NOTES TO FINANCIAL STATEMENTS

     The components of the deferred income tax assets and liabilities at
December 31 are as follows:

                                            2007        2006
                                         ---------   ---------
(IN THOUSANDS)
DEFERRED ASSETS
Life and annuity reserves                $  65,519   $  67,529
Other assets                                 2,564       1,924
                                         ---------   ---------
   Total deferred assets                    68,083      69,453
                                         ---------   ---------

DEFERRED LIABILITIES
Deferred policy acquisition costs          (56,351)    (59,986)
Unrealized net capital gains               (35,101)    (42,020)
Difference in tax bases of investments     (14,993)    (14,127)
Other liabilities                           (1,375)     (1,260)
                                         ---------   ---------

   Total deferred liabilities             (107,820)   (117,393)
                                         ---------   ---------

   Net deferred liability                $ (39,737)  $ (47,940)
                                         =========   =========

     Although realization is not assured, management believes it is more likely
than not that the deferred tax assets will be realized based on the assumption
that certain levels of income will be achieved.
     The components of income tax expense for the years ended December 31 are as
follows:

($ IN THOUSANDS)                2007      2006      2005
                              -------   -------   -------
Current                       $23,448   $16,949   $24,132
Deferred                         (646)      806    (3,187)
                              -------   -------   -------
   Total income tax expense   $22,802   $17,755   $20,945
                              =======   =======   =======

     The Company paid income taxes of $22.7 million, $23.2 million and $18.4
million in 2007, 2006 and 2005, respectively.

     A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the years ended December 31 is as
follows:

                                            2007   2006   2005
                                            ----   ----   ----
Statutory federal income tax rate           35.0%  35.0%  35.0%
State income tax expense                     2.1    2.7    3.0
Adjustment for prior year tax liabilities   (0.6)  (1.9)   0.3
Other                                       (1.3)  (1.7)  (0.5)
                                            ----   ----   ----
Effective income tax rate                   35.2%  34.1%  37.8%
                                            ====   ====   ====

13. STATUTORY FINANCIAL INFORMATION

     The Company prepares its statutory-basis financial statements in conformity
with accounting practices prescribed or permitted by the State of New York. The
State of New York requires insurance companies domiciled in its state to prepare
statutory-basis financial statements in conformity with the NAIC Accounting
Practices and Procedures Manual, subject to any deviations prescribed or
permitted by the State of New York Insurance Superintendent. Prescribed
statutory accounting practices include a variety of publications of the NAIC, as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed.

     Statutory accounting practices differ from GAAP primarily since they
require charging policy acquisition and certain sales inducement costs to
expense as incurred, establishing life insurance reserves based on different
actuarial assumptions, and valuing investments and establishing deferred taxes
on a different basis.

     Statutory net income for 2007, 2006 and 2005 was $38.2 million, $33.4
million and $35.9 million, respectively. Statutory capital and surplus as of
December 31, 2007 and 2006 was $462.4 million and $444.6 million, respectively.


                                       72

<Page>

NOTES TO FINANCIAL STATEMENTS

DIVIDENDS

     The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by the Company without prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in conformity with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 2008 without prior approval of the New York State Insurance Department is
$30.6 million. In the twelve-month period beginning January 1, 2007, the Company
did not pay any dividends.

14.  BENEFIT PLANS

PENSION AND OTHER POSTRETIREMENT PLANS

     The Company utilizes the services of AIC employees. AIC provides various
benefits, described in the following paragraphs, to its employees. The Company
is allocated an appropriate share of the costs associated with these benefits in
accordance with a service and expense agreement.

     Defined pension plans, sponsored by AIC, cover most full-time employees and
certain part-time employees. Benefits under the pension plans are based upon the
employee's length of service and eligible annual compensation. The Company uses
the accrual method for its defined benefit plans in accordance with accepted
actuarial methods. AIC's funding policy for the pension plans is to make annual
contributions at a minimum level that is at least in accordance with regulations
under the Internal Revenue Code and in accordance with generally accepted
actuarial principles. The allocated cost to the Company included in net income
for the pension plans in 2007, 2006 and 2005 was $2.3 million, $3.8 million and
$2.5 million, respectively.

     AIC also provides certain health care and life insurance subsidies for
employees hired before January 1, 2003 when they retire ("postretirement
benefits"). Qualified employees may become eligible for these benefits if they
retire in accordance with AIC's established retirement policy and are
continuously insured under AIC's group plans or other approved plans in
accordance with the plan's participation requirements. AIC shares the cost of
the retiree medical benefits with retirees based on years of service, with AIC's
share being subject to a 5% limit on annual medical cost inflation after
retirement. AIC has the right to modify or terminate these plans. The allocated
cost to the Company included in net income was $566 thousand, $551 thousand and
$583 thousand for postretirement benefits other than pension plans in 2007, 2006
and 2005, respectively.

PROFIT SHARING PLAN

     Employees of AIC are eligible to become members of The Savings and Profit
Sharing Fund of Allstate Employees ("Allstate Plan"). The Corporation's
contributions are based on the Corporation's matching obligation and
performance. The Company's allocation of profit sharing expense from the
Corporation was $1.5 million, $1.5 million and $502 thousand in 2007, 2006 and
2005, respectively.


                                       73

<Page>

NOTES TO FINANCIAL STATEMENTS

15. OTHER COMPREHENSIVE INCOME

     The components of other comprehensive (loss) income on a pre-tax and
after-tax basis for the years ended December 31 are as follows:

($ IN THOUSANDS)

                                                           2007
                                              ------------------------------
                                                                     After-
                                                Pretax      Tax        tax
                                              ---------   -------   --------
Unrealized holding losses arising during the
   period                                      $(15,895)  $ 5,563   $(10,332)
Less: reclassification adjustment                 3,874    (1,356)     2,518
                                               --------   -------   --------
Unrealized net capital gains and losses         (19,769)    6,919    (12,850)
                                               --------   -------   --------
Other comprehensive loss                       $(19,769)  $ 6,919   $(12,850)
                                               ========   =======   ========

($ IN THOUSANDS)
                                                           2006
                                              ------------------------------
                                                                     After-
                                                Pretax      Tax        tax
                                              ---------   -------   --------
Unrealized holding losses arising during the
   period                                     $(102,314)  $35,810   $(66,504)
Less: reclassification adjustment               (23,960)    8,386    (15,574)
                                              ---------   -------   --------
Unrealized net capital gains and losses         (78,354)   27,424    (50,930)
                                              ---------   -------   --------
Other comprehensive loss                      $ (78,354)  $27,424   $(50,930)
                                              =========   =======   ========

($ IN THOUSANDS)
                                                           2005
                                              ------------------------------
                                                                     After-
                                                Pretax      Tax        tax
                                              ---------   -------   --------
Unrealized holding gains arising during the
   period                                      $(46,529)  $16,285   $(30,244)
Less: reclassification adjustment                (6,087)    2,130     (3,957)
                                               --------   -------   --------
Unrealized net capital gains and losses         (40,442)   14,155    (26,287)
                                               --------   -------   --------
Other comprehensive loss                       $(40,442)  $14,155   $(26,287)
                                               ========   =======   ========


                                       74

<Page>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

We have audited the accompanying Statements of Financial Position of
Allstate Life Insurance Company of New York (the "Company", an affiliate of The
Allstate Corporation) as of December 31, 2007 and 2006 and the related
Statements of Operations and Comprehensive Income, Shareholder's Equity, and
Cash Flows for each of the three years in the period ended December 31, 2007.
Our audits also included the financial statement schedules listed in the Index
at Item 15. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstate Life Insurance Company of New York
as of December 31, 2007 and 2006, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for uncertainty in income taxes and accounting for deferred
acquisition costs associated with internal replacements in 2007.


/s/ Deloitte & Touche LLP
-------------------------
Chicago, Illinois
March 13, 2008


                                       75

<Page>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures. We maintain disclosure
controls and procedures as defined in Rules 13(a)-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934. Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness 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 providing reasonable assurance that material
information required to be disclosed in our reports filed with or submitted to
the Securities and Exchange Commission under the Securities Exchange Act is
recorded, processed, summarized and reported within the time periods specified
by the Securities Exchange Act and made known to management, including the
principal executive officer and the principal financial officer, as appropriate
to allow timely decisions regarding required disclosure.

     Management's Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934.

     Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2007 based on the criteria related to
internal control over financial reporting described in "Internal Control -
Integrated Framework" issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation, management concluded that our
internal control over financial reporting was effective as of December 31, 2007.

     This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.

     Changes in Internal Control over Financial Reporting. During the fiscal
quarter ended December 31, 2006, 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.

ITEM 9B. OTHER INFORMATION

     None.


                                       76

<Page>

PART III

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

(1), (2), (3) and (4) Disclosure of fees -

     The following fees have been, or are anticipated to be billed by Deloitte &
Touche LLP, the member firms of Deloitte & Touche Tohmatsu, and their respective
affiliates, for professional services rendered to us for the fiscal years ending
December 31, 2007 and 2006.

                           2007       2006
                         --------   --------
Audit fees (a)           $362,243   $344,300
Audit related fees (b)      1,522         --
                         --------   --------
TOTAL FEES               $363,765   $344,300
                         ========   ========

(a)  Fees for audits of annual financial statements including financial
     statements for the separate accounts, reviews of quarterly financial
     statements, statutory audits, attest services, comfort letters, consents
     and review of documents filed with the Securities and Exchange Commission.

(b)  Audit related fees relate to professional services such as accounting
     consultations relating to new accounting services.

(5)(i) and (ii) Audit committee's pre-approval policies and procedures -

     The Audit Committee of The Allstate Corporation has established
pre-approval policies and procedures for itself and its consolidated
subsidiaries, including Allstate Life Insurance Company of New York. Those
policies and procedures are incorporated into this Item 14(5) by reference to
Exhibit 99 - The Allstate Corporation Policy Regarding Pre-Approval of
Independent Auditors' Services (the "Pre-Approval Policy"). In addition, in 2005
the Board of Directors of Allstate Life Insurance Company of New York adopted
the Pre-Approval Policy, as it may be amended from time to time by the Audit
Committee or the Board of Directors of the Corporation, as its own policy,
provided that the Designated Member referred to in such policy need not be
independent because the New York Stock Exchange corporate governance standards
do not apply to Allstate Life Insurance Company of New York and provided that
references to the "audit committee" would mean Allstate Life Insurance Company
of New York's Board. All of the services provided by Deloitte & Touche LLP to
Allstate Life Insurance Company of New York in 2007 and 2006 were pre-approved
by The Allstate Corporation Audit Committee and the Allstate Life Insurance
Company of New York Board.


                                       77

<Page>

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

     (a)  (1) The following financial statements, notes thereto and related
          information of Allstate Life Insurance Company of New York are
          included in Item 8.

          Statements of Operations and Comprehensive Income

          Statements of Financial Position

          Statements of Shareholder's Equity

          Statements of Cash Flows

          Notes to Financial Statements

          Report of Independent Registered Public Accounting Firm

          (2) The following additional financial statement schedules are
          furnished herewith pursuant to the requirements of Form 10-K.

          Allstate Life Insurance Company of New York          Page

          Schedules required to be filed under
          provisions of Regulation S-X Article 7:

          Schedule I - Summary of Investments - Other
          Than Investments in Related Parties                   S-1

          Schedule IV - Reinsurance                             S-2

          All other schedules have been omitted because they are not applicable
          or required or because the required information is included in the
          financial statements or notes thereto.

          (3) The following is a list of the exhibits filed as part of this Form
          10-K. The SEC file number for the exhibits incorporated by reference
          is 033-100029 except as otherwise noted.

Exhibit
  No.     Description
-------   ----------------------------------------------------------------------
 3(i)     Restated Certificate of Incorporation of Allstate Life Insurance
          Company of New York dated December 2, 2003. Incorporated herein by
          reference to Exhibit 3(i) to Allstate Life Insurance Company of New
          York's Annual Report on Form 10-K for 2003.

 3(ii)    Amended By-Laws of Allstate Life Insurance Company of New York dated
          December 16, 1998. Incorporated herein by reference to Exhibit 3(ii)
          to Allstate Life Insurance Company of New York's Annual Report on Form
          10-K for 1998.

 10.1     Form of Amended and Restated Service and Expense Agreement between
          Allstate Insurance Company, The Allstate Corporation and certain
          affiliates effective January 1, 2004. Incorporated herein by reference
          to Exhibit 10.1 to Allstate Life Insurance Company's Annual Report on
          Form 10-K for 2007. (SEC File No. 000-31248)

 10.2     New York Insurer Supplement to Amended and Restated Service and
          Expense Agreement between Allstate Insurance Company, The Allstate
          Corporation, Allstate Life Insurance Company of New York and
          Intramerica Life Insurance Company, effective March 5, 2005.
          Incorporated herein by reference to Exhibit 10.2 to Allstate Life
          Insurance Company's Quarterly Report on Form 10-Q for quarter ended
          June 30, 2005. (SEC File No. 000-31248)

 10.3     Investment Advisory Agreement and Amendment to Service Agreement as of
          January 1, 2002 between Allstate Insurance Company, Allstate
          Investments, LLC and Allstate Life Insurance Company of New York.
          Incorporated herein by reference to Exhibit 10.2 to


                                       78

<Page>

          Allstate Life Insurance Company of New York's Quarterly Report on Form
          10-Q for quarter ended March 31, 2002.

 10.4     Form of Tax Sharing Agreement among The Allstate Corporation and
          certain affiliates dated as of November 12, 1996. Incorporated herein
          by reference to Exhibit 10.24 to Allstate Life Insurance Company's
          Annual Report Form 10-K for 2007. (SEC File No. 000-31248)

 10.5     Underwriting Agreement between Allstate Life Insurance Company of New
          York and ALFS, Inc., effective October 1, 1996. Incorporated herein by
          reference to Exhibit 10.1 to Allstate Life Insurance Company of New
          York's Quarterly Report on Form 10-Q for quarter ended June 30, 2002.

 10.6     Principal Underwriting Agreement between Allstate Life Insurance
          Company of New York and Allstate Distributors, L.L.C., effective May
          1, 2000. Incorporated herein by reference to Exhibit 10.2 to Allstate
          Life Insurance Company of New York's Quarterly Report on Form 10-Q for
          quarter ended June 30, 2002.

 10.7     Amendment Number One to the Principal Underwriting Agreement between
          Allstate Life Insurance Company of New York and Allstate Distributors,
          L.L.C. effective October 1, 2002. Incorporated herein by reference to
          Exhibit 10.1 to Allstate Life Insurance Company of New York's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.

10.8      Selling Agreement between Allstate Life Insurance Company of New York,
          ALFS, Inc. and Allstate Financial Services, LLC effective May 1, 2005.
          Incorporated herein by reference to Exhibit 10.7 to Allstate Life
          Insurance Company's Annual Report on Form 10-K for 2003. (SEC File No.
          000-31248)

10.9      Reinsurance Agreement between Allstate Life Insurance Company and
          Allstate Life Insurance Company of New York effective January 1, 1984
          as amended by Amendment No. 1 effective September 1, 1984, Amendment
          No.2 effective January 1, 1987, Amendment No.3 effective October 1,
          1988, Amendment No.4 effective January 1, 1994 and Amendment No.5
          effective December 31, 1995. Incorporated herein by reference to
          Exhibit 10.6 to Allstate Life Insurance Company of New York's
          Quarterly Report on Form 10-Q for quarter ended June 30, 2002.

10.10     Assumption Reinsurance Agreement between Allstate Life Insurance
          Company and Allstate Life Insurance Company of New York effective July
          1, 1984. Incorporated herein by reference to Exhibit 10.7 to Allstate
          Life Insurance Company of New York's Quarterly Report on Form 10-Q for
          quarter ended June 30, 2002.

10.11     Reinsurance Agreement between Allstate Life Insurance Company and
          Allstate Life Insurance Company of New York, effective January 1,
          1986, as amended by Amendment No.1 effective December 31, 1995 and
          Amendment No. 2 effective December 1, 1995. Incorporated herein by
          reference to Exhibit 10.8 to Allstate Life Insurance Company of New
          York's Quarterly Report on Form 10-Q for quarter ended June 30, 2002.

10.12     Reinsurance Agreement between Allstate Life Insurance Company and
          Allstate Life Insurance Company of New York, effective January 1,
          1991, as amended by Amendment No.1 effective December 31, 1995.
          Incorporated herein by reference to Exhibit 10.9 to Allstate Life
          Insurance Company of New York's Quarterly Report on Form 10-Q for
          quarter ended June 30, 2002.

10.13     Stop Loss Reinsurance Agreement between Allstate Life Insurance
          Company and Allstate Life Insurance Company of New York effective
          December 31, 2001.


                                       79

<Page>

          Incorporated herein by reference to Exhibit 10.16 to Allstate Life
          Insurance Company of New York's Annual Report on Form 10-K for 2003.

10.14     Automatic Annuity Reinsurance Agreement between Allstate Life
          Insurance Company of New York and Allstate Life Insurance Company,
          effective January 2, 2004. Incorporated herein by reference to Exhibit
          10.2 to Allstate Life Insurance Company of New York's Quarterly Report
          on Form 10-Q for quarter ended June 30, 2004.

10.15     Amendment No. 1 to Automatic Annuity Reinsurance Agreement between
          Allstate Life Insurance Company of New York and Allstate Life
          Insurance Company, effective January 1, 2005. Incorporated herein by
          reference to Exhibit 10.1 to Allstate Life Insurance Company of New
          York's Quarterly Report on Form 10-Q for quarter ended March 31, 2005.

10.16     Amendment No. 2 to Automatic Annuity Reinsurance Agreement between
          Allstate Life Insurance Company of New York and Allstate Life
          Insurance Company, effective June 1, 2006. Incorporated herein by
          reference to Exhibit 10.1 to Allstate Life Insurance Company of New
          York's Current Report on Form 8-K filed June 7, 2006.

10.17     Cash Management Services Master Agreement between Allstate Insurance
          Company and Allstate Bank (f/k/a Allstate Federal Savings Bank) dated
          March 16, 1999. Incorporated herein by reference to Exhibit 10.32 to
          Allstate Life Insurance Company's Form 10 filed on April 24, 2002.
          (SEC File No. 000-31248)

10.18     Amendment No. 1 effective January 5, 2001 to Cash Management Services
          Master Agreement between Allstate Insurance Company and Allstate Bank
          dated March 16, 1999. Incorporated herein by reference to Exhibit
          10.33 to Allstate Life Insurance Company's Form 10 filed on April 24,
          2002. (SEC File No. 000-31248)

10.19     Amendment No. 2 entered into November 8, 2002 to the Cash Management
          Services Master Agreement between Allstate Insurance Company, Allstate
          Bank and Allstate Motor Club, Inc. dated March 16, 1999. Incorporated
          herein by reference to Exhibit 10.19 to Allstate Life Insurance
          Company's Annual Report on Form 10-K filed for 2007.
          (SEC File No. 000-31248)

10.20     Premium Depository Service Supplement dated as of September 30, 2005
          to Cash Management Services Master Agreement between Allstate
          Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and
          certain other parties. Incorporated herein by reference to Exhibit
          10.20 to Allstate Life Insurance Company's Annual Report on Form 10-K
          filed for 2007. (SEC File No. 000-31248)

10.21     Variable Annuity Service Supplement dated November 10, 2005 to Cash
          Management Services Agreement between Allstate Bank, Allstate Life
          Insurance Company of New York and certain other parties. Incorporated
          herein by reference to Exhibit 10.21 to Allstate Life Insurance
          Company's Annual Report on Form 10-K filed for 2007.
          (SEC File No. 000-31248)

10.22     Sweep Agreement Service Supplement dated as of October 11, 2006 to
          Cash Management Services Master Agreement between Allstate Life
          Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and
          certain other companies. Incorporated herein by reference to Exhibit
          10.22 to Allstate Life Insurance Company's Annual Report on Form 10-K
          filed for 2007. (SEC File No. 000-31248)

10.23     Agreement for the Settlement of State and Local Tax Credits among
          Allstate Insurance Company and certain affiliates effective January 1,
          2007. Incorporated herein by reference to Exhibit 10.1 to Allstate
          Life Insurance Company of New York's Current Report on Form 8-K filed
          February 21, 2008.


                                       80

<Page>

10.24     Intercompany Loan Agreement among The Allstate Corporation, Allstate
          Life Insurance Company, Lincoln Benefit Life Company and other certain
          subsidiaries of The Allstate Corporation dated February 1, 1996.
          Incorporated herein by reference to Exhibit 10.24 of Allstate Life
          Insurance Company's Annual Report on Form 10-K for 2006.
          (SEC File No. 000-31248)

  23      Consent of Independent Registered Public Accounting Firm

31.1      Rule 15d-14(a) Certification of Principal Executive Officer

31.2      Rule 15d-14(a) Certification of Principal Financial Officer

  32      Section 1350 Certifications

  99      The Allstate Corporation Policy Regarding Pre-Approval of Independent
          Auditors' Services effective November 10, 2003. Incorporated herein by
          reference to Exhibit 99(ii) to Allstate Life Insurance Company of New
          York's Annual Report on Form 10-K for 2004.


                                       81

<Page>

                                   SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) 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 OF NEW YORK
                                     (Registrant)


March 12, 2008                       /s/ Samuel H. Pilch
                                     -------------------------------------------
                                     By: Samuel H. Pilch
                                     (Controller)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE                     TITLE                              DATE
---------------------------   --------------------------------   --------------


/s/ James E. Hohmann          Chairman of the Board, President   March 12, 2008
---------------------------   and Chief Executive Officer
James E. Hohmann              (Principal Executive Officer)


/s/ John C. Pintozzi          Vice President, Chief Financial    March 12, 2008
---------------------------   Officer and a Director
John C. Pintozzi              (Principal Financial Officer)


/s/ Marcia D. Alazraki        Director                           March 12, 2008
---------------------------
Marcia D. Alazraki


/s/ Michael B. Boyle          Director                           March 12, 2008
---------------------------
Michael B. Boyle


/s/ Vincent A. Fusco          Director                           March 12, 2008
---------------------------
Vincent A. Fusco


/s/ Cleveland Johnson, Jr.    Director                           March 12, 2008
---------------------------
Cleveland Johnson, Jr.


/s/ John C. Lounds            Director                           March 12, 2008
---------------------------
John C. Lounds


                              Director                           March 12, 2008
---------------------------
Kenneth Robert O'Brien


/s/ John R. Raben, Jr.        Director                           March 12, 2008
---------------------------
John R. Raben, Jr.


/s/ Phyllis Hill Slater       Director                           March 12, 2008
---------------------------
Phyllis Hill Slater


                              Director                           March 12, 2008
---------------------------
Kevin R. Slawin


/s/ Michael J. Velotta        Director                           March 12, 2008
---------------------------
Michael J. Velotta


/s/ Douglas B. Welch          Director                           March 12, 2008
---------------------------
Douglas B. Welch


                                       82

<Page>

           SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
 PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS
           WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12
                     OF THE SECURITIES EXCHANGE ACT OF 1934

     All of the outstanding common stock of the Company is owned by Allstate
Life Insurance Company. The Company has not provided any of the following items
to security holders:

     (1)  annual reports to security holders covering the registrant's last
          fiscal year; or

     (2)  proxy statements, forms of proxy or other proxy soliciting materials.


                                       83

<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
          SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS
                               IN RELATED PARTIES
                                DECEMBER 31, 2007

<Table>
<Caption>
($ IN THOUSANDS)
                                                                                                 AMOUNTS AT
                                                                                                   WHICH
                                                                                                  SHOWN ON
                                                                                                  BALANCE
                                                                          COST     FAIR VALUE      SHEET
                                                                      ----------   ----------   -----------
<S>                                                                   <C>          <C>          <C>
Type of investment
Fixed Maturities:
   Bonds:
      United States government, government agencies and authorities   $  576,892   $  797,191    $  797,191
      States, municipalities and political subdivisions                  421,755      433,307       433,307
      Foreign governments                                                259,851      333,540       333,540
      Public utilities                                                   679,792      715,294       715,294
      All other corporate bonds                                        2,635,153    2,663,517     2,663,517
   Commercial mortgage-backed securities                                 811,191      791,941       791,941
   Mortgage-backed securities                                            419,730      419,617       419,617
   Asset-backed securities                                               115,203      106,877       106,877
   Redeemable preferred stocks                                             9,332        9,844         9,844
                                                                      ----------   ----------    ----------
      Total fixed maturities                                           5,928,899   $6,271,128     6,271,128
                                                                      ==========   ==========    ==========
Mortgage loans on real estate                                            725,301                    725,301
Policy loans                                                              38,509                     38,509
Short-term investments                                                    22,688                     22,688
Derivative instruments                                                         3                          3
                                                                      ----------                 ----------
      Total investments                                               $6,715,400                 $7,057,629
                                                                      ==========                 ==========
</Table>


                                       S-1

<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                            SCHEDULE IV--REINSURANCE

<Table>
<Caption>
($ IN THOUSANDS)
                                                                                        PERCENTAGE
                                                                                        OF AMOUNT
                                     GROSS                                  NET          ASSUMED
YEAR ENDED DECEMBER 31, 2007        AMOUNT       CEDED(1)     ASSUMED      AMOUNT         TO NET
                                 -----------   -----------   --------   -----------   -------------
<S>                              <C>           <C>           <C>        <C>                 <C>
Life insurance in force          $30,804,623   $12,578,676   $772,742   $18,998,689         4.1%
                                 ===========   ===========   ========   ===========
Premiums and contract charges:
   Life and annuities            $   159,811   $    39,066   $  1,273   $   122,018         1.0%
   Accident and health                 9,748         3,112         --         6,636          --
                                 -----------   -----------   --------   -----------
                                 $   169,559   $    42,178   $  1,273   $   128,654         1.0%
                                 ===========   ===========   ========   ===========
YEAR ENDED DECEMBER 31, 2006
Life insurance in force          $28,410,800   $11,524,333   $810,202   $17,696,669         4.6%
                                 ===========   ===========   ========   ===========
Premiums and contract charges:
   Life and annuities            $   170,625   $    29,392   $  1,367   $   142,600         0.9%
   Accident and health                 8,878         3,739         --         5,139          --
                                 -----------   -----------   --------   -----------
                                 $   179,503   $    33,131   $  1,367   $   147,739         0.9%
                                 ===========   ===========   ========   ===========
YEAR ENDED DECEMBER 31, 2005
Life insurance in force          $25,508,599   $ 9,806,717   $540,025   $16,241,907         3.3%
                                 ===========   ===========   ========   ===========
Premiums and contract charges:
   Life and annuities            $   142,091   $    12,372   $    950   $   130,669         0.7%
   Accident and health                 8,658         4,509         --         4,149          --
                                 -----------   -----------   --------   -----------
                                 $   150,749   $    16,881   $    950   $   134,818         0.7%
                                 ===========   ===========   ========   ===========
</Table>

(1)  No reinsurance or  coinsurance  income was netted against  premium ceded in
     2007, 2006 or 2005.


                                       S-2