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                                  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, 2008

                                       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 Act:  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 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.

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<S>                          <C>                    <C>                        <C>
Large accelerated filer      Accelerated filer      Non-accelerated filer      Smaller reporting company
         /_/                       /_/                      /X/                           /_/
                                      (Do not check if a smaller reporting company)
</Table>

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 18, 2009, 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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                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                       INDEX TO ANNUAL REPORT ON FORM 10-K
                                DECEMBER 31, 2008

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                                                                                                             PAGE
<S>             <C>                                                                                          <C>
PART I

Item 1.         Business                                                                                       1
Item 1A.        Risk Factors                                                                                   2
Item 1B.        Unresolved Staff Comments                                                                      8
Item 2.         Properties                                                                                     8
Item 3.         Legal Proceedings                                                                              8
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                                    56
Item 8.         Financial Statements and Supplementary Data                                                   57
Item 9.         Change in and Disagreements With Accountants on Accounting and Financial Disclosure          101
Item 9A.        Controls and Procedures                                                                      101
Item 9B.        Other Information                                                                            101

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                                                       102

PART IV

Item 15.        Exhibits and Financial Statement Schedules                                                   103
                Signatures                                                                                   107
                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                     108
                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
Allstate Insurance Holdings, LLC, which is wholly 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 is
reinventing protection and retirement to help individuals in approximately 17
million households protect what they have today and better prepare for tomorrow.
Customers can access Allstate products and services such as auto insurance and
homeowners insurance through more than 14,000 exclusive Allstate agencies and
financial representatives in the United States and Canada. Allstate is the 2nd
largest personal property and casualty insurer in the United States on the basis
of 2007 statutory direct premiums earned. In addition, according to A.M. Best,
it is the nation's 16th largest issuer of life insurance business on the basis
of 2007 ordinary life insurance in force and 17th largest on the basis of 2007
statutory admitted assets.

     To achieve its goals in 2009, Allstate is focused on three priorities:
protect Allstate's financial strength, build customer loyalty, and continue
reinventing protection and retirement for the consumer. In addition, Allstate
will continue to monitor market conditions and will consider business start-ups,
acquisitions and alliances that would forward our business objectives and
represent prudent uses of corporate capital.

     In this annual report on Form 10-K, we occasionally refer to statutory
financial information. All domestic United States insurance companies are
required to prepare statutory-basis financial statements. 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 of America ("GAAP"). We frequently use industry
publications containing statutory financial information to assess our
competitive position.

     The Company provides life insurance, retirement and investment products,
and voluntary accident and health insurance 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 types 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, 2008, there were
approximately 500 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 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.

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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,
investment results, 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.

CHANGES IN UNDERWRITING AND ACTUAL EXPERIENCE COULD MATERIALLY AFFECT
PROFITABILITY AND FINANCIAL CONDITION

     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 taking into account rating agencies and regulatory
requirements. We monitor and manage our pricing and overall sales mix to achieve
target new business 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 and financial condition.

CHANGES IN RESERVE ESTIMATES MAY ADVERSELY AFFECT OUR OPERATING RESULTS

     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 amortization of
deferred policy acquisition costs ("DAC") may be required which could have a
material adverse effect on our operating results.

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
relatively 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 partially offset
decreases in investment yield on some products. However, these changes could be
limited by market

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conditions, regulatory minimum rates 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 fixed income investment asset values are lower as a
result of the increase in interest rates. This could lead to the sale of fixed
income securities at a loss. For certain products, principally fixed annuity and
interest-sensitive life products, the earned rate on assets could lag behind
rising 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 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 PRODUCTS MAY ADVERSELY AFFECT OUR PROFITABILITY
AND FINANCIAL CONDITION 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. 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 contractholders, and the
effects of persistency, mortality, expenses, and hedges if applicable. Updates
to these assumptions (commonly referred to as "DAC unlocking") could adversely
affect our profitability and financial condition. In 2008, DAC unlocking
resulted in increased amortization of DAC of $9.1 million.

NARROWING THE FOCUS OF OUR PRODUCT OFFERINGS AND REDUCING OUR CONCENTRATION IN
FIXED ANNUITIES MAY ADVERSELY AFFECT REPORTED RESULTS

     Due to the current capital market conditions, we have been pursuing
strategies to narrow our product offerings and reduce our concentration in fixed
annuities. Lower new sales of these products, as well as our ongoing risk
mitigation and return optimization programs, could negatively impact investment
portfolio levels, complicate settlement of expiring contracts including forced
sales of assets with unrealized capital losses, impact DAC amortization, and
affect insurance reserves deficiency testing.

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 AND
FINANCIAL CONDITION

     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 profitability and financial condition 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.

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RISKS RELATING TO INVESTMENTS

WE ARE SUBJECT TO MARKET RISK AND DECLINES IN CREDIT QUALITY WHICH MAY ADVERSELY
IMPACT INVESTMENT INCOME AND CAUSE ADDITIONAL REALIZED LOSSES

     Although we continually reevaluate our proactive risk mitigation and return
optimization programs, we remain subject to the risk that we will incur losses
due to adverse 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 general weakening in
the economy.

     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 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 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

     Changes in mortgage delinquency or recovery rates, declining real estate
prices, changes in credit or bond insurer strength ratings and the quality of
service provided by service providers on securities in our portfolio 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 ON OUR OPERATING RESULTS AND FINANCIAL
CONDITION

     The concentration of our investment portfolio in any particular industry,
collateral types, 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 condition. 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.

THE DETERMINATION OF THE AMOUNT OF REALIZED CAPITAL LOSSES RECORDED FOR
IMPAIRMENTS OF OUR INVESTMENTS IS HIGHLY SUBJECTIVE AND COULD MATERIALLY IMPACT
OUR OPERATING RESULTS AND FINANCIAL CONDITION

     The determination of the amount of realized capital losses recorded for
impairments vary by investment type and is based upon our periodic evaluation
and assessment of known and inherent risks associated with the respective asset
class. Such evaluations and assessments are revised as conditions change and new
information becomes available. Management updates its evaluations regularly and
reflects changes in realized capital gains and losses from impairments in
operating results as such evaluations are revised. There can be no assurance
that our management has accurately assessed the level of or amounts recorded for
impairments taken in our financial statements. Furthermore, additional
impairments may need to be recorded in the future. Historical trends may not be
indicative of future impairments. For example, the amortized cost of our fixed
income securities is adjusted for impairments in value deemed to be other than
temporary in the period in which the determination is made. The assessment of
whether impairments have occurred is based on management's case-by-case
evaluation of the underlying reasons for the decline in fair value.

THE DETERMINATION OF THE FAIR VALUE OF OUR FIXED INCOME SECURITIES RESULTS IN
UNREALIZED NET CAPITAL GAINS AND LOSSES AND IS HIGHLY SUBJECTIVE AND COULD
MATERIALLY IMPACT OUR OPERATING RESULTS AND FINANCIAL CONDITION

     In determining fair value we generally utilize market transaction data for
the same or similar instruments. The degree of management judgment involved in
determining fair values is inversely related to the availability of market
observable information. The fair value of financial assets and financial
liabilities may differ from the amount actually received to sell an asset or the
amount paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Moreover, the use of different valuation
assumptions may have a material effect on the financial assets' and financial
liabilities' fair values. The difference between amortized cost and fair value,
net of deferred income taxes, certain DAC, certain deferred sales inducement
costs ("DSI"), and certain reserves for life-contingent contract benefits, is
reflected as a component of accumulated other comprehensive income in
shareholder's equity. As of December 31, 2008, total unrealized net capital
losses was $278.3 million. In the last 10 years, our quarterly net unrealized
capital gains and losses have ranged from a $659.7 million net

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unrealized capital gain at June 30, 2005 to a $278.3 million net unrealized
capital loss at December 31, 2008. Changing market conditions could materially
effect the determination of the fair value of our securities and unrealized net
capital gains and losses could vary significantly. Determining fair value is
highly subjective and could materially impact our operating results and
financial condition.

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.

DIFFICULT CONDITIONS IN THE ECONOMY GENERALLY COULD ADVERSELY AFFECT OUR
BUSINESS AND OPERATING RESULTS

     Economists now believe the United States economy has entered into a
recessionary period and are projecting significant negative macroeconomic
trends, including widespread job losses, higher unemployment, lower consumer
spending, continued declines in home prices and substantial increases in
delinquencies on consumer debt, including defaults on home mortgages. Moreover,
recent disruptions in the financial markets, particularly the reduced
availability of credit and tightened lending requirements, have impacted the
ability of borrowers to refinance loans at more affordable rates. We cannot
predict the length and severity of a recession, but as with most businesses, we
believe a longer or more severe recession could have an adverse effect on our
business and results of operations.

     A general economic slowdown could adversely affect us in the form of
consumer behavior and pressure on our investment portfolio. Consumer behavior
could include decreased demand for our products. Holders of some of our life
insurance and annuity products may engage in an elevated level of discretionary
withdrawals of contractholder funds. Our investment portfolio could be adversely
affected as a result of deteriorating financial and business conditions
affecting the issuers of the securities in our investment portfolio.

THERE CAN BE NO ASSURANCE THAT ACTIONS OF THE U.S. FEDERAL GOVERNMENT, FEDERAL
RESERVE AND OTHER GOVERNMENTAL AND REGULATORY BODIES FOR THE PURPOSE OF
STABILIZING THE FINANCIAL MARKETS AND STIMULATING THE ECONOMY WILL ACHIEVE THE
INTENDED EFFECT

     In response to the financial crises affecting the banking system, the
financial markets and the broader economy, the U.S. federal government, the
Federal Reserve and other governmental and regulatory bodies have taken or are
considering taking action to address such conditions including, among other
things, purchasing mortgage-backed and other securities from financial
institutions, investing directly in banks, thrifts and bank and savings and loan
holding companies and increasing federal spending to stimulate the economy.
There can be no assurance as to what impact such actions will have on the
financial markets or on economic conditions. Such continued volatility and
economic deterioration could materially and adversely affect our business,
financial condition and results of operations.

LOSSES FROM LITIGATION MAY BE MATERIAL TO OUR OPERATING RESULTS OR CASH FLOWS
AND FINANCIAL CONDITION

     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 and to our
financial condition.

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

     As an insurance company, 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

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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
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, WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS AND FINANCIAL CONDITION

     The collectability of reinsurance recoverables is subject to uncertainty
arising from a number of factors, including changes in market conditions,
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.

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 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 terrorist acts occur, we could be
adversely affected, depending on the nature of the event.

A DOWNGRADE IN OUR FINANCIAL STRENGTH RATINGS MAY HAVE AN ADVERSE EFFECT ON OUR
COMPETITIVE POSITION, THE MARKETABILITY OF OUR PRODUCT OFFERINGS, AND OUR
LIQUIDITY, OPERATING RESULTS AND FINANCIAL CONDITION

     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 current insurance financial strength ratings
of ALNY and ALIC are A+,

                                        6
<Page>

AA- and A1 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 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.

ADVERSE CAPITAL AND CREDIT MARKET CONDITIONS MAY SIGNIFICANTLY AFFECT OUR
ABILITY TO MEET LIQUIDITY NEEDS OR OUR ABILITY TO OBTAIN CREDIT ON ACCEPTABLE
TERMS

     The capital and credit markets have been experiencing extreme volatility
and disruption. In some cases, the markets have exerted downward pressure on the
availability of liquidity and credit capacity. In the event that we need access
to additional capital to pay our operating expenses, make payments on our
indebtedness, pay for capital expenditures or fund acquisitions, our ability to
obtain such capital may be limited and the cost of any such capital may be
significant. Our access to additional financing will depend on a variety of
factors such as market conditions, the general availability of credit, the
overall availability of credit to our industry, our credit ratings and credit
capacity, as well as lenders' perception of our long- or short-term financial
prospects. Similarly, our access to funds may be impaired if regulatory
authorities or rating agencies take negative actions against us. If a
combination of these factors were to occur, our internal sources of liquidity
may prove to be insufficient, and in such case, we may not be able to
successfully obtain additional financing on favorable terms.

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 are periodically revised, interpreted
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 REALIZATION OF DEFERRED TAX ASSETS IS SUBJECT TO UNCERTAINTY

     The realization of our deferred tax assets is based on our assumption that
we will be able to fully utilize the deductions that are ultimately recognized
for tax purposes. However, actual results may differ from our assumptions if
adequate levels of taxable income are not attained.

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,
PROFITABILITY 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, we would
be impacted.

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

                                        7
<Page>

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 1B. UNRESOLVED STAFF COMMENTS

     None.

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.

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 Allstate Insurance Holdings, LLC, which is wholly owned by the
Corporation. Within the past three years, we have not sold or repurchased any of
our equity securities.

     In 2008 and 2007, 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.

     We are focused on three priorities in 2009: protecting our financial
strength, building customer loyalty, and continue reinventing protection and
retirement for the consumer.

     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, invested assets, and new business returns;
     -    For investments: credit quality/experience, realized capital gains and
          losses, investment income, unrealized capital gains and losses,
          stability of long-term returns, total returns, cash flows, and asset
          and liability duration; and
     -    For financial condition: liquidity, financial strength ratings,
          operating 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 financial statements. The most critical estimates
include those used in determining:

     -    Fair Value of Financial Assets and Financial Liabilities
     -    Impairment of Fixed Income Securities
     -    Deferred Policy Acquisition Costs ("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 our
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 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.

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Statement of Financial
Accounting Standards No. 157, FAIR VALUE MEASUREMENTS ("SFAS No. 157"), is
effective for fiscal years beginning after November 15, 2007. We adopted the
provisions of SFAS No. 157 as of January 1, 2008 for financial assets and
financial liabilities that are measured at fair value. SFAS No. 157:

     -    Defines 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, and establishes a
          framework for measuring fair value;

     -    Establishes a three-level hierarchy for fair value measurements based
          upon the transparency of inputs to the valuation as of the measurement
          date;

     -    Expands disclosures about financial instruments measured at fair
          value.

                                        9
<Page>

     We categorize our financial assets and financial liabilities measured at
fair value based on the observability of inputs to the valuation techniques,
into a three-level fair value hierarchy as follows:

LEVEL 1: Financial assets and financial liabilities whose values are based on
         unadjusted quoted prices for identical assets or liabilities in an
         active market that we can access.

LEVEL 2: Financial assets and financial liabilities whose values are based on
         the following:

         (a)    Quoted prices for similar assets or liabilities in active
                markets;
         (b)    Quoted prices for identical or similar assets or liabilities
                in non-active markets; or
         (c)    Valuation models whose inputs are observable, directly or
                indirectly, for substantially the full term of the asset or
                liability.

LEVEL 3: Financial assets and financial liabilities whose values are based on
         prices or valuation techniques that require inputs that are both
         unobservable and significant to the overall fair value measurement.
         These inputs may reflect our estimates of the assumptions that market
         participants would use in valuing the financial assets and financial
         liabilities.

     Observable inputs are those used by market participants in valuing
financial instruments that are developed based on market data obtained from
independent sources. In the absence of sufficient observable inputs,
unobservable inputs reflect our estimates of the assumptions market participants
would use in valuing financial assets and financial liabilities and are
developed based on the best information available in the circumstances. The
degree of management judgment involved in determining fair values is inversely
related to the availability of market observable information.

     To distinguish among the categories, we consider the frequency of completed
transactions. If inputs used to measure a financial instrument fall within
different levels of the fair value hierarchy, the categorization is based on the
lowest level input that is significant to the fair value measurement of the
entire instrument. Certain financial assets are not carried at fair value on a
recurring basis, including investments such as mortgage loans and policy loans.
Accordingly, such investments are only included in the fair value hierarchy
disclosure when the investment is subject to remeasurement at fair value after
initial recognition and the resulting measurement is reflected in the financial
statements.

     We are responsible for the determination of fair value of financial assets
and financial liabilities and the supporting assumptions and methodologies. We
gain assurance on the overall reasonableness and consistent application of
valuation input assumptions, valuation methodologies and compliance with
accounting standards for fair value determination through the execution of
various processes and controls designed to ensure that our financial assets and
financial liabilities are appropriately valued. We monitor fair values received
from third parties and those derived internally on an ongoing basis.

     In certain situations, we employ independent third-party valuation service
providers to gather, analyze, and interpret market information and derive fair
values based upon relevant assumptions and methodologies for individual
instruments. In situations where our valuation service providers are unable to
obtain sufficient market observable information upon which to estimate the fair
value for a particular security, fair value is determined either by requesting
brokers who are knowledgeable about these securities to provide a single quote
or by employing internal valuation models that are widely accepted in the
financial services industry. Changing market conditions are incorporated into
valuation assumptions and reflected in the fair values, which are validated by
calibration and other analytical techniques to available market observable data.

     Valuation service providers typically obtain data about market transactions
and other key valuation model inputs from multiple sources and, through the use
of proprietary algorithms, produce valuation information in the form of a single
fair value for individual securities for which a fair value has been requested
under the terms of our agreements. For certain types of securities, fair values
are derived from the valuation service providers' proprietary valuation models.
The inputs used by the valuation service providers include, but are not limited
to, market prices from recently completed transactions and transactions of
comparable securities, interest rate yield curves, credit spreads, liquidity
spread, currency rates, and other market-observable information, as applicable.
Credit and liquidity spreads are typically implied from completed transactions
and transactions of comparable securities. Valuation service providers also use
proprietary discounted cash flow models that are widely accepted in the
financial services industry and similar to those used by other market
participants to value the same financial instruments. The valuation models take
into account, among other things, market observable information as of the
measurement date, as described above, as well as the specific attributes of the
security being valued including its term, interest rate, credit rating, industry
sector, and where applicable, collateral quality and other issue or issuer
specific information. Executing valuation models effectively requires seasoned
professional judgment and

                                       10
<Page>

experience. In cases where market transactions or other market observable data
is limited, the extent to which judgment is applied varies inversely with the
availability of market observable information.

     For certain of our financial assets carried at fair value, where our
valuation service providers cannot provide fair value determinations, we obtain
non-binding price quotes from brokers familiar with the security who, similar to
our valuation service providers, may consider transactions or activity in
similar securities, as applicable, among other information. The brokers
providing price quotes are generally from the brokerage divisions of leading
financial institutions with market making, underwriting and distribution
expertise.

     The fair value of financial assets and financial liabilities, including
privately-placed securities, certain free-standing derivatives and certain
derivatives embedded in certain contractholder liabilities, where our valuation
service providers or brokers do not provide fair value determinations, is
determined using valuation methods and models widely accepted in the financial
services industry. Internally developed valuation models, which include inputs
that may not be market observable and as such involve some degree of judgment,
are considered appropriate for each class of security to which they are applied.

     Our internal pricing methods are primarily based on models using discounted
cash flow methodologies that determine a single best estimate of fair value for
individual financial instruments. In addition, our models use internally
assigned credit ratings as inputs (which are generally consistent with any
external ratings and those we use to report our holdings by credit rating) and
stochastically determined cash flows for certain derivatives embedded in certain
contractholder liabilities, both of which are difficult to independently observe
and verify. Instrument specific inputs used in our internal fair value
determinations include: coupon rate, coupon type, weighted average life, sector
of the issuer, call provisions, and the contractual elements of derivatives
embedded in certain contractholder liabilities. Market related inputs used in
these fair values, which we believe are representative of inputs other market
participants would use to determine the fair value of the same instruments
include: interest rate yield curves, quoted market prices of comparable
securities, credit spreads, estimated liquidity premiums, and other applicable
market data including lapse and anticipated market return estimates for
derivatives embedded in certain contractholder liabilities. Credit spreads are
determined using those published by a commonly used industry specialist for
comparable public securities. A liquidity premium is also added to certain
securities to reflect spreads commonly required for the types of securities
being valued and are calibrated based on actual trades or other market data. As
a result of the significance of non-market observable inputs, including
internally assigned credit ratings and stochastic cash flow estimates as
described above, judgment is required in developing these fair values. The fair
value of these financial assets and financial liabilities may differ from the
amount actually received to sell an asset or the amount paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. Moreover, the use of different valuation assumptions may have
a material effect on the financial assets' and financial liabilities' fair
values.

     Fair value of our investments comprise an aggregation of numerous, single
best estimates for each security in the Statements of Financial Position.
Because of this detailed approach, there is no single set of assumptions that
determine our fair value estimates. Moreover, management does not compile a
range of estimates for items reported at fair value because we do not believe
that a range would provide meaningful information. In the last 10 years, our
quarterly net unrealized capital gains and losses have ranged from a $659.7
million net unrealized capital gain at June 30, 2005 to a $278.3 million net
unrealized capital loss at December 31, 2008. The change in net unrealized
capital gains and losses by quarter over the 10 year period has averaged $97.3
million and has ranged from a $264.5 million decrease to a $208.2 million
increase.

     Level 1 and Level 2 measurements represent valuations where all significant
inputs are market observable. Level 3 measurements have one or more significant
inputs that are not market observable and as a result these fair value
determinations have greater potential variability as it relates to their
significant inputs. The Level 3 principal components are privately placed
securities valued using internal models and broker quoted securities.
Additionally, due to the reduced availability of actual market prices or
relevant observable inputs as a result of the decrease in liquidity that has
been experienced in the market, all asset-backed residential mortgage-backed
securities ("ABS RMBS"), auction rate securities ("ARS") backed by student
loans, Alt-A residential mortgage-backed securities ("Alt-A"), other
collateralized debt obligations ("CDO") and certain commercial mortgage-backed
securities ("CMBS") are categorized as Level 3. In general, the greater the
reliance on significant inputs that are not market observable, the greater
potential variability of the fair value determinations. For broker quoted
securities' fair value determinations, which were all categorized as Level 3, we
believe the brokers providing the quotes may consider market observable
transactions or activity in similar securities, as applicable, and other
information as calibration points. Privately placed securities' fair value
determinations, which are based on internal ratings that are not market
observable and categorized as Level 3, are calibrated to market observable
information in the form of external National Association of Insurance
Commissioners ("NAIC") ratings and credit spreads.

                                       11
<Page>

     We believe our most significant exposure to changes in fair value is due to
market risk. Our exposure to changes in market conditions is discussed fully in
the Market Risk section of the MD&A.

     We employ specific control processes to determine the reasonableness of the
fair value of our financial assets and financial liabilities. Our processes are
designed to ensure that the values received or internally estimated are
accurately recorded and that the data inputs and the valuation techniques
utilized are appropriate, consistently applied, and that the assumptions are
reasonable and consistent with the objective of determining fair value. For
example, on a continuing basis, we assess the reasonableness of individual
security values received from valuation service providers that exceed certain
thresholds as compared to previous values received from those valuation service
providers. In addition, we may validate the reasonableness of fair values by
comparing information obtained from our valuation service providers to other
third party valuation sources for selected financial assets. When fair value
determinations are expected to be more variable, we validate them through
reviews by members of management who have relevant expertise and who are
independent of those charged with executing investment transactions. We do not
alter fair values provided by our valuation providers or brokers.

     The following table identifies investments as of December 31, 2008 by
source of value determination:

<Table>
<Caption>
                                                                     INVESTMENTS
                                                            ----------------------------
      ($ IN THOUSANDS)                                         CARRYING        PERCENT
                                                                 VALUE         TO TOTAL
                                                            ----------------  ----------
      <S>                                                   <C>                 <C>
      Fair value based on internal sources                   $      963,216      14.5%
      Fair value based on external sources (1)                    4,942,951      74.4
                                                            ----------------  ----------
         Total fixed income securities and short-term
           investments                                            5,906,167      88.9
                                                            ----------------  ----------
      Fair value of derivatives                                       2,478       -
      Mortgage loans and policy loans valued at cost and
           amortized cost                                           739,940      11.1
                                                            ----------------  ----------
      Total                                                  $    6,648,585     100.0%
                                                            ================  ==========
</Table>

      ----------
      (1) Includes $221.4 million that are valued using broker quotes.

     For more detailed information on our accounting policy for the fair value
of financial assets and financial liabilities and information on the financial
assets and financial liabilities included in the levels promulgated by SFAS No.
157, see Note 2 of the financial statements.

     IMPAIRMENT OF FIXED INCOME SECURITIES 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 the decline in fair value is
deemed other than temporary. The assessment of whether the impairment of a
security's fair value is other than temporary is performed on a portfolio review
as well as a case-by-case basis considering a wide range of factors.

     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 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
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 obtained that causes a change in our ability or intent to hold a
security to maturity or until it recovers in value. Examples of situations which
may change our ability or intent to hold a security to maturity or recovery
include where significant unanticipated new facts and circumstances emerge or
existing facts and circumstances increase in significance and are anticipated to
adversely impact a security's future valuations more than previously expected,
including negative developments that would change the view of

                                       12
<Page>

long term investors and their intent to continue to hold the investment,
subsequent credit deterioration of an issuer or holding, subsequent further
deterioration in capital markets (i.e. debt and equity) and of economic
conditions, subsequent further deterioration in the financial services and real
estate industries, liquidity needs, federal income tax situations involving
capital gains and capital loss carrybacks and carryforwards with specific
expiration dates, investment risk mitigation actions, and other new facts and
circumstances that would cause a change in our previous intent to hold a
security to recovery or maturity. 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 our entire 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.

     Fixed income securities subject to other-than-temporary impairment
write-downs continue to earn investment income when future expected payments are
both reasonably estimable and probable, and any discount or premium is
recognized using the effective yield method over the expected life of the
security; otherwise income recognition is discontinued. 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 Risk Factors
sections of this document.

DEFERRED POLICY ACQUISITION COSTS AMORTIZATION We incur significant costs in
connection with acquiring insurance policies and investment contracts. In
accordance with GAAP, costs that vary with and are primarily related to
acquiring insurance policies and investment contracts are deferred and recorded
as an asset on the Statements of Financial Position. The amortization
methodology for DAC includes significant assumptions and estimates.

     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 are consistent with the assumptions used to calculate the reserve
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
periods for these policies 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
policies on an aggregate basis using actual experience. We aggregate all
products accounted for pursuant to Statement of Financial Accounting Standards
No. 60, "Accounting and Reporting by Insurance Enterprises" ("SFAS No. 60"),
in the analysis. 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. In 2008, 2007 and 2006, our reviews concluded that no premium
deficiency adjustments were necessary.

     DAC related to interest-sensitive life, annuities and other investment
contracts 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 generally 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: contract charges for the
cost of insurance less mortality costs and other benefits (benefit margin);
investment income and realized capital gains and losses less interest

                                       13
<Page>

credited (investment margin); and surrender and other contract charges less
maintenance expenses (expense margin). 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
contractholders, and the effects of persistency, mortality, expenses, and hedges
if applicable, and these assumptions 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 reasonably 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, comprising investment income and realized capital
gains and losses, interest crediting rates, persistency, mortality, 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, primarily realized capital losses, expenses,
mortality and the number of contracts in force or persistency resulting in net
DAC amortization acceleration of $9.1 million and $5.8 million in 2008 and 2007,
respectively, and deceleration of $146 thousand in 2006.

     The following table provides the effect on DAC amortization of changes in
assumptions relating to the gross profit components of investment margin,
benefit margin and expense margin during the years ended December 31.

<Table>
<Caption>
          ($ IN THOUSANDS)                      2008          2007          2006
                                             ----------    ----------    ----------
          <S>                               <C>           <C>           <C>
          Investment margin                 $   (9,358)   $   18,720    $      283
          Benefit margin                         4,029         3,491             -
          Expense margin                        (3,762)      (28,029)         (137)
                                             ----------    ----------    ----------
          Net (acceleration) deceleration   $   (9,091)   $   (5,818)   $      146
                                             ==========    ==========    ==========
</Table>

     DAC amortization acceleration related to changes in the EGP component of
investment margin in 2008 was primarily due to the level of realized capital
losses impacting actual gross profits in 2008 and the impact of realized capital
losses on expected gross profits in 2009. The deceleration related to benefit
margin was due to more favorable projected life insurance mortality. The
acceleration related to expense margin resulted from current and expected
expense levels higher than previously projected. DAC amortization deceleration
related to changes in the EGP component of investment margin in 2007 was due to
higher yields from repositioning of the investment portfolio and reduced
interest crediting rates on annuities. The deceleration related to benefit
margin was due to more favorable projected life insurance mortality. The
acceleration related to expense margin was a result of expenses being higher
than expected.

                                       14
<Page>

     The following table displays the sensitivity of reasonably likely changes
in assumptions included in the gross profit components of investment margin or
benefit margin to amortization of the DAC balance as of December 31, 2008.

<Table>
<Caption>
         ($ IN THOUSANDS)                                                  DECEMBER 31, 2008
                                                                      INCREASE/(REDUCTION) IN DAC
                                                                     ------------------------------
         <S>                                                        <C>
         Increase in future investment margins of 25 basis points   $        14,528
         Decrease in future investment margins of 25 basis points   $       (15,191)

         Decrease in future life mortality by 1%                    $         1,754
         Increase in future life mortality by 1%                    $        (1,794)
</Table>

     Any potential changes in assumptions discussed above are measured without
consideration of correlation among assumptions. Therefore, it would be
inappropriate to add them together in an attempt to estimate overall variability
in amortization.

     For additional discussion see the Operations 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
policies 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 immediate annuities and voluntary health products. These
assumptions, which for 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 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 policies,
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 policies 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, 2008. 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 Risk Factors section of this document.

OPERATIONS

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 Allstate Insurance
Holdings, LLC, which is wholly owned by The Allstate Corporation (the
"Corporation"). We provide life insurance, retirement and investment products,
and voluntary accident and health insurance to individual customers. Our
strategic vision is to reinvent protection and retirement for the consumer.

     To achieve our vision and reach our financial goals, our primary objectives
are to deepen financial services relationships with Allstate customers and
improve profitability through operational excellence and portfolio optimization.
Sales in non-proprietary channels will be increasingly tactical as we assess
market opportunities. In addition to focusing on higher return markets,
products, and distribution channels, we will continue to emphasize capital
efficiency and enterprise risk and return management strategies and actions.

                                       15
<Page>

     Our strategy provides a platform to profitably grow our business. Based
upon Allstate's strong financial position and brand, our customers seek
assistance in meeting their protection and retirement 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 distribution partners
provide a foundation to deliver value to our customers.

     We plan to offer a more focused suite of products designed for middle
market consumers to help everyday Americans meet their financial protection
needs 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 a wide range of distribution channels including
Allstate exclusive agencies, which include exclusive financial specialists,
independent agents (including master brokerage agencies and workplace enrolling
agents), financial service firms such as banks and broker-dealers, and
specialized structured settlement brokers.

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

<Table>
<Caption>
     ($ IN THOUSANDS)                               2008            2007           2006
                                                  -----------    -----------    -----------
     <S>                                         <C>            <C>            <C>
     REVENUES
     Premiums (1)                                $    59,248    $    69,124    $    84,313
     Contract charges (1)                             61,108         59,530         63,426
     Net investment income                           402,931        386,738        373,064
     Realized capital gains and losses               (77,205)          (831)       (22,085)
                                                  -----------    -----------    -----------
     Total revenues                                  446,082        514,561        498,718

     COSTS AND EXPENSES
     Contract benefits                              (184,192)      (181,803)      (190,506)
     Interest credited to contractholder funds      (191,208)      (177,407)      (167,171)
     Amortization of DAC                             (17,778)       (53,445)       (31,672)
     Operating costs and expenses                    (40,869)       (37,624)       (46,578)
                                                  -----------    -----------    -----------
     Total costs and expenses                       (434,047)      (450,279)      (435,927)

     (Loss) gain on disposition of operations           (358)           429        (10,694)
     Income tax expense                               (4,005)       (22,802)       (17,755)
                                                  -----------    -----------    -----------
     Net income                                  $     7,672    $    41,909    $    34,342
                                                  ===========    ===========    ===========
     Investments at December 31                  $ 6,648,585    $ 7,057,629    $ 6,779,874
                                                  ===========    ===========    ===========
</Table>

     ----------
     (1)  Beginning in 2008, certain ceded reinsurance premiums previously
          included as a component of traditional life insurance premiums were
          reclassified prospectively to be reported as a component of
          interest-sensitive life insurance contract charges. In 2007 and 2006,
          these ceded reinsurance premiums were $2.5 million and $2.2 million,
          respectively.

                                       16
<Page>

     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.

<Table>
<Caption>
               ($ IN THOUSANDS)                                        2006
                                                                     ----------
               <S>                                                    <C>
               Contract charges                                       $  8,127
               Net investment income                                     8,789
               Realized capital gains and losses                        (4,079)
                                                                     ----------
                   Total revenues                                       12,837

               Contract benefits                                         2,281
               Interest credited to contractholder funds                 6,408
               Amortization of deferred policy acquisition costs        (7,277)
               Operating costs and expenses                              4,233
                                                                     ----------
                   Total costs and expenses                              5,645

               Loss on disposition of operations                       (10,694)
                                                                     ----------
               Income from operations before income
                     tax expense (1)                                  $ (3,502)
                                                                     ==========
</Table>

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

     NET INCOME in 2008 decreased 81.7% or $34.2 million compared to 2007. This
decrease was the result of higher net realized capital losses and, to a much
lesser extent, higher interest credited to contractholder funds, lower premiums,
and higher operating cost and expenses, partially offset by lower amortization
of DAC, increased net investment income and higher contract charges.
Additionally, net income in 2008 includes additional expenses for contract
benefits relating to a rescission of reinsurance coverage for certain
traditional and interest-sensitive life insurance policies in accordance with an
agreement between the Company and ALIC (the "rescission"). Excluding the net
impact of the rescission, which reduced net income by $4.1 million in 2008, net
income decreased 72.0% or $30.2 million in 2008 compared to 2007. For further
detail on the rescission, see Note 5 to the financial statements.

     Net income in 2007 increased 22.0% or $7.6 million in 2007 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.

ANALYSIS OF REVENUES Total revenues decreased 13.3% or $68.5 million in 2008
compared to 2007, due primarily to an increase in net realized capital losses,
partially offset by an increase in net investment income. 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.

PREMIUMS represent revenues generated from traditional life insurance, immediate
annuities with life contingencies, and 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 effective
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).

                                       17
<Page>

      The following table summarizes premiums and contract charges by product.

<Table>
<Caption>
          ($ IN THOUSANDS)                                  2008          2007          2006
                                                         ----------    ----------    ----------
          <S>                                           <C>           <C>           <C>
          PREMIUMS
          Traditional life (1)                          $   29,597    $   24,997    $   24,298
          Immediate annuities with life contingencies       21,451        37,491        54,877
          Accident and health                                8,200         6,636         5,138
                                                         ----------    ----------    ----------
          TOTAL PREMIUMS                                    59,248        69,124        84,313

          CONTRACT CHARGES
          Interest-sensitive life insurance (1)             54,972        51,155        46,448
          Fixed annuities                                    6,136         8,375         8,851
          Variable annuities                                     -             -         8,127
                                                         ----------    ----------    ----------
          TOTAL CONTRACT CHARGES (2)                        61,108        59,530        63,426
                                                         ----------    ----------    ----------
          TOTAL PREMIUMS AND CONTRACT CHARGES           $  120,356    $  128,654    $  147,739
                                                         ==========    ==========    ==========
</Table>

          ----------
          (1)  Beginning in 2008, certain ceded reinsurance premiums previously
               included as a component of traditional life insurance premiums
               were reclassified prospectively to be reported as a component of
               interest-sensitive life insurance contract charges. In 2007 and
               2006, these ceded reinsurance premiums were $2.5 million and $2.2
               million, respectively.

          (2)  Contract charges primarily reflect non-cash charges to
               contractholder account balances. Total contract charges for 2008,
               2007 and 2006 include contract charges related to the cost of
               insurance of $36.8 million, $35.2 million and $32.2 million,
               respectively.

     Total premiums decreased 14.3% in 2008 compared to 2007 due to lower
premiums on immediate annuities with life contingencies resulting from highly
competitive market conditions and our continued focus on returns. This decline
was partially offset by higher premiums on traditional life insurance and, to a
lesser extent, accident and health products. The increase in premiums on
traditional life insurance includes the impact of a prospective reporting
reclassification for certain ceded reinsurance premiums and higher renewal
premium. Excluding the impact of the reporting reclassification, total premiums
decreased 17.3% in 2008 compared to 2007.

     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 in the three years ended December 31, 2008, adjusted for the
reporting reclassification of certain ceded reinsurance premiums, averaged $72.5
million.

     Total contract charges increased 2.7% in 2008 compared to 2007. This
increase includes the impact of the prospective reporting reclassification for
certain ceded reinsurance premiums. Excluding the impact of this
reclassification, total contract charges increased 7.2% in 2008 due to higher
contract charges on interest-sensitive life insurance policies resulting from
increased contract charge rates and growth in business in force, partially
offset by decreased contract charges on fixed annuities.

     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. The increase reflects growth in interest-sensitive
life insurance policies in force.

                                       18
<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)                                            2008           2007           2006
                                                         -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
CONTRACTHOLDER FUNDS, BEGINNING BALANCE                 $ 4,848,461    $ 4,708,428    $ 4,349,395

DEPOSITS
Fixed annuities                                             509,146        431,832        694,085
Interest-sensitive life insurance                           102,752        105,854         95,221
Variable annuity and life deposits allocated to fixed
     accounts                                                   106             69         15,519
                                                         -----------    -----------    -----------
Total deposits                                              612,004        537,755        804,825

INTEREST CREDITED                                           190,945        179,417        178,493

BENEFITS, WITHDRAWALS AND OTHER ADJUSTMENTS
Benefits                                                   (161,813)      (146,828)      (137,090)
Surrenders and partial withdrawals                         (335,521)      (316,399)      (361,670)
Contract charges                                            (54,138)       (49,086)       (44,954)
Net transfers to separate accounts                              (38)            (2)       (18,127)
Other adjustments (1)                                       (12,935)       (64,824)       (62,444)
                                                         -----------    -----------    -----------
Total benefits, withdrawals and other adjustments          (564,445)      (577,139)      (624,285)
                                                         -----------    -----------    -----------
CONTRACTHOLDER FUNDS, ENDING BALANCE                    $ 5,086,965    $ 4,848,461    $ 4,708,428
                                                         ===========    ===========    ===========
</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 4.9%, 3.0% and 8.3% in 2008, 2007 and 2006,
respectively. Average contractholder funds increased 4.0% in 2008 compared to
2007 and 5.5% in 2007 compared to 2006.

     Contractholder deposits increased 13.8% in 2008 compared to 2007 due to
higher deposits on fixed annuities. Deposits on fixed annuities increased 17.9%
in 2008 compared to 2007 due primarily to increased consumer demand as the
attractiveness of fixed annuities relative to competing products improved,
partially offset by pricing decisions aimed to increase new business returns.

     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 on fixed annuities have varied over the past
several years based on factors such as the attractiveness of fixed annuities
to consumers relative to other investment alternatives, the competitiveness
of our crediting rates, and our target returns on newly issued fixed annuity
contracts. The level of fixed annuity deposits in 2008 and 2007 was also
influenced by our strategy to raise new business returns, which we continue
to pursue. Beginning in 2009, we intend to reduce our concentration of spread
based business, including fixed annuities.

     Surrenders and partial withdrawals increased 6.0% in 2008 compared to 2007
due to an increase in surrenders and partial withdrawals on fixed annuities and,
to a lesser extent, interest-sensitive life insurance products. 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 8.6% in 2008 compared to 8.5% in 2007.

                                       19
<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. The surrenders
and partial withdrawals line in the table above, for 2006 includes $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.

NET INVESTMENT INCOME increased 4.2% in 2008 compared to 2007 and 3.7% in 2007
compared to 2006. The increase in both periods was primarily due to higher
average portfolio balances resulting 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 $77.2 million, $831
thousand and $22.1 million in 2008, 2007 and 2006, 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 decreased 3.6% or $16.2
million in 2008 compared to 2007 due primarily to lower amortization of DAC,
partially offset by higher interest credited to contractholder funds and the
additional expenses for contract benefits in 2008 relating to the rescission.
Excluding the net impact of the rescission, which increased total costs and
expenses by $6.3 million in 2008, total costs and expenses decreased 5.0% or
$22.5 million in 2008 compared to 2007.

     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.

CONTRACT BENEFITS increased 1.3% or $2.4 million in 2008 compared to 2007 due to
the rescission. Excluding the impact of the rescission, which increased contract
benefits by $7.1 million in 2008, total contract benefits decreased 2.6% or $4.7
million in 2008 compared to 2007. This decrease reflects lower contract benefits
on annuities partially offset by higher contract benefits on life insurance
products. The decline in contract benefits on annuities was due to the impact of
lower sales of immediate annuities with life contingencies partially offset by
unfavorable mortality experience. The increase in contract benefits on life
insurance products was due to unfavorable mortality experience.

     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.

     We analyze our mortality and morbidity results using the difference between
premiums and 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"). This implied interest
totaled $108.1 million, $107.5 million and $103.9 million in 2008, 2007 and
2006, respectively. The benefit spread by product group is disclosed in the
following table.

<Table>
<Caption>
             ($ IN THOUSANDS)          2008        2007       2006
                                     --------    --------   --------
             <S>                    <C>         <C>        <C>
             Life insurance         $ 22,733    $ 28,820   $ 27,536
             Annuities                (2,826)      1,243      2,338
                                     --------    --------   --------
             Total benefit spread   $ 19,907    $ 30,063   $ 29,874
                                     ========    ========   ========
</Table>

INTEREST CREDITED TO CONTRACTHOLDER FUNDS, which represents non-cash charges for
interest accrued on interest-sensitive life and investment contracts, increased
7.8% or $13.8 million in 2008 compared to 2007 and 6.1% or $10.2 million in 2007
compared to 2006. The increase in 2008 compared to 2007 was due to higher
average contractholder funds, higher acceleration of amortization of deferred
sales inducements ("DSI") due to changes in assumptions, and an increase in the
weighted average interest crediting rate on deferred fixed annuities, partially
offset by a favorable change in amortization of DSI relating to realized capital
gains and losses, and a decline in the weighted average interest crediting rate
on immediate fixed annuities. The acceleration of amortization of DSI due to
changes in assumptions increased interest credited to contractholder funds by
$7.5 million in 2008 compared to $844 thousand in 2007.

                                       20
<Page>

     The increase in interest credited to contractholder funds in 2007 compared
to 2006 was due primarily to growth in average contractholder funds and higher
weighted average interest crediting rates on deferred fixed annuities, partially
offset by the impact of the reinsured variable annuity business. Excluding the
impact of the reinsured variable annuity business, interest credited to
contractholder funds increased 10.4% in 2007 compared to 2006.

     In order to analyze the impact of net investment income and interest
credited to contractholders on net income, we monitor the difference between net
investment income and the sum of interest credited to contractholder funds and
the implied interest on immediate annuities with life contingencies, 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 THOUSANDS)                                              2008         2007         2006
                                                                 ----------   ----------   ----------
      <S>                                                       <C>          <C>          <C>
      Annuities                                                 $   56,314   $   60,162   $   63,903
      Life insurance                                                 2,756        3,064        2,737
      Net investment income on investments supporting capital       44,555       38,611       35,349
                                                                 ----------   ----------   ----------
      Total investment spread                                   $  103,625   $  101,837   $  101,989
                                                                 ==========   ==========   ==========
</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 and investment spreads for 2008, 2007 and
2006.

<Table>
<Caption>
                                               WEIGHTED AVERAGE            WEIGHTED AVERAGE           WEIGHTED AVERAGE
                                               INVESTMENT YIELD        INTEREST CREDITING RATE       INVESTMENT SPREADS
                                               ----------------        -----------------------       ------------------
                                            2008     2007     2006     2008      2007     2006     2008     2007     2006
                                            ----     ----     ----     ----      ----     ----     ----     ----     ----
<S>                                         <C>      <C>      <C>      <C>       <C>      <C>      <C>      <C>      <C>
Interest-sensitive life insurance           5.7%     5.7%     5.6%     4.6%      4.6%     4.5%     1.1%     1.1%     1.1%
Deferred fixed annuities                    5.6      5.7      5.6      3.5       3.4      3.2      2.1      2.3      2.4
Immediate fixed annuities with and
  without life contingencies                7.1      7.4      7.5      6.5       6.6      6.7      0.6      0.8      0.8
Investments supporting capital,
  traditional life and other products       6.5      6.0      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)                                                          2008              2007              2006
                                                                     --------------    --------------    --------------
<S>                                                                 <C>               <C>               <C>
Immediate fixed annuities with life contingencies                   $    1,649,426    $    1,619,758    $    1,567,821
Other life contingent contracts and other                                  303,731           397,213           358,671
                                                                     --------------    --------------    --------------
   Reserve for life-contingent contract benefits                    $    1,953,157    $    2,016,971    $    1,926,492
                                                                     ==============    ==============    ==============

Interest-sensitive life insurance                                   $      576,167    $      530,763    $      476,729
Deferred fixed annuities                                                 3,885,089         3,733,197         3,667,459
Immediate fixed annuities without life
   contingencies and other                                                 625,709           584,501           564,240
                                                                     --------------    --------------    --------------
   Contractholder funds                                             $    5,086,965    $    4,848,461    $    4,708,428
                                                                     ==============    ==============    ==============
</Table>

                                       21
<Page>

AMORTIZATION OF DAC decreased 66.7% in 2008 compared to 2007 and increased 68.7%
in 2007 compared to 2006. The components of amortization of DAC are shown in the
following table.

<Table>
<Caption>
          ($ IN THOUSANDS)                                          2008              2007              2006
                                                               --------------    --------------    --------------
          <S>                                                 <C>               <C>               <C>
          Amortization of DAC before amortization
             relating to realized capital gains and losses
             and changes in assumptions (1)                   $      (41,471)   $      (47,431)   $      (45,957)
          Accretion (amortization) relating to realized
            capital gains and losses (2)                              32,784              (196)           14,139
          Amortization (acceleration) deceleration for
             changes in assumptions ("DAC unlocking")                 (9,091)           (5,818)              146
                                                               --------------    --------------    --------------
             Total amortization of DAC (3) (4)                $      (17,778)   $      (53,445)   $      (31,672)
                                                               ==============    ==============    ==============
</Table>

          ----------
          (1)  Amortization of DAC before accretion (amortization) relating to
               realized capital gains and losses and changes in assumptions for
               2006 includes $(4.6) million relating to the reinsured variable
               annuity business.
          (2)  Amortization relating to realized capital gains and losses for
               2006 includes $11.9 million relating to the reinsured variable
               annuity business.
          (3)  Total amortization of DAC for 2006 includes $7.3 million relating
               to the reinsured variable annuity business.
          (4)  Amortization of DAC reflects a non-cash charge to the Statements
               of Operations and Comprehensive Income.

     The decrease of $35.7 million in 2008 was due primarily to a favorable
change in accretion (amortization) relating to realized capital gains and losses
and lower amortization on fixed annuities due to lower investment spread,
partially offset by higher amortization acceleration for changes in assumptions.

     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.

     In 2008, DAC amortization acceleration for changes in assumptions, recorded
in connection with comprehensive reviews of the DAC balances and assumptions for
interest-sensitive life insurance, annuities and other investment contracts,
resulted in an increase to amortization of DAC of $9.1 million. The evaluations
covered assumptions for investment returns, including capital gains and losses,
interest crediting rates to policyholders, the effect of any hedges,
persistency, mortality and expenses in all product lines. The principle
assumption impacting the amortization acceleration in 2008 was the level of
realized capital losses impacting actual gross profits in 2008 and the impact of
realized capital losses on EGP in 2009. During the fourth quarter of 2008, our
assumptions for EGP were impacted by a view of further anticipated impairments
in our investment portfolio.

     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 and higher gross profits on fixed
annuities.

                                       22
<Page>

     The changes in the DAC asset are summarized in the following tables.

<Table>
<Caption>
                                                                           ACCRETION     AMORTIZATION
                                                                          RELATING TO   (ACCELERATION)   EFFECT OF
                           BEGINNING                                       REALIZED      DECELERATION   UNREALIZED      ENDING
                            BALANCE     ACQUISITION     AMORTIZATION     CAPITAL GAINS    (CHARGED)       CAPITAL       BALANCE
                          DECEMBER 31,     COSTS           BEFORE             AND        CREDITED TO     GAINS AND    DECEMBER 31,
($ IN THOUSANDS)             2007        DEFERRED(1)  ADJUSTMENTS(2)(3)    LOSSES(3)      INCOME(3)      LOSSES(4)        2008
                         -------------  ------------  -----------------  -------------  -------------   -----------  -------------
<S>                       <C>            <C>           <C>                <C>            <C>             <C>          <C>
Traditional life and
  other                   $    41,568    $    8,218    $       (4,454)    $         -    $         -     $       -    $    45,332
Interest-sensitive
  life                         92,861        15,868            (7,423)          5,021        (8,207)        54,986        153,106
Fixed annuities               144,235        27,304           (29,594)         27,763          (884)       170,986        339,810
                         -------------  ------------  -----------------  -------------  -------------   -----------  -------------
Total                     $   278,664    $   51,390    $      (41,471)    $    32,784    $   (9,091)     $ 225,972    $   538,248
                         =============  ============  =================  =============  =============   ===========  =============

<Caption>
                                                                           ACCRETION
                                                                        (AMORTIZATION)   AMORTIZATION
                                                                          RELATING TO   (ACCELERATION)  EFFECT OF
              BEGINNING                                                    REALIZED      DECELERATION   UNREALIZED    ENDING
               BALANCE      IMPACT OF   ACQUISITION    AMORTIZATION        CAPITAL         (CHARGED)      CAPITAL     BALANCE
($ IN        DECEMBER 31,  ADOPTION OF     COSTS          BEFORE          GAINS AND       CREDITED TO    GAINS AND  DECEMBER 31,
THOUSANDS)       2006      SOP 05-1(5)  DEFERRED(1)  ADJUSTMENTS(2)(3)     LOSSES(3)       INCOME(3)     LOSSES(4)      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>

----------
(1)  Total acquisition costs deferred in 2008 and 2007 include commissions
     paid totaling $37.1 million and $34.3 million, respectively.

(2)  Amortization before adjustments reflects total DAC amortization before
     accretion (amortization) relating to realized capital gains and losses, and
     amortization (acceleration) deceleration (charged) credited to income.

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

(4)  The effect of unrealized capital gains and losses represents the amount by
     which the amortization of DAC would increase or decrease if the unrealized
     capital gains and losses in the respective product portfolios were
     realized. Recapitalization of DAC is limited to the originally deferred
     policy acquisition costs plus interest.

(5)  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 an
     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 $1.0 million reduction of retained
     income at January 1, 2007 and a reduction of the DAC balance of $1.6
     million, pre-tax.

OPERATING COSTS AND EXPENSES increased 8.6% in 2008 compared to 2007 due
primarily to higher expenses related to growth initiatives, partially offset by
lower non-deferrable commissions. In addition, the prior year benefited to a
greater degree from a servicing fee paid by Prudential for our servicing of the
variable annuity business that we ceded to them during a transition period
beginning in 2006 which ended in May 2008.

     Operating costs and expenses decreased 19.2% 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.

(LOSS) GAIN ON DISPOSITION OF OPERATIONS reflected a loss of $358 thousand in
2008 compared to a gain of $429 thousand in 2007 and a loss of $10.7 million in
2006. Each of these amounts is related to the disposition of our variable
annuity business.

INCOME TAX EXPENSE decreased by 82.4% in 2008 compared to 2007 and increased
28.4% in 2007 compared to 2006. The decrease in 2008 compared to 2007 was
primarily due to lower income from operations before income tax expense. The
increase in 2007 compared 2006 was due to increased income from operations
before income tax expense and, to a lesser extent, an increase in the effective
tax rate.

                                       23
<Page>

     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 $2.9 million,
$3.1 million and $3.7 million in 2008, 2007 and 2006, respectively.

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
disposition of certain blocks of business. We retain primary liability as a
direct reinsurer for all risks ceded to reinsurers.

     As of December 31, 2008 and 2007, for certain term life insurance policies,
we ceded up to 90% of the mortality risk depending on the year of policy
issuance. Further, we ceded the mortality risk associated with coverage in
excess of $250 thousand per life to ALIC. As of December 31, 2008 and 2007,
34.9% and 39.8%, respectively, of our face amount of life insurance in force was
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.

<Table>
<Caption>
                                                      S&P FINANCIAL        REINSURANCE
                                                         STRENGTH      RECOVERABLE ON PAID
           ($ IN THOUSANDS)                             RATING (2)     AND UNPAID BENEFITS
                                                      -------------   ---------------------
                                                                        2008        2007
                                                                        ----        ----
           <S>                                             <C>        <C>         <C>
           Prudential Insurance Company of America         AA-        $ 335,844   $ 353,948
           Transamerica Financial Life Insurance           AA            18,570      13,335
           RGA Reinsurance Company                         AA-            5,420       5,082
           Swiss Re Life and Health America, Inc.          A+             2,173         743
           Canada Life                                     AA             1,023         745
           Security Life of Denver                         AA               925         780
           Allstate Life Insurance Company                 AA-              905       3,649
           Generali USA                                     A               865         763
           American United Life                            AA-              757         675
           Triton Insurance Company                        NR               690         950
           Scottish Re Group (1)                           CCC              447         461
           Cologne Re                                      AAA              132          88
           Minnesota Mutual                                AA-               84          96
           Mutual of Omaha                                 AA-               76          52
           Metropolitan Life                               AA-               46          64
                                                                      ---------   ---------
           Total                                                      $ 367,957   $ 381,431
                                                                      =========   =========
</Table>

          ----------
          (1)  The reinsurance recoverable on paid and unpaid benefits related
               to the Scottish Re Group of $447 thousand as of December 31, 2008
               is with Scottish Re Life Corporation.

          (2)  Rating as of March 6, 2009.

     During 2008, the financial strength rating of the Scottish Re Group was
downgraded by S&P to CCC+ from BB+ as of December 31, 2007 due to the
deterioration of the Scottish Re Group's financial position and liquidity. The
Scottish Re Group's financial strength rating was further downgraded by S&P in
January 2009 to CCC. Although a significant impact has not been observed, the
unprecedented deterioration in the global financial markets in 2008 could impact
the financial condition of reinsurers in a variety of ways, including the
decline in value of assets held as capital resources or to meet technical
provisions, increases in risk-based economic or regulatory capital requirements
and shortage of available capital in the event that recapitalization is required
following a major claim. 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, 2008.

                                       24
<Page>

     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 will continue to focus on improving returns and reducing our
     concentration in spread based products, primarily fixed annuities,
     resulting in lower premiums and deposits and reductions in net
     contractholder obligations.
-    We plan to improve efficiency and narrow the focus of product offerings to
     better serve the needs of everyday Americans.
-    Maintaining high liquidity in our investment portfolio will result in lower
     net investment income but will ensure our ability to meet contractholder
     obligations. We will target sales of our spread based products at levels
     that allow us to avoid sales of investments with significant unrealized
     losses into distressed or illiquid markets.
-    We expect investment spread compression due to credit losses, reduced
     contractholder funds and maintenance of liquidity.

INVESTMENTS

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

     The global economy is under significant stress and financial markets
continue to experience extreme levels of volatility. Our strategy in 2009 will
focus primarily upon mitigating the risks from a potential increase in risk-free
interest rates, reducing exposure to certain investment sectors, and maintaining
sufficient liquidity and capital. In order to achieve this, we expect to use a
combination of reinvestment of the portfolio's significant cash flows,
derivatives and other portfolio actions.

     Our investment strategy focuses on the total return of assets needed to
support the underlying liabilities to achieve return on capital and profitable
growth. The portfolio management process begins with a strategic asset
allocation model which considers the nature and risk tolerances of the
liabilities, as well as the risk and return parameters, of the various asset
classes in which we invest. This approach is informed by our economic and market
outlook, as well as other inputs and constraints including duration, liquidity
and capital preservation. Within the ranges set by the strategic asset
allocation model, tactical investment decisions are made in consideration of
prevailing market conditions.

     As a result of decisions in managing our portfolio, we may sell securities
during a period in which fair value has declined below amortized cost. For more
information, see the Net Realized Capital Gains and Losses section of the MD&A.

     During 2008, we developed risk mitigation and return optimization programs
as our outlook on the economy changed significantly as conditions deteriorated
throughout the year. The risk mitigation and return optimization programs
augment earlier actions to reduce investments in real estate and other market
sectors. At the end of the second quarter of 2008, we had an outlook for
continued weakness in the global financial markets and economy including
continued volatility in the financial markets, reduced liquidity in certain
asset classes and unfavorable economic trends. During the third quarter of 2008,
we significantly modified our outlook to a more severe and prolonged downturn.
We continue to expect extreme levels of volatility in the financial markets,
suppressed liquidity in certain asset classes and further unfavorable global
economic conditions. In addition, the potential for market supply and demand
imbalances has remained above normal due to the deteriorating credit strength of
financial institutions and eroding investor confidence.

                                       25
<Page>

     Among our risk mitigation and return optimization activities, we have taken
     the following actions:
     -    Developed and maintained a tactical positioning in liquid assets and
          assets that we can sell without generating significant additional
          realized capital losses.
     -    Continued to reduce exposure in assets other than those for which we
          have asserted an intent to hold until recovery where we have credit
          concerns or where there has been a significant change in facts and
          circumstances.
     -    Decreased exposure to financial-related market sectors to $814.5
          million as of December 31, 2008 from $1.02 billion as of December 31,
          2007, primarily as a result of targeted sales and declines in fair
          value. Also reduced our short-term investing in financial
          institutions.
     -    Decreased exposure to residential and commercial real estate market
          sectors to $1.65 billion as of December 31, 2008 from $2.07 billion as
          of December 31, 2007 as a result of targeted sales, principal payments
          and declines in fair value.
     -    In the second half of 2008, we sold $178.9 million of government
          securities and recognized realized capital gains of $44.0 million.

     Investments for which we changed our intent to hold to recovery as of June
30, 2008 totaled $268.8 million and included $229.8 million as part of the risk
mitigation and return optimization programs and $39.0 million related to
individual securities. A risk mitigation and return optimization program,
approved as of the end of the second quarter of 2008, was designed to reduce our
exposure to residential and commercial real estate and the financial-related
market sector by approximately $276 million of amortized cost, prior to change
in intent write-downs. A comprehensive review identified specific investments
that could be significantly impacted by continued deterioration in the economy
that may be sold. This included a portion of our residential and commercial real
estate securities including securities collateralized by residential and
commercial mortgage loans, mortgage loans and securities issued by financial
institutions.

     During the third and fourth quarters of 2008, we sold $128.2 million of
these securities. On October 1, 2008, it was determined that, due to the
financial markets experiencing additional severe deterioration and disruptions,
we would be unable to sell certain of the investments identified as part of the
programs at a value equal to or greater than our view of their intrinsic values.
Approximately $74.0 million of these investments were re-designated as intent to
hold to recovery. Investments for which we had changed our intent to hold to
recovery totaled $37.7 million as of December 31, 2008. For a more detailed
discussion on securities written down due to a change in intent, see the Net
Realized Capital Gains and Losses section of the MD&A.

     We continue to monitor the progress of these actions as market and economic
conditions develop and will adapt our strategies as appropriate. Our continuing
focus is to manage our risks and to position our portfolio to take advantage of
market opportunities while attempting to mitigate further adverse effects.

INVESTMENTS OUTLOOK

-    Continuing risk mitigation efforts will focus on shortening duration of the
     fixed income portfolio, and reducing exposures to real estate and certain
     other market sectors.

-    Net investment income will decline due to lower asset balances and yields,
     and the costs of maintaining high liquidity and the risk mitigation
     programs.

-    Our portfolio continues to generate significant cash flow from maturities,
     principal and interest receipts which will be available to manage
     liabilities and take advantage of market opportunities.

                                       26
<Page>

PORTFOLIO COMPOSITION The composition of the investment portfolio at December
31, 2008 is presented in the table below. Also see Notes 2 and 6 to the
financial statements for investment accounting policies and additional
information.

<Table>
<Caption>
                                                               PERCENT
               (IN THOUSANDS)                 INVESTMENTS     OF TOTAL
                                             -------------   -----------
               <S>                           <C>                <C>
               Fixed income securities (1)   $  5,496,365        82.7%
               Mortgage loans                     700,268        10.5
               Short-term (2)                     409,802         6.2
               Policy loans                        39,672         0.6
               Other                                2,478           -
                                             -------------   -----------
                    Total                     $ 6,648,585       100.0%
                                             =============   ===========
</Table>

               ----------
               (1)  Fixed income securities are carried at fair value. Amortized
                    cost basis for these securities was $5.78 billion.
               (2)  Short-term investments are carried at fair value. Amortized
                    cost basis for these investments was $409.7 million.

     Total investments decreased to $6.65 billion at December 31, 2008, from
$7.06 billion at December 31, 2007, due to unrealized net capital losses, net
realized capital losses, and lower funds associated with collateral received in
conjunction with securities lending, partially offset by 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 $117.3
million at December 31, 2008 from $198.1 million at December 31, 2007. As of
December 31, 2008, these investments are included as a component of short-term
investments. At December 31, 2007, these investments were carried at fair value
and $183.0 million were classified in fixed income securities and $12.5 million
were classified in short-term investments.

     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 fair value 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.

     We obtain fair values of our fixed income securities and exchange traded
and non-exchange traded derivative contracts from several sources and methods.
For a discussion of these sources and methods, see the Application of Critical
Accounting Estimates section of the MD&A.

     We may utilize derivative financial instruments to help manage the exposure
to interest rate risk from the fixed income securities portfolio. For a more
detailed discussion of interest rate risks and our use of derivative financial
instruments, see the Net realized capital gains and losses and Market Risk
sections of the MD&A and Note 7 of the financial statements.

                                       27
<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, 2008 and
2007.

     The following table shows fixed income securities by type.

<Table>
<Caption>
                                                 FAIR VALUE AT       % TO TOTAL        FAIR VALUE AT       % TO TOTAL
     ($ IN THOUSANDS)                           DECEMBER 31, 2008    INVESTMENTS     DECEMBER 31, 2007    INVESTMENTS
                                                -----------------    -----------     -----------------    ------------
<S>                                              <C>                    <C>           <C>                       <C>
U.S. government and agencies                      $     917,731          13.8%         $       797,191            11.3%
Municipal                                               385,381           5.8                  433,307             6.1
Corporate                                             2,887,137          43.4                3,378,811            47.9
Foreign government                                      371,542           5.6                  333,540             4.7
Mortgage-backed securities ("MBS")                      396,177           6.0                  419,617             6.0
Commercial mortgage-backed securities ("CMBS")          468,868           7.0                  791,941            11.2
Asset-backed securities ("ABS")                          64,070           1.0                  106,877             1.5
Redeemable preferred stock                                5,459           0.1                    9,844             0.2
                                                  -------------         -----          ---------------           -----
Total fixed income securities                     $   5,496,365          82.7%         $     6,271,128            88.9%
                                                  =============         =====          ===============           =====
</Table>

     At December 31, 2008, 97.5% of the fixed income securities portfolio was
rated investment grade, which is 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, a rating of AAA, AA,
A or BBB from S&P'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. The following table summarizes the credit quality of the fixed
income securities portfolio at December 31, 2008.

<Table>
<Caption>
                ($ IN THOUSANDS)
                NAIC              MOODY'S                        FAIR      PERCENT TO
                RATING            EQUIVALENT                    VALUE        TOTAL
                ------            ----------                    -----        -----
                   <S>            <C>                        <C>              <C>
                   1              Aaa/Aa/A                   $ 4,029,051      73.3%
                   2              Baa                          1,327,651      24.2
                                                             -----------   -------
                                  Investment grade             5,356,702      97.5
                   3              Ba                              99,471       1.8
                   4              B                               34,000       0.6
                   5              Caa or lower                     3,843       0.1
                   6              In or near default               2,349         -
                                                             -----------   -------
                                  Below investment grade         139,663       2.5
                                                             -----------   -------
                                  Total                      $ 5,496,365     100.0%
                                                             ===========   =======
</Table>

     The table above includes 1 security with a fair value totaling $8 million
that has 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 NAIC rating.

                                       28
<Page>

     MUNICIPAL BONDS totaled $385.4 million at December 31, 2008, substantially
all of which are taxable. The following table summarizes the municipal bond
portfolio by Moody's equivalent ratings as of December 31, 2008.

<Table>
<Caption>
                                                                        FAIR VALUE AS A
                          PAR      AMORTIZED     FAIR      UNREALIZED     PERCENT OF
($ IN THOUSANDS)         VALUE       COST        VALUE      GAIN/LOSS   AMORTIZED COST
                       ---------   ---------   ---------   ----------   ---------------
   <S>                 <C>         <C>         <C>         <C>               <C>
   Rating (1)
     Aaa               $ 152,790   $ 127,490   $ 116,203   $ (11,287)        91.1%
     Aa                  203,748     122,344     103,067     (19,277)        84.2
     A                   143,449     111,434      90,688     (20,746)        81.4
     Baa                 194,245      99,323      73,468     (25,855)        74.0
     Ba or lower           2,000       2,073       1,955        (118)        94.3
                       ---------   ---------   ---------   ----------
          Total        $ 696,232   $ 462,664   $ 385,381   $ (77,283)        83.3
                       =========   =========   =========   ==========
</Table>

     ----------
     (1)  Moody's equivalent rating will not necessarily tie to ratings
          distributions from the NAIC due to potential timing differences
          between the various rating suppliers and the number of external rating
          agencies used in the determination.

     The unrealized net capital loss of $77.3 million at December 31, 2008 in
our municipal bond portfolio was mainly caused by widening credit spreads as
well as student loan ARS, which contributed $11.1 million of the unrealized
losses.

     Included in our municipal bond portfolio at December 31, 2008 are $97.8
million of ARS that have long-term stated maturities, with the interest rate
reset based on auctions that generally occurred every 7, 28 or 35 days depending
on the specific security. This is compared to a balance of ARS at December 31,
2007 of $133.7 million, with the decline primarily representing redemptions from
calls or refunding proceeds since December 31, 2007. Our holdings primarily have
a Moody's or equivalent rating of Aaa. All of our holdings are pools of student
loans for which at least 85% of the collateral was insured by the U.S.
Department of Education at the time we purchased the security. As of December
31, 2008, $75.7 million of our ARS backed by student loans was 100% insured by
the U.S. Department of Education and $22.1 million was 90% to 99% insured. All
of our student loan ARS holdings are experiencing failed auctions and we receive
the failed auction rate or, for those which contain maximum reset rate formulas,
we receive the contractual maximum rate. We anticipate that failed auctions may
persist and most of our holdings will continue to pay the failed auction rate
or, for those that contain maximum rate reset formulas, the maximum rate, as
described below. Auctions continue to be conducted as scheduled for each of the
securities.

     We estimate that approximately one half of our student loan backed ARS
include maximum rate reset formulas with a look back feature whereby if the
failed auction rate exceeds an annual contractual maximum rate over a preceding
stipulated period, the coupon interest rate is temporarily reset to the maximum
rate, which can vary between zero and the failed auction rate. This maximum rate
formula causes the reset interest rate on these securities to be lower than the
failed auction rate in order to reduce the annual interest rate so that it does
not exceed the annual contractual maximum rate. Generally, the annual
contractual maximum rate is higher than the historical rates paid on these
securities. At December 31, 2008, interest on $8.6 million of our ARS has reset
using the maximum rate reset formula.

     CORPORATE BONDS totaled $2.89 billion at December 31, 2008. As of December
31, 2008, $1.33 billion or 45.9% of the portfolio consisted of privately placed
securities compared to $1.52 billion or 45.1% at December 31, 2007. 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 NAIC based on information
provided to them and are also internally rated. Additionally, approximately
35.4% of the privately placed corporate securities in our portfolio are rated by
an independent rating agency.

                                       29
<Page>

     The following table summarizes the corporate fixed income portfolio by
Moody's equivalent rating as of December 31, 2008.

<Table>
<Caption>
($ IN THOUSANDS)       CORPORATE-PUBLIC            CORPORATE-PRIVATE            TOTAL CORPORATE
                   -------------------------   -------------------------   -------------------------
                      FAIR       UNREALIZED       FAIR       UNREALIZED       FAIR       UNREALIZED
RATING (1)            VALUE      GAINS/LOSS       VALUE      GAINS/LOSS       VALUE      GAINS/LOSS
----------         -----------   -----------   -----------   -----------   -----------   -----------
<S>                <C>           <C>           <C>           <C>           <C>           <C>
Aaa                $    11,492   $     (142)   $   117,933   $    6,003    $   129,425   $    5,861
Aa                     106,643        6,135         98,537       (5,132)       205,180        1,003
A                      645,739      (41,187)       414,108      (35,659)     1,059,847      (76,846)
Baa                    718,358      (98,841)       613,790      (59,478)     1,332,148     (158,319)
Ba or lower             79,399      (19,386)        81,138      (23,764)       160,537      (43,150)
                   -----------   -----------   -----------   -----------   -----------   -----------
     Total         $ 1,561,631   $ (153,421)   $ 1,325,506   $ (118,030)   $ 2,887,137   $ (271,451)
                   ===========   ===========   ===========   ===========   ===========   ===========
</Table>

     ----------
     (1)  Moody's equivalent rating will not necessarily tie to ratings
          distributions from the NAIC due to potential timing differences
          between the various rating suppliers and the number of external rating
          agencies used in the determination.

     The unrealized net capital loss of $271.5 million at December 31, 2008 is
driven primarily by significantly widening credit spreads resulting from
deteriorating macro economic conditions and continued credit market
deterioration.

     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 200 issues with an average security value of approximately $6.5
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.

     FOREIGN GOVERNMENT securities totaled $371.5 million and all were rated
investment grade at December 31, 2008.

                                       30
<Page>

     CERTAIN COLLATERALIZED SECURITIES are detailed in the following table by
Moody's equivalent rating as of December 31, 2008.

<Table>
<Caption>
                                              FAIR VALUE AT
                                               DECEMBER 31,   % TO TOTAL                                                  Ba OR
($ IN THOUSANDS)                                  2008        INVESTMENTS      Aaa         Aa         A         Baa       LOWER
                                              -------------   -----------      ---         --         -         ---       -----
<S>                                           <C>                     <C>       <C>         <C>       <C>         <C>        <C>
MBS
U.S. Agency                                   $     330,950           5.0%      100.0%        --        --          --         --
Prime                                                41,634           0.6       100.0         --        --          --         --
Alt-A                                                23,593           0.4       100.0         --        --          --         --
                                              -------------   -----------
     Total MBS                                $     396,177           6.0%
                                              =============   ===========
CMBS
CMBS                                          $     467,212           7.0%       90.4        8.1%      1.5%         --         --
Commercial real estate collateralized debt
   obligations ("CRE CDO")                            1,656            --          --         --      18.1        81.9%        --
                                              -------------   -----------
     Total CMBS                               $     468,868           7.0%
                                              =============   ===========
ABS
ABS RMBS non-insured                          $      35,198           0.5%       81.3        3.4       1.0         2.7       11.6%
ABS RMBS insured                                      8,670           0.2          --        9.3       2.4        82.6        5.7
                                              -------------   -----------
     Total ABS RMBS                                  43,868           0.7

Other collateralized debt obligations                20,202           0.3        26.3       30.6      30.7          --       12.4
                                              -------------   -----------
     Total ABS                                $      64,070           1.0%
                                              =============   ===========
</Table>

     During 2008, certain financial markets continued to experience price
declines due to market and liquidity disruptions. We experienced this
illiquidity and disruption in certain of our MBS, CMBS and ABS fixed income
securities, particularly in our Prime residential mortgage-backed securities
("Prime"), Alt-A, CMBS, CRE CDO, ABS RMBS, and other collateralized debt
obligations ("other CDO") portfolios. These portfolios totaled $598.2 million or
approximately 9.0% of our total investments at December 31, 2008. Other
securities markets, including certain other asset-backed and real estate-backed
securities markets, also experienced illiquidity, but to a lesser degree.

     We determine the fair values of securities comprising these illiquid
portfolios by obtaining information from an independent third-party valuation
service provider and brokers. We confirmed the reasonableness of the fair value
of these portfolios as of December 31, 2008 by analyzing available market
information including, but not limited to, collateral quality, anticipated cash
flows, credit enhancements, default rates, loss severities, securities' relative
position within their respective capital structures, and credit ratings from
statistical rating agencies.

     The following table summarizes our illiquid portfolios as of December 31,
2008.

<Table>
<Caption>
                                             AMORTIZED COST                 FAIR VALUE AS
                      PAR       AMORTIZED    AS A PERCENTAGE     FAIR       A PERCENTAGE    UNREALIZED
($ IN THOUSANDS)    VALUE (2)  COST (1)(2)    OF PAR VALUE       VALUE      OF PAR VALUE    GAIN/LOSS
                   ---------   -----------   ---------------   ---------   --------------   ----------
<S>                <C>         <C>                <C>          <C>             <C>          <C>
MBS
   Prime           $  46,751   $    46,949        100.4%       $  41,634       89.1%        $   (5,315)
   Alt-A              30,000        29,623         98.7           23,593       78.6             (6,030)

CMBS
   CMBS              753,489       720,035         95.6          467,212       62.0           (252,823)
   CRE CDO            14,918         1,672         11.2            1,656       11.1                (16)

ABS
   ABS RMBS           65,890        58,274         88.4           43,868       66.6            (14,406)
   Other CDO          28,788        28,788        100.0           20,202       70.2             (8,586)
                   ---------   -----------                     ---------                    ----------
   Total           $ 939,836   $   885,341         94.2        $ 598,165       63.6         $ (287,176)
                   =========   ===========                     =========                    ==========
</Table>

----------
(1) Amortized cost includes other-than-temporary impairment charges, as
    applicable.

(2) The difference between par value and amortized cost of $54.5 million is
    primarily attributable to write-downs. Par value has been reduced by
    principal payments.

                                       31
<Page>

     The following table presents realized capital gains and losses and
principal transactions relating to our illiquid portfolios for the year ended
December 31, 2008.

<Table>
<Caption>
                           REALIZED CAPITAL GAINS AND LOSSES              PRINCIPAL TRANSACTIONS
                        ---------------------------------------   ---------------------------------------
($ IN THOUSANDS)                                     CHANGE IN
                                      IMPAIRMENT       INTENT                   PRINCIPAL
                           SALES      WRITE-DOWNS   WRITE-DOWNS      SOLD        RECEIVED      ACQUIRED
                        -----------   -----------   -----------   ----------   -----------   ------------
<S>                     <C>           <C>           <C>           <C>          <C>           <C>
MBS
Prime                   $        --   $        --   $        --   $       --   $     3,465   $         --
Alt-A                            --            --            --           --            --             --

CMBS
CMBS                            272            --       (37,685)      81,013         1,527          6,846
CRE CDO                        (436)       (9,275)       (7,733)      18,586           707             --

ABS
ABS RMBS                        (72)       (3,506)       (5,302)         335        16,802             --
Other CDO                       317            --            --        3,016           269             --
                        -----------   -----------   -----------   ----------   -----------   ------------
  Total                 $        81   $   (12,781)  $   (50,720)  $  102,950   $    22,770   $      6,846
                        ===========   ===========   ===========   ==========   ===========   ============
</Table>

     Securities included in our illiquid portfolios with a fair value less than
70% of amortized cost as of December 31, 2008 are shown in the following table.

<Table>
<Caption>
              ($ IN THOUSANDS)                      FAIR         UNREALIZED
                                                    VALUE        GAIN/LOSS
                                                ------------   --------------
              <S>                               <C>            <C>
              CMBS                              $    112,040   $     (200,849)
              ABS RMBS                                 9,131          (12,026)
              Other CDO                               14,901           (7,936)
                                                ------------   --------------
                 Total                          $    136,072   $     (220,811)
                                                ============   ==============
</Table>

     We continue to believe that the unrealized losses on these securities are
not predictive of the ultimate 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 be other than
temporary, the unrealized losses should reverse over the remaining lives of the
securities.

     The cash flows of the underlying mortgages or collateral for MBS, CMBS
(including CRE CDO) and ABS are generally applied in a pre-determined order and
are designed so that each security issued qualifies for a specific original
rating. The security issue is typically referred to as the "class". For example,
the "senior" portion or "top" of the capital structure which would originally
qualify for a rating of Aaa is referred to as the "Aaa class" and typically has
priority in receiving the principal repayments on the underlying mortgages. In a
sequential structure, underlying collateral principal repayments are directed to
the most senior rated Aaa class in the structure until paid in full, after which
principal repayments are directed to the next most senior Aaa class in the
structure until it is paid in full. Although the various Aaa classes may receive
principal sequentially, they may share any losses from the underlying collateral
on a pro-rata basis after losses are absorbed by classes with lower original
ratings or what may be referred to as more "junior" or "subordinate" securities
in the capital structure. The underlying mortgages have fixed interest rates,
variable interest rates (such as adjustable rate mortgages ("ARM")) or are
hybrid, meaning that they contain features of both fixed and variable rate
mortgages.

     CMBS totaled $468.9 million, all of which were rated investment grade at
December 31, 2008. The CMBS portfolio is subject to credit risk, but unlike
other structured securities, 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. Approximately 97.5% of the CMBS investments are structured securities
collateralized by pools of commercial mortgages, broadly diversified across
property types and geographical area.

                                       32
<Page>

     The following table shows our CMBS portfolio, excluding CRE CDO, at
December 31, 2008 by vintage year, based upon our participation in the capital
structure.

<Table>
<Caption>
        ($ IN THOUSANDS)

        CAPITAL STRUCTURE                   PAR        AMORTIZED       FAIR         UNREALIZED
        CLASSIFICATION (1)                 VALUE       COST (2)        VALUE        GAIN/LOSS
        ------------------              -----------   -----------   -----------   --------------
        <S>                             <C>           <C>           <C>           <C>
        Aaa
           2007:
              Super senior (3)          $    60,000   $    60,509   $    39,682   $      (20,827)
              Subordinated senior (5)        28,000        27,045         7,235          (19,810)
                                        -----------   -----------   -----------   --------------
                                             88,000        87,554        46,917          (40,637)

           2006:
              Super senior (3)               28,000        28,108        21,737           (6,371)
              Mezzanine senior (4)           37,338        36,215        19,021          (17,194)
              Subordinated senior (5)        42,081        40,245        13,150          (27,095)
                                        -----------   -----------   -----------   --------------
                                            107,419       104,568        53,908          (50,660)

           2005:
              Super senior (3)               51,400        51,392        42,054           (9,338)
              Subordinated senior (5)        10,000         9,867         4,265           (5,602)
                                        -----------   -----------   -----------   --------------
                                             61,400        61,259        46,319          (14,940)

           Pre-2005 (6):                    289,704       289,882       251,862          (38,020)
                                        -----------   -----------   -----------   --------------
               Aaa total                    546,523       543,263       399,006         (144,257)

        Aa                                  153,307       152,169        51,357         (100,812)
        A                                    53,659        24,603        16,849           (7,754)
                                        -----------   -----------   -----------   --------------
         Total CMBS                     $   753,489   $   720,035   $   467,212   $     (252,823)
                                        ===========   ===========   ===========   ==============
</Table>

        ----------
        (1) May not be consistent with current ratings due to downgrades.

        (2) Amortized cost includes other-than-temporary impairment charges, as
            applicable.

        (3) Most senior of the Aaa rated tranches, typically has a high level of
            credit enhancement of approximately 30%, meaning actual losses in
            the deal have to reach 30% before incurring a first dollar loss.

        (4) Middle Aaa rated tranche, typically having credit enhancement of
            approximately 20%, are subordinate only to the Super senior bonds.

        (5) Lowest Aaa rated tranche, typically with credit enhancement in the
            low teens. This bond is subordinate to the Super senior and
            Mezzanine senior tranches, but still senior to all tranches rated
            below Aaa.

        (6) Prior to 2005, the Aaa bonds in a transaction were generally not
            divided into Super senior, Mezzanine senior, or Subordinated senior
            (with the exception of a few deals structured very late in 2004);
            therefore all 2004 and prior Aaa-rated securities are grouped into
            this category.

     The unrealized net capital loss of $252.8 million at December 31, 2008 on
our CMBS portfolio was a result of significant widening of credit spreads due to
deteriorating macro economic conditions and continued credit market
deterioration. Credit spread widening occurred in all rating classes but was
particularly evident in our subordinated senior Aaa, Pre-2005 Aaa-rated and
lower rated securities. These holdings accounted for $199.1 million, or
approximately 79% of the unrealized net capital loss. Our analysis suggests that
the vast majority of our CMBS portfolio is well insulated from a severe rise in
commercial mortgage default rates. Credit protections in the portfolio,
including those on subordinated senior Aaa and Aa-rated securities, are
multiples of historic high commercial mortgage loss experience and well in
excess of our current loss expectations.

     ABS RMBS includes securities that are collateralized by mortgage loans
issued to borrowers that cannot qualify for Prime or Alt-A financing terms due
in part to weak or limited credit history. It also includes securities that are
collateralized by certain second lien mortgages regardless of the borrower's
credit history. $37.1 million or 84.5% of the ABS RMBS portfolio consisted of
securities that were issued during 2005, 2006 and 2007. At December 31, 2008,
69.1% of securities issued during 2005, 2006 and 2007 were rated Aaa, 5.4% rated
Aa, 1.6% rated A, 11.6% rated Baa and 12.3% rated Ba or lower.

                                       33
<Page>

     The following table presents additional information about our ABS RMBS
portfolio including a summary by first and second lien collateral at December
31, 2008.

<Table>
<Caption>
                                                 FAIR      % TO TOTAL
            ($ IN THOUSANDS)                     VALUE     INVESTMENTS
                                               ---------   -----------
            <S>                                <C>              <C>
            ABS RMBS
            First lien:
               Fixed rate (1)                  $  11,453        0.2%
               Variable rate (1)                  20,084        0.3
                                               ---------     ------
                  Total first lien (2)            31,537        0.5
            Second lien:
               Insured                             7,961        0.1
               Other                               4,370        0.1
                                               ---------     ------
                  Total second lien (3)           12,331        0.2
                                               ---------     ------
                  Total ABS RMBS               $  43,868        0.7%
                                               =========     ======
</Table>

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

        (2)  The credit ratings of the first lien ABS RMBS were 81.3% Aaa, 3.8%
             Aa, 1.8% A, 3.0% Baa and 10.1% Ba or lower at December 31, 2008.

        (3)  The credit ratings of the second lien ABS RMBS were 24.2% Aaa, 6.5%
             Aa, 58.0% Baa and 11.3% Ba or lower at December 31, 2008.

     The following table includes first lien non-insured ABS RMBS by vintage
year and the interest rate characteristics of the underlying mortgage product.

<Table>
<Caption>
                                      VARIABLE     FIXED       FAIR      AMORTIZED   UNREALIZED
        ($ IN THOUSANDS)                RATE       RATE        VALUE      COST (1)   GAIN/LOSS
                                      --------   ---------   ---------   ---------   ----------
        <S>                           <C>        <C>         <C>         <C>         <C>
        Total first lien
           non-insured ABS RMBS
               2007                   $  3,708   $   9,844   $  13,552   $  15,042   $   (1,490)
               2006                     15,655       1,609      17,264      20,975       (3,711)
               2005                         12          --          12          12           --
                                      --------   ---------   ---------   ---------   ----------
                  Total               $ 19,375   $  11,453   $  30,828   $  36,029   $   (5,201)
                                      ========   =========   =========   =========   ==========
</Table>

        ----------
        (1) Amortized cost includes other-than-temporary impairment charges, as
            applicable.

     We also own approximately $4.4 million of second lien ABS RMBS non-insured
securities, representing 85.1% of amortized cost. Approximately $1.4 million, or
31.6%, of this portfolio are 2006 and 2007 vintage years. Together with the
first lien non-insured ABS RMBS in the table above, this comprises our $35.2
million of non-insured ABS RMBS.

     At December 31, 2008, $8.7 million or 19.8% of the total ABS RMBS
securities are insured by 4 bond insurers and 94.3% of these insured securities
were rated investment grade. The following table shows our insured ABS RMBS
portfolio at December 31, 2008 by vintage year for the first lien and second
lien collateral.

<Table>
<Caption>
   ($ IN THOUSANDS)                                VINTAGE YEAR
                                 -------------------------------------------------
                                                                                       FAIR       AMORTIZED    UNREALIZED
                                    2007         2006         2005       PRE-2005      VALUE       COST (1)    GAIN/LOSS
                                 ----------   ----------   ----------   ----------   ---------   -----------   ----------
   <S>                           <C>          <C>          <C>          <C>          <C>         <C>           <C>
   First lien:                   $      498   $      211   $       --   $       --   $     709   $       901   $     (192)
   Second lien:                       4,053           --          117        3,791       7,961        16,211       (8,250)
                                 ----------   ----------   ----------   ----------   ---------   -----------   ----------
      Total insured ABS RMBS     $    4,551   $      211   $      117   $    3,791   $   8,670   $    17,112   $   (8,442)
                                 ==========   ==========   ==========   ==========   =========   ===========   ==========
</Table>

   ----------
       (1) Amortized cost includes other-than-temporary impairment charges, as
applicable.

     INSURED INVESTMENTS As of December 31, 2008, we hold $218.3 million of
fixed income securities that are insured by bond insurers, including $195.0
million of our municipal bond portfolio, $8.7 million of our ABS RMBS
and $9.1 million of our CMBS. 50.6% of our municipal bond portfolio is insured
by four bond insurers and 38.9% of these securities have a Moody's equivalent
rating of Aaa or Aa. Our practices for acquiring and

                                       34
<Page>

monitoring municipal bonds primarily are based on the quality of the primary
obligor. As of December 31, 2008, we believe the valuations already reflected a
decline in the value of the insurance, and further related declines if any, are
not expected to be material. While the valuation of these holdings may be
temporarily impacted by negative and rapidly changing 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, 2008, 64.2% of our insured
municipal bond portfolio was insured by MBIA, Inc., 15.5% by Financial Security
Assurance Inc., and 14.0% by Ambac Financial Group, Inc.

     Credit ratings without the insurance guarantee are not available in certain
cases where the issuer does not solicit the rating agency to provide the rating
without the insurance guarantee and, as a result, the rating agency does not
disclose it. The ratings of our holdings with insurance guarantee generally
follow the rating of the bond insurer. In cases where the rating of the bond
insurer is lower than that of the underlying security, the rating without
insurance guarantee could be higher than that with the guarantee.

     The following table shows our insured investments by Moody's equivalent
rating with and without the impact to the rating from the insurance guarantee,
where it is available, as of December 31, 2008.

<Table>
<Caption>
($ IN THOUSANDS)
                RATING WITH INSURANCE GUARANTEE                           RATING WITHOUT INSURANCE GUARANTEE
---------------------------------------------------------------     ----------------------------------------------
                                      FAIR          PERCENT TO                          FAIR          PERCENT TO
                  RATING              VALUE           TOTAL             RATING          VALUE           TOTAL
       -------------------------   -----------     ------------     --------------   -----------   ---------------
<S>                                <C>                 <C>          <C>              <C>                 <C>
Municipal bonds
       Aaa                         $    17,062           8.8  %     Aaa              $        --            --  %
       Aa                               58,732          30.1        Aa                    43,212          22.2
       A                                45,708          23.4        A                     79,229          40.6
       Baa                              73,468          37.7        Baa                   35,243          18.1
       Rating without Insurance
       Guarantee not provided
       ("NA")                               --            --        NA                    37,286          19.1
                                    ----------     ------------                       ----------    -------------
   Total municipal bonds           $   194,970         100.0  %                      $   194,970         100.0  %
                                    ===========    ============                       ==========    =============

ABS RMBS
       Aa                          $       803           9.3  %     Aa               $        --            --  %
       A                                   211           2.4        A                         --            --
       Baa                               7,158          82.6        Baa                       --            --
       Ba                                  498           5.7        Ba                        --            --
       B                                    --            --        B                        498           5.8
       Caa or lower                         --            --        Caa or lower             686           7.9
       NA                                   --            --        NA                     7,486          86.3
                                    ----------     ------------                       ----------    -------------
   Total ABS RMBS                  $     8,670         100.0  %                      $     8,670         100.0  %
                                    ==========     ============                       ==========    =============
</Table>

MORTGAGE LOANS Our mortgage loan portfolio was $700.3 million and $725.3 million
at December 31, 2008 and 2007, respectively, and comprised primarily loans
secured by first mortgages on developed commercial real estate. Geographical and
property type diversification are key considerations used to manage our
exposure. The portfolio is diversified across several property types. Our
largest exposure to any metropolitan area is also highly diversified, with the
largest exposure not exceeding 10% of the portfolio. The average debt service
coverage ratio represents the amount of cash flows available from the property
to meet the borrower's principal and interest payment obligations. The average
debt service coverage ratio of the portfolio as of December 31, 2008 was
approximately 2.0, and only approximately 0.7% of the mortgage loan portfolio
had a debt service coverage ratio under 1.0.

     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 at least quarterly for purposes of establishing valuation
allowances and placing loans on non-accrual status as 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 $449 thousand of realized capital losses related to valuation
allowances on mortgage loans for the year ended December 31, 2008 and had no
realized capital losses related to valuation allowances on mortgage loans for
the year ended December 31, 2007. Additionally, realized capital losses due to
changes in intent to hold mortgage loans to maturity totaled $2.0 million and
$2.4 million for the years ended December 31, 2008 and 2007, respectively. For
further detail, see Note 6 to the financial statements.

                                       35
<Page>

SHORT-TERM INVESTMENTS Our short-term investment portfolio was $409.8 million
and $22.7 million at December 31, 2008 and 2007, respectively. The increase in
short-term investments was primarily due to liquidity management actions. 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 balance was $39.7 million and $38.5 million at
December 31, 2008 and 2007, respectively. Policy loans are carried at the unpaid
principal balances.

OTHER INVESTMENTS Our other investments as of December 31, 2008 are comprised of
certain derivative financial instruments.

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 losses totaled $278.3 million at December
31, 2008, compared to unrealized net capital gains of $341.5 million at December
31, 2007, as a result of significantly widening credit spreads.

     The following table presents unrealized net capital gains and losses,
pre-tax and after-tax at December 31.

<Table>
<Caption>
       ($ IN THOUSANDS)                                              2008               2007
                                                               ----------------   ----------------
       <S>                                                    <C>                <C>
       U.S. government and agencies                           $         241,076  $         220,299
       Municipal                                                        (77,283)            11,552
       Corporate                                                       (271,451)            63,866
       Foreign government                                               109,235             73,689
       MBS                                                               (2,001)              (113)
       CMBS                                                            (252,839)           (19,250)
       ABS                                                              (22,992)            (8,326)
       Redeemable preferred stock                                        (3,831)               512
                                                               ----------------   ----------------
       Fixed income securities                                         (280,086)           342,229
       Short-term investments                                                65                  -
       Derivatives                                                        1,749               (766)
                                                               ----------------   ----------------
       Unrealized net capital gains and losses, pre-tax                (278,272)           341,463
                                                               ----------------   ----------------
       Amounts recognized for:
          Insurance reserves (1)                                       (155,935)          (261,846)
          DAC and DSI (2)                                               266,647             20,672
                                                               ----------------   ----------------
              Total                                                     110,712           (241,174)
       Deferred income taxes                                             58,646            (35,101)
                                                               ----------------   ----------------
       Unrealized net capital gains and losses, after-tax     $        (108,914) $          65,188
                                                               ================   ================
</Table>

       ----------
       (1) The insurance reserves adjustment represents the amount by which the
           reserve balance would increase if the net unrealized gains in the
           applicable product portfolios were realized and reinvested at current
           lower interest rates, resulting in a premium deficiency. Although we
           evaluate premium deficiencies on the combined performance of our life
           insurance and immediate annuities with life contingencies, the
           adjustment primarily relates to structured settlement annuities with
           life contingencies, in addition to certain payout annuities with life
           contingencies.

       (2) The DAC and DSI adjustment represents the amount by which the
           amortization of DAC and DSI would increase or decrease if the
           unrealized gains or losses in the respective product portfolios were
           realized. Recapitalization of the DAC and DSI balances is limited to
           the originally deferred costs plus interest.

     The net unrealized loss for the fixed income portfolio totaled $280.1
million, comprised of $420.1 million of gross unrealized gains and $700.2
million of gross unrealized losses at December 31, 2008. This is compared to a
net unrealized gain for the fixed income portfolio totaling $342.2 million at
December 31, 2007, comprised of $437.5 million of gross unrealized gains and
$95.3 million of gross unrealized losses.

                                       36
<Page>

     Gross unrealized gains and losses as of December 31, 2008 on fixed income
securities by type and sector are provided in the table below.

<Table>
<Caption>
                                                                                                     AMORTIZED
                                                                GROSS UNREALIZED                     COST AS A     FAIR VALUE AS A
                                       PAR       AMORTIZED   ----------------------      FAIR        PERCENTAGE     PERCENTAGE OF
($ IN THOUSANDS)                     VALUE(1)      COST        GAINS       LOSSES        VALUE      OF PAR VALUE      PAR VALUE
                                   -----------  -----------  ----------  ----------   -----------   ------------   ---------------
<S>                                <C>          <C>          <C>         <C>          <C>              <C>              <C>
Corporate:
   Utilities                       $   632,634  $   624,016  $   19,686  $  (47,550)  $   596,152       98.6            94.2
   Consumer goods (cyclical and
     non-cyclical)                     448,626      449,808       7,506     (28,037)      429,277      100.3            95.7
   Banking                             425,399      413,979       4,608     (78,121)      340,466       97.3            80.0
   Financial services                  356,448      344,939         942     (44,734)      301,147       96.8            84.5
   Capital goods                       346,585      339,837       4,855     (31,968)      312,724       98.1            90.2
   Energy                              194,861      197,168         781     (15,738)      182,211      101.2            93.5
   Transportation                      190,659      192,477       4,126     (23,802)      172,801      101.0            90.6
   Communications                      177,930      176,870       1,790     (14,106)      164,554       99.4            92.5
   Other                               275,181      171,437       8,159     (20,801)      158,795       62.3            57.7
   Basic industry                      132,676      133,754         223     (14,814)      119,163      100.8            89.8
   Technology                          113,229      114,303       2,631      (7,087)      109,847      100.9            97.0
                                   -----------  -----------  ----------  ----------   -----------
Total corporate fixed income
  portfolio                          3,294,228    3,158,588      55,307    (326,758)    2,887,137       95.9            87.6
                                   -----------  -----------  ----------  ----------   -----------

U.S. government and agencies         1,205,084      676,655     241,196        (120)      917,731       56.2            76.2
Municipal                              696,232      462,664       4,442     (81,725)      385,381       66.5            55.4
Foreign government                     472,553      262,307     109,235          --       371,542       55.5            78.6
MBS                                    406,076      398,178       9,387     (11,388)      396,177       98.1            97.6
CMBS                                   768,406      721,707          --    (252,839)      468,868       93.9            61.0
ABS                                     94,678       87,062         566     (23,558)       64,070       92.0            67.7
Redeemable preferred stock               8,500        9,290          --      (3,831)        5,459      109.3            64.2
                                   -----------  -----------  ----------  ----------   -----------
   Total fixed income securities   $ 6,945,757  $ 5,776,451  $  420,133  $ (700,219)  $ 5,496,365       83.2            79.1
                                   ===========  ===========  ==========  ==========   ===========
</Table>

----------
(1) Included in par value are zero-coupon securities that are generally
purchased at a deep discount to the par value that is received at maturity.

     The banking, utilities and financial services sectors had the highest
concentration of gross unrealized losses in our corporate fixed income
securities portfolio at December 31, 2008. The gross unrealized losses in these
sectors were primarily company specific and the result of significantly widening
credit spreads. As of December 31, 2008, $289.6 million or 88.6% of the gross
unrealized losses in the corporate fixed income portfolio and $372.1 million or
99.6% of the gross unrealized losses on the remaining fixed income securities,
related to securities rated investment grade. 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 prepayment risks for fixed
income securities with consistent terms. Credit spreads vary with the market's
perception of risk and liquidity in a specific issuer or specific sectors.
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.

     All securities in an unrealized loss position at December 31, 2008 were
included in our portfolio monitoring process for determining whether declines in
value are other than temporary.

                                       37
<Page>

     The following table shows gross unrealized losses at December 31, 2008 by
credit quality of the fixed income securities using Moody's equivalent rating.

<Table>
<Caption>
                                                          RATING (1)
                    ---------------------------------------------------------------------------------------
                                                                                            Caa      IN OR     TOTAL
($ IN THOUSANDS)                                                                             OR       NEAR   UNREALIZED
                        Aaa         Aa          A          Baa         Ba          B        LOWER   DEFAULT     LOSS     FAIR VALUE
                        ---         --          -          ---         --          -        -----   -------  ----------  -----------
<S>                 <C>         <C>         <C>         <C>         <C>        <C>        <C>       <C>      <C>         <C>
Corporate:
   Banking          $       --  $   (5,470) $  (43,135) $  (29,473) $     (43) $      --  $     --  $    --  $  (78,121) $   275,718
   Financial
     services             (496)     (1,618)    (24,913)    (17,538)        --         --        --     (169)    (44,734)     256,438
   Consumer goods
     (cyclical and
      non-cyclical)         --          --      (8,315)    (11,559)    (6,320)    (1,843)       --       --     (28,037)     223,550
   Utilities                --        (111)     (2,580)    (40,374)    (4,269)      (216)       --       --     (47,550)     349,593
   Capital goods            --          --      (1,693)    (19,139)    (5,689)    (5,447)       --       --     (31,968)     225,156
   Basic industry           --          --      (1,568)     (5,787)    (2,105)    (5,354)       --       --     (14,814)     103,995
   Transportation           --          --      (8,786)     (6,013)    (9,003)        --        --       --     (23,802)     117,651
   Communications           --          --        (624)     (9,953)    (2,621)      (908)       --       --     (14,106)     111,166
   Energy                   --        (614)         --     (14,198)      (681)      (245)       --       --     (15,738)     130,364
   Technology             (544)         --      (4,312)     (2,231)        --         --        --       --      (7,087)      62,579
   Other                    --          --      (6,101)    (14,668)       (32)        --        --       --     (20,801)      40,306
                    ----------  ----------  ----------  ----------  ---------  ---------  --------  -------  ----------  -----------
Total corporate
     fixed income
     portfolio          (1,040)     (7,813)   (102,027)   (170,933)   (30,763)   (14,013)       --     (169)   (326,758)   1,896,516
                    ----------  ----------  ----------  ----------  ---------  ---------  --------  -------  ----------  -----------

U.S. government and
     agencies             (120)         --          --          --         --         --        --       --        (120)      24,844
Municipal              (12,424)    (21,849)    (21,218)    (26,116)        --       (118)       --       --     (81,725)     291,413
Foreign government          --         --           --          --         --         --        --       --          --           --
MBS                    (11,388)         --          --          --         --         --        --       --     (11,388)      74,972
CMBS                  (146,939)   (100,740)     (5,144)        (16)        --         --        --       --    (252,839)     463,081
ABS                     (4,858)     (4,570)     (3,948)     (7,067)      (512)    (2,483)      (92)     (28)    (23,558)      49,827
Redeemable
     preferred
     stock                  --         --           --      (3,831)        --         --        --       --      (3,831)       5,459
                    ----------  ----------  ----------  ----------  ---------  ---------  --------  -------  ----------  -----------
Total fixed income
     securities     $ (176,769) $ (134,972) $ (132,337) $ (207,963) $ (31,275) $ (16,614) $    (92) $  (197) $ (700,219) $ 2,806,112
                    ==========  ==========  ==========  ==========  =========  =========  ========  =======  ==========  ===========
Rating % to total
     unrealized
     loss                  25.2%      19.3%       18.9%       29.7%       4.5%       2.4%       --%      --%      100.0%
</Table>

----------
(1) Moody's equivalent rating will not necessarily tie to ratings distributions
    from the NAIC due to potential timing differences between the various rating
    suppliers and the number of external rating agencies used in the
    determination.

     The scheduled maturity dates for fixed income securities at December 31,
2008 are shown below. Actual maturities may differ from those scheduled as a
result of prepayments by the issuers.

<Table>
<Caption>
                                  FIXED INCOME SECURITIES IN GROSS            FIXED INCOME SECURITIES IN GROSS
                                     UNREALIZED GAIN POSITION                     UNREALIZED LOSS POSITION
                            -------------------------------------------  -------------------------------------------
                            UNREALIZED  PERCENT      FAIR      PERCENT   UNREALIZED  PERCENT      FAIR      PERCENT
($ IN THOUSANDS)               GAIN     TO TOTAL     VALUE     TO TOTAL     LOSS     TO TOTAL     VALUE     TO TOTAL
                            ----------  --------  -----------  --------  ----------  --------  -----------  --------
<S>                         <C>            <C>    <C>             <C>    <C>              <C>  <C>               <C>
Due in one year or less     $      729     0.2%   $   107,087     4.0%   $     (842)      0.1% $    86,919       3.1%
Due after one year through
  two years                      2,700     0.6        112,015     4.2        (8,650)      1.2       89,123       3.2
Due after two years
  through three years            2,569     0.6         93,501     3.5       (11,333)      1.6      177,885       6.3
Due after three years
  through four years            14,444     3.4        206,339     7.7       (25,673)      3.7      260,080       9.3
Due after four years
  through five years             9,534     2.3        162,109     6.0       (18,759)      2.7      148,908       5.3
Due after five years
  through ten years            189,534    45.1        848,148    31.5       (94,247)     13.5      596,790      21.3
Due after ten years            190,670    45.4        825,606    30.7      (505,769)     72.2    1,321,608      47.1
MBS and ABS(1)                   9,953     2.4        335,448    12.4       (34,946)      5.0      124,799       4.4
                            ----------   -----    -----------   -----    ----------     -----  -----------     -----
Total                       $  420,133   100.0%   $ 2,690,253   100.0%   $ (700,219)    100.0% $ 2,806,112     100.0%
                            ==========   =====    ===========   =====    ==========     =====  ===========     =====
</Table>

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

                                       38
<Page>

     For fixed income securities, 59.3% of the gross unrealized losses at
December 31, 2008 were from $362.6 million of securities with a fair value below
70% of amortized cost, or 6.6% of our fixed income portfolio, at December 31,
2008. The following table reconciles fixed income securities with unrealized
losses based on the percentage of fair value to amortized cost.

<Table>
<Caption>
                                                                                                                   % TO TOTAL
                                                                      PAR         UNREALIZED         FAIR          FIXED INCOME
($ IN THOUSANDS)                                                    VALUE(1)      GAIN (LOSS)        VALUE          SECURITIES
                                                                --------------  ---------------  ---------------  ---------------
<S>                                                              <C>             <C>              <C>                      <C>
GREATER THAN 80% of amortized cost                               $  2,395,928    $   (196,690)    $  2,175,511             39.6%
70% to 80% of amortized cost                                          402,137         (88,633)         268,019              4.9
LESS THAN 70% of amortized cost (2)                                   953,950        (414,896)         362,583              6.6
                                                                --------------  ---------------  ---------------  ---------------
Gross unrealized losses on fixed income securities                  3,752,015        (700,219)       2,806,113             51.1
Gross unrealized gains on fixed income securities                   3,193,742         420,133        2,690,252             48.9
                                                                --------------  ---------------  ---------------  ---------------
Net unrealized gains and losses on fixed income securities (3)   $  6,945,757    $   (280,086)    $  5,496,365            100.0%
                                                                ==============  ===============  ===============  ===============
</Table>

----------
(1)  Included in par value are $384.0 million of zero-coupon securities that are
     generally purchased at a deep discount to the par value that is received at
     maturity.

(2)  Illiquid portfolios represent $220.8 million of net unrealized losses and
     $136.1 million of fair value.

(3)  Illiquid portfolios represent $287.2 million of net unrealized losses and
     $598.2 million of fair value.

     The following table presents gross unrealized losses for fixed income
securities with a fair value below 70% of amortized cost.

<Table>
<Caption>
                                                   FAIR       GROSS UNREALIZED
               ($ IN THOUSANDS)                    VALUE           LOSSES
                                              -------------- -----------------
               <S>                             <C>            <C>
               Municipal                       $     38,492   $       (45,243)
               Corporate                            182,560          (145,011)
               CMBS                                 112,040          (200,849)
               ABS                                   24,032           (19,962)
               Redeemable preferred stock             5,459            (3,831)
                                              -------------- ------------------
               Total fixed income securities   $    362,583   $      (414,896)
                                              ============== ==================
</Table>

     We continue to believe that the unrealized losses on these securities are
not predictive of the ultimate performance. The unrealized losses should reverse
over the remaining lives of the securities. As of December 31, 2008, we have the
intent and ability to hold these securities to recovery. Our ability to do so is
substantially enhanced by our liquidity position, which cushions us from the
need to liquidate securities with significant unrealized losses to meet cash
obligations. During 2008, our fixed income securities portfolio provided
approximately $476 million in principal and interest cash flows, of which
substantially all have been received in accordance with the contractual terms.

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, 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. All investments in an unrealized loss position at
December 31, 2008 were included in our portfolio monitoring process for
determining whether declines in value were other than temporary.

     We also conduct a portfolio review to recognize impairment on securities 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 negative developments that would change the
view of long term investors and their intent to continue to hold the investment,
subsequent credit deterioration of an issuer or holding, subsequent further
deterioration of capital markets (i.e. debt and equity) and of economic
conditions, subsequent further deterioration in the financial services and real
estate industries, changes in duration, revisions to strategic asset
allocations, liquidity needs, unanticipated federal income tax situations
involving capital gains and capital loss carrybacks and carryforwards with
specific expiration dates, investment risk mitigation actions, and other new
facts and circumstances that would cause a change in our previous intent to hold
a security to recovery or maturity.

                                       39
<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, 2008                               DECEMBER 31, 2007
                                     --------------------------------------------    --------------------------------------------
                                                        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 amortized cost
    Number of issues                          448              38             486             381              60             441
    Fair value                       $  2,105,319    $     70,192    $  2,175,511    $  2,014,259    $    103,660    $  2,117,919
    Unrealized                       $   (187,983)   $     (8,707)   $   (196,690)   $    (74,751)   $     (8,180)   $    (82,931)

Category (II): Unrealized loss
greater than or equal to 20% of
amortized cost for a period of
less than 6 consecutive months
    Number of issues                          150              30             180               9               5              14
    Fair value                       $    557,986    $     46,428    $    604,414    $     22,380    $      4,830    $     27,210
    Unrealized                       $   (431,954)   $    (26,145)   $   (458,099)   $     (9,208)   $     (3,208)   $    (12,416)

Category (III): Unrealized loss
greater than or equal to 20% of
amortized cost for a period of
6 or more consecutive months, but
less than 12 consecutive months
    Number of issues                           13               2              15              --              --              --
    Fair value                       $     23,013    $        612    $     23,625    $         --    $         --    $         --
    Unrealized                       $    (41,789)   $       (757)   $    (42,546)   $         --    $         --    $         --

Category (IV): Unrealized loss
greater than or equal to 20% of
amortized cost for 12 or more
consecutive months
    Number of issues                           --               1               1              --              --              --
    Fair value                       $         --    $      2,562    $      2,562    $         --    $         --    $         --
    Unrealized                       $         --    $     (2,884)   $     (2,884)   $         --    $         --    $         --
                                     ------------    ------------    ------------    ------------    ------------    ------------

Total number of issues                        611              71             682             390              65             455
                                     ============    ============    ============    ============    ============    ============
Total fair value (1)                 $  2,686,318    $    119,794    $  2,806,112    $  2,036,639    $    108,490    $  2,145,129
                                     ============    ============    ============    ============    ============    ============
Total unrealized losses              $   (661,726)   $    (38,493)   $   (700,219)   $    (83,959)   $    (11,388)   $    (95,347)
                                     ============    ============    ============    ============    ============    ============
</Table>

     ----------
     (1)  At December 31, 2008, 95.7% of the fixed income securities portfolio
          was rated investment grade compared to 94.9% at December 31, 2007.

     The largest individual unrealized loss was $2.5 million for category (I),
$14.2 million for category (II), $7.8 million for category (III) and $2.9
million for category (IV) as of December 31, 2008.

     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.

     Categories (III) and (IV) have primarily been historically adversely
affected by industry and issue specific, or issuer specific conditions.

     At December 31, 2008, Category (III) for fixed income was comprised
primarily of fair values of $7.1 million of CMBS, $6.2 million of other CDO,
$5.6 million of corporate private and $4.7 million of ABS RMBS, for a total
of $23.6 million with unrealized losses of $27.1 million, $3.8 million, $3.0
million and $8.6 million, respectively, for a total of $42.5 million of
unrealized losses.

     Of the unrealized losses on below investment grade securities, 9.5% were in
significant unrealized loss positions (greater than or equal to 20% of amortized
cost) for six or more consecutive months prior to December 31, 2008. 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

                                       40
<Page>

diversification of the portfolio, active credit monitoring and portfolio
management activities. We continue to believe that the unrealized losses on
these securities are not predictive of the ultimate performance.

     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.

     The following table contains the individual securities with the largest
unrealized losses as of December 31, 2008. No other fixed income security had an
unrealized loss greater than $9.7 million or 1.4% of the total unrealized loss
on fixed income securities.

<Table>
<Caption>
                                                                                        UNREALIZED         FAIR VALUE
                                       UNREALIZED          FAIR            NAIC            LOSS             HIERARCHY
($ IN THOUSANDS)                          LOSS            VALUE           RATING          CATEGORY            LEVEL
                                     -------------   --------------    ------------    --------------     -------------
<S>                                 <C>             <C>                      <C>             <C>                 <C>
Other CMBS                          $    (14,241)   $       20,725           1               II                  2
Other CMBS                               (13,918)            5,127           1               II                  2
Other CMBS                               (13,751)            6,227           1               II                  2
CMBS Subordinated                        (13,409)            4,011           1               II                  3
U.S. Municipal                           (13,280)            6,220           1               II                  2
CMBS Subordinated                        (11,523)            3,310           1               II                  3
CMBS Subordinated                        (11,419)            3,431           1               II                  3
CMBS Subordinated                        (10,938)            3,123           1               II                  3
CMBS Subordinated                         (9,745)           10,331           1               II                  2
                                     -------------   --------------
     Total                          $   (112,224)   $       62,505
                                     =============   ==============
</Table>

     We also monitor the quality of our fixed income portfolio by categorizing
certain investments as "problem", "restructured" or "potential problem." Problem
fixed income securities are 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.

     The following table summarizes problem, restructured and potential problem
fixed income securities at December 31, 2008. We had no problem, restructured or
potential problem fixed income securities as of December 31, 2007.

<Table>
<Caption>
                                                                            AMORTIZED                               PERCENT OF
                                                                            COST AS A              FAIR VALUE AS    TOTAL FIXED
                                                     PAR       AMORTIZED    PERCENT OF    FAIR       A PERCENT      INCOME
          ($ IN THOUSANDS)                        VALUE (1)     COST (1)    PAR VALUE     VALUE    OF PAR VALUE     PORTFOLIO
                                                  ---------     --------    ---------     -----    -------------    ---------
          <S>                                     <C>          <C>              <C>     <C>               <C>            <C>
          Problem                                 $  30,000    $  18,824        62.7%   $ 13,593          45.3%          0.2%
          Potential problem                          56,942       22,118        38.8      22,080          38.8           0.4
                                                  ---------    ---------                --------                         ---
          Total net carrying value                $  86,942    $  40,942        47.1    $ 35,673          41.0           0.6%
                                                  =========    =========                ========                         ===
          Cumulative write-downs recognized (2)                $  41,423
                                                               =========
</Table>

          ----------
          (1)  The difference between par value and amortized cost of $46.0
               million at December 31, 2008 is primarily attributable to
               write-downs. Par value has been reduced by principal payments.

          (2)  Cumulative write-downs recognized only reflect impairment
               write-downs related to investments within the problem, potential
               problem and restructured categories.

     At December 31, 2008, amortized cost for the problem category was $18.8
million and was comprised primarily of $9.9 million of financial sector
related holdings, and $8.9 million of corporates. The increase over December
31, 2007 is attributable to the addition of fixed income holdings that either
are in default with respect to principal or interest and/or are investments
issued by companies that went into bankruptcy during the period. The
amortized cost of problem investments with a fair value less than 70% of
amortized cost totaled $9.9 million, with unrealized losses of $4.4 million
and fair value of $5.5 million.

     At December 31, 2008, amortized cost for the potential problem category was
$22.1 million and was comprised of $10.7 million of corporates, $6.2 million of
other CDO, $4.1 million of financial sector related holdings and $1.1

                                       41
<Page>

million of CMBS. The increase over December 31, 2007 is primarily attributable
to the additions of certain real estate related holdings, including securities
collateralized by residential and commercial mortgage loans. Also contributing
to the increase were financial sector related holdings. The amortized cost of
potential problem investments with a fair value less than 70% of amortized cost
totaled $4.0 million, with unrealized losses of $1.5 million and fair value of
$2.5 million.

     We evaluated each of these investments through our portfolio monitoring
process at December 31, 2008 and recorded write-downs when appropriate. We
further concluded that any remaining unrealized losses on these investments were
temporary in nature and that we have the intent and ability to hold the
securities until recovery.

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

<Table>
<Caption>
               ($ IN THOUSANDS)                          2008          2007            2006
                                                      ----------   ------------    -----------
               <S>                                   <C>          <C>             <C>
               Fixed income securities               $  362,671   $   358,547     $  343,115
               Mortgage loans                            41,949        40,916         38,576
               Short-term and other                      12,949        14,487         14,763
                                                      ----------   ------------    -----------
               Investment income, before expense        417,569       413,950        396,454
               Investment expense                       (14,638)      (27,212)       (23,390)
                                                      ----------   ------------    -----------
               Net investment income                 $  402,931   $   386,738     $  373,064
                                                      ==========   ============    ===========
</Table>

     Total investment expenses decreased $12.6 million in 2008 compared to 2007,
after increasing $3.8 million in 2007 compared to 2006. The 2008 decrease was
primarily due to lower expenses associated with a lower amount of collateral
received in connection with securities lending transactions. The average amount
of collateral held in connection with securities lending was approximately
$281.9 million in 2008 compared to approximately $338.2 million in 2007, as a
result of actions to reduce our securities lending balances.

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.

<Table>
<Caption>
($ IN THOUSANDS)                                                2008            2007            2006
                                                           -------------    ------------    -------------
<S>                                                       <C>              <C>             <C>
Sales (1)                                                 $     59,966     $    10,321     $     (5,112)
Impairment write-downs (2)                                     (38,528)              -             (258)
Change in intent write-downs (1)(3)                            (79,262)         (6,793)         (16,456)
Valuation of derivative instruments                            (29,525)         (8,166)          (5,429)
Settlement of derivative instruments                            10,144           3,807            5,170
                                                           -------------    ------------    -------------
   Realized capital gains and losses, pre-tax                  (77,205)           (831)         (22,085)
   Income tax benefit                                           25,708             308            8,216
                                                           -------------    ------------    -------------
   Realized capital gains and losses, after-tax           $    (51,497)    $      (523)    $    (13,869)
                                                           =============    ============    =============
</Table>

----------
(1)  To conform to the current period presentation, certain amounts in the prior
     periods have been reclassified.

(2)  Impairment write-downs reflect issue specific other-than-temporary declines
     in fair value, including instances where we could not reasonably assert
     that the recovery period would be temporary.

(3)  Change in intent write-downs reflects instances where we cannot assert a
     positive intent to hold until recovery.

     SALES net realized gains in 2008 were primarily due to net realized gains
on fixed income securities of $59.6 million comprised of gross gains of $75.6
million and gross losses of $16.0 million. The net realized gains on sales in
2007 were primarily due to net realized gains on fixed income securities of $8.0
million comprised of gross gains of $15.2 million and gross losses of $7.2
million.

     The ten largest losses from sales of individual securities for the year
ended December 31, 2008 totaled $5.2 million and ranged from $226 thousand to
$1.1 million. One security totaling $297 thousand was in an unrealized loss
position greater than or equal to 20% of amortized cost for a period of less
than six consecutive months.

     We may sell or change our intent to hold a security until recovery for
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 amortized cost, in situations where significant unanticipated new
facts and circumstances emerge or existing facts and circumstances increase in
significance and are anticipated to adversely impact a security's future
valuations more than previously expected; including negative developments that
would change the view of

                                       42
<Page>

long term investors and their intent to continue to hold the investment,
subsequent credit deterioration of an issuer or holding, subsequent further
deterioration in capital markets (i.e. debt and equity) and of economic
conditions, subsequent further deterioration in the financial services and real
estate industries, liquidity needs, unanticipated federal income tax situations
involving capital gains and capital loss carrybacks and carryforwards with
specific expiration dates, investment risk mitigation actions, and other new
facts and circumstances that would cause a change in our previous intent to hold
a security to recovery or maturity.

     Upon approval of programs involving the expected disposition of
investments, portfolio managers 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. Further unrealized loss positions that develop
subsequent to the original write-down are recognized in the reporting period in
which they occur through the date the program is closed. The program is closed
when the objectives of the program are accomplished or a decision is made not to
fully complete it, at which time an evaluation is performed of any remaining
securities and where appropriate they are redesignated as having the intent to
hold to recovery. Reasons resulting in a decision not to complete an approved
program include matters such as the mitigation of concerns that led to the
initial decision, changes in priorities or new complications that emerge from
significant unanticipated developments, such as subsequent significant
deterioration which we view to be temporary in nature, to the point at which
securities could only be sold at prices below our view of their intrinsic
values, or subsequent favorable developments that support a return to having the
intent to hold to recovery. Subsequent other-than-temporary impairment
evaluations utilize the amortized cost basis that reflect the write-downs. Fixed
income securities subject to change in intent write-downs, including those
redesignated as intent to hold, continue to earn investment income and any
discount or premium from the amortized cost basis that reflects the write-downs
is recognized using the effective yield method over the expected life of the
security.

     As previously described above, it is not possible to reliably identify a
reasonably likely circumstance that would result in a change in intent to hold
securities to recovery leading to the reporting of additional realized capital
losses, since they result from significant unanticipated changes. Our fixed
income securities have gross unrealized losses of $700.2 million at December 31,
2008 that we concluded were temporary in nature and we have the intent and
ability to hold the securities until recovery.

     IMPAIRMENT WRITE-DOWNS totaled $38.5 million in 2008 and included
write-downs on fixed income securities and mortgage loans of $38.1 million and
$449 thousand, respectively. No impairment write-downs were recognized in 2007
and impairment write-downs in 2006 totaled $258 thousand. The impairment
write-downs in 2006 were related to fixed income securities.

     $34.4 million or 90.4% of the fixed income security write-downs in 2008
related to impaired securities that were performing in line with anticipated or
contractual cash flows, but which were written down primarily because of
expected deterioration in the performance of the underlying collateral or our
assessment of the probability of future default. As of December 31, 2008, for
these securities, there have been no defaults or defaults impacting classes
lower in the capital structure. $633 thousand of the fixed income security
write-downs in 2008 primarily related to securities experiencing a significant
departure from anticipated cash flows; however, we believe they retain economic
value and $2.6 million related to securities for which future cash flows are
very uncertain.

                                       43
<Page>

     Impairment write-downs and cash received, inclusive of sales, on these
investments for the year ended December 31, 2008 are presented in the following
table. Notwithstanding our intent and ability to hold these securities with
impairment write-downs, we concluded that we could not reasonably assert that
the recovery period would be temporary.

<Table>
<Caption>
          ($ IN THOUSANDS)                                                     DECEMBER 31, 2008
                                                                       -------------------------------
          PERFORMING IN ACCORDANCE WITH ANTICIPATED OR                  IMPAIRMENT            CASH
           CONTRACTUAL CASH FLOWS                                       WRITE-DOWNS        RECEIVED(3)
                                                                       -------------     --------------
          <S>                                                         <C>               <C>
              ABS RMBS                                                $     (2,874)     $          638
              CMBS and CRE CDO                                              (9,275)                752
              Corporate
                 Automotive                                                   (466)                105
                 Financials                                                 (5,905)                727
                 Gaming                                                       (920)                 65
                 Home construction                                          (7,900)              1,263
                 Real  estate  and  Real  Estate  Investment Trust          (6,114)                332
                 Telecommunications                                           (962)                 40
                                                                       -------------     --------------
                    SUBTOTAL (1)                                           (34,416)              3,922

           DEPARTURE FROM ANTICIPATED OR CONTRACTUAL CASH FLOWS
              Future cash flows expected -
                 ABS RMBS (2)                                                 (633)                145

              Future cash flows very uncertain -
                 Corporate
                   Financials (3)                                           (2,550)                259
              Investments disposed                                            (480)                131
                                                                       -------------     --------------
          TOTAL FIXED INCOME SECURITIES                               $    (38,079) (4) $        4,457
                                                                       =============     ==============
</Table>

          ----------
          (1)  Written down primarily because of expected deterioration in the
               performance of the underlying collateral or our assessment of the
               probability of future default. As of December 31, 2008, for the
               securities with direct interest in the lender, there have been no
               defaults. For securities supported by collateral, there have been
               no defaults or defaults have occurred in classes lower in the
               capital structure.

          (2)  Experienced a significant departure from anticipated residual
               cash flows. While these fixed income security write-downs were
               valued at a significant discount to cost, we believe these
               securities retain economic value.

          (3)  Cash received includes both income and principal collected during
               the period.

          (4)  Impairment write-downs on our illiquid portfolios were $12.8
               million.

                                       44
<Page>

     CHANGE IN INTENT WRITE-DOWNS totaling $79.3 million in 2008 included $77.3
million for fixed income securities and $2.0 million for mortgage loans compared
to $4.4 million for fixed income securities and $2.4 million for mortgage loans
in 2007. The change in intent write-downs in 2008 were a result of our risk
mitigation and return optimization programs and ongoing comprehensive reviews of
our portfolios.

     Change in intent write-downs for the year ended December 31, 2008 are
presented in the table below.

<Table>
<Caption>
                                                                                     FAIR VALUE OF
($ IN THOUSANDS)                                                                      OUTSTANDING
                                                                  SFAS NO. 157      CHANGE IN INTENT        NET REALIZED
CRITERIA                                        SECURITY TYPE         LEVEL              ASSETS           CAPITAL LOSS (3)
--------                                        -------------     ------------      ----------------     -----------------
<S>                                             <C>                         <C>          <C>                 <C>
RISK MITIGATION

Targeted reductions (1) in commercial real      CRE CDO                     3            $  1,656            $   (7,732)
estate exposure where it is anticipated that
future downside risk remains.  Considerations   CMBS                        2                  --                (4,302)
included position held in the capital                                       3               4,417               (33,383)
structure, vintage year, illiquidity and
deteriorating fundamentals.                     Mortgage loans              3               7,614                (1,950)

Targeted reductions (1) in residential real
estate where management believes there is a     ABS RMBS                    3                 736                (5,303)
risk of future material declines in price in
the event of continued deterioration in the
economy.  Considerations included position
held in the capital structure, projected
performance of the collateral, and expected
internal rates of return.

Targeted reductions (1) in financial sector     Financial sector            2                  --               (12,665)
exposure included securities issued by                                      3                  --                (4,567)
certain regional banks and certain large
financial institutions.
                                                Other                       2                  --                (1,258)
                                                                                         --------            ----------
Total risk mitigation                                                                      14,423               (71,160)
Individual identification                                                                  23,252                (6,893)
Other                                                                                          --                (1,209)
                                                                                         --------            ----------
Total                                                                                    $ 37,675            $  (79,262) (2)
                                                                                         ========            ==========
</Table>

     ----------
     (1)  Targeted reductions are made from identified specific investments.

     (2)  Change in intent write-downs on our illiquid portfolios were $50.7
          million.

     (3)  Change in intent write-downs are related to the risk mitigation
          targeted reduction for this security type for the year and not for the
          outstanding change in intent assets at December 31, 2008.

                                       45
<Page>

     Investments for which we changed our intent to hold to recovery as of June
30, 2008 totaled $268.8 million and included $229.8 million as part of the risk
mitigation and return optimization programs and $39.0 million related to
individual securities. The following table summarizes the activity related to
investments for which we had changed our intent to hold.

<Table>
<Caption>
          ($ IN THOUSANDS)
          <S>                                                                         <C>
          Carrying value as of June 30, 2008                                          $  268,805
          Re-designated  as intent to hold to  recovery  as of  October 1, 2008 (1)      (74,003)
          Sales:
            Risk mitigation and return optimization program (2)                         (104,927)
            Individual identification and other programs                                 (23,223)
          Net realized capital gains and losses on sales:
            Risk mitigation and return optimization program (2)                              745
            Individual identification and other programs                                    (335)
          Additional change in intent designations (3)                                    18,749
          Write-downs (4)                                                                (39,853)
          Other                                                                           (8,283)
                                                                                       ------------
          Carrying value as of December 31, 2008                                      $   37,675
                                                                                       ============
</Table>

          ----------
          (1)  Net unrealized capital losses on these re-designated investments
               were $19.1 million as of December 31, 2008.

          (2)  Net proceeds from the sales of risk mitigation and return
               optimization actions totaled $104.9 million with a gain of $745
               thousand or 100.7% of fair values reported at June 30, 2008.

          (3)  Comprised $18.7 million for which we changed our intent to hold
               in the third quarter of 2008 due to unanticipated changes in
               facts and circumstances.

          (4)  Includes change in intent write-downs of $15.3 million and $13.2
               million in the third and fourth quarter of 2008, respectively,
               and impairment write-downs of $9.3 million and $2.0 million in
               the third and fourth quarter of 2008, respectively.

     Our original objective in our June 30, 2008 risk mitigation and return
optimization program was to reduce our exposure to the identified investments in
an orderly fashion prior to additional significant negative impacts. Though we
were able to complete a considerable portion of the reduction, approximately
$104.9 million of this program, during the third and fourth quarters of 2008 the
financial markets experienced additional and severe dislocation. A series of
events, which includes the effects of failures of large financial institutions
and intermediaries and various intervention by the government, significantly
increased the level of uncertainty in the market. These conditions drove
significant volatility in the levels of liquidity and put additional and
immediate downward pressures on prices of certain of these investments in
respect to our estimated intrinsic values. As a result of these market
conditions, which have worsened, we determined that we would not be able to sell
certain of these investments at our view of their intrinsic values.

     Investments re-designated at October 1, 2008 as having the intent to hold
to recovery due to our inability to dispose of them for values equal to or
greater than our view of their intrinsic value are presented in the following
table.

<Table>
<Caption>
     ($ IN THOUSANDS)                                   AMORTIZED                         AMORTIZED
                                    FAIR VALUE AT        COST AT      FAIR VALUE AT        COST AT
                                      OCTOBER 1,        OCTOBER 1,     DECEMBER 31,      DECEMBER 31,
                                         2008             2008             2008              2008
                                    --------------    -------------   --------------    -------------
     <S>                           <C>               <C>             <C>               <C>
     ABS RMBS                      $       13,108    $      12,826   $       12,250    $      12,572
     CMBS                                   7,438            7,438            2,406            7,550
     Finance sector                        51,761           50,802           33,829           47,308
     Corporate                                926              926              780              929
     Mortgage loans                         2,011            2,011            1,915            1,955
                                    --------------    -------------   --------------    -------------
       Total                       $       75,244    $      74,003   $       51,180    $      70,314
                                    ==============    =============   ==============    =============
</Table>

     For the year ended December 31, 2007, we recognized $6.8 million of losses
related to a change in our intent to hold certain investments 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.

                                       46
<Page>

     VALUATION AND SETTLEMENT OF DERIVATIVE INSTRUMENTS net realized capital
losses totaling $19.4 million for the year ended December 31, 2008 included
$29.5 million of losses on the valuation of derivative instruments, partially
offset by $10.1 million of gains on the settlement of derivative instruments.
For the year ended December 31, 2007, net realized capital losses on the
valuation and settlement of derivative instruments totaled $4.4 million. Net
realized capital losses on the valuation of derivative instruments increased
$21.4 million in 2008 due to changing interest rates and, to a lesser extent,
widening credit spreads.

     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 investment
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.

                                       47
<Page>

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

     The following table provides additional details regarding Level 1, 2 and 3
financial assets and financial liabilities by their classification in the
Statement of Financial Position at December 31, 2008. For further discussion of
Level 1, 2 and 3 financial assets and financial liabilities, see Note 2 of the
financial statements and the Application of Critical Accounting Estimates
section of the MD&A.

<Table>
<Caption>
                                         QUOTED PRICES
                                           IN ACTIVE         SIGNIFICANT
                                          MARKETS FOR           OTHER           SIGNIFICANT
                                           IDENTICAL          OBSERVABLE        UNOBSERVABLE          OTHER          BALANCE AS OF
                                            ASSETS              INPUTS             INPUTS           VALUATIONS        DECEMBER 31,
($ IN THOUSANDS)                           (LEVEL 1)          (LEVEL 2)          (LEVEL 3)         AND NETTING           2008
                                        ---------------    ---------------    ---------------    ---------------    ----------------
<S>                                    <C>                <C>                <C>                <C>                <C>
FINANCIAL ASSETS
  Fixed income securities:
    Corporate                          $           --     $    1,533,704     $       27,927                        $     1,561,631
    Corporate privately placed
    securities                                     --            261,318          1,064,188                              1,325,506
    Municipal                                      --            287,597                 --                                287,597
    Municipal - ARS                                --                 --             97,784                                 97,784
    U.S. government and agencies              154,119            763,612                 --                                917,731
    ABS RMBS                                       --                 --             43,868                                 43,868
    Alt-A                                          --                 --             23,593                                 23,593
    Other CDO                                      --                 --             20,202                                 20,202
    CRE CDO                                        --                 --              1,656                                  1,656
    CMBS                                           --            422,632             44,580                                467,212
    Preferred stock                                --              5,459                 --                                  5,459
    MBS                                            --            361,843             10,741                                372,584
    Foreign government                             --            371,542                 --                                371,542
                                        ---------------    ---------------    ---------------                       ----------------
      Total fixed income securities           154,119          4,007,707          1,334,539                              5,496,365
  Short-term investments:
    Commercial paper and other                     --            376,487                 --                                376,487
    Money market funds                         33,315                 --                 --                                 33,315
                                        ---------------    ---------------    ---------------                       ----------------
      Total short-term investments             33,315            376,487                 --                                409,802
  Other investments:
    Free-standing derivatives                      --              1,764                714                                  2,478
                                        ---------------    ---------------    ---------------                       ----------------
      Total other investments                      --              1,764                714                                  2,478
                                        ---------------    ---------------    ---------------                       ----------------
      TOTAL RECURRING BASIS ASSETS            187,434          4,385,958          1,335,253                              5,908,645
  Non-recurring basis                              --                 --             10,589                                 10,589
  Valued at cost, or amortized cost                                                             $      729,351             729,351
                                        ---------------    ---------------    ---------------    ---------------    ----------------
      TOTAL INVESTMENTS                       187,434          4,385,958          1,345,842            729,351           6,648,585
                                        ---------------    ---------------    ---------------    ---------------    ----------------
  Separate account assets                     533,760                 --                 --                 --             533,760
  Other assets                                     --                 --            (1,829)                 --              (1,829)
                                        ---------------    ---------------    ---------------    ---------------    ----------------
TOTAL FINANCIAL ASSETS                 $      721,194     $    4,385,958     $    1,344,013     $      729,351     $     7,180,516
                                        ===============    ===============    ===============    ===============    ================
% of total financial assets                      10.0%              61.1%              18.7%              10.2%              100.0%

FINANCIAL LIABILITIES
  Contractholder funds:
    Derivatives embedded in annuity
     contracts                         $           --     $           --     $     (30,051)                        $       (30,051)
  Other liabilities:
    Free-standing derivatives                      --           (20,849)            (5,450)                                (26,299)
                                        ---------------    ---------------    ---------------                       ----------------
TOTAL FINANCIAL LIABILITIES            $           --     $     (20,849)     $     (35,501)                        $       (56,350)
                                        ===============    ===============    ===============                       ================
% of total financial liabilities                   -- %            37.0%              63.0%                                  100.0%
</Table>

                                       48
<Page>

     The following  table provides a summary of changes in fair value during the
year  ended  December  31,  2008  of  Level 3  financial  assets  and  financial
liabilities held at fair value on a recurring basis at December 31, 2008.


<Table>
<Caption>

                                                                        TOTAL REALIZED AND UNREALIZED
                                                                         GAINS (LOSSES) INCLUDED IN:
                                                                        -----------------------------
                                                                                            OCI ON          PURCHASES,
                                                        BALANCE AS OF                    STATEMENT OF   SALES, ISSUANCES
                                                          JANUARY 1,                       FINANCIAL    AND SETTLEMENTS,
($ IN THOUSANDS)                                             2008       NET INCOME (1)     POSITION           NET
                                                        -------------   --------------   ------------   ----------------
<S>                                                    <C>             <C>              <C>            <C>
FINANCIAL ASSETS
 Fixed income securities:
   Corporate                                           $      38,270   $        7,307   $   (17,015)   $        (22,916)
   Corporate privately placed securities                   1,211,628          (1,360)       (98,371)            (53,159)
   Municipal                                                      --               --             --             (3,400)
   Municipal - ARS                                            33,200               --       (11,066)            (18,850)
   ABS RMBS                                                   76,110          (7,777)        (7,329)            (17,136)
   Alt-A                                                      28,836               20        (5,263)                 --
   Other CDO                                                  30,768              269        (7,549)             (3,286)
   CRE CDO                                                    33,067         (17,473)         5,355             (19,293)
   CMBS                                                        3,727         (11,619)       (62,519)             (3,812)
   MBS                                                        14,292             (90)          (287)             (3,174)
                                                        -------------   --------------   ------------   ----------------
     Total fixed income securities                         1,469,898         (30,723)      (204,044)           (145,026)
 Other investments:
   Free-standing derivatives, net                               (980)         (7,124)            --               3,368
                                                        -------------   --------------   ------------   ----------------
    TOTAL INVESTMENTS                                      1,468,918         (37,847)      (204,044)           (141,658)
 Other assets                                                 (1,733)            (96)            --                  --
                                                        -------------   --------------   ------------   ----------------
    TOTAL RECURRING LEVEL 3 FINANCIAL ASSETS           $   1,467,185   $     (37,943)   $  (204,044)   $       (141,658)
                                                        =============   ==============   ============   ================
FINANCIAL LIABILITIES
 Contractholder funds:
   Derivatives embedded in annuity contracts           $         174   $     (30,389)   $         --   $            164
                                                        -------------   --------------   ------------   ----------------
   TOTAL RECURRING LEVEL 3 FINANCIAL LIABILITIES       $         174   $     (30,389)   $         --   $            164
                                                        =============   ==============   ============   ================

<Caption>
                                                                                                TOTAL
                                                                                            GAINS (LOSSES)
                                                                                              INCLUDED IN
                                                                                            NET INCOME FOR
                                                            NET                               INSTRUMENTS
                                                       TRANSFERS TO     BALANCE AS OF       STILL HELD AT
                                                       AND/OR (OUT)      DECEMBER 31,        DECEMBER 31,
($ IN THOUSANDS)                                         OF LEVEL 3         2008               2008 (4)
                                                       -------------    ---------------     ----------------
<S>                                                   <C>              <C>                 <C>
FINANCIAL ASSETS
 Fixed income securities:
   Corporate                                          $      22,281    $       27,927      $            1
   Corporate privately placed securities                      5,450         1,064,188              (7,066)
   Municipal                                                  3,400                --                  --
   Municipal - ARS                                           94,500            97,784                  --
   ABS RMBS                                                      --            43,868              (7,585)
   Alt-A                                                         --            23,593                  20
   Other CDO                                                     --            20,202                  --
   CRE CDO                                                       --             1,656             (12,890)
   CMBS                                                     118,803            44,580              (9,548)
   MBS                                                           --            10,741                 (90)
                                                       -------------    ---------------     ----------------
     Total fixed income securities                          244,434         1,334,539             (37,158)
 Other investments:
   Free-standing derivatives, net                                --            (4,736) (2)         (1,424)
                                                       -------------    ---------------     ----------------
    TOTAL INVESTMENTS                                       244,434         1,329,803  (3)        (38,582)
 Other assets                                                    --            (1,829)                (96)
                                                       -------------    ---------------     ----------------
    TOTAL RECURRING LEVEL 3 FINANCIAL ASSETS          $     244,434    $    1,327,974      $      (38,678)
                                                       =============    ===============     ================
FINANCIAL LIABILITIES
 Contractholder funds:
   Derivatives embedded in annuity contracts          $          --    $      (30,051)     $      (30,389)
                                                       =============    ===============     ================
   TOTAL RECURRING LEVEL 3 FINANCIAL LIABILITIES      $          --    $      (30,051)     $      (30,389)
                                                       =============    ===============     ================
</Table>

----------
(1)  The effect to net income of financial assets and financial liabilities
     totals $(68.3) million and is reported in the Statements of Operations and
     Comprehensive Income as follows: $(45.9) million in realized capital gains
     and losses, $8.0 million in net investment income, and $(30.4) million in
     contract benefits.

(2)  Comprises $0.7 million of financial assets and $(5.4) million of financial
     liabilities.

(3)  Comprises $1.34 billion of investments and $(5.4) million of free-standing
     derivatives included in financial liabilities.

(4)  The amounts represent gains and losses included in net income for the
     period of time that the financial asset or financial liability was
     determined to be in Level 3. These gains and losses total $(69.1) million
     and are reported in the Statements of Operations and Comprehensive Income
     as follows: $(46.5) million in realized capital gains and losses, $7.8
     million in net investment income, and $(30.4) million in contract benefits.

     Due to the reduced availability of actual market prices or relevant
observable inputs as a result of the decrease in liquidity that has been
experienced in the market, all ABS RMBS, Alt-A, ARS and certain CMBS are
categorized as Level 3. Transfers into and out of Level 3 during the twelve
months ended December 31, 2008 are attributable to a change in the
availability of market observable information for individual securities
within the respective categories. Due to continued lack of liquidity for the
segment of the ARS market backed by student loans, certain market observable
data utilized for valuation purposes became unavailable during 2008,
resulting in the transfer of securities to Level 3. As of December 31, 2008,
all of our ARS holdings totaling $97.8 million were valued using a discounted
cash flow model. Certain inputs to the valuation model that are significant
to the overall valuation and not market observable included: estimates of
future coupon rates if auction failures continue, maturity assumptions, and
illiquidity premium. These same securities were classified as Level 2
measurements as of January 1, 2008. As a result of a significant decline in
market liquidity during the fourth quarter of 2008, securities in our below
Aaa-rated CMBS were transferred to Level 3. For further discussion of
transfers into and out of Level 3, see Note 7 of the financial statements.

                                       49
<Page>

     The following table presents fair value as a percent of par value and
amortized cost for Level 3 investments at December 31, 2008.

<Table>
<Caption>
                                                                     FAIR VALUE AS A        FAIR VALUE
                                                                       PERCENTAGE        AS A PERCENTAGE
                                                        FAIR               OF                   OF
        ($ IN THOUSANDS)                                VALUE           PAR VALUE         AMORTIZED COST
                                                     ------------   -----------------   -----------------
        <S>                                       <C>                       <C>                <C>
        Fixed income securities:
          Corporate                               $       27,927            76.2%              76.6%
          Corporate privately placed securities        1,064,188            85.8               94.9
          Municipal - ARS                                 97,784            89.8               89.8
          ABS RMBS                                        43,868            66.6               75.3
          Alt-A                                           23,593            78.6               79.6
          Other CDO                                       20,202            70.2               70.2
          CRE CDO                                          1,656            11.1               99.0
          CMBS                                            44,580            24.6               29.6
          MBS                                             10,741            99.3               96.7
                                                    -------------
           Total fixed income securities               1,334,539            77.7               86.3
                                                    -------------
        Other investments:
         Free-standing derivatives                           714             N/A              100.0
                                                    -------------
          Total other investments                            714             N/A              100.0
                                                    -------------
           Sub-total recurring Level 3 investments     1,335,253            77.8               86.3
        Non-recurring basis                               10,589             N/A              100.0
                                                    -------------
                 TOTAL LEVEL 3 INVESTMENTS         $   1,345,842            78.4                86.4
                                                    =============
</Table>

     Non-recurring investments include certain mortgage loans remeasured at fair
value due to our change in intent write-downs and other-than-temporary
impairments at December 31, 2008.

MARKET RISK

     Market risk is the risk that we will incur losses due to adverse changes in
interest rates, credit spreads or equity prices. Adverse changes to these rates
and prices may occur due to changes in the liquidity of a market or market
segment, insolvency or financial distress of key market makers or participants
or changes in market perceptions of credit worthiness and/or risk tolerance. Our
primary market risk exposures are to changes in interest rates and credit
spreads, 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 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 our 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 policies, which have been approved by
our board of directors, 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. 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.

                                       50
<Page>

     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 and equity 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 investment policies. This day-to-day
management is integrated with and informed by the activities of the ALM
organization. This integration is intended to result 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 risk-free reference yields.

     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, 2008, the
difference between our asset and liability duration was approximately 0.56,
compared to a 0.62 gap at December 31, 2007. 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.

     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 is executed using duration
targets for fixed income investments in addition to financial futures and other
derivative instruments 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 annuity liabilities and
interest-sensitive 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, 2008, 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
$59.0 million, compared to $97.2 million at December 31, 2007. 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 are $375.5 million of assets
supporting life insurance products such as traditional and interest-sensitive
life that are not financial instruments. These assets and the associated
liabilities have not been included in the above estimate. The $375.5 million of
assets excluded from the calculation has decreased from $458.1 million reported
at December 31, 2007 due to capital market changes. Based on assumptions
described above, in the event of a 100 basis point immediate increase in
interest rates, the assets supporting life insurance products would decrease in
value by $26.8 million, compared to a decrease of $32.8 million at December 31,
2007.

     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.

                                       51
<Page>

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.

CREDIT SPREAD RISK is the risk that we will incur a loss due to adverse changes
in credit spreads ("spreads"). This risk arises from many of our primary
activities, as we invest substantial funds in spread-sensitive fixed income
assets.

     We manage the spread risk in our assets. One of the measures used to
quantify this exposure is spread duration. Spread duration measures the price
sensitivity of the assets to changes in spreads. For example, if spreads
increase 100 basis points, the fair value of an asset exhibiting a spread
duration of 5 is expected to decrease in value by approximately 5%.

     Spread duration is calculated similarly to interest rate duration. At
December 31, 2008, the spread duration of assets was 4.96. Based upon the
information and assumptions we use in this spread duration calculation, and
spreads in effect at December 31, 2008, we estimate that a 100 basis point
immediate, parallel increase in spreads across all asset classes, industry
sectors and credit ratings ("spread shock") would decrease the net fair value of
the assets by approximately $320.3 million, compared to $466.3 million at
December 31, 2007. The selection of a 100 basis point immediate parallel change
in spreads should not be construed as our prediction of future market events,
but only as an illustration of the potential effect of such an event.

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, 2008 and 2007, we had
separate accounts assets related to variable annuity and variable life contracts
with account values totaling $533.8 million and $948.4 million, 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 2008 and 2007 were $1.4 million and
$1.2 million, respectively. Separate account liabilities related to variable
life contracts were $3.6 million and $4.1 million in December 31, 2008 and 2007,
respectively.

DEFERRED TAXES

     We evaluate whether a valuation allowance is required each reporting
period. A valuation allowance is established if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred income tax asset will not be realized. In determining whether a
valuation allowance is needed, all available evidence is considered. This
includes the potential for capital and ordinary loss carryback, future reversals
of existing taxable temporary differences, tax planning strategies and future
taxable income exclusive of reversing temporary differences.

     With respect to our evaluation of the need for a valuation allowance
related to the deferred tax asset on unrealized losses on fixed income
securities, we rely on our assertion that we have the intent and ability to hold
the securities to recovery. As a result, the unrealized losses on these
securities would not be expected to materialize and no valuation allowance on
the associated deferred tax asset is needed.

     With respect to our evaluation of the need for a valuation allowance
related to other capital losses that have not yet been recognized for tax
purposes, we utilize prudent and feasible tax planning strategies. These include
strategies that optimize the Corporation's ability to carry back capital losses
as well as the ability to offset capital losses with capital gains that could be
recognized for tax purposes in the future. Changes in the market value of our
investments may impact the level of capital gains and losses that can be
used in the tax planning strategies. No valuation allowance was needed at
December 31, 2008.

                                       52
<Page>

CAPITAL RESOURCES AND LIQUIDITY

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

<Table>
<Caption>
($ IN THOUSANDS)                                    2008         2007         2006
                                                  ---------    ---------    ---------
<S>                                              <C>          <C>          <C>
Common stock, additional capital paid-in and
 retained income                                 $ 625,482    $ 615,684    $ 574,958
Accumulated other comprehensive (loss) income     (108,914)      65,188       78,038
                                                  ---------    ---------    ---------
   Total shareholder's equity                    $ 516,568    $ 680,872    $ 652,996
                                                  =========    =========    =========
</Table>

     SHAREHOLDER'S EQUITY decreased in 2008 due primarily to unrealized net
capital losses on fixed income securities, partially offset by net income.
Shareholder's equity increased in 2007 due primarily to net income, partially
offset by lower unrealized net capital gains on fixed income securities.

FINANCIAL RATINGS AND STRENGTH The following table summarizes our financial
strength ratings.

<Table>
<Caption>
                   RATING AGENCY                                  RATING
                   -------------                                  ------
                   <S>                                            <C>
                   A.M. Best Company, Inc.                        A+ ("Superior")
                   Standard & Poor's Ratings Services             AA- ("Very Strong")
                   Moody's Investors Service, Inc.                A1 ("Good")
</Table>

     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), exposure to risks,
operating leverage, ALIC's ratings, AIC's ratings and other factors.

     On February 2, 2009, A.M. Best affirmed our A+ financial strength rating.
On January 29, 2009, S&P downgraded our financial strength rating to AA- from
AA. The outlook for the rating remained negative. In October 2008, the outlook
had been revised to negative from stable. On January 29, 2009, Moody's
downgraded our financial strength rating to A1 from Aa3. The outlook for the
rating was revised to stable from negative. In October 2008, Moody's downgraded
our financial strength rating to Aa3 from Aa2

     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, 2008, our
RBC was within the range that we target.

     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 the usual ranges.

LIQUIDITY SOURCES AND USES Our potential sources of funds principally include
the activities as follows.

          -    Receipt of insurance premiums
          -    Contractholder fund deposits
          -    Reinsurance recoveries
          -    Receipts of principal and interest on investments
          -    Sales of investments
          -    Funds from securities lending
          -    Intercompany loans
          -    Capital contributions from parent

                                       53
<Page>

     Our potential uses of funds principally include the activities as follows.

          -    Payment of contract benefits, surrenders and withdrawals
          -    Reinsurance cessions and payments
          -    Operating costs and expenses
          -    Purchase of investments
          -    Repayment of securities lending
          -    Payment or repayment of intercompany loans
          -    Tax payments/settlements
          -    Dividends to parent

     CASH FLOWS As reflected in our Statements of Cash Flows, higher operating
cash flows in 2008 compared to 2007 primarily related to the settlement of an
intercompany obligation in the prior year and lower income tax payments in the
current year, partially offset by higher contract benefit payments and lower
premiums received. 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.

     Increased cash flows used in investing activities in 2008 compared to 2007
were due to the investment of higher cash flows from financing and operating
activities. Lower 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.

     Cash flows from financing activities increased in 2008 compared to 2007 as
a result of higher contractholder fund deposits, partially offset by higher
contractholder fund withdrawals. 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. 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, 2008, contractholder funds
totaling $599.5 million were not subject to discretionary withdrawal, $3.99
billion were subject to discretionary withdrawal with adjustments, and $502.3
million were subject to discretionary withdrawal without adjustment. Of the
contractholder funds subject to discretionary withdrawal with adjustments, $1.98
billion had a contractual surrender charge of less than 5% of the account
balance.

     We have an intercompany loan agreement with the Corporation. The amount of
intercompany loans available to us is at the discretion of the Corporation. The
maximum amount of loans the Corporation will have outstanding to all its
eligible subsidiaries at any given point in time is limited to $1.00 billion. We
had no amounts outstanding under the intercompany loan agreement at December 31,
2008 or 2007. The Corporation may use commercial paper borrowings and bank lines
of credit to fund intercompany borrowings.

     Certain events and circumstances could constrain our or the
Corporation's liquidity. Those events and circumstances include, for example,
a catastrophe resulting in extraordinary losses, a downgrade in the
Corporation's long-term debt rating of A3, A- and a- (from Moody's, S&P'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 Aa3, AA-
and A+ (from Moody's, S&P's and A.M. Best, respectively) to below Baa/BBB/A-,
or a downgrade in our financial strength ratings from A1, AA- and A+ (from
Moody's, S&P's and A.M. Best, respectively) to below A1/AA-/A-. The rating
agencies also consider the interdependence of the Corporation's individually
rated entities, therefore, a rating change in one entity could potentially
affect the ratings of other related entities.

                                       54
<Page>

CONTRACTUAL OBLIGATIONS AND COMMITMENTS Our contractual obligations as of
December 31, 2008 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)                           $    117,297    $ 117,297    $         -    $         -    $          -
Contractholder funds(2) (3)                        6,932,543      562,656      1,892,058      1,036,120       3,441,709
Reserve for life-contingent contract
 benefits(2) (4)                                   6,587,165      151,879        467,479        318,015       5,649,792
Payable to affiliates, net                             8,457        8,457              -              -               -
Reinsurance payable to parent                            971          971              -              -               -
Other liabilities and accrued expenses(5) (6)         24,846       22,344          1,376            248             878
                                               --------------  -----------  -------------  -------------  --------------
Total Contractual Cash Obligations              $ 13,671,279    $ 863,604    $ 2,360,913    $ 1,354,383    $  9,092,379
                                               ==============  ===========  =============  =============  ==============
</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. We are able to quantify scheduled payments related to
     immediate annuities without life contingencies with reasonable certainty,
     however, estimates of anticipated payments related to interest-sensitive
     life, deferred fixed annuities, traditional life and immediate annuities
     with life contingencies are subject to contractholder discretion and are
     therefore more variable. 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 $5.09 billion for contractholder
     funds and $1.95 billion for reserve for life-contingent contract benefits
     as included in the Statements of Financial Position as of December 31,
     2008. 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)  Amounts estimated to be paid out of contractholder funds in 1-3 years
     totaling $1.89 billion includes amounts expected to be paid in 2010 of
     $600.7 million, 2011 of $676.2 million and 2012 of $615.2 million.

(4)  Amounts estimated to be paid out of reserve for life-contingent contract
     benefits in 1-3 years totaling $467.5 million includes amounts expected to
     be paid in 2010 of $154.5 million, 2011 of $155.7 million and 2012 of
     $157.3 million.

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

(6)  Balance sheet liabilities not included in the table above include unearned
     and advanced premiums of $859 thousand and deferred tax liabilities of
     $68.5 million netted in the net deferred tax asset of $65.4 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 $30 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.

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 has 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.

                                       55
<Page>

     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
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.

                                       56
<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)                                                                       2008            2007            2006
                                                                                    -----------     -----------   -------------
<S>                                                                                <C>             <C>           <C>
REVENUES
Premiums (net of reinsurance ceded of $18,215, $21,020 and $20,837)                $    59,248     $    69,124   $      84,313
Contract charges (net of reinsurance ceded of $18,780, $21,158 and $12,295)             61,108          59,530          63,426
Net investment income                                                                  402,931         386,738         373,064
Realized capital gains and losses                                                      (77,205)           (831)        (22,085)
                                                                                    -----------     -----------   -------------
                                                                                       446,082         514,561         498,718

COSTS AND EXPENSES
Contract benefits (net of reinsurance recoveries of $40,307, $16,913 and $16,085)      184,192         181,803         190,506
Interest credited to contractholder funds (net of reinsurance recoveries of
    $10,485, $13,508 and $9,698)                                                       191,208         177,407         167,171
Amortization of deferred policy acquisition costs                                       17,778          53,445          31,672
Operating costs and expenses                                                            40,869          37,624          46,578
                                                                                    -----------     -----------   -------------
                                                                                       434,047         450,279         435,927

(Loss) gain on disposition of operations                                                  (358)            429         (10,694)
                                                                                    -----------     -----------   -------------

INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE                                        11,677          64,711          52,097
Income tax expense                                                                       4,005          22,802          17,755
                                                                                    -----------     -----------   -------------

NET INCOME                                                                               7,672          41,909          34,342
                                                                                    -----------     -----------   -------------

OTHER COMPREHENSIVE LOSS, AFTER-TAX
Change in unrealized net capital gains and losses                                     (174,102)        (12,850)        (50,930)
                                                                                    -----------     -----------   -------------
COMPREHENSIVE (LOSS) INCOME                                                        $  (166,430)    $    29,059   $     (16,588)
                                                                                    ===========     ===========   =============
</Table>

                       See notes to financial statements.

                                       57
<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                        STATEMENTS OF FINANCIAL POSITION

<Table>
<Caption>
                                                                                                    DECEMBER 31,
                                                                                           -----------------------------
($ IN THOUSANDS, EXCEPT PAR VALUE DATA)                                                        2008             2007
                                                                                           ------------     ------------
<S>                                                                                      <C>              <C>
ASSETS
Investments
   Fixed income securities, at fair value (amortized cost $5,776,451 and $5,928,899)     $  5,496,365     $   6,271,128
   Mortgage loans                                                                             700,268           725,301
   Short-term, at fair value (amortized cost $409,737 and $22,688)                            409,802            22,688
   Policy loans                                                                                39,672            38,509
    Other                                                                                       2,478                 3
                                                                                           ------------    -------------
      Total investments                                                                     6,648,585         7,057,629

Cash                                                                                            4,965             7,356
Deferred policy acquisition costs                                                             538,248           278,664
Accrued investment income                                                                      61,581            64,514
Reinsurance recoverables                                                                      367,957           381,431
Current income taxes receivable                                                                    --               146
Deferred income taxes                                                                          65,397                --
Other assets                                                                                   64,440            47,079
Separate Accounts                                                                             533,760           948,358
                                                                                           ------------    -------------
        TOTAL ASSETS                                                                     $  8,284,933     $   8,785,177
                                                                                           ============    =============

LIABILITIES
Reserve for life-contingent contract benefits                                            $  1,953,157     $   2,016,971
Contractholder funds                                                                        5,086,965         4,848,461
Deferred income taxes                                                                              --            39,737
Current income taxes payable                                                                   12,769                --
Other liabilities and accrued expenses                                                        172,286           241,756
Payable to affiliates, net                                                                      8,457             8,035
Reinsurance payable to parent                                                                     971               987
Separate Accounts                                                                             533,760           948,358
                                                                                           ------------    -------------
        TOTAL LIABILITIES                                                                   7,768,365         8,104,305
                                                                                           ------------    -------------

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                                                                               482,982           473,184
Accumulated other comprehensive (loss) income:
   Unrealized net capital gains and losses                                                   (108,914)           65,188
                                                                                           ------------     ------------
        Total accumulated other comprehensive (loss) income                                  (108,914)           65,188
                                                                                           ------------     ------------
        TOTAL SHAREHOLDER'S EQUITY                                                            516,568           680,872
                                                                                           ------------     ------------
        TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                                       $  8,284,933     $   8,785,177
                                                                                           ============     ============
</Table>

                       See notes to financial statements.

                                       58
<Page>

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

<Table>
<Caption>
                                                                                                    DECEMBER 31,
                                                                                   ---------------------------------------------
($ IN THOUSANDS)                                                                       2008            2007             2006
                                                                                   ------------   -------------    -------------
<S>                                                                              <C>             <C>              <C>
COMMON STOCK                                                                     $       2,500   $       2,500    $       2,500
                                                                                   ------------   -------------    -------------

ADDITIONAL CAPITAL PAID-IN                                                             140,000         140,000          140,000
                                                                                   ------------   -------------    -------------

RETAINED INCOME
Balance, beginning of year                                                             473,184         432,458          395,965
Net income                                                                               7,672          41,909           34,342
Cumulative effect of change in accounting principle                                         --          (1,183)              --
Gain on purchase of investments from parent                                              2,126              --               --
Gain on recapture of reinsurance agreement with parent                                      --              --            2,151
                                                                                   ------------   -------------    -------------
Balance, end of year                                                                   482,982         473,184          432,458
                                                                                   ------------   -------------    -------------

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance, beginning of year                                                              65,188          78,038          128,968
Change in unrealized net capital gains and losses                                     (174,102)        (12,850)         (50,930)
                                                                                   ------------   -------------    -------------
Balance, end of year                                                                  (108,914)         65,188           78,038
                                                                                   ------------   -------------    -------------

TOTAL SHAREHOLDER'S EQUITY                                                       $     516,568   $     680,872    $     652,996
                                                                                   ============   =============    =============
</Table>

                       See notes to financial statements.

                                       59
<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                                                YEAR ENDED DECEMBER 31,
                                                                                      --------------------------------------------
($ IN THOUSANDS)                                                                          2008            2007           2006
                                                                                      ------------   -------------   -------------
<S>                                                                                 <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                          $       7,672   $      41,909   $      34,342
Adjustments to reconcile net income to net cash provided by operating activities:
     Amortization and other non-cash items                                                (80,807)        (75,534)        (72,250)
     Realized capital gains and losses                                                     77,205             831          22,085
     Loss (gain) on disposition of operations                                                 358            (429)         10,694
     Interest credited to contractholder funds                                            191,208         177,407         167,171
     Changes in:
         Reserve for life-contingent contract benefits and contractholder funds            (7,034)         13,877          26,648
         Deferred policy acquisition costs                                                (33,612)          5,871         (31,265)
         Income taxes                                                                         383              69          (5,467)
         Other operating assets and liabilities                                           (16,998)        (39,455)         23,605
                                                                                      ------------   -------------   -------------
             Net cash provided by operating activities                                    138,375         124,546         175,563
                                                                                      ------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
     Fixed income securities                                                              640,634         409,552         877,430
     Mortgage loans                                                                        12,175              --              --
Investment collections
     Fixed income securities                                                              162,268         108,565         115,003
     Mortgage loans                                                                        52,030          61,128          73,110
Investment purchases
     Fixed income securities                                                             (668,526)       (762,846)       (954,087)
     Mortgage loans                                                                       (41,141)        (77,854)       (144,267)
Change in short-term investments, net                                                    (421,483)         55,621         (28,239)
Change in policy loans and other investments, net                                           7,585           2,509           2,016
Disposition of operations                                                                  (2,500)           (243)       (389,601)
                                                                                      ------------   -------------   -------------
             Net cash used in investing activities                                       (258,958)       (203,568)       (448,635)
                                                                                      ------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits                                                              615,564         542,517         793,233
Contractholder fund withdrawals                                                          (497,372)       (463,229)       (516,889)
                                                                                      ------------   -------------   -------------
             Net cash provided by financing activities                                    118,192          79,288         276,344
                                                                                      ------------   -------------   -------------

NET (DECREASE) INCREASE IN CASH                                                            (2,391)            266           3,272
CASH AT BEGINNING OF YEAR                                                                   7,356           7,090           3,818
                                                                                      ------------   -------------   -------------
CASH AT END OF YEAR                                                                  $      4,965    $      7,356    $      7,090
                                                                                      ============   =============   =============
</Table>

                       See notes to financial statements.

                                       60
<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"). All of the outstanding common stock of AIC is owned
by Allstate Insurance Holdings, LLC, 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").

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

<Table>
<Caption>
        ($ IN THOUSANDS)                                        2008             2007            2006
                                                            -----------      -----------     ------------
        <S>                                                <C>              <C>             <C>
        PREMIUMS
        Traditional life insurance (1)                     $    29,597      $    24,997     $     24,298
        Immediate annuities with life contingencies             21,451           37,491           54,877
        Accident and health                                      8,200            6,636            5,138
                                                            -----------      -----------     ------------
        TOTAL PREMIUMS                                          59,248           69,124           84,313

        CONTRACT CHARGES
        Interest-sensitive life insurance (1)                   54,972           51,155           46,448
        Fixed annuities                                          6,136            8,375            8,851
        Variable annuities                                          --               --            8,127
                                                            -----------      -----------     ------------
        TOTAL CONTRACT CHARGES                                  61,108           59,530           63,426
                                                            -----------      -----------     ------------
        TOTAL PREMIUMS AND CONTRACT CHARGES                $   120,356      $   128,654     $    147,739
                                                            ===========      ===========     ============
</Table>

        ----------
        (1)  Beginning in 2008, certain ceded reinsurance premiums previously
             included as a component of traditional life insurance premiums
             were reclassified prospectively to be reported as a component of
             interest-sensitive life insurance contract charges. In 2007 and
             2006, these ceded reinsurance premiums were $2.5 million and
             $2.2 million, respectively.

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

     The Company has exposure to market risk as a result of its investment
portfolio. Market risk is the risk that the Company will incur realized and
unrealized net capital losses due to adverse changes in interest rates or
credit spreads. The Company's primary market risk exposure is to changes in
interest rates. Interest rate risk is the risk that the Company will incur a
loss due to adverse changes in interest rates relative to the interest rate
characteristics of its interest bearing assets and liabilities. This risk arises
from many of the Company's primary activities, as it invests substantial funds
in interest-sensitive assets and issues interest-sensitive liabilities. Interest
rate risk includes risks related to changes in U.S. Treasury yields and other
key risk-free reference yields, as well as changes in interest rates resulting
from widening credit spreads and credit exposure.

     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

                                       61
<Page>

NOTES TO FINANCIAL STATEMENTS

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.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

     Fixed income securities include bonds, asset-backed securities,
mortgage-backed securities, commercial 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 difference between amortized cost and fair value, net of deferred income
taxes, certain deferred policy acquisition costs ("DAC"), certain deferred sales
inducement costs ("DSI"), 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 the 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 an interest rate step-up feature which is intended to incent
the issuer to redeem the security at a specified call date. Hybrid securities
are carried at fair value and amounted to $98.7 million and $224.5 million at
December 31, 2008 and 2007, 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, including money market funds, commercial paper and
other short-term investments, are carried at fair value. Policy loans are
carried at the unpaid principle balances. Other investments consist of
derivative financial instruments.

     In connection with the 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 asset
backed-securities, mortgage-backed securities and commercial mortgage-backed
securities is determined considering estimated principal repayments obtained
from widely accepted third party data sources and internal estimates. Interest
income on beneficial interests in securitized financial assets not of high
credit quality is determined using the prospective yield method, based upon
projections of expected future cash flows. For all other asset-backed
securities, mortgage-backed securities and commercial mortgage-backed
securities, the effective yield is recalculated on the retrospective basis.
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
sales, 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. Realized capital gains and losses on investment
sales include calls and prepayments and 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 including when the Company cannot

                                       62
<Page>

NOTES TO FINANCIAL STATEMENTS

assert a positive intent to hold an impaired security until recovery (see Note
6). Fixed income securities subject to change in intent write-downs continue to
earn investment income (other than discussed above), and any discount or premium
is recognized using the effective yield method over the expected life of the
security.

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

     The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"), as of
January 1, 2008 for its financial assets and financial liabilities that are
measured at fair value. SFAS No. 157 defines 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, and establishes
a framework for measuring fair value. The adoption did not have a material
effect on the Company's determination of fair value.

     In determining fair value, the Company principally uses the market approach
which generally utilizes market transaction data for the same or similar
instruments. To a lesser extent, the Company uses the income approach which
involves determining fair values from discounted cash flow methodologies. SFAS
No. 157 establishes a hierarchy for inputs used in determining fair value that
maximize the use of observable inputs and minimizes the use of unobservable
inputs by requiring that observable inputs be used when available.

      Observable inputs are those used by market participants in valuing
financial instruments that are developed based on market data obtained from
independent sources. In the absence of sufficient observable inputs,
unobservable inputs reflect the Company's estimates of the assumptions market
participants would use in valuing financial assets and financial liabilities and
are developed based on the best information available in the circumstances. The
Company uses prices and inputs that are current as of the measurement date,
including during periods of market disruption. In periods of market disruption,
the ability to observe prices and inputs may be reduced for many instruments.
This condition could cause an instrument to be reclassified from Level 1 to
Level 2, or from Level 2 to Level 3.

     Financial assets and financial liabilities recorded on the Statements of
Financial Position at fair value as of December 31, 2008 are categorized in the
fair value hierarchy based on the observability of inputs to the valuation
techniques as follows:

LEVEL 1: Financial assets and financial liabilities whose values are based on
         unadjusted quoted prices for identical assets or liabilities in an
         active market that the Company can access.

LEVEL 2: Financial assets and financial liabilities whose values are based on
         the following:

         a) Quoted prices for similar assets or liabilities in active markets;
         b) Quoted prices for identical or similar assets or liabilities in
            non-active markets; or
         c) Valuation models whose inputs are observable, directly or
            indirectly, for substantially the full term of the asset or
            liability.

LEVEL 3: Financial assets and financial liabilities whose values are based on
         prices or valuation techniques that require inputs that are both
         unobservable and significant to the overall fair value measurement.
         These inputs reflect the Company's estimates of the assumptions that
         market participants would use in valuing the financial assets and
         financial liabilities.

     The availability of observable inputs varies by instrument. In situations
where fair value is based on internally developed pricing models or inputs that
are unobservable in the market, the determination of fair value requires more
judgment. The degree of judgment exercised by the Company in determining fair
value is typically greatest for instruments categorized in Level 3. In many
instances, valuation inputs used to measure fair value fall into different
levels of the fair value hierarchy. The category level in the fair value
hierarchy is determined based on the lowest level input that is significant to
the fair value measurement in its entirety.

     Certain financial assets are not carried at fair value on a recurring
basis, including investments such as mortgage loans and policy loans.
Accordingly, such investments are only included in the fair value hierarchy
disclosure when the investment is subject to remeasurement at fair value after
initial recognition and the resulting measurement is reflected in the financial
statements.

                                       63
<Page>

NOTES TO FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT VALUATION TECHNIQUES FOR FINANCIAL ASSETS AND FINANCIAL
LIABILITIES ON A RECURRING BASIS

LEVEL 1 MEASUREMENTS

     -    FIXED INCOME SECURITIES: U.S. treasuries are in Level 1 and valuation
          is based on unadjusted quoted prices for identical assets in active
          markets that the Company can access.

     -    SHORT-TERM: Comprise actively traded money market funds that have
          daily quoted net asset values for identical assets that the Company
          can access.

     -    SEPARATE ACCOUNT ASSETS: Comprise actively traded mutual funds that
          have daily quoted net asset values for identical assets that the
          Company can access. Net asset values for the actively traded mutual
          funds in which the separate account assets are invested are obtained
          daily from the fund managers.

LEVEL 2 MEASUREMENTS

     -    FIXED INCOME SECURITIES:

          CORPORATE, INCLUDING PRIVATELY PLACED: Valued based on inputs
          including quoted prices for identical or similar assets in markets
          that are not active. Also includes privately placed securities which
          have market-observable external ratings from independent third party
          rating agencies.

          MUNICIPAL: Externally rated municipals are valued based on inputs
          including quoted prices for identical or similar assets in markets
          that are not active.

          U.S. GOVERNMENT AND AGENCIES: Valued based on inputs including quoted
          prices for identical or similar assets in markets that are not active.

          COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS"): Valuation is
          principally based on inputs including quoted prices for identical or
          similar assets in markets that are not active.

          PREFERRED STOCK; MORTGAGE-BACKED SECURITIES ("MBS"); FOREIGN
          GOVERNMENT: Valued based on inputs including quoted prices for
          identical or similar assets in markets that are not active.

     -    SHORT-TERM: Commercial paper and other short-term investments are
          valued based on quoted prices for identical or similar assets in
          markets that are not active or amortized cost.

     -    OTHER INVESTMENTS: Free-standing exchange listed derivatives that are
          not actively traded are valued based on quoted prices for identical
          instruments in markets that are not active.

          Over-the-counter ("OTC") derivatives, including interest rate swaps
          and foreign currency swaps, are valued using models that rely on
          inputs such as interest rate yield curves, currency rates and
          adjustment for counterparty credit risks that are observable for
          substantially the full term of the contract. The valuation techniques
          underlying the models are widely accepted in the financial services
          industry and do not involve significant judgment.

LEVEL 3 MEASUREMENTS

     -    FIXED INCOME SECURITIES:

          CORPORATE: Valued based on non-binding broker quotes and are
          categorized as Level 3.

          CORPORATE PRIVATELY PLACED SECURITIES: Valued based on non-binding
          broker quotes and models that are widely accepted in the financial
          services industry and use internally assigned credit ratings as inputs
          and instrument specific inputs. Instrument specific inputs used in
          internal fair value determinations include coupon rate, coupon type,
          weighted average life, sector of the issuer and call provisions.
          Privately placed securities are categorized as Level 3 as a result of
          the significance of non-market observable inputs. The internally
          modeled securities are valued based on internal ratings, which are not
          observable in the market. Multiple internal ratings comprise a
          National Association of Insurance Commissioners ("NAIC") rating
          category and when used in the internal model provide a more refined
          determination of fair value. The Company's internal ratings are
          primarily consistent with the NAIC ratings which are generally updated
          annually.

                                       64
<Page>

NOTES TO FINANCIAL STATEMENTS

          MUNICIPAL: Auction rate securities ("ARS") backed by student loans
          that have become illiquid due to failures in the auction market are
          included in Level 3. ARS backed by student loans are valued based on a
          discounted cash flow model with certain inputs to the valuation model
          that are significant to the valuation, but are not market observable,
          including estimates of future coupon rates if auction failures
          continue, maturity assumptions, and illiquidity premium.

          ASSET-BACKED RESIDENTIAL MORTGAGE-BACKED SECURITIES ("ABS RMBS");
          ALT-A RESIDENTIAL MORTGAGE-BACKED SECURITIES ("ALT-A"): ABS RMBS and
          Alt-A are principally valued based on inputs including quoted prices
          for identical or similar assets in markets that exhibit less liquidity
          relative to those markets supporting Level 2 fair value measurements.
          Certain ABS RMBS and Alt-A are valued based on non-binding broker
          quotes. Due to the reduced availability of actual market prices or
          relevant observable inputs as a result of the decrease in liquidity
          that has been experienced in the market for these securities, all ABS
          RMBS and Alt-A are categorized as Level 3.

          OTHER COLLATERALIZED DEBT OBLIGATIONS ("CDO"): Valued based on
          non-binding broker quotes received from brokers who are familiar with
          the investments. Due to the reduced availability of actual market
          prices or relevant observable inputs as a result of the decrease in
          liquidity that has been experienced in the market for these
          securities, all collateralized loan obligations ("CLO") and other CDO
          are categorized as Level 3.

          CMBS; COMMERCIAL REAL ESTATE COLLATERALIZED DEBT OBLIGATIONS ("CRE
          CDO"): CRE CDO, which are reported as CMBS, and other CMBS, are either
          valued based on non-binding broker quotes or based on inputs including
          quoted prices for identical or similar assets in markets that exhibit
          less liquidity relative to those markets supporting Level 2 fair value
          measurements. Due to the reduced availability of actual market prices
          or relevant observable inputs as a result of the decrease in liquidity
          that has been experienced in the market for these securities, certain
          CMBS are categorized as Level 3.

     -    OTHER INVESTMENTS: Interest rate caps are valued using valuation
          models that are widely accepted in the financial services industry.
          Inputs include non-market observable inputs such as volatility
          assumptions that are significant to the valuation of the instruments.

     -    CONTRACTHOLDER FUNDS: Derivatives embedded in annuity contracts are
          valued internally using models widely accepted in the financial
          services industry that determine a single best estimate of fair value
          for the embedded derivatives within a block of contractholder
          liabilities. The models use stochastically determined cash flows based
          on the contractual elements of embedded derivatives and other
          applicable market data. These are categorized as Level 3 as a result
          of the significance of non-market observable inputs.

     -    OTHER ASSETS: Includes a structured settlement annuity reinsurance
          agreement accounted for as a derivative instrument pursuant to the
          requirements of SFAS No. 133, "Accounting for Derivative Instruments
          and Hedging Activities" ("SFAS No. 133"). Valued internally utilizing
          a model that uses interest rate and volatility assumptions to generate
          stochastically determined cash flows. This item is categorized as
          Level 3 as a result of the significance of non-market observable
          inputs.

FINANCIAL ASSETS ON A NON-RECURRING BASIS

     Mortgage loans written-down to fair value in connection with recognizing
other-than-temporary impairments are primarily valued using valuation models
that are widely accepted in the financial services industry. Inputs include
non-market observable inputs such as credit spreads. At December 31, 2008,
mortgage loans with a fair value of $10.6 million were included in the fair
value hierarchy in Level 3 since they were subject to remeasurement at fair
value at December 31, 2008.

FAIR VALUE MEASUREMENT PRIOR TO ADOPTION OF SFAS NO. 157

     Prior to the adoption of SFAS No. 157 on January 1, 2008, the fair value of
fixed income securities was based upon observable market quotations, other
market observable data or was derived from such quotations and market observable
data. The fair value of privately placed fixed income securities was generally
based on widely accepted pricing valuation models, which were developed
internally. The valuation models used security specific information such as the
credit rating of the issuer, 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
the overall spread for the specific security.

                                       65
<Page>

NOTES TO FINANCIAL STATEMENTS

DERIVATIVE AND EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS

     Derivative financial instruments include interest rate swaps and caps,
financial futures, foreign currency swaps, and re-investment related risk
transfer reinsurance agreements with ALIC that meet the accounting definition of
a derivative (see Note 5). 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 reinsured variable annuity
contracts (see Note 7).

     All derivatives are accounted for on a fair value basis and reported as
other investments, 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
contract. The change in the fair value of derivatives embedded in liabilities
and subject to bifurcation is reported in 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.

     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 for the fair value hedges. 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 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 2008,
2007 or 2006.

     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 representing the effective portion of the hedge 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.

     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. 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

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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 a cash flow hedge is no longer effective, the gain or loss
recognized on the derivative during the period the hedge was effective 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 risk management strategies for which
hedge accounting is not applied. These derivatives consist of interest rate
swaps and caps, financial futures, and re-investment related 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 during the reporting period: realized capital gains and losses or
contract benefits.

SECURITIES LOANED

     The Company's business activities include securities lending transactions,
which are used primarily to generate net investment income. The proceeds
received are reinvested in short-term investments or fixed income securities.
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 banks.

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. Profits
from these policies come from investment income, which is recognized over the
life of the contract.

     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 the 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 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.

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NOTES TO FINANCIAL STATEMENTS

Interest credited also includes amortization of DSI expenses. DSI is amortized
into interest credited using the same method used to amortize 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 the Company's disposal of all of its
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. Future investment income is considered in determining the
recoverability of DAC. Amortization of DAC is included in amortization of
deferred policy acquisition costs on the Statements of Operations and
Comprehensive Income and is described in more detail below. DSI is 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 policies 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 period 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 recognition pattern of total gross profits.

     AGP and EGP consists primarily of the following components: contract
charges for the cost of insurance less mortality costs and other benefits;
investment income and realized capital gains and losses less interest credited;
and surrender and other contract charges less 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 contractholders, the effect of persistency,
mortality, expenses and hedges, if applicable.

     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 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
capital gains or losses had those gains or losses actually been realized during
the reporting period is recorded net of tax in other comprehensive income.
Recapitalization of DAC and DSI is limited to the originally deferred costs plus
interest.

     Customers of the Company may exchange one insurance policy or investment
contract for another offered by the Company, or make modifications to an
existing life or investment 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 contracts are accounted for
as continuations of the replaced contracts. Unamortized DAC and DSI related to
the replaced contract

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NOTES TO FINANCIAL STATEMENTS

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 a revision 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 SFAS
No. 133. 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 SFAS No.
133. 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, differences in
tax bases of investments, insurance reserves and DAC. A deferred tax asset
valuation allowance is established when there is uncertainty that such assets
would be realized.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS

     The reserve for life-contingent contract benefits payable under insurance
policies, including traditional life insurance, life-contingent immediate
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 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.

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NOTES TO FINANCIAL STATEMENTS

CONTRACTHOLDER FUNDS

     Contractholder funds represent interest-bearing liabilities arising from
the sale of products, such as interest-sensitive life and 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 certain guarantees on reinsured variable annuity contracts.

SEPARATE ACCOUNTS

     Separate accounts assets are carried at fair value. 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 and are carried at an amount equal
to the separate account 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 purchase private placement securities and fund mortgage
loans 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

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

     In September 2006, the Financial Accounting Standards Board ("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. 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. In February 2008, the FASB issued FASB Staff
Position No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP FAS
157-2"), 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 adopted the provisions of
SFAS No. 157 for financial assets and liabilities recognized or disclosed at
fair value on a recurring and non-recurring basis as of January 1, 2008.
Consistent with the provisions of FSP FAS 157-2, the Company decided to defer
the adoption of SFAS No. 157 for non-financial assets and liabilities measured
at fair value on a non-recurring basis until January 1, 2009. In October 2008,
the FASB issued FASB Staff Position No. FAS 157-3, "Determining the Fair Value
of a Financial Asset When the Market for That Asset Is Not Active" ("FSP FAS
157-3"), which clarifies the application of SFAS 157 in a market that is not
active. The Company adopted the provisions of FSP FAS 157-3 as of September 30,
2008. The adoption of SFAS No. 157 and FSP FAS 157-3 did not have a material
effect on the Company's results of operations or financial position (see Note
7).

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, on an ongoing basis, an option to report selected financial assets,
including investment securities, and financial liabilities, including most
insurance contracts, at fair value through earnings. 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 impacts 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 was effective as of the

                                       70
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NOTES TO FINANCIAL STATEMENTS

beginning of a reporting entity's first fiscal year beginning after November 15,
2007. The Company did not apply the fair value option to any existing financial
assets or liabilities as of January 1, 2008 and did not elect to apply the
option prospectively to any financial assets or liabilities acquired during
2008. Consequently, the adoption of SFAS No. 159 had no impact on the Company's
results of operations or financial position.

FASB STAFF POSITION NO. FIN 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 was effective for fiscal years beginning after November
15, 2007, with early adoption permitted. The adoption of FSP FIN 39-1 did not
have a material impact on the Company's results of operations or financial
position.

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 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 FASB issued SFAS No. 155, which permits the fair
value remeasurement at the date of adoption of any hybrid financial instrument
containing an embedded derivative that otherwise would require bifurcation under
paragraph 12 or 13 of 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 (COLLECTIVELY
   "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

                                       71
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NOTES TO FINANCIAL STATEMENTS

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).

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 115-1/124-1, THE MEANING OF OTHER-THAN-TEMPORARY
   IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS ("FSP FAS 115-1/124-1")

     FSP FAS 115-1/124.1 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 115-1/124-1 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 115-1/124-1 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 replaced 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. 154 did not have any effect
on the results of operations or financial position of the Company.

FSP NO. FAS 133-1 AND FIN 45-4, DISCLOSURES ABOUT CREDIT DERIVATIVES AND CERTAIN
   GUARANTEES: AN AMENDMENT OF FASB STATEMENT NO. 133 AND FASB INTERPRETATION
   NO. 45; AND CLARIFICATION OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 161
   ("FSP FAS 133-1 AND FIN 45-4")

     In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, which amends
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), and FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"), to both enhance and synchronize the disclosure requirements
of the two statements with respect to the potential for adverse effects of
changes in credit risk on the financial statements of the sellers of credit
derivatives and certain guarantees. SFAS No. 133 was amended to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in a hybrid instrument. FIN 45 was amended to require an additional
disclosure about the current status of the payment/performance risk of a
guarantee. The FSP clarifies the FASB's intent that the disclosures required by
SFAS No. 161 should be provided for any reporting period (annual or quarterly
interim) beginning after November 15, 2008. The provisions of this FASB staff
position that amend SFAS No. 133 and FIN 45 are effective for reporting periods
ending after November 15, 2008, and the provisions that clarify the effective
date SFAS No. 161 are effective upon the adoption of that statement; therefore,
the disclosure requirements, which have no impact to the Company's results of
operations or financial position, were adopted at December 31, 2008.

FSP NO. EITF 99-20-1, AMENDMENTS TO THE IMPAIRMENT GUIDANCE OF EITF ISSUE NO.
   99-20 ("FSP EITF 99-20-1")

     In January 2009, the FASB issued FSP EITF 99-20-1, which amends FASB
Emerging Issues Task Force ("EITF") No. 99-20 "Recognition of Interest Income
and Impairment on Purchased Beneficial Interest and

                                       72
<Page>

NOTES TO FINANCIAL STATEMENTS

Beneficial Interests That Continue to Be Held by a Transferor or in Securitized
Financial Assets," ("EITF 99-20"), to align the impairment guidance in EITF
99-20 with the impairment guidance and related implementation guidance in SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity Securities". The
provisions of this FASB staff position are effective for reporting periods
ending after December 15, 2008. The adoption of FSP EITF 99-20-1 did not have a
material effect on the results of operations or financial position of the
Company.

PENDING ACCOUNTING STANDARD

SFAS NO. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
   AN AMENDMENT OF FASB STATEMENT NO. 133 ("SFAS NO. 161")

     In March 2008, the FASB issued SFAS No. 161, which amends and expands the
disclosure requirements for derivatives currently accounted for in accordance
with SFAS No. 133. The new disclosures are designed to enhance the understanding
of how and why an entity uses derivative instruments and how derivative
instruments affect an entity's financial position, results of operations, and
cash flows. The standard requires, on a quarterly basis, quantitative
disclosures about the potential cash outflows associated with the triggering of
credit-related contingent features, if any; tabular disclosures about the
classification and fair value amounts of derivative instruments reported in the
statement of financial position; disclosure of the location and amount of gains
and losses on derivative instruments reported in the statement of operations;
and qualitative information about how and why an entity uses derivative
instruments and how derivative instruments and related hedged items affect the
entity's financial statements. SFAS No. 161 is effective for fiscal periods
beginning after November 15, 2008, and is to be applied on a prospective basis
only. SFAS No. 161 affects disclosures and therefore will not impact the
Company's results of operations or financial position.

3.   DISPOSITION

VARIABLE ANNUITY BUSINESS

     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 provisions 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 $335.8 million and $353.9 million as of December 31, 2008
and 2007, 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

                                       73
<Page>

NOTES TO FINANCIAL STATEMENTS

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, 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, which ended May 2008, the
Company and ALIC continued to issue new variable annuity contracts, accept
additional deposits on existing business from existing contractholders on behalf
of Prudential and service the reinsured business while Prudential prepared 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 $9.1 million, pre-tax. This
reinsurance loss and other transactional expenses incurred were included as a
component of loss on disposition of operations on the Statements of Operations
and Comprehensive Income and amounted to $10.6 million, pre-tax. 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 $530.2 million and $944.2 billion as of December 31, 2008 and
2007, respectively. Separate account balances totaling approximately $3.6
million and $4.1 million at December 31, 2008 and 2007, 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.

4.   SUPPLEMENTAL CASH FLOW INFORMATION

     Non-cash investment exchanges and modifications, which reflect refinancings
of fixed income securities, totaled $162 thousand and $5.8 million for the years
ended December 31, 2007 and 2006, respectively. There were no non-cash
investment exchanges or modifications in 2008.

     Liabilities for collateral received in conjunction with the Company's
securities lending business activities were $117.3 million, $198.1 million and
$199.5 million at December 31, 2008, 2007 and 2006, respectively, and are
reported in other liabilities and accrued expenses in the Statements of
Financial Position.

                                       74
<Page>

NOTES TO FINANCIAL STATEMENTS

     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)                                                              2008            2007            2006
                                                                         --------------  --------------  -------------
<S>                                                                     <C>             <C>             <C>
NET CHANGE IN PROCEEDS MANAGED
Net change in fixed income securities                                   $       36,778  $      (73,464) $     (10,816)
Net change in short-term investments                                            44,063          74,812        (39,205)
                                                                         --------------  --------------  -------------
   Operating cash flow provided (used)                                  $       80,841  $        1,348  $     (50,021)
                                                                         ==============  ==============  =============

NET CHANGE IN LIABILITIES
Liabilities for collateral and security repurchase, beginning of year   $     (198,138) $     (199,486) $    (149,465)
Liabilities for collateral and security repurchase, end of year               (117,297)       (198,138)      (199,486)
                                                                         --------------  --------------  -------------
   Operating cash flow (used) provided                                  $      (80,841) $       (1,348) $      50,021
                                                                         ==============  ==============  =============
</Table>

5.   RELATED PARTY TRANSACTIONS

BUSINESS OPERATIONS

     The Company uses 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 (see Note 14), allocated to the Company were $54.3 million,
$54.5 million and $53.7 million in 2008, 2007 and 2006, 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 $12.9 million, $12.7 million and $15.0 million of
structured settlement annuities, a type of immediate annuity, in 2008, 2007 and
2006, respectively, at prices based upon interest rates in effect at the time of
purchase, to fund structured settlements in matters involving AIC. Of these
amounts, $866 thousand, $1.5 million and $1.5 million relate to structured
settlement annuities with life contingencies and are included in premium income
for 2008, 2007 and 2006, respectively.

     In most cases, these annuities were issued under a "qualified assignment,"
whereby prior to July 1, 2001 Allstate Settlement Corporation ("ASC"), and on
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.

     Reserves recorded by the Company for annuities issued to ASC and AAC,
including annuities to fund structured settlements in matters involving AIC,
were $1.97 billion and $1.93 billion at December 31, 2008 and 2007,
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 $4.1 million, $4.0 million and $6.0
million for the years ended December 31, 2008, 2007 and 2006, 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. For these services, the Company incurred $838 thousand, $971 thousand
and $1.4 million of commission and other distribution expenses for the years
ended December 31, 2008, 2007 and 2006, respectively.

                                       75
<Page>

NOTES TO FINANCIAL STATEMENTS

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).

     In 2008, additional expenses were recorded relating to a rescission of
reinsurance coverage due to the nonpayment of premium for certain traditional
and interest-sensitive life insurance policies reinsured to ALIC in accordance
with an agreement between the Company and ALIC (the "rescission"). The
rescission resulted in a reduction to 2008 net income of $4.1 million, which
included contract benefits of $7.1 million, accretion of DAC of $876 thousand
and an income tax benefit of $2.2 million. The Company paid $8.7 million to ALIC
in order to return amounts previously received from ALIC for ceded contract
benefits on policies subject to the rescission of coverage.

     The Company has 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 $3.3 million, $3.2 million and $3.0
million for the years ended December 31, 2008, 2007 and 2006, respectively. At
December 31, 2008 and 2007, the carrying value of the structured settlement
reinsurance treaty was $(1.8) million and $(1.7) 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.

INTERCOMPANY LOAN AGREEMENT

     The Company has an intercompany loan agreement with the Corporation. The
amount of intercompany loans available to the Company is at the discretion of
the Corporation. The maximum amount of loans the Corporation will have
outstanding to all its eligible subsidiaries at any given point in time is
limited to $1.00 billion. The Company had no amounts outstanding under the
intercompany loan agreement at December 31, 2008 and 2007. The Corporation may
use commercial paper borrowings, bank lines of credit and repurchase agreements
to fund intercompany borrowings.

INVESTMENT PURCHASES

     In September 2008, the Company purchased investments from its parent ALIC.
The Company paid $199.1 million in cash for the investments, which included
fixed income securities with a fair value on the date of sale of $197.5 million
and $1.6 million of accrued investment income. Since the transaction was between
affiliates under common control, the fixed income securities were recorded at
the amortized cost basis on the date of sale of $200.8 million. The difference
between the fair value and the amortized cost basis of these investments on the
date of sale was recorded as an increase to retained income of $2.1 million
after-tax ($3.3 million pre-tax).

INCOME TAXES

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

                                       76
<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>
                                                                          GROSS UNREALIZED
                                                   AMORTIZED      --------------------------------         FAIR
($ IN THOUSANDS)                                      COST            GAINS             LOSSES             VALUE
                                                 -------------    --------------    --------------    --------------
<S>                                             <C>              <C>               <C>               <C>
AT DECEMBER 31, 2008
U.S. government and agencies                    $     676,655    $      241,196    $         (120)   $      917,731
Municipal                                             462,664             4,442           (81,725)          385,381
Corporate                                           3,158,588            55,307          (326,758)        2,887,137
Foreign government                                    262,307           109,235                --           371,542
Mortgage-backed securities                            398,178             9,387           (11,388)          396,177
Commercial mortgage-backed securities                 721,707                --          (252,839)          468,868
Asset-backed securities                                87,062               566           (23,558)           64,070
Redeemable preferred stock                              9,290                --            (3,831)            5,459
                                                 -------------    --------------    --------------    --------------
     Total fixed income securities              $   5,776,451    $      420,133    $     (700,219)   $    5,496,365
                                                 =============    ==============    ==============    ==============

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
                                                 =============    ==============    ==============    ==============
</Table>

SCHEDULED MATURITIES

The scheduled maturities for fixed income securities are as follows at December
31, 2008:

<Table>
<Caption>
                                                                     AMORTIZED            FAIR
($ IN THOUSANDS)                                                       COST               VALUE
                                                                 ----------------    ----------------
<S>                                                             <C>                 <C>
Due in one year or less                                         $        194,119    $        194,006
Due after one year through two years                                     207,088             201,138
Due after two years through three years                                  280,150             271,386
Due after three years through four years                                 477,648             466,419
Due after four years through five years                                  320,242             311,017
Due after five years through ten years                                 1,349,651           1,444,938
Due after ten years                                                    2,462,313           2,147,214
                                                                 ----------------    ----------------
                                                                       5,291,211           5,036,118
Mortgage- and asset-backed securities                                    485,240             460,247
                                                                 ----------------    ----------------
  Total                                                         $      5,776,451    $      5,496,365
                                                                 ================    ================
</Table>

     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. Periodic
interest payments on fixed income securities represent a substantial additional
source of cash flow over the years presented, but are not included in the
contractual maturities table above.

                                       77
<Page>

NOTES TO FINANCIAL STATEMENTS

NET INVESTMENT INCOME

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

<Table>
<Caption>
($ IN THOUSANDS)                                                         2008             2007             2006
                                                                    --------------   --------------   --------------
<S>                                                                <C>              <C>              <C>
Fixed income securities                                            $      362,671   $      358,547   $      343,115
Mortgage loans                                                             41,949           40,916           38,576
Short-term and other                                                       12,949           14,487           14,763
                                                                    --------------   --------------   --------------
    Investment income, before expense                                     417,569          413,950          396,454
    Investment expense                                                     14,638           27,212           23,390
                                                                    --------------   --------------   --------------
      Net investment income                                        $      402,931   $      386,738   $      373,064
                                                                    ==============   ==============   ==============
</Table>

REALIZED CAPITAL GAINS AND LOSSES, AFTER-TAX

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

<Table>
<Caption>
($ IN THOUSANDS)                                                         2008             2007              2006
                                                                    --------------   -------------    --------------
<S>                                                                <C>              <C>              <C>
Fixed income securities                                            $      (55,775)  $       3,614    $      (25,398)
Mortgage loans                                                             (2,049)            (86)            3,572
Derivatives                                                               (19,381)         (4,359)             (259)
                                                                    --------------   -------------    --------------
   Realized capital gains and losses, pre-tax                             (77,205)           (831)          (22,085)
   Income tax benefit                                                      25,708             308             8,216
                                                                    --------------   -------------    --------------
      Realized capital gains and losses, after-tax                 $      (51,497)  $        (523) $        (13,869)
                                                                    ==============   =============    ==============
</Table>

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

<Table>
<Caption>
($ IN THOUSANDS)                                                        2008              2007             2006
                                                                    --------------   -------------    --------------
<S>                                                                <C>              <C>              <C>
Sales (1)                                                          $      59,966    $      10,321    $       (5,112)
Impairment write-downs (2)                                               (38,528)              --              (258)
Change in intent write-downs (1) (3)                                     (79,262)          (6,793)          (16,456)
Valuation of derivative instruments                                      (29,525)          (8,166)           (5,429)
Settlement of derivative instruments                                      10,144            3,807             5,170
                                                                    --------------   -------------    --------------
   Realized capital gains and losses, pre-tax                            (77,205)            (831)          (22,085)
   Income tax benefit                                                     25,708              308             8,216
                                                                    --------------   -------------    --------------
      Realized capital gains and losses, after-tax                 $     (51,497)   $        (523)   $      (13,869)
                                                                    ==============   =============    ==============
</Table>

----------
(1)  To conform to the current year presentation, certain amounts in the prior
     periods have been reclassified.

(2)  Impairment write-downs reflect issue specific other-than-temporary declines
     in fair value, including instances where we could not reasonably assert
     that the recovery period would be temporary.

(3)  Change in intent write-downs reflects instances where we cannot assert a
     positive intent to hold until recovery.

     Gross gains of $69.4 million, $4.0 million and $5.9 million and gross
losses of $16.0 million, $7.2 million and $18.8 million were realized on sales
of fixed income securities during 2008, 2007 and 2006, respectively.

                                       78
<Page>

NOTES TO FINANCIAL STATEMENTS

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 NET
AT DECEMBER 31, 2008                                     VALUE         GAINS         LOSSES        GAINS (LOSSES)
                                                     -------------  -----------  --------------   ----------------
<S>                                                 <C>            <C>          <C>              <C>
Fixed income securities                             $   5,496,365  $   420,133  $     (700,219)  $       (280,086)
Short-term investments                                    409,802           77             (12)                65
Derivative instruments                                      1,749        1,749              --              1,749
                                                                                                  ----------------
  Unrealized net capital gains and losses, pre-tax                                                       (278,272)

Amounts recognized for:
  Insurance reserves (1)                                                                                 (155,935)
  DAC and DSI (2)                                                                                         266,647
                                                                                                  ----------------
      Amounts recognized                                                                                  110,712
Deferred income taxes                                                                                      58,646
                                                                                                  ----------------
Unrealized net capital gains and losses, after-tax                                               $       (108,914)
                                                                                                  ================
</Table>

----------
(1)  The insurance reserves adjustment represents the amount by which the
     reserve balance would increase if the net unrealized gains in the
     applicable product portfolios were realized and reinvested at current lower
     interest rates, resulting in a premium deficiency. Although we evaluate
     premium deficiencies on the combined performance of our life insurance and
     immediate annuities with life contingencies, the adjustment primarily
     relates to structured settlement annuities with life contingencies, in
     addition to certain payout annuities with life contingencies.

(2)  The DAC and DSI adjustment represents the amount by which the amortization
     of DAC and DSI would increase or decrease if the unrealized gains or losses
     in the respective product portfolios were realized.

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

Amounts recognized for:
  Insurance reserves                                                                                     (261,846)
  DAC and DSI                                                                                              20,672
                                                                                                  ----------------
      Amounts recognized                                                                                 (241,174)
Deferred income taxes                                                                                     (35,101)
                                                                                                  ----------------
Unrealized net capital gains and losses, after-tax                                               $         65,188
                                                                                                  ================
</Table>

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)                                                   2008               2007               2006
                                                              ---------------    ----------------   ---------------
<S>                                                          <C>                <C>                <C>
Fixed income securities                                      $      (622,315)   $         (2,683)  $      (108,955)
Short-term investments                                                    65                  --                --
Derivative instruments                                                 2,515                 126              (738)
                                                              ---------------    ----------------   ---------------
  Total                                                             (619,735)             (2,557)         (109,693)

Amounts recognized for:
  Insurance reserves                                                 105,911             (26,190)           21,817
  DAC and DSI                                                        245,975               8,978             9,522
                                                              ---------------    ----------------   ---------------
      Change in amounts recognized                                   351,886             (17,212)           31,339
Deferred income taxes                                                 93,747               6,919            27,424
                                                              ---------------    ----------------   ---------------
Decrease in unrealized net capital gains and losses          $      (174,102)   $        (12,850)  $       (50,930)
                                                              ===============    ================   ===============
</Table>

                                       79
<Page>

NOTES TO FINANCIAL STATEMENTS

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 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 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
liquidity.

     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
                                  ---------------------------------------   ---------------------------------------
($ IN THOUSANDS)                                                                                                         TOTAL
                                   NUMBER OF     FAIR         UNREALIZED    NUMBER OF       FAIR       UNREALIZED      UNREALIZED
AT DECEMBER 31, 2008                ISSUES       VALUE          LOSSES        ISSUES        VALUE        LOSSES          LOSSES
                                  ----------  ------------   ------------   ----------   ----------   -------------   -------------
<S>                                     <C>   <C>            <C>                  <C>    <C>          <C>             <C>
Fixed income
  securities
   U.S. government and  agencies          1   $    24,844    $      (120)          --    $      --    $         --    $       (120)
   Municipal                             62       273,931        (75,612)           4       17,482          (6,113)        (81,725)
   Corporate                            369     1,526,621       (204,006)         103      369,897        (122,752)       (326,758)
   MBS                                    6        37,248         (6,292)           5       37,724          (5,096)        (11,388)
   CMBS                                  69       410,165       (112,645)          19       52,917        (140,194)       (252,839)
   ABS                                    8        12,325         (3,838)          35       37,500         (19,720)        (23,558)
   Redeemable preferred  stock            1         5,458         (3,831)          --           --              --          (3,831)
                                  ----------  ------------   ------------   ----------   ----------   -------------   -------------
     Total                              516   $ 2,290,592    $  (406,344)         166    $ 515,520    $   (293,875)   $   (700,219)
                                  ==========  ============   ============   ==========   ==========   =============   =============

Investment grade fixed income
   securities                           472   $ 2,209,606    $  (386,500)         139    $ 476,712    $  (275,226)    $   (661,726)
Below investment
   grade fixed income securities         44        80,986        (19,844)          27       38,808         (18,649)        (38,493)
                                  ----------  ------------   ------------   ----------   ----------   -------------   -------------
     Total fixed income
          securities                    516   $ 2,290,592    $  (406,344)         166    $ 515,520    $   (293,875)   $   (700,219)
                                  ==========  ============   ============   ==========   ==========   =============   =============

AT DECEMBER 31, 2007
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)
   MBS                                   12       116,542         (1,182)          16      137,987          (3,330)         (4,512)
   CMBS                                  41       345,338        (22,882)          12       64,387          (3,171)        (26,053)
   ABS                                   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)
                                  ==========  ============   ============   =========    ==========   =============   =============
</Table>

     As of December 31, 2008, $196.7 million of 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 $196.7 million, $188.0 million are
related to unrealized losses on investment grade fixed income securities.
Investment grade is 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, a rating of AAA, AA, A or BBB
from Standard & Poor's ("S&P"), Fitch or Dominion, or 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.

     As of December 31, 2008, the remaining $503.5 million of unrealized losses
are related to securities in unrealized loss positions greater than or equal to
20% of amortized cost. Of the $503.5 million, $29.8 million are related to below
investment grade fixed income securities. Of this amount, $2.9 million had been
in an unrealized loss position for a period of twelve or more consecutive months
as of December 31, 2008. Unrealized losses on below investment grade securities
are principally related to rising interest rates or changes in credit spreads.
The Company expects eventual recovery of these securities. Every security was
included in our portfolio monitoring process.

     The securities comprising the $503.5 million of unrealized losses were
evaluated based on factors such as the financial condition and near-term and
long-term prospects of the issuer and were determined to have adequate

                                       80
<Page>

NOTES TO FINANCIAL STATEMENTS

resources to fulfill contractual obligations, such as recent financings or bank
loans, cash flows from operations, collateral or the position of a subsidiary
with respect to its parent's bankruptcy.

     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, 2008, 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.

     The net carrying value of impaired loans at December 31, 2008 was $3.42
million. There were no impaired loans at December 31, 2007. Valuation allowances
of $449 thousand were held at December 31, 2008 reflecting a charge to
operations related to impaired mortgage loans. No valuation allowances were held
at December 31, 2007 because the fair value of the collateral was greater than
the recorded investment in the loans, and no valuation allowances were charged
to operations during the years 2007 or 2006. Realized capital losses due to
changes in intent to hold mortgage loans to maturity totaled $2.0 million and
$2.4 million for the years ended December 31, 2008 and 2007, respectively.

      Interest income for impaired loans is recognized on an accrual basis if
payments are expected to continue to be received; otherwise cash basis is used.
The Company recognized interest income on impaired loans of $202 thousand during
2008. The average balance of impaired loans was $1.9 million in 2008. There were
no impaired loans in 2007 or 2006.

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.

<Table>
<Caption>
        (% OF MUNICIPAL BOND PORTFOLIO CARRYING VALUE)                  2008          2007
                                                                      --------     ---------
        <S>                                                              <C>           <C>
        California                                                       25.6%         30.6%
        Texas                                                            10.9          14.3
        Delaware                                                          7.0           8.5
        Oregon                                                            4.4           5.8
        Virginia                                                          5.4           5.0
</Table>

     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.

<Table>
<Caption>
        (% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE)              2008          2007
                                                                       --------     ---------
         <S>                                                              <C>           <C>
         California                                                       22.1%         21.7%
         Illinois                                                         11.9          12.7
         Pennsylvania                                                      8.8           8.3
         New Jersey                                                        6.1           5.1
         New York                                                          5.5           5.5
         Arizona                                                           5.5           5.4
         Texas                                                             5.3           7.6
         Ohio                                                              5.0           5.0
</Table>

                                       81
<Page>

NOTES TO FINANCIAL STATEMENTS

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

<Table>
<Caption>
        (% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE)             2008          2007
                                                                       --------     ---------
        <S>                                                               <C>           <C>
        Warehouse                                                         34.0%         32.6%
        Office buildings                                                  28.7          31.4
        Retail                                                            19.5          15.3
        Apartment complex                                                 15.3          17.1
        Other                                                              2.5           3.6
                                                                       --------     ---------
                Total                                                    100.0%        100.0%
                                                                       ========     =========
</Table>

     The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 2008 for loans that were not in foreclosure are as follows:

<Table>
<Caption>
                               NUMBER OF      CARRYING
                                 LOANS          VALUE        PERCENT
                               ----------   -------------  -----------
($ IN THOUSANDS)
<S>                                <C>     <C>                  <C>
 2009                               11     $      39,195          5.6%
 2010                               17            88,063         12.6
 2011                               17            74,863         10.7
 2012                               12            59,786          8.5
 2013                               15            68,023          9.7
Thereafter                          73           370,338         52.9
                               ----------   -------------  ------------
  Total                            145     $     700,268        100.0%
                               ==========   =============  ============
</Table>

     In 2008, $4.6 million of commercial mortgage loans were contractually due
and all were paid as due. 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, 2008, 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 banks. At December 31, 2008 and 2007, fixed income
securities with a carrying value of $113.6 million and $193.8 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 $5.1 million, $1.4
million and $455 thousand, for the years ending December 31, 2008, 2007 and
2006, respectively.

OTHER INVESTMENT INFORMATION

     Included in fixed income securities are below investment grade assets
totaling $139.7 million and $198.6 million at December 31, 2008 and 2007,
respectively.

     At December 31, 2008, fixed income securities with a carrying value of $2.9
million were on deposit with regulatory authorities as required by law.

     At December 31, 2008, there were no fixed income securities or other
investments that were non-income producing.

                                       82
<Page>

NOTES TO FINANCIAL STATEMENTS

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 following table summarizes the Company's financial assets and financial
liabilities measured at fair value on a recurring and non-recurring basis as of
December 31, 2008:

<Table>
<Caption>
                                      QUOTED PRICES
                                        IN ACTIVE        SIGNIFICANT
                                        MARKETS FOR         OTHER          SIGNIFICANT
                                        IDENTICAL        OBSERVABLE        UNOBSERVABLE         OTHER         BALANCE AS OF
                                          ASSETS            INPUTS            INPUTS          VALUATIONS        DECEMBER 31,
($ IN THOUSANDS)                        (LEVEL 1)          (LEVEL 2)         (LEVEL 3)        AND NETTING          2008
                                      --------------    --------------    --------------    --------------    --------------
FINANCIAL ASSETS
<S>                                  <C>               <C>               <C>               <C>               <C>
     Fixed income securities         $      154,119    $    4,007,707    $    1,334,539                      $    5,496,365
     Short-term investments                  33,315           376,487                --                             409,802
     Other investments:
       Free-standing derivatives                 --             1,764               714                               2,478
                                      --------------    --------------    --------------                      --------------
         TOTAL RECURRING BASIS
             ASSETS                         187,434         4,385,958         1,335,253                           5,908,645
      Non-recurring basis                        --                --            10,589                              10,589
      Valued at cost or amortized
          cost                                                                             $      729,351           729,351
                                      --------------    --------------    --------------    --------------    --------------
       TOTAL INVESTMENTS                    187,434         4,385,958         1,345,842           729,351         6,648,585
                                      --------------    --------------    --------------    --------------    --------------
Separate account assets                     533,760                --                --                --           533,760
Other assets                                     --                --            (1,829)               --            (1,829)
                                      --------------    --------------    --------------    --------------    --------------

TOTAL FINANCIAL ASSETS               $      721,194    $    4,385,958    $    1,344,013    $      729,351    $    7,180,516
                                      ==============    ==============    ==============    ==============    ==============
% of Total financial assets                    10.0%             61.1%             18.7%             10.2%            100.0%

FINANCIAL LIABILITIES
     Contractholder funds:
       Derivatives embedded in
            annuity contracts        $           --    $           --    $      (30,051)                     $      (30,051)
     Other liabilities:
       Free-standing derivatives                 --           (20,849)           (5,450)                            (26,299)
                                      --------------    --------------    --------------                      ---------------
TOTAL FINANCIAL LIABILITIES          $           --    $      (20,849)   $      (35,501)                     $      (56,350)
                                      ==============    ==============    ==============                      ===============
% of Total financial liabilities                 --%             37.0%             63.0%                              100.0%
</Table>

     As required by SFAS No. 157, when the inputs used to measure fair value
fall within different levels of the hierarchy, the level within which the fair
value measurement is categorized is based on the lowest level input that is
significant to the fair value measurement in its entirety. Thus, a Level 3 fair
value measurement may include inputs that are observable (Level 1 or Level 2)
and unobservable (Level 3). Gains and losses for such assets and liabilities
categorized within Level 3 may include changes in fair value that are
attributable to both observable inputs (Level 1 and Level 2) and unobservable
inputs (Level 3). Net transfers in and/or out of Level 3 are reported as having
occurred at the beginning of the quarter the transfer occurred; therefore, all
realized and unrealized gains and losses in the quarter of transfer are
reflected in the table below. Further, it should be noted that the following
table does not take into consideration the effect of offsetting Level 1 and
Level 2 financial instruments entered into that economically hedge certain
exposures to the Level 3 positions.

                                       83
<Page>

NOTES TO FINANCIAL STATEMENTS

     The following table provides a summary of changes in fair value during the
year ended December 31, 2008 of Level 3 financial assets and financial
liabilities held at fair value on a recurring basis at December 31, 2008.

<Table>
<Caption>
                                                                                                                          TOTAL
                                     TOTAL REALIZED AND UNREALIZED                                                   GAINS (LOSSES)
                                      GAINS (LOSSES) INCLUDED IN:                                                      INCLUDED IN
                                     ----------------------------                                                    NET INCOME FOR
                                                       OCI ON                            NET                           INSTRUMENTS
                      BALANCE AS OF                  STATEMENT OF  PURCHASES, SALES,  TRANSFERS IN  BALANCE AS OF     STILL HELD AT
                        JANUARY 1,                    FINANCIAL     ISSUANCES AND    AND/OR (OUT)   DECEMBER 31,      DECEMBER 31,
($ IN THOUSANDS)          2008       NET INCOME (1)    POSITION    SETTLEMENTS, NET   OF LEVEL 3        2008            2008 (4)
                      -------------  --------------  ------------  ----------------  ------------  -------------     --------------
<S>                  <C>            <C>             <C>           <C>               <C>           <C>               <C>
FINANCIAL ASSETS
  Fixed income
   securities        $   1,469,898  $      (30,723) $   (204,044) $       (145,026) $    244,434  $   1,334,539     $      (37,158)
  Other investments:
     Free-standing
      derivatives,
      net                     (980)         (7,124)           --             3,368            --         (4,736)(2)         (1,424)
                      -------------  --------------  ------------  ----------------  ------------  -------------     --------------
      TOTAL
       INVESTMENTS       1,468,918         (37,847)     (204,044)         (141,658)      244,434      1,329,803(3)         (38,582)
  Other assets              (1,733)            (96)           --                --            --         (1,829)               (96)
                      -------------  --------------  ------------  ----------------  ------------  -------------     --------------
 TOTAL RECURRING
  LEVEL 3 FINANCIAL
  ASSETS             $   1,467,185  $      (37,943) $   (204,044) $       (141,658) $    244,434  $   1,327,974     $      (38,678)
                      =============  ==============  ============  ================  ============  =============     ==============

FINANCIAL
 LIABILITIES
  Contractholder
   funds:
  Derivatives
   embedded in
   annuity contracts $         174  $      (30,389) $         --  $            164  $         --  $     (30,051)    $      (30,389)
                      -------------  --------------  ------------  ----------------  ------------  -------------     --------------

  TOTAL RECURRING
   LEVEL 3 FINANCIAL
   LIABILITIES       $         174  $      (30,389) $         --  $            164  $         --  $     (30,051)    $      (30,389)
                      =============  ==============  ============  ================  ============  =============     ==============
</Table>

----------
(1)  The effect to net income of financial assets and financial liabilities
     totals $(68.3) million and is reported in the Statements of Operations and
     Comprehensive Income as follows: $(45.9) million in realized capital gains
     and losses, $8.0 million in net investment income, and $(30.4) million in
     contract benefits.

(2)  Comprises $0.7 million of financial assets and $(5.4) million of financial
     liabilities.

(3)  Comprises $1.34 billion of investments and $(5.4) million of free-standing
     derivatives included in financial liabilities.

(4)  The amounts represent gains and losses included in net income for the
     period of time that the financial asset or financial liability was
     determined to be in Level 3. These gains and losses total $(69.1) million
     and are reported in the Statements of Operations and Comprehensive Income
     as follows: $(46.5) million in realized capital gains and losses, $7.8
     million in net investment income, and $(30.4) million in contract benefits.

     Presented below are the fair value estimates of financial instruments
including those reported at fair value and discussed above and those reported
using other methods for which a description of the method to determine fair
value appears below the following tables.

FINANCIAL ASSETS

<Table>
<Caption>
                                                        DECEMBER 31, 2008                DECEMBER 31, 2007
                                                  -------------------------------   -----------------------------
                                                    CARRYING            FAIR          CARRYING           FAIR
($ IN THOUSANDS)                                     VALUE             VALUE            VALUE            VALUE
                                                  -------------     -------------   -------------   -------------
<S>                                              <C>               <C>              <C>            <C>
Fixed income securities (1)                      $   5,496,365     $   5,496,365    $  6,271,128   $    6,271,128
Mortgage loans                                         700,268           629,394         725,301          721,602
Short-term investments (1)                             409,802           409,802          22,688           22,688
Free-standing derivatives (1)                            2,478             2,478             107              107
Separate accounts (1)                                  533,760           533,760         948,358          948,358
</Table>

     ----------
     (1)  Carried at fair value in the Statements of Financial Position.

     The fair value of mortgage loans is based on discounted contractual cash
flows. Risk adjusted discount rates are selected using current rates at which
similar loans would be made to borrowers with similar characteristics, using
similar types of properties as collateral.

                                       84
<Page>

NOTES TO FINANCIAL STATEMENTS

FINANCIAL LIABILITIES

<Table>
<Caption>
                                                           DECEMBER 31, 2008                DECEMBER 31, 2007
                                                     -------------------------------   ---------------------------
                                                       CARRYING           FAIR          CARRYING           FAIR
($ IN THOUSANDS)                                      VALUE (1)           VALUE           VALUE            VALUE
                                                     --------------    -------------   -------------  ------------
<S>                                                 <C>               <C>             <C>            <C>
Contractholder funds on investment contracts (2)   $     4,181,874    $   3,832,699   $   3,971,285  $  3,849,966
Liability for collateral (1)                               117,297          117,297         198,138       198,138
Free-standing derivatives (1)                               26,299           26,299           3,611         3,611
</Table>

----------
   (1) Carried at fair value in the Statements of Financial Position.

   (2) As of December 31, 2008 and 2007, contractholder funds on investment
       contracts exclude contractholder funds related to interest-sensitive life
       insurance, variable annuities and variable life insurance totaling $905.1
       million and $877.2 million, respectively.

     Beginning in 2008, the fair value of contractholder funds on investment
contracts is based on the terms of the underlying contracts utilizing prevailing
market rates for similar contracts adjusted for credit risk. Deferred annuities
included in contractholder funds are valued using discounted cash flow models
which incorporate market value margins, which are based on the cost of holding
economic capital, and the Company's own credit risk. Immediate annuities without
life contingencies are valued at the present value of future benefits using
market implied interest rates which include the Company's own credit risk. In
2007, the fair value of investment contracts was based on the terms of the
underlying contracts. Fixed annuities were valued at the account balance less
surrender charges. Immediate annuities without life contingencies were valued at
the present value of future benefits using current interest rates. Market value
adjusted annuities' fair value was estimated to be the market adjusted surrender
value.

     The liability for collateral is valued at carrying value due to its
short-term nature.

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 which are required to be separated, all of the Company's
derivatives are evaluated for their ongoing 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 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 swaps and caps
are acquired to change the interest rate characteristics of existing assets and
liabilities to ensure a properly matched relationship is maintained within
specific ranges and to reduce exposure to rising or falling interest rates. The
Company uses financial futures to hedge anticipated asset purchases and
liability issuances.

     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 valuation techniques are described in Note 2.

     Carrying value amounts include the fair value of the derivatives, including
the embedded derivatives, and exclude the accrued periodic settlements which are
short term in nature and are reported in accrued investment income or other
invested assets. The carrying value amounts for free-standing derivatives have
been further adjusted for the effects, if any, of legally enforceable master
netting agreements.

     The net impact to pre-tax income includes valuation and settlements of
derivatives which are reported in net income as described in Note 2. For cash
flow hedges, gains and losses amortized from accumulated other comprehensive
income are included.

                                       85
<Page>

NOTES TO FINANCIAL STATEMENTS

     Derivative instruments are recorded at fair value and presented in the
Statements of Financial Position as of December 31, as follows:

<Table>
<Caption>
                                                                        CARRYING VALUE
                                                      ----------------------------------------------------
                                                             ASSETS                   (LIABILITIES)
                                                      ----------------------    --------------------------
        ($ IN THOUSANDS)                                2008         2007          2008           2007
                                                      ---------    ---------    -----------    -----------
        <S>                                          <C>          <C>          <C>            <C>
        Other investments                            $   2,478    $      --    $       --     $        --
        Other assets                                    (1,829)      (1,626)           --              --
        Contractholder funds                                --           --        (30,051)           170
        Other liabilities and accrued expenses              --           --        (26,299)        (3,611)
                                                      ---------    ---------    -----------    -----------
             Total                                   $     649    $  (1,626)   $   (56,350)   $    (3,441)
                                                      =========    =========    ===========    ===========
        </Table>

     For cash flow hedges, unrealized net pre-tax losses included in accumulated
other comprehensive income were $1.7 million and $(766) thousand at December 31,
2008 and 2007, respectively. The net pre-tax changes in accumulated other
comprehensive income due to cash flow hedges were $2.5 million, $126 thousand
and $(738) thousand in 2008, 2007 and 2006, respectively. Amortization of net
gains from accumulated other comprehensive income related to cash flow hedges is
expected to be $39 thousand in 2009.

     The following table summarizes the notional amount, fair value and carrying
value of the Company's derivative financial instruments at December 31, 2008.

<Table>
<Caption>
                                                                          CARRYING       CARRYING
                                            NOTIONAL         FAIR          VALUE           VALUE
($ IN THOUSANDS)                             AMOUNT         VALUE          ASSETS      (LIABILITIES)
                                          -----------    -----------    -----------    -------------
<S>                                      <C>            <C>            <C>            <C>
Interest rate swap agreements            $   400,000    $   (20,849)   $        --    $     (20,849)
Interest rate cap agreements                 334,300         (4,736)           714           (5,450)
                                          -----------    -----------    -----------    -------------
Total interest rate contracts            $   734,300    $   (25,585)   $       714    $     (26,299)
                                          ===========    ===========    ===========    =============

Foreign currency swap agreements         $     7,500    $     1,764    $     1,764    $          --
                                          ===========    ===========    ===========    =============

Structured settlement annuity
 reinsurance agreement                   $        --    $    (1,829)   $    (1,829)   $          --
                                          ===========    ===========    ===========    =============

Guaranteed accumulation benefits (1)     $   160,310    $   (24,033)   $        --    $     (24,033)
                                          ===========    ===========    ===========    =============

Guaranteed withdrawal benefits (1)       $    37,639    $    (6,018)   $        --    $      (6,018)
                                          ===========    ===========    ===========    =============
</Table>

----------
(1)  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).

                                       86
<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      (LIABILITIES)
                                             -----------    -----------    -----------    -------------
   <S>                                      <C>            <C>            <C>            <C>

   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 (1)     $   256,610    $       210    $        --    $         210
                                             ===========    ===========    ===========    =============

   Guaranteed withdrawal benefits (1)       $    60,591    $       (37)   $        --    $         (37)
                                             ===========    ===========    ===========    =============

   Other embedded derivative financial
    instruments (1)                         $     1,762    $        (3)   $        --    $          (3)
                                             ===========    ===========    ===========    =============
</Table>

   ----------
   (1) 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 by utilizing highly rated
counterparties, establishing risk control limits, executing legally enforceable
master netting agreements and obtaining collateral where appropriate. The
Company uses master netting agreements for over-the-counter derivative
transactions, including interest rate swap, 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. As of December 31, 2008, the Company pledged $17.8
million in securities to counterparties. The Company has not incurred any losses
on derivative financial 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.

     Credit exposure represents the Company's potential loss if all of the
counterparties concurrently fail to perform under the contractual terms of the
contracts and all collateral, if any, becomes worthless. This exposure is
measured by the fair value of free-standing derivative contracts with a positive
fair value at the reporting date reduced by the effect, if any, of legally
enforceable master netting agreements.

     The following table summarizes the counterparty credit exposure by
counterparty credit rating at December 31, as it relates to interest rate swap,
foreign currency swap, and interest rate cap agreements.

<Table>
<Caption>
($ IN THOUSANDS)                         2008                                                    2007
                  ------------------------------------------------------  --------------------------------------------------------
                   NUMBER
                     OF                                    EXPOSURE,       NUMBER OF                                 EXPOSURE,
                  COUNTER-    NOTIONAL       CREDIT          NET OF        COUNTER-     NOTIONAL      CREDIT           NET OF
 RATING (1)        PARTIES     AMOUNT     EXPOSURE (2)   COLLATERAL (2)     PARTIES      AMOUNT    EXPOSURE (2)    COLLATERAL (2)
------------      ---------  -----------  -------------  ---------------  -----------  ----------  -------------  ----------------
   <S>                  <C> <C>          <C>            <C>                       <C> <C>         <C>            <C>
   AA+                  --  $       --   $          --  $            --            1  $    7,100  $          --  $             --
   AA                   --          --              --               --            3     337,200             --                --
   AA-                   2     352,700              --               --            1       3,000             --                --
   A+                    2     126,600              --               --            1       7,500             --                --
   A                     2     262,500           2,478            2,478           --          --             --                --
                  ---------  ----------  -------------   ---------------  -----------  ----------  -------------  ----------------
   Total                 6  $  741,800   $       2,478  $         2,478            6  $  354,800  $          --  $             --
                  =========  ==========   ============   ===============  ===========  ==========  =============  ================
</Table>

----------
(1)  Rating is the lower of S&P's or Moody's ratings.

(2)  Only over-the-counter derivatives with a net positive fair value are
     included for each counterparty.

                                       87
<Page>

NOTES TO FINANCIAL STATEMENTS

     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

     There were no off-balance-sheet financial instruments as of December 31,
2008. The contractual amounts and fair values of off-balance-sheet financial
instruments at December 31, 2007 are as follows:

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

     In the preceding 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 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:

<Table>
<Caption>
($ IN THOUSANDS)                                                  2008             2007
                                                             -------------    -------------
<S>                                                         <C>              <C>
Immediate fixed annuities:
  Structured settlement annuities                           $   1,792,808    $   1,870,663
  Other immediate fixed annuities                                  12,553           10,987
Traditional life insurance                                        140,190          127,994
Other                                                               7,606            7,327
                                                             -------------    -------------
  Total reserve for life-contingent contract benefits       $   1,953,157    $   2,016,971
                                                             =============    =============
</Table>

                                       88
<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

  Other immediate fixed           1983 group annuity mortality        Interest rate             Present value of expected
  annuities                       table;  Annuity 2000 mortality      assumptions range         future benefits based on
                                  table with internal                 from 2.1% to 11.5%        historical experience
                                  modifications

  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             100% of Annuity 2000 mortality      Interest rate             Projected benefit ratio
     guaranteed minimum           table                               assumptions range         applied to cumulative
     death benefits (1)                                               from 5.3% to 5.9%         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 is recorded for certain immediate annuities with life
contingencies. A liability of $155.9 million and $261.9 million is included in
the reserve for life-contingent contract benefits with respect to this
deficiency as of December 31, 2008 and 2007, 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:

<Table>
<Caption>
                                                                        2008             2007
                                                                    -------------    -------------
<S>                                                                <C>              <C>
($ IN THOUSANDS)
Interest-sensitive life insurance                                  $     576,167    $     530,763
Investment contracts:
   Fixed annuities                                                     3,885,089        3,733,197
   Immediate annuities and other                                         625,709          584,501
                                                                    -------------    -------------
     Total contractholder funds                                    $   5,086,965    $   4,848,461
                                                                    =============    =============
</Table>

                                       89
<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 2.0%        Additionally, approximately 9.2% of fixed
                                    to 5.3% for other fixed             annuities are subject to a market value
                                    annuities                           adjustment for discretionary withdrawals

  Other:
      Guaranteed                    Interest rates used in              Withdrawal and surrender charges are based on
       minimum income,              establishing reserves range         the terms of the related variable annuity
       accumulation and             from 1.8% to 10.3%
       withdrawal
       benefits 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:

<Table>
<Caption>
        ($ IN THOUSANDS)                                                     2008               2007
                                                                       --------------     ---------------
        <S>                                                           <C>                <C>
        Balance, beginning of year                                    $    4,848,461     $     4,708,428
        Deposits                                                             612,004             537,755
        Interest credited                                                    190,945             179,417
        Benefits                                                            (161,813)           (146,828)
        Surrenders and partial withdrawals                                  (335,521)           (316,399)
        Contract charges                                                     (54,138)            (49,086)
        Net transfers to separate accounts                                       (38)                 (2)
        Other adjustments                                                    (12,935)            (64,824)
                                                                       --------------     ---------------
        Balance, end of year                                          $    5,086,965     $     4,848,461
                                                                       ==============     ===============
</Table>

     The Company offered 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 asset (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 $491.7
million and $891.5 million of equity, fixed income and balanced mutual funds and
$45.1 million and $50.4 million of money market mutual funds at December 31,
2008 and 2007, respectively.

                                       90
<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)                                                                    2008           2007
                                                                                  --------------  -------------
     <S>                                                                         <C>             <C>
     IN THE EVENT OF DEATH
        Separate account value                                                   $        536.8  $       942.0
        Net amount at risk (1)                                                   $        236.1  $        22.6
        Average attained age of contractholders                                        62 years       67 years

     AT ANNUITIZATION (INCLUDES INCOME BENEFIT GUARANTEES)
       Separate account value                                                    $         36.0  $        35.0
        Net amount at risk (2)                                                   $         21.2  $          --
        Weighted average waiting period until annuitization options available           5 years        6 years

     FOR CUMULATIVE PERIODIC WITHDRAWALS
        Separate account value                                                   $         37.0  $        60.5
        Net amount at risk (3)                                                   $          8.6  $          --

     ACCUMULATION AT SPECIFIED DATES
        Separate account value                                                   $        160.3  $       255.9
        Net amount at risk (4)                                                   $         34.7  $          --
        Weighted average waiting period until guarantee date                            8 years        9 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 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.

     As of December 31, 2008, reserves for variable annuity contracts related to
death, income, accumulation and withdrawal benefits were $2.0 million, $3.5
million, $24.0 million and $6.0 million, respectively. As of December 31, 2007,
reserves for variable annuity contracts related to death, income, accumulation
and withdrawal benefits were $2.0 million, $102 thousand, $(210) thousand and
$37 thousand, respectively. All of these reserves are ceded to Prudential.

                                       91
<Page>

NOTES TO FINANCIAL STATEMENTS

   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, 2008 and 2007, 34.9% and 39.8%, 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 $335.8
million and $353.9 million at December 31, 2008 and 2007, respectively, due from
Prudential related to the disposal of our variable annuity business that was
effected through Reinsurance Agreements (see Note 3). In 2008, premiums and
contract charges of $16.3 million, contract benefits of $35.5 million, interest
credited to contractholder funds of $10.5 million, and operating costs and
expenses of $2.5 million were ceded to Prudential pursuant to the Reinsurance
Agreements. 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. In addition, as of December 31, 2008 and 2007, the Company had
reinsurance recoverables of $690 thousand and $950 thousand, respectively, due
from a subsidiary of Citigroup (Triton Insurance Company) in connection with the
disposition of the direct response distribution business in 2003.

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

<Table>
<Caption>
($ IN THOUSANDS)                                                      2008          2007           2006
                                                                  -------------  ------------  -------------
<S>                                                              <C>            <C>           <C>
PREMIUMS AND CONTRACT CHARGES
Direct                                                           $    156,187   $   169,559   $    179,504
Assumed - non-affiliate                                                 1,164         1,273          1,367
Ceded
  Affiliate                                                            (4,470)       (3,982)        (4,614)
  Non-affiliate                                                       (32,525)      (38,196)       (28,518)
                                                                  -------------  ------------  -------------
    Premiums and contract charges, net of reinsurance            $    120,356   $   128,654   $    147,739
                                                                  =============  ============  =============
</Table>

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

<Table>
<Caption>
($ IN THOUSANDS)                                                      2008           2007           2006
                                                                  -------------  ------------   ------------
<S>                                                              <C>            <C>            <C>
CONTRACT BENEFITS
Direct                                                           $    223,859   $    197,929   $   205,834
Assumed - non-affiliate                                                   640            787           757
Ceded
  Affiliate (1)                                                         7,022         (3,830)       (1,427)
  Non-affiliate                                                        (47,329)      (13,083)      (14,658)
                                                                  -------------  ------------   ------------
    Contract benefits, net of reinsurance                        $    184,192   $    181,803   $   190,506
                                                                  =============  ============   ============
</Table>

----------
(1)  The Company recorded additional expenses for contract benefits in 2008
     relating to a rescission of reinsurance coverage for certain traditional
     and interest-sensitive life insurance policies provided in accordance with
     an agreement between the Company and ALIC. These contract benefits are
     reflected as a component of contract benefits ceded to affiliate for 2008
     and totaled $7.1 million. See Note 5 for further details.

                                       92
<Page>

NOTES TO FINANCIAL STATEMENTS

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

<Table>
<Caption>
($ IN THOUSANDS)                                                      2008          2007           2006
                                                                  -------------  ------------  -------------
<S>                                                              <C>            <C>            <C>
INTEREST CREDITED TO CONTRACTHOLDER FUNDS
Direct                                                           $    201,661   $    190,882   $   176,799
Assumed - non-affiliate                                                    32             33            70
Ceded
  Affiliate                                                                --             --            --
  Non-affiliate                                                       (10,485)       (13,508)       (9,698)
                                                                  -------------  ------------  -------------
    Interest credited to contractholder funds, net of
       reinsurance                                               $    191,208   $    177,407   $   167,171
                                                                  =============  ============  =============
</Table>

     In addition to amounts included in the table above are reinsurance premium
ceded to ALIC of $3.3 million, $3.2 million and $3.0 million during 2008, 2007
and 2006, respectively, under the terms of the structured settlement annuity
reinsurance agreement (see Note 5).

10.  DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS

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

<Table>
<Caption>
                                                                     2008           2007           2006
                                                                 -------------  -------------  -------------
       <S>                                                      <C>             <C>            <C>
       ($ IN THOUSANDS)
       Balance, beginning of year                               $     278,664   $    278,625   $    318,551
       Impact of adoption of SOP 05-1 (1)                                  --         (1,577)            --
       Disposition of operation (2)                                        --             --        (79,670)
       Acquisition costs deferred                                      51,390         47,575         62,937
       Amortization charged to income                                 (17,778)       (53,445)       (31,672)
       Effect of unrealized gains and losses                          225,972          7,486          8,479
                                                                 -------------  -------------  -------------
       Balance, end of year                                     $     538,248   $    278,664   $    278,625
                                                                 =============  =============  =============
</Table>

----------
     (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 accretion (amortization) of DAC related to realized capital gains and
losses was $32.8 million, $(196) thousand and $14.1 million in 2008, 2007 and
2006, 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.
     DSI activity, which primarily relates to fixed annuities, for the years
ended December 31 was as follows:

<Table>
<Caption>
       ($ IN THOUSANDS)                                              2008           2007           2006
                                                                 -------------  -------------  -------------
       <S>                                                      <C>             <C>            <C>
       Balance, beginning of year                               $      27,991   $     24,731   $     18,527
       Impact of adoption of SOP 05-1 (1)                                  --           (243)           --
       Disposition of operation (2)                                        --             --         (6,162)
       Sales inducements deferred                                       7,579          8,511         15,740
       Amortization charged to income                                  (7,843)        (6,500)        (4,417)
       Effect of unrealized gains and losses                           19,592          1,492          1,043
                                                                 -------------  -------------  -------------
       Balance, end of year                                     $      47,319   $     27,991   $     24,731
                                                                 =============  =============  =============
</Table>

     ----------
     (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).

                                       93
<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
each state. The Company's policy is to accrue a guaranty fund assessment when
the entity for which the insolvency relates has been declared financially
insolvent by a court of competent jurisdiction and, in certain states, there is
also a final order of liquidation and the amount of loss is reasonably
estimable. As of December 31, 2008 and 2007, the liability balance included in
other liabilities and accrued expenses was $806 thousand and $1.0 million,
respectively. The related premium tax offsets included in other assets were $752
thousand and $998 thousand as of December 31, 2008 and 2007, respectively.

     The New York Liquidation Bureau (the "Bureau") has publicly reported that
Executive Life Insurance Company of New York ("Executive Life") is currently
under its jurisdiction as part of a 1992 court-ordered rehabilitation plan and
may only be able to meet future obligations of its annuity contracts for the
next fifteen years. However, Executive Life does not have a liquidity problem at
this time, and an order of liquidation has not been sought by the Bureau. The
shortfall was estimated by the Bureau to be $1.27 billion at October 29, 2008.

     If Executive Life were to be declared insolvent in the future, the Company
may have exposure to future guaranty fund assessments. The Company's exposure
will ultimately depend on the level of guaranty fund system participation, as
well as the viability of a plan of the Bureau to obtain voluntary contributions,
primarily from the original insurance companies that acquired structured
settlement annuity contracts from Executive Life. 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 New York market share was
approximately 4.1% in 2007 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, 2008.

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

                                       94
<Page>

NOTES TO FINANCIAL STATEMENTS

          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.

     -    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 the Company's
          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 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. In March 2008, the Third Circuit decided that the appeal should
          not summarily be dismissed and that the question of whether the matter
          is appealable at this time will be addressed by the Court along with
          the merits of the appeal.

                                       95
<Page>

NOTES TO FINANCIAL STATEMENTS

     -    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 than age to support the
          rehire policy. AIC's interlocutory appeal from the partial summary
          judgment was granted. In June 2008, the Eighth Circuit Court of
          Appeals affirmed summary judgment in the EEOC's favor. In September
          2008, the Court of Appeals granted AIC's petition for rehearing EN
          BANC and vacated its earlier decision affirming the trial court's
          grant of summary judgment in favor of the EEOC. The Court of Appeals
          then dismissed the appeal, determining that it lacked jurisdiction to
          consider the appeal at this stage in the litigation.

     -    AIC is also defending a certified class action filed by former
          employee agents who terminated their employment prior to the agency
          program reorganization. Plaintiffs allege that they were
          constructively discharged so that AIC could avoid paying ERISA and
          other benefits offered under the reorganization. They claim that the
          constructive discharge resulted from the implementation of agency
          standards, including mandatory office hours and a requirement to have
          licensed staff available during business hours. 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's
          motions for judgment on the pleadings were partially granted. In May
          2008, the Court granted summary judgment in AIC's favor on all class
          claims. Plaintiffs moved for reconsideration and in the alternative to
          decertify the class. AIC opposed this motion and filed a motion for
          summary judgment with respect to the remaining non-class claim. In
          August 2008, the court denied plaintiffs' motion to reconsider and to
          decertify the class. In February 2009, plaintiffs moved to dismiss the
          sole remaining claim with prejudice which the court promptly granted
          ending this litigation in the trial court.

     -    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. In March 2008, the Third Circuit decided that
          the appeal should not summarily be dismissed and that the question of
          whether the matter is appealable at this time will be addressed by the
          Court along with the merits of the appeal.

     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.

                                       96
<Page>

NOTES TO FINANCIAL STATEMENTS

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 Allstate
Group's 2005 and 2006 federal income tax returns. The statute of limitations has
expired on years prior to 2005. Any adjustments that may result from IRS
examinations of tax returns are not expected to have a material effect on the
results of operations, cash flows or financial position of the Company.

     The Company had no liability for unrecognized tax benefits at December 31,
2008 or 2007, or January 1, 2007, and believes it is reasonably possible that
the liability balance will not significantly increase within the next twelve
months. No amounts have been accrued for interest or penalties.

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

<Table>
<Caption>
          ($ IN THOUSANDS)                                          2008             2007
                                                                --------------   --------------
          <S>                                                  <C>               <C>
          DEFERRED ASSETS
          Life and annuity reserves                            $       54,957    $      65,519
          Unrealized net capital losses                                58,646               --
          Difference in tax bases of investments                       19,226               --
          Other assets                                                  1,065            2,564
                                                                --------------   --------------

                Total deferred assets                                 133,894           68,083
                                                                --------------   --------------

          DEFERRED LIABILITIES
          DAC                                                         (67,126)         (56,351)
          Unrealized net capital gains                                     --          (35,101)
          Difference in tax bases of investments                           --          (14,993)
          Other liabilities                                            (1,371)          (1,375)
                                                                --------------   --------------

                Total deferred liabilities                            (68,497)        (107,820)
                                                                --------------   --------------

                Net deferred asset  (liability)                $       65,397    $     (39,737)
                                                                ==============   ==============
</Table>

     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:

<Table>
<Caption>
          ($ IN THOUSANDS)                                         2008          2007          2006
                                                               -----------   ------------   ------------
          <S>                                                 <C>           <C>            <C>
          Current                                             $   16,537    $    23,448    $     16,949
          Deferred                                               (12,532)          (646)            806
                                                               -----------   ------------   ------------
               Total income tax expense                       $    4,005    $    22,802    $     17,755
                                                               ===========   ============   ============
</Table>

     The Company paid income taxes of $3.6 million, $22.7 million and $23.2
million in 2008, 2007 and 2006, 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:

<Table>
<Caption>
                                                          2008             2007            2006
                                                     --------------   -------------   -------------
<S>                                                            <C>             <C>             <C>
Statutory federal income tax rate                              35.0 %          35.0 %          35.0 %
State income tax expense                                       13.1             2.1             2.7
Dividends received deduction                                   (6.0)           (1.3)           (1.6)
Tax credits                                                    (4.6)           (0.1)           (0.1)
Adjustment for prior year tax liabilities                      (3.4)           (0.5)           (1.9)
Other                                                           0.2              --              --
                                                     --------------   -------------   -------------
Effective income tax rate                                      34.3 %          35.2 %          34.1 %
                                                     ==============   =============   =============
</Table>

                                       97
<Page>

NOTES TO FINANCIAL STATEMENTS

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 (loss) income for 2008, 2007 and 2006 was $(18.9) million,
$38.2 million and $33.4 million, respectively. Statutory capital and surplus was
$410.5 million and $462.4 million as of December 31, 2008 and 2007,
respectively.

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 the 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. During 2009, the Company cannot pay dividends without
prior approval of the New York State Insurance Department. In the twelve-month
period beginning January 1, 2008, 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 2008, 2007 and 2006 was $1.8 million, $2.3 million and
$3.8 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 $339 thousand, $566 thousand and
$551 thousand for postretirement benefits other than pension plans in 2008, 2007
and 2006, respectively.

ALLSTATE 401(k) SAVINGS PLAN

     Employees of AIC are eligible to become members of the Allstate 401(k)
Savings Plan. The Corporation's contributions are based on the Corporation's
matching obligation and certain performance measures. The Company's allocation
of profit sharing expense from the Corporation was $667 thousand, $1.5 million
and $1.5 million in 2008, 2007 and 2006, respectively.

                                       98
<Page>

NOTES TO FINANCIAL STATEMENTS

15.  OTHER COMPREHENSIVE LOSS

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

<Table>
<Caption>
                                                                                2008
                                                            -------------------------------------------
                                                                                              After-
          ($ IN THOUSANDS)                                      Pre-tax          Tax           tax
                                                            -------------  -------------  -------------
           <S>                                            <C>              <C>           <C>
           Unrealized holding losses arising during the
             period, net of related offsets               $    (323,776)  $     113,321  $    (210,455)
           Less: reclassification adjustment of related
                 capital gains and losses                       (55,927)         19,574        (36,353)
                                                            -------------  -------------  -------------
           Unrealized net capital gains and losses             (267,849)         93,747       (174,102)
                                                            -------------  -------------  -------------
           Other comprehensive loss
                                                          $    (267,849)  $      93,747  $    (174,102)
                                                            =============  =============  =============
</Table>

<Table>
<Caption>
                                                                                2007
                                                            -------------------------------------------
                                                                                              After-
                                                              Pre-tax          Tax              tax
                                                            -------------  -------------  -------------
           <S>                                            <C>              <C>           <C>
           Unrealized holding losses arising during the
             period, net of related offsets               $     (15,895)  $       5,563  $     (10,332)
           Less: reclassification adjustment of related
                 capital gains and losses                         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)
                                                            =============  =============  =============

<Caption>
                                                                                2006
                                                            -------------------------------------------
                                                                                              After-
                                                              Pre-tax          Tax              tax
                                                            -------------  -------------  -------------
           <S>                                            <C>              <C>           <C>
           Unrealized holding losses arising during the
             period, net of related offsets               $    (102,314)  $      35,810  $     (66,504)
           Less: reclassification adjustment of realized
                 capital gains and losses                       (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)
                                                            =============  =============  =============
</Table>

                                       99
<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, 2008 and 2007 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, 2008. 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, 2008 and 2007, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2008, 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 17, 2009

                                       100
<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, 2008 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, 2008.

     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, 2008, 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.

                                       101
<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, 2008 and 2007.

<Table>
<Caption>
                                                  2008            2007
                                              -----------     ------------
                <S>                      <C>             <C>
                Audit fees (a)              $    379,952    $     370,754
                Audit related fees (b)            26,650            5,665
                Other fees (c)                         -           15,290
                                              -----------     ------------
                TOTAL FEES                  $    406,602    $     391,709  (d)
                                              -----------     ------------
</Table>

     (a)  Fees for audits of annual financial statements, 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 standards, and investment
          related research and are set forth below.

<Table>
<Caption>
                                                       2008           2007
                                                   ------------   ------------
            <S>                                   <C>            <C>
            Adoption of new accounting standards  $     14,960   $      5,665
            Investment related research                  7,077              -
            Other                                        4,613              -
                                                   ------------   ------------
            TOTAL AUDIT RELATED FEES              $     26,650   $      5,665
                                                    ------------   ------------
</Table>

     (c)  Other fees relate to coordination of work for departments of insurance
          exams.

     (d)  Total fees for 2007 have been adjusted to add an additional $27,944 of
          fees and to reclassify certain fees to conform to the current year
          presentation. The $27,944 is primarily comprised of audit fees not
          charged until 2008.

(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 Registered Public Accountant's Services (the "Pre-Approval Policy").
In addition, the Board of Directors of Allstate Life Insurance Company of New
York has 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. However, 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
references to the "audit committee" mean Allstate Life Insurance Company of New
York's Audit Committee. All of the services provided by Deloitte & Touche LLP to
Allstate Life Insurance Company of New York in 2007 and 2008 were approved by
The Allstate Corporation and the Allstate Life Insurance Company Audit
Committees.

                                       102
<Page>

PART IV

ITEM 15. (A)(1) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


     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

     ITEM 15. (A)(2)

     The following additional financial statement schedules and independent
auditors' report are furnished herewith pursuant to the requirements of Form
10-K.

<Table>
<Caption>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK                                      PAGE
                                                                                 ----
<S>                                                                              <C>
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
Schedule V-Valuation Allowances and Qualifying Accounts                          S-3
</Table>

     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.

     ITEM 15. (A) (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 333-100029
except as otherwise noted.

<Table>
<Caption>
         EXHIBIT NO.                                       DOCUMENT DESCRIPTION
         -----------                                       --------------------
                <S>   <C>
                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.
</Table>

                                       103
<Page>

<Table>
                <S>   <C>
                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
                      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.
</Table>

                                       104
<Page>

<Table>
               <S>    <C>
               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.  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  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)

               10.15  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)

               10.16  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)

               10.17  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)

               10.18  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)

               10.19  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)

               10.20  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.

               10.21  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)
</Table>

                                       105
<Page>

<Table>
               <S>    <C>
               10.22  Administrative Agreement between Allstate Life Insurance Company, ALFS, Inc., and
                      Allstate Life Insurance Company of New York effective June 1, 1993.

               10.23  Administrative Services Agreement between Allstate Life Insurance Company of New York
                      and ALFS, Inc. effective January 1, 2002.

                  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
                      Registered Public Accountant's Services effective February 23, 2009.
                      Incorporated herein by reference to Exhibit 99 to Allstate Life
                      Insurance Company's Annual Report on Form 10-K for 2008. (SEC File No.
                      000-31248)
</Table>

ITEM 15. (B)

The exhibits are listed in Item 15. (a)(3) above.

ITEM 15. (C)

The financial statement schedules are listed in Item 15. (a)(2) above.

                                       106
<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 18, 2009                  /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/ FREDERICK F. CRIPE       Chairman, President,              March 18, 2009
----------------------       Chief Executive Officer and a
Frederick F. Cripe           Director
                             (Principal Executive Officer)

/S/ JOHN C. PINTOZZI         Vice President, Chief Financial   March 18, 2009
--------------------         Officer and a Director
John C. Pintozzi             (Principal Financial Officer)

/S/ MARCIA D. ALAZRAKI       Director                          March 18, 2009
----------------------
Marcia D. Alazraki

/S/ MICHAEL B. BOYLE         Director                          March 18, 2009
--------------------
Michael B. Boyle

/S/ ROBERT J. HOLDEN         Director                          March 18, 2009
--------------------
Robert J. Holden

/S/ CLEVELAND JOHNSON, JR.   Director                          March 18, 2009
--------------------------
Cleveland Johnson, Jr.

/S/ SUSAN L. LEES            Director                          March 18, 2009
-----------------
Susan L. Lees

/S/ JOHN C. LOUNDS           Director                          March 18, 2009
-------------------
John C. Lounds

/S/ KENNETH R. O'BRIEN       Director                          March 18, 2009
----------------------
Kenneth R. O'Brien

/S/ JOHN R. RABEN, JR.       Director                          March 18, 2009
----------------------
John R. Raben, Jr.

                             Director                          March 18, 2009
-----------------------
Phyllis Hill Slater

/S/ KEVIN R. SLAWIN          Director                          March 18, 2009
-------------------
Kevin R. Slawin

/S/ J. ERIC SMITH            Director                          March 18, 2009
-----------------
J. Eric Smith

/S/ DOUGLAS B. WELCH         Director                          March 18, 2009
--------------------
Douglas B. Welch

                                       107
<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.

                                       108
<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
          SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS
                               IN RELATED PARTIES
                                DECEMBER 31, 2008

<Table>
<Caption>
                                                                                                    AMOUNTS AT
                                                                         COST/                      WHICH SHOWN
                                                                       AMORTIZED                     ON BALANCE
($ IN THOUSANDS)                                                         COST        FAIR VALUE        SHEET
                                                                      -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>
TYPE OF INVESTMENT
Fixed Maturities:
   Bonds:
     United States government, government agencies and authorities   $   676,655    $   917,731    $   917,731
     States, municipalities and political subdivisions                   462,664        385,381        385,381
     Foreign governments                                                 262,307        371,542        371,542
     Public utilities                                                    624,016        596,152        596,152
     All other corporate bonds                                         2,534,572      2,290,985      2,290,985
   Commercial mortgage-backed securities                                 721,707        468,868        468,868
   Mortgage-backed securities                                            398,178        396,177        396,177
   Asset-backed securities                                                87,062         64,070         64,070
   Redeemable preferred stocks                                             9,290          5,459          5,459
                                                                      -----------    -----------    -----------
     Total fixed maturities                                            5,776,451    $ 5,496,365      5,496,365
                                                                      -----------    ===========    -----------

Mortgage loans on real estate                                            700,268    $   629,394        700,268
                                                                                     ===========
Policy loans                                                              39,672                        39,672

Short-term investments                                                   409,737    $   409,802        409,802
                                                                                     ===========
Derivative instruments                                                       729    $     2,478          2,478
                                                                      -----------    ===========    -----------
     Total investments                                               $ 6,926,857                   $ 6,648,585
                                                                      ===========                   ===========
</Table>

                                       S-1
<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                            SCHEDULE IV--REINSURANCE
<Table>
<Caption>
                                                                                                  PERCENTAGE
                                                                                                  OF AMOUNT
($ IN THOUSANDS)                     GROSS                                            NET          ASSUMED
YEAR ENDED DECEMBER 31, 2008         AMOUNT        CEDED (1)        ASSUMED         AMOUNT         TO NET
                                  ------------    -----------     -----------    ------------    ------------
<S>                              <C>             <C>             <C>             <C>                <C>
Life insurance in force          $ 32,704,176    $ 11,655,410    $    737,572    $ 21,786,338       3.4%
                                  ============    ============    ============    ============

Premiums and contract charges:
    Life and annuities           $    145,521    $     34,529    $      1,164    $    112,156       1.0%
    Accident and health                10,666           2,466               -           8,200         -
                                  ------------    ------------    ------------    ------------
                                 $    156,187    $     36,995    $      1,164    $    120,356       1.0%
                                  ============    ============    ============    ============

YEAR ENDED DECEMBER 31, 2007

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       1.0%
    Accident and health                 8,878           3,739               -           5,139         -
                                  ------------    ------------    ------------    ------------
                                 $    179,503    $     33,131    $      1,367    $    147,739       0.9%
                                  ============    ============    ============    ============
</Table>

----------
(1) No reinsurance or coinsurance income was netted against premium ceded in
2008, 2007 or 2006.

                                       S-2
<Page>

                   ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
            SCHEDULE V - VALUATION ALLOWANCES AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                                   BALANCE AT   CHARGED TO                BALANCE AT
                                                    BEGINNING    COSTS AND                  END OF
($ IN THOUSANDS)                                    OF PERIOD    EXPENSES    DEDUCTIONS     PERIOD
                                                   ----------   ----------   ----------   ----------
<S>                                                   <C>           <C>         <C>            <C>
YEAR ENDED DECEMBER 31, 2008
Allowance for estimated losses on mortgage loans      $ --        $ 449         $ --        $ 449

YEAR ENDED DECEMBER 31, 2007
Allowance for estimated losses on mortgage loans      $ --        $  --         $ --        $  --

YEAR ENDED DECEMBER 31, 2006
Allowance for estimated losses on mortgage loans      $ --        $  --         $ --        $  --
</Table>

                                       S-3