UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-K

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

                   For the Fiscal Year Ended December 31, 1996

                         Commission File Number 0-22404


                        ALLIED Life Financial Corporation
             (Exact name of registrant as specified in its charter)

                                      Iowa
         (State or other jurisdiction of incorporation or organization)

                                   42-1406716
                      (I.R.S. Employer Identification No.)

                       701 Fifth Avenue, Des Moines, Iowa
                    (Address of principal executive offices)

                                   50391-2003
                                   (Zip Code)

                                  515-280-4211
              (Registrant's telephone number, including area code)

               Securities registered pursuant to Section 12(b) of
                                    the Act:

                                      None
                                (Title of Class)

               Securities registered pursuant to Section 12(g) of
                                    the Act:

                           Common Stock, no par value
                                (Title of Class)

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 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
                                 Form 10-K. [ ]

   As of March 5, 1997 the number of Registrant's Common Stock, no par value,
outstanding was 4,503,599. The aggregate market value of the Common Stock of the
   Registrant (based on the average bid and asked prices at closing) held by
                nonaffiliates at March 5, 1997 was $57,414,915.

                       Documents Incorporated By Reference

  TheRegistrant's definitive proxy statement (1997 Proxy Statement), which will
   be filed with the Securities and Exchange Commission within 120 days after
         December 31, 1996, is incorporated by reference under Part III.

                  The index to the exhibits is located on page 76.

                       This document contains 107 pages.
<PAGE>


                                TABLE OF CONTENTS

Part I

Item 1.    Business........................................................1
Item 2.    Properties.....................................................19
Item 3.    Legal Proceedings..............................................19
Item 4.    Submission of Matters to a Vote of Security Holders............19

Part II

Item 5.    Market for Registrant's Common Equity and Related Stockholders 
           Matters........................................................20
Item 6.    Selected Financial Data........................................21
Item 7.    Management's Discussion and Analysis of Financial Condition and 
           Results of Operations..........................................22
Item 8.    Financial Statements and Supplementary Data....................33
Item 9.    Changes in and Disagreements with Accountants on Accounting and 
           Financial Disclosure...........................................61

Part III

Item 10.   Directors and Executive Officers of the Registrant.............61
Item 11.   Executive Compensation.........................................61
Item 12.   Security Ownership of Certain Beneficial Owners and Management.61
Item 13.   Certain Relationships and Related Transactions.................61


Part IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on 
           Form 8-K.......................................................62
           Index to Financial Statement Schedules.........................62
           Signatures.................................................... 75
           Index to Exhibits..............................................76



<PAGE>




                                        PART I
Item 1.  Business

     ALLIED Life Financial  Corporation  (the Company) is a holding company that
through its principal  subsidiary  ALLIED Life Insurance  Company  (ALLIED Life)
underwrites,  markets,  and distributes a select portfolio of life insurance and
annuity  products to individuals  who live primarily in rural and suburban areas
of the midwestern  and western United States.  The Company was organized in 1993
by ALLIED  Mutual  Insurance  Company  (ALLIED  Mutual).  ALLIED Mutual has been
engaged in the  property-casualty  business  since 1929.  Prior to that,  ALLIED
Life,  organized in 1966,  was a wholly-owned  subsidiary of ALLIED Mutual.  The
financial  information  included  herein consists of the accounts of the Company
and its  wholly-owned  subsidiaries:  ALLIED Life,  ALLIED Life Brokerage Agency
(ALBA), and ALLIED Group Merchant Banking Corporation (AGMB).

     At December 31, 1996,  ALLIED  Mutual owned 54% of the  outstanding  voting
stock of the Company and the ALLIED Life Employee  Stock  Ownership  Trust owned
1%. The remainder was owned by public stockholders.

     The Company's  long-term growth strategy is to: (1) provide its independent
agents with well-designed  products that are easy to understand,  meet the needs
of their  customers and reward  persistency  over time,  and (2)  strengthen its
distribution  systems,  which  include  marketing  life  insurance  and  annuity
products  through  the  independent   property-casualty   agencies  (the  ALLIED
Agencies)  representing  ALLIED  Mutual  and  the  property-casualty   insurance
subsidiaries  of ALLIED Group,  Inc., and through the  traditional  distribution
system,   which  includes   independent   marketing   organizations,   financial
institutions, and independent life agencies. ALLIED Group, Inc.
is an 18.3% owned subsidiary of ALLIED Mutual.

     There are 2,257 independent  ALLIED Agencies which provide the Company with
access to  numerous  agency  customers  in  addition  to  approximately  600,000
households  having  one or  more  ALLIED  property-casualty  policy.  Management
believes  that demand by these  agencies for the  Company's  life  insurance and
annuity products is a result of several factors: (1) the Company's well-designed
life  products,  coupled with a  demonstrated  commitment to service and support
from a known insurance company, provide each agency with a competitive advantage
in its local market;  (2) sales of life insurance products enhance the agencies'
relationships  with their  policyholders  creating the  potential  for increased
persistency  of both life and  property-casualty  insurance  policies;  (3) life
insurance sales,  particularly given their high first-year  commissions relative
to property-casualty  business,  can provide substantial additional income to an
agency; and (4) an annual ALLIED  property-casualty/life sales incentive trip is
available  to  qualifying   agencies  that  achieve  minimum   property-casualty
production  targets as well as  specified  minimum  life  insurance  and annuity
production targets.

     The  Company's  products are designed to meet  traditional  needs,  such as
family income protection,  supplemental retirement savings, mortgage protection,
and college savings. The products are also designed to appeal to a wide array of
consumers in the middle income and small  business  owner  markets.  The Company
provides the independent  ALLIED Agencies with many  opportunities to cross-sell
life  insurance  and  deferred  annuities  to their  existing  property-casualty
customers.  Life insurance  protection is sold as important  elements of a total
personal lines insurance  package which may include auto  insurance,  homeowners
insurance,  personal  liability,  and  inland  marine  coverage.  The  Company's
annuities  are  marketed  primarily  as  tax-deferred  accumulation  vehicles to
individuals in anticipation of their retirement.

     See "Forward-looking Information" on page 22 for an outline of factors that
may affect actual results.
                                      1
<PAGE>

Marketing and Distribution

     General

   ALLIED  Life's  products  are sold  through  two  distribution  systems:  the
independent  ALLIED  Agencies  and a  traditional  life  insurance  distribution
system.  In 1996, the Company sold 75% of its new life insurance face amount and
43% of its  collected  annuity  premium  through  the  ALLIED  Agencies  and the
remainder of its products were sold through traditional  distribution  channels.
Effective July 26, 1996, the Company split its property-casualty and traditional
distribution  systems into two separate areas of  responsibility in an effort to
improve traditional distribution sales. The Company hired Joseph P. Ross as Vice
President,  Marketing  for the  traditional  distribution  system  for  life and
annuity products. Mr. Ross has twelve years experience in the insurance industry
and his duties will be to recruit life marketing organizations and develop their
sales,  specifically  in  universal  life and  annuity  products.  Thomas F. Van
Fossen,  Vice  President,  Marketing,  will be responsible for the marketing and
sales of life and annuity products in the property-casualty marketplace.

    Property-Casualty Distribution System

  The  property-casualty  distribution  system  encompasses 2,257 independent
ALLIED  Agencies.  The  Company's  relationship  with  the  ALLIED  Agencies  is
supported  through a joint  marketing  arrangement  between  ALLIED Life and the
ALLIED property-casualty affiliates (p-c affiliates) which provides for: (1) the
promotion  of ALLIED Life  products  through the p-c  affiliates,  in return for
financial  incentives  related to successful new sales efforts;  (2) shared data
processing  and client  database  resources,  including the provision of on-line
price quotes for universal life and term products;  and (3) combined billing for
all insurance  products  involving  personal  lines  coverages,  including  life
insurance,  annuities,  auto, homeowners,  excess liability,  and other types of
insurance.

     The  Company's  marketing  staff  works  with the  following  personnel  to
generate p-c business.

     Regional  Directors.  The 16  ALLIED  Life  Regional  and 4 Life  Marketing
Directors  are the  Company's  primary field  marketing  representatives  to the
ALLIED  Agencies and are  primarily  responsible  for the annual  growth in life
insurance and annuity sales in their respective geographic territories.

     Regional Directors,  who are independent  contractors and are not employees
of the Company, implement the Company's sales strategies in the ALLIED Agencies,
including  packaging  life  insurance  effectively  with  other  personal  lines
coverages,  promoting combined billing convenience,  and expanding annuity sales
and  business  continuation  planning  for  small  commercial  property-casualty
accounts.  Each Regional  Director is responsible for  approximately  100 ALLIED
Agencies.  Regional Directors also recruit and train life insurance  specialists
(see  Independent  Property-Casualty  Agencies  on  page 3) for  certain  ALLIED
Agencies, as appropriate.  Although  substantially all of their life and annuity
production is derived from sales by the ALLIED Agencies, Regional Directors also
generate life and annuity production from non-property-casualty agencies.

     Regional  Directors  are  compensated  solely on an override and  incentive
basis. Regional Directors' incentive  compensation is based upon the achievement
of an annual  production  goal,  determined by formula based on past production,
the Company's  annual sales increase  goal,  and the  persistency of the book of
business.  Regional  Directors  who achieve  certain  levels of  production  may
qualify for the annual ALLIED property-casualty/life incentive trip. (See ALLIED
Property-Casualty/Life Incentive Trip on page 3).

                                       2
<PAGE>

    Life  Marketing  Directors  have  responsibilities  similar  to  those  of 
the Regional  Directors,  but represent  the Company in the newer  property-
casualty territories where there is not yet an established ALLIED Agency system.
The Life Marketing  Director is an employee of the Company and is compensated on
a salary and production incentive basis.

     Property-Casualty   Marketing  Representatives.   ALLIED  property-casualty
marketing  representatives  are  employees of ALLIED Group,  Inc.  Their primary
responsibility  is to  promote  the sale of  property-casualty  products  by the
independent ALLIED Agencies. The field marketing  representatives,  however, are
also responsible for promoting the relationship  between the ALLIED Agencies and
ALLIED  Life in  order  to  enhance  the sale of life  insurance  products.  The
compensation of the marketing representatives includes bonuses based on the sale
of ALLIED Life products by the ALLIED Agencies.  In addition,  their eligibility
for the annual  incentive trip partially  depends on the level of life insurance
sales achieved by the ALLIED Agencies under their supervision.

     Independent  Property-Casualty  Agencies.  The ALLIED  Agencies either sell
life  insurance  and  annuity  products  themselves,  with the  support of their
Regional  Director and the systems  capabilities of ALLIED Life, or they work in
conjunction  with life insurance  specialists.  Life insurance  specialists  are
independent life insurance agents either employed by an ALLIED Agency or working
with an ALLIED Agency on a joint basis. Their primary activity is to market life
insurance and annuities to existing ALLIED Agency clients.  Life specialists may
be recruited and  introduced  to an ALLIED Agency by its Regional  Director when
the agency becomes large enough to justify a full-time  life insurance  agent or
when an agency would prefer one  specialist to handle all of its life  insurance
sales.  The  compensation of the life specialist is usually  directly related to
life and annuity  production,  in the form of split  commissions,  draws against
agency commissions or salary,  and incentives from the agency.  Life specialists
are  independent  agents  and may sell the  products  of  other  life  insurance
companies.

     ALLIED Property-Casualty/Life Incentive Trip. The ALLIED p-c affiliates and
ALLIED  Life  annually  sponsor  a  joint  incentive  trip  for  both  life  and
property-casualty agents who have met incentive sales objectives.  The incentive
trip is an important  motivating  factor in encouraging  the ALLIED  Agencies to
sell ALLIED Life's  products.  ALLIED  Agencies  qualify for the trip based upon
achieving their property-casualty objectives as well as certain life and annuity
new business objectives.  Failure to achieve the life qualification may preclude
an agency from participation,  even if it meets its property-casualty production
goals.  Those agencies with  insufficient  property-casualty  growth or agencies
selling  through the traditional  distribution  system may still qualify for the
incentive  trip by  producing  a  substantial  volume  of new life  and  annuity
premium.

     The following table shows the history of the ALLIED Agencies qualifying for
the annual ALLIED property-casualty/life incentive trip.
<TABLE>
                                                                                 Year Ended December 31,

<CAPTION>
<S>                                                                      <C>            <C>            <C>


                                                                          1996            1995           1994


Incentive trip production credit premiums
     from qualifying ALLIED Agencies (1)                                 3,787,256      3,694,750      3,257,000
Total incentive trip production credit
     premiums for all ALLIED Agencies (1)                                6,098,912      5,541,484      5,336,000
Percentage of incentive trip production
     credit premiums earned by qualifying ALLIED Agencies                       62%            67%            61%
Number of qualifying ALLIED Agencies                                           197            174            191

<FN>
(1)  Production  credit premiums  represent  annualized  first-year target premium for universal life and term life
     and 2% of annuity premium collected.  The minimum qualification level for 1997 is 9,200 production credit premiums.
</FN>
</TABLE>

                                        3
<PAGE>


     Traditional Life Insurance and Annuity Distribution System

     The  Company  has  traditional  agency   relationships  with  a  number  of
independent life agencies,  independent  marketing  organizations  and financial
institutions.  These  agency  relationships  represent  an  important  source of
business for the Company and in 1996 produced approximately 25% of the total new
face  amount  of life  insurance  sold  and  57% of the  total  annuity  premium
collected.  A separate vice president,  marketing,  supervises the operation and
performance of the Company's traditional  distribution system and is responsible
for its life insurance and annuity production.

     The   Company  has  agency   relationships   with   independent   marketing
organizations,  most of  which  have  more  licensed  agents  covering  a larger
geographic  area than a traditional  independent  life insurance  agency.  These
organizations have their own insurance  marketing systems and generally sell the
Company's  life  insurance  products.   Additionally,  the  Company  has  agency
relationships  with traditional  independent life agents which generally cover a
smaller geographic area than the independent marketing organizations.

     The Company markets its annuity  products  through  financial  institutions
(commercial  and  savings  banks),  and through  annuity marketing agencies. 
Institutional annuity marketing is developed through agency relationships with
third-party  marketing  agencies  specializing in financial institutions as well
as directly  through  several  midwestern-based  financial institutions. In 
1996, annuity premiums collected by the Company from financial institutions were
$26.8 million, representing 67% of the Company's total annuity premiums 
collected within the traditional distribution channel. Annuity marketing 
agencies represent a small but growing volume of annuity business. The Company 
is developing sales of its universal life and term life insurance products 
through both types of annuity marketing systems.

























                                        4
<PAGE>

     Production by Distribution System

     The following tables show production information by distribution system for
ALLIED Life for the years indicated.
<TABLE>
<CAPTION>
<S>                                            <C>                      <C>                    <C> 
                                                   1996                     1995                   1994


                                                                   (dollars in thousands)
Life insurance face amount in force
   Directly produced by agents
     Property-casualty agencies
       Universal Life                          $2,809,270               $2,627,447               $2,426,012
       Term life                                3,200,793                2,506,890                1,981,560
       Whole Life                                  34,521                   34,402                   34,757
                                               ----------               ----------               ----------                    
                                                6,044,584                5,168,739                4,442,329
                                               ----------               ----------               ----------
     Traditional agencies
       Universal life                           1,531,331                1,588,116               1,501,476
       Term life                                  997,711                  908,647                 763,627
       Whole life                                  14,558                   15,778                  13,613
                                               ----------                ---------               ---------
                                                2,543,600                2,512,541               2,278,716
                                               ----------                ---------               ---------
     Other                                        371,130                  433,236                 521,692
                                               ----------                ---------               ---------
           Total                               $8,959,314               $8,114,516              $7,242,737
                                               ==========               ==========              ==========
Life insurance face amount sold
   Directly produced by agents
     Property-casualty agencies
       Universal life                          $  282,388               $  384,763              $  503,665
       Term life                                1,127,060                  889,624                 759,740
       Whole life                                   3,115                    2,775                   1,779
                                               ----------               ----------               ---------     
                                                1,412,563                1,277,162               1,265,184
                                               ----------               ----------               ---------
   Traditional agencies
     Universal life                               128,247                  224,937                 375,679
     Term life                                    348,917                  333,920                 364,873
     Whole life                                     1,124                    1,736                     541
                                               ----------               ----------               ---------    
                                                  478,288                  560,593                 741,093
                                               ----------               ----------               ---------
   Other                                        1,890,851                1,837,755               2,006,277
       Total                                        9,431                   21,549                  59,778
                                               ----------               ----------               ---------
                                               $1,900,282               $1,859,304              $2,066,055
                                               ==========               ==========              ==========
Annuity Premiums
   Deferred annuities
     Property-casualty agencies                $   30,816              $    30,321              $   37,611
     Traditional agencies                          40,188                   45,956                  48,646
                                               ----------              -----------              ----------
                                                   71,004                   76,277                  86,257
                                               ----------              -----------              ----------
   Immediate annuities                              1,227                    2,362                   1,595
                                               ----------              -----------              ----------    
       Total                                   $   72,231              $    78,639              $   87,852
                                               ==========              ===========              ==========              
</TABLE>


     The Company has experienced  double-digit growth in its face amount of life
insurance in force and annuity account balance since 1994. The total face amount
of life insurance in force grew at an average annual rate of 11.9%  beginning at
year end 1994  through  year end 1996 and is up 10.4% at  December  31,  1996 as
compared  to the prior  year end.  Annuity  account  balance  grew at an average
annual rate of 18.1%  beginning at year end 1994 through year end 1996 and is up
13.4% at December 31, 1996  compared to the prior year end. 

                                       5
<PAGE>

     The face amount of new term life insurance sold totaled $1.5 billion 
accounting for 78% of 1996 new insurance production. Term life insurance 
provides protection during a specified number of years that expires without 
policy cash value if an insured  survives the stated  period. The face amount of
new term life insurance sold increased 20.6% in 1996 due to the popularity of
the Company's 10- and 20-year term life insurance products.  For further
information on this product line see Term Life Insurance on page 9.

     The face amount of new universal life insurance sold totaled $410.6 million
representing 22% of 1996 new insurance  production.  Universal life insurance is
flexible  premium life insurance that allows  policyholders  to change the death
benefit  from time to time  (with  satisfactory  evidence  of  insurability  for
increases)  and vary the amount or timing of premium  payments.  Premiums  minus
policyholder  assessments are credited to cash value or accumulative accounts to
which  interest  is  credited  at rates that may change  from time to time.  The
savings  element of universal life products have become less attractive over the
last  several  years due to generally  lower  interest  rates and an  increasing
equity market.  For further  information on this product line see Universal Life
Insurance on page 8.

     During 1996,  first-year fixed deferred annuity premiums decreased 10.4% to
$68.1  million.  Fixed deferred  annuities are  tax-deferred  cash  accumulation
contracts that pay a fixed interest rate  established by the insurance  company.
The Company issues single and flexible premium  annuities that permit additional
deposits by  policyholders  after  initial  premiums  are paid.  Lower first and
second quarter sales were caused by a flat interest  yield curve,  which allowed
banks and other  financial  institutions  to offer short-term  certificates of
deposit at more  competitive  interest  rates.  Interest  rates rose  during the
middle of the year,  and sales reached  expected  levels in the third and fourth
quarters.  For further  information  on this product line, see Annuities on page
10.
                                       6

<PAGE>
   
     Market Area

     The  following  table shows  direct  life  insurance  premiums  and annuity
considerations for ALLIED Life by state for the years indicated.

<TABLE>
                                                  1996                                    1995          1994

<CAPTION>
<S>                   <C>             <C>            <C>              <C>              <C>            <C>   


                         Life
                       Insurance       Annuity                        Percentage       Percentage    Percentage
                       Premiums    Considerations      Total (1)       of Total         of Total      of Total

                                       (Dollars in thousands)

Iowa                    $ 9,869         $15,078        $ 25,451          21.5%            26.1%           29.6%
Wisconsin                 1,859          11,549          13,415          11.3              7.0             6.0
California                9,770           2,953          12,802          10.8             10.0            10.2
Illinois                  1,233          10,794          12,487          10.6              5.5             4.7
Utah                      1,244           8,554           9,801           8.3              5.8             5.7
Nebraska                  4,413           2,534           7,276           6.2              6.2             4.8
Kansas                    3,399           2,287           5,916           5.0              5.6             6.0
Idaho                     1,266           4,078           5,375           4.5              1.3             1.6
Missouri                  2,059           1,877           4,059           3.4              6.6             5.6
Oregon                      378           3,328           3,706           3.2              0.5             0.2
Minnesota                 2,064             950           3,036           2.6              4.8             3.7
South Dakota                522           1,924           2,475           2.1              5.9             9.5
Other (2)                 5,671           6,325          12,406          10.5             14.7            12.4
                        -------         -------        --------         ------           -----           -----
                        $43,747         $72,231        $118,205         100.0%           100.0%          100.0%
                        =======         =======        ========         ======           =====           =====
<FN>
(1) Total  includes  accident  and health and other  miscellaneous  premiums not
separately  shown in the table.  (2) Includes all other  jurisdictions,  none of
which accounted for more than 2% in 1996.
</FN>
</TABLE>

     For more information regarding premium by state and the states where ALLIED
Life is admitted for insurance business, see the 1996 Annual Report, page 3.


Subsidiaries

     ALBA is a general  agency  which uses the ALLIED Life agency  force to sell
complementary  insurance products not developed nor written by ALLIED Life, such
as health insurance,  major medical, and disability  insurance.  ALBA's revenues
amounted to $681,000 in 1996,  $496,000 in 1995, and $476,000 in 1994. AGMB is a
registered  broker-dealer  which  facilitates  securities  transactions  for the
insurance  agents of the Company  and its  affiliates  who are  licensed to sell
securities.  AGMB's revenues for 1996,  1995, and 1994 were $389,000,  $203,000,
and $189,000.




                                        7
<PAGE>

Products

     Universal Life Insurance

     The Company's  universal  life policies  provide  permanent  life insurance
protection  with a  flexible  premium  structure  that  allows the  customer  to
pre-fund  future  insurance  costs and to accumulate  savings on a  tax-deferred
basis.  The  policyholder  may  surrender the policy at any time and receive the
accumulated  account  balance  less a specified  surrender  charge  based on the
duration of the contract and the amount of the coverage.

     The following  table  reflects the account  value,  average face amount and
average  policyholder  age at date of issue  for the  Company's  universal  life
products (excludes riders):
<TABLE>
<CAPTION>
<S>                                                              <C>          <C>            <C>          <C>

                                                                   Average      Average      Number       Average
                                                                   Account       Face          of          Issue
                                                                    Value       Amount      Policies        Age


Policies sold in 1996:
   Policies with a minimum face amount in excess of
     $150,000                                                       $ 7,833     $358,414         390        44
All other policies                                                    2,023       50,987       3,009        39

Total policies in force as of December 31, 1996:
   Policies with a minimum face amount in excess of
     $150,000                                                       $10,826     $326,748       5,000        40
   All other policies                                                 3,827       57,698      33,033        36

</TABLE>
     When the  Company  issues a  universal  life  policy it receives an initial
premium  based on the face  amount of  insurance  purchased  and the  premium is
reflected as a deposit to the policyholder's account. Additional premiums may be
deposited by the policyholder up to a specified maximum.  The Company deducts an
expense  allowance from each premium within a contractually  specified range and
credits the remainder to the  policyholder's  account.  Thereafter,  the account
balance is charged monthly for the cost of insurance,  which reflects  mortality
and benefit charges and an administrative  fee, and is credited interest monthly
at current crediting rates. Certain of the Company's universal life policies are
designed to encourage  policyowner  persistency  and larger account  balances by
providing  higher  crediting rates for larger account  balances as well as those
maintained for longer periods.
     Policy   liabilities   for  universal   life  contracts  are  comprised  of
policyholder  account  balances.  The  following  table shows changes in account
balances for each year in the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
<S>     <C>             <C>        <C>        <C>        <C>          <C>         <C>         <C>          <C>
                                                                       Benefit
            Account                                                   Payments     Account    Deferred     Average
           Balance,                                                     Plus      Balance,     Policy     Interest
         Beginning of   Premiums   Interest    Cost of     Expense    Surrender    End of    Acquisition  Credited
  Year       Year       Received   Credited   Insurance  Allowances    Charges      Year        Costs       Rate




                                             (dollars in thousands)

1992     $110,714       $26,120     $8,626    $ (9,487)  $(3,020)     $ (7,303)   $125,650    $36,794         7.3%
1993      125,650        32,468      9,293     (11,498)   (3,931)      (10,541)    141,441     40,890         7.0
1994      141,441        29,640      9,229     (13,810)   (3,591)       (7,064)    155,845     46,653         6.2
1995      155,845        30,382      9,530     (15,563)   (4,448)       (7,092)    168,654     51,774         5.9
1996      168,654        32,644      9,490     (16,178)   (4,549)       (7,334)    182,727     56,333         5.4
</TABLE>
                                        
                                       8

<PAGE>

     The Company's  universal  life  products are designed to provide  long-term
returns to its policyowners. Most of the Company's products currently being sold
are structured so that the Company's policy  acquisition costs will be recovered
on an in force  basis  upon the  receipt  of 5 to 10 years of  annual  premiums,
depending  on the  product.  In the  event of an early  surrender,  the  Company
imposes surrender charges in order to fully recover its acquisition costs at the
point of surrender by the policyowner. Additionally, variable periodic mortality
and benefit charges, percent-of-premium loads, and monthly policy fees cover the
costs of insurance and other  benefits,  policy  administration  and taxes,  and
provide the  Company  with a profit  margin.  The  products  are  structured  so
policyowners  are  rewarded  for  higher  cash  values and life  insurance  face
amounts.

     Term Life Insurance

     Over 80% of the  Company's  current term life  insurance  sales are 10- and
20-year level premium  policies.  Under these policies,  the customer  purchases
basic term insurance  protection without the tax-deferred  accumulation  feature
available  under the Company's  universal  life  insurance  policies.  Term life
insurance  provides only a death  benefit for a specified  period of time to the
policyowner  for a lower  premium than would be required  for a comparable  face
amount of universal life insurance. Cash value does not accumulate,  rather, the
premium charged is a function of mortality risk and policy expenses.

     The  following   table   reflects  the  average  face  amount  and  average
policyholder age at date of issue for the Company's term life products (excludes
riders):
<TABLE>
<CAPTION>
<S>                                                                       <C>           <C>             <C>    

                                                                           Number          Average      Average
                                                                             of             Face         Issue
                                                                          Policies         Amount         Age

Policies sold in 1996:
   Policies with a minimum face amount in excess of $150,000                 2,058         $403,296        41
   All other policies                                                        5,746           96,303        41

Total policies in force as of December 31, 1996:
   Policies with a minimum face amount in excess of $150,000                 6,922         $373,875        41
   All other policies                                                       16,083           92,134        39
</TABLE>

     The Company  encourages  the conversion of term life insurance to universal
life  insurance,  and as an  incentive  it  credits a  portion  of the term life
premium as an additional  deposit into the universal life insurance account of a
policyholder upon conversion.  The credit is substantially offset by a reduction
in the  commission  payable to the agent.  The agent has  incentive to encourage
term conversion  because the reduced  commission  payable upon conversion  still
exceeds the commission  payable on the renewal of a term life insurance  policy.
This incentive to convert is promoted  directly to the term  policyowner at each
of the first five policy  renewals.  Term  conversions  represented 8.5% of 1996
universal  life face amount  sold.  Universal  life  insurance  face amount sold
resulting from  conversions from ALLIED Life term products were $38.9 million in
1996, $30.5 million in 1995, and $65.3 million in 1994.
  
   Group Life and Other In Force Life Policies

     As of December  31,  1996,  the Company had $267.5  million  face amount of
group term life insurance in force on 2 employee groups, one of which is the
ALLIED Group, Inc. employee group.

                                        9

<PAGE>

     As of December 31, 1996, the Company had $49.1 million face amount of other
life insurance products in force consisting of smaller,  non-participating whole
life policies. These are guaranteed premium and cash value contracts.

     Annuities

     The Company offers a variety of fixed deferred annuity products,  including
single premium and flexible premium designs, to customers who wish to accumulate
savings on a tax-deferred  basis.  Annuities  currently  enjoy an advantage over
certain other savings vehicles because the annuity buyer receives a tax-deferred
accrual of interest on his or her  investment  during the  accumulation  period.
Annuities generally are marketed to individuals in anticipation of retirement.

     The  following  table  reflects  the  average  account  value  and  average
policyholder age at date of issue for the Company's deferred annuity products :
<TABLE>
<CAPTION>
<S>                                                                         <C>          <C>           <C>    

                                                                             Number        Average     Average
                                                                               of          Account      Issue
                                                                            Policies        Value        Age


Annuities sold in 1996:                                                        3,451       $20,906          69
Total policies in force as of December 31, 1996:                              23,305        19,914          65
</TABLE>

     Policy  liabilities  for  annuity  contracts  without  mortality  risk  are
comprised of policyholder account balances. The following table shows changes in
account balances for each year in the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
<S>        <C>           <C>               <C>               <C>             <C>           <C>            <C>

                                                             Benefit
            Account                                         Payments           Account      Deferred       Average
           Balance,                                           Plus            Balance,       Policy       Interest
         Beginning of   Considerations     Interest         Surrender          End of      Acquisition    Credited
  Year       Year          Received        Credited          Charges            Year          Costs         Rate


                                                 (dollars in thousands)

1992      $165,179          $50,000        $13,683          $(7,294)         $221,568      $ 10,545         7.2%
1993       221,568           56,427         16,682          (23,292)          271,385        15,114         6.7
1994       271,385           86,899         17,723          (32,617)          343,390        21,393         5.8
1995       343,390           77,199         22,613          (30,986)          412,216        25,613         5.9
1996       412,216           71,770         24,566          (41,047)          467,505        25,623         5.6

</TABLE>

     Annuity account balances have increased from $221.6 million at December 31,
1992 to $467.5  million at December  31,  1996,  an average  yearly  increase of
27.7%.  Considerations  received  decreased 7% in 1996 compared to 1995 due to a
flat  interest  yield  curve  which  allowed  financial  institutions  to  offer
short-term investments at more competitive interest rates. Benefit payments plus
surrender  charges  in the  table  above  have  increased  in  recent  years due
primarily to the fact that the Company wrote very few  annuities  prior to 1989.
Thus the  increasing  age of the  Company's  annuity  portfolio  results in more
surrenders because the older products have lower surrender charges.

     The  Company's  deferred  annuities  are  sold  as an  alternative  to bank
certificates of deposit and other taxable savings vehicles. Annuity premiums are
typically  invested in intermediate  term, investment grade securities with the
investment  terms generally  matching the underlying  product  surrender  charge
periods  of three to nine  years.  For  most  plans,  the  initial  interest  is
guaranteed for one to three years with renewal crediting rates based on port-
                                     

                                       10
<PAGE>

folio earnings and market conditions.  As a competitive enhancement, some of the
Company's annuity products include interest rate bonuses  which are added to the
policies  account  value at various  points during the  contract  period. 
Liquidity  benefits  are  provided in the form of no-penalty partial withdrawal
allowances,  interest income payments,  a nursing home waiver, and bonus 
annuitization options.

     Several of the  Company's  annuity  products  provide  1% to 2%  first-year
interest   bonuses  and  additional   annual  interest   bonuses  for  long-term
persistency.  The present  value of the  interest  rate  bonuses  are  generally
deducted from agents compensation, allowing the Company to maintain its targeted
profit  margin.  

     Surrender  charges,  which the  Company  imposes  in the  early  years of a
policy,  reduce the amount payable to a policyholder  upon surrender of a policy
and generally permits the Company to recover its acquisition costs. These 
charges also reduce the statutory reserve applicable to the policy.

     During  the  second  quarter  of 1996,  the  Company  introduced  an equity
indexed-annuity  product.  While  guaranteeing  the return of  principal  to the
customer,  interest credited is based on a percentage of the gain of the S&P 500
Index(R).  A portion of the premium from each customer is invested in investment
grade fixed  income  securities  to cover the minimum  guaranteed  value due the
customer  at the end of the term.  A portion of the  premium is used to purchase
S&P 500 call options to hedge the growth in interest credited to the customer as
a direct result of increases in the S&P 500 Index(R).  The call options  provide
the Company the  opportunity  to  participate  in the  increases  of the S&P 500
Index(R)  if the  market  advances.  See  notes  1 and 3 of the  1996  Notes  to
Consolidated  Financial  Statements  for additional  information  regarding call
options.

Insurance Operations

     The Company's  insurance and annuity  operations  achieve  significant cost
efficiencies  through automation of policy issue and administration.  Budgetary,
quality  service,  and  time  service  standards  are  established  and  closely
monitored.  Internal  financial  analysis and reporting are used to focus on the
most profitable elements of the Company's operations and to identify cost saving
and marketing opportunities.

     The Company is headquartered in Des Moines, Iowa, and physically located in
the ALLIED  property-casualty  companies'  home  office.  This  close  proximity
facilitates  marketing  plan  implementation  between ALLIED Life and the ALLIED
property-casualty  affiliates.  It also allows the  Company to lease  automation
systems and support from ALLIED Group,  Inc. on a more cost effective basis. See
"Certain  Transactions  and  Relationships"  in the  1997  Proxy  Statement  for
additional information.

Life Insurance Underwriting

     The  Company  had  adopted  and  follows  detailed,   uniform  underwriting
standards and procedures designed to properly assess and quantify life insurance
risks before issuing  policies to individuals.  Underwriting  administration  is
automated and management  emphasizes the achievement of quality and time service
objectives.   The  Company's   underwriters   review  each  applicant's  written
application,  which is prepared under the supervision of the Company's agents or
representative,  and any required medical records. The Company employs blood and
urine testing to provide additional  information on nicotine and cocaine use and
alcohol  abuse.  Based on the results of these  tests,  the Company  adjusts the
mortality charge or declines coverage completely.

     Any nicotine use by a life applicant  within the preceding one year results
in  a  substantially  higher  mortality  charge.  In  accordance  with  industry
practice,  material misrepresentations on a policy application can result in the
cancellation  by the  Company of the policy  generally  within the first 2 years
upon the return of any premiums paid.
         
                                       11

<PAGE>

     The increasing  incidence of Acquired Immune Deficiency Syndrome (AIDS) has
not thus far adversely affected the Company's mortality experience.  The Company
considers AIDS  information and testing results in its  underwriting and pricing
decisions. The Company's blood test includes a screening for AIDS antibodies.

Reinsurance

     In keeping with industry  practices,  the Company reinsures portions of its
life  insurance  and  disability  income  exposure with  unaffiliated  insurance
companies under  traditional  indemnity  reinsurance  agreements.  New insurance
sales are reinsured above  prescribed  limits and do not require the reinsurer's
prior approval  within  certain  guidelines.  These  treaties are  automatically
renewed and nonterminable for the first 10 years with regard to cessions already
made and are terminable after 90 days with regard to future  cessions.  After 10
years, the Company has the right to terminate and can generally  discontinue the
reinsurance  on a block of  business.  This is  normally  done to  increase  the
Company's retention on older business to the same level as current cessions.

     Generally,  the Company enters into indemnity  reinsurance  arrangements to
assist in  diversifying  its risk and to limit its  maximum  loss on risks  that
exceed the Company's policy retention  limits,  which are currently  $150,000 or
less per life  ($250,000  or less  per  life for ages 59 and  under).  Indemnity
reinsurance  does not fully  discharge  the  Company's  obligation to pay policy
claims on the reinsured business.  The Company,  as the ceding insurer,  remains
responsible  for policy  claims to the extent  the  reinsurer  fails to pay such
claims.  No  reinsurer  of  business  ceded by the Company has failed to pay any
material policy claims (either individually or in the aggregate) with respect to
such ceded  business.  At December 31, 1996, the Company had ceded to reinsurers
$2.6  billion of insurance in force,  substantially  all of which was  reinsured
with insurance  companies  rated A (excellent) or better by A.M. Best.  There is
currently no reinsurance with affiliated insurance companies and all reinsurance
entered into is in the  ordinary  course of  business.  The Company  continually
monitors  the  financial  strength of its  reinsurers  and the  availability  of
replacement  coverages  in the  reinsurance  market.  If  for  any  reason  such
reinsurance  coverages  would need to be  replaced,  the Company  believes  that
replacement   coverages  from  financially   responsible   reinsurers  would  be
available.

Policy Liabilities

     The policy liabilities  reflected in the consolidated  financial statements
are  calculated in accordance  with  generally  accepted  accounting  principles
(GAAP).  Liabilities  for  universal  life and annuity  policies  consist of the
premiums and considerations  received plus accumulated  credited interest,  less
accumulated  policyholder  assessments and benefits.  For traditional  products,
liabilities for future policy benefits have been provided based on the net level
premium method.  These  liabilities are based upon actuarial tables adjusted for
ALLIED Life's actual mortality and persistency experience and investment income.
GAAP policy  liabilities  differ from those established for statutory  reporting
purposes  due to the  use  of  different  assumptions  regarding  mortality  and
interest rates and the  introduction of lapse  assumptions  into the GAAP policy
liability calculation. Actual mortality experience in a particular period may be
greater than expected  mortality  experience and,  consequently,  may materially
affect the Company's  operating results for such period.  See note 1 of the 1996
Notes to Consolidated  Financial Statements for additional information regarding
policy liability assumptions under GAAP.

Interest Crediting Policy

     On a monthly basis, or more frequently if required, the Company reviews and
establishes  current period  interest rates based upon existing and  anticipated
investment opportunities. This applies to both new sales

                                       12
<PAGE>

as well as in force  universal  life  insurance and annuity  products  after any
initial  guaranteed  period.  The Company  attempts to match the duration of the
asset-liability  characteristics of various universal life insurance and annuity
products with the underlying investment opportunities available.  Interest rates
are then established based on each product's required interest spread and market
conditions  at the  time.  Interest  rates are  reviewed  and,  if  appropriate,
adjusted  for  money  received  in the  Company's  home  office  on or after the
effective date of the interest rate change.

Investments

     Without  prior  approval  from  the  Company's  Investment  Committee,  the
investment policy for ALLIED Life requires purchases of securities for the fixed
maturity  portfolio to be invested in debt obligations  rated "BBB" or higher at
the time of acquisition. Any security which is rated below "BBB" or is non-rated
requires approval from the Company's Investment Committee prior to its purchase.
At December 31, 1996, 89% of the Company's fixed maturity investments were rated
"A" or higher,  and less than 1% were  rated  lower than  investment  grade.  At
December 31, 1996, the fair value of ALLIED Life's fixed maturity  portfolio was
approximately $6.1 million more than the financial statement carrying value.

     The  carrying  values and the  investment  ratings of all of the  Company's
investments  in fixed  maturities  are  reviewed on an ongoing  basis for credit
deterioration,  and if this review  indicates a decline in fair value below cost
that is other than temporary,  the Company's carrying value in the investment is
reduced to its estimated  realizable  value and a specific  write-down is taken.
Such  reductions in carrying value are recognized as realized losses and charged
to income.  No such  reductions in carrying value were  recognized for the years
ended December 31, 1996 and 1995.

     In November of 1995, the Financial Accounting Standards Board (FASB) issued
a  Special  Report  entitled  "A Guide to  Implementation  of  Statement  115 on
Accounting for Certain  Investments in Debt and Equity  Securities." The Special
Report allowed companies to reassess the  appropriateness  of the classification
of all securities and make any resulting  transfers  concurrent with the initial
adoption  of the  implementation  guide but no later  than  December  31,  1995.
Effective November 30, 1995, the Company made such reassessment and reclassified
$215.2  million of  held-to-maturity  securities to available for sale.  The net
effect of such reclassification increased stockholders' equity by $4.4 million.


                                       13

<PAGE>



     The table below  shows the  composition  of the  Company's  investments  at
December 31, 1996:
<TABLE>
<CAPTION>
<S>                                                             <C>             <C>           <C>         <C>    

                                                                   Estimated                    1996       1995
                                                                     Fair        Carrying      Percent    Percent
                Investment Category                                  Value         Value      Of Total   Of Total


                                                                               (dollars in thousands)

Fixed maturities:
   U.S. Treasury obligations (1)                                  $  34,904     $  34,941       4.8%        1.4%
   Foreign governments                                               11,119        10,888       1.5         2.0
   Public utilities                                                  91,300        90,351      12.5        10.3
   Asset-backed securities (other than first lien mortgages)         22,856        22,509       3.1         3.9
   Mortgage-backed securities:
     Pools                                                          122,611       121,657      16.8        21.4
     Collateralized mortgage obligations                             92,417        92,142      12.8        14.5
                                                                  ---------     ---------      ----        ----
       Total mortgage-backed securities                             215,028       213,799      29.6        35.9
                                                                  ---------     ---------      ----        ----
   Corporate debt securities:
     Investment grade (BBB or greater) (2)                          330,430       327,010      45.3        43.3
     Non-investment grade (BB + or below) (2)                           ---           ---       ---         0.7
                                                                  ---------     ---------     -----        ----
       Total corporate debt securities                              330,430       327,010      45.3        44.0
                                                                  ---------     ---------     -----        ----   
       Total fixed maturities                                       705,637       699,498      96.8        97.5
                                                                  ---------     ---------     -----        ----        

Equity securities                                                     6,407         6,406       0.9         0.6
Mortgage loans on real estate (3)                                     1,457         1,457       0.2         0.3
Policy loans                                                         10,307        10,307       1.4         1.4
Other invested assets (4)                                             4,276         3,751       0.5         ---
Short-term investments                                                  920           920       0.2         0.2
                                                                  ---------     ---------     -----       -----    
       Total investments                                           $729,004      $722,339     100.0%      100.0%
                                                                  =========      ========     =====       =====



<FN>
(1) All such  securities  are  backed by the full faith and credit of the United
    States government. 
(2) Ratings are assigned primarily by Standard & Poor's or a recognized equivalent.
(3) Consists of single family residential and farm mortgages.
(4) Consists of instruments purchased for hedging purposes.
</FN>
</TABLE>









                                                        14

<PAGE>
   
 The following table sets forth the  composition of the Company's  portfolio
of fixed maturity investments by rating at December 31, 1996:
<TABLE>
<CAPTION>
<S>                                                          <C>             <C>               <C>          <C>    

                                                              Estimated                          1996        1995
                                                                 Fair        Carrying           Percent     Percent
Rating (1)                                                       Value         Value            Of Total    Of Total


                                                                (dollars in thousands)

AAA                                                            $269,839       $267,985            38.3%       42.9%
AA                                                               83,731         82,150            11.7        10.8
A                                                               275,734        273,046            39.0        39.9
BBB                                                              74,769         74,753            10.7         4.5
                                                               --------       --------            ----        ----
       Total investment grade fixed maturities                  704,073        697,934            99.7        98.1
                                                               --------       --------            ----        ----
Non investment grade
                                                                  1,564          1,564             0.3         1.9
                                                               --------       --------            ----        ----      
       Total fixed maturities                                  $705,637       $699,498           100.0%      100.0%
                                                               ========       ========           =====       =====


<FN>
(1)  Ratings are assigned primarily by Standard & Poor's or a recognized equivalent.
</FN>
</TABLE>

     The following  table sets forth expected  maturities in the Company's fixed
maturity  portfolio at December 31, 1996.  Expected  maturities  at December 31,
1996 are shorter  than  contractual  maturities  because of mortgage  backed and
call-option securities in the portfolio. Borrowers may have the right to call or
prepay  obligations  with or  without  call or  prepayment  penalties.  Expected
maturities  are  based on the same  prepayment  assumptions  used in  amortizing
premiums and  discounts  on these  securities.  For  additional  information  on
contractual  maturities,  see note 2 of the 1996 Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
<S>                                                                        <C>             <C>           <C>    

                                                                                             1996         1995
                                                                              Amortized     Percent      Percent
                                                                                Cost       Of Total     Of Total


                                                                                   (dollars in thousands)

         One year or less                                                      $ 38,827       5.6%          7.6%
         Over 1 year through 5 years                                            171,830      24.8          24.8
         Over 5 years through 10 years                                          343,707      49.7          44.8
         Over 10 years through 20 years                                         103,031      14.9          17.2
         Over 20 years                                                           34,500       5.0           5.6
                                                                                -------     ------        -----
                     Total                                                     $691,895     100.0%        100.0%
                                                                                =======     ======        =====   


</TABLE>








                                                        15
<PAGE>

     Investment  results of the Company for each year in the three years ended  
December 31, 1996 are shown on the following table.
<TABLE>
<CAPTION>
        <S>                                                    <C>                <C>               <C>    

                                                                    1996               1995               1994


                                                                               (dollars in thousands)

         Average invested assets, net (1)                          $653,908           $584,223          $489,612
         Investment income (2)                                       48,182             45,411            38,137
         Average annual yield on total investments                      7.4%               7.8%              7.8%
         Realized investment gains (losses)                        $    122           $   (722)         $   (724)

<FN>
(1)   Total invested assets,  at cost, less balance  outstanding on Federal Home
      Loan Bank note payable (see (2) below), on an average quarterly basis.
(2)  Investment  income is net of interest and investment  expenses and does not
     include realized investment gains or losses or provision for income taxes.
</FN>
</TABLE>

     Mortgage-backed  securities (including  collateralized mortgage obligations
[CMOs])  comprise  30.6% of the  Company's  total fixed  maturity  portfolio  at
December 31, 1996. The mortgage-backed  securities are backed primarily by first
lien single family residential mortgages. All of the mortgage-backed  securities
are investment grade.

     The  Company's  investments  in CMOs consist of pools of mortgages  divided
into sections or "tranches" which provide sequential  retirement of bonds. As of
December 31, 1996,  ALLIED Life held CMO  investments  with a carrying  value of
$92.1 million (fair value of $92.4 million). As of December 31, 1996, 86.8% (84%
in 1995) of the Company's CMO investments were in planned  amortization  classes
(PACs) and  sequential  pay bonds.  The  Company  invests  primarily  in PACs to
provide call  protection  and more stable  average  lives.  This  provides  more
predictable  cash flows  within a range of  prepayment  speeds by  shifting  the
prepayment risks to support tranches.  All of the Company's CMO investments have
an active  secondary  market  and  accordingly  are not  expected  to affect the
Company's liquidity differently than other fixed maturity investments.

     The following  table shows the December 31, 1996  estimated  fair value and
carrying value of the CMO portfolio by investment rating:
<TABLE>
<CAPTION>
<S>                                                            <C>            <C>              <C>         <C>    

                                                                   Estimated                    1996        1995
                                                                     Fair        Carrying      Percent     Percent
Rating(1)                                                            Value         Value       Of Total    Of Total
                                                                             (dollars in thousands)

AAA                                                                 $83,036        $82,923       90.0%       97.0%
AA                                                                    9,381          9,219       10.0         3.0
                                                                    -------         ------      -----       ----- 
       Total investments in CMOs                                    $92,417        $92,142      100.0%      100.0%
                                                                    =======        =======      =====       =====


<FN>
(1)  Ratings are assigned primarily by Standard & Poor's or a recognized equivalent.
</FN>
</TABLE>


                                                        16
<PAGE>

     The following  table shows the December 31, 1996  estimated fair value and 
carrying value of the CMO portfolio by type:
<TABLE>
<CAPTION>
<S>                                                              <C>           <C>            <C>          <C>    

                                                                   Estimated                   1996         1995
                                                                     Fair         Carrying    Percent      Percent
Type of CMO                                                          Value          Value    Of Total      Of Total

                                                                          (dollars in thousands)

Planned amortization class                                          $55,435       $55,427      60.2%        57.5%
Sequential pay                                                       24,814        24,508      26.6         26.5
Other                                                                12,168        12,207      13.2         16.0
                                                                    -------        ------     -----        -----
       Total investments in CMOs                                    $92,417       $92,142     100.0%       100.0%
                                                                    =======       =======     =====        =====
</TABLE>

Hedging Activities

     In June 1996,  the Company  began  interest rate hedging  programs  whereby
certain  derivative  financial  instruments  including cash settle put swaptions
(swaptions)  and interest  rate floors  (floors) were  purchased.  Swaptions are
being purchased to reduce the negative effect of increased  withdrawal  activity
related  to the  Company's  annuity  liabilities  that may result  from  extreme
increases in interest  rates.  As of December 31, 1996, the Company was party to
44 agreements for these  instruments.  The agreements expire quarterly from June
1999 through March 2006.  They entitle the Company to receive  payments from the
instrument's  counter  parties on future reset dates if the interest rate (which
is directly tied to the 5-year  constant  maturity swap curve) on any expiration
date is above a specified fixed rate (8.8% to 10.5% for instruments entered into
as of December  31,  1996).  The  notional  amounts  range from $3 million to $9
million (total of $244 million).

     Floors are being  purchased to reduce the  negative  effect that may result
from  extreme  decreases  in  interest  rates to a level  below  the  guaranteed
interest rates provided for in the universal  life insurance  contracts.  The 28
agreements for the floors  outstanding as of December 31, 1996 expire  quarterly
from June 1999 through March 2006. They entitle the Company to receive  payments
from the instrument's counter parties on future reset dates if the interest rate
(which is tied directly to the 10-year constant  maturity treasury curve) on the
expiration date is below a specified  fixed rate (5.0% for  instruments  entered
into as of December 31, 1996).  The notional amounts for each quarter range from
$140 million to $270 million.

     The costs of the interest rate hedging  programs are not expected to have a
material impact on the interest rate margin.  For both swaptions and floors, the
Company  pays only the original  premium and is not at risk of further  payments
regardless  of market  conditions.  The Company does not  anticipate  making any
further purchases of interest rate hedges in the near future.

     Premiums paid to purchase these instruments are capitalized and included in
other  invested  assets.  Through  December  31,  1996,  the  Company  had  paid
approximately $4.1 million in premiums.  Premiums are amortized into income over
the term of the instruments on a straight-line  basis. Gains and losses on these
instruments and related assets are not recorded in income until realized.

     The Company is exposed to the risk of losses in the event of nonperformance
of the counter parties of the above swaptions and floors. Losses recorded in the
Company's financial  statements in the event of non-performance  will be limited
to the unamortized  premium paid to enter into the instruments.  Economic losses
will be measured by the net  replacement  cost of such  instruments  or by their
fair value if the net fair value is in the Company's  favor.  The Company limits
its exposure to such losses by  diversification  among reputable counter parties
with appropriate credit ratings.

                                       17
<PAGE>

Competition

     The Company operates in a highly competitive  industry.  In connection with
the development  and sale of its products,  the Company  encounters  significant
competition  from  other  insurance  companies,  many  of  whom  have  financial
resources substantially greater than those of the Company, as well as from other
investment  alternatives  available to its customers.  The operating  results of
companies  in  the  insurance   industry  have   historically  been  subject  to
significant  fluctuations  due to  competition,  economic  conditions,  interest
rates,  investment  performance,  maintenance  of insurance  ratings,  and other
factors.  Management  believes that the Company's  ability to compete with other
insurance  companies  is  dependent  upon,  among other  things,  its ability to
attract  and retain  agents to market its  insurance  products,  its  ability to
develop competitive and profitable products, and its maintenance of high ratings
from A.M. Best  (currently  "A"  [excellent])  and Duff and Phelps Credit Rating
Company (currently "A").

     The  Company  competes  on  the  basis  of  its  distribution  system,  its
innovative  product  development,   its  strong  financial  condition,  and  its
high-quality  agent  services and  marketing  support.  Growth in the  Company's
distribution  channels is based on  providing a  competitive  product  portfolio
combined  with the  value of its  marketing,  underwriting,  and  administrative
support services to agents.

Regulation

     The  Company's  insurance  subsidiary  is  subject  to  varying  degrees of
regulation  and  supervision  by the states in which it is  admitted to transact
business.   State  insurance  laws  establish  regulatory  agencies  with  broad
administrative  and supervisory powers related to granting and revoking licenses
to transact business, establishing guaranty fund associations, licensing agents,
approving  policy  forms,  regulating  premium rates for some lines of business,
establishing reserve requirements,  prescribing the form and content of required
financial statements and reports, determining the reasonableness and adequacy of
statutory capital and surplus, and regulating the type and amount of investments
permitted.   ALLIED  Life  must  file  guaranteed  rates  for  the  policies  it
underwrites  with  the  insurance  departments  of  certain  states  in which it
operates;  reinsurance  generally is not subject to rate  regulation.  Insurance
departments  also examine the affairs of  insurance  companies,  which  includes
periodic market conduct examinations by the regulatory authorities and review of
annual and other reports prepared on a statutory accounting basis required to be
filed on the  financial  condition of insurers or for other  purposes.  Further,
state insurance  statutes typically place limitations on the amount of dividends
or other distributions  payable by insurance companies in order to protect their
solvency.  The Iowa statute requires that insurance companies pay dividends only
out of  earned  profits  (unassigned  surplus)  and  requires  prior  regulatory
approval for the payment of any dividend which exceeds the greater of either (I)
10% of statutory  policyholders  surplus (total capital stock and surplus) as of
December 31 of the preceding year or (ii) the statutory net gain from operations
of the insurer for the 12-month  period  ending the December 31 of the preceding
year.

     The Company is also subject to statutes governing insurance holding company
systems.  Typically,  such  statutes  require the Company to  periodically  file
information with the state insurance regulatory authority, including information
concerning its capital structure,  ownership,  financial condition,  and general
business operations. Under the terms of applicable state statutes, any person or
entity  desiring to acquire more than a specified  percentage  (commonly 10%) of
the Company's outstanding voting securities is required first to obtain approval
of the  applicable  state  insurance  regulators.  Chapter 521A of the Iowa Code
relating  to  holding  companies,  to which the  Company  is  subject,  requires
disclosure of transactions  between the Company and its insurance  subsidiary or
between  an insurer  and  another  subsidiary,  that such  transactions  satisfy
certain standards,  including that they be fair,  equitable and reasonable,  and
that the Insurance  Commissioner  be given an opportunity to disapprove  certain
material transactions. Further, prior approval by the Iowa Insurance Division is
required for  affiliated  sales,  purchases,  exchanges,  loans or extensions of
credit,  guarantees  or  investments  which  involve 5% or more of the insurer's
admitted assets as of the preceding December 31st.
                         
                                       18
<PAGE>

     Under  insolvency  or  guaranty  fund laws in states in which  ALLIED  Life
operates, insurers can be assessed, up to prescribed limits, for losses incurred
by policyholders as a result of the insolvency of other insurance companies. The
amounts and timing of such assessments are beyond the control of the Company and
generally  have an  adverse  impact  on the  Company's  earnings.  A  number  of
insurance  companies are under  supervision  resulting in  assessments  to cover
losses to policyholders of such companies. The Company cannot predict the amount
of any future assessments.

     Recently,   the  insurance  regulatory  framework  has  been  placed  under
increased scrutiny by various states, the federal  government,  and the National
Association of Insurance  Commissioners  (NAIC). The NAIC has recommended to the
states for adoption and implementation several regulatory initiatives.

     Iowa as well as three other  states have  adopted the NAIC  regulation  for
life insurance  policy sales  illustrations.  Additional  states are expected to
adopt the new  regulation  in 1997.  The effect of any  adoption  by  individual
states is not expected to have a significant  effect on the Company's  insurance
production.


Employees

     At December 31, 1996, ALLIED Life employed 113 persons. ALLIED Life employs
all persons serving the Company and its subsidiaries.  None of the employees are
members of a collective bargaining unit. Management believes that relations with
its employees are good.

Item 2.    Properties

     The  Company  does  not  own  any  real  estate.  The  Company's  principal
operations  are  conducted  from  leased  office  space  pursuant  to a  leasing
arrangement with ALLIED Mutual. See "Certain  Transactions and Relationships" in
the 1997 Proxy Statement for additional  information.  Management  considers the
leased space to be adequate for its needs.

Item 3.    Legal Proceedings

     The  Company  is a party  to  lawsuits  arising  in the  normal  course  of
business.  The Company believes the resolution of these lawsuits will not have a
material adverse effect on its financial condition or results of operations.

Item 4.     Submission of Matters to a Vote of Securities Holders

     No matters were  submitted  during the fourth  quarter of 1996 to a vote of
holders of ALLIED Life Financial Corporation stock.













                                       19

<PAGE>

                                     PART II

Item  5.  Market for Registrant's Common Equity and Related Stockholder Matters

     The  Company's  common  stock  trades on The Nasdaq  Stock Market under the
symbol ALFC. As of December 31, 1996, there were 136 stockholders of record. The
following  table  shows the high and low market  prices and  dividends  paid per
share for each calendar quarter for the two most recent years.
<TABLE>
<CAPTION>
<S>                                        <C>             <C>               <C>              <C> 

                                               High             Low             Last          Dividends

1996
   First qtr.                                 $18 1/4        $16 1/2           $17              $.05
   Second qtr.                                 21 1/2         15                20               .05
   Third qtr.                                  20             15 1/4            15 3/4           .05
   Fourth qtr.                                 18 3/4         15 3/4            17 1/2           .06

1995
   First qtr.                                 $16 3/4        $13 3/4           $15              $.04
   Second qtr.                                 17 3/4         15                17 1/4           .04
   Third qtr.                                  20             17 1/4            17 1/2           .04
   Fourth qtr.                                 18             16 1/4            18               .05
</TABLE>

     There are  certain  regulatory  restrictions  relating  to the  payment  of
dividends (see note 10 of the 1996 Notes to Consolidated  Financial Statements).
It is the present  intention of the Board of Directors to declare quarterly cash
dividends.



























                                       20
<PAGE>
 Item 6.    Selected Financial Data
                                          At or for the year ended December 31,
<TABLE>
<CAPTION>
<S>                                     <C>            <C>             <C>             <C>           <C>              
                                    
                                               1996          1995             1994             1993          1992





Income Statement Data                                (Dollars in thousands, except per share data)
Revenues
     Total insurance revenues                $31,350       $29,934          $25,393         $20,822        $17,732
     Investment income                        48,182        45,411           38,136          33,243         28,979
     Realized investment gains
       (losses)                                  122          (722)            (724)          2,154          2,511
     Other income                              1,056           688              648             277            236
                                             -------       -------          -------          ------        -------   
     Total revenues                           80,710        75,311           63,453          56,496         49,458
                                             -------       -------          -------          ------        -------
Benefits and expenses
     Policyholder benefits                    47,988        46,063           37,359          32,870         27,660
     Amortization of deferred policy
       acquisition costs (2)                  10,595         5,941            5,136           5,347          5,068
     Commissions                               3,316         2,725            2,627           2,390          1,904
     Insurance operating expenses              6,801         6,313            5,715           4,966          4,316
                                             -------        ------          -------          ------         ------
     Total benefits and expenses              68,700        61,042           50,837          45,573         38,948
                                             -------        ------          -------          ------         ------
     Income before income taxes               12,010        14,269           12,616          10,923         10,510
                                       
Income taxes                                   3,937         4,557            4,059           3,739          3,709
                                             -------        ------          -------          ------         ------  
     Net income (1)(2)                       $ 8,073       $ 9,712          $ 8,557         $ 7,184        $ 6,801
                                             =======       =======          =======         =======        =======

Net income applicable to
     common stock (1)(2)                     $ 6,471       $ 8,219          $ 7,226         $ 5,930        $ 5,551
Earnings per common share (1)(2)                1.41          1.78             1.58            1.67           1.63
Dividends paid per common share              $  0.21       $  0.17          $  0.13         $  0.03        $   ---
Weighted average number of
     common shares outstanding
     (in thousands)                            4,580         4,613            4,577           3,545          3,413

Balance Sheet Data
Investments at cost                         $714,483      $637,245         $554,889        $451,982       $372,080
Assets                                       835,600       759,947          643,340         532,588        439,060
Preferred stock                               24,586        22,871           21,341          19,028         18,517
Stockholders' equity                        $99,942       $101,682         $ 76,027        $ 74,368        $54,123
Preferred shares outstanding
     (in thousands)                            2,238         2,087            1,948           1,754          1,707
Common shares outstanding
     (in thousands)                            4,497         4,633            4,586           4,572          3,413

Other Data
Death benefits per share                    $   1.02      $   1.03         $   0.85        $   0.86         $ 0.71
Book value per share                           16.16         15.01            13.42           11.98          10.42
Statutory capital and surplus                 46,544        45,504           47,413          42,403         28,726
Life insurance in force                    8,959,314     8,114,516        7,242,737       5,915,558      4,875,840
Annuity account balances                    $467,505     $ 412,216        $ 343,390        $271,385       $221,568
<FN>
(1) The 1988 amounts are before the cumulative  effect of a change in accounting
for income  taxes (SFAS 96).  (2) The 1996 amounts  include an  additional  $2.8
million ($1.9 million or $0.42 per share net of income taxes) charge relating to
unlocking adjustments to deferred policy acquisitions costs.
</FN>
</TABLE>
                                                        21
<PAGE>

Item 7.    Management's Discussion and Analysis of Financial Condition and 
Results of Operations

Forward-looking Information

     The Private Securities Litigation Reform Act of 1995 provides a safe harbor
to  encourage  companies  to provide  prospective  information  so long as it is
identified  as  forward-looking   and  is  accompanied  by  meaningful  cautions
identifying  important  factors  that  could  cause  actual  results  to  differ
materially  from the  prospective  information.  The  management  of ALLIED Life
Financial  Corporation  (ALFC or the  Company) is adhering to these  provisions.
This report contains cautionary  statements  identifying  important factors that
could  cause  actual  results  to differ  materially  from  those  projected  in
forward-looking  statements  in the following  discussion  and elsewhere in this
report.

     Forward-looking   statements  relate  to  future  operations,   strategies,
financial  results,  or  other  developments  and are not  based  on  historical
information.  In  particular,  statements  containing  words  such as  "expect,"
"anticipate," "believe," "goal," "objective," or similar words generally qualify
as forward-looking statements.
The Company undertakes no obligation to update such forward-looking statements.

The  risks  and  uncertainties  that may  affect  the  operations,  performance,
development,  and results of the Company's  business include the following:  (1)
heightened competition, particularly intensified price competition, the entry of
new  competitors  from the financial  services  sector,  and the creation of new
products  by  competitors;   (2)  adverse  state  and  federal  legislation  and
regulations,  including federal tax laws affecting  individuals,  changes in the
taxation of insurance  companies,  federal legislation allowing the entry of new
competitors from the financial  services  sector,  and the regulation of product
design and marketing of those products;  (3) changes in interest rates causing a
reduction of investment  income;  (4) general  economic and business  conditions
that are less  favorable than expected;  (5)  unanticipated  changes in industry
trends;  and  (6)  inaccuracies  in  assumptions   regarding  future  morbidity,
persistency, mortality, and interest rates.

Overview

     The  following  analysis  of the  consolidated  results of  operations  and
financial  condition  of the  Company  should  be read in  conjunction  with the
Selected Financial Data and Financial  Statements and related footnotes included
elsewhere herein.

     ALLIED Life Financial Corporation is an insurance holding company formed by
ALLIED Mutual  Insurance  Company (ALLIED Mutual) in July of 1993. The financial
statements  include the accounts of ALLIED Life Insurance Company (ALLIED Life),
ALLIED Life Brokerage  Agency,  Inc.  (ALBA),  and ALLIED Group Merchant Banking
Corporation (AGMB).  ALLIED Life accounts for substantially all of the Company's
operations and sells primarily life insurance and annuity products.

     ALLIED Life's  universal  life  insurance  products  provide life insurance
coverages  with  flexible  premium  payments  determined  by  policyholders  and
accumulate  cash value over the  policy  term.  Premiums  received  less  policy
assessments  for  administration  expenses and  mortality  costs are credited to
policyholder  account balances,  to which  tax-deferred  interest is credited at
rates adjusted  periodically by ALLIED Life.  Surrender  charges may be deducted
from the account balances if policies are surrendered  within a specified period
after their effective dates.

     Term life  insurance  policies  provide life  insurance  protection  over a
specified  number of  years.  Policyholders  remit  premiums  for the  insurance
protection but accumulate no cash value.


                                       22
<PAGE>

     Annuity contracts are products which provide for fixed or variable periodic
benefit  payments that commence  according to contract terms and permit interest
income  to  accumulate  on  a  tax-deferred   basis.   Considerations   paid  by
policyholders  are  credited  to  their  accounts  and  earn  interest  at rates
determined by ALLIED Life. To encourage policy  persistency,  surrender  charges
are imposed against account balances for early termination of annuity contracts.

     In  accordance  with  Generally  Accepted  Accounting   Principles  (GAAP),
universal life insurance premiums received are shown as increases in liabilities
for  policyholder  account balances and not as revenues.  Revenues  reported for
universal  life  products   consist  of  fee  income  from  mortality   charges,
administration  expenses,  and surrender  charges  assessed  against the account
balances.  Surrender benefits paid are reflected as decreases in liabilities for
these  account  balances  and not as  expenses.  Interest  credited  to  account
balances is reported as benefit expenses in the financial statements.

     Premium revenues  reported for term life insurance  products are recognized
as revenues when due.  Benefits  relating to these products are associated  with
earned premiums. They are reported as benefit expenses by means of the change in
the liabilities  for future policy benefits so as to recognize  profits over the
premium-paying periods of the policies.

     Annuity  considerations  received and surrender  benefits paid are shown as
increases and decreases to liabilities for policyholder account balances and are
not shown as revenues  or  expenses.  Revenues  reported  for  annuity  products
consist of surrender  charges  deducted  from  policyholder  accounts.  Expenses
consist of interest credited to account balances.

     Another source of revenues for ALLIED Life is investment income earned from
the funds deposited to accounts by universal life and annuity  policyholders,  a
portion  of which  is  passed  through  to  these  policyholders  in the form of
interest credited.

     The costs  related to  acquiring  new business  (principally  commissions),
certain costs of issuing  policies,  and certain other variable selling expenses
(defined as deferred  policy  acquisition  costs) are  capitalized and amortized
into expense  primarily in  proportion  to the present  value of expected  gross
profits.  This  amortization is adjusted when ALLIED Life revises its current or
estimated future gross profits.  For example,  deferred policy acquisition costs
are amortized  earlier than originally  estimated when policy  terminations  are
higher  than  expected  and when  investments  are sold at a gain prior to their
anticipated maturity.

     Death and other  policyholder  benefits  reflect ALLIED Life's  exposure to
mortality risk.  They fluctuate from period to period  according to the level of
claims incurred under ALLIED Life's insurance retention limit.

     Profitability  is primarily  affected by  investment  spread (the excess of
investment  income earned over the amounts  credited as interest to policyholder
accounts),  mortality  experience  (difference between actual and expected death
and other policyholder benefits),  and the ability to control policy acquisition
costs and other operating  expenses.  Because of ALLIED Life's  relatively small
size, its operating results may be affected  significantly by the level of death
and other policyholder benefits incurred in any one reporting period.

     The tables on pages 24 and 25 reflects ALLIED Life's production information
and pretax operating  results excluding  realized  investment gains (losses) and
related  amortization  of  deferred  policy  acquisition  costs  for  the  years
indicated.  The following  analysis of life insurance  operations should be read
with reference to the table.

                                       23
<PAGE>

Results of Operations

1996 Compared with 1995

     Consolidated  revenues  for the year  ended  December  31,  1996 were $80.7
million,  a 7.2% increase over the $75.3 million reported for 1995. The increase
was  attributable to life insurance  premiums and other insurance  income net of
reinsurance  premiums  ceded that rose 9.9% due to increased  sales of term life
insurance.  In 1996 the Company had realized gains on investments of $122,000 as
compared with realized  losses of $722,000 in 1995.  Consolidated  revenues have
grown at a slower  rate over the last  several  quarters  due to lower  sales of
universal  life  and  annuity  products.   Investment  income  and  policyholder
assessments on universal life have shown decreases in growth  primarily  because
of lower increases in invested assets and universal life account balances.

                                             Life Insurance Operations

<TABLE>
<CAPTION>
<S>                                                        <C>                 <C>                <C>  
                                                                          Year Ended December 31,
                                                              1996                1995               1994
                                                                         (Dollars in thousands)
Production information
     Life insurance
       Life insurance face amount in force
         directly produced by agents
           Universal Life                                   $4,340,601         $4,215,564         $3,927,488
           Term life                                         4,198,504          3,415,536          2,745,187
           Whole life                                           49,079             50,180             48,370
                                                            ----------         ----------         ----------             
                                                             8,588,184          7,681,280          6,721,045
                                                            ----------         ----------         ----------   
        Other                                                  371,130            433,236            521,692
                                                            ----------         ----------         ----------
                                                            $8,959,314         $8,114,516         $7,242,737
                                                            ==========         ==========         ==========

       Face amount of new life insurance sold
         directly produced by agents
           Universal Life                                    $ 410,635          $ 609,700          $ 879,344
           Term life                                         1,475,977          1,223,544          1,124,613
           Whole life                                            4,239              4,511              2,320
                                                             ---------          ---------          ---------                       
                                                             1,890,851          1,837,755          2,006,277
                                                             ---------          ---------          ---------
        Other                                                    9,431             21,549             59,778
                                                             ---------          ---------          ---------          
                                                            $1,900,282         $1,859,304         $2,066,055
                                                            ==========         ==========         ==========
       Life insurance termination rate
           Universal Life                                          6.1%               6.7%               6.7%
           Term life                                              18.2%              18.9%              17.6%

     Annuities
       Account balance                                    $    467,505       $    412,216       $    343,390
       First-year annuity premiums                        $     68,063       $     75,944       $     85,787

</TABLE>



                                                        24
<PAGE>

                                       Life Insurance Operations (continued)

<TABLE>
<CAPTION>
<S>                                                           <C>                 <C>                <C>
                                                                          Year Ended December 31,
                                                               1996                1995               1994
                                                                         (Dollars in thousands)
Profitability
     Investment income                                         $48,145            $45,215            $38,015
                                                               -------            -------            -------
     Interest credited on
       Annuities                                                24,732             22,613             17,723
       Universal life                                            9,490              9,530              9,229
       Other                                                       464                324                263
                                                               -------            -------            -------
         Total interest expense                                 34,686             32,467             27,215
                                                               -------            -------            -------
         Investment spread                                      13,459             12,748             10,800
                                                               -------            -------            -------
     Fee income
       Universal life charges                                   22,410             21,586             18,780
       Annuity surrender charges                                   495                662                393
                                                               -------            -------            -------  
         Total fee income                                       22,905             22,248             19,173
                                                               -------            -------            -------
     Other insurance income                                      8,445              7,686              6,220
                                                               -------            -------            -------  
       Adjusted insurance revenues                              44,809             42,682             36,193
                                                               -------            -------            -------
     Other expenses
       Amortization of deferred policy
         acquisition costs (1)                                  10,730              6,036              5,345
       Renewal commissions                                       2,675              2,437              2,217
       Other insurance operating expenses                        5,848              5,501              5,330
       Administrative fees                                         508                309                163
                                                               -------             ------             ------ 
         Total acquisition and operating expenses               19,761             14,283             13,055
                                                               -------             ------             ------
       Death benefits, net                                       6,945              6,894              5,733
       Other policyholder benefits, net                          6,357              6,702              4,412
                                                               -------             ------            -------
         Total other expenses                                   33,063             27,879             23,200
                                                               -------             ------            -------
     Insurance operating income before income
       taxes and realized investment gains (losses)            $11,746            $14,803            $12,993
                                                               =======            =======            =======



<FN>
(1) Amounts exclude  amortization of deferred policy acquisition costs resulting
from net realized investment gains (losses).  In 1996,  amortization includes an
additional charge of $2.8 million relating to unlocking  adjustments to deferred
policy costs acquisition . See "Additional Charge to DPAC"on page 26.
</FN>
</TABLE>

     Operating income before taxes (which exclude realized  investment gains and
losses net of related amortization of deferred policy acquisition costs) for the
year includes an additional charge to deferred policy  acquisition costs of $2.8
million  reflecting changes in assumptions used to estimate future gross profits
on certain  blocks of annuity  business (see  Additional  Charge to DPAC on page
26).  Including the additional  charge of $2.8 million,  operating income before
taxes was $11.8 million for 1996  compared with $14.9 million  reported in 1995.
Operating  earnings per share including the additional charge of $0.42 per share
were $1.37 in 1996 compared with $1.88 in 1995.  Net income totaled $8.1 million
($1.41 per share) in 1996 and was $9.7 million ($1.78 per share) in 1995.

Life Insurance Operations

     Total life insurance in force grew 10.4% to $9 billion at December 31, 1996
from $8.1 billion at December 31, 1995. The increase was due to policy retention
and new term life insurance sales.
                                       25
    
<PAGE>
 The face  amount  of new life  insurance  sold  directly  by agents in 1996
increased 2.9% to $1.9 billion from $1.8 billion in 1995. The face amount of new
universal  life  insurance  sold  decreased  32.6% to $410.6 million from $609.7
million.  Universal life account  balances  increased 8.3% at year-end 1996 from
year-end 1995. Fee income increased 3% to $22.9 million from $22.2 million.  The
savings  element of universal life products has become less  attractive over the
last  several  years due to generally  lower  interest  rates and an  increasing
equity market.

     The  face  amount  of new term  life  insurance  sold  directly  by  agents
increased  20.6% to $1.5 billion for 1996 from $1.2  billion for 1995.  Sales of
term insurance with 10- and 20-year guaranteed rates were strong.

     First-year  annuity  premiums  decreased  10.4% to $68.1 million from $75.9
million for 1995.  The  decrease  was due to lower sales in the first and second
quarter.  The lower  sales were caused by a flat  interest  yield  curve,  which
allowed banks and other financial institutions to offer short-term  certificates
of deposit at more  competitive  interest rates.  Interest rates rose during the
middle of the year,  and sales reached  expected  levels in the third and fourth
quarters. The total annuity account balance increased 13.4% to $467.5 million at
year-end 1996 from $412.2 million at year-end 1995.

     Adjusted  insurance  revenues increased 5.3% to $44.9 million for 1996 from
$42.7  million for 1995.  The increase was primarily  attributable  to increased
investment spread and other insurance income (due to term life insurance sales).
The  growth  in life  insurance  in  force  and  policyholder  account  balances
permitted  invested  assets  at cost to  increase  12.2% to  $714.1  million  at
December 31, 1996 from $636.7  million at December 31, 1995.  Investment  income
increased by 6.5%.  ALLIED Life's return on invested assets decreased to 7.4% in
1996 from 7.8% in 1995.

     Investment spread grew to $13.6 million from $12.7 million.  Annual average
interest-credited  rates on universal life contracts decreased to 5.4% from 5.9%
and on annuities  decreased to 5.6% from 5.9%. The ratio of investment spread to
investment income decreased only slightly to 28% from 28.2% despite the volatile
interest rate environment during 1996. This is evidence of ALLIED Life's ability
to adjust  interest  credited  to  policyholder  accounts  to reflect  trends in
investment earnings.

     Death  benefits  net  of  reinsurance  remained  at  $6.9  million.   Other
policyholder  benefits  decreased  5.1% to $6.4  million  from $6.7  million  as
decreases in reserves for  supplemental  contracts and single premium  immediate
annuities with life  contingencies  more than offset the increase in reserves on
new term life sales and policyholder  bonus reserves on universal life products.
Other  insurance  operating  expenses  increased  6.3% to $5.8 million from $5.5
million.

Additional Charge to DPAC

     Amortization of deferred policy  acquisition costs (DPAC) was $10.7 million
in 1996.  Included in that amount was an additional  charge taken by the Company
of  $2.8  million  as the  result  of  its  annual  DPAC  study  that  suggested
refinements in assumptions  concerning  future  annuity policy  persistency  and
interest rate spreads were  necessary.  Annuity DPAC reflects the deferred costs
(primarily  commissions)  associated with sales. These expenses are amortized in
proportion to the actual  profits and estimated  future profits of a given block
of annuity  policies.  Estimated  future profits and  amortization  of costs are
reviewed  annually for universal life insurance and annuity  products and may be
reviewed  more  frequently  if  circumstances  dictate.  GAAP  requires that the
estimated  future profits and future  amortization be recomputed based on actual
experience  and updated  expectations  of future  experience  (unlocking).  This
unlocking may result in both adjustments  related to prior  amortization as well
as changes to ongoing amortization rates.

     While the Company will continue to  re-evaluate  the DPAC  assumptions,  it
does not anticipate making additional material  adjustments to DPAC amortization
schedules in the foreseeable future. Further adjustments would be necessary only
if actual  experience should differ  significantly  from the assumptions used in
the DPAC study models. DPAC amortization was $6 million in 1995.


                                       26
<PAGE>

     Primarily due to the additional charge of $2.8 million, operating income
before taxes  decreased to $11.7 million in 1996 from $14.8 million in 1995.

Results of Operations

1995 Compared with 1994

     Consolidated  revenues  for the year  ended  December  31,  1995 were $75.3
million,  an 18.7%  increase  over the $63.5  million  reported  for  1994.  The
increase was primarily  attributable  to higher  investment  income,  which rose
19.1% to $45.4  million from $38.1  million,  and  policyholder  assessments  on
universal life contracts, which increased 15% to $20 million from $17.4 million.
These  increases  resulted from the growth in invested  assets and  policyholder
account balances during the year.  Policyholder account balances increased 16.4%
primarily  as a result of  policy  retention  and  premiums  and  considerations
received from universal life and annuity products.

     Income before income taxes and realized  investment  (losses)  gains net of
related  amortization of deferred policy  acquisition  costs  (operating  income
before  taxes) for 1995  increased  13.4% to $14.9  million  from $13.1  million
reported for 1994. Net income  totaled $9.7 million,  up 13.5% from $8.6 million
in 1994.  Operating  earnings per common share rose to $1.88 for 1995 from $1.66
for 1994; net income per common share was $1.78 for 1995 compared with $1.58 for
1994.

Life Insurance Operations

     Total life  insurance  in force grew 12% to $8.1  billion at December  31,
1995 from $7.2  billion at December 31, 1994. The increase was due to policy 
retention and insurance sales.

The face amount of new life  insurance sold directly by agents in 1995 decreased
8.4% to $1.8  billion  from $2 billion in 1994.  The primary  factor was a 30.7%
decrease  in the face  amount of new  universal  life  insurance  sold to $609.7
million  from  $879.3   million.   This   decrease  was  partially  due  to  the
discontinuance of the Champion product on January 1, 1995. Lower market interest
rate levels also affected sales. Policyholder account balances, however, were up
8.2%, and fee income increased 16% to $22.2 million from $19.2 million.

     The  face  amount  of new term  life  insurance  sold  directly  by  agents
increased 8.8% to $1.2 billion for 1995 from $1.1 billion for 1994.  ALLIED Life
introduced a 10-year term life  insurance  product at the beginning of 1994, and
sales remained strong in 1995.

     First-year  annuity premiums decreased 11.5% to $75.9 million for 1995 from
$85.8  million for 1994.  The decrease was due to a flat  interest  yield curve,
which made  short-term  certificates  of deposit  available at more  competitive
interest  rates.  The total  annuity  account  balance  increased  20% to $412.2
million at year-end 1995 from $343.4 million at year-end 1994.

     Adjusted  insurance revenues increased 17.9% to $42.7 million for 1995 from
$36.2  million for 1994.  The increase was primarily  attributable  to increased
investment spread, greater fee income, and other insurance income. The growth in
life insurance in force and  policyholder  account balances  permitted  invested
assets at cost to increase  15.4% to $636.7  million at December 31, 1995,  from
$551.6 million at December 31, 1994,  allowing  investment income to increase by
18.9%.  ALLIED Life's return on invested assets in 1995 remained  unchanged from
1994 at 7.8%.
                                       27
<PAGE>

     Investment spread grew to $12.7 million from $10.8 million.  Annual average
interest-credited  rates on universal life contracts decreased to 5.9% from 6.2%
and on annuities  increased to 5.9% from 5.8%. The ratio of investment spread to
investment  income  decreased  only  slightly  to 28.2% from 28.4%  despite  the
volatile interest rate environment during 1995.

     Amortization  of deferred  policy  acquisition  costs increased 12.9% to $6
million from $5.3 million  because of ALLIED Life's  increase in  profitability.
Other  insurance  operating  expenses  increased  5.8% to $5.8 million from $5.5
million, a result of overall growth.

     Death benefits net of reinsurance increased 20.3% to $6.9 million from $5.7
million.  Other policyholder  benefits increased 51.9% to $6.7 million from $4.4
million  as  a  result  of  increased  reserves  on  new  term  life  sales  and
supplemental  contracts  and an  increase  in  policyholder  bonus  reserves  on
universal life products.

     ALLIED Life's  operating  income before taxes was up 13.9% to $14.8 million
from$13 million in 1994. The increase  occurred because the improved  investment
spread and  increased  fee income  more than  offset  the  higher  expenses  and
policyholder benefits.

Liquidity and Capital Resources

ALLIED Life Financial Corporation

     As an insurance holding company,  ALFC relies on dividends from ALLIED Life
to make dividend payments to its preferred and common stockholders.  The ability
of ALLIED  Life to pay  dividends  to the  Company  is  limited by law to earned
profits (unassigned surplus) as of the dates dividends are paid. Such ability is
determined in accordance  with accounting  practices  prescribed or permitted by
insurance regulatory authorities of the State of Iowa.

     The Iowa Insurance  Holding Company Act precludes  ALLIED Life's payment of
an  extraordinary  dividend  without  prior  notice to and  approval of the Iowa
Insurance Commissioner.  An extraordinary dividend is defined as any dividend or
distribution  of cash or other  property  whose fair market value  together with
that of other dividends or distributions made within the preceding twelve months
exceeds the greater of

(i)  10% of statutory policyholders' surplus (total capital stock and surplus)
     as of December 31 of the preceding year or

(ii) the net gain from  operations  on a  statutory  basis for the  twelve-month
period ending December 31 of the preceding year.

     During 1997, the maximum amount  available for  distribution to the Company
from ALLIED Life without special  regulatory  approval of or notification to the
Iowa Insurance Commissioner is approximately $5.2 million.

     A source of cash flows for ALFC is  dividend  payments  from  ALLIED  Life.
During  1996,  the Company  paid cash  dividends  of $1.1  million to common and
preferred  stockholders.  ALLIED  Life  paid to the  Company  dividends  of $1.4
million primarily to fund the Company's dividend requirement.

     Annual  dividends  payable  on  the  currently   outstanding  6.75%  Series
preferred stock are approximately $1.5 million.  In accordance with the terms of
the 6.75%  Series  preferred  stock,  the Company may pay  dividends  thereon by
issuing  additional  shares of such stock for any quarter  ending on or prior to
September 30, 1998. In 1996,  the Company paid  dividends in the form of 138,793
shares of 6.75% Series preferred stock.

                                       28
<PAGE>

     Effective  August  6,  1996,  the  Board  of  Directors  approved  a  stock
repurchase  program to acquire  shares of the Company  common  stock on the open
market.  The Company  completed  the program  during the third  quarter of 1996,
repurchasing  and  cancelling  150,000  shares at an average  cost of $16.94 per
share.

Consolidated

     Life  insurance  companies  generally  produce  a  positive  cash flow from
operations.  Its adequacy is measured by  liquidity.  There should be sufficient
cash to meet benefit  obligations to policyholders and normal operating expenses
as they are incurred and  sufficient  excess to help meet future policy  benefit
payments and to write new business.  ALLIED Life's liquidity  position continued
to be favorable in 1996,  with cash inflows at levels  sufficient to provide the
funds necessary to meet obligations.

     The Company's cash inflows  consist  primarily of deposits to  policyholder
account balances, proceeds from sales, maturities and calls of investments,  and
repayments of investment  principal.  The Company's cash outflows  primarily are
related  to  policyholder  account  withdrawals,  investment  purchases,  policy
acquisition costs,  policyholder benefits, and current operating expenses. These
outflows are typically met from normal annual  premium and net  investment  cash
inflows.

     Company  operations  provided cash inflows of $15.5 million in 1996,  $11.5
million  in 1995,  and  $8.2  million  in  1994.  Cash  inflows  from  financing
activities  amounted to $62.5 million,  $73.3 million,  and $94.2 million during
1996, 1995, and 1994, respectively. These funds and the excess operating inflows
were  used  primarily  to  increase  the  Company's  fixed  maturity  investment
portfolio.

     Matching the  investment  portfolio  maturities to the cash flow demands of
the  insurance  coverages  being  provided is an  important  consideration.  The
Company  continually  monitors  benefit and claims  statistics to project future
cash requirements.

     As part of this monitoring process,  the Company performs cash-flow testing
of its assets and liabilities  under various  scenarios to evaluate the adequacy
of reserves.  In developing its investment  strategy,  the Company establishes a
level of cash and  securities  that when combined with expected net cash inflows
from operations, maturities of fixed maturity investments, principal payments on
amortizing securities,  and its insurance products is believed to be adequate to
meet   anticipated   short-term  and  long-term   benefit  and  expense  payment
obligations.

     As of December 31, 1996,  96.8% of the Company's  investments were in fixed
maturities.  The  investment  policy for  ALLIED  Life  requires  that the fixed
maturity  portfolio  be invested  primarily in debt  obligations  rated "BBB" or
higher when they are acquired.  Of the Company's fixed maturity investments held
at year-end 1996, 89% were rated "A" or better;  1% were rated below  investment
grade (below "BBB").

     The carrying  values of all the Company's  investments in fixed  maturities
are reviewed on an ongoing basis for credit deterioration. If review indicates a
decline in fair value  below cost that is other than  temporary,  the  Company's
carrying  value in the investment is reduced to its estimated  realizable  value
and a corresponding  write-down is taken.  Such reductions in carrying value are
recognized as realized  losses and charged to income.  No reductions in carrying
value were recognized for the year ended December 31, 1996.

     The Company's fixed maturity  portfolio  includes  collateralized  mortgage
obligations  (CMOs).  CMOs consist of pools of mortgages  divided into  tranches
that provide sequential retirement of bonds. To provide call protection and more
stable  average lives,  the Company  invests  primarily in planned  amortization
classes (PACs) and sequential-pay  bonds that generally provide more predictable
cash  flows  within  a  range  of  prepayment  speeds  by  shifting  some of the
prepayment risks to support tranches.

                                       29
<PAGE>
  
   At  year-end  1996,  all  of  the  Company's  CMOs  were   investment-grade
securities. They had a carrying value of $92.1 million and a fair value of $92.4
million; 86.8% of these investments were in PAC and sequential-pay bonds. All of
the Company's CMO investments have an active secondary market; therefore,  their
effect on  liquidity  is not  expected  to differ from the effect of other fixed
maturity investments.

     The Company has a line of credit  agreement with the Federal Home Loan Bank
that provides  additional  liquidity.  The agreement makes $25 million available
through March 13, 1997.  Interest is payable at the current rate upon  issuance.
From time to time,  the Company has  borrowed  funds from its  affiliates  on an
arms-length  basis.  At  December  31,  1996,  the  Company  had an  outstanding
borrowing of $20.5 million under the line of credit agreement.  During 1996, the
Company entered into a note-payable  agreement with ALLIED Mutual, an affiliate.
The outstanding borrowing at December 31, 1996 was approximately $1.6 million.

     Management  anticipates  that funds to meet the  Company's  short-term  and
long-term capital  expenditures,  cash dividends,  and operating cash needs will
come from existing  capital and internally  generated  funds. As of December 31,
1996,  the Company  had no material  commitments  for capital  expenditures.  As
additional  capital needs arise,  the Company will consider taking on additional
debt or issuing equity. Specific methods for meeting such needs will depend upon
financial market conditions at the time.

Effects of Inflation and
Interest Rate Changes

     Management  does  not  believe  inflation  has  had a  material  effect  on
consolidated  results  of  operations.  To  reduce  exposure  to  interest  rate
fluctuations,  management  attempts  to  invest  new  funds in  securities  with
expected durations that match related policyholder obligations.

     As a rule,  the  fair  value  of the  Company's  fixed  maturity  portfolio
increases or decreases in inverse  relationship  with  fluctuations  in interest
rates while investment  income moves in direct  relationship  with interest rate
changes.  For example, if interest rates decrease,  the Company's fixed maturity
investments  generally will increase in value.  Investment  income, on the other
hand,  will decrease as fixed  maturity  investments  mature or are sold and the
proceeds are reinvested at the lower interest rates.

     Interest  rate changes and the slope of the yield curve may have  temporary
effects on the sale and profitability of the universal life and annuity products
offered  by  ALLIED  Life.  For  example,  if  interest  rates  rise,  competing
investments  may  become  more  attractive  to  potential  purchasers  until the
interest  rates credited to  policyholder  account  balances are  increased.  If
interest rates fall,  profitability  will be affected  negatively until credited
rates are adjusted to compensate  for the decline in investment  income.  ALLIED
Life sells universal life and annuity  contracts that generally  permit flexible
responses to interest rates, which are monitored constantly.

Hedging Activities

     In June 1996,  the Company  began  interest rate hedging  programs  whereby
certain  derivative  financial  instruments  including cash settle put swaptions
(swaptions)  and interest  rate floors  (floors) were  purchased.  Swaptions are
being purchased to reduce the negative effect of increased  withdrawal  activity
related  to the  Company's  annuity  liabilities  that may result  from  extreme
increases in interest  rates.  As of December 31, 1996, the Company was party to
44 agreements for these  instruments.  The agreements expire quarterly from June
1999 through March 2006.  They entitle the Company to receive  payments from the
instrument's  counter  parties on future reset dates if the interest rate (which
is directly tied to the 5-year  constant  maturity swap curve) on any expiration
date is above a specified fixed rate (8.8% to 10.5% for instruments entered into
as of December  31,  1996).  The  notional  amounts  range from $3 million to $9
million (total of $244 million).
                                       30
<PAGE>

     Floors are being  purchased to reduce the  negative  effect that may result
from  extreme  decreases  in  interest  rates to a level  below  the  guaranteed
interest rates provided for in the universal  life insurance  contracts.  The 28
agreements for the floors  outstanding as of December 31, 1996 expire  quarterly
from June 1999 through March 2006. They entitle the Company to receive  payments
from the instrument's counter parties on future reset dates if the interest rate
(which is tied directly to the 10-year constant  maturity treasury curve) on the
expiration date is below a specified  fixed rate (5.0% for  instruments  entered
into as of December 31, 1996).  The notional amounts for each quarter range from
$140 million to $270 million.

     The costs of the interest rate hedging  programs are not expected to have a
material impact on the interest rate margin.  For both swaptions and floors, the
Company  pays only the original  premium and is not at risk of further  payments
regardless  of market  conditions.  The Company does not  anticipate  making any
further purchases of interest rate hedges in the near future.

     Premiums paid to purchase these instruments are capitalized and included in
other  invested  assets.  Through  December  31,  1996,  the  Company  had  paid
approximately $4.1 million in premiums.  Premiums are amortized into income over
the term of the instruments on a straight-line  basis. Gains and losses on these
instruments and related assets are not recorded in income until realized.

     At the beginning of the second quarter of 1996,  the Company  introduced an
equity-indexed   annuity  product  that  guarantees   customers  the  return  of
principal. Interest credited is based on a percentage of the gain of the S&P 500
Index(R).  A portion of the premium from each customer is invested in investment
grade fixed  income  securities  to cover the minimum  guaranteed  value due the
customer  at the end of the term.  A portion of the  premium is used to purchase
S&P 500 call options (call options) to hedge the growth in interest  credited to
the customer as a direct result of increases in the S&P 500  Index(R).  The call
options  provide the Company the  opportunity to participate in the increases of
the S&P 500 Index(R) if the market  advances.  At December 31, 1996, the Company
had purchased 40 call options with notional amounts between $65,000 and $900,000
(total of $11.2 million).

     Premiums  paid to purchase  call  options are  capitalized  and included in
other assets. Through December 31, 1996, the Company had paid approximately $2.3
million in premiums.  Premiums are  amortized as an expense over the term of the
instruments on a straight-line  basis. Gains and losses on these instruments and
related liabilities are not recorded in income until realized.

     The Financial  Accounting  Standards  Board (FASB) and the  Securities  and
Exchange   Commission   (SEC)  are  evaluating  the  accounting  and  disclosure
requirements for hedging activities and derivative financial  instruments.  As a
result of these deliberations,  the Company's accounting treatment may change in
the future. The Company is actively monitoring the proposals that are in various
stages  of  discussion;  the  impact of the final  standards  cannot be  clearly
projected at this time.

     The Company is exposed to the risk of losses in the event of nonperformance
of the counter parties of the above swaptions,  floors, and call options. Losses
recorded in the Company's  financial  statements in the event of non-performance
will be limited to the unamortized  premium paid to enter into the  instruments.
Economic losses will be measured by the net replacement cost of such instruments
or by their  fair  value if the net fair value is in the  Company's  favor.  The
Company limits its exposure to such losses by  diversification  among  reputable
counter parties with appropriate credit ratings.

                                       31
<PAGE>

Emerging Regulatory Issues

     The Company's insurance subsidiary is subject to regulation and supervision
by the states in which it is admitted to transact business. State insurance laws
generally  establish   supervisory   agencies  with  broad   administrative  and
supervisory  powers  related to  granting  and  revoking  licenses  to  transact
business,  establishing guaranty fund associations,  licensing agents, approving
policy forms, regulating premium rates

for some lines of business,  establishing reserve requirements,  prescribing the
form and content of required financial  statements and reports,  determining the
reasonableness and adequacy of statutory capital and surplus, and regulating the
type and amount of investments permitted.

     Recently,   the  insurance  regulatory  framework  has  received  increased
scrutiny  from  various  states,  the  federal  government,   and  the  National
Association of Insurance  Commissioners  (NAIC). The NAIC has recommended to the
states for adoption and implementation several regulatory initiatives.

     Iowa as well as three other  states have  adopted the NAIC  regulation  for
life insurance  policy sales  illustrations.  Additional  states are expected to
adopt the new  regulation  in 1997.  The effect of any  adoption  by  individual
states is not expected to have a significant  effect on the Company's  insurance
production.

New Accounting Standards

     In 1996 the  Company  adopted  SFAS  121,  "Accounting  for  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Management determined the adoption
had no impact on the Company's financial  condition,  results of operations,  or
liquidity.

     In  1996,  the  Company  adopted  SFAS  123,  "Accounting  for  Stock-Based
Compensation."   This  statement   establishes  a  fair  value-based  method  of
accounting for stock-based compensation plans, but permits continued application
of the provisions of Accounting  Principles  Board Opinion 25,  "Accounting  for
Stock Issued to  Employees,"  in  determining  compensation  expense  related to
stock-based  compensation.  Companies  that  continue  to apply  Opinion 25 must
nonetheless comply with the new disclosure requirements of SFAS 123. The Company
elected to continue to account for stock-based compensation under the provisions
of Opinion 25 and its related  interpretations.  This  adoption had no impact on
the Company's financial condition, results of operations, or liquidity.

     In June of 1996,  the FASB issued SFAS 125,  "Accounting  for Transfers and
Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities."  This
statement  provides  consistent   standards  for  distinguishing   transfers  of
financial assets that are sales from transfers that are secured borrowings. SFAS
125 is effective for fiscal years beginning after December 31, 1996.  Earlier or
retroactive  application of this  statement is not  permitted.  The Company will
adopt  SFAS  125  on  January  1,  1997.  Management  has  determined  that  the
implementation  will not have a  material  effect  on its  financial  condition,
results of operations, or liquidity.










                                       32
<PAGE>

Item 8.    Financial Statements and Supplementary Data

Report of Management

     The management of ALLIED Life Financial Corporation and its subsidiaries is
responsible for the accompanying  financial information appearing in this annual
report. The consolidated  financial  statements have been prepared in conformity
with generally accepted  accounting  principles and include amounts based on the
best estimates and judgments of management.

     The Company maintains a system of internal  accounting controls designed to
provide  reasonable  assurance that assets are safeguarded and  transactions are
properly authorized and recorded. Management continually monitors these internal
accounting  controls,  modifying and improving  them as business  conditions and
operations  change. An internal audit department also evaluates the adequacy and
effectiveness  of  internal   accounting  controls  and  measures  adherence  to
established  policies and  procedures.  The  management of ALLIED Life Financial
Corporation  believes  that as of December 31,  1996,  the  Company's  system of
internal accounting controls was adequate to accomplish the objectives discussed
herein.

     The Company's  financial  statements for the years ended December 31, 1996,
1995, and 1994 have been audited by KPMG Peat Marwick LLP, independent certified
public  accountants.  The audits were made in accordance with generally accepted
auditing  standards  and  included a  consideration  of the  system of  internal
accounting controls to the extent necessary to express an independent opinion on
the financial statements.

     The audit committee of the Board of Directors,  comprised solely of outside
directors,  meets  regularly  with the  independent  auditors,  management,  and
internal  auditors to review the scope and results of the audit work  performed.
The  internal  auditors  and  independent  auditors  have  access  to the  audit
committee  to discuss  the  results  of the  audit,  the  adequacy  of  internal
accounting controls, and the quality of financial reporting.


/s/ Samuel J. Wells
Samuel J. Wells
President

/s/ Wendell P. Crosser
Wendell P. Crosser
Treasurer

/s/ Donald J. Iverson
Donald J. Iverson
Chief Actuary












                                       33

<PAGE>

Independent Auditors' Report

The Board of Directors and Stockholders
ALLIED Life Financial Corporation

     We have audited the accompanying consolidated balance sheets of ALLIED Life
Financial  Corporation and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated  statements of income,  stockholders equity, and cash flows
for each of the years in the three-year  period ended  December 31, 1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based upon our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated  financial statements.  An audit
also includes 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,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of ALLIED Life
Financial  Corporation and subsidiaries as of December 31, 1996 and 1995 and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.

                                                     /s/ KPMG Peat Marwick LLP
                                                    KPMG Peat Marwick LLP

Des Moines, Iowa
February 7, 1997




















                                       34
<PAGE>
Consolidated Statements of Income

<TABLE>
<CAPTION>
<S>                                              <C>                 <C>                 <C>   
                                                                 Year ended December 31,


                                                     1996                 1995               1994
Revenues
Insurance revenues
   Policyholder assessments on
     universal life contracts                     $ 20,727,368        $ 20,010,535       $ 17,400,941
   Surrender charges                                 2,177,484           2,237,665          1,771,432
   Life insurance premiums                          13,004,909          12,567,592          9,986,835
   Other insurance income                            3,946,849           2,878,063          1,964,469
   Reinsurance premiums ceded                       (8,506,924)         (7,759,514)        (5,731,138)
                                                  ------------        ------------        -----------
         Total insurance revenues                   31,349,686          29,934,341         25,392,539
                                                  ------------        ------------        -----------                    
Investment income (notes 2 and 4)                   48,181,831          45,411,109         38,136,820
Realized investment gains (losses) (note 2)            122,097            (722,299)          (724,432)
Other income                                         1,056,498             687,500            647,602
                                                  ------------        ------------        -----------
                                                    80,710,112          75,310,651         63,452,529
                                                  ------------        ------------        -----------
Benefits and Expenses
Policyholder benefits
   Interest credited to policyholder
     account balances
       Annuity contracts                            24,732,494          22,613,092         17,723,065
       Universal life contracts                      9,490,024           9,529,783          9,228,876
       Other                                           463,095             323,836            262,734
   Death benefits                                   10,046,323          13,035,473         10,309,345
   Other policyholder benefits                       7,388,199           6,702,322          4,411,497
   Reinsurance recoveries                           (4,132,049)         (6,141,674)        (4,576,795)
                                                    ----------          ----------         ----------
         Total policyholder benefits                47,988,086          46,062,832         37,358,722
Amortization of deferred policy
   acquisition costs                                10,594,828           5,940,996          5,136,195
Commissions                                          3,316,200           2,725,016          2,626,471
Affiliated operating expenses (note 4)                 839,468           1,410,847          1,554,104
Other insurance operating expenses                   5,961,807           4,902,264          4,161,234
                                                    ----------          ----------         ----------
                                                    68,700,389          61,041,955         50,836,726
                                                    ----------          ----------         ----------
Income before income taxes                          12,009,723          14,268,696         12,615,803

Income Taxes (note 13)
   Current                                           5,796,944           4,673,414          3,745,677
   Deferred                                         (1,859,812)           (117,200)           313,502
                                                    ----------         -----------        -----------
                                                     3,937,132           4,556,214          4,059,179
                                                    ----------         -----------        -----------
Net Income                                          $8,072,591          $9,712,482         $8,556,624
                                                    ==========          ==========         ==========                  
Net income applicable to common stock               $6,471,502          $8,219,233         $7,226,131

Earnings per Common Share                           $     1.41          $     1.78         $     1.58

Weighted average number of
   common shares outstanding                         4,580,148           4,613,207          4,576,950

</TABLE>

           See accompanying Notes to Consolidated Financial Statements
                                       35

<PAGE>

Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S>                                                                 <C>              <C>    

                                                                            December 31,

                                                                     1996                  1995


Assets
Investments
   Fixed maturities (notes 2 and 5)
     Held to maturity, at amortized cost                             $ 199,208,835    $ 219,418,225
     Available for sale, at fair value                                 500,289,070      425,098,718
   Equity securities, at fair value (notes 2 and 5)                      6,406,552        4,332,107
Mortgage loans on
real estate                                                              1,456,688        1,829,450
Policy loans
                                                                        10,306,724        9,526,033
   Other invested assets (notes 3 and 5)                                 3,751,415            -----
   Short-term investments, at cost (notes 2, 4, and 5)                     919,687          721,612
                                                                      ------------      -----------
         Total investments                                             722,338,971      660,926,145
                                                                      ------------      -----------
Accrued investment income                                                9,738,060        8,697,634
Accounts receivable                                                        607,737          566,853
Reinsurance ceded receivables                                            5,786,434        7,626,401
Current income taxes recoverable                                             -----          869,664
Deferred policy acquisition costs                                       92,417,588       79,717,529
Other assets (notes 3 and 5)                                             4,710,933        1,543,033
                                                                     -------------      -----------
         Total assets                                                $ 835,599,723    $ 759,947,259
                                                                     =============     ============


</TABLE>



                                       36
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                  <C>               <C>  
                                                                              December 31,

                                                                         1996              1995


Liabilities

Policy liabilities
   Policyholder account balances
      Annuity contracts (note 5)                                      $467,504,991     $412,216,412
      Universal life contracts (note 5)                                182,726,695      168,654,188
      Other                                                              8,846,156        7,634,517
   Future policy benefits                                               33,473,558       28,149,304
   Policy and contract claims                                            3,735,623        4,827,540
   Other policyholder funds                                              1,575,995          867,336
                                                                       -----------      -----------
                                                                       697,863,018      622,349,297

Checks drawn in excess of bank balances                                  3,163,318        2,037,432
Current income taxes                                                       940,576            -----
Deferred income taxes (note 13)                                          8,008,946       13,452,845
Indebtedness to affiliates (note 4)                                      2,188,068          139,380
Note payable (notes 5 and 12)                                           20,470,000       16,605,000
Other liabilities                                                        3,024,175        3,681,485
                                                                       -----------      -----------
      Total liabilities                                                735,658,101      658,265,439
                                                                       -----------      -----------           


Stockholders' Equity

Preferred stock, no par value,  issuable in series, 
authorized 7,500,000 shares (note 7)
      6.75% Series, authorized 2,440,000 shares, issued and
      outstanding of 2,143,691 in 1996 and 2,004,898 in 1995            23,259,047       21,753,143
      ESOP Series, authorized 300,000 shares, issued and
      outstanding of 93,982 in 1996 and 82,029 in 1995                   1,327,186        1,117,780
Common stock, no par value, $1 stated value,
   authorized 25,000,000 shares, issued and outstanding
   of 4,497,238 in 1996 and 4,632,559 in 1995 (notes 8 and 9)            4,497,238        4,632,559
Additional paid-in capital                                              46,596,171       48,773,783
Retained earnings (note 10)                                             21,751,088       16,237,501
Unrealized appreciation of investments, net (notes 6 and 14)             2,510,892        9,167,054
                                                                        ----------      -----------
      Total stockholders' equity                                        99,941,622      101,681,820
                                                                        ----------      -----------
Contingent liabilities (notes 6 and 14)

      Total liabilities and stockholders' equity                      $835,599,723     $759,947,259
                                                                       ===========     ============ 

</TABLE>


          See accompanying Notes to Consolidated Financial Statements.



                                       37

<PAGE>

Statements of Stockholders' Equity
<TABLE>
<CAPTION>
<S>                                                 <C>               <C>               <C>  

                                                                  Year ended December 31,

                                                          1996             1995             1994


Preferred Stock at beginning of year                 $ 22,870,923     $   21,340,930    $ 19,027,514
Issuance of shares of 6.75% Series for
   stock dividends (note 7)                             1,505,904          1,408,417       1,317,212
Issuance of shares of ESOP Series, net of
   redemptions and issuance costs (note 7)                249,230            194,075       1,001,274
ESOP Series converted to common stock (note 7)            (39,824)           (72,499)         (5,070)
                                                      -----------       ------------      ----------      
     Preferred stock at end of year                    24,586,233         22,870,923      21,340,930
                                                      -----------       ------------      ----------

Common Stock at beginning of year                       4,632,559          4,585,832       4,571,840
Issuance of shares of common stock
   (notes 7, 8, and 9)                                     14,679             46,727          13,992
Repurchase of shares of common stock (note 8)            (150,000)               ---             ---
                                                      -----------        -----------      ----------
     Common stock at end of year                        4,497,238          4,632,559       4,585,832
                                                      -----------        -----------      ----------

Additional Paid-in Capital at beginning of year        48,773,783         48,159,390      48,008,927
Issuance of shares of common stock,
   net of issuance costs                                  213,638            614,393         150,463
Repurchase of shares of common stock (note 8)          (2,391,250)               ---             ---
                                                      -----------         ----------      ----------
     Additional paid-in capital at end of year         46,596,171         48,773,783      48,159,390
                                                      -----------         ----------      ----------

Retained Earnings at beginning of year                 16,237,501          8,803,508       2,172,540
Net income                                              8,072,591          9,712,482       8,556,624
Dividends paid on preferred stock (notes 7 and 10)     (1,601,089)        (1,493,250)     (1,330,492)
Dividends paid on common stock (notes 8 and 10)          (957,915)          (785,239)       (595,164)
                                                       ----------          ----------      ---------
     Retained earnings at end of year                  21,751,088         16,237,501       8,803,508
                                                       ----------         -----------      ---------

Unrealized Appreciation (Depreciation)
   of Investments at beginning of year                  9,167,054         (6,863,046)        587,527
Unrealized appreciation (depreciation), net (note 1)   (6,656,162)        16,030,100      (7,450,573)
                                                       ----------       ------------      -----------
     Unrealized appreciation (depreciation)
       of investments at end of year                    2,510,892          9,167,054      (6,863,046)
                                                      -----------       ------------     -----------           
     Total Stockholders' Equity                       $99,941,622       $101,681,820     $76,026,614
                                                      ===========       ============     ===========                               
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.

                                       38


<PAGE>

Conslidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S>                                                  <C>               <C>               <C>  
                                                         Year ended December 31,

                                                           1996            1995              1994


Cash Flows from Operating Activities
 Net income                                          $   8,072,591     $   9,712,482    $   8,556,624
 Adjustments to reconcile net
  income to net cash provided by operating activities
       Policyholder assessments on
         universal life contracts                      (20,727,368)      (20,010,535)     (17,400,941)
       Surrender charges                                (2,177,484)       (2,237,665)      (1,771,432)
       Interest credited to policyholder
         account balances                               34,685,613        32,466,711       27,214,675
       Realized investment (gains) losses                 (122,097)          722,299          724,432
       Change in
         Accrued investment income                      (1,040,426)       (1,069,843)      (1,062,223)
         Reinsurance ceded receivables                   1,839,967        (1,903,509)         914,871
         Deferred policy acquisition costs              (7,115,149)      (11,297,923)     (13,568,086)
         Liabilities for future policy benefits          5,324,254         5,227,667        3,433,760
         Policy and contract claims and other
           policyholder funds                             (383,258)          (87,242)       1,405,676
         Income taxes
           Current                                       1,810,240           508,994         (962,441)
           Deferred                                     (1,859,812)         (117,200)         313,502
         Other, net                                     (2,848,909)         (372,143)         373,241
                                                       -----------       -----------      -----------
           Net cash provided by operating activities    15,458,162        11,542,093        8,171,658
                                                       -----------       -----------      -----------
Cash Flows from Investing Activities
     Purchase of fixed maturities held to maturity     (22,173,848)      (15,581,878)    (112,405,386)
     Maturities, calls, and principal reductions of
       fixed maturities held to maturity                42,276,480        32,831,589       44,048,098
     Purchase of fixed maturities available for sale  (140,827,756)     (188,897,735)     (66,883,192)
     Proceeds from sale of fixed maturities available
       for sale                                         38,648,792        79,185,013       20,490,959
     Maturities, calls,and principal reductions
       of fixed maturities available for sale           10,846,544         6,963,714       16,132,126
     Purchase of equity securities                      (1,907,844)       (2,164,564)        (980,760)
     Proceeds from sale of equity securities                21,326           457,262            -----
     Proceeds from repayment and sale of mortgage loans    372,247           247,676        1,304,965
     Purchase of other invested assets                  (4,145,000)            -----            -----
     Change in policy loans, net                          (780,690)         (615,610)        (913,381)
                                                       -----------       ------------     ------------
           Net cash used in investing activities       (77,669,749)      (87,574,533)     (99,206,571)
                                                       -----------       ------------     ------------
Cash Flows from Financing Activities
     Change in checks drawn in excess of bank balances   1,125,887           (66,943)         126,129
     Deposits to policyholder account balances         111,878,761       116,885,950      126,419,308
     Withdrawals from policyholder account balances    (52,920,707)      (44,047,864)     (47,781,742)
     Change in note payable, net                         3,865,000           605,000       14,900,000
     Proceeds from note payable to affiliate             1,617,348             -----            -----
     Proceeds from issuance of common stock, net           188,493           588,621          159,385
     Proceeds from issuance of preferred stock, net        249,230           194,075        1,001,274
     Repurchase of common stock                         (2,541,250)            -----            -----
     Dividends paid to stockholders                     (1,053,100)         (870,072)        (608,444)
                                                       -----------       -----------      -----------
          Net cash provided by financing activities     62,409,662        73,288,767       94,215,910
                                                       -----------       -----------      -----------
Net Increase (Decrease) in Cash and
   Short-term Investments                                  198,075        (2,743,673)       3,180,997
Cash and short-term investments at beginning of year       721,612         3,465,285          284,288
                                                       -----------       -----------      -----------
Cash and short-term investments at end of year         $   919,687       $   721,612      $ 3,465,285
                                                       ===========       ===========      ===========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.
                                       39
<PAGE>



(1) Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation

     The accompanying  consolidated financial statements include the accounts of
ALLIED Life Financial  Corporation (the Company),  an insurance holding company,
and its wholly owned  subsidiaries,  that as of December  31, 1996  consisted of
ALLIED Life Insurance Company (ALLIED Life),  ALLIED Life Brokerage Agency, Inc.
(ALBA),  and ALLIED Group Merchant Banking  Corporation  (AGMB). At December 31,
1996,  ALLIED  Mutual  Insurance  Company  (ALLIED  Mutual)  owned  54%  of  the
outstanding  voting  stock of the  Company and the ALLIED  Life  Employee  Stock
Ownership  Trust  (ESOP  Trust)  owned  1%.  The  remainder  was owned by public
stockholders.

     The consolidated financial statements have been prepared in conformity with
generally accepted accounting  principles (GAAP),  which differ in some respects
from  those  followed  in  reports  to  insurance  regulatory  authorities.  All
significant  intercompany  balances and transactions  have been eliminated.  The
preparation of financial  statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.


Nature of Operations


     The Company's  operations consist primarily of those of ALLIED Life. ALLIED
Life  underwrites,  markets,  and  distributes a portfolio of life insurance and
annuity  products to individuals  who live primarily in rural and suburban areas
of the midwestern and western  United  States.  ALLIED Life's  products are sold
through  two  distribution   systems:  the  independent  agencies   representing
affiliated   property-casualty  insurance  companies  (ALLIED  Agencies)  and  a
traditional  life  insurance   distribution   system  that  includes   financial
institutions and a number of independent life insurance marketing organizations.
In 1996 the ALLIED Agencies generated 75% of life insurance face amount sold and
43% of annuity premiums collected.

Investments

     Investments  in fixed  maturities  the Company has the positive  intent and
ability to hold to maturity  are  classified  as held to maturity and carried at
cost adjusted for amortization of premium or discount.  Except for declines that
are  other  than  temporary,  changes  in fair  value are not  reflected  in the
consolidated  financial statements.  Investments in fixed maturities that may be
sold prior to maturity and are not bought and held  principally  for the purpose
of selling in the near term are segregated  into an available for sale portfolio
and are carried at fair  value.  Unrealized  appreciation  and  depreciation  of
available  for sale  securities  are  excluded  from  income and  reported  as a
separate  component of  stock-holders'  equity net of a valuation  allowance for
related deferred policy acquisition costs and deferred income taxes.

                                       40
<PAGE>

     In November 1995, the Financial  Accounting Standards Board (FASB) issued a
Special  Report  entitled  "A  Guide  to  Implementation  of  Statement  115  on
Accounting for Certain  Investments in Debt and Equity  Securities." The Special
Report allowed companies to reassess the  appropriateness  of the classification
of all securities and make any resulting  transfers  concurrent with the initial
adoption  of the  implementation  guide but no later  than  December  31,  1995.
Effective November 30, 1995, the Company made such reassessment and reclassified
$215,157,247  of held to maturity  securities  to  available  for sale.  The net
effect of such reclassification increased stockholders' equity by $4,446,692.

     Equity   securities  are  carried  at  fair  value  with  their  unrealized
appreciation or depreciation reported as a net amount in a separate component of
stockholders'  equity.  Mortgage  loans on real  estate  and  policy  loans  are
recorded at the unpaid principal balance of such loans,  which approximated fair
value as of December  31, 1996 and 1995.  A majority of the  Company's  mortgage
loans are on residential real estate located in Iowa. All short-term investments
are recorded at cost which approximates fair value.

     Cash settle put swaptions  (swaptions),  interest rate floors (floors), and
call options the Company  uses for hedging  purposes are carried at cost that is
amortized over the term of the instruments on a straight-line  basis (see note 3
for a discussion  of hedging  activities).  Swaptions and floors are included in
other  invested  assets;   call  options  are  included  in  other  assets.  The
amortization  of  the  swaptions  and  floors  is  included  as a  reduction  of
investment income; the amortization of the call options is included with annuity
interest credited.  Gains and losses on these instruments and related assets and
liabilities  will not be recorded  as income  until  realized.  The FASB and the
Securities and Exchange  Commission are evaluating the accounting and disclosure
requirements for these instruments,  and, as a result, this accounting treatment
may change in the future. The Company is actively  monitoring the proposals that
are in various stages of discussion.  The impact of the final  standards can not
be clearly projected at this time.

     The carrying  values of all the  Company's  investments  are reviewed on an
ongoing basis for credit  deterioration;  if this review  indicates a decline in
fair value below cost that is other than temporary, the Company's carrying value
in the  investment is reduced to its estimated  realizable  value and a specific
write-down  is taken.  Such  reductions  in  carrying  value are  recognized  as
realized losses and charged to income.  Realized gains and losses on investments
sold are recognized on a specific identification basis.

Deferred Policy Acquisition Costs


     The costs of acquiring  new  business  (principally  commissions),  certain
costs of issuing policies (such as medical examinations and inspection reports),
and certain  other  selling  expenses,  all of which vary with and are primarily
related to the production of new business,  have been deferred.  These costs for
universal  life and annuity  contracts  are amortized in relation to the present
value  of  expected  gross  profits  using  the  assumed  crediting  rate.  This
amortization is adjusted  retrospectively when the Company revises its estimates
of current or future  gross  profits to be  realized  from a group of  policies.
These  costs  for  term  life   insurance   policies  are  amortized   over  the
premium-paying  periods in proportion to the ratio of annual premium revenues to
total anticipated  premium revenues.  Anticipated premium revenues are estimated
using the same assumptions employed for computing  liabilities for future policy
benefits.

                                       41
<PAGE>

     Deferred  policy  acquisition  costs  are  reviewed  at least  annually  to
determine that the unamortized portion of such costs does not exceed recoverable
amounts after  anticipated  investment  income is taken into  account.  Expected
gross profits used in determining the recoverability and amortization pattern of
deferred  policy  acquisition  costs are based on  historical  gross profits and
management's  estimates and assumptions  regarding  future  investment  spreads,
maintenance expenses, and persistency of blocks of business. The accuracy of the
estimates and assumptions  are affected by several  factors,  including  factors
outside the  control of  management  such as  movements  in  interest  rates and
competition from other investment  alternatives.  It is reasonably possible that
conditions  affecting the estimates  and  assumptions  will change and that such
changes will result in future adjustments to deferred policy acquisition costs.

   Costs deferred amounted to $17,709,977,  $17,239,118, and $18,704,281 for the
years ended December 31, 1996,  1995, and 1994,  respectively.  Amortization  of
deferred policy  acquisition costs, net of interest  accretion,  included in the
consolidated statements of income were $10,594,828,  $5,940,996,  and $5,136,195
for the years ended December 31, 1996, 1995, and 1994, respectively. In 1996 the
amortization  included an  additional  charge of  approximately  $2,800,000  the
Company took in response to its annual deferred policy  acquisition costs study.
The study suggested  refinements in certain  assumptions used to estimate future
gross profits to be realized from blocks of annuity  business.  The Company will
continue to  re-evaluate  all  applicable  assumptions  but does not  anticipate
making any further material  adjustments in the foreseeable  future. At December
31,  1996  unamortized  deferred  policy  acquisition  costs were  decreased  by
approximately  $3,993,000  (decreased  by  $9,578,000  in 1995 and  increased by
$1,315,000  in 1994) to  recognize  the  impact of  unrealized  appreciation  or
depreciation of investments on such deferred  costs.  The decreases and increase
net of  deferred  income  taxes were  charged  and  credited,  respectively,  to
stockholders' equity.


Policy Liabilities


   Policyholder  account  balances  for  universal  life and  annuity  contracts
consist  of the  deposits  received  plus  accumulated  credited  interest  less
withdrawals  and accumulated  policy-holder  assessments.  Interest  credited to
policyholder  account balances for universal life contracts averaged 5.4%, 5.9%,
and  6.2%  in  1996,  1995,  and  1994,   respectively.   Interest  credited  to
policyholder  account  balances for annuity  contracts  averaged 5.6%, 5.9%, and
5.8% in 1996,  1995, and 1994,  respectively.  Rates used to credit  interest to
policyholder  account  balances  are  subject to  periodic  adjustment.  Certain
universal  life and  annuity  contracts  offer  persistency  bonuses,  which are
accrued  in the  accompanying  financial  statements  based  on  assumptions  of
investment  yields,  withdrawals,  mortality,  and other factors.  For term life
insurance  policies,   liabilities  for  future  policy  benefits  are  provided
according to the net level premium method based on estimated  investment yields,
withdrawals,  mortality, and other assumptions that were appropriate at the time
the policies were issued.

Recognition of Revenues, Benefits, and Expenses

   Revenues from universal life contracts include policy fees for administration
expenses, mortality charges, and surrender charges assessed against policyholder
account balances during the period; revenues from annuity contracts include only
surrender  charges.  Benefits and expenses  relating to these contracts  include
interest credited as well as benefits incurred in excess of policyholder

                                       42
<PAGE>

account  balances during the period.  Premiums and  considerations  received and
surrender  benefits  paid on these  contracts  are  reported  as deposits to and
withdrawals from policyholder account balances.

   Term life insurance  premium revenues are recognized over the  premium-paying
period.   Benefits  and  expenses,   taking  into  account  the  provisions  for
liabilities for future policy  benefits and the  amortization of deferred policy
acquisition  costs,  are  associated  with  earned  premiums  that result in the
recognition of profits over the life of the policy contracts.

   The Company has no participating business.


Ceded Reinsurance


   The Company reports  reinsurance  activity on a gross basis.  Amounts paid or
deemed to have been paid that are recoverable  under  reinsurance  contracts are
recorded as reinsurance ceded  receivables.  The cost of reinsurance  related to
long-duration  contracts  is  accounted  for  over  the  life of the  underlying
reinsured  policies using assumptions  consistent with those used to account for
the underlying policies.

Stock-based Compensation


     Prior to January 1, 1996, the Company  accounted for its stock option plans
in accordance with the provisions of Accounting  Principles  Board (APB) Opinion
25,  "Accounting  for Stock Issued to Employees,"  and related  interpretations.
Under these provisions,  compensation  expense was recorded on the date of grant
only if the current market price of the  underlying  stock exceeded the exercise
price.  On  January 1, 1996,  the  Company  adopted  SFAS 123,  "Accounting  for
Stock-Based  Compensation,"  which permits entities to recognize as expense over
the  vesting  period  the fair  value of all  stock-based  awards on the date of
grant.  Alternatively,  SFAS  123  allows  entities  to  continue  applying  the
provisions  of APB  Opinion 25 and to provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the  fair-value  method defined in SFAS 123 had been applied.
The Company has elected to continue  applying the  provisions  of APB Opinion 25
and to comply with the pro forma disclosure provisions of SFAS 123.

Postretirement Benefits Other Than Pensions

     The  Company  participates  in a medical  plan (the Plan)  sponsored  by an
affiliate,  ALLIED Group, Inc., which presently provides  postretirement medical
benefits.  The Plan is subject to termination or  modification  by ALLIED Group,
Inc. The Plan is contributory, with retiree contributions adjusted annually, and
contains other cost-sharing features such as deductibles and coinsurance. ALLIED
Group,  Inc.  collects a fee from the Company that  represents  its share of the
Plan's  current  net  periodic  postretirement  benefit  cost.  The  accumulated
postretirement  benefit  obligation and plan assets for the Company are combined
with those of the ALLIED Group, Inc. plan covering other  affiliates'  employees
and are not readily determinable on a separate basis.

                                       43
<PAGE>

Taxes

     The Company  computes  deferred  income taxes under the asset and liability
method,  which requires  deferred tax  liabilities and assets at the end of each
reporting  period be determined using the tax rate expected to be in effect when
taxes are actually paid or recovered. Accordingly, income tax expense provisions
increase  or  decrease  in the same  period  in which a change  in tax  rates is
enacted.  Deferred  income  taxes  reflect the impact of  temporary  differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities for tax reporting.

Earnings per Common Share


   Earnings per common  share  calculations  are based on the  weighted  average
number of shares of common  stock  outstanding  for the  period.  Net  income is
reduced by dividends on preferred  stock. The dilutive effect of the ESOP Series
convertible preferred stock and stock options is not significant.

Cash Flows


     For  purposes of  reporting  cash flows,  all  short-term  investments  are
considered  equivalent  to cash since  they have  original  maturities  of three
months or less.




                                       44
<PAGE>

(2) Investments
     The following is a schedule of amortized  cost and estimated  fair value of
investments in fixed  maturities  and equity  securities as of December 31, 1996
and 1995. The estimated fair value for fixed maturities and equity securities is
based on  quoted  market  prices  where  available  or on values  obtained  from
independent pricing services.
<TABLE>
<CAPTION>
<S>                                       <C>              <C>           <C>            <C>    

                                                               Gross           Gross        Estimated
                                             Amortized      unrealized      unrealized        fair
                                               cost            gains          losses          value


      1996

Fixed Maturities

   Held to Maturity

   U.S. Treasury securities and
     obligations of U.S. government
     corporations and agencies             $  1,006,653       $  26,330     $ (63,503)   $      969,480
   Foreign governments                        4,481,577         230,253         -----         4,711,830
   Corporate securities and
     public utilities                       128,885,574       5,219,159      (501,811)      133,602,922
   Mortgage-backed securities                64,835,031       1,655,018      (426,458)       66,063,591
                                           ------------      ----------     ----------      -----------
                                           $199,208,835      $7,130,760     $(991,772)     $205,347,823
                                           ============      ==========     ==========     ============       



   Available for Sale

   U.S. Treasury securities and
     obligations of U.S. government
     corporations and agencies             $ 34,377,785    $      -----  $   (442,951)   $   33,934,834
   Foreign governments                        6,188,564         225,864        (7,509)        6,406,919
   Corporate securities and
     public utilities                       306,416,491       8,597,903    (4,030,697)      310,983,697
   Mortgage-backed securities               145,703,301       3,706,440      (446,121)      148,963,620
                                           ------------     -----------    -----------     ------------
                                           $492,686,141     $12,530,207   $(4,927,278)     $500,289,070
                                           ============     ===========    ===========     ============

Equity Securities                          $  6,153,300     $   253,252   $     -----     $   6,406,552
                                           ============     ===========   ============    =============  


</TABLE>


                                       45


<PAGE>

<TABLE>
<CAPTION>
<S>                                       <C>              <C>           <C>            <C>
                                                               Gross           Gross        Estimated
                                             Amortized      unrealized   unrealized      fair
                                               cost            gains          losses          value


      1995

Fixed Maturities

   Held to Maturity

   U.S. Treasury securities and
     obligations of U.S. government
     corporations and agencies             $  1,128,830     $    52,613     $ (22,193)     $  1,159,250
   Foreign governments                        6,474,602         379,143         -----         6,853,745
   Corporate securities and
     public utilities                       138,656,373       9,391,428       (59,301)      147,988,500
   Mortgage-backed securities                73,158,420       3,175,223       (82,915)       76,250,728
                                           ------------     -----------     ----------     ------------   
                                           $219,418,225     $12,998,407     $(164,409)     $232,252,223
                                           ============     ===========     ==========     ============
   Available for Sale

   U.S. Treasury securities and
     obligations of U.S. government
     corporations and agencies             $  8,029,221     $   162,329     $   -----       $ 8,191,550
   Foreign governments                        6,194,335         464,977         -----         6,659,312
   Corporate securities and
     public utilities                       230,707,307      16,366,887      (702,469)      246,371,725
   Mortgage-backed securities               156,562,104       7,376,522       (62,495)      163,876,131
                                           ------------     -----------     ----------     ------------
                                           $401,492,967     $24,370,715     $(764,964)     $425,098,718
                                           ============     ===========     ==========     ============

Equity Securities                         $   4,256,516    $    111,923     $ (35,702)     $  4,332,107
                                          =============    ============     ==========     ============


</TABLE>




















                                       46

<PAGE>

     The table below  presents the amortized  cost and  estimated  fair value of
investments in fixed  maturities at December 31, 1996 by  contractual  maturity.
Expected maturities at December 31, 1996 can differ from contractual  maturities
because  borrowers  may have the  right to call or  prepay  obligations  with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
<S>                                                           <C>                   <C>               

                                                                  Amortized           Estimated
                                                                    Cost             fair value


Held to Maturity
Due in 1 year or less                                         $ 10,998,032          $ 11,125,300
Due after 1 year through 5 years                                50,517,613            52,315,824
Due after 5 years through 10 years                              50,563,883            53,111,323
Due after 10 years                                              22,294,276            22,731,785
Mortgage-backed securities                                      64,835,031            66,063,591
                                                               -----------           -----------  
Total held to maturity                                         199,208,835           205,347,823
                                                               -----------           -----------
Available for Sale
Due in one year or less                                          1,999,821             2,006,380
Due in one through five years                                   55,604,921            56,664,943
Due in five through ten years                                  227,931,384           231,967,522
Due after ten years                                             61,446,714            60,686,605
Mortgage-backed securities                                     145,703,301           148,963,620
                                                               -----------           -----------
Total available for sale                                       492,686,141           500,289,070
                                                               -----------           -----------
Total fixed maturities                                        $691,894,976          $705,636,893
                                                               ===========           ===========  
</TABLE>

     As of  December  31,  1996 and 1995,  there were no  investments  that were
non-income producing for the previous twelve months.

   For the years ended December 31, 1996,  1995, and 1994, the Company  realized
gross gains of $561,244,  $2,076,132, and $442,911 and gross losses of $454,355,
$2,822,054,  and $372,087,  respectively,  from the call, prepayment, or sale of
investments from the available for sale portfolio. Those same years, the Company
also realized gross gains of $3,199, $24,142, and $488,910,  respectively,  from
the call or prepayment of investments from the held to maturity  portfolio.  The
Company realized no gross losses from the call or prepayment of investments from
that  portfolio in 1996 and gross losses of $450 and $34,345,  respectively,  in
1995 and 1994. There were no sales from the held to maturity  portfolio in 1996,
1995,  and 1994.  During  1994,  the  Company  was  notified  that a bond in its
available for sale portfolio was rerated below investment grade. Though the bond
was not in  default,  the  Company  chose  to write  down the bond to  estimated
realizable  value and take the  $1,250,000  loss through net income  because the
chance of recovery of the principal seemed unlikely. This bond was sold in 1995.









                                       47
<PAGE>

     A summary of net  realized  investment  gains  (losses)  and net changes in
unrealized (depreciation) appreciation of investments is as follows:
<TABLE>
                                                           
                                                          Year ended December 31,

<CAPTION>
<S>                                            <C>               <C>                <C> 


                                                    1996               1995                1994


Net realized investment gains (losses)
   Fixed maturities
      Held to maturity                           $      3,199        $    23,692        $   454,565
      Available for sale                             (216,616)          (745,922)        (1,179,176)
   Equity securities                                  333,771               (269)               ---
   Mortgage loans                                         226                200                179
   Other                                                1,517                ---                ---
                                                     --------           --------          ---------
                                                      122,097           (722,299)          (724,432)
                                                     --------           --------          ---------
Net changes in unrealized (depreciation)
  appreciation of investments
   Fixed maturities
      Held to maturity                             (6,695,010)        29,973,670        (39,951,325)
      Available for sale                          (16,002,822)        31,429,901         (8,922,858)
   Equity securities                                  177,661            (30,863)               277
                                                  -----------         ----------        -----------
                                                  (22,520,171)        61,372,708        (48,873,906)
                                                  -----------         ----------        -----------
Net realized investment gains
   (losses) and changes in unrealized
   (depreciation) appreciation
   of investments                                $(22,398,074)       $60,650,409        $49,598,338
                                                 ============        ===========        =========== 
</TABLE>

A summary of net investment income follows:

<TABLE>
<CAPTION>
<S>                                             <C>             <C>                   <C>      
                                                             Year ended December 31,


                                                    1996               1995                1994


Interest on fixed maturities                      $48,899,316        $45,535,493        $37,813,564
Interest on mortgage loans                            159,980             87,683            365,477
Interest on policy loans                              713,246            632,464            600,216
Dividends on equity securities                        273,565            346,720            217,499
Interest on short-term investments                     84,196             60,302             30,896
Other, net                                             16,900             30,013             60,188
                                                   ----------         ----------         ----------
     Total investment income                       50,147,203         46,692,675         39,087,840
                                                   ----------         ----------         ----------
Investment expenses                                   872,000            574,000            442,000
Interest expense                                      699,786            707,566            509,020
Amortization expense, hedges                          393,586                ---                ---
                                                  -----------        -----------        -----------
   Net investment income                          $48,181,831        $45,411,109        $38,136,820
                                                  ===========        ===========        ===========     
</TABLE>

                                       48


<PAGE>


   As required by law,  fixed  maturities  and  short-term  investments  were on
  deposit  with or on behalf of  various  insurance  regulatory  authorities  at
  December  31,  1996  and  1995,  with  carrying  values  of  $681,101,979  and
  $623,600,240,  respectively.  As of December  31, 1996 and 1995,  bonds with a
  carrying value of $30,284,338 and $32,871,190,  respectively,  were pledged as
  collateral for the Company's line of credit with the Federal Home Loan Bank.

   Investments  in any one entity or its  affiliates  (other than U.S.  Treasury
  securities  and  obligations  of U.S.  government  corporations  and agencies)
  exceeding  10%  of  the  Company's  consolidated  stockholders'  equity  as of
  December  31, 1996  consisted  of fixed  maturity  securities  issued by Hydro
  Quebec at a carrying value of $11,189,000.

  (3) Hedging Activities
    In June 1996,  the Company  began  interest  rate hedging  programs  whereby
  certain derivative financial  instruments  including swaptions and floors were
  purchased. The Company also began to purchase S&P 500 call options as a result
  of an equity indexed  annuity product it introduced at the start of the second
  quarter.

    Swaptions are being purchased to reduce the negative effect on the Company's
  fixed maturity  investments  and annuity  liabilities of increased  withdrawal
  activity  resulting from extreme rises in interest  rates.  As of December 31,
  1996, the Company was party to 44 agreements  that expire  quarterly from June
  1999  through  March  2006.  The  agreements  entitle  the  Company to receive
  payments from the  instrument's  counter  parties on future reset dates if the
  interest  rate (which is tied  directly to the 5-year  constant  maturity swap
  curve) on any expiration  date is above a specified  fixed rate (8.8% to 10.5%
  for  instruments  entered  into as of December 31,  1996).  As of December 31,
  1996, the notional  amounts range from $3 million to $9 million (total of $244
  million) and have an amortized cost of $2.6 million.

    Floors are being  purchased  to reduce the  negative  effect that may result
  from  extreme  decreases  in interest  rates to a level  below the  guaranteed
  interest  rates  provided  for  in  the  Company's  universal  life  insurance
  contracts.  The 28 agreements for the floors  outstanding,  as of December 31,
  1996,  expire  quarterly  from June 1999 through  March 2006.  The  agreements
  entitle the Company to receive payments from the instrument's  counter parties
  on future  reset dates if the  interest  rate  (which is tied  directly to the
  10-year  constant  maturity  treasury curve) on the expiration date is below a
  specified  fixed rate (5.0% for  instruments  entered  into as of December 31,
  1996).  As of December 31, 1996,  the notional  amounts for each quarter range
  from $140 million to $270 million and have an amortized cost of $1.1 million.

    The costs of the interest  rate hedging  programs are not expected to have a
  material  impact on the interest rate margin.  For both  swaptions and floors,
  the  Company  pays only the  original  premium  and is not at risk of  further
  payments regardless of market conditions.

    The Company has introduced an equity-indexed annuity product that guarantees
  the return of  principal  to the  customer  and  credits  interest  based on a
  percentage of the gain in the S&P 500 Index(R).  A portion of the premium from
  each customer is invested in investment grade fixed income securities to cover
  the  minimum  guaranteed  value due the  customer  at the end of the  term.  A
  portion of the premium is used to purchase S&P 500 call options (call options)
  to hedge the growth in interest credited to the customer as a direct result of
  increases in the S&P 500 Index(R). 

                                       49
<PAGE>

    The call options  provide the Company the  opportunity to participate in the
  increases of the S&P 500 Index(R) if the market  advances.  As of December 31,
  1996, the Company had purchased 40 call options with notional  amounts ranging
  from $65,000 to $900,000  (total of $11.2  million) and have an amortized cost
  of $2.2 million.

    The Company is exposed to the risk of losses in the event of  nonperformance
  of the  counter  parties of the above  swaptions,  floors,  and call  options.
  Losses  recorded  in  the  Company's  financial  statements  in the  event  of
  nonperformance  will be limited to the unamortized  premium paid to enter into
  the  instruments.  Any economic  loss will be measured by the net  replacement
  cost of such  instruments  or by their  fair value if net fair value is in the
  Company's  favor.  The  Company  limits  its  exposure  to  economic  loss  by
  diversifying purchases among reputable counter parties with appropriate credit
  ratings.

(4) Affiliation and Transactions with Affiliates

    The Company and its subsidiaries  are parties to the Intercompany  Operating
Agreement (the Agreement) with ALLIED Group,  Inc.,  ALLIED Mutual,  and each of
their respective subsidiaries.  ALLIED Mutual controls 18.3% of the voting stock
of ALLIED Group, Inc. The Agreement  provides for the continued  availability of
office  space,  marketing  services,  agency  forces,  and  computer  and  other
facilities  generally in the manner they had been  provided to affiliates in the
past. The Agreement  extends  through  December 31, 2004,  after which it may be
terminated  on two years'  notice  given after  December  31, 2002 by any party.
Expenses  are charged to the Company  based on  specific  identification  or, if
undeterminable, the expenses are allocated on the basis of cost and time studies
that are updated annually. Rental expense incurred for office space allocated to
the Company by ALLIED Mutual amounted to approximately  $253,000,  $234,000, and
$189,000 for the years ended December 31, 1996,  1995,  and 1994,  respectively.
ALLIED Life receives  certain  services from the Human  Resources  Department of
ALLIED Group, Inc. that include, but are not limited to, maintaining  employment
documents, administering payroll and employee benefits, keeping related records,
placing employees, and providing termination counseling and processing. For such
services,  ALLIED Life pays a fee to ALLIED Group, Inc. based on a percentage of
the  Company's  gross  payroll.  Also  included  in this fee is an  amount  that
represents  the  Company's  share of the  current  net  periodic  postretirement
benefit cost for the ALLIED  Group,  Inc.  medical plan.  Amounts  incurred were
approximately $156,000,  $132,000, and $130,000 for the years ended December 31,
1996, 1995, and 1994 respectively.

   The Company,  ALLIED Life, and other affiliated  companies are parties to the
Management  Information  Services  Agreement (the Services  Agreement) with AMCO
Insurance  Company (AMCO), a subsidiary of ALLIED Group, Inc. Under the terms of
the Services  Agreement,  AMCO provides  certain  computer  services,  printing,
equipment leasing,  and mail and communication  services to ALLIED Life on a fee
basis.  The annual fee is subject to  renegotiation  throughout  the term of the
Services Agreement.  The Services Agreement  terminates on December 31, 2004 and
has an extension  provision similar to the Intercompany  Operating  Agreement's.
Effective  March 1,  1996,  the  Services  Agreement  was  amended  and  certain
personnel previously providing  computer-related services to the Company and its
subsidiaries  were employed by ALLIED Life. As a result,  fees paid for services
provided by such employees  prior to the amendment date are now paid directly by
ALLIED Life.  Expenses incurred under the Services  Agreement were approximately
$863,000,  $1,400,000,  and  $1,575,000  for the years ended  December 31, 1996,
1995, and 1994, respectively.

                                       50
<PAGE>

 ALLIED Life, ALLIED Mutual,  and the  property-casualty  subsidiaries of ALLIED
Group, Inc. are parties to the ALLIED Group Joint Marketing Agreement (JMA). The
JMA requires  ALLIED Mutual and the  property-casualty  affiliates to promote to
their  customers  and agents the sale of the  products of ALLIED  Life.  The JMA
provides for payment by ALLIED Life of an annual  access fee of $100,000 plus an
annual  new-production  incentive  fee. The JMA also  provides for joint systems
development, including joint databases of customers and agents, multiple-account
billing  systems,  marketing  plans  and  promotions,  and other  systems  to be
developed.  Development costs are to be allocated on a mutually  agreeable basis
reflecting projected and actual utilization of the systems. The JMA continues to
the year 2008 and  continues  thereafter  subject to  termination  on two years'
notice given by any party.  The JMA contains  noncompete  provisions  applicable
during  its term and for a period of ten  years  thereafter.  Fees and  expenses
incurred under this  agreement for the years ended December 31, 1996,  1995, and
1994 were approximately $165,000, $121,000, and $222,000, respectively.

   ALLIED Life received  premium  income from ALLIED  Group,  Inc. for term life
insurance  on its  employee  group in the  amounts  of  approximately  $452,000,
$418,000,  and $430,000 for the years ended  December 31, 1996,  1995, and 1994,
respectively.

   The Company  invests excess cash in a short-term  investment  fund with other
affiliated companies.  AID Finance Services,  Inc., a wholly owned subsidiary of
ALLIED Mutual,  is the  administrator  of the fund. The fund was  established to
concentrate  short-term  cash in a single account to maximize yield. At December
31, 1996 and 1995, the Company had $794,687 and $596,729, respectively, invested
in the fund, which is carried as a short-term  investment.  Interest earned from
the fund  during  1996,  1995,  and 1994 was  $74,058,  $77,356,  and  $109,991,
respectively.

   The Company and its  subsidiaries  have from time to time borrowed funds from
affiliates as needed on an arms length basis.  During 1996, the Company  entered
into a note payable  agreement  with ALLIED  Mutual.  At December 31, 1996,  the
outstanding  balance  of the  note  payable  was  approximately  $1,617,000.  At
December 31, 1995, there were no borrowings  outstanding  with  affiliates.  The
Company incurred interest expense to affiliates of $61,165,  $51,181, and $7,123
in 1996, 1995, and 1994, respectively.

   Management believes the costs incurred by its affiliates and allocated to the
Company would not be materially different than if they had been incurred from an
unrelated third party. The transactions  discussed herein result in intercompany
balances  that are created  during the normal course of business and are settled
on a monthly basis unless otherwise indicated.







                                       51
<PAGE>

(5) Fair Value of Financial Instruments
   The following  table  presents the carrying value and estimated fair value of
the Company's significant financial instruments at December 31, 1996, and 1995:
<TABLE>
<CAPTION>
<S>                        <C>              <C>                <C>                <C>                       

                                       1996                                    1995


                                                Estimated                             Estimated
                           Carrying               fair             Carrying             fair
                             value                value              value              value


Fixed maturity
  investments            $  699,497,905    $    705,636,894    $   644,516,943     $   657,350,941

Equity securities             6,406,552           6,406,552          4,332,107           4,332,107

Cash settle put
  swaptions                   2,614,517           2,201,581              -----               -----

Interest rate floors          1,136,898           2,074,862              -----               -----

Short-term
  investments                   919,687             919,687            721,612             721,612

Call options                  2,174,751           2,813,866              -----               -----

Annuity contracts          (467,504,991)       (437,622,723)      (412,216,412)       (384,564,137)

Universal life
  contracts                (182,726,695)       (132,976,695)      (168,654,188)       (124,035,194)

Note payable                (20,470,000)        (20,470,000)       (16,605,000)        (16,605,000)
</TABLE>

   The fair values of certain fixed  maturity  investments,  equity  securities,
cash settle put swaptions,  interest rate floors,  and call options are based on
quoted market prices for those or similar investments.  For unquoted securities,
the reported  value is  estimated  by the Company on the basis of financial  and
other  information.  Fair values of  short-term  investments  approximate  their
carrying  values  due to their  short  maturity.  Fair  values of the  Company's
liabilities  for annuity and universal life  policyholder  account  balances are
estimated using the cash surrender  value of the contracts.  Due to the variable
interest rate and short-term  nature of the note payable,  the carrying value of
the note payable  approximates fair value. The fair value approximates  carrying
value for other financial instruments primarily due to their short-term nature.

(6) Reinsurance
   In the normal course of business,  the Company seeks to limit its exposure to
loss on any single  insured and to recover a portion of benefits  paid by ceding
reinsurance to other insurance  enterprises or reinsurers  under excess coverage
and  coinsurance  contracts.  In  1996,  the  Company  followed  the  policy  of
reinsuring that portion of the risk in excess of $150,000 on each life ($250,000
for  insureds  aged 59 and under).  The  Company's  long-term  care and medicare
supplement insurance coverage is 100% ceded.
   Reinsurance  contracts  do not  relieve  the  Company of its  obligations  to
policyholders.  The Company is  contingently  liable for these amounts and would
become actually  liable in the event 

                                       52
<PAGE>

such  reinsurers were unable to pay their portion of the claims. The Company 
evaluates the financial condition of its reinsurers and  monitors concentrations
of credit risk  arising  from similar geographic regions, activities, or 
economic characteristics of the reinsurers to minimize its exposure to 
significant losses from reinsurer insolvencies.

   Assumed  premiums  and related  benefits  are not  material to the  Company's
consolidated financial position and results of operations.

(7) Preferred Stock
   The  Company is  authorized  to issue  7,500,000  shares of  preferred  stock
without par value.  The  preferred  stock may be issued from time to time by the
Board of Directors in one or more series with such dividend  rights,  conversion
rights, voting rights, redemption provisions, liquidation preferences, and other
rights and restrictions as the Board of Directors may determine.

6.75% Series

   The 6.75% Series  Preferred  Stock (6.75%  Series) issued to ALLIED Mutual is
perpetual, nonconvertible, voting, and cumulative with respect to dividends. The
annual dividend rate is 6.75% of the  liquidation  preference of $10.85 ($0.7324
per share) and is payable  quarterly.  The Company,  at its option,  may pay the
dividend in additional shares of 6.75% Series for any quarter ending on or prior
to September  30, 1998.  The 6.75%  Series has no  preemptive  rights and is not
registered  or traded.  Upon any  transfer by ALLIED  Mutual,  the 6.75%  Series
becomes nonvoting and is callable under certain conditions.

   The Company paid dividends to ALLIED Mutual on its  outstanding  6.75% Series
through the issuance of 138,793,  129,808,  and 121,402  shares of such stock in
1996, 1995, and 1994, respectively.

ESOP Series

   On October 27, 1994, in conjunction  with the  establishment of the ESOP, the
Company sold 74,137 shares of Series A ESOP  Convertible  Preferred  Stock (ESOP
Series) to the ESOP Trust for $15 per  share.  In 1996 and 1995,  the ESOP Trust
purchased  14,787 and 14,650 shares of ESOP Series for $18.13 and $15 per share,
respectively.  At December 31, 1996, a commercial bank,  acting on behalf of the
ESOP  participants  as the trustee for the ESOP, was the holder of 93,982 shares
of the ESOP Series.  The ESOP Trust  purchased an  additional  19,143  shares on
January 2, 1997 for $17.50 per share funded by a $238,000 employer  contribution
from ALLIED Life and ESOP Series dividends.

   As holder of the outstanding ESOP Series,  the ESOP Trust is entitled to vote
the ESOP Series on all matters  submitted to a vote of the holders of the common
stock of the Company, voting together with the holders of common stock and 6.75%
Series as one class.  The ESOP generally  provides that each ESOP participant is
entitled to direct the  trustee  how to vote (or whether to tender or  exchange)
the shares of the ESOP Series allocated to the participant's account. Each share
of the ESOP  Series is  convertible  into one share of common  stock and has one
vote, subject to antidilution  adjustments.  During 1996, 1995, and 1994, 2,834,
5,263, and 338 shares of the ESOP Series were converted to common stock.

                                       53
<PAGE>

   The ESOP  Series  ranks  senior  to the  common  stock as to the  payment  of
dividends and has a cumulative annual dividend of $1.00 per share,  payable each
June 30 and  December  31. In the event of a  liquidation  of the  Company,  the
trustee as holder of the outstanding  ESOP Series is entitled to receive $15 per
share plus accrued  dividends prior to any distribution to the holders of common
stock.

   The ESOP  Series can be redeemed  at the option of the  Company,  in whole or
part,  at any time  after  three  years  from the date the shares are issued or,
under certain circumstances, in the third year or before. For redemptions in the
year 2004 and beyond,  the  redemption  price is $15 per share plus  accrued and
unpaid  dividends,  and in years prior to 2004, there is a premium above the $15
per share price as set forth in the  Certificate  of  Designations  for the ESOP
Series. The Company,  at its option, may make payment of the redemption price in
cash, in shares of common stock,  or a  combination  thereof.  Upon receipt of a
redemption  notice  from the  Company,  the  trustee,  acting  in its  fiduciary
capacity,  may  elect to  convert  the ESOP  Series  to  common  stock  prior to
redemption.  If necessary to provide for  distributions  to  participants or for
other special  circumstances,  the trustee may request the Company redeem shares
at $15 per share.  In accordance  with the foregoing,  the Company  redeemed 438
shares of the ESOP Series at $15 per share in 1995.

   The ESOP Series has no  preemptive  rights and is not  registered  or traded.
Upon any transfer by the  trustee,  the ESOP Series is  automatically  converted
into shares of the Company's common stock.


(8) Common Stock
   The Company and ALLIED  Mutual have  entered  into a Stock  Rights  Agreement
(Agreement)  which  expires  in 2008.  Under  the  Agreement,  ALLIED  Mutual is
entitled  to nominate  and the  Company is  required to use its best  efforts to
cause the election or retention of a number of members of the Company's Board of
Directors in proportion  to ALLIED  Mutual's  percentage  ownership of the total
number  of shares  of the  Company's  voting  stock  outstanding  at the time of
nomination.  In  addition,  the Company is  required  to elect to its  Executive
Committee at least one Company director who has been nominated by ALLIED Mutual.
The  Agreement  restricts the ability of ALLIED Mutual to grant proxies to other
than affiliated  individuals  and to solicit other  shareholders of the Company.
ALLIED Mutual also is prohibited from initiating or accepting a tender offer for
shares of the common stock except under  certain  conditions.  The Company has a
right of first  refusal with respect to any sale by ALLIED  Mutual of the common
stock, subject to certain exceptions.  ALLIED Mutual has incidental registration
rights and  three-demand  registration  rights with  respect to all stock of the
Company owned by ALLIED Mutual.
   The Company has reserved  350,000  shares of common stock for issuance  under
the ALLIED Life Financial  Corporation  Employee Stock Purchase Plan (ESPP). The
Company  receives  85% of the fair market  value of the shares  issued under the
ESPP.  During 1996,  1,934  shares were issued at prices  ranging from $13.18 to
$17.37. During 1995 and 1994, 6,963 and 9,239 shares, respectively,  were issued
at prices  ranging from $12.33 to $19.13 for 1995 and $10 to $12.22 for 1994. At
December 31, 1996, 328,530 shares were available for issuance.

   The Company has reserved  350,000  shares of common stock for issuance  under
the ALLIED Life  Financial  Corporation  Outside  Director  Stock  Purchase Plan
(DSPP). Under the DSPP,

                                       54
<PAGE>

participants pay 85% of the fair value of the shares issued. The 15% discount is
recognized  as expense on the date of issue.  During  1996,  2,677  shares  were
issued at prices ranging from $17.37 to $17.38.  During 1995 and 1994, 4,737 and
4,415  shares were issued at prices  ranging from $17.06 to $17.13 and $11.75 to
$14.38. At December 31, 1996, 338,171 shares were available for issuance.

   During 1995 the Company  reserved 350,000 shares of common stock for issuance
under the ALLIED Life  Financial  Corporation  Dividend  Reinvestment  and Stock
Purchase  Plan. Any  stockholder of record may  participate in the plan and have
cash dividends reinvested in additional shares of Company common stock. The plan
also allows for optional cash payments.  Shares of common stock  purchased under
the plan may be either original issue shares or open market shares.  The Company
has determined the purchased  shares will be original shares until it determines
otherwise. The number of shares purchased by the plan participants is based upon
fair market value on a predetermined  date.  During 1996, 628 shares were issued
at prices  ranging from $15.88 to $21.  During  1995,  312 shares were issued at
prices ranging from $16.81 to $19.13. At December 31, 1996,  349,060 shares were
available for issuance.

   During  1996,  pursuant to rule 10b-18 under the  Securities  Exchange Act of
1934, the Company repurchased on the open market and cancelled 150,000 shares of
Company common stock at an average cost of $16.94 per share.

   The dividend per common share for 1996, 1995, and 1994 was $0.21,  $0.17, and
$0.13, respectively.


(9) Stock Option Plans
   At December 31, 1996, the Company had four  stock-based  compensation  plans,
two described in note 8 (the ESPP and DSPP) and two described below. The Company
applies APB Opinion 25 and related  interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option plans
described  below or for the ESPP.  Had  compensation  cost for these  items been
determined  consistent  with SFAS 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S>                                                       <C>                    <C>    

                                                               1996                  1995


Net income
      As reported                                          $     8,072,591        $    9,712,482
      Pro forma                                            $     8,018,197        $    9,687,507

Earnings per share
      As reported                                          $       1.41           $       1.78
      Pro forma                                            $       1.40           $       1.78
</TABLE>

    Pro  forma  net  income  reflects  only  options  granted  in 1996 and 1995.
Therefore,  the full impact of calculating  compen-sation cost for stock options
under SFAS 123 is not  reflected in the pro forma net income  amounts  presented
above because  compensation  cost is reflected over the options'  vesting period
and  compensation  cost for  options  granted  prior to  January  1, 1995 is not
considered.

                                       55
<PAGE>

    The fair value of each stock  option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 1.25%,  expected
volatility of 45%, risk free interest rate of 7%, and expected life of 6 years.

   During 1994, the Company reserved 186,800 shares of common stock for issuance
to key  employees  of the  Company  and its  affiliates  under the  ALLIED  Life
Financial  Corporation  Long-Term  Management  Incentive Plan (Incentive  Plan).
Under the Incentive  Plan,  shares of common stock are available for grant until
December 31, 2003 as incentive and  nonqualified  stock  options  (collectively,
Options),  stock appreciation  rights (SARs), and restricted stock. The Options,
SARs,  and  restricted  stock were issued to vest  beginning two years after the
grant  date at a rate of 25% per year and  expire  ten  years  after the date of
grant.  Options,  SARs, and restricted stock prices are based on the fair market
value as of the date of grant.  As of December 31, 1996, the 41,372  outstanding
Options and SARs had  exercise  prices  ranging  from $12.88 to $17.63 and had a
weighted-average  remaining contractual life of 8.4 years. At December 31, 1996,
139,717 shares were available for award under the Incentive Plan.

   The Company has reserved  213,000  shares of common stock for issuance to key
employees  of the Company  and its  affiliates  under the ALLIED Life  Financial
Corporation  Executive  Stock Option Plan (Option Plan) until September 1, 2003.
The Option Plan is a nonqualified stock option plan. Options are granted subject
to a vesting  schedule  whereby  33.3% of the options  vest three years from the
date of grant,  66.7% of the options vest four years from the date of grant, and
100% of the options vest five years from the date of grant.  The option price is
equal to the fair  market  value of the  common  stock at the time the option is
granted. Options granted under the Option Plan expire ten years from the date of
grant.  As of December 31, 1996,  the 168,709  outstanding  options had exercise
prices  ranging  from  $12  to  $17.63  and  had  a  weighted-average  remaining
contractual  life of 7.1  years.  At  December  31,  1996,  13,400  shares  were
available for award under the Option Plan.

   A summary of the status of the  Company's  stock  option  plans as of  
December  31,  1996 and 1995 and  changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
<S>                                    <C>             <C>                 <C>          <C>    
                                                   1996                              1995


                                                         Weighted                         Weighted
                                                          average                          average
                                        Shares        exercise price       Shares       exercise price


Outstanding at beginning of year        182,775          $12.27             226,950         $12.06

Granted                                  27,375           17.63              14,125          15.30
Exercised                                (5,251)          12.13             (26,650)         12.00
Cancelled                                   ---             ---             (31,650)         12.33
                                        -------          ------             -------         ------
Outstanding at end of year              204,899          $12.99             182,775         $12.27
                                        =======          ======             =======         ======

Options exercisable
at end of year                           54,378          $12.05                 ---            ---


Weighted-average fair
value of options granted
during the year                                           $8.27                              $7.08
</TABLE>


                                       56
<PAGE>

    The issuance of SARs and  restricted  stock under the Incentive Plan reduces
the number of Options available for future issuance. During 1996 and 1995, 1,355
and 3,428  shares of  restricted  stock  were  awarded  at $17.25 and $15.50 per
share,  respectively.  At  December  31,  1996,  4,157  restricted  shares  were
outstanding. The following table shows SAR activity for the years ended December
31, 1996 and 1995:
<TABLE>
<CAPTION>
<S>                                    <C>            <C>                 <C>        <C>    

                                                   1996                              1995


                                                         Weighted                     Weighted
                                           Number        average           Number      average
                                        of SARs       exercise price       of SARs    exercise price


Outstanding at beginning of year           3,300          $14.10              2,000      $12.88

Granted                                    2,000           17.63              2,000       15.30
Exercised                                   (118)          12.88                ---         ---
Cancelled                                    ---             ---               (700)      14.06
                                           -----          ------              -----      ------
Outstanding at end of year                 5,182          $15.49              3,300      $14.10
                                           =====          ======              =====      ======

Options exercisable
at end of year                               383          $12.88                ---        ---
</TABLE>

(10) Retained Earnings
   Retained  earnings of ALLIED Life available for  distribution as dividends to
ALLIED Life Financial  Corporation  are limited by law. Under the Iowa Insurance
Code,  dividends may be paid by ALLIED Life only from statutory  earned surplus,
which as of December 31, 1996 was $16,553,944.  In addition, ALLIED Life may not
pay an  extraordinary  dividend without prior notice to and approval of the Iowa
Insurance Commissioner.  An extraordinary dividend is defined as any dividend or
distribution  of cash or other  property  whose fair market value  together with
that of other dividends or distributions made within the preceding twelve months
exceeds  the  greater  of (i) 10% of  statutory  policyholders'  surplus  (total
capital stock plus surplus) as of December 31 of the preceding  year or (ii) the
statutory net gain from  operations of the insurer for the  twelve-month  period
ending  December 31 of the  preceding  year.  During  1996,  1995,  and 1994 the
Company paid cash dividends on common stock of $957,915, $785,239, and $595,164,
respectively.  During 1996,  1995,  and 1994 the Company paid cash  dividends of
$95,185,  $84,833,  and $13,280,  respectively,  on preferred stock. ALLIED Life
paid to the Company dividends of $1,375,000, $800,000, and $747,500 during 1996,
1995,  and 1994  primarily to fund the  Company's  cash  dividend  requirements.
During  1997,  the maximum  amount  available  for  distribution  to ALLIED Life
Financial  Corporation from ALLIED Life without regulatory  approval of the Iowa
Insurance Commissioner is $5,217,368.

   Statutory capital and surplus for ALLIED Life was $46,543,735 and $45,503,922
at December 31 1996 and 1995, respectively. Statutory net income for ALLIED Life
was  $5,291,433,  $6,696,577,  and  $6,658,813  for the years ended December 31,
1996, 1995, and 1994, respectively.


                                       57
<PAGE>

(11)   Employee Retirement Plans

   The ESOP  established by the Company is a nonleveraged  defined  contribution
plan. The ESOP covers all employees who meet eligibility requirements. Shares of
the ESOP Series are allocated  annually to each employee's account pursuant to a
formula  based on employee  compensation  and years of service and held in trust
until the employee's termination,  retirement,  or death. The Company recognized
compensation expense for the amount contributed to the ESOP.

   The  Company's  ESOP expense was  $238,000,  $176,000,  and $207,000 in 1996,
1995,  and 1994,  respectively.  During  1996,  1995,  and 1994,  the ESOP Trust
received $95,163, $84,826, and $13,257, respectively, from dividends on the ESOP
Series, which was used to purchase stock for participants.

(12)   Line of Credit

   The Company has a line of credit agreement with the Federal Home Loan Bank to
make available borrowings of up to $25,000,000. The line expires March 13, 1997.
Interest is payable at either an adjustable interest rate with the interest rate
set daily on the outstanding advance amount or at a fixed rate with the interest
rate set at issuance.  As of December 31, 1996 and 1995, borrowings on this line
of credit agreement were $20,470,000 and $16,605,000 at an interest rate of 5.7%
and 5.92% per annum,  respectively.  The Company  incurred  interest  expense to
nonaffiliates  of  $689,786,  $656,385,  and $501,897 in 1996,  1995,  and 1994,
respectively.

(13)  Federal Income Taxes
   Total income taxes for the years ended December 31, 1996, 1995, and 1994 were
allocated as follows:
<TABLE>
<CAPTION>
<S>                                              <C>                  <C>                 <C>

                                                     1996                1995              1994


Net income                                        $3,937,132          $4,556,214       $4,059,179

Unrealized appreciation
    of investments, net                            3,584,087           4,475,910          248,238
                                                  ----------          ----------       ----------
                                                  $7,521,219          $9,032,124       $4,307,417
                                                  ==========          ==========       ==========
</TABLE>













                                       58
<PAGE>

    The  income  tax  effects  of  temporary   differences  that  gave  rise  to
significant  portions of the deferred  income tax assets and deferred income tax
liabilities at December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
<S>                                                   <C>                        <C>          
                                                            1996                       1995
Deferred income tax assets
    Policy liabilities                                 $24,710,763               $20,446,857
    Deferred policy acquisition costs
    related to unrealized appreciation                   1,397,645                 3,352,363
    Other                                                  331,337                   337,340
                                                        ----------                ----------         
      Total gross deferred income tax assets            26,439,745                24,136,560
                                                        
  Less valuation allowance                                   ---                       ---
                                                        ----------                ----------
      Net deferred income tax assets                    26,439,745                24,136,560
                                                        ----------                ----------        
Deferred income tax liabilities
    Deferred policy acquisition costs                  (30,362,697)              (28,046,203)
    Unrealized appreciation                             (2,749,663)               (8,288,469)
    Market discount on bonds                              (903,505)                 (817,062)
    Other                                                 (432,826)                 (437,671)
      Total gross deferred income tax                    ----------                ----------   
        liabilities                                    (34,448,691)              (37,589,405)
                                                         ----------               ----------   
      Net deferred income tax liability                $(8,008,946)             $(13,452,845)
                                                        ===========              ============     
</TABLE>

    The valuation  allowance for deferred  income tax assets at the beginning of
the years ended  December 31, 1996 and December 31, 1995 was $0 and  $2,701,193,
respectively.  During 1995,  the  valuation  allowance of  $2,701,193  which was
established  for the net unrealized  depreciation  on investments as of December
31, 1994 was eliminated.

   In assessing the realizability of deferred tax assets,  management  considers
whether it is more  likely  than not that some  portion  or all of the  deferred
income tax assets  will not be  realized.  Management  considers  primarily  the
scheduled   reversal  of  deferred  income  tax  liabilities  and  tax  planning
strategies in making this assessment and believes it is more likely than not the
Company will realize the benefits of these  deductible  differences  at December
31, 1996.

   For the years ended December 31, 1996,  1995, and 1994, the actual income tax
expense  differed  from the expected  income tax expense  based on the statutory
federal  income tax rate of 35%,  primarily as a result of a reduction of income
taxes related to prior years. The Company paid federal and state income taxes of
$3,929,001 $4,134,364, and $4,761,664 in 1996, 1995, and 1994, respectively.

   Prior to 1984, life insurance companies were permitted to defer from taxation
a portion of statutory income. At December 31, 1983, the Company had accumulated
approximately  $3,300,000 of this deferred  income in what is referred to as its
policyholders'  surplus  account.  This  amount  was  frozen  under the  Deficit
Reduction Act of 1984 and could become  taxable in the future only under certain
conditions that management  considers remote.  The accumulated  amount of income
subject to current  taxation  less certain  adjustments  is set aside in another
special memorandum tax account called a shareholders' surplus account. Dividends
paid by the  Company  in  excess of the  balance  in the  shareholder's  surplus
account  cannont be paid without a portion of  policyholders'  surplus  becoming
taxable.  The  balance of the  shareholders'  surplus  account as  approximately
$49,000,000 as of December 31, 1996.

                                       59
<PAGE>

(14)  Contingencies
   The  Company is required  to comply  with the  regulations  of every state in
which it operates. Every state administers a guaranty fund, which exists for the
protection of policyholders in the event of insurance  company  insolvencies.  A
number  of  insurance  companies  are  under  supervision,  resulting  in  large
assessments to cover losses to policyholders of such companies. Potential future
assessments, if any, are not reasonably determinable by the Company and have not
been accrued.

   The Company is a party to lawsuits  arising in the normal course of business.
The Company  believes the  resolution of these lawsuits will not have a material
adverse effect on its financial condition or results of operations.

(15) Unaudited Interim Financial Information
                                                    Quarter ended
<TABLE>
<CAPTION>
<S>                                <C>             <C>                <C>                <C>    

                                   March 31        June 30         September 30   December 31
1996 Operating Summary

    Insurance revenues             $  7,370,355    $  7,549,907    $  8,618,696    $  7,810,728


    Net investment income          $ 11,749,917    $ 11,936,957    $ 11,826,527    $ 12,668,430

    Realized investment
      (losses) gains               $    (84,184)   $    (60,290)   $    (48,532)   $    315,103


    Total revenues                 $ 19,324,074    $ 19,696,683    $ 20,644,094    $ 21,045,261


    Total benefits and expenses    $ 15,279,694    $ 16,055,781    $ 17,535,380    $ 19,829,534



    Net income                     $  2,697,300    $  2,464,095    $  2,105,435    $    805,761


    Earnings per common share      $        .50    $        .45    $        .37    $        .09

</TABLE>
<TABLE>
<CAPTION>
<S>                                  <C>             <C>             <C>             <C>
                                                    Quarter ended

                                      March 31          June 30    September 30       December 31

1995 Operating Summary
    Insurance revenues               $  7,460,180    $  7,259,247    $  7,110,284    $  8,104,630


    Net investment income            $ 10,688,042    $ 11,218,969    $ 11,644,171    $ 11,859,927


    Realized investment losses       $   (234,798)   $   (334,282)   $   (113,548)   $    (39,671)


    Total revenues                   $ 18,173,613    $ 18,309,182    $ 18,693,681    $ 20,134,175


    Total benefits and expenses      $ 14,701,164    $ 14,708,626    $ 15,331,311    $ 16,300,854


    Net income                       $  2,368,835    $  2,443,371    $  2,289,635    $  2,610,641


    Earnings per common share        $        .44    $        .45    $        .42    $        .48
</TABLE>


Caution  should be exercised in comparing the results of  consecutive  quarters.
Due to the relatively small size of ALLIED Life, the Company's operating results
may be significantly  affected in any reporting period by the level of death and
other policyholder benefits incurred.

                                       60
<PAGE>

Item 9.    Changes in and Disagreements with Accountants on Accounting and 
           Financial Disclosure

     None.


                                    Part III

Item 10.    Directors and Executive Officers of the Registrant

     The information under the caption "Directors and Executive Officers" in the
1997 Proxy Statement is incorporated herein by reference.


Item 11.    Executive Compensation

     The information under the caption  "Compensation of Executive  Officers" in
the 1997 Proxy Statement is incorporated herein by reference.


Item 12.     Security Ownership of Certain Beneficial Owners and Management

     The  information  under the caption  "Security  Ownership of Directors  and
Executive  Officers"  in the 1997  Proxy  Statement  is  incorporated  herein by
reference.


Item 13.    Certain Relationships and Related Transactions

     The information under the caption "Certain  Transactions and Relationships"
in the 1997 Proxy Statement is incorporated herein by reference.






















                                       61

<PAGE>

                                     Part IV


Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Form 10-k
<TABLE>

(a)  List of Financial Statements and Schedules.                                                       Page(s)
     1.  Financial Statements.

          <S>                                                                                            <C>    

           Independent Auditors' Report.                                                                   34
           Consolidated Statements of Income for the Years ended December 31,
           1996, 1995, and 1994.                                                                           35
           
           Consolidated Balance Sheets as of December 31, 1996 and 1995.                                 36-37

           Statements of Stockholders' Equity for the Years ended December 31, 
           1996, 1995, and 1994.                                                                           38
           
           Consolidated Statements of Cash Flows for the Years ended December 31, 1996, 1995,
              and 1994.                                                                                    39

            Notes to Consolidated Financial Statements.                                                  40-60
</TABLE>
  
     2.  Schedules.
<TABLE>
        <S>                                                                                              <C>  


         Independent Auditors' Report on Schedules.

         I.   Summary of Investments-Other Than Investments in Related Parties.                            68

         II.  Condensed Financial Information of Registrant.                                              69-72

         III. Supplementary Insurance Information.                                                         73

         IV.  Reinsurance.                                                                                 74
</TABLE>

         All other schedules are omitted since the required information is not
         present or is not present in amounts  sufficient to require submission
         of the schedule,  or because the information  required is included in 
         the consolidated financial statements and notes thereto.

     3.  Executive Compensation Plans and Arrangements.

         Short Term Management Incentive Compensation Plan for 1994
         (Incorporated by reference to Exhibit 10.4 to the Company's June 30,
         1994 Form 10-Q on file with the Commission), Exhibit 10.4.

         ALLIED  Life  Financial Corporation Executive Stock Option Plan
         (Incorporated by reference to the Company's Registration Statement on
         Form S-8 filed with the  Commission on November 19, 1993, Registration
         No. 33-71906), Exhibit 10.5.

                                       62
<PAGE>

         ALLIED Life Financial  Corporation Outside Director Stock Purchase Plan
         (Incorporated by reference to the Company's  Registration  Statement on
         Form S-8 filed with the  Commission on November 19, 1993,  Registration
         No. 33-71962), Exhibit 10.6.

         ALLIED Life Financial  Corporation  Long-Term Management Incentive Plan
         (Incorporated  by reference to Exhibit 10.18 to the Company's March 31,
         1994 Form 10-Q on file with the Commission), Exhibit 10.18.

         Short Term Management Incentive Compensation Plan for 1995 (Incorporat-
         ed by reference to Exhibit 10.23 to the Company's December 31, 1994 
         Form 10-K on file with the Commission), Exhibit 10.23.

         Amendment dated July 21, 1995, the ALLIED Life Financial Corporation 
         Executive Stock Option Plan (Incorporated by reference to Exhibit 10.28
         to the Company's June 30, 1995 Form 10-Q on file with the Commission),
         Exhibit 10.28.

         Short Term Management Incentive Plan for 1996 (Incorporate by reference
         to Exhibit 10.32 to the  Company's  December 31, 1995 Form 10-K on file
         with the Commission), Exhibit 10.32.

         Short Term Management Incentive Plan for 1997, Exhibit 10.35.

         Amendment date December 16, 1996 to ALLIED Life Financial Corporation 
         Long-Term Management Incentive Plan, Exhibit 10.36.

(b)  Reports on Form 8-K.

     There were no reports  filed on Form 8-K  during the fourth  quarter  ended
     December 31, 1996.

(c)  Exhibits.

     NOTE:  See "Index to Exhibits" on page number 76,  which discloses the 
     specific page numbers for the exhibits included in this Form 10-K.

     3.  Articles of incorporation and bylaws.

         3.1     Articles of Incorporation of ALLIED Life Financial Corporation
                 as of July 20, 1993 (Incorporated by reference to Exhibit 3.1 
                 to the Company's Registration Statement on Form S-1 filed with
                 the Commission on September 16, 1993, Registration No. 
                 33-68928).

         3.2     Bylaws of ALLIED Life Financial Corporation as of July 20, 1993
                 and Amendment to the Bylaws dated December 14, 1994.

         3.3     Articles of Amendment for Certificate of Designations, defining
                 the rights of holders of 6.75% Series Preferred Stock of ALLIED
                 Life Financial Corporation (Incorporated by reference to 
                 Exhibit 3.3 to the Company's Registration Statement on Form S-1
                 filed with the Commission on September 16, 1993, Registration 
                 No. 33-68928).

         3.4     Amendment  to  Articles  of  Amendment   for   Certificate   of
                 Designations,  defining  the rights of holders of 6.75%  Series
                 Preferred Stock of ALLIED Life Financial Corporation (Incorp-
                 orated by reference to Exhibit 3.4 to the Company's Regist-
                 ration Statement on Form S-1 filed with the Commission on Sept-
                 ember 16, 1993, Registration No. 33-68928).

                                       63
<PAGE>

         3.5     Certificate of Designations,  defining the rights of holders of
                 Series  A ESOP  Convertible  Preferred  Stock  of  ALLIED  Life
                 Financial  Corporation.  (Incorporated  by reference to Exhibit
                 3.5 to the  Company's  June 30, 1994 Form 10-Q on file with the
                 Commission).

     10. Material contracts.

         10.1    Long Term Management Incentive Compensation Plan for 1991
                (Incorporated by reference to Exhibit 10.7 to the Company's 
                 Registration Statement on Form S-1 filed with the Commission on
                 September 16, 1993, Registration No. 33-68928).

         10.2    Short Term and Long Term Management Incentive Compensation 
                 Plans for 1992 (Incorporated by reference to Exhibit 10.8 to 
                 the Company's Registration Statement on Form S-1 filed with the
                 Commission on September 16, 1993, Registration No. 33-68928).

         10.3    Short Term and Long Term Management Incentive Compensation 
                 Plans for 1993, (Incorporated by reference to Exhibit 10.3 to 
                 the Company's December 31, 1993 Form 10-K on file with the 
                 Commission).

         10.4    Short Term Management Incentive Compensation Plan for 1994,
                (Incorporated by reference to Exhibit 10.4 to the Company's June
                 30, 1994 Form 10-Q on file with the Commission).

         10.5    ALLIED Life Financial Corporation Executive Stock Option Plan 
                (Incorporated by reference to the Company's Registration 
                 Statement on Form S-8 filed with the Commission on November 19,
                 1993, Registration No. 33-71906).

         10.6    ALLIED Life Financial Corporation Outside Director Stock 
                 Purchase Plan (Incorporated by reference to the Company's
                 Registration Statement on Form S-8 filed with the Commission
                 on November 19, 1993, Registration No. 33-71962).

         10.8    Amended  and  Restated  ALLIED  Group  Intercompany   Operating
                 Agreement  between ALLIED Life Insurance Company and certain of
                 its affiliated companies dated August 25, 1993 (Incorporated by
                 reference  to  Exhibit  10.3  to  the  Company's   Registration
                 Statement  on Form S-1 filed with the  Commission  on September
                 16, 1993, Registration No. 33-68928).

         10.9    The ALLIED Group Joint Marketing  Agreement between ALLIED Life
                 Insurance Company and affiliated property-casualty insurance
                 companies dated August 30, 1993 (Incorporated by  reference to
                 Exhibit 10.4 to the Company's Registration Statement on Form
                 S-1 filed with the Commission on September 16, 1993, 
                 Registration No. 33-68928).

         10.12   Federal Home Loan Bank Open Line of Credit Application and 
                 Terms Agreement dated March 13, 1996 with ALLIED Life Insurance
                 Company, (Incorporated by reference to Exhibit 10.12 to the 
                 Company's March 31, 1996 Form 10-Q on file with the 
                 Commission).


         10.14   Amended and Restated Management Information Services Agreement,
                 dated February 27, 1995 and effective January 1, 1994.







                                       64
<PAGE>

         10.15   First Amendment to Amended and Restated ALLIED Group Inter-
                 company Operating Agreement dated November 1, 1993 
                (Incorporated by reference to Exhibit 10.15 to the Company's 
                 Registration Statement on Form S-1 filed with the Commission on
                 November 9, 1993, Registration No. 33-68928).

         10.16   First Amendment to the ALLIED Group Joint Marketing Agreement 
                 dated November 1, 1993 (Incorporated by reference to Exhibit
                 10.16 to the Company's Registration Statement on Form S-1 filed
                 with the Commission on November 9, 1993, Registration No. 
                 33-68928).

         10.17   Stock Rights Agreement between ALLIED Mutual Insurance Company 
                 and ALLIED Life Financial Corporation dated August 25, 1993
                (Incorporated by reference to Exhibit 10.1 to the Company's 
                 Registration Statement on Form S-1 filed with the Commission on
                 September 16, 1993, Registration No. 33-68928).

         10.18   ALLIED Life Financial Corporation Long-Term Management 
                 Incentive Plan (Incorporated by reference to Exhibit 
                 10.18 to the Company's March 31, 1994 Form 10-Q on file with 
                 the Commission).

         10.19   Second Amendment to Amended and Restated ALLIED Group 
                 Intercompany Operating Agreement dated May 16, 1994, 
                (Incorporated by reference to Exhibit 10.19 to the Company's 
                 June 30, 1994 Form 10-Q on file with the Commission).


         10.21   The ALLIED Life Financial Corporation Employee Stock Ownership
                 Trust, (Incorporated by reference to Exhibit 10.21 to the
                 Company's June 30, 1994 Form 10-Q on file with the Commission).

         10.22   Stock Purchase Agreement dated October 27, 1994, between ALLIED
                 Life Financial Corporation and State Street Bank and Trust 
                 Company, (Incorporated by reference to Exhibit 10.22 to the 
                 Company's September 30, 1994 Form 10-Q on file with the 
                 Commission).

         10.23   Short Term Management Incentive Compensation Plan for 1995 
                (Incorporated by reference to Exhibit 10.23 to the Company's
                 December 31, 1994 Form 10-K on file with the Commission).

         10.24   Third Amendment to Amended and Restated ALLIED Group 
                 Intercompany Operating Agreement dated December 15, 1994 
                (Incorporated by reference to Exhibit 10.24 to the Company's
                 December 31, 1994 Form 10-K on file with the Commission).

         10.25   Consulting Agreement between John E. Evans and ALLIED Group, 
                 Inc., ALLIED Mutual Insurance Company, and ALLIED Life 
                 Financial Corporation dated December 14, 1994 (Incorporated by 
                 reference to Exhibit 10.25 to the Company's December 31, 1994 
                 Form 10-K on file with the Commission).

         10.26   Stock Purchase Agreement dated January 3, 1995 between ALLIED 
                 Life Financial Corporation and State Street Bank and Trust 
                 Company (Incorporated by reference to Exhibit 10.26 to the 
                 Company's December 31, 1994 Form 10-K on file with the 
                 Commission).






                                       65
<PAGE>

         10.29   Amendment dated July 21, 1995 to the ALLIED Life Financial
                 Corporation Executive Stock Option Plan (Incorporated by 
                 reference to Exhibit 10.29 to the Company's June 30, 1995
                 Form 10-Q on file with the Commission).

         10.30   Intercompany Cash Concentration Fund Agreement (Incorporated by
                 reference to Exhibit 10.30 to the Company's  June 30, 1995 Form
                 10-Q on file with the Commission).

         10.31   Stock Purchase Agreement dated January 2, 1996 between ALLIED
                 Life Financial Corporation and State Street Bank and Trust
                 Company (Incorporated by reference to Exhibit 10.31 to the 
                 Company's December 31, 1995 10K on file with the Commission).

         10.32   Short Term Management  Incentive Plan for 1996 (Incorporated by
                 reference to Exhibit 10.32 to the  Company's  December 31, 1995
                 10K on file with the Commission).

         10.33   Amended and Restated Management Information Services Agreement
                 Effective January 1, 1995 (Incorporated by reference to Exhibit
                 10.33 to the Company's December 31, 1995 10K on file with the 
                 Commission).

         10.34   Stock  Purchase  Agreement  date January 2, 1997 between ALLIED
                 Life  Financial  Corporation  and State  Street  Bank and Trust
                 Company.

         10.35   Short Term Management Plan for 1997.

         10.36   Amendment dated December 16, 1996 to ALLIED Life Financial
                 Corporation Long-Term Management Incentive Plan.

         10.37   Amendment dated December 18, 1996 to Consulting Agreement 
                 between John E. Evans and ALLIED Group, Inc., ALLIED Mutual
                 Insurance Company, and ALLIED Life Financial
                 Corporation.

         10.38   Tax Sharing Agreement, dated January 1, 1997, between ALLIED 
                 Life Financial Corporation, ALLIED Life Brokerage Agency, Inc.
                 and ALLIED Group Merchant Banking Corporation.

         10.39    Amended  and  Restated Management Information Services 
                  Agreement Effective March  1, 1996.

         10.40    First Amendment to Amended and Restated Management Information
                  Services Agreement Effective March 1, 1996.

         11       Statement re Computation of Per Share Earnings.

         21       Subsidiaries of the Registrant.

         23       Consent of KPMG Peat Marwick LLP.

         27       Financial Data Schedule

(d)  Financial statements required by Regulation S-X which are excluded from the
     Annual Report to Stockholders by Rule 14a-3(b)(1).

     None.






                                       66
<PAGE>
                    INDEPENDENT AUDITORS' REPORT ON SCHEDULES




The Board of Directors and Stockholders
ALLIED Life Financial Corporation

Under date of February 7, 1997, we reported on the  consolidated  balance sheets
of ALLIED Life Financial  Corporation  and  subsidiaries as of December 31, 1996
and 1995,  and the  related  consolidated  statements  of income,  stockholders'
equity,  and cash  flows for each of the years in the  three-year  period  ended
December 31, 1996, as contained in the 1996 Annual  Report.  In connection  with
our audits of the aforementioned consolidated financial statements, we also have
audited the related  consolidated  financial  statement schedules listed in Part
IV, Item  14(a)2.  These  consolidated  financial  statement  schedules  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statement schedules based on our audits.

In our opinion, such consolidated financial statement schedules, when considered
in relation to the basic  consolidated  financial  statements  taken as a whole,
present fairly, in all material respects, the information set forth therein.


                                                         KPMG Peat Marwick LLP

Des Moines, Iowa
February 7, 1997

























                                       67
<PAGE>

                             ALLIED Life Financial Corporation and Subsidiaries
                                        SCHEDULE I-SUMMARY OF INVESTMENTS-
                                     OTHER THAN INVESTMENTS IN RELATED PARTIES
                                                 December 31, 1996
<TABLE>
<CAPTION>
<S>                                                     <C>                  <C>                <C>    


                    Column A                                 Column B           Column C         Column D


                                                                                                    Amount at
                                                                                                      which
                                                                                                    shown in
                                                             Amortized            Fair             the balance
             Type of Investment                                Cost               value              sheet


Fixed maturities:
   Held to maturity:
     U.S. Treasury securities and obligations of U.S.
       government corporations and agencies                  $  1,006,653       $    969,480      $  1,006,653
       Foreign governments                                      4,481,577          4,711,830         4,481,577
     Corporate securities and public utilities                128,885,574        133,602,922       128,885,574
     Mortgage-backed securities                                64,835,031         66,063,591        64,835,031
                                                              -----------       ------------       -----------
           Total held to maturity                             199,208,835        205,347,823       199,208,835
                                                              -----------       ------------       -----------
   Available for sale:
     U.S. Treasury securities and obligations of U.S.
       government corporations and agencies                    34,377,785         33,934,834        33,934,834
     Foreign governments                                        6,188,564          6,406,919         6,406,919
     Corporate securities and public utilities                306,416,491        310,983,697       310,983,697
     Mortgage-backed securities                               145,703,301        148,963,620       148,963,620
                                                              -----------       ------------       -----------
           Total available for sale                           492,686,141        500,289,070       500,289,070
                                                              -----------       ------------       -----------   

           Total fixed maturities                                               $705,636,893       699,497,905
                                                                                ============         



Equity Securities                                               6,153,300       $  6,406,552         6,406,552
                                                                                ============     
Mortgage loans on real estate                                   1,456,688                            1,456,688
Policy loans                                                   10,306,724                           10,306,724
Other assets                                                    3,751,415                            3,751,415
Short-term investments                                            919,687                              919,687
                                                              -----------                          -----------   
           Total investments                                 $714,482,790                         $722,338,971
                                                             ============                         ============
</TABLE>








                                       68

<PAGE>

               ALLIED Life Financial Corporation and Subsidiaries
                                   SCHEDULE II
               ALLIED Life Financial Corporation (Holding Company)
                             CONDENSED BALANCE SHEET
                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
<S>                                                                         <C>                 <C>    

                                                                                   1996                1995


Assets

Investments in subsidiaries, at equity                                           $101,326,969       $101,284,772
Short-term investments, at cost                                                       202,803            396,435
Accounts receivable                                                                     2,715              1,946
Current income taxes recoverable                                                       42,796              3,852
                                                                                 ------------       ------------         
                              
              Total assets                                                       $101,575,283       $101,687,005
                                                                                 ============       ============


Liabilities

Note payable to  affiliate (note 2)                                              $  1,617,348       $        ---
Other liabilities                                                                      16,313              5,185
                                                                                 ------------       ------------     
                                                                                    1,633,661              5,185
                                                                                 ------------       ------------    

Stockholders' Equity

Preferred stock, no par value, issuable in series,
   authorized 7,500,000 shares
     6.75% Series, authorized 2,440,000 shares, issued and
     outstanding of 2,143,691 in 1996 and 2,004,898 in 1995                        23,259,047         21,753,143
     ESOP Series, authorized 300,000 shares, issued and
     outstanding of 93,982 in 1996 and 82,029 in 1995                               1,327,186          1,117,780
Common stock, no par value, $1 stated value,
   authorized 25,000,000 shares, issued and outstanding
   of 4,497,238 in 1996, and 4,632,559 in 1995                                      4,497,238          4,632,559
Additional paid-in capital                                                         46,596,171         48,773,783
Retained earnings                                                                  21,751,088         16,237,501
Unrealized appreciation of investments, net                                         2,510,892          9,167,054
                                                                                  -----------        -----------  
       Total stockholders' equity                                                  99,941,622        101,681,820
                                                                                  -----------        -----------        
       Total liabilities and stockholders' equity                                $101,575,283       $101,687,005
                                                                                  ===========        =========== 
</TABLE>






            See accompanying Note to Condensed Financial Statements.

                                       69


<PAGE>


                 ALLIED Life Financial Corporation Subsidiaries
                                   SCHEDULE II
               ALLIED Life Financial Corporation (Holding Company)
                      CONDENSED STATEMENT OF INCOME For the
                  years ended December 31, 1996, 1995, and 1994

<TABLE>
<CAPTION>
<S>                                                      <C>                 <C>                 <C>  
                                                               1996                1995                1994


Equity in undistributed earnings of subsidiaries               $6,698,358          $8,745,683         $7,496,523

Dividends received from subsidiaries                            1,475,000             925,000          1,023,500

Investment income                                                  24,288             184,693            105,240

Realized investment gains                                             ---              65,207                ---
                                                                           
                                                                ---------           ---------          ---------
                                                                8,197,646           9,920,583          8,625,263
                                                                ---------           ---------          ---------
Operating expenses                                                154,277             179,396             41,138

Interest expense                                                   44,084                  15              1,324
                                                                ---------            --------          ---------
                                                                  198,361             179,411             42,462
                                                                ---------            --------

Income before income taxes                                      7,999,285           9,741,172          8,582,801

Income tax (benefit) expense                                      (73,306)             28,690             26,177
                                                                ---------            --------          ---------
       Net income (note 1)                                     $8,072,591          $9,712,482         $8,556,624
                                                                =========           =========          =========                

</TABLE>











            See accompanying Note to Condensed Financial Statements.
                                

                                       70

<PAGE>

               ALLIED Life Financial Corporation and Subsidiaries
                                   SCHEDULE II
               ALLIED Life Financial Corporation (Holding Company)
                        CONDENSED STATEMENT OF CASH FLOWS
 For the years ended December 31, 1996, December 31, 1995 and December 31, 1994


<TABLE>
<CAPTION>
<S>                                                    <C>                  <C>                  <C>    


                                                              1996                 1995                 1994


Cash Flows from Operating Activities (note 1)
   Net income                                                $8,072,591           $9,712,482         $8,556,624
   Adjustments to reconcile net income to net cash
     provided by operating activities
       Equity in undistributed earnings                      (6,698,358)          (8,745,683)        (7,496,523)
       Realized investment gains                                    ---              (65,207)               ---
       Accrued investment income                                    ---               21,184            (15,000)
       Income taxes                                             (41,456)              (5,674)            12,618
       Other, net                                                12,870              (94,549)           (57,097)
                                                             ----------            ---------          ---------
         Net cash provided by operating activities            1,345,647              822,553          1,000,622
                                                             ----------            ---------          ---------

Cash Flows from Investing Activities (note 1)
   Purchase of fixed maturities available for sale                  ---           (1,634,684)        (1,193,813)
   Proceeds from sale of fixed maturities
     available for sale                                             ---            4,431,722                ---
   Investments in subsidiaries                                      ---           (3,500,000)               ---
                                                             ----------            ---------          ---------
         Net cash used in investing activities                      ---             (702,962)        (1,193,813)
                                                             ----------            ---------          ---------
Cash Flows from Financing Activities (note 1)
   Proceeds from note payable to affiliate, net               1,617,348                  ---                ---
       Proceeds from issuance of common stock, net              188,494              588,621            159,385
   Proceed from issuance of preferred stock, net                249,229              194,075          1,001,274
   Dividends paid to stockholders                            (1,053,100)            (870,072)          (608,444)
   Repurchase of common stock                                (2,541,250)                 ---                ---
                                                             ----------            ---------          ---------
        Net cash (used in)provided by financing
             activities                                      (1,539,279)             (87,376)           552,215
                                                             ----------            ---------          --------- 
Net Increase in Cash and Short-term
   investments (note 1)                                        (193,632)              32,215            359,024
Cash and short-term investments at beginning
   of year (period)                                             396,435              364,220              5,196
                                                             ----------            ---------          ---------  
Cash and short-term investments at end of year               $  202,803            $ 396,435          $ 364,220
                                                             ==========            =========          =========   
</TABLE>


            See accompanying Note to Condensed Financial Statements.
                                       71
<PAGE>


               ALLIED Life Financial Corporation and Subsidiaries
                                   SCHEDULE II
               ALLIED Life Financial Corporation (Holding Company)
                     NOTE TO CONDENSED FINANCIAL STATEMENTS

The accompanying  condensed  financial  statements should be read in conjunction
with the  consolidated  financial  statements  and notes  thereto of ALLIED Life
Financial Corporation and its subsidiaries.


(1)  Basis of presentation.

     The accompanying  condensed  financial  statements of ALLIED Life Financial
Corporation  (ALFC) have been prepared in  conformity  with  generally  accepted
accounting principles (GAAP).

(2) Note payable to affiliate

     During 1996, ALFC entered into a note payable agreement with ALLIED Mutual.
At  December  31,  1996,  the  outstanding  balance  of  the  note  payable  was
approximately   $1,617,000.   In  1996,  ALFC  incurred   interest   expense  of
approximately $44,000 relating to the note payable.




























                                       72

<PAGE>


               ALLIED Life Financial Corporation and Subsidiaries

               SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

              For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S>           <C>            <C>         <C>        <C>      <C>           <C>         <C>        <C>          <C>       <C>  

Column A      Column B       Column C    Column D   Column E  Column F      Column G   Column H    Column I     Column J  Column K



                               Future
                               policy                 Other
                              benefits,               policy                             Benefits,  Amortization
                  Deferred     losses,                claims     Insurance                claims,    of deferred
                   policy    claims and     Unearned   and      premiums and  Net      losses and    policy       Other
                acquisition     loss        revenue   benefits      other     investment settlement  acquisition operating Premiums
    Segment        costs      expenses      reserve    payable   consideration income    expenses    costs       expense    written


Year ended 
December 31, 1996:
  Life insurance $92,417,588 $692,551,400   $  ---  $5,311,618 $31,349,686 $48,144,538 $47,988,086 $10,594,828  $9,029,862 $  ---

  Other                  ---          ---      ---         ---         ---      37,293         ---         ---   1,087,613    ---
                 -----------  -----------    -----  ---------- -----------  ----------  ----------  ----------   --------- ------  
  Consolidated   $92,417,588 $692,551,400   $  ---  $5,311,618 $31,349,686 $48,181,831 $47,988,086 $10,594,828 $10,117,475 $  ---
                 ===========  ===========   ======  ========== =========== =========== =========== =========== =========== ======

Year ended 
December 31, 1995:
 Life insurance $79,717,529 $616,654,421    $  ---  $5,694,876 $29,934,341 $45,214,515 $46,062,832 $ 5,940,996  $ 8,246,236 $  ---

  Other                 ---          ---       ---         ---         ---     196,594         ---        ---       791,891    ---
                -----------  -----------    ------  ---------- ----------- ----------- ----------- ----------   ----------- ------
  Consolidated  $79,717,529 $616,654,421    $  ---  $5,694,876 $29,934,341 $45,411,109 $46,062,832 $5,940,996   $ 9,038,127 $  ---
                =========== ============    ======  ========== =========== =========== =========== ==========   =========== ======

Year ended
December 31, 1994:
 Life insurance $79,312,433 $528,370,156    $  ---  $5,782,118 $25,392,539 $38,014,750 $37,358,722 $5,136,195   $7,710,607  $  ---

  Other                 ---          ---       ---         ---         ---     122,070         ---        ---      631,202     ---
                ----------- ------------      -----  ---------  ---------- ----------- ----------- ----------   ----------  ------ 
  Consolidated  $79,312,433 $528,370,156    $  ---  $5,782,118 $25,392,539 $38,136,820 $37,358,722 $5,136,195   $8,341,809  $  ---
                =========== ============    ======= ========== =========== =========== =========== ==========   ==========  ======
</TABLE>



                                       73
<PAGE>

               ALLIED Life Financial Corporation and Subsidiaries
                        SCHEDULE IV - REINSURANCE For the
                  years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
<S>                            <C>               <C>                <C>             <C>              <C>    

     Column A                     Column B          Column C         Column D           Column E     Column F

                                                                                                     Percentage
                                                                      Assumed                        of amount
                                                  Ceded to other    from other                       assumed to
                                 Gross amount        companies       companies       Net amount        net

Year ended December 31, 1996:
     Life insurance in force   $ 8,855,654,000   $ (2,633,078,000)  $103,660,000    $6,326,236,000        1.6%
                               ===============   =================  ============    ==============      =====          
     Premiums:
       Life insurance premiums:
         and charges (1)       $    33,500,767     $   (6,275,140)  $    231,508    $   27,457,135        0.8%
         Accident and
         health insurance            2,230,128         (2,231,784)           ---            (1,656)        ---
                               ---------------     --------------   ------------     -------------      ------
     Total premiums            $    35,730,895     $   (8,506,924)  $    231,508    $   27,455,479        0.8%
                               ===============     ==============   ============     =============      ======



Year ended December 31, 1995:

     Life insurance in force   $ 7,995,050,000   $ (2,538,119,000) $ 119,466,000    $5,576,397,000        2.1%
                               ===============   ================= =============    ==============      =====
     Premiums:
       Life insurance premiums:
         and charges (1)       $    32,350,178   $     (6,388,320) $     227,949    $   26,189,807        0.8%
         Accident and
         health insurance            1,375,016         (1,371,194)           ---             3,822         ---
                               ---------------     --------------   ------------    --------------      ------   
     Total premiums            $    33,725,194   $     (7,759,514) $     227,949    $   26,193,629        0.9%
                               ===============     ==============   ============     =============      ======


Year ended December 31, 1994:
     Life insurance in force   $ 7,087,313,000   $ (2,466,646,000)  $155,424,000    $4,776,091,000        3.3%
                               ===============   =================  ============    ==============       =====     
     Premiums:
       Life insurance premiums:
         and charges (1)       $    27,153,806   $     (5,059,200)  $    233,970    $   22,328,576        1.1%
         Accident and
         health insurance              772,941           (671,938)           ---           101,003         ---
                               ---------------   ----------------   ------------    --------------       -----
     Total premiums            $    27,926,747   $     (5,731,138)  $    233,970    $   22,429,579        1.0%
                               ===============   =================  ============    ==============       =====     


<FN>
(1) Includes life insurance  premiums and policyholder  assessments on universal
life contracts.
</FN>
</TABLE>

                                       74


<PAGE>


                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
    of 1934, the Registrant has duly caused this report to be signed on
    its behalf by the undersigned, thereunto duly authorized.

        ALLIED Life Financial Corporation
            (Registrant)


                            Date: March 4, 1997     By /s/ Wendell P. Crosser
                                              
                                                Wendell P. Crosser
                                                Vice President and Treasurer
                                               (Principal Financial Officer and
                                                Principal Accounting Officer)


    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 indicated.
<TABLE>
<S>                                         <C>                                               <C>    


             Signature                                      Title                                  Date


 /s/ Samual J. Wells                         President (Principal Executive                     March 4, 1997
           Samuel J. Wells                           Officer)


/s/ Wendell P. Crosser                        Vice President and Treasurer                      March 4, 1997
         Wendell P. Crosser


/s/ John E. Evans                             Chairman of the Board and Director                March 4, 1997
            John E. Evans


/s/ James W. Callison                          Director                                          March 4, 1997
          James W. Callison


/s/ Harold  S. Evans                           Director                                          March 4, 1997
           Harold S. Evans


/s/ Dennes H. Kelly, Jr.                       Director                                          March 4, 1997
        Dennis H. Kelly, Jr.


/s/ George D. Milligan                         Director                                          March 4, 1997
         George D. Milligan

</TABLE>


                                       75


<PAGE>


               ALLIED Life Financial Corporation and Subsidiaries

                                INDEX TO EXHIBITS

Exhibit
Number                       Item                                      Page




10.34         Stock Purchase Agreement dated January 2, 1997
              between ALLIED Life Financial Corporation
              and State Street Bank and Trust Company                  77

10.35         Short Term Management Incentive Plan for 1997            82

10.36         Amendment dated December 16, 1996 to
              ALLIED Life Financial Corporation Long-Term
              Management Incentive Plan.                               87

10.37         Amendment dated December 18, 1996 to Consulting
              Agreement between John E. Evans and ALLIED
              Group, Inc., ALLIED Mutual Insurance Company,
              and ALLIED Life Financial Corporation.                   88

10.38        Tax Sharing Agreement, dated January 1, 1997, between
             ALLIED Life Financial Corporation, ALLIED Life Brokerage
             Agency, Inc. and ALLIED Group Merchant Banking            89
             Corporation.

10.39        Amended  and  Restated Management Information Services
             Agreement Effective March  1,1996.                        92

10.40        First Amendment to Amended and Restated Management
             Information Services Agreement Effective March 1, 1996   100

11           Statement re Computation of Per Share Earnings           102

21           Subsidiaries of the Registrant                           103

23           Consent of KPMG Peat Marwick LLP                         104

27           Financial Data Schedule                                  105













                                       76