Allstate Life Insurance Co of New York – ‘10-K’ for 12/31/02

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Annual Report   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         72    438K 
 2: EX-23       Consent of Experts or Counsel                          1      5K 

10-K   —   Annual Report
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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

--------------------------------------------------------------------------------
 FORM 10-K

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

 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
 THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

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

COMMISSION FILE NUMBER: 333-100029

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

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

ONE ALLSTATE DRIVE                                        
FARMINGVILLE, NEW YORK                           11738        
(Address of principal executive offices)             (Zip code)             

Registrant's telephone number, including area code: 516-451-5300                

Securities registered pursuant to Section 12(b) or 12(g) of the Securities      
Exchange Act of 1934: None                                                      

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 the Registrant's knowledge, in definitive proxy or other information    
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K. /X/                                                

Indicate by check mark whether the Registrant is an accelerated filer (as       
defined in Rule 12b-2 of the Securities Exchange Act of 1934).   Yes / / No /X/ 

As of March 15, 2003, the Registrant had 100,000 common shares, $25 par value,  
outstanding, all of which are held by Allstate Life Insurance Company.          

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 TABLE OF CONTENTS

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                                                                                      PAGE
                                                                                      ----
                                                                                          
PART I                                                                                    
Item 1.   Business *                                                                     1
Item 2.   Properties *                                                                   1
Item 3.   Legal Proceedings                                                              2
Item 4.   Submission of Matters to a Vote of Security Holders **                       N/A
PART II                                                                                   
Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters          2
Item 6.   Selected Financial Data **                                                   N/A
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of      
          Operations                                                                     2
Item 7a.  Quantitative and Qualitative Disclosures about Market Risk                    33
Item 8.   Financial Statements and Supplementary Data                                   33
Item 9.   Change in and Disagreements with Accountants on Accounting and Financial        
          Disclosure                                                                    33
PART III                                                                                  
Item 10.  Directors and Executive Officers of the Registrant **                        N/A
Item 11.  Executive Compensation **                                                    N/A
Item 12.  Security Ownership and Certain Beneficial Owners and Management **           N/A
Item 13.  Certain Relationships and Related Transactions **                            N/A
Item 14.  Controls and Procedures                                                       33
PART IV                                                                                   
Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K              33
          Signatures                                                                    36
          Certifications                                                                38
          Supplemental Information to be Furnished With Reports Filed Pursuant to         
          Section 15(d) of the Securities Exchange Act of 1934 by Registrants Which       
          Have Not Registered Securities Pursuant to Section 12 of the Securities         
          Exchange Act of 1934                                                          41
          Index to Financial Statement Schedules                                        42

            * Item prepared in accordance with General Instruction I(2) of
Form 10-K                                     
          ** Omitted pursuant to General Instruction I(2) of Form 10-K

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PART I                                                                          

ITEM 1.  BUSINESS                                                               

  Allstate Life Insurance Company of New York ("Allstate Life of New York"
or the "Company") was incorporated in 1967 as a stock life insurance company    
under the laws of the State of New York and was known as "Financial Life        
Insurance Company" from 1967 to 1978. From 1978 to 1984, the Company was        
known as "PM Life Insurance Company." Since 1984 when purchased by Allstate     
Life Insurance Company ("ALIC"), the Company has done business as "Allstate     
Life Insurance Company of New York."                                            

 Allstate Life of New York is a wholly owned subsidiary of ALIC, a stock
life insurance company incorporated under the laws of the State of Illinois.    
ALIC is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a      
stock property-liability insurance company incorporated under the laws of the   
State of Illinois. All of the outstanding capital stock of AIC is owned by      
The Allstate Corporation (the "Corporation"), a Delaware corporation which      
has several different classes of securities, including common stock,            
registered with the Securities and Exchange Commission ("SEC").                 

Allstate Life of New York, a single segment entity, markets a         
diversified group of products to meet customers' lifetime needs in the areas    
of financial protection and retirement solutions in the State of New York       
through exclusive Allstate agencies, financial services firms, direct           
marketing and specialized brokers. The Company's products include term life     
insurance; whole life and universal life insurance; annuities such as fixed     
annuities, market value adjusted annuities and treasury-linked annuities;       
variable annuities; immediate annuities; and other protection products such     
as accidental death and hospital indemnity. ALFS, Inc. ("ALFS") is the          
principal underwriter for certain Allstate Life of New York investment          
products, such as variable annuities and fixed annuities with a market value    
adjustment feature. ALFS is a wholly owned subsidiary of ALIC and a             
registered broker-dealer under the Securities Exchange Act of 1934. Also,       
beginning May 1, 2000, Allstate Distributors, L.L.C. ("ADLLC"), a registered    
broker-dealer under the Securities Act of 1934, provides underwriting and       
distribution services for variable annuities sold pursuant to a joint venture   
agreement between Allstate Life of New York and Putnam Investments, Inc.        
("Putnam"). The joint venture was dissolved in late 2002; however, ADLLC        
continues to provide services to Allstate Life of New York for these            
products. ADLLC, upon dissolution of the joint venture with Putnam, became a    
wholly owned subsidiary of ALIC.                                                

  The assets and liabilities of the variable contracts are held in legally
segregated, unitized Separate Accounts. Allstate Life of New York's general     
account assets must be invested in accordance with applicable state laws. These 
laws govern the nature and quality of investments that may be made by life      
insurance companies and the percentage of their assets that may be committed to 
any particular type of investment.                                              

Allstate Life of New York is engaged in a business that is highly     
competitive because of the large number of stock and mutual life insurance      
companies and other entities competing in the sale of insurance and annuities.  
As of December 2001, the last year for which current information is available,  
there were approximately 1,225 stock, mutual and other types of insurers in     
business in the United States.                                                  

The Company is subject to changing social, economic and regulatory    
conditions. State and federal regulatory initiatives and proceedings have varied
and have included efforts to remove barriers preventing banks from engaging in  
the securities and insurance businesses, to change tax laws affecting the       
taxation of insurance companies and the tax treatment of insurance products     
which may impact the relative desirability of various personal investment       
products, and to expand overall regulation. The ultimate changes and eventual   
effects, if any, of these initiatives are uncertain.                            

  Allstate Life of New York is the issuer of certain market value adjusted
annuities registered with the SEC. Allstate Life of New York is also the        
depositor of certain Separate Accounts that are registered with the SEC as unit 
investment trusts and through which the Company offers variable annuity         
contracts that are registered with the SEC.                                     

ITEM 2.  PROPERTIES                                                             

   Allstate Life of New York occupies office space in Farmingville, New York
and Northbrook, Illinois.                                                       

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ITEM 3.  LEGAL PROCEEDINGS                                                      

Incorporated in this Item 3 by reference to the discussion under the  
heading "Regulation and legal proceedings" in Note 9 to the Company's financial 
statements of this Form 10-K.                                                   

PART II                                                                         

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  

  There is no public trading market for the Company's common stock. All of
its outstanding common stock is owned by its parent, ALIC. ALIC's outstanding   
common stock is owned by AIC. All of the outstanding common stock of AIC is     
owned by the Corporation.                                                       

    From January 1, 2001 through March 15, 2003, the Company paid no dividends
on its common stock to ALIC.                                                    

    Within the past three years, no equity securities were sold by the Company
that were not registered under the Securities Act of 1933.                      

For additional information on dividends, including restrictions on the
payment of dividends by the Company, see the "Liquidity" subsection of the      
"Capital Resources and Liquidity" section of our "Management's Discussion and   
Analysis of Financial Condition and Results of Operations", which items are     
incorporated herein by reference.                                               

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

The following discussion highlights significant factors influencing   
results of operations and financial position of the Company. It should be       
read in conjunction with the financial statements and related notes. To         
conform to the 2002 presentation, certain prior year amounts have been          
reclassified.                                                                   

DEFINITIONS OF NON-GAAP AND OPERATING MEASURES                                  

In addition to information presented in the financial statements, the 
Company uses information other than that determined using accounting            
principles generally accepted in the United States of America ("GAAP") to       
analyze and report its financial position and results of operations.            
Management believes that these non-GAAP and operating measures, when used in    
conjunction with the financial statements, can improve the understandability    
of the financial statements and allow readers to evaluate the information       
used by management to analyze company performance.                              

 OPERATING INCOME is a non-GAAP measure used by the Company's management
to supplement its evaluation of Net income. Operating income is "Income         
before cumulative effect of change in accounting principle, after-tax"          
excluding the effects of Realized capital gains and losses, after-tax. In       
this computation, Realized capital gains and losses, after-tax is presented     
net of the effects of deferred policy acquisition costs amortization and        
additional future policy benefits, to the extent that such effects resulted     
from the recognition of realized capital gains and losses.                      

Management believes that the supplemental Operating income information
presented below allows for a more complete analysis of results of operations.   
The net effect of Realized capital gains and losses have been excluded due to   
their volatility between periods and because such data is often excluded when   
evaluating the overall financial performance of insurers. Operating income      
should not be considered as a substitute for any GAAP measure of performance.   
This method of calculating Operating income may be different from the method    
used by other companies and therefore comparability may be limited. A           
reconciliation of Operating income to Net income for the years ended December   
31, is presented in the following table:                                        

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

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                                                                       YEAR ENDED DECEMBER 31,         
                                                                -------------------------------------- 
(IN THOUSANDS)                                                     2002          2001         2000     
                                                                -----------    ---------    ---------- 
                                                                                                       
Operating income                                                $    30,022    $  35,454    $   34,324 

Realized capital gains and losses                                   (10,172)       2,158        (5,181)
Reclassification of DAC amortization                                  1,021       (1,995)         (147)
Income tax benefit (expense)                                          3,308          (58)        1,919 
                                                                -----------    ---------    ---------- 
Realized capital gains and losses, after-tax                         (5,843)         105        (3,409)

Cumulative effect of change in accounting principle, after-tax             -        (147)            - 
                                                                -----------    ---------    ---------- 
Net income                                                      $    24,179    $  35,412    $   30,915 
                                                                ===========    =========    ========== 

PREMIUMS AND DEPOSITS is an operating measure used by the Company's   
management to analyze production trends for sales. Premiums and deposits        
includes premiums on insurance policies and annuities, and all deposits and     
other funds received from customers on deposit-type products which are accounted
for by the Company as liabilities, rather than as revenue. The Company's method 
of calculating Premiums and deposits may be different from methods used by other
companies to measure sales and therefore comparability may be limited.          

   The following table illustrates where Premiums and deposits are reflected
in the financial statements.                                                    

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                                                         YEAR ENDED DECEMBER 31,              
                                         -----------------------------------------------------
(IN THOUSANDS)                               2002                2001               2000      
                                         --------------     ---------------    ---------------
                                                                                              
Premiums                                 $       90,869     $       104,068    $       104,316
Deposits to contractholder funds (1)            760,116             474,849            408,711
Deposits to Separate Accounts and other          96,397             109,048            155,939
                                         --------------     ---------------    ---------------
Total Premiums and deposits              $      947,382     $       687,965    $       668,966
                                         ==============     ===============    ===============

(1) Derived directly from the Statements of Cash Flows.               

OVERVIEW                                                                        

 The Company, a wholly owned subsidiary of ALIC, which is a wholly owned
subsidiary of AIC, a wholly owned subsidiary of the Corporation, markets a      
diversified group of products to meet customers' lifetime needs in the areas of 
financial protection and retirement solutions in the State of New York through  
exclusive Allstate agencies, financial services firms, direct marketing and     
specialized brokers. The Company's products include term life insurance; whole  
life and universal life insurance; annuities such as fixed annuities, market    
value adjusted annuities and treasury-linked annuities; variable annuities;     
immediate annuities; and other protection products such as accidental death and 
hospital indemnity.                                                             

The Company's strategies include developing and delivering            
market-informed products and services, leveraging and building the Allstate     
brand in financial services, building profitable long-term relationships, and   
driving operational scale, efficiency and effectiveness. Consumer and           
distribution partner research will be used to develop and deliver products      
and services. The Company will continue to extend the Allstate brand by using   
it in conjunction with more products and distribution channels, focusing on a   
consistent experience for both producers and customers.  The Company will       
utilize consumer and producer segmentation and target building profitable,      
long-term relationships with producers and consumers.  To drive operational     
scale, efficiency and effectiveness, the Company will focus on enhancing        
operating processes and infrastructure spanning all functional areas            
including product development, customer service and technology.                 

Management has identified the Company as a single segment entity.     

APPLICATION OF CRITICAL ACCOUNTING POLICIES                                     

 The Company has identified four of its accounting policies that, due to
their nature, have required management to make assumptions and estimates that   
are significant to the financial statements at December 31, 2002. It is         
reasonably likely that changes in these assumptions and estimates could occur   
from period to period, and have a material impact on the Company's financial    
statements.                                                                     

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

    A brief summary of each of these critical accounting policies follows. For
a more complete discussion of the judgments and other factors affecting the     
measurement of these policies, see the referenced sections of Management's      
Discussion and Analysis of Financial Condition and Results of Operations        
("MD&A"). There is also a complete summary of the Company's significant         
accounting policies in Note 2 of the financial statements.                      

    INVESTMENTS- Fixed income securities include bonds and mortgage-backed and
asset-backed securities. All fixed income securities are carried at fair value  
and are classified as available for sale. The fair value of publicly traded     
fixed income securities is based on independent market quotations. The fair     
value of non-publicly traded securities, primarily privately placed corporate   
obligations, is based on either widely accepted pricing valuation models which  
utilize internally developed ratings and independent third party data (e.g.,    
term structures and current publicly traded bond prices) as inputs or           
independent third party pricing sources. The valuation models use indicative    
information such as ratings, industry, coupon, and maturity along with related  
third party data and publicly traded bond prices to determine security specific 
spreads. These spreads are then adjusted for illiquidity based on historical    
analysis and broker surveys. Periodic changes in fair values are reported as a  
component of Accumulated other comprehensive income on the Statements of        
Financial Position and are reclassified to Net income only when supported by the
consummation of a transaction with an unrelated third party, or when declines in
fair values are deemed other than temporary.                                    

The Company writes down to fair value a fixed income security that is 
classified as other than temporarily impaired in the period the security is     
deemed to be other than temporarily impaired. The assessment of other than      
temporary impairment is performed on a case-by-case basis considering a wide    
range of factors. Inherent in the Company's evaluation of a particular security 
are assumptions and estimates about the operations of the issuer and its future 
earnings potential. Some of the factors considered in evaluating whether a      
decline in fair value is other than temporary are:                              
        -    The Company's ability and intent to retain the investment for a
               period of time sufficient to allow for an anticipated recovery in
value;                                            
-    The recoverability of principal and interest;          
      -    The duration and extent to which the fair value has been less
than amortized cost for fixed income securities;  
          -    The financial condition, near-term and long-term prospects of the
            issuer, including relevant industry conditions and trends, and
            implications of rating agency actions and offering prices; and
 -    The specific reasons that a security is in a significant
               unrealized loss position, including market conditions which could
affect liquidity.                                 

  There are a number of risks and uncertainties inherent in the process of
monitoring impairments and determining if impairment is other than temporary.   
These risks and uncertainties include the risks that:                           
         -    The economic outlook is worse than anticipated and has a greater
     adverse impact on a particular issuer than anticipated;
          -    The Company's assessment of a particular issuer's ability to meet
            all of its contractual obligations changes based on changes in
     the facts and circumstances related to that issuer; and
      -    New information is obtained or facts and circumstances change
              that cause a change in the Company's ability or intent to hold a
 security to maturity or until it recovers in value.

These risks and uncertainties could result in a charge to earnings in 
future periods to the extent that losses are realized. The charge to earnings,  
while potentially significant to Net income, would not have a significant impact
on Shareholder's equity since the majority of the portfolio is held at fair     
value and as a result, the related unrealized gain (loss), net of tax, would    
already be reflected as Accumulated other comprehensive income in Shareholder's 
equity. For a further discussion of these policies, and quantification of the   
impact of these estimates and assumptions, see the Investments, Market risk and 
Forward-looking statements and risk factors sections of the MD&A.               

DERIVATIVE INSTRUMENTS - Derivative financial instruments include     
financial futures and a re-investment related risk transfer reinsurance         
agreement. Derivatives are accounted for on a fair value basis, and reported    
as Other assets or Other liabilities and accrued expenses. Beginning in         
January 2001, hedge accounting is not applied to those                          

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

strategies that utilize financial futures contracts for interest rate risk      
management purposes. Therefore, the gains and losses pertaining to the change in
the fair value of the financial futures contracts and the reinsurance agreement 
are recognized in Realized capital gains and losses during the period on a      
current basis.                                                                  

 The fair value of the Company's exchange traded derivative contracts is
based on independent market quotations. The fair value of non-exchange traded   
derivative contracts is based on valuation models which utilize independent     
third party data as inputs. Periodic changes in the fair values are reported    
as a component of Net income or liabilities depending on the nature of the      
derivative and the program to which it relates. For further discussion of       
these policies, and quantification of the impact of these estimates and         
assumptions, see the Investments, Market risk and Forward-looking statements    
and risk factors sections of the MD&A.                                          

DEFERRED POLICY ACQUISITION COSTS ("DAC") - The Company establishes a 
deferred asset for certain costs that vary with and are primarily related to    
acquiring business. These costs, principally agents' and brokers' remuneration, 
certain underwriting costs and direct mail solicitation expenses, are deferred  
and amortized to income. Amortization of DAC is reflected on the Statements of  
Operations and Comprehensive Income. All other acquisition expenses are charged 
to operations as incurred, impacting Operating costs and expenses on the        
Statements of Operations and Comprehensive Income.                              

    For traditional life insurance and other premium paying contracts, such as
immediate annuities with life contingencies and limited payment contracts, these
costs are amortized over the premium paying period of the related policies in   
proportion to the estimated revenues on such business. Assumptions relating to  
estimated revenue, as well as to all other aspects of DAC and reserve           
calculations, are determined based upon conditions as of the date of policy     
issue and are generally not revised during the life of the policy. Any          
deviations from projected business inforce, resulting from actual policy        
terminations differing from expected levels, and any estimated premium          
deficiencies change the rate of amortization in the period such events occur.   
Generally, the amortization period for these contracts approximates the         
estimated lives of the contracts.                                               

For internal exchanges of traditional life insurance and immediate    
annuities with life contingencies, the unamortized balance of costs previously  
deferred under the original contracts are charged to income. The new costs      
associated with the exchange are deferred and amortized to income.              

  For interest-sensitive life insurance, variable annuities and investment
contracts, DAC is amortized in relation to the present value of estimated       
gross profits ("EGP") on such business over the estimated lives of the          
contracts. Generally, the amortization period ranges from 15-30 years,          
however an assumed surrender rate is also used which results in the majority    
of deferred costs being amortized over the surrender charge period. The rate    
of amortization during this term is matched to the pattern of EGP. EGP          
consists of the following components: margins from mortality, including         
guaranteed minimum death and income benefits, investment margin, including      
realized capital gains and losses, contract administration, surrender and       
other contract charges, less maintenance expenses. The estimation of EGP        
requires judgment, including the forecasting of highly uncertain events such    
as the level of surrenders at the end of a surrender charge period and, in      
some cases, future equity market performance. In estimating the impact of       
highly uncertain events, the Company considers historical experience as well    
as current trends.                                                              

     In particular, a significant degree of judgment is involved with estimating
future levels of EGP for the Company's variable annuity contracts as future fee 
income and guaranteed minimum death benefits ("GMDBs") are highly sensitive to  
equity market performance. The Company's variable annuity DAC amortization      
methodology includes a long-term market return assumption for account values of 
approximately 9.25%, or 8.0% after average morality and expense fees of 1.25%.  
When market returns vary from the 8.0% long-term expectation or mean, the       
Company assumes a reversion to the mean over a seven-year period, which includes
two prior years and five future years. The assumed returns over this period are 
limited to a range between 0% to 13.25% after mortality and expense fees. The   
costs associated with GMDBs are included in EGP. Generally, less DAC is         
amortized during periods in which the GMDBs are higher than projected. However, 
if projected GMDBs cause DAC to be not fully recoverable, DAC will be written   
down to an amount deemed recoverable.                                           

    The Company currently performs quarterly reviews of DAC recoverability for
interest-sensitive life insurance, variable annuities and investment contracts  
in the aggregate using current assumptions. Future volatility                   

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

in the equity markets of similar or greater magnitude may result in             
disproportionate changes in the amortization of DAC.                            

 If a change in the amount of EGP is significant, it could result in the
unamortized DAC not being recoverable, resulting in a charge which is reflected 
as a component of Amortization of DAC. For quantification of the impact of these
estimates and assumptions on the Company, see the Operating income and          
Forward-looking statements and risk factors sections of the MD&A.               

LIFE INSURANCE RESERVES - Reserves for life-contingent contract       
benefits, which relate to traditional life insurance and immediate annuities    
with life contingencies, are computed on the basis of long-term actuarial       
assumptions of future investment yields, mortality, morbidity, policy           
terminations and expenses. These assumptions, which for traditional life        
insurance are applied using the net level premium method, include provisions    
for adverse deviation and generally vary by such characteristics as type of     
coverage, year of issue and policy duration. Mortality, morbidity and policy    
termination assumptions are based on Company and industry experience            
prevailing at the time of issue.  Expense assumptions include the estimated     
effects of inflation and expenses to be incurred beyond the premium paying      
period. Future investment yield assumptions are determined at the time of       
issue based upon prevailing investment yields as well as forecasted             
reinvestment yields. To the extent that unrealized gains on fixed income        
securities would result in a premium deficiency had those gains actually been   
realized, the related increase in reserve is recorded as a reduction in         
Unrealized net capital gains and losses included in Accumulated other           
comprehensive income. For further discussion of these policies, see the         
Forward-looking statements and Risk factors section of the MD&A.                

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

FINANCIAL HIGHLIGHTS                                                            
  Summarized financial data and key operating measures for the years ended
and as of December 31, are presented in the following table.                    

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                            2002           2001            2000      
                                                      ------------   -------------   ------------- 
                                                                                                   
GAAP Premiums                                         $     90,869   $     104,068   $     104,316 
Contract charges                                            50,082          41,241          41,885 
Net investment income                                      232,967         204,467         176,539 
Contract benefits                                          178,163         185,449         178,960 
Interest credited to contractholder funds                   87,555          73,956          54,339 
Amortization of DAC                                         24,556           5,192          13,597 
Operating costs and expenses                                37,339          31,266          23,985 
                                                      ------------   -------------   ------------- 
Operating income before tax                                 46,305          53,913          51,859 
Income tax expense on operations                            16,283          18,459          17,535 
                                                      ------------   -------------   ------------- 
Operating income (1)                                        30,022          35,454          34,324 
Realized capital gains and losses, after-tax (1)            (5,843)            105          (3,409)
Cumulative effect of change in accounting principle,                                               
   after-tax                                                     -            (147)              - 
                                                      ------------   -------------   ------------- 
Net income                                            $     24,179   $      35,412   $      30,915 
                                                      ============   =============   ============= 

Premiums and deposits (2)                             $    947,382   $     687,965   $     668,966 
                                                      ============   =============   ============= 

Investments                                           $  4,197,516   $   3,227,855   $   2,773,985 
Separate Accounts Assets                                   537,204         602,657         560,089 
                                                      ------------   -------------   ------------- 
Investments, including Separate Accounts Assets       $  4,734,720   $   3,830,512   $   3,334,074 
                                                      ============   =============   ============= 

(1) Further information and a reconciliation of Operating income to Net income  
appear in the Definitions of Non-GAAP and Operating Measures Section of 
the MD&A                                                                

(2) Further information and an illustration of where Premiums and deposits      
are reflected in the financial statements appear in the Definitions of  
Non-GAAP and Operating Measures Section of the MD&A.                    

 PREMIUMS AND CONTRACT CHARGES, included in financial results, represent
GAAP premiums generated from traditional life and other insurance products and  
immediate annuities with life contingencies which have significant mortality or 
morbidity risk. Contract charges are generated from interest-sensitive life     
insurance products, variable annuities, fixed annuities and other investment    
products for which deposits are classified as contractholder funds or Separate  
Accounts liabilities. Contract charges are assessed against the contractholder  
account balance for maintenance, administration, cost of insurance and surrender
prior to the contractually specified dates.                                     

The following table summarizes GAAP premiums and contract charges:    

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                         2002         2001         2000    
                                                    ----------  -----------  ------------
                                                                                         
GAAP PREMIUMS                                                                            
   Traditional life                                 $   22,379  $    25,785  $     17,983
   Immediate annuities with life contingencies (1)      59,723       69,784        78,958
   Other                                                 8,767        8,499         7,375
                                                    ----------  -----------  ------------
     Total GAAP premiums                                90,869      104,068       104,316
                                                    ----------  -----------  ------------

CONTRACT CHARGES                                                                         
   Interest-sensitive life                              36,241       27,960        30,366
   Variable annuities                                   10,657        9,547         8,656
   Other investment contracts                            3,184        3,734         2,863
                                                    ----------  -----------  ------------
     Total contract charges                             50,082       41,241        41,885
                                                    ----------  -----------  ------------
PREMIUMS AND CONTRACT CHARGES                       $  140,951  $   145,309  $    146,201
                                                    ==========  ===========  ============

(1)Under GAAP accounting requirements, only those immediate annuities with life 
 contingencies are recognized in premiums. Those without life contingencies,
called period certain, are recorded directly as liabilities and generate  
contract charges and investment margin.                                   

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

 In 2002, total GAAP premiums decreased 12.7% compared to 2001. Premiums
from immediate annuities with life contingencies decreased 14.4%. The sales mix 
of immediate annuities with life contingencies and those without life           
contingencies can cause fluctuations in premiums and contract charges from year 
to year. Overall, immediate annuities were down 16.4% compared to prior year as 
the competitive environment for structured settlement annuities and the         
Company's focus on new sales meeting targeted returns reduced sales. Traditional
life GAAP premiums decreased 13.2% when compared to 2001 as a result of the     
consumer shift to interest-sensitive life insurance from traditional whole life 
products.                                                                       

  In 2001, total GAAP premiums were comparable to 2000. Increased premiums
from traditional life and other products were more than offset by a decrease in 
premiums from immediate annuities with life contingencies. The increase in sales
of traditional products resulted, in part, due to an increase in retention      
limits associated with third party reinsurance instituted during the year.      

 Contract charges increased 21.4% in 2002 compared to 2001 due primarily
to increased contract charges on interest-sensitive life insurance resulting    
from increased customer account values. Variable annuity contract charges       
increased 11.6% due to fees received on new deposits more than offsetting the   
impact of declines in account values resulting from poor equity market          
performance. Contract charges on variable annuities are generally calculated    
as a percentage of account value. Variable annuities are typically invested     
in equity mutual funds and therefore contract charges assessed as a             
percentage of account value are impacted by equity market volatility.           
Contract charges on other investment contracts decreased 14.7% compared to      
prior year.                                                                     

In 2001, contract charges remained fairly constant with 2000 as lower 
contract charges from interest-sensitive life insurance were partially offset by
increased contract charges from variable annuities and other investment         
contracts. Contract charges on immediate annuities without life contingencies,  
included in other investment contract charges, increased due to an increase in  
new deposits.                                                                   

     PREMIUMS AND DEPOSITS by product line is summarized in the following table:

                                                                [Download Table]

(IN THOUSANDS)                          2002         2001         2000    
                                    -----------  -----------  ------------
                                                                          
LIFE AND OTHER PRODUCTS                                                   
   Interest-sensitive life          $    54,962  $    47,684  $     50,726
   Traditional life                      23,016       27,764        20,220
   Other                                  8,763        8,510         7,415
                                    -----------  -----------  ------------
     Total life and other products       86,741       83,958        78,361
                                    -----------  -----------  ------------

INVESTMENT PRODUCTS                                                       
   Fixed annuities                      334,246      196,321       177,092
   Immediate annuities                  105,760      126,509       129,203
   Variable annuities                   420,635      281,177       284,310
                                    -----------  -----------  ------------
     Total investment products          860,641      604,007       590,605
                                    -----------  -----------  ------------
TOTAL PREMIUMS AND DEPOSITS         $   947,382  $   687,965  $    668,966
                                    ===========  ===========  ============

     Premiums and deposits increased $259.4 million or 37.7% in 2002 as compared
to 2001. In 2002, fixed annuities increased 70.3% from increased sales in the   
financial services firms channel and increased focus on investment products sold
within the Allstate agencies channel. Variable annuity sales increased 49.6% in 
2002 compared to 2001. Attractive crediting rates on the variable annuity       
products' fixed funds drove additional sales in most distribution channels,     
while an increase in the number of Allstate agents licensed to sell variable    
annuity products increased their variable annuity sales to new record levels.   
Interest-sensitive life insurance and other life products increased 15.3% and   
3.0%, respectively, compared to 2001, as consumer preference for                
interest-sensitive life insurance continues to replace traditional whole life   
insurance contributing to the 17.1% decrease in traditional life products       
premiums.                                                                       

   Premiums and deposits increased $19.0 million or 2.8% in 2001 as compared
to 2000. In 2001, fixed annuities increased 10.9% from increased sales in the   
financial services firms channel and increased focus on investment products sold
within the Allstate agencies channel. Traditional life and other life products  
increased                                                                       

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

37.3% and 14.8%, respectively, due to strong sales stemming from a pricing      
change implemented late in 2000. In 2001, interest-sensitive life insurance     
products and variable annuities decreased 6.0% and 1.1%, respectively, due to   
market conditions.                                                              

OPERATING INCOME is presented in the following table.                 

                                                                [Download Table]

(IN THOUSANDS)                       2002         2001         2000    
                                  ----------   ----------   ---------- 
                                                                       
Investment margin                 $   52,278   $   45,869   $   38,476 
Mortality margin                      29,739       20,025       27,260 
Maintenance charges                   21,637       20,381       20,302 
Surrender charges                      4,546        4,096        3,403 
Amortization of DAC                  (24,556)      (5,192)     (13,597)
Operating costs and expenses         (37,339)     (31,266)     (23,985)
Income tax expense on operations     (16,283)     (18,459)     (17,535)
                                  ----------   ----------   ---------- 
OPERATING INCOME                  $   30,022   $   35,454   $   34,324 
                                  ==========   ==========   ========== 

Operating income decreased 15.3% in 2002 from 2001 due primarily to an
increase in DAC amortization and higher Operating costs and expenses, partly    
offset by increases in the investment and mortality margins. Operating income   
increased 3.3% in 2001 compared to 2000 due to decreases in the mortality margin
being more than offset by increases in the investment margin and surrender      
charges.                                                                        

    INVESTMENT MARGIN, which represents the excess of investment income earned
over interest credited to policyholders and contractholders, increased 14.0%    
during 2002 compared to 2001. The increased investment margin is a result of    
growth in portfolio balances of 24.3% as of December 31, 2002 compared to       
December 31, 2001. This portfolio growth is a result of new sales of fixed and  
immediate annuities. The impact of greater portfolio balances was partly offset 
by a decline in portfolio yields from lower market interest rates affecting the 
yield on the investment of cash flows from operations and investments. Another  
development affecting investment margin was a shift to sales of investment      
products with lower investment margins such as market value adjusted annuities. 
Management actions taken in 2002 and 2001 to reduce crediting rates, where      
contractually allowed, have partially offset the impact on investment margin    
from the decline in portfolio yields.                                           

 The investment margin increased 19.2% during 2001 compared to 2000 as a
result of growth in portfolio balances of 17.7% as of December 31, 2001 compared
to December 31, 2000. This increase was primarily driven by sales of new fixed  
annuities, less contract benefits, surrenders and withdrawals.                  

   The following table summarizes the weighted average investment yields and
the weighted average interest crediting rates during 2002, 2001 and 2000.       
These averages are affected by the concentration of structured settlement       
annuities included in the fixed rate contracts category below.                  

                                                        [Enlarge/Download Table]

                                       WEIGHTED AVERAGE             WEIGHTED AVERAGE     
                                       INVESTMENT YIELD          INTEREST CREDITING RATE 
                                  --------------------------   --------------------------

                                  2002       2001       2000   2002       2001       2000
                                  ----       ----       ----   ----       ----       ----
                                                                                         
Interest-sensitive life products   6.8%       7.1%       7.1%   5.0%       5.2%      5.2%
Fixed rate contracts               7.5        8.0        8.0    6.2        6.7       6.8 

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

The following table summarizes Contractholder funds and Reserve for   
life-contingent contract benefits associated with the weighted average          
investment yield and weighted average interest crediting rates at December 31.  

                                                        [Enlarge/Download Table]

(IN MILLIONS)                                                   2002          2001           2000    
                                                                ----          ----           ----    
                                                                                                     
Interest-sensitive life products                            $    275,360  $     256,462  $    233,320
Fixed rate contracts                                           3,091,582      2,387,239     1,989,174
                                                            ------------  -------------  ------------
                                                               3,366,942      2,643,701     2,222,494
FAS 115/133 market value adjustment                              149,506         13,511        26,500
Life-contingent contracts and other                               91,608         88,717        84,850
                                                            ------------  -------------  ------------
Total Contractholder funds and Reserve for life-contingent                                           
    contract benefits                                       $  3,608,056  $   2,745,929  $  2,333,844
                                                            ============  =============  ============

   MORTALITY MARGIN, which represents premiums and cost of insurance charges
less related policy benefits, increased 48.5% in 2002 compared to last year. The
mortality margins in 2001 reflect the impact of the September 11, 2001 attack on
the World Trade Center in New York City. Premiums and cost of insurance contract
charges on new business have improved the mortality margin compared to prior    
year. Mortality and morbidity loss experience can cause benefit payments to     
fluctuate from period to period while underwriting and pricing guidelines are   
based on a long-term view of the trends in mortality and morbidity.             

   Mortality margin includes results from both immediate annuities with life
contingencies and traditional life insurance. For immediate                     
annuities with life contingencies, an increase in the death rate reduces the    
number and cost of future contract benefit payments. Conversely, life insurance 
contracts are favorably affected by decreases in death rates because            
beneficiaries receive full death benefits but premiums are collected over a     
longer period of time than expected when the product was priced. The immediate  
annuities sold with life contingencies act as a hedge or offset to the risk of  
increased death rates. In determining premium rates, the Company uses           
underwriting and pricing guidelines with a long-term view of mortality rates.   
However, the effects of mortality can cause benefit expense to fluctuate from   
period to period.                                                               

 Contract benefits paid include cash payments for variable annuity GMDBs
totaling $2.7 million, $955 thousand and $63 thousand for the years ended       
December 31, 2002, 2001 and 2000, respectively. The increases over this         
three-year period reflect poor equity market performance. Variable annuity      
contractholder activity, including surrender, withdrawal, asset allocation, and 
annuitization, could have a significant impact on the ultimate cost of providing
guaranteed minimum death benefits.                                              

AMORTIZATION OF DAC, included in the Operating income table on page 9,
increased 373.0% during 2002 compared to 2001 due to the acceleration of        
amortization in 2002, as discussed below, and the ongoing growth of the         
business inforce. DAC amortization decreased 61.8% during 2001 compared to      
2000 as amortization on interest-sensitive life insurance was decelerated in    
part due to the death benefits related to the events of September 11, 2001.     

   The steep and sustained decline in the equity markets in 2002 changed the
amount and timing of variable annuity EGP and resulted in the acceleration of   
DAC amortization, often called "DAC unlocking" on variable annuities. Declines  
in equity market performance reduce future or expected fee income and may       
increase the exposure to GMDB policy benefits. Such events generally reduce EGP,
which may in turn require further DAC unlocking of the variable annuity DAC     
asset. Future volatility in the equity markets of similar or greater magnitude  
may result in disproportionate changes in the amortization of DAC.              

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

The following table summarizes the DAC asset balance by product.      

                                                                [Download Table]

                                                          DECEMBER 31,           
                             AMORTIZATION       ---------------------------------
(IN THOUSANDS)                  PERIOD              2002                2001     
                         ---------------------  -------------       -------------
                                                                                 
Traditional Life              7-30 year         $      32,371       $      27,757
Other                                                   4,016               3,946
                                                -------------       -------------
                                                       36,387              31,703
                                                -------------       -------------

Interest-sensitive life        30 years                59,752              59,574
Fixed annuity                  15 years                 9,406              14,701
Variable annuity               15 years                61,380              50,637
                                                -------------       -------------
                                                      130,538             124,912
                                                -------------       -------------
TOTAL DAC                                       $     166,925       $     156,615
                                                =============       =============

The factors causing a change in DAC asset balances for the year ended 
December 31 are summarized in the following table.                              

                                                        [Enlarge/Download Table]

                           BEGINNING                                            EFFECT OF        ENDING    
                            BALANCE       ACQUISITION       AMORTIZATION        UNREALIZED       BALANCE   
                          DECEMBER 31,      COSTS            CHARGED TO       CAPITAL GAINS    DECEMBER 31,
(IN THOUSANDS)               2001          DEFERRED           INCOME            AND LOSSES         2002    
                         -------------  ---------------  -----------------   ---------------   ------------
                                                                                                           
Traditional life         $      27,757  $         6,001  $          (1,387)  $             -   $     32,371
Other                            3,946            1,010               (940)                -          4,016
Interest-sensitive life         59,574            6,443             (5,883)             (382)        59,752
Variable annuities              50,637           22,328            (13,649)            2,064         61,380
Investment contracts            14,701           21,070             (1,676)          (24,689)         9,406
                         -------------  ---------------  -----------------   ---------------   ------------
Total                    $     156,615  $        56,852  $         (23,535)  $       (23,007)  $    166,925
                         =============  ===============  =================   ===============   ============

                                                        [Enlarge/Download Table]

                           BEGINNING                                            EFFECT OF        ENDING    
                            BALANCE       ACQUISITION       AMORTIZATION        UNREALIZED       BALANCE   
                          DECEMBER 31,      COSTS            CHARGED TO       CAPITAL GAINS    DECEMBER 31,
(IN THOUSANDS)               2000          DEFERRED           INCOME            AND LOSSES         2001    
                         -------------  ---------------  -----------------   ---------------   ------------
                                                                                                           
Traditional life         $      23,957  $         6,332  $          (2,532)  $             -   $     27,757
Other                            3,693            1,261             (1,008)                -          3,946
Interest-sensitive life         52,720            7,714              1,879            (2,739)        59,574
Variable annuities              29,580           24,268             (1,149)           (2,062)        50,637
Investment contracts            14,651           11,619             (4,377)           (7,192)        14,701
                         -------------  ---------------  -----------------   ---------------   ------------
Total                    $     124,601  $        51,194  $          (7,187)  $       (11,993)  $    156,615
                         =============  ===============  =================   ===============   ============

   OPERATING COSTS AND EXPENSES increased 19.4% during 2002 compared to 2001
due to distribution expenses incurred on new growth initiatives and increased   
administrative expenses supporting the growth of the Company. Costs and expenses
increased 30.4% during 2001 compared to 2000 due to higher marketing, technology
and distribution expenses incurred on new growth initiatives.                   

COMPANY OUTLOOK                                                                 

-    The Company's ability to manage its investment margin is dependent upon    
 maintaining adequately profitable spreads between investment yields and
   interest crediting rates on inforce business. As interest rates change or
     remain at historically low levels, assets may be reinvested at lower yields
that compress investment margin. The Company has the ability to impact
    the investment margin by changing the interest crediting rates on flexible
rate contracts. However, these changes could be limited by market     
conditions, and regulatory minimum rates or contractual minimum rate  
guarantees on many contracts and may not match                        

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OF OPERATIONS (CONT.)                                         

   the timing or magnitude of changes in asset yields. The level of defaults
     may also affect investment income. The Company will continually monitor its
   risk limits related to credit quality and duration as well as monitor and
adjust its crediting rates.                                           

-    A portion of the Company's contract charge revenue is dependent upon the   
value of the accounts supporting its variable annuity products. Most  
  account values for these products are invested, at the discretion of the
contractholder, in Separate Accounts invested primarily in equity     
securities. Therefore, future equity market performance has a         
significant impact on contract charge revenue and benefit guarantees  
which are key drivers of the returns on these products.               

-    Variable annuity DAC is amortized in relation to the present value of      
 EGP over the estimated lives of the contracts. Future levels of EGP are
highly sensitive to future equity market performance. Changes in the  
amount or timing of EGP may result in adjustments in the cumulative   
amortization of DAC.                                                  

-    In order to maintain an acceptable target return, the Company needs to     
design and sell products having interest crediting rates with adequate
 spreads to investment returns. If investments with appropriate maturity
 and risk adjusted returns to support pricing targets are not available,
product sales will be restricted. For this reason, fixed annuity sales
volume will vary in the future as dictated by market conditions.      

-    The Company is undertaking various expense-saving initiatives to           
 increase profitability. These initiatives will include creating greater
 efficiencies, simplifying operations and focusing on distribution among
the current channels. The efficacy of these expense-saving initiatives
is difficult to predict due to external factors and technology costs. 

-    In order to compete with major insurance company competitors, as well as   
non-traditional competitors such as banks, financial service firms and
securities firms, the Company will have to provide products that are  
considered competitive by its distribution channels and customers.    
Additionally, to meet its return targets, the Company must distribute 
its products within its pricing parameters. The Company plans to focus
  its efforts by deepening relationships with its more productive and more
profitable distribution partners.                                     

INVESTMENT RESULTS                                                              

 PRE-TAX NET INVESTMENT INCOME increased 13.9% in 2002 compared to 2001.
The increase was due to higher portfolio balances partially offset by           
slightly lower portfolio yields. In 2002, lower portfolio yields were due to    
investments made in the low interest rate environment. At December 31, 2002,    
portfolio balances, excluding Separate Accounts and net unrealized gains and    
losses on fixed income securities, increased 24.3% compared to December 31,     
2001 due to net cash provided from operating and financing activities.          

 After-tax realized capital losses were $5.8 million in 2002 compared to
after-tax realized capital gains of $105 thousand in 2001. After-tax realized   
capital gains and losses are presented net of the effects of DAC                
amortization, to the extent that such effects resulted from the recognition     
of realized capital gains and losses.                                           

  The following table describes the factors driving the after-tax realized
capital gains and losses results.                                               

                                                        [Enlarge/Download Table]

                                                              YEAR ENDED DECEMBER 31            
                                                    ------------------------------------------- 
(IN THOUSANDS)                                         2002            2001            2000     
                                                    -----------     -----------     ----------- 
                                                                                                
Investment write-downs                              $   (10,064)    $      (885)    $    (2,424)
Sales                                                     3,431           2,172          (1,337)
Valuation of derivative instruments                        (130)              -               - 
Other                                                       268             107             446 
                                                    -----------     -----------     ----------- 
Subtotal                                                 (6,495)          1,394          (3,315)
Reclassification of Amortization of DAC                     652          (1,289)            (94)
                                                    -----------     -----------     ----------- 
Total realized capital gains and losses, after-tax  $    (5,843)    $       105     $    (3,409)
                                                    ===========     ===========     =========== 

For a further discussion of realized capital gains and losses, see the
Investments discussion following.                                               

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

INVESTMENT OUTLOOK                                                              

-    As the Company continues to receive Premiums and deposits, investment of   
these increased cash flows in available high quality securities with  
acceptable yields will be a focus.                                    

-    The Company expects to experience lower investment yields as positive cash 
flows from operations and investment activities are invested at       
 market yields that are less than the average portfolio rate, and as the
lower rate environment impacts securities with variable yields.       

-    The Company expects to incur realized capital losses while the corporate   
credit environment remains under pressure.                            

INVESTMENTS                                                                     

 An important component of the Company's financial results is the return
on portfolio balances. The investment portfolios are managed based upon the     
nature of the business and its corresponding liability structure.               

 The investment strategy for the Company is based upon a strategic asset
allocation framework that takes into account the need to manage on a risk       
adjusted spread basis for the product portfolio and to maximize return on       
capital. Generally, a combination of recognized market modeling, analytical     
models and proprietary models is used to achieve a desired asset mix in the     
management of the portfolio. The strategic asset allocation model portfolio     
is the primary basis for setting annual asset allocation targets with respect   
to interest sensitive, illiquid and credit asset allocations as well as         
limitations with respect to overall below investment grade exposure and         
diversification requirements. On a tactical basis, decisions are made on an     
option adjusted relative value basis staying within the constraints of the      
strategic asset allocation framework. The Company believes it maximizes asset   
spread by selecting assets that perform on a long-term basis and by using       
periodic sales of securities to minimize the effect of downgrades and           
defaults. Total return measurement is used on a selective basis where the       
asset risks are significant (e.g., high yield fixed income securities,          
convertible bonds). The Company expects that employing this strategy will       
minimize interest rate market impacts on investment income. This strategy is    
also expected to provide sustainable investment-related income over time.       

The composition of the investment portfolio is presented in the table 
below. See Notes 2 and 4 to the financial statements for investment             
accounting policies and additional information.                                 

                                                        [Enlarge/Download Table]

                                         DECEMBER 31, 2002                     DECEMBER 31, 2001        
                             --------------------------------------- -----------------------------------
                                    CARRYING          PERCENT            CARRYING           PERCENT     
(IN THOUSANDS)                       VALUE            OF TOTAL            VALUE             OF TOTAL    
                                 ---------------    -------------     ---------------     ------------- 
                                                                                                        
Fixed income securities (1)      $     3,736,416             89.0%    $     2,894,461              89.7%
Mortgage loans                           323,142              7.7             242,727               7.5 
Short-term                               104,200              2.5              57,507               1.8 
Policy loans                              33,758              0.8              33,160               1.0 
                                 ---------------    -------------     ---------------     ------------- 
     Total                       $     4,197,516            100.0%    $     3,227,855             100.0%
                                 ===============    =============     ===============     ============= 

(1) Fixed income securities are carried at fair value. Amortized cost basis for 
 these securities was $3.28 billion and $2.68 billion at December 31, 2002
and 2001, respectively.                                                 

Total investments were $4.20 billion at December 31, 2002 compared to 
$3.23 billion at December 31, 2001. The increase was due to positive cash       
flows generated from operations and financing activities and unrealized         
gains on fixed income securities.                                               

The fair value of the Company's publicly traded marketable investment 
securities is based on independent market quotations. The fair value of         
non-publicly traded securities, primarily privately placed corporate            
obligations, is based on either widely accepted pricing valuation models which  
utilize internally developed ratings and independent third party data (e.g.,    
term structures and current publicly traded bond prices) as inputs or           
independent third party pricing sources. The valuation models use indicative    
information such as ratings, industry, coupon, and maturity along with related  
third party data and publicly traded bond prices to determine                   

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OF OPERATIONS (CONT.)                                         

security specific spreads. These spreads are then adjusted for illiquidity based
on historical analysis and broker surveys. Some factors, such as the illiquidity
premium that differentiates the private market from the public market, are      
difficult to observe and to characterize. As such, the valuation process        
involves key assumptions for such factors. Although these assumptions are       
reviewed on a periodic basis and the Company believes that the valuation model  
produces estimates that reasonably reflect the fair value of the overall        
portfolio, there can be specific factors that would cause the fair value of a   
particular holding to deviate from the calculated valuation.                    

As of December 31, 2002, the key assumptions used to estimate the fair
value of privately placed corporate obligations included the following:         
     -    Risk free interest rates are based on the current yield curve for U.S.
   Treasuries with 10 term points ranging from 1 year to 30 years.
-    Current public corporate spreads for 22 sectors in 16 quality    
      categories are based on the Bloomberg fair market industrial yield
 curve and the median Lehman sector spreads over the Bloomberg
industrial curve.                                           
  -    The 22 sectors include airlines, banking, basic industry,
           brokerage, capital goods, chemicals, communications, consumer
              cyclical - auto, consumer cyclical - services, consumer cyclical
        - others, consumer non-cyclical, electric, energy, finance
         companies, insurance, natural gas, other industrial, REITS,
              technology, telecommunications, transportation, and water. Since
              the water sector has no public market counterpart, sector spread
            for this sector is based on selected broker quotes and analyst
estimates.                                        
-    The 16 quality categories range from AAA to B3.        
     -    An additional 25 basis points are added to public corporate spreads to
compensate for illiquidity.                                 
-    Watch-list securities are conservatively priced at the lower of  
     analyst price or an adjusted model price for a rating that is one
category lower and are capped at 100.                       

The following table shows the Company's investment portfolio, and the 
sources of its fair value, at December 31, 2002.                                

                                                                [Download Table]

(IN THOUSANDS)                                        FAIR         PERCENT     
                                                      VALUE        TO TOTAL    
                                                   ------------  ------------- 
                                                                               
Value based on independent market quotations       $  2,988,040           71.2%
Value based on models and other valuation methods       852,576           20.3 
Mortgage loans and policy loans, valued at cost         356,900            8.5 
                                                   ------------  ------------- 
     Total                                         $  4,197,516          100.0%
                                                   ============  ============= 

 The fair value of the Company's exchange traded derivative contracts is
based on independent market quotations. The fair value of non-exchange traded   
derivative contracts is based on valuation models which                         
utilize independent third party data as inputs. Periodic changes in the fair    
values are reported as a component of either Net income, Other comprehensive    
income, assets or liabilities depending on the nature of the derivative and the 
program to which it relates.                                                    

The following table shows the Company's derivative contracts, and the 
sources of their fair value, at December 31, 2002.                              

                                                                [Download Table]

(IN THOUSANDS)                                       FAIR     
                                                     VALUE    
                                                   ---------- 
                                                              
Value based on independent market quotations       $      (26)
Value based on models and other valuation methods        (209)
                                                   ---------- 
   Total                                           $     (235)
                                                   ========== 

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

     The following table presents the amortized cost, gross unrealized gains and
losses and fair value for fixed income securities.                              

                                                        [Enlarge/Download Table]

                                                          GROSS UNREALIZED                          
                                      AMORTIZED    --------------------------------       FAIR      
(IN THOUSANDS)                          COST           GAINS            LOSSES            VALUE     
                                    -------------  --------------    --------------   --------------
                                                                                                    

AT DECEMBER 31, 2002                                                                                
U.S. government and agencies        $     431,768  $      176,323    $            -   $      608,091
Municipal                                 119,041           7,135               (20)         126,156
Corporate                               1,894,805         208,475           (25,384)       2,077,896
Foreign government                        187,833          54,381                 -          242,214
Mortgage-backed securities                594,087          30,185            (1,010)         623,262
Asset-backed securities                    55,740           3,058                (1)          58,797
                                    -------------  --------------    --------------   --------------
     Total fixed income securities  $   3,283,274  $      479,557    $      (26,415)  $    3,736,416
                                    =============  ==============    ==============   ==============

AT DECEMBER 31, 2001                                                                                
U.S. government and agencies        $     419,492  $       96,208    $         (517)  $      515,183
Municipal                                 150,543           3,695               (47)         154,191
Corporate                               1,467,636          96,973           (18,492)       1,546,117
Foreign government                        160,115          21,710               (16)         181,809
Mortgage-backed securities                425,635          16,737              (228)         442,144
Asset-backed securities                    54,844           1,081              (908)          55,017
                                    -------------  --------------    --------------   --------------
     Total fixed income securities  $   2,678,265  $      236,404    $      (20,208)  $    2,894,461
                                    =============  ==============    ==============   ==============

     The Unrealized net capital gains on fixed income securities at December 31,
2002 were $453.1 million, an increase of $236.9 million or 109.6% since December
31, 2001. Unrealized losses were primarily concentrated in the corporate fixed  
income portfolio.                                                               

FIXED INCOME SECURITIES                                                         

The Company's fixed income securities include bonds, such as municipal
bonds, privately placed bonds and publicly traded corporate bonds, U.S.         
government bonds, mortgage-backed and asset-backed securities. All fixed income 
securities are carried at fair value and are classified as available for sale.  
Periodic changes in fair values are reported as a component of Other            
comprehensive income net of deferred taxes, certain life and annuity DAC and    
certain reserves for life-contingent benefits and are reclassified to Net income
only when supported by the consummation of a transaction with an unrelated third
party, or when declines in fair values are deemed other than temporary.         

    Fixed income securities issued by U.S. government and agencies of the U.S.
government totaled $608.1 million at December 31, 2002 compared to $515.2       
million at December 31, 2001. All of these securities are rated investment grade
at December 31, 2002.                                                           

Municipal bonds, including tax-exempt and taxable securities, comprise
$126.2 million or 3.4% of the Company's fixed income securities portfolio at    
December 31, 2002. Investment grade municipal bonds represent 99.0% of the total
$126.2 million. Approximately 4% of the municipal bond portfolio is insured by  
four bond insurers and the bonds accordingly have a rating of Aaa. The municipal
bond portfolio at December 31, 2002 consisted of 13 issues from 11 issuers.     

  Public corporate obligations totaled $1.07 billion at December 31, 2002,
and 93.1% of these obligations were rated investment grade. As of December 31,  
2002, the fixed income securities portfolio contained $1.01 billion of privately
placed corporate obligations compared to $879.7 million at December 31, 2001.   
The benefits of privately placed securities as compared to public securities are
generally higher yields, improved cash flow predictability through pro-rata     
sinking funds on many bonds, and a combination of covenant and call protection  
features designed to better protect the holder against losses resulting from    
credit deterioration, reinvestment risk and fluctuations in interest rates. A   
relative disadvantage of privately placed securities as compared to public      
securities is reduced liquidity. At December 31, 2002, 90.2% of the privately   
placed securities were rated as                                                 

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

investment grade by either the National Association of Insurance Commissioners  
("NAIC") or the Company's internal ratings. The Company determines the fair     
value of privately placed fixed income securities based on discounted cash flows
using current interest rates for similar securities.                            

    Foreign government securities totaled $242.2 million and $181.8 million at
December 31, 2002 and 2001, respectively. All of the securities were rated      
investment grade at December 31, 2002.                                          

At December 31, 2002 and 2001, $623.3 million and $442.1 million,     
respectively, of the fixed income securities portfolio was invested in          
mortgage-backed securities ("MBS"). The MBS portfolio consists primarily of     
securities that were issued by, or have underlying collateral that is guaranteed
by, U.S. government agencies or sponsored entities. Therefore, the MBS portfolio
has relatively low credit risk.                                                 

The MBS portfolio is subject to interest rate risk since the price    
volatility and ultimate realized yield are affected by the rate of repayment of 
the underlying mortgages. The Company attempts to limit interest rate risk on   
these securities by investing a portion of the portfolio in securities that     
provide prepayment protection. At December 31, 2002, approximately 50.6% of the 
MBS portfolio was invested in planned amortization class bonds or the           
equivalent.                                                                     

 The fixed income securities portfolio contained $58.8 million and $55.0
million of asset-backed securities ("ABS") at December 31, 2002 and 2001,       
respectively. The ABS portfolio is subject to credit and interest rate risk.    
Credit risk is mitigated by monitoring the performance of the collateral.       
Approximately 88.1% of the ABS portfolio is rated in the highest rating category
by one or more credit rating agencies. The ABS portfolio is subject to interest 
rate risk since the price volatility and ultimate realized yield are affected by
the rate of repayment of the underlying assets. Approximately 23.6% of the      
Company's ABS portfolio is invested in securitized credit card receivables. The 
remainder of the portfolio is backed primarily by securitized home equity,      
manufactured housing, and auto loans.                                           

At December 31, 2002, 95.4% of the Company's fixed income securities  
portfolio was rated investment grade, which is defined by the Company as a      
security having a rating from the NAIC of 1 or 2, a Moody's equivalent rating of
Aaa, Aa, A or Baa, or a comparable Company internal rating.                     

The following table summarizes the credit quality of the fixed income 
securities portfolio.                                                           

(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

      NAIC                                                                  FAIR           PERCENT     
    RATINGS        MOODY'S EQUIVALENT DESCRIPTION                          VALUE          TO TOTAL     
-----------------  --------------------------------------------------  ---------------  -------------- 
                                                                                                       
       1           Aaa/Aa/A                                            $     2,648,406            70.9%
       2           Baa                                                         914,376            24.5 
       3           Ba                                                          132,410             3.5 
       4           B                                                            21,494             0.6 
       5           Caa or lower                                                  7,402             0.2 
       6           In or near default                                           12,328             0.3 
                                                                       ---------------  -------------- 
                                                                       $     3,736,416           100.0%
                                                                       ===============  ============== 

  All of the securities with a NAIC rating of 5 or 6 and 38% of securities
with an NAIC rating of 4 are reflected in securities defined as problem or      
potential problem as described on page 18. These securities represent 0.7% of   
the fixed income securities portfolio at December 31, 2002.                     

FIXED INCOME PORTFOLIO MONITORING                                               

   The Company writes down to fair value any fixed income security that is
classified as other than temporarily impaired in the period the security is     
deemed to be other than temporarily impaired. Inherent in the Company's         
evaluation of a particular security are assumptions and estimates about the     
operations of the issuer and its future                                         

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

earnings potential. Some of the factors considered in evaluating whether a      
decline in fair value is other than temporary are:                              
              -  The Company's ability and intent to retain the investment for a
                period of time sufficient to allow for an anticipated recovery
in value;                                     
-  The recoverability of principal and interest;    
            -  The duration and extent to which the fair value has been less
  than amortized cost for fixed income securities;
            -  The financial condition, near-term and long-term prospects of
                the issuer, including relevant industry conditions and trends,
                and implications of rating agency actions and offering prices;
and                                           
       -  The specific reasons that a security is in a significant
             unrealized loss position, including market conditions which
could affect liquidity.                       

  There are a number of risks and uncertainties inherent in the process of
monitoring impairments and determining if an impairment is other than temporary.
These risks and uncertainties include the risks that:                           
       -  The economic outlook is worse than anticipated and has a
                 greater adverse impact on a particular issuer than anticipated;
           -  The Company's assessment of a particular issuer's ability to
          meet all of its contractual obligations changes based on
                changes in the facts and circumstances related to that issuer;
and                                           
            -  New information is obtained or facts and circumstances change
                that cause a change in the Company's ability or intent to hold
       a security to maturity or until it recovers in value.

These risks and uncertainties could result in a charge to earnings in 
future periods to the extent that losses are realized. The charge to            
earnings, while potentially significant to Net income, would not have a         
significant impact on Shareholder's equity since the majority of the            
portfolio is held at fair value and as a result, the related unrealized gain    
(loss), net of tax, would already be reflected as Accumulated other             
comprehensive income in Shareholder's equity.                                   

  The Company has an extensive monitoring process to identify fixed income
securities whose carrying value may be other than temporarily impaired. This    
process includes a quarterly review of all securities using a screening process 
to identify those securities whose fair value compared to amortized cost for    
fixed income securities is below established thresholds and time periods, or    
which are identified through other monitoring criteria such as ratings          
downgrades or payment defaults. Securities with an unrealized loss of greater   
than 20% of their amortized cost for fixed income securities for a period of six
months or more, are identified through this process. The securities identified, 
in addition to other securities for which the Company may have concern, are     
evaluated based on facts and circumstances for inclusion on a watch list.       
Securities on the watch list are reviewed in detail to determine whether any    
other than temporary impairment exists.                                         

   The following table contains the individual securities as of December 31,
2002, with the ten largest unrealized losses:                                   

(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                          FAIR         UNREALIZED           NAIC     
DESCRIPTION                               VALUE          LOSSES            RATING    
--------------------------------------  ----------  ------------------   ------------
                                                                                     
Major U.S. airline                      $    6,283  $           (2,788)       3      
Aggregates supplier                          5,801              (2,191)       3      
Electricity generator                        2,985              (2,030)       3      
Electricity generator                        3,446              (1,444)       3      
Electric & gas utility holding company       3,596              (1,401)       2      
Large manufacturing conglomerate             6,580              (1,189)       3      
Large international telecom company          8,383              (1,114)       2      
Major U.S. airline                           1,093                (933)       3      
Major U.S. airline                           4,639                (927)       3      
Electric & gas utility holding company       2,156                (840)       2      

                                        ----------  ------------------               
  Total                                 $   44,962  $          (14,857)              
                                        ==========  ==================               

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

     The Company monitors the quality of its fixed income portfolio, in part, by
categorizing certain investments as problem, restructured or potential problem. 
Problem fixed income securities are securities in default with respect to       
principal and/or interest and/or securities issued by companies that have gone  
into bankruptcy subsequent to the Company's acquisition of the security.        
Restructured fixed income securities have modified terms and conditions that    
were not at current market rates or terms at the time of the restructuring.     
Potential problem fixed income securities are current with respect to           
contractual principal and/or interest, but because of other facts and           
circumstances, management has serious concerns regarding the borrower's ability 
to pay future principal and interest, which causes management to believe these  
securities may be classified as problem or restructured in the future.          

The following table summarizes problem and potential problem fixed income 
securities at December 31.                                                      

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                               2002                                         2001                    
                          -------------------------------------------   ----------------------------------------- 
                                                           PERCENT                                      PERCENT   
                                                          OF TOTAL                                     OF TOTAL   
                                                            FIXED                                        FIXED    
                            AMORTIZED          FAIR        INCOME         AMORTIZED        FAIR         INCOME    
                              COST            VALUE       PORTFOLIO         COST           VALUE       PORTFOLIO  
                          --------------    ----------   ------------   -------------    ---------    ----------- 
                                                                                                                  
Problem                   $       23,395    $   21,177            0.5%  $       6,711    $   5,279            0.2%
Potential problem                  6,212         6,651            0.2               -            -              - 
                          --------------    ----------   ------------   -------------    ---------    ----------- 
Total net carrying value  $       29,607    $   27,828            0.7%  $       6,711    $   5,279            0.2%
                          ==============    ==========   ============   =============    =========    =========== 
Cumulative write-downs                                                                                            
    recognized            $       15,446                                $         174                             
                          ==============                                =============                             

The Company has experienced an increase in its balance of fixed income
securities categorized as problem or potential problem as of December 31, 2002  
compared to December 31, 2001. The Company had no fixed income securities       
categorized as restructured at December 31, 2002 or 2001. The increases in      
problem and potential problem assets primarily resulted from poor operating     
fundamentals as well as liquidity constraints in the utilities, transportation  
and energy sectors of the market in 2002. The Company expects eventual recovery 
in these sectors but evaluated each fixed income security in these sectors      
through its watch list process at December 31, 2002 and recorded write-downs    
when appropriate. Approximately $2.3 million of gross unrealized losses at      
December 31, 2002 are related to securities that the Company has included in the
problem or potential problem categories. These securities represent 0.7% of the 
fixed income portfolio. The Company concluded, through its watch list monitoring
process that these unrealized losses were temporary in nature. While it is      
possible for these balances to increase in the future if economic conditions    
continue to be unfavorable, the total amount of securities in these categories  
is expected to remain a relatively low percentage of the total fixed income     
securities portfolio.                                                           

  The following table describes the components of pre-tax realized capital
gains and losses.                                                               

                                                        [Enlarge/Download Table]

                                                                 YEAR ENDED DECEMBER 31,         
                                                       ----------------------------------------- 
(IN THOUSANDS)                                            2002           2001           2000     
                                                       -----------    -----------    ----------- 
                                                                                                 
Investment write-downs                                 $   (15,760)   $    (1,371)   $    (3,789)
Sales                                                                                            
   Fixed income securities                                   3,874          2,885         (2,031)
   Other                                                     1,499            478            (58)
                                                       -----------    -----------    ----------- 
   Total sales                                               5,373          3,363         (2,089)

Valuation of derivative instruments                           (204)             -              - 
Realized capital gains and losses on other securities          419            166            697 
                                                       -----------    -----------    ----------- 
Total pre-tax realized capital gains and losses        $   (10,172)   $     2,158    $    (5,181)
                                                       ===========    ===========    =========== 

     Fixed income write-downs of $15.8 million during 2002 represent 0.4% of the
average total investments during the year.                                      

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

     The Company recorded, for the year ended December 31, 2002, $3.9 million in
net gains from sales of fixed income securities, which is comprised of gross    
gains of $11.7 million and gross losses of $7.8 million. Gross losses from sales
of fixed income securities of $7.8 million combined with investment write-downs 
of $15.8 million and gross losses on derivatives of $4.1 million, represent the 
total gross realized losses of $27.7 million on fixed income securities for     
2002.                                                                           

    The $7.8 million in losses from sales of fixed income securities primarily
related to a decision to reduce exposure to certain holdings due to severely    
constrained liquidity conditions in the market and routine reductions of        
exposure to deteriorating credits.                                              

The following list details the five largest realized losses from      
write-downs by issuer, the related circumstances giving rise to the loss and    
a discussion of how those circumstances may have impacted other material        
investments held.                                                               

-    A $7.0 million write-down on a global energy and utility company,
       which missed coupon payments due to severely constrained liquidity.
         Some sectors in the utility industry continue to be under fundamental
     pressure. The Company is monitoring developments closely and each
security in the industry is evaluated for impairment in the 
watch list process.                                         
     -    A $2.6 million write-down on securities issued by a major U.S. airline
          that filed for bankruptcy. The Company has no other securities of this
          issuer and currently expects to hold its existing positions until they
          recover in value or mature. The U.S. airline industry is under stress.
    The Company monitors its investments in airline issuers closely,
particularly with regard to collateral values.              
   -    A $1.9 million write-down on senior unsecured securities issued by a
       seismic data and related geophysical services company that has been
        experiencing negative financial results and liquidity pressures. The
        circumstances of this impairment are not expected to have a material
impact on the other investments.                            
     -    A $1.4 million write-down on collateralized debt obligation notes. The
          loss resulted from the decline in value of the portfolio of high-yield
          bonds securing the notes. The circumstances of this impairment are not
expected to have a material impact on the other investments.
-    A $1.3 million write-down on a major U.S. airline that filed for 
      bankruptcy. The loss primarily relates to an unsecured issue whose
        collateral value is insufficient. The U.S. airline industry is under
   stress. The Company monitors its investments in airline issuers
closely, particularly with regard to collateral values.     

MORTGAGE LOANS                                                                  

   The Company's $323.1 million investment in mortgage loans at December 31,
2002 and $242.7 million at December 31, 2001 is comprised primarily of loans    
secured by first mortgages on developed commercial real estate. Geographical and
property type diversification are key considerations used to manage the         
Company's mortgage loan risk.                                                   

  The Company closely monitors its commercial mortgage loan portfolio on a
loan-by-loan basis. Loans with an estimated collateral value less than the loan 
balance, as well as loans with other characteristics indicative of higher than  
normal credit risk, are reviewed by financial and investment management at least
quarterly for purposes of establishing valuation allowances and placing loans on
non-accrual status. The underlying collateral values are based upon discounted  
property cash flow projections. The Company had no realized capital gains       
related to prepayments and write-downs on mortgage loans at December 31, 2002.  
At December 31, 2001 and 2000, the Company had realized capital gains related to
prepayments and write-downs on mortgage loans of $119 thousand and $697         
thousand, respectively.                                                         

SHORT-TERM INVESTMENTS                                                          

    The Company's short-term investment portfolio was $104.2 million and $57.5
million at December 31, 2002 and 2001, respectively. The Company invests        
available cash balances primarily in taxable short-term securities having a     
final maturity date or redemption date of one year or less.                     

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

  The Company participates in securities lending programs, primarily as an
investment yield enhancement with third parties, such as large brokerage firms. 
The Company obtains collateral in an amount that approximates 102% of the fair  
value of loaned securities and monitors the market value of the securities      
loaned on a daily basis with additional collateral obtained as necessary. At    
December 31, 2002, fixed income securities with a carrying value of $160.0      
million have been loaned under these agreements. This compares to $140.3 million
at December 31, 2001. In return for these securities, the Company receives cash 
that is subsequently invested in either Fixed income securities or Short-term   
investments with an offsetting liability recorded in other liabilities.         

SEPARATE ACCOUNTS                                                               

    Separate Accounts assets and liabilities decreased 10.9% to $537.2 million
at December 31, 2002 from $602.7 million at December 31, 2001. The decrease was 
primarily attributable to declines in account values due to poor equity market  
performance partially offset by additional deposits from new sales and transfers
from the fixed account fund to variable Separate Accounts funds.                

The assets and liabilities related to variable annuity contracts are  
legally segregated and reflected as Separate Accounts. The assets of the        
Separate Accounts are carried at fair value. Separate Accounts liabilities      
represent the contractholders' claims to the related assets and are carried at  
the fair value of the assets. Investment income and realized capital gains and  
losses of the Separate Accounts accrue directly to the contractholders and      
therefore, are not included in the Company's Statements of Operations and       
Comprehensive Income. Revenues to the Company from the Separate Accounts consist
of contract maintenance and administration fees and mortality, early surrender  
and expense charges.                                                            

Absent any contract provision wherein the Company guarantees either a 
minimum return or account value upon death or annuitization, variable annuity   
contractholders bear the investment risk that the underlying mutual funds of the
Separate Accounts may not meet their stated investment objectives.              

REINSURANCE RECOVERABLES                                                        

   Reinsurance recoverable decreased $181 thousand, or 7.8%, to $2.1 million
at December 31, 2002 from $2.3 million at December 31, 2001. Reinsurance        
recoverable decreased due to benefits paid partially offset by an increase in   
traditional life insurance product reserves. The Company purchases reinsurance  
to limit aggregate and single losses on large risks. The Company continues to   
have primary liability as a direct insurer for risks reinsured. Estimating      
amounts of reinsurance recoverable is impacted by the uncertainties involved in 
the establishment of loss reserves. Failure of reinsurers to honor their        
obligations could result in losses to the Company.                              

    The Company purchases reinsurance after evaluating the financial condition
of the reinsurer, as well as the terms and price of coverage. The Company       
reinsures certain of its risks to reinsurers under yearly renewable term and    
coinsurance agreements. Yearly renewable term and coinsurance agreements result 
in the passing of a portion of the risk to the reinsurers. Generally, the       
reinsurer receives a proportionate amount of the premiums less commissions and  
is liable for a corresponding proportionate amount of all benefit payments.     

   Beginning in 2002, the Company cedes 80% of the mortality risk on certain
term life policies to a pool of eight reinsurers. Mortality risk on policies in 
excess of $250 thousand per life are ceded to ALIC.                             

The Company has a reinsurance treaty through which it cedes           
re-investment related risk on its structured settlement annuities to ALIC.      
The terms of this treaty meet the accounting definition of a derivative under   
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for    
Derivative Instruments and Hedging Activities." Accordingly, the treaty is      
recorded in the Statement of Financial Position at fair value, and changes in   
the fair value of the treaty are recognized in Realized capital gains and       
losses. Premiums paid to ALIC are included in Operating costs and expenses.     

    As of December 31, 2002, $3.40 billion or 17.9% of life insurance in force
was ceded to other companies.                                                   

   The Company continuously monitors the credit worthiness of reinsurers. As
of December 31, 2002, all non-affiliated ceded premiums were reinsured under    
uncollateralized reinsurance agreements with companies that had                 

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

a financial strength rating above investment grade level, as measured by at     
least one of the major rating agencies. In certain cases, these ratings refer to
the financial strength of the affiliated group or parent company of the         
reinsurer.                                                                      

MARKET RISK                                                                     

   Market risk is the risk that the Company will incur losses due to adverse
changes in equity prices or interest rates. The Company's primary market risk   
exposures are to changes in interest rates, although the Company also has       
certain exposures to changes in equity prices.                                  

   The active management of market risk is integral to the Company's results
of operations. The Company may use the following approaches to manage its       
exposure to market risk within defined tolerance ranges: 1) rebalance its       
existing asset or liability portfolios, 2) change the character of investments  
purchased in the future or 3) use derivative instruments to modify the market   
risk characteristics of existing assets and liabilities or assets expected to be
purchased. For a more detailed discussion of these derivative financial         
instruments, see Note 5 to the financial statements.                            

CORPORATE OVERSIGHT                                                             

The Company generates substantial investable funds from its business  
operations. In formulating and implementing policies for investing funds, the   
Company seeks to earn returns that enhance its ability to offer competitive     
rates and prices to customers while contributing to attractive and stable       
profits and long-term capital growth for the Company. Accordingly, the Company's
investment decisions and objectives are a function of its underlying risks and  
product profiles.                                                               

The Company administers and oversees its investment risk management   
processes primarily through its Board of Directors, Investment Committee and the
Credit and Risk Management Committee ("CRMC"). The Board of Directors and       
Investment Committee provide executive oversight of investment activities and   
set investment strategies, guidelines and policy that delineates the investment 
limits and strategies that are appropriate given the Company's liquidity,       
capital, product portfolios and regulatory requirements. The CRMC is a senior   
investment management committee consisting of the Chief Investment Officer, the 
Investment Risk Manager, and other investment officers who are responsible for  
the day-to-day management of investment risk. The CRMC meets at least monthly to
provide detailed oversight of investment risk, including market risk.           

  The Company manages its exposure to market risk through the use of asset
allocation limits and duration limits. It also uses stress tests when           
appropriate. Asset allocation limits place restrictions on the aggregate fair   
value that may be invested within an asset class. The Company sets duration     
limits on its investment portfolios, and, in certain circumstances, on          
individual components of these portfolios. These duration limits place a        
restriction on the level of interest rate risk which is acceptable in the       
investment portfolios. Stress tests measure downside risk to fair value and     
earnings over longer time intervals and/or for adverse market scenarios.        

  The day-to-day management of market risk within defined tolerance ranges
occurs as portfolio managers buy and sell within their respective markets based 
upon the acceptable boundaries established by the investment policy. The Company
has implemented a comprehensive daily measurement process, administered by the  
Investment Risk Manager, for monitoring compliance to limits established by the 
investment policy.                                                              

INTEREST RATE RISK                                                              

Interest rate risk is the risk that the Company will incur economic   
losses due to adverse changes in interest rates. This risk arises from the      
Company's primary activities, as the Company invests substantial funds in       
interest-sensitive assets and also carries certain interest-sensitive           
liabilities.                                                                    

The Company seeks to invest Premiums and deposits to generate future  
cash flows that will fund future claims, benefits and expenses, and that will   
earn stable margins across a wide variety of interest rate and economic         
scenarios. In order to achieve this objective and limit its exposure to         
interest rate risk, the Company adheres to a philosophy of managing the         
duration of assets and related liabilities. The Company uses financial          
futures and a reinsurance treaty with ALIC (see Note 3) to hedge the interest   
rate risk related to anticipatory purchases and sales of investments and        
product sales to customers.                                                     

    The Company manages the interest rate risk inherent in its assets relative
to the interest rate risk inherent in its liabilities. One of the measures the  
Company uses to quantify this exposure is duration. Duration measures the       
sensitivity of the fair value of assets and liabilities to changes in interest  
rates. For example, if interest rates increase by 1%, the fair value of an asset
with a duration of 5 is expected to decrease in value by approximately 5%. At   
December 31, 2002 and 2001, the difference between the Company's liability and  
asset duration was                                                              

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OF OPERATIONS (CONT.)                                         

approximately 1.0 and 1.1, respectively. This positive duration gap indicates   
that the fair value of the Company's liabilities is more sensitive to interest  
rate movements than the fair value of its assets. The Company's liabilities are 
more sensitive than the assets due to structured settlement annuities, which    
make up a significant portion of the liabilities. Structured settlement         
liabilities have benefits that are paid over an extended period of time and may 
be significantly longer than the duration of fixed income securities that are   
available to support the liabilities. The risk introduced by structured         
settlements is mitigated through the use of reinsurance and by managing the     
duration of the investment portfolios supporting other liability products so    
that those liabilities have durations shorter than their assets.                

     To calculate duration, the Company projects asset and liability cash flows,
and discounts them to a net present value basis using a risk-free market rate   
adjusted for credit quality, sector attributes, liquidity and other specific    
risks. Duration is calculated by revaluing these cash flows at an alternative   
level of interest rates, and determining the percentage change in fair value    
from the base case. The cash flows used in the model reflect the expected       
maturity and repricing characteristics of the Company's derivative financial    
instruments, all other financial instruments (as depicted in Note 5 to the      
financial statements), and certain non-financial instruments including          
interest-sensitive liabilities and annuity liabilities. The projections include 
assumptions (based upon historical market experience and Company specific       
experience) reflecting the impact of changing interest rates on the prepayment, 
lapse, leverage and/or option features of instruments, where applicable. The    
assumptions utilized relate primarily to assets such as mortgage-backed         
securities, collateralized mortgage obligations, callable corporate and         
municipal obligations, and liabilities including fixed rate single and flexible 
premium annuities.                                                              

     Based upon the information and assumptions the Company uses in its duration
calculation and interest rates in effect at December 31, 2002, management       
estimates that a 100 basis point immediate, parallel increase in interest rates 
("rate shock") would decrease the net fair value of its assets and liabilities  
identified above by approximately $6.4 million versus an increase of $5.9       
million at December 31, 2001. However, there are $217.6 million of assets       
supporting life insurance products which are not financial instruments and have 
not been included in the above analysis. This amount has increased from the     
$199.3 million in assets reported for December 31, 2001. According to the       
duration calculation, in the event of a 100 basis point immediate increase in   
interest rates, these assets would decrease in value by $4.1 million versus a   
decrease of $5.4 million for December 31, 2001. The selection of a 100 basis    
point immediate parallel increase in interest rates should not be construed as a
prediction by the Company's management of future market events, but only as an  
illustration of the potential impact of such an event.                          

 To the extent that conditions differ from the assumptions utilized, the
Company's duration and rate shock measures could be significantly impacted.     
Additionally, the Company's calculation assumes that the current relationship   
between short-term and long-term interest rates (referred to as the term        
structure of interest rates) will remain constant over time. As a result, these 
calculations may not fully capture the impact of non-parallel changes in the    
term structure of interest rates and/or large changes in interest rates.        

EQUITY PRICE RISK                                                               

   Equity price risk is the risk that the Company will incur economic losses
due to adverse changes in a mutual fund or stock index.                         

 At December 31, 2002 and 2001, the Company had Separate Accounts assets
with account values totaling $537.2 million and $602.7 million, respectively.   
The Company earns contract charges as a percentage of these account values. In  
the event of an immediate decline of 10% in the account values at December 31,  
2002 and 2001 due to equity market declines, the Company would earn             
approximately $892 thousand and $916 thousand less in annualized fee income,    
respectively.                                                                   

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OF OPERATIONS (CONT.)                                         

    Generally at the time of purchase, the contractholders of variable annuity
contracts receive a GMDB and, for certain contracts, may elect to purchase an   
enhanced GMDB or guaranteed minimum income benefit ("GMIB"). The Company charges
a fee for this guarantee that is generally calculated as a percentage of the    
account value. Both types of guarantees subject the Company to additional equity
risk as the beneficiary or contractholder may receive a benefit for an amount   
greater than the account value under contractually defined circumstances and    
terms. GMDBs may be payable upon death, while GMIBs may be payable on or after  
the ten-year anniversary of the contract if the contractholder elects to receive
a defined stream of payments ("annuitize").                                     

Substantially all of the Company's variable annuity contracts inforce 
contain some type of GMDBs. In general, the types of guarantees offered include 
a return of deposits or the highest anniversary value. At December 31, 2002 and 
2001, the guaranteed value in excess of contractholders' account values, payable
if all contractholders were to die, was estimated to be $200.6 million and      
$118.8 million, respectively. The increase in this measure is attributable to   
the decline in equity markets during 2002. In both periods, approximately       
two-thirds of this exposure is related to the return of deposits guarantee,     
while the remaining one-third is attributable to a death benefit guarantee      
greater than the original deposits.                                             

   The estimated present value of expected future payments for GMDBs, net of
estimated fee revenue, is approximately $3.2 million at December 31, 2002       
compared to $950 thousand at December 31, 2001. This estimate considers the     
current guarantees outstanding for all contracts that contain GMDBs and expected
fund performance to calculate expected future GMDB payments for the next 40     
fiscal quarters. The assumptions and methodology used to determine the present  
value of the future GMDB payments are consistent with those used for DAC        
amortization. The increase in this estimate in 2002 is primarily attributable to
the decline in account value due to the continued decline in the equity markets 
during the year. Management also estimates the impact to its expected future    
GMDB payments in the event of extreme adverse market conditions. For example, in
the event of an immediate decline of 10% in contractholders' account values as  
of December 31, 2002 due to equity market declines, expected payments for       
guaranteed death benefits would increase by $1.5 million during the next year.  
The selection of a 10% immediate decrease should not be construed as a          
prediction by management of future market events, but only as an example to     
illustrate the potential impact to earnings and cash flow of equity market      
declines as a result of this guarantee. Also, the Company's actual payment      
experience in the future may not be consistent with the assumptions used in its 
model.                                                                          

  The GMIBs offered by the Company include the right to annuitize based on
the highest account value at any contract anniversary date. The Company began   
offering these guarantees in certain of its variable annuity contracts in 2002, 
therefore based on contract specifications, these benefits will not be available
for election by the contractholders until at least 2012. The guaranteed value in
excess of contractholders' account values at December 31, 2002 payable over the 
annuity period if all contractholders were to elect to annuitize, was estimated 
to be $15 thousand. To calculate this measure, the current interest rate        
environment is utilized in the assumptions.                                     

 Growth in variable contracts in the future stemming from new sales will
increase the Company's amount of overall exposure to equity price risk embedded 
in these contracts. An increase in the equity markets above December 31, 2002   
levels will increase the contractholder returns on these products, thereby      
decreasing the risk of utilizing these guarantees on the inforce business. A    
decrease in the equity markets that causes a decrease in the variable contracts'
account balances will increase the equity risk profile of the inforce business  
as is demonstrated in the December 31, 2002 measurements compared to the        
December 31, 2001 measurements disclosed and discussed above.                   

    The Company also is exposed to equity risk in its DAC, as equity portfolio
valuation fluctuations impact DAC amortization because projected fee income and 
guaranteed benefits payable are components of the EGP for variable annuity      
contracts. Poor equity market performance could result in DAC not being         
recoverable or in accelerated DAC amortization. For a more detailed discussion  
of DAC, see Note 2 to the financial statements.                                 

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

CAPITAL RESOURCES AND LIQUIDITY                                                 

CAPITAL RESOURCES                                                               

The Company's capital resources consist of shareholder's equity. The  
following table summarizes the Company's capital resources at December 31:      

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                    2002           2001           2000     
                                              -------------  -------------  -------------
                                                                                         
Common stock, additional capital paid-in and                                             
  retained income                             $     374,160  $     339,981  $     304,569
Accumulated other comprehensive income              169,655        118,995        118,242
                                              -------------  -------------  -------------
    Total shareholder's equity                $     543,815  $     458,976  $     422,811
                                              =============  =============  =============

SHAREHOLDER'S EQUITY                                                            

    Shareholder's equity increased in 2002 when compared to December 31, 2001,
due to an increase of $50.7 million in Accumulated other comprehensive income,  
Net income of $24.2 million and a capital contribution of $10.0 million from    
ALIC. In 2001, shareholder's equity increased as a result of Net income of $35.4
million and an increase of $753 thousand in Accumulated other comprehensive     
income.                                                                         

FINANCIAL RATINGS AND STRENGTH                                                  

  The Company's insurance financial strength was rated Aa2, AA+, and A+ by
Moody's, Standard & Poor's and A.M. Best, respectively, at December 31, 2002.   

  None of these ratings were changed during 2002. The Company's and ALIC's
insurance financial strength ratings have remained at the same consistently     
high levels for the last five years (Aa2 "excellent" by Moody's, AA and AA+     
"very strong" by Standard & Poor's and A+ "superior" by A.M. Best). On a        
relative basis, these rating positions have improved in light of the            
significant volume of rating downgrades of other companies in the industry      
during 2002. Since February 2002, Standard & Poor's rating outlook for ALIC     
and its rated subsidiaries, including the Company, has been "negative". In      
November 2002, Standard & Poor's reaffirmed the AA+ rating of ALIC and the      
Company, but left the outlook unchanged. In January 2003, A.M. Best Company     
newly assigned a "positive" rating outlook for AIC, ALIC, the Company and       
selected affiliates.                                                            

  The Company's ratings are influenced by many factors including operating
and financial performance, asset quality, asset/liability management, overall   
portfolio mix, the amount of financial leverage (i.e., debt), exposure to risks,
as well as the current level of operating leverage.                             

    The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The standard is based on a  
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula       
establishes capital requirements relating to insurance, business, asset and     
interest rate risks. At December 31, 2002, RBC for the Company was significantly
above levels that would require regulatory actions.                             

     The NAIC has also developed a set of financial relationships or tests known
as the Insurance Regulatory Information System to assist state regulators in    
monitoring the financial condition of insurance companies and identifying       
companies that require special attention or action from insurance regulatory    
authorities. The NAIC analyzes data provided by insurance companies using       
prescribed financial data ratios each with defined "usual ranges." Generally,   
regulators will begin to monitor an insurance company if its ratios fall outside
the usual ranges for four or more of the ratios. If an insurance company has    
insufficient capital, regulators may act to reduce the amount of insurance it   
can issue. The Company is currently not under regulatory scrutiny based on these
ratios.                                                                         

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

LIQUIDITY                                                                       

The principal, potential sources of funds for the Company include the following 
activities:                                                                     

Premiums and deposits                                             
Reinsurance recoveries                                            
Receipts of principal, interest and dividends on investments      
Sales of investments                                              
Funds from securities lending                                     
Inter-company loans                                               
Capital contributions from ALIC                                   

The principal, potential uses of funds for the Company include the following    
activities:                                                                     

  Payment of contract benefits, maturities, surrenders and withdrawals
Reinsurance cessions and payments                                 
Operating costs and expenses                                      
Purchase of investments                                           
Repayment of securities lending                                   
Repayment of inter-company loans                                  
Dividends to ALIC                                                 

     The Company's operations typically generate substantial positive cash flows
from operations as most premiums are received in advance of the time when claim 
and benefit payments are required. These positive operating cash flows are      
expected to continue to meet the liquidity requirements of the Company.         

   A portion of the Company's diversified product portfolio, primarily fixed
annuities and interest-sensitive life insurance products, is subject to         
discretionary surrenders and withdrawals by contractholders. Total surrenders   
and withdrawals for 2002 were $162.1 million compared with $106.5 million for   
last year. The increase was driven primarily from increased surrenders of       
variable annuities resulting from poor equity market conditions in 2002. As the 
Company's interest-sensitive life insurance policies and annuity contracts      
inforce grow and age, the dollar amount of surrenders and withdrawals could     
increase. While the overall amount of surrenders may increase in the future, a  
significant increase in the level of surrenders relative to total contractholder
account balances is not anticipated.                                            

The Company has entered into an inter-company loan agreement with the 
Corporation. The amount of inter-company loans available to the Company is at   
the discretion of the Corporation. The maximum amount of loans the Corporation  
will have outstanding to all its eligible subsidiaries at any given point in    
time is limited to $1.00 billion. No amounts were outstanding for the Company   
under the inter-company loan agreement at December 31, 2002 or 2001. The        
Corporation uses commercial paper borrowings and bank lines of credit to fund   
intercompany borrowings.                                                        

Although the Corporation considers the occurrence of such events to be
remote, certain events and circumstances could constrain the Corporation's      
liquidity. Those events and circumstances include, for example, a catastrophe   
resulting in extraordinary losses, a downgrade in the Corporation's long-term   
debt rating of A1 and A+ (from Moody's and Standard & Poor's, respectively) to  
non-investment grade status of below Baa3/BBB-, a downgrade in AIC's financial  
strength rating from Aa2, AA and A+ (from Moody's, Standard & Poor's and A.M.   
Best, respectively) to below Baa/BBB/B, or a downgrade in ALIC's or the         
Company's financial strength ratings from Aa2, AA+ and A+ (from Moody's,        
Standard & Poor's and A.M. Best, respectively) to below Aa3/AA-/A-. The rating  
agencies also consider the interdependence of the Corporation's individually    
rated entities, and therefore a rating change in one entity could potentially   
affect the ratings of other related entities. In addition, management knows of  
no trends, demands, commitments, events or uncertainties that are reasonable    
likely to significantly constrain the Corporation's or the Company's liquidity. 

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

   The following table summarizes the contractual obligations of the Company
as of December 31, 2002 and the payments due by period.                         

                                                                [Download Table]

                                                                  LESS THAN
(IN THOUSANDS)                                        TOTAL        1 YEAR  
                                                   ----------     ---------
                                                                           
Securities Lending, Dollar Rolls, and                                      
   Repurchase Agreements(1)                        $  160,103     $ 160,103
Funding Agreements (putable/callable)(2)               50,099        50,099
                                                   ----------     ---------
Total Contractual Cash Obligations                 $  210,202     $ 210,202
                                                   ==========     =========

(1)  Securities lending, dollar rolls and repurchase transactions are typically 
  fully collateralized with marketable securities. The Company manages its
  short-term liquidity position to ensure the availability of a sufficient
   amount of liquid assets to extinguish liabilities as they come due in the
normal course of business.                                            
(2)  The putable/callable Funding agreement program is very closely             
asset/liability duration matched by the Company. Accordingly, upon    
surrender or maturity of the related contracts, the Company maintains 
    assets with a sufficient market value to extinguish the liabilities in the
normal course of business.                                            

At December 31, 2002, the Company had $14.0 million in contractual    
conditional commitments to invest in private placements or mortgage loans.      

REGULATIONS AND LEGAL PROCEEDINGS                                               

The Company is subject to changing social, economic and regulatory    
conditions. State and federal regulatory initiatives and proceedings have varied
and have included efforts to remove barriers preventing banks from engaging in  
the securities and insurance businesses, to change tax laws affecting the       
taxation of insurance companies and the tax treatment of insurance products     
which may impact the relative desirability of various personal investment       
products, and to expand overall regulation. The ultimate changes and eventual   
effects, if any, of these initiatives are uncertain.                            

   The Company sells its products through a variety of distribution channels
including Allstate agencies. Consequently, the outcome of some legal proceedings
that involve AIC regarding the Allstate agencies may have an impact on the      
Company.                                                                        

   AIC is defending various lawsuits involving worker classification issues.
Examples of these lawsuits include a number of putative class actions           
challenging the overtime exemption claimed by AIC under the Fair Labor Standards
Act or state wage and hour laws. These class actions mirror similar lawsuits    
filed recently against other insurance carriers in the industry and other       
employers. Another example involves the worker classification of staff working  
in agencies. In this putative class action, plaintiffs seek damages under the   
Employee Retirement Income Security Act ("ERISA") and the Racketeer Influenced  
and Corrupt Organizations Act alleging that agency secretaries were terminated  
as employees by AIC and rehired by agencies through outside staffing vendors for
the purpose of avoiding the payment of employee benefits. A putative nationwide 
class action filed by former employee agents also includes a worker             
classification issue; these agents are challenging certain amendments to the    
Agents Pension Plan and are seeking to have exclusive agent independent         
contractors treated as employees for benefit purposes. AIC has been vigorously  
defending these and various other worker classification lawsuits. The outcome of
these disputes is currently uncertain.                                          

In addition, on August 6, 2002, a petition was filed with the National
Labor Relations Board ("NLRB") by the United Exclusive Allstate Agents, Office  
and Professional Employees International Union (the "OPEIU"), seeking           
certification as the collective bargaining representative of all Allstate agents
in the United States. On December 2, 2002, the Chicago Regional Director of the 
NLRB dismissed the petition, agreeing with AIC's position that the agents are   
independent contractors, not employees, and that, consequently, the NLRB lacks  
jurisdiction over the issue. The OPEIU has requested that the NLRB in           
Washington, D.C. review the dismissal by the Chicago Regional Director. The     
request for appeal has not been accepted yet. If it is, AIC will vigorously     
oppose the appeal. The outcome is currently uncertain.                          

AIC is also defending certain matters relating to its agency program  
reorganization announced in 1999. These matters include an investigation by the 
U.S. Department of Labor and a lawsuit filed in December 2001 by the U.S. Equal 
Employment Opportunity Commission ("EEOC") with respect to allegations of       
retaliation under the                                                           

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OF OPERATIONS (CONT.)                                         

Age Discrimination in Employment Act, the Americans with Disabilities Act and   
Title VII of the Civil Rights Act of 1964. A putative nationwide class action   
has also been filed by former employee agents alleging various violations of    
ERISA, breach of contract and age discrimination. AIC has been vigorously       
defending these lawsuits and other matters related to its agency program        
reorganization. In addition, AIC is defending certain matters relating to its   
life agency program reorganization announced in 2000. These matters include an  
investigation by the EEOC with respect to allegations of age discrimination and 
retaliation. AIC is cooperating fully with the agency investigation and will    
continue to vigorously defend these and other claims related to the life agency 
program reorganization. The outcome of these disputes is currently uncertain.   

Various other legal and regulatory actions are currently pending that 
involve the Company and specific aspects of its conduct of business. Like other 
members of the insurance industry, the Company is the potential target of an    
increasing number of class action lawsuits and other types of litigation, some  
of which involve claims for substantial and/or indeterminate amounts (including 
punitive and treble damages) and the outcomes of which are unpredictable. This  
litigation is based on a variety of issues including insurance and claim        
settlement practices. However, at this time, based on their present status, it  
is the opinion of management that the ultimate liability, if any, in one or more
of these other actions in excess of amounts currently reserved is not expected  
to have a material effect on the results of operations, liquidity or financial  
position of the Company.                                                        

STATE INSURANCE REGULATION                                                      

   State insurance authorities have broad administrative powers with respect
to all aspects of the life insurance business including:                        
-  Licensing to transact business                           
-  Licensing agents                                         
-  Admittance of assets to support statutory surplus        
-  Approving policy forms                                   
-  Regulating unfair trade and claims practices             
-  Establishing reserve requirements and solvency standards 
 -  Regulating the type, amounts and valuations of investments
permitted and other matters                           

    State insurance laws require the Company to file statutory-basis financial
statements with the insurance department in the State of New York. The          
operations of the Company and the accounts are subject to examination by the    
department at any time. The Company prepares statutory-basis financial          
statements in accordance with accounting practices and procedures prescribed or 
permitted by the state of New York.                                             

    State insurance departments conduct periodic examinations of the books and
records, financial reporting, policy filings and market conduct of insurance    
companies domiciled in their states, generally once every three to five years.  
Examinations are generally carried out in cooperation with the insurance        
departments of other states under guidelines promulgated by the NAIC.           

MARKET CONDUCT REGULATION                                                       

    State insurance laws and regulations include numerous provisions governing
the marketplace activities of insurers, including provisions governing the form 
and content of disclosure to customers, illustrations, advertising, sales       
practices and complaint handling. State regulatory authorities generally enforce
these provisions through periodic market conduct examinations.                  

FEDERAL REGULATION AND SECURITIES OPERATIONS                                    

     The Company's variable annuity products generally are considered securities
within the meaning of federal and state securities laws and are registered under
the Securities Act of 1933 and are subject to regulation by the SEC, the        
National Association of Securities Dealers ("NASD") and state securities        
regulations. The Company's Separate Accounts are registered as unit investment  
trusts under the Investment Company Act of 1940.                                

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OF OPERATIONS (CONT.)                                         

GUARANTY FUNDS                                                                  

Under state insurance guaranty fund laws, insurers doing business in a
state can be assessed, up to prescribed limits, for certain obligations of      
insolvent insurance companies to policyholders and claimants. Amounts assessed  
to each company are typically related to its proportion of business written in a
particular state. The Company's expenses related to these funds have been       
immaterial.                                                                     

OTHER DEVELOPMENTS                                                              

Effective January 1, 2001, the State of New York required insurance   
companies domiciled in its state to prepare statutory-basis financial statements
in accordance with the NAIC Accounting Practices and Procedures Manual          
("Codification") subject to any deviations prescribed or permitted by the State 
of New York insurance superintendent.                                           

     The Company prepares its statutory-basis financial statements in accordance
with accounting practices prescribed or permitted by the State of New York.     
Prescribed statutory accounting practices include a variety of publications of  
the NAIC, as well as state laws, regulations and general administrative rules.  
Permitted statutory accounting practices encompass all accounting practices not 
so prescribed.                                                                  

     Accounting changes adopted to conform to the provisions of Codification are
reported as changes in accounting principles. The cumulative effect of changes  
in accounting principles is reported as an adjustment to unassigned funds       
(surplus) in the period of the change in accounting principle. The cumulative   
effect is the difference between the amount of capital and surplus at the       
beginning of the year and the amount of capital and surplus that would have been
reported at that date if the new accounting principles had been applied         
retroactively for all prior periods. The State of New York has recently adopted 
Statement of Statutory Accounting Principles ("SSAP") No. 10, Income Taxes,     
which is effective for statutory-basis financial statements filed as of December
31, 2002 and thereafter. The Company reported an increase to surplus of $11.4   
million effective December 31, 2002 to reflect the adoption of SSAP No. 10 by   
the State of New York as a result of recognizing a net deferred tax asset.      

PENDING ACCOUNTING STANDARDS                                                    

  On July 31, 2002, the American Institute of Certified Public Accountants
issued an exposure draft Statement of Position ("SOP") entitled "Accounting and 
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration     
Contracts and for Separate Accounts". The accounting guidance contained in the  
proposed SOP applies to several of the Company's products and product features. 
The proposed effective date of the SOP is fiscal years beginning after December 
15, 2003, with earlier adoption encouraged. If adopted early, the provisions of 
the SOP must be applied as of the beginning of the fiscal year. Accordingly, if 
the SOP were adopted during an interim period of 2003, prior interim periods    
would be restated. A provision of the proposed SOP requires the establishment of
a liability in addition to the account balance for contracts and contract       
features that provide guaranteed death or other insurance benefits. The         
finalized SOP may also require a liability for guaranteed income benefits. These
liabilities are not currently recognized by the Company, and their establishment
may have a material impact on the Statements of Operations and Comprehensive    
Income depending on the market conditions at the time of adoption, but is not   
expected to have a material impact on the Company's Statements of Financial     
Position.                                                                       

The Financial Accounting Standards Board ("FASB") has exposed guidance
that addresses the accounting for certain modified coinsurance agreements.      
The guidance has been exposed as FASB Interpretation of Statement 133           
Implementation Issue No. B36, "Embedded Derivatives: Bifurcation of a Debt      
Instrument That Incorporates Both Interest Rate Risk and Credit Risk            
Exposures That Are Unrelated or Only Partially Related to the                   
Creditworthiness of the Issuer of That Instrument." The proposed guidance       
requires recognizing an embedded derivative in certain reinsurance agreements   
when certain conditions are met. The initial impact of adopting the proposed    
guidance would be recorded as a cumulative adjustment to Net income in the      
first fiscal quarter beginning after June 15, 2003. The Company has no          
reinsurance arrangements that would be subject to the proposed guidance.        
Accordingly, the potential impact of recognizing embedded derivatives           
pursuant to the requirements of the proposed guidance is expected to be         
immaterial to both the Company's Statements of Financial Position and           
Statements of Operations and Comprehensive Income.                              

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OF OPERATIONS (CONT.)                                         

FORWARD-LOOKING STATEMENTS AND RISK FACTORS                                     

     This document contains "forward-looking statements" that anticipate results
based on management's estimates, assumptions and plans that are subject to      
uncertainty. These statements are made subject to the safe-harbor provisions of 
the Private Securities Litigation Reform Act of 1995. The Company assumes no    
obligation to update any forward-looking statements as a result of new          
information or future events or developments.                                   

  These forward-looking statements do not relate strictly to historical or
current facts and may be identified by their use of words like "plans,"         
"expects," "will," "anticipates," "estimates," "intends," "believes," "likely," 
and other words with similar meanings. These statements may address, among other
things, the Company's strategy for growth, product development, regulatory      
approvals, market position, expenses, financial results and reserves. Management
believes that these statements are based on reasonable estimates, assumptions   
and plans. However, if the estimates, assumptions or plans underlying the       
forward-looking statements prove inaccurate or if other risks or uncertainties  
arise, actual results could differ materially from those communicated in these  
forward-looking statements. In addition to the normal risks of business, the    
Company is subject to significant risk and uncertainties, including those listed
below which apply to it as an insurance business and a provider of other        
financial services.                                                             

-    New York requires insurers to participate in guaranty funds for impaired or
     insolvent insurance companies. Such funds periodically assess losses to all
   insurance companies doing business in the state. These assessments may be
material to the Company's financial results.                          

-    There is uncertainty involved in the availability of non-affiliate         
reinsurance and estimating the collectibility of reinsurance          
recoverables. This uncertainty arises from a number of factors,       
including whether losses meet the qualifying conditions of the        
reinsurance contracts and whether the reinsurers, or their affiliates,
have the financial capacity and willingness to pay.                   

-    The Corporation is continuing to examine the potential exposure of its     
operations to acts of terrorism and to evaluate methods of addressing 
 this exposure in the best interests of shareholders, policyholders, the
lending community and regulators. In the event that a terrorist act   
occurs, the Company may be adversely impacted, depending on the nature
of the event. The Corporation is also evaluating the impact of the    
federal "Terrorism Risk Insurance Act of 2002" (the "Act") on the     
 nature, availability and affordability of commercial insurance coverage
for terrorism and the consequent impact on the Company's investments  
  portfolio, particularly in sectors such as airlines and real estate. The
Act established a temporary federal program providing for a system of 
shared public and private compensation for certain insured commercial 
property and casualty losses resulting from acts of terrorism, as     
defined by the Act.                                                   

-    Changes in market interest rates can have adverse effects on the Company's 
investment portfolio, investment income, product sales, results of    
   operations and retention of existing business. Increasing market interest
    rates have an adverse impact on the value of the investment portfolio, for
example, by decreasing the fair values of fixed income securities.    
Declining market interest rates could have an adverse impact on the   
     Company's investment income as the Company reinvests proceeds from positive
cash flows from operations and from maturities, calls and             
    prepayments of investments into new investments that could yield less than
the portfolio's average rate.                                         

-    A declining market could negatively impact the credit quality of the       
Company's investment portfolio as adverse equity markets also affect  
   issuers of securities held by the Company. Declines in the quality of the
portfolio could cause additional realized losses on securities.       

-    Changes in interest rates could also reduce the profitability of the       
Company's spread-based products, particularly interest-sensitive life 
 insurance and investment products, as the difference between the amount
     that the Company is required to pay on such products and the rate of return
earned on the related investments could be reduced. Changes in market 
interest rates as compared to rates offered on some of the Company's  
products could make those products less attractive if competitive     
investment margins are not maintained, leading to lower sales and/or  
    changes in the level of surrenders and withdrawals for these products. The

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

     Company's products generally have the flexibility to adjust crediting rates
     to reflect higher or lower investment returns. However, this flexibility is
     limited by contractual minimum crediting rates. Additionally, unanticipated
  surrenders could cause acceleration of amortization of DAC or impact the
recoverability of DAC and thereby increase expenses and reduce current
    period profitability. The Company seeks to limit its exposure to this risk
  by regularly monitoring DAC recoverability as well as offering a diverse
    group of products, periodically reviewing and revising crediting rates and
providing for surrender charges in the event of early withdrawal.     

-    The Company amortizes DAC related to interest-sensitive life insurance and 
   investment contracts in proportion to EGP over the estimated lives of the
     contracts. Periodically, the Company updates the assumptions underlying the
 EGP, which include margins from mortality, including guaranteed minimum
  death and income benefits, investment margin, including realized capital
 gains and losses, contract administration, surrender and other contract
     charges, less maintenance expenses, in order to reflect actual and expected
 experience and its potential impact to the valuation of DAC. Updates to
     these assumptions could result in adjustment to the cumulative amortization
of DAC. For example, reduced EGP resulting from declines in contract  
  charges assessed against declining Separate Accounts' balances resulting
from poor equity market performance could result in accelerated       
   amortization of DAC. An adjustment, if any, may have a material effect on
the results of operations.                                            

-    The impact of decreasing Separate Accounts balances resulting from         
volatile equity market conditions, underlying fund performance and the
performance of distributors could cause contract charges earned by the
  Company to decrease and lead to an increase in exposure to pay GMDBs and
GMIBs. Poor fund performance could also result in higher partial      
withdrawals of account value which, for some contracts, do not reduce 
  the GMDB in a proportional amount.  In addition, it is possible that the
assumptions and projections used by the Company in establishing prices
 for the GMDBs and GMIBs, particularly assumptions and projections about
 investment performance, do not accurately anticipate the level of costs
the Company will ultimately incur in providing those benefits,        
resulting in adverse mortality margin trends that may have a material 
  effect on results of operations. These factors may result in accelerated
DAC amortization and require increases in statutory reserves which    
reduce the Company's statutory capital and surplus.                   

-    Conditions in the U.S. and international stock markets can have an impact  
on the Company's variable annuity sales. In general, sales of variable
annuities increase when the stock markets are rising over an extended 
     period of time and decrease when stock markets are falling over an extended
period of time.                                                       

-    In order to meet the anticipated cash flow requirements of its obligations 
to policyholders, from time to time the Company manages the effective 
   duration gap between investments and liabilities for contractholder funds
 and reserves for life-contingent contract benefits. Adjustments made to
modify durations may have an impact on the value of the investment    
 portfolio, investment income, interest credited to contractholder funds
and the investment margin.                                            

-    Management believes the reserves for life-contingent contract benefits are 
  adequate to cover ultimate policy benefits, despite the underlying risks
  and uncertainties associated with their determination when payments will
not be made until well into the future. Reserves are based on many    
     assumptions and estimates, including estimated premiums to be received over
the assumed life of the policy, the timing of the event covered by the
insurance policy, the amount of contract benefits to be paid and the  
    investment returns on the assets purchased with the premiums received. The
Company periodically reviews and revises its estimates. If future     
experience differs from assumptions, it may have a material impact on 
results of operations.                                                

-    State and federal laws and regulations affect the taxation of insurance    
companies and life insurance and annuity products. From time to time, 
    Congress has considered proposals that, if enacted, could impose a greater
  tax burden on the Company or could have an adverse impact on the federal
 income tax treatment of some insurance products offered by the Company,
    including the favorable policyholder tax treatment currently applicable to
deferred and immediate annuities, and life insurance, including       
interest-sensitive life                                               

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

insurance. Such proposals have included legislation relating to the   
     deferral of taxation on the accretion of value within certain annuities and
    life insurance products. Recent proposals to eliminate the double taxation
   of dividends and to permit the establishment of tax-free lifetime savings
and retirement savings accounts could substantially reduce the        
     tax-advantaged nature of many insurance products. If such proposals were to
be adopted, they could have a material adverse effect on the Company's
     financial position or the Company's ability to sell such products and could
result in the surrender of some existing contracts and policies. In   
 addition, recent changes in the federal estate tax laws have negatively
affected the demand for the types of life insurance used in estate    
planning.                                                             

-    The Company distributes some of its products under agreements with other   
     members of the financial services industry that are not affiliated with the
Company. Termination of one or more of these agreements due to, for   
example, changes in control of any of these entities, could have a    
     detrimental effect on the Company's sales. This risk may be exacerbated due
  to the enactment of the Gramm-Leach-Bliley Act of 1999, which eliminated
     many federal and state law barriers to affiliations among banks, securities
firms, insurers and other financial service providers.                

-    The Company is taking various expense-saving steps to increase             
profitability. These steps include restructuring management and       
 organizations, simplifying operations and processes and focusing on key
distributors in its distribution channels. The efficacy of these      
expense saving initiatives is difficult to predict due to external    
factors such as the stock market impact on pension and other benefit  
expenses, the extent of future guaranty fund assessments, and         
technology costs. Also, sales could be impacted negatively by         
distribution being concentrated in fewer partners.                    

-    The Company is affiliated with various entities registered under the       
federal securities laws as broker-dealers, investment advisers and/or 
investment companies. These entities are subject to the regulatory    
jurisdiction of the SEC, NASD and/or, in some cases, state securities 
    administrators. The laws regulating the securities products and activities
  of the entities are complex, numerous and subject to change. As with any
highly regulated industry, there is some degree of risk of regulatory 
non-compliance; however ALIC has in place various legal and compliance
    personnel, procedures and systems designed to reasonably assure compliance
with these requirements.                                              

-    While positive operating cash flows are expected to continue to meet the   
 Corporation's liquidity requirements, the Corporation's liquidity could
 be constrained by a catastrophe, or multiple catastrophes, which result
in extraordinary losses, a downgrade of the Corporation's long-term   
debt rating of A1 and A+ (from Moody's and Standard & Poor's,         
respectively) to non-investment grade status of below Baa3/BBB-, a    
 downgrade of AIC's insurance financial strength rating from Aa2, AA and
A+ (from Moody's, Standard & Poor's and A.M. Best, respectively) to   
below Baa/BBB/B+, or a downgrade in ALIC's or the Company's insurance 
financial strength rating from Aa2, AA+ and A+ (from Moody's, Standard
 & Poor's and A.M. Best, respectively) to below Aa3/AA-/A-. In the event
of a downgrade of the Corporation's or AIC's rating, ALIC and its     
subsidiaries including the Company, could also experience a similar   
downgrade.                                                            

-    The events of September 11, 2001, and the resulting disruption in the      
financial markets revealed weaknesses in the physical and operational 
 infrastructure that underlies the U.S. and worldwide financial systems.
Those weaknesses did not impair the Company's liquidity in the wake of
  September 11, 2001. However, if an event of similar or greater magnitude
occurred in the future and if the weaknesses in the physical and      
    operational infrastructure of the U.S. and worldwide financial systems are
not remedied, the Company could encounter significant difficulties in 
 transferring funds, buying and selling securities and engaging in other
financial transactions that support its liquidity.                    

-    Insurance financial strength ratings are an important factor in            
establishing the competitive position of insurance companies and,     
generally, may be expected to have an effect on an insurance company's
business. On an ongoing basis, rating agencies review the financial   
performance and condition of insurers and could downgrade or change a 
company's ratings due to, for example, a decline in the value of a    
company's investment portfolio or increased liabilities for variable  
  contracts due to additional GMDB and GMIB exposure resulting from market
   declines. A multiple level downgrade of the Corporation, AIC, ALIC or the
  Company, while not expected, could have a material adverse affect on the
Company's sales, including the                                        

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

   competitiveness of the Company's product offerings, its ability to market
    products, and its financial condition and results of operations. Also, the
rating agencies have a variety of policies and practices regarding the
     relationships among ratings of affiliated entities. As such, the ratings of
   the Company or ALIC could be affected by changes in ratings of AIC and/or
the Corporation.                                                      

-    State insurance regulatory authorities require insurance companies to      
  maintain specified levels of statutory capital and surplus. In addition,
   competitive pressures generally require the Company to maintain insurance
     financial strength ratings. These restrictions affect the Company's ability
    to pay shareholder dividends to ALIC and to use its capital in other ways.

-    An exposure draft SOP entitled "Accounting and Reporting by Insurance      
Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate Accounts" applies to several of the Company's products and   
 product features. A provision requires the establishment of a liability
in addition to the account balance for contracts and contract features
that provide guaranteed death or other insurance benefits. The Company
  does not currently hold liabilities for GMDB features covered by the SOP
    or GMIBs. However, these benefits are included in the EGP calculation used
    when evaluating DAC. If the SOP is adopted, the Company's establishment of
these liabilities could have a material impact on the Statements of   
Operations and Comprehensive Income depending on the market conditions
at the time of adoption, but it is not expected to have a material    
impact on the Company's Statements of Financial Position.             

-    Portions of the non-publicly traded marketable investment securities are   
 accounted for at fair value using internally developed, widely accepted
    valuation models and independent third party data as model inputs. Changes
in the fair value of any security could negatively impact the         
  Corporation's, AIC's, ALIC's and the Company's net income, shareholder's
equity, assets, liabilities and debt-to-capital ratio.                

-    In recent years, the state insurance regulatory framework has come under   
    increased federal scrutiny and legislation that would provide for optional
    federal chartering of insurance companies has been introduced in Congress.
    In addition state legislators and insurance regulators continue to examine
     the appropriate nature and scope of state insurance regulation. The Company
 cannot predict whether any state or federal measures will be adopted to
   change the nature or scope of the regulation of the insurance business or
what effect any such measures would have on the Company.              

-    The Gramm-Leach-Bliley Act of 1999 permits mergers that combine commercial 
banks, insurers and securities firms under one holding company. Until 
  passage of the Gramm-Leach-Bliley Act of 1999, the Glass Steagall Act of
1933 had limited the ability of banks to engage in securities-related 
  businesses and the Bank Holding Company Act of 1956 had restricted banks
from being affiliated with insurers. With the passage of the          
     Gramm-Leach-Bliley Act of 1999, bank holding companies may acquire insurers
and insurance holding companies may acquire banks. In addition,       
    grandfathered unitary thrift holding companies, including the Corporation,
   may engage in activities that are not financial in nature. The ability of
     banks to affiliate with insurers may materially adversely affect all of the
  Company's product lines by substantially increasing the number, size and
financial strength of potential competitors.                          

-    Like other members of the insurance industry, the Company is the potential 
    target of an increasing number of class action lawsuits and other types of
litigation, some of which involve claims for substantial and/or       
indeterminate amounts (including punitive and treble damages) and the 
     outcomes of which are unpredictable. GAAP prescribes when the Company has a
contingent liability and may reserve for particular risks, including  
litigation exposures. Therefore, results for a given period could be  
significantly adversely affected when a reserve is established for    
litigation.                                                           

-    The design of any system of controls and procedures, including internal    
controls and disclosure controls and procedures, is based in part upon
   assumptions about the likelihood of future events. As a result, there can
    be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote.      

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

-    The impact of The Sarbanes-Oxley Act of 2002 on the business of the Company
is being evaluated but cannot be completely determined at this time.  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK             

The pertinent provisions of Management's Discussion and Analysis of   
Financial Condition and Results of Operations are herein incorporated by        
reference.                                                                      

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

See Index to Financial Statements filed with this Report.             

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

No disclosure required by this Item.                                  

ITEM 14. CONTROLS AND PROCEDURES                                                

     Within the 90 days prior to the date of the filing of this report and under
the supervision and with the participation of the Company's management,         
including the principal executive officer and principal financial officer, the  
Company evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures with respect to its annual reports on Form   
10-K and its current reports on Form 8-K to be filed with the SEC. Based upon   
that evaluation, the principal executive officer and the principal financial    
officer concluded that these disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company required to
be included in the Company's annual reports on Form 10-K and its current reports
on Form 8-K. "Disclosure controls and procedures" are those controls and        
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Securities     
Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms. They include controls and  
procedures designed to ensure that information required to be disclosed by the  
Company in reports that it files or submits under that Exchange Act is          
accumulated and communicated to the Company's management, including the         
principal executive officer and principal financial officer, as appropriate to  
allow timely decisions regarding required disclosure.                           

  In addition, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these internal     
controls subsequent to the date of their evaluation.                            

PART IV                                                                         

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K       

(a)  Documents Filed as Part of This Report                                     

    1.  Financial Statements. The Registrant's financial statements, as of
           December 31, 2002 and 2001 and for the years ended December 31, 2002,
           2001 and 2000, together with the Independent Auditors' Report are set
forth on pages F-1 to F-26 of this report.                

      2.  Financial Statement Schedules. The following are included in Part IV
of this report:                                           

Schedule IV - Reinsurance page F-27                       

Schedule V - Valuation and Qualifying Accounts page F-28  

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

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3.  Exhibits.  The exhibits required to be filed by Item 601 of   
           Regulation S-K are listed under the caption "Exhibits" in Item 15(c).

(b)  A Current Report on Form 8-K was filed during the fourth quarter of 2002 on
the following date for the item indicated                             

         December 3, 2002   Item 5  Other Events - reporting developments on
                                               a petition before the
                                                  National Labor Relations
                                Board.

(c)  Exhibits                                                                   

                                                                [Download Table]

Exhibit No.     Description                                           
-----------     -----------                                           
                                                                      
3(i)(A)         Certificate of Amendment of the Restated Certificate  
                of Incorporation of Allstate Life Insurance Company   
                of New York dated November 3, 1995. Incorporated      
                herein by reference to Exhibit 3(i) to Allstate Life  
                Insurance Company of New York's Annual Report on Form 
                10-K for 1998.                                        

3(i)(B)         Certificate of Amendment of the Restated Charter of   
                Allstate Life Insurance Company of New York dated     
                December 17, 1999. Incorporated herein by reference   
                to Exhibit 3(i)(A) to Allstate Life Insurance Company 
                of New York's Quarterly Report on Form 10-Q for       
                quarter ended March 31, 2002.                         

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

10.1            Service Agreement effective as of July 1, 1989        
                between Allstate Insurance Company and Allstate Life  
                Insurance Company of New York. Incorporated herein by 
                reference to Exhibit 10.1 to Allstate Life Insurance  
                Company of New York's Quarterly Report on Form 10-Q   
                for quarter ended March 31, 2002.                     

10.2            Service Agreement between Allstate Life Insurance     
                Company and Allstate Life Insurance Company of New    
                York, effective July 1, 1989. Incorporated herein by  
                reference to Exhibit 10.3 to Allstate Life Insurance  
                Company of New York's Quarterly Report on Form 10-Q   
                for quarter ended June 30, 2002.                      

10.3            Service and Expense Agreement among Allstate Insurance
                Company and The Allstate Corporation and Certain      
                Insurance Subsidiaries. Incorporated herein by        
                reference to Exhibit 10.2 to Northbrook Life Insurance
                Company's Annual Report on Form 10-K for 2001.        

10.4            Administrative Services Agreement between Allstate    
                Life Insurance Company of New York and Allstate       
                Distributors, L.L.C. effective May 1, 2000.           
                Incorporated herein by reference to Exhibit 10.5 to   
                Allstate Life Insurance Company of New York's         
                Quarterly Report on Form 10-Q for quarter ended June  
                30, 2002.                                             

10.5            Investment Management Agreement and Amendment to      
                Certain Service and Expense Agreements Among Allstate 
                Investments, LLC and Allstate Insurance Company and   
                The Allstate Corporation and Certain Affiliates       
                effective as of January 1, 2002. Incorporated herein  
                by reference to Exhibit 10.3 to Northbrook Life       
                Insurance Company's Annual Report on Form 10-K for    
                2001.                                                 

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

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

10.7            Tax Sharing Agreement dated as of November 12, 1996   
                among The Allstate Corporation and certain            
                affiliates. Incorporated herein by reference to       
                Exhibit 10.4 to Northbrook Life Insurance Company's   
                Quarterly Report on Form 10-Q for the quarter ended   
                March 31, 2002.                                       

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

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

10.10           Business Operations and Service Agreement between     
                Allstate Life Insurance Company of New York and       
                Allstate Life Insurance Company effective October     
                1,1997. Incorporated herein by reference to Exhibit   
                10.4 to Allstate Life Insurance Company of New York's 
                Quarterly Report on Form 10-Q for quarter ended June  
                30, 2002.                                             

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

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

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

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

23              Independent Auditors' Consent                         

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SIGNATURES

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

                               Allstate Life Insurance Company of New York
(Registrant)

March 24, 2003                       /s/ Samuel H. Pilch                        
               -------------------
        By:  Samuel H. Pilch
                                 (chief accounting officer and duly authorized
              officer of the registrant)

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

                                                                [Download Table]

SIGNATURE                   TITLE                            DATE          
---------                   -----                            ----          
                                                                           
/s/ Casey J. Sylla          Chairman of the Board,           March 24, 2003
------------------          President and a Director                       
Casey J. Sylla              (Principal Executive Officer)                  

/s/ Steven E. Shebik        Vice President, Chief Financial  March 24, 2003
--------------------        Officer and a Director                         
Steven E. Shebik            (Principal Financial Officer)                  

/s/ Marcia D. Alazraki      Director                         March 19, 2003
----------------------                                                     
Marcia D. Alazraki                                                         

/s/ Margaret G. Dyer        Director                         March 19, 2003
--------------------                                                       
Margaret G. Dyer                                                           

/s/ Marla G. Friedman       Director                         March 19, 2003
---------------------                                                      
Marla G. Friedman                                                          

/s/ Vincent A. Fusco        Director                         March 19, 2003
--------------------                                                       
Vincent A. Fusco                                                           

/s/ Cleveland Johnson, Jr.  Director                         March 19, 2003
--------------------------                                                 
Cleveland Johnson, Jr.                                                     

/s/ John C. Lounds          Director                         March 19, 2003
------------------                                                         
John C. Lounds                                                             

/s/ J. Kevin McCarthy       Director                         March 19, 2003
---------------------                                                      
J. Kevin McCarthy                                                          

/s/ Kenneth R. O'Brien      Director                         March 19, 2003
----------------------                                                     
Kenneth R. O'Brien                                                         

/s/ John R. Raben, Jr.      Director                         March 19, 2003
----------------------                                                     
John R. Raben, Jr.                                                         

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                                                                [Download Table]
                                                 
/s/ Phyllis Hill Slater  Director  March 19, 2003
-----------------------                          
Phyllis Hill Slater                              

/s/ Michael J. Velotta   Director  March 19, 2003
----------------------                           
Michael J. Velotta                               

/s/ Patricia W. Wilson   Director  March 19, 2003
----------------------                           
Patricia W. Wilson                               

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CERTIFICATIONS

I, Casey J. Sylla, certify that:                                                

1. I have reviewed this annual report on Form 10-K of Allstate Life Insurance   
Company of New York;                                                            

2. Based on my knowledge, this annual report does not contain any untrue        
statement of a material fact or omit to state a material fact necessary to make 
the statements made, in light of the circumstances under which such statements  
were made, not misleading with respect to the period covered by this annual     
report;                                                                         

3. Based on my knowledge, the financial statements, and other financial         
information included in this annual report, fairly present in all material      
respects the financial condition, results of operations and cash flows of the   
registrant as of, and for, the periods presented in this annual report;         

4. The registrant's other certifying officers and I are responsible for         
establishing and maintaining disclosure controls and procedures (as defined in  
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:           

a) designed such disclosure controls and procedures to ensure that material     
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the    
period in which this annual report is being prepared;                           

b) evaluated the effectiveness of the registrant's disclosure controls and      
procedures as of a date within 90 days prior to the filing date of this annual  
report (the "Evaluation Date"); and                                             

c) presented in this annual report our conclusions about the effectiveness of   
the disclosure controls and procedures based on our evaluation as of the        
Evaluation Date;                                                                

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of 
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls 
which could adversely affect the registrant's ability to record, process,       
summarize and report financial data and have identified for the registrant's    
auditors any material weaknesses in internal controls; and                      

b) any fraud, whether or not material, that involves management or other        
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this      
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.                     

Date: March 24, 2003                                                            

                                                 /s/  Casey J. Sylla
                                                 -------------------

                                                       Chairman of the Board and
                                       President

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I, Steven E. Shebik, certify that:                                              

1. I have reviewed this annual report on Form 10-K of Allstate Life Insurance   
Company of New York;                                                            

2. Based on my knowledge, this annual report does not contain any untrue        
statement of a material fact or omit to state a material fact necessary to make 
the statements made, in light of the circumstances under which such statements  
were made, not misleading with respect to the period covered by this annual     
report;                                                                         

3. Based on my knowledge, the financial statements, and other financial         
information included in this annual report, fairly present in all material      
respects the financial condition, results of operations and cash flows of the   
registrant as of, and for, the periods presented in this annual report;         

4. The registrant's other certifying officers and I are responsible for         
establishing and maintaining disclosure controls and procedures (as defined in  
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:           

a) designed such disclosure controls and procedures to ensure that material     
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the    
period in which this annual report is being prepared;                           

b) evaluated the effectiveness of the registrant's disclosure controls and      
procedures as of a date within 90 days prior to the filing date of this annual  
report (the "Evaluation Date"); and                                             

c) presented in this annual report our conclusions about the effectiveness of   
the disclosure controls and procedures based on our evaluation as of the        
Evaluation Date;                                                                

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of 
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls 
which could adversely affect the registrant's ability to record, process,       
summarize and report financial data and have identified for the registrant's    
auditors any material weaknesses in internal controls; and                      

b) any fraud, whether or not material, that involves management or other        
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this      
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.                     

Date: March 24, 2003                                                            

                                                      /s/ Steven E. Shebik
                                                      --------------------

                                                    Vice President and
                                                         Chief Financial Officer

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CERTIFICATIONS
PURSUANT TO 18 UNITED STATES CODE SECTION 1350

   Each of the undersigned hereby certifies that to his knowledge the annual
report on Form 10-K for the fiscal year ended December 31, 2002 of Allstate Life
Insurance Company of New York (the "Company") filed with the Securities and     
Exchange Commission fully complies with the requirements of Section 13(a) or    
15(d) of the Securities Exchange Act of 1934 and that the information contained 
in such report fairly presents, in all material respects, the financial         
condition and results of operations of the Company. This certification          
accompanies this annual report on Form 10-K pursuant to Section 906 of the      
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such 
Act, be deemed filed by Allstate Life Insurance Company of New York for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended.               

Date:  March 24, 2003                                                           

               /s/  Casey J. Sylla
               -------------------
          Casey J. Sylla
                               Chairman of the Board and President

                 /s/  Steven E. Shebik
                 ---------------------
            Steven E. Shebik
                                      Vice President and Chief Financial Officer

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

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

       (1) annual reports to security holders covering the registrant's last
fiscal year; or                                       
(2) proxy statements, forms of proxy or other proxy soliciting
materials.                                            

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FINANCIAL STATEMENTS

 INDEX

                                                        [Enlarge/Download Table]

Financial Statements                                                                   Page
--------------------                                                                   ----
                                                                                           
   Independent Auditors' Report                                                         F-1

   Statements of Operations and Comprehensive Income for the Years Ended                   
     December 31, 2002, 2001 and 2000                                                   F-2

   Statements of Financial Position as of December 31, 2002 and 2001                    F-3

   Statements of Shareholder's Equity for the Years Ended December 31, 2002, 2001 and      
     2000                                                                               F-4

   Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000        F-5

   Notes to Financial Statements                                                        F-6

   Schedule IV - Reinsurance for the Years Ended December 31, 2002, 2001 and 2000      F-27

   Schedule V - Valuation and Qualifying Accounts as of December 31, 2002, 2001 and        
     2000                                                                              F-28

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INDEPENDENT AUDITORS' REPORT                                                    

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

We have audited the accompanying Statements of Financial Position of Allstate   
Life Insurance Company of New York (the "Company", an affiliate of The Allstate 
Corporation) as of December 31, 2002 and 2001, and the related Statements of    
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for    
each of the three years in the period ended December 31, 2002. Our audits also  
included Schedule IV - Reinsurance and Schedule V - Valuation and Qualifying    
Accounts. These financial statements and financial statement schedules are the  
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements and financial statement schedules based on
our audits.                                                                     

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 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, such financial statements present fairly, in all material       
respects, the financial position of the Company as of December 31, 2002 and     
2001, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002 in conformity with accounting       
principles generally accepted in the United States of America. Also, in our     
opinion, Schedule IV - Reinsurance and Schedule V - Valuation and Qualifying    
Accounts, when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information set forth    
therein.                                                                        

/s/ Deloitte & Touche LLP                                                       

Chicago, Illinois                                                               
February 5, 2003                                                                

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

                                                        [Enlarge/Download Table]

                                                                                     YEAR ENDED DECEMBER 31,            
                                                                           -------------------------------------------- 

(IN THOUSANDS)                                                                 2002            2001            2000     
                                                                           ------------    ------------    ------------ 
                                                                                                                        
REVENUES                                                                                                                
Premiums (net of reinsurance ceded of $8,269, $5,494, $5,491)              $     90,869    $    104,068    $    104,316 
Contract charges                                                                 50,082          41,241          41,885 
Net investment income                                                           232,967         204,467         176,539 
Realized capital gains and losses                                               (10,172)          2,158          (5,181)
                                                                           ------------    ------------    ------------ 
                                                                                363,746         351,934         317,559 
                                                                           ------------    ------------    ------------ 
COSTS AND EXPENSES                                                                                                      
Contract benefits (net of reinsurance recoveries of $2,987, $2,269, $715)       178,163         185,449         178,960 
Interest credited to contractholder funds                                        87,555          73,956          54,339 
Amortization of deferred policy acquisition costs                                23,535           7,187          13,744 
Operating costs and expenses                                                     37,339          31,266          23,985 
                                                                           ------------    ------------    ------------ 
                                                                                326,592         297,858         271,028 
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND CUMULATIVE EFFECT OF                                               
   CHANGE IN ACCOUNTING PRINCIPLE                                                37,154          54,076          46,531 
Income tax expense                                                               12,975          18,517          15,616 
                                                                           ------------    ------------    ------------ 

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                24,179          35,559          30,915 
                                                                           ------------    ------------    ------------ 
Cumulative effect of change in accounting for derivative financial                                                      
  instruments, after-tax                                                              -            (147)              - 
                                                                           ------------    ------------    ------------ 
NET INCOME                                                                       24,179          35,412          30,915 
                                                                           ------------    ------------    ------------ 

OTHER COMPREHENSIVE INCOME, AFTER TAX                                                                                   
Change in unrealized net capital gains and losses                                50,660             753          88,008 
                                                                           ------------    ------------    ------------ 
COMPREHENSIVE INCOME                                                       $     74,839    $     36,165    $    118,923 
                                                                           ============    ============    ============ 

See notes to financial statements.

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION

                                                        [Enlarge/Download Table]

                                                                                               DECEMBER 31,         
                                                                                      ------------------------------

(IN THOUSANDS, EXCEPT PAR VALUE DATA)                                                     2002             2001     
                                                                                      -------------    -------------
                                                                                                                    
ASSETS                                                                                                              
Investments                                                                                                         
   Fixed income securities, at fair value (amortized cost $3,283,274 and $2,678,265)  $   3,736,416    $   2,894,461
   Mortgage loans                                                                           323,142          242,727
   Short-term                                                                               104,200           57,507
   Policy loans                                                                              33,758           33,160
                                                                                      -------------    -------------
      Total investments                                                                   4,197,516        3,227,855

Cash                                                                                         21,686            7,375
Deferred policy acquisition costs                                                           166,925          156,615
Accrued investment income                                                                    42,197           33,601
Reinsurance recoverables                                                                      2,146            2,327
Current income taxes receivable                                                                 914                -
Other assets                                                                                 10,244           13,800
Separate Accounts                                                                           537,204          602,657
                                                                                      -------------    -------------
        TOTAL ASSETS                                                                  $   4,978,832    $   4,044,230
                                                                                      =============    =============

LIABILITIES                                                                                                         
Reserve for life-contingent contract benefits                                         $   1,556,627    $   1,307,289
Contractholder funds                                                                      2,051,429        1,438,640
Current income taxes payable                                                                      -            6,049
Deferred income taxes                                                                        94,771           64,612
Other liabilities and accrued expenses                                                      188,371          164,399
Payable to affiliates, net                                                                    5,471              427
Reinsurance payable to parent                                                                 1,144            1,181
Separate Accounts                                                                           537,204          602,657
                                                                                      -------------    -------------
        TOTAL LIABILITIES                                                                 4,435,017        3,585,254
                                                                                      -------------    -------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)                                                                     

SHAREHOLDER'S EQUITY                                                                                                
Common stock, $25 par value, 100,000 shares authorized and outstanding                        2,500            2,500
Additional capital paid-in                                                                   55,787           45,787
Retained income                                                                             315,873          291,694
Accumulated other comprehensive income:                                                                             
   Unrealized net capital gains and losses                                                  169,655          118,995
                                                                                      -------------    -------------
        Total accumulated other comprehensive income                                        169,655          118,995
                                                                                      -------------    -------------
        TOTAL SHAREHOLDER'S EQUITY                                                          543,815          458,976
                                                                                      -------------    -------------
        TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                                    $   4,978,832    $   4,044,230
                                                                                      =============    =============

See notes to financial statements.

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

                                                        [Enlarge/Download Table]

                                                                    DECEMBER 31,                 
                                                   ----------------------------------------------
(IN THOUSANDS)                                         2002            2001             2000     
                                                   -------------   -------------    -------------
                                                                                                 
COMMON STOCK                                       $       2,500   $       2,500    $       2,500
                                                   -------------   -------------    -------------

ADDITIONAL CAPITAL PAID IN                                                                       
Balance, beginning of year                                45,787          45,787           45,787
Capital contribution                                      10,000               -                -
                                                   -------------   -------------    -------------
Balance, end of year                                      55,787          45,787           45,787
                                                   -------------   -------------    -------------

RETAINED INCOME                                                                                  
Balance, beginning of year                               291,694         256,282          225,367
Net income                                                24,179          35,412           30,915
                                                   -------------   -------------    -------------
Balance, end of year                                     315,873         291,694          256,282
                                                   -------------   -------------    -------------

ACCUMULATED OTHER COMPREHENSIVE INCOME                                                           
Balance, beginning of year                               118,995         118,242           30,234
Change in unrealized net capital gains and losses         50,660             753           88,008
                                                   -------------   -------------    -------------
Balance, end of year                                     169,655         118,995          118,242
                                                   -------------   -------------    -------------

TOTAL SHAREHOLDER'S EQUITY                         $     543,815   $     458,976    $     422,811
                                                   =============   =============    =============

See notes to financial statements.

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                                               YEAR ENDED DECEMBER 31,            
                                                                                     -------------------------------------------- 

(IN THOUSANDS)                                                                            2002            2001          2000      
                                                                                     --------------   -----------  -------------- 
                                                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES                                                                                              
Net income                                                                           $       24,179   $    35,412  $       30,915 
Adjustments to reconcile net income to net cash provided by operating activities                                                  
     Amortization and other non-cash items                                                  (48,233)      (50,375)        (45,051)
     Realized capital gains and losses                                                       10,172        (2,158)          5,181 
     Cumulative effect of change in accounting for derivative financial instruments               -           147               - 
     Interest credited to contractholder funds                                               87,555        73,956          54,339 
     Changes in:                                                                                                                  
         Life-contingent contract benefits and contractholder funds                          48,192        67,917          73,191 
         Deferred policy acquisition costs                                                  (33,316)      (44,007)        (25,303)
         Income taxes                                                                        (4,083)        5,429           4,305 
         Other operating assets and liabilities                                               4,352       (14,095)        (11,916)
                                                                                     --------------   -----------  -------------- 
             Net cash provided by operating activities                                       88,818        72,226          85,661 
                                                                                     --------------   -----------  -------------- 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                              
Proceeds from sales of fixed income securities                                              242,113       231,977         164,125 
Investment collections                                                                                                            
     Fixed income securities                                                                215,774        94,121          42,449 
     Mortgage loans                                                                          17,012        15,460          15,681 
Investments purchases                                                                                                             
     Fixed income securities                                                             (1,039,671)     (650,545)       (516,908)
     Mortgage loans                                                                         (97,076)      (50,200)        (55,914)
Change in short-term investments, net                                                       (13,972)       10,361          16,139 
Change in other investments, net                                                              1,526             -               - 
Change in policy loans, net                                                                    (598)       (1,388)           (663)
                                                                                     --------------   -----------  -------------- 
             Net cash used in investing activities                                         (674,892)     (350,214)       (335,091)
                                                                                     --------------   -----------  -------------- 

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                              
Capital contribution                                                                         10,000             -               - 
Contractholder fund deposits                                                                760,116       474,849         408,711 
Contractholder fund withdrawals                                                            (169,731)     (191,648)       (158,254)
                                                                                     --------------   -----------  -------------- 
             Net cash provided by financing activities                                      600,385       283,201         250,457 
                                                                                     --------------   -----------  -------------- 

NET INCREASE IN CASH                                                                         14,311         5,213           1,027 
CASH AT BEGINNING OF YEAR                                                                     7,375         2,162           1,135 
                                                                                     --------------   -----------  -------------- 
CASH AT END OF YEAR                                                                  $       21,686   $     7,375  $        2,162 
                                                                                     ==============   ===========  ============== 

See notes to financial statements.

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

1.   GENERAL                                                                    

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

  To conform to the 2002 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.                          

  Non-cash investment exchanges and modifications, which primarily reflect
refinancings of fixed income securities, totaled $5.4 million for 2002. Non-cash
transactions of $256 thousand have been excluded from investment purchases and  
sales for 2001 on the Statements of Cash Flows to conform to current period     
presentation. There were no exchanges or modifications in 2001 or 2000 and no   
non-cash transactions in 2000.                                                  

NATURE OF OPERATIONS                                                            
The Company markets a diversified group of products to meet customers'
lifetime needs in the areas of financial protection and retirement solutions in 
the state of New York through exclusive Allstate agencies, financial services   
firms, direct marketing and specialized brokers. The Company's products include 
term life insurance; whole life and universal life insurance; annuities such as 
fixed annuities, market value adjusted annuities and treasury-linked annuities; 
variable annuities; immediate annuities; and other protection products such as  
accidental death and hospital indemnity. Although the Company currently benefits
from agreements with financial service entities that market and distribute its  
products, change in control of these non-affiliated entities with which the     
Company has distribution agreements could negatively impact the Company's sales.

 The Company monitors economic and regulatory developments that have the
potential to impact its business.  Federal legislation has allowed banks and    
other financial organizations to have greater participation in the securities   
and insurance businesses.  This legislation may present an increased level of   
competition for sales of the Company's products.  Furthermore, state and        
federal laws and regulations affect the taxation of insurance companies and     
life insurance and annuity products.  From time to time, Congress has           
considered proposals that, if enacted, could impose a greater tax burden on     
the Company or could have an adverse impact on the federal income tax           
treatment of some insurance products offered by the Company, including          
favorable policyholder tax treatment currently applicable to deferred and       
immediate annuities, and life insurance, including interest-sensitive life      
insurance.  Recent proposals to eliminate the double taxation of dividends      
and to permit the establishment of tax-free lifetime savings and retirement     
savings accounts could substantially reduce the tax-advantaged nature of many   
insurance products.  If such proposals were to be adopted, they could have a    
material adverse effect on the Company's financial position or ability to       
sell such products and could result in the surrender of some existing           
contracts and policies.  In addition, recent changes in the federal estate      
tax laws have negatively affected the demand for the types of life insurance    
used in estate planning.                                                        

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

INVESTMENTS                                                                     
    Fixed income securities include bonds and asset-backed and mortgage-backed
securities. All fixed income securities are carried at fair value and are       
classified as available for sale. The fair value of publicly traded fixed income
securities is based upon independent market quotations. The fair value of       
non-publicly traded securities, primarily privately placed corporate            
obligations, is based on either widely accepted pricing valuation models which  
utilize internally developed ratings and independent third party data (e.g.,    
term structures and current publicly traded bond prices) as inputs or           
independent third party pricing sources. The valuation models use indicative    
information such as ratings, industry, coupon, and maturity along with related  
third party data and publicly traded bond prices to determine security specific 
spreads. These spreads are then adjusted for illiquidity based on historical    
analysis and broker surveys. Periodic changes in fair values are reported as a  
component of Other comprehensive income net of deferred taxes, certain life and 
annuity deferred policy acquisition costs and certain reserves for              
life-contingent benefits and are reclassified to Net income only when supported 
by the consummation of a transaction with an unrelated third party, or when     
declines in fair values are deemed other than temporary. Cash received from     
calls, principal payments and make-whole payments is reflected as a component of
Proceeds from sales, and cash received from maturities and pay-downs is         
reflected as a component of Investment collections on the Statements of Cash    
Flows.                                                                          

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

Mortgage loans are carried at outstanding principal balance, net of   
unamortized premium or discount and valuation allowances. Valuation allowances  
are established for impaired loans when it is probable that contractual         
principal and interest will not be collected. Valuation allowances for impaired 
loans reduce the carrying value to the fair value of the collateral or the      
present value of the loan's expected future repayment cash flows discounted at  
the loan's original effective interest rate. Valuation allowances on loans not  
considered to be impaired are established based on consideration of the         
underlying collateral, borrower financial strength, current and expected market 
conditions and other factors.                                                   

Short-term investments are carried at cost or amortized cost that     
approximates fair value, and generally include the reinvestment of collateral   
received in connection with certain securities lending activities. For          
securities lending transactions, the Company records an offsetting liability in 
Other liabilities and accrued expenses for the Company's obligation to repay the
collateral. Other investments, which consist primarily of policy loans, are     
carried at the unpaid principal balances.                                       

 Investment income consists of interest that is recognized on an accrual
basis. Interest income on mortgage-backed and asset-backed securities is        
determined on the effective yield method, based on estimated principal          
repayments. Accrual of income is suspended for fixed income securities and      
mortgage loans that are in default or when the receipt of interest payments is  
in doubt.                                                                       

Realized capital gains and losses are determined on a specific        
identification basis. They include gains and losses on security dispositions,   
write-downs in value due to other than temporary declines in fair value, and    
changes in the value of certain derivative instruments.                         

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

DERIVATIVE FINANCIAL INSTRUMENTS                                                
    The Company adopted the provisions of Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standard ("SFAS") No. 133,           
"Accounting for Derivative Instruments and Hedging Activities," and SFAS No.    
138, "Accounting for Certain Derivative Instruments and Certain Hedging         
Activities," as of January 1, 2001. The impact of SFAS No. 133 and SFAS No. 138 
(the "statements") to the Company was a loss of $147 thousand, after-tax, and is
reflected as a cumulative effect of change in accounting principle on the       
Statements of Operations and Comprehensive Income.                              

  The statements require that all derivatives be recognized on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair   
value through Net income. If the derivative is designated as a hedge, depending 
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through Net income or recognized in Accumulated other          
comprehensive income until the hedged item is recognized in Net income.         

The Company manages interest rate risk by holding financial futures   
contracts that are derivative financial instruments and by a re-investment      
related risk transfer reinsurance agreement with ALIC that meets the            
accounting definition of a derivative (See Note 3). Derivatives are accounted   
for on a fair value basis, and reported as Other assets or Other liabilities    
and accrued expenses, as appropriate. Beginning in January 2001, hedge          
accounting is not applied to the strategies which utilize the financial         
futures contracts for interest rate risk management purposes. Therefore, the    
gains and losses pertaining to the change in the fair value of the financial    
futures contracts and the re-investment risk related transfer reinsurance       
agreement are recognized in Realized capital gains and losses during the        
period on a current basis.                                                      

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

SECURITIES LOANED                                                               
     Securities loaned are treated as financing arrangements and are recorded in
Short-term investments, Fixed income securities and Other liabilities and       
accrued expenses at the amount of cash received. The Company obtains collateral 
in an amount equal to 102% of the fair value of securities. The Company monitors
the market value of securities loaned on a daily basis with additional          
collateral obtained as necessary. Substantially all of the Company's securities 
loaned are with large brokerage firms.                                          

RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS AND INTEREST CREDITED     
  Traditional life insurance products consist principally of products with
fixed and guaranteed premiums and benefits, primarily term and whole life       
insurance products. Premiums from these products are recognized as revenue when 
due. Benefits are recognized in relation to such revenue so as to result in the 
recognition of profits over the life of the policy and are reflected in contract
benefits.                                                                       

   Immediate annuities with life contingencies, including certain structured
settlement annuities, provide insurance protection over a period that extends   
beyond the period during which premiums are collected. Gross premiums in excess 
of the net premium on immediate annuities with life contingencies are deferred  
and recognized over the contract period. Contract benefits are recognized in    
relation to such revenue so as to result in the recognition of profits over the 
life of the policy.                                                             

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

Contracts that do not subject the Company to significant risk arising 
from mortality or morbidity are referred to as investment contracts. Fixed      
annuities, market value adjusted annuities and immediate annuities without      
life contingencies are considered investment contracts. Deposits received for   
such contracts are reported as Contractholder funds. Contract charges for       
investment contracts consist of charges assessed against the contractholder     
account balance for contract administration and surrender charges. These        
revenues are recognized when levied against the contractholder account          
balance.                                                                        

  Interest credited to contractholder funds represents interest accrued or
paid for interest-sensitive life contracts and investment contracts.            
Crediting rates for fixed rate annuities and interest-sensitive life            
contracts are adjusted periodically by the Company to reflect current market    
conditions subject to contractually guaranteed rates.                           

Variable annuity contracts are sold as Separate Accounts products. The
assets supporting these products are legally segregated and available only to   
settle Separate Accounts contract obligations. Deposits received are reported   
as Separate Accounts liabilities. Contract charges for these contracts          
consist of fees assessed against the Separate Accounts account values for       
contract maintenance, administration, mortality, expense and surrenders.        
Contract benefits incurred include guaranteed minimum death benefits paid on    
variable annuity contracts.                                                     

DEFERRED POLICY ACQUISITION COSTS                                               
The Company establishes a deferred asset for certain costs that vary  
with and are primarily related to acquiring business. These costs,              
principally agents' and brokers' remuneration, certain underwriting costs and   
direct mail solicitation expenses, are deferred and recorded as Deferred        
policy acquisition costs ("DAC"). All other acquisition expenses are charged    
to operations as incurred and included in Operating costs and expenses on the   
Statements of Operations and Comprehensive Income. DAC is periodically          
reviewed as to recoverability and written down when necessary.                  

    For traditional life insurance and other premium paying contracts, such as
immediate annuities with life contingencies and limited payment contracts, these
costs are amortized over the premium paying period of the related policies in   
proportion to the estimated revenue on such business. Assumptions relating to   
estimated                                                                       

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 NOTES TO FINANCIAL STATEMENTS

revenue, as well as to all other aspects of the DAC and reserve calculations,   
are determined based upon conditions as of the date of policy issue and are     
generally not revised during the life of the policy. Any deviations from        
projected business inforce, resulting from actual policy terminations differing 
from expected levels, and any estimated premium deficiencies change the rate of 
amortization in the period such events occur. Generally, the amortization period
for these contracts approximates the estimated lives of the contracts.          

For internal exchanges of traditional life insurance and immediate    
annuities with life contingencies, the unamortized balance of costs previously  
deferred under the original contracts are charged to income. The new costs      
associated with the exchange are deferred and amortized to income.              

  For interest-sensitive life insurance, variable annuities and investment
contracts, DAC is amortized in relation to the present value of estimated gross 
profits ("EGP") on such business over the estimated lives of the contracts.     
Generally, the amortization period ranges from 15-30 years, however an assumed  
surrender rate is also used which results in the majority of deferred costs     
being amortized over the surrender charge period. The rate of amortization      
during this term is matched to the pattern of EGP. EGP consists of the following
components: margins from mortality, including guaranteed minimum death and      
income benefits, investment margin, including realized capital gains and losses,
and contract administration, surrender and other contract charges less          
maintenance expenses. The estimation of EGP requires judgment, including the    
forecasting of highly uncertain events such as the level of surrenders at the   
end of a surrender charge period and, in some cases, future equity market       
performance. In estimating the impact of highly uncertain events, the Company   
considers historical experience as well as current trends.                      

     In particular, a significant degree of judgment is involved with estimating
future levels of EGP for the Company's variable annuity contracts as future fee 
income and guaranteed minimum death benefits ("GMDBs") are highly sensitive to  
equity market performance. The Company's variable annuity DAC amortization      
methodology includes a long-term market return assumption for account values of 
approximately 9.25%, or 8.0% after average mortality and expense fees of 1.25%. 
When market returns vary from the 8.0% long-term expectation or mean, the       
Company assumes a reversion to the mean over a seven-year period, which includes
two prior years and five future years. The assumed returns over this period are 
limited to a range between 0% to 13.25% after mortality and expense fees. The   
costs associated with GMDBs are included in EGP. Generally, less DAC is         
amortized during periods in which the GMDBs are higher than projected. However, 
if projected GMDBs cause DAC to be not fully recoverable, DAC will be written   
down to an amount deemed recoverable.                                           

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

    The Company currently performs quarterly reviews of DAC recoverability for
interest-sensitive life insurance, variable annuities and investment contracts  
in the aggregate using current assumptions. Future volatility in the equity     
markets of similar or greater magnitude may result in disproportionate changes  
in the amortization of DAC. If a change in the amount of EGP is significant, it 
could result in the unamortized DAC not being recoverable, resulting in a charge
which is reflected as a component of Amortization of deferred policy            
acquisitions costs on the Statements of Operations and Comprehensive Income.    

REINSURANCE RECOVERABLES                                                        
    In the normal course of business, the Company seeks to limit aggregate and
single exposure to losses on large risks by purchasing reinsurance from other   
insurers (See Note 8). The amounts reported in the Statements of Financial      
Position include amounts billed to reinsurers on losses paid as well as         
estimates of amounts expected to be recovered from reinsurers on incurred losses
that have not yet been paid. Reinsurance recoverables on unpaid losses are      
estimated based upon assumptions consistent with those used in establishing the 
liabilities related to the underlying reinsured contract. Insurance liabilities 
are reported gross of reinsurance recoverables. Prepaid reinsurance premiums are
deferred and reflected in income in a manner consistent with the recognition of 
premiums on the reinsured contracts. Reinsurance does not extinguish the        
Company's primary liability under the policies written and therefore reinsurers 
and amounts recoverable are regularly evaluated by the Company and allowances   
for uncollectible reinsurance are established as appropriate.                   

The Company has a reinsurance treaty through which it cedes primarily 
re-investment related risk on its structured settlement annuities to ALIC. The  
terms of this treaty meet the accounting definition of a derivative under SFAS  
No. 133. Accordingly, the treaty is recorded in the Statement of Financial      
Position at fair value, and                                                     

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 NOTES TO FINANCIAL STATEMENTS

changes in the fair value of the treaty are recognized in Realized capital gains
and losses. Premiums paid to ALIC are included in Operating costs and expenses  
(See Note 3).                                                                   

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

SEPARATE ACCOUNTS                                                               
The assets and liabilities related to variable annuity contracts are  
legally segregated and recorded as assets and liabilities of the Separate       
Accounts. The assets of the Separate Accounts are carried at fair value.        
Separate Accounts liabilities represent the contractholders' claims to the      
related assets and are carried at the fair value of the assets. Investment      
income and realized capital gains and losses of the Separate Accounts accrue    
directly to the contractholders and therefore, are not included in the Company's
Statements of Operations and Comprehensive Income. Revenues to the Company from 
the Separate Accounts consist of contract maintenance and administration fees   
and mortality, surrender and expense risk charges reflected as Contract charges.
Deposits to the Separate Accounts are not included in the Statements of Cash    
Flows.                                                                          

Absent any contract provision wherein the Company guarantees either a 
minimum return or account value upon death or annuitization, variable annuity   
contractholders bear the investment risk that the underlying mutual funds of the
Separate Accounts may not meet their stated investment objectives.              

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS                                   
The Reserve for life-contingent contract benefits, which relates to       
traditional life insurance and immediate annuities with life contingencies, are 
computed on the basis of long-term actuarial assumptions of future investment   
yields, mortality, morbidity, terminations and expenses. These assumptions,     
which for traditional life insurance are applied using the net level premium    
method, include provisions for adverse deviation and generally vary by such     
characteristics as type of coverage, year of issue and policy duration.         
Mortality, morbidity and termination assumptions are based on Company and       
industry experience prevailing at the time of issue, and expense assumptions    
include the estimated effects of inflation and expenses to be incurred beyond   
the premium paying period. Future investment yield assumptions are determined at
the time of issue based upon prevailing investment yields as well as forecasted 
reinvestment yields. To the extent that unrealized gains on fixed income        
securities would result in a premium deficiency had those gains actually been   
realized, the related increase in reserve is recorded as a reduction in         
Unrealized net capital gains and losses included in Accumulated other           
comprehensive income.                                                           

CONTRACTHOLDER FUNDS                                                            
 Contractholder funds arise from the issuance of interest-sensitive life
insurance policies and investment contracts. Deposits received are recorded as  
interest-bearing liabilities. Contractholder funds are equal to deposits        
received and interest credited to the benefit of the contractholder less        
surrenders and withdrawals, mortality charges and administrative expenses.      
Detailed information on crediting rates and surrender and withdrawal provisions 
on contractholder funds are outlined in Note 6.                                 

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS                                         
  Commitments to extend mortgage loans have off-balance-sheet risk because
their contractual amounts are not recorded in the Company's Statements of       
Financial Position. The contractual amounts and fair values of these instruments
are outlined in Note 5.                                                         

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

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 NOTES TO FINANCIAL STATEMENTS

PENDING ACCOUNTING STANDARDS                                                    

  On July 31, 2002, the American Institute of Certified Public Accountants
issued an exposure draft Statement of Position ("SOP") entitled "Accounting and 
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration     
Contracts and for Separate Accounts". The accounting guidance contained in the  
proposed SOP applies to several of the Company's products and product features. 
The proposed effective date of the SOP is fiscal years beginning after December 
15, 2003, with earlier adoption encouraged. If adopted early, the provisions of 
the SOP must be applied as of the beginning of the fiscal year. Accordingly, if 
the SOP were adopted during an interim period of 2003, prior interim periods    
would be restated. A provision of the proposed SOP requires the establishment of
a liability in addition to the account balance for contracts and contract       
features that provide guaranteed death or other insurance benefits. The         
finalized SOP may also require a liability for guaranteed income benefits. These
liabilities are not currently recognized by the Company, and their establishment
may have a material impact on the Statements of Operations and Comprehensive    
Income depending on the market conditions at the time of adoption, but is not   
expected to have a material impact on the Company's Statements of Financial     
Position.                                                                       

 The FASB has exposed guidance that addresses the accounting for certain
modified coinsurance agreements. The guidance has been exposed as FASB          
Interpretation of Statement 133 Implementation Issue No. B36, "Embedded         
Derivatives: Bifurcation of a Debt Instrument That Incorporates Both Interest   
Rate Risk and Credit Risk Exposures That Are Unrelated or Only Partially        
Related to the Creditworthiness of the Issuer of That Instrument." The          
proposed guidance requires recognizing an embedded derivative in certain        
reinsurance agreements when certain conditions are met. The initial impact of   
adopting the proposed guidance would be recorded as a cumulative adjustment     
to Net income in the first fiscal quarter beginning after June 15, 2003. The    
Company has no reinsurance arrangements that would be subject to the proposed   
guidance. Accordingly, the potential impact of recognizing embedded             
derivatives pursuant to the requirements of the proposed guidance is expected   
to be immaterial to both the Company's Statements of Financial Position and     
Statements of Operations and Comprehensive Income.                              

3.   RELATED PARTY TRANSACTIONS                                                 

REINSURANCE                                                                     
The Company has reinsurance agreements with ALIC in order to limit    
aggregate and single exposure on large risks and to reduce re-investment related
risk on its structured settlement annuity business. A portion of the Company's  
premiums and policy benefits are ceded to ALIC and reflected net of such        
reinsurance in the Statements of Operations and Comprehensive Income.           
Reinsurance recoverables and the related reserve for life-contingent contract   
benefits and contractholder funds are reported separately in the Statements of  
Financial Position. The Company continues to have primary liability as the      
direct insurer for risks reinsured (See Note 8). Additionally, the Company      
entered into a reinsurance treaty through which it primarily cedes re-investment
related risk on its structured settlement annuities to ALIC. Under the terms of 
the treaty, the Company pays a premium to ALIC that varies with the aggregate   
structured settlement annuity reserve balance, which was $1.75 billion at       
December 31, 2002. In return, ALIC guarantees that the yield on the portion of  
the Company's investment portfolio that supports structured settlement annuity  
liabilities will not fall below contractually determined rates. During 2002, the
Company ceded premium to ALIC of $2.4 million related to structured settlement  
annuities that is included in Operating costs and expenses.                     

STRUCTURED SETTLEMENT ANNUITIES                                                 
The Company issued $23.8 million, $23.7 million and $16.2 million of  
structured settlement annuities, a type of immediate annuity, in 2002, 2001 and 
2000, respectively, at prices based upon interest rates in effect at the time of
issuance, to fund structured settlement annuities in matters involving AIC. Of  
these amounts, $7.5 million, $4.9 million and $4.5 million relate to structured 
settlement annuities with life contingencies and are included in premium income 
in 2002, 2001 and 2000, respectively. Additionally, the reserve for             
life-contingent contract benefits was increased by approximately 94% of such    
premium received in each of these years. In most cases, these annuities were    
issued to Allstate Settlement Corporation ("ASC") for cases issued prior to July
1, 2001 and to Allstate Assignment Company ("AAC") for cases issued after July  
1, 2001. Both are subsidiaries of ALIC, which, under a "qualified assignment",  
assumed AIC's obligation to make the future payments to annuitants.             

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 NOTES TO FINANCIAL STATEMENTS

AIC has issued surety bonds to guarantee the payment of structured    
settlement benefits assumed by ASC (from both AIC and non-related parties) and  
funded by certain annuity contracts issued by the Company. ASC has entered into 
General Indemnity Agreements pursuant to which it indemnified AIC for any       
liabilities associated with the surety bonds and gives AIC certain collateral   
security rights with respect to the annuities and certain other rights in the   
event of any defaults covered by the surety bonds. For contracts written on or  
after July 1, 2001, AIC no longer issues surety bonds to guarantee the payment  
of structured settlement benefits. Alternatively, ALIC guarantees the payment of
structured settlement benefits on all contracts issued on or after July 1, 2001.

    Reserves recorded by the Company for annuities covered by the surety bonds
were $1.43 billion and $1.40 billion at December 31, 2002 and 2001,             
respectively.                                                                   

BUSINESS OPERATIONS                                                             
  The Company utilizes services performed by its affiliates, AIC, ALIC and
Allstate Investments LLC as well as business facilities owned or leased, and    
operated by AIC in conducting its business activities. In addition, the Company 
shares the services of employees with AIC. The Company reimburses its affiliates
for the operating expenses incurred on behalf of the Company. The Company is    
charged for the cost of these operating expenses based on the level of services 
provided. Operating expenses, including compensation, retirement and other      
benefit programs, allocated to the Company were $34.9 million, $26.6 million and
$15.6 million in 2002, 2001 and 2000, respectively. A portion of these expenses 
relate to the acquisition of business and are deferred and amortized over the   
contract period.                                                                

DEBT                                                                            
The Company has entered into an intercompany loan agreement with the  
Corporation. The amount of funds available to the Company at a given point in   
time is dependent upon the debt position of the Corporation. No amounts were    
outstanding for the Company under the intercompany loan agreement at December   
31, 2002 and 2001, respectively.                                                

BROKER/DEALER AGREEMENT                                                         
   Beginning May 1, 2000, the Company receives underwriting and distribution
services from Allstate Distributors, L.L.C. ("ADLLC"), a broker-dealer company  
owned by ALIC, for certain variable annuity contracts sold pursuant to a joint  
venture agreement between the Company and a third party which was dissolved in  
2002. The Company incurred $4.2 million, $10.5 million and $10.9 million of     
commission expenses and other distribution expenses payable to ADLLC during     
2002, 2001 and 2000, respectively. Other distribution expenses include          
administrative, legal, financial management and sales support that the Company  
provides to ADLLC, for which the Company earned administration fees of $83      
thousand and $127 thousand for the years ended December 31, 2002 and 2001,      
respectively. The Company did not earn administration fees in 2000. Other       
distribution expenses also include marketing expenses for subsidized interest   
rates associated with the Company's dollar cost averaging program offered on    
variable annuities, for which ADLLC reimbursed the Company $60 thousand, $855   
thousand and $549 thousand for the years ended December 31, 2002, 2001 and 2000,
respectively.                                                                   

INCOME TAXES                                                                    
  The Company is a party to a federal income tax allocation agreement with
the Corporation (See note 10).                                                  

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 NOTES TO FINANCIAL STATEMENTS

4.   INVESTMENTS                                                                

FAIR VALUES                                                                     

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

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                            GROSS UNREALIZED                          
                                      AMORTIZED    --------------------------------       FAIR      
                                        COST           GAINS             LOSSES           VALUE     
                                    -------------  --------------    --------------   --------------
                                                                                                    
AT DECEMBER 31, 2002                                                                                
U.S. government and agencies        $     431,768  $      176,323    $            -   $      608,091
Municipal                                 119,041           7,135               (20)         126,156
Corporate                               1,894,805         208,475           (25,384)       2,077,896
Foreign government                        187,833          54,381                 -          242,214
Mortgage-backed securities                594,087          30,185            (1,010)         623,262
Asset-backed securities                    55,740           3,058                (1)          58,797
                                    -------------  --------------    --------------   --------------
     Total fixed income securities  $   3,283,274  $      479,557    $      (26,415)  $    3,736,416
                                    =============  ==============    ==============   ==============

AT DECEMBER 31, 2001                                                                                
U.S. government and agencies        $     419,492  $       96,208    $         (517)  $      515,183
Municipal                                 150,543           3,695               (47)         154,191
Corporate                               1,467,636          96,973           (18,492)       1,546,117
Foreign government                        160,115          21,710               (16)         181,809
Mortgage-backed securities                425,635          16,737              (228)         442,144
Asset-backed securities                    54,844           1,081              (908)          55,017
                                    -------------  --------------    --------------   --------------
     Total fixed income securities  $   2,678,265  $      236,404    $      (20,208)  $    2,894,461
                                    =============  ==============    ==============   ==============

SCHEDULED MATURITIES                                                            

The scheduled maturities for fixed income securities are as follows at
December 31, 2002:                                                              

                                                                [Download Table]

                                           AMORTIZED           FAIR       
(IN THOUSANDS)                               COST              VALUE      
                                        ----------------  ----------------
                                                                          
Due in one year or less                 $         27,257  $         27,695
Due after one year through five years            360,767           385,498
Due after five years through ten years           804,754           873,129
Due after ten years                            1,440,669         1,768,035
                                        ----------------  ----------------
                                               2,633,447         3,054,357
Mortgage- and asset-backed securities            649,827           682,059
                                        ----------------  ----------------
  Total                                 $      3,283,274  $      3,736,416
                                        ================  ================

Actual maturities may differ from those scheduled as a result of      
prepayments by the issuers. Because of the potential for prepayment, mortgage-  
and asset-backed securities have not been reflected based on their contractual  
maturities.                                                                     

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 NOTES TO FINANCIAL STATEMENTS

NET INVESTMENT INCOME                                                           

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                     YEAR ENDED DECEMBER 31,             
                                       ------------------------------------------------
                                           2002             2001             2000      
                                       --------------   --------------   --------------
                                                                                       
Fixed income securities                $      214,920   $      189,793   $      160,919
Mortgage loans                                 20,336           16,677           14,899
Other                                           4,501            6,762            5,829
                                       --------------   --------------   --------------
    Investment income, before expense         239,757          213,232          181,647
    Investment expense                          6,790            8,765            5,108
                                       --------------   --------------   --------------
    Net investment income              $      232,967   $      204,467 $        176,539
                                       ==============   ==============   ==============

REALIZED CAPITAL GAINS AND LOSSES, AFTER-TAX                                    

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

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                               YEAR ENDED DECEMBER 31,              
                                                      2002             2001              2000     
                                                 -------------     ------------     ------------- 
                                                                                                  
Fixed income securities                          $     (11,886)    $      1,514     $      (5,820)
Mortgage loans                                             419              166               697 
Other                                                    1,295              478               (58)
                                                 -------------     ------------     ------------- 
   Realized capital gains and losses                   (10,172)           2,158            (5,181)
   Income taxes                                          3,677             (764)            1,866 
                                                 -------------     ------------     ------------- 
   Realized capital gains and losses, after-tax  $      (6,495)    $      1,394     $      (3,315)
                                                 =============     ============     ============= 

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

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                                     YEAR ENDED DECEMBER 31,              
                                                           2002             2001              2000      
                                                       -------------     ------------     ------------- 
                                                                                                        
Investment write-downs                                 $     (15,760)    $     (1,371)    $      (3,789)
Sales                                                                                                   
     Fixed income securities                                   3,874            2,885            (2,031)
     Other                                                     1,499              478               (58)
                                                       -------------     ------------     ------------- 
     Total sales                                               5,373            3,363            (2,089)

Valuation of derivative instruments                             (204)              -                -   
Realized capital gains and losses on other securities            419              166               697 
                                                       -------------     ------------     ------------- 
     Realized capital gains and losses                       (10,172)           2,158            (5,181)
     Income taxes                                              3,677             (764)            1,866 
                                                       -------------     ------------     ------------- 
     Realized capital gains and losses, after-tax      $      (6,495)    $      1,394     $      (3,315)
                                                       =============     ============     ============= 

     Excluding calls and prepayments, gross gains of $11.7 million, $7.4 million
and $3.0 million and gross losses of $7.8 million, $4.5 million and $5.0 million
were realized on sales of fixed income securities during 2002, 2001 and 2000,   
respectively.                                                                   

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

UNREALIZED NET CAPITAL GAINS AND LOSSES                                         

     Unrealized net capital gains and losses on fixed income securities included
in shareholder's equity at December 31, 2002 are as follows:                    

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                                          GROSS UNREALIZED                        
                                                       FAIR       -----------------------------    UNREALIZED   
                                                       VALUE         GAINS           LOSSES         NET GAINS   
                                                    ------------  -------------    ------------  -------------- 
                                                                                                                
Fixed income securities                             $  3,736,416  $     479,557    $    (26,415) $      453,142 
                                                    ============  =============    ============                 
Deferred income taxes, deferred policy acquisition                                                              
   costs and other                                                                                     (283,487)
                                                                                                 -------------- 
Unrealized net capital gains and losses                                                          $      169,655 
                                                                                                 ============== 

CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES                               

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                                                   YEAR ENDED DECEMBER 31,               
                                                                    -------------------------------------------------- 
                                                                         2002              2001              2000      
                                                                    --------------    --------------    -------------- 
                                                                                                                       
Fixed income securities                                             $      236,946    $          151    $      161,716 
Deferred income taxes, deferred policy acquisition costs and other        (186,286)              602           (73,708)
                                                                    --------------    --------------    -------------- 
   Increase in unrealized net capital gains and losses              $       50,660    $          753    $       88,008 
                                                                    ==============    ==============    ============== 

INVESTMENT LOSS PROVISIONS AND VALUATION ALLOWANCES                             
Pretax provisions for investment losses, principally relating to      
write-downs on fixed income securities, were $15.8 million, $1.3 million and    
$3.1 million in 2002, 2001 and 2000, respectively.                              

MORTGAGE LOAN IMPAIRMENT                                                        
  A mortgage loan is impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The Company had no impaired loans at December 31, 2002 or 2001.      

  There were no valuation allowance balances at December 31, 2002 or 2001.
The valuation allowance for mortgage loans at December 31, 2000 was $119        
thousand. Net reductions to the mortgage loan valuation allowances were $119    
thousand and $481 thousand for the years ended December 31, 2001 and 2000,      
respectively.                                                                   

INVESTMENT CONCENTRATION FOR MUNICIPAL BOND AND COMMERCIAL MORTGAGE PORTFOLIOS  
AND OTHER INVESTMENT INFORMATION                                                
The Company maintains a diversified portfolio of municipal bonds that 
represents 3.4% of the Company's fixed income security portfolio. Except for the
following states, holdings in no other state exceeded 5.0% of the portfolio at  
December 31:                                                                    

                                                                [Download Table]

(% of municipal bond portfolio carrying value)    2002       2001  
                                                --------  ---------
                                                                   
     California                                    21.0%      15.0%
     Texas                                         20.3          - 
     Pennsylvania                                  11.7       12.8 
     Ohio                                          10.0        7.2 
     Delaware                                       8.9          - 
     Illinois                                         -       10.8 
     Missouri                                         -        8.6 
     Florida                                          -        8.2 
     Alaska                                           -        6.5 
     Mississippi                                      -        6.4 
     Utah                                             -        5.2 

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

    The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States. Substantially  
all of the commercial mortgage loans are non-recourse to the borrower. The      
states with the largest portion of the commercial mortgage loan portfolio are   
listed below. Except for the following, holdings in no other state exceeded 5.0%
of the portfolio at December 31:                                                

                                                                [Download Table]

(% of commercial mortgage portfolio carrying value)    2002       2001  
                                                     --------  ---------
                                                                        
     California                                         20.8%      24.9%
     New York                                           18.3       22.1 
     Illinois                                           17.7       14.3 
     New Jersey                                         14.4       17.8 
     Pennsylvania                                       12.5       13.4 

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

                                                                [Download Table]

(% of commercial mortgage portfolio carrying value)    2002        2001   
                                                     --------   --------- 
                                                                          
     Office buildings                                    23.3%       26.9%
     Retail                                              28.2        25.5 
     Warehouse                                           17.7        19.5 
     Apartment complex                                   19.8        18.4 
     Industrial                                           2.9         3.9 
     Other                                                8.1         5.8 
                                                     --------   --------- 
                                                        100.0%      100.0%
                                                     ========   ========= 

    The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 2002, are as follows:                                              

                                                                [Download Table]

                     NUMBER OF LOANS         CARRYING VALUE       PERCENT   
                  ---------------------   --------------------   ---------- 
                                            (IN THOUSANDS)                  
                                                                            
2003                       -              $                  -            -%
2004                       1                               911          0.3 
2005                       2                             6,238          1.9 
2006                       5                            29,615          9.2 
2007                       5                            15,320          4.7 
Thereafter                 65                          271,058         83.9 
                  ---------------------   --------------------   ---------- 
       Total               78             $            323,142        100.0%
                  =====================   ====================   ========== 

    In 2002, $763 thousand of commercial mortgage loans were contractually due
and paid.                                                                       

SECURITIES LENDING                                                              
  The Company participates in securities lending programs, primarily as an
investment yield enhancement, with third parties, such as large brokerage firms.
At December 31, 2002 and 2001, fixed income securities with a carrying value of 
$160.0 million and $140.3 million, respectively, have been loaned under these   
lending agreements. In return, the Company receives cash that is subsequently   
invested and included in Short-term investments and Fixed income securities with
an offsetting liability recorded in Other liabilities and accrued expenses to   
account for the Company's obligation to return the collateral. Interest income  
on collateral, net of fees, was $370 thousand, $572 thousand and $109 thousand, 
for the years ending December 31, 2002, 2001 and 2000, respectively.            

SECURITIES ON DEPOSIT                                                           
     At December 31, 2002, fixed income securities with a carrying value of $2.3
million were on deposit with regulatory authorities as required by law.         

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

5.   FINANCIAL INSTRUMENTS                                                      
    In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements         
involving derivative financial instruments and other off-balance-sheet financial
instruments. The fair value estimates of financial instruments presented below  
are not necessarily indicative of the amounts the Company might pay or receive  
in actual market transactions. Potential taxes and other transaction costs have 
not been considered in estimating fair value. The disclosures that follow do not
reflect the fair value of the Company as a whole since a number of the Company's
significant assets (including Deferred policy acquisition costs and Reinsurance 
recoverables) and liabilities (including Reserve for life-contingent contract   
benefits and Deferred income taxes) are not considered financial instruments and
are not carried at fair value. Other assets and liabilities considered financial
instruments such as Accrued investment income and Cash are generally of a       
short-term nature. Their carrying values are deemed to approximate fair value.  

FINANCIAL ASSETS                                                                
   The carrying value and fair value of financial assets at December 31, are
as follows:                                                                     

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                        2002                            2001              
                         -------------------------------  ------------------------------
                            CARRYING           FAIR         CARRYING           FAIR     
                             VALUE             VALUE          VALUE            VALUE    
                         -------------     -------------  -------------    -------------
                                                                                        
Fixed income securities  $   3,736,416     $   3,736,416  $   2,894,461    $   2,894,461
Mortgage loans                 323,142           355,578        242,727          247,670
Short-term investments         104,200           104,200         57,507           57,507
Policy loans                    33,758            33,758         33,160           33,160
Separate Accounts              537,204           537,204        602,657          602,657

The fair value of publicly traded fixed income securities is based on 
independent market quotations or dealer quotes. The fair value of non-publicly  
traded securities, primarily privately placed corporate obligations, is based on
either widely accepted pricing valuation models which utilized internally       
developed ratings and independent third party data (e.g., term structures and   
current publicly traded bond prices) as inputs or independent third party       
pricing sources. Mortgage loans are valued based on discounted contractual cash 
flows. Discount rates are selected using current rates at which similar loans   
would be made to borrowers with similar characteristics, using similar          
properties as collateral. Loans that exceed 100% loan-to-value are valued at the
estimated fair value of the underlying collateral. Short-term investments are   
highly liquid investments with maturities of less than one year whose carrying  
values are deemed to approximate fair value. The carrying value of policy loans 
is deemed to approximate fair value. Separate Accounts assets are carried in the
Statements of Financial Position at fair value based on independent market      
quotations.                                                                     

FINANCIAL LIABILITIES                                                           
    The carrying value and fair value of financial liabilities at December 31,
are as follows:                                                                 

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                            2002                            2001             
                                              ------------------------------  -----------------------------
                                                CARRYING           FAIR        CARRYING           FAIR     
                                                 VALUE             VALUE         VALUE            VALUE    
                                              -------------     ------------  ------------     ------------
                                                                                                           
Contractholder funds on investment contracts  $   1,778,022     $  2,026,492  $  1,173,357     $  1,155,665
Separate Accounts                                   537,204          537,204       602,657          602,657

  Contractholder funds include interest-sensitive life insurance contracts
and investment contracts. Interest-sensitive life insurance contracts and       
certain other contractholder liabilities are not considered to be financial     
instruments subject to fair value disclosure. The fair value of investment      
contracts is based on the terms of the underlying contracts. Fixed annuities    
are valued at the account balance less surrender charges and immediate          
annuities without life contingencies are valued at the present value of         
future benefits using current interest rates. Market value adjusted             
annuities' fair value is estimated to be the market adjusted surrender value.   
Separate Accounts liabilities are carried in the Statements of Financial        
Position at the fair value of the underlying assets.                            

DERIVATIVE FINANCIAL INSTRUMENTS                                                
    The Company utilizes financial futures contracts to reduce its exposure to
market risk, specifically interest rate risk, in conjunction with               
asset/liability management. The Company does not hold or issue these instruments

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

for trading purposes. Financial futures are commitments to either purchase or   
sell designated financial instruments at a future date for a specified price or 
yield. They may be settled in cash or through delivery. As part of its          
asset/liability management, the Company generally utilizes futures to manage its
market risk related to forecasted investment purchases and sales.               

  Futures contracts have limited off-balance-sheet credit risk as they are
executed on organized exchanges and require security deposits, as well as the   
daily cash settlement of margins. The Company pledged securities with a fair    
value of $176 thousand as collateral at December 31, 2002.                      

The fair value of the re-investment related risk transfer reinsurance 
agreement is based on valuation models which utilize independent third party    
data as inputs.                                                                 

   The following table summarizes the notional amount, credit exposure, fair
value and carrying value of the Company's derivative financial instruments:     

                                                        [Enlarge/Download Table]

                                                                           CARRYING    
                                 NOTIONAL       CREDIT        FAIR           VALUE     
(IN THOUSANDS)                    AMOUNT       EXPOSURE       VALUE      (LIABILITIES) 
                               ------------  ------------  -----------   ------------- 
                                                                                       
AT DECEMBER 31, 2002                                                                   
Financial futures contracts    $      6,000  $          -  $       (26)  $         (26)
Structured settlement annuity                                                          
 reinsurance agreement                    -             -         (209)           (209)

 At December 31, 2001, the Company did not hold any derivative financial
instruments.                                                                    

Credit exposure represents the Company's potential loss if all of the 
counterparties failed to perform under the contractual terms of the contracts   
and all collateral, if any, became worthless. This exposure is measured by the  
fair value of contracts with a positive fair value at the reporting date reduced
by the effect, if any, of master netting agreements.                            

   The Company manages its exposure to credit risk primarily by establishing
risk control limits. To date, the Company has not incurred any losses as        
financial futures contracts have limited off-balance-sheet credit risk as they  
are executed on organized exchanges and require daily cash settlement of        
margins.                                                                        

    Fair value is the estimated amount that the Company would receive (pay) to
terminate or assign the contracts at the reporting date, thereby taking into    
account the current unrealized gains or losses of open contracts.               

   Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. Market risk exists for all of the derivative
financial instruments that the Company holds, as these instruments may become   
less valuable due to adverse changes in market conditions. The Company mitigates
this risk through established risk control limits set by senior management.     

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS                                         

   A summary of the contractual amounts and fair values of off-balance-sheet
financial instruments at December 31, 2002 is presented below. There were no    
off-balance-sheet financial instruments at December 31, 2001.                   

                                                        [Enlarge/Download Table]

                                                         CONTRACTUAL                        
                                                            AMOUNT            FAIR VALUE    
                                                      -------------------  -----------------
(IN THOUSANDS)                                                                              
                                                                                            
Commitments to purchase private placement securities  $             2,500  $               -
Commitments to extend mortgage loans                               11,500                115

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

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

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

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

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

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

                                                                [Download Table]

(IN THOUSANDS)                                              2002           2001     
                                                        -------------  -------------
                                                                                    
Immediate annuities:                                                                
   Structured settlement annuities                      $   1,471,278  $   1,224,391
   Other immediate annuities                                    5,334          5,079
Traditional life                                               77,504         75,082
Other                                                           2,511          2,737
                                                        -------------  -------------
   Total Reserve for life-contingent contract benefits  $   1,556,627  $   1,307,289
                                                        =============  =============

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

                                                        [Enlarge/Download Table]

        PRODUCT                   MORTALITY                INTEREST RATE        ESTIMATION METHOD    
                                                                                                     
Structured settlement  U.S. population with projected   Interest rate       Present value of         
annuities              calendar year improvements; age  assumptions range   contractually specified  
                       rated up for impaired lives      from 5.7% to 9.5%   future benefits          
                       grading to standard                                                           

Other immediate        1983 group annuity mortality     Interest rate       Present value of expected
annuities              table                            assumptions range   future benefits based on 
                                                        from 3.0% to 11.5%  historical experience    

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

    To the extent the unrealized gains on fixed income securities would result
in a premium deficiency had those gains actually been realized, premium         
deficiency reserves are established and have been recorded for certain immediate
annuities with life contingencies. A liability of $149.5 million and $13.5      
million is included in the Reserve for life-contingent contract benefits with   
respect to this deficiency as of December 31, 2002 and 2001, respectively. The  
offset to this liability is recorded as a reduction of the unrealized net       
capital gains included in Accumulated other comprehensive income.               

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

At December 31, Contractholder funds consist of the following:        

                                                                [Download Table]

(IN THOUSANDS)                     2002           2001     
                               -------------  -------------
                                                           
Interest-sensitive life        $     275,360  $     256,462
Investment contracts:                                      
   Immediate annuities               448,402        440,788
   Fixed annuities                 1,327,667        741,390
                               -------------  -------------
   Total Contractholder funds  $   2,051,429  $   1,438,640
                               =============  =============

Contractholder funds activity for the year ended December 31, was as  
follows:                                                                        

                                                                [Download Table]

(IN THOUSANDS)                                    2002            2001      
                                              -------------   ------------- 
                                                                            
Balance, beginning of year                    $   1,438,640   $   1,109,181 
   Deposits                                         759,378         474,849 
   Surrenders and withdrawals                      (116,485)        (92,039)
   Death benefits                                   (17,257)        (10,623)
   Interest credited to contractholder funds         87,555          73,956 
   Transfers (to) from Separate Accounts            (35,981)        (88,986)
   Other adjustments                                (64,421)        (27,698)
                                              -------------   ------------- 
Balance, end of year                          $   2,051,429   $   1,438,640 
                                              =============   ============= 

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

                                                        [Enlarge/Download Table]

           PRODUCT                   INTEREST RATE                   WITHDRAWAL/SURRENDER CHARGES       
                                                                                                        
Interest-sensitive life     Interest rates credited range   Either a percentage of account balance or   
insurance                   from 5.0% to 6.3%               dollar amount grading off generally over 20 
                                                            years                                       

Fixed annuities             Interest rates credited range   Either a declining or a level percentage    
                            from 2.4% to 9.8% for           charge generally over nine years or less.   
                            immediate annuities and 3.2%    Additionally, approximately 0.8% of deferred
                            to 7.2% for deferred annuities  annuities are subject to a market value     
                                                            adjustment                                  

Other investment contracts  Interest rates credited range   Not applicable                              
                            from 1.5% to 2.0%                                                           

7.   DEFERRED POLICY ACQUISITION COSTS                                          

   Certain costs of acquiring business which were deferred and amortized for
the years ended December 31, 2002 and 2001 are as follows:                      

                                                                [Download Table]

(IN THOUSANDS)                                 2002               2001        
                                          ----------------   ---------------- 
                                                                              
Balance, beginning of year                $        156,615   $        124,601 
   Acquisition costs deferred                       56,852             51,194 
   Amortization charged to income                  (23,535)            (7,187)
   Effect of unrealized gains and losses           (23,007)           (11,993)
                                          ----------------   ---------------- 
Balance, end of year                      $        166,925   $        156,615 
                                          ================   ================ 

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 NOTES TO FINANCIAL STATEMENTS

8.   REINSURANCE                                                                

   The Company purchases reinsurance to limit aggregate and single losses on
large risks. The Company continues to have primary liability as the direct      
insurer for risks reinsured. Estimating amounts of reinsurance recoverable is   
impacted by the uncertainties involved in the establishment of loss reserves.   
Failure of reinsurers to honor their obligations could result in losses to the  
Company.                                                                        

 The Company assumes a closed block of variable annuity business from an
unaffiliated insurance company.                                                 

Beginning in 2002, the Company cedes 80% of the mortality risk on     
certain term life policies to a pool of eight unaffiliated reinsurers.          
Mortality risk on policies in excess of $250 thousand per life are ceded to     
ALIC.                                                                           

  Amounts recoverable from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the       
underlying reinsured contracts. No single reinsurer had a material obligation to
the Company nor is the Company's business substantially dependent upon any      
reinsurance contract. (See Note 3 for discussion of reinsurance agreements with 
ALIC.) The effects of reinsurance on premiums and contract charges for the year 
ended December 31, were as follows:                                             

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                              2002           2001            2000     
                                                       -------------   ------------   ------------- 
                                                                                                    
PREMIUMS AND CONTRACT CHARGES                                                                       
Direct                                                 $     148,749   $    150,163   $     150,498 
Assumed - non-affiliate                                          471            640           1,194 
Ceded                                                                                               
  Affiliate                                                   (7,057)        (4,617)         (4,621)
  Non-affiliate                                               (1,212)          (877)           (870)
                                                       -------------   ------------   ------------- 
    Premiums and contract charges, net of reinsurance  $     140,951   $    145,309   $     146,201 
                                                       =============   ============   ============= 

  The effects of reinsurance on contract benefits and interest credited to
contractholder funds for the year ended December 31, were as follows:           

                                                        [Enlarge/Download Table]

(IN THOUSANDS)                                                      2002           2001            2000     
                                                               -------------   ------------   ------------- 
                                                                                                            
CONTRACT BENEFITS AND INTEREST CREDITED TO CONTRACTHOLDER                                                   
 FUNDS                                                                                                      
Direct                                                         $     268,620   $    261,504   $     234,053 
Assumed - non-affiliate                                                   85            170             (39)
Ceded                                                                                                       
  Affiliate                                                             (901)          (945)           (492)
  Non-affiliate                                                       (2,086)        (1,324)           (223)
                                                               -------------   ------------   ------------- 
    Contract benefits and interest credited to contractholder                                               
       funds, net of reinsurance                               $     265,718   $    259,405   $     233,299 
                                                               =============   ============   ============= 

    Included in reinsurance recoverables at December 31, 2002 and 2001 are the
net amounts owed to ALIC of $588 thousand and $890 thousand, respectively. The  
table above excludes $2.4 million of premiums ceded to ALIC during 2002 under   
the terms of the structured settlement annuity reinsurance treaty (See Note 3). 

9.   COMMITMENTS AND CONTINGENT LIABILITIES                                     

REGULATIONS AND LEGAL PROCEEDINGS                                               

The Company is subject to changing social, economic and regulatory    
conditions. State and federal regulatory initiatives and proceedings have varied
and have included efforts to remove barriers preventing banks from engaging in  
the securities and insurance businesses, to change tax laws affecting the       
taxation of insurance companies and the tax treatment of insurance products     
which may impact the relative desirability of various personal investment       
products, and to expand overall regulation. The ultimate changes and eventual   
effects, if any, of these initiatives are uncertain.                            

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

   The Company sells its products through a variety of distribution channels
including Allstate agencies. Consequently, the outcome of some legal proceedings
that involve AIC regarding the Allstate agencies may have an impact on the      
Company.                                                                        

   AIC is defending various lawsuits involving worker classification issues.
Examples of these lawsuits include a number of putative class actions           
challenging the overtime exemption claimed by AIC under the Fair Labor Standards
Act or state wage and hour laws. These class actions mirror similar lawsuits    
filed recently against other carriers in the industry and other employers.      
Another example involves the worker classification of staff working in agencies.
In this putative class action, plaintiffs seek damages under the Employee       
Retirement Income Security Act ("ERISA") and the Racketeer Influenced and       
Corrupt Organizations Act alleging that agency secretaries were terminated as   
employees by AIC and rehired by agencies through outside staffing vendors for   
the purpose of avoiding the payment of employee benefits. A putative nationwide 
class action filed by former employee agents also includes a worker             
classification issue; these agents are challenging certain amendments to the    
Agents Pension Plan and are seeking to have exclusive agent independent         
contractors treated as employees for benefit purposes. AIC has been vigorously  
defending these and various other worker classification lawsuits. The outcome of
these disputes is currently uncertain.                                          

In addition, on August 6, 2002, a petition was filed with the National
Labor Relations Board ("NLRB") by the United Exclusive Allstate Agents, Office  
and Professional Employees International Union (the "OPEIU"), seeking           
certification as the collective bargaining representative of all Allstate agents
in the United States. On December 2, 2002, the Chicago Regional Director of the 
NLRB dismissed the petition, agreeing with AIC's position that the agents are   
independent contractors, not employees, and that, consequently, the NLRB lacks  
jurisdiction over the issue. The OPEIU has requested that the NLRB in           
Washington, D.C. review the dismissal by the Chicago Regional Director. The     
request for appeal has not been accepted yet. If it is, AIC will vigorously     
oppose the appeal. The outcome is currently uncertain.                          

AIC is also defending certain matters relating to its agency program  
reorganization announced in 1999. These matters include an investigation by the 
U.S. Department of Labor and a lawsuit filed in December 2001 by the U.S. Equal 
Employment Opportunity Commission ("EEOC") with respect to allegations of       
retaliation under the Age Discrimination in Employment Act, the Americans with  
Disabilities Act and Title VII of the Civil Rights Act of 1964. A putative      
nationwide class action has also been filed by former employee agents alleging  
various violations of ERISA, breach of contract and age discrimination. AIC has 
been vigorously defending these lawsuits and other matters related to its agency
program reorganization. In addition, AIC is defending certain matters relating  
to its life agency program reorganization announced in 2000. These matters      
include an investigation by the EEOC with respect to allegations of age         
discrimination and retaliation. AIC is cooperating fully with the agency        
investigation and will continue to vigorously defend these and other claims     
related to the life agency program reorganization. The outcome of these disputes
is currently uncertain.                                                         

Various other legal and regulatory actions are currently pending that 
involve the Company and specific aspects of its conduct of business. Like other 
members of the insurance industry, the Company is the potential target of an    
increasing number of class action lawsuits and other types of litigation, some  
of which involve claims for substantial and/or indeterminate amounts (including 
punitive and treble damages) and the outcomes of which are unpredictable. This  
litigation is based on a variety of issues including insurance and claim        
settlement practices. However, at this time, based on their present status, it  
is the opinion of management that the ultimate liability, if any, in one or more
of these other actions in excess of amounts currently reserved is not expected  
to have a material effect on the results of operations, liquidity or financial  
position of the Company.                                                        

GUARANTY FUNDS                                                                  
Under state insurance guaranty fund laws, insurers doing business in a
state can be assessed, up to prescribed limits, for certain obligations of      
insolvent insurance companies to policyholders and claimants. Amounts assessed  
to each company are typically related to its proportion of business written in a
particular state. The Company's expenses related to these funds have been       
immaterial.                                                                     

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

10.  INCOME TAXES                                                               

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

     Prior to July 1, 1995, the Corporation was a subsidiary of Sears, Roebuck &
Co. ("Sears") and, with its eligible domestic subsidiaries, was included in the 
Sears consolidated federal income tax return and federal income tax allocation  
agreement. On January 27, 1995, to reflect the separation of the Corporation    
from Sears, the Corporation and Sears entered into a new tax sharing agreement, 
which governs their respective rights and obligations with respect to federal   
income taxes for all periods during which the Corporation was a subsidiary of   
Sears, including the treatment of audits of tax returns for such periods.       

The Internal Revenue Service ("IRS") has completed its review of the  
Allstate Group's federal income tax returns through the 1996 tax year. Any      
adjustments that may result from IRS examinations of tax returns are not        
expected to have a material impact on the financial position, liquidity or      
results of operations of the Company.                                           

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

                                                                [Download Table]

                                             2002             2001      
                                        --------------   -------------- 
(IN THOUSANDS)                                                          
                                                                        
DEFERRED ASSETS                                                         
Life and annuity reserves               $       48,386   $       51,989 
Discontinued operations                            345              366 
Premium installment receivable                   1,955                - 
Other assets                                     1,174            1,046 
Other postretirement benefits                        -              261 
                                        --------------   -------------- 

      Total deferred assets                     51,860           53,662 
                                        --------------   -------------- 

DEFERRED LIABILITIES                                                    
Deferred policy acquisition costs              (53,156)         (44,950)
Unrealized net capital gains                   (91,353)         (64,074)
Difference in tax bases of investments          (1,348)          (6,980)
Prepaid commission expense                        (504)            (561)
Other liabilities                                 (270)          (1,709)
                                        --------------   -------------- 

      Total deferred liabilities              (146,631)        (118,274)
                                        --------------   -------------- 

      Net deferred liability            $      (94,771)  $      (64,612)
                                        ==============   ============== 

    Although realization is not assured, management believes it is more likely
than not that the deferred tax assets will be realized based on the assumptions 
that certain levels of income will be achieved.                                 

    The components of income tax expense for the year ended December 31 are as
follows:                                                                        

                                                                [Download Table]

(IN THOUSANDS)                      2002         2001          2000    
                                -----------  ------------  ------------
                                                                       
Current                         $    10,095  $      7,412  $     12,901
Deferred                              2,880        11,105         2,715
                                -----------  ------------  ------------
      Total income tax expense  $    12,975  $     18,517  $     15,616
                                ===========  ============  ============

F-23

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

 The Company paid income taxes of $17.1 million, $13.1 million and $11.3
million in 2002, 2001 and 2000, respectively. The Company had a current income  
tax receivable of $914 thousand at December 31, 2002 and a current income tax   
liability of $6.0 million at December 31, 2001.                                 

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

                                                                [Download Table]

                                   2002             2001            2000     
                              --------------   -------------   ------------- 
                                                                             
Statutory federal income tax            35.0%           35.0%           35.0%
State income tax expense                 1.2             0.4             1.0 
Other                                   (1.3)           (1.2)           (2.4)
                              --------------   -------------   ------------- 
Effective income tax                    34.9%           34.2%           33.6%
                              ==============   =============   ============= 

Prior to January 1, 1984, the Company was entitled to exclude certain 
amounts from taxable income and accumulate such amounts in a "policyholder      
surplus" account. The balance in this account at December 31, 2002,             
approximately $389 thousand, will result in federal income taxes payable of $136
thousand if distributed by the Company. No provision for taxes has been made as 
the Company has no plan to distribute amounts from this account. No further     
additions to the account have been permitted since 1983.                        

11.  STATUTORY FINANCIAL INFORMATION                                            

   The following table reconciles Net income for the year ended December 31,
and Shareholder's equity at December 31, as reported herein in conformity with  
GAAP with total statutory net income and capital and surplus of the Company,    
determined in accordance with statutory accounting practices prescribed or      
permitted by insurance regulatory authorities:                                  

                                                        [Enlarge/Download Table]

                                                               NET INCOME                      SHAREHOLDER'S EQUITY     
                                                 ----------------------------------------   --------------------------- 
(IN THOUSANDS)                                      2002           2001           2000          2002           2001     
                                                 ----------     ----------    -----------   -----------    ------------ 
                                                                                                                        
Balance per GAAP                                 $   24,179     $   35,412    $    30,915   $   543,815    $    458,976 
Unrealized gain/loss on fixed income securities           -              -              -      (453,142)       (216,196)
Deferred policy acquisition costs                   (32,295)       (45,834)       (25,528)     (166,925)       (156,615)
Deferred income taxes                                 5,169          7,490          2,177       131,616          64,612 
Employee benefits                                       509           (372)           (92)          184            (441)
Reserves and non-admitted assets                        126         15,060         18,551       205,935          94,412 
Separate Accounts                                         -              -              -         4,515             474 
Other                                                 3,489           (921)            65         4,421             (95)
                                                 ----------     ----------    -----------   -----------    ------------ 
Balance per statutory accounting practices       $    1,177     $   10,835    $    26,088   $   270,419    $    245,127 
                                                 ==========     ==========    ===========   ===========    ============ 

Effective January 1, 2001, the State of New York required insurance   
companies domiciled in its state to prepare statutory-basis financial statements
in accordance with the National Association of Insurance Commissioners ("NAIC") 
Accounting Practices and Procedures Manual ("Codification") subject to any      
deviations prescribed or permitted by the State of New York insurance           
superintendent.                                                                 

     The Company prepares its statutory-basis financial statements in accordance
with accounting practices prescribed or permitted by the State of New York.     
Prescribed statutory accounting practices include a variety of publications of  
the NAIC, as well as state laws, regulations and general administrative rules.  
Permitted statutory accounting practices encompass all accounting practices not 
so prescribed.                                                                  

     Accounting changes adopted to conform to the provisions of Codification are
reported as changes in accounting principles. The cumulative effect of changes  
in accounting principles is reported as an adjustment to unassigned funds       
(surplus) in the period of the change in accounting principle. The cumulative   
effect is the difference between the amount of capital and surplus at the       
beginning of the year and the amount of capital and surplus that would have been
reported at that date if the new accounting principles had been applied         
retroactively for all prior periods. The State of New York has recently adopted 
Statement of Statutory Accounting Principles ("SSAP") No. 10, Income Taxes,     
which is effective for statutory-basis financial statements filed as of December

F-24

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

31, 2002 and thereafter. The Company reported an increase to surplus of $11.4   
million effective December 31, 2002 to reflect the adoption of SSAP No. 10 by   
the State of New York as a result of recognizing a net deferred tax asset.      

DIVIDENDS                                                                       
The ability of the Company to pay dividends is dependent on business  
conditions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by the Company without prior approval of   
the state insurance regulator in any calendar year is limited to formula amounts
based on statutory surplus and statutory net gain from operations, determined in
accordance with statutory accounting practices, for the immediately preceding   
calendar year. The maximum amount of dividends that the Company can distribute  
during 2003 without prior approval of the New York State Insurance Department is
$16.3 million. In the twelve-month period beginning January 1, 2002, the Company
did not pay any dividends.                                                      

RISK-BASED CAPITAL                                                              
    The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The requirement consists of 
a formula for determining each insurer's RBC and a model law specifying         
regulatory actions if an insurer's RBC falls below specified levels. At December
31, 2002, RBC for the Company was significantly above a level that would require
regulatory action.                                                              

12.  BENEFIT PLANS                                                              

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

Defined pension plans, sponsored by AIC, cover most domestic full-time
and certain part-time employees. Benefits under the pension plans are           
based upon the employee's length of service and eligible annual compensation.   
The Company uses the accrual method for its defined benefit plans in accordance 
with accepted actuarial methods. AIC's funding policy for the pension plans is  
to make annual contributions in accordance with accepted actuarial cost methods.
The allocated cost to the Company included in net income was $518 thousand for  
the pension plans in 2002. The allocated benefit to the Company included in net 
income was $87 thousand and $62 thousand for the pension plans in 2001 and 2000,
respectively.                                                                   

AIC also provides certain health care and life insurance subsidies for
employees hired before January 1, 2003 when they retire. Qualified employees may
become eligible for these benefits if they retire in accordance with AIC's      
established retirement policy and are continuously insured under AIC's group    
plans or other approved plans in accordance with the plan's participation       
requirements. AIC shares the cost of the retiree medical benefits with retirees 
based on years of service, with AIC's share being subject to a 5% limit on      
annual medical cost inflation after retirement. AIC's postretirement benefit    
plans currently are not funded. AIC has the right to modify or terminate these  
plans. The allocated cost to the Company included in net income was $439        
thousand, $304 thousand and $80 thousand for postretirement benefits other than 
pension plans in 2002, 2001 and 2000, respectively.                             

PROFIT SHARING PLAN                                                             
   Employees of AIC are eligible to become members of The Savings and Profit
Sharing Fund of Allstate Employees ("Allstate Plan"). The Corporation's         
contributions are based on the Corporation's matching obligation and            
performance.                                                                    

     The Company's allocation of profit sharing expense from the Corporation was
$1.3 million, $374 thousand and $198 thousand in 2002, 2001 and 2000,           
respectively.                                                                   

F-25

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 NOTES TO FINANCIAL STATEMENTS

13.  OTHER COMPREHENSIVE INCOME                                                 

The components of other comprehensive income on a pretax and after-tax
basis for the year ended December 31, are as follows:                           

(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                                     2002                       
                                                ----------------------------------------------  

  UNREALIZED CAPITAL GAINS AND LOSSES AND NET                                     After-        
LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS:       Pretax           Tax              tax         
                                                -------------  --------------  ---------------- 
                                                                                                
   Unrealized holding gains arising during the                                                  
     period                                     $      69,350  $      (24,274) $         45,076 
   Less: reclassification adjustments                  (8,590)          3,006            (5,584)
                                                -------------  --------------  ---------------- 
   Unrealized net capital gains                        77,940         (27,280)           50,660 
                                                -------------  --------------  ---------------- 

   Other comprehensive income                   $      77,940  $      (27,280) $         50,660 
                                                =============  ==============  ================ 

(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                                       2001                         
                                                   ----------------------------------------------   

  UNREALIZED CAPITAL GAINS AND LOSSES AND NET                                          After-       
LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS:           Pretax           Tax               tax        
                                                   -------------  --------------   ---------------- 
                                                                                                    
   Unrealized holding gains arising during the                                                      
     period                                        $       1,457  $         (510)  $            947 
   Less: reclassification adjustments                        299            (105)               194 
                                                   -------------  --------------   ---------------- 
   Unrealized net capital gains                            1,158            (405)               753 
                                                   -------------  --------------   ---------------- 
   Net losses on derivative financial                                                               
     instruments arising during the period                   (51)             18                (33)

   Less: reclassification adjustments for                                                           
     derivative financial instruments                        (51)             18                (33)
                                                   -------------  --------------   ---------------- 
   Net losses on derivative financial instruments              -               -                  - 
                                                   -------------  --------------   ---------------- 

   Other comprehensive income                              1,158            (405)               753 
                                                   =============  ==============   ================ 

(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                                    2000                         
                                                ----------------------------------------------   

  UNREALIZED CAPITAL GAINS AND LOSSES AND NET                                       After-       
LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS:        Pretax           Tax               tax        
                                                -------------  --------------   ---------------- 
                                                                                                 
   Unrealized holding gains arising during the                                                   
     period                                     $     129,754  $      (45,414)  $         84,340 
   Less: reclassification adjustments                  (5,643)          1,975             (3,668)
                                                -------------  --------------   ---------------- 
   Unrealized net capital gains                       135,397         (47,389)            88,008 
                                                -------------  --------------   ---------------- 

   Other comprehensive income                   $     135,397  $      (47,389)  $         88,008 
                                                =============  ==============   ================ 

F-26

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

(IN THOUSANDS)                                                                  

                                                        [Enlarge/Download Table]

                                                     GROSS                               NET       
YEAR ENDED DECEMBER 31, 2002                         AMOUNT            CEDED            AMOUNT     
----------------------------------------------  ----------------  ---------------  ----------------
                                                                                                   
Life insurance in force                         $     18,981,787  $     3,404,525  $     15,577,262
                                                ================  ===============  ================

Premiums and contract charges:                                                                     
     Life and annuities                         $        139,593  $         7,406  $        132,187
     Accident and health                                   9,627              863             8,764
                                                ----------------  ---------------  ----------------
                                                $        149,220  $         8,269  $        140,951
                                                ================  ===============  ================

                                                        [Enlarge/Download Table]

                                                     GROSS                                NET      
YEAR ENDED DECEMBER 31, 2001                         AMOUNT            CEDED            AMOUNT     
----------------------------------------------  ----------------  ---------------  ----------------
                                                                                                   
Life insurance in force                         $     17,584,475  $     2,189,352  $     15,395,123
                                                ================  ===============  ================

Premiums and contract charges:                                                                     
     Life and annuities                         $        141,420  $         4,606  $        136,814
     Accident and health                                   9,383              888             8,495
                                                ----------------  ---------------  ----------------
                                                $        150,803  $         5,494  $        145,309
                                                ================  ===============  ================

                                                        [Enlarge/Download Table]

                                                     GROSS                               NET       
YEAR ENDED DECEMBER 31, 2000                         AMOUNT            CEDED            AMOUNT     
----------------------------------------------  ----------------  ---------------  ----------------
                                                                                                   
Life insurance in force                         $     15,916,421  $     1,592,962  $     14,323,459
                                                ================  ===============  ================

Premiums and contract charges:                                                                     
     Life and annuities                         $        143,550  $         4,706  $        138,844
     Accident and health                                   8,142              785             7,357
                                                ----------------  ---------------  ----------------
                                                $        151,692  $         5,491  $        146,201
                                                ================  ===============  ================

F-27

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 ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
 SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                   BALANCE AT      CHARGED TO                      BALANCE AT  
                                   BEGINNING       COSTS AND                         END OF    
                                   OF PERIOD        EXPENSES       DEDUCTIONS        PERIOD    
                                 -------------   -------------   -------------   --------------
                                                                                               
YEAR ENDED DECEMBER 31, 2002                                                                   

Allowance for estimated losses                                                                 
   on mortgage loans             $           -   $           -   $           -   $            -
                                 =============   =============   =============   ==============

YEAR ENDED DECEMBER 31, 2001                                                                   

Allowance for estimated losses                                                                 
   on mortgage loans            $         119   $           -   $         119   $            - 
                                 =============   =============   =============   ==============

YEAR ENDED DECEMBER 31, 2000                                                                   

Allowance for estimated losses                                                                 
   on mortgage loans             $         600   $           -   $         481   $          119
                                 =============   =============   =============   ==============

F-28

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		12/15/03		30		55
		6/15/03		30		55
Filed on:		3/28/03
		3/24/03		38		42
		3/19/03		38		39
		3/15/03		1		4
		2/5/03		45
		1/1/03		69
For Period End:		12/31/02		1		72
		12/3/02		36					8-K
		12/2/02		28		66			8-K
		8/6/02		28		66
		7/31/02		30		55
		6/30/02		36		37			10-Q
		3/31/02		36		37			10-Q
		1/1/02		36		69
		12/31/01		11		72			10-K405
		9/11/01		12		33
		7/1/01		55		56
		1/1/01		4		68
		12/31/00		11		72			10-K405
		5/1/00		3		56
		12/17/99		36
		12/16/98		36
		11/12/96		37
		10/1/96		37
		12/31/95		37					10-K
		12/1/95		37
		11/3/95		36
		7/1/95		67
		1/27/95		67
		1/1/94		37
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