As filed with the Securities and Exchange Commission on April 8, 2010

FILE NO. 333-158183

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
POST-EFFECTIVE AMENDMENT NO. 2 TO

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(Exact Name of Registrant)

NEW YORK 36-2608394
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)

6300
(Primary Standard Industrial Classification Code Number)

100 MOTOR PARKWAY
SUITE 132
HAUPPAUGE, NEW YORK 11788
631/357-8920
(Address and Phone Number of Principal Executive Office)

SUSAN L. LEES
DIRECTOR, VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-5000
(Name, Complete Address and Telephone Number of Agent for Service)

COPIES TO:

JOCELYN LIU, ESQUIRE
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
3100 SANDERS ROAD SUITE J5B
NORTHBROOK, IL 60062

Approximate date of commencement of proposed sale to the Public: As soon as
practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [X] (Do not check if a smaller reporting company)

Smaller reporting company [ ]

Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

Supplement Dated May 1, 2010
To the following Prospectuses, as supplemented

ALLSTATE PROVIDER PROSPECTUS DATED MAY 1, 2002
SELECTDIRECTIONS PROSPECTUS DATED APRIL 30, 2005
AIM LIFETIME PLUS PROSPECTUS DATED APRIL 30, 2005
AIM LIFETIME PLUS II PROSPECTUS DATED APRIL 30, 2005
CUSTOM PORTFOLIO PROSPECTUS DATED APRIL 30, 2005

The following information supplements the prospectus for your variable
annuity contract issued by Allstate Life Insurance Company of New York.

SUPPLEMENTAL INFORMATION ABOUT
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

INDEX

PAGE
----

Item 11(a) Description of Business............................................................... 1
Item 11(b) Description of Property............................................................... 3
Item 11(c) Legal Proceedings..................................................................... 3
Item 11(e) Financial Statements and Notes to Financial Statements................................ 4
Item 11(f) Selected Financial Data............................................................... 58
Item 11(h) Management's Discussion and Analysis of Financial Condition and Results of Operations. 58
Item 11(i) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 100
Item 11(j) Quantitative and Qualitative Disclosures About Market Risk............................ 100
Item 11(k) Directors, Executive Officers, Promoters and Control Persons.......................... 100
Item 11(l) Executive Compensation................................................................ 103
Item 11(m) Security Ownership of Certain Beneficial Owners and Management........................ 130
Item 11(n) Transactions with Related Persons, Promoters and Certain Control Persons.............. 132
Other Information................................................................................. 134
Filing of Reports..................................................................... 134
Disclosure of Commission Position on Indemnification for Securities Act Liabilities... 134
Experts............................................................................... 135

ITEM 11(A).DESCRIPTION OF BUSINESS

Allstate Life Insurance Company of New York ("Allstate Life of New York,"
"Allstate New York" or "ALNY") was incorporated in 1967 as a stock life
insurance company under the laws of the State of New York. In 1984, Allstate
Life of New York was purchased by Allstate Life Insurance Company ("ALIC").
Allstate Life of New York is a wholly owned subsidiary of ALIC, a stock life
insurance company incorporated under the laws of the State of Illinois. ALIC is
a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a stock
property-liability insurance company organized under the laws of the State of
Illinois. All of the outstanding capital stock of AIC is owned by Allstate
Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation (the
"Corporation" or "Allstate"), a publicly owned holding company incorporated
under the laws of the State of Delaware. The Allstate Corporation is the
largest publicly held personal lines insurer in the United States. Widely known
through the "You're In Good Hands With Allstate(R)" slogan, Allstate is
reinventing protection and retirement to help individuals in approximately
17 million households protect what they have today and better prepare for
tomorrow. Customers can access Allstate products and services such as auto
insurance and homeowners insurance through more than 14,000 exclusive Allstate
agencies and financial representatives in the United States and Canada.
Allstate is the 2/nd/ largest personal property and casualty insurer in the
United States on the basis of 2008 statutory direct premiums earned. In
addition, according to A.M. Best, it is the nation's 16/th/ largest issuer of
life insurance business on the basis of 2008 ordinary life insurance in force
and 17/th/ largest on the basis of 2008 statutory admitted assets.

To achieve its goals in 2010, Allstate is focused on three priorities:
improve customer loyalty, reinvent protection and retirement for the consumer,
and grow its businesses.

In our reports, we occasionally refer to statutory financial information.
All domestic United States insurance companies are required to prepare
statutory-basis financial statements. As a result, industry data is available
that enables comparisons between insurance companies, including competitors
that are not subject to the requirement to prepare financial statements in
conformity with accounting principles generally accepted in the United States
of America ("GAAP"). We frequently use industry publications containing
statutory financial information to assess our competitive position.

We provide life insurance, retirement and investment products, and voluntary
accident and health insurance products. Our principal products are fixed
annuities, including deferred and immediate; interest-sensitive, traditional
and variable life insurance; and voluntary accident and health insurance.

We sell products through multiple intermediary distribution channels,
including Allstate exclusive agencies and exclusive financial specialists,
independent agents (including workplace enrolling agents), specialized
structured settlement brokers and, through March 31, 2010, banks and
broker-dealers.

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

The market for life insurance, retirement and investment products continues
to be highly fragmented and competitive. As of December 31, 2009, there were
approximately 480 groups of life insurance companies in the United States, most
of which offered one or more similar products. In addition, because many of
these products include a savings or investment component, our competition
includes domestic and foreign securities firms, investment advisors, mutual
funds, banks and other financial institutions. Competitive pressure continues
to grow due to several factors, including cross marketing alliances between
unaffiliated businesses, as well as consolidation activity in the financial
services industry.

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

In recent years, the state insurance regulatory framework has come under
increased federal scrutiny. Legislation that would provide for increased
federal regulation of insurance, including the federal chartering of insurance
companies, has been proposed. Moreover, as part of an effort to strengthen the
regulation of the financial services market, the federal government has
proposed a set of regulatory reforms, including the establishment of an Office
of National Insurance within the Treasury Department. The reforms could
increase the regulation of large insurance conglomerates whose failure could
pose a systemic risk to the financial system. In addition, state legislators
and insurance regulators continue to examine the appropriate nature and scope
of state insurance regulation. We cannot predict whether any specific state or
federal measures will be adopted to change the nature or scope of the
regulation of the insurance or financial services business or what effect any
such measures would have on Allstate Life of New York.

ITEM 11(B).DESCRIPTION OF PROPERTY

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

ITEM 11(C).LEGAL PROCEEDINGS

Information required for Item 11(c) is incorporated by reference to the
discussion under the headings "Regulation and Compliance" and under the heading
"Legal and regulatory proceedings and inquiries" in Note 11 of the Financial
Statements.

ITEM 11(E).FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

YEAR ENDED DECEMBER 31,
-----------------------------
2009 2008 2007
($ IN THOUSANDS) -------- --------- --------

REVENUES
Premiums (net of reinsurance ceded of $29,907, $18,215 and $21,020)............ $ 47,659 $ 59,248 $ 69,124
Contract charges (net of reinsurance ceded of $25,999, $18,780 and
$21,158)..................................................................... 51,834 61,108 59,530
Net investment income.......................................................... 372,395 402,931 386,738
Realized capital gains and losses:
Total other-than-temporary impairment losses................................ (52,207) (117,790) (6,793)
Portion of loss recognized in other comprehensive income.................... 1,131 -- --
-------- --------- --------
Net other-than-temporary impairment losses recognized in
earnings.............................................................. (51,076) (117,790) (6,793)
Sales and other realized capital gains and losses........................... 196,544 40,585 5,962
-------- --------- --------
Total realized capital gains and losses................................. 145,468 (77,205) (831)
-------- --------- --------
617,356 446,082 514,561
COSTS AND EXPENSES
Contract benefits (net of reinsurance ceded of $5,510, $40,307 and
$16,913)..................................................................... 170,075 184,192 181,803
Interest credited to contractholder funds (net of reinsurance ceded of $8,757,
$10,485 and $13,058)......................................................... 201,549 191,208 177,407
Amortization of deferred policy acquisition costs.............................. 148,450 17,778 53,445
Operating costs and expenses................................................... 41,183 40,869 37,624
-------- --------- --------
561,257 434,047 450,279
(Loss) gain on disposition of operations....................................... -- (358) 429
-------- --------- --------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE............................... 56,099 11,677 64,711
Income tax expense............................................................. 19,729 4,005 22,802
-------- --------- --------
NET INCOME..................................................................... 36,370 7,672 41,909

OTHER COMPREHENSIVE INCOME (LOSS), AFTER-TAX
Change in unrealized net capital gains and losses.............................. 153,340 (174,102) (12,850)
-------- --------- --------
COMPREHENSIVE INCOME (LOSS).................................................... $189,710 $(166,430) $ 29,059
======== ========= ========

See notes to financial statements.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF FINANCIAL POSITION

DECEMBER 31,
----------------------
2009 2008
($ IN THOUSANDS, EXCEPT PAR VALUE DATA) ---------- ----------

ASSETS
Investments
Fixed income securities, at fair value (amortized cost $6,073,235 and
$5,776,451).............................................................. $6,073,765 $5,496,365
Mortgage loans............................................................. 543,007 700,268
Equity securities, at fair value (cost $100,168 and $--)................... 123,311 --
Short-term, at fair value (amortized cost $348,456 and $409,737)........... 348,453 409,802
Policy loans............................................................... 40,569 39,672
Other...................................................................... 10,292 2,478
---------- ----------
Total investments...................................................... 7,139,397 6,648,585
Cash.......................................................................... 8,977 4,965
Deferred policy acquisition costs............................................. 213,325 538,248
Reinsurance recoverables...................................................... 327,173 367,957
Accrued investment income..................................................... 69,557 61,581
Current income taxes receivable............................................... 18,032 --
Deferred income taxes......................................................... -- 65,397
Other assets.................................................................. 24,686 64,440
Separate Accounts............................................................. 587,044 533,760
---------- ----------
TOTAL ASSETS.................................................... $8,388,191 $8,284,933
========== ==========
LIABILITIES
Contractholder funds.......................................................... $4,990,879 $5,086,965
Reserve for life-contingent contract benefits................................. 1,875,579 1,953,157
Deferred income taxes......................................................... 37,887 --
Current income taxes payable.................................................. -- 12,769
Other liabilities and accrued expenses........................................ 180,061 172,286
Payable to affiliates, net.................................................... 6,591 8,457
Reinsurance payable to parent................................................. 3,266 971
Separate Accounts............................................................. 587,044 533,760
---------- ----------
TOTAL LIABILITIES............................................... 7,681,307 7,768,365
---------- ----------

COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 11)

SHAREHOLDER'S EQUITY
Common stock, $25 par value, 100 thousand shares authorized, issued and
outstanding................................................................. 2,500 2,500
Additional capital paid-in.................................................... 140,529 140,000
Retained income............................................................... 539,805 482,982
Accumulated other comprehensive income (loss):
Unrealized net capital gains and losses:
Unrealized net capital losses on fixed income securities with OTTI..... (2,452) --
Other unrealized net capital gains and losses.......................... 18,038 (180,877)
Unrealized adjustment to DAC, DSI and insurance reserves............... 8,464 71,963
---------- ----------
Total unrealized net capital gains and losses....................... 24,050 (108,914)
---------- ----------
Total accumulated other comprehensive income (loss)............. 24,050 (108,914)
---------- ----------
TOTAL SHAREHOLDER'S EQUITY...................................... 706,884 516,568
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $8,388,191 $8,284,933
========== ==========

See notes to financial statements.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF SHAREHOLDER'S EQUITY

YEAR ENDED DECEMBER 31,
------------------------------
2009 2008 2007
($ IN THOUSANDS) --------- --------- --------

COMMON STOCK............................................. $ 2,500 $ 2,500 $ 2,500
--------- --------- --------

ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year............................... 140,000 140,000 140,000
Forgiveness of payable due to an affiliate (see Note 4).. 529 -- --
--------- --------- --------
Balance, end of year..................................... 140,529 140,000 140,000
--------- --------- --------
RETAINED INCOME
Balance, beginning of year............................... 482,982 473,184 432,458
Net income............................................... 36,370 7,672 41,909
Cumulative effect of change in accounting principle...... 20,376 -- (1,183)
Forgiveness of payable due to an affiliate (see Note 4).. 77 -- --
Gain on purchase of investments from parent (see Note 4). -- 2,126 --
--------- --------- --------
Balance, end of year..................................... 539,805 482,982 473,184
--------- --------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of year............................... (108,914) 65,188 78,038
Cumulative effect of change in accounting principle...... (20,376) -- --
Change in unrealized net capital gains and losses........ 153,340 (174,102) (12,850)
--------- --------- --------
Balance, end of year..................................... 24,050 (108,914) 65,188
--------- --------- --------

TOTAL SHAREHOLDER'S EQUITY............................... $ 706,884 $ 516,568 $680,872
========= ========= ========

See notes to financial statements.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
---------------------------------
2009 2008 2007
($ IN THOUSANDS) ----------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................ $ 36,370 $ 7,672 $ 41,909
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization and other non-cash items.............................. (50,399) (80,807) (75,534)
Realized capital gains and losses.................................. (145,468) 77,205 831
Loss (gain) on disposition of operations........................... -- 358 (429)
Interest credited to contractholder funds.......................... 201,549 191,208 177,407
Changes in:
Policy benefit and other insurance reserves.................... (20,919) (7,034) 13,877
Deferred policy acquisition costs.............................. 115,890 (33,612) 5,871
Income taxes................................................... (10,125) 383 69
Other operating assets and liabilities......................... (21,232) (16,998) (39,455)
----------- --------- ---------
Net cash provided by operating activities................... 105,666 138,375 124,546
----------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
Fixed income securities............................................ 1,850,519 640,634 409,552
Equity securities.................................................. 204 -- --
Mortgage loans..................................................... 12,580 12,175 --
Investment collections
Fixed income securities............................................ 309,185 162,268 108,565
Mortgage loans..................................................... 141,726 52,030 61,128
Investment purchases
Fixed income securities............................................ (2,250,840) (668,526) (762,846)
Equity securities.................................................. (100,215) -- --
Mortgage loans..................................................... (10,000) (41,141) (77,854)
Change in short-term investments, net................................. 95,366 (421,483) 55,621
Change in policy loans and other investments, net..................... 21,425 7,585 2,509
Disposition of operations............................................. -- (2,500) (243)
----------- --------- ---------
Net cash provided by (used in) investing activities......... 69,950 (258,958) (203,568)
----------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits.......................................... 296,991 615,564 542,517
Contractholder fund withdrawals....................................... (468,595) (497,372) (463,229)
----------- --------- ---------
Net cash (used in) provided by financing activities......... (171,604) 118,192 79,288
----------- --------- ---------

NET INCREASE (DECREASE) IN CASH....................................... 4,012 (2,391) 266
CASH AT BEGINNING OF YEAR............................................. 4,965 7,356 7,090
----------- --------- ---------
CASH AT END OF YEAR................................................... $ 8,977 $ 4,965 $ 7,356
=========== ========= =========

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

1. GENERAL

BASIS OF PRESENTATION

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

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

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

NATURE OF OPERATIONS

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

2009 2008 2007
($ IN THOUSANDS) ------- -------- --------

PREMIUMS
Traditional life insurance/(1)/............. $20,159 $ 29,597 $ 24,997
Immediate annuities with life contingencies. 17,934 21,451 37,491
Accident and health......................... 9,566 8,200 6,636
------- -------- --------
TOTAL PREMIUMS.............................. 47,659 59,248 69,124

CONTRACT CHARGES
Interest-sensitive life insurance/(1)/...... 47,071 54,972 51,155
Fixed annuities............................. 4,763 6,136 8,375
------- -------- --------
TOTAL CONTRACT CHARGES...................... 51,834 61,108 59,530
------- -------- --------
TOTAL PREMIUMS AND CONTRACT CHARGES......... $99,493 $120,356 $128,654
======= ======== ========

The Company distributes its products to individuals through multiple
distribution channels, including Allstate exclusive agencies, which include
exclusive financial specialists, independent agents (including master brokerage
agencies and workplace enrolling agents), specialized structured settlement
brokers and, through March 31, 2010, financial services firms, such as banks
and broker-dealers. Effective March 31, 2010, the Company will no longer
wholesale or provide distribution support to banks and broker-dealers. Although
the Company will continue to service inforce contracts sold through these
channels, the Company will no longer solicit new sales through the Company's
direct relationships with banks and broker-dealers. Certain of the Company's
master brokerage agencies and independent agents may continue to wholesale the
Company's products to banks and broker-dealers through their relationships.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

Fixed income securities include bonds, asset-backed securities ("ABS"),
residential mortgage-backed securities ("RMBS"), commercial mortgage-backed
securities ("CMBS") and redeemable preferred stocks. Fixed income securities,
which may be sold prior to their contractual maturity, are designated as
available for sale and are carried at fair value. The difference between
amortized cost and fair value, net of deferred income taxes, certain deferred
policy acquisition costs ("DAC"), certain deferred sales inducement costs
("DSI") and certain reserves for life-contingent contract benefits, is
reflected as a component of accumulated other comprehensive income. Cash
received from calls, principal payments and make-whole payments is reflected as
a component of proceeds from sales and cash received from maturities and
pay-downs is reflected as a component of investment collections within the
Statements of Cash Flows.

Equity securities include index-based securities. Equity securities are
classified as available for sale and are carried at fair value. The difference
between cost and fair value, net of deferred income taxes, is reflected as a
component of accumulated other comprehensive income.

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

NOTES TO FINANCIAL STATEMENTS--CONTINUED

Short-term investments, including money market funds, commercial paper and
other short-term investments, are carried at fair value. Policy loans are
carried at the respective unpaid principle balances. Other investments consist
of a note due from a related party and derivative financial instruments.

Investment income consists primarily of interest and dividends, and income
from certain derivative transactions. Interest is recognized on an accrual
basis using the effective yield method and dividends are recorded at the
ex-dividend date. Interest income for certain asset backed-securities,
residential mortgage-backed securities and commercial mortgage-backed
securities is determined considering estimated principal repayments obtained
from third party data sources and internal estimates. Actual prepayment
experience is periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated and the actual
prepayments received and currently anticipated. For beneficial interests in
securitized financial assets not of high credit quality, the effective yield is
recalculated on a prospective basis. For all other asset-backed securities,
residential mortgage-backed securities and commercial mortgage-backed
securities, the effective yield is recalculated on a retrospective basis. For
other-than-temporarily impaired fixed income securities, the effective yield
method utilizes the difference between the amortized cost basis at impairment
and the cash flows expected to be collected. Accrual of income is suspended for
other-than-temporarily impaired fixed income securities when the timing and
amount of cash flows expected to be received is not reasonably estimable.
Accrual of income is suspended for mortgage loans that are in default or when
full and timely collection of principal and interest payments is not probable.

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

The Company recognizes other-than-temporary impairment losses on fixed
income securities when the decline in fair value is deemed other than temporary
including when the Company has made the decision to sell or it is more likely
than not the Company will be required to sell the fixed income security before
recovery of its amortized cost basis. Additionally, if the Company does not
expect to receive cash flows sufficient to recover the entire amortized cost
basis of the fixed income security, the credit loss component of the impairment
is recorded in earnings, with the remaining amount of the unrealized loss
deemed to be related to other factors and recognized in other comprehensive
income ("OCI"). Fixed income securities subject to other-than-temporary
impairment write-downs continue to earn investment income when future expected
payments are reasonably estimable, and any discount or premium is recognized
using the effective yield method over the expected life of the security;
otherwise income recognition is discontinued. The Company recognizes
other-than-temporary impairment losses on equity securities when the decline in
fair value is deemed other than temporary including when the Company does not
have a positive intent and ability to hold an impaired security until recovery.

DERIVATIVE AND EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments include interest rate swaps and caps,
foreign currency swaps, and a re-investment related risk transfer reinsurance
agreement with ALIC that meet the accounting definition of a derivative (see
Note 4). Derivatives that are required to be separated from the host instrument
and accounted for as derivative financial instruments ("subject to
bifurcation") are embedded in reinsured variable annuity contracts (see Note 7).

All derivatives are accounted for on a fair value basis and reported as
other investments, other assets, other liabilities and accrued expenses or
contractholder funds. Embedded derivative instruments subject to bifurcation
are also accounted for on a fair value basis and are reported together with the
host contract. The change in fair value of derivatives embedded in annuity
product contracts and subject to bifurcation is reported in contract benefits.
Cash flows from embedded derivatives requiring bifurcation and derivatives
receiving hedge accounting

NOTES TO FINANCIAL STATEMENTS--CONTINUED

are reported consistently with the host contracts and hedged risks respectively
within the Statements of Cash Flows. Cash flows from other derivatives are
reported in cash flows from investing activities within the Statements of Cash
Flows.

When derivatives meet specific criteria, they may be designated as
accounting hedges and accounted for as fair value, cash flow, foreign currency
fair value or foreign currency cash flow hedges. The hedged item may be either
all or a specific portion of a recognized asset, liability or an unrecognized
firm commitment attributable to a particular risk for the fair value hedges. At
the inception of the hedge, the Company formally documents the hedging
relationship and risk management objective and strategy. The documentation
identifies the hedging instrument, the hedged item, the nature of the risk
being hedged and the methodology used to assess the effectiveness of the
hedging instrument in offsetting the exposure to changes in the hedged item's
fair value attributable to the hedged risk. In the case of a cash flow hedge,
this documentation includes the exposure to changes in the variability in cash
flows attributable to the hedged risk. The Company does not exclude any
component of the change in fair value of the hedging instrument from the
effectiveness assessment. At each reporting date, the Company confirms that the
hedging instrument continues to be highly effective in offsetting the hedged
risk. Ineffectiveness in fair value hedges and cash flow hedges, if any, is
reported in realized capital gains and losses.

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

Termination of hedge accounting If, subsequent to entering into a hedge
transaction, the derivative becomes ineffective (including if the hedged item
is sold or otherwise extinguished, the occurrence of a hedged forecasted
transaction is no longer probable or the hedged asset becomes
other-than-temporarily impaired), the Company may terminate the derivative
position. The Company may also terminate derivative instruments or redesignate
them as non-hedge as a result of other events or circumstances.

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

Non-hedge derivative financial instruments Based upon the type of derivative
instrument and strategy, the income statement effects, including fair value
gains and losses and accrued periodic settlements, of derivatives for which
hedge accounting is not applied are reported in a single line item with the
results of the associated risk.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

SECURITIES LOANED

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

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

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

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

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

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

Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed
annuities, including market value adjusted annuities and immediate annuities
without life contingencies, are considered investment contracts. Consideration
received for such contracts is reported as contractholder fund deposits.
Contract charges for investment contracts consist of fees assessed against the
contractholder account balance for maintenance, administration and surrender of
the contract prior to contractually specified dates, and are recognized when
assessed against the contractholder account balance.

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

Contract charges for variable life and variable annuity products consist of
fees assessed against the contractholder account values for contract
maintenance, administration, mortality, expense and early surrender. Contract
benefits incurred for variable annuity products include guaranteed minimum
death, income, withdrawal

NOTES TO FINANCIAL STATEMENTS--CONTINUED

and accumulation benefits. All of the Company's variable annuity business is
ceded through reinsurance agreements, and the contract charges and contract
benefits related thereto are reported net of reinsurance ceded.

DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS

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

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

For interest-sensitive life, fixed annuities and other investment contracts,
DAC and DSI are amortized in proportion to the incidence of the total present
value of gross profits, which includes both actual historical gross profits
("AGP") and estimated future gross profits ("EGP") expected to be earned over
the estimated lives of the contracts. The amortization is net of interest on
the prior period DAC balance and uses rates established at the inception of the
contracts. Actual amortization periods generally range from 15-30 years;
however, incorporating estimates of customer surrender rates, partial
withdrawals and deaths generally results in the majority of the DAC being
amortized during the surrender charge period, which is typically 20 years for
interest-sensitive life and 5-10 years for fixed annuities. The cumulative DAC
and DSI amortization is reestimated and adjusted by a cumulative charge or
credit to results of operations when there is a difference between the
incidence of actual versus expected gross profits in a reporting period or when
there is a change in total EGP. When DAC or DSI amortization or a component of
gross profits for a quarterly period is potentially negative (which would
result in an increase of the DAC or DSI balance) as a result of negative AGP,
the specific facts and circumstances surrounding the potential negative
amortization are considered to determine whether it is appropriate for
recognition in the financial statements. Negative amortization is only recorded
when the increased DAC or DSI balance is determined to be recoverable based on
facts and circumstances. Recapitalization of DAC and DSI is limited to the
originally deferred costs plus interest.

AGP and EGP consist primarily of the following components: contract charges
for the cost of insurance less mortality costs and other benefits; investment
income and realized capital gains and losses less interest credited; and
surrender and other contract charges less maintenance expenses. The principal
assumptions for determining the amount of EGP are investment returns, including
capital gains and losses on assets supporting contract liabilities, interest
crediting rates to contractholders, and the effects of persistency, mortality,
expenses, and hedges if applicable. For products exposed to investment credit
losses in excess of the Company's expectations that may cause periodic AGP to
become temporarily negative, EGP and AGP utilized in DAC and DSI amortization
may be modified to exclude the higher credit losses.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

The Company performs quarterly reviews of DAC and DSI recoverability for
interest-sensitive life, fixed annuities and other investment contracts in the
aggregate using current assumptions. If a change in the amount of EGP is
significant, it could result in the unamortized DAC and DSI not being
recoverable, resulting in a charge which is included as a component of
amortization of deferred policy acquisition costs or interest credited to
contractholder funds, respectively, on the Statements of Operations and
Comprehensive Income.

The DAC and DSI balances presented include adjustments to reflect the amount
by which the amortization of DAC and DSI would increase or decrease if the
unrealized capital gains or losses in the respective product portfolios were
actually realized. The adjustments are recorded net of tax in accumulated other
comprehensive income. DAC, DSI and deferred income taxes detemined on
unrealized capital gains and losses and reported in accumulated other
comprehensive income recognize the impact on shareholder's equity consistently
with the amounts that would be recognized in the income statement on realized
capital gains and losses.

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

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

REINSURANCE

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

The Company has a reinsurance treaty with ALIC through which it primarily
cedes re-investment related risk on its structured settlement annuities. The
terms of the treaty meet the accounting definition of a derivative.
Accordingly, the treaty is recorded in the Statement of Financial Position at
fair value. Changes in the fair value of the treaty and premiums paid to ALIC
are recognized in realized capital gains and losses (see Note 4).

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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, DAC, differences in
tax bases of invested assets and insurance reserves. A deferred tax asset
valuation allowance is established when there is uncertainty that such assets
will be realized.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS

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

CONTRACTHOLDER FUNDS

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

SEPARATE ACCOUNTS

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

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

ADOPTED ACCOUNTING STANDARDS

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued new accounting guidance for the recognition
of other-than-temporary impairments ("OTTI") of debt securities. If the fair
value of a debt security is less than its amortized cost basis at the reporting
date, an entity shall assess whether the impairment is an OTTI. When an entity
intends to sell an impaired security or more likely than not will be required
to sell an impaired security before recovery of its

NOTES TO FINANCIAL STATEMENTS--CONTINUED

amortized cost basis, an OTTI is recognized in earnings. If the entity does not
expect to recover the entire amortized cost basis of an impaired debt security,
even if it does not intend to sell the security and it is not more likely than
not that it would be required to sell the security before recovery of its
amortized cost basis, the entity must consider, based upon an estimate of the
present value of cash flows expected to be collected on the debt security as
compared to its amortized cost basis, whether a credit loss exists. The portion
of the total OTTI related to a credit loss shall be recognized in earnings
while the portion of the total OTTI related to factors other than credit shall
be recognized in OCI. The statement of operations is required to present the
total OTTI with an offset for the amount of the total OTTI that is recognized
in OCI. The statement disclosing accumulated other comprehensive income
("AOCI") is required to separately present amounts recognized for debt
securities for which a portion of an OTTI has been recognized in earnings.

The new guidance expands disclosure requirements for both debt and equity
securities and requires a more detailed, risk-oriented breakdown of security
types and related information. In addition, new disclosures are required about
significant inputs used in determining credit losses as well as a rollforward
of credit losses. The disclosures are not required for earlier periods
presented for comparative purposes. The new guidance applies to existing and
new investments held as of the beginning of the period of adoption.

The Company adopted the provisions of the new guidance as of April 1, 2009.
The adoption resulted in the reclassification of $44.9 million of previously
recorded OTTI write-downs from retained income to unrealized capital losses.
The cumulative effect of adoption, net of related DAC, DSI and tax adjustments,
was an increase in retained income of $20.4 million and a decrease in
unrealized net capital gains and losses of $20.4 million. The adoption did not
have an impact on the Company's Statement of Operations and Comprehensive
Income. The effect of the adoption on net income for the 2009 period after
adoption is not determinable. The accounting standard incorporates management's
intent as a critical component to the determination of the amount recorded and
this assessment process was changed as of April 1, 2009 to an intent to sell
model from an intent to hold model.

Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are
Not Orderly

In April 2009, the FASB issued new accounting guidance relating to fair
value measurements to provide additional guidance for estimating fair value
when the volume and level of activity for an asset or liability have
significantly decreased. Guidance on identifying circumstances that indicate a
transaction is not orderly is also provided. If it is concluded that there has
been a significant decrease in the volume and level of market activity for an
asset or liability in relation to normal market activity, transaction or quoted
prices may not be determinative of fair value and further analysis of
transaction or quoted prices may be necessary. Determination of whether a
transaction is orderly is based on the weight of relevant evidence.

The disclosure requirements are expanded to include the inputs and valuation
techniques used to measure fair value and a discussion of changes in valuation
techniques and related inputs during the reporting period. Disclosures of
assets and liabilities measured at fair value are to be presented by major
security type. Disclosures are not required for earlier periods presented for
comparative purposes. Revisions resulting from a change in valuation technique
or its application shall be accounted for as a change in accounting estimate
and disclosed, along with the total effect of the change in valuation technique
and related inputs, if practicable, by major category. The Company adopted the
provisions of the new guidance as of April 1, 2009. The adoption had no effect
on the Company's results of operations or financial position.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued new accounting guidance, which amends and
expands the disclosure requirements for derivatives. The new disclosures are
designed to enhance the understanding of how and why an entity uses derivative
instruments and how derivative instruments affect an entity's financial
position, results of

NOTES TO FINANCIAL STATEMENTS--CONTINUED

operations, and cash flows. The standard requires quantitative disclosures
about the potential cash outflows associated with the triggering of
credit-risk-contingent features, if any; tabular disclosures about the
classification and fair value amounts of derivative instruments reported in the
statement of financial position; disclosure of the location and amount of gains
and losses on derivative instruments reported in the statement of operations;
and qualitative information about how and why an entity uses derivative
instruments and how derivative instruments and related hedged items affect the
entity's financial statements. Disclosures are not required for earlier periods
presented for comparative purposes. The new guidance affects disclosures only
and therefore the adoption as of March 31, 2009 had no impact on the Company's
results of operations or financial position.

PENDING ACCOUNTING STANDARD

Disclosures about Fair Value Measurements

In January 2010, the FASB issued new accounting guidance which expands
disclosure requirements relating to fair value measurements. The guidance adds
requirements for disclosing amounts of and reasons for significant transfers
into and out of Levels 1 and 2 and requires gross rather than net disclosures
about purchases, sales, issuances and settlements relating to Level 3
measurements. The guidance also provides clarification that fair value
measurement disclosures are required for each class of assets and liabilities.
Disclosures about the valuation techniques and inputs used to measure fair
value for measurements that fall in either Level 2 or Level 3 are also
required. The new disclosures and clarifications of existing disclosures are
effective for periods beginning after December 15, 2009, except for disclosures
about purchases, sales, issuances and settlements in the roll forward of
activity in Level 3 fair value measurements, which are required for fiscal
years beginning after December 15, 2010. Disclosures are not required for
earlier periods presented for comparative purposes. The new guidance affects
disclosures only and therefore its adoption will have no impact on the
Company's results of operations or financial position.

3. SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash investment exchanges, including modifications of certain fixed
income securities, totaled $53.6 million and $162 thousand for the years ended
December 31, 2009 and 2007, respectively. There were no non-cash investment
exchanges or modifications in 2008.

Liabilities for collateral received in conjunction with the Company's
securities lending business activities were $149.4 million, $117.3 million and
$198.1 million at December 31, 2009, 2008 and 2007, respectively, and are
reported in other liabilities and accrued expenses in the Statements of
Financial Position. The accompanying cash flows are included in cash flows from
operating activities in the Statements of Cash Flows along with the activities
resulting from management of the proceeds, which for the years ended
December 31 are as follows:

2009 2008 2007
($ IN THOUSANDS) --------- --------- ---------

NET CHANGE IN PROCEEDS MANAGED
Net change in fixed income securities......... $ -- $ 36,778 $ (73,464)
Net change in short-term investments.......... (32,065) 44,063 74,812
--------- --------- ---------
Operating cash flow (used) provided........ $ (32,065) $ 80,841 $ 1,348
========= ========= =========

NET CHANGE IN LIABILITIES
Liabilities for collateral, beginning of year. $(117,297) $(198,138) $(199,486)
Liabilities for collateral, end of year....... (149,362) (117,297) (198,138)
--------- --------- ---------
Operating cash flow provided (used)........ $ 32,065 $ (80,841) $ (1,348)
========= ========= =========

NOTES TO FINANCIAL STATEMENTS--CONTINUED

In 2009, the Company sold mortgage loans with a carrying value of $8.3
million to an affiliate in exchange for a note receivable with a principal sum
equal to the mortgage loans (see Note 4). In addition, in 2009, a payable
associated with postretirement benefit obligations due to AIC totaling $606
thousand was forgiven. The forgiveness of the payable reflects a non-cash
financing activity.

4. RELATED PARTY TRANSACTIONS

BUSINESS OPERATIONS

The Company uses services performed by its affiliates, AIC, ALIC and
Allstate Investments LLC, and business facilities owned or leased and operated
by AIC in conducting its business activities. In addition, the Company shares
the services of employees with AIC. The Company reimburses its affiliates for
the operating expenses incurred on behalf of the Company. The Company is
charged for the cost of these operating expenses based on the level of services
provided. Operating expenses, including compensation, retirement and other
benefit programs, allocated to the Company (see Note 14) were $50.4 million,
$54.3 million and $54.5 million in 2009, 2008 and 2007, respectively. A portion
of these expenses relate to the acquisition of business, which are deferred and
amortized into income as described in Note 2.

STRUCTURED SETTLEMENT ANNUITIES

The Company issued $9.1 million, $12.9 million and $12.7 million of
structured settlement annuities, a type of immediate annuity, in 2009, 2008 and
2007, respectively, at prices determined using interest rates in effect at the
time of purchase, to fund structured settlements in matters involving AIC. Of
these amounts, $806 thousand, $866 thousand and $1.5 million relate to
structured settlement annuities with life contingencies and are included in
premium income for 2009, 2008 and 2007, respectively.

In most cases, these annuities were issued under a "qualified assignment"
whereby prior to July 1, 2001 Allstate Settlement Corporation ("ASC"), and on
and subsequent to July 1, 2001 Allstate Assignment Corporation ("AAC"), both
wholly owned subsidiaries of ALIC, purchased annuities from the Company and
assumed AIC's obligation to make future payments.

Reserves recorded by the Company for annuities issued to ASC and AAC,
including annuities to fund structured settlements in matters involving AIC,
were $1.99 billion and $1.97 billion at December 31, 2009 and 2008,
respectively.

BROKER-DEALER AGREEMENTS

The Company has a service agreement with Allstate Distributors, LLC.
("ADLLC"), a broker-dealer company owned by ALIC, whereby ADLLC promotes and
markets the fixed annuities sold by the Company to unaffiliated financial
services firms. In return for these services, the Company recorded commission
expense of $2.5 million, $4.1 million and $4.0 million for the years ended
December 31, 2009, 2008 and 2007, respectively.

The Company receives distribution services from Allstate Financial Services,
LLC ("AFS"), an affiliated broker-dealer company, for certain variable life
insurance contracts sold by Allstate exclusive agencies. For these services,
the Company incurred $358 thousand, $838 thousand and $971 thousand of
commission and other distribution expenses for the years ending December 31,
2009, 2008 and 2007, respectively.

REINSURANCE TRANSACTIONS

The Company has reinsurance agreements with unaffiliated reinsurers and ALIC
in order to limit aggregate and single exposure on large risks. A portion of
the Company's premiums and policy benefits are ceded to ALIC

NOTES TO FINANCIAL STATEMENTS--CONTINUED

and reflected net of such reinsurance in the Statements of Operations and
Comprehensive Income. Reinsurance recoverables and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the Statements of Financial Position. The Company continues to
have primary liability as the direct insurer for risks reinsured (see Note 9).

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

The Company has a reinsurance treaty through which it primarily cedes
re-investment related risk on its structured settlement annuities to ALIC.
Under the terms of the treaty, the Company pays a premium to ALIC that varies
with the aggregate structured settlement annuity statutory reserve balance. In
return, ALIC guarantees that the yield on the portion of the Company's
investment portfolio that supports structured settlement annuity liabilities
will not fall below contractually determined rates. The Company ceded premium
related to structured settlement annuities to ALIC of $3.4 million, $3.3
million and $3.2 million for the years ended December 31, 2009, 2008 and 2007,
respectively. At December 31, 2009 and 2008, the carrying value of the
structured settlement reinsurance treaty was $(5.1) million and $(1.8) million,
respectively, which is recorded in other assets. The premiums ceded and changes
in the fair value of the reinsurance treaty are reflected as a component of
realized capital gains and losses on the Statements of Operations and
Comprehensive Income as the treaty is recorded as a derivative instrument.

INTERCOMPANY LOAN AGREEMENT

The Company has an intercompany loan agreement with the Corporation. The
amount of intercompany loans available to the Company is at the discretion of
the Corporation. The maximum amount of loans the Corporation will have
outstanding to all its eligible subsidiaries at any given point in time is
limited to $1.00 billion. The Corporation may use commercial paper borrowings,
bank lines of credit and repurchase agreements to fund intercompany borrowings.
The Company had no amounts outstanding under the intercompany loan agreement at
December 31, 2009 and 2008.

NOTE RECEIVABLE-INVESTMENT SALE

In September 2009, in accordance with an asset purchase agreement between
the Company and Road Bay Investments, LLC ("RBI"), a subsidiary of ALIC, the
Company sold to RBI mortgage loans with a carrying value of $8.3 million on the
date of sale. As payment, RBI issued a 7.00% note due September 25, 2016 to the
Company for the same amount. As security for the performance of RBI's
obligations under the agreement and note, RBI granted a pledge of and security
interest in RBI's right, title and interest in the mortgage loans and their
proceeds. The note due from RBI is classified as other investments in the
Statements of Financial Position. In 2009, the Company recorded net investment
income of $154 thousand on the note due from RBI.

INVESTMENT PURCHASE

In September 2008, the Company purchased investments from its parent ALIC.
The Company paid $199.1 million in cash for the investments, which included
fixed income securities with a fair value on the date of sale of $197.5 million
and $1.6 million of accrued investment income. Since the transaction was
between affiliates under common control, the fixed income securities were
recorded at the amortized cost basis on the date of sale of

NOTES TO FINANCIAL STATEMENTS--CONTINUED

$200.8 million. The difference between the fair value and the amortized cost
basis of these investments on the date of sale, was recorded as an increase to
retained income of $2.1 million after-tax ($3.3 million pre-tax).

INCOME TAXES

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

POSTRETIREMENT BENEFIT PLANS

Effective September 30, 2009, the Corporation became the sponsor of a group
medical plan and a group life insurance plan to provide covered benefits to
certain retired employees ("postretirement benefits"). Prior to September 30,
2009, AIC was the sponsor of these plans. In connection with the change in the
sponsorship, amounts payable by the Company to the previous plan sponsor, AIC,
totaling $606 thousand were forgiven. The forgiveness of this liability was
recorded as an increase in additional capital paid-in of $529 thousand and an
increase to retained income of $77 thousand.

5. INVESTMENTS

FAIR VALUES

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

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

AT DECEMBER 31, 2009
U.S. government and agencies..... $ 534,590 $ 51,977 $ (365) $ 586,202
Municipal........................ 929,688 12,502 (63,780) 878,410
Corporate........................ 3,173,030 158,579 (60,407) 3,271,202
Foreign government............... 241,141 50,715 (1,000) 290,856
RMBS............................. 666,118 11,539 (25,985) 651,672
CMBS............................. 472,835 1,884 (127,978) 346,741
ABS.............................. 46,588 5 (6,549) 40,044
Redeemable preferred stock....... 9,245 -- (607) 8,638
---------- -------- --------- ----------
Total fixed income securities. $6,073,235 $287,201 $(286,671) $6,073,765
========== ======== ========= ==========

AT DECEMBER 31, 2008
U.S. government and agencies..... $ 676,655 $241,196 $ (120) $ 917,731
Municipal........................ 462,664 4,442 (81,725) 385,381
Corporate........................ 3,158,588 55,307 (326,758) 2,887,137
Foreign government............... 262,307 109,235 -- 371,542
RMBS............................. 456,452 9,953 (26,360) 440,045
CMBS............................. 721,707 -- (252,839) 468,868
ABS.............................. 28,788 -- (8,586) 20,202
Redeemable preferred stock....... 9,290 -- (3,831) 5,459
---------- -------- --------- ----------
Total fixed income securities. $5,776,451 $420,133 $(700,219) $5,496,365
========== ======== ========= ==========

NOTES TO FINANCIAL STATEMENTS--CONTINUED

SCHEDULED MATURITIES

The scheduled maturities for fixed income securities are as follows at
December 31, 2009:

AMORTIZED FAIR
COST VALUE
($ IN THOUSANDS) ---------- ----------

Due in one year or less................ $ 144,768 $ 146,996
Due after one year through five years.. 1,602,668 1,662,456
Due after five years through ten years. 1,255,890 1,357,590
Due after ten years.................... 2,357,203 2,215,007
---------- ----------
5,360,529 5,382,049
RMBS and ABS........................... 712,706 691,716
---------- ----------
Total............................... $6,073,235 $6,073,765
========== ==========

Actual maturities may differ from those scheduled as a result of prepayments
by the issuers. Because of the potential for prepayment on RMBS and ABS, they
are not categorized by contractual maturity. The CMBS are categorized by
contractual maturity because they generally are not subject to prepayment risk.

NET INVESTMENT INCOME

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

2009 2008 2007
($ IN THOUSANDS) -------- -------- --------

Fixed income securities.............. $338,563 $362,671 $358,547
Mortgage loans....................... 36,658 41,949 40,916
Equity securities.................... 1,751 -- --
Short-term and other................. 5,038 12,949 14,487
-------- -------- --------
Investment income, before expense. 382,010 417,569 413,950
Investment expense................ (9,615) (14,638) (27,212)
-------- -------- --------
Net investment income......... $372,395 $402,931 $386,738
======== ======== ========

REALIZED CAPITAL GAINS AND LOSSES

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

2009 2008 2007
($ IN THOUSANDS) -------- -------- -------

Fixed income securities.............. $114,122 $(55,775) $ 3,614
Mortgage loans....................... (5,327) (2,049) (86)
Equity securities.................... 110 -- --
Derivatives.......................... 36,526 (19,381) (4,359)
Other................................ 37 -- --
-------- -------- -------
Realized capital gains and losses. $145,468 $(77,205) $ (831)
======== ======== =======

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

2009 2008 2007
($ IN THOUSANDS) -------- --------- -------

Impairment write-downs/(1)/............ $(30,255) $ (38,528) $ --
Change in intent write-downs/(2)/...... (20,821) (79,262) (6,793)
-------- --------- -------
Net OTTI losses recognized in earnings. (51,076) (117,790) (6,793)
Sales.................................. 160,294 59,966 10,321
Valuation of derivative instruments.... 29,831 (29,525) (8,166)
Settlement of derivative instruments... 6,419 10,144 3,807
-------- --------- -------
Realized capital gains and losses... $145,468 $ (77,205) $ (831)
======== ========= =======

- --------
(1)Beginning April 1, 2009 for fixed income securities, impairment write-downs
reflect the credit loss component of issue specific other-than-temporary
declines in fair value where the amortized cost basis is not expected to be
entirely recovered. For periods prior to April 1, 2009 for fixed income
securities and all periods for equity securities, impairment write-downs
reflect issue specific other-than-temporary declines in fair value,
including instances where the Company could not reasonably assert that the
recovery period would be temporary.
(2)Beginning April 1, 2009 for fixed income securities, change in intent
write-downs reflect instances where the Company has made a decision to sell
the security or it is more likely than not the Company will be required to
sell the security before recovery of its amortized cost basis. For periods
prior to April 1, 2009 for fixed income securities and all periods for
equity securities, change in intent write-downs reflect instances where the
Company could not assert a positive intent to hold until recovery.

Gross gains of $180.8 million, $62.4 million and $2.9 million and gross
losses of $23.1 million, $8.8 million and $6.3 million were realized on sales
of fixed income securities during 2009, 2008 and 2007, respectively.

Other-than-temporary impairment losses by asset type for the year ended
December 31 are as follows:

2009
($ IN THOUSANDS) ---------------------------
INCLUDED
TOTAL IN OCI NET
- -------- -------- --------

Fixed income securities:
Municipal............................. $ (2,298) $ -- $ (2,298)
Corporate............................. (17,993) (938) (18,931)
RMBS.................................. (6,494) 3,895 (2,599)
CMBS.................................. (19,458) (1,826) (21,284)
-------- ------- --------
Total fixed income securities..... (46,243) 1,131 (45,112)
Mortgage loans........................... (5,950) -- (5,950)
Equity securities........................ (14) -- (14)
-------- ------- --------
Other-than-temporary impairment losses... $(52,207) $ 1,131 $(51,076)
======== ======= ========

NOTES TO FINANCIAL STATEMENTS--CONTINUED

The total amount of other-than-temporary impairment losses included in
accumulated other comprehensive income for fixed income securities at
December 31, 2009, which were not included in earnings, are presented in the
following table. The amount excludes $8.7 million of net unrealized gains
related to changes in valuation of the fixed income securities subsequent to
the impairment measurement date.

($ IN THOUSANDS)

Corporate..... $ (1,197)
RMBS.......... (11,296)
--------
Total....... $(12,493)
========

A rollforward of the amount recognized in earnings related to credit losses
for fixed income securities is presented in the following table.

($ IN THOUSANDS)

Beginning balance of cumulative credit loss for securities held at April 1, 2009........ $(33,493)
Additional credit loss for securities previously other-than-temporarily impaired........ (3,328)
Additional credit loss for securities not previously other-than-temporarily impaired.... (17,665)
Reduction in credit loss for securities disposed or collected........................... 28,993
Reduction in credit loss for securities other-than-temporarily impaired to fair value... --
Change in credit loss due to accretion of increase in cash flows and time value of cash
flows for securities previously other-than-temporarily impaired....................... --
--------
Ending balance at December 31, 2009..................................................... $(25,493)
========

The Company uses its best estimate of future cash flows expected to be
collected from the fixed income security discounted at the security's original
or current effective rate, as appropriate, to calculate a recovery value and
determine whether a credit loss exists. The determination of cash flow
estimates is inherently subjective and methodologies may vary depending on
facts and circumstances specific to the security. All reasonably available
information relevant to the collectability of the security, including past
events, current conditions, and reasonable and supportable assumptions and
forecasts, are considered when developing the estimate of cash flows expected
to be collected. That information generally includes, but is not limited to,
the remaining payment terms of the security, prepayment speeds, foreign
exchange rates, the financial condition of the issue or issuer(s), expected
defaults, expected recoveries, the value of underlying collateral and current
subordination levels, vintage, geographic concentration, available reserves or
escrows, third party guarantees and other credit enhancements. Additionally,
other information, such as industry analyst reports and forecasts, sector
credit ratings, financial condition of the bond insurer for insured fixed
income securities, and other market data relevant to the realizability of
contractual cash flows, may also be considered. The estimated fair value of
collateral may be used to estimate recovery value if the Company determines
that the security is dependent on the liquidation of collateral for ultimate
settlement. If the estimated recovery value is less than the amortized cost of
the security, a credit loss exists and an other-than-temporary impairment for
the difference between the estimated recovery value and amortized cost is
recorded in earnings. The unrealized loss deemed to be related to factors other
than credit remains classified in OCI. If the Company determines that the fixed
income security does not have sufficient cash flow or other information to
determine a recovery value for the security, the Company may conclude that the
entire decline in fair value is deemed to be credit related and is recorded in
earnings.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

UNREALIZED NET CAPITAL GAINS AND LOSSES

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

GROSS UNREALIZED
FAIR ------------------ UNREALIZED NET
VALUE GAINS LOSSES GAINS (LOSSES)
($ IN THOUSANDS) ---------- -------- --------- --------------
AT DECEMBER 31, 2009

Fixed income securities/(1)/.......................... $6,073,765 $287,201 $(286,671) $ 530
Equity securities..................................... 123,311 23,143 -- 23,143
Short-term investments................................ 348,453 1 (4) (3)
Derivative instruments................................ -- 309 -- 309
--------
Unrealized net capital gains and losses, pre-tax... 23,979

Amounts recognized for:
Insurance reserves/(2)/............................ (40,551)
DAC and DSI/(3)/................................... 53,572
--------
Amounts recognized................................. 13,021
Deferred income taxes.............................. (12,950)
--------
Unrealized net capital gains and losses, after-tax. $ 24,050
========

GROSS UNREALIZED
FAIR ------------------ UNREALIZED NET
VALUE GAINS LOSSES GAINS (LOSSES)
AT DECEMBER 31, 2008 ---------- -------- --------- --------------

Fixed income securities............................... $5,496,365 $420,133 $(700,219) $(280,086)
Short-term investments................................ 409,802 77 (12) 65
Derivative instruments................................ 1,749 1,749 -- 1,749
---------
Unrealized net capital gains and losses, pre-tax... (278,272)

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

NOTES TO FINANCIAL STATEMENTS--CONTINUED

CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES

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

2009 2008 2007
($ IN THOUSANDS) --------- --------- --------

Fixed income securities..................................... $ 280,616 $(622,315) $ (2,683)
Equity securities........................................... 23,143 -- --
Short-term investments...................................... (68) 65 --
Derivative instruments...................................... (1,440) 2,515 126
--------- --------- --------
Total.................................................... 302,251 (619,735) (2,557)

Amounts recognized for:
Insurance reserves....................................... 115,384 105,911 (26,190)
DAC and DSI.............................................. (213,075) 245,975 8,978
--------- --------- --------
(Decrease) increase in amounts recognized............ (97,691) 351,886 (17,212)
Deferred income taxes.................................... (71,596) 93,747 6,919
--------- --------- --------
Increase (decrease) in unrealized net capital gains and
losses................................................. $ 132,964 $(174,102) $(12,850)
========= ========= ========

PORTFOLIO MONITORING

The Company has a comprehensive portfolio monitoring process to identify and
evaluate each fixed income and equity security whose carrying value may be
other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company
assesses whether management with the appropriate authority has made a decision
to sell or whether it is more likely than not the Company will be required to
sell the security before recovery of the amortized cost basis for reasons such
as liquidity, contractual or regulatory purposes. If a security meets either of
these criteria, the security's decline in fair value is deemed other than
temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security
and it is not more likely than not the Company will be required to sell the
fixed income security before recovery of its amortized cost basis, the Company
evaluates if it expects to receive cash flows sufficient to recover the entire
amortized cost basis of the security by comparing the estimated recovery value
calculated by discounting the best estimate of future cash flows at the
security's original or current effective rate, as appropriate, with the
amortized cost of the security. If the Company does not expect to receive cash
flows sufficient to recover the entire amortized cost basis of the fixed income
security, the credit loss component of the impairment is recorded in earnings,
with the remaining amount of the unrealized loss deemed to be related to other
factors and recognized in OCI.

For equity securities, the Company considers various factors, including
whether the Company has the intent and ability to hold the equity security for
a period of time sufficient to recover its cost basis. Where the Company lacks
the intent and ability to hold to recovery, or believes the recovery period is
extended, the equity security's decline in fair value is considered other than
temporary and is recorded in earnings. For equity securities managed by a third
party, the Company has contractually retained its decision making authority as
it pertains to selling equity securities that are in an unrealized loss
position.

The Company's portfolio monitoring process includes a quarterly review of
all securities through a screening process which identifies instances where the
fair value compared to amortized cost for fixed income securities and cost for
equity securities is below established thresholds, and also includes the
monitoring of other criteria such as ratings, ratings downgrades or payment
defaults. The securities identified, in addition to other

NOTES TO FINANCIAL STATEMENTS--CONTINUED

securities for which the Company may have a concern, are evaluated for
potential other-than-temporary impairment using all reasonably available
information relevant to the collectability or recovery of the security.
Inherent in the Company's evaluation of other-than-temporary impairment for
these fixed income and equity securities are assumptions and estimates about
the financial condition of the issue or issuer and its future earnings
potential. Some of the factors considered in evaluating whether a decline in
fair value is other than temporary are: 1) the length of time and extent to
which the fair value has been less than amortized cost for fixed income
securities, or cost for equity securities; 2) the financial condition,
near-term and long-term prospects of the issue or issuer, including relevant
industry specific market conditions and trends, geographic location and
implications of rating agency actions and offering prices; and 3) the specific
reasons that a security is in a significant unrealized loss position, including
overall market conditions which could affect liquidity.

The following table summarizes the gross unrealized losses and fair value of
fixed income securities by the length of time that individual securities have
been in a continuous unrealized loss position. There are no equity securities
with gross unrealized losses as of December 31, 2009.

LESS THAN 12 MONTHS 12 MONTHS OR MORE
------------------------------ ---------------------------- TOTAL
NUMBER OF FAIR UNREALIZED NUMBER OF FAIR UNREALIZED UNREALIZED
ISSUES VALUE LOSSES ISSUES VALUE LOSSES LOSSES
($ IN THOUSANDS) --------- ---------- ---------- --------- -------- ---------- ----------
AT DECEMBER 31, 2009

Fixed income securities
U.S. government and agencies..... 9 $ 209,201 $ (365) -- $ -- $ -- $ (365)
Municipal........................ 31 258,153 (8,197) 46 244,537 (55,583) (63,780)
Corporate........................ 83 401,910 (11,534) 77 343,942 (48,873) (60,407)
Foreign government............... 3 36,618 (1,000) -- -- -- (1,000)
RMBS............................. 24 68,199 (1,158) 41 81,536 (24,827) (25,985)
CMBS............................. 3 20,648 (339) 34 239,448 (127,639) (127,978)
ABS.............................. 6 20,200 (105) 3 17,776 (6,444) (6,549)
Redeemable preferred stock....... -- -- -- 1 8,639 (607) (607)
--- ---------- --------- --- -------- --------- ---------
Total fixed income securities/(1)/.. 159 $1,014,929 $ (22,698) 202 $935,878 $(263,973) $(286,671)
=== ========== ========= === ======== ========= =========
Investment grade fixed income
securities......................... 151 $ 995,984 $ (19,518) 150 $837,804 $(227,091) $(246,609)
Below investment grade fixed income
securities......................... 8 18,945 (3,180) 52 98,074 (36,882) (40,062)
--- ---------- --------- --- -------- --------- ---------
Total fixed income securities....... 159 $1,014,929 $ (22,698) 202 $935,878 $(263,973) $(286,671)
=== ========== ========= === ======== ========= =========
AT DECEMBER 31, 2008
Fixed income securities
U.S. government and agencies..... 1 $ 24,844 $ (120) -- $ -- $ -- $ (120)
Municipal........................ 62 273,931 (75,612) 4 17,482 (6,113) (81,725)
Corporate........................ 369 1,526,621 (204,006) 103 369,897 (122,752) (326,758)
RMBS............................. 13 43,388 (7,479) 37 61,209 (18,881) (26,360)
CMBS............................. 69 410,165 (112,645) 19 52,917 (140,194) (252,839)
ABS.............................. 1 6,185 (2,651) 3 14,015 (5,935) (8,586)
Redeemable preferred stock....... 1 5,458 (3,831) -- -- -- (3,831)
--- ---------- --------- --- -------- --------- ---------
Total fixed income securities....... 516 $2,290,592 $(406,344) 166 $515,520 $(293,875) $(700,219)
=== ========== ========= === ======== ========= =========
Investment grade fixed income
securities......................... 472 $2,209,606 $(386,500) 139 $476,712 $(275,226) $(661,726)
Below investment grade fixed income
securities......................... 44 80,986 (19,844) 27 38,808 (18,649) (38,493)
--- ---------- --------- --- -------- --------- ---------
Total fixed income securities....... 516 $2,290,592 $(406,344) 166 $515,520 $(293,875) $(700,219)
=== ========== ========= === ======== ========= =========

- --------
(1)Gross unrealized losses resulting from factors other than credit on fixed
income securities with other-than-temporary impairments for which the
Company has recorded a credit loss in earnings total $464 thousand for the
less than 12 month category and $6.1 million for the 12 months or greater
category.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

As of December 31, 2009, $80.8 million of unrealized losses are related to
securities with an unrealized loss position less than 20% of amortized cost,
the degree of which suggests that these securities do not pose a high risk of
being other-than-temporarily impaired. Of the $80.8 million, $76.0 million are
related to unrealized losses on investment grade fixed income securities.
Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa
from Moody's, a rating of AAA, AA, A or BBB from Standard & Poor's ("S&P"),
Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or
a comparable internal rating if an externally provided rating is not available,
which is consistent with the National Association of Insurance Commissioners
("NAIC") rating. Unrealized losses on investment grade securities are
principally related to rising interest rates or changes in credit spreads since
the securities were acquired.

As of December 31, 2009, the remaining $205.9 million of unrealized losses
are related to securities in unrealized loss positions greater than or equal to
20% of amortized cost. Investment grade securities comprising $170.6 million of
these unrealized losses were evaluated based on factors such as discounted cash
flows, the financial condition and near-term and long-term prospects of the
issue or issuer and were determined to have adequate resources to fulfill
contractual obligations, such as recent financings or bank loans, cash flows
from operations, collateral or the position of a subsidiary with respect to its
parent's bankruptcy. Of the $205.9 million, $35.3 million are related to below
investment grade fixed income securities. Of this amount, $29.1 million had
been in an unrealized loss position for a period of twelve or more consecutive
months as of December 31, 2009. Unrealized losses on below investment grade
securities are principally related to RMBS and CMBS and were the result of
wider credit spreads than at initial purchase which was largely due to the
impact of macroeconomic conditions and credit market deterioration on real
estate valuations. Securities in an unrealized loss position were evaluated
based on discounted cash flows and credit ratings, as well as the performance
of the underlying collateral relative to the securities' positions in the
securities' respective capital structure. RMBS and ABS in an unrealized loss
position were evaluated with credit enhancements from bond insurers where
applicable. Municipal bonds in an unrealized loss position were evaluated based
on the quality of the underlying security, as well as with credit enhancements
from bond insurers, where applicable.

As of December 31, 2009, the Company has not made a decision to sell and it
is not more likely than not the Company will be required to sell fixed income
securities with unrealized losses before recovery of the amortized cost basis.

MORTGAGE LOAN IMPAIRMENT

A mortgage loan is impaired when it is probable that the Company will not
collect the contractual principal and interest. The net carrying value of
impaired loans at December 31, 2009 and 2008 was $24.0 million and $3.4
million, respectively. Total valuation allowances of $4.3 million and $449
thousand were held on impaired loans at December 31, 2009 and 2008,
respectively. The Company recognized $5.3 million and $449 thousand of realized
capital losses related to increases in the valuation allowances on impaired
loans for the years ended December 31, 2009 and 2008, respectively. There were
no valuation allowances prior to December 31, 2008. Realized capital losses
recognized on mortgage loans held for sale totaled $686 thousand, $2.0 million
and $2.4 million for the years ended December 31, 2009, 2008 and 2007,
respectively.

Interest income for impaired loans is recognized on an accrual basis if
payments are expected to continue to be received. Accrual of income is
suspended for mortgage loans that are in default or when full and timely
collection of principal and interest payments is not probable. The Company
recognized interest income on impaired loans of $598 thousand and $202 thousand
during 2009 and 2008, respectively. The average balance of impaired loans was
$17.0 million and $1.9 million during 2009 and 2008, respectively. There were
no impaired loans in 2007.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

INVESTMENT CONCENTRATION FOR MUNICIPAL BOND AND COMMERCIAL MORTGAGE PORTFOLIOS

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

2009 2008
(% OF MUNICIPAL BOND PORTFOLIO CARRYING VALUE) ---- ----

California.................... 21.7% 25.6%
Texas......................... 10.8 10.9
Illinois...................... 8.7 1.8
Delaware...................... 3.1 7.0
Virginia...................... 1.8 5.4

The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States. Substantially
all of the commercial mortgage loans are non-recourse to the borrower. The
following table shows the principal geographic distribution of commercial real
estate represented in the Company's mortgage portfolio. No other state
represented more than 5% of the portfolio at December 31.

2009 2008
(% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE) ---- ----

California....................... 24.8% 22.1%
Illinois......................... 13.9 11.9
Arizona.......................... 7.0 5.5
Pennsylvania..................... 7.0 8.8
New Jersey....................... 5.0 6.1
Ohio............................. 4.8 5.0
New York......................... 3.8 5.5
Texas............................ 2.8 5.3

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

2009 2008
(% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE) ----- -----

Warehouse........................... 39.8% 34.0%
Office buildings.................... 31.4 28.7
Retail.............................. 15.7 19.5
Apartment complex................... 10.0 15.3
Other............................... 3.1 2.5
----- -----
Total............................ 100.0% 100.0%
===== =====

The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 2009 for loans that were not in foreclosure are as follows:

NUMBER OF CARRYING
LOANS VALUE PERCENT
($ IN THOUSANDS) --------- -------- -------

2010........... 11 $ 58,607 10.8%
2011........... 15 66,925 12.3
2012........... 9 41,087 7.6
2013........... 14 64,671 11.9
Thereafter..... 63 311,717 57.4
--- -------- -----
Total....... 112 $543,007 100.0%
=== ======== =====

NOTES TO FINANCIAL STATEMENTS--CONTINUED

In 2009, $39.2 million of commercial mortgage loans were contractually due.
Of these 87% were paid as due and 13% were extended generally for less than one
year. As of December 31, 2009, the Company has $4.8 million of delinquent loans
that are not in the process of foreclosure. None were in the process of
refinancing or restructuring discussions.

CONCENTRATION OF CREDIT RISK

At December 31, 2009, the Company is not exposed to any credit concentration
risk of a single issuer and its affiliates greater than 10% of shareholder's
equity.

SECURITIES LOANED

The Company's business activities include securities lending programs with
third parties, mostly large banks. At December 31, 2009 and 2008, fixed income
securities with a carrying value of $145.0 million and $113.6 million,
respectively, were on loan under these agreements. In return, the Company
receives cash that it invests and includes in short-term investments and fixed
income securities, with an offsetting liability recorded in other liabilities
and accrued expenses to account for the Company's obligation to return the
collateral. Interest income on collateral, net of fees, was $681 thousand, $5.1
million and $1.4 million, for the years ending December 31, 2009, 2008 and
2007, respectively.

OTHER INVESTMENT INFORMATION

Included in fixed income securities are below investment grade assets
totaling $227.4 million and $139.7 million at December 31, 2009 and 2008,
respectively.

At December 31, 2009, fixed income securities and short-term investments
with a carrying value of $2.6 million were on deposit with regulatory
authorities as required by law.

At December 31, 2009, the carrying value of fixed income securities that
were non-income producing was $5 thousand. No other investments were non-income
producing at December 31, 2009

6. FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value, the Company
principally uses the market approach which generally utilizes market
transaction data for the same or similar instruments. To a lesser extent, the
Company uses the income approach which involves determining fair values from
discounted cash flow methodologies.

The hierarchy for inputs used in determining fair value maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring
that observable inputs be used when available. Assets and liabilities recorded
on the Statements of Financial Position at fair value are categorized in the
fair value hierarchy based on the observability of inputs to the valuation
techniques as follows:

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

Level 2: Assets and liabilities whose values are based on the following:
a)Quoted prices for similar assets or liabilities in active markets;
b)Quoted prices for identical or similar assets or liabilities in markets that are not active; or
c)Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of
the asset or liability.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

The availability of observable inputs varies by instrument. In situations
where fair value is based on internally developed pricing models or inputs that
are unobservable in the market, the determination of fair value requires more
judgment. The degree of judgment exercised by the Company in determining fair
value is typically greatest for instruments categorized in Level 3. In many
instances, valuation inputs used to measure fair value fall into
different levels of the fair value hierarchy. The category level in the fair
value hierarchy is determined based on the lowest level input that is
significant to the fair value measurement in its entirety. The Company uses
prices and inputs that are current as of the measurement date, including during
periods of market disruption. In periods of market disruption, the ability to
observe prices and inputs may be reduced for many instruments. This condition
could cause an instrument to be reclassified from Level 1 to Level 2, or from
Level 2 to Level 3.

Certain assets are not carried at fair value on a recurring basis, including
investments such as mortgage loans and policy loans. Accordingly, such
investments are only included in the fair value hierarchy disclosure when the
investment is subject to remeasurement at fair value after initial recognition
and the resulting remeasurement is reflected in the financial statements. As of
December 31, 2009, 85.2% of total assets are measured at fair value and 0.3% of
total liabilities are measured at fair value.

Summary of significant valuation techniques for assets and liabilities
measured at fair value on a recurring basis

Level 1 measurements

. Fixed income securities: Comprise U.S. Treasuries. Valuation is based on
unadjusted quoted prices for identical assets in active markets that the
Company can access.

. Equity securities: Comprise indexed-based securities. Valuation is based
on unadjusted quoted prices for identical assets in active markets that
the Company can access.

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

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

Level 2 measurements

. Fixed income securities:

U.S. government and agencies: Valued based on inputs including quoted
prices for identical or similar assets in markets that are not active.

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

Corporate, including privately placed: Valued based on inputs including
quoted prices for identical or similar assets in markets that are not
active. Also includes privately placed securities valued using a
discounted cash flow model that is widely accepted in the financial
services industry and uses market observable inputs and inputs derived
principally from, or corroborated by, observable market data. The
primary inputs to the discounted cash flow model include an interest
rate curve, as well as published credit spreads for similar assets in
markets that are not active that incorporate the credit quality and
industry sector of the issuer.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

Foreign government; RMBS--U.S. government sponsored entities ("U.S.
Agency"), Prime residential mortgage-backed securities ("Prime") and
Alt-A residential mortgage-backed securities ("Alt-A"); ABS; Redeemable
preferred stock: Valued based on inputs including quoted prices for
identical or similar assets in markets that are not active.

CMBS: Valuation is principally based on inputs including quoted prices
for identical or similar assets in markets that are not active.

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

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

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

Level 3 measurements

. Fixed income securities:

Municipal: Auction rate securities ("ARS") backed by student loans that
have become illiquid due to failures in the auction market are valued
based on a discounted cash flow model with certain inputs to the
valuation model that are significant to the valuation, but are not
market observable, including estimates of future coupon rates if auction
failures continue, maturity assumptions, and illiquidity premium.
Municipal bonds that are not rated by third party credit rating agencies
but are generally rated by the NAIC are valued based on valuation models
that are widely accepted in the financial services industry and are
categorized as Level 3 as a result of the significance of non-market
observable inputs, which may include projections of future cash flows.

Corporate, including privately placed: Valued based on non-binding
broker quotes or based on models that are widely accepted in the
financial services industry with certain inputs to the valuation model
that are significant to the valuation, but are not market observable.

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

CMBS: Valued based on inputs including quoted prices for identical or
similar assets in markets that exhibit less liquidity relative to those
markets supporting Level 2 fair value measurements. Due to the reduced
availability of actual market prices or relevant observable inputs as a
result of the decrease in liquidity that has been experienced in the
market for these securities, certain CMBS are categorized as Level 3.

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

NOTES TO FINANCIAL STATEMENTS--CONTINUED

. Other investments: Certain OTC derivatives, such as interest rate caps,
are valued using valuation models that are widely accepted in the
financial services industry. Non-market observable inputs such as
volatility assumptions may be significant to the valuation of the
instruments.

. Other assets: Includes a structured settlement annuity reinsurance
agreement accounted for as a derivative instrument. Valued internally
utilizing a model that uses interest rate and volatility assumptions to
generate stochastically determined cash flows. This item is categorized
as Level 3 as a result of the significance of non-market observable
inputs.

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

Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing
other-than-temporary impairments are valued using valuation models that are
widely accepted in the financial services industry. Inputs to the valuation
models include non-market observable inputs such as credit spreads.

The following table summarizes the Company's assets and liabilities measured
at fair value on a recurring and non-recurring basis as of December 31, 2009:

QUOTED PRICES SIGNIFICANT
IN ACTIVE OTHER SIGNIFICANT COUNTERPARTY
MARKETS FOR OBSERVABLE UNOBSERVABLE AND CASH BALANCE AS OF
IDENTICAL INPUTS INPUTS COLLATERAL DECEMBER 31,
(LEVEL 1) (LEVEL 2) (LEVEL 3) NETTING 2009
($ IN THOUSANDS) ------------- ----------- ------------ ------------ -------------

ASSETS:
Fixed income securities:
U.S. government and agencies............ $ 335,264 $ 250,938 $ -- $ 586,202
Municipal............................... -- 754,667 123,743 878,410
Corporate............................... -- 3,069,927 201,275 3,271,202
Foreign government...................... -- 290,856 -- 290,856
RMBS.................................... -- 612,548 39,124 651,672
CMBS.................................... -- 173,647 173,094 346,741
ABS..................................... -- 22,268 17,776 40,044
Redeemable preferred stock.............. -- 8,638 -- 8,638
---------- ---------- -------- ----------
Total fixed income securities........ 335,264 5,183,489 555,012 6,073,765
Equity securities........................... 123,311 -- -- 123,311
Short-term investments...................... 11,247 337,206 -- 348,453
Other investments:
Free-standing derivatives............... -- 368 2,013 $(344) 2,037
Separate account assets..................... 587,044 -- -- 587,044
Other assets................................ -- -- (5,059) (5,059)
---------- ---------- -------- ----- ----------
TOTAL RECURRING BASIS ASSETS............ 1,056,866 5,521,063 551,966 (344) 7,129,551
Non-recurring basis/(1)/.................... -- -- 13,861 13,861
---------- ---------- -------- ----- ----------
TOTAL ASSETS AT FAIR VALUE..................... $1,056,866 $5,521,063 $565,827 $(344) $7,143,412
========== ========== ======== ===== ==========
% of total assets at fair value................ 14.8% 77.3% 7.9% -- 100.0%

NOTES TO FINANCIAL STATEMENTS--CONTINUED

LIABILITIES:
Contractholder funds:
Derivatives embedded in annuity
contracts.......................... $ -- $ -- $(13,211) $(13,211)
Other liabilities:
Free-standing derivatives............ -- (3,917) (2,885) $ 344 (6,458)
---- ------- -------- ----- --------
TOTAL LIABILITIES AT FAIR VALUE............. $ -- $(3,917) $(16,096) $ 344 $(19,669)
==== ======= ======== ===== ========
% of total liabilities at fair value........ -- % 19.9% 81.8% (1.7)% 100.0%

- --------
(1)Includes mortgage loans written-down to fair value in connection with
recognizing other-than-temporary impairments.

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

QUOTED PRICES SIGNIFICANT
IN ACTIVE OTHER SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE BALANCE AS OF
IDENTICAL INPUTS INPUTS DECEMBER 31,
(LEVEL 1) (LEVEL 2) (LEVEL 3) 2008
($ IN THOUSANDS) ------------- ----------- ------------ -------------

ASSETS
Fixed income securities:
U.S. government and agencies.................. $154,119 $ 763,612 $ -- $ 917,731
Municipal..................................... -- 287,597 97,784 385,381
Corporate..................................... -- 1,795,022 1,092,115 2,887,137
Foreign government............................ -- 371,542 -- 371,542
RMBS.......................................... -- 361,843 78,202 440,045
CMBS.......................................... -- 422,632 46,236 468,868
ABS........................................... -- -- 20,202 20,202
Redeemable preferred stock.................... -- 5,459 -- 5,459
-------- ---------- ---------- ----------
Total fixed income securities.............. 154,119 4,007,707 1,334,539 5,496,365
Short-term investments............................ 33,315 376,487 -- 409,802
Other investments:
Free-standing derivatives..................... -- 1,764 714 2,478
Separate account assets........................... 533,760 -- -- 533,760
Other assets...................................... -- -- (1,829) (1,829)
-------- ---------- ---------- ----------
TOTAL RECURRING BASIS ASSETS.................. 721,194 4,385,958 1,333,424 6,440,576
Non-recurring basis/(1)/.......................... -- -- 10,589 10,589
-------- ---------- ---------- ----------
TOTAL ASSETS AT FAIR VALUE........................... $721,194 $4,385,958 $1,344,013 $6,451,165
======== ========== ========== ==========
% of total assets at fair value...................... 11.2% 68.0% 20.8% 100.0%

LIABILITIES
Contractholder funds:
Derivatives embedded in annuity contracts..... $ -- $ -- $ (30,051) $ (30,051)
Other liabilities:
Free-standing derivatives..................... -- (20,849) (5,450) (26,299)
-------- ---------- ---------- ----------
TOTAL LIABILITIES AT FAIR VALUE...................... $ -- $ (20,849) $ (35,501) $ (56,350)
======== ========== ========== ==========
% of total liabilities at fair value................. -- % 37.0% 63.0% 100.0%

- --------
(1)Includes mortgage loans written-down to fair value in connection with
recognizing other-than-temporary impairments.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

When the inputs used to measure fair value fall into different levels of the
fair value hierarchy, the categorization is based on the lowest level input
that is significant to the fair value measurement in its entirety. Thus, a
Level 3 fair value measurement may include inputs that are observable (Level 1
or Level 2) and unobservable (Level 3).

The following table provides a summary of changes in fair value during the
year ended December 31, 2009 of Level 3 assets and liabilities held at fair
value on a recurring basis. Net transfers in and/or out of Level 3 are reported
as having occurred at the beginning of the quarter the transfer occurred;
therefore, for all transfers into Level 3, all realized and changes in
unrealized gains and losses in the quarter of transfer are reflected in the
table below.

TOTAL REALIZED AND UNREALIZED
GAINS (LOSSES) INCLUDED IN:
-----------------------------
OCI ON PURCHASES, NET
BALANCE AS OF STATEMENT SALES, ISSUANCES TRANSFERS IN BALANCE AS OF
DECEMBER 31, NET OF FINANCIAL AND AND/OR (OUT) DECEMBER 31,
2008 INCOME/(1)/ POSITION SETTLEMENTS, NET OF LEVEL 3 2009
($ IN THOUSANDS) ------------- ---------- ------------ ---------------- ------------ -------------

ASSETS
Fixed income securities:
Municipal............. $ 97,784 $ (150) $ 6,371 $ (3,932) $ 23,670 $ 123,743
Corporate............. 1,092,115 11,445 121,540 (111,828) (911,997) 201,275
Foreign government....... -- -- 42 4,974 (5,016) --
RMBS.................. 78,202 (1,877) 4,014 (17,839) (23,376) 39,124
CMBS.................. 46,236 (27,157) 82,059 (10,148) 82,104 173,094
ABS................... 20,202 13 2,142 (4,581) -- 17,776
---------- -------- -------- --------- --------- ---------
Total fixed income
securities.............. 1,334,539 (17,726) 216,168 (143,354) (834,615) 555,012
Other investments:
Free-standing
derivatives, net..... (4,736) 2,045 -- 1,819 -- (872)/(2)/
Other assets.......... (1,829) (3,230) -- (5,059)
---------- -------- -------- --------- --------- ---------
TOTAL RECURRING
LEVEL 3 ASSETS....... $1,327,974 $(18,911) $216,168 $(141,535) $(834,615) $(549,081)
========== ======== ======== ========= ========= =========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts....... $ (30,051) $ 15,975 $ -- $ 865 $ -- $ (13,211)
---------- -------- -------- --------- --------- ---------
TOTAL RECURRING
LEVEL 3 LIABILITIES.. $ (30,051) $ 15,975 $ -- $ 865 $ -- $ (13,211)
========== ======== ======== ========= ========= =========

TOTAL
GAINS (LOSSES)
INCLUDED IN NET
INCOME FOR
ASSETS AND
LIABILITIES
STILL HELD AT
DECEMBER 31,
2009/(3)/
($ IN THOUSANDS) ---------------

ASSETS
Fixed income securities:
Municipal............. $ (160)
Corporate............. 4,091
Foreign government....... --
RMBS.................. (1,846)
CMBS.................. (17,109)
ABS................... --
--------
Total fixed income
securities.............. (15,024)
Other investments:
Free-standing
derivatives, net..... 4,280
Other assets.......... (3,230)
--------
TOTAL RECURRING
LEVEL 3 ASSETS....... $(13,974)
========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts....... $ 15,975
--------
TOTAL RECURRING
LEVEL 3 LIABILITIES.. $ 15,975
========

- --------
(1)The effect to net income totals $(2.9) million and is reported in the
Statements of Operations and Comprehensive Income as follows: $(27.5)
million in realized capital gains and losses, $8.6 million in net investment
income and $(16.0) million in contract benefits.
(2)Comprises $2.0 million of assets and $(2.9) million of liabilities.
(3)The amounts represent gains and losses included in net income for the period
of time that the asset or liability was determined to be in Level 3. These
gains and losses total $2.0 million and are reported in the Statements of
Operations and Comprehensive Income as follows: $(22.2) million in realized
capital gains and losses, $8.2 million in net investment income and $(16.0)
million in contract benefits.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

TOTAL REALIZED AND UNREALIZED
GAINS (LOSSES) INCLUDED IN:
----------------------------
OCI ON PURCHASES, NET
BALANCE AS OF STATEMENT OF SALES, ISSUANCES TRANSFERS IN BALANCE AS OF
JANUARY 1, FINANCIAL AND AND/OR (OUT) DECEMBER 31,
2008 NET INCOME/(1)/ POSITION SETTLEMENTS, NET OF LEVEL 3 2008
($ IN THOUSANDS) ------------- -------------- ------------ ---------------- ------------ -------------

ASSETS
Fixed income securities:
Municipal.............. $ 33,200 $ -- $ (11,066) $ (22,250) $ 97,900 $ 97,784
Corporate.............. 1,249,898 5,947 (115,386) (76,075) 27,731 1,092,115
RMBS................... 119,238 (7,847) (12,879) (20,310) -- 78,202
CMBS................... 36,794 (29,092) (57,164) (23,105) 118,803 46,236
ABS.................... 30,768 269 (7,549) (3,286) -- 20,202
---------- -------- --------- --------- -------- ----------
Total fixed income
securities............... 1,469,898 (30,723) (204,044) (145,026) 244,434 1,334,539
Other investments:
Free-standing
derivatives, net...... (980) (7,124) -- 3,368 -- (4,736)/(2)/
Other assets........... (1,733) (96) -- -- -- (1,829)
---------- -------- --------- --------- -------- ----------
TOTAL RECURRING
LEVEL 3 ASSETS........ $1,467,185 $(37,943) $(204,044) $(141,658) $244,434 $1,327,974
========== ======== ========= ========= ======== ==========
LIABILITIES
Contractholder funds:
Derivatives embedded
in annuity
contracts............. $ 174 $(30,389) $ -- $ 164 $ -- $ (30,051)
---------- -------- --------- --------- -------- ----------
TOTAL RECURRING
LEVEL 3 LIABILITIES... $ 174 $(30,389) $ -- $ 164 $ -- $ (30,051)
========== ======== ========= ========= ======== ==========

TOTAL
GAINS (LOSSES)
INCLUDED IN NET
INCOME FOR
ASSETS AND
LIABILITIES
STILL HELD AT
DECEMBER 31,
2008/(3)/
($ IN THOUSANDS) ---------------

ASSETS
Fixed income securities:
Municipal.............. $ --
Corporate.............. (7,065)
RMBS................... (7,655)
CMBS................... (22,438)
ABS.................... --
--------
Total fixed income
securities............... (37,158)
Other investments:
Free-standing
derivatives, net...... (1,424)
Other assets........... (96)
--------
TOTAL RECURRING
LEVEL 3 ASSETS........ $(38,678)
========
LIABILITIES
Contractholder funds:
Derivatives embedded
in annuity
contracts............. $(30,389)
--------
TOTAL RECURRING
LEVEL 3 LIABILITIES... $(30,389)
========

- --------
(1)The effect to net income totals $(68.3) million and is reported in the
Statements of Operations and Comprehensive Income as follows:
$(45.9) million in realized capital gains and losses, $8.0 million in net
investment income, and $30.4 million in contract benefits.
(2)Comprises $0.7 million of assets and $(5.4) million of liabilities.
(3)The amounts represent gains and losses included in net income for the period
of time that the asset or liability was determined to be in Level 3. These
gains and losses total $(69.1) million and are reported in the Statements of
Operations and Comprehensive Income as follows: $(46.5) million in realized
capital gains and losses, $7.8 million in net investment income and $30.4
million in contract benefits.

Presented below are the carrying values and fair value estimates of
financial instruments not carried at fair value.

FINANCIAL ASSETS

DECEMBER 31, 2009 DECEMBER 31, 2008
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
($ IN THOUSANDS) -------- -------- -------- --------

Mortgage loans.............. $543,007 $431,116 $700,268 $629,394
Note due from related party. 8,255 8,243 -- --

The fair value of mortgage loans is based on discounted contractual cash
flows or if the loans are impaired due to credit reasons, the fair value of
collateral less costs to sell. Risk adjusted discount rates are selected using

NOTES TO FINANCIAL STATEMENTS--CONTINUED

current rates at which similar loans would be made to borrowers with similar
characteristics, using similar types of properties as collateral. The fair
value of the note due from related party is based on discounted cash flow
calculations using current interest rates for instruments with comparable terms.

FINANCIAL LIABILITIES

DECEMBER 31, 2009 DECEMBER 31, 2008
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
($ IN THOUSANDS) ---------- ---------- ---------- ----------

Contractholder funds on investment contracts. $4,082,995 $3,974,490 $4,181,874 $3,832,699
Liability for collateral..................... 149,362 149,362 117,297 117,297

The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts utilizing prevailing market rates for
similar contracts adjusted for credit risk. Deferred annuities included in
contractholder funds are valued using discounted cash flow models which
incorporate market value margins, which are based on the cost of holding
economic capital, and the Company's own credit risk. Immediate annuities
without life contingencies are valued at the present value of future benefits
using market implied interest rates which include the Company's own credit
risk. The liability for collateral is valued at carrying value due to its
short-term nature.

7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company primarily uses derivatives for risk management. In addition, the
Company has derivatives embedded in non-derivative "host" contracts, which are
required to be separated from the host contracts and accounted for at fair
value as derivative instruments. With the exception of non-hedge embedded
derivatives, all of the Company's derivatives are evaluated for their ongoing
effectiveness as either accounting hedge or non-hedge derivative financial
instruments on at least a quarterly basis. The Company does not use derivatives
for trading purposes. Non-hedge accounting is generally used for "portfolio"
level hedging strategies where the terms of the individual hedged items do not
meet the strict homogeneity requirements to permit the application of hedge
accounting.

Asset-liability management is a risk management strategy that is principally
employed to balance the respective interest-rate sensitivities of the Company's
assets and liabilities. Depending upon the attributes of the assets acquired
and liabilities issued, derivative instruments such as interest rate swaps and
caps are acquired to change the interest rate characteristics of existing
assets and liabilities to ensure the relationship is maintained within
specified ranges and to reduce exposure to rising or falling interest rates.

The Company uses foreign currency swaps primarily to reduce foreign currency
risk associated with holding foreign currency denominated investments. The
Company also has a reinsurance treaty that is recorded as a derivative
instrument, under which it primarily cedes re-investment related risk on its
structured settlement annuities to ALIC.

When derivatives meet specific criteria, they may be designated as
accounting hedges and accounted for as fair value, cash flow, foreign currency
fair value or foreign currency cash flow hedges. The Company designates certain
of its foreign currency swap contracts as cash flow hedges when the hedging
instrument is highly effective in offsetting the exposure of variations in cash
flows for the hedged risk that could affect net income. Amounts are
reclassified to net investment income or realized capital gains and losses as
the hedged item affects net income.

The Company's primary embedded derivatives are guaranteed minimum
accumulation and withdrawal benefits related to the Company's variable annuity
business, which is fully reinsured.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

Fair value, which is equal to the carrying value, is the estimated amount
that the Company would receive (pay) to terminate the derivative contracts at
the reporting date. The carrying value amounts for OTC derivatives have been
further adjusted for the effects, if any, of legally enforceable master netting
agreements and are presented on a net basis in the Statements of Financial
Position.

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

The following table provides a summary of the volume and fair value
positions of derivative instruments as well as their reporting location in the
Statements of Financial Position at December 31, 2009.

ASSET DERIVATIVES
----------------------------------------------------------------------------
Volume- Fair
notional value, Gross Gross
Balance sheet location amount net asset liability
($ in thousands) ------------------------------------- -------- ----------- ------- ---------

DERIVATIVES NOT DESIGNATED AS
ACCOUNTING HEDGING
INSTRUMENTS
INTEREST RATE CONTRACTS
Interest rate cap agreements Other investments $ 52,000 $ 1,670 $ 1,670 $ --
FOREIGN CURRENCY CONTRACTS
Foreign currency swap agreements Other investments 3,103 367 367 --
OTHER CONTRACTS
Structured settlement annuity
reinsurance agreement Other assets -- (5,059) (5,059) --
-------- -------- ------- --------
TOTAL DERIVATIVE ASSETS $ 55,103 $ (3,022) $(3,022) $ --
======== ======== ======= ========

LIABILITY DERIVATIVES
----------------------------------------------------------------------------
Volume-
notional Fair value, Gross Gross
Balance sheet location amount net asset liability
($ in thousands) ------------------------------------- -------- ----------- ------- ---------
DERIVATIVES NOT DESIGNATED AS
ACCOUNTING HEDGING
INSTRUMENTS
INTEREST RATE CONTRACTS
Interest rate swap agreements Other liabilities & accrued expenses $400,000 $ (3,917) $ -- $ (3,917)
Interest rate cap agreements Other liabilities & accrued expenses 275,500 (2,541) 344 (2,885)
EMBEDDED DERIVATIVE FINANCIAL
INSTRUMENTS
Guaranteed accumulation benefits Contractholder funds 186,459 (11,024) -- (11,024)
Guaranteed withdrawal benefits Contractholder funds 43,469 (2,187) -- (2,187)
-------- -------- ------- --------
TOTAL DERIVATIVE LIABILITIES $905,428 $(19,669) $ 344 $(20,013)
======== ======== ======= ========
TOTAL DERIVATIVES $960,531 $(22,691)
======== ========

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

CARRYING VALUE
-----------------------
NOTIONAL FAIR
AMOUNT VALUE ASSETS (LIABILITIES)
($ IN THOUSANDS) -------- -------- ------- -------------

INTEREST RATE CONTRACTS
Interest rate swap agreements................ $400,000 $(20,849) $ -- $(20,849)
Interest rate cap agreements................. 334,300 (4,736) 714 (5,450)
-------- -------- ------- --------
Total interest rate contracts............ 734,300 (25,585) 714 (26,299)

FOREIGN CURRENCY CONTRACTS
Foreign currency swap agreements............. 7,500 1,764 1,764 --

EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS
Guaranteed accumulation benefits............. 160,310 (24,033) -- (24,033)
Guaranteed withdrawal benefits............... 37,639 (6,018) -- (6,018)
-------- -------- ------- --------
Total embedded derivative financial
instruments............................ 197,949 (30,051) -- (30,051)

OTHER DERIVATIVE FINANCIAL INSTRUMENT
Structured settlement annuity reinsurance
agreement.................................. -- (1,829) (1,829) --
-------- -------- ------- --------
TOTAL DERIVATIVE FINANCIAL INSTRUMENTS.......... $939,749 $(55,701) $ 649/(1)/ $(56,350)/(2)/
======== ======== ======= ========

- --------
(1)Presented in the Statements of Financial Position as $2.5 million other
investments and $(1.8) million other assets.
(2)Presented in the Statements of Financial Position as $30.1 million
contractholder funds and $26.3 million other liabilities and accrued
expenses.

The following table provides a summary of the impacts of the Company's
foreign currency contracts in cash flow hedging relationships in the Statements
of Operations and Comprehensive Income and the Statements of Financial
Position. Amortization of net gains from accumulated other comprehensive income
related to cash flow hedges is expected to be $7 thousand during the next
twelve months.

YEAR ENDED
DECEMBER 31,
2009
($ IN THOUSANDS) ------------
EFFECTIVE PORTION

Loss recognized in OCI on derivatives during the period.............. $(1,107)
Gain recognized in OCI on derivatives during the term of the hedging
relationship....................................................... $ 309
Gain reclassified from AOCI into income (net investment income)...... $ 57
Gain reclassified from AOCI into income (realized capital gains
and losses)........................................................ $ 276

INEFFECTIVE PORTION AND AMOUNT EXCLUDED FROM EFFECTIVENESS TESTING
Gain recognized in income on derivatives (realized capital gains
and losses)........................................................ $ --

NOTES TO FINANCIAL STATEMENTS--CONTINUED

For cash flow hedges, unrealized net pre-tax gains and losses included in
accumulated other comprehensive income were $309 thousand and $1.7 million at
December 31, 2009 and 2008, respectively. The net pre-tax changes in
accumulated other comprehensive income due to cash flow hedges were $(1.4)
million, $2.5 million and $126 thousand in 2009, 2008 and 2007, respectively.

Gains and losses from valuation and settlements on derivatives not
designated as accounting hedging instruments recorded in realized capital gains
and losses for the year ended December 31, 2009 were $42.9 million related to
interest rate contracts and $(6.6) million related to the structured settlement
annuity reinsurance agreement. Also, gains of $16.8 million were recorded in
contract benefits related to embedded derivative financial instruments, which
in turn were ceded under reinsurance agreements. There was no hedge
ineffectiveness in 2009, 2008 or 2007.

The Company manages its exposure to credit risk by utilizing highly rated
counterparties, establishing risk control limits, executing legally enforceable
master netting agreements ("MNAs") and obtaining collateral where appropriate.
The Company uses MNAs for OTC derivative transactions, including interest rate
swap, foreign currency swap and interest rate cap agreements. These agreements
permit either party to net payments due for transactions covered by the
agreements. Under the provisions of the agreements, collateral is either
pledged or obtained when certain predetermined exposure limits are exceeded. As
of December 31, 2009, the Company pledged $4.5 million in securities to
counterparties which includes $3.0 million of collateral posted under MNAs for
contracts containing credit-risk-contingent provisions that are in a liability
position and $1.5 million of collateral posted under MNAs for contracts without
credit-risk-contingent liabilities. The Company has not incurred any losses on
derivative financial instruments due to counterparty nonperformance.

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

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

2009 2008
($ IN THOUSANDS) ---------------------------------------------- ----------------------------------------------
Number of Exposure, Number of Exposure,
counter- Notional Credit net of counter- Notional Credit net of
RATING/(1)/ parties amount exposure/(2)/ collateral/(2)/ parties amount exposure/(2)/ collateral/(2)/
- ---------- --------- -------- ------------ -------------- --------- -------- ------------ --------------

A......... 1 $55,103 $2,037 $2,037 1 $59,500 $2,478 $2,478

- --------
(1)Rating is the lower of S&P or Moody's ratings.
(2)Only OTC derivatives with a net positive fair value are included for each
counterparty.

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

Certain of the Company's derivative instruments contain
credit-risk-contingent termination events, cross-default provisions and credit
support annex agreements. Credit-risk-contingent termination events allow the
counterparties to terminate the derivative on certain dates if the Company's
financial strength credit ratings by Moody's or S&P fall below a certain level
or in the event the Company is no longer rated by both Moody's and S&P.
Credit-risk-contingent cross-default provisions allow the counterparties to
terminate the derivative

NOTES TO FINANCIAL STATEMENTS--CONTINUED

instruments if the Company defaults by pre-determined threshold amounts on
certain debt instruments. Credit-risk-contingent credit support annex
agreements specify the amount of collateral the Company must post to
counterparties based on the Company's financial strength credit ratings by
Moody's or S&P, or in the event the Company is no longer rated by both Moody's
and S&P.

The following summarizes the fair value of derivative instruments with
termination, cross-default or collateral credit-risk-contingent features that
are in a liability position as of December 31, 2009, as well as the fair value
of assets and collateral that are netted against the liability in accordance
with provisions within legally enforceable MNAs.

($ IN THOUSANDS)

Gross liability fair value of contracts containing credit-risk-contingent features................. $ 3,327
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs. (12)
Collateral posted under MNAs for contracts containing credit-risk-contingent features.............. (2,999)
-------
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all
features were triggered concurrently............................................................. $ 316
=======

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

There were no off-balance-sheet financial instruments at December 31, 2009
or 2008.

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

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

2009 2008
---------- ----------
($ IN THOUSANDS)

Immediate fixed annuities:
Structured settlement annuities..................... $1,701,522 $1,792,808
Other immediate fixed annuities..................... 14,913 12,553
Traditional life insurance............................. 150,400 140,121
Accident and health.................................... 6,286 5,570
Other.................................................. 2,458 2,105
---------- ----------
Total reserve for life-contingent contract benefits. $1,875,579 $1,953,157
========== ==========

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

PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD
- ---------------------- ------------------- ----------------- -----------------------

Structured settlement U.S. population Interest rate Present value of
annuities with projected assumptions range contractually specified
calendar year from 2.7% to 9.2% future benefits
improvements;
mortality rates
adjusted for each
impaired life based
on reduction in
life expectancy

NOTES TO FINANCIAL STATEMENTS--CONTINUED

PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD
- --------------------------- -------------------- ------------------ -----------------------

Other immediate fixed 1983 group annuity Interest rate Present value of
annuities mortality table; assumptions range expected future
Annuity 2000 from 1.8% to 11.5% benefits based on
mortality table historical experience
with internal
modifications; 1983
individual annuity
mortality table
with internal
modifications

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

Accident and health Actual company Unearned premium;
experience plus additional contract
loading reserves for mortality
risk

Other:
Variable annuity 100% of Annuity Interest rate Projected benefit ratio
guaranteed minimum 2000 mortality table assumptions range applied to cumulative
death benefits/(1)/ from 4.5% to 5.5% assessments

- --------
(1)In 2006, the Company disposed of its variable annuity business through
reinsurance agreements with Prudential Financial, Inc. and its subsidiary,
The Prudential Insurance Company of America (collectively "Prudential").

To the extent that unrealized gains on fixed income securities would result
in a premium deficiency had those gains actually been realized, a premium
deficiency reserve is recorded for certain immediate annuities with life
contingencies. A liability of $40.6 million and $155.9 million is included in
the reserve for life-contingent contract benefits with respect to this
deficiency as of December 31, 2009 and 2008, respectively. The offset to this
liability is recorded as a reduction of the unrealized net capital gains
included in accumulated other comprehensive income.

At December 31, contractholder funds consist of the following:

2009 2008
($ IN THOUSANDS) ---------- ----------

Interest-sensitive life insurance..... $ 627,362 $ 576,167
Investment contracts:
Fixed annuities.................... 4,345,165 4,477,278
Other investment contracts......... 18,352 33,520
---------- ----------
Total contractholder funds..... $4,990,879 $5,086,965
========== ==========

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

PRODUCT INTEREST RATE WITHDRAWAL/SURRENDER CHARGES
- ------------------------------------- ---------------------------------- --------------------------------

Interest-sensitive life insurance Interest rates credited range from Either a percentage of account
2.7% to 5.0% balance or dollar amount
grading off generally over 20
years

Fixed annuities Interest rates credited range from Either a declining or a level
1.4% to 9.2% for immediate percentage charge generally
annuities and 0.5% to 6.9% for over nine years or less.
other fixed annuities Additionally, approximately
10.8% of fixed annuities are
subject to a market value
adjustment for discretionary
withdrawals

Other investment contracts:
Guaranteed minimum income, Interest rates used in Withdrawal and surrender
accumulation and withdrawal establishing reserves range from charges are based on the terms
benefits on variable annuities/(1)/ 1.8% to 10.3% of the related variable annuity

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

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

2009 2008
($ IN THOUSANDS) ---------- ----------

Balance, beginning of year......... $5,086,965 $4,848,461
Deposits........................... 296,990 612,004
Interest credited.................. 182,665 190,945
Benefits........................... (160,351) (161,813)
Surrenders and partial withdrawals. (308,244) (335,521)
Contract charges................... (57,157) (54,138)
Net transfers to separate accounts. -- (38)
Other adjustments.................. (49,989) (12,935)
---------- ----------
Balance, end of year............... $4,990,879 $5,086,965
========== ==========

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

Absent any contract provision wherein the Company guarantees either a
minimum return or account value upon death, a specified contract anniversary
date, partial withdrawal or annuitization, variable annuity and variable life
insurance contractholders bear the investment risk that the separate accounts'
funds may not meet their stated investment objectives. The account balances of
variable annuities contracts' separate accounts with guarantees included $547.3
million and $491.7 million of equity, fixed income and balanced mutual funds
and $41.0 million and $45.1 million of money market mutual funds at
December 31, 2009 and 2008, respectively.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

DECEMBER 31,
-------------------
2009 2008
($ IN MILLIONS) --------- ---------

In the event of death
Separate account value............................. $ 588.3 $ 536.8
Net amount at risk/(1)/............................ $ 105.5 $ 236.1
Average attained age of contractholders............ 62 years 62 years

At annuitization (includes income benefit guarantees)
Separate account value............................. $ 41.2 $ 36.0
Net amount at risk/(2)/............................ $ 11.1 $ 21.2
Weighted average waiting period until
annuitization options available.................. 4 years 5 years
For cumulative periodic withdrawals
Separate account value............................. $ 42.9 $ 37.0
Net amount at risk/(3)/............................ $ 1.7 $ 8.6

Accumulation at specified dates
Separate account value............................. $ 186.5 $ 160.3
Net amount at risk/(4)/............................ $ 12.1 $ 34.7
Weighted average waiting period until guarantee
date............................................. 7 years 8 years

- --------
(1)Defined as the estimated current guaranteed minimum death benefit in excess
of the current account balance at the balance sheet date.
(2)Defined as the estimated present value of the guaranteed minimum annuity
payments in excess of the current account balance.
(3)Defined as the estimated current guaranteed minimum withdrawal balance
(initial deposit) in excess of the current account balance at the balance
sheet date.
(4)Defined as the estimated present value of the guaranteed minimum
accumulation balance in excess of the current account balance.

The liability for death and income benefit guarantees is equal to a benefit
ratio multiplied by the cumulative contract charges earned, plus accrued
interest less contract benefit payments. The benefit ratio is calculated as the
estimated present value of all expected contract benefits divided by the
present value of all expected contract charges. The establishment of reserves
for these guarantees requires the projection of future separate account fund
performance, mortality, persistency and customer benefit utilization rates.
These assumptions are periodically reviewed and updated. For guarantees related
to death benefits, benefits represent the current guaranteed minimum death
benefit payments in excess of the current account balance. For guarantees
related to income benefits, benefits represent the present value of the minimum
guaranteed annuitization benefits in excess of the current account balance.

Projected benefits and contract charges used in determining the liability
for certain guarantees are developed using models and stochastic scenarios that
are also used in the development of estimated expected gross profits.
Underlying assumptions for the liability related to income benefits include
assumed future annuitization elections based on factors such as the extent of
benefit to the potential annuitant, eligibility conditions and the annuitant's
attained age. The liability for guarantees is re-evaluated periodically, and
adjustments are made to the liability balance through a charge or credit to
contract benefits.

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

NOTES TO FINANCIAL STATEMENTS--CONTINUED

As of December 31, 2009, reserves for variable annuity contracts related to
death, income, accumulation and withdrawal benefits were $2.3 million, $5.1
million, $11.0 million and $2.2 million, respectively. As of December 31, 2008,
reserves for variable annuity contracts related to death, income, accumulation
and withdrawal benefits were $2.0 million, $3.5 million, $24.0 million and $6.0
million, respectively. All of these reserves are ceded to Prudential.

9. REINSURANCE

The Company reinsures certain of its risks to unaffiliated reinsurers and
ALIC under yearly renewable term, coinsurance and modified coinsurance
agreements. These agreements result in a passing of the agreed-upon percentage
of risk to the reinsurer in exchange for negotiated reinsurance premium
payments. Modified coinsurance is similar to coinsurance, except that the cash
and investments that support the liability for contract benefits are not
transferred to the assuming company and settlements are made on a net basis
between the companies. As of December 31, 2009 and 2008, 35.0% and 34.9%,
respectively, of our face amount of life insurance in force was reinsured to
non-affiliates and ALIC. As of December 31, 2009 and 2008, for certain term
life insurance policies, we ceded up to 90% of the mortality risk depending on
the year of policy issuance. Further, we ceded the mortality risk associated
with coverage in excess of $250 thousand per life to ALIC.

In addition, the Company has used reinsurance to effect the disposition of
certain blocks of business. The Company had reinsurance recoverables of $287.5
million and $335.8 million at December 31, 2009 and 2008, respectively, due
from Prudential related to the disposal of its variable annuity business that
was effected through reinsurance agreements. In 2009, premiums and contract
charges of $11.7 million, contract benefits of $(11.6) million, interest
credited to contractholder funds of $8.8 million, and operating costs and
expenses of $1.2 million were ceded to Prudential. In 2008, premiums and
contract charges of $16.3 million, contract benefits of $35.5 million, interest
credited to contractholder funds of $10.5 million, and operating costs and
expenses of $2.5 million were ceded to Prudential. In 2007, premiums and
contract charges of $21.2 million, contract benefits of $2.9 million, interest
credited to contractholder funds of $13.5 million, and operating costs and
expenses of $4.8 million were ceded to Prudential. In addition, as of
December 31, 2009 and 2008, the Company had reinsurance recoverables of $429
thousand and $690 thousand, respectively, due from a subsidiary of Citigroup
(Triton Insurance Company) in connection with the disposition of the direct
response distribution business in 2003.

As of December 31, 2009, the gross life insurance in force was $34.62
billion of which $462.5 million and $11.65 billion was ceded to affiliated and
unaffiliated reinsurers, respectively.

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

2009 2008 2007
($ IN THOUSANDS) -------- -------- --------

PREMIUMS AND CONTRACT CHARGES
Direct............................................ $154,440 $156,187 $169,559
Assumed--non-affiliate............................ 959 1,164 1,273
Ceded
Affiliate...................................... (26,250) (4,470) (3,982)
Non-affiliate.................................. (29,656) (32,525) (38,196)
-------- -------- --------
Premiums and contract charges, net of
reinsurance.............................. $ 99,493 $120,356 $128,654
======== ======== ========

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

2009 2008 2007
($ IN THOUSANDS) -------- -------- --------

CONTRACT BENEFITS
Direct........................................... $174,909 $223,859 $197,929
Assumed--non-affiliate........................... 676 640 787
Ceded
Affiliate/(1)/................................ (6,225) 7,022 (3,830)
Non-affiliate................................. 715 (47,329) (13,083)
-------- -------- --------
Contract benefits, net of reinsurance..... $170,075 $184,192 $181,803
======== ======== ========

- --------
(1)The Company recorded additional expenses for contract benefits in 2008
relating to a rescission of reinsurance coverage for certain traditional and
interest-sensitive life insurance policies provided in accordance with an
agreement between the Company and ALIC. These contract benefits are
reflected as a component of contract benefits ceded to affiliate for 2008
and totaled $7.1 million. See Note 4 for further details.

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

2009 2008 2007
($ IN THOUSANDS) -------- -------- --------

INTEREST CREDITED TO CONTRACTHOLDER FUNDS
Direct..................................................... $210,289 $201,661 $190,882
Assumed--non-affiliate..................................... 17 32 33
Ceded
Affiliate............................................... -- -- --
Non-affiliate........................................... (8,757) (10,485) (13,508)
-------- -------- --------
Interest credited to contractholder funds, net
of reinsurance.................................... $201,549 $191,208 $177,407
======== ======== ========

In addition to amounts included in the table above are reinsurance premiums
ceded to ALIC of $3.4 million, $3.3 million and $3.2 million during 2009, 2008
and 2007, respectively, under the terms of the structured settlement annuity
reinsurance agreement (see Note 4).

NOTES TO FINANCIAL STATEMENTS--CONTINUED

10. DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS

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

2009 2008 2007
($ IN THOUSANDS) --------- -------- --------

Balance, beginning of year............................................... $ 538,248 $278,664 $278,625
Impact of adopting new OTTI accounting guidance before unrealized
impact/(1)/............................................................ (11,825) -- --
Impact of adoption of new OTTI accounting guidance effect of unrealized
capital gains and losses/(2)/.......................................... 11,825 -- --
Impact of adoption of new internal replacements accounting guidance/(3)/. -- -- (1,577)
Acquisition costs deferred............................................... 32,560 51,390 47,575
Amortization charged to income........................................... (148,450) (17,778) (53,445)
Effect of unrealized gains and losses.................................... (209,033) 225,972 7,486
--------- -------- --------
Balance, end of year..................................................... $ 213,325 $538,248 $278,664
========= ======== ========

- --------
(1)The adoption of new OTTI accounting guidance on April 1, 2009 resulted in an
adjustment to DAC to reverse previously recorded DAC accretion related to
realized capital losses that were reclassified to other comprehensive income
upon adoption.
(2)The adoption of new OTTI accounting guidance resulted in an adjustment to
DAC due to the change in unrealized capital gains and losses that occurred
upon adoption on April 1, 2009 when previously recorded realized capital
losses were reclassified to other comprehensive income. The adjustment was
recorded as an increase of the DAC balance and unrealized capital gains and
losses.
(3)The adoption of new accounting guidance related to internal replacements
resulted in a $1.6 million adjustment to unamortized DAC related to the
impact on future estimated gross profits from the changes in accounting for
certain costs associated with contract continuations that no longer qualify
for deferral.

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

2009 2008 2007
($ IN THOUSANDS) -------- ------- -------

Balance, beginning of year................................................... $ 47,319 $27,991 $24,731
Impact of adopting new OTTI accounting guidance before unrealized
impact/(1)/................................................................ (1,732) -- --
Impact of adopting new OTTI accounting guidance effect of unrealized capital
gains and losses/(2)/...................................................... 1,732 -- --
Impact of adoption of new internal replacements accounting guidance/(3)/..... -- -- (243)
Sales inducements deferred................................................... 3,454 7,579 8,511
Amortization charged to income............................................... (22,337) (7,843) (6,500)
Effect of unrealized gains and losses........................................ (17,345) 19,592 1,492
-------- ------- -------
Balance, end of year......................................................... $ 11,091 $47,319 $27,991
======== ======= =======

- --------
(1)The adoption of new OTTI accounting guidance on April 1, 2009 resulted in an
adjustment to DSI to reverse previously recorded DSI accretion related to
realized capital losses that were reclassified to other comprehensive income
upon adoption.
(2)The adoption of new OTTI accounting guidance resulted in an adjustment to
DSI due to the change in unrealized capital gains and losses that occurred
upon adoption on April 1, 2009 when previously recorded realized capital
losses were reclassified to other comprehensive income. The adjustment was
recorded as an increase of the DSI balance and unrealized capital gains and
losses.
(3)The adoption of new accounting guidance related to internal replacements
resulted in a $243 thousand adjustment to unamortized DSI related to the
impact on future estimated gross profits from the changes in accounting for
certain costs associated with contract continuations that no longer qualify
for deferral.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

11. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES

GUARANTY FUNDS

Under state insurance guaranty fund laws, insurers doing business in a state
can be assessed, up to prescribed limits, for certain obligations of insolvent
insurance companies to policyholders and claimants. Amounts assessed to each
company are typically related to its proportion of business written in each
state. The Company's policy is to accrue a guaranty fund assessment when the
entity for which the insolvency relates has met its state of domicile's
statutory definition of insolvency and the amount of the loss is reasonably
estimable. In most states, the definition is met with a declaration of
financial insolvency by a court of competent jurisdiction. In certain states
there must also be a final order of liquidation. As of December 31, 2009 and
2008, the liability balance included in other liabilities and accrued expenses
was $790 thousand and $806 thousand, respectively. The related premium tax
offsets included in other assets were $739 thousand and $752 thousand as of
December 31, 2009 and 2008, respectively.

The New York Liquidation Bureau (the "Bureau") has publicly reported that
Executive Life Insurance Company of New York ("Executive Life") is currently
under its jurisdiction as part of a 1992 court-ordered rehabilitation plan.
However, Executive Life does not have a liquidity problem at this time, and an
order of liquidation has not been sought by the Bureau. The current publicly
available estimated shortfall from the Bureau is $1.27 billion.

If Executive Life were to be declared insolvent in the future, the Company
may have exposure to future guaranty fund assessments. The Company's exposure
will ultimately depend on the level of guaranty fund system participation, as
well as the viability of a plan of the Bureau to obtain voluntary
contributions, primarily from the original insurance companies that acquired
structured settlement annuity contracts from Executive Life. New York law
currently contains an aggregate limit on guaranty funds under the Life
Insurance Corporation of New York of $500 million, of which approximately $40
million has been used. Under current law, the Company may be allowed to recoup
a portion of the amount of any additional guaranty fund assessment in periods
subsequent to the recognition of the assessment by offsetting future premium
taxes. The Company's average market share for New York, based on assessable
premiums, was approximately 3.1% in 2009.

GUARANTEES

Related to the disposal through reinsurance of our variable annuity business
to Prudential Financial, Inc. and its subsidiary in 2006, the Company, ALIC and
the Corporation have agreed to indemnify Prudential for certain pre-closing
contingent liabilities (including extra-contractual liabilities of the Company
and liabilities specifically excluded from the transaction) that the Company
and ALIC have agreed to retain. In addition, the Company, ALIC and the
Corporation will each indemnify Prudential for certain post-closing liabilities
that may arise from the acts of the Company and ALIC and their agents,
including in connection with the Company's and ALIC's provision of transition
services. The reinsurance agreements contain no limitations or indemnifications
with regard to insurance risk transfer, and transferred all of the future risks
and responsibilities for performance on the underlying variable annuity
contracts to Prudential, including those related to benefit guarantees.
Management does not believe this agreement will have a material adverse effect
on results of operations, cash flows or financial position of the Company.

In the normal course of business, the Company provides standard
indemnifications to contractual counterparties in connection with numerous
transactions, including acquisitions and divestitures. The types of
indemnifications typically provided include indemnifications for breaches of
representations and warranties, taxes and certain other liabilities, such as
third party lawsuits. The indemnification clauses are often standard
contractual terms and are entered into in the normal course of business based
on an assessment that the risk of loss would be remote. The terms of the
indemnifications vary in duration and nature. In many cases, the maximum
obligation is

NOTES TO FINANCIAL STATEMENTS--CONTINUED

not explicitly stated and the contingencies triggering the obligation to
indemnify have not occurred and are not expected to occur. Consequently, the
maximum amount of the obligation under such indemnifications is not
determinable. Historically, the Company has not made any material payments
pursuant to these obligations.

The aggregate liability balance related to all guarantees was not material
as of December 31, 2009.

REGULATION AND COMPLIANCE

The Company is subject to changing social, economic and regulatory
conditions. From time to time, regulatory authorities or legislative bodies
seek to impose additional regulations regarding agent and broker compensation
and otherwise expand overall regulation of insurance products and the insurance
industry. The Company has established procedures and policies to facilitate
compliance with laws and regulations, to foster prudent business operations,
and to support financial reporting. The Company routinely reviews its practices
to validate compliance with laws and regulations and with internal procedures
and policies. As a result of these reviews, from time to time the Company may
decide to modify some of its procedures and policies. Such modifications, and
the reviews that led to them, may be accompanied by payments being made and
costs being incurred. The ultimate changes and eventual effects of these
actions on the Company's business, if any, are uncertain.

LEGAL AND REGULATORY PROCEEDINGS AND INQUIRIES

BACKGROUND

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

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

. The outcome of these matters may be affected by decisions, verdicts, and
settlements, and the timing of such decisions, verdicts, and
settlements, in other individual and class action lawsuits that involve
the Company, other insurers, or other entities and by other legal,
governmental, and regulatory actions that involve the Company, other
insurers, or other entities. The outcome may also be affected by future
state or federal legislation, the timing or substance of which cannot be
predicted.

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

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

NOTES TO FINANCIAL STATEMENTS--CONTINUED

. For the reasons specified above, it is often not possible to make
meaningful estimates of the amount or range of loss that could result
from the matters described below in the "Proceedings" subsection. The
Company reviews these matters on an ongoing basis and follows
appropriate accounting guidance when making accrual and disclosure
decisions. When assessing reasonably possible and probable outcomes, the
Company bases its decisions on its assessment of the ultimate outcome
following all appeals.

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

PROCEEDINGS

Legal proceedings involving Allstate agencies and AIC may impact the
Company, even when the Company is not directly involved, because the Company
sells its products through a variety of distribution channels including
Allstate agencies. Consequently, information about the more significant of
these proceedings is provided in the following paragraph.

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

. These matters include a lawsuit filed in 2001 by the U.S. Equal
Employment Opportunity Commission ("EEOC") alleging retaliation under
federal civil rights laws (the "EEOC I" suit) and a class action filed
in 2001 by former employee agents alleging retaliation and age
discrimination under the Age Discrimination in Employment Act ("ADEA"),
breach of contract and ERISA violations (the "Romero I" suit). In 2004,
in the consolidated EEOC I and Romero I litigation, the trial court
issued a memorandum and order that, among other things, certified
classes of agents, including a mandatory class of agents who had signed
a release, for purposes of effecting the court's declaratory judgment
that the release is voidable at the option of the release signer. The
court also ordered that an agent who voids the release must return to
AIC "any and all benefits received by the [agent] in exchange for
signing the release." The court also stated that, "on the undisputed
facts of record, there is no basis for claims of age discrimination."
The EEOC and plaintiffs asked the court to clarify and/or reconsider its
memorandum and order and in January 2007, the judge denied their
request. In June 2007, the court granted AIC's motions for summary
judgment. Following plaintiffs' filing of a notice of appeal, the U.S.
Court of Appeals for the Third Circuit ("Third Circuit") issued an order
in December 2007 stating that the notice of appeal was not taken from a
final order within the meaning of the federal law and thus not
appealable at this time. In March 2008, the Third Circuit decided that
the appeal should not summarily be dismissed and that the question of
whether the matter is appealable at this time will be addressed by the
Third Circuit along with the merits of the appeal. In July 2009, the
Third Circuit vacated the decision which granted AIC's summary judgment
motions, remanded the cases to the trial court for additional discovery,
and directed that the cases be reassigned to another trial court judge.

. A putative nationwide class action has also been filed by former
employee agents alleging various violations of ERISA, including a worker
classification issue. These plaintiffs are challenging certain
amendments to the Agents Pension Plan and are seeking to have exclusive
agent independent contractors treated as employees for benefit purposes.
This matter was dismissed with prejudice by the trial court, was the
subject of further proceedings on appeal, and was reversed and remanded
to the trial court in 2005. In June 2007, the court granted AIC's motion
to dismiss the case. Following plaintiffs'

NOTES TO FINANCIAL STATEMENTS--CONTINUED

filing of a notice of appeal, the Third Circuit issued an order in
December 2007 stating that the notice of appeal was not taken from a
final order within the meaning of the federal law and thus not
appealable at this time. In March 2008, the Third Circuit decided that
the appeal should not summarily be dismissed and that the question of
whether the matter is appealable at this time will be addressed by the
Third Circuit along with the merits of the appeal. In July 2009, the
Third Circuit vacated the decision which granted AIC's motion to dismiss
the case, remanded the case to the trial court for additional discovery,
and directed that the case be reassigned to another trial court judge.

In all of these various matters, plaintiffs seek compensatory and punitive
damages, and equitable relief. AIC has been vigorously defending these lawsuits
and other matters related to its agency program reorganization.

OTHER MATTERS

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

12. INCOME TAXES

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

The Internal Revenue Service ("IRS") is currently examining the Allstate
Group's 2007 and 2008 federal income tax returns. The IRS has completed its
examination of the Allstate Group's federal income tax returns filed for
2005-2006 and the case is under consideration at the IRS Appeals Office. The
Allstate Group's tax years prior to 2005 have been examined by the IRS and the
statute of limitations has expired on those years. Any adjustments that may
result from IRS examinations of tax returns are not expected to have a material
effect on the results of operations, cash flows or financial position of the
Company.

The Company had no liability for unrecognized tax benefits at December 31,
2009 or 2008, and believes it is reasonably possible that the liability balance
will not significantly increase within the next twelve months. No amounts have
been accrued for interest or penalties.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

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

2009 2008
($ IN THOUSANDS) -------- --------

DEFERRED ASSETS
Life and annuity reserves................. $ 17,820 $ 54,957
Unrealized net capital losses............. -- 58,646
Difference in tax bases of investments.... -- 19,226
Other assets.............................. 701 1,065
-------- --------
Total deferred assets.................. 18,521 133,894
-------- --------
DEFERRED LIABILITIES
DAC....................................... (23,825) (67,126)
Unrealized net capital gains.............. (12,950) --
Difference in tax bases of investments.... (18,594) --
Other liabilities......................... (1,039) (1,371)
-------- --------
Total deferred liabilities............. (56,408) (68,497)
-------- --------
Net deferred (liability) asset..... $(37,887) $ 65,397
======== ========

Although realization is not assured, management believes it is more likely
than not that the deferred tax assets will be realized based on the Company's
assessment that the deductions ultimately recognized for tax purposes will be
fully utilized.

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

2009 2008 2007
($ IN THOUSANDS) ------- -------- -------

Current..................... $ (946) $ 16,537 $23,448
Deferred.................... 20,675 (12,532) (646)
------- -------- -------
Total income tax expense. $19,729 $ 4,005 $22,802
======= ======== =======

The Company paid income taxes of $29.9 million, $3.6 million and $22.7
million in 2009, 2008 and 2007, respectively.

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

2009 2008 2007
---- ---- ----

Statutory federal income tax rate......... 35.0% 35.0% 35.0%
State income tax expense.................. 2.8 13.1 2.1
Dividends received deduction.............. (1.1) (6.0) (1.3)
Tax credits............................... (1.0) (4.6) (0.1)
Adjustment for prior year tax liabilities. (0.5) (3.4) (0.5)
Other..................................... -- 0.2 --
---- ---- ----
Effective income tax rate.............. 35.2% 34.3% 35.2%
==== ==== ====

NOTES TO FINANCIAL STATEMENTS--CONTINUED

13. STATUTORY FINANCIAL INFORMATION

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

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

Statutory net (loss) income for 2009, 2008 and 2007 was $(8.6) million,
$(18.9) million and $38.2 million, respectively. Statutory capital and surplus
was $506.3 million and $410.5 million as of December 31, 2009 and 2008,
respectively.

DIVIDENDS

The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant
factors. The payment of shareholder dividends by the Company without the prior
approval of the state insurance regulator is limited to formula amounts based
on net income and capital and surplus, determined in conformity with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. The Company did not pay any dividends in 2009. Based
on the Company's statutory capital and surplus as of December 31, 2009, the
maximum amount of dividends that the Company will be able to pay without prior
approval of the New York State Insurance Department at a given point in time
during 2010 is $25.0 million, less dividends paid during the preceding twelve
months measured at that point in time

14. BENEFIT PLANS

PENSION AND OTHER POSTRETIREMENT PLANS

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

Defined benefit pension plans, sponsored by AIC, cover most full-time
employees and certain part-time employees. Benefits under the pension plans are
based upon the employee's length of service and eligible annual compensation.
The Company uses the accrual method for its defined benefit plans in accordance
with accepted actuarial methods. The allocated cost to the Company for the
pension plans in 2009, 2008 and 2007 was $1.4 million, $1.8 million and $2.3
million, respectively.

The Corporation provides certain health care subsidies for eligible
employees hired before January 1, 2003 when they retire and their eligible
dependents and certain life insurance benefits for eligible employees hired
before January 1, 2003 when they retire ("postretirement benefits"). Qualified
employees may become eligible for these benefits if they retire in accordance
with Corporation's established retirement policy and are continuously insured
under Corporation's group plans or other approved plans in accordance with the
plan's participation requirements. The Corporation shares the cost of the
retiree medical benefits with non Medicare-eligible retirees based on years of
service, with the Corporation's share being subject to a 5% limit on annual
medical cost inflation after retirement.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

During 2009, the Corporation decided to change its approach for delivering
benefits to Medicare-eligible retirees. The Corporation will no longer offer
medical benefits for Medicare-eligible retirees but will instead provide a
fixed company contribution (based on years of service and other factors), which
is not subject to adjustments for inflation. The allocated cost to the Company
was $206 thousand, $339 thousand and $566 thousand for postretirement benefits
other than pension plans in 2009, 2008 and 2007, respectively.

AIC and the Corporation have reserved the right to modify or terminate their
benefit plans at any time or for any reason.

ALLSTATE 401(K) SAVINGS PLAN

Employees of AIC are eligible to become members of the Allstate 401(k)
Savings Plan. The Corporation's contributions are based on the Corporation's
matching obligation and certain performance measures. The allocated cost to the
Company for the 401(k) Savings Plan was $912 thousand, $667 thousand and $1.5
million in 2009, 2008 and 2007, respectively.

15. OTHER COMPREHENSIVE INCOME

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

2009
-------------------------------
PRE-TAX TAX AFTER-TAX
($ IN THOUSANDS) --------- --------- ---------

Unrealized net holding gains arising during the period, net of related
offsets............................................................... $ 337,657 $(118,180) $ 219,477
Less: reclassification adjustment of realized capital gains and losses.. 101,749 (35,612) 66,137
--------- --------- ---------
Unrealized net capital gains and losses................................. 235,908 (82,568) 153,340
--------- --------- ---------
Other comprehensive income.............................................. $ 235,908 $ (82,568) $ 153,340
========= ========= =========

2008
-------------------------------
PRE-TAX TAX AFTER-TAX
($ IN THOUSANDS) --------- --------- ---------
Unrealized net holding losses arising during the period, net of related
offsets............................................................... $(323,776) $ 113,321 $(210,455)
Less: reclassification adjustment of realized capital gains and losses.. (55,927) 19,574 (36,353)
--------- --------- ---------
Unrealized net capital gains and losses................................. (267,849) 93,747 (174,102)
--------- --------- ---------
Other comprehensive loss................................................ $(267,849) $ 93,747 $(174,102)
========= ========= =========

2007
-------------------------------
PRE-TAX TAX AFTER-TAX
($ IN THOUSANDS) --------- --------- ---------
Unrealized net holding losses arising during the period, net of related
offsets............................................................... $ (15,895) $ 5,563 $ (10,332)
Less: reclassification adjustment of realized capital gains and losses.. 3,874 (1,356) 2,518
--------- --------- ---------
Unrealized net capital gains and losses................................. (19,769) 6,919 (12,850)
--------- --------- ---------
Other comprehensive loss................................................ $ (19,769) $ 6,919 $ (12,850)
========= ========= =========

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

SCHEDULE I--SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2009

AMOUNTS AT
WHICH
COST/ SHOWN IN
AMORTIZED FAIR THE BALANCE
COST VALUE SHEET
($ IN THOUSANDS) ---------- ---------- -----------

Type of investment
Fixed Maturities:
Bonds:
United States government, government agencies and
authorities.......................................... $ 534,590 $ 586,202 $ 586,202
States, municipalities and political subdivisions...... 929,688 878,410 878,410
Foreign governments.................................... 241,141 290,856 290,856
Public utilities....................................... 683,334 721,708 721,708
All other corporate bonds.............................. 2,489,696 2,549,494 2,549,494
Asset-backed securities.................................... 46,588 40,044 40,044
Residential mortgage-backed securities..................... 666,118 651,672 651,672
Commercial mortgage-backed securities...................... 472,835 346,741 346,741
Redeemable preferred stocks................................ 9,245 8,638 8,638
---------- ---------- ----------
Total fixed maturities................................. 6,073,235 $6,073,765 6,073,765
---------- ========== ----------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other................ 100,168 $ 121,311 123,311
==========
Mortgage loans on real estate................................. 543,007 $ 431,116 543,007
==========
Policy loans.................................................. 40,569 40,569
Derivative instruments........................................ 2,037 $ 2,037 2,037
==========
Other long-term investments................................... 8,255 8,255
Short-term investments........................................ 348,456 $ 348,453 348,453
---------- ========== ----------
Total investments.......................................... $7,115,727 $7,139,397
========== ==========

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

SCHEDULE IV--REINSURANCE

PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES/(1)/ COMPANIES AMOUNT TO NET
($ IN THOUSANDS) ----------- ------------- ---------- ----------- ----------

YEAR ENDED DECEMBER 31, 2009
Life insurance in force......... $33,925,356 $12,115,820 $695,124 $22,504,660 3.1%
=========== =========== ======== ===========
Premiums and contract charges:
Life and annuities........... $ 142,563 $ 53,595 $ 959 $ 89,927 1.1%
Accident and health.......... 11,877 2,311 -- 9,566 --
----------- ----------- -------- -----------
Total premiums and contract
charges.................... $ 154,440 $ 55,906 $ 959 $ 99,493 1.0%
=========== =========== ======== ===========
YEAR ENDED DECEMBER 31, 2008
Life insurance in force......... $32,704,176 $11,655,410 $737,572 $21,786,338 3.4%
=========== =========== ======== ===========
Premiums and contract charges:
Life and annuities........... $ 145,521 $ 34,529 $ 1,164 $ 112,156 1.0%
Accident and health.......... 10,666 2,466 -- 8,200 --
----------- ----------- -------- -----------
Total premiums and contract
charges.................... $ 156,187 $ 36,995 $ 1,164 $ 120,356 1.0%
=========== =========== ======== ===========
YEAR ENDED DECEMBER 31, 2007
Life insurance in force......... $30,804,623 $12,578,676 $772,742 $18,998,689 4.1%
=========== =========== ======== ===========
Premiums and contract charges:
Life and annuities........... $ 159,811 $ 39,066 $ 1,273 $ 122,018 1.0%
Accident and health.......... 9,748 3,112 -- 6,636 --
----------- ----------- -------- -----------
Total premiums and contract
charges.................... $ 169,559 $ 42,178 $ 1,273 $ 128,654 1.0%
=========== =========== ======== ===========

- --------
(1)No reinsurance or coinsurance income was netted against premium ceded in
2009, 2008 or 2007.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

SCHEDULE V--VALUATION ALLOWANCES AND QUALIFYING ACCOUNTS

ADDITIONS
($ IN THOUSANDS) --------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ADDITIONS DEDUCTIONS PERIOD
- ----------- ---------- ---------- --------- ---------- ----------

YEAR ENDED DECEMBER 31, 2009
Allowance for estimated losses on mortgage loans. $449 $5,264 $-- $1,463 $4,250

YEAR ENDED DECEMBER 31, 2008
Allowance for estimated losses on mortgage loans. $ -- $ 449 $-- $ -- $ 449

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of
Allstate Life Insurance Company of New York
Hauppauge, NY

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, 2009 and 2008, 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, 2009.
Our audits also included Schedule I-Summary of Investments-Other Than
Investments in Related Parties, Schedule IV-Reinsurance, and Schedule
V-Valuation Allowances 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstate Life Insurance Company of New York
as of December 31, 2009 and 2008, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2009,
in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, Schedule I-Summary of
Investments-Other Than Investments in Related Parties, Schedule IV-Reinsurance,
and Schedule V-Valuation Allowances 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.

As discussed in Note 2 to the financial statements, the Company changed its
recognition and presentation for other-than-temporary impairments of debt
securities in 2009.

/s/ Deloitte & Touche LLP

Chicago, Illinois
March 12, 2010

ITEM 11(F).SELECTED FINANCIAL DATA

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

5-YEAR SUMMARY OF SELECTED FINANCIAL DATA

2009 2008 2007 2006 2005
($ IN THOUSANDS) ---------- ---------- ---------- ---------- ----------

OPERATING RESULTS
Premiums...................................... $ 47,659 $ 59,248 $ 69,124 $ 84,313 $ 68,538
Contract charges.............................. 51,834 61,108 59,530 63,426 66,280
Net investment income......................... 372,395 402,931 386,738 373,064 356,162
Realized capital gains and losses............. 145,468 (77,205) (831) (22,085) (5,192)
Total revenues................................ 617,356 446,082 514,561 498,718 485,788
Net income.................................... 36,370 7,672 41,909 34,342 34,521

FINANCIAL POSITION
Investments................................... $7,139,397 $6,648,585 $7,057,629 $6,779,874 $6,726,547
Total assets.................................. 8,388,191 8,284,933 8,785,177 8,619,988 8,088,681
Reserve for life-contingent contract benefits
and contractholder funds.................... 6,866,458 7,040,122 6,865,432 6,634,920 6,219,270
Shareholder's equity.......................... 706,884 516,568 680,872 652,996 667,433

ITEM 11(H).MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The following discussion highlights significant factors influencing the
financial position and results of operations of Allstate Life Insurance Company
of New York (referred to in this document as "we", "ALNY", "our", "us" or the
"Company"). It should be read in conjunction with the financial statements and
related notes found under Item 11(e) contained herein. We operate as a single
segment entity based on the manner in which we use financial information to
evaluate business performance and determine the allocation of resources.

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

. For operations: benefit and investment spread, amortization of deferred
policy acquisition costs, expenses, net income, invested assets,
premiums and deposits, and new business returns;

. For investments: credit quality/experience, realized capital gains and
losses, investment income, unrealized capital gains and losses,
stability of long-term returns, total returns, cash flows, and asset and
liability duration; and

. For financial condition: liquidity, financial strength ratings,
operating leverage, and return on equity.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

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

. Fair value of financial assets

. Impairment of fixed income and equity securities

. Deferred policy acquisition costs ("DAC") amortization

. Reserve for life-contingent contract benefits estimation

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

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

FAIR VALUE OF FINANCIAL ASSETS Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. We categorize
our financial assets measured at fair value into a three-level hierarchy based
on the observability of inputs to the valuation techniques as follows:

Level 1: Financial assets are based on unadjusted quoted prices for identical assets in an active market that we
can access.

Level 2: Financial assets values are based on the following:

(a)Quoted prices for similar assets in active markets;

(b)Quoted prices for identical or similar assets in markets that are not active; or

(c)Valuation models whose inputs are observable, directly or indirectly, for substantially the full term
of the asset.

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

Observable inputs are inputs that reflect the assumptions market
participants would use in valuing financial assets that are developed based on
market data obtained from independent sources. In the absence of sufficient
observable inputs, unobservable inputs reflect our estimates of the assumptions
market participants would use in valuing financial assets and are developed
based on the best information available in the circumstances. The degree of
management judgment involved in determining fair values is inversely related to
the availability of market observable information. If valuation inputs used to
measure fair value fall into different levels of the fair value hierarchy, the
categorization is based on the lowest level input that is significant to the
fair value measurement in its entirety.

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

We employ independent third-party valuation service providers, broker quotes
and internal pricing methods to determine fair values, which provide a single
quote or price for each financial instrument. We obtain or calculate only one
quote or price per instrument.

Valuation service providers typically obtain data about market transactions
and other key valuation model inputs from multiple sources and, through the use
of proprietary algorithms, produce valuation information in the form of a
single fair value for individual securities for which a fair value has been
requested under the terms of our agreements. For certain equity securities,
valuation service providers provide market quotations for completed

transactions on the measurement date. For other security types, fair values are
derived from the valuation service providers' proprietary valuation models. The
inputs used by the valuation service providers include, but are not limited to,
market prices from recently completed transactions and transactions of
comparable securities, interest rate yield curves, credit spreads, liquidity
spreads, currency rates, and other information, as applicable. Credit and
liquidity spreads are typically implied from completed transactions and
transactions of comparable securities. Valuation service providers also use
proprietary discounted cash flow models that are widely accepted in the
financial services industry and similar to those used by other market
participants to value the same financial instruments. The valuation models take
into account, among other things, market observable information as of the
measurement date, as described above, as well as the specific attributes of the
security being valued including its term, interest rate, credit rating,
industry sector, and where applicable, collateral quality and other issue or
issuer specific information. Executing valuation models effectively requires
seasoned professional judgment and experience. In cases where market
transactions or other market observable data is limited, the extent to which
judgment is applied varies inversely with the availability of market observable
information.

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

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

Our internal pricing methods are primarily based on models using discounted
cash flow methodologies that develop a single best estimate of fair value. Our
models generally incorporate inputs that we believe are representative of
inputs other market participants would use to determine fair value of the same
instruments, including yield curves, quoted market prices of comparable
securities, published credit spreads, and other applicable market data.
Additional inputs that are used to model fair value include internally-derived
assumptions such as liquidity premium and credit ratings, as well as
instrument-specific characteristics that include, but are not limited to,
coupon rate, expected cash flows, sector of issuer, and call provisions.
Internally assigned credit ratings are generally consistent with external
ratings published by the National Association of Insurance Commissioners
("NAIC"); however, they are developed at a more finite level. For example, an
NAIC rating of 1 includes securities rated triple, double and single A by at
least one nationally recognized statistical rating organization ("NRSRO"). We
believe our internal ratings provide for a more reliable estimate of fair value
since we can more precisely match these ratings to other market observable
valuation inputs, such as credit and sector spreads, when performing these
valuations. Due to the existence of non-market observable inputs, such as
liquidity premiums, judgment is required in developing these fair values. As a
result, the fair value of these financial assets may differ from the amount
actually received to sell an asset in an orderly transaction between market
participants at the measurement date. Moreover, the use of different valuation
assumptions may have a material effect on the financial assets' fair values.

For the majority of our financial assets measured at fair value, all
significant inputs are based on market observable data and significant
management judgment does not affect the periodic determination of fair value.
The determination of fair value using discounted cash flow models involves
management judgment when significant model inputs are not based on market
observable data. However, where market observable data is available, it takes
precedence, and as a result, no range of reasonably likely inputs exists from
which the basis of a sensitivity analysis could be constructed.

There is one primary situation where a discounted cash flow model utilizes a
significant input that is not market observable. It relates to the
determination of fair value for our ARS backed by student loans. The
significant input is the assumption about the anticipated date liquidity will
return to this market (that is, when auction failures will cease).
Determination of this assumption allows for matching to market observable
inputs when performing these valuations.

The following table displays the sensitivity of reasonably likely changes in
the assumption about the anticipated date liquidity will return to the ARS
backed by student loans market as of December 31, 2009. The selection of these
hypothetical scenarios represents an illustration of the estimated potential
proportional effect of alternate assumptions and should not be construed as
either a prediction of future events or an indication that it would be
reasonably likely that all securities would be similarly affected.

($ IN THOUSANDS)

ARS BACKED BY STUDENT LOANS AT FAIR VALUE.................. $99,115
PERCENTAGE CHANGE IN FAIR VALUE RESULTING FROM:
Decrease in assumption by four months for the
anticipated date liquidity will return to this market. 0.4%
Increase in assumption by four months for the
anticipated date liquidity will return to this market. (0.4)%

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

We employ specific control processes to determine the reasonableness of the
fair values of our financial assets. Our processes are designed to ensure that
the values received or internally estimated are accurately recorded and that
the data inputs and the valuation techniques utilized are appropriate,
consistently applied, and that the assumptions are reasonable and consistent
with the objective of determining fair value. For example, on a continuing
basis, we assess the reasonableness of individual security values received from
valuation service providers and those derived from internal models that exceed
certain thresholds as compared to previous values received from those valuation
service providers or derived from internal models. In addition, we may validate
the reasonableness of fair values by comparing information obtained from our
valuation service providers to other third party valuation sources for selected
securities. For internal pricing models, we have implemented price validation
procedures such as back-testing of actual sales, which corroborates the various
model inputs to market observable data. When fair value determinations are
expected to be more variable, we validate them through reviews by members of
management who have relevant expertise and who are independent of those charged
with executing investment transactions.

We also perform an analysis to determine whether there has been a
significant decrease in the volume and level of activity for the asset when
compared to normal market activity, and if so, whether transactions may not be
orderly. Among the indicators we consider in determining whether a significant
decrease in the volume and level of market activity for a specific asset has
occurred include the level of new issuances in the primary market, trading
volume in the secondary market, level of credit spreads over historical levels,
bid-ask spread, and price consensuses among market participants and sources. If
evidence indicates that prices are based on transactions that are not orderly,
we place little, if any, weight on the transaction price and will estimate fair
value using an internal pricing model. As of December 31, 2009 and 2008, we did
not alter fair values provided by our valuation service providers or brokers or
substitute them with an internal pricing model.

The following table identifies fixed income and equity securities and
short-term investments as of December 31, 2009 by source of value determination:

FAIR PERCENT
VALUE TO TOTAL
($ IN THOUSANDS) ---------- --------

Fair value based on internal sources...... $1,088,149 16.6%
Fair value based on external sources/(1)/. 5,457,380 83.4
---------- -----
Total..................................... $6,545,529 100.0%
========== =====

- --------
(1)Includes $98.2 million that are valued using broker quotes.

For more detailed information on our accounting policy for the fair value of
financial assets and the financial assets by level in the fair value hierarchy,
see Notes 2 and 6 of the financial statements.

IMPAIRMENT OF FIXED INCOME AND EQUITY SECURITIES For investments classified
as available for sale, the difference between fair value and amortized cost for
fixed income securities and cost for equity securities, net of certain other
items and deferred income taxes (as disclosed in Note 5), is reported as a
component of accumulated other comprehensive income on the Statements of
Financial Position and is not reflected in the operating results of any period
until reclassified to net income upon the consummation of a transaction with an
unrelated third party or when the decline in fair value is deemed other than
temporary. We have a comprehensive portfolio monitoring process to identify and
evaluate each fixed income and equity security whose carrying value may be
other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, we assess
whether management with the appropriate authority has made a decision to sell
or whether it is more likely than not we will be required to sell the security
before recovery of the amortized cost basis for reasons such as liquidity,
contractual or regulatory purposes. If a security meets either of these
criteria, the security's decline in fair value is deemed other than temporary
and is recorded in earnings.

If we have not made the decision to sell the fixed income security and it is
not more likely than not we will be required to sell the fixed income security
before recovery of its amortized cost basis, we evaluate whether we expect to
receive cash flows sufficient to recover the entire amortized cost basis of the
security. We use our best estimate of future cash flows expected to be
collected from the fixed income security discounted at the security's original
or current effective rate, as appropriate, to calculate a recovery value and
determine whether a credit loss exists. The determination of cash flow
estimates is inherently subjective and methodologies may vary depending on
facts and circumstances specific to the security. All reasonably available
information relevant to the collectability of the security, including past
events, current conditions, and reasonable and supportable assumptions and
forecasts, are considered when developing the estimate of cash flows expected
to be collected. That information generally includes, but is not limited to,
the remaining payment terms of the security, prepayment speeds, foreign
exchange rates, the financial condition of the issue or issuer(s), expected
defaults, expected recoveries, the value of underlying collateral and current
subordination levels, vintage, geographic concentration, available reserves or
escrows, third party guarantees and other credit enhancements. Additionally,
other information, such as industry analyst reports and forecasts, sector
credit ratings, financial condition of the bond insurer for insured fixed
income securities, and other market data relevant to the realizability of
contractual cash flows, may also be considered. The estimated fair value of
collateral may be used to estimate recovery value if we determine that the
security is dependent on the liquidation of collateral for ultimate settlement.
If the estimated recovery value is less than the amortized cost of the
security, a credit loss exists and an other-than-temporary impairment for the
difference between the estimated recovery value and amortized cost is recorded
in earnings. The unrealized loss deemed to be related to factors other than
credit remains classified in other comprehensive income. If we determine that
the fixed income security does not have sufficient cash flow or other
information to determine a recovery value for the security, we may conclude
that the entire decline in fair value is deemed to be credit related and is
recorded in earnings.

There are a number of assumptions and estimates inherent in evaluating
impairments of equity securities and determining if they are other than
temporary, including: 1) our ability and intent to hold the investment for a
period of time sufficient to allow for an anticipated recovery in value; 2) the
length of time and extent to which the fair value has been less than cost; 3)
the financial condition, near-term and long-term prospects of the issue or
issuer, including relevant industry specific market conditions and trends,
geographic location and implications of rating agency actions and offering
prices; and 4) the specific reasons that a security is in a significant
unrealized loss position, including overall market conditions which could
affect liquidity.

Once assumptions and estimates are made, any number of changes in facts and
circumstances could cause us to subsequently determine that a fixed income or
equity security is other than temporarily impaired, including: 1) general
economic conditions that are worse than previously forecasted or that have a
greater adverse effect on a particular issuer or industry sector than
originally estimated; 2) changes in the facts and circumstances related to a
particular issue or issuer's ability to meet all of its contractual
obligations; and 3) changes in facts and circumstances that result in changes
to management's intent to sell or result in our assessment that it is more
likely than not we will be required to sell before recovery of the amortized
cost of a fixed income security or causes a change in our ability or intent to
hold an equity security until it recovers in value. Changes in assumptions,
facts and circumstances could result in additional charges to earnings in
future periods to the extent that losses are realized. The charge to earnings,
while potentially significant to net income, would not have a significant
effect on shareholder's equity, since the majority of our portfolio is
designated as available-for-sale and carried at fair value and as a result, any
related unrealized loss, net of deferred income taxes, DAC, deferred sales
inducements ("DSI") and reserves for life-contingent contract benefits, would
already be reflected as a component of accumulated other comprehensive income
in shareholder's equity.

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

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

For additional detail on investment impairments, see Note 5 of the financial
statements.

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

DAC related to traditional life insurance is amortized over the premium
paying period of the related policies in proportion to the estimated revenues
on such business. Significant assumptions relating to estimated premiums,
investment returns, as well as mortality, persistency and expenses to
administer the business are established at the time the policy is issued and
are generally not revised during the life of the policy. The assumptions for
determining the timing and amount of DAC amortization are consistent with the
assumptions used to calculate the reserve for life-contingent contract
benefits. Any deviations from projected business in force resulting from actual
policy terminations differing from expected levels and any estimated premium
deficiencies may result in a change to the rate of amortization in the period
such events occur. Generally, the amortization periods for these policies
approximates the estimated lives of the policies. The recovery of DAC is
dependent upon the future profitability of the business. We periodically review
the adequacy of reserves and recoverability

of DAC for these policies on an aggregate basis using actual experience. We
aggregate all traditional life insurance products and immediate annuities with
life contingencies in the analysis. In the event actual experience is
significantly adverse compared to the original assumptions, a premium
deficiency is deemed to exist and any remaining unamortized DAC balance must be
expensed to the extent not recoverable and a premium deficiency reserve may be
required if the remaining DAC balance is insufficient to absorb the deficiency.
In 2009, 2008 and 2007, our reviews concluded that no premium deficiency
adjustments were necessary.

DAC related to interest-sensitive life, fixed annuities and other investment
contracts is amortized in proportion to the incidence of the total present
value of gross profits, which includes both actual historical gross profits
("AGP") and estimated future gross profits ("EGP") expected to be earned over
the estimated lives of the contracts. The amortization is net of interest on
the prior period DAC balance using rates established at the inception of the
contracts. Actual amortization periods generally range from 15-30 years;
however, incorporating estimates of customer surrender rates, partial
withdrawals and deaths generally results in the majority of the DAC being
amortized during the surrender charge period, which is typically 20 years for
interest-sensitive life and 5-10 years for fixed annuities. The cumulative DAC
amortization is reestimated and adjusted by a cumulative charge or credit to
results of operations when there is a difference between the incidence of
actual versus expected gross profits in a reporting period or when there is a
change in total EGP.

AGP and EGP consist primarily of the following components: contract charges
for the cost of insurance less mortality costs and other benefits (benefit
margin); investment income and realized capital gains and losses less interest
credited (investment margin); and surrender and other contract charges less
maintenance expenses (expense margin). The principal assumptions for
determining the amount of EGP are investment returns, including capital gains
and losses on assets supporting contract liabilities, interest crediting rates
to contractholders, and the effects of persistency, mortality, expenses, and
hedges if applicable, and these assumptions are reasonably likely to have the
greatest impact on the amount of DAC amortization. Changes in these assumptions
can be offsetting and we are unable to reasonably predict their future
movements or offsetting impacts over time.

Each reporting period, DAC amortization is recognized in proportion to AGP
for that period adjusted for interest on the prior period DAC balance. This
amortization process includes an assessment of AGP compared to EGP, the actual
amount of business remaining in-force and realized capital gains and losses on
investments supporting the product liability. The impact of realized capital
gains and losses on amortization of DAC depends upon which product liability is
supported by the assets that give rise to the gain or loss. If the AGP is
greater than EGP in the period, but the total EGP is unchanged, the amount of
DAC amortization will generally increase, resulting in a current period
decrease to earnings. The opposite result generally occurs when the AGP is less
than the EGP in the period, but the total EGP is unchanged. However, when DAC
amortization or a component of gross profits for a quarterly period is
potentially negative (which would result in an increase of the DAC balance) as
a result of negative AGP, the specific facts and circumstances surrounding the
potential negative amortization are considered to determine whether it is
appropriate for recognition in the financial statements. Negative amortization
is only recorded when the increased DAC balance is determined to be recoverable
based on facts and circumstances. Negative amortization was not recorded for
certain fixed annuities during 2009 and 2008 periods in which significant
capital losses were realized on their related investment portfolio. For
products exposed to investment credit losses in excess of our expectations that
may cause periodic AGP to become temporarily negative, EGP and AGP utilized in
DAC amortization may be modified to exclude the higher credit losses.

Annually, we review and update all assumptions underlying the projections of
EGP, including investment returns, comprising investment income and realized
capital gains and losses, interest crediting rates, persistency, mortality,
expenses and the effect of any hedges. At each reporting period, we assess
whether any revisions to assumptions used to determine DAC amortization are
required. These reviews and updates may result in amortization acceleration or
deceleration, which are commonly referred to as "DAC unlocking". If the update
of assumptions causes total EGP to increase, the rate of DAC amortization will
generally decrease, resulting in a current period increase to earnings. A
decrease to earnings generally occurs when the assumption update causes the
total EGP to decrease.

Over the past three years, our most significant DAC assumption updates that
resulted in a change to EGP and the amortization of DAC have been revisions to
expected future investment returns, primarily realized capital losses,
mortality, expenses and the number of contracts in force or persistency. The
following table provides the effect on DAC amortization of changes in
assumptions relating to the gross profit components of investment margin,
benefit margin and expense margin during the years ended December 31.

2009 2008 2007
($ IN THOUSANDS) -------- ------- --------

Investment margin. $(50,219) $(9,358) $ 18,720
Benefit margin.... 7,483 4,029 3,491
Expense margin.... 812 (3,762) (28,029)
-------- ------- --------
Net acceleration.. $(41,924) $(9,091) $ (5,818)
======== ======= ========

DAC amortization acceleration related to changes in the EGP component of
investment margin in the first quarter of 2009 was primarily due to an increase
in the level of expected realized capital losses in 2009 and 2010. The
deceleration related to benefit margin was due to more favorable projected life
insurance mortality. DAC amortization acceleration related to changes in the
EGP component of investment margin in 2008 was primarily due to the level of
realized capital losses impacting actual gross profits in 2008 and the impact
of realized capital losses on expected gross profits in 2009. The deceleration
related to benefit margin was due to more favorable projected life insurance
mortality. The acceleration related to expense margin resulted from current and
expected expense levels higher than previously projected. DAC amortization
deceleration related to changes in the EGP component of investment margin in
2007 was due to higher yields from repositioning of the investment portfolio
and reduced interest crediting rates on annuities. The deceleration related to
benefit margin was due to more favorable projected life insurance mortality.
The acceleration related to expense margin was a result of expenses being
higher than expected.

The following table displays the sensitivity of reasonably likely changes in
assumptions included in the gross profit components of investment margin or
benefit margin to amortization of the DAC balance as of December 31, 2009.

DECEMBER 31, 2009
INCREASE/(REDUCTION) IN DAC
($ IN THOUSANDS) ---------------------------

Increase in future investment margins of 25 basis points. $ 2,766
Decrease in future investment margins of 25 basis points. $(2,998)

Decrease in future life mortality by 1%.................. $ 1,457
Increase in future life mortality by 1%.................. $(1,497)

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

For additional detail related to DAC, see the Operations section of this
document.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS ESTIMATION Due to the long
term nature of these policies, benefits are payable over many years;
accordingly, the reserves are calculated as the present value of future
expected benefits to be paid, reduced by the present value of future expected
net premiums. Long-term actuarial assumptions of future investment yields,
mortality, morbidity, policy terminations and expenses are used when
establishing the reserve for life-contingent contract benefits payable under
insurance policies including traditional life insurance, life-contingent
immediate annuities and voluntary health products. These assumptions, which for
traditional life insurance are applied using the net level premium method,
include provisions for adverse deviation and generally vary by such
characteristics as type of coverage, year of issue and policy duration. Future
investment yield assumptions are determined based upon prevailing investment
yields as well as

estimated reinvestment yields. Mortality, morbidity and policy termination
assumptions are based on our experience and industry experience. Expense
assumptions include the estimated effects of inflation and expenses to be
incurred beyond the premium-paying period. These assumptions are established at
the time the policy is issued, are consistent with assumptions for determining
DAC amortization for these policies, and are generally not changed during the
policy coverage period. However, if actual experience emerges in a manner that
is significantly adverse relative to the original assumptions, adjustments to
DAC or reserves may be required resulting in a charge to earnings which could
have a material adverse effect on our operating results and financial
condition. We periodically review the adequacy of these reserves and
recoverability of DAC for these policies on an aggregate basis using actual
experience. In the event that actual experience is significantly adverse
compared to the original assumptions, a premium deficiency is deemed to exist
and any remaining unamortized DAC balance must be expensed to the extent not
recoverable and the establishment of a premium deficiency reserve may be
required. In 2009, 2008 and 2007, our reviews concluded that no premium
deficiency adjustments were necessary. We anticipate that mortality, investment
and reinvestment yields, and policy terminations are the factors that would be
most likely to require premium deficiency adjustment to these reserves or
related DAC.

For further detail on the reserve for life-contingent contract benefits, see
Note 8 of the financial statements.

OPERATIONS

OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of Allstate Insurance
Holdings, LLC, which is wholly owned by The Allstate Corporation (the
"Corporation"). We provide life insurance, retirement and investment products,
and voluntary accident and health insurance. We serve our customers through
Allstate exclusive agencies and non-proprietary distribution channels. Our
strategic vision is to reinvent protection and retirement for the consumer. We
plan to offer a suite of products that are easy for middle market and emerging
affluent consumers to understand, meet their protection needs and help them
better prepare for retirement.

To achieve our vision and reach our financial goals, our primary objectives
are to deepen financial services relationships with Allstate customers and
improve profitability through operational excellence and portfolio
optimization. We plan to bring value to our ultimate parent, The Allstate
Corporation (the "Corporation"), in three principal ways: through profitable
growth of our products, improving the economics of the Corporation's
property-liability insurance business through increased customer loyalty and
renewal rates by cross selling our products to their customers, and by
attracting new customers to Allstate. We plan to continue to shift our product
mix by decreasing sales of our spread based products, principally fixed
annuities, and by growing sales of underwritten products having mortality or
morbidity risk, principally life insurance. In addition to focusing on higher
return markets, products, and distribution channels, we will continue to
emphasize capital efficiency and enterprise risk and return management
strategies and actions.

Our strategy provides a platform to profitably grow our business. Based upon
Allstate's strong financial position and brand, our customers seek assistance
in meeting their protection and retirement needs through trusted relationships.
We have unique access to potential customers through cross-sell opportunities
within the Allstate exclusive agencies.

Our products include fixed annuities such as deferred and immediate
annuities; interest-sensitive, traditional and variable life insurance; and
voluntary accident and health insurance. Our products are sold through multiple
distribution channels including Allstate exclusive agencies, which include
exclusive financial specialists, independent agents (including master brokerage
agencies and workplace enrolling agents), specialized structured settlement
brokers and, through March 31, 2010, financial service firms such as banks and
broker-dealers. Effective March 31, 2010, we will no longer wholesale or
provide distribution support to banks and broker-dealers. Although we will
continue to service inforce contracts sold through these channels, we will no
longer solicit new sales through our direct relationships with banks and
broker-dealers. Certain of our master brokerage

agencies and independent agents may continue to wholesale our products to banks
and broker-dealers through their relationships.

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

2009 2008 2007
($ IN THOUSANDS) ---------- ---------- ----------

REVENUES
Premiums.................................. $ 47,659 $ 59,248 $ 69,124
Contract charges.......................... 51,834 61,108 59,530
Net investment income..................... 372,395 402,931 386,738
Realized capital gains and losses......... 145,468 (77,205) (831)
---------- ---------- ----------
Total revenues............................ 617,356 446,082 514,561
COSTS AND EXPENSES
Contract benefits......................... (170,075) (184,192) (181,803)
Interest credited to contractholder funds. (201,549) (191,208) (177,407)
Amortization of DAC....................... (148,450) (17,778) (53,445)
Operating costs and expenses.............. (41,183) (40,869) (37,624)
---------- ---------- ----------
Total costs and expenses.................. (561,257) (434,047) (450,279)

(Loss) gain on disposition of operations.. -- (358) 429
Income tax expense........................ (19,729) (4,005) (22,802)
---------- ---------- ----------
Net income................................ $ 36,370 $ 7,672 $ 41,909
========== ========== ==========
Investments at December 31................ $7,139,397 $6,648,585 $7,057,629
========== ========== ==========

Net income was $36.4 million, $7.7 million and $41.9 million in 2009, 2008
and 2007, respectively. The increase of $28.7 million in 2009 compared to 2008
was primarily the result of net realized capital gains in 2009 compared to net
realized capital losses in 2008, partially offset by higher amortization of DAC
and decreased net investment income.

The decrease in net income of $34.2 million in 2008 compared to 2007 was the
result of higher net realized capital losses and, to a much lesser extent,
higher interest credited to contractholder funds, lower premiums, and higher
operating cost and expenses, partially offset by lower amortization of DAC,
increased net investment income and higher contract charges.

Net income in 2008 included additional expenses for contract benefits
relating to a rescission of reinsurance coverage for certain traditional and
interest-sensitive life insurance policies in accordance with an agreement
between the Company and ALIC (the "rescission"). The rescission reduced net
income by $4.1 million in 2008. For further detail on the rescission, see Note
4 to the financial statements.

ANALYSIS OF REVENUES Total revenues increased 38.4% or $171.3 million in
2009 compared to 2008 due primarily to a $222.7 million improvement in realized
capital gains and losses, partially offset by a $30.5 million decrease in net
investment income and a $20.9 million decrease in premiums and contract
charges. Total revenues decreased 13.3% or $68.5 million in 2008 compared to
2007, due primarily to an increase in net realized capital losses, partially
offset by an increase in net investment income.

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

Contract charges are revenues generated from interest-sensitive and variable
life insurance and fixed annuities for which deposits are classified as
contractholder funds or separate accounts liabilities. Contract charges are
assessed against the contractholder account values for maintenance,
administration, cost of insurance and surrender prior to contractually
specified dates. As a result, changes in contractholder funds are considered in
the evaluation of growth and as indicators of future levels of revenues.

The following table summarizes premiums and contract charges by product.

2009 2008 2007
($ IN THOUSANDS) ------- -------- --------

CONTRACT CHARGES
Interest-sensitive life insurance/(1)/...... 47,071 54,972 51,155
Fixed annuities............................. 4,763 6,136 8,375
------- -------- --------
TOTAL CONTRACT CHARGES/(2)/................. 51,834 61,108 59,530
------- -------- --------
TOTAL PREMIUMS AND CONTRACT CHARGES......... $99,493 $120,356 $128,654
======= ======== ========

- --------
(1)Beginning in 2008, certain ceded reinsurance premiums previously included as
a component of traditional life insurance premiums were reclassified
prospectively to be reported as a component of interest-sensitive life
insurance contract charges. In 2007, these ceded reinsurance premiums were
$2.5 million.
(2)Total contract charges for 2009, 2008 and 2007 include contract charges
related to the cost of insurance totaling $26.7 million, $36.8 million and
$35.2 million, respectively.

Total premiums decreased 19.6% in 2009 compared to 2008 due to lower
premiums on traditional life insurance and immediate annuities with life
contingencies. The decline in premiums on traditional life insurance was
primarily the result of higher premiums ceded to ALIC due to a greater
utilization of reinsurance. The decline in premiums on immediate annuities with
life contingencies was due to lower sales.

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

Total contract charges decreased 15.2% in 2009 compared to 2008 due
primarily to lower contract charges on interest-sensitive life insurance
policies resulting from higher cost of insurance contract charges ceded to ALIC
due to a greater utilization of reinsurance, partially offset by increased
contract charge rates and growth in business in force.

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

Contractholder funds represent interest-bearing liabilities arising from the
sale of fixed annuities, interest-sensitive life insurance policies and
variable life deposits allocated to fixed accounts. The balance of

contractholder funds is equal to the cumulative deposits received and interest
credited to the contractholder less cumulative contract maturities, benefits,
surrenders, withdrawals and contract charges for mortality or administrative
expenses. The following table shows the changes in contractholder funds.

2009 2008 2007
($ IN THOUSANDS) ---------- ---------- ----------

CONTRACTHOLDER FUNDS, BEGINNING BALANCE............ $5,086,965 $4,848,461 $4,708,428

DEPOSITS
Fixed annuities.................................... 180,327 509,146 431,832
Interest-sensitive life insurance.................. 116,543 102,752 105,854
Variable life deposits allocated to fixed accounts. 120 106 69
---------- ---------- ----------
Total deposits..................................... 296,990 612,004 537,755

INTEREST CREDITED.................................. 182,665 190,945 179,417

BENEFITS, WITHDRAWALS AND OTHER ADJUSTMENTS
Benefits........................................... (160,351) (161,813) (146,828)
Surrenders and partial withdrawals................. (308,244) (335,521) (316,399)
Contract charges................................... (57,157) (54,138) (49,086)
Net transfers to separate accounts................. -- (38) (2)
Other adjustments/(1)/............................. (49,989) (12,935) (64,824)
---------- ---------- ----------
Total benefits, withdrawals and other adjustments.. (575,741) (564,445) (577,139)
---------- ---------- ----------
CONTRACTHOLDER FUNDS, ENDING BALANCE............... $4,990,879 $5,086,965 $4,848,461
========== ========== ==========

- --------
(1)The table above illustrates the changes in contractholder funds, which are
presented gross of reinsurance recoverables on the Statements of Financial
Position. The table above is intended to supplement our discussion and
analysis of revenues, which are presented net of reinsurance on the
Statements of Operations and Comprehensive Income. As a result, the net
change in contractholder funds associated with products reinsured to third
parties is reflected as a component of the other adjustments line.

Contractholder funds decreased 1.9% in 2009 and increased 4.9% and 3.0% in
2008 and 2007, respectively. Average contractholder funds increased 1.4% in
2009 compared to 2008 and increased 4.0% in 2008 compared to 2007.

Contractholder deposits decreased 51.5% in 2009 compared to 2008 due to
lower deposits on fixed annuities. Deposits on fixed annuities decreased 64.6%
in 2009 compared to 2008 due to pricing actions to improve returns on new
business and reduce our concentration in spread based products.

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

Surrenders and partial withdrawals decreased 8.1% in 2009 compared to 2008
due to lower surrenders and partial withdrawals on traditional fixed annuities,
partially offset by higher surrenders and partial withdrawals on market value
adjusted annuities and interest-sensitive life insurance.

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

The surrender and partial withdrawal rate on deferred fixed annuities and
interest-sensitive life insurance products, based on the beginning of period
contractholder funds, was 7.4% in 2009 compared to 8.6% in 2008 and 8.5% in
2007.

Net investment income decreased 7.6% or $30.5 million to $372.4 million in
2009 from $402.9 million in 2008. Net investment income increased 4.2% or $16.2
million to $402.9 million in 2008 from $386.7 million in 2007. For further
discussion of net investment income, see the Investments section of the MD&A.

Net realized capital gains and losses reflected net gains of $145.5 million
in 2009 compared to net losses of $77.2 million and $831 thousand in 2008 and
2007, respectively. For further discussion of realized capital gains and
losses, see the Investments section of the MD&A.

ANALYSIS OF COSTS AND EXPENSES Total costs and expenses increased 29.3% or
$127.2 million in 2009 compared to 2008. Total costs and expenses in 2008
included expenses for contract benefits related to the rescission. Excluding
the net impact of the rescission, which increased total costs and expenses by
$6.3 million in 2008, total costs and expenses increased 31.2% or $133.5
million in 2009 compared to 2008 due primarily to higher amortization of DAC
and, to a much lesser extent, higher interest credited to contractholder funds,
partially offset by lower contract benefits.

Total costs and expenses decreased 3.6% or $16.2 million in 2008 compared to
2007 due primarily to lower amortization of DAC, partially offset by higher
interest credited to contractholder funds and the additional expenses for
contract benefits in 2008 relating to the rescission. Excluding the net impact
of the rescission, total costs and expenses decreased 5.0% or $22.5 million in
2008 compared to 2007.

Contract benefits decreased 7.7% or $14.1 million in 2009 compared to 2008
due primarily to the rescission. Excluding the impact of the rescission, which
increased contract benefits by $7.1 million in 2008, total contract benefits
decreased 3.9% or $7.0 million in 2009 compared to 2008 due to lower contract
benefits on annuities and traditional life insurance. The decline in contract
benefits on annuities reflects improved mortality experience and the impact of
lower sales of immediate annuities with life contingencies. The decline in
contract benefits on traditional life insurance was due to improved mortality
experience resulting primarily from a reduction in large claim counts and
higher contract benefits ceded to ALIC due to a greater utilization of
reinsurance.

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

We analyze our mortality and morbidity results using the difference between
premiums and contract charges earned for the cost of insurance and contract
benefits excluding the portion related to the implied interest on immediate
annuities with life contingencies ("benefit spread"). This implied interest
totaled $111.3 million, $108.1 million and $107.5 million in 2009, 2008 and
2007, respectively. The benefit spread by product group is disclosed in the
following table.

2009 2008/(1)/ 2007/(1)/
($ IN THOUSANDS) ------- -------- --------

Life insurance....... $12,627 $18,858 $26,345
Accident and health.. 4,355 3,875 2,475
Annuities............ (1,334) (2,826) 1,243
------- ------- -------
Total benefit spread. $15,648 $19,907 $30,063
======= ======= =======

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

Benefit spread decreased 21.4% or $4.3 million in 2009 compared to 2008.
Benefit spread decreased 33.8% or $10.2 million in 2008 compared to 2007 due
primarily to the rescission. Excluding the impact of the rescission, benefit
spread decreased 10.0% or $3.1 million in 2008 compared to 2007.

Interest credited to contractholder funds increased 5.4% or $10.3 million in
2009 compared to 2008 due primarily to higher amortization of DSI, partially
offset by lower weighted average interest crediting rates on deferred fixed
annuities. Amortization of DSI in 2009 and 2008 was $22.3 million and $7.8
million, respectively. The increase primarily relates to an unfavorable change
in amortization relating to realized capital gains and losses of $14.6 million.

Interest credited to contractholder funds increased 7.8% or $13.8 million in
2008 compared to 2007 due to higher average contractholder funds, higher
acceleration of amortization of DSI due to changes in assumptions, and an
increase in the weighted average interest crediting rate on deferred fixed
annuities, partially offset by a favorable change in amortization of DSI
relating to realized capital gains and losses, and a decline in the weighted
average interest crediting rate on immediate fixed annuities.

The acceleration of amortization of DSI due to changes in assumptions
increased interest credited to contractholder funds by $7.0 million, $7.5
million and $844 thousand in 2009, 2008 and 2007, respectively.

In order to analyze the impact of net investment income and interest
credited to contractholders on net income, we monitor the difference between
net investment income and the sum of interest credited to contractholder funds
and the implied interest on immediate annuities with life contingencies, which
is included as a component of contract benefits on the Statements of Operations
and Comprehensive Income ("investment spread").

The investment spread by product group is shown in the following table.

2009 2008/(1)/ 2007/(1)/
($ IN THOUSANDS) ------- -------- --------

Annuities....................................... $28,775 $ 56,314 $ 60,162
Life insurance.................................. 1,090 2,767 3,087
Accident and health............................. (17) (11) (23)
Net investment income on investments supporting
capital....................................... 29,670 44,555 38,611
------- -------- --------
Total investment spread......................... $59,518 $103,625 $101,837
======= ======== ========

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

Investment spread declined 42.6% or $44.1 million in 2009 compared to 2008
and was consistent in 2008 compared to 2007. The decline in 2009 compared to
2008 reflects lower net investment income and, to a lesser extent, higher
amortization of DSI.

To further analyze investment spreads, the following table summarizes the
weighted average investment yield on assets supporting product liabilities and
capital, interest crediting rates and investment spreads for 2009, 2008 and
2007.

WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
INVESTMENT YIELD INTEREST CREDITING RATE INVESTMENT SPREADS
------------- ---------------------- -----------------
2009 2008 2007 2009 2008 2007 2009 2008 2007
---- ---- ---- ---- ---- ---- ---- ---- ----

Interest-sensitive life insurance.................... 5.1% 5.7% 5.7% 4.6% 4.6% 4.6% 0.5% 1.1% 1.1%
Deferred fixed annuities............................. 5.1 5.6 5.7 3.3 3.5 3.4 1.8 2.1 2.3
Immediate fixed annuities with and without life
contingencies...................................... 6.6 7.1 7.4 6.5 6.5 6.6 0.1 0.6 0.8
Investments supporting capital, traditional life and
other products..................................... 4.2 6.5 6.0 N/A N/A N/A N/A N/A N/A

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

2009 2008 2007
($ IN THOUSANDS) ---------- ---------- ----------

Immediate fixed annuities with life contingencies.............. $1,675,884 $1,649,426 $1,619,758
Other life contingent contracts and other...................... 199,695 303,731 397,213
---------- ---------- ----------
Reserve for life-contingent contract benefits............... $1,875,579 $1,953,157 $2,016,971
========== ========== ==========
Interest-sensitive life insurance.............................. $ 627,362 $ 576,167 $ 530,763
Deferred fixed annuities....................................... 3,753,232 3,885,089 3,733,197
Immediate fixed annuities without life contingencies and other. 610,285 625,709 584,501
---------- ---------- ----------
Contractholder funds........................................ $4,990,879 $5,086,965 $4,848,461
========== ========== ==========

Amortization of DAC increased $130.7 million in 2009 compared to 2008 and
decreased to $35.7 million in 2008 compared to 2007. The components of
amortization of DAC are shown in the following table.

2009 2008 2007
($ IN THOUSANDS) --------- -------- --------

Amortization of DAC before amortization relating to realized capital gains
and losses and changes in assumptions.................................... $ (52,307) $(41,471) $(47,431)
(Amortization) accretion relating to realized capital gains and losses..... (54,219) 32,784 (196)
Amortization acceleration for changes in assumptions ("DAC unlocking")..... (41,924) (9,091) (5,818)
--------- -------- --------
Total amortization of DAC............................................... $(148,450) $(17,778) $(53,445)
========= ======== ========

The increase of $130.7 million in 2009 compared to 2008 was due primarily to
an unfavorable change in amortization relating to realized capital gains and
losses, and to a lesser extent, higher amortization acceleration for changes in
assumptions. The decrease of $35.7 million in 2008 compared to 2007 was due
primarily to a favorable change in accretion (amortization) relating to
realized capital gains and losses and lower amortization on fixed annuities due
to lower investment spread, partially offset by higher amortization
acceleration for changes in assumptions.

The impact of realized capital gains and losses on amortization of DAC is
dependent upon the relationship between the assets that give rise to the gain
or loss and the product liability supported by the assets. Fluctuations result
from changes in the impact of realized capital gains and losses on actual and
expected gross profits. In 2009, DAC amortization relating to realized capital
gains and losses resulted primarily from realized capital gains on derivatives.
Additionally, DAC amortization reflects our decision in the second half of 2009
not to recapitalize DAC for credit losses on investments supporting certain
fixed annuities following concerns that an increase in the level of expected
realized capital losses in 2010 and 2011 may reduce EGP and adversely impact
the product DAC recoverability. In 2008, DAC accretion resulted primarily from
realized capital losses on derivatives and other-than-temporary impairment
losses.

Despite the recent improvement in the credit markets and the overall
economy, the cumulative impact of realized capital losses through December 31,
2009 has negatively impacted both the actual and expected gross profits of our
fixed annuity business. In the fourth quarter of 2009, we reviewed and updated
the gross profit assumptions used in substantially all of our fixed annuity DAC
models to exclude excess realized capital losses when determining gross profits
used for calculating DAC amortization. This is consistent with our decision not
to record negative amortization related to realized capital losses for these
fixed annuities, which is expected to be our practice during periods when
realized capital losses are reported. This treatment results in a lower DAC
amortization rate for these fixed annuities. The lower rate of amortization
will be applied to a higher level of actual gross profits, as gross profits
used to determine DAC amortization will exclude excess realized capital losses.

The DAC adjustment relating to unrealized capital gains and losses
(disclosed in footnote 4 to the table that follows this discussion) represents
the amount by which the amortization of DAC would increase or decrease if the
unrealized gains or losses in the respective product portfolios were realized.
The DAC adjustment balance, subject to limitations, is determined by applying
the DAC amortization rate to unrealized net capital gains or losses. The fixed
annuity DAC adjustment for unrealized capital gains and losses declined as of
December 31, 2009 as a result of lower unrealized capital losses and the lower
rate of DAC amortization used for certain fixed annuities discussed above.
Changes in the DAC adjustment balance relating to unrealized capital gains and
losses are reported through other comprehensive income.

Our annual comprehensive review of the profitability of our products to
determine DAC balances for our interest-sensitive life, fixed annuities and
other investment contracts covers assumptions for investment returns, including
capital gains and losses, interest crediting rates to policyholders, the effect
of any hedges, persistency, mortality and expenses in all product lines. In the
first quarter of 2009, the review resulted in an acceleration of DAC
amortization (charge to income) of $41.9 million pre-tax, including
amortization acceleration of $45.2 million related to fixed annuities,
partially offset by amortization deceleration (credit to income) of $3.3
million for interest-sensitive life insurance. The principal assumption
impacting EGP and the related DAC amortization for fixed annuities was an
increase in the level of expected realized capital losses in 2009 and 2010 and,
to a lesser extent, reduced investment spread. Reduced EGP for fixed annuities
resulted in accelerated DAC amortization. For our interest-sensitive life
insurance products, the amortization deceleration was due to higher EGP due to
a favorable change in our mortality assumptions, partially offset by increased
expected capital losses and, to a lesser extent, reduced investment spread.

In 2008, DAC amortization acceleration for changes in assumptions, recorded
in connection with comprehensive reviews of the DAC balances resulted in an
increase to amortization of DAC of $9.1 million. The principle assumption
impacting the amortization acceleration in 2008 was the level of realized
capital losses impacting actual gross profits in 2008 and the impact of
realized capital losses on EGP in 2009. During the fourth quarter of 2008, our
assumptions for EGP were impacted by a view of higher impairments in our
investment portfolio. In 2007, DAC amortization acceleration for changes in
assumptions was $5.8 million.

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

TRADITIONAL LIFE
AND ACCIDENT INTEREST-SENSITIVE FIXED
AND HEALTH LIFE INSURANCE ANNUITIES TOTAL
---------------- ------------------ ------------------- -------------------
2009 2008 2009 2008 2009 2008 2009 2008
($ IN THOUSANDS) ------- ------- -------- -------- --------- -------- --------- --------

Beginning balance........................ $45,332 $41,568 $153,106 $ 92,861 $ 339,810 $144,235 $ 538,248 $278,664
Acquisition costs deferred............... 7,844 8,218 15,483 15,868 9,233 27,304 32,560 51,390
Impact of adoption of new OTTI
accounting before unrealized
impact/(1)/............................. -- -- (832) -- (10,993) -- (11,825) --
Impact of adoption of new OTTI
accounting effect of unrealized capital
gains and losses/(2)/................... -- -- 832 -- 10,993 -- 11,825 --
Amortization of DAC before amortization
relating to realized capital gains and
losses and changes in assumptions/(3)/.. (5,308) (4,454) (3,902) (7,423) (43,097) (29,594) (52,307) (41,471)
(Amortization) accretion relating to
realized capital gains and losses/(3)/.. -- -- (935) 5,021 (53,284) 27,763 (54,219) 32,784
Amortization (acceleration) deceleration
for changes in assumptions ("DAC
unlocking")/(3)/........................ -- -- 3,281 (8,207) (45,205) (884) (41,924) (9,091)
Effect of unrealized capital gains and
losses/(4)/............................. -- -- (47,059) 54,986 (161,974) 170,986 (209,033) 225,972
------- ------- -------- -------- --------- -------- --------- --------
Ending balance........................... $47,868 $45,332 $119,974 $153,106 $ 45,483 $339,810 $ 213,325 $538,248
======= ======= ======== ======== ========= ======== ========= ========

- --------
(1)The adoption of new OTTI accounting guidance resulted in an adjustment to
DAC to reverse previously recorded DAC accretion related to realized capital
losses that were reclassified to other comprehensive income upon adoption on
April 1, 2009. The adjustment was recorded as a reduction of the DAC balance
and retained income.
(2)The adoption of new OTTI accounting guidance resulted in an adjustment to
DAC due to the change in unrealized capital gains and losses that occurred
upon adoption on April 1, 2009 when previously recorded realized capital
losses were reclassified to other comprehensive income. The adjustment was
recorded as an increase of the DAC balance and unrealized capital gains and
losses.
(3)Included as a component of amortization of DAC on the Statements of
Operations and Comprehensive Income.
(4)Represents the change in the DAC adjustment for unrealized capital gains and
losses. The DAC adjustment balance was $46.8 million and $244.0 million as
of December 31, 2009 and 2008, respectively, and represents the amount by
which the amortization of DAC would increase or decrease if the unrealized
gains and losses in the respective product portfolios were realized.
Recapitalization of DAC is limited to the originally deferred policy
acquisition costs plus interest.

Operating costs and expenses increased 0.8% in 2009 compared to 2008 due
primarily to higher insurance department assessments and restructuring and
related charges, partially offset by lower non-deferrable commissions and
decreased employee and professional services expenses. During 2009,
restructuring and related charges of $2.2 million were recorded in connection
with our plan to improve efficiency and narrow our focus of product offerings.

Operating costs and expenses increased 8.6% in 2008 compared to 2007 due
primarily to higher expenses related to growth initiatives, partially offset by
lower non-deferrable commissions. In addition, 2007 benefited to a greater
degree from a servicing fee paid by Prudential Financial Inc ("Prudential") for
our servicing of the variable annuity business that we ceded to them during a
transition period beginning in 2006 which ended in May 2008.

Income tax expense increased by $15.7 million in 2009 compared to 2008 and
decreased by $18.8 million in 2008 compared to 2007. These changes were
proportionate with the changes in pre-tax income.

The Company's effective tax rate is impacted by tax favored investment
income such as dividends qualifying for the dividends received deduction
("DRD"). In 2007, the Internal Revenue Service ("IRS") announced its intention
to issue regulations dealing with certain computational aspects of the DRD
related to separate account assets ("separate accounts DRD"). The ultimate
timing and substance of any such regulations

are unknown at this time, but may result in the elimination of some or all of
the separate accounts DRD tax benefit reflected as a component of the Company's
income tax expense. The Company recognized a tax benefit from the separate
accounts DRD of $3.1 million, $2.9 million and $3.1 million in 2009, 2008 and
2007, respectively.

REINSURANCE CEDED We enter into reinsurance agreements with ALIC and
unaffiliated reinsurers to limit our risk of mortality and morbidity losses and
re-investment risk. In addition, we have used reinsurance to effect the
disposition of certain blocks of business. We retain primary liability as a
direct insurer for all risks ceded to reinsurers.

As of December 31, 2009 and 2008, 35.0% and 34.9%, respectively, of our face
amount of life insurance in force was reinsured. As of December 31, 2009 and
2008, for certain term life insurance policies, we ceded up to 90% of the
mortality risk depending on the year of policy issuance. Further, we ceded the
mortality risk associated with coverage in excess of $250 thousand per life to
ALIC. Additionally, we ceded all of the risk associated with our variable
annuity business.

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

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

STANDARD &
POOR'S
FINANCIAL REINSURANCE
STRENGTH RECOVERABLE ON PAID
RATING/(1)/ AND UNPAID BENEFITS
---------- -------------------
2009 2008
($ IN THOUSANDS) ---------- -------- --------

Prudential Insurance Company of America. AA- $287,545 $335,844
Transamerica Life Group................. AA- 22,146 18,570
RGA Reinsurance Company................. AA- 5,975 5,420
Allstate Life Insurance Company......... AA- 3,449 905
Swiss Re Life and Health America, Inc... A+ 3,032 2,173
Canada Life............................. AA 1,149 1,023
Security Life of Denver................. A+ 977 925
Generali USA............................ A 902 865
American United Life.................... AA- 767 757
Triton Insurance Company................ NR 429 690
Scottish Re Life Corporation............ NR 423 447
Cologne Re.............................. AAA 121 132
Metropolitan Life....................... AA- 99 46
Minnesota Mutual........................ AA- 87 84
Mutual of Omaha......................... AA- 72 76
-------- --------
Total................................... $327,173 $367,957
======== ========

- --------
(1)NR reflects not rated.

Certain of our reinsurers experienced rating downgrades by one or more
rating agencies in 2009. These reinsurers include Prudential Insurance Company
of America, Transamerica Life Group, Swiss Re Life and Health America, Inc.,
Scottish Re Life Corporation and Security Life of Denver. We continuously
monitor the creditworthiness of reinsurers in order to determine our risk of
recoverability on an individual and aggregate basis, and a provision for
uncollectible reinsurance is recorded if needed. No amounts have been deemed
unrecoverable in the three-years ended December 31, 2009.

We have a reinsurance treaty through which we primarily cede re-investment
related risk on our structured settlement annuities to ALIC. The terms of this
treaty meet the accounting definition of a derivative. Accordingly, the treaty
is recorded in the Statements of Financial Position at fair value, and changes
in the fair value of the treaty and premiums paid to ALIC are recognized in
realized capital gains and losses.

INVESTMENTS

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

We employ a strategic asset allocation approach which uses models that
consider the nature of our liabilities and risk tolerances, as well as the risk
and return parameters of the various asset classes in which we invest. This
asset allocation is informed by our global economic and market outlook, as well
as other inputs and constraints, including diversification effects, duration,
liquidity and capital considerations. We will continue to manage risks
associated with rising interest rates, commercial real estate, municipal bonds
and equity market declines.

Our investment strategy focuses on the total return of assets needed to
support our underlying liabilities and to achieve an appropriate return on
capital. Within the ranges set by the strategic asset allocation model,
tactical investment decisions are made in consideration of prevailing market
conditions.

RISK MITIGATION

We continue to focus our strategic risk mitigation efforts towards managing
interest rate, credit and real estate investment risks, while our return
optimization efforts focus on investing in market opportunities to generate
income and capital appreciation. As a result, during 2009 we took the following
actions:

. Reduced our commercial real estate exposure by 29.5% or $435.7 million
of amortized cost primarily through targeted dispositions and principal
repayments from borrowers.

. Sold $50.2 million of below investment grade assets, primarily corporate
fixed income securities, as a result of improved market conditions.

PORTFOLIO COMPOSITION The composition of the investment portfolio at
December 31, 2009 is presented in the table below. Also see Notes 2 and 5 of
the financial statements for investment accounting policies and additional
information.

PERCENT TO
TOTAL
($ IN THOUSANDS) ----------

Fixed income securities/(1)/. $6,073,765 85.1%
Mortgage loans............... 543,007 7.6
Equity Securities/(2)/....... 123,311 1.7
Short-term/(3)/.............. 348,453 4.9
Policy loans................. 40,569 0.6
Other........................ 10,292 0.1
---------- -----
Total..................... $7,139,397 100.0%
========== =====

- --------
(1)Fixed income securities are carried at fair value. Amortized cost basis for
these securities was $6.07 billion.
(2)Equity securities are carried at fair value. Cost basis for these securities
was $100.2 million.
(3)Short-term investments are carried at fair value. Amortized cost basis for
these investments was $348.5 million.

Total investments increased to $7.14 billion at December 31, 2009, from
$6.65 billion at December 31, 2008, primarily due to higher valuations for
fixed income securities from improved market conditions and operating cash
flows that more than offset net reductions in contractholder obligations of
$96.1 million.

FIXED INCOME SECURITIES The following table shows fixed income securities by
type.

FAIR VALUE AT PERCENT TO FAIR VALUE AT PERCENT TO
DECEMBER 31, TOTAL DECEMBER 31, TOTAL
2009 INVESTMENTS 2008 INVESTMENTS
($ IN THOUSANDS) ------------- ----------- ------------- -----------

U.S. government and agencies.................... $ 586,202 8.2% $ 917,731 13.8%
Municipal....................................... 878,410 12.3 385,381 5.8
Corporate....................................... 3,271,202 45.8 2,887,137 43.4
Foreign government.............................. 290,856 4.1 371,542 5.6
Residential mortgage-backed securities ("RMBS"). 651,672 9.1 440,045 6.7
Commercial mortgage-backed securities ("CMBS").. 346,741 4.9 468,868 7.0
Asset-backed securities ("ABS")................. 40,044 0.6 20,202 0.3
Redeemable preferred stock...................... 8,638 0.1 5,459 0.1
---------- ---- ---------- ----
Total fixed income securities................... $6,073,765 85.1% $5,496,365 82.7%
========== ==== ========== ====

At December 31, 2009, 96.3% of the fixed income securities portfolio was
rated investment grade, which is defined as a security having of rating of Aaa,
Aa, A or Baa from Moody's, a rating of AAA, AA, A or BBB from S&P, Fitch,
Dominion, or Realpoint, a rating of aaa, aa, a, or bbb from A.M. Best, or a
comparable internal rating if an externally provided rating is not available,
which is consistent with the NAIC rating. The Valuation of Securities Taskforce
of the NAIC instituted a new process to be used by insurance companies during
the fourth quarter of 2009 for statutory accounting, reporting and estimating
risk-based capital requirements for non-agency RMBS, and as a result the NAIC
ratings used for statutory reporting may differ from those shown below which
are based on credit ratings.

The following table summarizes the credit rating of the fixed income
securities portfolio at December 31, 2009.

($ IN THOUSANDS)

NAIC PERCENT
RATING CREDIT RATING FAIR VALUE TO TOTAL
---------------- ----------------------- ---------- --------

1 Aaa/Aa/A............... $4,276,686 70.4%
2 Baa.................... 1,569,671 25.9
---------- -----
Investment grade....... 5,846,357 96.3
3 Ba..................... 158,556 2.6
4 B...................... 45,399 0.7
5 Caa or lower........... 21,489 0.4
6 In or near default..... 1,964 --
---------- -----
Below investment grade. 227,408 3.7
---------- -----
Total.................. $6,073,765 100.0%
========== =====

The table above includes 9 securities with a fair value totaling $27.9
million that have not yet received an NAIC rating, for which we have assigned a
comparable internal rating. Due to lags between the funding of an investment,
execution of final legal documents, filing with the Securities Valuation Office
("SVO") of the NAIC, and rating by the SVO, we generally have a small number of
securities that have a pending NAIC rating.

The following table summarizes the fair value and unrealized net capital
gains and losses for fixed income securities by credit rating as of
December 31, 2009.

AAA AA A
($ IN THOUSANDS) --------------------- ------------------- ---------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
---------- ----------- -------- ----------- ---------- -----------

U.S. government and agencies........ $ 586,202 $ 51,612 $ -- $ -- $ -- $ --
Municipal
Tax exempt....................... -- -- 3,100 115 -- --
Taxable.......................... 47,148 873 319,229 (2,821) 280,684 (17,013)
ARS.............................. 90,318 (4,082) -- -- 8,797 (928)
Corporate
Public........................... 32,147 (31) 160,209 5,009 617,338 36,004
Privately placed................. 118,755 7,274 100,990 5,494 332,488 20,107
Hybrid........................... -- -- -- -- 45,125 (1,977)
Foreign government.................. 271,417 47,754 4,978 (20) 14,461 1,981
RMBS
U.S. government sponsored
entities ("U.S. Agency")....... 549,404 11,063 -- -- -- --
Prime residential mortgage-
backed securities ("Prime").... 45,425 (2,094) -- -- -- --
Alt-A residential mortgage-
backed securities ("Alt-A").... -- -- 7,573 (2,013) 8,402 (1,520)
Subprime residential mortgage-
backed securities
("Subprime")................... 6,607 (674) 11,429 (3,181) 607 (333)
CMBS................................ 221,915 (16,601) 21,812 (22,702) 48,588 (18,593)
ABS
Collateralized debt obligations
("CDO")........................ -- -- -- -- 17,777 (6,443)
Consumer and other asset-backed
securities ("Consumer and
other ABS").................... 5,350 (58) 7,596 (38) 1,528 --
Redeemable preferred stock.......... -- -- -- -- -- --
---------- -------- -------- -------- ---------- --------
Total fixed income securities....... $1,974,688 $ 95,036 $636,916 $(20,157) $1,375,795 $ 11,285
========== ======== ======== ======== ========== ========

BAA BA OR LOWER TOTAL
($ IN THOUSANDS) --------------------- ------------------- ---------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
---------- ----------- -------- ----------- ---------- -----------

U.S. government and agencies.. $ -- $ -- $ -- $ -- $ 586,202 $ 51,612
Municipal
Tax exempt................. 5,024 565 -- -- 8,124 680
Taxable.................... 122,327 (27,706) 1,783 (281) 771,171 (46,948)
ARS........................ -- -- -- -- 99,115 (5,010)
Corporate
Public..................... 914,619 33,142 80,456 (3,458) 1,804,769 70,666
Privately placed........... 632,330 18,449 140,463 (11,354) 1,325,026 39,970
Hybrid..................... 50,422 (7,561) 45,860 (2,926) 141,407 (12,464)
Foreign government............ -- -- -- -- 290,856 49,715
RMBS
U.S. Agency................ -- -- -- -- 549,404 11,063
Prime...................... -- -- -- -- 45,425 (2,094)
Alt-A...................... 7,870 (2,065) -- -- 23,845 (5,598)
Subprime................... 1,527 (348) 12,828 (13,281) 32,998 (17,817)
CMBS.......................... 24,190 (28,827) 30,236 (39,371) 346,741 (126,094)
ABS
CDO........................ -- -- -- -- 17,777 (6,443)
Consumer and other ABS..... 7,793 (5) -- -- 22,267 (101)
Redeemable preferred stock.... 8,638 (607) -- -- 8,638 (607)
---------- -------- -------- -------- ---------- ---------
Total fixed income securities. $1,774,740 $(14,963) $311,626 $(70,671) $6,073,765 $ 530
========== ======== ======== ======== ========== =========

U.S. government and agencies securities totaled $586.2 million, with 100.0%
rated Aaa, at December 31, 2009.

Municipal bonds, including tax exempt, taxable and ARS securities, totaled
$878.4 million as of December 31, 2009 with an unrealized net capital loss of
$51.3 million. Taxable municipal bonds have an unrealized net capital loss of
$46.9 million resulting from wider credit spreads than at initial purchase,
which is largely due to the macroeconomic conditions and credit market
deterioration that persisted throughout 2009, as well as specific issue or
issuer conditions.

ARS totaled $99.1 million with an unrealized net capital loss of $5.0
million as of December 31, 2009. Our holdings primarily have a credit rating of
Aaa. All of our holdings are collateralized by pools of student loans for which
at least 85% of the collateral was insured by the U.S. Department of Education
at the time we purchased the security. As of December 31, 2009, $76.2 million
of our ARS backed by student loans was 100% insured by the U.S. Department of
Education and $22.9 million was 90% to 99% insured. All of our student loan ARS
holdings are experiencing failed auctions and we receive the failed auction
rate or, for those which contain maximum reset rate formulas, we receive the
contractual maximum rate. We anticipate that failed auctions may persist and
most of our holdings will continue to pay the failed auction rate or, for those
that contain maximum rate reset formulas, the maximum rate. Auctions continue
to be conducted as scheduled for each of the securities. At December 31, 2009,
interest on $9.0 million of our ARS has reset using the maximum rate reset
formula.

Also, included in our municipal bond holdings at December 31, 2009 are $8.1
million of municipal securities which are not rated by third party credit
rating agencies, but are rated by the NAIC and also internally rated. All of
these municipal bond holdings are rated investment grade. Our initial
investment decisions and ongoing monitoring procedures for these securities are
based on a thorough due diligence process which includes, but is not limited
to, an assessment of the credit quality, structure, and liquidity risks of each
issue.

26.0% or $228.7 million of our municipal bond portfolio is insured by five
bond insurers and 33.3% of these securities have a credit rating of Aaa or Aa.
Our practices for acquiring and monitoring municipal bonds primarily are based
on the credit quality of the primary obligor. As of December 31, 2009, we
believe valuations substantially reflected the decline in the value of the
insurance, and further related valuation declines if any, are not expected to
be material. While the valuation of these holdings may be temporarily impacted
by negative market developments, we expect to receive all of the contractual
cash flows. As of December 31, 2009, 60.9% of our insured municipal bond
portfolio was insured by National Public Finance Guarantee Corporation, Inc.,
15.8% by Ambac Assurance Corporation, 14.1% by Assured Municipal Guaranty Ltd
and 5.1% by Syncora Holdings.

Corporate bonds, including publicly traded, privately placed and hybrid
securities, totaled $3.27 billion as of December 31, 2009 with an unrealized
net capital gain of $98.2 million. Privately placed securities primarily
consist of corporate issued senior debt securities that are in unregistered
form or are directly negotiated with the borrower. Privately placed corporate
securities are rated by the NAIC in instances when information is provided to
them. 37.8% of the privately placed corporate securities in our portfolio are
rated by an independent rating agency.

Our portfolio of privately placed securities are broadly diversified by
issuer, industry sector and country. The portfolio is made up of 198 issuers
with each issue averaging $7.0 million. Privately placed corporate obligations
generally have higher yields and contain structural security features such as
financial covenants and call protections that provide investors greater
protection against credit deterioration, reinvestment risk or fluctuations in
interest rates than those typically found in publicly registered debt
securities. Additionally, investments in these securities are made after
extensive due diligence of the issuer, typically including direct discussions
with senior management and on-site visits to company facilities. Ongoing
monitoring includes direct periodic dialog with senior management of the issuer
and continuous monitoring of operating performance and financial position.
Every issue not rated by an independent rating agency is internally rated with
a formal rating affirmation approximately once a year.

The following table shows details of hybrid securities as of December 31,
2009.

PUBLIC PRIVATELY PLACED TOTAL
- - ------------------ ------------------ -------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
($ IN THOUSANDS) ------- ----------- ------- ----------- -------- -----------

United Kingdom ("UK"). $35,844 $(2,233) $10,752 $ (712) $ 46,596 $ (2,945)
Europe (non-UK)....... 11,808 1,328 31,549 (6,501) 43,357 (5,173)
Asia/Australia........ -- -- 15,620 (2,171) 15,620 (2,171)
North America......... 27,973 (1,769) 7,861 (406) 35,834 (2,175)
------- ------- ------- ------- -------- --------
Total.............. $75,625 $(2,674) $65,782 $(9,790) $141,407 $(12,464)
======= ======= ======= ======= ======== ========

Hybrid securities have attributes most similar to those of fixed income
securities such as stated interest rates, mandatory redemption dates or an
interest rate step-up feature which is intended to incent the issuer to redeem
the security at a specified call date. Hybrid securities include
publicly-traded and privately placed securities. While hybrid securities are
generally issued by investment grade-rated financial institutions, they have
structural features which make them more sensitive to credit market
deterioration. Specifically, features allowing deferral of payment have
significantly impacted prices as the issuers continue to be impacted by the
stress in the global financial system. $113.5 million of our hybrid securities
with $11.3 million of unrealized net capital losses are Tier 1 securities, and
$27.9 million with $1.1 million of unrealized net capital losses are Tier 2
securities. Tier 1 securities are lower in the capital structure than Tier 2
securities.

Foreign government securities totaled $290.9 million, with 100.0% rated
investment grade, at December 31, 2009. Of these securities, 91.6% are backed
by the U.S. government and the remaining 8.4% are highly diversified across
foreign governments.

RMBS, CMBS and ABS are structured securities that are primarily
collateralized by residential and commercial real estate related loans and
other consumer related borrowings. The cash flows are generally applied in a
pre-determined order and are designed so that each security issued qualifies
for a specific original rating. The security issue is typically referred to as
the "class". For example, the "senior" portion or "top" of the capital
structure, or rating class, which would originally qualify for a rating of Aaa
typically has priority in receiving the principal repayments on the collateral.
In a sequential structure, underlying collateral principal repayments are
directed to the most senior rated Aaa class in the structure until paid in
full, after which principal repayments are directed to the next most senior Aaa
class in the structure until it is paid in full. Senior Aaa classes generally
share any losses from the underlying collateral on a pro-rata basis after
losses are absorbed by classes with lower original ratings and include other
"junior" or "subordinate" securities. The collateral can have fixed interest
rates, variable interest rates (such as adjustable rate mortgages ("ARM")) or
may contain features of both fixed and variable rate mortgages.

RMBS, including U.S. Agency, Prime, Alt-A and Subprime totaled $651.7
million, with 98.0% rated investment grade, at December 31, 2009. The RMBS
portfolio is subject to interest rate risk, but unlike other fixed income
securities, is additionally subject to significant prepayment risk from the
underlying mortgages. The credit risk associated with our RMBS is mitigated due
to the fact that 84.3% of the portfolio consists of securities that were issued
by, or have underlying collateral that is guaranteed by, U.S. government
agencies. The unrealized net capital loss of $14.4 million at December 31, 2009
on our RMBS portfolio was the result of wider credit spreads than at initial
purchase on non-U.S. Agency securities, which is largely due to the
macroeconomic conditions and credit market deterioration, including the impact
of real estate valuations, that persisted throughout 2009. The following table
shows our RMBS portfolio at December 31, 2009 based upon vintage year.

U.S. AGENCY PRIME ALT-A SUBPRIME TOTAL RMBS
($ IN THOUSANDS) ------------------- ------------------ ------------------ ------------------ -------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
-------- ----------- ------- ----------- ------- ----------- ------- ----------- -------- -----------

2008.......... 93,883 453 -- -- -- -- -- -- 93,883 453
2007.......... 25,657 200 -- -- -- -- 17,657 (9,436) 43,314 (9,236)
2006.......... 28,311 (108) -- -- -- -- 10,827 (7,202) 39,138 (7,310)
2005.......... 72,259 669 -- -- -- -- 74 (66) 72,333 603
Pre-2005...... 282,619 9,428 45,425 (2,094) 23,845 (5,598) 4,440 (1,113) 356,329 623
-------- ------- ------- ------- ------- ------- ------- -------- -------- --------
Total......... $549,404 $11,063 $45,425 $(2,094) $23,845 $(5,598) $32,998 $(17,817) $651,672 $(14,446)
======== ======= ======= ======= ======= ======= ======= ======== ======== ========

Prime are collateralized by residential mortgage loans issued to prime
borrowers. As of December 31, 2009, all of the Prime were fixed rate.

Alt-A includes securities collateralized by residential mortgage loans
issued to borrowers with stronger credit profiles than subprime borrowers, but
who do not qualify for prime financing terms due to high loan-to-value ratios
or limited supporting documentation. As of December 31, 2009, all of the Alt-A
were fixed rate.

Subprime includes securities that are collateralized by mortgage loans
issued to borrowers that cannot qualify for Prime or Alt-A financing terms due
in part to weak or limited credit history. It also includes securities that are
collateralized by certain second lien mortgages regardless of the borrower's
credit history. The Subprime portfolio consisted of $23.7 million and $9.3
million of first lien and second lien securities, respectively. Subprime
included $21.7 million of fixed rate and $11.3 million of variable rate
securities. At December 31, 2009, $6.6 million or 20.1% of the total Subprime
securities are insured by four bond insurers.

CMBS totaled $346.7 million, with 97.1% rated investment grade, at
December 31, 2009. The CMBS portfolio is subject to credit risk, but unlike
certain other structured securities, is generally not subject to prepayment
risk due to protections within the underlying commercial mortgages whereby
borrowers are effectively restricted from prepaying their mortgages due to
changes in interest rates. Of the CMBS investments,

96.8% are traditional conduit transactions collateralized by pools of
commercial mortgages, broadly diversified across property types and
geographical area. The remainder consists of non-traditional CMBS such as small
balance transactions, large loan pools and single borrower transactions.

The following table shows our CMBS portfolio at December 31, 2009 based upon
vintage year.

UNREALIZED
FAIR VALUE GAIN/(LOSS)
($ IN THOUSANDS) ---------- -----------

2007............ $ 68,573 $ (9,979)
2006............ 111,290 (91,452)
2005............ 54,252 (18,199)
Pre-2005........ 112,626 (6,464)
-------- ---------
Total CMBS.... $346,741 $(126,094)
======== =========

The unrealized net capital loss of $126.1 million at December 31, 2009 on
our CMBS portfolio was a result of wider credit spreads than at initial
purchase, which is largely due to the macroeconomic conditions and credit
market deterioration, including the impact of real estate valuations, that
persisted throughout 2009. While CMBS spreads tightened during 2009, credit
spreads in most rating classes remain wider than at initial purchase, which is
particularly evident in our 2005-2007 vintage year subordinated senior Aaa and
non-traditional CMBS, as well as our 2005-2007 vintage year Aa and lower rated
securities. These holdings accounted for $107.6 million, or 85.3%, of the
unrealized net capital loss.

ABS, including CDO and Consumer and other ABS, totaled $40.0 million, with
100.0% rated investment grade, at December 31, 2009. Credit risk is managed by
monitoring the performance of the collateral. In addition, many of the
securities in the ABS portfolio are credit enhanced with features such as
overcollateralization, subordinated structures, reserve funds, guarantees
and/or insurance. A portion of the ABS portfolio is also subject to interest
rate risk since price volatility and the ultimate realized yields are affected
by the rate of prepayment of the underlying assets. The unrealized net capital
loss of $6.5 million at December 31, 2009 on our ABS portfolio was the result
of wider credit spreads than at initial purchase.

CDO totaled $17.8 million, with 100.0% rated investment grade, at
December 31, 2009. CDO consist primarily of obligations secured by high yield
and investment grade corporate credits including $5.7 million of project
finance CDO with unrealized losses of $4.3 million. The remaining $12.1 million
of securities consisted of trust preferred CDO and cash flow collateralized
loan obligations with unrealized losses of $2.1 million.

Consumer and other ABS totaled $22.3 million, with 100.0% rated investment
grade, at December 31, 2009. Consumer and other ABS consists entirely of auto
securities with unrealized losses of $101 thousand. At December 31, 2009, $9.9
million or 44.5% of Consumer and other ABS securities are insured by three bond
insurers.

MORTGAGE LOANS Our mortgage loan portfolio totaled $543.0 million at
December 31, 2009, compared to $700.3 million at December 31, 2008, and
primarily comprised loans secured by first mortgages on developed commercial
real estate. Key considerations used to manage our exposure include property
type and geographic diversification. Our exposure to any metropolitan area is
also highly diversified, with the largest exposure not exceeding 13.8% of the
portfolio. The portfolio is diversified across several property types, with the
largest concentrations of 39.8% in warehouse and 31.4% in office buildings.
Debt service coverage ratio represents the amount of cash flows from the
property available to the borrower to meet principal and interest payment
obligations. The average debt service coverage ratio of the portfolio as of
December 31, 2009 was 1.7, and 7.5% of the mortgage loan portfolio had a debt
service coverage ratio under 1.0. Mortgage loans with debt service coverage
ratios below 1.0 generally have a higher level of risk, with 7.8% of these
loans having valuation allowances totaling $870 thousand. Mortgage loans with
debt service coverage below 1.0 for which valuation

allowances have not been established primarily relate to instances where the
borrower has the financial capacity to fund the revenue shortfalls from the
properties for the foreseeable term, the decrease in occupancy is considered
temporary, or there are other risk mitigating circumstances such as additional
collateral, escrow balances or borrower guarantees.

In 2009, $39.2 million of commercial mortgage loans were contractually due.
Of these, 86.7% were paid as due and 13.3% were extended generally for less
than one year. In addition, $89.0 million that were not contractually due in
2009 were paid in full. We are aggressively pursuing workout solutions for all
delinquent loans that are not in the process of foreclosure, which total $4.8
million, including refinancing, extensions and sales.

We closely monitor our commercial mortgage loan portfolio on a loan-by-loan
basis. Loans with an estimated collateral value less than the loan balance, as
well as loans with other characteristics indicative of higher than normal
credit risks, are reviewed at least quarterly for purposes of establishing
valuation allowances and placing loans on non-accrual status as necessary.
Accrual of income is suspended for mortgage loans that are in default or when
full and timely collection of principal and interest payments is not probable.
The underlying collateral values are based upon either discounted property cash
flow projections or a commonly used valuation method that utilizes a one-year
projection of expected annual income divided by a market based expected rate of
return. The net carrying value of impaired loans at December 31, 2009 and 2008
was $24.0 million and $3.4 million, respectively. Total valuation allowances of
$4.3 million and $449 thousand were held on impaired loans at December 31, 2009
and 2008, respectively. We recognized $5.3 million of realized capital losses
related to increases in the valuation allowances on impaired loans for the year
ended December 31, 2009 primarily due to deteriorating debt service coverage
resulting from a decrease in occupancy and the risk associated with refinancing
near-term maturities due to declining collateral valuations. We recognized $449
thousand of realized capital losses related to valuation allowances on impaired
loans for the year ended December 31, 2008. Realized capital losses recognized
on mortgage loans held for sale totaled $686 thousand and $2.0 million for the
years ended December 31, 2009 and 2008, respectively. For further detail, see
Note 5 to the financial statements.

EQUITY SECURITIES Equity securities include index-based securities. The
equity securities portfolio was $123.3 million at December 31, 2009. We did not
hold any equity securities at December 31, 2008. Net unrealized gains totaled
$23.1 million at December 31, 2009.

SHORT-TERM INVESTMENTS Our short-term investment portfolio was $348.5
million and $409.8 million at December 31, 2009 and 2008, respectively. The
decrease in short-term investments was primarily due to funding reductions in
contractholder obligations and purchases of fixed income and equity securities.

POLICY LOANS Our policy loan balance was $40.6 million and $39.7 million at
December 31, 2009 and 2008, respectively. Policy loans are carried at the
unpaid principal balances.

OTHER INVESTMENTS Our other investments as of December 31, 2009 are
comprised of a note due from a related party and certain derivative financial
instruments.

UNREALIZED NET CAPITAL GAINS AND LOSSES See Note 5 of the financial
statements for further disclosures regarding unrealized gains and losses on
fixed income and equity securities and factors considered in determining
whether securities are other-than-temporarily impaired. Unrealized net capital
gains totaled $24.0 million as of December 31, 2009, compared to unrealized net
capital losses of $278.3 million at December 31, 2008. The improvement since
December 31, 2008 for fixed income securities was primarily a result of
tightening credit spreads on certain fixed income securities during 2009 that
more than offset the rise in risk-free interest rates. The following table
presents unrealized net capital gains and losses, pre-tax and after-tax at
December 31.

2009 2008
($ IN THOUSANDS) --------- ---------

U.S. government and agencies....................... $ 51,612 $ 241,076
Municipal.......................................... (51,278) (77,283)
Corporate.......................................... 98,172 (271,451)
Foreign government................................. 49,715 109,235
RMBS............................................... (14,446) (16,407)
CMBS............................................... (126,094) (252,839)
ABS................................................ (6,544) (8,586)
Redeemable preferred stock......................... (607) (3,831)
--------- ---------
Fixed income securities/(1)/....................... 530 (280,086)
Equity securities.................................. 23,143 --
Short-term investments............................. (3) 65
Derivatives........................................ 309 1,749
--------- ---------
Unrealized net capital gains and losses, pre-tax... 23,979 (278,272)
Amounts recognized for:
Insurance reserves/(2)/......................... (40,551) (155,935)
DAC and DSI/(3)/................................ 53,572 266,647
--------- ---------
Total....................................... 13,021 110,712
Deferred income taxes.............................. (12,950) 58,646
--------- ---------
Unrealized net capital gains and losses, after-tax. $ 24,050 $(108,914)
========= =========

- --------
(1)Unrealized net capital gains and losses for fixed income securities as of
December 31, 2009 comprises $(3.8) million related to unrealized net capital
losses on fixed income securities with other-than-temporary impairment and
$4.3 million related to other unrealized net capital gains and losses.
(2)The insurance reserves adjustment represents the amount by which the reserve
balance would increase if the net unrealized gains in the applicable product
portfolios were realized and reinvested at current lower interest rates,
resulting in a premium deficiency. Although we evaluate premium deficiencies
on the combined performance of our life insurance and immediate annuities
with life contingencies, the adjustment primarily relates to structured
settlement annuities with life contingencies, in addition to certain payout
annuities with life contingencies.
(3)The DAC and DSI adjustment balance represents the amount by which the
amortization of DAC and DSI would increase or decrease if the unrealized
gains or losses in the respective product portfolios were realized. Only the
unrealized net capital gains and losses on fixed annuity and
interest-sensitive life product portfolios are used in this calculation. The
DAC and DSI adjustment balance, subject to limitations, is determined by
applying the DAC and DSI amortization rate to unrealized net capital gains
or losses. Recapitalization of the DAC and DSI balances is limited to the
originally deferred costs plus interest. The DAC and DSI adjustment balance
was limited as of December 31, 2008 because the calculated amount, when
added to the DAC and DSI balance before the impact of unrealized capital
gains and losses, was greater than originally deferred costs plus interest.
The DAC and DSI adjustment balance is below the limitation as of
December 31, 2009. The limitation amount changes from period to period based
on changes in the DAC and DSI balance before the impact of unrealized
capital gains and losses, as well as new deferrals and interest.

The net unrealized gain for the fixed income portfolio totaled $530
thousand, comprised of $287.2 million of gross unrealized gains and $286.7
million of gross unrealized losses at December 31, 2009. This is compared to a
net unrealized loss for the fixed income portfolio totaling $280.1 million,
comprised of $420.1 million of gross unrealized gains and $700.2 million of
gross unrealized losses at December 31, 2008. The net unrealized gain for the
equity portfolio totaled $23.1 million, comprised entirely of unrealized gains
at December 31, 2009. We held no equity securities at December 31, 2008.

Gross unrealized gains and losses as of December 31, 2009 on fixed income
securities by type and sector are provided in the table below.

GROSS UNREALIZED AMORTIZED FAIR VALUE
($ IN THOUSANDS) ------------------ COST AS A AS A PERCENT
PAR AMORTIZED FAIR PERCENT OF OF
VALUE/(1)/ COST GAINS LOSSES VALUE PAR VALUE/(2)/ PAR VALUE/(2)/
---------- ---------- -------- --------- ---------- ------------- -------------

Corporate:
Banking............................. $ 367,525 $ 350,997 $ 7,852 $ (27,890) $ 330,959 95.5% 90.1%
Utilities........................... 690,462 683,334 46,735 (8,361) 721,708 99.0 104.5
Transportation...................... 182,280 185,064 9,831 (5,572) 189,323 101.5 103.9
Financial services.................. 295,206 292,162 10,067 (5,539) 296,690 99.0 100.5
Consumer goods (cyclical and
non-cyclical)...................... 500,196 502,174 25,932 (4,834) 523,272 100.4 104.6
Capital goods....................... 347,550 346,589 14,338 (3,697) 357,230 99.7 102.8
Basic industry...................... 124,781 124,926 6,254 (925) 130,255 100.1 104.4
Energy.............................. 235,327 236,722 11,362 (592) 247,492 100.6 105.2
Communications...................... 166,248 166,130 10,922 (264) 176,788 99.9 106.3
FDIC guaranteed..................... 25,000 25,193 -- (88) 25,105 100.8 100.4
Technology.......................... 106,996 109,588 5,954 (50) 115,492 102.4 107.9
Other............................... 228,855 150,151 9,332 (2,595) 156,888 65.6 68.6
---------- ---------- -------- --------- ----------
Total corporate fixed income portfolio. 3,270,426 3,173,030 158,579 (60,407) 3,271,202 97.0 100.0
---------- ---------- -------- --------- ----------
U.S. government and agencies........... 662,633 534,590 51,977 (365) 586,202 80.7 88.5
Municipal.............................. 1,164,370 929,688 12,502 (63,780) 878,410 79.8 75.4
Foreign government..................... 385,903 241,141 50,715 (1,000) 290,856 62.5 75.4
RMBS................................... 659,520 666,118 11,539 (25,985) 651,672 101.0 98.8
CMBS................................... 493,330 472,835 1,884 (127,978) 346,741 95.8 70.3
ABS.................................... 45,696 46,588 5 (6,549) 40,044 102.0 87.6
Redeemable preferred stock............. 8,500 9,245 -- (607) 8,638 108.8 101.6
---------- ---------- -------- --------- ---------- ----- -----
Total fixed income securities.......... $6,690,378 $6,073,235 $287,201 $(286,671) $6,073,765 90.8 90.8
========== ========== ======== ========= ========== ===== =====

- --------
(1)Included in par value are zero-coupon securities that are generally
purchased at a deep discount to the par value that is received at maturity.
These primarily included corporate, municipal, foreign government and U.S.
government and agencies zero-coupon securities with par value of $170.7
million, $391.0 million, $338.9 million and $288.2 million, respectively.
(2)Excluding the impact of zero-coupon securities, the percentage of amortized
cost to par value would be 99.4% for corporates, 100.0% for municipals,
106.6% for foreign governments and 100.5% for U.S. government and agencies.
Similarly, excluding the impact of zero-coupon securities, the percentage of
fair value to par value would be 102.3% for corporates, 97.8% for
municipals, 108.7% for foreign governments and 102.2% for U.S. government
and agencies.

The banking, utilities, transportation, financial services, consumer goods
and capital goods sectors had the highest concentration of gross unrealized
losses in our corporate fixed income securities portfolio at December 31, 2009.
While credit spreads have tightened in the last three quarters of 2009 from the
historically high levels observed in the fourth quarter of 2008 and the first
quarter of 2009, they remain wider than at initial purchase for certain
securities in the portfolio.

The scheduled maturity dates for fixed income securities in a gross
unrealized loss position at December 31, 2009 are shown below. Actual
maturities may differ from those scheduled as a result of prepayments by the
issuers.

UNREALIZED PERCENT FAIR PERCENT
LOSS TO TOTAL VALUE TO TOTAL
($ IN THOUSANDS) ---------- -------- ---------- --------

Due after one year through five years.. $ (6,273) 2.2% $ 420,913 21.6%
Due after five years through ten years. (20,333) 7.1 205,594 10.5
Due after ten years.................... (227,531) 79.4 1,136,589 58.3
RMBS and ABS/(1)/...................... (32,534) 11.3 187,711 9.6
--------- ----- ---------- -----
Total.................................. $(286,671) 100.0% $1,950,807 100.0%
========= ===== ========== =====

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

OTHER-THAN-TEMPORARY IMPAIRMENT EVALUATION We have a comprehensive portfolio
monitoring process to identify and evaluate each fixed income and equity
security whose carrying value may be other-than-temporarily impaired. The
process includes a quarterly review of all securities through a screening
process which identifies instances where the fair value compared to amortized
cost for fixed income securities and cost for equity securities is below
established thresholds, and also includes the monitoring of other criteria such
as ratings, ratings downgrades or payment defaults. The securities identified,
in addition to other securities for which we may have a concern, are evaluated
based on facts and circumstances for inclusion on our watch-list. All
investments in an unrealized loss position at December 31, 2009 were included
in our portfolio monitoring process for determining whether declines in value
were other than temporary.

Due to recent market conditions and liquidity concerns, as well as wider
credit spreads than at initial purchase which persist in certain markets,
particularly related to structured assets, the extent and duration of a decline
in fair value have become less indicative of when the market may believe there
has been credit deterioration with respect to an issue or issuer. While we
continue to use declines in fair value and the length of time a security is in
an unrealized loss position as indicators of potential credit deterioration,
our determination of whether a security's decline in fair value is other than
temporary has placed greater emphasis on our analysis of the underlying credit
and collateral.

The following table summarizes fixed income securities in a gross unrealized
loss position according to significance, aging and investment grade
classification. There were no equity securities in a gross unrealized loss
position at December 31, 2009 or 2008.

DECEMBER 31, 2009 DECEMBER 31, 2008
($ IN THOUSANDS, EXCEPT NUMBER OF ISSUES) --------------------------------- ---------------------------------
BELOW BELOW
INVESTMENT INVESTMENT INVESTMENT INVESTMENT
GRADE GRADE TOTAL GRADE GRADE TOTAL
---------- ---------- ---------- ---------- ---------- ----------

Category (I): Unrealized loss less
than 20% of amortized cost/(1)/
Number of issues.................... 251 34 285 448 38 486
Fair value...................... $1,598,422 $ 74,615 $1,673,037 $2,105,319 $ 70,192 $2,175,511
Unrealized...................... $ (76,037) $ (4,717) $ (80,754) $ (187,983) $ (8,707) $ (196,690)
Category (II): Unrealized loss
greater than or equal to 20% of
amortized cost for a period of
less than 6 consecutive
months/(1)/
Number of issues.................... 6 4 10 150 30 180
Fair value...................... $ 36,613 $ 12,501 $ 49,114 $ 557,986 $ 46,428 $ 604,414
Unrealized...................... $ (10,289) $ (3,916) $ (14,205) $ (431,954) $(26,145) $ (458,099)
Category (III): Unrealized loss
greater than or equal to 20% of
amortized cost for a period of 6
or more consecutive months,
but less than 12 consecutive
months/(1)/
Number of issues.................... 3 5 8 13 2 15
Fair value...................... $ 13,549 $ 2,500 $ 16,049 $ 23,013 $ 612 $ 23,625
Unrealized...................... $ (10,184) $ (2,311) $ (12,495) $ (41,789) $ (757) $ (42,546)
Category (IV): Unrealized loss
greater than or equal to 20% of
amortized cost for 12 or more
consecutive months/(1)/
Number of issues.................... 41 17 58 -- 1 1
Fair value...................... $ 185,204 $ 27,403 $ 212,607 $ -- $ 2,562 $ 2,562
Unrealized...................... $ (150,099) $(29,118) $ (179,217) $ -- $ (2,884) $ (2,884)
---------- -------- ---------- ---------- -------- ----------
Total number of issues.............. 301 60 361 611 71 682
========== ======== ========== ========== ======== ==========
Total fair value................ $1,833,788 $117,019 $1,950,807 $2,686,318 $119,794 $2,806,112
========== ======== ========== ========== ======== ==========
Total unrealized losses............. $ (246,609) $(40,062) $ (286,671) $ (661,726) $(38,493) $ (700,219)
========== ======== ========== ========== ======== ==========

- --------
(1)At December 31, 2009, gross unrealized losses resulting from factors other
than credit on fixed income securities with other-than-temporary impairments
for which we have recorded a credit loss in earnings are included as
follows: Category (III) $1.6 million, and Category (IV) $5.0 million.

Categories (I) and (II) have generally been adversely affected by overall
economic conditions including interest rate increases and the market's
evaluation of certain sectors. The degree to which and/or length of time that
the securities have been in an unrealized loss position does not suggest that
these securities pose a high risk of being other-than-temporarily impaired. The
largest individual unrealized loss was $3.7 million for Category (I) and $2.4
million for Category (II) as of December 31, 2009.

Gross unrealized losses on fixed income securities in Category (II)
decreased $443.9 million since December 31, 2008. This change was primarily the
result of improved market conditions resulting in higher valuations, which
either caused a shift to Category (I) or created an overall gross unrealized
gain position. The remainder of the reduction in Category (II) is a result of
losses shifting into Category (III) and (IV) due to continued aging of losses
in a continuous unrealized loss position of greater than or equal to 20% of
amortized cost and the resetting of unrealized losses to the historical point
of impairment for securities impacted by the adoption of new OTTI accounting
guidance on April 1, 2009.

Categories (III) and (IV) are affected by macroeconomic and credit pressures
upon real estate valuations and borrowers, and issue, issuer or industry
specific conditions. The degree to which and/or length of time these securities
have been in an unrealized loss position subject them to increased scrutiny
through our portfolio monitoring process. The largest individual unrealized
loss was $5.5 million for Category (III) and $11.8 million for Category (IV) as
of December 31, 2009. Category (III) and (IV) fixed income securities at
December 31, 2009 are listed in the following table by fixed income security
type and investment quality classification.

INVESTMENT GRADE
($ IN THOUSANDS) ---------------------------------------------------------
CATEGORY (III) CATEGORY (IV) TOTAL
----------------- ------------------ ------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE LOSSES VALUE LOSSES VALUE LOSSES
------- ---------- -------- ---------- -------- ----------

Municipal..... $ 5,601 $ (3,132) $ 59,148 $ (35,166) $ 64,749 $ (38,298)
Corporate..... 7,948 (7,052) 13,262 (4,449) 21,210 (11,501)
RMBS.......... -- -- 1,130 (2,513) 1,130 (2,513)
CMBS.......... -- -- 99,181 (101,975) 99,181 (101,975)
ABS........... -- -- 12,483 (5,996) 12,483 (5,996)
------- -------- -------- --------- -------- ---------
$13,549 $(10,184) $185,204 $(150,099) $198,753 $(160,283)
======= ======== ======== ========= ======== =========

BELOW INVESTMENT GRADE
---------------------------------------------------------
CATEGORY (III) CATEGORY (IV) TOTAL
----------------- ------------------ ------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE LOSSES VALUE LOSSES VALUE LOSSES
------- ---------- -------- ---------- -------- ----------
Corporate..... $ 339 $ (161) $ 17,180 $ (6,329) $ 17,519 $ (6,490)
RMBS.......... 2,161 (2,150) 7,968 (10,544) 10,129 (12,694)
CMBS.......... -- -- 2,255 (12,245) 2,255 (12,245)
------- -------- -------- --------- -------- ---------
$ 2,500 $ (2,311) $ 27,403 $ (29,118) $ 29,903 $ (31,429)
------- -------- -------- --------- -------- ---------
Total......... $16,049 $(12,495) $212,607 $(179,217) $228,656 $(191,712)
======= ======== ======== ========= ======== =========

As of December 31, 2009, our gross unrealized losses in Category (III) and
(IV) were primarily concentrated in structured securities, as we have
experienced declines in fair value since the time of initial purchase. As of
December 31, 2009, RMBS, CMBS and ABS comprised $112.8 million and $12.4
million of investment grade and below investment grade securities in Category
(III) and (IV), respectively. Consistent with their rating, our portfolio
monitoring indicates that the investment grade securities have a relatively low
risk of default. Securities rated below investment grade, whether at issue or
upon subsequent downgrade, have a higher level of risk and can be more volatile.

A key consideration in the determination of other-than-temporary impairment
for structured securities is whether the present value of loss adjusted cash
flows from the underlying collateral will be sufficient to recover our
amortized cost basis. This evaluation focuses on the adequacy of credit
enhancement relative to the performance of the underlying collateral, adjusted
for projected defaults and prepayments. Credit enhancement includes, but is not
limited to, structural subordination, guarantees and reserves. Key future
collateral performance considerations include historical default/prepayment
trends, as well as projected macroeconomic variables such as unemployment rates
and interest rates. In general, securities with credit enhancement in excess

of projected loss-adjusted collateral performance are deemed not
other-than-temporarily impaired. Securities with deficient credit enhancement
are deemed other-than-temporarily impaired and the difference between the
estimated recovery value and amortized cost is recorded in earnings as a credit
loss.

A description of the other-than-temporary impairment assessment for our RMBS
and CMBS, which comprise a majority of our Category (III) and (IV) unrealized
losses, follows:

. The credit loss evaluation for non-agency RMBS securities, including
Prime, Alt-A and Subprime securities, primarily relies on projections of
losses based on future collateral performance, taking into account
security specific delinquency and loss severity trends on the underlying
mortgage collateral to date. The expected performance of each
transaction considers projected collateral losses and credit enhancement
levels, as well as an assessment of the origination practices of the
transaction sponsor, geographic diversification, overall transaction
structure, collateral type and quality, transaction vintage year and
other considerations that may be of concern. Our default estimates on
the underlying mortgage collateral are forward looking and generally
based upon security specific performance trends to date as well as our
overall economic outlook, with a focus on housing, unemployment and GDP
expectations, and consider other factors that may influence future
borrower behaviors. Our loss severity estimates are forward looking and
incorporate estimates of future house price appreciation/depreciation
expectations and estimates of foreclosure timing and expenses.

. The credit loss evaluation for CMBS primarily relies on model-driven
projections of future collateral performance, taking into account all
reasonably available information specific to the underlying commercial
mortgage loans including estimates of current and future property value,
current and projected rental income and the credit enhancement levels.
Estimates of future property value and rental income consider specific
property-type and metro area economic trends such as property vacancy
rates and rental rates, employment indicators and building industry
fundamentals. Other considerations include borrower payment history, the
origination practices of the transaction sponsor, overall collateral
quality and diversification, transaction vintage year, maturity date,
overall structure of the transaction and other factors that may
influence performance. Actual realized losses in the CMBS market have
historically been low, therefore our projection of collateral
performance is informed by credit opinions obtained from third parties,
such as nationally recognized credit rating agencies, industry analysts
and a CMBS loss modeling advisory service.

For structured securities deemed other-than-temporarily impaired, we
recognized the estimated credit loss in earnings, while $6.6 million of
unrealized losses related to factors other than credit remains classified in
OCI. Structured securities deemed not other-than-temporarily impaired are
current on contractual or expected payments and our detailed analysis of the
underlying credit and related cash flows has concluded that our amortized cost
basis is recoverable or the securities are reliably insured. The declines in
fair value are primarily due to credit spread widening in the structured
security marketplace and increased liquidity discounts.

We believe that the unrealized losses on our fixed income securities are not
predictive of their ultimate performance and the unrealized losses should
reverse over the remaining lives of the securities. We anticipate that these
securities will recover in line with our best estimate of the expected cash
flows which are used for other-than-temporary impairment evaluations as well as
managing the portfolio. As of December 31, 2009, we do not have the intent to
sell and it is not more likely than not we will be required to sell these
securities before the recovery of their amortized cost basis. Our evaluation of
whether it is more likely than not we will be required to sell a security
before recovery of its amortized cost basis is supported by our liquidity
position, which cushions us from the need to liquidate securities with
significant unrealized losses to meet cash obligations.

Additionally, whenever our initial analysis indicates that a fixed income
security's unrealized loss of 20% or more for at least 36 months or any equity
security's unrealized loss of 20% or more for at least 12 months is temporary,
additional evaluations and management approvals are required to substantiate
that the unrealized loss

is related to other factors and recognition of a credit loss write-down is not
appropriate. As of December 31, 2009, no securities met these criteria.

We also monitor the quality of our fixed income portfolio by categorizing
certain investments as "problem," "restructured," or "potential problem."
Problem fixed income securities are in default with respect to principal or
interest and/or are investments issued by companies that have gone into
bankruptcy subsequent to our acquisition. Fixed income securities are
categorized as restructured when the debtor is in financial difficulty and we
grant a concession. Potential problem fixed income securities are current with
respect to contractual principal and/or interest, but because of other facts
and circumstances, we have concerns regarding the borrower's ability to pay
future principal and interest according to the original terms, which causes us
to believe these investments may be classified as problem or restructured in
the future.

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

2009
---------------------------------------------------------------
AMORTIZED PERCENT OF
COST AS A FAIR VALUE AS TOTAL FIXED
PAR AMORTIZED PERCENT OF FAIR A PERCENT OF INCOME
VALUE/(1)/ COST/(1)/ PAR VALUE VALUE PAR VALUE PORTFOLIO
($ IN THOUSANDS) --------- --------- ---------- ------- ------------- -----------

Problem................................ $15,052 $10,118 67.2% $10,176 67.6% 0.2%
Potential problem...................... 80,594 47,484 58.9 38,348 47.6 0.6
------- ------- ------- ---
Total net carrying value............... $95,646 $57,602 $48,524 0.8%
======= ======= ======= ===
Cumulative write-downs recognized/(2)/. $25,493
=======

2008
---------------------------------------------------------------
AMORTIZED PERCENT OF
COST AS A FAIR VALUE AS TOTAL FIXED
PAR AMORTIZED PERCENT OF FAIR A PERCENT OF INCOME
VALUE/(1)/ COST/(1)/ PAR VALUE VALUE PAR VALUE PORTFOLIO
--------- --------- ---------- ------- ------------- -----------
Problem................................ $30,000 $18,824 62.7% $13,593 45.3% 0.2%
Potential problem...................... 56,942 22,118 38.8 22,080 38.8 0.4
------- ------- ------- ---
Total net carrying value............... $86,942 $40,942 47.1 $35,673 41.0 0.6%
======= ======= ======= ===
Cumulative write-downs recognized/(2)/. $41,423
=======

- --------
(1)The difference between par value and amortized cost of $38.0 million at
December 31, 2009 and $46.0 million at December 31, 2008 is primarily
attributable to write-downs. Par value has been reduced by principal
payments.
(2)Cumulative write-downs recognized only reflects impairment write-downs
related to investments within the problem, potential problem and
restructured categories.

At December 31, 2009, amortized cost for the problem category was $10.1
million and was comprised of $9.6 million of corporates (privately placed) and
$518 thousand of Subprime. The decrease of $8.7 million from December 31, 2008
is primarily attributable to a reduction in corporates. The amortized cost of
problem investments with a fair value less than 80% of amortized cost totaled
$519 thousand with unrealized losses of $417 thousand and fair value of $102
thousand.

At December 31, 2009, amortized cost for the potential problem category was
$47.5 million and was comprised of $30.0 million of corporates (public and
privately placed), $9.6 million of Subprime and $7.9 million of CMBS. The
increase of $25.4 million from December 31, 2008 is primarily attributable to
additional corporates. The amortized cost of potential problem investments with
a fair value less than 80% of amortized cost totaled $19.6 million with
unrealized losses of $11.7 million and fair value of $7.9 million.

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

2009 2008 2007
($ IN THOUSANDS) -------- -------- --------

Fixed income securities........... $338,563 $362,671 $358,547
Mortgage loans.................... 36,658 41,949 40,916
Equity securities................. 1,751 -- --
Short-term and other.............. 5,038 12,949 14,487
-------- -------- --------
Investment income, before expense. 382,010 417,569 413,950
Investment expense................ (9,615) (14,638) (27,212)
-------- -------- --------
Net investment income............. $372,395 $402,931 $386,738
======== ======== ========

Net investment income decreased 7.6% or $30.5 million to $372.4 million in
2009 from $402.9 million in 2008. The decline was primarily due to lower
yields. Net investment income increased 4.2% in 2008 compared to 2007 due
primarily to higher average portfolio balances resulting from the investment of
cash flows from operating and financing activities related primarily to
deposits on fixed annuities and interest-sensitive life policies. Total
investment expenses decreased $12.6 million in 2008 compared to 2007. The
decrease was primarily due to lower expenses associated with a lower amount of
collateral received in connection with securities lending transactions.

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

2009 2008 2007
($ IN THOUSANDS) -------- --------- -------

Impairment write-downs.......................... $(30,255) $ (38,528) $ --
Change in intent write-downs.................... (20,821) (79,262) (6,793)
-------- --------- -------
Net other-than-temporary impairment losses
recognized in earnings..................... (51,076) (117,790) (6,793)
Sales........................................... 160,294 59,966 10,321
Valuation of derivative instruments............. 29,831 (29,525) (8,166)
Settlements of derivative instruments........... 6,419 10,144 3,807
-------- --------- -------
Realized capital gains and losses, pre-tax...... 145,468 (77,205) (831)
Income tax (expense) benefit.................... (52,474) 25,708 308
-------- --------- -------
Realized capital gains and losses, after-tax. $ 92,994 $ (51,497) $ (523)
======== ========= =======

Impairment write-downs totaled $30.3 million in 2009 and included
write-downs on fixed income securities and mortgage loans of $25.0 million and
$5.3 million, respectively. In 2008, impairment write-downs totaled $38.5
million and included write-downs on fixed income securities and mortgage loans
of $38.1 million and $449 thousand, respectively. No impairment write-downs
were recognized in 2007.

Impairment write-downs in 2009 were primarily the result of recovery
assessments related to investments with commercial real estate exposure,
including CMBS and mortgage loans; RMBS which experienced deterioration in
expected cash flows; ABS; and hybrid corporate fixed income securities. $5.8
million of the fixed income security write-downs in 2009 related to securities
that were subsequently disposed. Of the remaining, $19.2 million or 76.9% of
the fixed income security write-downs in 2009 related to impaired securities
that were performing in line with anticipated or contractual cash flows but
were written down primarily because of expected deterioration in the
performance of the underlying collateral or our assessment of the probability
of future default. For these securities, as of December 31, 2009, there have
either been no defaults or defaults have only impacted classes lower than our
position in the capital structure. $237 thousand of the fixed

income security write-downs in 2009 related to securities experiencing a
significant departure from anticipated cash flows; however, we believe they
retain economic value. $45 thousand in 2009 related to fixed income securities
for which future cash flows are very uncertain.

Hybrid corporate fixed income securities are assessed for
other-than-temporary impairment as fixed income securities when they are
expected to perform like a fixed income security. However, when credit-related
reasons increase the risk of deferred payment, they may be assessed for
other-than-temporary impairment in a manner similar to equity securities. In
2009, hybrid securities issued primarily by European financial institutions
were assessed as equity securities and written down for other-than-temporary
impairment resulting in $16.8 million of realized capital losses. These hybrid
securities that were still held as of December 31, 2009 had a fair value of
$22.5 million.

Change in intent write-downs totaling $20.8 million in 2009 included $20.1
million for fixed income securities, $686 thousand for mortgage loans and $14
thousand for equity securities. In 2008, change in intent write-downs totaled
$79.3 million and included $77.3 million for fixed income securities and $2.0
million for mortgage loans.

Beginning April 1, 2009, change in intent write-downs for fixed income
securities reflect instances where we have made the decision to sell the
security or it is more likely than not we will be required to sell the security
before recovery of its amortized cost basis. For periods prior to April 1, 2009
for fixed income securities and all periods for equity securities, change in
intent write-downs reflect instances where we could not assert a positive
intent to hold until recovery. Change in intent write-downs for mortgage loans
reflect instances where the loans have been classified as held for sale.

The change in intent write-downs in 2009 were a result of ongoing
comprehensive reviews of our portfolio resulting in write-downs of individually
identified investments. The change in intent write-downs in 2008 were a result
of our risk mitigation and return optimization programs and ongoing
comprehensive reviews of our portfolios.

Sales generated $160.3 million of net realized gains in 2009 primarily due
to $150.3 million of gains on sales of U.S. and foreign government fixed income
securities. Net realized gains from sales in 2008 were due to net realized
gains on fixed income securities of $59.6 million comprised of gross gains of
$75.6 million and gross losses of $16.0 million.

Valuation and settlement of derivative instruments recorded as net realized
capital gains totaling $36.2 million for the year ended December 31, 2009
included $29.8 million of gains on the valuation of derivative instruments and
$6.4 million of gains on the settlement of derivative instruments. Net realized
capital gains on the valuation of derivative instruments in 2009 were primarily
due to the impact of changing interest rates on the value of expected future
settlements. For the year ended December 31, 2008, net realized capital losses
on the valuation and settlement of derivative instruments totaled 19.4 million.

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

FAIR VALUE OF ASSETS AND LIABILITIES

We have two types of situations where we have classified investments as
Level 3 in the fair value hierarchy disclosures in Note 6 of the financial
statements. The first is where quotes continue to be received from independent
third-party valuation service providers and all significant inputs are market
observable; however there has been a significant decrease in the volume and
level of activity for the asset when compared to normal market activity such
that the degree of market observability has declined to a point where
categorization as a Level 3 measurement is considered appropriate. Among the
indicators we consider in determining whether a significant decrease in the
volume and level of activity for a specific asset has occurred include the
following:

. Level of new issuances in the primary market;

. Trading volume in the secondary market;

. Level of credit spreads over historical levels;

. Bid-ask spread; and

. Price consensus among market participants and sources.

The second situation where we have classified securities in Level 3 is where
specific inputs to our fair value estimation models which are considered
significant are not market observable. This has occurred in two principal
categories. The first is for broker quotes. The second is our ARS backed by
student loans for which a principal assumption, the anticipated date liquidity
will return to this market, is not market observable.

During 2009, certain Alt-A RMBS were transferred into Level 2 from Level 3
as a result of increased liquidity in these markets (see Level 3 rollforward in
Note 6 of the financial statements). This was evidenced by increased trading
volume and the narrowing of bid-ask spreads for our specific holdings.
Additionally, privately placed corporate fixed income securities that are
valued using internal pricing models were transferred into Level 2 from Level 3
as a result of enhancements to the valuation methodology, refinements to model
inputs and corroboration of our internal credit rating process by comparison to
available external ratings. We have also implemented price validation
procedures such as back-testing of actual sales, which corroborates the various
model inputs to market observable data. When transferring these securities into
Level 2, we do not change the source of fair value estimates or modify the
estimates received from independent third-party valuation service providers or
the internal valuation approach. Accordingly, for securities included within
this group, there was no change in fair value resulting in a realized or
unrealized gain or loss.

During 2009, certain CMBS were transferred into Level 3 from Level 2 as a
result of decreased liquidity in these markets. This was evidenced by decreased
trading volume and the widening of bid-ask spreads for these holdings.
Transfers into Level 3 during 2009 also included situations where a fair value
quote is not provided by our independent third-party valuation service provider
and as a result the price is stale or has been replaced with a broker quote
resulting in the security being classified as Level 3. Transfers out of Level 3
during 2009 also included situations where a broker quote was used in the prior
period and a fair value quote is now available from our independent third-party
valuation service provider. A quote utilizing the new pricing source is not
available as of the prior period, and any gains or losses related to the change
in valuation source for individual securities are not significant.

MARKET RISK

Market risk is the risk that we will incur losses due to adverse changes in
interest rates, credit spreads or equity prices. Adverse changes to these rates
and prices may occur due to changes in the liquidity of a market or market
segment, insolvency or financial distress of key market makers or participants
or changes in market perceptions of credit worthiness and/or risk tolerance.

The active management of market risk is integral to our results of
operations. We may use the following approaches to manage exposure to market
risk within defined tolerance ranges: 1) rebalancing existing asset or

liability portfolios, 2) changing the character of investments purchased in the
future and 3) using derivative instruments to modify the market risk
characteristics of existing assets and liabilities or assets expected to be
purchased. For a more detailed discussion of our use of derivative financial
instruments, see Note 7 of the financial statements.

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

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

We manage our exposure to market risk through the use of asset allocation,
duration, simulation, and as appropriate, through the use of stress tests. We
have asset allocation limits that place restrictions on the total funds that
may be invested within an asset class. We have duration limits on our
investment portfolio and, as appropriate, on individual components of the
portfolio. These duration limits place restrictions on the amount of interest
rate risk that may be taken. Comprehensive day-to-day management of market risk
within defined tolerance ranges occurs as portfolio managers buy and sell
within their respective markets based upon the acceptable boundaries
established by investment policies. This day-to-day management is integrated
with and informed by the activities of the ALM organization. This integration
is intended to result in a prudent, methodical and effective adjudication of
market risk and return, conditioned by the unique demands and dynamics of our
product liabilities and supported by the continuous application of advanced
risk technology and analytics.

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

We manage the interest rate risk in our assets relative to the interest rate
risk in our liabilities. One of the measures used to quantify this exposure is
duration. Duration measures the price sensitivity of the assets and liabilities
to changes in interest rates. For example, if interest rates increase 100 basis
points, the fair value of an asset with a duration of 5 is expected to decrease
in value by approximately 5%. At December 31, 2009, the difference between our
asset and liability duration was (0.36), compared to a 0.56 gap at December 31,
2008. A negative duration gap indicates that the fair value of our liabilities
is more sensitive to interest rate movements than the fair value of our assets.

We seek to invest premiums, contract charges and deposits to generate future
cash flows that will fund future claims, benefits and expenses, and that will
earn stable spreads across a wide variety of interest rate and economic
scenarios. To achieve this objective and limit interest rate risk, we adhere to
a philosophy of managing the duration of assets and related liabilities within
predetermined tolerance levels. This philosophy is executed using duration
targets for fixed income investments in addition to interest rate swaps and
caps to reduce the interest rate risk resulting from mismatches between
existing assets and liabilities.

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

Based upon the information and assumptions used in this duration
calculation, and interest rates in effect at December 31, 2009, we estimate
that a 100 basis point immediate, parallel increase in interest rates ("rate
shock") would increase the net fair value of the assets and liabilities by $172
thousand, compared to a decrease of $59.0 million at December 31, 2008. The
selection of a 100 basis point immediate parallel change in interest rates
should not be construed as our prediction of future market events, but only as
an illustration of the potential effect of such an event. There are $471.9
million of assets supporting life insurance products such as traditional and
interest-sensitive life that are not financial instruments. These assets and
the associated liabilities have not been included in the above estimate. The
$471.9 million of assets excluded from the calculation has increased from
$375.5 million reported at December 31, 2008 as fixed income valuations have
improved as a result of significant tightening of credit spreads. Based on
assumptions described above, in the event of a 100 basis point immediate
increase in interest rates, the assets supporting life insurance products would
decrease in value by $28.6 million, compared to a decrease of $26.8 million at
December 31, 2008.

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

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

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

Spread duration is calculated similarly to interest rate duration. At
December 31, 2009, the spread duration of assets was 5.24, compared to 4.96 at
December 31, 2008. Based upon the information and assumptions we use in this
spread duration calculation, and spreads in effect at December 31, 2009, we
estimate that a 100 basis point immediate, parallel increase in spreads across
all asset classes, industry sectors and credit ratings ("spread shock") would
decrease the net fair value of the assets by $343.5 million, compared to $320.3
million at December 31, 2008. The selection of a 100 basis point immediate
parallel change in spreads should not be construed as our prediction of future
market events, but only as an illustration of the potential effect of such an
event.

EQUITY PRICE RISK is the risk that we will incur losses due to adverse
changes in general levels of the equity markets. At December 31, 2009, we held
$123.3 million in equity securities. We did not hold equity securities at
December 31, 2008.

At December 31, 2009, our equity securities had a cash market portfolio beta
of 1.00. Beta represents a widely used methodology to describe, quantitatively,
an investment's market risk characteristics relative to an index such as the
S&P 500. Based on the beta analysis, we estimate that if the S&P 500 increases
or decreases by 10%, the fair value of our equity securities will increase or
decrease by 10%, respectively. Based upon the information and assumptions we
used to calculate beta at December 31, 2009, we estimate that an immediate
decrease in the S&P 500 of 10% would decrease the net fair value of our equity
securities by $12.3 million, and an immediate increase in the S&P 500 of 10%
would increase the net fair value by $12.3 million. The selection of a 10%
immediate decrease or increase in the S&P 500 should not be construed as our
prediction of future market events, but only as an illustration of the
potential effect of such an event.

The beta of our equity securities was determined using Barra's predictive
beta. This beta is based on a company's fundamental data. The illustrations
noted above may not reflect our actual experience if the future composition of
the portfolio (hence its beta) and correlation relationships differ from the
historical relationships.

At December 31, 2009 and 2008, we had separate accounts assets related to
variable annuity and variable life contracts with account values totaling
$587.0 million and $533.8 million, respectively. Equity risk exists for
contract charges based on separate account balances and guarantees for death
and/or income benefits provided by our variable products. In 2006, we disposed
of all of the variable annuity business through a reinsurance agreement with
Prudential and therefore mitigated this aspect of our risk. Equity risk of our
variable life business relates to contract charges and policyholder benefits.
Total variable life contract charges for 2009 and 2008 were $860 thousand and
$1.4 million, respectively. Separate account liabilities related to variable
life contracts were $5.8 million and $3.6 million in December 31, 2009 and
2008, respectively.

DEFERRED TAXES

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

With respect to our evaluation of the need for a valuation allowance related
to the deferred tax asset on capital losses that have been realized but have
not yet been recognized for tax purposes, we utilize prudent and feasible tax
planning strategies that optimize the ability to carry back capital losses as
well as the ability to offset future capital losses with unrealized capital
gains that could be recognized for tax purposes.

With respect to our evaluation of the need for a valuation allowance related
to the deferred tax asset on unrealized capital losses on fixed income and
equity securities, our tax planning strategies first consider the availability
of unrealized capital gains to offset future capital losses and then we rely on
our assertion that we have the intent and ability to hold certain securities
with unrealized losses to recovery. As a result, the unrealized losses on these
securities would not be expected to materialize and no valuation allowance on
the associated deferred tax asset is needed. No valuation allowance was needed
at December 31, 2009 or 2008.

CAPITAL RESOURCES AND LIQUIDITY

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

2009 2008 2007
($ IN THOUSANDS) -------- --------- --------

Common stock, retained income and additional capital paid-in. $682,834 $ 625,482 $615,684
Accumulated other comprehensive loss......................... 24,050 (108,914) 65,188
-------- --------- --------
Total shareholder's equity................................ $706,884 $ 516,568 $680,872
======== ========= ========

Shareholder's equity increased in 2009 due primarily to unrealized net
capital gains as of December 31, 2009 compared to unrealized net capital losses
as of December 31, 2008 and net income. Shareholder's equity decreased in 2008
due primarily to unrealized net capital losses on fixed income securities,
partially offset by net income.

FINANCIAL RATINGS AND STRENGTH The following table summarizes our financial
strength ratings at December 31, 2009.

RATING AGENCY RATING
------------- ------

A.M. Best Company, Inc. A+ ("Superior")
Standard & Poor's Ratings Services AA- ("Very Strong")
Moody's Investors Service, Inc. A1 ("Good")

Our ratings are influenced by many factors including our operating and
financial performance, asset quality, liquidity, asset/liability management,
overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the
current level of operating leverage, ALIC's ratings and AIC's ratings.

On November 20, 2009, A.M. Best affirmed our A+ financial strength rating.
Our outlook was revised to negative from stable. On November 23, 2009, S&P
affirmed our AA- financial strength rating. The outlook for the S&P rating
remained negative. On January 29, 2009, S&P downgraded our financial strength
rating to AA- from AA. On November 5, 2009, Moody's affirmed our financial
strength rating of A1. The outlook for the Moody's rating remained stable. On
January 29, 2009, Moody's downgraded our financial strength rating to A1 from
Aa3.

State laws specify regulatory actions if an insurer's risk-based capital
("RBC"), a measure of an insurer's solvency, falls below certain levels. The
NAIC has a standard formula for annually assessing RBC. The formula for
calculating RBC for life companies takes into account factors relating to
insurance, business, asset and interest rate risks. At December 31, 2009, our
RBC was within the range that we target.

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

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

. Receipt of insurance premiums

. Contractholder fund deposits

. Reinsurance recoveries

. Receipts of principal, interest and dividends on investments

. Sales of investments

. Funds from securities lending

. Intercompany loans

. Capital contributions from parent

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

. Payment of contract benefits, surrenders and withdrawals

. Reinsurance cessions and payments

. Operating costs and expenses

. Purchase of investments

. Repayment of securities lending

. Payment or repayment of intercompany loans

. Dividends to parent

. Tax payments/settlements

Cash Flows As reflected in our Statements of Cash Flows, lower operating
cash flows in 2009 compared to 2008 were due primarily to higher income tax
payments, lower premiums and decreased net investment income, partially offset
by lower expenses. Higher operating cash flows in 2008 compared to 2007
primarily related to the settlement of an intercompany obligation in the 2007
and lower income tax payments in 2008, partially offset by higher contract
benefit payments and lower premiums received.

Cash flows provided by investing activities in 2009 compared to cash flows
used in investing activities in 2008 were primarily due to net reductions in
investments to fund reductions in contractholder fund liabilities. Increased
cash flows used in investing activities in 2008 compared to 2007 were due to
the investment of higher cash flows from financing and operating activities.

Cash flows used in financing activities in 2009 compared to cash flows
provided by financing activities in 2008 were due to lower contractholder fund
deposits, partially offset by lower contractholder fund withdrawals. Cash flows
from financing activities increased in 2008 compared to 2007 as a result of
higher contractholder fund deposits, partially offset by higher contractholder
fund withdrawals. For quantification of the changes in contractholder funds,
see the Operations section of MD&A.

A portion of our product portfolio, including fixed annuities and
interest-sensitive life insurance, is subject to surrender and withdrawal at
the discretion of contractholders. As of December 31, 2009, contractholder
funds totaling $599.0 million were not subject to discretionary withdrawal,
$3.13 billion were subject to discretionary withdrawal with adjustments, and
$1.26 billion were subject to discretionary withdrawal without adjustment. Of
the contractholder funds subject to discretionary withdrawal with adjustments,
$1.54 billion had a contractual surrender charge of less than 5% of the account
balance.

We have an intercompany loan agreement with the Corporation. The amount of
intercompany loans available to us is at the discretion of the Corporation. The
maximum amount of loans the Corporation will have outstanding to all its
eligible subsidiaries at any given point in time is limited to $1.00 billion.
We had no amounts outstanding under the intercompany loan agreement at
December 31, 2009 or 2008. The Corporation may use commercial paper borrowings
and bank lines of credit to fund intercompany borrowings.

Certain remote events and circumstances could constrain our or the
Corporation's liquidity. Those events and circumstances include, for example, a
catastrophe resulting in extraordinary losses, a downgrade in the Corporation's
long-term debt rating of A3, A- and a- (from Moody's, S&P and A.M. Best,
respectively) to non-investment grade status of below Baa3/BBB-/bb, a downgrade
in AIC's financial strength rating from Aa3, AA- and A+ (from Moody's, S&P and
A.M. Best, respectively) to below Baa2/BBB/A-, or a downgrade in our financial
strength ratings from A1, AA- and A+ (from Moody's, S&P and A.M. Best,
respectively) to below A1/AA-/A-. The rating agencies also consider the
interdependence of the Corporation's individually rated entities, therefore, a
rating change in one entity could potentially affect the ratings of other
related entities.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS Our contractual obligations as of
December 31, 2009 and the payments due by period are shown in the following
table.

LESS THAN OVER 5
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS YEARS
($ IN THOUSANDS) ----------- --------- ---------- ---------- ----------

Securities lending/(1)/............................ $ 149,362 $149,362 $ -- $ -- $ --
Contractholder funds/(2)/.......................... 5,940,702 606,589 1,329,317 1,135,794 2,869,002
Reserve for life-contingent contract benefits/(2)/. 7,409,666 138,499 283,552 292,423 6,695,192
Reinsurance payable to parent...................... 3,266 3,266 -- -- --
Payable to affiliates, net......................... 6,591 6,591 -- -- --
Other liabilities and accrued expenses/(3)(4)/..... 25,068 21,705 1,665 879 819
----------- -------- ---------- ---------- ----------
Total contractual cash obligations................. $13,534,655 $926,012 $1,614,534 $1,429,096 $9,565,013
=========== ======== ========== ========== ==========

- --------
(1)Liabilities for securities lending are typically fully secured with cash. We
manage our short-term liquidity position to ensure the availability of a
sufficient amount of liquid assets to extinguish short-term liabilities as
they come due in the normal course of business, including utilizing
potential sources of liquidity as disclosed previously.
(2)Contractholder funds represent interest-bearing liabilities arising from the
sale of products such as interest-sensitive life and fixed annuities,
including immediate annuities without life contingencies. The reserve for
life-contingent contract benefits relates primarily to traditional life and
immediate annuities with life contingencies. These amounts reflect the
present value of estimated cash payments to be made to contractholders and
policyholders. Certain of these contracts, such as immediate annuities
without life contingencies, involve payment obligations where the amount and
timing of the payment is essentially fixed and determinable. These amounts
relate to (i) policies or contracts where we are currently making payments
and will continue to do so and (ii) contracts where the timing of a portion
or all of the payments has been determined by the contract. Other contracts,
such as interest-sensitive life, fixed deferred annuities, traditional life
and immediate annuities with life contingencies and voluntary accident and
health insurance, involve payment obligations where a portion or all of the
amount and timing of future payments is uncertain. For these contracts, we
are not currently making payments and will not make payments until (i) the
occurrence of an insurable event such as death or illness or (ii) the
occurrence of a payment triggering event such as the surrender or partial
withdrawal on a policy or deposit contract, which is outside of our control.
We have estimated the timing of payments related to these contracts based on
historical experience and our expectation of future payment patterns.
Uncertainties relating to these liabilities include mortality, morbidity,
expenses, customer lapse and withdrawal activity, estimated additional
deposits for interest-sensitive life contracts, and renewal premium for life
policies, which may significantly impact both the timing and amount of
future payments. Such cash outflows reflect adjustments for the estimated
timing of mortality, retirement, and other appropriate factors, but are
undiscounted with respect to interest. As a result, the sum of the cash
outflows shown for all years in the table exceeds the corresponding
liabilities of $4.99 billion for contractholder funds and $1.88 billion for
reserve for life-contingent contract benefits as included in the Statements
of Financial Position as of December 31, 2009. The liability amount in the
Statements of Financial Position reflects the discounting for interest as
well as adjustments for the timing of other factors as described above.
(3)Other liabilities primarily include accrued expenses, claim payments and
other checks outstanding.
(4)Balance sheet liabilities not included in the table above include unearned
and advanced premiums of $956 thousand and gross deferred tax liabilities of
$56.4 million. These items were excluded as they do not meet the definition
of a contractual liability as we are not contractually obligated to pay
these amounts to third parties. Rather, they represent an accounting
mechanism that allows us to present our financial statements on an accrual
basis. In addition, other liabilities of $6.8 million were not included in
the table above because they did not represent a contractual obligation or
the amount and timing of their eventual payment was sufficiently uncertain.

REGULATION AND LEGAL PROCEEDINGS

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

PENDING ACCOUNTING STANDARDS

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

The effect of implementing certain accounting standards on our financial
results and financial condition is often based in part on market conditions at
the time of implementation of the standard and other factors we are unable to
determine prior to implementation. For this reason, we are sometimes unable to
estimate the effect of certain pending accounting standards until the relevant
authoritative body finalizes these standards or until we implement them.

ITEM 11(I).CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 11(J).QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required for Item 11(j) is incorporated by reference to the
material under the caption "Market Risk" in Item 11(h) of this report.

ITEM 11(K).DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS:

Directors are elected at each annual meeting of shareholders, for a term of
one year. The biographies of each of the directors below contains information
regarding the person's service as a director, business experience, director
positions held currently or at any time during the last five years, and the
experiences, qualifications, attributes or skills that caused the company
management to determine that a director should serve as such for Allstate New
York.

MARCIA D. ALAZRAKI, 68, has been a director since December 1993. She is a
partner at the law firm Manatt, Phelps & Phillips, LLP and co-chair of the
firm's insurance practice group. Prior to joining this firm in 2003,
Ms. Alazraki headed the insurance regulatory practices at Shea & Gould and then
at Simpson Thacher & Bartlett. For each of the last four years, Ms. Alazraki
has been selected for inclusion in The Best Lawyers in America. She also
currently holds director positions with Protective Life Insurance Company of
New York and First Great-West Life & Annuity Insurance Company. Ms. Alazraki
possesses a thorough understanding of insurance laws and regulations, including
those governing the financing, acquisition and licensing of insurance
companies, insurance product design, reinsurance transactions and market
conduct and financial examination.

ROBERT K. BECKER, 54, became director and Vice President on March 16, 2010.
Mr. Becker is also the Chairman of the Board, Chief Executive Officer and
Manager of Allstate Financial Services, LLC ("AFS, LLC") and Vice President of
Allstate Life Insurance Company. Mr. Becker is responsible for Allstate's
broker dealer operations as well as recruiting, training and product strategy
for registered representatives of AFS, LLC and third party relationships. At
Allstate since 2000, Mr. Becker has progressed through various roles, including
Regional Financial Services Manager, Regional Distribution Leader and Assistant
Field Vice President. Prior to joining Allstate, Mr. Becker spent over 20 years
with MetLife Insurance Company, where he held various

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leadership positions. Mr. Becker's professional designations include LUTCF,
CLU, ChFC, CFP, and CLTC. Currently, Mr. Becker also serves as a director for
ALFS, Inc. and Intramerica Life Insurance Company, each of which is affiliated
with Allstate New York. Mr. Becker has proven leadership experience with using
excellent customer service to grow business in a competitive environment.

MICHAEL B. BOYLE, 51, has been a director since March 2007 and a Vice
President since April 2004. Mr. Boyle also is a Senior Vice President with
Allstate Life Insurance Company. Mr. Boyle is responsible for Customer Service
and Technology within the Allstate Financial group of companies. Prior to
joining Allstate, Mr. Boyle was employed at Robertson Stephens, Inc., an
investment bank, where he served as Chief Information Officer and head of back
office operations, technology and electronic trading platforms on a global
basis. Prior to Robertson Stephens, he spent 15 years with Merrill Lynch in New
York and London, including several years as Director of Technology for
Europe/Africa/Middle East. Currently, Mr. Boyle serves as a director for MIB,
Inc, a fraud protection services corporation. In addition, he holds director
positions with Allstate Life Insurance Company, Allstate Northern Ireland Ltd,
Charter National Life Insurance Company and Intramerica Life Insurance Company,
each of which is affiliated with Allstate New York. Mr. Boyle has in-depth
knowledge of operations personnel management and many aspects of technology,
including infrastructure, applications, and e-commerce.

MATTHEW S. EASLEY, 54, has been a director since March 2009 and Vice
President since December 2005. Mr. Easley is also a Vice President for Allstate
Life Insurance Company. Mr. Easley is responsible for Product Management,
Underwriting, and Asset Liability Management within the Allstate Financial
group of companies. Prior to joining Allstate, Mr. Easley spent 23 years at
Nationwide Financial including 11 years as the head of Annuity and Pension
Actuarial, where he started a 401(k) business with a new-to-the-world business
model, created a synthetic asset segmentation method, co-invented a patented
retirement planning software and led a team to create a new strategic plan as
part of the initial public offering of Nationwide Financial Services stock.
Currently, Mr. Easley also serves as a director for ALFS, Inc., ALIC
Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company,
Allstate Life Insurance Company, Allstate Settlement Corporation, American
Heritage Life Insurance Company, Charter National Life Insurance Company,
Intramerica Life Insurance Company, Lincoln Benefit Life Company and Surety
Life Insurance Company, each of which is affiliated with Allstate New York.
Mr. Easley possesses extensive insurance business, product and liability
management experience.

MARK A. GREEN, 42, became director and Vice President on March 16, 2010.
Mr. Green is also the Vice President of National Sales for Allstate Life
Insurance Company. Prior to his current role, Mr. Green was the Assistant Field
Vice President for Allstate Insurance Company in the Capital Region, where he
had geographic responsibility for West Virginia, Delaware and Washington D.C.
Before joining Allstate, Mr. Green was a founding equity partner and chief risk
officer for AIX Group in Connecticut, where he was responsible for corporate
development and overall risk and investment management. He has worked for Wells
Fargo, Chubb Group and Swiss Reinsurance. Currently, Mr. Green also serves as a
director for Intramerica Life Insurance Company, an affiliate of Allstate New
York. Mr. Green has experience in optimizing insurance company operations to
drive profitable growth.

JUDITH P. GREFFIN, 49, has been a Vice President of Allstate New York since
April 2004. Ms. Greffin is also a Senior Vice President and the Chief
Investment Officer of Allstate Insurance Company, where she oversees Allstate's
$100 billion-plus investment portfolio. Since joining Allstate in 1990, Ms.
Greffin has served in a series of key investment positions, including
responsibility for Allstate's fixed-income portfolio and the Portfolio
Management Group. She began her financial career as an analyst with the
Huntington National Bank, and served as a senior portfolio manager with
Flagship Financial before joining Allstate. Ms. Greffin has also served on the
Allstate Foundation Grant Committee.

ROBERT J. HOLDEN, 53, has been a director, Vice President and Chief
Operations Officer since November 2008. Mr. Holden began his Allstate career as
a claims representative in 1980. After holding a number of claims

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positions, he joined the Allstate Sales group. There, he held several
leadership roles, including territorial manager and senior independent agency
manager for the Northeast Region, before becoming Regional Distribution Leader
for Allstate's New York Marketing Operating Committee and, then Field Vice
President of the New York Market Operating Committee. In addition to the
successful implementation of the Market Operating Committee plan, Mr. Holden
led the New York region's leadership development initiative, and assumed
responsibility for driving Life and Property Casualty Business growth.
Currently, Mr. Holden also serves as a director for Intramerica Life Insurance
Company, an affiliate of Allstate New York. With nearly 30 years of experience
in various positions throughout the organization, Mr. Holden possesses
extensive knowledge of Allstate, the insurance industry and insurance company
operations.

CLEVELAND JOHNSON, JR., 75, has been a director since December 1983.
Mr. Johnson has worked in public service for thirty-five years, including
positions of responsibility in city, town, county, state and federal
government. He has also owned and operated a number of successful businesses.
Mr. Johnson is currently the President of Johnson Consulting Associates, a
business development firm. In addition, he serves as Executive Vice President
of ValuCare, Inc, a home health care company, and Executive Vice President of
Strategic Fundraising, Inc., a consulting firm. In addition, Mr. Johnson
currently serves as a director of Intramerica Life Insurance Company, an
affiliate of Allstate New York. Mr. Johnson has strong business administration
skills and experience in crafting multi-disciplinary approaches to the
development of social policy.

SUSAN L. LEES, 52, has been director and Vice President, General Counsel and
Secretary since August 2008. Ms. Lees is also Senior Vice President, General
Counsel and Secretary of Allstate Life Insurance Company. At Allstate for over
20 years, Ms. Lees progressed through various counsel positions throughout
Allstate before become an assistant vice president in 1999. As the leader of
the Corporate Law division of Allstate Law and Regulation, Ms. Lees gained
extensive experience working with a number of the business areas throughout the
enterprise, including Allstate Life Insurance Company. Currently, Ms. Lees
serves as a director for Life Insurance Council of New York. She also serves as
a director for ALIC Reinsurance Company, Allstate Assignment Company, Allstate
Assurance Company, Allstate Financial Corporation, Allstate Life Insurance
Company, Allstate Settlement Corporation, American Heritage Life Insurance
Company, Charter National Life Insurance Company, Intramerica Life Insurance
Company, Lincoln Benefit Life Company, and Surety Life Insurance Company, each
of which is affiliated with Allstate New York. Ms. Lees has a deep
understanding of insurance business generally, as well as applicable laws and
regulations, including corporate and securities laws and corporate governance
matters. In addition, Ms. Lees has extensive knowledge regarding Allstate New
York's business, including its employees, products, agencies and customers.

KENNETH R. O'BRIEN, 72, has served as director since July 1998. Mr. O'Brien
was the President and Chief Executive Officer of O'Brien Asset Management, an
investment advisory firm, from 1996 until his retirement in 2006. Prior to that
role, Mr. O'Brien was Chief Executive Officer for Aurora National Life
Insurance Company and Executive Vice President for New York Life Insurance
Company. Mr. O'Brien has significant knowledge of insurance company operations
and executive experience in the life insurance and financial services
industries.

JOHN C. PINTOZZI, 44, has been director since September 2004 and Vice
President and Chief Financial Officer since March 2005. Mr. Pintozzi also is
Senior Vice President and Chief Financial Officer for Allstate Life Insurance
Company. In these positions, Mr. Pintozzi is responsible for the planning and
analysis, capital allocation, valuation and compliance functions as well as
Allstate Federal Savings Bank. Prior to Allstate, Mr. Pintozzi was an audit
partner with Deloitte & Touche, specializing in the insurance and financial
services industries. He is a Certified Public Accountant and holds memberships
with the American Institute of Certified Public Accountants and the Illinois
CPA Society. In addition, Mr. Pintozzi currently serves as a director for ALIC
Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company,
Allstate Bank, Allstate Life Insurance Company, Allstate Settlement
Corporation, American Heritage Life Insurance Company, Charter National Life
Insurance Company, Intramerica Life Insurance Company, Lincoln Benefit Life
Company, and Surety Life Insurance, each of which is affiliated with Allstate
New York. Mr. Pintozzi has extensive experience in corporate and insurance
company finance and accounting.

102

JOHN R. RABEN, JR., 64, has served as director since 1988. Mr. Raben was a
Managing Director of JP Morgan Chase from 2004 until his retirement in 2008,
where he worked with the commercial and investment banking groups. Prior to
that, he was also a Manager Director of Banc One Securities. Mr. Raben is
active in his local organizations as Chairman of the Greenwich Republican Town
Committee, Vice Chairman of the Greenwich Emergency Medical Service (GEMS)
Board of Directors, and a member of the Coastal Resources Advisory Committee.
In addition, Mr. Raben is a Treasurer and Board Member of both the Yellowstone
Park Foundation and the Cornelia Rossi Foundation, each of which are charitable
organizations. In addition, Mr. Raben currently serves as a director of
Intramerica Life Insurance Company, an affiliate of Allstate New York.
Mr. Raben has extensive experience in the financial services industry.

PHYLLIS HILL SLATER, 65, has been a director since 2002. Ms. Slater is the
founder and president of Hill Slater, Inc, a successful engineering and
architectural support firm. Hill Slater Inc. specializes in construction
management, inspection services, design drafting, and CAD services. Ms. Slater
served as national president of the National Association of Women Business
Owners from 1997 to 1998, and presently serves on many corporate and non-profit
boards. Ms. Slater is also a director for Intramerica Life Insurance Company,
an affiliate of Allstate New York. Ms. Slater has deep knowledge of general
business operations and corporate governance.

MATTHEW E. WINTER, 53, has been a director since December 2009, and
President, Chief Executive Officer and Chairman of the Board since March 2010.
Mr. Winter is also the President and Chief Executive Officer of Allstate Life
Insurance Company and Senior Vice President of Allstate Insurance Company, each
a parent organization of Allstate New York. Prior to Allstate, Mr. Winter was
the Vice Chairman of American International Group, President and Chief
Executive Officer of American General Life Companies, and Executive Vice
President for MassMutual Financial Group. For a brief period in 2009,
Mr. Winter served as a director of EP Global Communications, a magazine
publication and distribution company. Currently, Mr. Winter also serves as a
director for Allstate Insurance Company, Allstate Life Insurance Company,
American Heritage Life Insurance Company, American Heritage Life Investment
Corporation, Intramerica Life Insurance Company and Lincoln Benefit Life
Company, each of which is affiliated with Allstate New York. Mr. Winter was
also a former Chairman of the Houston Food Bank Board of Directors. Mr. Winter
has extensive experience leading major life insurance and financial services
providers, working with financial and estate planning products and overseeing
the operations of insurance companies.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.

No directors or executive officers have been involved in any legal
proceedings that are material to an evaluation of the ability or integrity of
any director or executive officer of Allstate New York.

ITEM 11(L).EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS ("CD&A")

OVERVIEW

. Executive officers of Allstate New York also serve as officers of other
subsidiaries of The Allstate Corporation ("Allstate") and receive no
compensation directly from Allstate New York. They are employees of an
Allstate subsidiary. Allocations have been made for each named executive
based on the amount of the named executive's compensation allocated to
Allstate New York under the Amended and Restated Service and Expense
Agreement among Allstate Insurance Company, Allstate and certain
affiliates, as amended effective January 1, 2009, to which Allstate New
York is a party (the "Service and Expense Agreement"). Those allocations
are reflected in the Summary Compensation Table set forth below and in
this disclosure, except where noted. The named executives may have
received additional compensation for services rendered to other Allstate
subsidiaries, and those amounts are not reported.

103

. Allstate provides its executive officers with the following core
compensation elements: annual salary, annual cash incentive awards, and
equity awards. In 2009, Allstate discontinued future cycles of its
long-term cash incentive plan in favor of placing greater emphasis on
long-term equity awards, consistent with its compensation philosophy,
and to a lesser extent, annual cash incentive awards.

. Allstate embraces a pay-for-performance philosophy for its executives in
which variable compensation represents a large portion of potential
compensation and is tied to appreciation of Allstate's stock and
Allstate's performance in achieving short-term and long-term business
goals.

. Allstate uses equity-based compensation to align the interests of its
executives with long-term stockholder value and as a tool for retaining
executive talent. Once granted, the value of these awards rises and
falls with the price of Allstate stock. Equity awards granted in 2010,
including stock options and restricted stock units, will vest in three
installments of 50% on the second anniversary of the grant date and 25%
on each of the third and fourth anniversary dates. Restricted stock
units granted in 2010 will no longer receive dividend equivalents on a
quarterly schedule; instead dividend equivalents will be paid when the
underlying restricted stock unit vests.

. In 2009 the executive compensation program was simplified by reducing
the number of performance measures under the Annual Executive Incentive
Compensation Plan. Consistent with current market trends, the maximum
corporate multiplier for the 2010 performance year for an executive
officer's Annual Executive Incentive Plan award will be 250% of target.
In addition, the minimum payout, upon achieving the performance
threshold, will be 50% of target.

. Allstate offers its executives limited perquisites.

NAMED EXECUTIVES

This CD&A, on pages 103 to 112, describes the executive compensation program
for Allstate and specifically describes total 2009 compensation for the
following named executives of Allstate New York:

. Frederick F. Cripe--Chairman, President and Chief Executive Officer
until March 16, 2010.

. John C. Pintozzi--Vice President and Chief Financial Officer

COMPENSATION PHILOSOPHY

Allstate's compensation philosophy is based on these central beliefs:

. Executive compensation should be aligned with performance and
stockholder value. Accordingly, a significant amount of executive
compensation should be in the form of equity.

. The compensation of executives should vary both with appreciation in the
price of Allstate stock and with Allstate's performance in achieving
strategic short and long-term business goals designed to drive stock
price appreciation.

. Allstate's compensation program should inspire executives to strive for
performance that is better than the industry average.

. A greater percentage of compensation should be at risk for executives
who bear higher levels of responsibility for Allstate's performance.

. Allstate should provide competitive levels of compensation for
competitive levels of performance and superior levels of compensation
for superior levels of performance.

Allstate's executive compensation program has been designed around these
beliefs. They serve Allstate's goal of attracting, motivating, and retaining
highly talented executives to compete in the complex and highly regulated
insurance and financial services industry.

104

COMPENSATION PRACTICES

Allstate reviews the design of its executive compensation program and
executive pay levels on an annual basis and performance and goal attainment
within this design throughout the year. As part of that review, Allstate
considers available data regarding compensation paid to similarly-situated
executives at companies against which it competes for executive talent. With
respect to the compensation program for 2009 for Allstate executives, including
the named executives of Allstate New York, Allstate management considered
compensation surveys, as well as compensation data for the peer companies
listed on page 110, that provided information on companies of broadly similar
size and business mix as Allstate, as well as companies with a broader market
context. The compensation surveys considered include the Mercer Property &
Casualty Insurance Company Survey, the 2008 Towers Perrin Diversified Insurance
Survey, and the Towers Perrin Compensation Data Bank. The weight given to
information obtained from these sources varied depending on the position being
evaluated. The Diversified Insurance Survey includes 29 insurance organizations
with assets ranging from $20 billion to $1 trillion, with a median asset size
of $131 billion. The Towers Perrin Compensation Data Bank provides compensation
data on 80 of the Fortune 100 companies. The Mercer Property & Casualty
Insurance Company Survey includes compensation data for 45 property and
casualty insurance companies with at least $1 billion in annual premiums. In
addition, in its executive pay and performance discussions, Allstate management
considered information regarding other companies in the financial services
industries.

CORE ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM

The following table lists the core elements of Allstate's executive
compensation program for 2009.

CORE ELEMENT PURPOSE
- ------------ ----------------------------------------------------------------------------

Annual salary Provides a base level of competitive cash compensation for executive talent

Annual cash incentive awards Reward performance on key strategic, operational, and financial measures
over the year

Equity awards Align the interests of executives with long-term Allstate shareholder value
and retain executive talent

These core elements are designed to balance individual, business unit, and
overall corporate performance. The goals for incentive awards are aligned with
Allstate's strategic vision and 2009 operating priorities of keeping Allstate
financially strong, improving customer loyalty, and reinventing protection and
retirement for the consumer.

Allstate's compensation design balances annual and long-term incentive
awards with short and long-term business goals. At the target level of
performance, annual and long-term incentive awards are designed to constitute a
significant percentage of an executive's total core compensation. The target
incentive-based core compensation for Mr. Cripe, who had the greatest level of
responsibility for Allstate's performance, was 77% of his total core
compensation (19% annual cash incentive award, 38% stock options, and 20%
restricted stock units). Mr. Pintozzi's incentive-based core compensation was
targeted at 64% of his total core compensation (21% annual cash incentive
award, 28% stock options, and 15% restricted stock units).

SALARY

. Mr. Cripe's salary was set by the Allstate Board of Directors based on
the recommendations of its Compensation and Succession Committee (the
"Committee"). Mr. Pintozzi's salary was set by Allstate management.

. In recommending executive base salary levels, Allstate uses the
50/th/ percentile of comparable companies as a guideline to align with
Allstate's pay philosophy for competitive positioning in the market for
executive talent.

105

. The average enterprise-wide merit and promotional increases are based on
a combination of U.S. general and the insurance industry market data and
are set at levels intended to be competitive.

. Annual merit increases for the named executives are based on evaluations
of their performance by Allstate's management, using the average
enterprise-wide merit increase as a guideline.

. Promotional increases are based on the increased responsibilities of the
new position and the skills and experience of the executive being
promoted.

ANNUAL CASH INCENTIVE COMPENSATION

In 2009 Allstate maintained the Annual Executive Incentive Compensation
Plan, an Allstate stockholder-approved plan under which executive officers had
the opportunity to earn an annual cash incentive award based on the achievement
of a combination of Allstate corporate and business unit performance measures
for Allstate's main business units including Allstate Financial. Allstate New
York is part of the Allstate Financial business unit.

The Committee approves performance measures and goals for annual cash
incentive awards under the Annual Executive Incentive Compensation Plan during
the first quarter of the year. The performance measures and goals are aligned
with Allstate's objectives and tied to Allstate's strategic vision and
operating priorities. They are designed to reward executives for actual
performance, to reflect objectives that will require significant effort and
skill to achieve, and to drive stockholder value.

After the end of the year, the Committee reviews the extent to which
Allstate has achieved the various performance measures and approves the actual
amount of the annual cash incentive award. The Committee may adjust the amount
of an annual cash incentive award. Allstate pays the annual cash incentive
awards in March, after the end of the year.

For 2009, the Committee adopted corporate and Allstate Financial business
unit annual performance measures and weighted them as applied to each of the
named executives, in accordance with their responsibilities for Allstate's
overall corporate performance and the performance of Allstate Financial. Each
measure is assigned a weight expressed as a percentage of the total annual cash
incentive award opportunity, with all weights for any particular named
executive adding to 100%.

The following table lists the performance measures and related target goals
for 2009, as well as the weighting factors and actual results, applicable to
the named executives. The performance measures were designed to focus executive
attention on key strategic, operational, and financial measures including top
line growth and profitability. For each performance measure, the Committee
approved a threshold, target, and maximum goal. The target goals for the
performance measures were based on evaluations of Allstate's historical
performance and plans to drive projected performance. A description of each
performance measure is provided under the "Performance Measures" caption on
page 127.

106

ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
PERFORMANCE MEASURES, TARGETS, AND WEIGHTING

ACHIEVEMENT
RELATIVE TO
THRESHOLD, TARGET,
PERFORMANCE MEASURE/(1)/ WEIGHTING TARGET ACTUAL/(2)/ MAXIMUM GOALS
- ----------------------- --------- ------------ ------------ ------------------

CORPORATE-LEVEL PERFORMANCE MEASURE.......... 20%
Adjusted Operating Income Per Diluted Share.. $5.10 $3.55 Below threshold
ALLSTATE FINANCIAL PERFORMANCE MEASURES...... 80%
Adjusted Operating Income.................... $300 million $279 million Between threshold
and target
Financial Product Sales (Production Credits). $285 million $255 million Below threshold
Allstate Financial Total Return.............. 4.50% 14.84% Exceeded maximum

- --------
(1)Information regarding Allstate's performance measures is disclosed in the
limited context of the annual cash incentive awards and should not be
understood to be statements of management's expectations or estimates of
results or other guidance. We specifically caution investors not to apply
these statements to other contexts.
(2)Stated as a percentage of target goals with a range from 0% to 300%, the
actual performance comprises 0% for Adjusted Operating Income Per Diluted
Share performance and 99% for Allstate Financial performance.

Target award opportunities approved by the Committee are stated as a
percentage of annual base salary. Annual cash incentive awards are calculated
using base salary, as adjusted by any merit and promotional increases granted
during the year on a prorated basis. One of the central beliefs on which
Allstate's compensation philosophy is based is that a greater percentage of
compensation should be at risk for executives who bear higher levels of
responsibility for Allstate's performance. In setting target incentive levels
for named executive officers, the Committee gives the most consideration to
market data primarily focusing on pay levels at peer group companies with which
it directly competes for executive talent and stockholder investment.

In calculating the annual cash incentive awards, Allstate's achievement with
respect to each performance measure is expressed as a percentage of the target
goal, with interpolation applied between the threshold and target goals and
between the target and maximum goals. Unless otherwise adjusted by the
Committee for Mr. Cripe or by management for Mr. Pintozzi, the amount of the
annual cash incentive award is the sum of the amounts calculated using the
calculation below for all of the performance measures.

Actual performance interpolated X Weighting X Target award opportunity as a X Salary*
relative to threshold and target percentage of salary*
on a range of 0% to 100% and
relative to target and maximum
on a range of 100% to 300%

- --------
* Base salary, as adjusted by any merit and promotional increases granted
during the year on a prorated basis.

Annual cash incentive awards based on the achievement of the performance
measures for 2009 are included in the amounts reported in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation Table on
page 113 and broken out separately from long-term cash incentive awards in a
footnote to that table. In addition, the threshold, target, and maximum annual
award opportunities for 2009 are included in the Estimated Future Payouts Under
Non-Equity Incentive Plan Awards column in the Grants of Plan-Based Awards
table on page 114.

LONG-TERM INCENTIVE AWARDS--CASH AND EQUITY

As part of total core compensation, Allstate historically has provided three
forms of long-term incentive awards: stock options, restricted stock units, and
long-term cash incentive awards. In 2009, Allstate discontinued

107

future cycles of the long-term cash incentive plan. The relative mix of various
forms of these awards is driven by Allstate's objectives in providing the
specific form of award, as described below.

LONG-TERM INCENTIVE AWARDS--EQUITY

As stated in its compensation philosophy, Allstate believes that a
significant amount of executive compensation should be in the form of equity
and that a greater percentage of compensation should be at risk for executives
who bear higher levels of responsibility for Allstate's performance. Consistent
with that philosophy, the size of stock option and restricted stock unit awards
granted by the Committee is usually larger for executives with the broadest
scope of responsibility. However, from time to time, larger equity awards are
granted to attract new executives.

STOCK OPTIONS

Stock options represent the opportunity to buy shares of Allstate stock at a
fixed exercise price at a future date. They are utilized to align the interests
of executives with long-term value of Allstate stockholders.

Key elements:

. Under the Allstate stockholder-approved equity incentive plan, the
exercise price cannot be less than the fair market value of a share on
the date of grant.

. Stock option repricing is not permitted. In other words, absent an event
such as a stock split, if the Committee cancels an award and substitutes
a new award in its place, the exercise price of the new award cannot be
less than the exercise price of the cancelled award.

. All stock option awards have been made in the form of nonqualified stock
options.

. Allstate stock options vest over stated vesting periods measured from
the date of grant.

. The options granted to the named executives in 2009 become exercisable
in four installments of 25% on the first four anniversaries of the grant
date and expire in ten years, except in certain change-in-control
situations or under other special circumstances approved by the
Committee.

RESTRICTED STOCK UNITS

Each restricted stock unit represents Allstate's promise to transfer one
fully vested share of Allstate stock in the future if and when the restrictions
expire (when the unit "vests"). Because restricted stock units are based on and
payable in stock, they serve to reinforce the alignment of interests of
executives and Allstate stockholders. In addition, because restricted stock
units have a real, current value that is forfeited, except in some
circumstances, if an executive terminates employment before the restricted
stock units vest, they provide a significant retention incentive. Under the
terms of the restricted stock unit awards, the executives have only the rights
of general unsecured creditors of Allstate and no rights as stockholders until
delivery of the underlying shares.

Key elements:

. The restricted stock units granted to the named executives in 2009 vest
in one installment on the fourth anniversary of the date of grant,
except in certain change-in-control situations or under other special
circumstances approved by the Committee.

. Allstate restricted stock units granted to the named executives in 2009
and prior years include the right to receive dividend equivalents in the
same amount and at the same time as dividends paid to all Allstate
common stockholders.

108

TIMING OF EQUITY AWARDS AND GRANT PRACTICES

The Committee grants existing employee equity incentive awards on an annual
basis normally during a meeting in the first fiscal quarter, after the issuance
of Allstate's prior fiscal year-end earnings release. Throughout the year, the
Committee grants equity incentive awards in connection with new hires and
promotions and in recognition of achievements. The Committee approved a
one-time recognition award of non-qualified stock options and restricted stock
units to Mr. Cripe in November 2009. This award was granted in recognition of
his leadership of Allstate Financial.

Pursuant to authority delegated by the Allstate Board and the Committee,
equity incentive awards also may be granted by a subcommittee consisting of the
Committee chair or by an equity award committee which currently consists of
Allstate's CEO. The subcommittee may grant restricted stock or restricted stock
units to new hires. The equity award committee may grant restricted stock units
and stock options in connection with new hires and promotions and in
recognition of achievements.

STOCK OWNERSHIP GUIDELINES

Because Allstate believes strongly in linking the interests of management
with those of its stockholders, it instituted stock ownership guidelines in
1996 that require each of the named executives to own, as of March 1 following
the fifth year after assuming a senior management position, common stock,
including restricted stock units, worth a multiple of base salary. Unexercised
stock options do not count towards meeting the stock ownership guidelines.
Messrs. Cripe and Pintozzi have met their respective goals. For Mr. Cripe, the
goal is four times salary. For Mr. Pintozzi, the goal is two times salary.
After a named executive meets the guideline for the position, if the value of
his shares does not equal the specified multiple of base salary solely due to
the fact that the value of the shares has declined, the executive is still
deemed to be in compliance with the guideline. However, any executive in that
situation may not sell any shares acquired upon the exercise of an option or
conversion of any equity award except to satisfy tax withholding obligations,
until the value of his shares again equals the specified multiple of base
salary. In accordance with Allstate's policy on insider trading, all officers,
directors, and employees are prohibited from engaging in transactions with
respect to any securities issued by Allstate or any of its subsidiaries that
might be considered speculative or regarded as hedging, such as selling short
or buying or selling options.

LONG-TERM INCENTIVE AWARDS--CASH

After the end of the three-year cycle for long-term cash incentive awards,
the Committee reviews the extent to which Allstate has achieved the various
performance measures and approves the actual amount of the long-term cash
incentive awards. Allstate pays long-term cash incentive awards after the end
of the three-year cycle.

Long-term cash incentive awards were designed to reward executives for
collective results attained over a three-year performance cycle. The Committee
approved performance measures and threshold, target, and maximum goals for
long-term cash incentive awards at the beginning of each three-year cycle and a
new cycle started every year. However, the Committee discontinued future
long-term incentive plan awards in 2009, making the 2008-2010 cycle the final
cycle under the Long-Term Executive Incentive Compensation Plan. The final
award under this plan was made in February 2008 and will be paid out in March
2011. For the 2007-2009 cycle, there were three performance measures. The
target goals for each performance measure, the actual results, and the relative
weight of each measure are shown in the following table. The selection and
weighting of these measures was intended to focus executive attention on the
collective achievement of Allstate's long-term financial goals across its
various product lines. A description of each performance measure is provided
under the "Performance Measures" caption on page 127.

109

LONG-TERM CASH INCENTIVE AWARDS, 2007-2009 CYCLE
PERFORMANCE MEASURES, WEIGHTING, AND TARGET GOALS/(1)/

PERCENTAGE
WEIGHT OF THE
TOTAL ACHIEVEMENT RELATIVE TO
POTENTIAL THRESHOLD, TARGET,
PERFORMANCE MEASURES AWARD/(2)/ TARGET ACTUAL MAXIMUM GOALS/(3)/
- -------------------- ------------- ------------ ------------ -----------------------

Average adjusted return on equity.................... 50% 5/th/ 5/th/ Target
position position
relative to relative to
peers peers
Allstate Protection growth in policies in force over
the 3-year cycle................................... 25% 5.0% (3.8)% Below threshold
Allstate Financial return on total capital over the
3-year cycle....................................... 25% 9.5% 7.9% Below threshold

- --------
(1)Information regarding performance measures is disclosed in the limited
context of long-term cash incentive awards and should not be understood to
be statements of management's expectations or estimates of results or other
guidance. We specifically caution investors not to apply these statements to
other contexts.
(2)Same weight applied for all eligible named executives.
(3)Stated as a percentage of target goals with a range from 0% to 300%, the
actual performance comprises 50% for the average adjusted return on equity
measure, 0% for the Allstate Protection measure, and 0% for the Allstate
Financial measure. The weighted results for all three measures stated as a
percentage of the target goals for all the named executives was 50%.

The target goal for the average adjusted return on equity was set at a level
representing average projected industry performance. The target goals for
Allstate Protection growth in policies in force over the three-year cycle and
Allstate Financial return on total capital over the three-year cycle were based
on evaluations of Allstate's historical performance and plans to drive
projected performance.

The average adjusted return on equity measure compares Allstate's
performance to the following peer insurance companies:

The Chubb Corporation MetLife Inc.
CNA Financial Corporation The Progressive Corporation
The Hartford Financial Services Group, Inc. Prudential Financial, Inc.
Lincoln National Corporation The Travelers Companies, Inc.

Allstate's ranked position relative to this peer group determines the
percentage of the total target award for this performance measure to be paid,
as indicated in the following table. However no payment is made unless the
average adjusted return on equity exceeds the average risk free rate of return
on three-year Treasury notes over the three-year cycle, plus 200 basis points,
regardless of Allstate's standing compared to the peer group. For the 2007-2009
cycle, Allstate achieved the 5/th/ position and met the target level of
performance. The average adjusted return on equity exceeded the average risk
free rate of return by 375 basis points.

110

AVERAGE ADJUSTED RETURN ON EQUITY RELATIVE
TO PEER GROUP, 2007-2009 CYCLE

PEER POSITION % OF TARGET AWARD
------------- -----------------

Threshold. 9 0%
8 40%
7 60%
6 80%
Target.... 5 100%
4 150%
3 200%
2 250%
Maximum... 1 300%

Target award opportunities approved by the Committee are stated as a
percentage of annual base salary. Award opportunities for the named executives
are capped at 300% of the target awards. Awards for each cycle are calculated
using base salary in effect at the beginning of the cycle, as adjusted by any
promotional increases granted during the course of the cycle on a prorated
basis. Mr. Cripe had a target award opportunity of 70%. Mr. Pintozzi had a
target award opportunity of 40%. The size of these target awards is based on
each executive's level of responsibility for contributing to Allstate's
long-term performance and overall market competitiveness.

Unless otherwise adjusted by the Committee, in calculating the long-term
cash incentive awards, Allstate's achievement with respect to each performance
measure for a particular cycle is expressed as a percentage of the target goal
with interpolation applied between threshold and target goals and between
target and maximum goals. The amount of each named executive's award is the sum
of the amounts calculated using the following calculation for all of the
long-term cash incentive performance measures.

- --------
* Base salary in effect at the beginning of the cycle, as adjusted by any
promotional increases granted during the course of the cycle on a prorated
basis.

Long-term cash incentive awards based on the achievement of the performance
measures for the 2007-2009 cycle were paid in March 2010 and are included in
the amounts reported in the Non-Equity Incentive Plan Compensation column of
the Summary Compensation Table and broken out separately from annual cash
incentive awards in a footnote to that table.

111

OTHER ELEMENTS OF COMPENSATION

To remain competitive with other employers and to attract, retain, and
motivate highly talented executives and other employees, we provide the
benefits listed in the following table.

MR. PINTOZZI, ALL FULL-TIME
OTHER OFFICERS AND REGULAR
AND CERTAIN PART-TIME
BENEFIT OR PERQUISITE MR. CRIPE MANAGERS EMPLOYEES
- --------------------- --------------- --------------- -------------

401(k)/(1)/ and defined benefit pension.......................... (check mark) (check mark) (check mark)
Supplemental retirement benefit.................................. (check mark) (check mark)
Health and welfare benefits/(2)/................................. (check mark) (check mark) (check mark)
Supplemental long-term disability and executive physical program. (check mark) (check mark)/(3)/
Deferred compensation............................................ (check mark) (check mark)
Tax preparation services......................................... (check mark) (check mark)
Financial planning services...................................... (check mark)
Cell phones and ground transportation............................ (check mark)/(4)/

- --------
(1)Allstate contributed $1.00 for every dollar of basic pre-tax deposits made
in 2009 on the first 3 percent of eligible pay and $.50 for every dollar of
basic pre-tax deposits made in 2009 on the next 2 percent of eligible pay
for eligible participants, including the named executive officers.
(2)Including medical, dental, vision, life, accidental death and dismemberment,
long-term disability, and group legal insurance.
(3)An executive physical program is available to all officers.
(4)Ground transportation is available to Mr. Cripe. Cell phones are available
to members of Allstate's senior management team, other officers and certain
managers, and certain employees depending on their job responsibilities.

RETIREMENT BENEFITS

Each named executive officer participates in two different defined benefit
pension plans. The Allstate Retirement Plan (ARP) is a tax qualified defined
benefit pension plan available to all of Allstate's regular full-time and
regular part-time employees who meet certain age and service requirements. The
ARP provides an assured retirement income related to an employee's level of
compensation and length of service at no cost to the employee. As the ARP is a
tax qualified plan, federal tax law places limits on (1) the amount of an
individual's compensation that can be used to calculate plan benefits and
(2) the total amount of benefits payable to a participant under the plan on an
annual basis. These limits may result in a lower benefit under the ARP than
would have been payable if the limits did not exist for certain Allstate
employees. Therefore, the Allstate Insurance Company Supplemental Retirement
Income Plan (SRIP) was created for the purpose of providing ARP-eligible
employees whose compensation or benefit amount exceeds the federal limits with
an additional defined benefit in an amount equal to what would have been
payable under the ARP if the federal limits described above did not exist.

CHANGE-IN-CONTROL AND POST-TERMINATION BENEFITS

Allstate does not view the change-in-control benefits or post-termination
benefits as additional elements of compensation due to the fact that a
change-in-control or other triggering event may never occur. However, the use
and structure of Allstate's change-in-control and post-termination plans are
consistent with Allstate's compensation objectives to attract, motivate, and
retain highly talented executives. A change-in-control of Allstate could have a
disruptive impact on both Allstate and its executives. Allstate's
change-in-control benefits and post-termination benefits are designed to
mitigate that impact and to maintain the connection between the interests of
executives and Allstate's stockholders. As part of these benefits, executives
receive equity awards that might otherwise be eliminated by new directors of
Allstate elected in connection with a change-in-control. Allstate also provides
certain protections for cash incentive awards, previously deferred
compensation, and benefits if the named executive's employment is terminated
within a two-year period after a change-in-control. The arrangements which are
described in the "Potential Payments as a Result of Termination or
Change-in-Control" section are not provided exclusively to the named
executives. Certain cash severance benefits are provided to all regular
full-time and regular part-time Allstate employees. For example, Allstate
replaced its vacation policy with a paid time off bank effective January 1,
2001. Eligible employees could elect to receive their vacation days accrued but
not yet taken between their annual anniversary date in 2000 and December 31,
2000 as either paid time off or in the form of a lump sum severance payment at
termination.

112

SUMMARY COMPENSATION TABLE FOR 2009 AND GRANTS OF PLAN-BASED AWARDS TABLE FOR
2009

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the compensation of
the named executives for all services rendered to Allstate New York in 2009,
allocated to Allstate New York in a manner consistent with the allocation of
compensation expenses under the Service and Expense Agreement.

CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED
STOCK OPTION PLAN COMPENSATION ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME/(1)/ YEAR ($) $/(2)/ ($)/(3)/ ($)/(4)/ ($)/(5)/ ($)/(6)/ ($)/(7)/ ($)
- -------- ---- ------ ----- ------- ------- ------------ ------------- ------------ -------

Frederick F.
Cripe
(Chairman,
President and
Chief
Executive
Officer) 2009 21,881 0 30,725 56,445 20,915 19,448/(8)/ 1,572 144,632
John C. Pintozzi
(Vice
President and
Chief
Financial
Officer) 2009 25,193 1,558 11,650 22,304 15,812 2,237/(9)/ 1,897 82,209

- --------
(1)Mr. Cripe was Chairman, President and Chief Executive Officer of Allstate
New York until March 16, 2010.
(2)Mr. Pintozzi received a bonus as a result of his outstanding individual
performance in 2009.
(3)The aggregate grant date fair value of restricted stock unit awards computed
in accordance with Financial Accounting Standards Board ("FASB") Accounting
Standards Codification Topic 718 ("ASC 718"). The number of restricted stock
units granted in 2009 to each named executive is provided in the Grants of
Plan-Based Awards table on page 114. The fair value of restricted stock unit
awards is based on the final closing price of Allstate's stock as of the
date of grant. The final closing price in part reflects the payment of
future dividends expected.
(4)The aggregate grant date fair value of option awards computed in accordance
with FASB ASC 718. The fair value of each option award is estimated on the
date of grant using a binomial lattice model. The fair value of each option
award is estimated on the date of grant using the assumptions as set forth
in the following table:

Weighted average expected term. 8.1 years
Expected volatility............ 26.3-79.2%
Weighted average volatility.... 38.3%
Expected dividends............. 2.6%
Risk-free rate................. 0.0-3.7%

The number of options granted in 2009 to each named executive is provided in
the Grants of Plan-Based Awards table on page 114.

(5)Amounts earned under the Annual Executive Incentive Compensation Plan are
paid in the year following performance. Amounts earned under the Long-Term
Executive Incentive Compensation Plan are paid in the year following the
performance cycle. The amounts shown in the table above include amounts
earned in 2009 and payable under these plans in 2010. The break-down for
each component is as follows:

ANNUAL CASH LONG-TERM
INCENTIVE CASH INCENTIVE
NAME YEAR AWARD AMOUNT CYCLE AWARD AMOUNT
---- ---- ------------ --------- --------------

Mr. Cripe.... 2009 $14,177 2007-2009 $6,738
Mr. Pintozzi. 2009 $11,519 2007-2009 $4,293

(6)Amounts reflect the aggregate increase in actuarial value of the pension
benefits as set forth in the Pension Benefits table, accrued during 2009.
These are benefits under the Allstate Retirement Plan (ARP) and the Allstate
Insurance Company Supplemental Retirement Income Plan (SRIP). Non-qualified
deferred compensation earnings are not reflected since Allstate's Deferred
Compensation Plan does not provide above-market earnings. For 2009, the
pension plan measurement date used for financial statement reporting
purposes, December 31, as well as the methodology employed for purposes of
Allstate's financial statements, were used in the calculation of the change
in present value. (See note 16 to Allstate's audited financial statements
for 2009.) One component of the change in pension value from 2008 to 2009
displayed in this column relates to the change in the discount rate used to
calculate the value of pension benefits. The discount rate decreased from
7.5% in 2008 to 6.25% at year-end 2009, which resulted in an increase in the
present value of accrued benefits at year-end 2009. For Mr Cripe,
approximately 50% of the change in pension value relates to the change in
the discount rate.
(7)The "All Other Compensation for 2009--Supplemental Table" provides details
regarding the amounts for 2009 for this column.
(8)Reflects increases in the actuarial value of the benefits provided to
Mr. Cripe pursuant to the ARP and SRIP of $7,927 and $11,521 respectively.
(9)Reflects increases in the actuarial value of the benefits provided to
Mr. Pintozzi pursuant to the ARP and SRIP of $1,162 and $1,075 respectively.

113

ALL OTHER COMPENSATION FOR 2009--SUPPLEMENTAL TABLE

(In dollars)

The following table describes the incremental cost of other benefits
provided in 2009 that are included in the "All Other Compensation" column.

TOTAL
401(K) ALL OTHER
NAME MATCH/(1)/ OTHER/(2)/ COMPENSATION
---- --------- --------- ------------

Mr. Cripe.... 2009 539 1,033 1,572
Mr. Pintozzi. 2009 774 1,123 1,897

- --------
(1)Each of the named executives participated in Allstate's 401(k) plan during
2009. The amount shown is the amount allocated to their accounts as employer
matching contributions, allocated to Allstate New York in a manner
consistent with the allocation of compensation expenses under the Service
and Expense Agreement.
(2)"Other" consists of premiums for group life insurance and personal benefits
and perquisites consisting of cell phones, tax preparation services,
financial planning, executive physicals, ground transportation, and
supplemental long-term disability coverage. None of the personal benefits
and perquisites individually exceeded the greater of $25,000 or 10% of the
total amount of these benefits for the named executives. Allstate provides
supplemental long-term disability coverage to regular full-time and regular
part-time employees whose annual earnings exceed the level which produces
the maximum monthly benefit provided by the Group Long Term Disability
Insurance Plan. This coverage is self-insured (funded and paid for by
Allstate when obligations are incurred). No obligations for the named
executives were incurred in 2009 and so no incremental cost is reflected in
the table.

GRANTS OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2009/(1)/

The following table provides information about non-equity incentive plan
awards and equity awards granted to our named executives during the fiscal year
2009 to the extent the expense for such awards was allocated to Allstate New
York under the Service and Expense Agreement.

ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE GRANT DATE
PLAN AWARDS/(2)/ FAIR VALUE ($)/(4)/
------------------------ -------------------
ALL
OTHER
STOCK ALL OTHER
AWARDS: OPTION
NUMBER AWARDS: EXERCISE
OF NUMBER OF OR BASE
SHARES SECURITIES PRICE OF
OF STOCK UNDERLYING OPTION
THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS STOCK OPTION
NAME GRANT DATE PLAN NAME ($) ($) ($) (#) (#) ($/SHR)/(3)/ AWARDS AWARDS
- ---- ------------- ---------------------- --------- ------ ------- -------- ---------- ----------- ------ ------

Mr. Cripe -- Annual cash incentive 0 17,923 53,770
Feb. 27, 2009 Restricted stock units 1,254 21,100
Feb. 27, 2009 Stock options 7,125 16.83 40,396
Nov. 02, 2009 Restricted stock units 325 9,625
Nov. 02, 2009 Stock options 1,845 29.64 16,049
Mr. Pintozzi -- Annual cash incentive 0 14,562 43,687
Feb. 27, 2009 Restricted stock units 692 11,650
Feb. 27, 2009 Stock options 3,934 16.83 22,304

- --------
(1)Awards under the Annual Executive Incentive Compensation Plan and the 2001
Equity Incentive Plan.
(2)The amounts in these columns consist of the threshold, target, and maximum
annual cash incentive awards for the named executives. The threshold amount
for each named executive is zero, as the minimum amount payable if no
performance measures are achieved. The target amount is based upon
achievement of certain performance measures set forth in the "Annual Cash
Incentive Compensation" section of the CD&A.
(3)The exercise price of each option is equal to the fair market value of
Allstate's common stock on the date of grant. Fair market value is equal to
the closing sale price on the date of grant or, if there was no such sale on
the date of grant, then on the last previous day on which there was a sale.
(4)As computed in accordance with FASB ASC 718, the aggregate grant date fair
value of restricted stock units and stock option awards was $16.83 and
$5.67, respectively, for awards granted on February 27, 2009, and $29.64 and
$8.70, respectively, for awards granted on November 2, 2009. The assumptions
used in the valuation are discussed in footnotes 3 and 4 to the Summary
Compensation Table on page 113.

114

The following discussion of incentive compensation for 2009 elaborates on
the more general information provided above in the CD&A.

NON-EQUITY INCENTIVE COMPENSATION

The Non-Equity Incentive Plan Compensation column of the Summary
Compensation Table includes each named executive's annual cash incentive award
for 2009 and long-term cash incentive award for the 2007-2009 cycle, allocated
to Allstate New York under the Service and Expense Agreement. The amount
attributable to annual and long-term, respectively, is provided in a footnote
to the Summary Compensation Table. The Estimated Future Payouts Under
Non-Equity Incentive Plan Awards column of the Grants of Plan-Based Awards at
Fiscal Year-End 2009 table includes the threshold, target, and maximum award
opportunities for 2009 annual cash incentive compensation, allocated in a
manner consistent with the allocation of compensation expenses to Allstate New
York under the Service and Expense Agreement.

EQUITY COMPENSATION

The Committee granted both restricted stock units and options in 2009. The
restricted stock units granted in 2009 vest in one installment four years after
the date of grant, except in certain change-in-control situations or under
other special circumstances approved by the Committee. Normally, the named
executive must be employed in order for the restricted stock units to vest.
However, restricted stock units continue to vest following retirement on or
after the normal retirement date specified in the award. If the named executive
dies, then as of the date of death, all unvested restricted stock units granted
in 2009 will vest and become nonforfeitable. The restricted stock units granted
in 2009 and prior years include the right to receive dividend equivalents in
the same amount and at the same time as dividends paid to all Allstate common
stockholders.

The stock options granted in 2009 become exercisable in four annual
installments of 25% on the first four anniversaries of the grant date and
expire in ten years, except in certain change-in-control situations or under
other special circumstances approved by the Committee. Normally, the named
executive must be employed at the time of vesting in order for the options to
vest. If the named executive terminates on or after the normal retirement date
under the stock option award agreements, stock options not vested will continue
to vest as scheduled. When the options become vested, they may be exercised by
the named executive at any time on or before the earlier to occur of (i) the
expiration date of the option and (ii) the fifth anniversary of the date of the
named executive's termination of employment. If the named executive dies or
becomes disabled, unvested stock options will vest and may be exercised by the
named executive officer (or personal representative, estate or transferee, as
the case may be) at any time on or before the earlier to occur of (i) the
expiration date of the option and (ii) the second anniversary of the date of
the named executive's termination of employment. If the named executive
terminates for any other reason, any portion of the option not vested will be
forfeited. Vested options may be exercised at any time on or before the earlier
to occur of (i) the expiration date of the option and (ii) three months after
the date of the named executive's termination of employment. The options were
granted with an exercise price equal to the closing sale price on the date of
grant or, if there was no sale on the date of grant, then on the last previous
day on which there was a sale. Each option is a nonqualified stock option. Each
option includes tax withholding rights that permit the holder to elect to have
shares withheld to satisfy minimum federal, state, and local tax withholding
requirements. Option holders may exchange shares previously owned to satisfy
all or part of the exercise price. The vested portions of all the options may
be transferred during the holder's lifetime to, or for the benefit of, family
members. Any taxes payable upon a transferee's subsequent exercise of the
option remain the obligation of the original option holder.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009

The following table summarizes the outstanding equity awards of the named
executives as of December 31, 2009, allocated in a manner consistent with the
allocation of compensation expenses to Allstate New York under the Service and
Expense Agreement for 2009. The percentage of each equity award actually
allocated to Allstate

115

New York has varied over the years during which these awards were granted
depending on the extent of services rendered by such executive to Allstate New
York and the arrangements in place at the time of such equity awards between
Allstate New York and the executive's Allstate-affiliated employer. Because the
aggregate amount of such equity awards attributable to services rendered to
Allstate New York by each named executive cannot be calculated without
unreasonable effort, the allocated amount of each equity award provided for
each named executive in the following table is the amount determined by
multiplying each named executive's equity award for services rendered to
Allstate and all of its affiliates by the percentage used for allocating such
named executive's compensation to Allstate New York in 2009 under the Service
and Expense Agreement.

116

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009

OPTION AWARDS/(1)/ STOCK AWARDS
---------------------------------------------------------------------- -----------------------------
NUMBER OF NUMBER OF NUMBER OF
SECURITIES SECURITIES SHARES OR
UNDERLYING UNDERLYING UNITS OF
UNEXERCISED UNEXERCISED OPTION OPTION STOCK STOCK THAT
OPTION GRANT OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION AWARD HAVE NOT
NAME DATE EXERCISABLE/(2)/ UNEXERCISABLE/(3)/ PRICE DATE GRANT DATE VESTED (#)/(4)/
- ---- ------------- --------------- ----------------- -------- ------------- ------------- --------------

Mr. Cripe
Feb. 7, 2003 316 0 31.78 Feb. 7, 2013
Feb. 6, 2004 1,138 0 45.96 Feb. 6, 2014
Feb. 22, 2005 794 0 52.57 Feb. 22, 2015
Feb. 21, 2006 631 210 53.84 Feb. 21, 2016 Feb. 21, 2006 127
Feb. 21, 2006 371 124 53.84 Feb. 21, 2016 Feb. 21, 2006 33*
Feb. 20, 2007 795 795 62.24 Feb. 20, 2017 Feb. 20, 2007 220
Feb. 26, 2008 660 1,980 48.82 Feb. 26, 2018 Feb. 26, 2008 286
Feb. 27, 2009 0 7,125 16.83 Feb. 27, 2019 Feb. 27, 2009 1,254
Nov. 2, 2009 0 1,845 29.64 Nov. 2, 2019 Nov. 2, 2009 325

Mr. Pintozzi
Sep. 30, 2002 99 0 35.17
Feb. 7, 2003 277 0 31.78 Feb. 7, 2013
Feb. 6, 2004 393 0 45.96 Feb. 6, 2014
Feb. 22, 2005 1,082 0 52.57 Feb. 22, 2015
Feb. 21, 2006 533 178 53.84 Feb. 21, 2016 Feb. 21, 2006 162
Feb. 21, 2006 804 268 53.84 Feb. 21, 2016 Feb. 21, 2006 47*
Feb. 20, 2007 526 526 62.24 Feb. 20, 2017 Feb. 20, 2007 145
Feb. 26, 2008 469 1,408 48.82 Feb. 26, 2018 Feb. 26, 2008 204
Feb. 27, 2009 0 3,934 16.83 Feb. 27, 2019 Feb. 27, 2009 692

--------------

MARKET VALUE
OF SHARES OR
UNITS OF STOCK
THAT HAVE NOT
NAME VESTED/(5)/
- ---- --------------

Mr. Cripe

3,817
991
6,609
8,591
37,662
9,755

AGGREGATE
MARKET VALUE
--------------
67,425
Mr. Pintozzi

4,865
1,424
4,357
6,120
20,794

AGGREGATE
MARKET VALUE
--------------
37,560

- --------
(1)Options vest in four installments on the first four anniversaries of the
grant date. The exercise price of each option is equal to the fair market
value of Allstate's common stock on the date of grant. For options granted
prior to 2007, fair market value is equal to the average of high and low
sale prices on the date of grant, and for options granted in 2007 and
thereafter, fair market value is equal to the closing sale price on the date
of grant or in each case, if there was no sale on the date of grant, then on
the last previous day on which there was a sale.
(2)The allocated aggregate value and aggregate number of exercisable
in-the-money options as of December 31, 2009, for each of the named
executives is $0 (0 aggregate number exercisable).
(3)The allocated aggregate value and aggregate number of unexercisable
in-the-money options as of December 31, 2009, for each of the named
executives is as follows: Mr. Cripe $94,854 (8,969 aggregate number
unexercisable), and Mr. Pintozzi $51,965 (3,934 aggregate number
unexcercisable).
(4)Except as otherwise noted, each restricted stock unit award vests in one
installment on the fourth anniversary of the grant date. An asterisk
(*) denotes restricted stock units that vest in four equal installments on
the first four anniversaries of the grant date.
(5)Amount is based on the closing price of Allstate common stock of $30.04 on
December 31, 2009.

OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2009

The following table summarizes the options exercised by the named executives
during 2009 and the restricted stock and restricted stock unit awards that
vested during 2009, allocated in a manner consistent with the allocation of
compensation expenses to Allstate New York under the Service and Expense
Agreement for 2009.

117

OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2009

OPTION AWARDS
(AS OF 12/31/09) STOCK AWARDS
-------------------------------- -------------------------------
NUMBER OF SHARES NUMBER OF SHARES
ACQUIRED ON VALUE REALIZED ACQUIRED ON VALUE REALIZED
NAME EXERCISE (#) ON EXERCISE ($) VESTING (#) ON VESTING ($)
---- ---------------- --------------- ---------------- --------------

Mr. Cripe.... 0 0 209 $3,857
Mr. Pintozzi. 0 0 213 $3,919

RETIREMENT BENEFITS

Each named executive participates in two different defined benefit pension
plans. Pension expense for each named executive under these plans has been
accrued annually over the course of the executive's career with Allstate. The
aggregate amount of the annual accrual specifically allocated to Allstate New
York over that period of time has varied depending on the extent of services
rendered by such executive to Allstate New York and the arrangements in place
at the time of accrual between Allstate New York and the executive's
Allstate-affiliated employer. Because the aggregate amount of such annual
accruals earned prior to 2009 attributable to services rendered to Allstate New
York by each named executive cannot be calculated without unreasonable effort,
the present value of accumulated benefit provided for each named executive in
the following table is the amount determined by multiplying the present value
of such named executive's accumulated pension benefit for services rendered to
Allstate and all of its affiliates over the course of such named executive's
career with Allstate by the percentage used for allocating such named
executive's compensation to Allstate New York under the Service and Expense
Agreement in 2009.

PENSION BENEFITS

NUMBER OF PRESENT
YEARS VALUE OF PAYMENTS
CREDITED ACCUMULATED DURING LAST
NAME PLAN NAME SERVICE (#) BENEFIT/(1)/ ($) FISCAL YEAR ($)
- ---- ------------------------------------ ----------- -------------- ---------------

Mr. Cripe Allstate Retirement Plan 28.0 32,707 0
Supplemental Retirement Income Plan 28.0 62,588 0
Mr. Pintozzi Allstate Retirement Plan 7.3 2,995 0
Supplemental Retirement Income Plan 7.3 3,124 0

- --------
(1)These amounts are estimates and do not necessarily reflect the actual
amounts that will be paid to the named executives, which will only be known
at the time they become eligible for payment. Accrued benefits were
calculated as of December 31, 2009, and used to calculate the Present Value
of Accumulated Benefits at December 31, 2009, and the applicable percentages
were applied based on the Service and Expense Agreement. December 31 is the
pension plan measurement date used for financial statement reporting
purposes.

The benefits and value of benefits shown in the Pension Benefits table are
based on the following material factors:

ALLSTATE RETIREMENT PLAN ("ARP")

The ARP has two different types of benefit formulas (final average pay and
cash balance) which apply to participants based on their date of hire or
individual choice made prior to the January 1, 2003 introduction of a cash
balance design. Of the named executives, Mr. Pintozzi is eligible to earn cash
balance benefits. Benefits under the final average pay formula are earned and
stated in the form of a straight life annuity payable at the normal retirement
date (age 65). Participants who earn final average pay benefits may do so under
one or more benefit formulas based on when they become members of the ARP and
their years of service.

118

Mr. Cripe has earned ARP benefits under the post-1988 final average pay
formula which is the sum of the Base Benefit and the Additional Benefit, as
defined as follows:

. Base Benefit =1.55% of the participant's average annual compensation,
multiplied by credited service after 1988 (limited to 28 years of
credited service)

. Additional Benefit =0.65% of the amount, if any, of the participant's
average annual compensation that exceeds the participant's covered
compensation (the average of the maximum annual salary taxable for
Social Security over the 35-year period ending the year the participant
would reach Social Security retirement age) multiplied by credited
service after 1988 (limited to 28 years of credited service)

Since Mr. Cripe earned benefits between January 1, 1978, and December 31,
1988, one component of Mr. Cripe's ARP benefit will be based on the following
benefit formula:

1. Multiply years of credited service from 1978 through 1988 by 2 1/8%.

2. Then, multiply the percentage from step (1) by

a. Average annual compensation (five-year average) at December 31, 1988,
and by

b. Estimated Social Security at December 31, 1988.

3. Then, subtract 2(b) from 2(a). The result is the normal retirement
allowance for service from January 1, 1978, through December 31, 1988.

4. The normal retirement allowance is indexed for final average pay. In
addition, there is an adjustment of 18% of the normal retirement
allowance as of December 31, 1988, to reflect a conversion to a single
life annuity.

For participants eligible to earn cash balance benefits, pay credits are
added to the cash balance account on a quarterly basis as a percent of
compensation and based on the participant's years of vesting service as follows:

Cash Balance Plan Pay Credits

VESTING SERVICE PAY CREDIT %
--------------- ------------

Less than 1 year................. 0%
1 year, but less than 5 years.... 2.5%
5 years, but less than 10 years.. 3%
10 years, but less than 15 years. 4%
15 years, but less than 20 years. 5%
20 years, but less than 25 years. 6%
25 years or more................. 7%

The earliest retirement age that a named executive may retire with unreduced
retirement benefits under the ARP and Supplemental Retirement Income Plan is
age 65. However, a participant earning final average pay benefits is entitled
to an early retirement benefit on or after age 55 if he or she terminates
employment after the completion of 20 or more years of service. A participant
earning cash balance benefits who terminates employment with at least three
years of vesting service is entitled to a lump sum benefit equal to his or her
cash balance account balance. Currently, none of the executive officers is
eligible for an early retirement benefit. The benefit reduction for early
payment of final average pay benefits earned after 1988 is as follows: The Base
Benefit as described above is reduced by 0.4% for each full month the benefit
is paid prior to the participant's normal retirement date (or benefit
retirement age if member prior to 1989). Mr. Cripe was a member prior to 1989
and his benefit retirement age under the ARP is age 65. The Additional Benefit
is reduced by 2/3 of 1% for each of the first 36 full months and by 1/3 of 1%
for each of the next 84 full months by which the benefit commencement date
precedes the participant's normal retirement date (age 65). The benefit
reduction for early payment of final average pay benefits earned prior to 1989
is 0.4% for each full month prior to age 60.

119

SUPPLEMENTAL RETIREMENT INCOME PLAN ("SRIP")

SRIP benefits are generally determined using a two-step process:
(1) determine the amount that would be payable under the ARP formula specified
above if the federal limits described above did not apply, then (2) reduce the
amount described in (1) by the amount actually payable under the ARP formula.
The normal retirement date under the SRIP is age 65. If eligible for early
retirement under the ARP, an eligible employee is also eligible for early
retirement under the SRIP.

OTHER ASPECTS OF THE PENSION PLANS

Eligible employees are vested in the normal retirement benefit under the ARP
and the SRIP on the earlier of the completion of five years of service or upon
reaching age 65 for participants with final average pay benefits or the
completion of three years of service or upon reaching age 65 for participants
whose benefits are calculated under the cash balance formula.

For the ARP and SRIP, eligible compensation consists of salary, annual cash
incentive awards, pre-tax employee deposits made to Allstate's 401(k) plan and
Allstate's cafeteria plan, holiday pay, and vacation pay. Eligible compensation
also includes overtime pay, payment for temporary military service, and
payments for short term disability, but does not include long-term cash
incentive awards or income related to the exercise of stock options and the
vesting of restricted stock and restricted stock units. Compensation used to
determine benefits under the ARP is limited in accordance with the Internal
Revenue Code. Average annual compensation is the average compensation of the
five highest consecutive calendar years within the last ten consecutive
calendar years preceding the actual retirement or termination date.

Payment options under the ARP include a lump sum, straight life annuity, and
various survivor annuity options. The lump sum under the final average pay
benefit is calculated in accordance with the applicable interest rate and
mortality as required under the Internal Revenue Code. The lump sum payment
under the cash balance benefit is generally equal to a participant's cash
balance account balance.

The amounts listed in the Present Value of Accumulated Benefit column of the
Pension Benefits table and the amounts listed in the footnotes to the Change in
Pension Value column of the Summary Compensation Table are based on the
following assumptions:

. Discount rate of 6.25%, payment form assuming 80% paid as a lump sum and
20% paid as an annuity, lump-sum/annuity conversion segmented interest
rates of 5.0% for the first five years, 6.5% for the next 15 years, and
7% for all years after 20 and the 2010 combined static Pension
Protection Act funding mortality table with a blend of 50% males and 50%
females (as required under the Internal Revenue Code), and
post-retirement mortality for annuitants using the 2010 IRS-mandated
annuitant table; these are the same as those used for financial
reporting year-end disclosure as described in the notes to Allstate's
consolidated financial statements. (See note 16 to Allstate's audited
financial statements for 2009).

. Retirement age: normal retirement age under the ARP and SRIP (65). Based
on guidance provided by the Securities and Exchange Commission, we have
assumed normal retirement age regardless of any announced or anticipated
retirements.

. Expected terminations, disability, and pre-retirement mortality: none
assumed.

. The percentages used under the Service and Expense Agreement for
allocating compensation expense to Allstate New York in 2009.

EXTRA SERVICE AND PENSION BENEFIT ENHANCEMENT

No additional service is granted under the ARP or the SRIP. Generally,
Allstate has not granted additional service credit outside of the actual
service used to calculate ARP and SRIP benefits.

120

NON-QUALIFIED DEFERRED COMPENSATION

The following table summarizes the non-qualified deferred compensation
contributions, earnings, and account balances of Allstate New York's named
executives in 2009. All amounts relate to the Deferred Compensation Plan.

NON-QUALIFIED DEFERRED COMPENSATION AT FISCAL YEAR-END 2009

EXECUTIVE REGISTRANT AGGREGATE
CONTRIBUTIONS CONTRIBUTIONS IN AGGREGATE EARNINGS WITHDRAWALS/ AGGREGATE BALANCE
IN LAST FY LAST FY IN LAST FY DISTRIBUTIONS AT LAST FYE
NAME ($) ($) ($)/(1)/ ($) ($)/(2)/
- ---- ------------- ---------------- ------------------ ------------- -----------------

Mr. Cripe.... 0 0 0 0 0
Mr. Pintozzi. 0 0 0 0 0

- --------
(1)Aggregate earnings were not included in the named executive's compensation
as reported in the 2009 Summary Compensation Table.
(2)There are no amounts reported in the Aggregate Balance at Last FYE column
that were reported in the 2009 Summary Compensation Table.

In order to remain competitive with other employers, Allstate allows
employees, including the named executives, whose annual compensation exceeds
the amount specified in the Internal Revenue Code (e.g., $245,000 in 2009), to
defer up to 80% of their salary and/or up to 100% of their annual cash
incentive award that exceeds that amount under the Deferred Compensation Plan.
Allstate does not match participant deferrals and does not guarantee a stated
rate of return.

Deferrals under the Deferred Compensation Plan are credited with earnings,
or are subject to losses, based on the results of the investment option or
options selected by the participants. The investment options available under
the Deferred Compensation Plan are Stable Value, S&P 500, International Equity,
Russell 2000, and Bond Funds--options currently available under Allstate's
401(k) plan. Under the Deferred Compensation Plan, deferrals are not actually
invested in these funds, but instead are credited with earnings or losses based
on the funds' investment experience, which are net of administration and
investment expenses. Because the rate of return is based on actual investment
measures in Alllstate's 401(k) plan, no above-market earnings are paid. Similar
to Allstate's 401(k) plan, participants can change their investment elections
daily. Investment changes are effective the next business day. The Deferred
Compensation Plan is unfunded; participants have only the rights of general
unsecured creditors.

Deferrals under the Deferred Compensation Plan are segregated into pre-2005
balances and post-2004 balances. A named executive may elect to begin receiving
a distribution of a pre-2005 balance upon separation from service or in one of
the first through fifth years after separation from service. In either event,
the named executive may elect to receive payment of a pre-2005 balance in a
lump sum or in annual cash installment payments over a period of two to ten
years. An irrevocable distribution election is required before making any
post-2004 deferrals into the plan. The distribution options available to the
post-2004 balances are similar to those available to the pre-2005 balances,
except the earliest distribution date is six months following separation from
service. Upon a showing of unforeseeable emergency, a plan participant may be
allowed to access certain funds in a deferred compensation account earlier than
the dates specified above.

POTENTIAL PAYMENTS AS A RESULT OF TERMINATION OR CHANGE-IN-CONTROL

TERMINATION OF EMPLOYMENT

The named executives may become eligible for severance benefits that all
regular full-time and regular part-time employees are eligible to receive if
their employment is terminated due to lack of work, rearrangement of work,
reduction in workforce, or inability to satisfactorily perform the
responsibilities of their position. The

121

length of severance benefits depends on the named executive's years of service,
up to the maximum provided in the plans.

Allstate has entered into certain agreements or provides certain plans that
will require Allstate Insurance Company or Allstate to provide compensation or
benefits to the named executives in the event of a termination of
employment--other than compensation and benefits generally available to all
salaried employees. The amount of compensation payable to each named executive
or the value of benefits provided to the named executives that exceed the
compensation or benefits generally available to all salaried employees in each
situation is listed in the tables below. The amounts provided in the tables
below, including amounts earned by each named executive over the course of his
career with Allstate and its affiliates, have been calculated in a manner
consistent with the allocation of compensation expenses to Allstate New York
under the Service and Expense Agreement for 2009. The payment of the 2009
annual cash incentive award, the 2007-2009 long-term cash incentive award, and
any 2009 salary earned but not paid in 2009 due to Allstate's payroll cycle are
not included in these tables because these amounts are payable to the named
executives regardless of termination, death, or disability. Benefits and
payments are calculated assuming a December 31, 2009, employment termination
date.

122

POTENTIAL PAYMENTS UPON TERMINATION/(1)/
(NO CHANGE-IN-CONTROL)

RESTRICTED
LONG-TERM STOCK OPTIONS-- STOCK UNITS-- NON-QUALIFIED
CASH INCENTIVE UNVESTED AND UNVESTED AND PENSION WELFARE
AWARDS/(2)/ ACCELERATED/(3)/ ACCELERATED BENEFITS/(4)/ BENEFITS/(5)/ SEVERANCE/(6)/ TOTAL
NAME ($) ($) ($) ($) ($) ($) ($)
- ---- -------------- --------------- ------------- ------------- ------------ ------------- -------

MR. CRIPE
Involuntary
Termination/(7)/...... 0 0 0 95,925 0 22,013 117,938
Voluntary Termination/
Retirement/(8)/....... 0 0 0 95,925 0 0 95,925
Death.................. 3,387 94,854/(9)/ 67,425/(10)/ 95,925 0 0 261,591
Disability............. 3,387 94,854/(9)/ 0 95,925 70,141 0 264,307
MR. PINTOZZI
Involuntary
Termination/(7)/...... 0 0 0 3,610 0 6,561 10,171
Voluntary Termination/
Retirement/(8)/....... 0 0 0 3,610 0 0 3,610
Death.................. 2,255 51,965/(9)/ 37,560/(10)/ 3,610 0 0 95,390
Disability............. 2,255 51,965/(9)/ 0 3,610 107,167 0 164,997

- --------
(1)A "0" indicates that either there is no amount payable to the named
executive or no amount payable to the named executive that is not made
available to all salaried employees.
(2)If a participant dies, retires or is disabled during a performance cycle,
the participant's award will be prorated based on the number of half months
in which the participant was eligible to participate during the long-term
cash incentive performance cycle. The amount reflected is calculated at
target for purposes of this disclosure. The actual payment would be made at
the time all awards are paid for that particular performance cycle and
calculated based on actual results.
(3)If the named executive's termination of employment is for any reason other
than death, disability, or retirement, unvested stock options will be
forfeited, and stock options, to the extent they are vested on the date of
termination, may be exercised at any time on or before the earlier to occur
of (a) the expiration date of the stock option and (b) three months after
the date of termination.
(4)The present value of the non-qualified pension benefits for each named
executive earned through December 31, 2009, based on a 6.25% discount rate
is disclosed in the Pension Benefits table. The value in this column
represents the present value of each named executive's non-qualified pension
benefits (SRIP) earned through December 31, 2009, after applying the
applicable allocation percentage in a manner consistent with the Service and
Expense Agreement and is based on the lump sum methodology (i.e., interest
rate and mortality table) used by the Allstate pension plans in 2010, as
required under the Pension Protection Act. Specifically, the interest rate
for 2010 is based on 40% of the average August 30-year Treasury Bond rate
from the prior year, and 60% of the average corporate bond segmented yield
curve from August of the prior year. The mortality table for 2010 is the
2010 combined static Pension Protection Act funding mortality table with a
blend of 50% males and 50% females, as published by the IRS.

SRIP benefits earned through December 31, 2004 (Pre 409A SRIP Benefits), are
generally payable at age 65, the normal retirement date under the ARP. Pre
409A SRIP Benefits may be payable earlier upon certain terminations in
accordance with the terms of the SRIP. For example, Pre 409A SRIP Benefits
may become payable upon reaching age 50 if disabled, following early
retirement at age 55 or older with 20 years of service, or upon death. SRIP
benefits earned after December 31, 2004 (Post 409A SRIP Benefits), are paid
on the January 1 following termination of employment after reaching age 55
(a minimum six month deferral period applies), or immediately upon death.

. Mr. Cripe's Pre 409A SRIP Benefit would become payable as early as
January 1, 2013, but is immediately payable upon death or disability.
Mr. Cripe's Post 409A Benefit would be paid on January 1, 2013, or
immediately upon death. Mr. Cripe will turn 65 on September 15, 2022.

. Mr. Pintozzi's Pre 409A SRIP Benefit would become payable as early as
January 1, 2011, but is immediately payable upon death. Mr. Pintozzi's
Post 409A Benefit would be paid on January 1, 2021, or immediately upon
death. Mr. Pintozzi will turn 65 on May 18, 2030.

(5)The named executives are eligible to participate in Allstate's supplemental
long-term disability plan for employees whose annual earnings exceed the
level which produces the maximum monthly benefit provided by the Allstate
Long Term Disability Plan (Basic Plan). The benefit is equal to 50% of the
named executive's qualified annual earnings divided by twelve and rounded to
the nearest one hundred dollars, reduced by $7,500, which is the maximum
monthly benefit payment that can be received under the Basic Plan. The
amount reflected assumes the named executive remains totally disabled until
age 65 and represents the present value of the monthly benefit payable until
age 65.

123

(6)The "Severance" amount is the lump sum payment that named executives would
be eligible to receive in the event of employment termination resulting from
a lack of work, rearrangement of work, or reduction in workforce plus an
amount of vacation accrual severance benefit, if applicable. The lump sum
severance benefit is equal to two weeks of pay for each complete year of
service, up to a maximum of 52 weeks of pay, and is the same benefit
available to all regular full-time and regular part-time employees. The
vacation accrual severance benefit is equal to the value at December 31,
2009, of the vacation days accrued but not yet taken between the executive's
anniversary date in 2000 and December 31, 2000. This same benefit was made
available to all eligible regular full-time and regular part-time employees
following a change to the company vacation policy. Mr. Cripe has a vacation
accrual severance benefit amount included in the Severance column of $791.
(7)Examples of "Involuntary Termination" independent of a change-in-control
include performance-related terminations, reorganization, and terminations
for employee dishonesty and violation of Allstate rules, regulations, or
policies.
(8)As of December 31, 2009, neither of the named executives were eligible to
retire in accordance with Allstate's policy or the terms of any of the
Allstate compensation and benefit plans including the long-term cash
incentive and equity incentive plans. If Mr. Cripe or Mr. Pintozzi had
voluntarily terminated employment on December 31, 2009, the non-qualified
pension benefit would have become payable as described in footnote (4) above.
(9)If the named executive's termination of employment is on account of death or
disability, then stock options, to the extent not vested, will vest and may
be exercised at any time on or before the earlier to occur of (1) the
expiration date of the option and (2) the second anniversary of the date of
termination of employment. Stock option values are based on a December 31,
2009, market close price of $30.04 per share of Allstate stock.
(10)If the named executive's termination of employment is a result of death,
restricted stock units immediately become nonforfeitable and the
restrictions expire. The December 31, 2009, market close price of $30.04
per share of Allstate stock was used to value the unvested and
nonforfeitable awards.

CHANGE-IN-CONTROL

Allstate and Allstate Insurance Company have entered into agreements with
the named executives to provide certain benefits and compensation in the event
of a change-in-control. In general, a change-in-control is one or more of the
following events: (1) any person acquires 30% or more of the combined voting
power of Allstate common stock within a 12-month period; (2) any person
acquires more than 50% of the combined voting power of Allstate common stock;
(3) certain changes are made to the composition of the Allstate Board; or
(4) the consummation of a merger, reorganization, or similar transaction. These
triggers were selected because, in a widely held company the size of Allstate,
they could each result in a substantial change in management. There are no
agreements in place with the named executives to provide benefits or
compensation in the event of a change-in-control of Allstate New York that does
not also involve a change-in-control of Allstate.

During the two-year period following a change-in-control, the
change-in-control agreements provide for a minimum salary, annual cash
incentive awards, long-term cash incentive awards, and other benefits. In
addition, they provide that the named executives' positions, authority, duties,
and responsibilities will be at least commensurate in all material respects
with those held prior to the change-in-control.

Under the change-in-control agreements, severance benefits would be payable
if a named executive's employment is terminated either by Allstate without
"cause" or by the executive for "good reason" as defined in the agreements
during the two-year period following the change-in-control. Cause means the
named executive has been convicted of a felony or other crime involving fraud
or dishonesty, has willfully or intentionally breached the change-in-control
agreement, has habitually neglected his or her duties, or has engaged in
willful or reckless material misconduct in the performance of his or her
duties. Good reason includes a material diminution in a named executive's base
compensation, authority, duties, or responsibilities, a material change in the
geographic location where the named executive performs services, or a material
breach of the change-in-control agreement by Allstate. The principal severance
benefits payable on post-change-in-control terminations include: pro-rated
annual cash incentive awards and long-term cash incentive awards (all at
target); a payment equal to three times the sum of the executive's base salary
and target annual cash incentive award; the continuation of certain welfare
benefits for the continuation coverage period at a cost not to exceed the
amount paid by the named executive prior to termination; outplacement services;
an enhanced retirement benefit consisting of an additional three years of
service, age, and compensation; and reimbursement (on an after-tax basis) of
any resulting excise taxes.

124

If a named executive's employment is terminated by reason of death or
disability during the two-year period commencing on the date of a
change-in-control, Allstate will pay the named executive or the named
executive's estate a lump-sum cash amount equal to all amounts earned but
unpaid, including any annual and long-term cash incentive awards, as of the
termination date. In addition, in the event of death, the named executive's
estate or beneficiary will be entitled to survivor and other benefits,
including retiree medical coverage, if eligible, that are not less favorable
than the most favorable benefits available to the estates or surviving families
of peer executives of Allstate. In the event of disability, Allstate will pay
disability and other benefits, including supplemental long-term disability
benefits and retiree medical coverage, if eligible, that are not less favorable
than the most favorable benefits available to disabled peer executives. If
Allstate terminates a named executive's employment for cause, Allstate's sole
obligation is to pay the named executive a lump-sum cash amount equal to all
amounts earned and due to be paid, but unpaid, as of the termination date.

If a named executive incurs legal fees or other expenses in an effort to
enforce the change-in-control agreement, Allstate will reimburse the named
executive for these expenses unless it is established by a court that the named
executive had no reasonable basis for the claim or acted in bad faith.

Effective upon a change-in-control, the named executives become subject to
covenants prohibiting competition and solicitation of employees, customers, and
suppliers at any time until one year after termination of employment.

The following table describes the estimated compensation or benefits that
would be provided by Allstate Insurance Company or Allstate to the named
executives in the event of a change-in-control that exceed the compensation or
benefits generally available to all salaried employees in each situation. The
payment of the 2009 annual cash incentive award, the 2007-2009 long-term cash
incentive award and any 2009 salary earned but not paid in 2009 due to
Allstate's payroll cycle are not included in these tables because these amounts
are payable to the named executives regardless of termination, death, or
disability. Benefits and payments are calculated assuming a December 31, 2009,
employment termination date or change-in-control.

125

POTENTIAL PAYMENTS UPON CHANGE-IN-CONTROL/(1)/

STOCK RESTRICTED NON-QUALIFIED WELFARE EXCISE TAX
CHANGE-IN- OPTIONS-- STOCK UNITS-- PENSION AND BENEFITS AND REIMBURSEMENT
CONTROL UNVESTED AND UNVESTED AND DEFERRED OUTPLACEMENT AND TAX
SEVERANCE ACCELERATED/(3)/ ACCELERATED/(5)/ COMPENSATION SERVICES GROSS-UP/(9)/
NAME ($) ($) ($) ($) ($) ($)
- ---- ---------- --------------- --------------- -------------- ------------ -------------

MR. CRIPE
Immediately Payable Upon
Change-in-Control......... 0 94,854 67,425 95,925/(6)/ 0 0
Involuntary or Good Reason
Termination............... 121,170/(2)/ See footnote 4 See footnote 4 See footnote 7 1,861/(8)/ 0
Death/Disability/For Cause
Termination............... 0 0 0 0 0 0
MR. PINTOZZI
Immediately Payable Upon
Change-in-Control......... 0 51,965 37,560 3,610/(6)/ 0 0
Involuntary or Good Reason
Termination............... 80,238/(2)/ See footnote 4 See footnote 4 See footnote 7 1,629/(8)/ 0
Death/Disability/For Cause
Termination............... 0 0 0 0 0 0

TOTAL
NAME ($)
- ---- -------

MR. CRIPE
Immediately Payable Upon
Change-in-Control......... 258,204
Involuntary or Good Reason
Termination............... 123,031
Death/Disability/For Cause
Termination............... 0
MR. PINTOZZI
Immediately Payable Upon
Change-in-Control......... 93,135
Involuntary or Good Reason
Termination............... 81,867
Death/Disability/For Cause
Termination............... 0

- --------
(1)A "0" indicates that either there is no amount payable to the named
executive or no amount payable to the named executive that is not made
available to all salaried employees.
(2)Change-in-control severance benefits upon an involuntary termination or
termination for good reason contain the following elements:

. two times the named executive's base salary for Mr. Pintozzi (three times
for Mr. Cripe);

. two times the named executive's annual cash incentive award calculated at
target for Mr. Pintozzi (three times for Mr. Cripe);

. the named executive's pro-rata long-term cash incentive award for the
2008-2010 performance cycle calculated at target; and

. a lump sum payment equal to the positive difference, if any, between:
(a) the sum of the lump-sum values of each maximum annuity that would be
payable to the named executive under any defined benefit plan (whether or
not qualified under Section 401(a) of the Internal Revenue Code) if the
named executive had: (i) become fully vested in all such benefits,
(ii) attained as of the named executive's termination date an age that is
three years greater than named executive's actual age, (iii) accrued a
number of years of service that is three years greater than the number of
years of service actually accrued by the named executive as of the named
executive's termination date, and (iv) received a lump-sum severance
benefit consisting of three times base salary, three times annual
incentive cash compensation calculated at target, plus the 2009 annual
incentive cash award as covered compensation in equal monthly installments
during the three-year period following the named executive's termination
date; and (b) the lump-sum values of the maximum annuity benefits vested
and payable to the named executive under each defined benefit plan that is
qualified under Section 401(a) of the Internal Revenue Code plus the
aggregate amounts simultaneously or previously paid to the named executive
under the defined benefit plans (whether or not qualified under
Section 401(a)). The calculation of the lump sum amounts payable under
this formula does not impact the benefits payable under the ARP or the
SRIP.

The change-in-control agreements provide that if the after-tax benefits of
all change of control payments are less than 110% of the after-tax benefit
of the safe harbor benefit amount, then the change-in-control benefits are
to be reduced to the safe harbor benefit amount. The safe harbor benefit
amount is the highest level of benefits that can be paid before which an
excise tax under section 4999 of the Internal Revenue Code would apply.

(3)Stock option values are based on a December 31, 2009, market close price of
$30.04 per share of Allstate stock.
(4)For purposes of this table, unvested stock options and restricted stock
units, which would have been immediately payable upon a change-in-control
regardless of termination of employment, were assumed to have been paid
immediately prior to termination and are reflected in the "Immediately
Payable Upon Change-in-Control" row.
(5)The December 31, 2009, market close price of $30.04 per share of Allstate
stock was used to value the unvested and nonforfeitable restricted stock
unit and restricted stock awards.
(6)Within five business days after the effective date of a change-in-control,
the named executives will receive a lump sum payment equal to the present
value of the named executive's SRIP benefit and deferred compensation
account balance. The present value of SRIP benefits earned through
December 31, 2009, is calculated in a manner consistent with the allocation
of compensation expenses to Allstate New York under the Service and Expense
Agreement and is based on the lump sum methodology (i.e., interest rate and
mortality table) used by the Allstate pension plans in 2010, as required
under the Pension Protection Act. Specifically, the interest rate for 2010
is based on 40% of the average August 30-year Treasury Bond rate from the
prior year, and 60% of the average corporate bond segmented yield curve from
August of the prior year. The mortality table for 2010 is the 2010 combined
static Pension Protection Act funding mortality table with a blend of 50%
males and 50% females, as published by the IRS. Refer to the Retirement
Benefits section beginning on page 118 for a discussion of the SRIP benefit.
See the Non-Qualified Deferred Compensation at Fiscal Year-End 2009 table
on page 121 for additional information on the Deferred Compensation Plan and
information regarding the named executives' account balances as of
December 31, 2009.

126

(7)For purposes of this table, the present value of non-qualified pension
benefits earned through December 31, 2009, and the named executive's
Deferred Compensation Plan account balance, if any, which would have been
immediately payable upon a change-in-control regardless of termination of
employment were assumed to have been paid immediately prior to termination
upon the effective date of a change of control and are reflected in the
"Immediately Payable Upon Change-in-Control" row.
(8)The Welfare Benefits and Outplacement Services amount includes the cost to
provide certain welfare benefits to the named executive and family during
the period which the named executive is eligible for continuation coverage
under applicable law. The amount shown reflects Allstate's costs for these
benefits or programs assuming an 18-month continuation period. The value of
outplacement services is $20,000 for Mr. Cripe and $15,000 for Mr. Pintozzi.
(9)Certain payments made as a result of a change in control are subject to a
20% excise tax imposed on the named executive by Section 4999 of the Code.
The Excise Tax Reimbursement and Tax Gross-up is the amount Allstate would
pay to the named executive as reimbursement for the 20% excise tax plus a
tax gross-up for any taxes incurred by the named executive resulting from
the reimbursement of such excise tax, allocated in a manner consistent with
the allocation of compensation expenses to Allstate New York under the
Service and Expense Agreement. The estimated amounts of reimbursement of any
resulting excise taxes were determined without regard to the effect that
restrictive covenants and any other facts and circumstances may have on the
amount of excise taxes, if any, that ultimately might be payable in the
event these payments were made to a named executive which is not subject to
reliable advance prediction or a reasonable estimate.

COMPENSATION POLICIES AND PRACTICES RISK ANALYSIS

Allstate management has reviewed its compensation policies and practices and
believes that they are appropriately structured, that they are consistent with
its key operating priority of keeping the Allstate financially strong, and that
they avoid providing incentives for employees to engage in unnecessary and
excessive risk taking. The Allstate Board and its Audit Committee both play an
important role in risk management oversight, including reviewing how management
measures, evaluates, and manages the corporation's exposure to risks posed by a
wide variety of events and conditions. In addition, the Compensation and
Succession Committee employs an independent executive consultant each year to
assess Allstate's executive pay levels, practices, and overall program design.

Allstate's compensation programs provide a balanced mix of cash and equity
through annual and long-term incentives to align with short-term and long-term
business goals. Allstate utilizes a full range of performance measures that it
believes correlate to long-term shareholder value creation. Cash incentive
awards are paid only after a review of executive and corporate performance.
Allstate's calculation of corporate income includes a quarterly re-estimation
of property-liability reserves. As a result, to a significant extent, if
Allstate under-estimates or over-estimates losses in a given year, income and
annual cash incentives will be impacted in the following year. Furthermore, to
ensure its compensation programs do not motivate imprudent risk taking, awards
made after May 19, 2009, under the 2009 Equity Incentive Plan and awards made
beginning in 2010 under the Annual Executive Incentive Plan are subject to
clawback in the event of certain financial restatements.

PERFORMANCE MEASURES

Information regarding performance measures is disclosed in the limited
context of annual and long-term cash incentive awards and should not be
understood to be statements of management's expectations or estimates of
results or other guidance. We specifically caution investors not to apply these
statements to other contexts.

The following are descriptions of the performance measures used for
Allstate's annual cash incentive awards for 2009 and its long-term cash
incentive awards for the 2007-2009 cycle which may be applied to compensation
of Allstate New York's named executives. These measures are not GAAP measures.
They were developed uniquely for incentive compensation purposes and are not
reported items in Allstate's financial statements. Some of these measures use
non-GAAP measures and operating measures. The Committee has approved the use of
non-GAAP and operating measures when appropriate to drive executive focus on
particular strategic, operational, or financial factors or to exclude factors
over which Allstate's executives have little influence or control, such as
capital market conditions.

127

ANNUAL CASH INCENTIVE AWARDS FOR 2009

Corporate Measures

Adjusted Operating Income Per Diluted Share: This measure is used to assess
financial performance. The measure is equal to net income adjusted to exclude
the after-tax effects of the items listed below, divided by the weighted
average shares outstanding on a diluted basis:

. Realized capital gains and losses (which includes the related effect on
the amortization of deferred acquisition and deferred sales inducement
costs) except for periodic settlements and accruals on certain non-hedge
derivative instruments, which are reported with realized capital gains
and losses but included in Operating Income, and equity method of
accounting income from limited partnership interests to be consistent
with the incentive goals.

. Gains and losses on disposed operations.

. Adjustments for other significant non-recurring, infrequent, or unusual
items, when (a) the nature of the charge or gain is such that it is
reasonably unlikely to recur within two years or (b) there has been no
similar charge or gain within the prior two years.

. Restructuring and related charges.

. Effects of acquiring businesses.

. Negative operating results of sold businesses.

. Underwriting results of the Discontinued Lines and Coverages segment.

. Any settlement, awards, or claims paid as a result of lawsuits and other
proceedings brought against Allstate subsidiaries regarding the scope
and nature of coverage provided under insurance policies issued by such
companies.

. Identifiable effects of the adopted accounting standard for
other-than-temporary impairments to be consistent with incentive goals.

Allstate Financial Measures

Adjusted Operating Income: This is a measure Allstate management uses to
assess the profitability of the business. The Allstate Financial segment
measure, operating income, is adjusted to include equity method of accounting
income from limited partnership interests to be consistent with the incentive
goals, and to exclude the after tax effects of restructuring and related
charges, the potential amount by which 2009 guaranty fund assessments related
to insured solvencies exceed $6 million, and the identifiable effects of the
adopted accounting standard for other than temporary impairments which were not
used to develop plan measures. For disclosure of the Allstate Financial segment
measure, see footnote 18 to Allstate's audited financial statements.

Financial Product Sales ("Production Credits"): This measure of sales and
related profitability of proprietary and non-proprietary financial products
sold through the Allstate Exclusive Agency channel is used by management to
assess the execution of Allstate's financial services strategy. This measure is
calculated as the total amount of production credits for current year
transactions. Production credits are an internal sales statistic calculated as
a percent of premium or deposits to life insurance, annuities, or mutual funds
which vary based on the expected profitability of the specific financial
product.

Total Return: Total return is principally determined using industry
standards and the same sources used in preparing the financial statements to
determine fair value. (See footnotes to Allstate's audited financial statements
for methodologies for estimating the fair value of investments.) In general,
total return represents the increase or decrease, expressed as a percentage, in
the value of the portfolio over a one-year period. Time weighted returns are
used.

128

. Allstate Financial Total Return: Total return for Allstate Financial
investments, including those held in certain subsidiaries, such as
Allstate New York. Allstate Financial Total Return includes derivatives
and excludes the identifiable effects of the adopted accounting standard
for other-than-temporary impairments which were not used to develop plan
measures.

LONG-TERM CASH INCENTIVE AWARDS

Average Adjusted Return on Equity Relative to Peers: This measure is used to
assess Allstate's financial performance against its peers. It is calculated as
Allstate's ranked position relative to the insurance company peer group based
upon three-year average adjusted return on equity, calculated on the same basis
for Allstate and each of the peer insurance companies used for long-term cash
incentive awards. Three-year average adjusted return on equity is the sum of
the annual adjusted return on equity for each of the three years in the cycle
divided by three. The annual adjusted return on equity is calculated as the
ratio of net income divided by the average of Allstate's shareholders' equity
at the beginning and at the end of the year after excluding the component of
accumulated other comprehensive income for unrealized net capital gains and
losses.

Allstate Financial Return on Total Capital: This is a measure management
uses to measure the efficiency of capital utilized in the business. Three-year
Allstate Financial return on total capital is the sum of the annual adjusted
return on Allstate subsidiaries' shareholder's equity for each of the three
years divided by three. The annual adjusted return on subsidiaries'
shareholder's equity is the Allstate Financial measure, operating income,
divided by the average subsidiaries' shareholder's equity at the beginning and
at the end of the year. The subsidiaries' shareholder's equity is the sum of
the subsidiaries' shareholder's equity for Allstate Life Insurance Company,
Allstate Bank, American Heritage Life Investment Corporation, and certain other
minor entities, adjusted to exclude the loan protection business and excluding
the component of accumulated other comprehensive income for unrealized net
capital gains. (See note 18 to Allstate's audited financial statements for
Allstate Financial net income.)

Allstate Protection Growth in Policies in Force Over Three-Year Cycle: This
is a measure used by management to assess growth in the number of policies in
force, which is a driver of premiums written. The measure is calculated as the
sum of the percent increase in each of the three years in the total number of
policies in force at the end of the year over the beginning of the year. The
measure excludes property insurance, Allstate Motor Club, and the loan
protection business and includes Allstate Canada.

DIRECTOR COMPENSATION

The following table summarizes the compensation of each of Allstate New
York's non-employee directors during 2009 for his or her services as a member
of the Allstate New York Board and its committees. Our non-employee directors
each received an annual retainer of $13,500 and the chair of the Operations
Review Committee received an additional annual retainer of $1,500.
Additionally, they each received a fee of $1,500 for each Board meeting
attended throughout the year and a fee of $750 for each meeting they attended
as members of the Board's Operations Review Committee, Investment Committee, or
Audit Committee.

All other Allstate New York directors are employees of Allstate or its
subsidiaries. These directors receive no compensation for their service as
directors in addition to their compensation as employees of Allstate New York,
Allstate, or their subsidiaries.

129

FEES EARNED
OR PAID IN CASH TOTAL
NAME OF NON-EMPLOYEE DIRECTOR ($)/(1)/ ($)
----------------------------- --------------- ------

Ms. Alazraki.......... 22,500 22,500
Mr. Johnson........... 24,000/(2)/ 24,000
Mr. O'Brien........... 24,750/(3)/ 24,750
Mr. Raben............. 25,500/(4)/ 25,500
Ms. Slater............ 22,500 22,500

- --------
(1)Each of these directors is a member of the Operations Review Committee.
(2)Chair of the Operations Review Committee
(3)Audit Committee member
(4)Investment Committee member

ITEM 11(M).SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.

The following table shows the number of Allstate New York shares owned by
any beneficial owner who owns more than five percent of any class of Allstate
New York's voting securities.

TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
CLASS (A) BENEFICIAL OWNER (B) BENEFICIAL OWNERSHIP (C) CLASS (D)
- --------- ---------------------------------------- ------------------------------------- ----------

Capital Stock. Allstate Life Insurance Company
3100 Sanders Road, Northbrook, IL 60062 100,000 100%

N/A Allstate Insurance Company Indirect voting and investment power N/A
2775 Sanders Road, Northbrook, IL 60062 of shares owned by Allstate Life
Insurance Company

N/A The Allstate Corporation Indirect voting and investment power N/A
2775 Sanders Road, Northbrook, IL 60062 of shares owned by Allstate Life
Insurance Company

130

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS.

The following table shows the number of shares of Allstate common stock
beneficially owned by each director and named executive officer of Allstate New
York individually, and by all executive officers and directors of Allstate New
York as a group. Shares reported as beneficially owned include shares held
indirectly through the Allstate 401(k) Savings Plan and other shares held
indirectly, as well as shares subject to stock options exercisable on or prior
to April 16, 2010 and restricted stock units for which restrictions expire on
or prior to April 16, 2010. The percentage of Allstate shares of common stock
beneficially owned by any Allstate New York director, named executive officer
or by all directors and executive officers of Allstate New York as a group does
not exceed 1%. The following share amounts are as of February 15, 2010. As of
February 15, 2010, none of these shares were pledged as security.

COMMON STOCK SUBJECT
TO OPTIONS EXERCISABLE
AND RESTRICTED STOCK
UNITS FOR WHICH
AMOUNT AND NATURE OF RESTRICTIONS EXPIRE ON OR
BENEFICIAL OWNERSHIP OF PRIOR TO APRIL 16, 2010--
NAME OF BENEFICIAL OWNER ALLSTATE COMMON STOCK (A) INCLUDED IN COLUMN (A)(B)
- ------------------------ ------------------------- -------------------------

Marcia D. Alazraki...................... 200 0
Robert K. Becker........................ 13,638 9,075
Michael B. Boyle........................ 101,271 86,420
Frederick F. Cripe...................... 169,161 146,131
Matthew S. Easley....................... 72,624 70,729
Mark A. Green........................... 242 0
Robert J. Holden........................ 23,880 19,556
Cleveland Johnson, Jr................... 2,048 0
Susie Lees.............................. 31,379 20,205
Kenneth R. O'Brien...................... 900 0
John C. Pintozzi........................ 90,036 82,956
John R. Raben, Jr....................... 1,850 0
Phyllis Hill Slater..................... 0 0
J. Eric Smith........................... 2,182 0
Matthew E. Winter....................... 0 0
ALL DIRECTORS AND EXECUTIVE OFFICERS AS
A GROUP............................... 745,637 663,772

131

ITEM 11(N).TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS.

This table describes certain intercompany agreements involving Allstate Life
of New York and the following companies:

. Allstate Life Insurance Company ("ALIC"), the direct parent of Allstate
Life of New York;

. Allstate Insurance Company ("AIC"), an indirect parent of Allstate Life
of New York; and

. The Allstate Corporation ("AllCorp"), the ultimate indirect parent of
Allstate Life of New York.

APPROXIMATE DOLLAR
VALUE OF THE AMOUNT RELATED PERSON(S) INVOLVED IN THE TRANSACTION/1/
INVOLVED IN THE AND THE APPROXIMATE DOLLAR VALUE OF THE AMOUNT
TRANSACTION, PER FISCAL OF THE RELATED PERSON'S INTEREST
TRANSACTION DESCRIPTION YEAR IN THE TRANSACTION
- ----------------------- -------------------- -------------------------------------------
ALIC AIC ALLCORP
------------ ------------- ----------

Tax Sharing Agreement among The 2007 1,889,110,117/2/ 35,968,879 1,912,198,568 (126,810,136)
Allstate Corporation and certain
affiliates dated as of November 12, 2008 465,439,826/2/ (109,322,083) 633,316,282 (121,960,368)
1996.
2009 1,173,212,154/2/ (534,572,879) (467,570,173) (121,813,486)

Cash Management Services Master 2007 1,242,569/3/ 315,281/4/ 617,385/4/ N/A
Agreement between Allstate Insurance
Company, Allstate Bank (aka Allstate 2008 1,338,376/3/ 198,098/4/ 816,143/4/
Federal Savings Bank), and certain
affiliates dated March 16, 1999, as 2009 1,527,072/3/ 158,312/4/ 1,052,781/4/
amended by Amendment No.1 effective
January 5, 2001, and Amendment No. 2
entered into November 8, 2002, between
Allstate Insurance Company, Allstate
Bank and Allstate Motor Club, Inc., and
as supplemented by the Premium
Depository Service Supplement dated as
of September 30, 2005, the Variable
Annuity Service Supplement dated
November 10, 2005, and the Sweep
Agreement Service Supplement dated as
of October 11, 2006.

Amended and Restated Service and 2007 3,270,782,494 224,729,858/5/ 2,392,512,051/5/ 24,957,633/5/
Expense Agreement between Allstate
Insurance Company, The Allstate 2008 3,295,180,640 215,640,945/5/ 2,186,281,461/5/ 5,351,262/5/
Corporation and certain affiliates
effective January 1, 2004, as amended 2009 3,451,765,246 180,154,068/5/ 1,937,571,496/5/ 2,510,800/5/
by Amendment No. 1 effective
January 1, 2009, and as supplemented
by New York Insurer Supplement to
Amended and Restated Service and
Expense Agreement between Allstate
Insurance Company, The Allstate
Corporation, Allstate Life Insurance
Company of New York and Intramerica
Life Insurance Company, effective
March 5, 2005.

132

APPROXIMATE DOLLAR
VALUE OF THE AMOUNT RELATED PERSON(S) INVOLVED IN THE TRANSACTION/1/
INVOLVED IN THE AND THE APPROXIMATE DOLLAR VALUE OF THE AMOUNT
TRANSACTION, PER FISCAL OF THE RELATED PERSON'S INTEREST
TRANSACTION DESCRIPTION YEAR IN THE TRANSACTION
- ----------------------- ------------------ ----------------------------------------------
ALIC AIC ALLCORP
------------- ----------- -------------

Intercompany Loan Agreement among 2007 7,370,022,084 7,012,969,748/6/ 357,052,336/6/ 7,370,022,084
The Allstate Corporation, Allstate Life
Insurance Company, Lincoln Benefit 2008 400,040,660 50,014,792/6/ 1,732,73/6/ 400,040,660
Life Company and other certain
subsidiaries of The Allstate Corporation 2009 86,111,674 0/7/ 86,111,674/6/ 86,111,674
dated February 1, 1996.

Agreement for the Settlement of State 2007 14,196,008 374,100/8/ 3,463,000/8/ N/A
and Local Tax Credits among Allstate
Insurance Company and certain 2008 2,089,067 356,331/8/ 1,732,736/8/
affiliates effective January 1,
2007. 2009 941,379 193,504/8/ 441,024/8/

Reinsurance Agreements between 2007 (3,156,703)/9/ (3,156,703)/9/ N/A N/A
Allstate Life Insurance Company and
Allstate Life Insurance Company of 2008 (14,905,073)/9/ (14,905,073)/9/
New York: Reinsurance Agreement
effective January 1, 1984, as amended 2009 (26,652,961)/9/ (26,652,961)/9/
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, Amendment No.5 effective
December 31, 1995, Amendment No. 6
effective December 1, 2007, and
Amendment No. 7; Assumption
Reinsurance Agreement between
Allstate Life Insurance Company and
Allstate Life Insurance Company of
New York effective July 1, 1984;
Reinsurance Agreement effective
January 1, 1986, as amended by
Amendment No. 1 effective
December 31, 1995 and Amendment
No. 2 effective December 1, 1995;
Reinsurance Agreement effective
January 1, 1991, as amended by
Amendment No. 1 effective
December 31, 1995; Stop Loss
Reinsurance Agreement effective
December 31.

- --------
1 Each identified Related Person is a Party to the transaction.
2 Total amounts paid to Internal Revenue Service.
3 Total fees collected for all bank accounts covered under the transaction.
4 Fees paid under the transaction.
5 Gross amount of expense received under the transaction.
6 Amounts loaned and repaid.
7 No loans outstanding at year end.
8 Value of transfer transactions.
9 Net reinsurance expense.

133

POLICIES AND PROCEDURES FOR REVIEW AND APPROVAL OF RELATED PERSON TRANSACTIONS:

All intercompany agreements to which Allstate New York is a party are
approved by Allstate New York's Board of Directors as well as by the board of
any other affiliate of The Allstate Corporation which is a party to the
agreement. Intercompany agreements are also submitted for approval to the New
York State Insurance Department, Allstate New York's domestic regulator
pursuant to the applicable state's insurance holding company systems act. This
process is documented in an internal procedure that captures the review and
approval process of all intercompany agreements. All approvals are maintained
in Allstate New York's corporate records.

While there is no formal process for the review and approval of related
person transactions between unaffiliated entities specific to Allstate New
York, all directors and executive officers of Allstate New York are subject to
the Allstate Code of Ethics ("Code"). The Code includes a written conflict of
interest policy that was adopted by the Board of Directors of the Allstate
Corporation, the ultimate parent company of Allstate New York. Any potential
relationship or activity that could impair independent thinking and judgment,
including holding a financial interest in a business venture that is similar to
Allstate, or in a business that has a relationship with Allstate, must be
disclosed to Human Resources. Human Resources will work with representatives
from the Law Department, including Enterprise Business Conduct, to determine
whether an actual conflict of interest exists. Each director and executive
officer must sign a Code of Ethics certification annually.

INDEPENDENCE STANDARDS FOR DIRECTORS

Outside directors of Allstate New York are subject to independence standards
based on New York insurance law. Generally, these independence standards
require that an independent director cannot be an employee or a beneficial
owner of a controlling interest in Allstate New York or any other affiliate of
The Allstate Corporation. Applying these independence standards, Ms. Alazraki,
Mr. Johnson, Mr. O'Brien, Mr. Raben, and Ms. Slater are independent.

Although not subject to the independence standards of the New York Stock
Exchange, for purposes of this S-1 registration statement, Allstate New York
has applied the independence standards required for listed companies of the New
York Stock Exchange to the Board of Directors. Applying these standards,
Allstate New York has been determined that Ms. Alazraki, Mr. Johnson,
Mr. O'Brien, Mr. Raben, and Ms. Slater are considered to be independent.

OTHER INFORMATION

The section in your prospectus entitled "Incorporation of Certain Documents
By Reference" is deleted and replaced with the following:

FILING OF REPORTS

Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") exempts an insurance company from filing reports under the
Exchange Act when the insurance company issues certain types of insurance
products that are registered under the Securities Act of 1933 and such products
are regulated under state law. Your variable annuity issued by Allstate Life
Insurance Company of New York falls within the exemption provided under rule
12h-7. We rely on the exemption provided under rule 12h-7 and do not file
reports under the Exchange Act.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted in directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for

134

indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The sections in your prospectus entitled "Experts" and "Financial
Statements" are deleted and replaced with the following:

EXPERTS

The financial statements and related financial statement schedules included
herein have been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

135

Supplement Dated December 31, 2009
To the Prospectus for Your Variable Annuity
Issued By
Allstate Life Insurance Company
Allstate Life Insurance Company of New York
Lincoln Benefit Life Company

This supplement amends the prospectus for your variable annuity contract issued
by Allstate Life Insurance Company, Allstate Life Insurance Company of New York,
or Lincoln Benefit Life Company.

The following provision is added to your prospectus:

WRITTEN REQUESTS AND FORMS IN GOOD ORDER. Written requests must include
sufficient information and/or documentation, and be sufficiently clear, to
enable us to complete your request without the need to exercise discretion on
our part to carry it out. You may contact our Customer Service Center to learn
what information we require for your particular request to be in "good order."
Additionally, we may require that you submit your request on our form. We
reserve the right to determine whether any particular request is in good order,
and to change or waive any good order requirements at any time.

If you have any questions, please contact your financial representative or call
our Customer Service Center at 1-800-457-7617. If you own a Putnam contract,
please call 1-800-390-1277.

For future reference, please keep this supplement together with your
prospectus.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Supplement dated August 14, 2009
To the following Prospectuses, as supplemented:

Allstate Provider, Prospectus Dated May 1, 2002
SelectDirections, Prospectus Dated April 30, 2005
AIM Lifetime Plus, Prospectus Dated April 30, 2005
AIM Lifetime Plus II, Prospectus Dated April 30, 2005
Custom Portfolio, Prospectus Dated April 30, 2005

This prospectus supplement amends certain disclosure contained in the
prospectuses referenced above for your variable annuity contract issued by
Allstate Life Insurance Company of New York ("Allstate New York").

The "Annual Reports and Other Documents" Section is deleted and replaced with
the following:

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission ("SEC") recently adopted rule 12h-7 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 12h-
7 exempts an insurance company from filing reports under the Exchange Act when
the insurance company issues certain types of insurance products that are
registered under the Securities Act of 1933 and such products are regulated
under state law. Each of the variable annuities described in the prospectuses
referenced above fall within the exemption provided under rule 12h-7. Allstate
New York is hereby providing notice that it is electing to rely on the exemption
provided under rule 12h-7 effective as of the date of this prospectus supplement
or as soon as possible thereafter, and will be suspending filing reports under
the Exchange Act.

The SEC allows us to "incorporate by reference" information that we file with
the SEC into this prospectus supplement which means that incorporated documents
are considered part of this prospectus supplement. We can disclose important
information to you by referring you to those documents. This prospectus
supplement incorporates by reference our Annual Report on Form 10-K for the year
ended December 31, 2008, filed with the SEC on March 18, 2009, and our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009, filed with the SEC on
May 12, 2009.

Allstate New York will provide to each person, including any beneficial owner,
to whom a prospectus is delivered, a copy of any or all of the information that
has been incorporated by reference into the prospectus but not delivered with
the prospectus. Such information will be provided upon written or oral request
at no cost to the requester by writing to Allstate New York, P.O. Box 758565,
Topeka, KS 66675-8565 or by calling 1-800-457-8207. The public may read and copy
any materials that Allstate New York files with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy, and information statements, and other information regarding issuers that
file electronically with the SEC (see http://www.sec.gov).

Allstate Life Insurance Company of New York

AIM Lifetime Plus

AIM Lifetime Plus II

Allstate Provider Variable Annuity

Custom Portfolio

Select Directions

Supplement, dated May 1, 2009

This supplement amends certain disclosure contained in the prospectus for
certain annuity contracts issued by Allstate Life Insurance Company of New York.

Under the "More Information" section, the subsection entitled "Legal Matters" is
deleted and replaced with the following:

LEGAL MATTERS

Certain matters of state law pertaining to the Contracts, including the validity
of the Contracts and Allstate New York's right to issue such Contracts under
applicable state insurance law, have been passed upon by Susan L. Lees, General
Counsel of Allstate New York.

The "Annual Reports and Other Documents" section is deleted and replaced with
the following:

ANNUAL REPORTS AND OTHER DOCUMENTS

Allstate Life Insurance Company of New York ("Allstate New York") incorporates
by reference into the prospectus its latest annual report on Form 10-K filed
pursuant to Section 13(a) or Section 15(d) of the Exchange Act since the end of
the fiscal year covered by its latest annual report, including filings made on
Form 10-Q and Form 8-K. In addition, all documents subsequently filed by
Allstate New York pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act also are incorporated into the prospectus by reference. Allstate New York
will provide to each person, including any beneficial owner, to whom a
prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference into the prospectus but not delivered with the
prospectus. Such information will be provided upon written or oral request at no
cost to the requester by writing to Allstate New York, P.O. Box 70178,
Philadelphia, PA 19176 or by calling 1-877-234-8688. Allstate New York files
periodic reports as required under the Securities Exchange Act of 1934. The
public may read and copy any materials that Allstate New York files with the SEC
at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy, and information statements, and
other information regarding issuers that file electronically with the SEC (see
http://www.sec.gov).

EXPERTS

In the prospectus for Allstate Provider Variable Annuity, the section entitled
"Experts" is deleted.

AIM LIFETIME PLUS(SM) VARIABLE ANNUITY

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STREET ADDRESS: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 MAILING ADDRESS:
P.O. BOX 82656, LINCOLN, NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682
PROSPECTUS DATED APRIL 30, 2005

Allstate Life Insurance Company of New York ("Allstate New York") has issued the
AIM Lifetime Plus(SM) Variable Annuity, a group flexible premium deferred
variable annuity contract ("CONTRACT"). This prospectus contains information
about the Contract that you should know before investing. Please keep it for
future reference.

The Contract currently offers 19 investment alternatives ("INVESTMENT
ALTERNATIVES"). The investment alternatives include the fixed account ("FIXED
ACCOUNT") and 18 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the Allstate
Life of New York Separate Account A ("VARIABLE ACCOUNT"). Each Variable
Sub-Account invests exclusively in shares of one of the following funds
("FUNDS") of AIM Variable Insurance Funds (Series I shares):

AIM V.I. AGGRESSIVE GROWTH FUND - SERIES I AIM V.I. GOVERNMENT SECURITIES FUND -
AIM V.I. BALANCED FUND - SERIES I* SERIES I
AIM V.I. BASIC VALUE FUND - SERIES I AIM V.I. GROWTH FUND - SERIES I
AIM V.I. BLUE CHIP FUND - SERIES I AIM V.I. HIGH YIELD FUND - SERIES I
AIM V.I. CAPITAL APPRECIATION FUND - SERIES I AIM V.I. INTERNATIONAL GROWTH FUND -
AIM V.I. CAPITAL DEVELOPMENT FUND - SERIES I SERIES I
AIM V.I. CORE EQUITY FUND - SERIES I AIM V.I. MID CAP CORE EQUITY FUND -
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND - SERIES I** SERIES I
AIM V.I. DIVERSIFIED INCOME FUND - SERIES I AIM V.I. MONEY MARKET FUND - SERIES I
AIM V.I. PREMIER EQUITY FUND - SERIES I
AIM V.I. TECHNOLOGY FUND - SERIES I
AIM V.I. UTILITIES FUND - SERIES I

* Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its
name to AIM V.I. Basic Balanced Fund-Series I.

** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series
I will change its name to AIM V.I. Demographic Trends Fund - Series I.

THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED
OR DISAPPROVED THE
SECURITIES DESCRIBED IN
THIS PROSPECTUS, NOR HAS IT
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS
PROSPECTUS. ANYONE WHO
TELLS YOU OTHERWISE IS
COMMITTING A FEDERAL CRIME.

THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS
IMPORTANT THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL
NOTICES INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE
CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY.
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.

THE CONTRACTS ARE NOT FDIC INSURED.

THE CONTRACTS WERE ONLY
AVAILABLE IN NEW YORK, BUT
ARE NO LONGER AVAILABLE FOR
SALE.

WE (Allstate New York) have filed a Statement of Additional Information, dated
April 30, 2005, with the Securities and Exchange Commission ("SEC"). It contains
more information about the Contract and is incorporated herein by reference,
which means it is legally a part of this prospectus. Its table of contents
appears on page 40 of this prospectus. For a free copy, please write or call us
at the address or telephone number above, or go to the SEC's Web site (http://
www.sec.gov) You can find other information and documents about us, including
documents that are legally part of this prospectus, at the SEC's Web site.

1 PROSPECTUS

TABLE OF CONTENTS

PAGE
----
OVERVIEW
Important Terms 3
The Contract at a Glance 4
How the Contract Works 6
Expense Table 7
Financial Information 9
CONTRACT FEATURES
The Contract 9
Purchases 10
Contract Value 11
Investment Alternatives 12
The Variable Sub-Accounts 12
The Fixed Account 13
Transfers 15
Expenses 17
Other Expenses 19
Access To Your Money 19

PAGE
----
Income Payments 20
Death Benefits 22
OTHER INFORMATION
More Information: 24
Allstate New York 24
The Variable Account 24
The Funds 24
The Contract 25
Non-Qualified Annuities Held Within a Qualified Plan 25
Legal Matters 26
Taxes 27
Annual Reports and Other Documents 34
APPENDIX A-ACCUMULATION UNIT VALUES AND NUMBER OF ACCUMULATION
UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE
CONTRACTS WERE FIRST OFFERED 35
APPENDIX B-MARKET VALUE ADJUSTMENT 39
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 40

2 PROSPECTUS

IMPORTANT TERMS
- --------------------------------------------------------------------------------

This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.

PAGE
----
Accumulation Phase 6
Accumulation Unit 11
Accumulation Unit Value 11
Allstate New York ("We" and/or "us") 1, 24
Anniversary Values 22
Annuitant 9
Automatic Additions Program 10
Automatic Fund Rebalancing Program 17
Beneficiary 9
*Contract 9
Contract Anniversary 5
Contract Owner ("You") 6
Contract Value 5
Contract Year 5
Death Benefit Anniversary 22
Dollar Cost Averaging Program 17
Due Proof of Death 22
Fixed Account 13

PAGE
----
Funds 24
Guarantee Periods 13
Income Plans 20
Investment Alternatives 12
Issue Date 6
Market Value Adjustment 5, 14
Payout Phase 6
Payout Start Date 20
Preferred Withdrawal Amount 18
SEC 1
Settlement Value 22
Systematic Withdrawal Program 20
Tax Qualified Contracts 30
Treasury Rate 15
Valuation Date 10
Variable Account 24
Variable Sub-Account 12

* The AIM Lifetime Plus(SM) Variable Annuity is a group contract, and your
ownership is represented by certificates. References to "Contract" in this
prospectus include certificates, unless the context requires otherwise.

3 PROSPECTUS

THE CONTRACT AT A GLANCE

The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.

FLEXIBLE PAYMENTS You can purchase a Contract with as
little as $5,000 ($2,000 for "QUALIFIED
CONTRACTS", which are Contracts issued with
qualified plans). You can add to your Contract
as often and as much as you like, but each
payment must be at least $500 ($100 for
automatic purchase payments to the variable
investment options). You must maintain a
minimum account size of $1,000.
- -------------------------------------------------------------------------------
RIGHT TO CANCEL You may cancel your Contract by returning it to
us within 10 days after receipt ("CANCELLATION
PERIOD"). Upon cancellation, as permitted by
federal or state law, we will return your
purchase payments adjusted to reflect the
investment experience of any amounts allocated
to the Variable Account. The adjustment will
reflect the deduction of mortality and expense
risk charges and administrative expense
charges.
- -------------------------------------------------------------------------------
EXPENSES You will bear the following expenses:

. Total Variable Account annual fees equal
to 1.45% of average daily net assets

. Annual contract maintenance charge of $35
(with certain exceptions)

. Withdrawal charges ranging from 0% to 7%
of payment withdrawn (with certain
exceptions)

. Transfer fee of $10 after 12th transfer in
any CONTRACT YEAR (fee currently waived)

. State premium tax (New York currently does
not impose one).

In addition, each Fund pays expenses that you
will bear indirectly if you invest in a
Variable Sub-Account.
- -------------------------------------------------------------------------------
INVESTMENT The Contract offers 19 investment alternatives
ALTERNATIVES including:

. the Fixed Account (which credits interest
at rates we guarantee), and

. 18 Variable Sub-Accounts investing in
Funds offering professional money
management by A I M Advisors, Inc.

To find out current rates being paid on the
Fixed Account, or to find out how the Variable
Sub-Accounts have performed, please call us at
1-800-692-4682.
- -------------------------------------------------------------------------------
SPECIAL SERVICES For your convenience, we offer these special
services:

. AUTOMATIC FUND REBALANCING PROGRAM

. AUTOMATIC ADDITIONS PROGRAM

. DOLLAR COST AVERAGING PROGRAM

. SYSTEMATIC WITHDRAWAL PROGRAM
- -------------------------------------------------------------------------------
INCOME PAYMENTS You can choose fixed income payments, variable
income payments, or a combination of the two.
You can receive your income payments in one of
the following ways:

. life income with guaranteed payments

. a joint and survivor life income with
guaranteed payments

. guaranteed payments for a specified period
(5 to 30 years).
- -------------------------------------------------------------------------------
DEATH BENEFITS If you or the Annuitant (if the Contract is
owned by a non-living person) die before the
PAYOUT START DATE, we will pay the death
benefit described in the Contract.
- -------------------------------------------------------------------------------

4 PROSPECTUS

TRANSFERS Before the Payout Start Date, you may transfer
your Contract value ("CONTRACT VALUE") among
the investment alternatives, with certain
restrictions. Transfers to the Fixed Account
must be at least $500.

We do not currently impose a fee upon
transfers. However, we reserve the right to
charge $10 per transfer after the 12th transfer
in each "CONTRACT YEAR," which we measure from
the date we issue your contract or a Contract
anniversary ("CONTRACT ANNIVERSARY").
- -------------------------------------------------------------------------------
WITHDRAWALS You may withdraw some or all of your Contract
Value at anytime during the Accumulation Phase.
Full or partial withdrawals are available under
limited circumstances on or after the Payout
Start Date.

In general, you must withdraw at least $50 at a
time. ($1,000 for withdrawals made during the
Payout Phase.) Withdrawals taken prior to
annuitization (referred to in this prospectus
as the Payout Phase) are generally considered
to come from the earnings in the Contract
first. If the Contract is tax-qualified,
generally all withdrawals are treated as
distributions of earnings. Withdrawals of
earnings are taxed as ordinary income and, if
taken prior to age 59 1/2, may be subject to an
additional 10% federal tax penalty. A
withdrawal charge and MARKET VALUE ADJUSTMENT
also may apply.
- -------------------------------------------------------------------------------

5 PROSPECTUS

HOW THE CONTRACT WORKS

The Contract basically works in two ways.

First, the Contract can help you (we assume you are the CONTRACT OWNER) save for
retirement because you can invest in up to 19 investment alternatives and
generally pay no federal income taxes on any earnings until you withdraw them.
You do this during what we call the "ACCUMULATION PHASE" of the Contract. The
Accumulation Phase begins on the date we issue your Contract (we call that date
the "ISSUE DATE") and continues until the Payout Start Date, which is the date
we apply your money to provide income payments. During the Accumulation Phase,
you may allocate your purchase payments to any combination of the Variable
Sub-Accounts and/or the Fixed Account. If you invest in the Fixed Account, you
will earn a fixed rate of interest that we declare periodically. If you invest
in any of the Variable Sub-Accounts, your investment return will vary up or down
depending on the performance of the corresponding Funds.

Second, the Contract can help you plan for retirement because you can use it to
receive retirement income for life and/ or for a pre-set number of years, by
selecting one of the income payment options (we call these "INCOME PLANS")
described on page 20. You receive income payments during what we call the
"PAYOUT PHASE" of the Contract, which begins on the Payout Start Date and
continues until we make the last payment required by the Income Plan you select.
During the Payout Phase, if you select a fixed income payment option, we
guarantee the amount of your payments, which will remain fixed. If you select a
variable income payment option, based on one or more of the Variable
Sub-Accounts, the amount of your payments will vary up or down depending on the
performance of the corresponding Funds. The amount of money you accumulate under
your Contract during the Accumulation Phase and apply to an Income Plan will
determine the amount of your income payments during the Payout Phase.

The timeline below illustrates how you might use your Contract.

Issue Payout Start
Date Accumulation Phase Date Payout Phase
- ---------------------------------------------------------------------------------------------------

You buy You save for retirement You elect to receive You can receive Or you can receive
a Contract income payments or income payments income payments
receive a lump sum for a set period for life
payment

As the Contract owner, you exercise all of the rights and privileges provided by
the Contract. If you die, any surviving Contract owner, or if there is none, the
BENEFICIARY will exercise the rights and privileges provided by the Contract.
See "The Contract." In addition, if you die before the Payout Start Date, we
will pay a death benefit to any surviving Contract owner or, if none, to your
Beneficiary. See "Death Benefits."

Please call us at 1-800-692-4682 if you have any questions about how the
Contract works.

6 PROSPECTUS

EXPENSE TABLE

The table below lists the expenses that you will bear directly or indirectly
when you buy a Contract. The table and the examples that follow do not reflect
premium taxes because New York currently does not impose premium taxes on
annuities. For more information about Variable Account expenses, see "Expenses,"
below. For more information about Fund expenses, please refer to the
accompanying prospectus for the Funds.

CONTRACT OWNER TRANSACTION EXPENSES

Withdrawal Charge (as a percentage of purchase payments withdrawn)*

Number of Complete Years Since We Received the Purchase Payment 0 1 2 3 4 5 6 7+
Being Withdrawn
- -----------------------------------------------------------------------------------------------------------
Applicable Charge 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------------------------
Annual Contract Maintenance Charge $35.00**
- -----------------------------------------------------------------------------------------------------------
Transfer Fee $10.00***
- -----------------------------------------------------------------------------------------------------------

* Each Contract Year, you may withdraw up to 10% of purchase payments without
incurring a withdrawal charge or a Market Value Adjustment.

** We will waive this charge in certain cases. See "Expenses."

*** Applies solely to the thirteenth and subsequent transfers within a Contract
Year excluding transfers due to dollar cost averaging or automatic fund
rebalancing. We are currently waiving the transfer fee.

VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE
DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)

Mortality and Expense Risk Charge 1.35%
- -------------------------------------------------------------------------------
Administrative Expense Charge 0.10%
- -------------------------------------------------------------------------------
Total Variable Account Annual Expense 1.45%
- -------------------------------------------------------------------------------

FUND ANNUAL EXPENSES
(as a percentage of Fund average daily net assets) (1)

The next table shows the minimum and maximum total operating expenses charged by
the Funds that you may pay periodically during the time that you own the
Contract. Advisers and/or other service providers of certain Funds may have
agreed to waive their fees and/or reimburse Fund expenses in order to keep the
Funds' expenses below specified limits. The range of expenses shown in this
table does not show the effect of any such fee waiver or expense reimbursement.

More detail concerning each Fund's fees and expenses appears in the prospectus
for each Fund.

ANNUAL FUND EXPENSES

Minimum Maximum
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses/(1)/
(expenses that are deducted from Fund assets,
which may include management fees, distribution
and/or services
(12b-1) fees, and
other expenses) 0.75% 1.16%
- --------------------------------------------------------------------------------

(1) Expenses are shown as a percentage of Fund average daily net assets (before
any waiver or reimbursement) as of December 31, 2004.

7 PROSPECTUS

EXAMPLE 1

This Example is intended to help you compare the cost of investing in the
Contracts with the cost of investing in other variable annuity contracts. These
costs include Contract owner transaction expenses, Contract fees, Variable
Account annual expenses, and Fund fees and expenses. The example below shows the
dollar amount of expenses that you would bear directly or indirectly if you:

.. invested $10,000 in the Contract for the time periods indicated,

.. earned a 5% annual return on your investment, and

.. surrendered your Contract, or you began receiving income payments for a
specified period of less than 120 months, at the end of each time period.

The first line of the example assumes that the maximum fees and expenses of any
of the Funds are charged. The second line of the example assumes that the
minimum fees and expenses of any of the Funds are charged. Your actual expenses
may be higher or lower than those shown below.

THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO
PAY IF YOU SURRENDER YOUR CONTRACT.

1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
Costs Based on Maximum Annual
Fund Expenses $842 $1,283 $1,746 $3,278
- ------------------------------------------------------------------------
Costs Based on Minimum Annual
Fund Expenses $800 $1,158 $1,538 $2,866
- ------------------------------------------------------------------------

EXAMPLE 2

This Example uses the same assumptions as Example 1 above, except that it
assumes you decided not to surrender your Contract, or you began receiving
income payments for a specified period of at least 120 months, at the end of
each time period.

1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------
Costs Based on Maximum
Annual Fund Expenses $302 $923 $1,566 $3,278
- ------------------------------------------------------------------------
Costs Based on Minimum
Annual Fund Expenses $260 $798 $1,358 $2,866
- ------------------------------------------------------------------------

PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN THOSE
SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LOWER OR GREATER THAN 5%,
WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY FUND EXPENSE
WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED.
THE ABOVE EXAMPLES ASSUME A MORTALITY AND EXPENSE RISK CHARGE OF 1.35%, AN
ADMINISTRATIVE EXPENSE CHARGE OF 0.10% AND AN ANNUAL CONTRACT CHARGE OF $35. THE
ABOVE EXAMPLES ASSUME TOTAL ANNUAL FUND EXPENSES LISTED IN THE EXPENSE TABLE
WILL CONTINUE THROUGHOUT THE PERIODS SHOWN.

8 PROSPECTUS

FINANCIAL INFORMATION

To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the "ACCUMULATION UNIT."
Each Variable Sub-Account has a separate value for its Accumulation Units we
call "ACCUMULATION UNIT VALUE." Accumulation Unit Value is analogous to, but not
the same as, the share price of a mutual fund.

Attached as Appendix A to this prospectus are tables showing the Accumulation
Unit Values of each Variable Sub-Account since the date we first offered the
Contracts. To obtain a fuller picture of each Variable Sub-Account's finances,
please refer to the Variable Account's financial statements contained in the
Statement of Additional Information. The financial statements of Allstate New
York also appear in the Statement of Additional Information.

THE CONTRACT

CONTRACT OWNER

The AIM Lifetime Plus(SM) Variable Annuity is a contract between you, the
Contract owner, and Allstate New York, a life insurance company. As the Contract
Owner, you may exercise all of the rights and privileges provided to you by the
Contract. That means it is up to you to select or change (to the extent
permitted):

.. the investment alternatives during the Accumulation and Payout Phases,

.. the amount and timing of your purchase payments and withdrawals,

.. the programs you want to use to invest or withdraw money,

.. the income payment plan you want to use to receive retirement income,

.. the Annuitant (either yourself or someone else) on whose life the income
payments will be based,

.. the Beneficiary or Beneficiaries who will receive the benefits that the
Contract provides when the last surviving Contract Owner or Annuitant dies,
and

.. any other rights that the Contract provides.

If you die, any surviving Contract Owner or, if none, the Beneficiary may
exercise the rights and privileges provided to them by the Contract.

The Contract cannot be jointly owned by both a non-living person and a living
person. If the Contract Owner is a Grantor Trust, the Owner will be considered a
non-living person for purpose of this section and the Death Benefit section. The
maximum issue age of a Contract owner is age 90 as of the date we receive the
completed application to purchase the Contract.

Changing ownership of this Contract may cause adverse tax consequences and may
not be allowed under qualified plans. Please consult with a competent tax
advisor prior to making a request for a change of Contract Owner.

The Contract can also be purchased as an IRA or TSA (also known as a 403(b)).
The endorsements required to qualify these annuities under the Internal Revenue
Code of 1986, as amended, ("Code") may limit or modify your rights and
privileges under the Contract.

ANNUITANT

The Annuitant is the individual whose life determines the amount and duration of
income payments (other than under Income Plans with guaranteed payments for a
specified period). You initially designate an Annuitant in your application. If
the Contract Owner is a living person you may change the Annuitant prior to the
Payout Start Date. In our discretion, we may permit you to designate a joint
Annuitant, who is a second person on whose life income payments depend, on the
Payout Start Date. The maximum issue age of an Annuitant cannot exceed age 80 as
of the date we receive the completed application to purchase the Contract.

If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:

.. the youngest Contract Owner if living, otherwise

.. the youngest Beneficiary.

BENEFICIARY

The Beneficiary is the person who may elect to receive the Death Benefit or
become the new Contract Owner, subject to the Death of Owner provisions, if the
sole surviving Contract Owner dies before the Payout Start Date. (See section
titled "Death Benefits" for more details.) If the sole surviving Contract Owner
dies after the Payout Start Date, the Beneficiary will receive any guaranteed
Income Payments scheduled to continue.

You may name one or more Beneficiaries when you apply for a Contract. You may
also name one or more contingent Beneficiaries who will receive any Death
Benefit or guaranteed income benefit if there are no surviving primary
Beneficiaries upon the death of the sole surviving Contract Owner. You may
change or add Beneficiaries at any time by writing to us, unless you have
designated an irrevocable Beneficiary. We will provide a change of Beneficiary
form to be signed and filed with us. Any change will be effective at the time
you sign the written notice, whether or not the Annuitant is living when we
receive the notice. Until we receive your written

9 PROSPECTUS

notice to change a Beneficiary, we are entitled to rely on the most recent
Beneficiary information in our files. We will not be liable as to any payment or
settlement made prior to receiving the written notice. Accordingly, if you wish
to change your Beneficiary, you should deliver your written notice to us
promptly.

If you did not name a Beneficiary or if the named Beneficiary is no longer
living and there are no other surviving Beneficiaries, the new Beneficiary will
be:

.. your spouse or, if he or she is no longer alive,

.. your surviving children equally, or if you have no surviving children,

.. your estate.

If more than one Beneficiary survives you, we will divide the Death Benefit
among your Beneficiaries according to your most recent written instructions. If
you have not given us written instructions, we will pay the Death Benefit in
equal amounts to the surviving Beneficiaries.

You may restrict income payments to Beneficiaries by providing us a written
request. Once we accept the written request, the change or restriction will take
effect as of the date you signed the request. Any change is subject to any
payment we make or other action we take before we accept the change.

MODIFICATION OF THE CONTRACT

Only an Allstate New York officer may approve a change in or waive any provision
of the Contract. Any change or waiver must be in writing. None of our agents has
the authority to change or waive the provisions of the Contract. We may not
change the terms of the Contract without your consent, except to conform the
Contract to applicable law or changes in the law. If a provision of the Contract
is inconsistent with state law, we will follow state law.

ASSIGNMENT

No Owner has a right to assign any interest in a Contract as collateral or
security for a loan. However, you may assign periodic income payments under the
Contract prior to the Payout Start Date. No Beneficiary may assign benefits
under the Contract until they are due. We will not be bound by any assignment
until the assignor signs it and files it with us. We are not responsible for the
validity of any assignment. Federal law prohibits or restricts the assignment of
benefits under many types of retirement plans and the terms of such plans may
themselves contain restrictions on assignments. An assignment may also result in
taxes or tax penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO
ASSIGN YOUR CONTRACT.

PURCHASES

MINIMUM PURCHASE PAYMENTS

Your initial Purchase Payment must be at least $5,000 ($2,000 for a Qualified
Contract). All subsequent Purchase Payments must be $500 or more. The maximum
Purchase Payment is $2,000,000 without prior approval. We reserve the right to
change the minimum Purchase Payment and to change the maximum Purchase Payment.
You may make Purchase Payments of at least $500 at any time prior to the Payout
Start Date. We also reserve the right to reject any application.

AUTOMATIC ADDITIONS PROGRAM

You may make additional purchase payments of at least $100 ($500 for allocation
to the Fixed Account) by automatically transferring amounts from your bank
account. Please consult with your sales representative for detailed information.

ALLOCATION OF PURCHASE PAYMENTS

At the time you apply for a Contract, you must decide how to allocate your
Purchase Payments among the Investment Alternatives. The allocation you specify
on your application will be effective immediately. All allocations must be in
whole percents that total 100% or in whole dollars. You can change your
allocations by notifying us in writing. We reserve the right to limit the
availability of the Investment Alternatives.

We will allocate your additional purchase payments to the investment
alternatives according to your most recent instructions on file with us. Unless
you notify us in writing otherwise, we will allocate subsequent purchase
payments according to the allocation for the previous purchase payment. We will
effect any change in allocation instructions at the time we receive written
notice of the change in good order.

We will credit the initial purchase payment that accompanies your completed
application to your Contract within 2 business days after we receive the payment
at our service center. If your application is incomplete, we will ask you to
complete your application within 5 business days. If you do so, we will credit
your initial purchase payment to your Contract within that 5 business day
period. If you do not, we will return your purchase payment at the end of the 5
business day period unless you expressly allow us to hold it until you complete
the application. We will credit additional Purchase Payments to the Contract at
the close of the business day on which we receive the purchase payment at our
service center located in Vernon Hills, Illinois (mailing address: P.O. BOX
82656, LINCOLN, NE 68501-2656).

10 PROSPECTUS

(3:00 p.m. Central Time). If we receive your purchase payment after 4:00 p.m.
Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we will credit your
purchase payment using the Accumulation Unit Values computed on the next
Valuation Date.

RIGHT TO CANCEL

You may cancel the Contract by returning it to us within the Cancellation
Period, which is the 10 day period after you receive the Contract (60 days if
you are exchanging another contract for the Contract described in this
prospectus.) You may return it by delivering it or mailing it to us. If you
exercise this "RIGHT TO CANCEL," the Contract terminates and we will pay you the
full amount of your purchase payments allocated to the Fixed Account Options.
Upon cancellation, as permitted by federal or state law, we will return your
purchase payments allocated to the Variable Account after an adjustment to
reflect investment gain or loss and any applicable charges that occurred from
the date of allocation through the date of cancellation. If your Contract is
qualified under Code Section 408(b), we will refund the greater of any purchase
payment or the Contract Value,

CONTRACT VALUE

Your Contract Value at any time during the Accumulation Phase is equal to the
sum of the value of your Accumulation Units in the Variable Sub-Accounts you
have selected, plus the sum of Sub-Account values in the Fixed Account.

ACCUMULATION UNITS

To determine the number of Accumulation Units of each Variable Sub-Account to
credit to your Contract, we divide (i) the amount of the purchase payment or
transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation
Unit Value of that Variable Sub-Account next computed after we receive your
payment or transfer. For example, if we receive a $10,000 purchase payment
allocated to a Variable Sub-Account when the Accumulation Unit Value for the
Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable
Sub-Account to your Contract. Withdrawals and transfers from a Variable
Sub-Account would, of course, reduce the number of Accumulation Units of that
Sub-Account allocated to your Contract.

ACCUMULATION UNIT VALUE

As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:

.. changes in the share price of the Fund in which the Variable Sub-Account
invests, and

.. the deduction of amounts reflecting the mortality and expense risk charge,
administrative expense charge, and any provision for taxes that have
accrued since we last calculated the Accumulation Unit Value.

We determine contract maintenance charges, withdrawal charges, and transfer fees
(currently waived) separately for each Contract. They do not affect Accumulation
Unit Value. Instead, we obtain payment of those charges and fees by redeeming
Accumulation Units. For details on how we calculate Accumulation Unit Value,
please refer to the Statement of Additional Information.

We determine a separate Accumulation Unit Value for each Variable Sub-Account on
each Valuation Date.

YOU SHOULD REFER TO THE PROSPECTUS FOR THE FUNDS THAT ACCOMPANIES THIS
PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH FUND ARE VALUED, SINCE
THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE
CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.

11 PROSPECTUS

INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS

You may allocate your purchase payments to up to 18 Variable Sub-Accounts. Each
Variable Sub-Account invests in the shares of a corresponding Fund. Each Fund
has its own investment objective(s) and policies. We briefly describe the Funds
below.

For more complete information about each Fund, including expenses and risks
associated with the Fund, please refer to the accompanying prospectus for the
Fund. You should carefully review the Fund prospectus before allocating amounts
to the Variable Sub-Accounts. A I M Advisors, Inc. serves as the investment
advisor to each Fund.

SERIES I SHARES: EACH FUND SEEKS*: INVESTMENT ADVISOR
- -------------------------------------------------------------------------------
AIM V.I. Aggressive Long-term growth of capital
Growth Fund - Series
I**
- -------------------------------------------------------------------------------
AIM V.I. Balanced Fund As high a total return as
- Series I*** possible, consistent with
preservation of capital
- -------------------------------------------------------------------------------
AIM V.I. Basic Value Long-term growth of capital
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Blue Chip Long-term growth of capital
Fund - Series I with a secondary objective of
current income
- -------------------------------------------------------------------------------
AIM V.I. Capital Growth of capital
Appreciation Fund -
Series I
- -------------------------------------------------------------------------------
AIM V.I. Capital Long-term growth of capital
Development Fund -
Series I
- -------------------------------------------------------------------------------
AIM V.I. Core Equity Growth of capital
Fund - Series I A I M ADVISORS, INC..
- -------------------------------------------------------------------------------
AIM V.I. Dent Long-term growth of capital
Demographic Trends
Fund - Series I****
- -------------------------------------------------------------------------------
AIM V.I. Diversified High level of current income
Income Fund - Series
I
- -------------------------------------------------------------------------------
AIM V.I. Government High level of current income
Securities Fund - consistent with reasonable
Series I concern for safety of
principal
- -------------------------------------------------------------------------------
AIM V.I. Growth Fund - Growth of capital
Series I
- -------------------------------------------------------------------------------
AIM V.I. High Yield High level of current income
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. International Long-term growth of capital
Growth Fund - Series
I
- -------------------------------------------------------------------------------
AIM V.I. Mid Cap Core Long-term growth of capital
Equity Fund - Series
I
- -------------------------------------------------------------------------------
AIM V.I. Money Market As high a level of current
Fund - Series I income as is consistent with
the preservation of capital
and liquidity
- -------------------------------------------------------------------------------
AIM V.I. Premier Long-term growth of capital
Equity Fund - Series with income as a secondary
I objective
- -------------------------------------------------------------------------------
AIM V.I. Technology Capital growth
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Utilities Capital growth and current
Fund - Series I income
- -------------------------------------------------------------------------------

* A Fund's investment objective(s) may be changed by the Fund's Board of
Trustees without shareholder approval.

** Due to the sometime limited availability of common stocks of small-cap
companies that meet the investment criteria for AIM V.I. Aggressive Growth
Fund - Series I, the Fund may periodically suspend or limit the offering of
its shares and it will be closed to new participants when Fund assets reach
$200 million. During the closed periods the Fund will accept additional
investments from existing Contract owners maintaining an allocation in the
Fund.

*** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its
name to AIM V.I. Basic Balanced Fund-Series I. In addition, the Fund's
objective will change to long-term growth of capital and current income.

**** The AIM V.I. Dent Demographic Trends Fund - Series I is sub-advised by H.S.
Dent Advisors, Inc. Effective July 1, 2005, the AIM V.I. Dent Demographic
Trends Fund - Series I will change its name to AIM V.I. Demographic Trends
Fund - Series I. In addition, H.S. Dent Advisors, Inc. will no longer be
the sub-advisor to the Fund effective June 30, 2005.

AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN
VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF
THE FUNDS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT
RISK THAT THE FUNDS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE
FUNDS

12 PROSPECTUS

ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.

INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT

You may allocate all or a portion of your purchase payments to the Fixed
Account. The Fixed Account supports our insurance and annuity obligations. The
Fixed Account consists of our general assets other than those in segregated
asset accounts. We have sole discretion to invest the assets of the Fixed
Account, subject to applicable law. Any money you allocate to the Fixed Account
does not entitle you to share in the investment experience of the Fixed Account.

GUARANTEE PERIODS

You select the Guarantee Period for each payment or transfer. If you do not
select a Guarantee Period, we will assign the same period(s) you selected for
your most recent purchase payment(s), if available.

Each purchase payment or transfer allocated to a Guarantee Period must be at
least $500. We reserve the right to limit the number of additional purchase
payments that you may allocate to the Fixed Account. Please consult with your
sales representative for more information.

INTEREST RATES. We will tell you what interest rates and Guarantee Periods we
are offering at a particular time. We may declare different interest rates for
Guarantee Periods of the same length that begin at different times. We will not
change the interest rate that we credit to a particular allocation until the end
of the relevant Guarantee Period.

We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
investment returns available at the time of the determination. In addition, we
may consider various other factors in determining interest rates including
regulatory and tax requirements, our sales commission and administrative
expenses, general economic trends, and competitive factors. WE DETERMINE THE
INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE CAN NEITHER PREDICT NOR
GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE. For current interest rate
information, please contact your sales representative or Allstate New York at
1-800-692-4682. The interest rate will never be less than the minimum guaranteed
amount stated in the Contract.

13 PROSPECTUS

HOW WE CREDIT INTEREST.

We will credit interest daily to each amount allocated to a Guarantee Period at
a rate that compounds to the effective annual interest rate that we declared at
the beginning of the applicable Guarantee Period.

The following example illustrates how a purchase payment allocated to the Fixed
Account would grow, given an assumed Guarantee Period and effective annual
interest rate:

Purchase Payment.................................................... $10,000
Guarantee Period.................................................... 5 years
Annual Interest Rate................................................ 4.50%

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ------------

Beginning Contract
Value................ $10,000.00
X (1 + Annual
Interest Rate) 1.045
----------
$10,450.00

Contract Value at end
of Contract Year..... $10,450.00
X (1 + Annual
Interest Rate) 1.045
----------
$10,920.25

Contract Value at end
of Contract Year..... $10,920.25
X (1 + Annual
Interest Rate) 1.045
----------
$11,411.66

Contract Value at end
of Contract Year..... $11,411.66
X (1 + Annual
Interest Rate) 1.045
----------
$11,925.19

Contract Value at end
of Contract Year..... $11,925.19
X (1 + Annual
Interest Rate) 1.045
-----------
$12,461.82

TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,461.82 ($12,461.82-$10,000)

This example assumes no withdrawals during the entire 5 year Guarantee Period.
If you were to make a withdrawal, you may be required to pay a withdrawal
charge. In addition, the amount withdrawn may be increased or decreased by a
Market Value Adjustment that reflects changes in interest rates since the time
you invested the amount withdrawn. The hypothetical interest rate is for
illustrative purposes only and is not intended to predict current or future
interest rates to be declared under the Contract. Actual interest rates declared
for any given Guarantee Period may be more or less than shown above but will
never be less than the guaranteed minimum rate stated in the Contract.

RENEWALS. Prior to the end of each Guarantee Period, we will mail you a notice
asking you what to do with your money, including the accrued interest. At the
end of the Guarantee Period, we will automatically renew the Guarantee Period
value to a new Guarantee Period of the shortest duration available, to be
established on the day the previous Guarantee Period expired, or to the Money
Market Variable Sub-account if no Guarantee Periods are available at the time of
expiration of the previous Guarantee Period. Please consult with your
representative. During the 30-day period after the end of the Guarantee Period,
you may:

1) Take no action. We will automatically apply your money to a Guarantee Period
of the shortest duration available or the Money Market Variable Sub-account. The
new Guarantee Period will begin on the day the previous Guarantee Period ends.
Please consult with your representative. The new interest rate will be the rate
in effect on the 1/ST/ day of the New Period; or

2) Instruct us to apply your money to one or more new Guarantee Periods of your
choice. The new Guarantee Period(s) will begin on the day the previous Guarantee
Period ends. The new interest rate will be our then current declared rate for
those Guarantee Periods; or

4) Withdraw all or a portion of your money. You may be required to pay a
withdrawal charge, but we will not adjust the amount withdrawn to include a
Market Value Adjustment. You may also be required to pay premium taxes and
withholding (if applicable). The amount withdrawn will be deemed to have been
withdrawn on the day the previous Guarantee Period ends. Unless you specify
otherwise, amounts not withdrawn will be applied to a new Guarantee Period of
the shortest duration available. The new Guarantee Period will begin on the day
the previous Guarantee Period ends.

14 PROSPECTUS

subject to a Market Value Adjustment. A Market Value Adjustment also will apply
when you apply amounts currently invested in a Guarantee Period to an Income
Plan (unless applied during the 30 day period after such Guarantee Period
expires). A Market Value Adjustment may apply in the calculation of the
Settlement Value described below in the "Death Benefit Amount" section below. We
will not apply a Market Value Adjustment to a transfer you make as part of a
Dollar Cost Averaging Program. We also will not apply a Market Value Adjustment
to a withdrawal you make:

.. within the Preferred Withdrawal Amount as described on page 18; or

.. to satisfy the IRS minimum distribution rules.

We apply the Market Value Adjustment to reflect changes in interest rates from
the time you first allocate money to a Guarantee Period to the time it is
removed from that Guarantee Period. We calculate the Market Value Adjustment by
comparing the Treasury Rate for a period equal to the Guarantee Period at its
inception to the Treasury Rate for a period equal to the time remaining in the
Guarantee Period when you remove your money. "TREASURY RATE" means the U.S.
Treasury Note Constant Maturity Yield as reported in Federal Reserve Board
Statistical Release H.15.

The Market Value Adjustment may be positive or negative, depending on changes in
interest rates. As such, you bear the investment risk associated with changes in
interest rates. If interest rates increase significantly, the Market Value
Adjustment and any withdrawal charge, premium taxes, and income tax withholding
(if applicable) could reduce the amount you receive upon full withdrawal of your
Contract Value to an amount that is less than the purchase payment plus interest
at the minimum guaranteed interest rate under the Contract.

Generally, if the Treasury Rate at the time you allocate money to a Guarantee
Period is higher than the applicable current Treasury Rate for a period equal to
the time remaining in the Guarantee Period, then the Market Value Adjustment
will result in a higher amount payable to you, transferred, or applied to an
Income Plan. Conversely, if the Treasury Rate at the time you allocate money to
a Guarantee Period is lower than the applicable Treasury Rate for a period equal
to the time remaining in the Guarantee Period, then the Market Value Adjustment
will result in a lower amount payable to you, transferred, or applied to an
Income Plan.

For example, assume that you purchase a Contract and you select an initial
Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is
4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at
that later time, the current 2 year Treasury Rate is 4.20%, then the Market
Value Adjustment will be positive, which will result in an increase in the
amount payable to you. Conversely, if the current 2 year Treasury Rate is 4.80%,
then the Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to you.

The formula for calculating Market Value Adjustments is set forth in Appendix B
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment.

INVESTMENT ALTERNATIVES: TRANSFERS

TRANSFERS DURING THE ACCUMULATION PHASE

During the Accumulation Phase, you may transfer Contract Value among the
investment alternatives. You may request in writing on a form that we provide or
by telephone according to the procedure described below. The minimum amount that
you may transfer into a Guarantee Period is $500. We currently do not assess,
but reserve the right to assess, a $10 charge on each transfer in excess of 12
per Contract Year. We treat transfers to or from more than one Fund on the same
day as one transfer.

We will process transfer requests that we receive before 4:00 p.m. Eastern Time
on any Valuation Date using the Accumulation Unit Values for that Date. We will
process requests completed after 4:00 p.m. on any Valuation Date using the
Accumulation Unit Values for the next Valuation Date. The Contract permits us to
defer transfers from the Fixed Account for up to 6 months from the date we
receive your request. If we decide to postpone transfers from any Guarantee
Period for 10 days or more, we will pay interest as required by applicable law.
Any interest would be payable from the date we receive the transfer request to
the date we make the transfer. If you transfer an amount from a Guarantee Period
other than during the 30 day period after such Guarantee Period expires, we will
increase or decrease the amount by a Market Value Adjustment.

TRANSFERS DURING THE PAYOUT PHASE

During the Payout Phase, you may make transfers among the Variable Sub-Accounts
to change the relative weighting of the Variable Sub-Accounts on which your
variable income payments will be based. In addition, you will have a limited
ability to make transfers from the Variable Sub-Accounts to increase the
proportion of your income payments consisting of fixed income payments. You may
not, however, convert any portion of your right to receive fixed income payments
into variable income payments.

15 PROSPECTUS

proportion of your income payments consisting of fixed income payments. Your
transfers must be at least 6 months apart.

TELEPHONE TRANSFERS

You may make transfers by telephone by calling 1-800-692-4682, if you first send
us a completed authorization form. The cut off time for telephone transfer
requests is 4:00 p.m. Eastern Time. In the event that the New York Stock
Exchange closes early, i.e., before 4:00 p.m. Eastern Time, or in the event that
the Exchange closes early for a period of time but then reopens for trading on
the same day, we will process telephone transfer requests as of the close of the
Exchange on that particular day. We will not accept telephone requests received
at any telephone number other than the number that appears in this paragraph or
received after the close of trading on the Exchange.

We may suspend, modify or terminate the telephone transfer privilege, as well as
any other electronic or automated means we previously approved, at any time
without notice.

We use procedures that we believe provide reasonable assurance that the
telephone transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.

MARKET TIMING & EXCESSIVE TRADING

The Contracts are intended for long-term investment. Market timing and excessive
trading can potentially dilute the value of Variable Sub-Accounts and can
disrupt management of a Fund and raise its expenses, which can impair Fund
performance and adversely affect your Contract Value. Our policy is not to
accept knowingly any money intended for the purpose of market timing or
excessive trading. Accordingly, you should not invest in the Contract if your
purpose is to engage in market timing or excessive trading, and you should
refrain from such practices if you currently own a Contract.

We seek to detect market timing or excessive trading activity by reviewing
trading activities. Funds also may report suspected market-timing or excessive
trading activity to us. If, in our judgment, we determine that the transfers are
part of a market timing strategy or are otherwise harmful to the underlying
Fund, we will impose the trading limitations as described below under "Trading
Limitations." Because there is no universally accepted definition of what
constitutes market timing or excessive trading, we will use our reasonable
judgment based on all of the circumstances.

While we seek to deter market timing and excessive trading in Variable
Sub-Accounts, because our procedures involve the exercise of reasonable
judgment, we may not identify or prevent some market timing or excessive
trading. Moreover, imposition of trading limitations is triggered by the
detection of market timing or excessive trading activity, and the trading
limitations are not applied prior to detection of such trading activity.
Therefore, our policies and procedures do not prevent such trading activity
before it is detected. As a result, some investors may be able to engage in
market timing and excessive trading, while others are prohibited, and the
portfolio may experience the adverse effects of market timing and excessive
trading described above.

TRADING LIMITATIONS

We reserve the right to limit transfers among the investment alternatives in any
Contract Year, or to refuse any transfer request, if:

.. we believe, in our sole discretion, that certain trading practices, such as
excessive trading, by, or on behalf of, one or more Contract Owners, or a
specific transfer request or group of transfer requests, may have a
detrimental effect on the Accumulation Unit Values of any Variable
Sub-Account or on the share prices of the corresponding Fund or otherwise
would be to the disadvantage of other Contract Owners; or

.. we are informed by one or more of the Funds that they intend to restrict
the purchase, exchange, or redemption of Fund shares because of excessive
trading or because they believe that a specific transfer or group of
transfers would have a detrimental effect on the prices of Fund shares.

In making the determination that trading activity constitutes market timing or
excessive trading, we will consider, among other things:

.. the total dollar amount being transferred, both in the aggregate and in the
transfer request;

.. the number of transfers you make over a period of time and/or the period of
time between transfers (note: one set of transfers to and from a Variable
Sub-Account in a short period of time can constitute market timing);

.. whether your transfers follow a pattern that appears designed to take
advantage of short term market fluctuations, particularly within certain
Variable Sub-Account underlying Funds that we have identified as being
susceptible to market timing activities;

.. whether the manager of the underlying Fund has indicated that the transfers
interfere with Fund management or otherwise adversely impact the Fund; and

.. the investment objectives and/or size of the Variable Sub-Account
underlying Fund.

16 PROSPECTUS

result, it is possible that some investors may be able to engage in market
timing or excessive trading activity, while others are prohibited, and the Fund
may experience the adverse effects of market timing and excessive trading
described above.

If we determine that a Contract Owner has engaged in a pattern of market timing
or excessive trading activity involving multiple Variable Sub-Accounts, we will
require that all future transfer requests be submitted through regular U.S. mail
thereby refusing to accept transfer requests via telephone, facsimile, Internet,
or overnight delivery. In addition, for Contracts issued on or after May 1,
2000, if we determine that a Contract Owner has engaged in market timing or
excessive trading activity, we will also restrict that Contract Owner from
making future additions or transfers into the impacted Variable Sub-Account(s).

In our sole discretion, we may revise our Trading Limitations at any time as
necessary to better deter or minimize market timing and excessive trading or to
comply with regulatory requirements.

DOLLAR COST AVERAGING PROGRAM

Through the Dollar Cost Averaging Program, you may automatically transfer a set
amount at regular intervals during the Accumulation Phase from any Variable
Sub-Account, or the 1 year Guarantee Period of the Fixed Account, to any other
Variable Sub-Account. The interval between transfers may be monthly, quarterly,
semi-annually, or annually. You may not use dollar cost averaging to transfer
amounts to the Fixed Account.

We will not charge a transfer fee for transfers made under this Program, nor
will such transfers count against the 12 transfers you can make each Contract
Year without paying a transfer fee. In addition, we will not apply the Market
Value Adjustment to these transfers.

The theory of dollar cost averaging is that if purchases of equal dollar amounts
are made at fluctuating prices, the aggregate average cost per unit will be less
than the average of the unit prices on the same purchase dates. However,
participation in this program does not assure you of a greater profit from your
purchases under the Program nor will it prevent or necessarily reduce losses in
a declining market. Call or write us for instructions on how to enroll.

AUTOMATIC FUND REBALANCING PROGRAM

Once you have allocated your money among the Variable Sub-Accounts, the
performance of each Sub-Account may cause a shift in the percentage you
allocated to each Sub-Account. If you select our Automatic Fund Rebalancing
Program, we will automatically rebalance the Contract Value in each Variable
Sub-Account and return it to the desired percentage allocations. Money you
allocate to the Fixed Account will not be included in the rebalancing.

We will rebalance your account each quarter according to your instructions. We
will transfer amounts among the Variable Sub-Accounts to achieve the percentage
allocations you specify. You can change your allocations at any time by
contacting us in writing or by telephone. The new allocation will be effective
with the first rebalancing that occurs after we receive your request. We are not
responsible for rebalancing that occurs prior to receipt of your request.

Example:

Assume that you want your initial purchase payment split among 2 Variable
Sub-Accounts. You want 40% to be in the AIM V.I. Diversified Income Variable
Sub-Account and 60% to be in the AIM V.I. Growth Variable Sub-Account. Over the
next 2 months the bond market does very well while the stock market performs
poorly. At the end of the first quarter, the AIM V.I. Diversified Income
Variable Sub-Account now represents 50% of your holdings because of its increase
in value. If you choose to have your holdings rebalanced quarterly, on the first
day of the next quarter we would sell some of your units in the AIM V.I.
Diversified Income Variable Sub-Account and use the money to buy more units in
the AIM V.I. Growth Variable Sub-Account so that the percentage allocations
would again be 40% and 60% respectively.

The Automatic Fund Rebalancing Program is available only during the Accumulation
Phase. The transfers made under the Program do not count towards the 12
transfers you can make without paying a transfer fee, and are not subject to a
transfer fee.

Fund rebalancing is consistent with maintaining your allocation of investments
among market segments, although it is accomplished by reducing your Contract
Value allocated to the better performing segments.

EXPENSES

As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.

CONTRACT MAINTENANCE CHARGE

During the Accumulation Phase, on each Contract Anniversary, we will deduct a
$35 contract maintenance charge from your Contract Value invested in each

17 PROSPECTUS

Variable Sub-Account in proportion to the amount invested. We also will deduct a
full contract maintenance charge if you withdraw your entire Contract Value,
unless your Contract qualifies for a waiver, described below. During the Payout
Phase, we will deduct the charge proportionately from each income payment.

The charge is for the cost of maintaining each Contract and the Variable
Account. Maintenance costs include expenses we incur in billing and collecting
purchase payments; keeping records; processing death claims, cash withdrawals,
and policy changes; proxy statements; calculating Accumulation Unit Values and
income payments; and issuing reports to Contract owners and regulatory agencies.
We cannot increase the charge. We will waive this charge if:

.. total purchase payments equal $50,000 or more, or

.. all money is allocated to the Fixed Account on a Contract Anniversary.

MORTALITY AND EXPENSE RISK CHARGE

We deduct a mortality and expense risk charge daily at an annual rate of 1.35%
of the average daily net assets you have invested in the Variable Sub-Accounts.
The mortality and expense risk charge is for all the insurance benefits
available with your Contract (including our guarantee of annuity rates and the
death benefits), for certain expenses of the Contract, and for assuming the risk
(expense risk) that the current charges will not be sufficient in the future to
cover the cost of administering the Contract. If the charges under the Contract
are not sufficient, then we will bear the loss.

We guarantee the mortality and expense risk charge and we cannot increase it. We
assess the mortality and expense risk charge during both the Accumulation Phase
and the Payout Phase.

ADMINISTRATIVE EXPENSE CHARGE

We deduct an administrative expense charge daily at an annual rate of 0.10% of
the average daily net assets you have invested in the Variable Sub-Accounts. We
intend this charge to cover actual administrative expenses that exceed the
revenues from the contract maintenance charge. There is no necessary
relationship between the amount of administrative charge imposed on a given
Contract and the amount of expenses that may be attributed to that Contract. We
assess this charge each day during the Accumulation Phase and the Payout Phase.
We guarantee that we will not raise this charge.

TRANSFER FEE

We do not currently impose a fee upon transfers among the investment
alternatives. However, we reserve the right to charge $10 per transfer after the
12th transfer in each Contract Year. We will not charge a transfer fee on
transfers that are part of a Dollar Cost Averaging Program or Automatic Fund
Rebalancing Program.

WITHDRAWAL CHARGE

We may assess a withdrawal charge of up to 7% of the purchase payment(s) you
withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market
Value Adjustment. The charge declines annually to 0% after 7 complete years from
the day we receive the purchase payment being withdrawn. A schedule showing how
the charge declines appears on page 7. During each Contract Year, you can
withdraw up to 10% of purchase payments without paying the charge. Unused
portions of this 10% "PREFERRED WITHDRAWAL AMOUNT" are not carried forward to
future Contract Years.

We determine the withdrawal charge by;

.. multiplying the percentage corresponding to the number of complete years
since we received the purchase payment being withdrawn by

.. the part of each purchase payment withdrawal that is in excess of the
Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.

We will deduct withdrawal charges, if applicable, from the amount paid. For
purposes of the withdrawal charge, we will treat withdrawals as coming from the
oldest purchase payments first. However, for federal income tax purposes, please
note that withdrawals are considered to have come first from earnings in the
Contract. Thus, for tax purposes, earnings are considered to come out first,
which means you pay taxes on the earnings portion of your withdrawal.

If you make a withdrawal before the Payout Start Date, we will apply the
withdrawal charge percentage in effect on the date of the withdrawal, or the
withdrawal charge percentage in effect on the following day, whichever is
lower.We do not apply a withdrawal charge in the following situations:

.. on the Payout Start Date (a withdrawal charge may apply if you elect to
receive income payments for a specified period of less than 120 months);

.. the death of the Contract owner or Annuitant (unless the Settlement Value
is used);

.. withdrawals taken to satisfy IRS minimum distribution rules for the
Contract; or

.. withdrawals made after all purchase payments have been withdrawn.

We use the amounts obtained from the withdrawal charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the withdrawal charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.

Withdrawals may be subject to tax penalties or income tax and a Market Value
Adjustment. You should consult your

18 PROSPECTUS

own tax counsel or other tax advisers regarding any withdrawals.

We reserve the right to waive the withdrawal charge with respect to Contracts
issued to employees and registered representatives of any broker-dealer that has
entered into a sales agreement with ALFS, Inc. ("ALFS") to sell the Contracts
and all wholesalers and their employees that are under agreement with ALFS to
wholesale the Contract.

PREMIUM TAXES

Currently, we do not make deductions for premium taxes under the Contract
because New York does not charge premium taxes on annuities. We may deduct taxes
that may be imposed in the future from purchase payments or the Contract Value
when the tax is incurred or at a later time.

DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES

We are not currently making a provision for taxes. In the future, however, we
may make a provision for taxes if we determine, in our sole discretion, that we
will incur a tax as a result of the operation of the Variable Account. We will
deduct for any taxes we incur as a result of the operation of the Variable
Account, whether or not we previously made a provision for taxes and whether or
not it was sufficient. Our status under the Internal Revenue Code is briefly
described in the Taxes section.

OTHER EXPENSES

Each Fund deducts advisory fees and other expenses from its assets. You
indirectly bear the charges and expenses of the Fund whose shares are held by
the Variable Sub-Accounts. These fees and expenses are described in the
accompanying prospectus for the Funds. For a summary of current estimates of
those charges and expenses, see pages 7-8 above.

We may receive compensation from A I M Advisors, Inc., for administrative
services we provide to the Funds.

ACCESS TO YOUR MONEY

You can withdraw some or all of your Contract Value at any time prior to the
Payout Start Date. Withdrawals also are available under limited circumstances on
or after the Payout Start Date. See "Income Plans" on page 20.

The amount payable upon withdrawal is the Contract Value next computed after we
receive the request for a withdrawal at our service center, adjusted by any
Market Value Adjustment, less any withdrawal charges, contract maintenance
charges, income tax withholding, and any premium taxes. We will pay withdrawals
from the Variable Account within 7 days of receipt of the request, subject to
postponement in certain circumstances.

You can withdraw money from the Variable Account or the Fixed Account. To
complete a partial withdrawal from the Variable Account, we will cancel
Accumulation Units in an amount equal to the withdrawal and any applicable
withdrawal charge and premium taxes.

You have the opportunity to name the investment alternative(s) from which you
are taking the withdrawal. If none is specified, we will deduct your withdrawal
pro-rata from the investment alternatives according to the value of your
investments therein.

In general, you must withdraw at least $50 at a time. You also may withdraw a
lesser amount if you are withdrawing your entire interest in a Variable Sub-
Account.

If you request a total withdrawal, we may require that you return your Contract
to us. We also will deduct a Contract Maintenance Charge of $35, unless we have
waived the Contract Maintenance Charge on your Contract.

Withdrawals taken prior to annuitization (referred to in this prospectus as the
Payout Phase) are generally considered to come from the earnings in the Contract
first. If the Contract is tax-qualified, generally all withdrawals are treated
as distributions of earnings. Withdrawals of earnings are taxed as ordinary
income and, if taken prior to age 59 1/2, may be subject to an additional 10%
federal tax penalty.

POSTPONEMENT OF PAYMENTS

We may postpone the payment of any amounts due from the Variable Account under
the Contract if:

1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;

2. An emergency exists as defined by the SEC; or

3. The SEC permits delay for your protection.

In addition, we may delay payments or transfers from the Fixed Account for up to
6 months or shorter period if required by law. If we delay payment or transfer
for 10 days or more, we will pay interest as required by law. Any interest would
be payable from the date we receive the withdrawal request to the date we make
the payment or transfer.

19 PROSPECTUS

SYSTEMATIC WITHDRAWAL PROGRAM

You may choose to receive systematic withdrawal payments on a monthly,
quarterly, semi-annual, or annual basis at any time prior to the Payout Start
Date. The minimum amount of each systematic withdrawal is $50. At our
discretion, systematic withdrawals may not be offered in conjunction with the
Dollar Cost Averaging or the Automatic Fund Rebalancing Programs.

Depending on fluctuations in the accumulation unit value of the Variable
Sub-Accounts and the value of the Fixed Account, systematic withdrawals may
reduce or even exhaust the Contract Value. We will make systematic withdrawal
payments to you or your designated payee. We may modify or suspend the
Systematic Withdrawal Program and charge a processing fee for the service. If we
modify or suspend the Systematic Withdrawal Program, existing systematic
withdrawal payments will not be affected.

MINIMUM CONTRACT VALUE

If your request for a partial withdrawal would reduce the amount in any
Guarantee Period to less than $500, we will treat it as a request to withdraw
the entire amount invested in such Guarantee Period. In addition, if your
request for a partial withdrawal would reduce the Contract Value to less than
$1,000, we may treat it as a request to withdraw your entire Contract Value.
Before terminating any Contract whose value has been reduced by withdrawals to
less than $1,000, we would inform you in writing of our intention to terminate
your Contract and give you at least 30 days in which to make an additional
Purchase Payment to restore your Contract's value to the contractual minimum of
$1,000. Your Contract will terminate if you withdraw all of your Contract Value.
We will, however, ask you to confirm your withdrawal request before terminating
your Contract. If we terminate your Contract, we will distribute to you its
Contract Value, adjusted by any applicable Market Value Adjustment, less
withdrawal and other charges, and applicable taxes. Your Contract will terminate
if you withdraw all of your Contract Value.

INCOME PAYMENTS

PAYOUT START DATE

The Payout Start Date is the day that we apply your Contract Value, adjusted by
any Market Value Adjustment and less any applicable taxes, to an Income Plan.
The Payout Start Date must be no later than the Annuitant's 90th birthday.

You may change the Payout Start Date at any time by notifying us in writing of
the change at least 30 days before the scheduled Payout Start Date. Absent a
change, we will use the Payout Start Date stated in your Contract.

INCOME PLANS

An "Income Plan" is a series of payments on a scheduled basis to you or to
another person designated by you. You may choose and change your choice of
Income Plan until 30 days before the Payout Start Date. If you do not select an
Income Plan, we will make income payments in accordance with Income Plan 1 with
guaranteed payments for 10 years. After the Payout Start Date, you may not make
withdrawals (except as described below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to
provide:

.. fixed income payments;

.. variable income payments; or

.. a combination of the two.

A portion of each payment will be considered taxable and the remaining portion
will be a non-taxable return of your investment in the Contract, which is also
called the "basis". Once the basis in the Contract is depleted, all remaining
payments will be fully taxable. If the Contract is tax-qualified, generally, all
payments will be fully taxable. Taxable payments taken prior to age 59 1/2, may
be subject to an additional 10% federal tax penalty.

The three Income Plans are:

INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make
periodic income payments for at least as long as the Annuitant lives. If the
Annuitant dies before we have made all of the guaranteed income payments, we
will continue to pay the remainder of the guaranteed income payments as required
by the Contract.

INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under
this plan, we make periodic income payments for at least as long as either the
Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint
Annuitant die before we have made all of the guaranteed income payments, we will
continue to pay the remainder of the guaranteed income payments as required by
the Contract.

INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEARS TO 30
YEARS). Under this plan, we make periodic income payments for the period you
have chosen. These payments do not depend on the Annuitant's life. Income
payments for less than 120 months may be subject to a withdrawal charge. We will
deduct the mortality and expense risk charge from the Variable Sub-Account
assets that support the variable income payments even though we may not bear any
mortality risk.

The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amounts of each income payment. As a general
rule,

20 PROSPECTUS

longer guarantee periods result in lower income payments, all other things being
equal. For example, if you choose an Income Plan with payments that depend on
the life of the Annuitant but with no minimum specified period for guaranteed
payments, the income payments generally will be greater than the income payments
made under the same Income Plan with a minimum specified period for guaranteed
payments.

If you choose Income Plan 1 or 2, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we may
require proof of age and sex of the Annuitant or joint Annuitant before starting
income payments, and proof that the Annuitant or joint Annuitant is alive before
we make each payment. Please note that under such Income Plans, if you elect to
take no minimum guaranteed payments, it is possible that the payee could receive
only 1 income payment if the Annuitant and any joint Annuitant both die before
the second income payment, or only 2 income payments if they die before the
third income payment, and so on.

We may make other Income Plans available. You may obtain information about them
by writing or calling us.

You must apply at least the Contract Value in the Fixed Account on the Payout
Start Date to fixed income payments. If you wish to apply any portion of your
Fixed Account balance to provide variable income payments, you should plan ahead
and transfer that amount to the Variable Sub-Accounts prior to the Payout Start
Date. If you do not tell us how to allocate your Contract Value among fixed and
variable income payments, we will apply your Contract Value in the Variable
Account to variable income payments and your Contract Value in the Fixed Account
to fixed income payments.

We will apply your Contract Value, adjusted by any applicable Market Value
Adjustment, less applicable taxes to your Income Plan on the Payout Start Date.
If the amount available to apply under an Income Plan is less than $2,000 or not
enough to provide an initial payment of at least $20, and state law permits, we
may:

.. pay you the Contract Value, adjusted by any Market Value Adjustment and
less any applicable taxes, in a lump sum instead of the periodic payments
you have chosen; or

.. reduce the frequency of your payments so that each payment will be at least
$20.

VARIABLE INCOME PAYMENTS

The amount of your variable income payments depends upon the investment results
of the Variable Sub-Accounts you select, the premium taxes you pay, the age and
sex of the Annuitant, and the Income Plan you choose. We guarantee that the
payments will not be affected by (a) actual mortality experience and (b) the
amount of our administration expenses.

We cannot predict the total amount of your variable income payments. Your
variable income payments may be more or less than your total purchase payments
because (a) variable income payments vary with the investment results of the
underlying Funds and (b) the Annuitant could live longer or shorter than we
expect based on the tables we use.

In calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3%. If the actual net
investment return of the Variable Sub-Accounts you choose is less than this
assumed investment rate, then the dollar amount of your variable income payments
will decrease. The dollar amount of your variable income payments will increase,
however, if the actual net investment return exceeds the assumed investment
rate. The dollar amount of the variable income payments stays level if the net
investment return equals the assumed investment rate. Please refer to the
Statement of Additional Information for more detailed information as to how we
determine variable income payments.

FIXED INCOME PAYMENTS

We guarantee income payment amounts derived from the Fixed Account for the
duration of the Income Plan. We calculate the fixed income payments by:

1) adjusting the portion of the Contract Value in the Fixed Account on the
Payout Start Date by any applicable Market Value Adjustment;

2) deducting any applicable premium tax; and

3) applying the resulting amount to the greater of (a) the appropriate value
from the income payment table in your Contract or (b) such other value as
we are offering at that time.

We may defer making fixed income payments for a period of up to 6 months or such
shorter time as state law may require. If we defer payments for 10 business days
or more, we will pay interest as required by law from the date we receive the
withdrawal request to the date we make payment.

21 PROSPECTUS

CERTAIN EMPLOYEE BENEFIT PLANS

The Contracts offered by this prospectus contain income payment tables that
provide for different payments to men and women of the same age. However, we
reserve the right to use income payment tables that do not distinguish on the
basis of sex to the extent permitted by law. In certain employment-related
situations, employers are required by law to use the same income payment tables
for men and women. Accordingly, if the Contract is to be used in connection with
an employment-related retirement or benefit plan, you should consult with legal
counsel as to whether the purchase of a Contract is appropriate. For qualified
plans, where it is appropriate, we may use income payment tables that do not
distinguish on the basis of sex.

DEATH BENEFITS

We will pay a death benefit if, prior to the Payout Start Date:

1. any Contract owner dies; or

2. the Annuitant dies, if the Contract owner is not a living person.

We will pay the death benefit to the new Contract owner who is determined
immediately after the death. The new Contract owner would be a surviving
Contract owner or, if none, the Beneficiary(ies). In the case of a Contract
owned by a non-living owner, upon death of an Annuitant, we will pay the death
benefit to the current Contract owner.

We will not settle any death claim until we receive DUE PROOF OF DEATH.

We will accept the following documentation as Due Proof of Death:

.. a certified copy of a death certificate; or

.. a certified copy of a decree of a court of competent jurisdiction as to a
finding of death; or

any other proof acceptable to us.

Where there are multiple beneficiaries, we will only value the death benefit at
the time the first beneficiary submits the necessary documentation in good
order. Any death benefit amounts attributable to any beneficiary which remain in
the investment divisions are subject to investment risk.

DEATH BENEFIT AMOUNT

Prior to the Payout Start Date, the death benefit is equal to the greatest of:

1. the Contract Value as of the date we determine the death benefit; or

2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of
Contract Value) on the date we determine the death benefit; or

3. the Contract Value on the DEATH BENEFIT ANNIVERSARY immediately preceding
the date we determine the death benefit, adjusted by any purchase payments,
partial withdrawals and charges made since that Death Benefit Anniversary.
A "Death Benefit Anniversary" is every seventh Contract Anniversary
beginning with the Issue Date. For example, the Issue Date, 7th and 14th
Contract Anniversaries are the first three Death Benefit Anniversaries; or

4. the greatest of the ANNIVERSARY VALUES as of the date we determine the
death benefit. An "Anniversary Value" is equal to the Contract Value on a
Contract Anniversary, increased by purchase payments made since that
Anniversary and reduced by the amount of any partial withdrawals since that
anniversary. Anniversary Values will be calculated for each Contract
Anniversary prior to the earlier of: (i) the date we determine the death
benefit; or (ii) the deceased's 75th birthday or 5 years after the Issue
Date, if later.

We will determine the value of the death benefit as of the end of the Valuation
Date on which we receive a complete request for payment of the death benefit,
which includes Due Proof of Death. If we receive a request after 4:00 p.m.
Eastern Time (3:00 p.m. Central Time) on a Valuation Date, we will process the
request as of the end of the following Valuation Date.

DEATH BENEFIT PAYMENTS

If the new Owner is your spouse, the new Owner may:

1. elect to receive the Death Benefit in a lump sum, or

2. elect to apply the Death Benefit to an Income Plan. Payments from the
Income Plan must begin within 1 year of the date of death and must be
payable throughout:

.. The life of the new Owner; or

.. for a guaranteed number of payments from 5 to 50 years, but not to exceed
the life expectancy of the new Owner; or

.. over the life of the new Owner with a guaranteed number of payments from 5
to 30 years but not to exceed the life expectancy of the new Owner.

If your spouse does not elect one of the above options above, the Contract will
continue in the Accumulation

22 PROSPECTUS

Phase as if the death had not occurred. If the Contract is continued in the
Accumulation Phase, the following restrictions apply:

.. On the date the Contract is continued, the Contract Value will equal the
amount of the Death Benefit as determined as of the Valuation Date on which
we received the completed request for settlement of the Death Benefit (the
next Valuation Date, if we receive the completed request for settlement of
the Death Benefit after 3 p.m. Central Time). Unless otherwise instructed
by the continuing spouse, the excess, if any, of the Death Benefit over the
Contract Value will be allocated to the Sub-Accounts of the Variable
Account. This excess will be allocated in proportion to your Contract Value
in those Sub-accounts as of the end of the Valuation Period during which we
receive the completed request for settlement of the Death Benefit, except
that any portion of this excess attributable to the Fixed Account Options
will be allocated to the Money Market Sub-account. Within 30 days of the
date the Contract is continued, your surviving spouse may choose one of the
following transfer alternatives without incurring a transfer fee:

.. transfer all or a portion of the excess among the Variable Sub-Accounts;

.. transfer all or a portion of the excess into the Guaranteed Maturity Fixed
Account and begin a new Guarantee Period; or

.. transfer all or a portion of the excess into a combination of Variable
Sub-Accounts and the Guaranteed Maturity Fixed Account.

Any such transfer does not count as one of the free transfers allowed each
Contract Year and is subject to any minimum allocation amount specified in your
Contract.

The surviving spouse may make a single withdrawal of any amount within one year
of the date of death without incurring a Withdrawal Charge.

Only one spousal continuation is allowed under this Contract.

If the new Owner is not your spouse but is a living person, the new Owner may:

1) elect to receive the Death Benefit in a lump sum, or

2) elect to apply the Death Benefit to an Income Plan. Payments from the
Income Plan must begin within 1 year of the date of death and must be
payable throughout:

.. the life of the new Owner; or

.. for a guaranteed number of payments from 5 to 50 years, but not to exceed
the life expectancy of the new Owner; or

.. over the life of the new Owner with a guaranteed number of payments from 5
to 30 years but not to exceed the life expectancy of the new Owner.

If the new Owner does not elect one of the above options above, then the new
Owner must receive the Contract Value payable within 5 years of your date of
death. The Contract Value will equal the amount of the Death Benefit as
determined as of the Valuation Date on which we received the completed request
for settlement of the Death Benefit (the next Valuation Date, if we receive the
completed request for settlement of the Death Benefit after 3 p.m. Central
Time). Unless otherwise instructed by the new Owner, the excess, if any, of the
Death Benefit over the Contract Value will be allocated to the Money Market
Variable Sub-Account. The new Owner may exercise all rights as set forth in the
TRANSFERS section during this 5 year period.

No additional Purchase Payments may be added to the Contract under this
election. Withdrawal Charges will be waived for any withdrawals made during this
5 year period.

If the new Owner dies prior to the receiving all of the Contract Value, then the
new Owner's named Beneficiary(ies) will receive the greater of the Settlement
Value or the remaining Contract Value. This amount must be received as a lump
sum within 5 years of the date of the original Owner's death.

We reserve the right to offer additional options upon Death of Owner.

If the new Owner is a corporation, trust, or other non-living person:

(a) The new Owner may elect, within 180 days of the date of death, to receive
the Death Benefit in a lump sum; or

(b) If the new Owner does not elect the option above, then the new Owner must
receive the Contract Value payable within 5 years of your date of death. On
the date we receive the complete request for settlement of the Death
Benefit, the Contract Value under this option will be the Death Benefit.
Unless otherwise instructed by the new Owner, the excess, if any of the
Death Benefit over the Contract Value will be allocated to the Money Market
Variable Sub-Account. The new Owner may exercise all rights set forth in
the Transfers provision during this 5 year period.

We reserve the right to offer additional options upon Death of Owner.

If any new Owner is a non-living person, all new Owners will be considered to be
non-living persons for the above purposes.

Under any of these options, all ownership rights, subject to any restrictions
previously placed upon the Beneficiary, are available to the new Owner from the
date of your death to the date on which the death proceeds are paid.

DEATH OF ANNUITANT

If the Annuitant who is not also the Contract Owner dies prior to the Payout
Start Date and the Contract Owner is

23 PROSPECTUS

a living person, then the Contract will continue with a new Annuitant as
designated by the Contract Owner.

If the Annuitant who is not also the Contract Owner dies prior to the Payout
Start Date and the Contract Owner is a non-living person, the following apply:

(a) The Contract Owner may elect to receive the Death Benefit in a lump sum; or

(b) If the new Owner does not elect the option above, then the Owner must
receive the Contract Value payable within 5 years of the Annuitant's date
of death. On the date we receive the complete request for settlement of the
Death Benefit, the Contract Value under this option will be the Death
Benefit. Unless otherwise instructed by the Contract Owner, the excess, if
any, of the Death Benefit over the Contract Value will be allocated to the
Money Market Variable Sub-Account. The Contract Owner may then exercise all
rights set forth in the Transfers provision during this 5 year period.

We reserve the right to offer additional options upon Death of Annuitant.

MORE INFORMATION

ALLSTATE NEW YORK

Allstate New York is the issuer of the Contract. Allstate New York is a stock
life insurance company organized under the laws of the State of New York.
Allstate New York was incorporated in 1967 and was known as "Financial Life
Insurance Company" from 1967 to 1978. From 1978 to 1984, Allstate New York was
known as "PM Life Insurance Company." Since 1984 the company has been known as
"Allstate Life Insurance Company of New York."

Allstate New York is currently licensed to operate in New York. Our home office
is located at 100 Motor Parkway, Hauppauge, NY 11788-5107. Our service center is
located in Vernon Hills, Illinois.

Allstate New York is a wholly owned subsidiary of Allstate Life Insurance
Company ("Allstate Life"), a stock life insurance company incorporated under the
laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of
Allstate Insurance Company, a stock property-liability insurance company
incorporated under the laws of Illinois. With the exception of the directors
qualifying shares, all of the outstanding capital stock of Allstate Insurance
Company is owned by The Allstate Corporation.

THE VARIABLE ACCOUNT

Allstate New York established the Allstate Life of New York Separate Account A
on December 15, 1995. We have registered the Variable Account with the SEC as a
unit investment trust. The SEC does not supervise the management of the Variable
Account or Allstate New York.

We own the assets of the Variable Account. The Variable Account is a segregated
asset account under New York law. That means we account for the Variable
Account's income, gains and losses separately from the results of our other
operations. It also means that only the assets of the Variable Account that are
in excess of the reserves and other Contract liabilities with respect to the
Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of
Allstate New York.

The Variable Account consists of multiple Variable Sub-Accounts, 18 of which are
available through the Contracts. Each Variable Sub-Account invests in a
corresponding Fund. We may add new Variable Sub-Accounts or eliminate one or
more of them, if we believe marketing, tax, or investment conditions so warrant.
We do not guarantee the investment performance of the Variable Account, its
Sub-Accounts or the Funds. We may use the Variable Account to fund our other
annuity contracts. We will account separately for each type of annuity contract
funded by the Variable Account.

THE FUNDS

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all
dividends and capital gains distributions from the Funds in shares of the
distributing Fund at their net asset value.

VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote
the shares of the Funds held by the Variable Sub-Accounts to which you have
allocated your Contract Value. Under current law, however, you are entitled to
give us instructions on how to vote those shares on certain matters. Based on
our present view of the law, we will vote the shares of the Funds that we hold
directly or indirectly through the Variable Account in accordance with
instructions that we receive from Contract owners entitled to give such
instructions.

As a general rule, before the Payout Start Date, the Contract owner or anyone
with a voting interest is the person entitled to give voting instructions. The
number of shares that a person has a right to instruct will be determined by
dividing the Contract Value allocated to the applicable Variable Sub-Account by
the net asset value per share of the corresponding Fund as of the record date of
the meeting. After the Payout Start Date, the person receiving income payments
has the voting interest. The payee's number of votes will be determined by
dividing the reserve for such Contract allocated to the applicable Variable
Sub-Account by the net asset value per share of the corresponding Fund. The
votes decrease as income payments are made and as the reserves for the Contract
decrease.

24 PROSPECTUS

We will vote shares attributable to Contracts for which we have not received
instructions, as well as shares attributable to us, in the same proportion as we
vote shares for which we have received instructions, unless we determine that we
may vote such shares in our own discretion. We will apply voting instructions to
abstain on any item to be voted on a pro-rata basis to reduce the votes eligible
to be cast.

We reserve the right to vote Fund shares as we see fit without regard to voting
instructions to the extent permitted by law. If we disregard voting
instructions, we will include a summary of that action and our reasons for that
action in the next semi-annual financial report we send to you.

CHANGES IN FUNDS. If the shares of any of the Funds are no longer available for
investment by the Variable Account or if, in our judgment, further investment in
such shares is no longer desirable in view of the purposes of the Contract, we
may eliminate that Fund and substitute shares of another eligible investment
fund. Any substitution of securities will comply with the requirements of the
1940 Act. We also may add new Variable Sub-Accounts that invest in underlying
Funds. We will notify you in advance of any changes.

CONFLICTS OF INTEREST. Certain of the Funds sell their shares to Variable
Accounts underlying both variable life insurance and variable annuity contracts.
It is conceivable that in the future it may be unfavorable for variable life
insurance Variable Accounts and variable annuity Variable Accounts to invest in
the same Fund. The boards of trustees of these Funds monitor for possible
conflicts among Variable Accounts buying shares of the Funds. Conflicts could
develop for a variety of reasons. For example, differences in treatment under
tax and other laws or the failure by a Variable Account to comply with such laws
could cause a conflict. To eliminate a conflict, a Fund's board of trustees may
require a Variable Account to withdraw its participation in a Fund. A Fund's net
asset value could decrease if it had to sell investment securities to pay
redemption proceeds to a Variable Account withdrawing because of a conflict.

THE CONTRACT

DISTRIBUTION. ALFS, Inc. ("ALFS"), located at 3100 Sanders Road, Northbrook,
Illinois 60062, serves as principal underwriter of the Contracts. ALFS is a
wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a registered
broker dealer under the Securities and Exchange Act of 1934, as amended
("EXCHANGE ACT"), and is a member of the NASD.

We will pay commissions to broker-dealers who sell the Contracts. Commissions
paid may vary, but we estimate that the total commissions paid on all Contract
sales will not exceed 8 1/2% of any purchase payments. Sometimes, we also pay
the broker-dealer a persistency bonus in addition to the standard commissions. A
persistency bonus is not expected to exceed .56%, on an annual basis, of the
purchase payments considered in connection with the bonus. These commissions are
intended to cover distribution expenses.

Allstate New York does not pay ALFS a commission for distribution of the
Contracts. The underwriting agreement with ALFS provides that we will reimburse
ALFS for any liability to Contract owners arising out of services rendered or
Contracts issued.

ADMINISTRATION. We have primary responsibility for all administration of the
Contracts and the Variable Account.

We provide the following administrative services, among others:

.. issuance of the Contracts;

.. maintenance of Contract owner records;

.. Contract owner services;

.. calculation of unit values;

.. maintenance of the Variable Account; and

.. preparation of Contract owner reports.

We will send you Contract statements and transaction confirmations at least
annually. The annual statement details values and specific Contract data for
each particular Contract. You should notify us promptly in writing of any
address change. You should read your statements and confirmations carefully and
verify their accuracy. You should contact us promptly if you have a question
about a periodic statement. We will investigate all complaints and make any
necessary adjustments retroactively, but you must notify us of a potential error
within a reasonable time after the date of the questioned statement. If you wait
too long, we will make the adjustment as of the date that we receive notice of
the potential error.

We also will provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.

NON-QUALIFIED ANNUITIES HELD WITHIN A QUALIFIED PLAN

If you use the Contract within an employer sponsored qualified retirement plan,
the plan may impose different or additional conditions or limitations on
withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates,
income payments and other Contract features. In addition, adverse tax
consequences may result if qualified plan limits on distributions and other
conditions are not met. Please consult your qualified plan administrator for
more information. Allstate Life Insurance Company of New York no longer issues
deferred annuities to employer sponsored qualified retirement plans.

25 PROSPECTUS

LEGAL MATTERS

All matters of New York law pertaining to the Contracts, including the validity
of the Contracts and Allstate New York's right to issue such Contracts under New
York insurance law, have been passed upon by Michael J. Velotta, General Counsel
of Allstate New York.

26 PROSPECTUS

TAXES

THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE
NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT.

Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual circumstances.
If you are concerned about any tax consequences with regard to your individual
circumstances, you should consult a competent tax adviser.

TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

Allstate New York is taxed as a life insurance company under Part I of
Subchapter L of the Code. Since the Variable Account is not an entity separate
from Allstate New York, and its operations form a part of Allstate New York, it
will not be taxed separately. Investment income and realized capital gains of
the Variable Account are automatically applied to increase reserves under the
Contract. Under existing federal income tax law, Allstate New York believes that
the Variable Account investment income and capital gains will not be taxed to
the extent that such income and gains are applied to increase the reserves under
the Contract. Accordingly, Allstate New York does not anticipate that it will
incur any federal income tax liability attributable to the Variable Account, and
therefore Allstate New York does not intend to make provisions for any such
taxes. If Allstate New York is taxed on investment income or capital gains of
the Variable Account, then Allstate New York may impose a charge against the
Variable Account in order to make provision for such taxes.

TAXATION OF VARIABLE ANNUITIES IN GENERAL

TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:

.. the Contract Owner is a natural person,

.. the investments of the Variable Account are "adequately diversified"
according to Treasury Department regulations, and

.. Allstate New York is considered the owner of the Variable Account assets
for federal income tax purposes.

NON-NATURAL OWNERS. Non-natural owners are also referred to as Non Living Owners
in this prospectus. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such contracts
does not enjoy tax deferral and is taxed as ordinary income received or accrued
by the non-natural owner during the taxable year.

EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the
general rule that annuity contracts held by a non-natural owner are not treated
as annuity contracts for federal income tax purposes. Contracts will generally
be treated as held by a natural person if the nominal owner is a trust or other
entity which holds the contract as agent for a natural person. However, this
special exception will not apply in the case of an employer who is the nominal
owner of an annuity contract under a non-Qualified deferred compensation
arrangement for its employees. Other exceptions to the non-natural owner rule
are: (1) contracts acquired by an estate of a decedent by reason of the death of
the decedent; (2) certain qualified contracts; (3) contracts purchased by
employers upon the termination of certain qualified plans; (4) certain contracts
used in connection with structured settlement agreements; and (5) immediate
annuity contracts, purchased with a single premium, when the annuity starting
date is no later than a year from purchase of the annuity and substantially
equal periodic payments are made, not less frequently than annually, during the
annuity period.

GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered
owned by a non-natural owner. Grantor trust owned contracts receive tax deferral
as described in the Exceptions to the Non-Natural Owner Rule section. In
accordance with the Code, upon the death of the annuitant, the death benefit
must be paid. According to your Contract, the Death Benefit is paid to the
surviving Contract Owner. Since the trust will be the surviving Contract Owner
in all cases, the Death Benefit will be payable to the trust notwithstanding any
beneficiary designation on the annuity contract. A trust, including a grantor
trust, has two options for receiving any death benefits: 1) a lump sum payment;
or 2) payment deferred up to five years from date of death.

DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Variable Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the Contract owner during the taxable
year. Although Allstate New York does not have control over the Portfolios or
their investments, we expect the Portfolios to meet the diversification
requirements.

27 PROSPECTUS

announced that the regulations do not provide guidance concerning circumstances
in which investor control of the separate account investments may cause a
Contract owner to be treated as the owner of the separate account. The Treasury
Department also stated that future guidance would be issued regarding the extent
that owners could direct sub-account investments without being treated as owners
of the underlying assets of the separate account.

Your rights under the Contract are different than those described by the IRS in
private and published rulings in which it found that Contract owners were not
owners of separate account assets. For example, if your contract offers more
than twenty (20) investment alternatives you have the choice to allocate
premiums and contract values among a broader selection of investment
alternatives than described in such rulings. You may be able to transfer among
investment alternatives more frequently than in such rulings. These differences
could result in you being treated as the owner of the Variable Account. If this
occurs, income and gain from the Variable Account assets would be includible in
your gross income. Allstate New York does not know what standards will be set
forth in any regulations or rulings which the Treasury Department may issue. It
is possible that future standards announced by the Treasury Department could
adversely affect the tax treatment of your Contract. We reserve the right to
modify the Contract as necessary to attempt to prevent you from being considered
the federal tax owner of the assets of the Variable Account. However, we make no
guarantee that such modification to the Contract will be successful.

TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under
a Non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a full withdrawal
under a Non-Qualified Contract, the amount received will be taxable only to the
extent it exceeds the investment in the Contract.

TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity
payments received from a Non-Qualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For fixed annuity payments, the
amount excluded from income is determined by multiplying the payment by the
ratio of the investment in the Contract (adjusted for any refund feature or
period certain) to the total expected value of annuity payments for the term of
the Contract. If you elect variable annuity payments, the amount excluded from
taxable income is determined by dividing the investment in the Contract by the
total number of expected payments. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. If any variable payment is less than the excludable amount you should
contact a competent tax advisor to determine how to report any unrecovered
investment. The federal tax treatment of annuity payments is unclear in some
respects. As a result, if the IRS should provide further guidance, it is
possible that the amount we calculate and report to the IRS as taxable could be
different. If you die, and annuity payments cease before the total amount of the
investment in the Contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.

WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding
the taxation of any additional withdrawal received after the Payout Start Date.
It is possible that a greater or lesser portion of such a payment could be
taxable than the amount we determine.

DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for
federal income tax purposes, the Contract must provide:

.. if any Contract Owner dies on or after the Payout Start Date but before the
entire interest in the Contract has been distributed, the remaining portion
of such interest must be distributed at least as rapidly as under the
method of distribution being used as of the date of the Contract Owner's
death;

.. if any Contract Owner dies prior to the Payout Start Date, the entire
interest in the Contract will be distributed within 5 years after the date
of the Contract Owner's death. These requirements are satisfied if any
portion of the Contract Owner's interest that is payable to (or for the
benefit of) a designated Beneficiary is distributed over the life of such
Beneficiary (or over a period not extending beyond the life expectancy of
the Beneficiary) and the distributions begin within 1 year of the Contract
Owner's death. If the Contract Owner's designated Beneficiary is the
surviving spouse of the Contract Owner, the Contract may be continued with
the surviving spouse as the new Contract Owner;

.. if the Contract Owner is a non-natural person, then the Annuitant will be
treated as the Contract Owner for purposes of applying the distribution at
death rules. In addition, a change in the Annuitant on a Contract owned by
a non-natural person will be treated as the death of the Contract Owner.

TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income
as follows:

.. if distributed in a lump sum, the amounts are taxed in the same manner as a
total withdrawal, or

.. if distributed under an Income Plan, the amounts are taxed in the same
manner as annuity payments.

PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable
amount of any

28 PROSPECTUS

premature distribution from a non-Qualified Contract. The penalty tax generally
applies to any distribution made prior to the date you attain age 59 1/2.
However, no penalty tax is incurred on distributions:

.. made on or after the date the Contract Owner attains age 59 1/2,

.. made as a result of the Contract Owner's death or becoming totally
disabled,

.. made in substantially equal periodic payments over the Contract Owner's
life or life expectancy, or over the joint lives or joint life expectancies
of the Contract Owner and the Beneficiary,

.. made under an immediate annuity, or

.. attributable to investment in the Contract before August 14, 1982.

You should consult a competent tax advisor to determine how these exceptions may
apply to your situation.

SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts
using substantially equal periodic payments or immediate annuity payments as an
exception to the penalty tax on premature distributions, any additional
withdrawal or other material modification of the payment stream would violate
the requirement that payments must be substantially equal. Failure to meet this
requirement would mean that the income portion of each payment received prior to
the later of 5 years or the Contract Owner's attaining age 59 1/2 would be
subject to a 10% penalty tax unless another exception to the penalty tax
applied. The tax for the year of the modification is increased by the penalty
tax that would have been imposed without the exception, plus interest for the
years in which the exception was used. A material modification does not include
permitted changes described in published IRS rulings. You should consult a
competent tax advisor prior to creating or modifying a substantially equal
periodic payment stream.

TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange is
a tax-free exchange of a non-qualified life insurance contract, endowment
contract or annuity contract into a non-Qualified annuity contract. The contract
owner(s) must be the same on the old and new contract. Basis from the old
contract carries over to the new contract so long as we receive that information
from the relinquishing company. If basis information is never received, we will
assume that all exchanged funds represent earnings and will allocate no cost
basis to them.

PARTIAL EXCHANGES. The IRS has issued a ruling that permits partial exchanges of
annuity contracts. Under this ruling, if you take a withdrawal from a receiving
or relinquishing annuity contract within 24 months of the partial exchange, then
special aggregation rules apply for purposes of determining the taxable amount
of a distribution. The IRS has issued limited guidance on how to aggregate and
report these distributions. The IRS is expected to provide further guidance; as
a result, it is possible that the amount we calculate and report to the IRS as
taxable could be different. Your Contract may not permit partial exchanges.

TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without
full and adequate consideration to a person other than your spouse (or to a
former spouse incident to a divorce), you will be taxed on the difference
between the Contract Value and the investment in the Contract at the time of
transfer. Any assignment or pledge (or agreement to assign or pledge) of the
Contract Value is taxed as a withdrawal of such amount or portion and may also
incur the 10% penalty tax.

AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified
deferred annuity contracts issued by Allstate New York (or its affiliates) to
the same Contract Owner during any calendar year be aggregated and treated as
one annuity contract for purposes of determining the taxable amount of a
distribution.

INCOME TAX WITHHOLDING

Generally, Allstate New York is required to withhold federal income tax at a
rate of 10% from all non-annuitized distributions. The customer may elect out of
withholding by completing and signing a withholding election form. If no
election is made, we will automatically withhold the required 10% of the taxable
amount. In certain states, if there is federal withholding, then state
withholding is also mandatory.

Allstate New York is required to withhold federal income tax using the wage
withholding rates for all annuitized distributions. The customer may elect out
of withholding by completing and signing a withholding election form. If no
election is made, we will automatically withhold using married with three
exemptions as the default. If no U.S. taxpayer identification number is
provided, we will automatically withhold using single with zero exemptions as
the default. In certain states, if there is federal withholding, then state
withholding is also mandatory.

Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.

Generally, Code Section 1441 provides that Allstate New York as a withholding
agent must withhold 30% of the taxable amounts paid to a non-resident alien. A
non-resident alien is someone other than a U.S. citizen or resident alien.
Withholding may be reduced or eliminated if covered by an income tax treaty
between the U.S. and the non-resident alien's country of residence if the payee
provides a U.S. taxpayer identification number on a fully completed Form W-8BEN.
A U.S. taxpayer identification number is a social security number or an
individual taxpayer identification number ("ITIN"). ITINs are issued by the IRS
to non-resident alien individuals who are not eligible to obtain a social
security number. The U.S. does not have a tax treaty with

29 PROSPECTUS

all countries nor do all tax treaties provide an exclusion or lower withholding
rate for annuities.

TAX QUALIFIED CONTRACTS

The income on tax sheltered annuity (TSA) and IRA investments is tax deferred,
and the income from annuities held by such plans does not receive any additional
tax deferral. You should review the annuity features, including all benefits and
expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified
Contracts are contracts purchased as or in connection with:

.. Individual Retirement Annuities (IRAs) under Code Section 408(b);

.. Roth IRAs under Code Section 408A;

.. Simplified Employee Pension (SEP IRA) under Code Section 408(k);

.. Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section
408(p);

.. Tax Sheltered Annuities under Code Section 403(b);

.. Corporate and Self Employed Pension and Profit Sharing Plans under Code
Section 401; and

.. State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans under Code Section 457.

Allstate New York reserves the right to limit the availability of the Contract
for use with any of the retirement plans listed above or to modify the Contract
to conform with tax requirements. If you use the Contract within an employer
sponsored qualified retirement plan, the plan may impose different or additional
conditions or limitations on withdrawals, waiver of charges, death benefits,
Payout Start Dates, income payments, and other Contract features. In addition,
adverse tax consequences may result if qualified plan limits on distributions
and other conditions are not met. Please consult your qualified plan
administrator for more information. Allstate New York no longer issues deferred
annuities to employer sponsored qualified retirement plans.

The tax rules applicable to participants with tax qualified annuities vary
according to the type of contract and the terms and conditions of the
endorsement. Adverse tax consequences may result from certain transactions such
as excess contributions, premature distributions, and, distributions that do not
conform to specified commencement and minimum distribution rules. Allstate New
York can issue an individual retirement annuity on a rollover or transfer of
proceeds from a decedent's IRA, TSA, or employer sponsored retirement plan under
which the decedent's surviving spouse is the beneficiary. Allstate New York does
not offer an individual retirement annuity that can accept a transfer of funds
for any other, non-spousal, beneficiary of a decedent's IRA, TSA, or employer
sponsored qualified retirement plan.

Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for
additional information on your death settlement options. In the case of certain
qualified plans, the terms of the Qualified Plan Endorsement and the plans may
govern the right to benefits, regardless of the terms of the Contract.

TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If
you make a partial withdrawal under a Tax Qualified Contract other than a Roth
IRA, the portion of the payment that bears the same ratio to the total payment
that the investment in the Contract (i.e., nondeductible IRA contributions)
bears to the Contract Value, is excluded from your income. We do not keep track
of nondeductible contributions, and generally all tax reporting of distributions
from Tax Qualified Contracts other than Roth IRAs will indicate that the
distribution is fully taxable.

"Qualified distributions" from Roth IRAs are not included in gross income.
"Qualified distributions" are any distributions made more than five taxable
years after the taxable year of the first contribution to any Roth IRA and which
are:

.. made on or after the date the Contract Owner attains age 59 1/2,

.. made to a beneficiary after the Contract Owner's death,

.. attributable to the Contract Owner being disabled, or

.. made for a first time home purchase (first time home purchases are subject
to a lifetime limit of $10,000).

"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions.

REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding
Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to
withdraw the required minimum distribution will result in a 50% tax penalty on
the shortfall not withdrawn from the Contract. Not all income plans offered
under the Contract satisfy the requirements for minimum distributions. Because
these distributions are required under the Code and the method of calculation is
complex, please see a competent tax advisor.

THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS
regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA)
may not invest in life insurance contracts. However, an IRA may provide a death
benefit that equals the greater of the purchase payments or the Contract Value.
The Contract offers a death benefit that in certain circumstances may exceed the
greater of the purchase payments or the Contract Value. We believe that the
Death Benefits offered by your Contract do not constitute life insurance under
these regulations.

30 PROSPECTUS

It is also possible that certain death benefits that offer enhanced earnings
could be characterized as an incidental death benefit. If the death benefit were
so characterized, this could result in current taxable income to a Contract
Owner. In addition, there are limitations on the amount of incidental death
benefits that may be provided under qualified plans, such as in connection with
a TSA or employer sponsored qualified retirement plan.

Allstate New York reserves the right to limit the availability of the Contract
for use with any of the qualified plans listed above.

PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10%
penalty tax applies to the taxable amount of any premature distribution from a
Tax Qualified Contract. The penalty tax generally applies to any distribution
made prior to the date you attain age 59 1/2. However, no penalty tax is
incurred on distributions:

.. made on or after the date the Contract Owner attains age 59 1/2,

.. made as a result of the Contract Owner's death or total disability,

.. made in substantially equal periodic payments over the Contract Owner's
life or life expectancy, or over the joint lives or joint life expectancies
of the Contract Owner and the Beneficiary,

.. made after separation from service after age 55 (does not apply to IRAs),

.. made pursuant to an IRS levy,

.. made for certain medical expenses,

.. made to pay for health insurance premiums while unemployed (applies only
for IRAs),

.. made for qualified higher education expenses (applies only for IRAs), and

.. made for a first time home purchase (up to a $10,000 lifetime limit and
applies only for IRAs).

During the first 2 years of the individual's participation in a SIMPLE IRA,
distributions that are otherwise subject to the premature distribution penalty,
will be subject to a 25% penalty tax.

You should consult a competent tax advisor to determine how these exceptions may
apply to your situation.

SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect
to Tax Qualified Contracts using substantially equal periodic payments as an
exception to the penalty tax on premature distributions, any additional
withdrawal or other material modification of the payment stream would violate
the requirement that payments must be substantially equal. Failure to meet this
requirement would mean that the income portion of each payment received prior to
the later of 5 years or the taxpayer's attaining age 59 1/2 would be subject to
a 10% penalty tax unless another exception to the penalty tax applied. The tax
for the year of the modification is increased by the penalty tax that would have
been imposed without the exception, plus interest for the years in which the
exception was used. A material modification does not include permitted changes
described in published IRS rulings. You should consult a competent tax advisor
prior to creating or modifying a substantially equal periodic payment stream.

INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Allstate New York
is required to withhold federal income tax at a rate of 10% from all
non-annuitized distributions that are not considered "eligible rollover
distributions." The customer may elect out of withholding by completing and
signing a withholding election form. If no election is made, we will
automatically withhold the required 10% from the taxable amount. In certain
states, if there is federal withholding, then state withholding is also
mandatory. Allstate New York is required to withhold federal income tax at a
rate of 20% on all "eligible rollover distributions" unless you elect to make a
"direct rollover" of such amounts to an IRA or eligible retirement plan.
Eligible rollover distributions generally include all distributions from Tax
Qualified Contracts, including TSAs but excluding IRAs, with the exception of:

.. required minimum distributions, or,

.. a series of substantially equal periodic payments made over a period of at
least 10 years, or,

.. a series of substantially equal periodic payments made over the life (joint
lives) of the participant (and beneficiary), or,

.. hardship distributions.

For all annuitized distributions that are not subject to the 20% withholding
requirement, Allstate New York is required to withhold federal income tax using
the wage withholding rates. The customer may elect out of withholding by
completing and signing a withholding election form. If no election is made, we
will automatically withhold using married with three exemptions as the default.
If no U.S. taxpayer identification number is provided, we will automatically
withhold using single with zero exemptions as the default. In certain states, if
there is federal withholding, then state withholding is also mandatory.

Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.

31 PROSPECTUS

identification number is a social security number or an individual taxpayer
identification number ("ITIN"). ITINs are issued by the IRS to non-resident
alien individuals who are not eligible to obtain a social security number. The
U.S. does not have a tax treaty with all countries nor do all tax treaties
provide an exclusion or lower withholding rate for annuities.

INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject
to limitations on the amount that can be contributed and on the time when
distributions may commence. Certain distributions from other types of qualified
retirement plans may be "rolled over" on a tax-deferred basis into an Individual
Retirement Annuity.

ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible
individuals to make nondeductible contributions to an individual retirement
program known as a Roth Individual Retirement Annuity. Roth Individual
Retirement Annuities are subject to limitations on the amount that can be
contributed and on the time when distributions may commence.

Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The income portion of a conversion or rollover distribution is taxable
currently, but is exempted from the 10% penalty tax on premature distributions.

ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL

IRAS). Code Section 408 permits a custodian or trustee of an Individual
Retirement Account to purchase an annuity as an investment of the Individual
Retirement Account. If an annuity is purchased inside of an Individual
Retirement Account, then the Annuitant must be the same person as the beneficial
owner of the Individual Retirement Account.

Generally, the death benefit of an annuity held in an Individual Retirement
Account must be paid upon the death of the Annuitant. However, in most states,
the Contract permits the custodian or trustee of the Individual Retirement
Account to continue the Contract in the accumulation phase, with the Annuitant's
surviving spouse as the new Annuitant, if the following conditions are met:

1) The custodian or trustee of the Individual Retirement Account is the owner
of the annuity and has the right to the death proceeds otherwise payable
under the Contract;

2) The deceased Annuitant was the beneficial owner of the Individual
Retirement Account;

3) We receive a complete request for settlement for the death of the
Annuitant; and

4) The custodian or trustee of the Individual Retirement Account provides us
with a signed certification of the following:

(a) The Annuitant's surviving spouse is the sole beneficiary of the Individual
Retirement Account;

(b) The Annuitant's surviving spouse has elected to continue the Individual
Retirement Account as his or her own Individual Retirement Account; and

(c) The custodian or trustee of the Individual Retirement Account has continued
the Individual Retirement Account pursuant to the surviving spouse's
election.

SIMPLIFIED EMPLOYEE PENSION IRA. Code Section 408(k) allows eligible employers
to establish simplified employee pension plans for their employees using
individual retirement annuities. These employers may, within specified limits,
make deductible contributions on behalf of the employees to the individual
retirement annuities. Employers intending to use the Contract in connection with
such plans should seek competent tax advice.

SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p)
allows eligible employers with 100 or fewer employees to establish SIMPLE
retirement plans for their employees using individual retirement annuities. In
general, a SIMPLE IRA consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers. Employers
intending to purchase the Contract as a SIMPLE IRA should seek competent tax and
legal advice.

TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS
(TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND
YOUR COMPETENT TAX ADVISOR.

TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement
savings plans for employees of certain non-profit and educational organizations.
Under Section 403(b), any contract used for a 403(b) plan must provide that
distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
on or after the date the employee:

.. attains age 59 1/2,

.. severs employment,

.. dies,

.. becomes disabled, or

.. incurs a hardship (earnings on salary reduction contributions may not be
distributed on account of hardship).

These limitations do not apply to withdrawals where Allstate New York is
directed to transfer some or all of the Contract Value to another 403(b) plan.
Generally, we do

32 PROSPECTUS

not accept funds in 403(b) contracts that are subject to the Employee Retirement
Income Security Act of 1974 (ERISA).

CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS.

Section 401(a) of the Code permits corporate employers to establish various
types of tax favored retirement plans for employees. Self-employed individuals
may establish tax favored retirement plans for themselves and their employees
(commonly referred to as "H.R.10" or "Keogh"). Such retirement plans may permit
the purchase of annuity contracts. Allstate New York no longer issues annuity
contracts to employer sponsored qualified retirement plans.

There are two owner types for contracts intended to qualify under Section
401(a): a qualified plan fiduciary or an annuitant owner.

.. A qualified plan fiduciary exists when a qualified plan trust that is
intended to qualify under Section 401(a) of the Code is the owner. The
qualified plan trust must have its own tax identification number and a
named trustee acting as a fiduciary on behalf of the plan. The annuitant
should be the person for whose benefit the contract was purchased.

.. An annuitant owner exists when the tax identification number of the owner
and annuitant are the same, or the annuity contract is not owner by a
qualified plan trust. The annuitant should be the person for whose benefit
the contract was purchased.

If a qualified plan fiduciary is the owner of the contract, the qualified plan
must be the beneficiary so that death benefits from the annuity are distributed
in accordance with the terms of the qualified plan. Annuitant owned contracts
require that the beneficiary be the annuitant's spouse (if applicable), which is
consistent with the required IRS language for qualified plans under Section
401(a). A completed Annuitant Owned Qualified Plan Designation of Beneficiary
form is required in order to change the beneficiary of an annuitant owned
Qualified Plan contract.

STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION

PLANS. Section 457 of the Code permits employees of state and local governments
and tax-exempt organizations to defer a portion of their compensation without
paying current taxes. The employees must be participants in an eligible deferred
compensation plan. In eligible governmental plans, all assets and income must be
held in a trust/ custodial account/annuity contract for the exclusive benefit of
the participants and their beneficiaries. To the extent the Contracts are used
in connection with a non-governmental eligible plan, employees are considered
general creditors of the employer and the employer as owner of the Contract has
the sole right to the proceeds of the Contract. Under eligible 457 plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. Allstate New York
no longer issues annuity contracts to employer sponsored qualified retirement
plans. Contracts that have been previously sold to State and Local government
and Tax-Exempt organization Deferred Compensation Plans will be administered
consistent with the rules for contracts intended to qualify under Section
401(a).

33 PROSPECTUS

ANNUAL REPORTS AND OTHER DOCUMENTS

Allstate New York's annual report on Form 10-K for the year ended December 31,
2004 is incorporated herein by reference, which means that it is legally a part
of this prospectus.

After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act are also incorporated herein by reference, which means
that they also legally become a part of this prospectus.

Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statements in other documents that are legally part of this prospectus.
Accordingly, only the statement that is changed or replaced will legally be a
part of this prospectus.

We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's "EDGAR"
system using the identifying number CIK No. 0000839759. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov. You also can view these materials at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. For more information on the operations of SEC's Public Reference Room,
call 1-800-SEC-0330.

If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by reference (other than exhibits not
specifically incorporated by reference into the text of such documents), please
write or call us at: Customer Service, 2940 S. 84TH STREET, LINCOLN, NE
68506-4142 (telephone: 1-800-692-4682).

34 PROSPECTUS

APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING
FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED*

BASIC POLICY

For the period beginning January 1 and ending December 31, 1996 1997 1998 1999 2000
- --------------------------------------------------------------------------------------------------------------

AIM V.I. AGGRESSIVE GROWTH - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- $ 10.000 $ 13.988
Accumulation Unit Value, End of Period -- -- -- $ 13.988 $ 14.15
Number of Units Outstanding, End of Period -- -- -- 12,661 53,890
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT **
Accumulation Unit Value, Beginning of Period -- -- -- $ 10.000 $ 13.162
Accumulation Unit Value, End of Period -- -- -- $ 13.162 $ 12.43
Number of Units Outstanding, End of Period -- -- -- 6,382 24,499
AIM V.I. BASIC VALUE - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- -- --
Accumulation Unit Value, End of Period -- -- -- -- --
Number of Units Outstanding, End of Period -- -- -- -- --
AIM V.I. BLUE CHIP - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- -- $ 10.000
Accumulation Unit Value, End of Period -- -- -- -- $ 8.82
Number of Units Outstanding, End of Period -- -- -- -- 11,309
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 9.855 $ 11.387 $ 12.739 $ 14.979 $ 21.350
Accumulation Unit Value, End of Period $11.387 $ 12.739 $ 14.979 $ 21.350 $ 18.75
Number of Units Outstanding, End of Period 7,681 161,013 287,336 425,748 456,761
AIM V.I. CAPITAL DEVELOPMENT - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- $ 10.000 $ 11.655
Accumulation Unit Value, End of Period -- -- -- $ 11.655 $ 12.55
Number of Units Outstanding, End of Period -- -- -- 3,948 18,297
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 9.926 $ 11.699 $ 14.496 $ 18.243 $ 24.138
Accumulation Unit Value, End of Period $11.699 $ 14.496 $ 18.243 $ 24.138 $ 20.33
Number of Units Outstanding, End of Period 5,371 167,625 361,890 645,133 674,689
AIM V.I. DENT DEMOGRAPHIC TRENDS - SERIES I SUB-ACCOUNT ***
Accumulation Unit Value, Beginning of Period -- -- -- -- $ 10.000
Accumulation Unit Value, End of Period -- -- -- -- $ 7.89
Number of Units Outstanding, End of Period -- -- -- -- 32,307
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.086 $ 10.934 $ 11.789 $ 12.035 $ 12.002
Accumulation Unit Value, End of Period $10.934 $ 11.789 $ 12.035 $ 12.002 $ 11.55
Number of Units Outstanding, End of Period 4,618 58,958 146,644 227,201 204,561
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.080 $ 10.164 $ 10.834 $ 11.829 $ 11.189
Accumulation Unit Value, End of Period $10.164 $ 10.834 $ 11.829 $ 11.189 $ 12.15
Number of Units Outstanding, End of Period 0 39,009 301,983 108,494 99,531
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 9.892 $ 11.466 $ 14.338 $ 18.954 $ 25.263
Accumulation Unit Value, End of Period $11.466 $ 14.338 $ 18.954 $ 25.263 $ 19.80
Number of Units Outstanding, End of Period 2,384 97,039 220,831 383,214 403,785
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- $ 10.000 $ 9.957
Accumulation Unit Value, End of Period -- -- -- $ 9.957 $ 7.95
Number of Units Outstanding, End of Period -- -- -- 1,751 834

35 PROSPECTUS

AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.168 $ 11.953 $ 12.598 $ 14.340 $ 21.914
Accumulation Unit Value, End of Period $11.953 $ 12.598 $ 14.340 $ 21.914 $ 15.90
Number of Units Outstanding, End of Period 5,404 85,934 136,898 220,690 245,480
AIM V.I. MID CAP CORE EQUITY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- -- --
Accumulation Unit Value, End of Period -- -- -- -- --
Number of Units Outstanding, End of Period -- -- -- -- --
AIM V.I. MONEY MARKET - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.023 $ 10.369 $ 10.745 $ 11.126 $ 11.479
Accumulation Unit Value, End of Period $10.369 $ 10.745 $ 11.126 $ 11.479 $ 11.98
Number of Units Outstanding, End of Period 4,373 42,128 87,010 137,433 95,879
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 9.800 $ 11.090 $ 13.520 $ 17.644 $ 22.589
Accumulation Unit Value, End of Period $11.090 $ 13.520 $ 17.644 $ 22.589 $ 19.00
Number of Units Outstanding, End of Period 5,921 180,440 405,246 987,076 1,000,356
AIM V.I. TECHNOLOGY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- -- --
Accumulation Unit Value, End of Period -- -- -- -- --
Number of Units Outstanding, End of Period -- -- -- -- --
AIM V.I. UTILITIES - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- -- --
Accumulation Unit Value, End of Period -- -- -- -- --
Number of Units Outstanding, End of Period -- -- -- -- --

For the period beginning January 1 and ending December 31, 2001 2002 2003 2004
- --------------------------------------------------------------------------------------------------

AIM V.I. AGGRESSIVE GROWTH - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 14.15 $ 10.308 $ 7.856 $ 9.809
Accumulation Unit Value, End of Period $ 10.308 $ 7.856 $ 9.809 $ 10.809
Number of Units Outstanding, End of Period 51,176 37,549 30,613 28,619
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT **
Accumulation Unit Value, Beginning of Period $ 12.43 $ 10.849 $ 8.865 $ 10.167
Accumulation Unit Value, End of Period $ 10.849 $ 8.865 $ 10.167 $ 10.774
Number of Units Outstanding, End of Period 29,494 29,105 30,281 23,748
AIM V.I. BASIC VALUE - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 10.000 $ 11.200 $ 8.594 $ 11.319
Accumulation Unit Value, End of Period $ 11.200 $ 8.594 $ 11.319 $ 12.390
Number of Units Outstanding, End of Period 6,325 22,360 26,204 45,919
AIM V.I. BLUE CHIP - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 8.82 $ 6.736 $ 4.902 $ 6.046
Accumulation Unit Value, End of Period $ 6.736 $ 4.902 $ 6.046 $ 6.238
Number of Units Outstanding, End of Period 8,408 33,025 34,736 36,134
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 18.75 $ 14.176 $ 10.569 $ 13.491
Accumulation Unit Value, End of Period $ 14.176 $ 10.569 $ 13.491 $ 14.178
Number of Units Outstanding, End of Period 393,890 342,465 300,657 272,332
AIM V.I. CAPITAL DEVELOPMENT - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 12.55 $ 11.369 $ 8.812 $ 11.757
Accumulation Unit Value, End of Period $ 11.369 $ 8.812 $ 11.757 $ 13.383
Number of Units Outstanding, End of Period 15,528 17,080 14,370 15,343
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 20.33 $ 15.460 $ 12.863 $ 15.774
Accumulation Unit Value, End of Period $ 15.460 $ 12.863 $ 15.774 $ 16.941
Number of Units Outstanding, End of Period 590,855 490,936 436,022 385,401

36 PROSPECTUS

AIM V.I. DENT DEMOGRAPHIC TRENDS - SERIES I SUB-ACCOUNT ***
Accumulation Unit Value, Beginning of Period $ 7.89 $ 5.294 $ 3.537 $ 4.793
Accumulation Unit Value, End of Period $ 5.294 $ 3.537 $ 4.793 $ 5.114
Number of Units Outstanding, End of Period 23,934 21,406 21,473 20,823
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 11.55 $ 11.788 $ 11.886 $ 12.797
Accumulation Unit Value, End of Period $ 11.788 $ 11.886 $ 12.797 $ 13.248
Number of Units Outstanding, End of Period 179,226 153,878 158,069 118,523
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 12.15 $ 12.738 $ 13.759 $ 13.706
Accumulation Unit Value, End of Period $ 12.738 $ 13.759 $ 13.706 $ 13.855
Number of Units Outstanding, End of Period 110,454 147,016 91,728 73,112
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 19.80 $ 12.901 $ 8.777 $ 11.353
Accumulation Unit Value, End of Period $ 12.901 $ 8.777 $ 11.353 $ 12.110
Number of Units Outstanding, End of Period 338,025 291,782 263,392 237,475
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 7.95 $ 7.443 $ 6.908 $ 8.717
Accumulation Unit Value, End of Period $ 7.443 $ 6.908 $ 8.717 $ 9.558
Number of Units Outstanding, End of Period 4,833 5,236 4,236 4,779
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 15.90 $ 11.980 $ 9.957 $ 12.665
Accumulation Unit Value, End of Period $ 11.980 $ 9.957 $ 12.665 $ 15.480
Number of Units Outstanding, End of Period 213,691 190,512 160,288 141,698
AIM V.I. MID CAP CORE EQUITY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 10.000 $ 11.357 $ 9.950 $ 12.486
Accumulation Unit Value, End of Period $ 11.357 $ 9.950 $ 12.486 $ 14.007
Number of Units Outstanding, End of Period 2,829 13,588 15,110 19,232
AIM V.I. MONEY MARKET - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 11.98 $ 12.231 $ 12.198 $ 12.092
Accumulation Unit Value, End of Period $ 12.231 $ 12.198 $ 12.092 $ 12.000
Number of Units Outstanding, End of Period 151,830 129,079 84,943 46,009
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $ 19.00 $ 16.376 $ 11.256 $ 13.877
Accumulation Unit Value, End of Period $ 16.376 $ 11.256 $ 13.877 $ 14.466
Number of Units Outstanding, End of Period 881,690 685,598 606,188 538,069
AIM V.I. TECHNOLOGY - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- $ 10.000
Accumulation Unit Value, End of Period -- -- -- $ 11.090
Number of Units Outstanding, End of Period -- -- -- 4,500
AIM V.I. UTILITIES - SERIES I SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- -- $ 10.000
Accumulation Unit Value, End of Period -- -- -- $ 12.230
Number of Units Outstanding, End of Period -- -- -- 61,438

* The Contracts were first offered on October 14, 1996. The inception date of
the following Variable Sub-Accounts is October 14, 1996: AIM V.I. Capital
Appreciation - Series I Sub-Account, AIM V.I. Diversified Income - Series I
Sub-Account, AIM V.I. Government Securities - Series I Sub-Account, AIM
V.I. Growth - Series I Sub-Account, AIM V.I. Core Equity - Series I
Sub-Account, AIM V.I. International Growth - Series I Sub-Account, AIM V.I.
Money Market - Series I Sub-Account, AIM V.I. Premier Equity - Series I
Sub-Account. The inception date of the AIM V.I. Aggressive Growth - Series
I Sub-Account, AIM V.I. Balanced - Series I Sub-Account, AIM V.I. Capital
Development - Series I Sub-Account, and AIM V.I. High Yield - Series I
Sub-Account is October 25, 1999. The inception date of the AIM V.I. Blue
Chip - Series I Sub-Account and AIM V.I. Dent Demographic Trends - Series I
Sub-Account is January 3, 2000. The inception date of the AIM V.I. Basic
Value - Series I Sub-Account and AIM V.I. Mid Cap Core Equity - Series I
Sub-Account is October 1, 2001. The inception date of the AIM V.I.
Technology - Series I Sub-Account and the AIM V.I. Utilities - Series I
Sub-Account is October 15, 2004.The Accumulation Unit Values in this table
reflect a mortality and expense risk charge of 1.35% and an administrative
charge of 0.10%.

** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its
name to AIM V.I. Basic Balanced Fund-Series I. Effective July 1, 2005, a
corresponding change in the name of the Variable Sub-Account that invests
in that Fund will be made.

*** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series
I will change its name to AIM V.I. Demographic Trends Fund - Series I.
Effective July 1, 2005, a corresponding change in the name of the Variable
Sub-Account that invests in that Fund will be made.

37 PROSPECTUS

APPENDIX B MARKET VALUE ADJUSTMENT

The Market Value Adjustment is based on the following:

I = the Treasury Rate for a maturity equal to the applicable Guarantee Period
for the week preceding the establishment of the Guarantee Period.

N = the number of whole and partial years from the date we receive the
withdrawal, transfer, or death benefit request, or from the Payout Start Date,
to the end of the Guarantee Period.

J = the Treasury Rate for a maturity equal to the Guarantee Period for the week
preceding the receipt of the withdrawal, transfer, death benefit, or income
payment request. If a note for a maturity of length N is not available, a
weighted average will be used. If N is one year or less, J will be the 1-year
Treasury Rate.

"Treasury Rate" means the U.S. Treasury Note Constant Maturity Yield as reported
in Federal Reserve Board Statistical Release H.15.

The Market Value Adjustment factor is determined from the following formula:

..9 X (I - J) X N

To determine the Market Value Adjustment, we will multiply the Market Value
Adjustment factor by the amount transferred (in excess of the Free Withdrawal
Amount) paid as a death benefit, or applied to an Income Plan, from a Guarantee
Period at any time other than during the 30 day period after such Guarantee
Period expires.

38 PROSPECTUS

EXAMPLES OF MARKET VALUE ADJUSTMENT

Purchase Payment: $10,000

Guarantee Period: 5 years

Treasury Rate (at the time the Guarantee Period was established): 4.50%

Assumed Net Annual Earnings Rate in Money Market Variable Sub-Account: 4.50%

Full Surrender: End of Contract Year 3

NOTE: These examples assume that premium taxes are not applicable.

Step 1. Calculate Contract $10,000.00 X (1.045)/3/ = $11,411.66
Value at End of Contract
Year 3:
Step 2. Calculate the .10 X $10,000.00 = $1,000.00
Preferred Withdrawal
Amount:
Step 3. Calculate the I = 4.50%
Market Value Adjustment: J = 4.20%

730 days
N = -------- = 2
365 days

Market Value Adjustment Factor: .9 X (I - J) X N =
.9 X (.045 - .042) X (2) = .0054

Market Value Adjustment = Market Value Adjustment
Factor X Amount Subject to Market Value
Adjustment:

= .0054 X ($11,411.66 - $1,000.00) = $56.22

Step 4. Calculate the .05 X ($10,000.00 - $1,000.00 + $56.22) = $452.81
Withdrawal Charge:
Step 5. Calculate the $11,411.66 - $452.81 + $56.22 = $11,015.07
amount received by a
Contract owner as a result
of full withdrawal at the
end of Contract Year 3:

EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)

EXAMPLE 2: (ASSUMES RISING INTEREST RATES)

Step 1. Calculate Contract Value at End $10,000.00 X (1.045)/3/ = $11,411.66
of Contract Year 3:
Step 2. Calculate the Preferred .10 X $10,000.00 = $1,000.00
Withdrawal Amount:
Step 3. Calculate the Market Value I = 4.50%
Adjustment: J = 4.80%

730 days
N = -------- = 2
365 days

Market Value Adjustment Factor: .9 X (I - J) X N =
.9 X (.045 - .048) X (2) = - .0054

Market Value Adjustment = Market Value Adjustment
Factor X Amount Subject to Market Value Adjustment:

-.0054 X ($11,411.66 - $1,000.00) = $-56.22

Step 4. Calculate the Withdrawal Charge: .05 X ($10,000.00 - $1,000.00 - $56.22) = $447.19
Step 5. Calculate the amount received by
a Contract owner as a result of full
withdrawal at the end of Contract Year
3: $11,411.66 - $447.19 - $56.22 = $10,908.25

39 PROSPECTUS

STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS

THE CONTRACT

Purchase of Contracts

CALCULATION OF ACCUMULATION UNIT VALUES

NET INVESTMENT FACTOR

CALCULATION OF VARIABLE INCOME PAYMENTS

CALCULATION OF ANNUITY UNIT VALUES

GENERAL MATTERS

Incontestability

Settlements

Safekeeping of the Variable Account's Assets

Premium Taxes

Tax Reserves

EXPERTS

FINANCIAL STATEMENTS

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.

40 PROSPECTUS

AIM LIFETIME PLUS(SM) II VARIABLE ANNUITY

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STREET ADDRESS: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 MAILING ADDRESS:
P.O. BOX 82656, LINCOLN, NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682
PROSPECTUS DATED APRIL 30, 2005

Allstate Life Insurance Company of New York ("ALLSTATE NEW YORK") is offering
the AIM Lifetime Plus(SM) II Variable Annuity, a group flexible premium deferred
variable annuity contract ("CONTRACT"). This prospectus contains information
about the Contract that you should know before investing. Please keep it for
future reference.

The Contract currently offers 21 investment alternatives ("INVESTMENT
ALTERNATIVES"). The investment alternatives include 3 fixed account options

("FIXED ACCOUNT OPTIONS") and 18 variable sub-accounts ("VARIABLE SUB-ACCOUNTS")
of the Allstate Life of New York Separate Account A ("VARIABLE ACCOUNT"). Each
Variable Sub-Account invests exclusively in shares of one of the following funds
("FUNDS") of AIM Variable Insurance Funds, Inc. (SERIES I SHARES):

* Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its
name to AIM V.I. Basic Balanced Fund-Series I.

** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series
I will change its name to AIM V.I. Demographic Trends Fund - Series I.

WE (Allstate New York) have filed a Statement of Additional Information, dated
April 30, 2005, with the Securities and Exchange Commission ("SEC"). It contains
more information about the Contract and is incorporated herein by reference,
which means it is legally a part of this prospectus. Its table of contents
appears on page 41 of this prospectus. For a free copy, please write or call us
at the address or telephone number above, or go to the SEC's Web site
(http:www.sec.gov). You can find other information and documents about us,
including documents that are legally part of this prospectus, at the SEC's Web
site (http:\\www.sec.gov).

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS
PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU
OTHERWISE IS COMMITTING A FEDERAL CRIME.

IMPORTANT NOTICES THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS
THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL
INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE
CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY
AGENCY. INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

THE CONTRACTS ARE NOT FDIC INSURED.

THE CONTRACTS WERE ONLY AVAILABLE IN NEW YORK, BUT ARE NO
LONGER AVAILABLE FOR SALE.

1 PROSPECTUS

TABLE OF CONTENTS

PAGE
----
OVERVIEW
Important Terms 3
The Contract at a Glance 4
How the Contract Works 6
Expense Table 7
Financial Information 9
CONTRACT FEATURES
The Contract 9
Purchases 10
Contract Value 11
Investment Alternatives 12
The Variable Sub-Accounts 12
The Fixed Account Options 13
Transfers 15
Expenses 18
Other Expenses 19
Access To Your Money 19

PAGE
----
Income Payments 20
Death Benefits 22
OTHER INFORMATION
More Information:
Allstate New York 25
The Variable Account 25
The Funds 25
The Contract 26
Non-Qualified Annuities Held Within a Qualified Plan 26
Legal Matters 26
Taxes 27
Annual Reports and Other Documents 34
APPENDIX A-ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST
OFFERED 35
APPENDIX B-MARKET VALUE ADJUSTMENT 39
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 41

- --------------------------------------------------------------------------------

2 PROSPECTUS

IMPORTANT TERMS
- --------------------------------------------------------------------------------

PAGE
----
Accumulation Phase 6
Accumulation Unit 11
Accumulation Unit Value 11
Allstate New York ("We and/or "Us") 1, 25
Anniversary Values 23
Annuitant 9
Automatic Additions Program 10
Automatic Fund Rebalancing Program 17
Beneficiary 9
Cancellation Period 4
Contract* 26
Contract Anniversary 5
Contract Owner ("You") 9
Contract Value 5
Contract Year 5
Death Benefit Anniversary 22
Dollar Cost Averaging Option 13
Dollar Cost Averaging Program 17
Due Proof of Death 22
Enhanced Death Benefit Option 23

PAGE
----
Fixed Account Options 13
Funds 25
Guarantee Periods 13
Income Plans 20
Investment Alternatives 4
Issue Date 6
Market Value Adjustment 14
Payout Phase 6
Payout Start Date 20
Preferred Withdrawal Amount 18
Right to Cancel 10
SEC 1
Settlement Value 22
Systematic Withdrawal Program 20
Tax Qualified Contracts 30
Treasury Rate 15
Valuation Date 10
Variable Account 25
Variable Sub-Account 12

* The AIM Lifetime Plus(SM) II Variable Annuity is a group contract and your
ownership is represented by certificates. References to "Contract" in this
prospectus include certificates, unless the context requires otherwise.

3 PROSPECTUS

THE CONTRACT AT A GLANCE

The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.

FLEXIBLE PAYMENTS You can purchase a Contract with an initial
purchase payment of $5,000 ($2,000 for
"QUALIFIED CONTRACTS," which are Contracts
issued with QUALIFIED PLANS). You can add to
your Contract as often and as much as you like,
but each payment must be at least $500 ($100
for automatic purchase payments to the variable
investment options). You must maintain a
minimum account size of $1,000.
- -------------------------------------------------------------------------------

RIGHT TO CANCEL You may cancel your Contract within 10 days
after receipt ("CANCELLATION PERIOD"). Upon
cancellation, as permitted by federal or state
law, we will return your purchase payments
adjusted to reflect the investment experience
of any amounts allocated to the Variable
Account. The adjustment will reflect the
deduction of mortality and expense risk charges
and administrative expense charges.
- -------------------------------------------------------------------------------

EXPENSES You will bear the following expenses:

. Total Variable Account annual fees equal
to 1.10% of average daily net Assets
(1.30% if you select the ENHANCED DEATH
BENEFIT OPTION)

. Annual contract maintenance charge of $35
(with certain exceptions)

. Withdrawal charges ranging from 0% to 7%
of payment withdrawn (with certain
exceptions)

. Transfer fee of $10 after 12th transfer in
any CONTRACT YEAR (fee currently waived)

. State premium tax (New York currently does
not impose one).

In addition, each Fund pays expenses that you
will bear indirectly if you invest in a
Variable Sub-Account.
- -------------------------------------------------------------------------------

INVESTMENT The Contract offers 21 investment alternatives
ALTERNATIVES including:

. 3 Fixed Account Options (which credit
interest at rates we guarantee), and

. 18 Variable Sub-Accounts investing in
Funds offering professional money
management by A I M Advisors, Inc.

To find out current rates being paid on the
Fixed Account Options, or to find out how the
Variable Sub-Accounts have performed, please
call us at 1-800-692-4682.

- -------------------------------------------------------------------------------

SPECIAL SERVICES For your convenience, we offer these special
services:

. AUTOMATIC FUND REBALANCING PROGRAM

. AUTOMATIC ADDITIONS PROGRAM

. DOLLAR COST AVERAGING PROGRAM

. SYSTEMATIC WITHDRAWAL PROGRAM
- -------------------------------------------------------------------------------

INCOME PAYMENTS You can choose fixed income payments, variable
income payments, or a combination of the two.
You can receive your income payments in one of
the following ways:

. life income with guaranteed payments

. a joint and survivor life income with
guaranteed payments

. guaranteed payments for a specified period
(5 to 30 years)
- -------------------------------------------------------------------------------

4 PROSPECTUS

DEATH BENEFITS If you or the Annuitant (if the
Contract is owned by a non-living person) die
before the PAYOUT START DATE, we will pay the
death benefit described in the Contract. We
also offer an Enhanced Death Benefit Option.
- -------------------------------------------------------------------------------

TRANSFERS Before the Payout Start Date, you may transfer
your Contract value ("CONTRACT VALUE") among
the investment alternatives, with certain
restrictions.

WITHDRAWALS You may withdraw some or all of your Contract
Value at any time during the Accumulation
Phase. Full or partial withdrawals are
available under limited circumstances on or
after the Payout Start Date.

In general, you must withdraw at least $50 at a
time ($1,000 for withdrawals made during the
Payout Phase.) Withdrawals in the Payout Phase
are only available if the Payout Option is a
Variable Income Payment using Guaranteed
Payments for a Specified Period. Withdrawals
taken prior to annuitization (referred to in
this prospectus as the Payout Phase) are
generally considered to come from the earnings
in the Contract first. If the Contract is
tax-qualified, generally all withdrawals are
treated as distributions of earnings.

Withdrawals of earnings are taxed as ordinary
income and, if taken prior to age 59 1/2, may
be subject to an additional 10% federal tax
penalty. A withdrawal charge and MARKET VALUE
ADJUSTMENT also may apply.
- -------------------------------------------------------------------------------

5 PROSPECTUS

HOW THE CONTRACT WORKS

The Contract basically works in two ways.

First, the Contract can help you (we assume you are the CONTRACT OWNER) save for
retirement because you can invest in up to 21 investment alternatives and
generally pay no federal income taxes on any earnings until you withdraw them.
You do this during what we call the "ACCUMULATION PHASE" of the Contract. The
Accumulation Phase begins on the date we issue your Contract (we call that date
the "ISSUE DATE") and continues until the Payout Start Date, which is the date
we apply your money to provide income payments. During the Accumulation Phase,
you may allocate your purchase payments to any combination of the Variable
Sub-Accounts and/or Fixed Account Options. If you invest in the Fixed Account
Options, you will earn a fixed rate of interest that we declare periodically. If
you invest in any of the Variable Sub-Accounts, your investment return will vary
up or down depending on the performance of the corresponding Funds.

The timeline below illustrates how you might use your Contract.

Issue Payout Start
Date Accumulation Phase Date Payout Phase
- --------------------------------------------------------------------------------------------------->

Please call us at 1-800-692-4682 if you have any questions about how the
Contract works.

6 PROSPECTUS

EXPENSE TABLE

CONTRACT OWNER TRANSACTION EXPENSES

Withdrawal Charge (as a percentage of purchase payments)*

Number of Complete Years Since We Received the Purchase 0 1 2 3 4 5 6 7+
Payment Being Withdrawn
- -------------------------------------------------------------------------------------------------

Applicable Charge 7% 6% 5% 4% 3% 2% 1% 0%
- -------------------------------------------------------------------------------------------------
Annual Contract Maintenance Charge $35.00**
- -------------------------------------------------------------------------------------------------
Transfer Fee $10.00***
- -------------------------------------------------------------------------------------------------

* Each Contract Year, you may withdraw up to 15% of the Contract Value as of
the beginning of the Contract Year without incurring a withdrawal charge or
Market Value Adjustment.

** We will waive this charge in certain cases. See "Expenses."

VARIABLE ACCOUNT ANNUAL EXPENSES

(AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE
SUB-ACCOUNT)

WITHOUT ENHANCED DEATH BENEFIT OPTION 1.00%
Mortality and Expense Risk Charge
- --------------------------------------------------------------------------------
Administrative Expense Charge 0.10%
- --------------------------------------------------------------------------------
Total Variable Account Annual Expense 1.10%
- --------------------------------------------------------------------------------
WITH ENHANCED DEATH BENEFIT OPTION 1.20%
Mortality and Expense Risk Charge
- --------------------------------------------------------------------------------
Administrative Expense Charge 0.10%
- --------------------------------------------------------------------------------
Total Variable Account Annual Expense 1.30%
- --------------------------------------------------------------------------------

FUND ANNUAL EXPENSES

(as a percentage of Fund average daily net assets) (1) The next table shows the
minimum and maximum total operating expenses charged by the Funds that you may
pay periodically during the time that you own the Contract. Advisers and/or
other service providers of certain Funds may have agreed to waive their fees
and/or reimburse Fund expenses in order to keep the Funds' expenses below
specified limits. The range of expenses shown in this table does not show the
effect of any such fee waiver or expense reimbursement.

More detail concerning each Fund's fees and expenses appears in the prospectus
for each Fund.

ANNUAL FUND EXPENSES

(1) Expenses are shown as a percentage of Fund average daily net assets (before
any waiver or reimbursement) as of December 31, 2004.

7 PROSPECTUS

EXAMPLE 1

.. invested $10,000 in the Contract for the time periods indicated,

.. earned a 5% annual return on your investment, and

.. surrendered your Contract, or you began receiving income payments for a
specified period of less than 120 months, at the end of each time period,
and

.. elected the Enhanced Death Benefit Option.

THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO
PAY IF YOU SURRENDER YOUR CONTRACT.

1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
Costs Based on Maximum Annual
Fund Expenses $797 $1,215 $1,658 $3,129
- ------------------------------------------------------------------------
Costs Based on Minimum Annual
Fund Expenses $755 $1,088 $1,447 $2,711
- ------------------------------------------------------------------------

EXAMPLE 2

1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------
Costs Based on Maximum
Annual Fund Expenses $287 $877 $1,490 $3,129
- ------------------------------------------------------------------------
Costs Based on Minimum
Annual Fund Expenses $245 $751 $1,280 $2,711
- ------------------------------------------------------------------------

PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN THOSE
SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LOWER OR GREATER THAN 5%,
WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY FUND EXPENSE
WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED.
THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE ENHANCED DEATH BENEFIT OPTION,
WITH A MORTALITY AND EXPENSE RISK CHARGE OF 1.20%, AN ADMINISTRATIVE EXPENSE
CHARGE OF 0.10% AND AN ANNUAL CONTRACT MAINTENANCE CHARGE OF $35. IF THE
ENHANCED DEATH BENEFIT HAS NOT ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE
SLIGHTLY LOWER. THE ABOVE EXAMPLES ASSUME TOTAL ANNUAL FUND EXPENSES LISTED IN
THE EXPENSE TABLE WILL CONTINUE THROUGHOUT THE PERIODS SHOWN.

8 PROSPECTUS

FINANCIAL INFORMATION

THE CONTRACT

CONTRACT OWNER

The AIM Lifetime Plus(SM) II Variable Annuity is a contract between you, the
Contract Owner, and Allstate New York, a life insurance company. As the Contract
owner, you may exercise all of the rights and privileges provided to you by the
Contract. That means it is up to you to select or change (to the extent
permitted):

.. the investment alternatives during the Accumulation and Payout Phases,

.. the amount and timing of your purchase payments and withdrawals,

.. the programs you want to use to invest or withdraw money,

.. the income payment plan you want to use to receive retirement income,

.. the Annuitant (either yourself or someone else) on whose life the income
payments will be based,

.. the Beneficiary or Beneficiaries who will receive the benefits that the
Contract provides when the last surviving Contract Owner or Annuitant dies,
and

.. any other rights that the Contract provides.

If you die, any surviving Contract owner or, if none, the Beneficiary may
exercise the rights and privileges provided to them by the Contract.

The Contract cannot be jointly owned by both a non-living person and a living
person. If the Contract Owner is a Grantor Trust, the Contract Owner will be
considered a non-living person for purposes of this section and the Death
Benefit section. The maximum age of the oldest Contract owner cannot exceed age
90 as of the date we receive the completed application to purchase the Contract.

ANNUITANT

The Annuitant is the individual whose life determines the amount and duration of
income payments (other than under Income Plans with guaranteed payments for a
specified period). You initially designate an Annuitant in your application. The
maximum age of the Annuitant cannot exceed age 90 as of the date we receive the
completed application to purchase the Contract. If the Contract Owner is a
living person you may change the Annuitant prior to the Payout Start Date. In
our discretion, we may permit you to designate a joint Annuitant, who is a
second person on whose life income payments depend, on the Payout Start Date.

If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:

.. the youngest Contract Owner, if living, otherwise

.. the youngest Beneficiary.

BENEFICIARY

The Beneficiary is the person who may elect to receive the Death Benefit or
become the new Contract Owner, subject to the Death of Owner provision, if the
sole surviving Contract Owner dies before the Payout Start Date (See section
titled "Death Benefits" for details.) If the sole surviving Contract owner dies
after the Payout Start Date, the Beneficiary will receive any guaranteed income
payments scheduled to continue.

You may name one or more Beneficiaries when you apply for a Contract. You may
change or add Beneficiaries at any time by writing to us, unless you have
designated an irrevocable Beneficiary. We will provide a change of Beneficiary
form to be signed and filed with us. Any change will be effective at the time
you sign the written notice, whether or not the Annuitant is living when we
receive the notice. Until we receive your written notice to change a
Beneficiary, we are entitled to rely on the most recent Beneficiary information
in our files. We will not be liable as to any payment or settlement made prior
to receiving the written notice. Accordingly, if you wish to

9 PROSPECTUS

change your Beneficiary, you should deliver your written notice to us promptly.

If you do not name a Beneficiary or if the named Beneficiary is no longer living
and there are no other surviving Beneficiaries, the new Beneficiary will be:

.. your spouse or, if he or she is no longer alive,

.. your surviving children equally, or if you have no surviving children,

.. your estate.

If more than one Beneficiary survives you, we will divide the death benefit
among your Beneficiaries according to your most recent written instructions. If
you have not given us written instructions, we will pay the death benefit in
equal amounts to the surviving Beneficiaries

MODIFICATION OF THE CONTRACT

ASSIGNMENT

No Owner has the right to assign any interest in a Contract as collateral or
security for a loan. However, you may assign periodic income payments under the
Contract prior to the Payout Start Date. No Beneficiary may assign benefits
under the Contract until they are due. We will not be bound by any assignment
until the assignor signs it and files it with us. We are not responsible for the
validity of any assignment. Federal law prohibits or restricts the assignment of
benefits under many types of retirement plans and the terms of such plans may
themselves contain restrictions on assignments. An assignment may also result in
taxes or tax penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO
ASSIGN YOUR CONTRACT.

PURCHASES

MINIMUM PURCHASE PAYMENTS

AUTOMATIC ADDITIONS PROGRAM

You may make subsequent purchase payments of at least $100 ($500 for allocation
to the Fixed Account Options) by automatically transferring amounts from your
bank account. Please consult with your sales representative for detailed
information.

ALLOCATION OF PURCHASE PAYMENTS

At the time you apply for a Contract, you must decide how to allocate your
purchase payments among the investment alternatives. The allocation you specify
on your application will be effective immediately. All allocations must be in
whole percents that total 100% or in whole dollars. You can change your
allocations by notifying us in writing. We reserve the right to limit the
availability of the investment alternatives.

We will allocate your purchase payments to the investment alternatives according
to your most recent instructions on file with us. Unless you notify us in
writing otherwise, we will allocate subsequent purchase payments according to
the allocation for the previous purchase payment. We will effect any change in
allocation instructions at the time we receive written notice of the change in
good order.

We will credit the initial purchase payment that accompanies your completed
application to your Contract within 2 business days after we receive the payment
at our servicing center. If your application is incomplete, we will ask you to
complete your application within 5 business days. If you do so, we will credit
your initial purchase payment to your Contract within that 5 business day
period. If you do not, we will return your purchase payment at the end of the 5
business day period unless you expressly allow us to hold it until you complete
the application. We will credit subsequent purchase payments to the Contract at
the close of the business day on which we receive the purchase payment at our
service center located in Vernon Hills, Illinois (mailing address: 2940 S. 84TH
STREET, LINCOLN, NE 68506-4142).

We are open for business each day Monday through Friday that the New York Stock
Exchange is open for business. We also refer to these days as "VALUATION DATES."
Our business day closes when the New York Stock Exchange closes, usually 4:00
p.m. Eastern Time (3:00 p.m. Central Time). If we receive your purchase payment
after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we
will credit your purchase payment using the Accumulation Unit Values computed on
the next Valuation Date.

RIGHT TO CANCEL

10 PROSPECTUS

it to us. If you exercise this "RIGHT TO CANCEL," the Contract terminates and we
will pay you the full amount of your purchase payments allocated to the Fixed
Account Options. Upon cancellation, as permitted by federal or state law, we
will return your purchase payments allocated to the Variable Account after an
adjustment to reflect investment gain or loss and applicable charges that
occurred from the date of allocation through the date of cancellation. If your
Contract is qualified under ode Section 408(b), we will refund the greater of
any purchase payment or the Contract Value.

CONTRACT VALUE

On the issue date, the Contract Value is equal to the initial purchase payment.
Thereafter, your Contract Value at any time during the Accumulation Phase is
equal to the sum of the value of your Accumulation Units in the Variable
Sub-Accounts you have selected, plus the value of your investment in the Fixed
Account Options.

ACCUMULATION UNITS

To determine the number of Accumulation Units of each Variable Sub-Account to
allocate to your Contract, we divide (i) the amount of the purchase payment or
transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation
Unit Value of that Variable Sub-Account next computed after we receive your
payment or transfer. For example, if we receive a $10,000 purchase payment
allocated to a Variable Sub-Account when the Accumulation Unit Value for the
Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable
Sub-Account to your Contract. Withdrawals and transfers from a Variable
Sub-Account would, of course, reduce the number of Accumulation Units of that
Sub-Account allocated to your Contract.

ACCUMULATION UNIT VALUE

As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:

.. changes in the share price of the Fund in which the Variable Sub-Account
invests, and

We determine a separate Accumulation Unit Value for each Variable Sub-Account on
each Valuation Date. We also determine a separate set of Accumulation Unit
Values reflecting the cost of the Enhanced Death Benefit Option described on
page 23.

11 PROSPECTUS

INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS

For more complete information about each Fund, including expenses and risks
associated with the Fund, please refer to the accompanying prospectus for the
Fund. You should carefully review the Fund prospectuses before allocating
amounts to the Variable Sub-Accounts. A I M Advisors, Inc. serves as the
investment advisor to each Fund.

SERIES I SHARES: EACH FUND SEEKS*: INVESTMENT ADVISOR
- -------------------------------------------------------------------------------
AIM V.I. Aggressive Long-term growth of capital
Growth Fund - Series
I**
- -------------------------------------------------------------------------------
AIM V.I. Balanced Fund As high a total return as
- Series I*** possible, consistent with
preservation of capital
- -------------------------------------------------------------------------------
AIM V.I. Basic Value Long-term growth of capital
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Blue Chip Long-term growth of capital
Fund - Series I with a secondary objective of
current income
- -------------------------------------------------------------------------------
AIM V.I. Capital Growth of capital
Appreciation Fund -
Series I
- -------------------------------------------------------------------------------
AIM V.I. Capital Long-term growth of capital
Development Fund -
Series I
- -------------------------------------------------------------------------------
AIM V.I. Core Equity Growth of capital A I M ADVISORS, INC..
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Dent Long-term growth of capital
Demographic Trends
Fund - Series I****
- -------------------------------------------------------------------------------
AIM V.I. Diversified High level of current income
Income Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Government High level of current income
Securities Fund - consistent with reasonable
Series I concern for safety of
principal
- -------------------------------------------------------------------------------
AIM V.I. Growth Fund - Growth of capital
Series I
- -------------------------------------------------------------------------------
AIM V.I. High Yield High level of current income
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. International Long-term growth of capital
Growth Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Mid Cap Core Long-term growth of capital
Equity Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Money Market As high a level of current
Fund - Series I income as is consistent with
the preservation of capital
and liquidity
- -------------------------------------------------------------------------------
AIM V.I. Premier Long-term growth of capital
Equity Fund - Series with income as a secondary
I objective
- -------------------------------------------------------------------------------
AIM V.I. Technology Capital growth
Fund - Series I
- -------------------------------------------------------------------------------
AIM V.I. Utilities Capital growth and current
Fund - Series I income
- -------------------------------------------------------------------------------

* A Fund's investment objective(s) may be changed by the Fund's Board of
Trustees without shareholder approval.

** Due to the sometime limited availability of common stocks of small-cap
companies that meet the investment criteria for AIM V.I. Aggressive Growth
Fund - Series I, the Fund may periodically suspend or limit the offering of
its shares and it will be closed to new participants when Fund assets reach
$200 million. During closed periods the Fund will accept additional
investments from existing Contract owners maintaining an allocation in the
Fund.

*** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its
name to AIM V.I. Basic Balanced Fund-Series I. In addition, the Fund's
objective will cahnge to long-term growth of capital and current income.

*** The AIM V.I. Dent Demographic Trends Fund - Series I is sub-advised by H.S.
Dent Advisors, Inc. Effective July 1, 2005, the AIM V.I. Dent Demographic
Trends Fund - Series I will change its name to AIM V.I. Demographic Trends
Fund - Series I. In addition, H.S. Dent Advisors, Inc. will no longer be
the sub-advisor to the Fund effective June 30, 2005.

12 PROSPECTUS

ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.

INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTIONS

You may allocate all or a portion of your purchase payments to the Fixed
Account. You may choose from among 3 Fixed Account Options, including 2 DOLLAR
COST AVERAGING FIXED ACCOUNT OPTIONS ("DOLLAR COST AVERAGING OPTION"), and the
option to invest in one or more GUARANTEE PERIODS. The Fixed Account Options may
not be available in all states. Please consult with your sales representative
for current information. The Fixed Account supports our insurance and annuity
obligations. The Fixed Account consists of our general assets other than those
in segregated asset accounts. We have sole discretion to invest the assets of
the Fixed Account, subject to applicable law. Any money you allocate to a Fixed
Account Option does not entitle you to share in the investment experience of the
Fixed Account.

DOLLAR COST AVERAGING OPTION. You may establish a Dollar Cost Averaging Program,
as described on page 17, by allocating purchase payments to the Dollar Cost
Averaging Option either for 6 months (the "6 Month Dollar Cost Averaging
Option") or for 12 months (the "12 Month Dollar Cost Averaging Option"). Your
purchase payments that you allocate to the Dollar Cost Averaging Option will
earn interest for the period you select at the current rate in effect at the
time of allocation. Rates may differ from those available for the Guarantee
Periods described below.

We will credit interest daily at a rate that will compound over the 6 or 12
month period to the annual interest rate we guaranteed at the time of
allocation. You must transfer all of your money out of the 6 or 12 Month Dollar
Cost Averaging Options to other investment alternatives in equal monthly
installments beginning within 30 days of allocation. The number of monthly
installments must be no more than 6 for the 6 Month Dollar Cost Averaging
Option, and no more than 12 for the 12 Month Dollar Cost Averaging Option.

If we do not receive allocation instructions from you within one month of the
date of the payment, the payment plus associated interest will be transferred to
the Money Market Variable Sub-Account in equal monthly installments using the
longest transfer period being offered at the time the Purchase Payment is made.

At the end of the applicable transfer period, any nominal amounts remaining in
the Dollar Cost Averaging Option will be allocated to the Money Market Variable
Sub-Account.

You may not transfer funds from other investment alternatives to the Dollar Cost
Averaging Option.

Transfers out of the Dollar Cost Averaging Option do not count towards the 12
transfers you can make without paying a transfer fee.

We may declare different interest rates for different amounts allocated to the
Dollar Cost Averaging Option depending on when they were allocated. For current
interest rate information, please contact your Financial Advisor or our Customer
Service unit at 1-800-692-4682.

GUARANTEE PERIODS

Each payment or transfer allocated to a Guarantee Period earns interest at a
specified rate that we guarantee for a period of years. Guarantee Periods may
range from 1 to 10 years. In the future we may offer Guarantee Periods of
different lengths or stop offering some Guarantee Periods. You select one or
more Guarantee Periods for each purchase payment or transfer. If you do not
select the Guarantee Period for a purchase payment or transfer, we will assign
the shortest Guarantee Period available under the Contract for such payment or
transfer. We reserve the right to limit the number of additional purchase
payments that you may allocate to this Option. Please consult with your sales
representative for more information. Each Purchase Payment or transfer allocated
to a Guarantee Period must be at least $500.

We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
investment returns available at the time of the determination. In addition, we
may consider various other factors in determining interest rates including
regulatory and tax requirements, our sales commission and administrative
expenses, general economic trends, and competitive factors. WE DETERMINE THE
INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE CAN NEITHER PREDICT NOR
GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE. For current interest rate
information, please contact your sales representative or Allstate New York at
1-800-692-4682. The interest rates we credit for the Dollar Cost Averaging
Option will never be less than 3% annually.

HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated
to a Guarantee Period at a rate that compounds to the effective annual interest
rate that we declared at the beginning of the applicable Guarantee Period.

13 PROSPECTUS

The following example illustrates how a purchase payment allocated to a
Guarantee Period would grow, given an assumed Guarantee Period and effective
annual interest rate:

END OF CONTRACT YEAR

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ------------

Beginning Contract
Value................ $10,000.00
X (1 + Annual
Interest Rate) 1.045
----------
$10,450.00

Contract Value at end
of Contract Year..... $10,450.00
X (1 + Annual
Interest Rate) 1.045
----------
$10,920.25

Contract Value at end
of Contract Year..... $10,920.25
X (1 + Annual
Interest Rate) 1.045
----------
$11,411.66

Contract Value at end
of Contract Year..... $11,411.66
X (1 + Annual
Interest Rate) 1.045
----------
$11,925.19

Contract Value at end
of Contract Year..... $11,925.19
X (1 + Annual
Interest Rate) 1.045
-----------
$12,461.82

TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,461.82 ($12,461.82-$10,000)

RENEWALS. At least 15 but not more than 45 days prior to the end of each
Guarantee Period, we will mail you a notice asking you what to do with your
money, including the accrued interest. During the 30-day period after the end of
the Guarantee Period, you may:

1) Take no action. We will automatically apply your money to a new Guarantee
Period of the shortest duration available. The new Guarantee Period will
begin on the day the previous Guarantee Period ends. The new interest rate
will be our then current declared rate for a Guarantee Period of that
length; or

2) Instruct us to apply your money to one or more new Guarantee Periods of
your choice. The new Guarantee Period(s) will begin on the day the previous
Guarantee Period ends. The new interest rate will be our then current
declared rate for those Guarantee Periods; or

4) Withdraw all or a portion of your money. You may be required to pay a
withdrawal charge, but we will not adjust the amount withdrawn to include a
Market Value Adjustment. You may also be required to pay premium taxes and
withholding (if applicable). The amount withdrawn will be deemed to have
been withdrawn on the day the previous Guarantee Period ends. Unless you
specify otherwise, amounts not withdrawn will be applied to a new Guarantee
Period of the shortest duration available. The new Guarantee Period will
begin on the day the previous Guarantee Period ends.

MARKET VALUE ADJUSTMENT. All withdrawals in excess of the Preferred Withdrawal
Amount, transfers, and amounts applied to an Income Plan from a Guarantee
Period, other than those taken or applied during the 30 day period after such
Guarantee Period expires, are subject to a Market Value Adjustment. A Market
Value Adjustment also will apply when you apply amounts currently invested in a
Guarantee Period to an Income Plan (unless applied during the 30 day period
after such Guarantee Period expires). A Market Value Adjustment may apply in the
calculation of the Settlement Value described below in the "Death Benefit
Amount" section below. We will not apply a Market Value Adjustment to a transfer
you make as part of a Dollar Cost Averaging Program. We also will not apply a
Market Value Adjustment to a withdrawal you make:

14 PROSPECTUS

.. within the Preferred Withdrawal Amount as described on page 18, or

.. to satisfy the IRS minimum distribution rules for the Contract.

The formula for calculating Market Value Adjustments is set forth in Appendix A
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment.

INVESTMENT ALTERNATIVES: TRANSFERS

TRANSFERS DURING THE ACCUMULATION PHASE

During the Accumulation Phase, you may transfer Contract Value among the
investment alternatives. You may not transfer Contract Value into the Dollar
Cost Averaging Option. You may request transfers in writing on a form that we
provided or by telephone according to the procedure described below. The minimum
amount that you may transfer into a Guarantee Period is $500. We currently do
not assess, but reserve the right to assess, a $10 charge on each transfer in
excess of 12 per Contract Year. We treat transfers to or from more than one Fund
on the same day as one transfer. Transfers you make as part of a Dollar Cost
Averaging Program or Automatic Fund Rebalancing Program do not count against the
12 free transfers per Contract Year.

We will process transfer requests that we receive before 4:00 p.m. Eastern Time
on any Valuation Date using the Accumulation Unit Values for that Date. We will
process requests completed after 4:00 p.m. Eastern Time on any Valuation Date
using the Accumulation Unit Values for the next Valuation Date. The Contract
permits us to defer transfers from the Fixed Account for up to 6 months from the
date we receive your request. If we decide to postpone transfers from the Fixed
Account Options for 10 days or more, we will pay interest as required by
applicable law. Any interest would be payable from the date we receive the
transfer request to the date we make the transfer.

If you transfer an amount from a Guarantee Period other than during the 30 day
period after such Guarantee Period expires, we will increase or decrease the
amount by a Market Value Adjustment.

We reserve the right to waive any transfer restrictions.

TRANSFERS DURING THE PAYOUT PHASE

You may not make any transfers for the first 6 months after the Payout Start
Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make
transfers from the Variable Sub-Accounts to increase the proportion of your
income payments consisting of fixed income payments. Your transfers must be at
least 6 months apart.

15 PROSPECTUS

TELEPHONE TRANSFERS

We may suspend, modify or terminate the telephone transfer privilege at any time
without notice.

MARKET TIMING & EXCESSIVE TRADING

While we seek to deter market timing and excessive trading in Variable
Sub-Accounts, because our procedures involve the exercise of reasonable
judgment, we may not identify or prevent some market timing or excessive
trading. Moreover, imposition of trading limitations is triggered by the
detection of market timing or excessive trading activity, and the trading
limitations are not applied prior to detection of such trading activity.
Therefore, our policies and procedures do not prevent such trading activity
before it is detected. As a result, some investors may be able to engage in
market timing and excessive trading, while others are prohibited, and the Fund
may experience the adverse effects of market timing and excessive trading
described above.

TRADING LIMITATIONS

We reserve the right to limit transfers among the investment alternatives in any
Contract Year, or to refuse any transfer request, if:

In making the determination that trading activity constitutes market timing or
excessive trading, we will consider, among other things:

.. the total dollar amount being transferred, both in the aggregate and in the
transfer request;

.. whether the manager of the underlying Fund has indicated that the transfers
interfere with Fund management or otherwise adversely impact the Fund; and

.. the investment objectives and/or size of the Variable Sub-Account
underlying Fund.

We seek to apply these trading limitations uniformly. However, because these
determinations involve the exercise of discretion, it is possible that we may
not detect some market timing or excessive trading activity. As a result, it is
possible that some investors may be able to engage in market timing or excessive
trading activity, while others are prohibited, and the Fund may experience the
adverse effects of market timing and excessive trading described above.

16 PROSPECTUS

If we determine that a Contract Owner has engaged in market timing or excessive
trading activity, we will restrict that Contract Owner from making future
additions or transfers into the impacted Variable Sub-Account(s). If we
determine that a Contract Owner has engaged in a pattern of market timing or
excessive trading activity involving multiple Variable Sub-Accounts, we will
also require that all future transfer requests be submitted through regular U.S.
mail thereby refusing to accept transfer requests via telephone, facsimile,
Internet, or overnight delivery.

In our sole discretion, we may revise our Trading Limitations at any time as
necessary to better deter or minimize market timing and excessive trading or to
comply with regulatory requirements.

DOLLAR COST AVERAGING PROGRAM

Through the Dollar Cost Averaging Program, you may automatically transfer a set
amount at regular intervals during the Accumulation Phase from any Variable
Sub-Account, the Dollar Cost Averaging Option, or interest credited from the 3,
5, 7 or 10 year Guarantee Periods, to any Variable Sub-Account. The interval
between transfers may be monthly, quarterly, semi-annually, or annually.
Transfers made through dollar cost averaging must be $50 or more. You may not
use dollar cost averaging to transfer amounts into the Dollar Cost Averaging
Option.

Call or write us for instructions on how to enroll.

AUTOMATIC FUND REBALANCING PROGRAM

Example:

17 PROSPECTUS

EXPENSES

As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.

CONTRACT MAINTENANCE CHARGE

During the Accumulation Phase, on each Contract Anniversary, we will deduct a
$35 contract maintenance charge from your Contract Value invested in each
Variable Sub-Account in proportion to the amount invested. We also will deduct a
full contract maintenance charge if you withdraw your entire Contract Value,
unless your Contract qualifies for a waiver, described below. During the Payout
Phase, we will deduct the charge proportionately from each income payment.

.. total purchase payments equal $50,000 or more, or

.. all money is allocated to the Fixed Account Options, as of the Contract
Anniversary.

After the Payout Start Date, we will waive this charge if:

.. as of the Payout Start Date, the Contract Value is $50,000 or more, or

.. all income payments are fixed amount income payments.

MORTALITY AND EXPENSE RISK CHARGE

We deduct a mortality and expense risk charge daily at an annual rate of 1.00%
of the average daily net assets you have invested in the Variable Sub-Accounts
(1.20% if you select the Enhanced Death Benefit Option). The mortality and
expense risk charge is for all the insurance benefits available with your
Contract (including our guarantee of annuity rates and the death benefits), for
certain expenses of the Contract, and for assuming the risk (expense risk) that
the current charges will not be sufficient in the future to cover the cost of
administering the Contract. If the charges under the Contract are not
sufficient, then we will bear the loss. We charge an additional .20% for the
Enhanced Death Benefit Option to compensate us for the additional risk that we
accept by providing the rider.

We guarantee the mortality and expense risk charge and we cannot increase it. We
assess the mortality and expense risk charge during both the Accumulation Phase
and the Payout Phase.

ADMINISTRATIVE EXPENSE CHARGE

TRANSFER FEE

transfers that are part of a Dollar Cost Averaging or Automatic Fund Rebalancing
Program.

WITHDRAWAL CHARGE

We may assess a withdrawal charge of up to 7% of the purchase payment(s) you
withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market
Value Adjustment. The charge declines annually to 0% after 7 complete years from
the day we receive the purchase payment being withdrawn. A schedule showing how
the charge declines appears on page 7. During each Contract Year, you can
withdraw up to 15% of the Contract Value as of the beginning of that Contract
Year without paying the charge. Unused portions of this 15% "PREFERRED
WITHDRAWAL AMOUNT" are not carried forward to future Contract Years.

We determine the withdrawal charge by:

.. multiplying the percentage corresponding to the number of complete years
since we received the purchase payment being withdrawn, times

.. the part of each purchase payment withdrawal that is in excess of the
Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.

18 PROSPECTUS

lower.We do not apply a withdrawal charge in the following situations:

.. on the Payout Start Date (a withdrawal charge may apply if you elect to
receive income payments for a specified period of less than 120 months);

.. the death of the Contract owner or Annuitant (unless the Settlement Value
is used);

.. withdrawals taken to satisfy IRS minimum distribution rules for the
Contract; and

.. withdrawals made after all purchase payments have been withdrawn.

Withdrawals may be subject to tax penalties or income tax and a Market Value
Adjustment. You should consult your own tax counsel or other tax advisers
regarding any withdrawals.

PREMIUM TAXES

DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES

OTHER EXPENSES

We may receive compensation from A I M Advisors, Inc., for administrative
services we provide to the Funds.

ACCESS TO YOUR MONEY

You can withdraw money from the Variable Account or the Fixed Account Options.
To complete a partial withdrawal from the Variable Account, we will cancel
Accumulation Units in an amount equal to the withdrawal and any applicable
withdrawal charge and premium taxes.

In general, you must withdraw at least $50 at a time. You also may withdraw a
lesser amount if you are withdrawing your entire interest in a Variable
Sub-Account.

If you request a total withdrawal, we may request that you return your Contract
to us. We also will deduct a Contract Maintenance Charge of $35, unless we have
waived the Contract Maintenance Charge on your Contract.

POSTPONEMENT OF PAYMENTS

We may postpone the payment of any amounts due from the Variable Account under
the Contract if:

19 PROSPECTUS

1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;

2. An emergency exists as defined by the SEC; or

3. The SEC permits delay for your protection.

In addition, we may delay payments or transfers from the Fixed Account Options
for up to 6 months or shorter period if required by law. If we delay payment or
transfer for 10 days or more, we will pay interest as required by law. Any
interest would be payable from the date we receive the withdrawal request to the
date we make the payment or transfer.

SYSTEMATIC WITHDRAWAL PROGRAM

You may choose to receive systematic withdrawal payments on a monthly,
quarterly, semi-annual, or annual basis at any time prior to the Payout Start
Date. The minimum amount of each systematic withdrawal is $50. Systematic
Withdrawals are not available from the Dollar Cost Averaging Option. At our
discretion, systematic withdrawals may not be offered in conjunction with the
Dollar Cost Averaging Program or the Automatic Fund Rebalancing Program.

Depending on fluctuations in the accumulation unit value of the Variable
Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals
may reduce or even exhaust the Contract Value. Please consult your tax advisor
before taking any withdrawal.

We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.

MINIMUM CONTRACT VALUE

If your request for a partial withdrawal would reduce the amount in any
Guarantee Period to less than $500, we may treat it as a request to withdraw the
entire amount invested in such Guarantee Period. If your request for a partial
withdrawal would reduce the Contract Value to less than $1,000, we may treat it
as a request to withdraw your entire Contract Value. Your Contract will
terminate if you withdraw all of your Contract Value. We will, however, ask you
to confirm your withdrawal request before terminating your Contract. Before
terminating any Contract value whose value has been reduced by withdrawals to
less than $1,000, we would inform you in writing of our intention to terminate
your Contact and give you at least 30 days in which to make an additional
Purchase Payment to restore your Contract's value to the contractual minimum of
$1,000. If we terminate your Contract, we will distribute to you its Contract
Value, adjusted by any applicable Market Value Adjustment, less withdrawal and
other charges, and applicable taxes.

INCOME PAYMENTS

PAYOUT START DATE

INCOME PLANS

.. fixed income payments;

.. variable income payments; or

.. a combination of the two.

The three Income Plans are:

20 PROSPECTUS

continue to pay the remainder of the guaranteed income payments as required by
the Contract.

INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEARS TO 30
YEARS). Under this plan, we make periodic income payments for the period you
have chosen. These payments do not depend on the Annuitant's life. Income
payments for less than 120 months may be subject to a withdrawal charge. We will
deduct the mortality and expense risk charge from the Variable Sub-Account
assets that support variable income payments even though we may not bear any
mortality risk.

The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amounts of each income payment. As a general
rule, longer guarantee periods result in lower income payments, all other things
being equal. For example, if you choose an Income Plan with payments that depend
on the life of the Annuitant but with no minimum specified period for guaranteed
payments, the income payments generally will be greater than the income payments
made under the same Income Plan with a minimum specified period for guaranteed
payments.

We may make other Income Plans available. You may obtain information about them
by writing or calling us.

You must apply at least the Contract Value in the Fixed Account Options on the
Payout Start Date to fixed income payments. If you wish to apply any portion of
your Fixed Account Option balance to provide variable income payments, you
should plan ahead and transfer that amount to the Variable Sub-Accounts prior to
the Payout Start Date. If you do not tell us how to allocate your Contract Value
among fixed and variable income payments, we will apply your Contract Value in
the Variable Account to variable income payments and your Contract Value in the
Fixed Account Options to fixed income payments.

We will apply your Contract Value, adjusted by any applicable Market Value
Adjustment, less applicable taxes to your Income Plan on the Payout Start Date.
If the Contract owner has not made any purchase payments for at least 3 years
preceding the Payout Start Date, and either the Contract Value is less than
$2,000 or not enough to provide an initial payment of at least $20, and state
law permits, we may:

.. terminate the Contract and pay you the Contract Value, adjusted by any
Market Value Adjustment and less any applicable taxes, in a lump sum
instead of the periodic payments you have chosen, or

.. reduce the frequency of your payments so that each payment will be at least
$20.

VARIABLE INCOME PAYMENTS

21 PROSPECTUS

FIXED INCOME PAYMENTS

We guarantee income payment amounts derived from any Fixed Account Option for
the duration of the Income Plan. We calculate the fixed income payments by:

1) adjusting the portion of the Contract Value in any Fixed Account Option on
the Payout Start Date by any applicable Market Value Adjustment;

2) deducting any applicable premium tax; and

3) applying the resulting amount to the greater of (a) the appropriate value
from the income payment table in your Contract or (b) such other value as
we are offering at that time.

CERTAIN EMPLOYEE BENEFIT PLANS

DEATH BENEFITS

We will pay a death benefit if, prior to the Payout Start Date:

1. any Contract owner dies or,

2. the Annuitant dies, if the Contract owner is not a living person.

We will pay the death benefit to the new Contract owner who is determined
immediately after the death. The new Contract owner would be a surviving
Contract owner or, if none, the Beneficiary(ies). In the case of the death of an
Annuitant, we will pay the death benefit to the current Contract owner. A
request for payment of the death benefit must include "DUE PROOF OF DEATH." We
will accept the following documentation as Due Proof of Death:

.. a certified copy of a death certificate,

.. a certified copy of a decree of a court of competent jurisdiction as to the
finding of death, or

.. any other proof acceptable to us.

DEATH BENEFIT AMOUNT

Prior to the Payout Start Date, the death benefit is equal to the greatest of:

1. the Contract Value as of the date we determine the death benefit, or

2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of
Contract Value) on the date we determine the death benefit, or

3. the sum of all purchase payments reduced by a withdrawal adjustment, as
defined below, or

4. the greatest of the Contract Value on each DEATH BENEFIT ANNIVERSARY prior
to the date we determine the death benefit, increased by purchase payments
made since that Death Benefit Anniversary and reduced by a withdrawal
adjustment as defined below.

A "Death Benefit Anniversary" is every seventh Contract Anniversary during the
Accumulation Phase. For example, the 7th, 14th, and 21st Contract Anniversaries
are the first three Death Benefit Anniversaries.

The "withdrawal adjustment" is equal to (a) divided by (b), with the result
multiplied by (c), where:

(a) is the withdrawal amount;

(b) is the Contract Value immediately prior to the withdrawal; and

Please see Appendix B to this prospectus, which contains examples of the
application of the withdrawal adjustment.

We will determine the value of the death benefit as of the end of the Valuation
Date on which we receive a complete request for payment of the death benefit. If
we receive a request after 4:00 p.m. Eastern Time on a Valuation Date,

22 PROSPECTUS

we will process the request as of the end of the following Valuation Date.

ENHANCED DEATH BENEFIT OPTION

If the oldest Contract owner and Annuitant is less than or equal to age 80 as of
the date we receive the completed application, the Enhanced Death Benefit
Option, is an optional benefit that you may select. If the Contract owner is a
living individual, the Enhanced Death Benefit applies only for the death of the
Contract owner. If the Contract owner is not a living individual, the enhanced
death benefit applies only for the death of the Annuitant. For Contracts with
the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1)
through (4) above, or (5) the Enhanced Death Benefit, described below. The
Enhanced Death Benefit will never be greater than the maximum death benefit
allowed by any state nonforfeiture laws which govern the Contract.

ENHANCED DEATH BENEFIT. The Enhanced Death Benefit on the Issue Date is equal to
the initial purchase payment. On each Contract Anniversary, we will recalculate
your Enhanced Death Benefit to equal the greater of your Contract Value on that
date, or the most recently calculated Enhanced Death Benefit. We also will
recalculate your Enhanced Death Benefit whenever you make an additional purchase
payment or a partial withdrawal. Additional purchase payments will increase the
Enhanced Death Benefit dollar-for-dollar. Withdrawals will reduce the Enhanced
Death Benefit by an amount equal to a withdrawal adjustment computed in the
manner described above under "Death Benefit Amount." In the absence of any
withdrawals or purchase payments, the Enhanced Death Benefit will be the
greatest of all Contract Anniversary Contract Values on or before the date we
calculate the death benefit.

We will calculate ANNIVERSARY VALUES for each Contract Anniversary prior to the
oldest Contract owner's or the oldest Annuitant's, if the Contract owner is not
a living person, 85th birthday. After age 85, we will recalculate the Enhanced
Death Benefit only for purchase payments and withdrawals. The Enhanced Death
Benefit will never be greater than the maximum death benefit allowed by any
non-forfeiture laws which govern the Contract.

DEATH BENEFIT PAYMENTS

IF THE NEW OWNER IS YOUR SPOUSE, THE NEW OWNER MAY:

1. elect to receive the death benefit in a lump sum, or

2. elect to apply the death benefit to an Income Plan. Payments from the
Income Plan must begin within 1 year of the date of death and must be
payable throughout:

.. the life of the new Owner; or

.. for a guaranteed number of payments from 5 to 50 years, but not to exceed
the life expectancy of the new Owner; or

.. over the life of the new Owner with a guaranteed number of payments from 5
to 30 years but not to exceed the life expectancy of the new Owner.

If your spouse does not elect one of the above options, the Contract will
continue in the Accumulation Phase as if the death had not occurred. If the
Contract is continued in the Accumulation Phase, the following restrictions
apply:

.. On the date the Contract is continued, the Contract Value will equal the
amount of the Death Benefit as determined as of the Valuation Date on which
we received the completed request for settlement of the death benefit (the
next Valuation Date, if we receive the completed request for settlement of
the death benefit after 3 p.m. Central Time). Unless otherwise instructed
by the continuing spouse, the excess, if any, of the death benefit over the
Contract Value will be allocated to the Sub-Accounts of the Variable
Account. This excess will be allocated in proportion to your Contract Value
in those Sub-accounts as of the end of the Valuation Period during which we
receive the completed request for settlement of the death benefit, except
that any portion of this excess attributable to the Fixed Account Options
will be allocated to the Money Market Sub-account. Within 30 days of the
date the Contract is continued, your surviving spouse may choose one of the
following transfer alternatives without incurring a transfer fee:

.. transfer all or a portion of the excess among the Variable Sub-Accounts;

.. transfer all or a portion of the excess into the Guaranteed Maturity Fixed
Account and begin a new Guarantee Period; or

.. transfer all or a portion of the excess into a combination of Variable
Sub-Accounts and the Guaranteed Maturity Fixed Account.

Any such transfer does not count as one of the free transfers allowed each
Contract Year and is subject to any minimum allocation amount specified in your
Contract.

The surviving spouse may make a single withdrawal of any amount within one year
of the date of death without incurring a Withdrawal Charge.

Only one spousal continuation is allowed under this Contract.

IF THE NEW OWNER IS NOT YOUR SPOUSE BUT IS A LIVING PERSON, THE NEW OWNER MAY:

1) elect to receive the death benefit in a lump sum, or

2) elect to apply the death benefit to an Income Plan. Payments from the
Income Plan must begin within 1 year of the date of death and must be
payable throughout:

.. the life of the new Owner; or

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.. for a guaranteed number of payments from 5 to 50 years, but not to exceed
the life expectancy of the new Owner; or

.. over the life of the new Owner with a guaranteed number of payments from 5
to 30 years but not to exceed the life expectancy of the new Owner.

If the new Owner does not elect one of the above options then the new Owner must
receive the Contract Value payable within 5 years of your date of death. The
Contract Value will equal the amount of the death benefit as determined as of
the Valuation Date on which we received a completed request for settlement of
the death benefit (the next Valuation Date, if we receive a completed request
for settlement of the death benefit after 3 p.m. Central Time). Unless otherwise
instructed by the new Owner, the excess, if any, of the death benefit over the
Contract Value will be allocated to the Money Market Variable Sub-Account. The
new Owner may exercise all rights as set forth in the TRANSFERS section during
this 5 year period.

No additional Purchase Payments may be added to the Contract under this
election. Withdrawal Charges will be waived for any withdrawals made during this
5 year period.

We reserve the right to offer additional options upon Death of Owner.

IF THE NEW OWNER IS A CORPORATION, TRUST, OR OTHER NON-LIVING PERSON:

(a) The new Owner may elect to receive the death benefit in a lump sum; or

(b) If the new Owner does not elect the option above, then the new Owner must
receive the Contract Value payable within 5 years of your date of death. On
the date we receive the complete request for settlement of the Death
Benefit, the Contract Value under this option will be the death benefit.
Unless otherwise instructed by the new Owner, the excess, if any of the
death benefit over the Contract Value will be allocated to the Money Market
Variable Sub-Account. The new Owner may exercise all rights set forth in
the TRANSFERS provision during this 5 year period. No additional Purchase
Payments may be added to the Contract under this election. Withdrawal
Charges will be waived during this 5 year period.

We reserve the right to offer additional options upon Death of Owner.

If any new Owner is a non-living person, all new Owners will be considered to be
non-living persons for the above purposes.

DEATH OF ANNUITANT

If the Annuitant who is not also the Contract Owner dies prior to the Payout
Start Date and the Contract Owner is a living person, then the Contract will
continue with a new Annuitant as designated by the Contract Owner.

If the Annuitant who is not also the Contract Owner dies prior to the Payout
Start Date and the Contract Owner is a non-living person, the following apply:

(a) The Contract Owner may elect to receive the death benefit in a lump sum; or

(b) If the new Owner does not elect the option above, then the Owner must
receive the Contract Value payable within 5 years of the Annuitant's date
of death. On the date we receive the complete request for settlement of the
death benefit, the Contract Value under this option will be the death
benefit. Unless otherwise instructed by the Contract Owner, the excess, if
any, of the death benefit over the Contract Value will be allocated to the
Money Market Variable Sub-Account. The Contract Owner may then exercise all
rights set forth in the TRANSFERS provision during this 5 year period. No
additional Purchase Payments may be added to the Contract under this
election. Withdrawal Charges will be waived during this 5 year period.

We reserve the right to offer additional options upon Death of Owner.

24 PROSPECTUS

MORE INFORMATION

ALLSTATE NEW YORK

Allstate New York is currently licensed to operate in New York. Our home office
is located at 100 Motor Parkway, Hauppauge, NY 11788-5107. Our service center
located in Northbrook, Illinois.

Allstate New York is a wholly owned subsidiary of Allstate Life Insurance
Company ("ALLSTATE LIFE"), a stock life insurance company incorporated under the
laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of
Allstate Insurance Company, a stock property-liability insurance company
incorporated under the laws of Illinois. With the exception of the directors
qualifying shares, all of the outstanding capital stock of Allstate Insurance
Company is owned by The Allstate Corporation.

THE VARIABLE ACCOUNT

Our obligations arising under the Contracts are general corporate obligations of
Allstate New York.

THE FUNDS

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all
dividends and capital gains distributions from the Funds in shares of the
distributing Fund at their net asset value.

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THE CONTRACT

DISTRIBUTION. ALFS, Inc.* ("ALFS"), located at 3100 Sanders Road, Northbrook, IL
60062-7154, serves as principal underwriter of the Contracts. ALFS is a wholly
owned subsidiary of Allstate Life Insurance Company. ALFS is a registered broker
dealer under the Securities and Exchange Act of 1934, as amended ("EXCHANGE
ACT"), and is a member of the NASD.

We will pay commissions to broker-dealers who sell the Contracts. Commissions
paid may vary, but we estimate that the total commissions paid on all Contract
sales will not exceed 8 1/2% of any purchase payments. Sometimes, we also pay
the broker-dealer a persistency bonus in addition to the standard commissions. A
persistency bonus is not expected to exceed 1.2%, on an annual basis, of the
purchase payments considered in connection with the bonus. These commissions are
intended to cover distribution expenses. Contracts may be sold by
representatives or employees of banks which may be acting as broker-dealers
without separate registration under the Exchange Act, pursuant to legal and
regulatory exceptions.

ADMINISTRATION. We have primary responsibility for all administration of the
Contracts and the Variable Account. We provide the following administrative
services, among others:

.. issuance of the Contracts;

.. maintenance of Contract owner records;

.. Contract owner services;

.. calculation of unit values;

.. maintenance of the Variable Account; and

.. preparation of Contract owner reports.

We also will provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.

NON-QUALIFIED ANNUITIES HELD WITHIN A QUALIFIED PLAN

If you use the Contract within an employer sponsored qualified retirement plan,
the plan may impose different or additional conditions or limitations on
withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates,
income payments and other Contract features. In addition, adverse tax
consequences may result if qualified plan limits on distributions and other
conditions are not met. Please consult your qualified plan administrator fr more
information. Allstate Life Insurance Company of New York no longer issues
deferred annuities to employer sponsored qualified retirement plans.

LEGAL MATTERS

26 PROSPECTUS

TAXES

THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE
NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT.

TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

TAXATION OF VARIABLE ANNUITIES IN GENERAL

TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:

.. the Contract Owner is a natural person,

.. the investments of the Variable Account are "adequately diversified"
according to Treasury Department regulations, and

.. Allstate New York is considered the owner of the Variable Account assets
for federal income tax purposes.

27 PROSPECTUS

DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for
federal income tax purposes, the Contract must provide:

TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income
as follows:

.. if distributed in a lump sum, the amounts are taxed in the same manner as a
total withdrawal, or

.. if distributed under an Income Plan, the amounts are taxed in the same
manner as annuity payments.

PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable
amount of any

28 PROSPECTUS

.. made on or after the date the Contract Owner attains age 59 1/2,

.. made as a result of the Contract Owner's death or becoming totally
disabled,

.. made in substantially equal periodic payments over the Contract Owner's
life or life expectancy, or over the joint lives or joint life expectancies
of the Contract Owner and the Beneficiary,

.. made under an immediate annuity, or

.. attributable to investment in the Contract before August 14, 1982.

You should consult a competent tax advisor to determine how these exceptions may
apply to your situation.

INCOME TAX WITHHOLDING

Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.

29 PROSPECTUS

countries nor do all tax treaties provide an exclusion or lower withholding rate
for annuities.