Revision of Previously Reported Financial Information

During the Company’s annual assumption review (or “Unlock”) which was performed in the fourth quarter of 2014, management observed results in the Company’s Universal Life (“UL”) business that did not align with its expectations and, upon further investigation, determined that certain components of the 2013 Unlock contained errors. These errors were subsequently determined to be material to the full year and three months ended December 31, 2013 for the Company’s parent, Phoenix. In addition, Phoenix also concluded that individually identified immaterial errors relating to Phoenix’s second quarter 2014 financial statements which when aggregated with the previously recorded and disclosed out-of-period adjustments, were determined to be material for the quarter ended June 30, 2014. As a result of these errors and in accordance with ASC 250, “Accounting Changes and Error Corrections,” Phoenix was required to record all out-of-period errors, whether or not previously identified, in the period to which they relate. Accordingly, in the course of correcting for these errors, some of which resided at the PHL Variable level, the Company also revised its financial statements for the impact of the UL Unlock and each of the remaining out-of-period errors identified in the appropriate periods despite the fact that the Company concluded the errors were not material individually or in the aggregate to PHL Variable. The impact of the revisions to the quarters are presented in expanded format within Note 18. Consistent with its parent, Phoenix, the Company has classified the errors into two categories (i) UL Unlock and (ii) Other Adjustments.

UL Unlock

In accordance with U.S. GAAP and our accounting policy, the Company performs an annual assumption review where management makes a determination of the best estimate assumptions to be used based on a comprehensive review of recent experience studies and industry trends each year. In 2013, the Company revised a number of assumptions, the most significant of which resulted in changes to expected premium persistency and incorporation of mortality improvement in its UL business. The incorporation of these changes resulted in manual updates to various models for which certain errors were subsequently identified in the course of performing analysis between the fourth quarter of 2014 and the prior period results. These errors related to inappropriate implementation of data used in the calculation and approximation of certain product features which then resulted in the incorrect calculation of the ultimate impact of the Unlock for the fourth quarter of 2013.

Other Adjustments

Amounts primarily relate to various out-of-period errors identified which were previously determined not to be material individually or in the aggregate. The Company considered the impacts of each of these errors, many of which were previously identified and subsequently recorded as out-of-period adjustments, as well as subsequently identified errors both individually and in the aggregate and concluded that none were significant for individual categorization herein.

The impact of the correction of these errors on the financial statements is presented in the tables within this Note below.



($ in millions, except share data)	Balance Sheet As of December 31, 2013
				Correction of errors
	As reported			UL unlock			Other adjustments			As revised
ASSETS:
Available-for-sale debt securities, at fair value	$	3,426.3		$	—		$	(10.2	)	$	3,416.1
Available-for-sale equity securities, at fair value	—			—			11.2			11.2
Short-term investments	81.0			—			—			81.0
Limited partnerships and other investments	10.5			—			—			10.5
Policy loans, at unpaid principal balances	66.1			—			—			66.1
Derivative instruments	237.8			—			(12.5		)	225.3
Fair value investments	48.6			—			—			48.6
Total investments	3,870.3			—			(11.5		)	3,858.8
Cash and cash equivalents	181.0			—			—			181.0
Accrued investment income	27.3			—			—			27.3
Reinsurance recoverable	500.6			(4.7		)	(1.6		)	494.3
Deferred policy acquisition costs	462.3			3.1			4.7			470.1
Deferred income taxes, net	28.0			—			(0.2		)	27.8
Receivable from related parties	2.6			—			—			2.6
Other assets [1]	183.4			0.1			20.6			204.1
Separate account assets	2,052.7			—			—			2,052.7
Total assets	$	7,308.2		$	(1.5	)	$	12.0		$	7,318.7

LIABILITIES:
Policy liabilities and accruals	$	1,899.0		$	(10.5	)	$	(5.6	)	$	1,882.9
Policyholder deposit funds	2,762.8			—			12.4			2,775.2
Indebtedness due to affiliate	30.0			—			—			30.0
Payable to related parties	14.1			—			—			14.1
Other liabilities	177.1			—			5.3			182.4
Separate account liabilities	2,052.7			—			—			2,052.7
Total liabilities	6,935.7			(10.5		)	12.1			6,937.3

COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)

STOCKHOLDER’S EQUITY:
Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued	2.5			—			—			2.5
Additional paid-in capital	847.2			—			—			847.2
Accumulated other comprehensive income (loss)	(11.9		)	0.1			(0.9		)	(12.7		)
Retained earnings (accumulated deficit)	(465.3		)	8.9			0.8			(455.6		)
Total stockholder’s equity	372.5			9.0			(0.1		)	381.4
Total liabilities and stockholder’s equity	$	7,308.2		$	(1.5	)	$	12.0		$	7,318.7

———————


[1]	Includes receivables which were previously disclosed as a separate line item.



($ in millions)	Statement of Income and Comprehensive Income As of and for the year ended December 31, 2013
				Correction of errors
	As reported			UL unlock			Other adjustments			As revised
REVENUES:
Premiums	$	13.9		$	—		$	—		$	13.9
Insurance and investment product fees	367.6			(0.3		)	(0.3		)	367.0
Net investment income	140.8			—			0.1			140.9
Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) losses	(1.1		)	—			0.2			(0.9		)
Portion of OTTI losses recognized in other comprehensive income (“OCI”)	(0.9		)	—			—			(0.9		)
Net OTTI losses recognized in earnings	(2.0		)	—			0.2			(1.8		)
Net realized investment gains (losses), excluding OTTI losses	5.4			—			(6.6		)	(1.2		)
Net realized investment gains (losses)	3.4			—			(6.4		)	(3.0		)
Total revenues	525.7			(0.3		)	(6.6		)	518.8

BENEFITS AND EXPENSES:
Policy benefits	286.5			(6.1		)	(2.8		)	277.6
Policy acquisition cost amortization	88.4			(3.0		)	(2.0		)	83.4
Other operating expenses	116.8			(0.1		)	1.4			118.1
Total benefits and expenses	491.7			(9.2		)	(3.4		)	479.1
Income (loss) before income taxes	34.0			8.9			(3.2		)	39.7
Income tax expense (benefit)	(21.7		)	—			(3.0		)	(24.7		)
Net income (loss)	$	55.7		$	8.9		$	(0.2	)	$	64.4

FEES PAID TO RELATED PARTIES (Note 12)

COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	55.7		$	8.9		$	(0.2	)	$	64.4
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses), net of related offsets	(35.1		)	0.1			1.9			(33.1		)
Less: Income tax expense (benefit) related to:
Unrealized investment gains (losses), net of related offsets	(11.8		)	—			0.2			(11.6		)
Other comprehensive income (loss), net of income taxes	(23.3		)	0.1			1.7			(21.5		)
Comprehensive income (loss)	$	32.4		$	9.0		$	1.5		$	42.9



($ in millions)	Statement of Income and Comprehensive Income As of and for the year ended December 31, 2012
				Correction of errors
	As reported			UL unlock		Other adjustments			As revised
REVENUES:
Premiums	$	8.5		$	—	$	—		$	8.5
Insurance and investment product fees	365.3			—		(0.1		)	365.2
Net investment income	130.9			—		—			130.9
Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) losses	(5.0		)	—		—			(5.0		)
Portion of OTTI losses recognized in other comprehensive income (“OCI”)	2.2			—		—			2.2
Net OTTI losses recognized in earnings	(2.8		)	—		—			(2.8		)
Net realized investment gains (losses), excluding OTTI losses	(19.5		)	—		(11.7		)	(31.2		)
Net realized investment gains (losses)	(22.3		)	—		(11.7		)	(34.0		)
Total revenues	482.4			—		(11.8		)	470.6

BENEFITS AND EXPENSES:
Policy benefits	396.8			—		(7.5		)	389.3
Policy acquisition cost amortization	103.5			—		(3.0		)	100.5
Other operating expenses	103.6			—		(0.7		)	102.9
Total benefits and expenses	603.9			—		(11.2		)	592.7
Income (loss) before income taxes	(121.5		)	—		(0.6		)	(122.1		)
Income tax expense (benefit)	16.2			—		0.8			17.0
Net income (loss)	$	(137.7	)	$	—	$	(1.4	)	$	(139.1	)

FEES PAID TO RELATED PARTIES (Note 12)

COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	(137.7	)	$	—	$	(1.4	)	$	(139.1	)
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses), net of related offsets	33.7			—		(1.8		)	31.9
Less: Income tax expense (benefit) related to:
Unrealized investment gains (losses), net of related offsets	24.9			—		(0.6		)	24.3
Other comprehensive income (loss), net of income taxes	8.8			—		(1.2		)	7.6
Comprehensive income (loss)	$	(128.9	)	$	—	$	(2.6	)	$	(131.5	)



($ in millions)	Statement of Cash Flows As of and for the year ended December 31, 2013
	As reported			Correction of errors			As revised
OPERATING ACTIVITIES:
Net income (loss)	$	55.7		$	8.7		$	64.4
Net realized investment gains / losses	(3.4		)	6.4			3.0
Policy acquisition costs deferred	(66.7		)	—			(66.7		)
Policy acquisition cost amortization	88.4			(5.0		)	83.4
Interest credited	91.2			—			91.2
Equity in earnings of limited partnerships and other investments	(0.4		)	—			(0.4		)
Change in:
Accrued investment income	(7.2		)	(0.2		)	(7.4		)
Deferred income taxes, net	—			—			—
Reinsurance recoverable	(73.5		)	28.9			(44.6		)
Policy liabilities and accruals	(224.0		)	(37.2		)	(261.2		)
Due to/from related parties	0.5			—			0.5
Other operating activities, net [1]	8.9			(1.6		)	7.3
Cash provided by (used for) operating activities	(130.5		)	—			(130.5		)

INVESTING ACTIVITIES:
Purchases of:
Available-for-sale debt securities	(985.6		)	8.4			(977.2		)
Available-for-sale equity securities	—			(8.4		)	(8.4		)
Short-term investments	(324.8		)	—			(324.8		)
Derivative instruments	(89.0		)	—			(89.0		)
Fair value investments	(21.1		)	—			(21.1		)
Sales, repayments and maturities of:
Available-for-sale debt securities	389.0			—			389.0
Available-for-sale equity securities	—			—			—
Short-term investments	489.8			—			489.8
Derivative instruments	42.9			—			42.9
Fair value investments	10.1			—			10.1
Contributions to limited partnerships and limited liability corporations	(4.3		)	—			(4.3		)
Distributions from limited partnerships and limited liability corporations	7.8			—			7.8
Policy loans, net	(2.8		)	—			(2.8		)
Other investing activities, net	0.7			—			0.7
Cash provided by (used for) investing activities	(487.3		)	—			(487.3		)

(Continued on next page)



(Continued from previous page) ($ in millions)	Statement of Cash Flows As of and for the year ended December 31, 2013
	As reported			Correction of errors		As revised
FINANCING ACTIVITIES:
Policyholder deposits	920.8			—		920.8
Policyholder withdrawals	(605.2		)	—		(605.2		)
Net transfers (to) from separate accounts	325.1			—		325.1
Capital contributions from parent	45.0			—		45.0
Debt issued	30.0			—		30.0
Cash provided by (used for) financing activities	715.7			—		715.7
Change in cash and cash equivalents	97.9			—		97.9
Cash and cash equivalents, beginning of period	83.1			—		83.1
Cash and cash equivalents, end of period	$	181.0		$	—	$	181.0

Supplemental Disclosure of Cash Flow Information
Income taxes (paid) refunded	$	24.9		$	—	$	24.9

Non-Cash Transactions During the Period
Investment exchanges	$	33.4		$	—	$	33.4

———————


[1]	Includes receivables which were previously disclosed as a separate line item.



($ in millions)	Statement of Cash Flows As of and for the year ended December 31, 2012
	As reported			Correction of errors			As revised
OPERATING ACTIVITIES:
Net income (loss)	$	(137.7	)	$	(1.4	)	$	(139.1	)
Net realized investment gains / losses	22.3			11.7			34.0
Policy acquisition costs deferred	(69.2		)	(0.6		)	(69.8		)
Policy acquisition cost amortization	103.5			(3.0		)	100.5
Interest credited	69.5			—			69.5
Equity in earnings of limited partnerships and other investments	(0.1		)	—			(0.1		)
Change in:
Accrued investment income	(8.5		)	—			(8.5		)
Deferred income taxes, net	(13.4		)	2.5			(10.9		)
Reinsurance recoverable	(26.1		)	14.0			(12.1		)
Policy liabilities and accruals	(56.4		)	4.7			(51.7		)
Due to/from related parties	(7.5		)	—			(7.5		)
Other operating activities, net [1]	(41.8		)	(27.9		)	(69.7		)
Cash provided by (used for) operating activities	(165.4		)	—			(165.4		)

INVESTING ACTIVITIES:
Purchases of:
Available-for-sale debt securities	(852.8		)	—			(852.8		)
Available-for-sale equity securities	—			—			—
Short-term investments	(574.7		)	—			(574.7		)
Derivative instruments	(98.1		)	—			(98.1		)
Fair value investments	(5.7		)	—			(5.7		)
Sales, repayments and maturities of:
Available-for-sale debt securities	438.1			—			438.1
Available-for-sale equity securities	—			—			—
Short-term investments	425.8			—			425.8
Derivative instruments	26.7			—			26.7
Fair value investments	12.4			—			12.4
Contributions to limited partnerships and limited liability corporations	(2.1		)	—			(2.1		)
Distributions from limited partnerships and limited liability corporations	0.3			—			0.3
Policy loans, net	3.9			—			3.9
Other investing activities, net	(1.0		)	—			(1.0		)
Cash provided by (used for) investing activities	(627.2		)	—			(627.2		)

(Continued on next page)



(Continued from previous page) ($ in millions)	Statement of Cash Flows As of and for the year ended December 31, 2012
	As reported			Correction of errors		As revised
FINANCING ACTIVITIES:
Policyholder deposits	1,074.7			—		1,074.7
Policyholder withdrawals	(513.8		)	—		(513.8		)
Net transfers (to) from separate accounts	265.3			—		265.3
Capital contributions from parent	—			—		—
Debt issued	—			—		—
Cash provided by (used for) financing activities	826.2			—		826.2
Change in cash and cash equivalents	33.6			—		33.6
Cash and cash equivalents, beginning of period	49.5			—		49.5
Cash and cash equivalents, end of period	$	83.1		$	—	$	83.1

Supplemental Disclosure of Cash Flow Information
Income taxes (paid) refunded	$	(40.9	)	$	—	$	(40.9	)
Non-Cash Transactions During the Period
Investment exchanges	$	28.6		$	—	$	28.6

———————


[1]	Includes receivables which were previously disclosed as a separate line item.



($ in millions)	Statement of Changes in Stockholder's Equity As of and for the year ended December 31, 2013
	As reported			Correction of errors			As revised
COMMON STOCK:
Balance, beginning of period	$	2.5		$	—		$	2.5
Balance, end of period	$	2.5		$	—		$	2.5

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	802.2		$	—		$	802.2
Capital contributions from parent	45.0			—			45.0
Balance, end of period	$	847.2		$	—		$	847.2

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance, beginning of period	$	11.4		$	(2.6	)	$	8.8
Other comprehensive income (loss)	(23.3		)	1.8			(21.5		)
Balance, end of period	$	(11.9	)	$	(0.8	)	$	(12.7	)

RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance, beginning of period	$	(521.0	)	$	1.0		$	(520.0	)
Net income (loss)	55.7			8.7			64.4
Balance, end of period	$	(465.3	)	$	9.7		$	(455.6	)

TOTAL STOCKHOLDER’S EQUITY:
Balance, beginning of period	$	295.1		$	(1.6	)	$	293.5
Change in stockholder’s equity	77.4			10.5			87.9
Balance, end of period	$	372.5		$	8.9		$	381.4



($ in millions)	Statement of Changes in Stockholder's Equity As of and for the year ended December 31, 2012
	As reported			Correction of errors			As revised
COMMON STOCK:
Balance, beginning of period	$	2.5		$	—		$	2.5
Balance, end of period	$	2.5		$	—		$	2.5

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	802.2		$	—		$	802.2
Capital contributions from parent	—			—			—
Balance, end of period	$	802.2		$	—		$	802.2

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance, beginning of period	$	2.6		$	(1.4	)	$	1.2
Other comprehensive income (loss)	8.8			(1.2		)	7.6
Balance, end of period	$	11.4		$	(2.6	)	$	8.8

RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance, beginning of period	$	(383.3	)	$	2.4		$	(380.9	)
Net income (loss)	(137.7		)	(1.4		)	(139.1		)
Balance, end of period	$	(521.0	)	$	1.0		$	(520.0	)

TOTAL STOCKHOLDER’S EQUITY:
Balance, beginning of period	$	424.0		$	1.0		$	425.0
Change in stockholder’s equity	(128.9		)	(2.6		)	(131.5		)
Balance, end of period	$	295.1		$	(1.6	)	$	293.5