10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

—————————

FORM 10-Q

—————————

(Mark one)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

OR

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

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number: 333-20277

PHL VARIABLE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

Connecticut	06-1045829
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One American Row, Hartford, Connecticut	06102-5056
(Address of principal executive offices)	(Zip Code)

(860) 403-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES T   NO £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £ Accelerated filer £ Non-accelerated filer T Smaller reporting company £

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES £   NO T

PHL Variable Insurance Company is a wholly-owned indirect subsidiary of The Phoenix Companies, Inc., and there is no market for the registrant’s common stock. As of August 8, 2008, there were 500 shares of the registrant’s common stock outstanding.

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format permitted by that General Instruction.

1

Table of Contents

PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
Signature		33

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PHL Variable Insurance Company

Unaudited Interim Condensed Balance Sheet

($ in thousands, except share data)

June 30, 2008 (unaudited) and December 31, 2007

	June 30,			Dec 31,
	2008			2007
ASSETS:
Available-for-sale debt securities, at fair value	$	1,528,914		$	1,709,586
Policy loans, at unpaid principal balances		24,857			22,819
Other investments		1,169			1,251
Fair value option investments		5,020			--
Total investments		1,559,960			1,733,656
Cash and cash equivalents		149,118			108,200
Accrued investment income		15,103			17,518
Receivables		44,976			37,178
Deferred policy acquisition costs		1,211,573			1,009,612
Receivable from related parties		18,875			527
Other assets		37,799			20,214
Separate account assets		3,237,390			3,389,356
Total assets	$	6,274,794		$	6,316,261
LIABILITIES:
Policyholder deposit funds	$	983,252		$	1,134,635
Policy liabilities and accruals		1,140,455			981,509
Deferred income taxes		142,515			135,648
Payable to related parties		1,285			28,969
Other liabilities		110,030			48,303
Separate account liabilities		3,237,390			3,389,356
Total liabilities		5,614,927			5,718,420
CONTINGENT LIABILITIES (Note 8)
STOCKHOLDER’S EQUITY:
Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued		2,500			2,500
Additional paid-in capital		626,218			553,218
Retained earnings		51,191			53,906
Accumulated other comprehensive loss		(20,042	)		(11,783	)
Total stockholder’s equity		659,867			597,841
Total liabilities and stockholder’s equity	$	6,274,794		$	6,316,261

The accompanying notes are an integral part of these financial statements.

3

PHL Variable Insurance Company

Unaudited Interim Condensed Statement of Income and Comprehensive Income

and Changes in Stockholder’s Equity

($ in thousands)

Three and Six Months Ended June 30, 2008 and 2007

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
REVENUES:
Premiums	$	5,314		$	2,882		$	4,671		$	6,061
Insurance and investment product fees		87,717			59,410			171,582			113,529
Net investment income		22,990			27,192			47,311			55,086
Net realized investment gains (losses)		1,689			359			(18,340	)		189
Total revenues		117,710			89,843			205,224			174,865
BENEFITS AND EXPENSES:
Policy benefits		43,573			36,481			94,588			76,461
Policy acquisition cost amortization		38,755			26,923			63,292			50,526
Other operating expenses		25,707			20,424			53,807			37,510
Total benefits and expenses		108,035			83,828			211,687			164,497
Income before income taxes		9,675			6,015			(6,463	)		10,368
Income tax (expense) benefit		(3,360	)		(1,863	)		3,748			(3,214	)
Net income (loss)	$	6,315		$	4,152		$	(2,715	)	$	7,154
COMPREHENSIVE INCOME:
Net income (loss)	$	6,315		$	4,152		$	(2,715	)	$	7,154
Net unrealized investment losses		(2,620	)		(5,206	)		(8,259	)		(4,271	)
Other comprehensive loss		(2,620	)		(5,206	)		(8,259	)		(4,271	)
Comprehensive income (loss)	$	3,695		$	(1,054	)	$	(10,974	)	$	2,883
ADDITIONAL PAID-IN CAPITAL:
Capital contributions from parent	$	31,000		$	25,000		$	73,000		$	25,000
RETAINED EARNINGS:
Cumulative effect of retrospective application of change in accounting (Note 2)		(4,178	)		(5,451	)		(8,296	)		(3,613	)
Net income (loss)		6,315			4,152			(2,715	)		7,154
Adjustment for initial application of FIN 48 (Note 2)		--			--			--			(1,000	)
OTHER COMPREHENSIVE INCOME:
Other comprehensive loss		(2,620	)		(5,206	)		(8,259	)		(4,271	)
Change in stockholder’s equity		30,517			18,495			53,730			23,270
Stockholder’s equity, beginning of period, as previously reported		629,350			555,053			606,137			550,278
Stockholder’s equity, end of period	$	659,867		$	573,548		$	659,867		$	573,548

The accompanying notes are an integral part of these financial statements.

4

PHL Variable Insurance Company

Unaudited Interim Condensed Statement of Cash Flows

($ in thousands)

Six Months Ended June 30, 2008 and 2007

	Six Months Ended
	June 30,
	2008			2007
OPERATING ACTIVITIES:
Net income (loss)	$	(2,715	)	$	7,154
Net realized investment (gains) losses		18,340			(189	)
Investment income		2,365			3,417
Deferred income taxes		11,314			13,213
Increase in receivables		(8,780	)		(4,581	)
Increase in deferred policy acquisition costs		(154,825	)		(83,875	)
Increase in policy liabilities and accruals		160,957			77,231
Other assets and other liabilities net change		(69,457	)		(5,122	)
Cash from (for) operating activities		(42,801	)		7,248
INVESTING ACTIVITIES:
Investment purchases		(380,465	)		(502,550	)
Investment sales, repayments and maturities		556,935			715,629
Cash from investing activities		176,470			213,079
FINANCING ACTIVITIES:
Policyholder deposit fund deposits		168,853			133,597
Policyholder deposit fund withdrawals		(325,389	)		(361,596	)
Capital contributions from parent		63,785			25,000
Cash for financing activities		(92,751	)		(202,999	)
Change in cash and cash equivalents		40,918			17,328
Cash and cash equivalents, beginning of period		108,200			47,127
Cash and cash equivalents, end of period	$	149,118		$	64,455

During the six months ended June 30, 2008, we received $73,000 thousand in capital contributions, of which $63,785 thousand was in cash and $9,215 was in securities.

The accompanying notes are an integral part of these financial statements.

5

PHL Variable Insurance Company

Notes to Unaudited Interim Condensed Financial Statements

Three and Six Months Ended June 30, 2008 and 2007

1. Organization and Operations

PHL Variable Insurance Company is a life insurance company offering variable and fixed annuity and non-participating life insurance products. It is a wholly-owned subsidiary of PM Holdings, Inc. PM Holdings, Inc. is a wholly-owned subsidiary of Phoenix Life Insurance Company (“Phoenix Life”), which is a wholly-owned subsidiary of The Phoenix Companies, Inc. (“PNX”), a New York Stock Exchange listed company.

2. Basis of Presentation and Significant Accounting Policies

We have prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

Use of estimates

In preparing these financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. We employ significant estimates and assumptions in the determination of deferred policy acquisition costs; policyholder liabilities and accruals; the valuation of investments in debt and equity securities; and accruals for deferred income taxes and contingent liabilities. Our significant accounting policies are presented in the notes to our financial statements in our 2007 Annual Report on Form 10-K.

Our interim financial statements do not include all of the disclosures required by GAAP for annual financial statements. In our opinion, we have included all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the results for the interim periods. Financial results for the three- and six-month periods in 2008 are not necessarily indicative of the results that may be expected for the year 2008. These unaudited financial statements should be read in conjunction with our financial statements in our 2007 Annual Report on Form 10-K.

Accounting Change

Effective April 1, 2008, we changed our method of accounting for the cost of certain of our long duration reinsurance contracts accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts (“SFAS 113”). In conjunction with this change, we also changed our method of accounting for the impact of reinsurance costs on deferred acquisition costs. SFAS 113 requires us to amortize the estimated cost of reinsurance over the life of the underlying reinsured contracts. Under our previous method, we recognized reinsurance recoveries as part of the net cost of reinsurance and amortized this balance over the estimated lives of the underlying reinsured contracts in proportion to estimated gross profits (“EGPs”) consistent with the method used for amortizing deferred policy acquisition costs. Under the new method, reinsurance recoveries are recognized in the same period as the related reinsured claim. In conjunction with this change, we also changed our policy for determining EGPs relating to these contracts to include the effects of reinsurance, where previously these effects had not been included.

6

2. Basis of Presentation and Significant Accounting Policies (continued)

We adopted the new method because we believe that it better reflects the economics of the underlying reinsurance activity by better matching the reinsurance recovery with the insured loss that gave rise to that recovery. We also believe that the new method is consistent with management's intent in purchasing reinsurance, which is to protect the Company against large and unexpected claims. Comparative amounts from prior periods have been adjusted to apply the new method retrospectively in these financial statements. The following financial statement line items were affected by the change in accounting principle. Certain balances shown “as originally reported” have been reclassified to conform to the current period presentation.

Income Statement

($ in thousands)	Three Months Ended June 30, 2008
	As calculated under the new method			As calculated under the former method			Effect of Change
Insurance and investment product fees	$	87,717		$	87,841		$	(124	)
Policy benefits		43,573			34,876			8,697
Policy acquisition cost amortization		38,755			41,176			(2,421	)
Income tax (expense) benefit		(3,360	)		(5,600	)		2,240
Net income (loss)		6,315			10,475			(4,160	)

($ in thousands)	Three Months Ended June 30, 2007
	As adjusted			As originally reported			Effect of Change
Insurance and investment product fees	$	59,410		$	59,563		$	(153	)
Policy benefits		36,481			32,555			3,926
Policy acquisition cost amortization		26,923			28,243			(1,320	)
Income tax (expense) benefit		(1,863	)		(2,829	)		966
Net income (loss)		4,152			5,945			(1,793	)

($ in thousands)	Six Months Ended June 30, 2008
	As calculated under the new method			As calculated under the former method			Effect of Change
Insurance and investment product fees	$	171,582		$	170,568		$	1,014
Policy benefits		94,588			100,108			(5,520	)
Policy acquisition cost amortization		63,292			56,692			6,600
Income tax (expense) benefit		3,748			3,725			23
Net income (loss)		(2,715	)		(2,672	)		(43	)

($ in thousands)	Six Months Ended June 30, 2007
	As adjusted			As originally reported			Effect of Change
Insurance and investment product fees	$	113,529		$	113,863		$	(334	)
Policy benefits		76,461			68,231			8,230
Policy acquisition cost amortization		50,526			53,505			(2,979	)
Income tax (expense) benefit		(3,214	)		(5,169	)		1,955
Net income (loss)		7,154			10,784			(3,630	)

7

2. Basis of Presentation and Significant Accounting Policies (continued)

Balance Sheet

($ in thousands)	June 30, 2008
	As calculated under the new method		As calculated under the former method		Effect of Change
Deferred policy acquisition costs	$	1,211,573	$	1,216,373	$	(4,800	)
Policy liabilities and accruals		1,140,455		1,132,426		8,029
Deferred income tax liability		142,515		147,006		(4,491	)
Retained earnings		51,191		59,529		(8,338	)

($ in thousands)	December 31, 2007
	As adjusted		As originally reported		Effect of Change
Deferred policy acquisition costs	$	1,009,612	$	1,007,811	$	1,801
Policy liabilities and accruals		981,509		966,945		14,564
Deferred income tax liability		135,648		140,115		(4,467	)
Retained earnings		53,906		62,202		(8,296	)

As of January 1, 2007, the cumulative effect of the new method on our stockholders’ equity was a decrease of $3,613 thousand which was recorded to retained earnings.

Following is a description of our accounting for deferred policy acquisition costs, which has been updated from our 2007 Annual Report on Form 10-K to reflect a change in our method of accounting for the effects of reinsurance.

Deferred policy acquisition costs

The costs of acquiring new business, principally commissions, underwriting, distribution and policy issue expenses, all of which vary with and are primarily related to production of new business, are deferred.

We amortize deferred policy acquisition costs based on the related policy’s classification. For individual life insurance policies, deferred policy acquisition costs are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs are amortized in proportion to estimated gross profits, or EGPs. Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders.

Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year’s cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, industry studies, regulatory requirements and estimates about the future.

8

2. Basis of Presentation and Significant Accounting Policies (continued)

To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries.

Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be adjusted to reflect such change. This process is known as “unlocking”. Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances.

Adoption of new accounting standards

On February 15, 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. We adopted SFAS 159 as of January 1, 2008 with no effect on our financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (“Level 1, 2 and 3”). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability. Level 3 inputs are unobservable inputs reflecting our estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Quantitative and qualitative disclosures will focus on the inputs used to measure fair value for both recurring and non-recurring fair value measurements and the effects of the measurements in the financial statements. We adopted SFAS 157 effective January 1, 2008 with no material impact on our financial position and results of operations. See Note 6 to these financial statements for more information.

We adopted the provisions of the FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, we recognized an increase in reserves for uncertain tax benefits through a cumulative effect adjustment of approximately $1,000 thousand, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. Including the cumulative effect adjustment, we had $1,840 thousand of total gross unrecognized tax benefits as of January 1, 2007. The entire amount of unrecognized tax benefits would, if recognized, impact the annual effective tax rate upon recognition.

9

2. Basis of Presentation and Significant Accounting Policies (continued)

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 provides guidance on recognition and disclosure of servicing assets and liabilities and was effective beginning January 1, 2007. We adopted this standard effective January 1, 2007 with no material impact on our financial position and results of operations.

In September 2005, the Accounting Standards Executive Committee (“AcSEC”) of the AICPA’s issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. We adopted this standard effective January 1, 2007 with no material effect on our financial position and results of operations.

Accounting standards not yet adopted

In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts, an Interpretation of FASB Statement No. 60 (“SFAS 163”). Financial guarantee insurance and reinsurance contracts are contracts issued by insurance enterprises that provide protection to the holder of a financial obligation from a financial loss in the event of a default. The new accounting standard applies to recognition and measurement of premium revenue and claim liabilities on such contracts and to related disclosures. SFAS 163 will be effective for us on January 1, 2009. We do not have financial guarantee insurance products and, accordingly, do not expect our adoption of SFAS 163 to have an effect on our financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of GAAP-basis financial statements. The Standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards. SFAS 162 is not expected to have an impact on our financial position and results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). This statement amends and expands the requirement for qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 will be effective for us on January 1, 2009.

In December 2007, the FASB issued SFAS No. 141(R), Accounting for Business Combinations (“SFAS 141(R)”). SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose all information needed to evaluate and understand the nature and financial effect of the combination and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling interests in subsidiaries in the same way—as equity in the consolidated financial statements and requires that associated transactions be treated as equity transactions—and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations.

10

3. Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs:	Three Months Ended						Six Months Ended
($ in thousands)	June 30,						June 30,
	2008			2007			2008			2007
Policy acquisition costs deferred	$	91,304		$	72,982		$	218,117		$	134,400
Costs amortized to expenses:
Recurring costs		(40,943	)		(26,664	)		(68,254	)		(49,703	)
Realized investment (gains) losses		2,188			(259	)		4,962			(823	)
Offsets to net unrealized investment gains or losses included in other comprehensive income		25,995			12,676			47,136			8,327
Change in deferred policy acquisition costs		78,544			58,735			201,961			92,201
Deferred policy acquisition costs, beginning of period		1,133,029			735,086			1,009,612			701,620
Deferred policy acquisition costs, end of period	$	1,211,573		$	793,821		$	1,211,573		$	793,821

4. Investing Activities

Debt securities

Fair Value and Cost of Debt Securities:	June 30, 2008				December 31, 2007
($ in thousands)	Fair Value		Cost		Fair Value		Cost
U.S. government and agency	$	47,198	$	46,879	$	65,774	$	64,884
State and political subdivision		12,477		12,746		11,029		11,134
Foreign government		25,551		23,500		30,423		27,716
Corporate		833,714		883,680		975,058		998,982
Mortgage-backed		388,605		413,522		358,479		372,733
Other asset-backed		221,369		265,565		268,823		288,927
Available-for-sale debt securities	$	1,528,914	$	1,645,892	$	1,709,586	$	1,764,376

Unrealized Gains and Losses from Debt Securities:	June 30, 2008					December 31, 2007
($ in thousands)	Gains		Losses			Gains		Losses
U.S. government and agency	$	936	$	(617	)	$	1,193	$	(303	)
State and political subdivision		10		(279	)		11		(116	)
Foreign government		2,052		(1	)		2,732		(25	)
Corporate		3,230		(53,196	)		8,774		(32,698	)
Mortgage-backed		740		(25,657	)		2,654		(16,908	)
Other asset-backed		806		(45,002	)		875		(20,979	)
Debt securities gains (losses)	$	7,774	$	(124,752	)	$	16,239	$	(71,029	)
Debt securities net losses			$	(116,978	)			$	(54,790	)

11

4. Investing Activities (continued)

Aging of Temporarily Impaired	June 30, 2008
Debt Securities:	Less than 12 months					Greater than 12 months					Total
($ in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt securities
U.S. government and agency	$	4,126	$	(12	)	$	3,337	$	(605	)	$	7,463	$	(617	)
State and political subdivision		2,781		(112	)		2,483		(167	)		5,264		(279	)
Foreign government		--		--			499		(1	)		499		(1	)
Corporate		312,796		(14,013	)		308,324		(39,183	)		621,120		(53,196	)
Mortgage-backed		101,153		(6,913	)		163,118		(18,744	)		264,271		(25,657	)
Other asset-backed		102,474		(22,393	)		87,600		(22,609	)		190,074		(45,002	)
Total temporarily impaired securities	$	523,330	$	(43,443	)	$	565,361	$	(81,309	)	$	1,088,691	$	(124,752	)
Below investment grade	$	51,816	$	(4,295	)	$	56,520	$	(12,647	)	$	108,336	$	(16,942	)
Below investment grade after offsets for deferred policy acquisition cost adjustment and taxes			$	(690	)			$	(2,122	)			$	(2,812	)
Number of securities				351					338					689

Below investment grade debt securities with a fair value of less than 80% of the security’s amortized costs totaled $(8,418) thousand at June 30, 2008. However, none of this unrealized loss remained more than 20% below amortized cost for greater than 12 months.

All of these securities are considered to be temporarily impaired at June 30, 2008 as each of these securities has performed, and is expected to continue to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

In determining that the securities are not other-than-temporarily impaired, we considered and evaluated the factors cited below. In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no assurance that actual results will not differ from our judgments and that such differences may require the future recognition of other-than-temporary impairment charges that could have a material effect on our financial position and results of operations. In addition, the value of, and the realization of any loss on, a debt security or equity security is subject to numerous risks, including interest rate risk, market risk, credit risk and liquidity risk. The magnitude of any loss incurred by us may be affected by the relative concentration of our investments in any one issuer or industry. We have established specific policies limiting the concentration of our investments in any single issuer and industry and believe our investment portfolio is prudently diversified.

At the end of each reporting period, we review all securities for potential recognition of an other-than-temporary impairment. We maintain a watch list of securities in default, near default or otherwise considered by our investment professionals as being distressed, potentially distressed or requiring a heightened level of scrutiny. We also identify securities whose carrying value has been below amortized cost on a continuous basis for zero to six months, six months to 12 months and greater than 12 months. Using this analysis, coupled with our watch list, we review securities to determine if a security is other-than-temporarily impaired.

12

4. Investing Activities (continued)

Our assessment of whether an investment in a debt or equity security is other-than-temporarily impaired includes whether the issuer has:

· defaulted on payment obligations;

· declared that it will default at a future point outside the current reporting period;

· announced that a restructuring will occur outside the current reporting period;

· severe liquidity problems that cannot be resolved;

· filed for bankruptcy;

· a financial condition which suggests that future payments are highly unlikely;

· deteriorating financial condition and quality of assets;

· sustained significant losses during the current year;

· announced adverse changes or events such as changes or planned changes in senior management, restructurings, or a sale of assets; and/or

· been affected by any other factors that indicate that the fair value of the investment may have been negatively impacted.

In determining whether collateralized securities are impaired, we obtain underlying mortgage data from the security’s trustee and analyze it for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows.

If we determine that the security is impaired, we write it down to its then current fair value and record a realized loss in that period.

Aging of Temporarily Impaired	As of December 31, 2007
Debt Securities:	Less than 12 months					Greater than 12 months					Total
($ in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt Securities
U.S. government and agency	$	--	$	--		$	15,629	$	(303	)	$	15,629	$	(303	)
State and political subdivision		--		--			10,516		(116	)		10,516		(116	)
Foreign government		--		--			2,464		(25	)		2,464		(25	)
Corporate		134,427		(9,598	)		478,287		(23,100	)		612,714		(32,698	)
Mortgage-backed		105,599		(9,822	)		162,554		(7,086	)		268,153		(16,908	)
Other asset-backed		137,632		(15,661	)		81,534		(5,318	)		219,166		(20,979	)
Total temporarily impaired securities	$	377,658	$	(35,081	)	$	750,984	$	(35,948	)	$	1,128,642	$	(71,029	)
Below investment grade	$	39,024	$	(1,797	)	$	67,088	$	(7,484	)	$	106,112	$	(9,281	)
Below investment grade after offsets for deferred acquisition cost adjustment and taxes			$	(292	)			$	(1,306	)			$	(1,598	)
Number of securities				243					411					654

Below investment grade debt securities with a fair value of less than 80% of the security’s amortized costs totaled $(3,933) thousand at December 31, 2007. However, none of this unrealized loss remained more than 20% below amortized cost for greater than 12 months.

All of these securities are considered to be temporarily impaired at December 31, 2007 as each of these securities has performed, and is expected to continue to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

13

4. Investing Activities (continued)

Net investment income

Sources of Net Investment Income:	Three Months Ended						Six Months Ended
($ in thousands)	June 30,						June 30,
	2008			2007			2008			2007
Debt securities	$	22,546		$	26,389		$	46,135		$	53,398
Policy loans		362			(65	)		697			190
Other investments		51			108			76			118
Other income		21			3			112			218
Cash and cash equivalents		489			1,415			1,287			2,337
Total investment income		23,469			27,850			48,307			56,261
Investment expenses		(479	)		(658	)		(996	)		(1,175	)
Net investment income	$	22,990		$	27,192		$	47,311		$	55,086

Net realized investment gains (losses)

Sources and Types of Net Realized Investment	Three Months Ended						Six Months Ended
Gains (Losses):	June 30,						June 30,
($ in thousands)	2008			2007			2008			2007
Debt security impairments	$	(5,388	)	$	--		$	(12,336	)	$	(500	)
Debt security transaction gains		836			119			1,202			988
Debt security transaction losses		(365	)		(457	)		(2,124	)		(1,888	)
Other investments transaction gains (losses)		(177	)		(7	)		(53	)		108
Net transaction gains (losses)		294			(345	)		(975	)		(792	)
Change in fair value of embedded derivative liabilities		6,783			704			(5,029	)		1,481
Net realized investment gains (losses)	$	1,689		$	359		$	(18,340	)	$	189

Debt security impairments during the second quarter of 2008 included $5,388 thousand related to residential mortgage-backed securities. Based on a projected cash flow analysis that incorporates delinquency levels, foreclosures and expected losses on foreclosures, and indicates that we will not receive our contractual principal from certain investments, we recorded impairment losses on those investments.

Unrealized investment gains (losses)

Sources of Changes in Net Unrealized Investment	Three Months Ended						Six Months Ended
Gains (Losses):	June 30,						June 30,
($ in thousands)	2008			2007			2008			2007
Debt securities	$	(32,207	)	$	(20,421	)	$	(62,188	)	$	(14,695	)
Other		2,181			(263	)		2,346			(201	)
Net unrealized investment losses	$	(30,026	)	$	(20,684	)	$	(59,842	)	$	(14,896	)
Net unrealized investment losses	$	(30,026	)	$	(20,684	)	$	(59,842	)	$	(14,896	)
Applicable deferred policy acquisition cost benefit		(25,995	)		(12,676	)		(47,136	)		(8,327	)
Applicable deferred income tax expense		(1,411	)		(2,802	)		(4,447	)		(2,298	)
Offsets to net unrealized investment losses		(27,406	)		(15,478	)		(51,583	)		(10,625	)
Net unrealized investment losses included in other comprehensive income	$	(2,620	)	$	(5,206	)	$	(8,259	)	$	(4,271	)

14

5. Separate Accounts, Death Benefits and Other Insurance Benefit Features

Separate account products are those for which a separate investment and liability account is maintained on behalf of the policyholder. Investment objectives for these separate accounts vary by fund account type, as outlined in the applicable fund prospectus or separate account plan of operations. Our separate account products include variable annuities and variable life insurance contracts. The assets supporting these contracts are carried at fair value and reported as Separate account assets with an equivalent amount reported as Separate account liabilities. Amounts assessed against the policyholder for mortality, administration, and other services are included within revenue in insurance and investment product fees. During the three and six-month periods ended June 30, 2008 and 2007, there were no gains or losses on transfers of assets from the general account to a separate account.

Many of our variable contracts offer various guaranteed minimum death, accumulation, withdrawal and income benefits. These benefits are offered in various forms as described below. We currently reinsure a significant portion of the death benefit guarantees associated with our in-force block of business. We establish policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity policies as follows:

· Liabilities associated with the guaranteed minimum death benefit (“GMDB”) are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used in estimating the liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.

· Liabilities associated with the guaranteed minimum income benefit (“GMIB”) are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.

For annuities with GMDB, 200 stochastically generated scenarios were used. For annuities with GMIB, we used 1,000 stochastically generated scenarios.

The GMDB and GMIB guarantees are recorded in policy liabilities and accruals on our balance sheet. Changes in the liability are recorded in policy benefits on our statement of operations. In a manner consistent with our policy for deferred policy acquisition costs, we regularly evaluate estimates used and adjust the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised.

We also offer certain variable products with a guaranteed minimum withdrawal benefit (“GMWB”), a guaranteed minimum accumulation benefit (“GMAB”) and a guaranteed pay-out annuity floor (“GPAF”).

The GMWB guarantees the policyholder a minimum amount of withdrawals and benefit payments over time, regardless of the investment performance of the contract, subject to an annual limit. Optional resets are available. In addition, we introduced a feature for these contracts beginning in the fourth quarter of 2005 that allows the policyholder to receive the guaranteed annual withdrawal amount for as long as they are alive.

The GMAB rider provides the contract holder with a minimum accumulation of their purchase payments deposited within a specific time period, adjusted for withdrawals, after a specified amount of time determined at the time of issuance of the variable annuity contract.

The GPAF rider provides the policyholder with a minimum payment amount if the variable annuity payment falls below this amount on the payment calculation date.

15

5. Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

The GMWB, GMAB and GPAF represent embedded derivatives in the variable annuity contracts that are required to be reported separately from the host variable annuity contract. They are carried at fair value and reported in policyholder deposit funds. The fair value of the GMWB, GMAB and GPAF obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions.

As of June 30, 2008 and December 31, 2007, 100% of the aggregate account value with the GMWB, GMAB and GPAF features was not reinsured. In order to minimize the volatility associated with the unreinsured liabilities, we have established an alternative risk management strategy. We began hedging our GMAB exposure in 2006 and GMWB exposure during the fourth quarter of 2007 using equity options, equity futures and swaps. These investments are included in other investments on our balance sheet.

Embedded Derivative Liabilities:	June 30,			Dec 31,
($ in thousands)	2008			2007
GMWB	$	(74	)	$	(1,512	)
GMAB		5,273			1,814
GPAF		1,505			1,373

For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of benefits that are payable upon annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the policy holder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance.

Additional Insurance Benefits:			Net Amount		Average
($ in thousands)	Account		At Risk After		Attained Age
	Value		Reinsurance		of Annuitant
GMDB return of premium	$	1,320,033	$	20,396	59
GMDB step up		1,726,279		109,054	60
GMDB earnings enhancement benefit (EEB)		68,533		126	60
GMDB greater of annual step up and roll up		36,327		6,159	63
Total GMDB at June 30, 2008	$	3,151,172	$	135,735
GMIB	$	628,980			60
GMAB		420,152			55
GMWB		351,537			61
GPAF		23,372			75
Total at June 30, 2008	$	1,424,041

With the return of premium, the death benefit is the greater of current account value or premiums paid (less any adjusted partial withdrawals).

With the step up, the death benefit is the greater of current account value, premiums paid (less any adjusted partial withdrawals) or the annual step up amount prior to the eldest original owner attaining a certain age. On and after the eldest original owner attains that age, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner’s attaining that age plus premium payments (less any adjusted partial withdrawals) made since that date.

With EEB, the death benefit is the greater of the premiums paid (less any adjusted partial withdrawals) or the current account value plus the EEB. The EEB is an additional amount designed to reduce the impact of taxes associated with distributing contract gains upon death.

16

5. Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

With greater of annual step up and annual roll up, the death benefit is the greater of premium payments (less any adjusted partial withdrawals), the annual step up amount, the annual roll up amount or the current account value prior to the eldest original owner attaining age 81. On and after the eldest original owner attained age 81, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner’s attained age of 81 plus premium payments (less any adjusted partial withdrawals) made since that date.

Liabilities for universal life are generally determined by estimating the expected value of losses when death benefits exceed revenues and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating these liabilities are consistent with those used for amortizing deferred policy acquisition costs. A single set of best estimate assumptions is used since these insurance benefits do not vary significantly with capital markets volatility. At June 30, 2008 and December 31, 2007, we held additional universal life benefit reserves of $37,159 thousand and $25,930 thousand, respectively.

6. Fair Value

SFAS No. 157 (“SFAS 157”) defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. 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.

SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:

· Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 securities include highly liquid government bonds, mortgage products, exchange-traded equities and exchange-traded corporate debt.

· Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Examples of such instruments include certain high-yield debt securities.

· Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Securities classified within Level 3 include broker quoted investments, certain residual interests in securitizations and other less liquid securities. Most valuations that are based on brokers’ prices are classified as Level 3 due to a lack of transparency in the process they use to develop prices.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table presents the financial instruments carried at fair value as of June 30, 2008, by SFAS 157 valuation hierarchy (as described above).

Assets and Liabilities at Fair Value:	As of June 30, 2008
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale debt securities	$	9,990	$	1,282,567	$	236,357	$	1,528,914
Separate account assets		3,141,890		93,581		1,919		3,237,390
Fair value option investments		--		5,020		--		5,020
Total assets	$	3,151,880	$	1,381,168	$	238,276	$	4,771,324
Liabilities
Embedded derivative liabilities	$	--	$	--	$	6,704	$	6,704
Total liabilities	$	--	$	--	$	6,704	$	6,704

17

6. Fair Value (continued)

Fair value option investments include a structured loan asset valued at $5,020 thousand as of June 30, 2008. We elected to apply the fair value option to this note at the time of its acquisition. We purchased the note to obtain principal protection without sacrificing earnings potential. Election of the fair value option allows current earnings recognition and is more consistent with management’s view of the security’s underlying economics.

We have an established process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, option volatilities and currency rates. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, our own creditworthiness, liquidity and unobservable parameters that are applied consistently over time.

Separate Accounts

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security and short-term investments of the Company. Mutual funds are included in Level 1. Most debt securities and short-term investments are included in Level 2.

Valuation of Embedded Derivatives

Embedded derivatives are guarantees that we make on certain variable annuity contracts, including GMAB and GMWB. These embedded derivatives are fair valued using a risk neutral stochastic valuation methodology. The inputs to our fair value methodology include information derived from the asset derivatives market, including the volatility surface and the swap curve. Several additional inputs are not obtained from independent sources, but instead reflect our own assumptions about what market participants would use in pricing the contracts. These inputs are therefore considered “unobservable” and fall into Level 3 of the fair value hierarchy. These inputs include mortality rates, lapse rates and policyholder behavior assumptions. Because there are significant Level 3 inputs included in our fair value methodology for these embedded derivative liabilities, we consider the above-described methodology as a whole to be Level 3.

Level 3 Financial Assets and Liabilities

The following table sets forth a summary of changes in the fair value of our Level 3 financial assets and liabilities. As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. For example, a hypothetical derivative contract with Level 1, Level 2 and significant Level 3 inputs would be classified as a Level 3 financial instrument in its entirety. Subsequently, even if only Level 1 and Level 2 inputs are adjusted, the resulting gain or loss is classified as Level 3. Further, Level 3 instruments are frequently hedged with instruments that are classified as Level 1 or Level 2 and, accordingly, gains or losses reported as Level 3 in the table below may be offset by gains or losses attributable to instruments classified in Level 1 or 2 of the fair value hierarchy.

Level 3 Financial Assets and Liabilities:	Three Months Ended						Six Months Ended
($ in thousands)	June 30, 2008						June 30, 2008
	Assets			Liabilities			Assets			Liabilities
Balance, beginning of period	$	253,413		$	(13,487	)	$	267,185		$	(1,675	)
Purchases/(sales), net		(6,717	)		--			(9,758	)		--
Net transfers in and out of Level 3		(20,931	)		--			(14,090	)		--
Realized gains (losses)		(2,797	)		6,783			(8,227	)		(5,029	)
Unrealized gains (losses) included in other comprehensive income (loss)		15,230			--			3,720			--
Amortization/accretion		78			--			(554	)		--
Balance, end of period	$	238,276		$	(6,704	)	$	238,276		$	(6,704	)
Portion of gain (loss) included in net income relating to those assets/liabilities still held	$	(5,029	)	$	6,783		$	(11,612	)	$	(5,029	)

18

7. Income Taxes

For the three and six months ended June 30, 2008 and 2007, the effective income tax rates applicable to income from continuing operations differ from the 35.0% U.S. federal statutory tax rate. Items giving rise to the differences and the effects are as follows:

Analysis of Effective Income Tax Rates:	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Income taxes at statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Investment income not subject to tax		(0.3	%)		(4.0	%)		23.0	%		(4.0	%)
Effective income tax rates applicable to continuing operations		34.7	%		31.0	%		58.0	%		31.0	%

Our federal income tax returns are routinely audited by the IRS and estimated provisions are routinely provided in the financial statements in anticipation of the results of these audits. Unfavorable resolution of any particular issue could result in additional use of cash to pay liabilities that would be deemed owed to the IRS. Additionally, any unfavorable or favorable resolution of any particular issue could result in an increase or decrease, respectively, to our effective income tax rate to the extent that our estimates differ from the ultimate resolution. As of June 30, 2008, we had current taxes receivable of $4,005 thousand.

See Note 2 to these financial statements for information regarding the implementation of FIN 48.

8. Contingent Liabilities

Litigation and Arbitration

We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. The litigation and arbitration naming us as a defendant ordinarily involves our activities as an insurer, investor, or taxpayer. It is not feasible to predict or determine the ultimate outcome of all legal or arbitration proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and arbitration matters are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and arbitration, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods.

Regulatory Matters

State regulatory bodies, the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”) and other regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws and securities laws. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted.

In addition, federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Phoenix Life and its subsidiaries with securities and other laws and regulations affecting their registered products. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. There has been a significant increase in federal and state regulatory activity relating to financial services companies, with a number of recent regulatory inquiries focusing on late-trading, market timing and valuation issues. Our products entitle us to impose restrictions on transfers between separate account sub-accounts associated with our variable products.

19

8. Contingent Liabilities (continued)

In 2005, the Boston District Office of the SEC completed a compliance examination of certain of PNX’s affiliates that are registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for monitoring trading to prevent market timing activity. The staff requested PNX to conduct an analysis as to whether shareholders, policyholders and contract holders who invested in the funds that may have been affected by undetected market timing activity had suffered harm and to advise the staff whether PNX believes reimbursement is necessary or appropriate under the circumstances. A third party was retained to assist PNX in preparing the analysis. Based on this analysis, PNX advised the SEC that it does not believe that reimbursement is appropriate.

Over the past several years, a number of companies have announced settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York Attorney General’s Office. While no such action has been initiated against us, it is possible that one or more regulatory agencies may pursue this type of action against us in the future. Financial services companies have also been the subject of broad industry inquiries by state regulators and attorneys general which do not appear to be company-specific.

These types of regulatory actions may be difficult to assess or quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and magnitude of their outcomes may remain unknown for substantial periods of time. While it is not feasible to predict or determine the ultimate outcome of all pending inquiries, investigations, legal proceedings and other regulatory actions, or to provide reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the large or indeterminate amounts sought in certain of these actions and the inherent unpredictability of regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operation or cash flows in particular quarterly or annual periods.

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussion in this Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating to forward-looking statements. These include statements relating to trends in, or representing management’s beliefs about our future strategies, operations and financial results, as well as other statements including, but not limited to, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “should” and other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. They are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others: (i) changes in general market and business conditions, interest rates and the debt and equity markets; (ii) the possibility that mortality rates, persistency rates or funding levels may differ significantly from our pricing expectations; (iii) the availability, pricing and terms of reinsurance coverage generally and the inability or unwillingness of our reinsurers to meet their obligations to us specifically; (iv) our dependence on non-affiliated distributors for our product sales, (v) downgrades in our debt or financial strength ratings; (vi) our dependence on third parties to maintain critical business and administrative functions; (vii) our ability to attract and retain key personnel in a competitive environment; (viii) the strong competition we face in our business from  banks and other insurance companies; (ix)  tax developments that may affect us directly, or indirectly through the cost of, the demand for or profitability of our products or services; (x) other legislative or regulatory developments; (xi) legal or regulatory actions; (xii) changes in accounting standards; and (xiii) other risks and uncertainties described herein or in any of our filings with the SEC. We undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

MANAGEMENT’S NARRATIVE ANALYSIS OF THE

RESULTS OF OPERATIONS

This section reviews our results of operations for the three and six months ended June 30, 2008 and 2007. This discussion should be read in conjunction with the unaudited interim condensed financial statements and notes contained in this filing as well as in conjunction with our financial statements for the year ended December 31, 2007 in our 2007 Annual Report on Form 10-K.

Overview

For an overview of our current business and an explanation of the key drivers of our revenues, expenses and overall profitability, please see the “Business Overview and Earnings Drivers” discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our 2007 Annual Report on Form 10-K.

Impact of New Accounting Standards

For a discussion of accounting standards, see Note 2 to our financial statements in this Form 10-Q.

Critical Accounting Estimates

The analysis of our results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting estimates are reflective of significant judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

21

As further described below, during 2008 we changed our method of accounting for reinsurance and for calculating deferred policy acquisition cost amortization. See our 2007 Annual Report on Form 10-K for a discussion of additional critical accounting estimates.

Accounting Change

Effective April 1, 2008, we changed our method of accounting for the cost of certain of our long duration reinsurance contracts accounted for in accordance with SFAS No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts (“SFAS 113”). In conjunction with this change, we also changed our method of accounting for the impact of reinsurance costs on deferred acquisition costs. SFAS 113 requires us to amortize the estimated cost of reinsurance over the life of the underlying reinsured contracts. Under our previous method, we recognized reinsurance recoveries as part of the net cost of reinsurance and amortized this balance over the estimated lives of the underlying reinsured contracts in proportion to estimated gross profits (“EGPs”) consistent with the method used for amortizing deferred policy acquisition costs. Under the new method, reinsurance recoveries are recognized in the same period as the related reinsured claim. In conjunction with this change, we also changed our policy for determining EGPs relating to these contracts to include the effects of reinsurance, where previously these effects had not been included.

We adopted the new method because we believe that it better reflects the economics of the underlying reinsurance activity by better matching the reinsurance recovery with the insured loss that gave rise to that recovery. We also believe that the new method is consistent with management's intent in purchasing reinsurance, which is to protect the Company against large and unexpected claims. Following is a description of our accounting for deferred policy acquisition costs, which has been updated from our 2007 Annual Report on Form 10-K to reflect a change in our method of accounting for the effects of reinsurance.

Deferred Policy Acquisition Costs

We amortize deferred policy acquisition costs based on the related policy’s classification. For individual life insurance policies, deferred policy acquisition costs are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs are amortized in proportion to estimated gross profits, or EGPs. Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders.

Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year’s cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, industry studies, regulatory requirements and estimates about the future.

To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries.

22

Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be adjusted to reflect such change. This process is known as “unlocking”. Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances.

The separate account fund performance assumption is critical to the development of the EGPs related to our variable annuity and variable life insurance businesses. As equity markets do not move in a systematic manner, we use a mean reversion method (reversion to the mean assumption), a common industry practice, to determine the future equity market growth rate assumption used for the amortization of deferred policy acquisition costs. This practice assumes that the expectation for long-term appreciation is not changed by minor short-term market fluctuations. The average long-term rate of assumed separate account fund performance used in estimating gross profits was 6.0% (after fund fees and mortality and expense charges) for the variable annuity business and 6.9% (after fund fees and mortality and expense charges) for the variable life business at both December 31, 2007 and 2006.

We perform analysis with respect to the sensitivity of a change in the separate account performance assumption as it is critical to the development of the EGPs related to our variable annuity and variable life insurance business. Equity market movements have a significant impact on the account value of variable life and annuity products and the fees earned on these. EGPs could increase or decrease with these movements in the equity market. Sustained and significant changes in the equity markets could therefore have an impact on deferred policy acquisition cost amortization. Periodically, we also perform analysis with respect to the sensitivity of a change in assumed mortality as it is critical to the development of the EGPs related to our universal life insurance business.

As part of our analysis of separate account returns, we perform two sensitivity tests. If at December 31, 2007 we had used a 100 basis points lower separate account return assumption (after fund fees and mortality and expense charges) for both the variable annuity and the variable life businesses and used our current best estimate assumptions for all other assumptions to project account values forward from the current value to reproject EGPs, the estimated increase to amortization and decrease to net income would be approximately $1,794 thousand, after-tax.

If, instead, at December 31, 2007 we had used a 100 basis points higher separate account return assumption (after fund fees and mortality and expense charges) for both the variable annuity and variable life businesses and used our current best estimate assumptions for all other assumptions to project account values forward from the current value to reproject EGPs, the estimated decrease to amortization and increase to net income would be approximately $1,783 thousand, after-tax.

These revisions are not currently required or anticipated.

23

Results of Operations

Summary Financial Data:	Three Months Ended						Increase (decrease) and
($ in thousands)	June 30,						percentage change
	2008			2007			2008 vs. 2007
REVENUES:
Premiums	$	5,314		$	2,882		$	2,432		84	%
Insurance and investment product fees		87,717			59,410			28,307		48	%
Net investment income		22,990			27,192			(4,202	)	(15	%)
Net realized investment gains		1,689			359			1,330		370	%
Total revenues		117,710			89,843			27,867		31	%
BENEFITS AND EXPENSES:
Policy benefits		43,573			36,481			7,092		19	%
Policy acquisition cost amortization		38,755			26,923			11,832		44	%
Other operating expenses		25,707			20,424			5,283		26	%
Total benefits and expenses		108,035			83,828			24,207		29	%
Income before income taxes		9,675			6,015			3,660		61	%
Applicable income tax expense		(3,360	)		(1,863	)		(1,497	)	80	%
Net income	$	6,315		$	4,152		$	2,163		52	%

Three months ended June 30, 2008 compared to three months ended June 30, 2007

Net income increased 52% in the 2008 quarter. This result reflects higher mortality margins and realized investment gains, partially offset by higher policy acquisition cost amortization and lower interest margin.

Mortality margins in universal life and variable universal life increased in 2008, driven by increases in cost of insurance fee revenues that were only partially offset by higher net benefits. While fluctuations in mortality are inherent in our business, this improvement primarily reflects growth in the block of business over recent years. Policy acquisition cost amortization increased $11,832 thousand in the current year. This increase was caused by growth in the universal life business, the impact of market declines on annuity and variable universal life, and higher surrenders. In addition, lower investment income, only partially offset by a decrease in interest credited, drove a reduction in interest margin for the period.

Summary Financial Data:	Six Months Ended						Increase (decrease) and
($ in thousands)	June 30,						percentage change
	2008			2007			2008 vs. 2007
REVENUES:
Premiums	$	4,671		$	6,061		$	(1,390	)	(23	%)
Insurance and investment product fees		171,582			113,529			58,053		51	%
Net investment income		47,311			55,086			(7,775	)	(14	%)
Net realized investment gains (losses)		(18,340	)		189			(18,529	)	(9,803	%)
Total revenues		205,224			174,865			30,359		17	%
BENEFITS AND EXPENSES:
Policy benefits		94,588			76,461			18,127		24	%
Policy acquisition cost amortization		63,292			50,526			12,766		25	%
Other operating expenses		53,807			37,510			16,297		43	%
Total benefits and expenses		211,687			164,497			47,190		29	%
Income before income taxes		(6,463	)		10,368			(16,831	)	(162	%)
Applicable income tax (expense) benefit		3,748			(3,214	)		6,962		217	%
Net income (loss)	$	(2,715	)	$	7,154		$	(9,869	)	(138	%)

Six months ended June 30, 2008 compared to six months ended June 30, 2007

Net results for the year-to-date period declined to a net loss of $2,715 thousand. This result was driven by net realized losses, higher policy acquisition cost amortization and higher operating expenses, only partially offset by improved mortality margins.

24

Net realized investment losses for the six months ended June 30, 2008 include a $5,029 thousand increase in the embedded derivative liabilities for our variable products guarantees, as well as $12,336 thousand of impairments, including $5,388 thousand related to residual mortgage-backed securities. In addition policy acquisition cost amortization increased $12,766 thousand in the current year, driven by growth in the universal life business, the impact of market declines on annuity and variable universal life and higher surrenders. Operating expenses also increased during 2008 as we continue to invest in the growth of the business.

Partially offsetting these reductions was an increase in mortality margins, reflecting the growth of the business.

General Account

The invested assets in our general account are generally of high quality and broadly diversified across fixed income sectors, public and private income securities and individual credits and issuers. Our investment professionals manage these general account assets in investment segments that support specific product liabilities. These investment segments have distinct investment policies that are structured to support the financial characteristics of the related liabilities within them. Segmentation of assets allows us to manage the risks and measure returns on capital for our various products.

Separate Accounts

Separate account assets are managed in accordance with the specific investment contracts and guidelines relating to our variable products. We generally do not bear any investment risk on assets held in separate accounts. Rather, we receive investment management fees based on assets under management. Assets held in separate accounts are not available to satisfy general account obligations.

Debt and Equity Securities Held in Our General Account

Our general account debt securities portfolios consist primarily of investment grade publicly-traded and privately-placed corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. As of June 30, 2008, our general account held debt securities with a carrying value of $1,528.9 million, representing 98.0% of total general account investments. Public debt securities represented 80.1% of total debt securities, with the remaining 19.9% represented by private debt securities.

Debt Securities by Type and Credit Quality:	As of June 30, 2008
($ in thousands)	Investment Grade						Below Investment Grade
	Fair Value			Cost			Fair Value			Cost
U.S. government and agency	$	47,198		$	46,879		$	--		$	--
State and political subdivision		12,477			12,746			--			--
Foreign government		13,534			12,653			12,017			10,847
Corporate		722,334			758,708			111,380			124,972
Mortgage-backed		387,780			411,562			825			1,960
Other asset-backed		207,668			249,854			13,701			15,711
Total debt securities	$	1,390,991		$	1,492,402		$	137,923		$	153,490
Percentage of total debt securities		91	%		91	%		9	%		9	%

We manage credit risk through industry and issuer diversification. Maximum exposure to an issuer is defined by quality ratings, with higher quality issuers having larger exposure limits. Our investment approach emphasizes a high level of industry diversification. The top five industry holdings as of June 30, 2008 in our debt securities portfolio are diversified banking (6.7%), financial services (5.9%), real estate investment trusts (3.0%), insurance (2.7%) and electric utilities (2.4%).

25

The following table presents certain information with respect to our gross unrealized losses related to our investments in general account debt securities. Applicable deferred acquisition costs and deferred income taxes reduce the effect of these losses on our comprehensive income.

Duration of Gross Unrealized Losses	As of June30, 2008
on General Account Securities:				0 – 6			6 – 12			Over 12
($ in thousands)	Total			Months			Months			Months
Debt securities
Total fair value	$	1,088,691		$	367,928		$	155,402		$	565,361
Total amortized cost		1,213,443			383,599			183,174			646,670
Unrealized losses	$	(124,752	)	$	(15,671	)	$	(27,772	)	$	(81,309	)
Unrealized losses after offsets	$	(21,054	)	$	(2,703	)	$	(4,471	)	$	(13,880	)
Number of securities		689			235			116			338
Investment grade:
Unrealized losses	$	(107,810	)	$	(14,328	)	$	(24,820	)	$	(68,662	)
Unrealized losses after offsets	$	(18,242	)	$	(2,491	)	$	(3,993	)	$	(11,758	)
Below investment grade:
Unrealized losses	$	(16,942	)	$	(1,343	)	$	(2,952	)	$	(12,647	)
Unrealized losses after offsets	$	(2,812	)	$	(212	)	$	(478	)	$	(2,122	)

Total net unrealized losses on debt securities were $116,978 thousand (unrealized losses of $124,752 thousand less unrealized gains of $7,774 thousand).

For debt securities with gross unrealized losses, 86.6% of the unrealized losses after offsets pertain to investment grade securities and 13.4% of the unrealized losses after offsets pertain to below investment grade securities at June 30, 2008.

The following table represents those securities whose fair value is less than 80% of amortized cost (significant unrealized loss) that have been at a significant unrealized loss position on a continuous basis.

Duration of Gross Unrealized Losses	As of June30, 2008
on General Account Securities:				0 – 6			6 – 12			Over 12
($ in thousands)	Total			Months			Months			Months
Debt securities
Unrealized losses over 20% of cost	$	(56,273	)	$	(43,352	)	$	(12,921	)	$	--
Unrealized losses over 20% of cost after offsets	$	(9,316	)	$	(7,281	)	$	(2,035	)	$	--
Number of securities		99			83			16			--
Investment grade:
Unrealized losses over 20% of cost	$	(47,855	)	$	(40,659	)	$	(7,196	)	$	--
Unrealized losses over 20% of cost after offsets	$	(7,990	)	$	(6,857	)	$	(1,133	)	$	--
Below investment grade:
Unrealized losses over 20% of cost	$	(8,418	)	$	(2,693	)	$	(5,725	)	$	--
Unrealized losses over 20% of cost after offsets	$	(1,326	)	$	(424	)	$	(902	)	$	--

26

Our assessment of whether an investment in a debt or equity security is other-than-temporarily impaired includes whether the issuer has:

· defaulted on payment obligations;

· declared that it will default at a future point outside the current reporting period;

· announced that a restructuring will occur outside the current reporting period;

· severe liquidity problems that cannot be resolved;

· filed for bankruptcy;

· a financial condition which suggests that future payments are highly unlikely;

· deteriorating financial condition and quality of assets;

· sustained significant losses during the current year;

· announced adverse changes or events such as changes or planned changes in senior management, restructurings, or a sale of assets; and/or

· been affected by any other factors that indicate that the fair value of the investment may have been negatively impacted.

In determining whether collateralized securities are impaired, we obtain underlying mortgage data from the security’s trustee and analyze it for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows.

If we determine that the security is impaired, we write it down to its then current fair value and record a realized loss in that period.

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporarily impaired, we evaluated the factors cited above. In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no assurance that actual results will not differ from our judgments and that such differences may require the future recognition of other-than-temporary impairment charges that could have a material affect on our financial position and results of operations. In addition, the value of, and the realization of any loss on, a debt security or equity security is subject to numerous risks, including interest rate risk, market risk, credit risk and liquidity risk. The magnitude of any loss incurred by us may be affected by the relative concentration of our investments in any one issuer or industry. We have established specific policies limiting the concentration of our investments in any single issuer and industry and believe our investment portfolio is prudently diversified.

Residential Mortgage-Backed Securities

The weakness in the U.S. residential real estate markets, increases in mortgage rates and the effects of relaxed underwriting standards for mortgages and home equity loans have led to higher delinquency rates and losses for the residential mortgage-backed securities market. Delinquency rates for all sectors of the residential mortgage-backed market, including sub-prime, Alt-A, and now even prime, have increased beyond historical averages.

We invest directly in residential mortgage-backed securities through our general account. To the extent these assets deteriorate in credit quality and decline in value for an extended period, we may realize impairment losses. We have been focused on identifying those securities that can withstand significant increases in delinquencies and foreclosures in the underlying mortgage pools before incurring a loss of principal.

27

Most of our residential mortgage-backed securities portfolio is highly rated. As of June 30, 2008, 94% of the total residential portfolio was rated AAA or AA. We have $76.3 million of sub-prime exposure, $47.2 million of Alt-A exposure, and $134.9 million of prime exposure, which combined amount to 15% of our general account. Substantially all of our sub-prime, Alt-A, and prime exposure is investment grade, with 89% being AAA rated, and another 2% in AA securities. We have employed a disciplined approach in the analysis and monitoring of our mortgage-backed securities. Our approach involves a monthly review of each security. Underlying mortgage data is obtained from the security’s trustee and analyzed for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows. Year-to-date through June 30, 2008, we have taken impairments of $11.1 million on our RMBS portfolio. This represents 2.9% of our total residential mortgage-backed securities portfolio and 0.6% of the general account. The losses consist of $8.0 million from prime, $2.7 million from Alt-A and $.4 million from sub-prime.

Residential Mortgage-Backed Securities:

($ in thousands)	As of June 30, 2008
	Book		Market		% General															BB and
	Value		Value		Account(1)			AAA			AA			A			BBB			Below
Collateral
Agency	$	119,539	$	119,128		7.0	%		100.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Prime		145,811		134,869		7.9	%		93.6	%		0.2	%		0.0	%		5.9	%		0.3	%
Alt-A		54,195		47,216		2.8	%		79.7	%		0.5	%		13.1	%		6.7	%		0.0	%
Sub-prime		89,524		76,343		4.5	%		88.3	%		5.0	%		2.4	%		4.3	%		0.0	%
Total	$	409,069	$	377,556		22.2	%		92.8	%		1.2	%		2.1	%		3.8	%		0.1	%

_______

(1) Percentages based on Market Value.

Liquidity and Capital Resources

In the normal course of business, we enter into transactions involving various types of financial instruments such as debt and equity securities. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations.

Our liquidity requirements principally relate to the liabilities associated with various life insurance and annuity products and operating expenses. Liabilities arising from life insurance and annuity products include the payment of benefits, as well as cash payments in connection with policy surrenders, withdrawals and loans.

Historically, we have used cash flow from operations, investment activities and capital contributions from our shareholder to fund liquidity requirements. Our principal cash inflows from life insurance and annuities activities come from premiums, annuity deposits and charges on insurance policies and annuity contracts. Principal cash inflows from investment activities result from repayments of principal, proceeds from maturities, sales of invested assets and investment income.

Ratings

Rating agencies assign financial strength ratings to Phoenix Life and its subsidiaries based on their opinions of the Companies’ ability to meet their financial obligations. Ratings changes may result in increased or decreased interest costs in connection with future borrowings. Such an increase or decrease would affect our earnings and could affect our ability to finance our future growth. Downgrades may also trigger defaults or repurchase obligations. The financial strength ratings as of June 30, 2008 were as follows:

	Financial Strength Ratings of
Rating Agency	Phoenix Life and PHL Variable Life
A.M. Best Company, Inc.	A (“Excellent”)
Fitch	A+ (“Strong”)
Moody’s	A3 (“Good”)
Standard & Poor’s	A- (“Strong”)

28

On May 9, 2008, Fitch affirmed our financial strength rating of A+. On May 8, 2008, Standard & Poor’s affirmed our financial strength rating of A-.

These ratings are not a recommendation to buy or hold any of our securities.

See our 2007 Annual Report on Form 10-K for additional information as to liquidity and capital resources.

Contractual Obligations and Commercial Commitments

As of June 30, 2008, there were no significant changes to our outstanding contractual obligations and commercial commitments as disclosed in our 2007 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of June 30, 2008 and December 31, 2007, we did not have any significant off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of SEC Regulation S-K.

Reinsurance

We maintain life reinsurance programs designed to protect against large or unusual losses in our life insurance business. Based on our review of their financial statements, reputations in the reinsurance marketplace and other relevant information, we believe that these reinsurers are financially sound and, therefore, that we have no material exposure to uncollectible life reinsurance.

Risk Based Capital

At June 30, 2008, our estimated Total Adjusted Capital level was in excess of 350% of Company Action Level. PNX management is committed to maintaining appropriate capital levels for the Company to conduct business.

Statutory Capital and Surplus

Our statutory basis capital and surplus (including AVR) was $194.2 million at June 30, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have omitted this information from this report as we meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form with the reduced disclosure format permitted by that General Instruction.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have carried out an evaluation under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, these officers have concluded that, as of June 30, 2008, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

29

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

30

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. In addition, various regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, laws governing the activities of broker-dealers and other laws and regulations affecting our registered products. It is not feasible to predict or determine the ultimate outcome of all legal or regulatory proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and regulatory matters are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods. See Item 1A, “Risk Factors” in our 2007 Annual Report on Form 10-K and Note 8 to our financial statements in this Form 10-Q for additional information.

ITEM 1A. RISK FACTORS

There are no material changes to our Risk Factors as described in our 2007 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have omitted this information from this report as we meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form with the reduced disclosure format permitted by that General Instruction.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We have omitted this information from this report as we meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form with the reduced disclosure format permitted by that General Instruction.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We have omitted this information from this report as we meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form with the reduced disclosure format permitted by that General Instruction.

ITEM 5. OTHER INFORMATION

(a) We are herein providing updated financial information of the Company for the three years ended December 31, 2007. Effective April 1, 2008, we changed our method of accounting for the cost of certain of our long duration reinsurance contracts and for the impact of reinsurance costs on deferred acquisition costs. Accordingly, portions of the following items from our 2007 Annual Report on Form 10-K (“Annual Report”) have been updated to reflect the accounting change.

· Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

· Part II, Item 8 Financial Statements and Supplementary Data

This report updates our Annual Report only to the extent this information is impacted by the accounting change. The updated Annual Report information begins on page A-1 and is incorporated herein by reference.

(b) No material changes.

31

ITEM 6. EXHIBITS

Exhibit
3.1	Form of Amended and Restated Certificate of Incorporation (as amended and restated effective May 31, 1994) (incorporated herein by reference to Exhibit 3.1 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
3.2	Bylaws of PHL Variable Life Insurance Company (as amended and restated effective May 16, 2002) (incorporated herein by reference to Exhibit 3.2 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
10.1	Services Agreement effective as of January 1, 1995 by and among PHL Variable Insurance Company, Phoenix Life Insurance Company, American Life and Reassurance Company, Phoenix American Life Insurance Company and Phoenix Home Life Mutual Insurance Company (incorporated herein by reference to Exhibit 10.1 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
10.2	Investment Management Agreement effective as of January 1, 1995 by and between PHL Variable Insurance Company and Phoenix Investment Counsel, Inc. (incorporated herein by reference to Exhibit 10.2 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
10.3	Amendment #1 (effective as of January 1, 1998) to the Investment Management Agreement dated as of January 1, 1995 by and between PHL Variable Insurance Company and Phoenix Investment Counsel, Inc. (incorporated herein by reference to Exhibit 10.3 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
10.4	Amended and Restated Tax Allocation Agreement dated as of January 1, 2001 by and among The Phoenix Companies, Inc. and most of its subsidiaries (incorporated herein by reference to Exhibit 10.4 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
10.5	Amendment #1 (effective as of January 1, 2006) to the Amended and Restated Tax Allocation Agreement dated as of January 1, 2001 by and among The Phoenix Companies, Inc. and most of its subsidiaries (incorporated herein by reference to Exhibit 10.5 to the PHL Variable Insurance Company’s Annual Report on Form 10-K filed March 31, 2006)
18	Preferability Letter from PricewaterhouseCoopers LLP
31.1	Certification of Philip K. Polkinghorn, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Peter A. Hofmann, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32	Certification by Philip K. Polkinghorn, Chief Executive Officer and Peter A. Hofmann, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

_________________

* Filed herewith

We will furnish any exhibit upon the payment of a reasonable fee, which fee shall be limited to our reasonable expenses in furnishing such exhibit. Requests for copies should be directed to: Corporate Secretary, PHL Variable Insurance Company, One American Row, P.O. Box 5056, Hartford, Connecticut 06102-5056.

32

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PHL Variable Insurance Company
Date: August 14, 2008	By: /s/ Peter A. Hofmann
	Peter A. Hofmann
	Senior Executive Vice President
	and Chief Financial Officer

33

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

Management’s narrative analysis of the results of operations is presented in lieu of Management’s Discussion and Analysis of Financial Condition and Results of Operations, pursuant to General Instruction (I)(2)(a) of Form 10-K.

FORWARD-LOOKING STATEMENTS

The discussion in this Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating to forward-looking statements. These include statements relating to trends in, or representing management’s beliefs about our future strategies, operations and financial results, as well as other statements including, but not limited to, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “should” and other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. They are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others: (i) changes in general market and business conditions, interest rates and the debt and equity markets; (ii) the possibility that mortality rates, persistency rates or funding levels may differ significantly from our pricing expectations; (iii) the availability, pricing and terms of reinsurance coverage generally and the inability or unwillingness of our reinsurers to meet their obligations to us specifically; (iv) our dependence on non-affiliated distributors for our product sales, (v) downgrades in our debt or financial strength ratings; (vi) our dependence on third parties to maintain critical business and administrative functions; (vii) our ability to attract and retain key personnel in a competitive environment; (viii) the strong competition we face in our business from  banks and other insurance companies; (ix)  tax developments that may affect us directly, or indirectly through the cost of, the demand for or profitability of our products or services; (x) other legislative or regulatory developments; (xi) legal or regulatory actions; (xii) changes in accounting standards; and (xiii) other risks and uncertainties described herein or in any of our filings with the SEC. We undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

A-1

MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

This section reviews our results of operations for each of the two years in the period ended December 31, 2007. This discussion should be read in conjunction with our financial statements in this Form 10-K.

Business Overview and Earnings Drivers

We provide life insurance and annuity products targeted at affluent and high-net-worth individuals and institutions through a wide variety of third-party financial professionals and intermediaries. In life insurance, our main focus is on permanent life insurance (universal and variable universal life) insuring one or more lives, but we also offer a portfolio of term life insurance products. In annuities, we offer deferred and immediate variable annuities with a variety of death benefit and guaranteed living benefit options.

Our profitability is driven by interaction of the following elements:

· Mortality margins in our variable universal and universal life product lines. We earn cost of insurance (COI) fees based on the difference between face amounts and the account values (referred to as the net amount at risk or NAR). We pay policyholder benefits and set up reserves for future benefit payments on these products. We define mortality margins as the difference between these fees and benefit costs. Mortality margins are affected by:

• Number and face amount of policies sold;

• Actual death claims net of reinsurance relative to our assumptions, a reflection of our underwriting and actuarial pricing discipline, the cost of reinsurance and the natural volatility inherent in this kind of risk; and

• The policy funding levels or actual account values relative to our assumptions, a reflection of policyholder behavior and investment returns.

· Fees on our life and annuity products. Fees consist primarily of asset- and premium-based fees (including mortality and expense charges) which we charge on our variable life and variable annuity products, and depend on the premiums collected and account values of those products. Fees also include surrender charges. Non-asset-based fees are charged to cover premium taxes and non-deferrable or renewal commissions.

· Net investment income (NII) earned on universal life and other policyholder funds managed as part of our general account, less the interest credited to policyholders on those funds, as well as NII earned on surplus that we allocate in support of these products.

· Non-deferred expenses incurred in support of the business.

· The deferred policy acquisition cost amortization, which is based on the amount of expenses deferred, actual results in each quarter and management’s assumptions about the future performance of the business.

· Net realized investment gains or losses on our general account investments.

Under accounting principles generally accepted in the United States of America, or GAAP, premiums and deposits for variable life, universal life and annuity products are not recorded as revenues. For certain investment options of variable products, deposits are reflected on our balance sheet as an increase in separate account liabilities. Premiums and deposits for universal life, fixed annuities and certain investment options of variable annuities are reflected on our balance sheet as an increase in policyholder deposit funds. Premiums and deposits for other products are reflected on our balance sheet as an increase in policy liabilities and accruals.

A-2

Results of Operations

	Years Ended						Increase (decrease) and
($ in thousands)	December 31,						percentage change
	2007			2006			2007 vs. 2006
REVENUES:
Premiums	$	18,602		$	13,575		$	5,027		37	%
Insurance and investment product fees		263,298			180,779			82,519		46	%
Investment income, net of expenses		109,607			129,325			(19,718	)	(15	%)
Net realized investment losses		(7,043	)		(2,460	)		(4,583	)	(186	%)
Total revenues		384,464			321,219			63,245		20	%
BENEFITS AND EXPENSES:
Policy benefits		168,395			154,951			13,444		9	%
Policy acquisition cost amortization		120,041			93,342			26,699		29	%
Other operating expenses		83,601			65,388			18,213		28	%
Total benefits and expenses		372,037			313,681			58,356		19	%
Income before income taxes		12,427			7,538			4,889		65	%
Applicable income tax expense		(1,122	)		(1,070	)		(52	)	5	%
Net income	$	11,305		$	6,468		$	4,837		75	%

2007 vs. 2006

Net income improved in 2007 to $11,305 thousand, up from $6,468 thousand in the prior year. This result reflected improvements in mortality margins and fees, partially offset by higher non-deferred expenses, reflecting investments in the growth of new distribution and business initiatives, and by amortization of deferred policy acquisition costs.

Mortality margins in universal life and variable universal life products increased $35.3 million in 2007, reflecting a $65.2 million increase in cost of insurance fees, only partially offset by a $29.9 million increase in benefits. While fluctuations in mortality are inherent in our business, this improvement primarily reflects growth in the block of business over recent years. Fee revenues, net of premium taxes and non-deferrable commissions, increased $16.3 million in 2007. However, non-deferred expenses increased as we invested in new product development and sales growth. In addition, higher mortality margins and increasing inforce blocks created higher amortization expense of $122.2 million in 2007, compared with $94.4 million in 2006.

Impact of New Accounting Standards

For a discussion of accounting standards, see Note 2 to our financial statements in this Form 10-K.

Critical Accounting Estimates

The analysis of our results of operations is based upon our financial statements, which have been prepared in accordance with GAAP. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Critical accounting estimates are reflective of significant judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following are areas that we believe require significant judgments:

A-3

Accounting Change

Effective April 1, 2008, we changed our method of accounting for the cost certain of our of long duration reinsurance contracts accounted for in accordance with Statement of Financial Accounting Standards No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts , or SFAS 113. In conjunction with this change, we also changed our method of accounting for the impact of reinsurance costs on deferred acquisition costs. SFAS 113 requires us to amortize the estimated cost of reinsurance over the life of the underlying reinsured contracts. Under our previous method, we recognized reinsurance recoveries as part of the net cost of reinsurance and amortized this balance over the estimated lives of the underlying reinsured contracts in proportion to estimated gross profits (“EGPs”) consistent with the method used for amortizing deferred policy acquisition costs. Under the new method, reinsurance recoveries are recognized in the same period as the related reinsured claim. In conjunction with this change, we also changed our policy for determining EGPs relating to these contracts to include the effects of reinsurance, where previously these effects had not been included.

We adopted the new method because we believe that it better reflects the economics of the underlying reinsurance activity by better matching the reinsurance recovery with the insured loss that gave rise to that recovery. We also believe that the new method is consistent with management's intent in purchasing reinsurance, which is to protect the Company against large and unexpected claims. Comparative amounts from prior periods have been adjusted to apply the new method retrospectively in our financial statements in this Form 10-K.

Deferred Policy Acquisition Costs

We amortize deferred policy acquisition costs based on the related policy’s classification. For individual life insurance policies, deferred policy acquisition costs are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs are amortized in proportion to estimated gross profits, or EGPs. Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders.

Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year’s cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, industry studies, regulatory requirements and estimates about the future.

To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries.

A-4

Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be adjusted to reflect such change. This process is known as “unlocking”. Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances.

The separate account fund performance assumption is critical to the development of the EGPs related to our variable annuity and variable life insurance businesses. As equity markets do not move in a systematic manner, we use a mean reversion method (reversion to the mean assumption), a common industry practice, to determine the future equity market growth rate assumption used for the amortization of deferred policy acquisition costs. This practice assumes that the expectation for long-term appreciation is not changed by minor short-term market fluctuations. The average long-term rate of assumed separate account fund performance used in estimating gross profits was 6.0% (after fund fees and mortality and expense charges) for the variable annuity business and 6.9% (after fund fees and mortality and expense charges) for the variable life business at both December 31, 2007 and 2006.

We perform analysis with respect to the sensitivity of a change in the separate account performance assumption as it is critical to the development of the EGPs related to our variable annuity and variable life insurance business. Equity market movements have a significant impact on the account value of variable life and annuity products and the fees earned on these. EGPs could increase or decrease with these movements in the equity market. Sustained and significant changes in the equity markets could therefore have an impact on deferred policy acquisition cost amortization. Periodically, we also perform analysis with respect to the sensitivity of a change in assumed mortality as it is critical to the development of the EGPs related to our universal life insurance business.

As part of our analysis of separate account returns, we perform two sensitivity tests. If at December 31, 2007 we had used a 100 basis points lower separate account return assumption (after fund fees and mortality and expense charges) for both the variable annuity and the variable life businesses and used our current best estimate assumptions for all other assumptions to project account values forward from the current value to reproject EGPs, the estimated increase to amortization and decrease to net income would be approximately $1,794 thousand, after-tax.

If, instead, at December 31, 2007 we had used a 100 basis points higher separate account return assumption (after fund fees and mortality and expense charges) for both the variable annuity and variable life businesses and used our current best estimate assumptions for all other assumptions to project account values forward from the current value to reproject EGPs, the estimated decrease to amortization and increase to net income would be approximately $1,783 thousand, after-tax.

These revisions are not currently required or anticipated.

Policy Liabilities and Accruals

Reserves are liabilities representing estimates of the amounts that will come due to our policyholders at some point in the future. GAAP prescribes the methods of establishing reserves, allowing some degree of managerial judgment.

See Note 2 to our financial statements in this Form 10-K for more information.

A-5

Valuation of Debt and Equity Securities

We classify our debt and equity securities held in our general account as available-for-sale and report them in our balance sheet at fair value. Fair value is based on quoted market price, where available. When quoted market prices are not available, we estimate fair value by discounting debt security cash flows to reflect interest rates currently being offered on similar terms to borrowers of similar credit quality, by quoted market prices of comparable instruments and by independent pricing sources or internally developed pricing models.

Fair Value of General Account Fixed Maturity Securities	As of December 31, 2007
by Pricing Source:	Fixed			% of
($ in thousands)	Maturities			Total
	at Fair Value			Fair Value
Priced via independent market quotations		$	1,102,959	65%
Priced via matrices			283,484	17%
Priced via broker quotations			264,174	15%
Priced via other methods			53,151	3%
Short-term investments(1)			5,818	0%
Total		$	1,709,586	100%

_______

(1) Short-term investments are valued at amortized cost, which approximates fair value.

Investments whose value is considered by us to be other-than-temporarily impaired are written down to fair value as a charge to realized losses included in our earnings. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in fair value. We consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near term recovery. Inherent in our evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations we use in the impairment evaluation process include, but are not limited to:

· the length of time and the extent to which the market value has been below cost or amortized cost;

· the potential for impairments of securities when the issuer is experiencing significant financial difficulties;

· the potential for impairments in an entire industry sector or sub-sector;

· our ability and intent to hold the security for a period of time sufficient to allow for recovery of its value;

· unfavorable changes in forecasted cash flows on asset-backed securities; and

· other subjective factors, including concentrations and information obtained from regulators and rating agencies.

The cost basis of these written-down investments is adjusted to fair value at the date the determination of impairment is made. The new cost basis is not changed for subsequent recoveries in value. For mortgage-backed and other asset-backed debt securities, we recognize income using a constant effective yield based on anticipated prepayments and the estimated economic lives of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and any resulting adjustment is included in net investment income. For certain asset-backed securities, changes in estimated yield are recorded on a prospective basis and specific valuation methods are applied to these securities to determine if there has been an other-than-temporary decline in value.

See Note 6 to our financial statements in this Form 10-K for more information.

A-6

Deferred Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, or SFAS 109. The deferred income tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances on deferred income tax assets are estimated based on our assessment of the realizability of such amounts.

We have elected to file a consolidated federal income tax return for 2007 and prior years. Within the consolidated tax return, we are required by regulations of the Internal Revenue Service, or the IRS, to segregate the entities into two groups: life insurance companies and non-life insurance companies. We are limited as to the amount of any operating losses from the non-life group that can be offset against taxable income of the life group. These limitations affect the amount of any operating loss carryovers that we have now or in the future.

We have determined, based on our earnings and future income, that it is more likely than not that the deferred income tax assets will be realized. In determining the adequacy of future income, we have considered projected future income, reversal of existing temporary differences and available tax planning strategies and actions that could be implemented, if necessary.

Our federal income tax returns are routinely audited by the IRS, and estimated provisions are routinely provided in the financial statements in anticipation of the results of these audits. Unfavorable resolution of any particular issue could result in additional use of cash to pay liabilities that would be deemed owed to the IRS. Additionally, any unfavorable or favorable resolution of any particular issue could result in an increase or decrease, respectively, to our effective income tax rate to the extent that our estimates differ from the ultimate resolution.

See Note 9 to our financial statements in this Form 10-K for more information.

General Account

The invested assets in our general account are generally of high quality and broadly diversified across fixed income sectors, public and private income securities and individual credits and issuers. Our investment professionals manage these general account assets in investment segments that support specific product liabilities. These investment segments have distinct investment policies that are structured to support the financial characteristics of the related liabilities within them. Segmentation of assets allows us to manage the risks and measure returns on capital for our various products.

Separate Accounts

Separate account assets are managed in accordance with the specific investment contracts and guidelines relating to our variable products. We generally do not bear any investment risk on assets held in separate accounts. Rather, we receive investment management fees based on assets under management. Assets held in separate accounts are not available to satisfy general account obligations.

Debt and Equity Securities Held in General Account

Our general account debt securities portfolio consists primarily of investment grade publicly traded and privately placed corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. As of December 31, 2007, our general account debt securities, with a carrying value of $1,709.6 million, represented 98.6% of total general account investments. Public debt securities represented 79.7% of total debt securities, with the remaining 20.3% represented by private debt securities.

A-7

Each year, the majority of our general account’s net cash flows are invested in investment grade debt securities. In addition, we maintain a portfolio allocation of between 6% and 10% of debt securities in below investment grade rated bonds. Allocations are based on our assessment of relative value and the likelihood of enhancing risk-adjusted portfolio returns. The size of our allocation to below investment grade bonds is also constrained by the size of our net worth. We are subject to the risk that the issuers of the debt securities we own may default on principal and interest payments, particularly in the event of a major economic downturn. Our investment strategy has been to invest the majority of our below investment grade rated bond exposure in the BB rating category, which is equivalent to a Securities Valuation Office, or SVO, securities rating of 3. The BB rating category is the highest quality tier within the below investment grade universe, and BB rated securities historically experienced lower defaults compared to B or CCC rated bonds. As of December 31, 2007, our total below investment grade securities totaled $144.0 million, or 8.4%, of our total debt security portfolio. Of that amount, $97.3 million, or 5.7%, of our debt security portfolio was invested in the BB category. Our debt securities having an increased risk of default (those securities with an SVO rating of four or greater which is equivalent to B or below) totaled $46.7 million, or 2.7%, of our total debt security portfolio.

Our general account debt and equity securities are classified as available-for-sale and are reported at fair value with unrealized gains or losses included in equity. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based on quoted market price, where available. When quoted market prices are not available, we estimate fair value for debt securities by discounting projected cash flows based on market interest rates currently being offered on similar terms to borrowers of similar credit quality, by quoted market prices of comparable instruments and by independent pricing sources or internally developed pricing models. Investments whose value, in our judgment, is considered to be other-than-temporarily impaired are written down to fair value as a charge to realized investment losses included in our earnings. The cost basis of these written-down investments is adjusted to fair value at the date the determination of impairment is made. The new cost basis is not changed for subsequent recoveries in value.

Debt Securities by Type and Credit Quality:	As of December 31, 2007
($ in thousands)	Investment Grade						Below Investment Grade
	Fair Value			Cost			Fair Value			Cost
United States government and agency	$	65,774		$	64,884		$	--		$	--
State and political subdivision		11,029			11,134			--			--
Foreign government		11,477			11,003			18,946			16,713
Corporate		857,431			872,664			117,627			126,318
Mortgage-backed		358,479			372,733			--			--
Other asset-backed		261,446			281,404			7,377			7,523
Total debt securities	$	1,565,636		$	1,613,822		$	143,950		$	150,554
Percentage of total debt securities		92	%		91	%		8	%		9	%

We manage credit risk through industry and issuer diversification. Maximum exposure to an issuer is defined by quality ratings, with higher quality issuers having larger exposure limits. Our investment approach has been to create a high level of industry diversification. The top five industry holdings as of December 31, 2007 in our debt securities portfolio are banking (6.8%), diversified financial services (6.7%), insurance (3.3%), REITs (2.7%) and broker dealers (2.5%).

Total net unrealized losses on debt securities were $54,790 thousand (unrealized losses of $71,029 thousand less unrealized gains of $16,239 thousand).

A-8

At the end of each reporting period, we review our security holdings for potential recognition of an other-than-temporary impairment. We maintain a watch list of securities in default, near default or otherwise considered by our investment professionals as being distressed, potentially distressed or requiring a heightened level of scrutiny. We also identify securities whose carrying value has been below amortized cost on a continuous basis for zero to six months, six months to 12 months and greater than 12 months. This analysis is provided for investment grade and non-investment grade securities. Using this analysis, coupled with our watch list, we review all securities whose fair value is less than 80% of amortized cost (significant unrealized loss) with emphasis on below investment grade securities with a continuous significant unrealized loss in excess of six months. In addition, we review securities that had experienced lesser percentage declines in value on a more selective basis to determine if a security is other-than-temporarily impaired.

Our assessment of whether an investment by us in a debt or equity security is other-than-temporarily impaired includes whether the issuer has:

· defaulted on payment obligations;

· declared that it will default at a future point outside the current reporting period;

· announced that a restructuring will occur outside the current reporting period;

· severe liquidity problems that cannot be resolved;

· filed for bankruptcy;

· a financial condition which suggests that future payments are highly unlikely;

· deteriorating financial condition and quality of assets;

· sustained significant losses during the current year;

· announced adverse changes or events such as changes or planned changes in senior management, restructurings, or a sale of assets; and/or

· been affected by any other factors that indicate that the fair value of the investment may have been negatively impacted.

The following table presents certain information with respect to our gross unrealized losses related to our investments in general account debt securities. Applicable deferred policy acquisition costs and deferred income taxes reduce the effect of these losses on our comprehensive income.

Duration of Gross Unrealized Losses on
General Account Securities:	As of December31, 2007
($ in thousands)				0 - 6			6 - 12			Over 12
	Total			Months			Months			Months
Debt Securities
Total fair value	$	1,128,642		$	193,384		$	184,274		$	750,984
Total amortized cost		1,199,671			210,133			202,606			786,932
Unrealized losses	$	(71,029	)	$	(16,749	)	$	(18,332	)	$	(35,948	)
Unrealized losses after offsets	$	(11,780	)	$	(2,683	)	$	(2,912	)	$	(6,185	)
Number of securities		654			137			106			411
Investment grade:
Unrealized losses	$	(61,748	)	$	(15,440	)	$	(17,844	)	$	(28,464	)
Unrealized losses after offsets	$	(10,182	)	$	(2,467	)	$	(2,836	)	$	(4,879	)
Below investment grade:
Unrealized losses	$	(9,281	)	$	(1,309	)	$	(488	)	$	(7,484	)
Unrealized losses after offsets	$	(1,598	)	$	(216	)	$	(76	)	$	(1,306	)

For debt securities with gross unrealized losses, 86.4% of the unrealized losses after offsets for deferred policy acquisition costs and deferred income taxes pertain to investment grade securities and 13.6% of the unrealized losses after offsets pertain to below investment grade securities at December 31, 2007.

A-9

The following table represents those securities whose fair value is less than 80% of amortized cost (significant unrealized loss) that have been at a significant unrealized loss position on a continuous basis.

Duration of Gross Unrealized Losses on
General Account Securities:	As of December31, 2007
($ in thousands)				0 - 6			6 - 12		Over 12
	Total			Months			Months		Months
Debt Securities
Unrealized losses over 20% of cost	$	(17,781	)	$	(17,781	)	$	--	$	--
Unrealized losses over 20% of cost after offsets	$	(2,780	)	$	(2,780	)	$	--	$	--
Number of securities		31			31			--		--
Investment grade:
Unrealized losses over 20% of cost	$	(13,848	)	$	(13,848	)	$	--	$	--
Unrealized losses over 20% of cost after offsets	$	(2,165	)	$	(2,165	)	$	--	$	--
Below investment grade:
Unrealized losses over 20% of cost	$	(3,933	)	$	(3,933	)	$	--	$	--
Unrealized losses over 20% of cost after offsets	$	(615	)	$	(615	)	$	--	$	--

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporarily impaired, we evaluated the factors cited above. In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no assurance that actual results will not differ from our judgments and that such differences may require the future recognition of other-than-temporary impairment charges that could have a material affect on our financial position and results of operations. In addition, the value of, and the realization of any loss on, a debt security or equity security is subject to numerous risks, including interest rate risk, market risk, credit risk and liquidity risk. The magnitude of any loss incurred by us may be affected by the relative concentration of our investments in any one issuer or industry. We have established specific policies limiting the concentration of our investments in any single issuer and industry and believe our investment portfolio is prudently diversified.

Residential Mortgage-Backed Securities

The weakness in the U.S. real estate markets, increases in interest rates and the effects of relaxed underwriting standards for mortgages and home equity loans have led to higher delinquency rates for residential mortgage-backed securities, especially those originated in 2006 and those designated as sub-prime. In addition, there have been increased concerns in the financial markets about residential mortgage-backed securities designated as

Alt-A.

Sub-prime mortgage lending refers to the origination of residential mortgage loans to customers with weak or impaired credit profiles, including, but not limited to, those with the lowest credit scores. Alt-A mortgage lending refers to the origination of residential mortgage loans to customers who are rated above the sub-prime category but below top rated prime borrowers, for reasons including, but not limited to, the election not to provide documentation for items such as income sources.

We invest directly in residential mortgage-backed securities through our general account. To the extent these assets deteriorate in credit quality and decline in value, we may realize impairment losses. We have been focused on identifying those securities that can withstand significant increases in delinquencies and foreclosures in the underlying mortgage pools before incurring a loss of principal.

A-10

Most of our residential mortgage-backed securities portfolio is highly rated. As of December 31, 2007, over 94% of the total residential portfolio was rated AAA or AA. We have $92,011 thousand of sub-prime exposure, which represents 5.0% of our general account. Substantially all of our sub-prime exposure is investment grade, and 97.6% is AAA rated, with another 1.7% in AA securities. We have employed a disciplined approach in the analysis and monitoring of our mortgage-backed securities. Our approach involves a monthly review of each security. Underlying mortgage data is obtained from the security’s trustee and analyzed for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows. Our exposure to sub-prime mortgages originated after 2005 is less than 3% of our general account, with 99% of those securities rated AAA.

Residential Mortgage-Backed Securities:

($ in thousands)	As of December 31, 2007
	Book		Market		% General															BB and
	Value		Value		Account(1)			AAA			AA			A			BBB			Below
Collateral
Agency	$	42,631	$	42,247		2.3	%		100.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Prime		179,353		170,249		9.2	%		90.3	%		0.6	%		0.0	%		9.1	%		0.0	%
Alt-A		62,482		58,684		3.2	%		91.4	%		0.5	%		4.7	%		3.4	%		0.0	%
Sub-prime		97,334		92,011		5.0	%		97.6	%		1.7	%		0.6	%		0.0	%		0.1	%
Total	$	381,800	$	363,191		19.7	%		93.5	%		0.8	%		0.9	%		4.8	%		0.0	%

_______

(1) Percentages based on Market Value.

Liquidity and Capital Resources

In the normal course of business, we enter into transactions involving various types of financial instruments such as debt and equity securities. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations.

Our liquidity requirements principally relate to the liabilities associated with various life insurance and annuity products and operating expenses. Liabilities arising from life insurance and annuity products include the payment of benefits, as well as cash payments in connection with policy surrenders, withdrawals and loans.

Historically, we have used cash flow from operations and investment activities to fund liquidity requirements. Our principal cash inflows from life insurance and annuities activities come from premiums, annuity deposits and charges on insurance policies and annuity contracts. Principal cash inflows from investment activities result from repayments of principal, proceeds from maturities, sales of invested assets and investment income.

Additional liquidity to meet cash outflows is available from our portfolio of liquid assets. These liquid assets include substantial holdings of United States government and agency bonds, short-term investments and marketable debt and equity securities.

A primary liquidity concern with respect to life insurance and annuity products is the risk of early policyholder and contractholder withdrawal. We closely monitor our liquidity requirements in order to match cash inflows with expected cash outflows, and employ an asset/liability management approach tailored to the specific requirements of each product line, based upon the return objectives, risk tolerance, liquidity, tax and regulatory requirements of the underlying products. In particular, we maintain investment programs intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with relatively long lives, such as life insurance, are matched with assets having similar estimated lives, such as long-term bonds and private placement bonds. Shorter-term liabilities are matched with investments with short-term and medium-term fixed maturities.

A-11

Annuity Actuarial Reserves and Deposit Fund Liability	As of December 31,
Withdrawal Characteristics:	2007					2006
($ in thousands)	Amount(1)		Percent			Amount(1)		Percent
Not subject to discretionary withdrawal provision	$	34,807		1	%	$	28,769		1	%
Subject to discretionary withdrawal without adjustment		531,863		12	%		595,654		14	%
Subject to discretionary withdrawal with market value adjustment		252,525		6	%		398,092		9	%
Subject to discretionary withdrawal at contract value less surrender charge		355,558		8	%		499,303		11	%
Subject to discretionary withdrawal at market value		3,279,915		73	%		2,865,268		65	%
Total annuity contract reserves and deposit fund liability	$	4,454,668		100	%	$	4,387,086		100	%

_______

(1) Annuity contract reserves and deposit fund liability amounts are reported on a statutory basis, which more accurately reflects the potential cash outflows and include variable product liabilities. Annuity contract reserves and deposit fund liabilities are monetary amounts that an insurer must have available to provide for future obligations with respect to its annuities and deposit funds. These are liabilities in our financial statements prepared in conformity with statutory accounting practices. These amounts are at least equal to the values available to be withdrawn by policyholders.

Individual life insurance policies are less susceptible to withdrawals than annuity contracts because policyholders may incur surrender charges and be required to undergo a new underwriting process in order to obtain a new insurance policy. As indicated in the table above, most of our annuity contract reserves and deposit fund liabilities are subject to withdrawals.

Individual life insurance policies, other than term life insurance policies, increase in cash values over their lives. Policyholders have the right to borrow an amount up to a certain percentage of the cash value of their policies at any time. As of December 31, 2007, we had approximately $416,409 thousand in cash values with respect to which policyholders had rights to take policy loans. The majority of cash values eligible for policy loans are at variable interest rates that are reset annually on the policy anniversary. Policy loans at December 31, 2007 were $21,605 thousand.

The primary liquidity risks regarding cash inflows from our investment activities are the risks of default by debtors, interest rate and other market volatility and potential illiquidity of investments. We closely monitor and manage these risks.

We believe that our current and anticipated sources of liquidity are adequate to meet our present and anticipated needs.

Rating agencies assign financial strength ratings to Phoenix Life and its subsidiaries based on their opinions of the Companies’ ability to meet their financial obligations. Ratings changes may result in increased or decreased interest costs in connection with future borrowings. Such an increase or decrease would affect our earnings and could affect our ability to finance our future growth. Downgrades may also trigger defaults or repurchase obligations. The financial strength and debt ratings as of March 1, 2008 were as follows:

	Financial Strength Ratings of
Rating Agency	Phoenix Life and PHL Variable Life
A.M. Best Company, Inc.	A (“Excellent”)
Fitch	A+ (“Strong”)
Moody’s	A3 (“Good”)
Standard & Poor’s	A- (“Strong”)

A-12

Contractual Obligations and Commercial Commitments

Contractual Obligations and

Commercial Commitments:	As of December 31, 2006
($ in thousands)	Total		2008		2009 – 2010		2011 – 2012		Thereafter
Contractual Obligations
Fixed contractual obligations(1)	$	--	$	--	$	--	$	--	$	--
Other long-term liabilities(2)		14,159,110		87,338		1,496,523		1,329,308		10,461,941
Total contractual obligations(3)	$	14,159,110	$	87,338	$	1,496,523	$	1,329,308	$	10,461,941
Commercial Commitments
Commitments related to private placements	$	6,885	$	6,885	$	--	$	--	$	--
Total commercial commitments	$	6,885	$	6,885	$	--	$	--	$	--

_______

(1) We have no fixed contractual obligations as all purchases are made by our parent company and the resulting expenses are allocated to us when incurred.

(2) Policyholder contractual obligations represent estimated benefits from life insurance and annuity contracts issued by us. Policyholder contractual obligations also include separate account liabilities, which are contractual obligations of the separate account assets established under applicable state insurance laws and are legally insulated from our general account assets.   Future obligations are based on our estimate of future investment earnings, mortality, surrenders and applicable policyholder dividends. Actual obligations in any single year, or ultimate total obligations, may vary materially from these estimates as actual experience emerges. As described in Note 2 to our financial statements in this Form 10-K, policy liabilities and accruals are recorded on the balance sheet in amounts adequate to meet the estimated future obligations of the policies in force. The policyholder obligations reflected in the table above exceed the policy liabilities, policyholder deposit fund liabilities and separate account liabilities reported on our December 31, 2007 balance sheet because the above amounts do not reflect future investment earnings and future premiums and deposits on those policies. Separate account obligations will be funded by the cash flows from separate account assets, while the remaining obligations will be funded by cash flows from investment earnings on general account assets and premiums and deposits on contracts in force.

(3) Due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2007, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $525 thousand of unrecognized tax benefits have been excluded from this table. See Note 9 to our financial statements in this Form 10-K for additional information on unrecognized tax benefits.

Off-Balance Sheet Arrangements

As of December 31, 2007, we did not have any significant off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of SEC Regulation S-K.

Reinsurance

We maintain life reinsurance programs designed to protect against large or unusual losses in our life insurance business. Based on our review of their financial statements, reputations in the reinsurance marketplace and other relevant information, we believe that these reinsurers are financially sound and, therefore, that we have no material exposure to uncollectible life reinsurance.

Statutory Capital and Surplus and Risk-Based Capital

Connecticut Insurance Law requires that Connecticut life insurers report their risk-based capital. Risk-based capital is based on a formula calculated by applying factors to various asset, premium and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk and business risk. The Connecticut Insurance Department has regulatory authority to require various actions by, or take various actions against, insurers whose Total Adjusted Capital (capital and surplus plus AVR) does not exceed certain risk-based capital levels.

A-13

The levels of regulatory action, the trigger point and the corrective actions required are summarized below:

Company Action Level – results when Total Adjusted Capital falls below 200% of Authorized Control Level at which point the company must file a comprehensive plan to the state insurance regulators;

Regulatory Action Level – results when Total Adjusted Capital falls below 150% of Authorized Control Level where in addition to the above, insurance regulators are required to perform an examination or analysis deemed necessary and issue a corrective order specifying corrective actions;

Authorized Control Level – results when Total Adjusted Capital falls below 100% of Authorized Control Level risk-based capital as defined by the NAIC where in addition to the above, the insurance regulators are permitted but not required to place the company under regulatory control; and

Mandatory Control Level – results when Total Adjusted Capital falls below 80% of Authorized Control Level where insurance regulators are required to place the company under regulatory control.

At December 31, 2007, our Total Adjusted Capital level was in excess of 350% of Company Action Level. PNX management is committed to maintaining appropriate capital levels for the Company to conduct business.

See Note 13 to our financial statements in this Form 10-K for more information.

A-14

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of

  PHL Variable Insurance Company:

In our opinion, the accompanying balance sheets and the related statements of income, comprehensive income and changes in stockholder’s equity and of cash flows presentfairly, in all material respects, the financial position of PHL Variable Insurance Company (the Company) at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements 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.  An audit 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, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

March 7, 2008, except as it relates to the effects to the change in accounting for reinsurance of certain of the Company’s long duration insurance contracts as reflected in Note 2 to the financial statements, as to which the date is July 31, 2008.

A-15

PHL Variable Insurance Company

Balance Sheet

($ in thousands, except share data)

December 31, 2007 and 2006

	2007			2006
ASSETS:
Available-for-sale debt securities, at fair value	$	1,709,586		$	2,050,989
Policy loans, at unpaid principal balances		22,819			15,542
Other investments		1,251			1,612
Total investments		1,733,656			2,068,143
Cash and cash equivalents		108,200			47,127
Accrued investment income		17,518			19,882
Receivables		37,178			54,534
Deferred policy acquisition costs		1,009,612			701,620
Receivable from related parties		527			300
Other assets		20,214			2,356
Separate account assets		3,389,356			2,953,063
Total assets	$	6,316,261		$	5,847,025
LIABILITIES:
Policyholder deposit funds	$	1,134,635		$	1,491,367
Policy liabilities and accruals		981,509			709,583
Deferred income taxes		135,648			94,708
Payable to related parties		28,969			25,081
Other liabilities		48,303			26,576
Separate account liabilities		3,389,356			2,953,063
Total liabilities		5,718,420			5,300,378
CONTINGENT LIABILITIES (Note 14)
STOCKHOLDER’S EQUITY:
Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued		2,500			2,500
Additional paid-in capital		553,218			503,234
Retained earnings		53,906			43,602
Accumulated other comprehensive loss		(11,783	)		(2,689	)
Total stockholder’s equity		597,841			546,647
Total liabilities and stockholder’s equity	$	6,316,261		$	5,847,025

The accompanying notes are an integral part of these financial statements.

A-16

PHL Variable Insurance Company

Statement of Income, Comprehensive Income and Changes in Stockholder’s Equity

($ in thousands)

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
REVENUES:
Premiums	$	18,602		$	13,575		$	9,521
Insurance and investment product fees		263,298			180,779			109,270
Investment income, net of expenses		109,607			129,325			154,374
Net realized investment losses		(7,043	)		(2,460	)		(10,569	)
Total revenues		384,464			321,219			262,596
BENEFITS AND EXPENSES:
Policy benefits		168,395			154,951			130,279
Policy acquisition cost amortization		120,041			93,342			80,402
Other operating expenses		83,601			65,388			50,493
Total benefits and expenses		372,037			313,681			261,174
Income before income taxes		12,427			7,538			1,422
Applicable income tax (expense) benefit		(1,122	)		(1,070	)		2,801
Net income	$	11,305		$	6,468		$	4,223
FEES PAID TO RELATED PARTIES (NOTE 10)
COMPREHENSIVE INCOME:
Net income	$	11,305		$	6,468		$	4,223
Net unrealized investment losses		(9,095	)		(1,277	)		(9,986	)
Net unrealized derivative instruments losses		--			(807	)		(335	)
Other comprehensive loss		(9,095	)		(2,084	)		(10,321	)
Comprehensive income (loss)	$	2,210		$	4,384		$	(6,098	)
ADDITIONAL PAID-IN  CAPITAL:
Capital contributions from parent	$	49,984		$	--		$	--
RETAINED EARNINGS:
Adjustment for initial application of FIN 48 (Note 2)		(1,000	)		--			--
Net income		11,305			6,468			4,223
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Other comprehensive loss		(9,095	)		(2,084	)		(10,321	)
Change in stockholder’s equity		51,194			4,384			(6,098	)
Stockholder’s equity, beginning of year		546,647			542,263			548,361
Stockholder’s equity, end of year	$	597,841		$	546,647		$	542,263

The accompanying notes are an integral part of these financial statements.

A-17

PHL Variable Insurance Company

Statement of Cash Flows

($ in thousands)

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
OPERATING ACTIVITIES:
Net income	$	11,305		$	6,468		$	4,223
Net realized investment losses		7,043			2,460			10,569
Investment (gains) losses		1,473			4,206			(15,293	)
Deferred income taxes		45,837			22,473			15,512
(Increase) decrease in receivables		(4,520	)		(6,939	)		4,091
Increase in deferred policy acquisition costs		(280,566	)		(177,236	)		(56,634	)
Increase in policy liabilities and accruals		289,311			213,753			155,315
Other assets and other liabilities change		7,868			(1,224	)		30,634
Cash from operating activities		77,751			63,961			148,417
INVESTING ACTIVITIES:
Investment purchases		(890,909	)		(1,007,973	)		(1,148,093	)
Investment sales, repayments and maturities		1,207,988			1,728,360			1,357,687
Cash from investing activities		317,079			720,387			209,594
FINANCING ACTIVITIES:
Policyholder deposit fund deposits		266,750			223,309			236,099
Policyholder deposit fund withdrawals		(625,507	)		(986,348	)		(607,890	)
Capital contributions from parent		25,000			--			--
Cash for financing activities		(333,757	)		(763,039	)		(371,791	)
Change in cash and cash equivalents		61,073			21,309			(13,780	)
Cash and cash equivalents, beginning of year		47,127			25,818			39,598
Cash and cash equivalents, end of year	$	108,200		$	47,127		$	25,818

The accompanying notes are an integral part of these financial statements.

A-18

PHL Variable Insurance Company

Notes to Financial Statements

Years Ended December 31, 2007, 2006 and 2005

1.  Organization and Operations

PHL Variable Insurance Company is a life insurance company offering variable and fixed annuity and non-participating life insurance products. It is a wholly-owned subsidiary of PM Holdings, Inc. PM Holdings, Inc. is a wholly-owned subsidiary of Phoenix Life Insurance Company (Phoenix Life), which is a wholly-owned subsidiary of The Phoenix Companies, Inc. (PNX), a New York Stock Exchange listed company. Phoenix Home Life Mutual Insurance Company demutualized on June 25, 2001 by converting from a mutual life insurance company to a stock life insurance company, became a wholly-owned subsidiary of PNX and changed its name to Phoenix Life Insurance Company.

2.  Basis of Presentation and Significant Accounting Policies

We have prepared these financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, which differ materially from the accounting practices prescribed by various insurance regulatory authorities. We have reclassified certain amounts for 2006 and 2005 to conform with the 2007 presentation.

Use of estimates

In preparing these financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. We employ significant estimates and assumptions in the determination of deferred policy acquisition costs; policyholder liabilities and accruals; the valuation of investments in debt and equity securities; and accruals for deferred income taxes and contingent liabilities.

Accounting Change

Effective April 1, 2008, we changed our method of accounting for the cost certain of our of long duration reinsurance contracts accounted for in accordance with Statement of Financial Accounting Standards No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, or SFAS 113. In conjunction with this change, we also changed our method of accounting for the impact of reinsurance costs on deferred acquisition costs. SFAS 113 requires us to amortize the estimated cost of reinsurance over the life of the underlying reinsured contracts. Under our previous method, we recognized reinsurance recoveries as part of the net cost of reinsurance and amortized this balance over the estimated lives of the underlying reinsured contracts in proportion to estimated gross profits (“EGPs”) consistent with the method used for amortizing deferred policy acquisition costs. Under the new method, reinsurance recoveries are recognized in the same period as the related reinsured claim. In conjunction with this change, we also changed our policy for determining EGPs relating to these contracts to include the effects of reinsurance, where previously these effects had not been included.

We adopted the new method because we believe that it better reflects the economics of the underlying reinsurance activity by better matching the reinsurance recovery with the insured loss that gave rise to that recovery. We also believe that the new method is consistent with management's intent in purchasing reinsurance, which is to protect the Company against large and unexpected claims. Comparative amounts from prior periods, including in Notes 3, 4 and 9, have been adjusted to apply the new method retrospectively in these financial statements. The following financial statement line items were affected by the change in accounting principle. Certain balances shown “as originally reported” have been reclassified to conform to the current period presentation.

A-19

2.  Basis of Presentation and Significant Accounting Policies

Income Statement

($ in thousands)	Year Ended December 31, 2007
	As adjusted			As originally reported			Effect of Change
Insurance and investment product fees	$	263,298		$	263,696		$	(398	)
Policy benefits		168,395			157,616			10,779
Policy acquisition cost amortization		120,041			124,015			(3,974	)
Income tax (expense) benefit		(1,122	)		(3,643	)		2,521
Net income (loss)		11,305			15,987			(4,682	)

($ in thousands)	Year Ended December 31, 2006
	As adjusted			As originally reported			Effect of Change
Insurance and investment product fees	$	180,779		$	180,498		$	281
Policy benefits		154,951			151,285			3,666
Policy acquisition cost amortization		93,342			91,168			2,174
Income tax (expense) benefit		(1,070	)		(3,016	)		1,946
Net income (loss)		6,468			10,081			(3,613	)

Balance Sheet

($ in thousands)	December 31, 2007
	As adjusted		As originally reported		Effect of Change
Deferred policy acquisition costs	$	1,009,612	$	1,007,811	$	1,801
Policy liabilities and accruals		981,509		966,945		14,564
Deferred income taxes		135,648		140,115		(4,467	)
Retained earnings		53,906		62,202		(8,296	)

($ in thousands)	December 31, 2006
	As adjusted		As originally reported		Effect of Change
Deferred policy acquisition costs	$	701,620	$	703,794	$	(2,174	)
Policy liabilities and accruals		709,583		706,198		3,385
Deferred income taxes		94,708		96,654		(1,946	)
Retained earnings		43,602		47,215		(3,613	)

Adoption of new accounting standards

We adopted the provisions of the Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, on January 1, 2007. As a result of the implementation of FIN 48, we recognized an increase in reserves for uncertain tax benefits through a cumulative effect adjustment of approximately $1,000 thousand, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. Including the cumulative effect adjustment, we had $1,840 thousand of total gross unrecognized tax benefits as of January 1, 2007. The entire amount of unrecognized tax benefits would, if recognized, impact the annual effective tax rate upon recognition. See Note 9 to these financial statements for more information.

A-20

2.  Basis of Presentation and Significant Accounting Policies (continued)

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, or SAB 108. SAB 108 provides guidance for how errors should be evaluated to assess materiality from a quantitative perspective. SAB 108 permits companies to initially apply its provisions by either restating prior financial statements or recording the cumulative effect of initially applying the approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment to retained earnings. We adopted SAB 108 on December 31, 2006 with no effect on our financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, or SFAS 156. SFAS 156 provides guidance on recognition and disclosure of servicing assets and liabilities and was effective beginning January 1, 2007. We adopted this standard effective January 1, 2007 with no material impact on our financial position and results of operations.

Effective January 1, 2006, we adopted SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, or SFAS 155. SFAS 155 resolves certain issues surrounding the accounting for beneficial interests in securitized financial assets. Our adoption of SFAS 155 did not have a material effect on our financial statements.

Effective January 1, 2006, we adopted FASB Staff Position Nos. FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, or FSP 115-1. FSP 115-1 provides guidance as to the determination of other-than-temporarily impaired securities and requires certain financial disclosures with respect to unrealized losses. These accounting and disclosure requirements largely codify our existing practices as to other-than-temporarily impaired securities and thus, our adoption did not have a material effect on our financial statements.

In September 2005, the Accounting Standards Executive Committee, or AcSEC, of the AICPA’s issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts, or SOP 05-1. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. We adopted this standard effective January 1, 2007 with no material effect on our financial position and results of operations.

Accounting standards not yet adopted

In December 2007, the FASB issued SFAS No. 141(R), Accounting for Business Combinations, or SFAS 141(R). SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose all information needed to evaluate and understand the nature and financial effect of the combination and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, or SFAS 160. SFAS 160 requires all entities to report noncontrolling interests in subsidiaries in the same way—as equity in the consolidated financial statements and requires that associated transactions be treated as equity transactions—and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations.

A-21

2.  Basis of Presentation and Significant Accounting Policies (continued)

In June 2007, the AICPA issued Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide “Investment Companies” and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, or SOP 07-1. SOP 07-1 broadens the definition of an investment company for application of this guidance. It provides that an entity that meets the definition of an investment company use fair value as a basis of accounting and reporting and that a parent retains the specialized fair value accounting of the entity if certain criteria are met. On February 14, 2008, the FASB deferred the effective date of SOP 07-1 indefinitely.

On February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS 159, which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. We adopted SFAS 159 as of January 1, 2008 with no material effect on our financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (“Level 1, 2 and 3”). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability. Level 3 inputs are unobservable inputs reflecting our estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Quantitative and qualitative disclosures will focus on the inputs used to measure fair value for both recurring and non-recurring fair value measurements and the effects of the measurements in the financial statements. We adopted SFAS 157 effective January 1, 2008. We do not expect adoption of this statement to have a material impact on our financial position and results of operations.

Significant accounting policies

Investments

Debt and equity securities

Our debt and equity securities classified as available-for-sale are reported on our balance sheet at fair value. Fair value is based on quoted market price, where available. When quoted market prices are not available, we estimate fair value by discounting debt security cash flows to reflect interest rates currently being offered on similar terms to borrowers of similar credit quality (private placement debt securities), by quoted market prices of comparable instruments (untraded public debt securities) and by independent pricing sources or internally developed pricing models (equity securities). We recognize unrealized investment gains and losses on investments in debt and equity securities that we classify as available-for-sale. We report these unrealized investment gains and losses as a component of other comprehensive income, net of applicable deferred policy acquisition costs and applicable deferred income taxes.

For mortgage-backed and other asset-backed debt securities, we recognize income using a constant effective yield based on anticipated prepayments and the estimated economic lives of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and any resulting adjustment is included in net investment income. For certain asset-backed securities, changes in estimated yield are recorded on a prospective basis and specific valuation methods are applied to these securities to determine if there has been an other-than-temporary decline in value.

A-22

2.  Basis of Presentation and Significant Accounting Policies (continued)

Policy loans

Policy loans are carried at their unpaid principal balances and are collateralized by the cash values of the related policies. We estimate the fair value of fixed rate policy loans by discounting loan interest and loan repayments. We base the discount rate on the 10-year U.S. Treasury rate. We assume that loan interest payments are made at the fixed rate less 17.5 basis points and that loan repayments only occur as a result of anticipated policy lapses. For variable rate policy loans, we consider the unpaid loan balance as fair value, as interest rates on these loans are reset annually based on market rates.

Other investments

Other investments primarily include other partnership interests in which we do not have control or a majority ownership interest and are recorded using the equity method of accounting. We record the net income from investments in partnerships in net investment income.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, money market instruments and other debt instruments with maturities of three months or less when purchased.

Deferred policy acquisition costs

The costs of acquiring new business, principally commissions, underwriting, distribution and policy issue expenses, all of which vary with and are primarily related to production of new business, are deferred.

We amortize deferred policy acquisition costs based on the related policy’s classification. For individual life insurance policies, deferred policy acquisition costs are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs are amortized in proportion to estimated gross profits, or EGPs. Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders.

Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year’s cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, industry studies, regulatory requirements and estimates about the future.

To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries.

A-23

2.  Basis of Presentation and Significant Accounting Policies (continued)

Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be adjusted to reflect such change. This process is known as “unlocking”. Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances.

Separate account assets and liabilities

Separate account assets and liabilities related to policyholder funds are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and the related liability increases are excluded from benefits and expenses. Fees assessed to the contractholders for management services are included in revenues when services are rendered.

Policy liabilities and accruals

Policy liabilities and accruals includes future benefit liabilities for certain life and annuity products. We establish liabilities in amounts adequate to meet the estimated future obligations of policies in force. Future benefit liabilities for traditional life insurance are computed using the net level premium method on the basis of actuarial assumptions as to contractual guaranteed rates of interest, mortality rates guaranteed in calculating the cash surrender values described in such contracts and morbidity. Future benefit liabilities for term and annuities in the payout phase that have significant mortality risk are computed using the net premium method on the basis of actuarial assumptions at the issue date of these contracts for rates of interest, contract administrative expenses, mortality and surrenders. We establish liabilities for outstanding claims, losses and loss adjustment expenses based on individual case estimates for reported losses and estimates of unreported losses based on past experience.

Certain contracts may also include additional death or other insurance benefit features, such as guaranteed minimum death or income benefits offered with variable annuity contracts or no-lapse guarantees offered with universal life insurance contracts. An additional liability is established for these benefits by estimating the expected present value of the excess benefits and recognizing the excess ratably over the accumulation period based on total expected assessments.

Policyholder deposit funds

Amounts received as payment for certain universal life contracts, deferred annuities and other contracts without life contingencies are reported as deposits to Policyholder deposit funds. The liability for universal life-type contracts is equal to the balance that accrues to the benefit of the policyholders as of the financial statement date, including interest credited, amounts that have been assessed to compensate us for services to be performed over future periods, and any amounts previously assessed against the policyholder that is refundable. The liability for deferred annuities and other contracts without life contingencies is equal to the balance that accrues to the benefit of the contract holder as of the financial statement date which includes the accumulation of deposits plus interest credited, less withdrawals and amounts assessed through the financial statement date.

Contingent liabilities

Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable.

A-24

2.  Basis of Presentation and Significant Accounting Policies (continued)

Revenue recognition

We recognize premiums for long-duration life insurance products as revenue when due from policyholders. We recognize life insurance premiums for short-duration life insurance products as premium revenue pro rata over the related contract periods. We match benefits, losses and related expenses with premiums over the related contract periods.

Amounts received as payment for interest sensitive life contracts, deferred annuities and other contracts without life contingencies are considered deposits and are not included in revenue. Revenues from these products consist primarily of fees assessed during the period against the policyholders’ account balances for mortality charges, policy administration charges and surrender charges. Fees assessed that represent compensation for services to be provided in the future are deferred and amortized into revenue over the life of the related contracts. Related benefit expenses include universal life benefit claims in excess of fund values, net investment income credited to policyholders’ account balances and amortization of deferred policy acquisition costs.

Net investment income and net realized investment gains (losses)

We recognize realized investment gains (losses) on asset dispositions on a first-in, first-out basis. We recognize realized investment losses when declines in fair value of debt and equity securities are considered to be other-than-temporarily impaired. We adjust the cost basis of these written down investments to fair value at the date the determination of impairment is made and do not change the new cost basis for subsequent recoveries in value. In evaluating whether a decline in value is other than temporary, we consider several factors including, but not limited to the following:

· the extent and the duration of the decline;

· the reasons for the decline in value (credit event, interest related or market fluctuations);

· our ability and intent to hold the investment for a period of time to allow for a recovery of value; and

· the financial condition of and near term prospects of the issuer.

Income taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, or SFAS 109. Accordingly, income tax expense or benefit is recognized based upon amounts reported in the financial statements and the provisions of currently enacted tax laws. We allocate income taxes to income, other comprehensive income and additional paid-in capital, as applicable.

We recognize current income tax assets and liabilities for estimated income taxes refundable or payable based on the current year’s income tax returns. We recognize deferred income tax assets and liabilities for the estimated future income tax effects of temporary differences and carryovers. Temporary differences are the differences between the financial statement carrying amounts of assets and liabilities and their tax bases, as well as the timing of income or expense recognized for financial reporting and tax purposes of items not related to assets or liabilities. If necessary, we establish valuation allowances to reduce the carrying amount of deferred income tax assets to amounts that are more likely than not to be realized. We periodically review the adequacy of these valuation allowances and record any reduction in allowances in accordance with SFAS 109’s intraperiod allocation rules. We recognize interest and penalties related to amounts accrued on uncertain tax positions and amounts paid or refunded from federal and state income tax authorities in tax expense.

3.  Reinsurance

We use reinsurance agreements to provide for greater diversification of business, control exposure to potential losses arising from large risks and provide capacity for growth.

A-25

3.  Reinsurance (continued)

We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to us; consequently, we establish reserves for amounts deemed or estimated to be uncollectible. To minimize our exposure to significant losses from reinsurance insolvencies, we evaluate the financial condition of our reinsurers and monitor concentration of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers.

Our reinsurance program varies based on the type of risk, for example:

· On direct policies, the maximum of individual life insurance retained by us on any one life is $10 million on single life and joint first-to-die policies and $12 million for joint last-to-die policies, with excess amounts ceded to reinsurers.

· We cede 80% to 90% of the mortality risk on most new issues of term insurance.

· In August 2006, we entered into an agreement to cede 50% of the risk on policies issued from July 1, 2002 through December 31, 2005, inclusive, with a net amount at risk of $2 million or greater.

· On January 1, 1996, we entered into a reinsurance agreement that covers 100% of the excess death benefits and related reserves for most variable annuity policies issued from January 1, 1983 through December 31, 1999, including subsequent deposits. We retain the guaranteed minimum death benefit risks on the remaining variable deferred annuities in force that are not covered by this reinsurance arrangement.

· We cede to Phoenix Life 100% of the guaranteed minimum accumulation and withdrawal benefits on our variable annuities.

· Effective January 1, 2008, we entered into an agreement to cede 75% of the risk in excess of $6.0 million on universal life and variable universal life policies issued from January 1, 2006 through December 31, 2007.

Direct Business and Reinsurance:	Year Ended December 31,
($ in thousands)	2007			2006			2005
Direct premiums	$	87,132		$	71,350		$	55,277
Premiums ceded to reinsurers		(68,530	)		(57,775	)		(45,756	)
Premiums	$	18,602		$	13,575		$	9,521
Direct policy benefits incurred	$	85,898		$	54,055		$	15,538
Policy benefits assumed from reinsureds		505			965			381
Policy benefits ceded to reinsurers		(44,707	)		(26,398	)		(9,572	)
Policy benefits	$	41,696		$	28,622		$	6,347
Direct life insurance in-force	$	70,502,325		$	55,175,351		$	41,566,483
Life insurance in-force assumed from reinsureds		121,673			104,826			135,447
Life insurance in-force ceded to reinsurers		(48,687,754	)		(40,820,818	)		(30,459,568	)
Life insurance in-force	$	21,936,244		$	14,459,359		$	11,242,362
Percentage of amount assumed to net insurance in-force		0.55	%		0.72	%		1.20	%

The policy benefit amounts above exclude changes in reserves, interest credited to policyholders and withdrawals, which total $126,699 thousand, $126,329 thousand and $123,932 thousand, net of reinsurance, for the years ended December 31, 2007, 2006 and 2005, respectively.

Irrevocable letters of credit aggregating $26,986 thousand at December 31, 2007 have been arranged with commercial banks in our favor to collateralize the ceded reserves.

A-26

4.  Deferred policy acquisition costs

Activity in Deferred Policy Acquisition Costs:	Year Ended December 31,
($ in thousands)	2007			2006			2005
Direct acquisition costs deferred	$	400,607		$	270,577		$	137,036
Recurring costs amortized to expense		(122,189	)		(94,429	)		(86,608	)
Credit related to investment gains or losses		2,148			1,087			6,206
Offsets to net unrealized investment gains or losses included in other comprehensive income (loss) (Note 12)		27,426			(4,930	)		39,223
Change in deferred policy acquisition costs		307,992			172,305			95,857
Deferred policy acquisition costs, beginning of year		701,620			529,315			433,458
Deferred policy acquisition costs, end of year	$	1,009,612		$	701,620		$	529,315

During 2007, we updated our system for calculating the SOP 03-1 reserves for guaranteed minimum death benefits, resulting in a release in the benefit reserve and a corresponding increase in deferred policy acquisition cost amortization for the quarter. The effects of these adjustments resulted in an overall $1,649 thousand pre-tax benefit to net income.

During 2006, we benefited from an unlocking of assumptions primarily related to deferred policy acquisition costs. The unlocking was driven by revised assumptions for expected mortality, lapse experience, investment margins and expenses. The effects of the unlocking resulted in an overall $6.7 million pre-tax charge to net income, as well as increased unearned revenue liabilities by $1.3 million, increased benefit reserves by $4.5 million, increased reinsurance liability by $1.2 million and decreased amortization by $0.4 million.

5.  Policy liabilities and accruals

Policyholder liabilities are primarily for universal life products and include deposits received from customers and investment earnings on their fund balances which range from 3.00% to 5.25% as of December 31, 2007, less administrative and mortality charges.

Policyholder deposit funds

Policyholder deposit funds primarily consist of annuity deposits received from customers, dividend accumulations and investment earnings on their fund balances, which range from 2.9% to 14.0% as of December 31, 2007, less administrative charges.

6.  Investing Activities

Debt and equity securities

Fair Value and Cost of Debt Securities:	As of December 31,
($ in thousands)	2007				2006
	Fair Value		Cost		Fair Value		Cost
U.S. government and agency	$	65,774	$	64,884	$	92,579	$	93,425
State and political subdivision		11,029		11,134		15,900		16,281
Foreign government		30,423		27,716		49,884		46,505
Corporate		975,058		998,982		1,157,781		1,172,275
Mortgage-backed		358,479		372,733		452,641		455,739
Other asset-backed		268,823		288,927		282,204		280,086
Available-for-sale debt securities	$	1,709,586	$	1,764,376	$	2,050,989	$	2,064,311

A-27

6.  Investing Activities (continued)

Unrealized Gains (Losses) from	As of December 31,
Debt Securities:	2007					2006
($ in thousands)	Gains		Losses			Gains		Losses
U.S. government and agency	$	1,193	$	(303	)	$	295	$	(1,141	)
State and political subdivision		11		(116	)		17		(398	)
Foreign government		2,732		(25	)		3,590		(211	)
Corporate		8,774		(32,698	)		6,523		(21,017	)
Mortgage-backed		2,654		(16,908	)		2,862		(5,960	)
Other asset-backed		875		(20,979	)		3,857		(1,739	)
Debt securities gains and losses	$	16,239	$	(71,029	)	$	17,144	$	(30,466	)
Debt securities net losses			$	(54,790	)			$	(13,322	)

Aging of Temporarily Impaired	As of December 31, 2007
Debt Securities:	Less than 12 months					Greater than 12 months					Total
($ in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt Securities
U.S. government and agency	$	--	$	--		$	15,629	$	(303	)	$	15,629	$	(303	)
State and political subdivision		--		--			10,516		(116	)		10,516		(116	)
Foreign government		--		--			2,464		(25	)		2,464		(25	)
Corporate		134,427		(9,598	)		478,287		(23,100	)		612,714		(32,698	)
Mortgage-backed		105,599		(9,822	)		162,554		(7,086	)		268,153		(16,908	)
Other asset-backed		137,632		(15,661	)		81,534		(5,318	)		219,166		(20,979	)
Total temporarily impaired securities	$	377,658	$	(35,081	)	$	750,984	$	(35,948	)	$	1,128,642	$	(71,029	)
Below investment grade	$	39,024	$	(1,797	)	$	67,088	$	(7,484	)	$	106,112	$	(9,281	)
Below investment grade after offsets for deferred policy acquisition cost adjustment and taxes			$	(292	)			$	(1,306	)			$	(1,598	)
Number of securities				243					411					654

Below investment grade debt securities with a fair value of less than 80% of the security’s amortized costs totaled $(3,933) thousand at December 31, 2007, of which none have been in a significant loss position for greater than 12 months.

All of these securities are considered to be temporarily impaired at December 31, 2007 as each of these securities has performed, and is expected to continue to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

A-28

6.  Investing Activities (continued)

Aging of Temporarily Impaired	As of December 31, 2006
Debt and Equity Securities:	Less than 12 months					Greater than 12 months					Total
($ in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt Securities
U.S. government and agency	$	5,643	$	(19	)	$	50,878	$	(1,122	)	$	56,521	$	(1,141	)
State and political subdivision		1,014		(3	)		14,367		(395	)		15,381		(398	)
Foreign government		4,024		(10	)		9,323		(201	)		13,347		(211	)
Corporate		152,344		(1,595	)		689,660		(19,422	)		842,004		(21,017	)
Mortgage-backed		78,465		(693	)		257,905		(5,267	)		336,370		(5,960	)
Other asset-backed		53,844		(171	)		102,302		(1,568	)		156,146		(1,739	)
Total temporarily impaired securities	$	295,334	$	(2,491	)	$	1,124,435	$	(27,975	)	$	1,419,769	$	(30,466	)
Below investment grade	$	20,190	$	(377	)	$	90,763	$	(3,859	)	$	110,953	$	(4,236	)
Below investment grade after offsets for deferred policy acquisition cost adjustment and taxes			$	(45	)			$	(550	)			$	(595	)
Number of securities				165					565					730

There were no unrealized losses of below investment grade debt securities with a fair value less than 80% of the securities amortized cost at December 31, 2006.

All of these securities are considered to be temporarily impaired at December 31, 2006 as each of these securities has performed, and is expected to continue to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

Statutory deposits

Pursuant to certain statutory requirements, as of December 31, 2007 and 2006, we had on deposit securities with a fair value of $7,370 thousand and $8,216 thousand, respectively, in insurance department special deposit accounts. We are not permitted to remove the securities from these accounts without approval of the regulatory authority.

Net investment income

Sources of Net Investment Income:	Year Ended December 31,
($ in thousands)	2007			2006			2005
Debt securities	$	105,342		$	127,977		$	155,648
Equity securities		--			--			2
Other investments		162			148			183
Other income		421			--			--
Policy loans		1,472			581			479
Cash and cash equivalents		4,395			3,089			1,061
Total investment income		111,792			131,795			157,373
Investment expenses		(2,185	)		(2,470	)		(2,999	)
Net investment income	$	109,607		$	129,325		$	154,374

A-29

6.  Investing Activities (continued)

Net realized investment gains (losses)

Types of Realized Investment Gains (Losses):	Year Ended December 31,
($ in thousands)	2007			2006			2005
Debt security impairments	$	(3,287	)	$	(411	)	$	(2,651	)
Debt security transaction gains		1,465			2,955			1,764
Debt security transaction losses		(2,827	)		(7,253	)		(9,254	)
Equity security transaction gains		--			--			26
Equity security transaction losses		--			--			(13	)
Other investment transaction gains (losses)		(2,394	)		2,249			(441	)
Net transaction losses		(3,756	)		(2,049	)		(7,918	)
Net realized investment losses	$	(7,043	)	$	(2,460	)	$	(10,569	)

Unrealized investment gains (losses)

Sources of Changes in Net Unrealized Investment Gains (Losses):	Year Ended December 31,
($ in thousands)	2007			2006			2005
Debt securities	$	(41,468	)	$	2,956		$	(54,591	)
Equity securities		--			--			5
Other investments		50			10			--
Net unrealized investment gains (losses)	$	(41,418	)	$	2,966		$	(54,586	)
Net unrealized investment gains (losses)	$	(41,418	)	$	2,966		$	(54,586	)
Applicable deferred policy acquisition costs (Note 4)		(27,426	)		4,930			(39,223	)
Applicable deferred income tax benefit		(4,897	)		(687	)		(5,377	)
Offsets to net unrealized investment losses		(32,323	)		4,243			(44,600	)
Net unrealized investment losses included in other comprehensive income	$	(9,095	)	$	(1,277	)	$	(9,986	)

Investing cash flows

Investment Purchases, Sales, Repayments and Maturities:	Year Ended December 31,
($ in thousands)	2007			2006			2005
Debt security purchases	$	(883,282	)	$	(999,542	)	$	(1,139,974	)
Equity security purchases		--			--			--
Other investment purchases		(350	)		(1,060	)		(2,434	)
Policy loan advances, net		(7,277	)		(7,371	)		(5,685	)
Investment purchases	$	(890,909	)	$	(1,007,973	)	$	(1,148,093	)
Debt securities sales	$	816,170		$	1,178,127		$	873,995
Debt securities maturities and repayments		390,297			549,483			477,568
Equity security sales		--			--			279
Other investment sales		1,521			750			5,845
Investment sales, repayments and maturities	$	1,207,988		$	1,728,360		$	1,357,687

A-30

6.  Investing Activities (continued)

The maturities of debt securities, by contractual sinking fund payment and maturity are summarized in the following table. Actual maturities may differ from contractual maturities as certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties, and we may have the right to put or sell the obligations back to the issuers.

Maturities of Debt Securities:	As of December 31, 2007
($ in thousands)	Cost		Fair Value
Due in one year or less	$	139,910	$	139,540
Due after one year through five years		429,405		424,704
Due after five years through ten years		455,099		441,414
Due after ten years		739,962		703,928
Total	$	1,764,376	$	1,709,586

7.  Separate Accounts, Death Benefits and Other Insurance Benefit Features

Separate account products are those for which a separate investment and liability account is maintained on behalf of the policyholder. Investment objectives for these separate accounts vary by fund account type, as outlined in the applicable fund prospectus or separate account plan of operations. Our separate account products include variable annuities and variable life insurance contracts. The assets supporting these contracts are carried at fair value and reported as Separate account assets with an equivalent amount reported as Separate account liabilities. Amounts assessed against the policyholder for mortality, administration, and other services are included within revenue in Insurance and investment product fees. In 2007 and 2006 there were no gains or losses on transfers of assets from the general account to a separate account.

Many of our variable contracts offer various guaranteed minimum death, accumulation, withdrawal and income benefits. These benefits are offered in various forms as described below. We currently reinsure a significant portion of the death benefit guarantees associated with our in-force block of business. We establish policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity policies as follows:

· Liabilities associated with the guaranteed minimum death benefit, or GMDB, are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.

· Liabilities associated with the guaranteed minimum income benefit, or GMIB, are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.

For annuities with GMDB, 200 stochastically generated scenarios were used. For annuities with GMIB, we used 1,000 stochastically generated scenarios.

Separate Account Investments of Account Balances of Contracts with Guarantees:	As of December 31,
($ in thousands)	2007		2006
Debt securities	$	494,660	$	456,148
Equity funds		2,213,164		1,861,762
Other		80,657		68,810
Total	$	2,788,481	$	2,386,720

A-31

7.  Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

Changes in Guaranteed Liability Balances:	Year Ended
($ in thousands)	December 31, 2007
	Annuity				Annuity
	GMDB				GMIB
Liability balance as of January 1, 2007		$	26,979			$	3,568
Incurred			(21,813	)			2,137
Paid			(2,057	)			--
Liability balance as of December 31, 2007		$	3,109			$	5,705

Changes in Guaranteed Liability Balances:	Year Ended
($ in thousands)	December 31, 2006
	Annuity				Annuity
	GMDB				GMIB
Liability balance as of January 1, 2006		$	27,749			$	2,474
Incurred			1,721				1,094
Paid			(2,491	)			--
Liability balance as of December 31, 2006		$	26,979			$	3,568

The reinsurance recoverable asset related to the GMDB was $1,335 thousand and $17,139 thousand as of December 31, 2007 and 2006, respectively.

The GMDB and GMIB guarantees are recorded in policy liabilities and accruals on our balance sheet. Changes in the liability are recorded in Policy benefits on our statement of operations. In a manner consistent with our policy for deferred policy acquisition costs, we regularly evaluate estimates used and adjust the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised.

We also offer certain variable products with a guaranteed minimum withdrawal benefit, or GMWB, a guaranteed minimum accumulation benefit, or GMAB, and a guaranteed pay-out annuity floor, or GPAF.

The GMWB guarantees the policyholder a minimum amount of withdrawals and benefit payments over time, regardless of the investment performance of the contract, subject to an annual limit. Optional resets are available. In addition, we have introduced a feature for these contracts beginning in the fourth quarter of 2005 that allows the policyholder to receive the guaranteed annual withdrawal amount for as long as they are alive.

The GMAB rider provides the contract holder with a minimum accumulation of their purchase payments deposited within a specific time period, adjusted for withdrawals, after a specified amount of time determined at the time of issuance of the variable annuity contract.

The GPAF rider provides the policyholder with a minimum payment amount if the variable annuity payment falls below this amount on the payment calculation date.

The GMWB, GMAB and GPAF represent embedded derivatives in the variable annuity contracts that are required to be reported separately from the host variable annuity contract. They are carried at fair value and reported in policyholder deposit funds. The fair value of the GMWB, GMAB and GPAF obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions.

A-32

7.  Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

In order to minimize the volatility associated with the GMWB and GMAB liabilities, we have entered into a contract with Phoenix Life whereby we cede 100% of any claims for these guarantees. Because this contract does not transfer sufficient risk to be accounted for as reinsurance, we use deposit accounting for the contract. As of December 31, 2007 and 2006, the embedded derivative for GMWB and GMAB was immaterial. There were no benefit payments made for the GMWB or GMAB during 2007 or 2006. See Note 10 to these financial statements for more information.

For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of benefits that are payable upon annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the policyholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance.

Additional Insurance Benefits:			Net Amount		Average
($ in thousands)	Account		At Risk After		Attained Age
	Value		Reinsurance		of Annuitant
GMDB return of premium	$	1,396,515	$	5,398	59
GMDB step up		1,761,416		33,481	60
GMDB earnings enhancement benefit (EEB)		78,136		--	60
GMDB greater of annual step up and roll up		42,492		3,582	63
Total GMDB at December 31, 2007	$	3,278,559	$	42,461
GMIB	$	696,006			59
GMAB		381,304			55
GMWB		202,073			61
GPAF		36,684			74
Total at December 31, 2007	$	1,316,067

With the return of premium, the death benefit is the greater of current account value or premiums paid (less any adjusted partial withdrawals).

With the step up, the death benefit is the greater of current account value, premiums paid (less any adjusted partial withdrawals) or the annual step up amount prior of the eldest original owner attaining a certain age. On and after the eldest original owner attains that age, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner’s attaining that age plus premium payments (less any adjusted partial withdrawals) made since that date.

With EEB, the death benefit is the greater of the premiums paid (less any adjusted partial withdrawals) or the current account value plus the EEB. The EEB is an additional amount designed to reduce the impact of taxes associated with distributing contract gains upon death.

With greater of annual step up and annual roll up, the death benefit is the greater of premium payments (less any adjusted partial withdrawals), the annual step up amount, the annual roll up amount or the current account value prior to the eldest original owner attaining age 81. On and after the eldest original owner attained age 81, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner’s attained age of 81 plus premium payments (less any adjusted partial withdrawals) made since that date.

Liabilities for universal life are generally determined by estimating the expected value of losses when death benefits exceed revenues and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating these liabilities are consistent with those used for amortizing deferred policy acquisition costs. A single set of best estimate assumptions is used since these insurance benefits do not vary significantly with capital markets volatility. At December 31, 2007 and 2006, we held additional universal life benefit reserves of $25,930 thousand and $8,841 thousand, respectively.

A-33

8.  Fair Value of Financial Instruments and Derivative Instruments

Fair value of financial instruments

Carrying Amounts and Estimated Fair Values	As of December 31,
of Financial Instruments:	2007				2006
($ in thousands)	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Cash and cash equivalents	$	108,200	$	108,200	$	47,127	$	47,127
Debt securities		1,709,586		1,709,586		2,050,989		2,050,989
Policy loans		22,819		22,819		15,542		15,542
Financial assets	$	1,840,605	$	1,840,605	$	2,113,658	$	2,113,658
Investment contracts	$	1,134,635	$	1,139,325	$	1,491,367	$	1,486,758
Financial liabilities	$	1,134,635	$	1,139,325	$	1,491,367	$	1,486,758

Fair value of investment contracts

We determine the fair value of deferred annuities with an interest guarantee of one year or less at the amount of the policy reserve. In determining the fair value of deferred annuities with interest guarantees greater than one year, we use a discount rate equal to the appropriate U.S. Treasury rate plus 100 basis points to determine the present value of the projected account value of the policy at the end of the current guarantee period.

Derivative instruments

We maintain an overall interest rate risk-management strategy that primarily incorporates the use of interest rate swaps as hedges of our exposure to changes in interest rates. Our exposure to changes in interest rates primarily results from our commitments to fund interest-sensitive insurance liabilities, as well as from our significant holdings of fixed rate financial instruments.

We recognized an after-tax gain of $0.0 million, $1.2 million and $0.3 million for the years ended December 31, 2007, 2006 and 2005 (reported as other comprehensive income in Statement of Income, Comprehensive Income and Changes in Stockholder’s Equity), which represented the change in fair value of interest rate forward swaps which had been designated as cash flow hedges of the forecasted purchase of assets. For changes in the fair value of derivatives that are designated as cash flow hedges of a forecasted transaction, we recognize the change in fair value of the derivative in other comprehensive income. Amounts related to cash flow hedges that are accumulated in other comprehensive income are reclassified into earnings in the same period or periods during which the hedged forecasted transaction (the acquired asset) affects earnings. For the years 2007, 2006 and 2005, we reclassified after-tax gains of $0.0 million, $1.2 million and $0.3 million, respectively, into earnings related to these derivatives.

We held no derivative assets at December 31, 2007 and 2006. See Note 7 to these financial statements for more information on our embedded derivatives related to our variable annuity guarantees.

9.  Income Taxes

Allocation of Income Taxes:	Year Ended December 31,
($ in thousands)	2007			2006			2005
Income tax expense (benefit) attributable to:
Current	$	(44,715	)	$	(21,403	)	$	(18,313	)
Deferred		45,837			22,473			15,512
Income taxes applicable to net income (loss)		1,122			1,070			(2,801	)
Other comprehensive loss		(4,898	)		(1,121	)		(5,558	)
Income taxes applicable to comprehensive income (loss)	$	(3,776	)	$	(51	)	$	(8,359	)
Income taxes recovered	$	(30,557	)	$	(24,094	)	$	(14,288	)

A-34

9.  Income Taxes (continued)

Effective Income Tax Rate:	Year Ended December 31,
($ in thousands)	2007			2006			2005
Income before income taxes	$	12,427		$	7,538		$	1,422
Income taxes at statutory rate of 35.0%		4,350			2,638			498
Dividend received deduction		(2,778	)		(1,572	)		(2,924	)
Tax interest		1			1			(378	)
Other, net		(451	)		3			3
Applicable income taxes (benefit)	$	1,122		$	1,070		$	(2,801	)
Effective income tax (benefit) rates		9.0	%		14.2	%		(197.0	)%

Deferred Income Tax Balances Attributable to Temporary Differences:	As of December 31,
($ in thousands)	2007		2006
Deferred income tax assets:
Future policyholder benefits	$	145,582	$	103,886
Unearned premiums / deferred revenues		15,164		10,719
Investments		5,948		--
Gross deferred income tax assets		166,694		114,605
Deferred income tax liabilities:
Deferred policy acquisition costs		296,687		206,752
Investments		--		849
Other		5,655		1,712
Gross deferred income tax liabilities		302,342		209,313
Deferred income tax liability	$	135,648	$	94,708

We are included in the consolidated federal income tax return filed by PNX and are party to a tax sharing agreement by and among PNX and its subsidiaries. In accordance with this agreement, federal income taxes are allocated as if they had been calculated on a separate company basis, except that benefits for any net operating losses or other tax credits used to offset a tax liability of the consolidated group will be provided to the extent such loss or credit is utilized in the consolidated federal tax return.

We are included in the consolidated federal income tax return filed by PNX. Within the consolidated tax return, we are required by regulations of the Internal Revenue Service, or IRS, to segregate the entities into two groups: life insurance companies and non-life insurance companies. We are limited as to the amount of any operating losses from the non-life group that can be offset against taxable income of the life group. These limitations may affect the amount of any operating loss carryovers that we have now or in the future.

We have determined, based on our earnings and projected future taxable income, that it is more likely than not that deferred income tax assets at December 31, 2007 and 2006 will be realized.

As of December 31, 2007, we had current taxes receivable of $10,184 thousand.

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, on January 1, 2007. As a result of the implementation of FIN 48, we recognized a decrease in reserves for uncertain tax benefits through a cumulative effect adjustment of approximately $1,000 thousand, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. Including the cumulative effect adjustment, we had approximately $1,840 thousand of total gross unrecognized tax benefits as of January 1, 2007. The entire amount of unrecognized tax benefits would, if recognized, impact the annual effective rate upon recognition.

A-35

9.  Income Taxes (continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits:
($ in thousands)
Balance at January 1, 2007	$	1,840
Reductions for tax positions of prior years		(975	)
Settlements with taxing authorities		(340	)
Balance at December 31, 2007	$	525

Based upon the timing and status of our current examinations by taxing authorities, we do not believe that it is reasonably possible that any changes to the balance of unrecognized tax benefits occurring in the next 12 months will result in a significant change to the results of operations, financial condition or liquidity. In addition, we do not anticipate that there will be additional payments made or refunds received within the next 12 months with respect to the years under audit. We do not anticipate any increases to the unrecognized tax benefits that would have a significant impact on the financial position of the company.

Our federal income tax returns are routinely audited by the IRS. We are no longer subject to income tax examinations by federal authorities for tax years prior to 2004. Our U.S. federal income tax returns for 2004 and 2005 are currently being examined. We do not believe that the examination will result in a material change in our financial position. We are not currently under audit with any state taxing authorities.

We recognize interest and penalties related to amounts accrued on uncertain tax positions and amounts paid or refunded from federal and state income tax authorities in tax expense. The interest and penalties recorded during the twelve month periods ending December 31, 2006 and 2007 were not material. We did not have an accrual for the payment of interest and penalties as of December 31, 2007.

10.  Related Party Transactions

Capital Contributions

During the year ended December 31, 2007, we received $49,984 thousand in capital contributions from Phoenix Life, of which $25,000 thousand was in cash and $24,984 was in securities.

Related Party Transactions

The amounts included in the following discussion are gross expenses, before deferrals for policy acquisition costs.

Phoenix Life provides services and facilities to us and is reimbursed through a cost allocation process. The expenses allocated to us were $270,394 thousand, $203,521 thousand and $108,701 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to Phoenix Life were $11,767 thousand and $18,650 thousand as of December 31, 2007 and 2006, respectively.

During 2006, we entered into a contract with Phoenix Life whereby we cede to Phoenix Life the liabilities related to certain guarantees on our annuity products. Because this contract does not transfer sufficient risk to qualify for reinsurance accounting, we account for ceded liabilities as a deposit asset. The asset on deposit with Phoenix Life was $3,051 thousand and $220 thousand at December 31, 2007 and 2006, respectively. This amount is included in our balance sheet in other general account assets. Amounts due to Phoenix Life under this contract were $336 thousand and $215 thousand at December 31, 2007 and 2006, respectively.

A-36

10.  Related Party Transactions (continued)

Phoenix Investment Partners Ltd., or PXP, an indirect wholly-owned subsidiary of PNX, through its affiliated registered investment advisors, provides investment advisory services to us for a fee. Investment advisory fees incurred by us for management of general account assets under this arrangement were $2,172 thousand, $2,439 thousand and $2,993 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to the affiliated investment advisors were $15 thousand and $106 thousand, as of December 31, 2007 and 2006, respectively. Through July 2007 PXP provided investment advisory services to the variable product separate accounts. They received variable product separate account fees on our behalf, retained a portion of those fees, for services provided, and forward the remainder to us. Amounts receivable from PXP for those fees were $0 thousand and $245 thousand as of December 31, 2007 and 2006, respectively. The variable product separate account fees retained by PXP were $271 thousand, $684 thousand and $697 thousand for 2007, 2006 and 2005, respectively.

Effective August 2007, Phoenix Variable Advisors, Inc, or PVA, an indirect wholly-owned subsidiary of Phoenix Life became the investment advisor for the variable product separate accounts. They receive variable product separate account fees on our behalf and forward them to us, net of sub-advisory fees they paid. Amounts receivable from PVA for those fees were $276 thousand as of December 31, 2007.

Phoenix Equity Planning Corporation, or PEPCO, a wholly-owned subsidiary of Phoenix Investment Partners Ltd., is the principal underwriter of our annuity contracts. Until May 31, 2004, contracts could be purchased through registered representatives of our former affiliate, W.S. Griffith Securities, Inc., or Griffith. Other outside broker-dealers are licensed to sell our annuity contracts as well. We incurred commissions for contracts underwritten by PEPCO of $48,331 thousand, $38,062 thousand and $35,422 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to PEPCO were $2,269 thousand and $278 thousand as of December 31, 2007 and 2006, respectively.

Phoenix Life pays commissions to producers who sell our non-registered life and annuity products. Commissions paid by Phoenix Life on our behalf were $159,847 thousand, $105,993 thousand and $54,927 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to Phoenix Life were $13,684 thousand and $4,187 thousand as of December 31, 2007 and 2006, respectively.

Premium processing services

We provide payment processing services for Phoenix Life, wherein we receive deposits on Phoenix Life annuity contracts, and forward those payments to Phoenix Life. During 2006, we began including life insurance premiums in this service. In connection with this service, at December 31, 2007 and 2006, we had amounts due to Phoenix Life of $416 thousand and $1,914 thousand, respectively. We do not charge any fees for this service.

We also provide payment processing services for Phoenix Life and Annuity, a wholly-owned indirect subsidiary of Phoenix Life, wherein we receive deposits on certain Phoenix Life and Annuity annuity contracts, and forward those payments to Phoenix Life and Annuity. During 2006, we began including life insurance premiums in this service. In connection with this service, at December 31, 2007 and 2006, we had amounts due to Phoenix Life and Annuity of $482 thousand and $16 thousand, respectively. We do not charge any fees for this service.

In certain instances Phoenix Life and Phoenix Life and Annuity may receive premiums on behalf of PHLVIC. Amounts due from Phoenix Life were $237 thousand and $71 thousand as of December 31, 2007 and 2006, respectively. Amounts due from Phoenix Life and Annuity were $15 thousand and $0 thousand as of December 31, 2007 and 2006, respectively.

A-37

11.  Employee Benefit Plans and Employment Agreements

PNX has a non-contributory, defined benefit pension plan covering substantially all of its employees and those of its subsidiaries. Retirement benefits are a function of both years of service and level of compensation. PNX also sponsors a non-qualified supplemental defined benefit plan to provide benefits in excess of amounts allowed pursuant to the Internal Revenue Code. PNX’s funding policy is to contribute annually an amount equal to at least the minimum required contribution in accordance with minimum funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Contributions are intended to provide for benefits attributable not only to service to date, but to service expected to be conferred in the future.

PNX sponsors pension and savings plans for its employees, and employees and agents of its subsidiaries. The qualified plans comply with requirements established by ERISA and excess benefit plans provide for that portion of pension obligations, which is in excess of amounts permitted by ERISA. PNX also provides certain health care and life insurance benefits for active and retired employees. We incur applicable employee benefit expenses through the process of cost allocation by PNX.

In addition to its pension plans, PNX currently provides certain health care and life insurance benefits to retired employees, spouses and other eligible dependents through various plans which it sponsors. A substantial portion of PNX’s affiliate employees may become eligible for these benefits upon retirement. The health care plans have varying co-payments and deductibles, depending on the plan. These plans are unfunded.

Applicable information regarding the actuarial present value of vested and non-vested accumulated plan benefits, and the net assets of the plans available for benefits is omitted, as the information is not separately calculated for our participation in the plans. PNX, the plan sponsor, established an accrued liability and amounts attributable to us have been allocated. The amount of such allocated benefits is not significant to the financial statements.

12.  Other Comprehensive Income

Sources of	Year Ended December 31,
Other Comprehensive Income:	2007						2006						2005
($ in thousands)	Gross			Net			Gross			Net			Gross			Net
Unrealized gains (losses) on investments	$	(36,769	)	$	(6,995	)	$	7,264		$	1,516		$	(64,713	)	$	(16,569	)
Net realized investment gains (losses) on available-for-sale securities included in net income		(4,649	)		(2,100	)		(4,298	)		(2,793	)		10,127			6,583
Net unrealized investment gains (losses)		(41,418	)		(9,095	)		2,966			(1,277	)		(54,586	)		(9,986	)
Net unrealized losses on derivative instruments		--			--			(1,241	)		(807	)		(516	)		(335	)
Other comprehensive income (loss)		(41,418	)	$	(9,095	)		1,725		$	(2,084	)		(55,102	)	$	(10,321	)
Applicable deferred policy acquisition cost amortization		(27,425	)					4,930						(39,223	)
Applicable deferred income tax benefit		(4,898	)					(1,121	)					(5,558	)
Offsets to other comprehensive income		(32,323	)					3,809						(44,781	)
Other comprehensive loss	$	(9,095	)				$	(2,084	)				$	(10,321	)

Components of Accumulated	As of December 31,
Other Comprehensive Income:	2007						2006
($ in thousands)	Gross			Net			Gross			Net
Unrealized losses on investments	$	(56,002	)	$	(11,784	)	$	(14,584	)	$	(2,689	)
Unrealized gains on derivative instruments		--			--			--			--
Accumulated other comprehensive loss		(56,002	)	$	(11,784	)		(14,584	)	$	(2,689	)
Applicable deferred policy acquisition costs		(37,873	)					(10,448	)
Applicable deferred income taxes		(6,345	)					(1,447	)
Offsets to other comprehensive income		(44,218	)					(11,895	)
Accumulated other comprehensive loss	$	(11,784	)				$	(2,689	)

A-38

13.  Statutory Financial Information and Regulatory Matters

We are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities. The State of Connecticut Insurance Department, or the Department, has adopted the National Association of Insurance Commissioners’, or the NAIC’s, Accounting Practices and Procedures manual effective January 1, 2001, or NAIC SAP, as a component of its prescribed or permitted statutory accounting practices. As of December 31, 2007, 2006 and 2005, the Department has not prescribed or permitted us to use any accounting practices that would materially deviate from NAIC SAP. Statutory surplus differs from equity reported in accordance with GAAP primarily because policy acquisition costs are expensed when incurred, investment reserves are based on different assumptions, life insurance reserves are based on different assumptions and income taxes are recorded in accordance with the Statement of Statutory Accounting Principles No. 10, Income Taxes, which limits deferred income tax assets based on admissibility tests.

Connecticut Insurance Law requires that Connecticut life insurers report their risk-based capital. Risk-based capital is based on a formula calculated by applying factors to various assets, premium and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk and business risk. Connecticut Insurance Law gives the Connecticut Commissioner of Insurance explicit regulatory authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not exceed certain risk-based capital levels. Our risk-based capital was in excess of 350% of Company Action Level (the level where a life insurance enterprise must submit a comprehensive plan to state insurance regulators) as of December 31, 2007 and 2006.

Statutory Financial Data:	As of or For the Year Ended December 31,
($ in thousands)	2007			2006			2005
Statutory capital and surplus	$	167,436		$	220,342		$	264,825
Asset valuation reserve		14,774			14,320			5,575
Statutory capital, surplus and asset valuation reserve	$	182,210		$	234,662		$	270,400
Statutory gain (loss) from operations	$	(98,589	)	$	(33,094	)	$	12,251
Statutory net income (loss)	$	(102,297	)	$	(33,994	)	$	12,749

The Connecticut Insurance Holding Company Act limits the maximum amount of annual dividends and other distributions in any 12-month period to stockholders of Connecticut domiciled insurance companies without prior approval of the Insurance Commissioner. Under current law, we cannot make any dividend distribution during 2008 without prior approval.

14.  Contingent Liabilities

Litigation and Arbitration

We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. The litigation and arbitration naming us as a defendant ordinarily involves our activities as an insurer, investor, or taxpayer. It is not feasible to predict or determine the ultimate outcome of all legal or arbitration proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and arbitration matters are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and arbitration, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods.

A-39

14.  Contingent Liabilities (continued)

Regulatory Matters

State regulatory bodies, the Securities and Exchange Commission, or SEC, the National Association of Securities Dealers, Inc., or NASD, and other regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws and securities laws. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted.

In addition, federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Phoenix Life and its subsidiaries with securities and other laws and regulations affecting their registered products. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. There has been a significant increase in federal and state regulatory activity relating to financial services companies, with a number of recent regulatory inquiries focusing on late-trading, market timing and valuation issues. Our products entitle us to impose restrictions on transfers between separate account sub-accounts associated with our variable products.

In 2005, the Boston District Office of the SEC completed a compliance examination of certain of PNX’s affiliates that are registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for monitoring trading to prevent market timing activity. The staff requested PNX to conduct an analysis as to whether shareholders, policyholders and contract holders who invested in the funds that may have been affected by undetected market timing activity had suffered harm and to advise the staff whether PNX believes reimbursement is necessary or appropriate under the circumstances. A third party was retained to assist PNX in preparing the analysis. Based on this analysis, PNX advised the SEC that it does not believe that reimbursement is appropriate.

Over the past several years, a number of companies have announced settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York Attorney General’s Office. While no such action has been initiated against us, it is possible that one or more regulatory agencies may pursue this type of action against us in the future. Financial services companies have also been the subject of broad industry inquiries by state regulators and attorneys general which do not appear to be company-specific.

These types of regulatory actions may be difficult to assess or quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and magnitude of their outcomes may remain unknown for substantial periods of time. While it is not feasible to predict or determine the ultimate outcome of all pending inquiries, investigations, legal proceedings and other regulatory actions, or to provide reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the large or indeterminate amounts sought in certain of these actions and the inherent unpredictability of regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operation or cash flows in particular quarterly or annual periods.

A-40

EX-18

EXHIBIT 18

July 31, 2008

Board of Directors

PHL Variable Insurance Company

One American Row

Hartford, CT  06102

Dear Directors:

We are providing this letter to you for inclusion as an exhibit to your Form 10-Q filing pursuant to Item 601 of Regulation S-K.

We have been provided a copy of PHL Variable Insurance Company’s (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2008.  Note 2 therein describes a change in accounting principle relating to the recognition of the cost of reinsurance and a related change in accounting principle for deferred acquisition costs (“DAC”).  The Company’s policy for recognizing the cost of reinsurance for certain of its long duration contracts has been changed to recognize reinsurance recoveries in the same period as the related reinsured claim, where previously such recoveries were accounted for as part of the net cost of reinsurance and amortized over the life of the underlying contracts in relation to estimated gross profits (“EGP’s”).  In conjunction with this change, the Company has also changed its policy for determining EGP’s for such contracts to include the effects of reinsurance, where previously these effects had not been included.  It should be understood that the preferability of one acceptable method of accounting over another for these items has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management’s determination that these changes in accounting principles are preferable.  Based on our reading of management’s stated reasons and justifications for these changes in accounting principles in the Form 10-Q, and our discussions with management as to their judgment about the relevant business planning factors relating to the changes, we concur with management that such changes represent, in the Company’s circumstances, the adoption of  preferable accounting principles in conformity with Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.

We have not audited any financial statements of the Company as of any date or for any period subsequent to December 31, 2007.  Accordingly, our comments are subject to change upon completion of an audit of the financial statements covering the period of the accounting change.

Very truly yours,

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, the Chief Executive Officer of PHL Variable Insurance Company (the “registrant”), certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of the registrant;

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

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

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

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

(b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2008	/s/ Philip K. Polkinghorn
	Name:	Philip K. Polkinghorn
	Title:	President

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, the Chief Financial Officer of PHL Variable Insurance Company (the “registrant”), certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of the registrant;

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

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

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

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

(b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2008	/s/ Peter A. Hofmann
	Name:	Peter A. Hofmann
	Title:	Senior Executive Vice President and   Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION

The undersigned hereby certify that the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008 of PHL Variable Insurance Company (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Philip K. Polkinghorn		/s/ Peter A. Hofmann
Name:	Philip K. Polkinghorn	Name:	Peter A. Hofmann
Title:	President	Title:	Senior Executive Vice President and
			Chief Financial Officer
Date:	August 14, 2008	Date:	August 14, 2008

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PHL Variable Insurance Company and will be retained by PHL Variable Insurance Company and furnished to the Securities and Exchange Commission or its staff upon request.