10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

—————————

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

OR

o 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: 001-16517

THE PHOENIX COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-1599088
(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 þ     NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES ¨     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 the 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 þ	Non-accelerated filer ¨	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 þ

On April 29, 2011, the registrant had 116.3 million shares of common stock outstanding.

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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		39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		61
Item 4.	Controls and Procedures		61
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		63
Item 1A.	Risk Factors		63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3.	Defaults Upon Senior Securities		63
Item 4.	(Removed and Reserved)		63
Item 5.	Other Information		63
Item 6.	Exhibits		64
Signatures		69

2

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Balance Sheets

($ in millions, except share data)

March 31, 2011 (unaudited) and December 31, 2010

	Mar 31,		Dec 31,
	2011		2010
ASSETS:
Available-for-sale debt securities, at fair value (amortized cost of $10,845.6 and $10,627.7)	$	11,159.5	$	10,893.8
Available-for-sale equity securities, at fair value (cost of $33.6 and $28.7)		52.2		47.5
Venture capital partnerships, at equity in net assets		225.7		220.0
Policy loans, at unpaid principal balances		2,373.8		2,386.5
Other investments		489.5		516.9
Fair value option investments		92.5		102.1
Total investments		14,393.2		14,166.8
Cash and cash equivalents		107.3		121.9
Accrued investment income		173.5		169.5
Receivables		432.0		405.7
Deferred policy acquisition costs		1,403.3		1,444.3
Deferred income taxes		93.5		116.4
Other assets		165.5		174.5
Discontinued operations assets		54.9		60.4
Separate account assets		4,448.9		4,416.8
Total assets	$	21,272.1	$	21,076.3
LIABILITIES:
Policy liabilities and accruals	$	12,960.6	$	12,992.5
Policyholder deposit funds		1,667.2		1,494.1
Indebtedness		427.7		427.7
Other liabilities		575.7		540.3
Discontinued operations liabilities		45.5		49.4
Separate account liabilities		4,448.9		4,416.8
Total liabilities		20,125.6		19,920.8
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 17 & 18)
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value: 116.3 million and 116.1 million shares outstanding		1.3		1.3
Additional paid-in capital		2,631.7		2,631.0
Accumulated deficit		(1,169.6)		(1,163.5)
Accumulated other comprehensive loss		(137.4)		(133.8)
Treasury stock, at cost: 11.3 million and 11.3 million shares		(179.5)		(179.5)
Total stockholders’ equity		1,146.5		1,155.5
Total liabilities and stockholders’ equity	$	21,272.1	$	21,076.3

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

3

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Statements of Income and Comprehensive Income

($ in millions, except share data)

Three Months Ended March 31, 2011 and 2010

	March 31,
	2011		2010
REVENUES:
Premiums	$	132.5	$	151.7
Fee income		153.8		162.5
Net investment income		200.8		204.6
Net realized investment losses:
Total other-than-temporary impairment (“OTTI”) losses		(7.4)		(31.4)
Portion of OTTI losses recognized in other comprehensive income		1.7		16.9
Net OTTI losses recognized in earnings		(5.7)		(14.5)
Net realized investment gains (losses), excluding OTTI losses		(10.5)		17.5
Net realized investment gains (losses)		(16.2)		3.0
Total revenues		470.9		521.8
BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends		282.2		288.6
Policyholder dividends		63.7		62.7
Policy acquisition cost amortization		62.7		68.2
Interest expense on indebtedness		7.9		8.0
Other operating expenses		59.3		80.2
Total benefits and expenses		475.8		507.7
Income (loss) from continuing operations before income taxes		(4.9)		14.1
Income tax expense (benefit)		(0.3)		0.2
Income (loss) from continuing operations		(4.6)		13.9
Loss from discontinued operations, net of income taxes		(1.5)		(0.2)
Net income (loss)	$	(6.1)	$	13.7
EARNINGS PER SHARE:
Earnings (loss) from continuing operations – basic	$	(0.04)	$	0.12
Earnings (loss) from continuing operations – diluted	$	(0.04)	$	0.12
Earnings (loss) from discontinued operations – basic	$	(0.01)	$	(0.00)
Earnings (loss) from discontinued operations – diluted	$	(0.01)	$	(0.00)
Net earnings (loss) –  basic	$	(0.05)	$	0.12
Net earnings (loss) – diluted	$	(0.05)	$	0.12
Basic weighted-average common shares outstanding (in thousands)		116,326		116,081
Diluted weighted-average common shares outstanding (in thousands)		116,326		116,575
COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	(6.1)	$	13.7
Net unrealized investment gains (losses)		(3.7)		67.0
Non-credit portion of OTTI losses recognized in other comprehensive income		(1.1)		(11.0)
Net unrealized other gains		1.7		3.6
Net unrealized derivative instruments gains (losses)		(0.5)		0.8
Other comprehensive income (loss)		(3.6)		60.4
Comprehensive income (loss)	$	(9.7)	$	74.1

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

4

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Statements of Cash Flows

($ in millions)

Three Months Ended March 31, 2011 and 2010

	Three Months Ended
	March 31,
	2011		2010
OPERATING ACTIVITIES:
Premiums collected	$	131.8	$	145.5
Fee income collected		142.0		160.5
Investment income collected		184.9		193.6
Policy benefits paid, excluding policyholder dividends		(359.6)		(437.4)
Policyholder dividends paid		(60.7)		(60.0)
Policy acquisition costs paid		(34.4)		(3.8)
Interest expense on indebtedness paid		(5.6)		(5.6)
Other operating expenses paid		(45.0)		(93.4)
Income taxes paid		(0.2)		—
Cash for continuing operations		(46.8)		(100.6)
Discontinued operations, net		1.8		6.4
Cash for operating activities		(45.0)		(94.2)
INVESTING ACTIVITIES:
Investment purchases		(1,773.0)		(1,678.7)
Investment sales, repayments and maturities		1,611.6		1,677.3
Policy loan repayments (advances), net		12.7		(16.6)
Premises and equipment additions		(1.0)		(0.5)
Discontinued operations, net		(2.7)		(4.7)
Cash for investing activities		(152.4)		(23.2)
FINANCING ACTIVITIES:
Policyholder deposit fund deposits		240.1		141.5
Policyholder deposit fund withdrawals		(57.3)		(154.8)
Non-controlling interest		—		0.5
Indebtedness repayments		—		(0.3)
Cash from (for) financing activities		182.8		(13.1)
Change in cash and cash equivalents		(14.6)		(130.5)
Cash and cash equivalents, beginning of period		121.9		256.7
Cash and cash equivalents, end of period	$	107.3	$	126.2

Included in cash and cash equivalents above is cash held as collateral by a third party of $8.0 million as of March 31, 2011. There was no cash pledged as collateral as of March 31, 2010.

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

5

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Statements of Changes in Stockholders’ Equity

($ in millions)

Three Months Ended March 31, 2011 and 2010

	March 31,
	2011		2010
COMMON STOCK:
Balance, beginning of period	$	1.3	$	1.3
Common shares issued		—		—
Balance, end of period	$	1.3	$	1.3
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	2,631.0	$	2,627.3
Issuance of shares and compensation expense on stock compensation awards		0.7		0.7
Balance, end of period	$	2,631.7	$	2,628.0
ACCUMULATED DEFICIT:
Balance, beginning of period	$	(1,163.5)	$	(1,146.7)
Net income (loss)		(6.1)		13.7
Balance, end of period	$	(1,169.6)	$	(1,133.0)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Balance, beginning of period	$	(133.8)	$	(171.3)
Other comprehensive income (loss)		(3.6)		60.4
Balance, end of period	$	(137.4)	$	(110.9)
TREASURY STOCK, AT COST:
Balance, beginning of period	$	(179.5)	$	(179.5)
Change in treasury stock		—		—
Balance, end of period	$	(179.5)	$	(179.5)
TOTAL STOCKHOLDERS’ EQUITY:
Balance, beginning of period	$	1,155.5	$	1,131.1
Change in stockholders’ equity		(9.0)		74.8
Stockholders’ equity, end of period	$	1,146.5	$	1,205.9

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

6

THE PHOENIX COMPANIES, INC.

Notes to Unaudited Interim Consolidated Financial Statements

Three Months Ended March 31, 2011 and 2010

1.

Organization and Description of Business

Phoenix Mutual Life Insurance Company was organized in Connecticut in 1851. In 1992, in connection with its merger with Home Life Insurance Company, the Company redomiciled to New York and changed its name to Phoenix Home Life Mutual Insurance Company (“Phoenix Home Life”).

On June 25, 2001, the effective date of its demutualization, Phoenix Home Life converted from a mutual life insurance company to a stock life insurance company, became a wholly owned subsidiary of The Phoenix Companies, Inc. (the “Company” or “PNX”) and changed its name to Phoenix Life Insurance Company (“Phoenix Life”).

The Company is a holding company and our operations are conducted through subsidiaries, principally Phoenix Life and PHL Variable Insurance Company (“PHL Variable”). We provide life insurance and annuity products through third-party distributors, supported by wholesalers and financial planning specialists employed by us. In addition, our distribution company, Saybrus Partners, Inc. (“Saybrus”), provides dedicated consultation services to partner companies as well as support for the Phoenix Life and PHL Variable product lines within its own distribution channels.

Subsequent to the first quarter of 2009, when we lost several key distribution partners and experienced downgrades to our ratings, the Company has had minimal sales of its life and annuity products. In 2010, the Company repositioned its annuity product line through distributors that focus primarily on the middle market, including independent marketing organizations (“IMOs”), and had improved annuity sales.

2.

Basis of Presentation and Significant Accounting Policies

We have prepared these unaudited 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. Our interim consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidating these financial statements. Certain prior year amounts have been reclassified to conform to the current year presentation.

These financials include all adjustments (consisting primarily of accruals) considered necessary for the fair statement of the consolidated balance sheet, consolidated statements of income, and consolidated statements of cash flows for the interim periods. Certain financial information that is not required for interim reporting has been omitted. The interim financial statements should be read in conjunction with our 2010 Annual Report on Form 10-K. Financial results for the three months ended March 31, 2011 are not necessarily indicative of full year results.

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are made in the determination of estimated gross profits (“EGPs”) used in the valuation and amortization of assets and liabilities associated with universal life and annuity contracts; policyholder liabilities and accruals; valuation of investments in debt and equity securities and venture capital partnerships; the valuation of deferred tax assets; pension and other postemployment benefits liabilities; and accruals for contingent liabilities.

Adoption of new accounting standards

The Company did not adopt any new accounting standards during the quarter ended March 31, 2011. Our adoption of new accounting standards during 2010 are presented in the notes to our consolidated financial statements in our 2010 Annual Report on Form 10-K.

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2.

Basis of Presentation and Significant Accounting Policies (continued)

Accounting standards not yet adopted

Amendment to Troubled Debt Restructuring Guidance

In April 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to ASC 310, Receivables, to clarify guidance on troubled debt restructurings related to a creditor’s determination of whether or not a restructuring constitutes a concession and if the debtor is experiencing financial difficulties. This guidance is effective for interim periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Retrospective application to all prior periods presented on the date of application is also permitted, but not required. We expect to adopt this guidance with no material effect on our consolidated financial statements.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued amended guidance to ASC 944, Financial Services – Insurance, to address the diversity in practice for accounting for costs associated with acquiring or renewing insurance contracts. The amendment clarifies the definition of acquisition costs (i.e., costs which qualify for deferral) to incremental direct costs that result directly from, and are essential to, a contract and would not have been incurred by the insurance entity had the contract transaction not occurred. Therefore, only costs related to successful efforts of acquiring a new, or renewal, contract should be deferred. This guidance is effective for periods beginning after December 15, 2011, on a prospective basis. Retrospective application to all prior periods presented on the date of application is also permitted, but not required. We are in the process of determining the effect on our consolidated financial statements.

Significant Accounting Policies

Our significant accounting policies are presented in the notes to our consolidated financial statements in our 2010 Annual Report on Form 10-K.

3.

Business Combinations and Dispositions

PFG Holdings, Inc.

On January 4, 2010, we signed a definitive agreement to sell PFG Holdings, Inc. (“PFG”) and its subsidiaries, including AGL Life Assurance Company, to Tiptree Financial Partners, LP (“Tiptree”). Because of the divestiture, we determined that these operations are reflected as discontinued operations.

On June 23, 2010, the Company completed the divestiture of PFG and closed the transaction.

The definitive agreement contains a provision requiring the Company to indemnify Tiptree for any losses due to actions resulting from certain specified acts or omissions associated with the divested business prior to closing. There has been litigation filed that falls within this provision of the agreement. The Company intends to defend these matters vigorously.

Phoenix Life and Reassurance Company of New York

Included within the January 4, 2010 agreement with Tiptree was a provision for the purchase of Phoenix Life and Reassurance Company of New York (“PLARNY”) pending regulatory approval. On September 24, 2010, approval was obtained from the State of New York Insurance Department for Tiptree and PFG Holdings Acquisition Corporation to acquire PLARNY for an amount equal to its aggregate capital and surplus. The transaction closed on October 6, 2010. Because of the divestiture, these operations are reflected as discontinued operations. We have reclassified prior period financial statements to conform to this change.

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4.

Demutualization and Closed Block

In 1999, we began the process of reorganizing and demutualizing our then principal operating company, Phoenix Home Life. We completed the process in June 2001, when all policyholder membership interests in this mutual company were extinguished and eligible policyholders of the mutual company received shares of common stock of The Phoenix Companies, Inc., together with cash and policy credits, as compensation. To protect the future dividends of these policyholders, we also established a closed block for their existing policies.

Because closed block liabilities exceed closed block assets, we have a net closed block liability at each period-end. This net liability represents the maximum future earnings contribution to be recognized from the closed block and the change in this net liability each period is in the earnings contribution recognized from the closed block for the period. To the extent that actual cash flows differ from amounts anticipated, we may adjust policyholder dividends. If the closed block has excess funds, those funds will be available only to the closed block policyholders. However, if the closed block has insufficient funds to make policy benefit payments that are guaranteed, the payments will be made from assets outside of the closed block.

Closed Block Assets and Liabilities:	Mar 31,		Dec 31,
($ in millions)	2011		2010		Inception
Debt securities	$	6,384.6	$	6,385.4	$	4,773.1
Equity securities		21.6		19.6		—
Mortgage loans		3.7		4.1		399.0
Venture capital partnerships		215.3		210.0		—
Policy loans		1,315.1		1,340.8		1,380.0
Other investments		122.7		125.5		—
Fair value option investments		11.7		16.0		—
Total closed block investments		8,074.7		8,101.4		6,552.1
Cash and cash equivalents		11.4		7.1		—
Accrued investment income		96.5		97.2		106.8
Receivables		60.1		62.5		35.2
Deferred income taxes		232.3		236.2		389.4
Other closed block assets		25.3		17.8		6.2
Total closed block assets		8,500.3		8,522.2		7,089.7
Policy liabilities and accruals		8,835.8		8,903.5		8,301.7
Policyholder dividends payable		264.3		263.3		325.1
Policy dividend obligation		355.8		339.0		—
Other closed block liabilities		93.5		73.6		12.3
Total closed block liabilities		9,549.4		9,579.4		8,639.1
Excess of closed block liabilities over closed block assets	$	1,049.1	$	1,057.2	$	1,549.4

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4.

Demutualization and Closed Block (continued)

Closed Block Revenues and Expenses and Changes in	Cumulative		Three Months Ended
Policyholder Dividend Liabilities:	from		March 31,
($ in millions)	Inception		2011		2010
Closed block revenues
Premiums	$	9,665.7	$	124.7	$	144.6
Net investment income		6,040.8		117.6		122.5
Net realized investment losses		(236.6)		(1.6)		(6.3)
Total revenues		15,469.9		240.7		260.8
Policy benefits, excluding dividends		10,622.5		163.1		178.7
Other operating expenses		99.8		1.5		5.8
Total benefits and expenses, excluding policyholder dividends		10,722.3		164.6		184.5
Closed block contribution to income before dividends and income taxes		4,747.6		76.1		76.3
Policyholder dividends		(3,947.6)		(63.6)		(62.6)
Closed block contribution to income before income taxes		800.0		12.5		13.7
Applicable income tax expense		278.3		4.3		4.8
Closed block contribution to income	$	521.7	$	8.2	$	8.9
Policyholder dividend obligation
Policyholder dividends provided through earnings	$	4,000.9	$	63.6	$	62.6
Policyholder dividends provided through other comprehensive income		302.1		14.7		126.4
Additions to policyholder dividend liabilities		4,303.0		78.3		189.0
Policyholder dividends paid		(4,008.0)		(60.5)		(72.8)
Increase in policyholder dividend liabilities		295.0		17.8		116.2
Policyholder dividend liabilities, beginning of period		325.1		602.3		297.8
Policyholder dividend liabilities, end of period		620.1		620.1		414.0
Policyholder dividends payable, end of period		(264.3)		(264.3)		(299.2)
Policyholder dividend obligation, end of period	$	355.8	$	355.8	$	114.8

As of March 31, 2011, the policyholder dividend obligation includes approximately $53.7 million for cumulative closed block earnings in excess of expected amounts calculated at the date of demutualization and also includes $302.1 million of net unrealized gains on investments supporting the closed block liabilities. These closed block earnings will not inure to stockholders, but will result in additional future dividends to closed block policyholders unless otherwise offset by future performance of the closed block that is less favorable than expected. If actual cumulative performance is less favorable than expected, only actual earnings will be recognized in net income.

5.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Policy acquisition costs deferred	$	34.4	$	3.8
Costs amortized to expenses:
Recurring costs		(62.5)		(67.0)
Realized investment gains (losses)		(0.2)		(1.2)
Offsets to net unrealized investment gains or losses included in   accumulated other comprehensive income(1)		(12.7)		(108.6)
Change in deferred policy acquisition costs		(41.0)		(173.0)
Deferred policy acquisition costs, beginning of period		1,444.3		1,916.0
Deferred policy acquisition costs, end of period	$	1,403.3	$	1,743.0

———————

⁽¹⁾

An offset to deferred policy acquisition costs and accumulated other comprehensive income is recorded each period to the extent that, had unrealized holding gains or losses from securities classified as available-for-sale actually been realized, an adjustment to deferred policy acquisition costs amortized using gross profits or gross margins would result.

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5.

Deferred Policy Acquisition Costs (continued)

We amortize deferred policy acquisition costs and based on the related policy’s classification. For individual participating 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 EGPs.

The projection of EGPs requires the use of various assumptions, estimates and judgments about the future. 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.

We conduct a comprehensive assumption review on an annual basis, or as circumstances warrant. Upon completion of these assumption reviews, we revise our assumptions to reflect our current best estimate, thereby changing our estimate of EGPs in the deferred policy acquisition cost amortization models. The deferred policy acquisition cost asset is then adjusted with an offsetting benefit or charge to income to reflect such changes in the period of the revision, a process known as “unlocking.”

During the three months ended March 31, 2011 and 2010, it was determined that an unlocking was not warranted.

6.

Investing Activities

Debt and equity securities

Fair Value and Cost of	March 31, 2011				December 31, 2010
General Account Securities:	Fair		Amortized		Fair		Amortized
($ in millions)	Value		Cost		Value		Cost
U.S. government and agency	$	719.4	$	686.2	$	762.3	$	726.8
State and political subdivision		213.0		212.1		218.7		217.7
Foreign government		170.7		151.9		170.5		150.8
Corporate		5,996.6		5,699.2		5,917.6		5,637.7
Commercial mortgage-backed (“CMBS”)		1,174.1		1,142.4		1,148.4		1,124.5
Residential mortgage-backed (“RMBS”)		2,112.2		2,143.9		1,994.7		2,039.7
CDO/CLO		253.8		289.9		251.6		299.5
Other asset-backed		519.7		520.0		430.0		431.0
Available-for-sale debt securities	$	11,159.5	$	10,845.6	$	10,893.8	$	10,627.7
Amounts applicable to the closed block	$	6,384.6	$	6,089.3	$	6,385.4	$	6,106.0
Available-for-sale equity securities	$	52.2	$	33.6	$	47.5	$	28.7
Amounts applicable to the closed block	$	21.6	$	15.0	$	19.6	$	11.9

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6.

Investing Activities (continued)

Unrealized Gains and Losses from General Account Securities:	March 31, 2011				December 31, 2010
($ in millions)	Gains		Losses		Gains		Losses
U.S. government and agency	$	40.3	$	(7.1)	$	43.0	$	(7.5)
State and political subdivision		5.3		(4.4)		5.5		(4.5)
Foreign government		18.8		—		20.1		(0.4)
Corporate		403.9		(106.5)		418.0		(138.1)
CMBS		50.6		(18.9)		49.4		(25.5)
RMBS		43.6		(75.3)		45.5		(90.5)
CDO/CLO		6.3		(42.4)		7.7		(55.6)
Other asset-backed		6.8		(7.1)		7.8		(8.8)
Debt securities gains (losses)	$	575.6	$	(261.7)	$	597.0	$	(330.9)
Debt securities net gains	$	313.9			$	266.1
Equity securities gains (losses)	$	20.7	$	(2.1)	$	19.5	$	(0.7)
Equity securities net gains	$	18.6			$	18.8

Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in the consolidated balance sheet as a component of accumulated other comprehensive income (loss) (“AOCI”). The table below presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI) and the subsequent changes in fair value.

Fixed Maturity Securities on which an OTTI Loss has been Recognized, by Type:	Mar 31,		Dec 31,
($ in millions)	2011(1)		2010(1)
U.S. government and agency	$	—	$	—
State and political subdivision		—		—
Foreign government		—		—
Corporate		(5.7)		(5.4)
CMBS		(18.8)		(18.7)
RMBS		(74.0)		(72.2)
CDO/CLO		(14.6)		(19.9)
Other asset-backed		—		—
Fixed maturity non-credit losses in AOCI	$	(113.1)	$	(116.2)

———————

⁽¹⁾

Represents the amount of non-credit OTTI losses recognized in AOCI which excludes net unrealized losses on impaired securities.

12

6.

Investing Activities (continued)

Aging of Temporarily Impaired	As of March 31, 2011
General Account Securities:	Less than 12 months				Greater than 12 months				Total
($ in millions)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt Securities
U.S. government and agency	$	40.8	$	(0.5)	$	40.2	$	(6.6)	$	81.0	$	(7.1)
State and political subdivision		46.7		(1.3)		11.0		(3.1)		57.7		(4.4)
Foreign government		6.2		—		—		—		6.2		—
Corporate		355.9		(12.5)		604.4		(94.0)		960.3		(106.5)
CMBS		84.8		(2.7)		63.4		(16.2)		148.2		(18.9)
RMBS		331.0		(8.3)		441.3		(67.0)		772.3		(75.3)
CDO/CLO		—		—		182.2		(42.4)		182.2		(42.4)
Other asset-backed		184.7		(2.0)		51.6		(5.1)		236.3		(7.1)
Debt securities	$	1,050.1	$	(27.3)	$	1,394.1	$	(234.4)	$	2,444.2	$	(261.7)
Equity securities		3.5		(1.3)		0.2		(0.8)		3.7		(2.1)
Total temporarily impaired securities	$	1,053.6	$	(28.6)	$	1,394.3	$	(235.2)	$	2,447.9	$	(263.8)
Amounts inside the closed block	$	466.0	$	(15.5)	$	620.4	$	(80.0)	$	1,086.4	$	(95.5)
Amounts outside the closed block	$	587.6	$	(13.1)	$	773.9	$	(155.2)	$	1,361.5	$	(168.3)
Amounts outside the closed block   that are below investment grade	$	35.3	$	(2.9)	$	297.3	$	(93.8)	$	332.6	$	(96.7)
Number of securities				515				609				1,124

Unrealized losses on below investment grade debt securities outside the closed block with a fair value of less than 80% of amortized cost totaled $70.7 million at March 31, 2011. Of this amount, $67.7 million was below 80% of amortized cost for more than 12 months.

Unrealized losses on below investment grade debt securities held in the closed block with a fair value of less than 80% of amortized cost totaled $22.8 million at March 31, 2011. Of this amount, $18.5 million was below 80% of amortized cost for more than 12 months.

These securities were considered to be temporarily impaired at March 31, 2011 because each of these securities had performed, and was expected to perform, in accordance with its original contractual terms and because it was more likely than not that we would not be required to sell it before recovery.

13

6.

Investing Activities (continued)

Aging of Temporarily Impaired	As of December 31, 2010
General Account Securities:	Less than 12 months				Greater than 12 months				Total
($ in millions)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt Securities
U.S. government and agency	$	33.3	$	(0.5)	$	40.0	$	(7.0)	$	73.3	$	(7.5)
State and political subdivision		50.4		(1.3)		10.9		(3.2)		61.3		(4.5)
Foreign government		6.8		(0.4)		—		—		6.8		(0.4)
Corporate		305.2		(14.1)		638.0		(124.0)		943.2		(138.1)
CMBS		114.3		(4.1)		65.1		(21.4)		179.4		(25.5)
RMBS		239.8		(7.1)		469.3		(83.4)		709.1		(90.5)
CDO/CLO		0.7		—		181.4		(55.6)		182.1		(55.6)
Other asset-backed		135.1		(1.5)		51.8		(7.3)		186.9		(8.8)
Debt securities	$	885.6	$	(29.0)	$	1,456.5	$	(301.9)	$	2,342.1	$	(330.9)
Equity securities		5.4		(0.2)		0.5		(0.5)		5.9		(0.7)
Total temporarily impaired securities	$	891.0	$	(29.2)	$	1,457.0	$	(302.4)	$	2,348.0	$	(331.6)
Amounts inside the closed block	$	461.7	$	(15.3)	$	647.2	$	(110.7)	$	1,108.9	$	(126.0)
Amounts outside the closed block	$	429.3	$	(13.9)	$	809.8	$	(191.7)	$	1,239.1	$	(205.6)
Amounts outside the closed block   that are below investment grade	$	29.7	$	(3.3)	$	298.1	$	(114.1)	$	327.8	$	(117.4)
Number of securities				446				679				1,125

Unrealized losses on below investment grade debt securities outside the closed block with a fair value of less than 80% of amortized cost totaled $99.7 million at December 31, 2010. Of this amount, $90.9 million was below 80% of amortized cost for more than 12 months.

Unrealized losses on below investment grade debt securities held in the closed block with a fair value of less than 80% of amortized cost totaled $31.3 million at December 31, 2010. Of this amount, $23.1 million was below 80% of amortized cost for more than 12 months.

These securities were considered to be temporarily impaired at December 31, 2010 because each of these securities had performed, and was expected to perform, in accordance with its original contractual terms and because it was more likely than not that we would not be required to sell it before recovery.

Maturities of General Account Debt Securities:	As of March 31, 2011
($ in thousands)	Fair		Amortized
	Value		Cost
Due in one year or less	$	489.7	$	485.4
Due after one year through five years		2,151.8		2,014.9
Due after five years through ten years		2,132.0		1,987.5
Due after ten years		2,326.2		2,261.6
CMBS/RMBS/ABS/CDO/CLO		4,059.8		4,096.2
Total	$	11,159.5	$	10,845.6

The maturities of general account debt securities, as of March 31, 2011, are summarized in the table above by contractual maturity. Actual maturities will differ from contractual maturities as certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties, and we have the right to put or sell certain obligations back to the issuers.

14

6.

Investing Activities (continued)

Other-than-temporary impairments

A credit-related loss impairment for structured securities is determined by calculating the present value of the expected credit losses on a given security’s coupon and principal cash flows until maturity. All other fixed income securities are written down to fair value. The impairment amount is separated into the amount related to credit losses, which is recorded as a charge to net realized investment losses included in our earnings, and the amount related to all other factors, which is recognized in other comprehensive income. The non-credit related loss component is equal to the difference between the fair value of a security and its impaired carrying value.

Management exercised significant judgment with respect to certain securities in determining whether impairments are temporary or other than temporary. At March 31, 2011, this included debt securities with $52.9 million of gross unrealized losses of 50% or more for which no OTTI was ultimately indicated. In reaching its conclusions, management used a number of issuer-specific quantitative indicators and qualitative judgments to access the probability of receiving a given security’s contractual cash flows. This included the issue’s implied yield to maturity, cumulative default rate based on rating, comparisons of issue-specific spreads to industry or sector spreads, specific trading activity in the issue, and other market data such as recent debt tenders and upcoming refinancing requirements. Management also reviewed fundamentals such as issuer credit and liquidity metrics, business outlook and industry conditions. Management does not have the intention to sell nor does it expect to be required to sell these securities prior to their recovery. Management maintains a watch list of securities that is reviewed for impairments. Each security on the watch list was evaluated, analyzed and discussed, with the positive and negative factors weighed in the ultimate determination of whether or not the security was other-than-temporarily impaired.

Debt Securities

Fixed maturity OTTIs recorded in the first quarter of 2011 were primarily concentrated in corporate bonds and structured securities. These impairments were driven primarily by significant rating downgrades and increased collateral default rates. In our judgment, these credit events or other adverse conditions of the issuers have caused, or will most likely lead to, a deficiency in the contractual cash flows related to the investment. Therefore, based upon these credit events, we have determined that OTTIs exist. Total debt impairments recognized through earnings related to such credit-related circumstances were $5.7 million in the first quarter of 2011 and $14.2 million in the first quarter of 2010.

In addition to these credit-related impairments recognized through earnings, we impaired securities to fair value through other comprehensive loss for any impairments related to non-credit related factors. These types of impairments were driven primarily by market or sector credit spread widening or by a lack of liquidity in the securities. The amount of impairments recognized as an adjustment to other comprehensive loss due to these factors was $1.7 million in the first quarter of 2011 and $16.9 million in the first quarter of 2010.

Prospectively, we will account for the OTTI security as if the debt security had been purchased on the impairment date, using an amortized cost basis equal to the previous cost basis less the amount of the credit loss impairment. We will continue to estimate the present value of future cash flows expected and, if significantly greater than the new cost basis, accrete the difference as interest income.

The following table rolls forward the amount of credit losses recognized in earnings on debt securities held at the beginning of the period, for which a portion of the OTTI was recognized in other comprehensive income.

Credit Losses Recognized in Earnings on Debt Securities for which a Portion	Three Months Ended
of the OTTI Loss was Recognized in Other Comprehensive Income:	March 31
($ in millions)	2011		2010
Balance, beginning of period	$	(60.4)	$	(44.4)
Add: Credit losses on OTTIs not previously recognized		(4.1)		(2.3)
Less: Credit losses on securities sold		3.1		—
Less: Credit losses on securities impaired due to intent to sell		—		—
Add: Credit losses on previously impaired securities		(1.2)		(9.9)
Less: Increases in cash flows expected on previously impaired securities		—		—
Balance, end of period	$	(62.6)	$	(56.6)

15

6.

Investing Activities (continued)

Venture capital partnerships

The following table presents investments in limited partnerships interests. We make contributions to partnerships under existing or new funding commitments.

Investment Activity in Venture Capital Partnerships:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Contributions	$	5.3	$	8.0
Equity in earnings (loss) of partnerships		9.8		5.3
Distributions		(9.4)		(2.3)
Change in venture capital partnerships		5.7		11.0
Venture capital partnership investments, beginning of period		220.0		188.6
Venture capital partnership investments, end of period	$	225.7	$	199.6
Amounts applicable to the closed block	$	215.3	$	191.2

Other investments

Other Investments:	Mar 31,		Dec 31,
($ in millions)	2011		2010
Transportation and other equipment leases	$	28.3	$	28.1
Mezzanine partnerships		177.8		187.5
Affordable housing partnerships		6.4		6.3
Derivative instruments (Note 9)		121.5		136.9
Real estate		2.3		2.3
Other partnership interests(1)		129.4		123.6
Other interests		20.1		28.1
Mortgage loans		3.7		4.1
Other investments	$	489.5	$	516.9
Amounts applicable to the closed block	$	126.4	$	129.6

———————

⁽¹⁾

Represents primarily private equity partnerships, hedge funds and direct equity investments.

Net investment income

Sources of Net Investment Income:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Debt securities	$	147.6	$	154.3
Equity securities		0.6		0.1
Venture capital partnerships		9.8		5.3
Policy loans		42.0		43.4
Other investments		0.7		4.6
Fair value option investments		2.4		0.7
Total investment income		203.1		208.4
Less: Discontinued operations		0.5		1.7
Less: Investment expenses		1.8		2.1
Net investment income	$	200.8	$	204.6
Amounts applicable to the closed block	$	117.6	$	122.5

16

6.

Investing Activities (continued)

Net realized investment gains (losses)

Sources and Types of Net Realized Investment Gains (Losses):	Three Months Ended
($ in millions)	March 31,
	2011		2010
Total other-than-temporary debt impairment losses	$	(7.4)	$	(31.1)
Portion of loss recognized in other comprehensive income		1.7		16.9
Net debt impairment losses recognized in earnings	$	(5.7)	$	(14.2)
Debt security impairments:
U.S. government and agency	$	—	$	—
State and political subdivision		—		—
Foreign government		—		—
Corporate		(4.4)		(1.9)
CMBS		—		(1.3)
RMBS		(1.3)		(5.5)
CDO/CLO		—		(5.5)
Other asset-backed		—		—
Net debt security impairments		(5.7)		(14.2)
Equity security impairments		—		(0.3)
Other investments impairments		—		—
Impairment losses		(5.7)		(14.5)
Debt security transaction gains		3.9		22.9
Debt security transaction losses		(1.9)		(5.0)
Equity security transaction gains		—		—
Equity security transaction losses		—		—
Venture capital partnership transaction gains		—		—
Venture capital partnership transaction losses		—		—
Other investments transaction gains		—		—
Other investments transaction losses		(1.6)		(4.2)
Net transaction gains		0.4		13.7
Realized gains (losses) on fair value option investments:
Deferred compensation assets		1.1		0.2
Synthetic CDO		(1.5)		—
Total realized gains (losses) on fair value option investments		(0.4)		0.2
Realized gains (losses) on derivative assets and liabilities		(10.5)		3.6
Net realized investment gains (losses), excluding impairment losses		(10.5)		17.5
Net realized investment gains (losses), including impairments	$	(16.2)	$	3.0

Unrealized investment gains (losses)

Sources of Changes in Net Unrealized Investment Gains (Losses):	Three Months Ended
($ in millions)	March 31,
	2011		2010
Debt securities	$	47.8	$	255.4
Equity securities		(0.2)		7.4
Other investments		—		0.3
Net unrealized investment gains	$	47.6	$	263.1
Net unrealized investment gains	$	47.6	$	263.1
Applicable closed block policyholder dividend obligation		14.7		126.4
Applicable deferred policy acquisition cost		12.7		108.6
Applicable deferred income tax		25.0		(27.9)
Offsets to net unrealized investment gains		52.4		207.1
Net unrealized investment gains (losses) included in other comprehensive income	$	(4.8)	$	56.0

17

6.

Investing Activities (continued)

Non-consolidated variable interest entities

Entities which do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as VIEs. We perform ongoing assessments of our investments in VIEs to determine whether we have a controlling financial interest in the VIE and therefore would be considered to be the primary beneficiary. An entity would be considered a primary beneficiary and be required to consolidate a VIE when the entity has both the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses, or right to receive benefits, that could potentially be significant to the VIE. We reassess our VIE determination with respect to an entity on an ongoing basis.

We are involved with various entities that are deemed to be VIEs primarily as a passive investor in private equity limited partnerships and through direct investments, in which we are not related to the general partner. These investments are accounted for under the equity method of accounting and are included in other invested assets category of the balance sheet. The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to significant VIEs for which we are not the primary beneficiary.

Carrying Value of Assets and Liabilities	March 31, 2011						December 31, 2010
and Maximum Exposure Loss Relating					Maximum						Maximum
to Variable Interest Entities:					Exposure						Exposure
($ in millions)	Assets		Liabilities		to Loss		Assets		Liabilities		to Loss
Limited partnerships	$	514.7	$	—	$	514.7	$	512.4	$	—	$	512.4
Direct equity investments		55.2		—		55.2		55.4		—		55.4
Receivable(1)		6.7		—		6.7		6.8		—		6.8
Total	$	576.6	$	—	$	576.6	$	574.6	$	—	$	574.6

———————

⁽¹⁾

In connection with the sale of certain venture capital partnerships, Phoenix Life issued a guarantee with respect to the outstanding unfunded commitments related to the partnerships that were sold. See Note 17 to these financial statements for additional information regarding such commitments.

The asset value of our investments in VIEs (based upon sponsor values and financial statements of the individual entities) for which we are not the primary beneficiary was $576.6 million as of March 31, 2011. Our maximum exposure to loss related to these non-consolidated VIEs is limited to the amount of our investment.

Issuer and counterparty credit exposure

Credit exposure related to issuers and derivatives counterparties is inherent in investments and derivative contracts with positive fair value or asset balances. We manage credit risk through the analysis of the underlying obligors, issuers and transaction structures. We review our debt security portfolio regularly to monitor the performance of obligors and assess the stability of their credit ratings. We also manage credit risk through industry and issuer diversification and asset allocation. Maximum exposure to an issuer or derivative counterparty is defined by quality ratings, with higher quality issuers having larger exposure limits. As of March 31, 2011, we were not exposed to any credit concentration risk of a single issuer greater than 10% of stockholders’ equity other than U.S. government and government agencies backed by the faith and credit of the U.S. government. We have an overall limit on below investment grade rated issuer exposure. To further mitigate the risk of loss on derivatives, we only enter into contracts in which the counterparty is a financial institution with a rating of A or higher.

As of March 31, 2011, we held derivative assets, net of liabilities, with a fair value of $104.8 million. Derivative credit exposure was diversified with seven different counterparties. We also had debt securities of these issuers with a carrying value of $94.7 million. Our maximum amount of loss due to credit risk with these issuers was $199.5 million. See Note 9 to these financial statements for more information regarding derivatives.

18

7.

Financing Activities

Indebtedness at Carrying Value:	Mar 31,		Dec 31,
($ in millions)	2011		2010
7.15% surplus notes	$	174.1	$	174.1
7.45% senior unsecured bonds		253.6		253.6
Total indebtedness	$	427.7	$	427.7

Our 7.15% surplus notes are an obligation of Phoenix Life and are due December 15, 2034. The carrying value of the 2034 notes is net of $0.9 million of unamortized original issue discount. Interest payments are at an annual rate of 7.15%, require the prior approval of the Superintendent of Insurance of the State of New York and may be made only out of surplus funds which the Superintendent determines to be available for such payments under New York Insurance Law. The notes may be redeemed at the option of Phoenix Life at any time at the “make-whole” redemption price set forth in the offering circular. New York Insurance Law provides that the notes are not part of the legal liabilities of Phoenix Life.

Our senior unsecured bonds were issued in December 2001 for gross proceeds of $300.0 million (net proceeds of $290.6 million) and mature in January 2032. We pay interest at an annual rate of 7.45%. We may redeem any or all of the bonds from January 2007 at a redemption price equal to 100% of principal plus accrued and unpaid interest to the redemption date. We did not repurchase any of these bonds during the three months ended March 31, 2011. During 2010, we repurchased $0.3 million of par value of these bonds for $0.3 million.

We have recorded indebtedness at unpaid principal balances of each instrument net of issue discount. The Company or its subsidiaries may, from time to time, purchase its debt securities in the open market subject to considerations including, but not limited to, market conditions, relative valuations, capital allocation and the continued determination that it is in the best interest of the Company and its stakeholders.

Future minimum annual principal payments on indebtedness as of March 31, 2011 are $253.6 million in 2032 and $175.0 million in 2034.

Interest Expense on Indebtedness, including	Three Months Ended
Amortization of Debt Issuance Costs:	March 31,
($ in millions)	2011		2010
Surplus notes	$	3.1	$	3.1
Senior unsecured bonds		4.8		4.9
Interest expense on indebtedness	$	7.9	$	8.0

Common stock dividends

During the three months ended March 31, 2011 and the year ended December 31, 2010, we did not pay any stockholder dividends.

8.

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 fee income. For the three-month periods ended March 31, 2011 and 2010, there were no gains or losses on transfers of assets from the general account to a separate account.

19

8.

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

Variable and fixed annuities

Many of our variable annuity contracts offer various guaranteed minimum death, accumulation, withdrawal and income benefits. These benefits are offered in various forms as described below.

Separate Account Investments of Account Balances of Contracts with Guarantees:	Mar 31,		Dec 31,
($ in millions)	2011		2010
Debt securities	$	884.6	$	737.4
Equity funds		2,291.8		2,266.4
Other		91.3		95.9
Total	$	3,267.7	$	3,099.7

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 for calculating 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 and GMIB, reserves are calculated based on 200 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, excluding policyholder dividends, on our statements of income. 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.

Changes in Guaranteed Liability Balances:	As of
($ in millions)	March 31, 2011
	Annuity		Annuity
	GMDB		GMIB
Liability balance as of January 1, 2011	$	4.6	$	18.1
Incurred		0.1		(0.9)
Paid		0.3		—
Liability balance as of March 31, 2011	$	5.0	$	17.2

Changes in Guaranteed Liability Balances:	Year Ended
($ in millions)	December 31, 2010
	Annuity		Annuity
	GMDB		GMIB
Liability balance as of January 1, 2010	$	5.1	$	16.3
Incurred		4.6		1.8
Paid		(5.1)		—
Liability balance as of December 31, 2010	$	4.6	$	18.1

20

8.

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

For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the benefit payable in excess of the current account balance at the balance sheet date. We have entered into reinsurance agreements to reduce the net amount of risk on certain death benefits. Following are the major types of death benefits currently in-force:

GMDB Benefits by Type:			Net Amount		Average
($ in millions)	Account		at Risk after		Attained Age
	Value		Reinsurance		of Annuitant
GMDB return of premium	$	1,027.5	$	11.7		61
GMDB step up		1,618.4		60.3		62
GMDB earnings enhancement benefit (EEB)		47.4		0.2		62
GMDB greater of annual step up and roll up		31.6		7.0		65
Total GMDB at March 31, 2011	$	2,724.9	$	79.2
GMDB return of premium	$	1,032.9	$	19.2		61
GMDB step up		1,614.1		89.5		62
GMDB earnings enhancement benefit (EEB)		47.3		0.3		61
GMDB greater of annual step up and roll up		32.1		7.7		65
Total GMDB at December 31, 2010	$	2,726.4	$	116.7

Return of Premium: The death benefit is the greater of current account value or premiums paid (less any adjusted partial withdrawals).

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 oldest original owner attaining a certain age. On and after the oldest 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 oldest original owner’s attaining that age plus premium payments (less any adjusted partial withdrawals) made since that date.

Earnings Enhancement Benefit: 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.

Greater of Annual Step Up and Annual Roll up: The death benefit is the greatest 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.

Additional Insurance Benefits:			Average
($ in millions)	Account		Attained Age
	Value		of Annuitant
COMBO	$	11.3	60
GMAB		445.1	56
GMIB		530.1	62
GMWB		631.6	62
GPAF		17.5	76
Total at March 31, 2011	$	1,635.6
COMBO	$	11.2	60
GMAB		440.3	56
GMIB		528.4	62
GMWB		617.0	61
GPAF		16.1	76
Total at December 31, 2010	$	1,613.0

21

8.

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

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

The GMWB rider 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, these contracts have a feature that allows the policyholder to receive the guaranteed annual withdrawal amount for as long as they are alive.

The GMAB rider provides the contract owner with a minimum accumulation of the contract owner’s 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 COMBO rider includes the GMAB and GMWB riders as well as the GMDB rider at the policyholder’s option.

Fixed indexed annuities also offer a variety of index options: policy credits that are calculated based on the performance of an outside equity market or other index over a specified term.

The GMWB, GMAB, GPAF, COMBO and index options represent embedded derivatives in the variable and fixed indexed 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, GPAF, COMBO and index options 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, contracts mature and actual policyholder behavior emerges, we continually evaluate and may from time to time adjust these assumptions.

In order to manage the risk associated with these embedded derivative liabilities, we have established a risk management strategy under which we hedge our GMAB, GMWB and COMBO exposure using equity index options, equity index futures, equity index variance swaps, interest rate swaps and swaptions. We hedge our fixed index annuity options using equity index options. These investments are included in other investments on our balance sheet. Embedded derivative liabilities for GMWB, GMAB, GPAF, COMBO and index options are shown in the table below. There were no benefit payments made for the GMWB and GMAB during 2010 or during the three months ended March 31, 2011. There were benefit payments made of $0.4 million for GPAF during 2010 and $0.1 million during the three months ended March 31, 2011.

Embedded Derivative Liabilities:	Mar 31,		Dec 31,
($ in millions)	2011		2010
GMWB	$	(9.1)	$	(1.7)
GMAB		8.1		13.3
GPAF		2.4		3.0
COMBO		(0.8)		(0.7)
Index options		1.1		0.4
Total embedded derivatives	$	1.7	$	14.3

Universal life

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 market conditions. At March 31, 2011 and December 31, 2010, we held additional universal life benefit reserves in accordance with death benefit and other insurance benefit reserves of $114.4 million and $105.0 million, respectively.

22

9.

Derivative Instruments

Derivative instruments

We use derivatives to manage certain risks in our general account portfolio as well as our insurance liabilities. Our derivatives generally do not qualify for hedge accounting treatment and are stated at fair value (market value) with changes in valuation reported in net realized capital gains/losses. Derivatives that are designated as hedges for accounting purposes are also stated at fair value. However, changes in the fair value of such derivatives are recorded in other comprehensive income, or net income, depending on the nature and effectiveness of the hedge. The Company seeks to enter into over-the-counter (“OTC”) derivative transactions pursuant to master agreements that provide for netting of payments and receipts by counterparty. As of March 31, 2011 and December 31, 2010, $8.0 million and $6.9 million, respectively, of cash and cash equivalents were held as collateral by a third party related to our derivative transactions.

Derivative Instruments Held in				March 31,				December 31,
General Account:				2011				2010
($ in millions)	Notional
	Amount		Maturity	Asset		Liability		Asset		Liability
Non-Hedging Derivative Instruments
Interest rate swaps	$	131.0	2017-2026	$	—	$	1.7	$	3.6	$	2.5
Variance swaps		0.9	2015-2017		—		2.0		—		0.6
Swaptions		25.0	2024		0.8		—		4.8		—
Put options		432.0	2014-2024		70.4		—		83.3		—
Call options		204.2	2011-2016		21.8		10.1		11.2		6.0
Equity futures		113.9	2011		28.5		2.0		34.0		2.0
		907.0			121.5		15.8		136.9		11.1
Hedging Derivative Instruments
Cross currency swaps		15.0	2012-2016		—		0.9		—		0.1
		15.0			—		0.9		—		0.1
Total derivative instruments	$	922.0		$	121.5	$	16.7	$	136.9	$	11.2

Interest Rate Swaps

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 use interest rate swaps that effectively convert variable rate cash flows to fixed cash flows in order to hedge the interest rate risks associated with guaranteed minimum living benefit (GMAB/GMWB) rider liabilities.

Interest Rate Options

We use interest rate options, such as swaptions, to hedge against market risks to assets or liabilities from substantial changes in interest rates. An interest rate swaption gives us the right but not the obligation to enter into an underlying swap. Swaptions are options on interest rate swaps. All of our swaption contracts are receiver swaptions, which give us the right to enter into a swap where we will receive the agreed-upon fixed rate and pay the floating rate. If the market conditions are favorable and the swap is needed to continue hedging our inforce liability business, we will exercise the swaption and enter into a fixed rate swap. If a swaption contract is not exercised by its option maturity date, it expires with no value.

Exchange Traded Future Contracts

We use equity index futures to hedge the market risks from changes in the value of equity indices, such as S&P 500, associated with guaranteed minimum living benefit (GMAB/GMWB) rider liabilities. Positions are short-dated, exchange-traded futures with maturities of three months.

Equity Index Options

The Company uses equity indexed options to hedge against market risks from changes in equity markets, volatility and interest rates.

An equity index option affords the Company the right to make or receive payments based on a specified future level of an equity market index. The Company may use exchange-trade or OTC options.

23

9.

Derivative Instruments (continued)

Generally, the Company has used long-dated options to hedge its GMAB and GMWB liabilities and a combination of put and call options to hedge its fixed indexed annuity option liabilities.

Cross Currency Swaps

We use cross currency swaps to hedge against market risks from changes in foreign currency exchange rates. Currency swaps are used to swap bond asset cash flows denominated in a foreign currency back to U.S. dollars. Under foreign currency swaps, we agree with another party (referred to as the counterparty) to exchange principal and periodic interest payments denominated in foreign currency for payments in U.S. dollars.

Contingent features

Derivative counterparty agreements may contain certain provisions that require our insurance companies’ financial strength rating to be above certain thresholds. If our financial strength ratings were to fall below a specified rating threshold, certain derivative counterparties could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions, or trigger a termination of existing derivatives and/or future derivative transactions.

In certain derivative counterparty agreements, our financial strength ratings remain below the specified threshold levels as a result of rating downgrades in early 2009. However, the Company held no derivative instruments as of March 31, 2011 in a net liability position payable to any counterparty (i.e., such derivative instruments have fair values in a net asset position payable to the Company if such holdings were liquidated).

10.

Fair Value of Financial Instruments

ASC 820-10 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.

ASC 820-10 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 and exchange-traded equities.

·

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 government-backed mortgage products, certain collateralized mortgage and debt obligations and 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.

24

10.

Fair Value of Financial Instruments (continued)

The following tables present the financial instruments carried at fair value by ASC 820-10 valuation hierarchy (as described above).

Fair Values of Financial Instruments by Level:	As of March 31, 2011
($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale debt securities
U.S. government and agency	$	350.8	$	368.6	$	—	$	719.4
State and political subdivision		—		213.0		—		213.0
Foreign government		—		170.7		—		170.7
Corporate		—		5,727.5		269.1		5,996.6
CMBS		—		1,100.4		73.7		1,174.1
RMBS		—		2,058.5		53.7		2,112.2
CDO/CLO		—		—		253.8		253.8
Other asset-backed		—		441.7		78.0		519.7
Available-for-sale equity securities		2.0		—		50.2		52.2
Derivative assets		—		121.5		—		121.5
Separate account assets(1)		4,330.3		73.5		—		4,403.8
Fair value option investments		24.6		38.1		29.8		92.5
Total assets	$	4,707.7	$	10,313.5	$	808.3	$	15,829.5
Liabilities
Derivative liabilities	$	—	$	16.7	$	1.7	$	18.4
Total liabilities	$	—	$	16.7	$	1.7	$	18.4

———————

⁽¹⁾

Excludes pension assets of $39.0 million in limited partnerships and real estate investments accounted for on the equity method as well as $6.1 million in cash and cash equivalents and money market funds.

There were no transfers of assets between Level 1 and Level 2 during the quarter ended March 31, 2011.

Fair Values of Financial Instruments by Level:	As of December 31, 2010
($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale debt securities
U.S. government and agency	$	390.0	$	372.3	$	—	$	762.3
State and political subdivision		—		218.7		—		218.7
Foreign government		—		170.5		—		170.5
Corporate		—		5,649.2		268.4		5,917.6
CMBS		—		1,092.1		56.3		1,148.4
RMBS		—		1,944.1		50.6		1,994.7
CDO/CLO		—		—		251.6		251.6
Other asset-backed		—		362.1		67.9		430.0
Available-for-sale equity securities		0.7		0.5		46.3		47.5
Derivative assets		—		136.9		—		136.9
Separate account assets(1)		4,294.4		77.2		—		4,371.6
Fair value option investments		26.6		37.3		38.2		102.1
Total assets	$	4,711.7	$	10,060.9	$	779.3	$	15,551.9
Liabilities
Derivative liabilities	$	—	$	11.2	$	14.3	$	25.5
Total liabilities	$	—	$	11.2	$	14.3	$	25.5

———————

⁽¹⁾

Excludes pension assets of $37.9 million in limited partnerships and real estate investments accounted for on the equity method as well as $7.3 million in cash and cash equivalents and money market funds.

There were transfers of $123.7 million of Level 1 assets to Level 2 during the year ended December 31, 2010. These assets were transferred to Level 2 since they no longer definitively qualified as Level 1 securities as their underlying characteristics were not identical to assets being traded in active markets.

25

10.

Fair Value of Financial Instruments (continued)

Available-for-sale debt securities as of March 31, 2011 and December 31, 2010 are reported net of $43.2 million and $41.4 million of Level 2 investments included in discontinued assets on our balance sheet related to discontinued reinsurance operations.

Level 3 financial assets and liabilities

The following tables set forth a summary of changes in the fair value of our Level 3 financial assets and liabilities. 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:	Three Months Ended March 31, 2011
($ in millions)							Asset-				Common		Fair Value		Total
	CDO/CLO		RMBS		Corp		Backed		CMBS		Stock		Options		Assets
Balance, beginning of period	$	251.6	$	50.6	$	268.4	$	67.9	$	56.3	$	46.3	$	38.2	$	779.3
Purchases		0.1		4.5		10.6		23.0		15.0		4.0		—		57.2
Sales		(9.5)		(0.7)		(15.8)		(3.7)		(0.6)		(0.2)		(8.4)		(38.9)
Transfers into Level 3(1)		—		—		2.8		—		—		0.8		—		3.6
Transfers out of Level 3(2)		—		—		—		(8.4)		—		—		—		(8.4)
Realized gains (losses)   included in earnings		(0.4)		—		(0.4)		(0.4)		—		—		(1.5)		(2.7)
Unrealized gains (losses)   included in other comprehensive   income (loss)		11.7		(0.8)		3.5		(0.4)		3.0		(0.7)		1.5		17.8
Amortization/accretion		0.3		0.1		—		—		—		—		—		0.4
Balance, end of period	$	253.8	$	53.7	$	269.1	$	78.0	$	73.7	$	50.2	$	29.8	$	808.3

———————

 ⁽¹⁾

Transfers into Level 3 for the three months ended March 31, 2011 primarily represent private securities for which Level 2 input assumptions for valuation pricing were no longer applicable.

⁽²⁾

Transfers out of Level 3 for the three months ended March 31, 2011 primarily represent private securities for which reliable Level 2 input assumptions for valuation pricing became obtainable.

Level 3 Financial Assets:	Three Months Ended March 31, 2010
($ in millions)							Asset-				Common		YTD
	CDO/CLO		RMBS		Corp		Backed		CMBS		Stock		Assets
Balance, beginning of period	$	258.0	$	118.6	$	285.2	$	97.0	$	56.5	$	19.2	$	834.5
Purchases		0.1		1.0		42.9		10.0		1.3		—		55.3
Sales		(2.1)		(8.0)		(93.4)		(1.7)		(3.7)		—		(108.9)
Transfers into Level 3(1)		—		—		26.1		—		—		4.5		30.6
Transfers out of Level 3(2)		—		(40.4)		(58.0)		(18.4)		—		—		(116.8)
Realized gains (losses) included in earnings		(5.6)		(0.8)		20.7		(1.5)		—		(1.7)		11.1
Unrealized gains (losses) included in   other comprehensive income (loss)		12.4		(2.7)		22.5		1.8		7.7		9.4		51.1
Amortization/accretion		—		0.3		—		—		0.1		—		0.4
Balance, end of period	$	262.8	$	68.0	$	246.0	$	87.2	$	61.9	$	31.4	$	757.3

———————

⁽¹⁾

Transfers into Level 3 for the three months ended March 31, 2010 primarily represent private securities for which Level 2 input assumptions for valuation pricing were no longer applicable.

⁽²⁾

Transfers out of Level 3 for the three months ended March 31, 2010 primarily represent private securities for which reliable Level 2 input assumptions for valuation pricing became obtainable.

26

10.

Fair Value of Financial Instruments (continued)

Level 3 Financial Liabilities:	Three Months Ended
($ in millions)	March 31,
	2011		2010
	Embedded Derivatives
Balance, beginning of period	$	14.3	$	27.1
Net purchases/(sales)		—		—
Transfers into Level 3		—		—
Transfers out of Level 3		—		—
Realized (gains) losses		12.6		11.3
Unrealized (gains) losses included in other comprehensive loss		—		—
Amortization/accretion		—		—
Balance, end of period	$	1.7	$	15.8
Portion of (gain) loss included in net income (loss) relating to those liabilities still held	$	12.6	$	11.3

Carrying Amounts and Fair Values	March 31,				December 31,
of Financial Instruments:	2011				2010
($ in millions)	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Cash and cash equivalents	$	107.3	$	107.3	$	121.9	$	121.9
Available-for-sale debt securities		11,159.5		11,159.5		10,893.8		10,893.8
Available-for-sale equity securities		52.2		52.2		47.5		47.5
Separate account assets		4,448.9		4,448.9		4,416.8		4,416.8
Mortgage loans		3.7		3.7		4.1		4.1
Derivative financial instruments		121.5		121.5		136.9		136.9
Fair value option investments		92.5		92.5		102.1		102.1
Financial assets	$	15,985.6	$	15,985.6	$	15,723.1	$	15,723.1
Investment contracts	$	1,667.2	$	1,679.4	$	1,494.1	$	1,510.5
Indebtedness		427.7		328.0		427.7		295.4
Separate account liabilities		4,448.9		4,448.9		4,416.8		4,416.8
Derivative financial instruments		18.4		18.4		25.1		25.1
Financial liabilities	$	6,562.2	$	6,474.7	$	6,363.7	$	6,247.8

Fair value option investments at March 31, 2011 and December 31, 2010 include $24.6 million and $26.6 million of available-for-sale equity securities backing our deferred compensation liabilities. Election of the fair value option allows current earnings recognition and is more consistent with management’s view of these securities’ underlying economics. Changes in the fair value of these assets are included in net investment income.

In addition, pursuant to ASC 815, Derivatives and Hedging, adopted on July 1, 2010, this amount also includes beneficial interests in five securitized financial assets for which an irrevocable election was made to use the fair value option. These securities contain an embedded derivative feature. These securities were valued at $29.8 million and $38.2 million as of March 31, 2011 and December 31, 2010, respectively.

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, or are based on disorderly transactions or inactive markets, 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. The majority of the valuations of Level 3 assets were internally calculated or obtained from independent third-party broker quotes.

27

10.

Fair Value of Financial Instruments (continued)

We determine fair value as the price received in an orderly transaction. Thus, we evaluate broker pricing indications, if available, to determine whether the weight of evidence indicates that markets are inactive, or transactions are disorderly. In order to determine whether the volume and level of activity for an asset or liability has significantly decreased, we compare current activity with normal market activity for the asset or liability. We may observe a notable decrease in the number of recent transactions, and the significant decline or absence of a market for new issuances for the security or a similar security. If we do receive a broker pricing indication, we look for substantiation, such as a significant increase in implied liquidity risk premiums, yields, or performance indications when compared to the expected cash flow analysis. We look to see if the pricing indications have varied substantially in a short amount of time where no fundamental event or occurrence has prompted the large variation, or if there is a significant increase in the bid-ask spread. We review published indexes that may have been historically highly correlated with the fair values that no longer are representative of an active market. For corporate positions, we utilize TRACE, for which published trade activity is made available, to assess trading activity levels. For other positions, we rely on many factors such as the observable flows through Bloomberg, trading levels and activity as reported by market participants, and industry publications that speak to trading volume and current market conditions. Using professional judgment and experience, we evaluate and weigh the relevance and significance of all applicable factors to determine if there has been a significant decrease in the volume and level of activity for an asset, or group of similar assets.

Similarly, in order to identify transactions that are not orderly, we take into consideration the activity in the market as stated above, because that can influence the determination and occurrence of an orderly transaction. In addition, we assess the period of the exposure to the market before measurement date to determine adequacy for customary marketing activities. Also, we look to see if it was marketed to a single or limited number of participants. We assess the financial condition of the seller, if available, to determine whether observed transactions may have been forced. If the trading price is an outlier when compared to similar recent transactions, we consider whether this is an indicator of a disorderly trade. Using professional judgment and experience, we evaluate and weigh the relevance and significance of all applicable factors to determine if the evidence suggests that a transaction or group of similar transactions is not orderly.

Following is a description of our valuation methodologies for assets and liabilities measured at fair value. Such valuation methodologies were applied to all of the assets and liabilities carried at fair value.

Structured securities

For structured securities, we consider the best estimate of cash flows until maturity to determine our ability to collect principal and interest and compare this to the anticipated cash flows when the security was purchased. In addition, management judgment is used to assess the probability of collecting all amounts contractually due to us. After consideration is given to the available information relevant to assessing the collectibility, including historical events, current conditions and reasonable forecasts, an estimate of future cash flows is determined. This includes evaluating the remaining payment terms, prepayment speeds, the underlying collateral, expected defaults using current default data and the financial condition of the issuer. Other factors considered are composite credit ratings, industry forecast, analyst reports and other relevant market data are also considered, similar to those the Company believes market participants would use. For securities for which observable market data is available and substantiated, valuations reflect the quoted fair value.

To determine fair values for certain structured, CLO and CDO assets for which current pricing indications either do not exist, or are based on inactive markets or sparse transactions, we utilize model pricing using a third-party forecasting application that leverages historical trustee information for each modeled security. Principal and interest cash flows are modeled under various default scenarios for a given tranche of a security in accordance with its contractual cash flow priority of claim and subordination with respect to credit losses. The key assumptions include the level of annual default rates, loss-given-default (LGD) or recovery rate, collateral prepayment rate and reinvestment spread.

Fair value is then determined based on discounted projected cash flows. We use a discount rate based upon a combination of the current U.S. Treasury rate plus the most recent gross CDO/CLO spreads (including the corresponding swap spread) by original tranche rating, which is representative of the inherent credit risk exposure in a deal’s capital structure. A credit loss margin is then deducted from this blended rate equal to the baseline annual default rate times a loss severity rate. The rationale behind the deduction of such credit loss margins is necessary as the projected cash flows have already been default risk-adjusted, taking into account the impact of the projected credit losses in the underlying collateral.

28

10.

Fair Value of Financial Instruments (continued)

Derivatives

Exchange-traded derivatives valued using quoted prices are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange. Therefore, the majority of our derivative positions are valued using internally developed models that use as their basis readily observable market parameters. These positions are classified within Level 2 of the valuation hierarchy. Such derivatives include basic interest rate swaps, options and credit default swaps.

Fair values for OTC derivative financial instruments, principally forwards, options and swaps, represent the present value of amounts estimated to be received from or paid to a marketplace participant in settlement of these instruments (i.e., the amount we would expect to receive in a derivative asset assignment or would expect to pay to have a derivative liability assumed). These derivatives are valued using pricing models based on the net present value of estimated future cash flows and directly observed prices from exchange-traded derivatives or other OTC trades, while taking into account the counterparty’s credit ratings, or our own credit ratings, as appropriate. Determining the fair value for OTC derivative contracts can require a significant level of estimation and management judgment.

New and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation often incorporate significant estimates and assumptions that market participants would use in pricing the instrument, which may impact the results of operations reported in the consolidated financial statements. For long-dated and illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. This enables us to mark to market all positions consistently when only a subset of prices are directly observable. Values for OTC derivatives are verified using observed information about the costs of hedging the risk and other trades in the market. As the markets for these products develop, we continually refine our pricing models to correlate more closely to the market risk of these instruments.

Retained interest in securitization

Retained interests in securitizations do not trade in an active, open market with readily observable prices. Accordingly, we estimate the fair value of certain retained interests in securitizations using discounted cash flow (“DCF”) models.

For certain other retained interests in securitizations (such as interest-only strips), a single interest rate path DCF model is used and generally includes assumptions based upon projected finance charges related to the securitized assets, estimated net credit losses, prepayment assumptions and contractual interest paid to third-party investors. Changes in the assumptions used may have a significant impact on our valuation of retained interests and such interests are, therefore, typically classified within Level 3 of the valuation hierarchy.

We compare the fair value estimates and assumptions to observable market data where available and to recent market activity and actual portfolio experience.

Private equity investments

The valuation of non-public private equity investments requires significant management judgment due to the absence of quoted market prices, an inherent lack of liquidity and the long-term nature of such assets. Private equity investments are valued initially based upon transaction price. The carrying values of private equity investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing reviews by senior investment managers. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of the particular investment, industry valuations of comparable public companies, changes in market outlook and the third-party financing environment over time. In determining valuation adjustments resulting from the investment review process, emphasis is placed on current company performance and market conditions. Private equity investments are included in Level 3 of the valuation hierarchy.

Private equity investments may also include publicly held equity securities, generally obtained through the initial public offering of privately held equity investments. Such securities are marked-to-market at the quoted public value less adjustments for regulatory or contractual sales restrictions. Discounts for restrictions are quantified by analyzing the length of the restriction period and the volatility of the equity security.

29

10.

Fair Value of Financial Instruments (continued)

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.

Fair value of investment contracts

For purposes of fair value disclosures, we determine the fair value of guaranteed interest contracts by assuming a discount rate equal to the appropriate U.S. Treasury rate plus 100 basis points to determine the present value of projected contractual liability payments through final maturity. We determine the fair value of deferred annuities and supplementary contracts without life contingencies with an interest guarantee of one year or less at the amount of the policy reserve. In determining the fair value of deferred annuities and supplementary contracts without life contingencies 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.

Deposit type funds, including pension deposit administration contracts, dividend accumulations, and other funds left on deposit not involving life contingencies, have interest guarantees of less than one year for which interest credited is closely tied to rates earned on owned assets. For these liabilities, we assume fair value to be equal to the stated liability balances.

Valuation of embedded derivatives

We make guarantees on certain variable and fixed indexed annuity contracts, including GMAB and GMWB as well as provide credits based on the performance of certain indices (“index credits”) on our fixed indexed annuity contracts that meet the definition of an embedded derivative. The GMAB and GMWB embedded derivatives are accounted for at fair value using a risk neutral stochastic valuation methodology with changes in fair value recorded in realized investment gains. 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 internally developed assumptions related to mortality rates, lapse rates and policyholder behavior. The fair value of the embedded derivatives associated with our fixed indexed annuity is calculated using the budget method where the initial value is established based on the fair value of the options used to hedge the liabilities. The budget amount for future years is based on the impact of projected interest rates on the discounted liabilities. Several additional inputs reflect our internally developed assumptions related to lapse rates and policyholder behavior. As there are significant unobservable 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 within the fair value hierarchy.

Our fair value calculation includes a credit standing adjustment (the “CSA”). The CSA represents the adjustment that market participants would make to reflect the risk that guaranteed benefit obligations may not be fulfilled (“non-performance risk”). In analyzing various alternatives to the CSA calculation, we determined that we could not use credit default swap spreads as there are no such observable instruments on the Company’s life insurance subsidiaries nor could we consistently obtain an observable price on the surplus notes issued by Phoenix Life, as the surplus notes are not actively traded. Therefore, when discounting the rider cash flows for calculation of the fair value of the liability, we calculated the CSA that reflects the credit spread (based on a Standard & Poor’s BB- credit rating) for financial services companies similar to the Company’s life insurance subsidiaries. This average credit spread is recalculated every quarter therefore the fair value will change with the passage of time even in the absence of any other changes that would affect the valuation. The impact of the CSA at March 31, 2011 and December 31, 2010 was a reduction of $11.9 million and $19.9 million in the reserves associated with these riders, respectively.

Indebtedness

Fair value of indebtedness is based on quoted market prices.

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11.

Income Taxes

It is our policy to estimate taxes for interim periods based on estimated annual effective tax rates which are derived, in part, from expected annual pre-tax income. However, the change in the deferred income taxes and related valuation allowance for the three months ended March 31, 2011 has been computed based on the first three months of 2011 as a discrete period. The effective tax rate for the three months ended March 31, 2011 is 0%, excluding an expense of $1.5 million related to current alternative minimum tax and before the application of intraperiod rules in accordance with ASC 740-20, Accounting for Income Taxes – Intraperiod Tax Allocation. Similarly, the Company anticipates that the full-year effective tax rate will be 0%, excluding the alternative minimum tax and before the application of the intraperiod tax allocation rules.

For the quarter ended March 31, 2011, we recognized a net increase in the valuation allowance of $19.1 million. Accounting guidance requires that this movement be allocated to various financial statement components of income or loss. The net increase to the valuation allowance corresponds to an increase of $1.8 million in income statement related deferred tax balances and an increase of $17.3 million in other comprehensive income related deferred tax balances.

An income tax benefit of $1.8 million recognized in the income statement reflected the exception to intraperiod allocation rules in accordance with ASC 740-20, Accounting for Income Taxes – Intraperiod Tax Allocation. Partially offsetting this tax benefit recognized through the income statement is a $1.5 million income tax expense to current alternative minimum tax.

We have concluded that a valuation allowance on the $93.5 million of deferred tax assets attributable to available-for-sale debt securities with gross unrealized losses was not required due to our ability and intent to hold available-for-sale debt securities with gross unrealized losses until recovery of fair value or contractual maturity to avoid realizing taxable capital losses on those securities.

The Company and its subsidiaries file consolidated, combined, unitary or separate income tax returns in the U.S. federal, various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2008.

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 within 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 existing unrecognized tax benefits that would have a significant impact on the financial position of the Company.

12.

Employee Benefits

Pension and other postretirement benefits

We provide our employees with postemployment benefits that include retirement benefits, through pension and savings plans, and other benefits, including health care and life insurance. The components of pension and postretirement benefit costs follow:

Components of Pension Benefit Costs:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Service cost	$	0.2	$	0.8
Interest cost		9.0		9.5
Expected return on plan assets		(9.1)		(8.2)
Net loss amortization		1.7		1.6
Prior service cost amortization		—		—
Pension benefit cost	$	1.8	$	3.7

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12.

Employee Benefits (continued)

Components of Other Postretirement Benefit Costs:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Service cost	$	0.1	$	0.1
Interest cost		0.7		0.8
Prior service cost amortization		(0.5)		(0.4)
Other postretirement benefit cost	$	0.3	$	0.5

For the three months ended March 31, 2011, accumulated other comprehensive loss includes unrealized gains of $0.7 million, net of taxes, relating to the amortization of net prior service costs and net gains/losses. For the three months ended March 31, 2010, accumulated other comprehensive loss includes unrealized gains of $0.8 million, net of taxes, relating to the amortization of net prior service costs and net gains/losses. Effective March 31, 2010, the benefit accruals under all defined benefit pension plans were frozen and no new participants were accepted into the plans.

During the three months ended March 31, 2011, we made contributions of $3.5 million to the pension plan. We expect to make additional contributions of approximately $12.9 million by December 31, 2011.

Savings plans

During the three months ended March 31, 2011 and 2010, we incurred costs of $2.2 million and $1.2 million, respectively, for contributions to our savings plans.

Effective April 1, 2010, all grandfathered participants are subject to the tiered matching contributions schedule that the non-grandfathered participants have been subject to since July 1, 2007. Also effective April 1, 2010, employees (except Saybrus employees) participating in the Company savings plans are eligible to receive an employer discretionary contribution according to the plan terms.

13.

Share-based compensation

We provide share-based compensation to certain of our employees and non-employee directors, as further described below. The compensation cost that has been charged against income for these plans is summarized in the following table:

Share-based Compensation Plans:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Compensation cost charged to income from continuing operations	$	0.1	$	0.8
Income tax expense (benefit) before valuation allowance	$	0.6	$	0.2

We did not capitalize any of the cost of stock-based compensation during the three-month periods ended March 31, 2011 and 2010.

Stock options

We have stock option plans under which we grant options for a fixed number of common shares to employees and non-employee directors. Our options have an exercise price equal to the market value of the shares at the date of grant. Each option, once vested, entitles the holder to purchase one share of our common stock at the exercise price. The employees’ options generally vest pro-rata over a three-year period while the directors’ options vest immediately. Certain options involve both service and market criteria and vest at the later of a stated number of years from the grant date or when the market criterion has been met. If the market criterion has not been met within five years from the grant date, the options will be forfeited. The fair values of options granted are measured as of the grant date or modification date and expensed ratably over the vesting period.

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13.

Share-based compensation (continued)

Stock Option Activity at	Three Months Ended March 31,
Weighted-Average Exercise Price:	2011			2010
	Common	Exercise		Common	Exercise
	Shares	Price		Shares	Price
Outstanding, beginning of period	3,742,620	$	11.40	4,146,779	$	11.87
Granted	—		—	213,794		2.84
Exercised	—		—	—		—
Canceled	(57,666)		11.29	(267,256)		11.77
Forfeited	(10,460)		6.10	(35,973)		10.41
Outstanding, end of period	3,674,494	$	11.42	4,057,344	$	11.41

There were no options granted during the three months ended March 31, 2011.

As of March 31, 2011, 3.5 million of outstanding stock options were exercisable, with a weighted-average exercise price of $11.78 per unit.

As of March 31, 2011, there was $0.5 million of total unrecognized compensation cost related to unvested stock option grants.

In addition to the stock option activity above, 0.3 million stock options are subject to future issuance based on the achievement of a market criterion established under certain of our incentive plans. The market contingency for these stock options will be resolved no later than June 30, 2014.

Restricted stock units

We have restricted stock unit (“RSU”) plans under which we grant RSUs to employees and non-employee directors. Each RSU, once vested, entitles the holder to one share of our common stock when the restriction expires. We recognize compensation expense over the vesting period of the RSUs, which is generally three years for each award.

Time-Vested RSU Activity at	Three Months Ended March 31,
Weighted-Average Grant Price:	2011			2010
	RSUs	Price		RSUs	Price
Outstanding, beginning of period	1,057,600	$	3.22	1,265,688	$	3.45
Awarded	71,525		2.63	68,117		2.79
Conversion of performance-contingent awards	51,853		2.72	—		—
Converted to common shares/applied to taxes	(235,361)		2.82	(413,623)		3.09
Canceled	(5,754)		2.82	(4,630)		2.82
Outstanding, end of period	939,863	$	3.25	915,552	$	3.56

Performance Contingent RSU Activity at	Three Months Ended March 31,
Weighted-Average Grant Price:	2011			2010
	RSUs	Price		RSUs	Price
Outstanding, beginning of period	1,636,211	$	2.71	786,629	$	2.55
Awarded	238,095		2.52	1,360,079		2.84
Adjustment for performance results	(90,353)		2.82	6,041		2.82
Conversion of performance-contingent awards	(51,853)		2.72	—		—
Converted to common shares/applied to taxes	(43,433)		2.82	(23,858)		2.82
Canceled	(2,769)		2.82	(517,538)		2.82
Outstanding, end of period	1,685,898	$	2.67	1,611,353	$	2.71

The intrinsic value of RSUs converted during the three months ended March 31, 2011 was $0.7 million.

As of March 31, 2011, there was $3.3 million of total unrecognized compensation cost related to unvested RSU grants.

33

13.

Share-based compensation (continued)

Included in the RSU activity above, 0.2 million RSUs are subject to future issuance based on the achievement of market-based criteria established under certain of our incentive plans. The market contingencies for these RSUs will be resolved no later than June 30, 2012.

14.

Earnings per Share

The following table presents a reconciliation of shares used in calculating basic earnings (loss) per common share to those used in calculating diluted earnings (loss) per common share.

Shares Used in Calculation of Basic and Diluted	Three Months Ended
Earnings per Share:	March 31,
(in thousands)	2011	2010
Weighted-average common shares outstanding	116,326	116,081
Weighted-average effect of dilutive potential common shares:
Restricted stock units	222	492
Stock options	1	2
Potential common shares	223	494
Less: Potential common shares excluded from calculation due to operating losses	223	—
Dilutive potential common share	—	494
Weighted-average common shares outstanding, including dilutive potential common shares	116,326	116,575

As a result of the net loss from continuing operations for the three months ended March 31, 2011, the Company is required to use basic weighted average common shares outstanding in the calculation of diluted earnings per share, since the inclusion of shares of restricted stock units and options would have been anti-dilutive to the earnings per share calculation.

15.

Segment Information

The Company operates in two business segments as follows:

·

Life and Annuity – The Life and Annuity segment includes individual life insurance and annuity products including universal life, variable universal life, term life and fixed and variable annuities. It also includes the results of our closed block, which consists primarily of participating whole life products.

·

Saybrus – Saybrus is a distribution company that provides dedicated consultation services to partner companies as well as support for Phoenix Life and PHL Variable products lines within its own distribution channels. Saybrus has agreements with several financial services firms, including Edward Jones, to provide life insurance consulting services to the financial advisors of these firms.

The Company’s reportable operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment-operating income.

In managing our business, we analyze segment performance on the basis of operating income which does not equate to net income as determined in accordance with GAAP. Rather, it is the measure of profit or loss used by the Company to evaluate performance, allocate resources and manage our operations. Operating income is calculated by excluding realized investment gains (losses) and certain other items because we do not consider them to be related to the operating performance of our segments. The size and timing of realized investment gains and losses are often subject to our discretion. We have also excluded the tax expense or benefit attributable to continuing operations because of the GAAP intraperiod tax accounting rules applied to the Company’s operating results.

Because these items are excluded based on our discretion, inconsistencies in the application of our selection criteria may exist. Operating income is not a substitute for net income determined in accordance with GAAP and may be different from similarly titled measures of other companies. However, the Company believes that the presentation of operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of our business.

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15.

Segment Information (continued)

The accounting policies of the reportable operating segments are the same as those described in our Significant Accounting Policies in Note 2 in our 2010 Annual Report on Form 10-K. We allocate net investment income based on the assets allocated to the segments. We allocate certain costs and expenses to the segments based on a review of the nature of the costs, time studies and other methodologies.

Segment Information on Revenues:	Three Months Ended March 31,
($ in millions)	2011		2010		2009
Life and Annuity	$	467.1	$	521.6	$	536.4
Saybrus Partners(1)		3.8		0.2		—
Total revenues	$	470.9	$	521.8	$	536.4

———————

⁽¹⁾

Includes $2.4 million and $0.1 million of intercompany revenues for the three months ended March 31, 2011 and 2010.

Results of Operations by Segment as Reconciled to Consolidated Net Income:	Three Months Ended March 31,
($ in millions)	2011		2010		2009
Life and Annuity	$	11.5	$	13.4	$	(8.2)
Saybrus Partners(1)		(1.1)		(6.4)		—
Applicable income tax expense (benefit)		(0.9)		0.2		105.8
Income from discontinued operations, net of income taxes		(1.5)		(0.2)		(1.4)
Net realized investment gains (losses)		(16.2)		3.0		25.4
Deferred policy acquisition cost and policy dividend obligation impacts, net of taxes		0.3		4.1		15.2
Net income (loss)	$	(6.1)	$	13.7	$	(74.8)

———————

⁽¹⁾

Includes $2.4 million of intercompany revenues and $0.3 million of intercompany interest expense for the three months ended March 31, 2011 and $0.1 million of intercompany revenues for the three months ended March 31, 2010.

The Company has not provided asset information for the segments as the assets attributable to Saybrus are not significant relative to the assets of the consolidated balance sheet of the Company. All interest revenue and interest expense of the Company reside within the Life and Annuity segment.

16.

Discontinued Operations

PFG Holdings, Inc.

On January 4, 2010, we signed a definitive agreement to sell PFG and its subsidiaries, including AGL Life Assurance Company, to Tiptree. Because of the divestiture, these operations are reflected as discontinued operations. On June 23, 2010, the Company completed the divestiture of PFG and closed the transaction.

The definitive agreement contains a provision requiring the Company to indemnify Tiptree for any losses due to actions resulting from certain specified acts or omissions associated with the divested business prior to closing. There has been litigation filed that falls within this provision of the agreement. The Company intends to defend these matters vigorously.

Expenses of $1.5 million were recognized during the three months ended March 31, 2011, primarily related to accrued legal fees attributable to these matters. Expenses of $ $0.3 million were recognized during the three months ended March 31, 2010.

Phoenix Life and Reassurance Company of New York

Included in the January 4, 2010 agreement with Tiptree was a provision for the purchase of PLARNY pending regulatory approval. On September 24, 2010, approval was obtained from the State of New York Insurance Department for Tiptree and PFG Holdings Acquisition Corporation to acquire PLARNY for an amount equal to its aggregate capital and surplus. The transaction closed on October 6, 2010. Because of the divestiture, these operations are reflected as discontinued operations. We have reclassified prior period financial statements to conform to this change.

During the three months ended March 31, 2010, net income of $0.1 million was recognized.

35

16.

Discontinued Operations (continued)

Discontinued Reinsurance Operations

In 1999, we discontinued our reinsurance operations through a combination of sale, reinsurance and placement of certain retained group accident and health reinsurance business into run-off. We adopted a formal plan to stop writing new contracts covering these risks and to end the existing contracts as soon as those contracts would permit. However, we remain liable for claims under contracts which have not been commuted.

We have established reserves for claims and related expenses that we expect to pay on our discontinued group accident and health reinsurance business. These reserves are based on currently known facts and estimates about, among other things, the amount of insured losses and expenses that we believe we will pay, the period over which they will be paid, the amount of reinsurance we believe we will collect from our retrocessionaires and the likely legal and administrative costs of winding down the business. There was no net income recognized during the three months ended March 31, 2011 and 2010. See Note 18 to these financial statements for additional discussion on remaining liabilities of our discontinued reinsurance operations.

17.

Other Commitments

During 2008, we announced an amendment to our agreement under with HP Enterprise Services related to the management of our infrastructure services. The amendment covered the years 2009 to 2015. We have five years remaining on the agreement. The remaining commitment total is $74.5 million.

As part of its normal investment activities, the Company enters into agreements to fund limited partnerships that make debt and equity investments. As of March 31, 2011, the Company had unfunded commitments of $242.1 million under such agreements, of which $77.4 million is expected to be funded by December 31, 2011.

In addition, the Company enters into agreements to purchase private placement investments. At March 31, 2011, the Company had open commitments of $38.3 million under such agreements which are expected to be funded by December 31, 2011.

In connection with the sale of certain venture capital partnerships, Phoenix Life issued a guarantee with respect to the outstanding unfunded commitments related to the partnerships that were sold. As of March 31, 2011, the Company has funded $2.2 million under this guarantee and has established a receivable from the respective partnerships for this amount. Management believes the receivable to be fully collectible. An additional $5.0 million of unfunded commitments remain subject to this guarantee.

18.

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, employer, investor or investment advisor.

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. Based on current information, 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 consolidated 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.

The definitive agreement to sell PFG contains a provision requiring the Company to indemnify Tiptree for any losses due to actions resulting from certain specified acts or omissions associated with the divested business prior to closing. There has been litigation filed that falls within this provision of the agreement. The Company intends to defend these matters vigorously.

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18.

Contingent Liabilities (continued)

Regulatory Matters

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

Regulatory actions may be difficult to assess or quantify. The nature and magnitude of their outcomes may remain unknown for substantial periods of time. 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. Based on current information, we believe that the outcomes of our 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 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.

Discontinued Reinsurance Operations

In 1999, we discontinued our reinsurance operations through a combination of sale, reinsurance and placement of certain retained group accident and health reinsurance business into run-off. We adopted a formal plan to stop writing new contracts covering these risks and to end the existing contracts as soon as those contracts would permit. However, we remain liable for claims under contracts which have not been commuted.

For example, we participate in a workers’ compensation reinsurance pool formerly managed by Unicover Managers, Inc. (“Unicover”). The pool ceased accepting new risks in early 1999. Further, we were a retrocessionaire (meaning a reinsurer of other reinsurers) of the Unicover pool. We have been involved in disputes relating to the activities of Unicover. These disputes have been substantially resolved or settled.

Our discontinued group accident and health reinsurance operations also include other (non-Unicover) workers’ compensation reinsurance contracts and personal accident reinsurance contracts, including contracts assumed in the London market. We have been engaged in arbitrations, disputes or investigations with several ceding companies over the validity of, or amount of liabilities assumed under, their contracts. These arbitrations, disputes or investigations have been substantially resolved or settled.

We bought retrocessional reinsurance for a significant portion of our assumed reinsurance liabilities. Some of the retrocessionaires have disputed the validity of, or amount of liabilities assumed under, their contracts with us. Most of these disputes with retrocessionaires have been resolved or settled.

We have established reserves for claims and related expenses that we expect to pay on our discontinued group accident and health reinsurance business. These reserves are based on currently known facts and estimates about, among other things, the amount of insured losses and expenses that we believe we will pay, the period over which they will be paid, the amount of reinsurance we believe we will collect from our retrocessionaires and the likely legal and administrative costs of winding down the business.

Our total policy liabilities and accruals were $44.0 million as of March 31, 2011 and $49.7 million as of December 31, 2010. Our total amounts recoverable from retrocessionaires related to paid losses were $3.3 million as of March 31, 2011 and $9.1 million as of December 31, 2010.

37

18.

Contingent Liabilities (continued)

We expect our reserves and reinsurance to cover the run-off of the business; however, unfavorable or favorable claims and/or reinsurance recovery experience is reasonably possible and could result in our recognition of additional losses or gains, respectively, in future years. Given the uncertainty associated with litigation and other dispute resolution proceedings, as well as the lack of sufficient claims information, the range of any reasonably possible additional future losses or gains is not currently estimable. However, it is our opinion, based on current information and after consideration of the provisions made in these financial statements, that any future adverse or favorable development of recorded reserves and/or reinsurance recoverables will not have a material adverse effect on our consolidated financial position. Nevertheless, it is possible that future developments could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussion in this Quarterly Report on 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 forward-looking statements include statements relating to trends in, or representing management’s beliefs about our future transactions, strategies, operations and financial results, and often contain words such as “will,” “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “should” and other similar words or 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. Our actual business, financial condition or results of operations may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others: (i) unfavorable general economic developments including, but not limited to, specific related factors such as the performance of the debt and equity markets and changes in interest rates; (ii) the potential adverse affect of interest rate fluctuations on our business and results of operations; (iii) the effect of adverse capital and credit market conditions on our ability to meet our liquidity needs, our access to capital and our cost of capital; (iv) the effect of guaranteed benefits within our products; (v) potential exposure to unidentified or unanticipated risk that could adversely affect our businesses or result in losses; (vi) the consequences related to variations in the amount of our statutory capital due to factors beyond our control; (vii) the possibility that we not be successful in our efforts to implement a new business plan; (viii) the impact on our results of operations and financial condition of any required increase in our reserves for future policyholder benefits and claims if such reserves prove to be inadequate; (ix) changes in our investment valuations based on changes in our valuation methodologies, estimations and assumptions; (x) further downgrades in our debt or financial strength ratings; (xi) the possibility that mortality rates, persistency rates, funding levels or other factors may differ significantly from our assumptions used in pricing products; (xii) the availability, pricing and terms of reinsurance coverage generally and the inability or unwillingness of our reinsurers to meet their obligations to us specifically; (xiii) our ability to attract and retain key personnel in a competitive environment; (xiv) our dependence on third parties to maintain critical business and administrative functions; (xv) the strong competition we face in our business from banks, insurance companies and other financial services firms; (xvi) our reliance, as a holding company, on dividends and other payments from our subsidiaries to meet our financial obligations and pay future dividends, particularly since our insurance subsidiaries’ ability to pay dividends is subject to regulatory restrictions; (xvii) the potential need to fund deficiencies in our closed block; (xviii) tax developments that may affect us directly, or indirectly through the cost of, the demand for or profitability of our products or services; (xix) the possibility that the actions and initiatives of the U.S. Government, including those that we elect to participate in, may not improve adverse economic and market conditions generally or our business, financial condition and results of operations specifically; (xx) legislative or regulatory developments; (xxi) regulatory or legal actions; (xxii) potential future material losses from our discontinued reinsurance business; (xxiii) changes in accounting standards; (xxiv) the potential effect of a material weakness in our internal control over financial reporting on the accuracy of our reported financial results; and (xxv) other risks and uncertainties described herein or in any of our filings with the SEC. Certain other factors which may impact our business, financial condition or results of operations or which may cause actual results to differ from such forward-looking statements are discussed or included in our periodic reports filed with the SEC and are available on our website at www.phoenixwm.com under “Investor Relations.” You are urged to carefully consider all such factors. We do not undertake or plan to update or revise forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Form 10-Q, even if such results changes or circumstances make it clear that any forward-looking information will not be realized. If we make any future public statements or disclosures which modify or impact any of the forward-looking statements contained in or accompanying this Form 10-Q, such statements or disclosures will be deemed to modify or supersede such statements in this Form 10-Q.

MANAGEMENT’S DISCUSSION AND ANALYSIS

This section reviews our consolidated financial condition as of March 31, 2011 as compared to December 31, 2010; our consolidated results of operations for the three months ended March 31, 2011 and 2010; and, where appropriate, factors that may affect our future financial performance. This discussion should be read in conjunction with the unaudited interim financial statements and notes contained in this filing as well as in conjunction with our consolidated financial statements for the year ended December 31, 2010 in our 2010 Annual Report on Form 10-K.

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Executive Overview

Business

We provide life insurance and annuity products through third-party distributors, supported by wholesalers and financial planning specialists employed by us. Our policyholder base includes both affluent and middle market consumers, with our more recent business concentrated in the middle market. Most of our life insurance in force is permanent life insurance (whole life, universal life and variable universal life) insuring one or more lives. Our annuity products include deferred fixed and variable annuities with a variety of death benefit and guaranteed living benefit options.

In 2010, we pursued a business plan that focused on products and services that are less capital intensive and less ratings sensitive, continuing a direction set in 2009. This plan leverages existing strengths and includes our distribution subsidiary, Saybrus Partners, Inc. (“Saybrus”), as well as developing core life and annuity products for the middle market and expanding distribution within that market, and building sales through distribution partners for our alternative retirement solutions products.

Underlying this plan is a business strategy based on four pillars:

·

Balance sheet strength;

·

Policyholder service;

·

Operational efficiency; and

·

Profitable growth.

We operate two businesses segments: Life and Annuity and Saybrus. The Life and Annuity segment includes individual life insurance and annuity products including universal life, variable universal life, term life and fixed and variable annuities. It also includes the results of our closed block, which consists primarily of participating whole life products. Saybrus is a distribution company that provides dedicated consulting services to partner companies as well as wholesaling support for the Phoenix Life Insurance Company (“Phoenix Life”) and PHL Variable Insurance Company (“PHL Variable”) product lines.

Earnings Drivers

A substantial but gradually declining amount of our Life and Annuity segment earnings derive from the closed block, which consists primarily of participating life insurance policies sold prior to our demutualization and initial public offering in 2001. We do not expect the net income contribution from the closed block to deviate materially from its actuarially projected path, subject to the maintenance of a positive policyholder dividend obligation. See Note 4 to our consolidated financial statements in this Form 10-Q and in our 2010 Annual Report on Form 10-K for more information on the closed block.

Apart from the closed block, our Life and Annuity segment’s profitability is driven by interaction of the following elements:

·

Mortality margins in our universal and variable universal life product lines. We earn cost of insurance fees based on the difference between face amounts and the account values (referred to as the net amount at risk). 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:

o

Number and face amount of policies sold;

o

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

o

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

·

Fees on life and annuity products. Fees consist primarily of asset-based (including mortality and expense charges) and premium-based fees which we charge on our variable life and variable annuity products and depend on the premiums collected and account values of those products. Asset-based fees are calculated as a percentage of assets under management within our separate accounts. Fees also include surrender charges. Non-asset-based fees include charges to cover premium taxes and renewal commissions and commissions we earn on sales of other carriers’ products.

·

Interest margins. Net investment income earned on universal life and other policyholder funds managed as part of our general account, less the interest credited to policyholders on those funds. Interest margins also include investment income on assets supporting the Company’s surplus.

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·

Non-deferred operating expenses including expenses related to servicing the products and policyholders offered by the Company, consisting of various maintenance and overhead-type expenses, including pension and other benefit costs.

·

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. The amount of future profit or margin is dependent principally on investment returns in our separate accounts, investment income in excess of the amounts credited to policyholders, surrender and lapse rates, death claims and other benefit payments, premium persistency, funding patterns and expenses. These factors enter into management’s estimates of gross profits or margins, which generally are used to amortize deferred policy acquisition costs. Actual equity market movements, net investment income in excess of amounts credited to policyholders, claims payments and other key factors can vary significantly from our assumptions, resulting in a misestimate of gross profits or margins, and a change in amortization, with a resulting impact to income. In addition, we regularly review and reset our assumptions in light of actual experience, which can result in material changes in amortization.

·

Net realized investment gains or losses, on our general account investments and hedging programs.

·

Income tax expense which is a function of pretax income and significant judgments we make with respect to the reversal of certain temporary book-to-tax differences, and specifically our estimates of taxable income over the periods in which the deferred tax assets are expected to reverse, including consideration of the expiration dates and amounts of carryforwards related to net operating losses, capital losses, foreign tax credits and general business tax credits.

Certain of our Life and Annuity products include guaranteed benefits. These include guaranteed minimum death benefits (“GMDBs”), guaranteed minimum accumulation benefits (“GMABs”), guaranteed minimum withdrawal benefits (“GMWBs”) and guaranteed minimum income benefits (“GMIBs”). Periods of significant and sustained downturns in equity markets, increased equity volatility or reduced interest rates would result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with such products, resulting in a reduction to earnings.

Under accounting principles generally accepted in the United States of America (“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.

Saybrus is a fee-based business driven by the commission revenue earned on consultation services provided to partner companies as well as on sales of Phoenix Life and PHL Variable product lines. These fees are offset by compensation-related expenses attributable to our sales force.

Recent Trends on Earnings Drivers

·

Mortality margins. Fluctuations in mortality are inherent in our lines of business. Universal life mortality margins decreased by $9.1 million to $50.6 million in the quarter ended March 31, 2011, compared to $59.7 million in the quarter ended March 31, 2010. This was a result of lower fee income related to cost of insurance charges as well as higher death benefits. Mortality margins for variable universal life decreased by $6.0 million to $4.6 million in the quarter ended March 31, 2011, compared to $10.6 million in the quarter ended March 31, 2010, primarily a result of higher death benefits related to a few large claims in the current quarter.

·

Interest margins. Investment income on assets backing surplus was $3.1 million in the quarter ended March 31, 2011, compared to $5.5 million in the quarter ended March 31, 2010. The decrease of $2.4 million was primarily from lower earnings from partnership interests. Universal life interest margins increased primarily as a result of lower interest credited consistent with declining funds under management. Annuity interest margins increased as a result of higher investment income on assets supporting these products in addition to lower interest credited.

·

Operating expenses. Non-deferred operating expenses decreased $18.9 million to $54.7 million for the quarter ended March 31, 2011, compared to $73.6 million for the quarter ended March 31, 2010. Lower operating expenses were a result of lower premium taxes and lower compensation and employee-related expenses.

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·

Deferred policy acquisition cost. Excluding the impact of realized investment gains, policy acquisition cost amortization decreased $4.5 million to $62.5 million from $67.0 million in the quarters ended March 31, 2011 and 2010, respectively. Amortization decreased related to universal life and variable universal life as a result of lower mortality margins. In addition, traditional life amortization decreased as a result of lower investment income. Partially offsetting these declines was higher amortization related to annuities as deferred expenses related to new sales have begun to amortize.

·

Net realized investment gains or losses on our general account investments. Net realized investment losses of $16.2 million were recognized during the quarter ended March 31, 2011 compared to net realized investment gains of $3.0 million during the quarter ended March 31, 2010. Derivative assets and liabilities declined $14.1 million with $10.5 million in realized losses as of March 31, 2011 compared to net realized investment gains of $3.6 million as of March 31, 2010. This was primarily attributable to our net embedded derivatives associated with our variable annuity guarantees which declined $7.9 million to a loss of $6.2 million as of March 31, 2011 from a gain of $1.7 million as of March 31, 2010. Of this decline in results related to embedded derivatives, $4.3 million was associated with the non-performance risk factor. There were also losses of $2.6 million on our surplus hedge that was entered into during the third quarter of 2010. In addition, transaction related gains declined $13.3 million to $0.4 million compared to $13.7 million as of March 31, 2011 and 2010, respectively. Partially offsetting these declines was an improvement of $8.8 million in impairment losses.

·

Income taxes. The Company recorded an income tax benefit of $0.3 million to continuing operations in the first quarter of 2011, compared to an income tax expense of $0.2 million in the first quarter of 2010. As a result of our full valuation allowance position, a 0% effective tax rate is expected in 2011. However, as a result of an exception to the intraperiod allocation rules in accordance with ASC 740-20, Accounting for Income Taxes – Intraperiod Tax Allocation, a $1.8 million tax benefit was recorded to continuing operations, which was offset by current tax expense of $1.5 million related to the current alternative minimum tax.

Since its formation in the fourth quarter of 2009, Saybrus’ results of operations have steadily improved as revenue has increased and expenses have declined. Inclusive of intercompany revenue, revenue during the quarter ended March 31, 2011 was $3.8 million compared with $0.2 million during the quarter ended March 31, 2010. Operating income improved to a loss of $1.1 million from a loss of $6.4 million during the quarter ended March 31, 2011 compared to 2010, respectively. This improvement was a result of higher revenue and lower expenses.

Economic Market Conditions and Industry Trends

Although the U.S. economy is recovering, the potential for another economic downturn remains.

The availability of credit, consumer spending, business investment, capital market conditions and inflation affect our business. In an economic downturn, higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending may depress the demand for life insurance, annuities and investment products. In addition, this type of economic environment may result in higher lapses or surrenders of life and annuity policies we provide. Accordingly, the risks we face related to general economic and business conditions are pronounced.

More specifically, our business is exposed to the performance of the debt and equity markets. These adverse conditions include, but are not limited to, a lack of buyers for certain assets, volatility, credit spread changes and benchmark interest rate changes. Each of these factors may impact the liquidity and value of our investments. The lower interest rate environment may also impact our net investment income.

Further, recent trends in the life insurance industry may affect our mortality, persistency and funding levels. The evolution of the financial needs of policyholders, the emergence of a secondary market for life insurance, and increased availability and subsequent contraction of premium financing suggest that the reasons for purchasing our products changed. At the same time, prior to 2009, we experienced an increase in life insurance sales to older individuals. While we instituted certain controls and procedures to screen applicants, we believe that our sales of universal life products included sales of policies to third party investors who, at the time of policy origination, had no insurable interest in the insured. The effect that these changes may have on our actual experience and profitability will emerge over time.

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Most of our current products permit us to increase charges and adjust crediting rates during the life of the policy or contract (subject to guarantees in the policies and contracts). For example, effective April 1, 2010 we implemented an increase in the cost of insurance rates for certain universal life policies. However, this adjustment, any other permitted adjustments or any additional steps taken to manage our in-force business may not be sufficient to maintain profitability. In addition, increasing charges on in force policies or contracts may adversely affect our relationships with distributors, future sales and surrenders, and may result in claims against us by policyholders. Furthermore, some of our in force business consists of products that do not permit us to adjust the charges and credited rates of in force policies or contracts.

Outlook

Since 2009, we have taken significant actions to reduce expenses, effectively manage our in-force business, reduce balance sheet risk, increase liquidity and pursue new growth opportunities. These actions are beginning to have their intended effect and, we believe, position us for continued improvement in results in 2011 and beyond. However, significant capital market dislocations or another economic downturn could have a material adverse effect on our business, financial condition and results of operations. In such an environment, we could face lower fees and net investment income as well as higher deferred policy acquisition cost amortization from life and annuity products, adverse mortality as a result of anti-selective policy lapses and surrenders, and additional net realized investment losses on our general account investments, including further other-than-temporary impairments (“OTTIs”). Additionally, we could experience higher costs for guaranteed benefits and the potential for further deferred policy acquisition cost unlocking. Furthermore, a lack of availability of premium financing, an illiquid secondary market for life insurance policies and a cost of insurance rate increase for certain of our universal life policies has had and could have further adverse effects on lapses in our PAUL series of universal life policies.

We expect to continue to focus on the following key strategic pillars in 2011:

·

Balance sheet strength;

·

Policyholder service;

·

Operational efficiency; and

·

Profitable growth.

Recent Acquisitions and Dispositions

See Note 3 to our consolidated financial statements in this Form 10-Q for a discussion of our recent acquisitions and dispositions.

Impact of New Accounting Standards

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

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated 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 consolidated 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.

A complete description of our critical accounting estimates is set forth in our 2010 Annual Report on Form 10-K. Management believes that those critical accounting estimates as set forth in the 2010 Annual Report on Form 10-K are important to understanding our results of operations and financial condition. Certain of our critical accounting estimates are as follows:

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Deferred Income Taxes

We account for income taxes in accordance with ASC 740, Accounting for Income Taxes. The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting basis 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 taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based on our assessment of the realizability of such amounts.

For the quarter ended March 31, 2011, we recognized a net increase in the valuation allowance of $19.1 million. Accounting guidance requires that this movement be allocated to various financial statement components of income or loss. The net increase to the valuation allowance corresponds to an increase of $1.8 million in income statement related deferred tax balances and an increase of $17.3 million in other comprehensive income related deferred tax balances.

An income tax benefit of $1.8 million recognized in the income statement reflected the exception to intraperiod allocation rules in accordance with ASC 740-20, Accounting for Income Taxes – Intraperiod Allocation. Partially offsetting this tax benefit recognized through the income statement is a $1.5 million income tax expense related to current alternative minimum tax.

We have concluded that a valuation allowance on the $93.5 million of deferred tax assets attributable to available-for-sale debt securities with gross unrealized losses was not required due to our ability and intent to hold available-for-sale debt securities with gross unrealized losses until recovery of fair value or contractual maturity to avoid realizing taxable capital losses on those securities.

Other-than-Temporary Impairments

We recognize realized investment losses when declines in fair value of debt and equity securities are considered to be other-than-temporary. For debt securities, the other-than-temporarily impaired amount is separated into the amount related to a credit loss and is reported as net realized investment losses included in earnings, and any amounts related to other factors are recognized in other comprehensive income. The credit loss component is calculated using our best estimate of the present value of cash flows expected to be collected from the debt security, by discounting the expected cash flows at the effective interest rate implicit in the security at the time of acquisition. Subsequent to recognition of an impairment loss, the difference between the new cost basis and the cash flows expected to be collected is accreted as interest income.

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 intent to sell the security, or whether it is more likely than not that we will be required to sell it before recovery, and

·

the financial condition and near term prospects of the issuer.

A debt security impairment is deemed other than temporary if:

·

we either intend to sell the security, or it is more likely than not that we will be required to sell the security before recovery; or

·

it is probable we will be unable to collect cash flows sufficient to recover the amortized cost basis of the security.

Impairments due to deterioration in credit that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security are considered other than temporary. Other declines in fair value (for example, due to interest rate changes, sector credit rating changes or company-specific rating changes) that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security may also result in a conclusion that an OTTI has occurred. In situations where the Company has asserted its ability and intent to hold a security to a forecasted recovery, but where now it is more likely than not that we will be required to sell the security before recovery, an impairment is considered other than temporary, even if the present value of cash flows expected to be collected will be sufficient to recover the amortized cost basis of the security.

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We employ a comprehensive process to determine whether or not a security is in an unrealized loss position and is other-than-temporarily impaired. This assessment is done on a security-by-security basis and involves significant management judgment, especially given recent severe market dislocations.

On a quarterly basis, we review all securities for potential recognition of an OTTI. 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 all 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 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 experienced lesser declines in value on a more selective basis to determine whether any are other-than-temporarily impaired.

Specifically for structured securities, to determine whether a collateralized security is impaired, we obtain underlying 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.

The closed block policyholder dividend obligation, applicable deferred policy acquisition costs and applicable income taxes, which offset realized investment gains and losses and OTTIs, are each reported separately as components of net income.

Deferred Policy Acquisition Costs

We amortize deferred policy acquisition costs based on the related policy’s classification. For individual participating 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 (“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. In addition, an offset to deferred policy acquisition costs and accumulated other comprehensive income is recorded each period to the extent that had unrealized holding gains or losses from securities classified as available-for-sale actually been realized, an adjustment to deferred policy acquisition costs amortized using gross profits or gross margins would result.

The projection of EGPs requires the use of various assumptions, estimates and judgments about the future. Future EGPs are projected for the estimated lives of the contracts. The assumptions developed as part of our annual process are based on our current best estimates of future events. 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.

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 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 March 31, 2011 and December 31, 2010.

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 actual experience. Actual gross profits that vary from management’s initial estimates in a given reporting period, result in increases or decreases in the rate of amortization recorded in the period.

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In addition to our quarterly reviews, we conduct a comprehensive assumption review on an annual basis, or as circumstances warrant. Upon completion of these assumption reviews, we revise our assumptions to reflect our current best estimate, thereby changing our estimate of EGPs in the deferred policy acquisition cost and unearned revenue amortization models, as well as projections within the death benefit and other insurance benefit reserving models. The deferred policy acquisition cost asset, the unearned revenue reserves and death benefit and other insurance benefit reserves are then adjusted with an offsetting benefit or charge to income to reflect such changes in the period of the revision, a process known as “unlocking.” 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. If the estimates of gross profits or margins cannot support the continued amortization or recovery of deferred policy acquisition costs, as was the case in 2010, the amortization of such costs is accelerated in the period in which the assumptions are changed, resulting in a charge to income.

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 the existing policy projection, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. If revised EGPs based on new assumptions are lower, we would increase deferred policy acquisition cost amortization resulting in a reduction in the deferred policy acquisition cost asset. Favorable experience on key assumptions could result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset.

Consolidated Results of Operations

Summary Consolidated Financial Data:	Three Months Ended				Increase (decrease) and
($ in millions)	March 31,				percentage change
	2011		2010		2011 vs. 2010
REVENUES:
Premiums	$	132.5	$	151.7	$	(19.2)	(13%)
Fee income		153.8		162.5		(8.7)	(5%)
Net investment income		200.8		204.6		(3.8)	(2%)
Net realized investment losses:
Total other-than-temporary impairment (“OTTI”) losses		(7.4)		(31.4)		24.0	76%
Portion of OTTI losses recognized in other comprehensive income		1.7		16.9		(15.2)	(90%)
Net OTTI losses recognized in earnings		(5.7)		(14.5)		8.8	61%
Net realized investment gains (losses), excluding OTTI losses		(10.5)		17.5		(28.0)	NM
Total net realized investment gains (losses)		(16.2)		3.0		(19.2)	NM
Total revenues		470.9		521.8		(50.9)	(10%)
BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends		282.2		288.6		(6.4)	(2%)
Policyholder dividends		63.7		62.7		1.0	2%
Policy acquisition cost amortization		62.7		68.2		(5.5)	(8%)
Interest expense on indebtedness		7.9		8.0		(0.1)	(1%)
Other operating expenses		59.3		80.2		(20.9)	(26%)
Total benefits and expenses		475.8		507.7		(31.9)	(6%)
Income (loss) before income taxes		(4.9)		14.1		(19.0)	(135%)
Income tax expense (benefit)		(0.3)		0.2		(0.5)	NM
Income (loss) from continuing operations		(4.6)		13.9		(18.5)	(133%)
Loss from discontinued operations, net of income taxes		(1.5)		(0.2)		(1.3)	NM
Net income (loss)	$	(6.1)	$	13.7	$	(19.8)	(145%)

———————

Not meaningful (NM)

Analysis of Consolidated Results of Operations

Three months ended March 31, 2011 vs. March 31, 2010

The net loss from continuing operations for the three months ended March 31, 2011 was $4.6 million, or ($0.04) per share, which compares to net income from continuing operations for the three months ended March 31, 2010 of $13.9 million, or $0.12 per share. The decrease in results from continuing operations reflects increase in net realized investment losses and lower premiums. These were partially offset by lower operating expenses.

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Net realized investment losses of $16.2 million were recognized during the quarter ended March 31, 2011 compared to net realized investment gains of $3.0 million during the quarter ended March 31, 2010. Derivative assets and liabilities declined $14.1 million with $10.5 million in realized losses as of March 31, 2011 compared to net realized investment gains of $3.6 million as of March 31, 2010. This was primarily attributable to our net embedded derivatives associated with our variable annuity guarantees which declined $7.9 million to a loss of $6.2 million as of March 31, 2011 from a gain of $1.7 million as of March 31, 2010. Of this decline in results related to embedded derivatives, $4.3 million was associated with the non-performance risk factor. There were also losses of $2.6 million on our surplus hedge that was entered into during the third quarter of 2010. In addition, transaction related gains declined $13.3 million to $0.4 million compared to $13.7 million as of March 31, 2011 and 2010, respectively. Partially offsetting these declines was an improvement of $8.8 million of impairment losses.

Premium revenue declined as a result of lower renewal premiums in the closed block. The Company has not pursued significant new product development for its life insurance line.

Operating expenses improved $20.9 million to $59.3 million in the first quarter of 2011 from $80.2 million in the first quarter of 2010. Lower operating expenses were a result of lower premium taxes and lower compensation and employee-related expenses.

For the three months ended March 31, 2011, the net loss from discontinued operations primarily consisted of legal fees associated with our indemnification of Tiptree in accordance with the definitive sales agreement. See Note 16 to our consolidated financial statements in this Form 10-Q for more information on discontinued operations.

The Company recorded an income tax benefit of $0.3 million to continuing operations in the first quarter of 2011, compared to an income tax expense of $0.2 million in the first quarter of 2010. As a result of our full valuation allowance position, a 0% effective tax rate is expected in 2011. However, as a result of an exception to the intraperiod allocation rules in accordance with ASC 740-20, Accounting for Income Taxes – Intraperiod Tax Allocation, a $1.8 million tax benefit was recorded to continuing operations, which was offset by current tax expense of $1.5 million related to the current alternative minimum tax.

Debt and Equity Securities Held in Our General Account

Our general account debt securities portfolio consists primarily of investment grade publicly-traded and privately-placed corporate bonds, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and other asset-backed securities. As of March 31, 2011, our general account held debt securities with a carrying value of $11,159.5 million, representing 77.5% of total general account investments. Public debt securities represented 71.6% of total debt securities, with the remaining 28.4% represented by private debt securities.

General Account Debt Securities at Fair Value:
($ in millions)
		Total Debt Securities				Public Debt Securities				Private Debt Securities
SVO	S&P Equivalent	Mar 31,		Dec 31,		Mar 31,		Dec 31,		Mar 31,		Dec 31,
Rating	Designation	2011		2010		2011		2010		2011		2010
1	AAA/AA/A	$	6,582.0	$	6,408.9	$	5,175.9	$	5,029.1	$	1,406.1	$	1,379.8
2	BBB		3,657.7		3,531.7		2,239.6		2,069.2		1,418.1		1,462.5
Total investment grade			10,239.7		9,940.6		7,415.5		7,098.3		2,824.2		2,842.3
3	BB		469.8		472.2		342.2		347.4		127.6		124.8
4	B		250.9		265.8		143.7		145.6		107.2		120.2
5	CCC and lower		137.0		149.7		51.8		68.4		85.2		81.3
6	In or near default		62.1		65.5		33.7		39.3		28.4		26.2
Total debt securities		$	11,159.5	$	10,893.8	$	7,986.9	$	7,699.0	$	3,172.6	$	3,194.8

47

Debt Securities by Type:	As of March 31, 2011
($ in millions)					Unrealized Gains (Losses)
	Fair				Gross		Gross		Net Gains
	Value		Cost		Gains		Losses		(Losses)
U.S. government and agency	$	719.4	$	686.2	$	40.3	$	(7.1)	$	33.2
State and political subdivision		213.0		212.1		5.3		(4.4)		0.9
Foreign government		170.7		151.9		18.8		—		18.8
Corporate		5,996.6		5,699.2		403.9		(106.5)		297.4
Commercial mortgage-backed		1,174.1		1,142.4		50.6		(18.9)		31.7
Residential mortgage-backed		2,112.2		2,143.9		43.6		(75.3)		(31.7)
CDO/CLO		253.8		289.9		6.3		(42.4)		(36.1)
Other asset-backed		519.7		520.0		6.8		(7.1)		(0.3)
Total debt securities	$	11,159.5	$	10,845.6	$	575.6	$	(261.7)	$	313.9
Debt securities outside closed block:
Unrealized gains	$	3,413.7	$	3,227.2	$	186.5	$	—	$	186.5
Unrealized losses		1,361.2		1,529.1		—		(167.9)		(167.9)
Total outside the closed block		4,774.9		4,756.3		186.5		(167.9)		18.6
Debt securities in closed block:
Unrealized gains		5,301.6		4,912.5		389.1		—		389.1
Unrealized losses		1,083.0		1,176.8		—		(93.8)		(93.8)
Total in the closed block		6,384.6		6,089.3		389.1		(93.8)		295.3
Total debt securities	$	11,159.5	$	10,845.6	$	575.6	$	(261.7)	$	313.9

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 March 31, 2011 in our debt securities portfolio were banking (6.4%), electric utilities (4.9%), insurance (3.5%), oil (3.2%) and diversified financial services (2.8%).

Residential Mortgage-Backed Securities

The weakness in the U.S. residential real estate markets, tighter credit standards and high unemployment continue to impact the RMBS market. Delinquency rates for all sectors of the RMBS market, including sub-prime, Alt-A and prime, are above historical averages.

We invest directly in RMBS 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. When making investment decisions, we have been focused on identifying those securities that could withstand significant increases in delinquencies and foreclosures in the underlying mortgage pools before incurring a loss of principal.

Most of our RMBS portfolio is highly rated. As of March 31, 2011, 84.2% of the total residential portfolio was rated AAA or AA. We have $184.6 million of sub-prime exposure, $314.8 million of Alt-A exposure and $535.8 million of prime exposure, which combined amount to 7.2% of our general account. The majority of our sub-prime, Alt-A and prime exposure is investment grade, with 50.1% being AAA rated and another 21.5% in AA/A 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. RMBS impairments as of March 31, 2011 totaled $1.3 million. These impairments consist of $0.3 million from sub-prime, $1.0 million from Alt-A and $0 from prime.

48

General Account Residential Mortgage-Backed Securities:
($ in millions)	As of March 31, 2011
	Carrying		Market		% General					BB and	% Closed
	Value(1)		Value(1)		Account(2)	AAA	AA	A	BBB	Below	Block
Collateral
Agency	$	1,047.0	$	1,077.1	7.4%	100.0%	0.0%	0.0%	0.0%	0.0%	60.5%
Prime		546.5		535.7	3.7%	57.7%	11.9%	3.6%	1.4%	25.4%	40.0%
Alt-A		346.2		314.8	2.2%	43.8%	17.8%	6.2%	4.1%	28.1%	29.0%
Sub-prime		204.2		184.6	1.3%	55.8%	17.9%	0.0%	7.4%	18.9%	11.3%
Total	$	2,143.9	$	2,112.2	14.6%	77.0%	7.2%	1.9%	1.6%	12.3%	46.3%

———————

⁽¹⁾

Individual categories may not agree with the Debt Securities by Type table on previous page due to nature of underlying collateral.

 ⁽²⁾

Percentages based on Market Value.

General Account Prime Mortgage-Backed Securities:
($ in millions)	As of March 31, 2011
						Year of Issue
	Carrying		Market		% General	Post-					2003 and
	Value		Value		Account(1)	2007	2007	2006	2005	2004	Prior
Rating
AAA	$	307.2	$	308.9	2.1%	0.0%	0.0%	1.6%	5.8%	39.8%	52.8%
AA		66.1		63.9	0.5%	0.0%	2.5%	25.4%	7.3%	46.8%	18.0%
A		19.2		19.4	0.1%	0.0%	0.0%	0.0%	89.4%	9.1%	1.5%
BBB		8.5		7.5	0.1%	0.0%	0.0%	0.0%	79.9%	0.0%	20.1%
BB and Below		145.5		136.0	0.9%	0.0%	7.8%	45.8%	43.6%	2.2%	0.6%
Total	$	546.5	$	535.7	3.7%	0.0%	2.3%	15.6%	19.6%	29.4%	33.1%

———————

⁽¹⁾

Percentages based on Market Value.

General Account Alt-A Mortgage-Backed Securities:
($ in millions)	As of March 31, 2011
						Year of Issue
	Carrying		Market		% General	Post-					2003 and
	Value		Value		Account(1)	2007	2007	2006	2005	2004	Prior
Rating
AAA	$	145.6	$	138.0	1.0%	0.0%	0.0%	0.0%	6.9%	70.1%	23.0%
AA		63.8		56.0	0.4%	0.0%	0.0%	57.7%	15.2%	11.8%	15.3%
A		19.7		19.5	0.1%	0.0%	0.0%	0.0%	82.7%	1.4%	15.9%
BBB		15.6		12.7	0.1%	0.0%	0.0%	0.0%	0.0%	67.2%	32.8%
BB and Below		101.5		88.6	0.6%	0.0%	5.3%	21.7%	46.8%	25.1%	1.1%
Total	$	346.2	$	314.8	2.2%	0.0%	1.5%	16.4%	24.0%	42.7%	15.4%

———————

⁽¹⁾

Percentages based on Market Value.

General Account Sub-Prime Mortgage-Backed Securities:
($ in millions)	As of March 31, 2011
						Year of Issue
	Carrying		Market		% General	Post-					2003 and
	Value		Value		Account(1)	2007	2007	2006	2005	2004	Prior
Rating
AAA	$	105.4	$	102.9	0.7%	12.7%	8.1%	4.4%	29.7%	32.2%	12.9%
AA		33.9		33.1	0.2%	0.0%	0.0%	0.0%	91.9%	0.0%	8.1%
A		—		—	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
BBB		17.6		13.6	0.1%	0.0%	29.1%	7.7%	15.4%	26.9%	20.9%
BB and Below		47.3		35.0	0.3%	0.0%	42.3%	34.5%	15.1%	0.0%	8.1%
Total	$	204.2	$	184.6	1.3%	7.1%	14.7%	9.6%	37.0%	19.9%	11.7%

———————

⁽¹⁾

Percentages based on Market Value.

49

Commercial Mortgage-Backed Securities

General Account Commercial Mortgage-Backed Securities:
($ in millions)	As of March 31, 2011
						Year of Issue
	Carrying		Market		% General	Post-				2004 and	% Closed
	Value		Value(1)		Account(2)	2007	2007	2006	2005	Prior	Block
Rating
AAA	$	894.6	$	936.4	6.5%	7.8%	3.9%	12.0%	9.5%	66.8%	61.8%
AA		132.4		130.8	0.9%	4.6%	9.4%	15.4%	18.5%	52.1%	49.4%
A		79.2		77.2	0.5%	60.8%	6.8%	2.6%	0.0%	29.8%	50.9%
BBB		34.1		28.0	0.2%	0.0%	43.6%	10.9%	37.0%	8.5%	14.4%
BB and Below		56.4		38.2	0.1%	25.3%	15.1%	14.7%	32.2%	12.8%	34.0%
Total	$	1,196.7	$	1,210.6	8.2%	11.2%	5.9%	11.8%	11.3%	59.8%	57.8%

———————

⁽¹⁾

Includes commercial mortgage-backed CDOs with carrying and market values of $54.3 million and $36.5 million, respectively.

⁽²⁾

Percentages based on Market Value.

Realized Gains and Losses

The following table presents certain information with respect to realized investment gains and losses, including those on debt securities pledged as collateral, with losses from OTTI charges reported separately in the table. These impairment charges were determined based on our assessment of factors enumerated below, as they pertain to the individual securities determined to be other-than-temporarily impaired.

Sources and Types of Net Realized Investment Gains (Losses):	Three Months Ended
($ in millions)	March 31,
	2011		2010
Total other-than-temporary debt impairment losses	$	(7.4)	$	(31.1)
Portion of loss recognized in other comprehensive income		1.7		16.9
Net debt impairment losses recognized in earnings	$	(5.7)	$	(14.2)
Debt security impairments:
U.S. government and agency	$	—	$	—
State and political subdivision		—		—
Foreign government		—		—
Corporate		(4.4)		(1.9)
CMBS		—		(1.3)
RMBS		(1.3)		(5.5)
CDO/CLO		—		(5.5)
Other asset-backed		—		—
Net debt security impairments		(5.7)		(14.2)
Equity security impairments		—		(0.3)
Other investments impairments		—		—
Impairment losses		(5.7)		(14.5)
Debt security transaction gains		3.9		22.9
Debt security transaction losses		(1.9)		(5.0)
Equity security transaction gains		—		—
Equity security transaction losses		—		—
Venture capital partnership transaction gains		—		—
Venture capital partnership transaction losses		—		—
Other investments transaction gains		—		—
Other investments transaction losses		(1.6)		(4.2)
Net transaction gains		0.4		13.7
Realized gains (losses) on fair value option investments:
Deferred compensation assets		1.1		0.2
Synthetic CDOs		(1.5)		—
Total realized gains (losses) on fair value option investments		(0.4)		0.2
Realized gains (losses) on derivative assets and liabilities		(10.5)		3.6
Net realized investment gains (losses), excluding impairment losses		(10.5)		17.5
Net realized investment gains (losses), including impairments	$	(16.2)	$	3.0

50

Other-than-Temporary Impairments

A credit-related loss impairment for structured securities is determined by calculating the present value of the expected credit losses on a given security’s coupon and principal cash flows until maturity. All other fixed income securities are written down to fair value. The impairment amount is separated into the amount related to credit losses, which is recorded as a charge to net realized investment losses included in our earnings, and the amount related to all other factors, which is recognized in other comprehensive income. The non-credit related loss component is equal to the difference between the fair value of a security and its impaired carrying value.

Management exercised significant judgment with respect to certain securities in determining whether impairments are temporary or other than temporary. At March 31, 2011, this included debt securities with $52.9 million of gross unrealized losses of 50% or more for which no OTTI was ultimately indicated. In reaching its conclusions, management used a number of issuer-specific quantitative indicators and qualitative judgments to access the probability of receiving a given security’s contractual cash flows. This included the issue’s implied yield to maturity, cumulative default rate based on rating, comparisons of issue-specific spreads to industry or sector spreads, specific trading activity in the issue, and other market data such as recent debt tenders and upcoming refinancing requirements. Management also reviewed fundamentals such as issuer credit and liquidity metrics, business outlook and industry conditions. Management does not have the intention to sell nor does it expect to be required to sell these securities prior to their recovery. Management maintains a watch list of securities that is reviewed for impairments. Each security on the watch list was evaluated, analyzed and discussed, with the positive and negative factors weighed in the ultimate determination of whether or not the security was other-than-temporarily impaired.

Debt Securities

Fixed maturity OTTIs recorded in the first quarter of 2011 were primarily concentrated in corporate bonds and structured securities. These impairments were driven primarily by significant rating downgrades and increased collateral default rates. In our judgment, these credit events or other adverse conditions of the issuers have caused, or will most likely lead to, a deficiency in the contractual cash flows related to the investment. Therefore, based upon these credit events, we have determined that OTTIs exist. Total debt impairments recognized through earnings related to such credit-related circumstances were $5.7 million in the first quarter of 2011 and $14.2 million in the first quarter of 2010.

In addition to these credit-related impairments recognized through earnings, we impaired securities to fair value through other comprehensive loss for any impairments related to non-credit related factors. These types of impairments were driven primarily by market or sector credit spread widening or by a lack of liquidity in the securities. The amount of impairments recognized as an adjustment to other comprehensive loss due to these factors was $1.7 million in the first quarter of 2011 and $16.9 million in the first quarter of 2010.

Prospectively, we will account for the OTTI security as if the debt security had been purchased on the impairment date, using an amortized cost basis equal to the previous cost basis less the amount of the credit loss impairment. We will continue to estimate the present value of future cash flows expected and, if significantly greater than the new cost basis, accrete the difference as interest income.

The following table rolls forward the amount of credit losses recognized in earnings on debt securities held at the beginning of the period, for which a portion of the OTTI was recognized in other comprehensive income.

Credit Losses Recognized in Earnings on Debt Securities for which a Portion	Three Months Ended
of the OTTI Loss was Recognized in Other Comprehensive Income:	March 31
($ in millions)	2011		2010
Balance, beginning of period	$	(60.4)	$	(44.4)
Add: Credit losses on OTTIs not previously recognized		(4.1)		(2.3)
Less: Credit losses on securities sold		3.1		—
Less: Credit losses on securities impaired due to intent to sell		—		—
Add: Credit losses on previously impaired securities		(1.2)		(9.9)
Less: Increases in cash flows expected on previously impaired securities		—		—
Balance, end of period	$	(62.6)	$	(56.6)

51

Unrealized Gains and Losses

The following tables present certain information with respect to our gross unrealized losses related to our investments in general account debt securities, both outside and inside the closed block, as of March 31, 2011. In the tables, we separately present information that is applicable to unrealized losses both outside and inside the closed block. See Note 4 to our consolidated financial statements in this Form 10-Q for more information regarding the closed block. Applicable deferred policy acquisition costs and deferred income taxes further reduce the effect on our comprehensive income.

Gross and Net	As of March 31, 2011
Unrealized Gains (Losses):	Total				Outside Closed Block				Closed Block
($ in millions)	Gains		Losses		Gains		Losses		Gains		Losses
Debt securities
Number of positions		3,271		1,114		2,208		853		1,063		261
Unrealized gains (losses)	$	575.6	$	(261.7)	$	186.5	$	(167.9)	$	389.1	$	(93.8)
Applicable policyholder dividend obligation   (reduction)		389.1		(93.8)		—		—		389.1		(93.8)
Applicable deferred policy acquisition costs   (benefit)		127.9		(98.2)		127.9		(98.2)		—		—
Applicable deferred income taxes (benefit)		20.5		(24.4)		20.5		(24.4)		—		—
Offsets to net unrealized gains (losses)		537.5		(216.4)		148.4		(122.6)		389.1		(93.8)
Unrealized gains (losses) after offsets	$	38.1	$	(45.3)	$	38.1	$	(45.3)	$	—	$	—
Net unrealized losses after offsets			$	(7.2)			$	(7.2)			$	—
Equity securities
Number of positions		57		10		36		4		21		6
Unrealized gains (losses)	$	20.7	$	(2.1)	$	12.4	$	(0.4)	$	8.3	$	(1.7)
Applicable policyholder dividend obligation   (reduction)		8.3		(1.7)		—		—		8.3		(1.7)
Applicable deferred income taxes (benefit)		4.4		(0.1)		4.4		(0.1)		—		—
Offsets to net unrealized gains (losses)		12.7		(1.8)		4.4		(0.1)		8.3		(1.7)
Unrealized gains (losses) after offsets	$	8.0	$	(0.3)	$	8.0	$	(0.3)	$	—	$	—
Net unrealized gains after offsets	$	7.7			$	7.7			$	—

Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in the consolidated balance sheet as a component of accumulated other comprehensive income (loss) (“AOCI”). The table below presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI) and the subsequent changes in fair value.

Fixed Maturity Securities on which an OTTI Loss has been Recognized, by Type:	Mar 31,		Dec 31,
($ in millions)	2011(1)		2010(1)
U.S. government and agency	$	—	$	—
State and political subdivision		—		—
Foreign government		—		—
Corporate		(5.7)		(5.4)
CMBS		(18.8)		(18.7)
RMBS		(74.0)		(72.2)
CDO/CLO		(14.6)		(19.9)
Other asset-backed		—		—
Fixed maturity non-credit losses in AOCI	$	(113.1)	$	(116.2)

———————

⁽¹⁾

Represents the amount of non-credit OTTI losses recognized in AOCI which excludes net unrealized losses on impaired securities.

52

Duration of Gross Unrealized Losses on	As of March 31, 2011
General Account Securities Outside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities outside closed block
Total fair value	$	1,361.2	$	552.4	$	35.1	$	773.7
Total amortized cost		1,529.1		561.9		38.7		928.5
Unrealized losses	$	(167.9)	$	(9.5)	$	(3.6)	$	(154.8)
Unrealized losses after offsets	$	(45.3)	$	(4.0)	$	(1.1)	$	(40.2)
Number of securities		853		371		26		456
Investment grade:
Unrealized losses	$	(71.2)	$	(8.8)	$	(1.4)	$	(61.0)
Unrealized losses after offsets	$	(21.3)	$	(3.8)	$	(0.3)	$	(17.2)
Below investment grade:
Unrealized losses	$	(96.7)	$	(0.7)	$	(2.2)	$	(93.8)
Unrealized losses after offsets	$	(24.0)	$	(0.2)	$	(0.8)	$	(23.0)
Equity securities outside closed block
Unrealized losses	$	(0.4)	$	—	$	—	$	(0.4)
Unrealized losses after offsets	$	(0.3)	$	—	$	—	$	(0.3)
Number of securities		4		2		1		1

For debt securities outside of the closed block with gross unrealized losses, 47.0% of the unrealized losses after offsets pertain to investment grade securities and 53.0% of the unrealized losses after offsets pertain to below investment grade securities at March 31, 2011.

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	As of March 31, 2011
General Account Securities Outside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities outside closed block
Unrealized losses over 20% of cost	$	(102.3)	$	(2.6)	$	(2.1)	$	(97.6)
Unrealized losses over 20% of cost after offsets	$	(24.3)	$	(0.8)	$	(0.7)	$	(22.8)
Number of securities		109		9		7		93
Investment grade:
Unrealized losses over 20% of cost	$	(31.6)	$	(0.1)	$	(1.6)	$	(29.9)
Unrealized losses over 20% of cost after offsets	$	(8.1)	$	—	$	(0.4)	$	(7.7)
Below investment grade:
Unrealized losses over 20% of cost	$	(70.7)	$	(2.5)	$	(0.5)	$	(67.7)
Unrealized losses over 20% of cost after offsets	$	(16.2)	$	(0.8)	$	(0.3)	$	(15.1)
Equity securities outside closed block
Unrealized losses over 20% of cost	$	(0.4)	$	—	$	(0.4)	$	—
Unrealized losses over 20% of cost after offsets	$	(0.3)	$	—	$	(0.3)	$	—
Number of securities		3		2		1		—

53

Duration of Gross Unrealized Losses on	As of March 31, 2011
General Account Securities Inside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities inside closed block
Total fair value	$	1,083.0	$	445.7	$	16.9	$	620.4
Total amortized cost		1,176.8		458.1		18.8		700.0
Unrealized losses	$	(93.8)	$	(12.3)	$	(1.9)	$	(79.6)
Unrealized losses after offsets	$	—	$	—	$	—	$	—
Number of securities		261		103		7		151
Investment grade:
Unrealized losses	$	(52.8)	$	(9.4)	$	(0.9)	$	(42.5)
Unrealized losses after offsets	$	—	$	—	$	—	$	—
Below investment grade:
Unrealized losses	$	(41.0)	$	(2.9)	$	(1.0)	$	(37.1)
Unrealized losses after offsets	$	—	$	—	$	—	$	—
Equity securities inside closed block
Unrealized losses	$	(1.7)	$	—	$	(1.3)	$	(0.4)
Unrealized losses after offsets	$	—	$	—	$	—	$	–
Number of securities		6		1		4		1

For debt securities inside the closed block with gross unrealized losses, there were no unrealized losses after offsets at March 31, 2011.

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	As of March 31, 2011
General Account Securities Inside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities inside closed block
Unrealized losses over 20% of cost	$	(38.7)	$	(3.1)	$	(3.6)	$	(32.0)
Unrealized losses over 20% of cost after offsets	$	—	$	—	$	—	$	—
Number of securities		29		4		3		22
Investment grade:
Unrealized losses over 20% of cost	$	(15.9)	$	—	$	(2.4)	$	(13.5)
Unrealized losses over 20% of cost after offsets	$	—	$	—	$	—	$	—
Below investment grade:
Unrealized losses over 20% of cost	$	(22.8)	$	(3.1)	$	(1.2)	$	(18.5)
Unrealized losses over 20% of cost after offsets	$	—	$	—	$	—	$	—
Equity securities inside closed block
Unrealized losses over 20% of cost	$	(1.7)	$	(1.3)	$	(0.4)	$	—
Unrealized losses over 20% of cost after offsets	$	—	$	—	$	—	$	—
Number of securities		5		3		2		—

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.

54

Liquidity refers to the ability of a company to generate sufficient cash flow to meet its cash requirements. The following discussion includes both liquidity and capital resources as these subjects are interrelated.

The Phoenix Companies, Inc. (consolidated)

Summary Consolidated Cash Flows:	Three Months Ended				Increase (decrease) and
($ in millions)	March 31,				percentage change
	2011		2010		2011 vs. 2010
Continuing operations
Cash from (for) operating activities	$	(46.8)	$	(100.6)	$	53.8	53%
Cash from (for) investing activities		(149.7)		(18.5)		(131.2)	NM
Cash from (for) financing activities		182.8		(13.1)		195.9	NM
	$	(13.7)	$	(132.2)	$	118.5	90%
Discontinued operations
Cash from (for) operating activities	$	1.8	$	6.4	$	(4.6)	(72%)
Cash from (for) investing activities		(2.7)		(4.7)		2.0	43%
	$	(0.9)	$	1.7	$	(2.6)	(153%)

———————

Not meaningful (NM)

Three months ended March 31, 2011 vs. March 31, 2010

Continuing Operations

Cash used for operating activities declined $53.8 million, or 53%, in the first quarter of 2011 compared to the first quarter of 2010. This was primarily attributable to a $77.8 million decrease in policyholder benefits consistent with favorable mortality related to universal life blocks of business and the closed block. Also contributing to this improvement was a decline in cash outflows of $48.4 million associated with operating expenses as a result of lower compensation and employee-related expenses. Partially offsetting these improvements was an increase in commissions and other policy-related acquisition costs of $30.6 million attributable to the current quarter sales of fixed indexed annuities. Fee income collected declined $18.5 million primarily as a result of the decline in the policies in force related to universal life and variable universal life. Premiums collected also declined $13.7 million as a result of lower renewal premiums in the closed block. While operating cash flows remain negative as of March 31, 2011, this is primarily driven by cash surrenders of deposit-type contracts for which funds are readily available in segregated separate accounts or liquid general account assets.

Cash used for investing activities increased by $131.2 million in the first quarter of 2011 compared to the first quarter of 2010. The primary driver of this fluctuation was a net increase in investment purchase activity as a result of increase in deposits related to fixed indexed annuity sales. This was partially offset by change in policy loans of $29.3 million with net cash inflows during the quarter ended March 31, 2011 compared to net cash outflows during the quarter ended March 31, 2010 as a result of lower surrenders on the universal life block of business.

Cash flows associated with financing activities improved $195.9 million to cash inflows of $182.8 million in the first quarter of 2011 compared to cash outflows of $13.1 million the first quarter of 2010. This improvement was primarily a result of a decline in withdrawals consistent with decrease in surrenders as well as an increase in policyholder deposits. See Note 7 to our consolidated financial statements in this Form 10-Q for additional information on financing activities.

Discontinued Operations

Cash flows related to discontinued operations declined as a result of the sale of PFG and PLARNY subsequent to the first quarter of 2010.

55

The Phoenix Companies, Inc. Sources and Uses of Cash (parent company only)

In addition to existing cash and securities, our primary source of liquidity consist of dividends from Phoenix Life. Under New York Insurance Law, Phoenix Life is permitted to pay stockholder dividends to the holding company in any calendar year without prior approval from the New York Superintendent of Insurance in the amount of the lesser of 10% of Phoenix Life’s surplus to policyholders as of the immediately preceding calendar year or Phoenix Life’s statutory net gain from operations for the immediately preceding calendar year, not including realized capital gains. Based on this calculation, Phoenix Life would be able to pay a dividend of $64.8 million in 2011. In assessing our ability to pay dividends from Phoenix Life, we also consider the level of statutory capital and risk-based capital (“RBC”) of that entity. Our capitalization increased in the current year compared to a decline in the prior year; however, Phoenix Life may have less flexibility to pay dividends to the parent company if we experience future declines. As of March 31, 2011, we had $797.3 million of statutory surplus and asset valuation reserve (“AVR”) and our estimated RBC ratio was in excess of 300% at Phoenix Life.

Our principal needs at the holding company level are debt service (net of amounts due on bonds repurchased), income taxes and operating expenses. Interest expense on senior unsecured bonds for the three months ended March 31, 2011 and 2010 was $4.8 million and $4.9 million, respectively. As of March 31, 2011, future minimum annual principal payments on senior unsecured bonds are $253.6 million in 2032.

Life Companies

The Life Companies’ liquidity requirements principally relate to: the liabilities associated with various life insurance and annuity products; the payment of dividends by Phoenix Life to the parent company; operating expenses; contributions to subsidiaries; and payment of principal and interest by Phoenix Life on its outstanding debt obligation. 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. The Life Companies also have liabilities arising from the runoff of the remaining discontinued group accident and health reinsurance operations.

Historically, our Life Companies have used cash flow from operations and investing activities to fund liquidity requirements. Their principal cash inflows from life insurance and annuities activities come from premiums, annuity deposits and charges on insurance policies and annuity contracts. In the case of Phoenix Life, cash inflows also include dividends, distributions and other payments from subsidiaries. Principal cash inflows from investing activities result from repayments of principal, proceeds from maturities, sales of invested assets and investment income. The principal cash inflows from our discontinued group accident and health reinsurance operations come from our reinsurance, recoveries from other retrocessionaires and investing activities.

Aggregate life surrenders in 2010 were 8.0% of related reserves, but improved in the three months ended March 31, 2011, dropping to 7.2%. Cash, treasuries and agency mortgage-backed securities accounted for 6.7% of fixed income investments as of March 31, 2011, as compared to 8.5% at year end 2010. A strong liquidity profile remains a priority for the Company, but as financial markets and the economy continue to improve the size and composition of this liquid asset portfolio will change to better meet the needs of the Company. These actions, along with resources the Company devotes to monitoring and managing surrender activity, are key components of liquidity management within the Company.

The primary liquidity risks regarding cash inflows from the investing activities of our Life Companies 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 the existing and expected sources of liquidity for our Life Companies are adequate to meet both current and anticipated needs.

Ratings

Rating agencies assign Phoenix Life financial strength ratings and assign the holding company debt ratings based in each case on their opinions of the relevant company’s ability to meet its financial obligations. Rating downgrades may result in lower sales, higher surrenders and increased or decreased interest costs in connection with future borrowings.

56

On February 8, 2011, A.M. Best Company, Inc. affirmed our financial strength rating of B+ and our senior debt rating of bb-. They changed their outlook on all ratings from negative to stable. On January 13, 2010, A.M. Best Company, Inc. downgraded our financial strength rating from B++ to B+ and downgraded our senior debt rating from bb+ to bb-. They maintained their negative outlook on all ratings.

On June 17, 2010, Moody’s Investor Services downgraded our financial strength rating from Ba1 to Ba2 and lowered our senior debt rating from B1 to B3. They changed their outlook on all ratings from negative to stable.

On March 24, 2011, Standard & Poor’s affirmed our financial strength rating of BB- and our senior debt rating of CCC+. They changed their outlook on all ratings from negative to stable. On February 12, 2010, Standard & Poor’s downgraded our financial strength rating from BB to BB- and lowered our senior debt rating from B- to CCC+. They maintained their negative outlook on all ratings.

The financial strength and debt ratings as of March 31, 2011 were as follows:

	Financial Strength Rating
Rating Agency	of Phoenix Life	Outlook	Senior Debt Rating of PNX	Outlook
A.M. Best Company, Inc.	B+	Stable	bb-	Stable
Moody’s	Ba2	Stable	B3	Stable
Standard & Poor’s	BB-	Stable	CCC+	Stable

Reference in this report to any credit rating is intended for the limited purposes of discussing or referring to changes in our credit ratings or aspects of our liquidity or costs of funds. Such reference cannot be relied on for any other purposes, or used to make any inference concerning future performance, future liquidity or any future credit rating.

57

Consolidated Financial Condition

Consolidated Balance Sheet:					Increase (decrease) and
($ in millions)	Mar 31,		Dec 31,		percentage change
	2011		2010		2011 vs. 2010
ASSETS
Available-for-sale debt securities, at fair value	$	11,159.5	$	10,893.8	$	265.7	2%
Available-for-sale equity securities, at fair value		52.2		47.5		4.7	10%
Venture capital partnerships, at equity in net assets		225.7		220.0		5.7	3%
Policy loans, at unpaid principal balances		2,373.8		2,386.5		(12.7)	(1%)
Other investments		489.5		516.9		(27.4)	(5%)
Fair value option investments		92.5		102.1		(9.6)	(9%)
Total investments		14,393.2		14,166.8		226.4	2%
Cash and cash equivalents		107.3		121.9		(14.6)	(12%)
Accrued investment income		173.5		169.5		4.0	2%
Receivables		432.0		405.7		26.3	6%
Deferred policy acquisition costs		1,403.3		1,444.3		(41.0)	(3%)
Deferred income taxes		93.5		116.4		(22.9)	(20%)
Other assets		165.5		174.5		(9.0)	(5%)
Discontinued operations assets		54.9		60.4		(5.5)	(9%)
Separate account assets		4,448.9		4,416.8		32.1	1%
Total assets	$	21,272.1	$	21,076.3	$	195.8	1%
LIABILITIES
Policy liabilities and accruals	$	12,960.6	$	12,992.5	$	(31.9)	0%
Policyholder deposit funds		1,667.2		1,494.1		173.1	12%
Indebtedness		427.7		427.7		—	0%
Other liabilities		575.7		540.3		35.4	7%
Discontinued operations liabilities		45.5		49.4		(3.9)	(8%)
Separate account liabilities		4,448.9		4,416.8		32.1	1%
Total liabilities		20,125.6		19,920.8		204.8	1%
STOCKHOLDERS’ EQUITY
Common stock and additional paid in capital		2,633.0		2,632.3		0.7	0%
Accumulated deficit		(1,169.6)		(1,163.5)		(6.1)	(1%)
Accumulated other comprehensive loss		(137.4)		(133.8)		(3.6)	(3%)
Treasury stock		(179.5)		(179.5)		—	0%
Total stockholders’ equity		1,146.5		1,155.5		(9.0)	(1%)
Total liabilities and stockholders’ equity	$	21,272.1	$	21,076.3	$	195.8	1%

———————

Not meaningful (NM)

March 31, 2011 compared to December 31, 2010

Assets

The increase in total investments was the result of purchases of securities backing our annuity business as sales continue to increase as well as an improvement in the value of available-for-sale debt securities from spread tightening in non-treasury sectors which offset slightly higher treasury rates. Other investments decreased as a result of declines in value related to our variable annuity hedging assets and partnership investments.

Cash and cash equivalents decreased due to a shift in investments towards available-for-sale debt securities as the need for highly liquid assets declined in response to reduced surrender levels and appreciation in the overall investment portfolio.

Receivables increased as a result of reinsurance recoverables on several death claims on reinsured policies in the first quarter of 2011.

58

Composition of Deferred Policy Acquisition Costs					Increase (decrease) and
by Product:	Mar 31,		Dec 31,		percentage change
($ in millions)	2011		2010		2011 vs. 2010
Variable universal life	$	231.6	$	238.5	$	(6.9)	(3%)
Universal life		515.8		570.2		(54.4)	(10%)
Variable annuities		148.7		156.6		(7.9)	(5%)
Fixed annuities		1.1		1.4		(0.3)	(21%)
Equity indexed annuities		64.4		32.1		32.3	101%
Traditional life		441.7		445.5		(3.8)	(1%)
Total deferred policy acquisition costs	$	1,403.3	$	1,444.3	$	(41.0)	(3%)

Deferred policy acquisition costs decreased as a result of primarily as a result of amortization for the quarter. Amortization was partially offset by increase in deferred expenses related to sales of our fixed indexed annuities.

The decrease in the deferred tax asset was primarily driven by a decrease in the unrealized losses related to the available-for-sale debt securities.

Liabilities and Stockholders’ Equity

Policyholder deposit funds increased as a result of continued sales growth in the annuity product line, primarily attributable to sales of fixed indexed annuities.

Funds on Deposit

Annuity Funds on Deposit:	Three Months Ended
($in millions)	March 31,
	2011		2010
Deposits	$	205.3	$	19.3
Performance and interest credited		160.5		124.5
Fees		(14.4)		(14.6)
Benefits and surrenders		(149.3)		(137.3)
Change in funds on deposit		202.1		(8.1)
Funds on deposit, beginning of period		4,010.5		3,926.1
Annuity funds on deposit, end of period	$	4,212.6	$	3,918.0

Three months ended March 31, 2011 vs. March 31, 2010

Annuity funds on deposit increased $202.1 million during the three months ended March 31, 2011 compared with a decrease of $8.1 million in the three months ended March 31, 2010. The primary driver of the increase in funds in 2011 was the significant amount of deposits received as a result of continued sales growth in the annuity product line, primarily attributable to sales of fixed indexed annuities. In addition, positive market performance and interest credited, which includes bonuses paid on new policies, offset larger benefits and surrenders in 2011.

Variable Universal Life Funds on Deposit:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Deposits	$	24.5	$	28.7
Performance and interest credited		52.9		41.6
Fees and cost of insurance		(21.5)		(22.5)
Benefits and surrenders		(46.7)		(48.4)
Change in funds on deposit		9.2		(0.6)
Funds on deposit, beginning of period		1,151.6		1,168.5
Variable universal life funds on deposit, end of period	$	1,160.8	$	1,167.9

59

Three months ended March 31, 2011 vs. March 31, 2010

For the three months ended March 31, 2011, variable universal life funds on deposit increased $9.2 million compared to a decrease of $0.6 million during the same prior year period. The increase in 2011as compared to 2010 reflected stronger equity markets while deposits, fees and benefits and surrenders remained relatively flat.

Universal Life Funds on Deposit:	Three Months Ended
($ in millions)	March 31,
	2011		2010
Deposits	$	90.2	$	84.3
Interest credited		20.3		23.1
Fees and cost of insurance		(103.3)		(110.4)
Benefits and surrenders		(30.4)		(45.4)
Change in funds on deposit		(23.2)		(48.4)
Funds on deposit, beginning of period		1,918.9		2,080.7
Universal life funds on deposit, end of period	$	1,895.7	$	2,032.3

Three months ended March 31, 2011 vs. March 31, 2010

Universal life funds on deposit decreased during both the three months ended March 31, 2011 and 2010. The decrease was $25.2 million less in the first quarter of 2011 compared to the first quarter of 2010 primarily as a result of lower benefits and surrenders and increased renewal premium received.

Contractual Obligations and Commercial Commitments

During 2008, we announced an amendment to our agreement under with HP Enterprise Services related to the management of our infrastructure services. The amendment covered the year 2009 to 2015. We have five years remaining on the agreement. The remaining commitment total is $74.5 million.

During the normal course of business, the Company enters into agreements to fund limited partnerships that make debt and equity investments. As of March 31, 2011, the Company had unfunded commitments of $242.1 million under such agreements, of which $77.4 million is expected to be funded by December 31, 2011.

In addition, the Company enters into agreements to purchase private placement investments. At March 31, 2011, the Company had open commitments of $38.3 million under such agreements which are expected to be funded by December 31, 2011.

Commitments Related to Recent Business Combinations

Under the terms of purchase agreements related to certain business combinations, we are subject to certain contractual obligations, commitments and other purchase arrangements as described in our 2010 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

In connection with the sale of certain venture capital partnerships, Phoenix Life issued a guarantee with respect to the outstanding unfunded commitments related to the partnerships that were sold. As of March 31, 2011, the Company has funded $2.2 million under this guarantee and has established a receivable from the respective partnerships for this amount. Management believes the receivable to be fully collectible. An additional $5.0 million of unfunded commitments remain subject to this guarantee.

Reinsurance

We maintain life reinsurance programs designed to protect against large or unusual losses in our life insurance business. Due to the downgrade of Scottish Re in February 2009, we are closely monitoring its financial situation and will periodically assess the recoverability of the reinsurance recoverable. As of March 31, 2011, Scottish Re was current on all its obligations to the Company. Based on our review of its financial statements, reputation in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance.

60

Statutory Capital and Surplus

Phoenix Life’s statutory basis capital and surplus (including AVR) increased from $763.2 million at December 31, 2010 to $797.3 million at March 31, 2011. The principal factor resulting in this increase was net gain from operations of $29.6 million.

Obligations Related to Pension and Postretirement Employee Benefit Plans

As of March 31, 2011, there were no material changes to our obligations related to pension and postretirement employee benefit plans as described in our 2010 Annual Report on Form 10-K.

We made contributions to the pension plan of $3.5 million in the first quarter of 2011. We made contributions totaling $25.7 million during 2010. Over the next nine months, we expect to make additional contributions to the plans of approximately $12.9 million. Effective March 31, 2010, all benefit accruals under our funded and unfunded defined benefit plans were frozen.

See Note 12 to our consolidated financial statements in this Form 10-Q for additional information.

Enterprise Risk Management

We have a comprehensive, enterprise-wide risk management program. Our Chief Risk Officer reports to the Chief Financial Officer and monitors our risk management activities. During 2009, as part of our strategic repositioning and overall expense reduction effort, we refined our approach to risk management across the enterprise. We have an Enterprise Risk Management Committee, chaired by the Chief Executive Officer, whose functions are to establish risk management principles, monitor key risks and oversee our risk-management practices. Several management committees oversee and address issues pertaining to all our major risks—operational, market and product—as well as capital management.

See our 2010 Annual Report on Form 10-K for more information regarding our enterprise risk management. There were no material changes in our exposure to operational and market risk exposure at March 31, 2011 in comparison to December 31, 2010.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information about our management of market risk, see the Enterprise Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2010 Annual Report on Form 10-K. There were no material changes in our exposure to operational and market risk exposure at March 31, 2011 in comparison to December 31, 2010.

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 Chief Executive Officer and our Chief 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 and the previously identified material weakness in our internal control over financial reporting, as disclosed in our 2010 Annual Report on Form 10-K and further discussed below under “Previously Identified Material Weakness,” these officers have concluded that, as of March 31, 2011, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our period reports under the Exchange Act.

61

However, giving full consideration to the material weakness discussed below, we have performed additional analyses and other procedures in order to provide assurance that our consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP. As a result of our consideration of the events and circumstances giving rise to the material weakness and these procedures, we concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Previously Identified Material Weakness

As disclosed in our 2010 Annual Report on Form 10-K, management concluded that, as of December 31, 2010, the Company had a material weakness in the operating effectiveness in its internal control over financial reporting related to the proper accounting for deferred income taxes. The Company’s review procedures failed to identify an error in the assumptions used in the model that assesses the level of the valuation allowance against the deferred tax asset. As a result, the Company recorded an adjustment to their deferred tax asset and other comprehensive income. This material weakness, or difficulties encountered in implementing new or improved controls or remediation, could prevent the Company from accurately reporting its financial results, result in material misstatements in its financial statements or cause it to fail to meet its reporting obligations. Accordingly, management determined that this control deficiency constitutes a material weakness in the Company’s internal control over financial reporting. Because of this material weakness, management concluded that our internal control over financial reporting was not effective as of December 31, 2010 based on criteria in Internal Control – Integrated Framework issued by the COSO.

Remediation Plan

Management plans to remediate this material weakness by ensuring the operating effectiveness of the review of the valuation allowance and recoverability of the recorded deferred tax asset. However, because these remedial actions are not yet complete and have not yet been tested, we were not able to conclude that this material weakness has been remediated, and that our internal control over financial reporting is effective, as of March 31, 2011.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

62

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 Part I, Item 1A of our 2010 Annual Report on Form 10-K and Note 18 to our consolidated financial statements in this Form 10-Q for additional information.

The definitive agreement to sell PFG contains a provision requiring the Company to indemnify Tiptree for any losses due to actions resulting from certain specified acts or omissions associated with the divested business prior to closing. There has been litigation filed that falls within this provision of the agreement. The Company intends to defend these matters vigorously.

Item 1A.

RISK FACTORS

The Company is subject to risks and uncertainties, any of which could have a significant or material adverse effect on our business, financial condition, operating results or liquidity. Before investing in our securities, you should carefully consider the risk factors disclosed in Part I, Item 1A of our 2010 Annual Report on Form 10-K. The risks described therein are not the only ones we face. This information should be considered carefully together with the other information contained in this report and the other reports and materials the Company files with the SEC.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Not applicable.

(b)

Not applicable.

(c)

Not applicable.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.

(REMOVED AND RESERVED)

Item 5.

OTHER INFORMATION

(a)

Not applicable.

(b)

No material changes.

63

Item 6.

EXHIBITS

Exhibit
2.1	Plan of Reorganization (incorporated herein by reference to Exhibit 2.1 to the Phoenix Companies, Inc. Registration Statement on Form S-1 (Registration No. 333-55268), filed February 9, 2001, as amended)
3.1	Amended and Restated Certificate of Incorporation of The Phoenix Companies, Inc. (incorporated herein by reference to Exhibit 3.1 to The Phoenix Companies, Inc. Registration Statement on Form S-l (Registration No. 333-73896), filed November 21, 2001, as amended)
3.2	By-Laws of The Phoenix Companies, Inc., as amended June 5, 2003 (incorporated herein by reference to Exhibit 3.2 to The Phoenix Companies, Inc. Annual Report on Form 10-K (Registration No. 333-73896) filed March 11, 2005)
4.1	Amended and Restated Certificate of Incorporation and By-Laws of The Phoenix Companies, Inc. (incorporated herein by reference to Exhibits 3.1 and 3.2 hereto, respectively)
4.2	Stockholder Rights Agreement, dated as of June 19, 2001, between The Phoenix Companies, Inc. and Equiserve Trust Company, N.A. as Rights Agent (incorporated herein by reference to Exhibit 10.24 to The Phoenix Companies, Inc. Registration Statement on Form S-1 (Registration No. 333-73896), filed November 21, 2001, as amended)
4.3	Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of The Phoenix Companies, Inc. (attached as Exhibit A to the Stockholder Rights Agreement filed as Exhibit 4.2 hereto)
4.4	Form of Right Certificate (attached as Exhibit B to the Stockholder Rights Agreement filed as Exhibit 4.2 hereto)
4.5	Form of Share Certificate for Common Stock, par value $0.01 per share (incorporated herein by reference to Exhibit 4.1 to The Phoenix Companies, Inc. Registration Statement on Form S-1 (Registration No. 333-55268), filed February 9, 2001, as amended)
10.1	The Phoenix Companies, Inc. Stock Incentive Plan, as amended and restated (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.2	First Amendment to The Phoenix Companies, Inc. Stock Incentive Plan, as amended and restated (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 5, 2009)
10.3	Form of Incentive Stock Option Agreement under The Phoenix Companies, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005; SEC File Number 001-16517)
10.4	Form of Non-Qualified Stock Option Agreement under The Phoenix Companies, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit 10.4 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005; SEC File Number 001-16517)
10.5	Form of Non-Qualified Stock Option Agreement (Performance and Service-Vesting Awards) (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Current Report on Form 8-K filed May 4, 2009)
10.6	The Phoenix Companies, Inc. Directors Stock Plan, as amended and restated (incorporated herein by reference to Exhibit 10.6 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.7	The Phoenix Companies, Inc. Excess Benefit Plan, as amended and restated (incorporated herein by reference to Exhibit 10.9 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)

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10.8	First Amendment to The Phoenix Companies, Inc. Excess Benefit Plan, as amended and restated (incorporated herein by reference to Exhibit 10.8 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 10, 2010)
10.9	The Phoenix Companies, Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.13 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008) (merged into The Phoenix Companies, Inc. Non-Qualified Excess Investment Plan, effective September 1, 2009)
10.10	First Amendment to The Phoenix Companies, Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.8 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 6, 2009) (merged into The Phoenix Companies, Inc. Non-Qualified Excess Investment Plan, effective September 1, 2009)
10.11	The Phoenix Companies, Inc. Non-Qualified Excess Investment Plan amended and restated as of September 1, 2009 (incorporated herein by reference to Exhibit 10.10 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 6, 2009)
10.12	Discussion of The Phoenix Companies, Inc. Non-Qualified Excess Investment Plan, as amended (incorporated herein by reference to Item 5.02(e) to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 9, 2009)
10.13	First Amendment to The Phoenix Companies, Inc. Non-Qualified Excess Investment Plan amended and restated as of September 1, 2009 (incorporated herein by reference to Exhibit 10.14 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 10, 2010)
10.14	The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan, as amended and restated (incorporated herein by reference to Exhibit 10.9 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 5, 2009)
10.15	Discussion of The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan, as amended and restated (incorporated herein by reference to Item 5.02(e) to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 9, 2009)
10.16	First Amendment to The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan, as amended and restated (incorporated herein by reference to Exhibit 10.17 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 10, 2010)
10.17	The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan B, as amended and restated (incorporated herein by reference to Exhibit 10.10 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 5, 2009)
10.18	Discussion of The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan B, as amended and restated (incorporated herein by reference to Item 5.02(e) to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 9, 2009)
10.19	First Amendment to The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan B, as amended and restated (incorporated herein by reference to Exhibit 10.20 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 10, 2010)
10.20	The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan, as amended and restated (incorporated herein by reference to Exhibit 10.22 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.21	Form of Award Letter under The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 8, 2006)

65

10.22	Form of Description of Long Term Incentive Cycle under The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 8, 2006)
10.23	Form of Restricted Stock Units Agreement of The Phoenix Companies, Inc. (incorporated herein by reference to Exhibit 10.27 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 10, 2006)
10.24	Form of Restricted Stock Units Agreement Individual for Performance-Based Incentive Grants (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 28, 2007)
10.25	Form of Restricted Stock Units Agreement for Cliff Vested Grants (incorporated herein by reference to Exhibit 10.21 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 1, 2007)
10.26	Form of Restricted Stock Units Agreement for Performance-Based Grants Tied to Business Line Metrics (incorporated herein by reference to Exhibit 10.22 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 9, 2007)
10.27	Form of Restricted Stock Units Agreement for 3-Year Performance-Based Long-Term Incentive Cycles (incorporated herein by reference to Exhibit 10.23 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 9, 2007)
10.28	Form of Restricted Stock Units Agreement (Performance and Service-Vesting Awards) (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed May 4, 2009)
10.29	The Phoenix Companies, Inc. Executive Severance Allowance Plan, as amended and restated (incorporated herein by reference to Exhibit 10.33 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.30	The Phoenix Companies, Inc. Annual Incentive Plan for Executive Officers, as amended and restated (incorporated herein by reference to Exhibit 10.35 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.31	The Phoenix Companies, Inc. Equity Deferral Plan (incorporated herein by reference to Exhibit 10.36 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.32	The Phoenix Companies, Inc. Directors Equity Deferral Plan (incorporated herein by reference to Exhibit 10.37 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.33	The Phoenix Companies, Inc. Directors Cash Deferral Plan (incorporated herein by reference to Exhibit 10.38 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.34	Form of Change in Control Agreement (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed October 30, 2009)
10.35	Offer Letter dated February 9, 2004 by The Phoenix Companies, Inc. to Philip K. Polkinghorn (incorporated herein by reference to Exhibit 10.50 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 22, 2004; SEC File Number 001-16517)
10.36	Letter Agreement dated May 6, 2008 between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to Exhibit 10.42 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.37	Second Amended and Restated Employment Agreement dated May 6, 2008 between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 5, 2009)

66

10.38	Amended and Restated Employment Continuation Agreement effective January 1, 2008, between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 5, 2009)
10.39	Consulting Agreement dated March 22, 2009 between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed March 23, 2009)
10.40	Discussion of compensation of Michael E. Hanrahan (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed August 25, 2009 and The Phoenix Companies, Inc. Current Report on Form 8-K filed on February 17, 2010)
10.41	Discussion of compensation of James D. Wehr (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed May 4, 2009)
10.42	Discussion of compensation of Peter A. Hofmann (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 14, 2007)
10.43	Discussion of director compensation and share ownership guidelines (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 9, 2009)
10.44	Form of Cash Agreement for Long-Term Incentive Cycle Performance-Based Grants with Post-Performance Service-Vesting Criteria (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed April 24, 2009)
10.45	Stockholder Rights Agreement dated as of June 19, 2001 (incorporated herein by reference to Exhibit 4.2 hereto)
10.46	Fiscal Agency Agreement dated as of December 15, 2004 between Phoenix Life Insurance Company and The Bank of New York (incorporated herein by reference to Exhibit 10.38 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005; SEC File Number 001-16517)
10.47	First Amended and Restated Credit Agreement dated as of April 2, 2008, by and among The Phoenix Companies, Inc., and Phoenix Life Insurance Company as Borrowers; Wachovia Bank, National Association, as Administrative Agent; The Bank of New York, as Syndication Agent; BMO Capital Markets Financing, Inc., JPMorgan Chase Bank, N.A., and PNC Bank, National Association, as Documentation Agents; and the other Lenders party thereto (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed April 7, 2008)
10.48	First Amendment to First Amended and Restated Credit Agreement, dated as of November 7, 2008, by and among The Phoenix Companies, Inc. and Phoenix Life Insurance Company as borrowers; Wachovia Bank, National Association, as administrative agent; The Bank of New York, as syndication agent; BMO Capital Markets Financing, Inc., JPMorgan Chase Bank, N.A., and PNC Bank, National Association, as documentation agents; and the other lenders party thereto (incorporated herein by reference to Exhibit 10.55 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q dated November 10, 2008)
10.49	Agreement, dated as of April 16, 2008, among The Phoenix Companies, Inc. Oliver Press Partners, LLC and certain of its affiliates party thereto (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed April 16, 2008)
10.50	Investment and Contribution Agreement, dated as of October 30, 2008, by and among The Phoenix Companies, Inc., Phoenix Investment Management Company, Virtus Holdings, Inc. and Harris Bankcorp, Inc. (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 5, 2008)
10.51	Separation Agreement, Plan of Reorganization and Distribution by and between The Phoenix Companies, Inc. and Virtus Investment Partners, Inc. dated as of December 18, 2008 (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 23, 2008)

67

10.52	Transition Services Agreement by and between The Phoenix Companies, Inc. and Virtus Investment Partners, Inc. dated as of December 18, 2008 (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 23, 2008)
10.53	Tax Separation Agreement by and between The Phoenix Companies, Inc. and Virtus Investment Partners, Inc. dated as of December 18, 2008 (incorporated herein by reference to Exhibit 10.3 to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 23, 2008)
10.54	Amendment to Tax Separation Agreement by and between The Phoenix Companies, Inc. and Virtus Investment Partners, Inc. dated as of April 8, 2009 (incorporated herein by reference to Exhibit 10.39 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2009)
10.55	Employee Matters Agreement by and between The Phoenix Companies, Inc. and Virtus Investment Partners, Inc. dated as of December 18, 2008 (incorporated herein by reference to Exhibit 10.4 to The Phoenix Companies, Inc. Current Report on Form 8-K filed December 23, 2008)
10.56	Amended and Restated Technology Services Agreement by and among Phoenix Life Insurance Company and Electronic Data Systems, LLC dated January 1, 2009 (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K dated January 6, 2009)
12	Ratio of Earnings to Fixed Charges*
31.1	Certification of James D. Wehr, 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 James D. Wehr, 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, The Phoenix Companies, Inc., One American Row, P.O. Box 5056, Hartford, Connecticut 06102-5056.

68

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.

	THE PHOENIX COMPANIES, INC.
Date:  May 9, 2011	By:	/s/ Peter A. Hofmann
	Peter A. Hofmann
	Senior Executive Vice President and Chief Financial Officer

69

EX-12

EXHIBIT 12

STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND

EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS ⁽¹⁾

Three Months Ended March 31, 2011 and 2010

($ amounts in millions)

	2011		2010
Income (loss) from continuing operations before income taxes	$	(4.9)	$	14.1
Less: Equity in earnings (losses) of venture capital partnership investments		0.1		--
Add: Distributed earnings of venture capital partnership investments		--		--
Income (loss) from continuing operations before income taxes and equity in
undistributed earnings of venture capital partnership investments	$	(5.0)	$	14.1
Fixed Charges:
Interest expense on indebtedness	$	7.9	$	8.0
Interest expense attributable to rentals		0.1		0.1
Total fixed charges (2)		8.0		8.1
Interest credited on policyholder contract balances		29.0		32.4
Total fixed charges, including interest credited to policyholders	$	37.0	$	40.5
Income from continuing operations before income taxes, equity in undistributed
earnings of venture capital partnership investments and total fixed charges
including interest credited to policyholders	$	32.0	$	54.6
Ratio of earnings to fixed charges and preferred stock dividends		0.9		1.3
Additional earnings required to achieve 1:1 ratio coverage	$	5.0	$	--
SUPPLEMENTAL RATIO (3) — Ratio of earnings to fixed charges and preferred
stock dividends exclusive of interest credited on policyholder contract balances:
Income (loss) from continuing operations before income taxes and equity in
undistributed earnings of venture capital partnership investments	$	(5.0)	$	14.1
Fixed Charges:
Total fixed charges, as above	$	8.0	$	8.1
Income from continuing operations before income taxes and equity in undistributed
earnings of venture capital partnership investments and fixed charges	$	3.0	$	22.2
Ratio of earnings to fixed charges and preferred stock dividends		0.4		2.7
Additional earnings required to achieve 1:1 ratio coverage	$	5.0	$	--

_______

⁽¹⁾

We had no dividends on preferred stock for the three months ended March 31, 2011 and 2010.

⁽²⁾

Total fixed charges consist of interest expense on indebtedness and an interest factor attributable to rentals. The interest factor to rentals consists of one-third of rental charges, which we deem to be representative of the interest factor inherent in rents.

⁽³⁾

This ratio is disclosed for the convenience of investors and may be more comparable to the ratios disclosed by other issuers of fixed income securities.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, the President and Chief Executive Officer of The Phoenix Companies, Inc. (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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

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

(d)

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:  May 9, 2011	/s/ James D. Wehr
	Name: James D. Wehr
	Title: President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, the Chief Financial Officer of The Phoenix Companies, Inc. (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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

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

(d)

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:  May 9, 2011	/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 March 31, 2011 of The Phoenix Companies, Inc. (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/ James D. Wehr	/s/ Peter A. Hofmann
Name: James D. Wehr	Name: Peter A. Hofmann
Title: President and Chief Executive Officer	Title: Senior Executive Vice President
	and Chief Financial Officer
Date: May 9, 2011	Date: May 9, 2011

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 The Phoenix Companies, Inc. and will be retained by The Phoenix Companies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.