10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010

or

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                   to                  

Commission File Number 001-31901

Protective Life Insurance Company

(Exact name of registrant as specified in its charter)

Tennessee	63-0169720
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

2801 Highway 280 South

Birmingham, Alabama 35223

(Address of principal executive offices and zip code)

(205) 268-1000

(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  x  No  o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No  o

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

Large accelerated filer o	Accelerated Filer o
Non-accelerated filer x	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o  No  x

Number of shares of Common Stock, $1.00 Par Value, outstanding as of August 3, 2010:  5,000,000

PROTECTIVE LIFE INSURANCE COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS

		Page
PART I: Financial Information
Item 1.	Financial Statements (unaudited):
	Consolidated Condensed Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009	3
	Consolidated Condensed Balance Sheets as of June 30, 2010 and December 31, 2009	4
	Consolidated Condensed Statement of Shareowners’ Equity For The Three and Six Months Ended June 30, 2010	5
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	97
Item 4.	Controls and Procedures	97
PART II
Item 1A.	Risk Factors and Cautionary Factors that may Affect Future Results	98
Item 6.	Exhibits	101
	Signature	102

2

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
Revenues
Premiums and policy fees	$	675,205		$	676,240		$	1,300,040		$	1,331,813
Reinsurance ceded	(372,925		)	(390,721		)	(672,839		)	(744,221		)
Net of reinsurance ceded	302,280			285,519			627,201			587,592
Net investment income	408,548			414,918			806,736			818,633
Realized investment (losses) gains:
Derivative financial instruments	(119,346		)	(102,878		)	(143,823		)	(5,334		)
All other investments	68,729			168,624			118,366			126,677
Other-than-temporary impairment losses	(36,554		)	(48,733		)	(58,409		)	(166,047		)
Portion of loss recognized in other comprehensive income (before taxes)	19,785			7,906			29,771			35,394
Net impairment losses recognized in earnings	(16,769		)	(40,827		)	(28,638		)	(130,653		)
Other income	25,205			17,996			47,762			36,259
Total revenues	668,647			743,352			1,427,604			1,433,174
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (three months: 2010- $360,933; 2009 - $374,380 six months: 2010 - $665,075; 2009 - $711,937)	522,174			473,103			1,026,472			973,283
Amortization of deferred policy acquisition costs and value of business acquired	17,950			82,870			93,395			190,162
Other operating expenses, net of reinsurance ceded: (three months: 2010 - $52,613; 2009 - $52,768 six months: 2010 - $96,909; 2009 - $107,890)	66,354			52,121			134,095			99,101
Total benefits and expenses	606,478			608,094			1,253,962			1,262,546
Income before income tax	62,169			135,258			173,642			170,628
Income tax expense	21,555			47,560			56,851			59,051
Net income	$	40,614		$	87,698		$	116,791		$	111,577

See Notes to Consolidated Condensed Financial Statements

3

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

	As of
	June 30,			December 31,
	2010			2009
	(Dollars In Thousands)
Assets
Fixed maturities, at fair value (amortized cost: 2010 - $23,140,878; 2009 - $23,190,949)	$	23,652,119		$	22,795,260
Equity securities, at fair value (cost: 2010 - $288,263; 2009 - $240,764)	271,876			235,124
Mortgage loans (2010 includes: $969,210 related to securitizations)	4,897,144			3,870,587
Investment real estate, net of accumulated depreciation (2010 - $702; 2009 - $615)	7,261			7,347
Policy loans	775,105			794,276
Other long-term investments	192,042			216,189
Short-term investments	967,840			1,039,947
Total investments	30,763,387			28,958,730
Cash	125,820			162,858
Accrued investment income	299,638			280,467
Accounts and premiums receivable, net of allowance for uncollectible amounts (2010 - $4,695; 2009 - $5,130)	23,713			44,786
Reinsurance receivables	5,454,075			5,239,852
Deferred policy acquisition costs and value of business acquired	3,638,892			3,625,271
Goodwill	91,519			93,068
Property and equipment, net of accumulated depreciation (2010 - $125,251; 2009 - $121,948)	36,849			35,823
Other assets	411,196			402,062
Income tax receivable	46,093			122,208
Deferred income tax	—			—
Assets related to separate accounts
Variable annuity	3,307,239			2,948,457
Variable universal life	304,423			316,007
Total Assets	$	44,502,844		$	42,229,589
Liabilities
Policy liabilities and accruals	$	18,895,499		$	18,503,181
Stable value product account balances	3,487,963			3,581,150
Annuity account balances	10,309,546			9,911,040
Other policyholders’ funds	551,747			514,952
Other liabilities	971,692			644,663
Mortgage loan backed certificates	85,873			—
Deferred income taxes	910,450			577,349
Non-recourse funding obligations	1,375,000			1,555,000
Liabilities related to separate accounts
Variable annuity	3,307,239			2,948,457
Variable universal life	304,423			316,007
Total liabilities	40,199,432			38,551,799
Commitments and contingencies - Note 7
Shareowners’ equity
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,000	2			2
Common Stock, $1 par value, shares authorized and issued: 2010 and 2009 - 5,000,000	5,000			5,000
Additional paid-in-capital	1,361,734			1,361,734
Retained earnings	2,710,585			2,579,504
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2010 - $159,048; 2009 - $(118,243))	295,376			(219,121		)
Net unrealized losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2010 - $(27,113); 2009 - $(16,694))	(50,354		)	(31,002		)
Accumulated loss - derivatives, net of income tax: (2010 - $(10,194); 2009 - $(10,182))	(18,931		)	(18,327		)
Total shareowners’ equity	4,303,412			3,677,790
Total liabilities and shareowners’ equity	$	44,502,844		$	42,229,589

See Notes to Consolidated Condensed Financial Statements

4

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNERS’ EQUITY

(Unaudited)

									Accumulated Other
									Comprehensive Income (Loss)
					Additional				Net Unrealized			Accumulated			Total
	Preferred		Common		Paid-In-		Retained		Gains / (Losses)			Gain / (Loss)			Shareowners’
	Stock		Stock		Capital		Earnings		on Investments			Derivatives			Equity
	(Dollars In Thousands)
Balance, December 31, 2009	$	2	$	5,000	$	1,361,734	$	2,579,504	$	(250,123	)	$	(18,327	)	$	3,677,790
Net income for the three months ended March 31, 2010							76,177								76,177
Change in net unrealized gains/losses on investments (net of income tax - $141,790)									262,782						262,782
Reclassification adjustment for investment amounts included in net income (net of income tax - $1,168)									2,238						2,238
Change in net unrealized gains/losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (net of income tax $(3,495))									(6,492		)				(6,492		)
Change in accumulated gain (loss) derivatives (net of income tax - $3,423)												5,718			5,718
Reclassification adjustment for derivatives amounts included in net income (net of income tax - $(974))												(1,752		)	(1,752		)
Comprehensive income for the three months ended March 31, 2010															338,671
Capital contributions					—										—
Cumulative effect adjustments							14,290								14,290
Balance, March 31, 2010	$	2	$	5,000	$	1,361,734	$	2,669,971	$	8,405		$	(14,361	)	$	4,030,751
Net income for the three months ended June 30, 2010							40,614								40,614
Change in net unrealized gains/losses on investments (net of income tax - $130,532)									242,408						242,408
Reclassification adjustment for investment amounts included in net income (net of income tax - $3,801)									7,069						7,069
Change in net unrealized gains/losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (net of income tax $(6,924))									(12,860		)				(12,860		)
Change in accumulated gain (loss) derivatives (net of income tax - $(3,229))												(5,952		)	(5,952		)
Reclassification adjustment for derivative amounts included in net income (net of income tax - $768)												1,382			1,382
Comprehensive income for the three months ended June 30, 2010															272,661
Capital contributions					—										—
Cumulative effect adjustments							—								—
Balance, June 30, 2010	$	2	$	5,000	$	1,361,734	$	2,710,585	$	245,022		$	(18,931	)	$	4,303,412

See Notes to Consolidated Condensed Financial Statements

5

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The
	Six Months Ended
	June 30,
	2010			2009
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	116,791		$	111,577
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment losses (gains)	54,095			9,310
Amortization of deferred policy acquisition costs and value of business acquired	93,395			190,162
Capitalization of deferred policy acquisition costs	(242,371		)	(175,254		)
Depreciation expense	4,249			2,965
Deferred income tax	16,532			(7,971		)
Accrued income tax	76,115			2,610
Interest credited to universal life and investment products	494,693			505,417
Policy fees assessed on universal life and investment products	(299,620		)	(295,140		)
Change in reinsurance receivables	(214,223		)	(46,741		)
Change in accrued investment income and other receivables	(2,983		)	(22,876		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	241,080			115,430
Trading securities:
Maturities and principal reductions of investments	175,017			320,705
Sale of investments	319,383			429,179
Cost of investments acquired	(468,303		)	(426,631		)
Other net change in trading securities	(33,950		)	(150,378		)
Change in other liabilities	162,176			68,421
Other, net	53,015			(38,153		)
Net cash provided by operating activities	545,091			592,632
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	886,859			1,317,468
Sale of investments, available-for-sale	1,977,830			574,248
Cost of investments acquired, available-for-sale	(3,625,117		)	(1,318,116		)
Mortgage loans:
New borrowings	(150,743		)	(135,397		)
Repayments	148,701			135,944
Change in investment real estate, net	86			213
Change in policy loans, net	19,171			18,080
Change in other long-term investments, net	(29,210		)	15,108
Change in short-term investments, net	81,077			(598,033		)
Purchase of property and equipment	(5,119		)	(2,357		)
Net cash (used in) provided by investing activities	(696,465		)	7,158
Cash flows from financing activities
Issuance (repayment) of non-recourse funding obligations	(180,000		)	50,000
Capital contributions	—			135,000
Investments product deposits and change in universal life deposits	1,827,781			1,377,341
Investment product withdrawals	(1,529,502		)	(2,100,158		)
Other financing activities, net	(3,943		)	(19,384		)
Net cash provided by (used in) financing activities	114,336			(557,201		)
Change in cash	(37,038		)	42,589
Cash at beginning of period	162,858			127,809
Cash at end of period	$	125,820		$	170,398

See Notes to Consolidated Condensed Financial Statements

6

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1.BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three and six month periods ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”).

The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.

Reclassifications

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income or shareowners’ equity.

Entities Included

The consolidated condensed financial statements include the accounts of Protective Life Insurance Company and its affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Pronouncements Recently Adopted

Accounting Standard Update (“ASU” or “Update”) No. 2010-06 — Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements. In January of 2010, Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06 — Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements.  This Update provides amendments to Subtopic 820-10 that requires the following new disclosures. 1) A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).

This Update provides amendments to Subtopic 820-10 that clarifies existing disclosures. 1) A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. 2) A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. This Update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to classes of assets and provide a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures. This

7

Update is effective for interim and annual reporting periods beginning after December 15, 2009, which became effective for the Company for the period ending March 31, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. This Update did not have a material impact on the Company’s consolidated results of operations or financial position.

ASU No. 2009-16 — Transfers and Servicing — Accounting for Transfers of Financial Assets. In December of 2009, FASB issued ASU No. 2009-16 — Transfers and Services — Accounting for Transfers of Financial Assets. The amendments in this Update incorporate FASB Statement No. 166, Accounting for Transfers of Financial Assets an amendment of SFAS No. 140 into the Accounting Standards Codification (“ASC”). That Statement was issued by the Board on June 12, 2009. This Update enhances the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a continuing interest in transferred financial assets. This Update also eliminates the concept of a qualifying special purpose entity (“QSPE”), changes the requirements for de-recognition of financial assets, and calls upon sellers of the assets to make additional disclosures. This Update is effective for interim or annual reporting periods beginning after November 15, 2009. This guidance was effective for the Company on January 1, 2010. As of January 1, 2010, the Company held interests in two previous transfers of financial assets to QSPEs, the 2007 Commercial Mortgage Securitization and the 1996 — 1999 Commercial Mortgage Securitization. As part of adoption of this guidance the Company reviewed these entities as part of our consolidation analysis of variable interest entities (“VIEs”).  The conclusion of the review was that the former QSPEs should be consolidated by the Company. Please refer to Note 4, Variable Interest Entities for more information. The Company has not transferred any financial assets since the adoption of this standard. The Company will apply this guidance to all future transfers of financial assets.

ASU No. 2009-17 — Consolidations — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. In December of 2009, FASB issued ASU No. 2009-17 — Consolidations — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The amendments to this Update incorporate FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”) into the ASC. SFAS No. 167 was issued by the Board on June 12, 2009. This Statement applies to all investments in VIEs beginning for the Company on January 1, 2010. This analysis will include QSPEs used for securitizations as SFAS No. 166 eliminated the concept of a QSPE which subjects former QSPEs to the provisions of FIN 46(R) as amended by this statement. Based on our review of our December 31, 2009 information, the impact of adoption of ASU No. 2009-17 (SFAS No. 167) resulted in the consolidation of two securitization trusts, the 2007 Commercial Mortgage Securitization and the 1996 — 1999 Commercial Mortgage Securitization. Please refer to Note 4, Variable Interest Entities for more information regarding the consolidation of these two trusts.

Accounting Pronouncements Not Yet Adopted

ASU No. 2010-15 — Financial Services—Insurance — How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments. The amendments in this Update clarify that an insurance entity should not consider any separate account interests held for the benefit of policy holders in an investment to be the insurer’s interests. The entity should not combine general account and separate account interests in the same investment when assessing the investment for consolidation. Additionally, the amendments do not require an insurer to consolidate an investment in which a separate account holds a controlling financial interest if the investment is not or would not be consolidated in the standalone financial statements of the separate account. The amendments in this Update also provide guidance on how an insurer should consolidate an investment fund in situations in which the insurer concludes that consolidation is required. This Update is effective for fiscal years beginning after December 15, 2010. For the Company this Update will be effective January 1, 2011.  The Company is currently evaluating the impact of this Update.

ASU No. 2010-20 — Receivables — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of this Update is to require disclosures that facilitate financial statement users in evaluating the nature of credit risk inherent in the portfolio of financing receivables (loans); how that risk is analyzed and assessed in arriving at the allowance for credit losses; and any changes and the reasons for those changes to the allowance for credit losses. The Update requires several new disclosures regarding the reserve for credit losses and other disclosures related to the credit quality of the Company’s mortgage loan portfolio. These new disclosure requirements will be effective for reporting periods ending on or after December 15, 2010. For the Company this will be December 31, 2010. This standard does not change current accounting for Financing

8

Receivables and Loans, but only requires additional disclosures. The Company is evaluating the impact this Update will have on the footnotes to the financial statements.

Significant Accounting Policies

For a full description of significant accounting policies, see Note 2 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. There were no significant changes to the Company’s accounting policies during the six months ended June 30, 2010, except as noted above.

3.INVESTMENT OPERATIONS

Net realized investment gains (losses) for all other investments are summarized as follows:

	For The			For The
	Three Months Ended			Six Months Ended
	June 30, 2010			June 30, 2010
	(Dollars In Thousands)
Fixed maturities	$	5,887		$	14,350
Equity securities	13			13
Impairments on fixed maturity securities	(16,770		)	(28,639		)
Mark-to-market Modco trading portfolio	63,967			108,060
Mortgage loans and other investments	(1,137		)	(4,056		)
	$	51,960		$	89,728

For the three and six months ended June 30, 2010, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $35.4 million and $45.2 million and gross realized losses were $46.2 million and $59.3 million, including $16.7 million and $28.5 million of impairment losses, respectively. The $16.7 million and $28.5 million exclude $0.1 million and $0.2 million of impairment losses in the trading portfolio for the three and six months ended June 30, 2010, respectively.

For the three and six months ended June 30, 2010, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $808.6 million and $1.8 billion, respectively. The gains realized on the sale of these securities were $35.4 million and $45.2 million, respectively.

For the three and six months ended June 30, 2010, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $136.1 million and $238.8 million, respectively. The loss realized on the sale of these securities was $29.5 million and $30.9 million, respectively. The $30.9 million loss recognized on available-for-sale securities for the six months ended June 30, 2010, includes $12.2 million of loss on the sale of certain oil industry holdings. The Company made the decision to exit these holdings pursuant to new circumstances surrounding the oil spill in the Gulf of Mexico. In addition, a $3.8 million loss was recognized on the sale of securities in which the issuer was a European financial institution. Also included in the $30.9 million loss is a $10.4 million loss due to the exchange of certain holdings as the issuer exited bankruptcy proceedings.

9

The amortized cost and estimated fair value of the Company’s investments classified as available-for-sale as of June 30, 2010, are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(Dollars In Thousands)
2010
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	3,244,474	$	52,327	$	(277,875	)	$	3,018,926
Commercial mortgage-backed securities	167,853		6,960		(403		)	174,410
Other asset-backed securities	951,206		2,275		(75,630		)	877,851
U.S. government-related securities	1,294,715		44,280		(227		)	1,338,768
Other government-related securities	202,044		5,431		(120		)	207,355
States, municipals, and political subdivisions	644,039		33,220		(1,626		)	675,633
Corporate bonds	13,582,276		977,741		(255,112		)	14,304,905
	20,086,607		1,122,234		(610,993		)	20,597,848
Equity securities	277,773		3,499		(19,887		)	261,385
Short-term investments	837,323		—		—			837,323
	$	21,201,703	$	1,125,733	$	(630,880	)	$	21,696,556

As of June 30, 2010, the Company had an additional $3.1 billion of fixed maturities, $10.5 million of equity securities, and $130.5 million of short-term investments classified as trading securities.

The amortized cost and fair value of available-for-sale fixed maturities as of June 30, 2010, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.

	Amortized		Fair
	Cost		Value
	(Dollars In Thousands)
Due in one year or less	$	619,413	$	629,649
Due after one year through five years	4,020,984		4,057,744
Due after five years through ten years	5,298,953		5,575,688
Due after ten years	10,147,257		10,334,767
	$	20,086,607	$	20,597,848

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Each quarter the Company reviews investments with unrealized losses and tests for other-than-temporary impairments. The Company analyzes various factors to determine if any specific other-than-temporary asset impairments exist. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of the Company’s intent to sell the security (including a more likely than not assessment of whether the Company will be required to sell the security) before recovering the security’s amortized cost, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security by security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, and in some cases, an analysis regarding the Company’s expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows is performed. Once a determination has been made that a specific other-than-temporary impairment exists, the security’s basis is adjusted and an other-than-temporary impairment is recognized. Equity securities that are other-than-temporarily impaired are written down to fair value with a realized loss recognized in earnings. Other-than-temporary impairments to debt securities that the Company does not intend to sell and does not expect to be required to sell before recovering the security’s amortized cost are written down to discounted expected future cash flows (“post impairment cost”) and credit losses are recorded in earnings. The difference between the securities’ discounted expected future cash flows and the fair value of the securities is recognized in other comprehensive income (loss) as a non-credit portion of the recognized other-than-temporary impairment. When calculating the post impairment cost for residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities, the Company considers all known market data related to cash flows to estimate expected future cash flows. When calculating the post impairment cost for corporate debt securities, the Company considers all contractual cash flows to estimate expected future cash flows. To calculate the post impairment cost, the expected future cash flows are discounted at the original purchase yield. Debt securities that the Company intends to sell or expects to be required to sell before recovery are written down to fair value with the change recognized in earnings.

During the three and six months ended June 30, 2010, the Company recorded other-than-temporary impairments of investments of $36.5 million and $58.4 million, respectively. Of the $36.5 million of impairments for the three months ended June 30, 2010, $16.7 million was recorded in earnings and $19.8 million was recorded in other comprehensive income (loss). Of the $58.4 million of impairments for the six months ended June 30, 2010, $28.6 million was recorded in earnings and $29.8 million was recorded in other comprehensive income (loss). For the three and six months ended June 30, 2010, there were no other-than-temporary impairments related to equity securities. For the three and six months ended June 30, 2010, there were $36.5 million and $58.4 million of other-than-temporary impairments related to debt securities, respectively.

For the three months ended June 30, 2010, other-than-temporary impairments related to debt securities that the Company does not intend to sell and does not expect to be required to sell prior to recovering amortized cost were $36.5 million, with $16.7 million of credit losses recognized on debt securities in earnings and $19.8 million of non-credit losses recorded in other comprehensive income (loss). During the same period, there were no other-than-temporary impairments related to debt securities that the Company intends to sell or expects to be required to sell.

For the six months ended June 30, 2010, other-than-temporary impairments related to debt securities that the Company does not intend to sell and does not expect to be required to sell prior to recovering amortized cost were $58.4 million, with $28.6 million of credit losses recognized on debt securities in earnings and $29.8 million of non-credit losses recorded in other comprehensive income (loss). During the same period, there were no other-than-temporary impairments related to debt securities that the Company intends to sell or expects to be required to sell.

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The following chart is a rollforward of credit losses on debt securities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss):

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
Beginning balance	$	33,356		$	40,014		$	25,066		$	—
Additions for newly impaired securities	12,869			15,404			19,425			55,418
Additions for previously impaired securities	17			7,136			1,751			7,136
Reductions for previously impaired securities due to a change in expected cash flows	—			(15,826		)	—			(15,826		)
Reductions for previously impaired securities that were sold in the current period	(14,701		)	—			(14,701		)	—
Ending balance	$	31,541		$	46,728		$	31,541		$	46,728

The following table includes the Company’s investments’ gross unrealized losses and fair value that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2010:

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(Dollars In Thousands)
Residential mortgage-backed securities	$	197,108	$	(12,260	)	$	1,826,306	$	(265,615	)	$	2,023,414	$	(277,875	)
Commercial mortgage-backed securities	—		—			6,604		(403		)	6,604		(403		)
Other asset-backed securities	448,886		(41,942		)	241,180		(33,688		)	690,066		(75,630		)
U.S. government-related securities	46,105		(227		)	—		—			46,105		(227		)
Other government-related securities	69,407		(103		)	19,983		(17		)	89,390		(120		)
States, municipals, and political subdivisions	95,739		(1,616		)	483		(10		)	96,222		(1,626		)
Corporate bonds	1,035,345		(39,048		)	1,640,832		(216,064		)	2,676,177		(255,112		)
Equities	51,884		(11,848		)	48,512		(8,039		)	100,396		(19,887		)
	$	1,944,474	$	(107,044	)	$	3,783,900	$	(523,836	)	$	5,728,374	$	(630,880	)

The RMBS have a gross unrealized loss greater than 12 months of $265.6 million as of June 30, 2010. These losses relate to a widening in spreads and defaults as a result of continued weakness in the residential housing market. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of the investments.

The corporate bonds category has gross unrealized losses greater than 12 months of $216.1 million as of June 30, 2010. These losses relate primarily to fluctuations in credit spreads. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information including the Company’s ability and intent to hold these securities to recovery.

The Company does not consider these unrealized loss positions to be other-than-temporary, based on the factors discussed and because the Company has the ability and intent to hold these investments until the fair values recover, and does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of debt securities.

As of June 30, 2010, the Company had bonds in its available-for-sale portfolio, which were rated below investment grade of $2.9 billion and had an amortized cost of $3.3 billion. In addition, included in the Company’s trading portfolio, the Company held $355.9 million of securities which were rated below investment grade. Approximately $484.4 million of the below investment grade bonds were not publicly traded.

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The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities, classified as available-for-sale is summarized as follows:

	For The			For The
	Three Months Ended			Six Months Ended
	June 30, 2010			June 30, 2010
	(Dollars In Thousands)
Fixed maturities	$	288,444		$	589,505
Equity securities	(10,706		)	(6,986		)

4.VARIABLE INTEREST ENTITIES

In June of 2009, the FASB amended the guidance related to VIEs which was later codified in the ASC through ASU No. 2009-17. Among other accounting and disclosure requirements, this guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE with an approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly impact its economics and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Additionally, the FASB amended the guidance related to accounting for transfers of financial assets which was later codified in the ASC through ASU No. 2009-16. This guidance, among other requirements, removed the concept of a QSPE used for the securitization of financial assets. Previously, QSPEs were excluded from the guidance related to VIEs. Upon adoption of ASU No. 2009-17 and ASU No. 2009-16 on January 1, 2010, the Company will no longer exclude QSPEs from the analysis of VIEs.

As part of adopting these updates, the Company updated its process for evaluating VIEs. The Company’s analysis consists of a review of entities in which the Company has an ownership interest that is less than 100% (excluding debt and equity securities held as trading and available-for-sale), as well as entities with which the Company has significant contracts or other relationships that could possibly be considered variable interests. The Company reviews the characteristics of each of these applicable entities and compares those characteristics to the criteria of a VIE set forth in Topic 810 of the FASB ASC. If the entity is determined to be a VIE, the Company then performs a detailed review of all significant contracts and relationships (individually an “interest”, collectively “interests”) with the entity to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company: 1) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

Based on this analysis the Company had interests in two former QSPEs that were determined to be VIEs as of January 1, 2010. These two VIEs were trusts used to facilitate commercial mortgage loan securitizations. The determining factor was that the trusts had negligible or no equity at risk. The Company’s variable interests in the trusts are created by the contract to service the mortgage loans held by the trusts as well as the retained beneficial interests in certain of these securities issued by the trusts. The activities that most significantly impact the economics of the trusts are predominantly related to the servicing of the mortgage loans, such as timely collection of principal and interest, direction of foreclosure proceedings, and management and sale of foreclosed real estate owned by the trusts. The Company is the servicer responsible for these activities and has the sole power to appoint such servicer through its beneficial interests in the securities. These criteria give the Company the power to direct the activities of the trusts that most significantly impact the trusts economic performance. Additionally, the Company is obligated, as an owner of the securities issued by the trusts, to absorb its share of losses on the securities. The Company’s share of losses could potentially be significant to the trusts. Based on the fact that the Company has the power to direct the activities that most significantly impact the economics of the trusts and the obligation to absorb losses that could potentially be significant, it was determined that the Company is the primary beneficiary of the trusts, thus resulting in consolidation.

The assets of the trusts consist entirely of commercial mortgage loans and accrued interest, which are restricted and can only be used to satisfy the obligations of the trusts. The obligations of the trusts consist of commercial mortgage-backed certificates. The assets and obligations of the trusts are equal and thus, the trusts have no equity interest. The certificates are direct obligations of the trusts and are not guaranteed by the Company. The Company has no other obligations to the trusts other than those that are customary for a servicer of mortgage loans.

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Over the life of the trusts, the Company has not provided and will not provide any financial or other support to the trusts other than customary actions taken by a servicer of mortgage loans.

The following adjustments to the Company’s consolidated condensed balance sheet were made as of January 1, 2010:

Adjustments to the Consolidated Condensed Balance Sheets

	As of
	January 1, 2010
	(Dollars In Thousands)
Assets
Fixed maturities:
Commercial mortgage-backed securities at fair value (amortized cost - $873,196)	$	(844,535	)(1)
Mortgage loans - securitized (net of loan loss reserve of $1.1 million)	1,018,000		(2)
Total investments	173,465
Accrued investment income	361		(2)
Total Assets	$	173,826
Liabilities
Deferred income taxes	$	17,744	(3)
Mortgage loan backed certificates	124,580		(2)
Other liabilities	(1,400		)(4)
Total liabilities	140,924
Shareowners’ equity
Retained earnings	14,290		(2)
Accumulated other comprehensive income (loss)	18,612		(5)
Total shareowners’ equity	32,902
Total liabilities and shareowners’ equity	$	173,826

(1) The noncash portion for the consolidated condensed statements of cash flows for the three months ended March 31, 2010, was $873.2 million.

(2) The noncash portion for the consolidated condensed statements of cash flows for the three months ended March 31, 2010, is the amount presented.

(3) The noncash portion for the consolidated condensed statements of cash flows for the three months ended March 31, 2010, was $7.7 million.

(4) The other liabilities did not have an effect on the consolidated condensed statements of cash flows for the three months ended March 31, 2010.

(5) The accumulated other comprehensive income (loss) did not have an effect on the consolidated condensed statements of cash flows for  the three months ended March 31, 2010.

The adjustments had a net zero impact to the consolidated condensed statements of cash flows.

The reduction in fixed maturity CMBS represents the beneficial interests held by the Company that have been removed due to the consolidation of the trusts. This amount is reflected in fixed maturities on the consolidated condensed balance sheet.

The increase in mortgage loans represents the mortgage loans held by the trusts that have been consolidated. This balance is net of a loan loss reserve of $1.1 million.

The increase in accrued investment income is the result of accruing interest on the entire pool of mortgage loans.

The increase in deferred income taxes is a result of a change in temporary tax differences arising from the adjustments to shareowners’ equity.

The mortgage loan backed certificates liability represents the CMBS issued by the trusts and held by third parties.

The decrease in other liabilities is a decrease in amounts payable to the trusts of approximately $1.4 million. Upon consolidation of the trusts as of January 1, 2010, the Company adjusted retained earnings to reflect after tax interest income not recognized in prior periods due to the securitization of the commercial mortgage loans. If the Company had held the mortgage loans as opposed to the retained beneficial interest securities, the Company’s retained earnings would have been $14.3 million higher over the life of the securities.

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The adjustment to accumulated other comprehensive income (loss) was a result of different accounting basis for mortgage loans and the CMBS. As of December 31, 2009, the retained beneficial interest securities were carried at fair value in the balance sheet and had an after tax unrealized loss in accumulated other comprehensive income (loss) of $18.6 million. Upon consolidation of the trusts on January 1, 2010, the Company consolidated the mortgage loans held by the trusts which are carried at amortized cost less any related loan loss reserve. The retained beneficial interest securities as well as the associated unrealized loss were eliminated in consolidation.

5.GOODWILL

During the six months ended June 30, 2010, the Company decreased its goodwill balance by approximately $1.5 million. The decrease was due to an adjustment in the Acquisitions segment related to tax benefits realized during 2010 on the portion of tax goodwill in excess of GAAP basis goodwill. As of June 30, 2010, the Company had an aggregate goodwill balance of $91.5 million.

Accounting for goodwill requires an estimate of the future profitability of the associated lines of business to assess the recoverability of the capitalized acquisition goodwill. The Company evaluates the carrying value of goodwill at the segment (or reporting unit) level at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or 3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compared its estimate of the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The Company utilizes a fair value measurement (which includes a discounted cash flows analysis) to assess the carrying value of the reporting units in consideration of the recoverability of the goodwill balance assigned to each reporting unit as of the measurement date. The Company’s material goodwill balances are attributable to its operating segments (which are considered to be reporting units). The cash flows used to determine the fair value of the Company’s reporting units are dependent on a number of significant assumptions. The Company’s estimates are subject to change given the inherent uncertainty in predicting future results and cash flows, which are impacted by such things as policyholder behavior, competitor pricing, capital limitations, new product introductions, and specific industry and market conditions. Additionally, the discount rate used is based on the Company’s judgment of the appropriate rate for each reporting unit based on the relative risk associated with the projected cash flows. As of December 31, 2009, the Company performed its annual evaluation of goodwill and determined that no adjustment to impair goodwill was necessary. In addition, there has not been a triggering or impairment event for the six months ended June 30, 2010.

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6.DEBT AND OTHER OBLIGATIONS

Non-recourse funding obligations outstanding as of June 30, 2010, on a consolidated basis, are shown in the following table:

				Year-to-Date
				Weighted-Avg
Issuer	Balance		Maturity Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	4.45	%
Golden Gate II Captive Insurance Company	575,000		2052	1.47	%
Total	$	1,375,000

Golden Gate Captive Insurance Company (“Golden Gate”), a special purpose financial captive insurance company wholly owned by the Company, had $800 million of outstanding non-recourse funding obligations as of June 30, 2010. In the second quarter of 2010, $180 million of non-recourse funding obligations were retired by Golden Gate. PLC holds the entire $800 million outstanding balance of Golden Gate non-recourse funding obligations.

Golden Gate II Captive Insurance Company (“Golden Gate II”), a special purpose financial captive insurance company wholly owned by the Company, had $575 million of outstanding non-recourse funding obligations as of June 30, 2010. Of this amount, $556.6 million were owned by external parties and $18.4 million were owned by an affiliate.

Under a revolving line of credit arrangement, the Company has the ability to borrow on an unsecured basis up to an aggregate principal amount of $500 million (the “Credit Facility”). There was an outstanding balance of $115.0 million, borrowings made by PLC, at an interest rate of LIBOR plus 0.40% under the Credit Facility as of June 30, 2010. In the second quarter of 2010, PLC repaid $180.0 million of the outstanding balance of the credit facility that was previously used to purchase non-recourse funding obligations issued by Golden Gate.

7.COMMITMENTS AND CONTINGENCIES

Under insurance guaranty fund laws, in most states insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.

A number of civil jury verdicts have been returned against insurers, broker dealers and other providers of financial services involving sales, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, in the ordinary course of business, is involved in such litigation and arbitration. The occurrence of such litigation and arbitration may become more frequent and/or severe when general economic conditions have deteriorated. Although the Company cannot predict the outcome of any such litigation or arbitration, the Company does not believe that any such outcome will have a material impact on its financial condition or results of the operations.

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8.COMPREHENSIVE INCOME (LOSS)

The following table sets forth the Company’s comprehensive income (loss) for the periods presented below:

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
Net income	$	40,614		$	87,698		$	116,791		$	111,577
Change in net unrealized (losses) gains on investments, net of income tax: (three months: 2010 - $130,532; 2009 - $336,577 six months: 2010 - $272,322; 2009 - $312,324)	242,408			608,817			505,190			564,716
Change in net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three months: 2010 - $(6,924); 2009 - $(2,767) six months: 2010 - $(10,419); 2009 - $(12,388))	(12,860		)	(5,139		)	(19,352		)	(23,006		)
Change in accumulated gain (loss) - derivatives, net of income tax: (three months: 2010 - $(3,229); 2009 - $2,463 six months: 2010 - $(194); 2009 - $10,321)	(5,952		)	4,186			(234		)	18,578
Reclassification adjustment for investment amounts included in net income, net of income tax: (three months: 2010 - $3,801; 2009 - $9,590 six months: 2010 - $4,969; 2009 - $39,394)	7,069			17,669			9,307			72,242
Reclassification adjustment for derivative amounts included in net income, net of income tax: (three months: 2010 - $768; 2009 - $565 six months: 2010 - $(206); 2009 - $302)	1,382			1,264			(370		)	544
Comprehensive income (loss)	$	272,661		$	714,495		$	611,332		$	744,651

9.STOCK-BASED COMPENSATION

The criteria for payment of performance awards is based primarily upon a comparison of PLC’s average return on average equity over a four-year period (earlier upon the death, disability, or retirement of the executive, or in certain circumstances, upon a change in control of PLC) to that of a comparison group of publicly held life and multi-line insurance companies. For the 2008 awards, if PLC’s results are below the 25th percentile of the comparison group, no portion of the award is earned. For the 2005-2007 awards, if PLC’s results are below the 40th percentile of the comparison group, no portion of the award is earned. If PLC’s results are at or above the 90th percentile, the award maximum is earned. Awards are paid in shares of PLC’s Common Stock. There were no performance share awards issued during the six months ended June 30, 2010 or 2009.

Stock Appreciation Rights (“SARs”) have been granted to certain officers of PLC to provide long-term incentive compensation based solely on the performance of PLC’s common stock. The SARs are exercisable either five years after the date of grants or in three or four equal annual installments beginning one year after the date of grant (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of PLC) and expire after ten years or upon termination of employment. The SARs activity as well as weighted-average base price is as follows:

	Weighted-Average
	Base Price per share		No. of SARs
Balance as of December 31, 2009	$	22.28	2,469,202
SARs granted	18.34		344,400
SARs exercised / forfeited / expired	21.24		(454,071	)
Balance as of June 30, 2010	$	21.90	2,359,531

The SARs issued for the six months ended June 30, 2010, had estimated fair values at grant date of $3.3 million. These fair values were estimated using a Black-Scholes option pricing model. The assumptions used in this pricing model varied depending on the vesting period of awards. Assumptions used in the model for the 2010 SARs granted (the simplified method under the ASC Compensation-Stock Compensation Topic was used for the 2010 awards) were as follows: an expected volatility of 69.4%, a risk-free interest rate of 2.6%, a dividend rate of 2.4%, a zero percent forfeiture rate, and an expected exercise date of 2016. PLC will pay an amount in stock equal to the difference between the specified base price of PLC’s common stock and the market value at the exercise date for each SAR.

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Additionally, PLC issued 360,450 restricted stock units for the six months ended June 30, 2010.  These awards had a total fair value at grant date of $6.6 million. Approximately half of these restricted stock units vest in 2013, and the remainder vest in 2014.

10.EMPLOYEE BENEFIT PLANS

Components of the net periodic benefit cost of PLC’s defined benefit pension plan and unfunded excess benefits plan are as follows:

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
Service cost – Benefits earned during the period	$	2,068		$	1,889		$	4,136		$	3,778
Interest cost on projected benefit obligation	2,357			2,395			4,714			4,790
Expected return on plan assets	(2,312		)	(2,531		)	(4,624		)	(5,062		)
Amortization of prior service cost	(98		)	(98		)	(196		)	(196		)
Amortization of actuarial losses	1,026			568			2,052			1,136
Total benefit cost	$	3,041		$	2,223		$	6,082		$	4,446

During the six months ended June 30, 2010, PLC did not make a contribution to its defined benefit pension plan. However, during July of 2010, PLC contributed $0.2 million to the defined benefit pension plan. PLC will continue to make contributions in future periods as necessary to at least satisfy minimum funding requirements.

In addition to pension benefits, PLC provides life insurance benefits to eligible retirees and limited healthcare benefits to eligible retirees who are not yet eligible for Medicare. For a closed group of retirees over age 65, PLC provides a prescription drug benefit. The cost of these plans for the six months ended June 30, 2010, was immaterial to the PLC’s financial statements.

11.INCOME TAXES

During the three months ended June 30, 2010, earnings were impacted unfavorably by $0.1 million due to the accrual of interest on unrecognized tax benefits. During the six months ended June 30, 2010, earnings were impacted favorably by $2.2 million due to the release of unrecognized income tax benefits relating to tax-basis policy liabilities as well as the closing of the statute of limitation for the 2005 tax year. This release was prompted by the Internal Revenue Service’s recent technical guidance confirming the Company’s historical calculations. The Company does not expect to have any material adjustments, within the next twelve months, to its balance of unrecognized income tax benefits in any of the tax jurisdictions in which it conducts its business operations.

The Company has computed its effective income tax rate for the three and six months ended June 30, 2010, based upon its estimate of its annual 2010 income. For the three and six months ended June 30, 2009, due to the unpredictability at that time of future investment losses and certain elements of operating income, the Company was not able to reasonably estimate an expected annual effective tax rate. Instead, the Company computed an effective income tax rate based upon year-to-date reported income. The effective tax rate for the three and six months ended June 30, 2010, was 34.7% and 32.7%, respectively, and 35.2% and 34.6% for three and six months ended June 30, 2009, respectively.

Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize its deferred tax assets; and therefore, the Company did not record a valuation allowance against its material deferred tax assets as of June 30, 2010.

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12.FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In the first quarter of 2009, the Company adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the consolidated condensed balance sheets are categorized as follows:

·Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

·Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a)Quoted prices for similar assets or liabilities in active markets

b)Quoted prices for identical or similar assets or liabilities in non-active markets

c)Inputs other than quoted market prices that are observable

d)Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

·Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

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The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of June 30, 2010:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	3,018,905	$	21	$	3,018,926
Commercial mortgage-backed securities	—		134,458		39,952		174,410
Other asset-backed securities	—		280,560		597,291		877,851
U.S. government-related securities	1,022,842		300,777		15,149		1,338,768
States, municipals, and political subdivisions	—		675,633		—		675,633
Other government-related securities	14,987		192,368		—		207,355
Corporate bonds	100		14,196,465		108,340		14,304,905
Total fixed maturity securities - available-for-sale	1,037,929		18,799,166		760,753		20,597,848
Fixed maturity securities - trading
Residential mortgage-backed securities	—		480,943		—		480,943
Commercial mortgage-backed securities	—		121,559		—		121,559
Other asset-backed securities	—		12,616		61,137		73,753
U.S. government-related securities	455,716		23,954		3,562		483,232
States, municipals, and political subdivisions	—		108,134		—		108,134
Other government-related securities	—		161,494		—		161,494
Corporate bonds	—		1,625,113		43		1,625,156
Total fixed maturity securities - trading	455,716		2,533,813		64,742		3,054,271
Total fixed maturity securities	1,493,645		21,332,979		825,495		23,652,119
Equity securities	191,148		18,096		62,632		271,876
Other long-term investments (1)	919		2,534		19,531		22,984
Short-term investments	948,143		19,697		—		967,840
Total investments	2,633,855		21,373,306		907,658		24,914,819
Cash	125,820		—		—		125,820
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	3,307,239		—		—		3,307,239
Variable universal life	304,423		—		—		304,423
Total assets measured at fair value on a recurring basis	$	6,371,337	$	21,373,306	$	907,658	$	28,652,301
Liabilities:
Annuity account balances (2)	$	—	$	—	$	149,440	$	149,440
Other liabilities (1)	—		41,875		233,197		275,072
Total liabilities measured at fair value on a recurring basis	$	—	$	41,875	$	382,637	$	424,512

(1)  Includes certain freestanding and embedded derivatives.

(2)  Represents liabilities related to equity indexed annuities.

20

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2009:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	3,357,952	$	23	$	3,357,975
Commercial mortgage-backed securities	—		142,483		844,535		987,018
Other asset-backed securities	—		360,797		693,930		1,054,727
U.S. government-related bonds	441,662		30,198		15,102		486,962
States, municipals and political subdivisions	—		350,632		—		350,632
Other government-related bonds	16,992		389,379		—		406,371
Corporate bonds	200		13,108,681		86,292		13,195,173
Total fixed maturity securities - available-for-sale	458,854		17,740,122		1,639,882		19,838,858
Fixed maturity securities - trading	277,108		2,574,205		105,089		2,956,402
Total fixed maturity securities	735,962		20,314,327		1,744,971		22,795,260
Equity securities	174,829		92		60,203		235,124
Other long-term investments (1)	—		22,926		28,025		50,951
Short-term investments	973,461		66,486		—		1,039,947
Total investments	1,884,252		20,403,831		1,833,199		24,121,282
Cash	162,858		—		—		162,858
Other assets	4,977		—		—		4,977
Assets related to separate accounts
Variable annuity	2,948,457		—		—		2,948,457
Variable universal life	316,007		—		—		316,007
Total assets measured at fair value on a recurring basis	$	5,316,551	$	20,403,831	$	1,833,199	$	27,553,581
Liabilities:
Annuity account balances (2)	$	—	$	—	$	149,893	$	149,893
Other liabilities (1)	—		40,873		105,838		146,711
Total liabilities measured at fair value on a recurring basis	$	—	$	40,873	$	255,731	$	296,604

(1)	Includes certain freestanding and embedded derivatives.
(2)	Represents liabilities related to equity indexed annuities.

Determination of fair values

The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.

21

The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a ‘‘waterfall’’ approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price over 90% of the Company’s fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, the Company obtains one quote per security, typically from the broker from which we purchased the security. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.

The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted-average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.

For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the six months ended June 30, 2010.

The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.

Asset-Backed Securities

This category mainly consists of RMBS, CMBS, and other asset-backed securities (collectively referred to as asset-backed securities “ABS”). As of June 30, 2010, the Company held $4.0 billion of ABS classified as Level 2. These securities are priced from information from a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation.  As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.

After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on

22

the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin.

As of June 30, 2010, the Company held $698.4 million of Level 3 ABS, which included $61.1 million of other asset-backed securities classified as trading. These securities are predominantly auction rate securities (“ARS”) whose underlying collateral is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). The model uses the discount margin and projected average life of comparable actively traded FFELP student loan-backed floating-rate asset-backed securities, along with a discount related to the current illiquidity of the ARS. These comparable securities are selected based on their underlying assets (i.e. FFELP-backed student loans) and vintage. As a result of the ARS market collapse during 2008, the Company prices its ARS using an internally developed model which utilizes a market based approach to valuation. As part of the valuation process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.

ABS classified as Level 3 had, but were not limited to, the following inputs:

Investment grade credit rating	100.0%
Weighted-average yield	1.10%
Amortized cost	$692.7 million
Weighted-average life	3.22 years

Corporate bonds, U.S. Government-related securities, and Other government related securities

As of June 30, 2010, the Company classified approximately $17.3 billion of corporate bonds, U.S. government-related securities, and other government-related securities as Level 2. The fair value of the Level 2 bonds and securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the bonds and securities are considered to be the primary relevant inputs to the valuation: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings.

The brokers and third party pricing service utilizes a valuation model that consists of a hybrid income and market approach to valuation. The pricing model utilizes the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.

As of June 30, 2010, the Company classified approximately $127.1 million of bonds and securities as Level 3 valuations. The fair value of the Level 3 bonds and securities are derived from an internal pricing model that utilizes a hybrid market/income approach to valuation. The Company reviews the following characteristics of the bonds and securities to determine the relevant inputs to use in the pricing model: 1) coupon rate, 2) years to maturity, 3) seniority, 4) embedded options, 5) trading volume, and 6) credit ratings.

Level 3 bonds and securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon, 3) sector and issuer level spreads, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

23

Bonds and securities classified as Level 3 had, but were not limited to, the following weighted-average inputs:

Investment grade credit rating	91.7%
Weighted-average yield	4.9%
Weighted-average coupon	6.3%
Amortized cost	$119.2 million
Weighted-average stated maturity	6.5 years

Equities

As of June 30, 2010, the Company held approximately $80.7 million of equity securities classified as Level 2 and Level 3. These equity securities consist primarily of Federal Home Loan Bank stock. The Company believes that the cost of these investments approximates fair value.

Other long-term investments and Other liabilities

Other long-term investments and other liabilities consist entirely of free standing and embedded derivative instruments. Refer to Note 13, Derivative Financial Instruments for additional information related to derivatives.  Derivative instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of June 30, 2010, 25.0% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. The remaining derivatives were priced by pricing valuation models, which predominantly utilize observable market data inputs. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest and equity volatility, equity index levels, and treasury rates. The Company performs a monthly analysis on derivative valuations that includes both quantitative and qualitative analysis.

Derivative instruments classified as Level 1 include futures and certain options, which are traded on active exchange markets.

Derivative instruments classified as Level 2 primarily include interest rate, inflation, and currency exchange swaps. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.

Derivative instruments classified as Level 3 were total return swaps and embedded derivatives and include at least one non-observable significant input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.

The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.

The guaranteed minimum withdrawal benefit (“GMWB”) embedded derivative is carried at fair value in “other assets” and “other liabilities” on the Company’s consolidated condensed balance sheet. The changes in fair value are recorded in earnings as “Realized investment gains (losses) — Derivative financial instruments”, refer to Note 13 — Derivative Financial Instruments for more information related to GMWB embedded derivative gains and losses. The fair value of the GMWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using 1,000 risk neutral equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on historical volatility and near-term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, we use our expected lapse and utilization assumptions and update these assumptions for our actual experience, as necessary. The Company assumes mortality of 65% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. The present value of the cash flows is found using the discount rate curve, which is London Interbank Offered Rate (“LIBOR”) plus a credit spread (to represent the Company’s non-performance risk). As a result of using significant unobservable inputs, the GMWB embedded derivative is categorized as Level 3. These assumptions are reviewed on a quarterly basis.

24

The Company has ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios are passed directly to the reinsurers. As a result, these agreements are deemed to contain embedded derivatives that must be reported at fair value. Changes in fair value of the embedded derivatives are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in fair value are reported in earnings. The fair value of the embedded derivatives represents the unrealized gain or loss on the block of business in relation to the unrealized gain or loss of the trading securities. As a result, changes in fair value of the embedded derivatives reported in earnings are largely offset by the changes in fair value of the investments.

Annuity account balances

The equity indexed annuity (“EIA”) model calculates the present value of future benefit cash flows less the projected future profits to quantify the net liability that is held as a reserve. This calculation is done on a stochastic basis using 1,000 risk neutral equity scenarios. The cash flows are discounted using LIBOR plus a credit spread. Best estimate assumptions are used for partial withdrawals, lapses, expenses and asset earned rate with a risk margin applied to each.  These assumptions are reviewed annually as a part of the formal unlocking process.

Included in the chart below, are current key assumptions which include risk margins for the Company.  These assumptions are reviewed for reasonableness on a quarterly basis.

Asset Earned Rate	6.10%
Admin Expense per Policy	$95
Partial Withdrawal Rate (for ages less than 70)	1.65%
Partial Withdrawal Rate (for ages 70 and greater)	4.40%
Mortality	65% of 94 MGDB table
Lapse	2% to 50% depending on the surrender charge period
Return on Assets	1.5% to 1.85% depending on the guarantee period

The discount rate for the equity indexed annuities is based on an upward sloping rate curve which is updated each quarter. The discount rates for June 30, 2010, ranged from a one month rate of 1.54%, a 5 year rate of 3.78%, and a 30 year rate of 5.42%.

Separate Accounts

Separate account assets are invested in open-ended mutual funds and are included in Level 1.

25

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended June 30, 2010, for which the Company has used significant unobservable inputs (Level 3):

																	Total
																	Gains (losses)
																	included in
			Total Realized and Unrealized														Earnings
			Gains (losses)														related to
						Included in			Purchases,								Instruments
						Other			Issuances, and			Transfers in					still held at
	Beginning		Included in			Comprehensive			Settlements			and/or out of			Ending		the Reporting
	Balance		Earnings			Income			(net)			Level 3			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	22	$	—		$	—		$	(1	)	$	—		$	21	$	—
Commercial mortgage-backed securities	—		—			—			39,952			—			39,952		—
Other asset-backed securities	599,116		—			(1,759		)	(66		)	—			597,291		—
U.S. government-related securities	15,151		—			(6		)	4			—			15,149		—
States, municipals, and political subdivisions	—		—			—			—			—			—		—
Other government-related securities	—		—			—			—			—			—		—
Corporate bonds	95,331		—			(2,615		)	15,624			—			108,340		—
Total fixed maturity securities - available-for-sale	709,620		—			(4,380		)	55,513			—			760,753		—
Fixed maturity securities - trading
Residential mortgage-backed securities	3,563		(28		)	—			(3,535		)	—			—		—
Commercial mortgage-backed securities	—		—			—			—			—			—		—
Other asset-backed securities	48,450		(1,451		)	—			14,138			—			61,137		(1,451		)
U.S. government-related securities	3,310		254			—			(2		)	—			3,562		253
States, municipals, and political subdivisions	—		—			—			—			—			—		—
Other government-related securities	—		—			—			—			—			—		—
Corporate bonds	26,971		404			—			(199		)	(27,133		)	43		(1		)
Total fixed maturity securities - trading	82,294		(821		)	—			10,402			(27,133		)	64,742		(1,199		)
Total fixed maturity securities	791,914		(821		)	(4,380		)	65,915			(27,133		)	825,495		(1,199		)
Equity securities	60,892		4			—			1,736			—			62,632		—
Other long-term investments (1)	27,562		(8,031		)	—			—			—			19,531		(8,031		)
Short-term investments	—		—			—			—			—			—		—
Total investments	880,368		(8,848		)	(4,380		)	67,651			(27,133		)	907,658		(9,230		)
Total assets measured at fair value on a recurring basis	$	880,368	$	(8,848	)	$	(4,380	)	$	67,651		$	(27,133	)	$	907,658	$	(9,230	)
Liabilities:
Annuity account balances (2)	$	150,630	$	(738	)	$	—		$	1,928		$	—		$	149,440	$	—
Other liabilities (1)	128,235		(104,962		)	—			—			—			233,197		(104,962		)
Total liabilities measured at fair value on a recurring basis	$	278,865	$	(105,700	)	$	—		$	1,928		$	—		$	382,637	$	(104,962	)

(1)	Represents certain freestanding and embedded derivatives.
(2)	Represents liabilities related to equity indexed annuities.

For the three months ended June 30, 2010, no securities were transferred into Level 3.

For the three months ended June 30, 2010, $27.1 million of securities were transferred out of Level 3. This amount was transferred entirely to Level 2. These transfers resulted from securities that were previously valued using an internal model that utilized significant unobservable inputs but were valued by independent pricing services or brokers, utilizing no significant unobservable inputs, as of June 30, 2010.

For the three months ended June 30, 2010, there were no transfers between Level 1 and 2.

26

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended June 30, 2009, for which the Company has used significant unobservable inputs (Level 3):

																	Total
																	Gains (losses)
																	included in
			Total Realized and Unrealized														Earnings
			Gains (losses)														related to
						Included in			Purchases,								Instruments
						Other			Issuances, and			Transfers in					still held at
	Beginning		Included in			Comprehensive			Settlements			and/or out of			Ending		the Reporting
	Balance		Earnings			Income			(net)			Level 3			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	32	$	—		$	—		$	(2	)	$	—		$	30	$	—
Commercial mortgage-backed securities	851,721		—			(24,517		)	(9,619		)	—			817,585		—
Other asset-backed securities	705,397		—			19,011			(222		)	—			724,186		—
U.S. government-related bonds	24,792		—			(558		)	3			(9,177		)	15,060		—
States, municipals and political subdivisions	—		—			—			—			—			—		—
Other government-related bonds	—		—			—			—			—			—		—
Corporate bonds	69,253		(8		)	(1,392		)	1,529			—			69,382		—
Total fixed maturity securities - available-for-sale	1,651,195		(8		)	(7,456		)	(8,311		)	(9,177		)	1,626,243		—
Fixed maturity securities - trading	39,008		3,044			—			44,281			22			86,355		3,016
Total fixed maturity securities	1,690,203		3,036			(7,456		)	35,970			(9,155		)	1,712,598		3,016
Equity securities	59,114		—			(3		)	(33		)	—			59,078		—
Other long-term investments (1)	286,766		(120,530		)	—			—			—			166,236		(120,530		)
Short-term investments	837		—			(71		)	—			(102		)	664		—
Total investments	2,036,920		(117,494		)	(7,530		)	35,937			(9,257		)	1,938,576		(117,514		)
Total assets measured at fair value on a recurring basis	$	2,036,920	$	(117,494	)	$	(7,530	)	$	35,937		$	(9,257	)	$	1,938,576	$	(117,514	)
Liabilities:
Annuity account balances (2)	$	152,826	$	(2,214	)	$	—		$	2,613		$	—		$	152,427	$	—
Other liabilities (1)	54,877		(11,254		)	—			—			—			66,131		(11,254		)
Total liabilities measured at fair value on a recurring basis	$	207,703	$	(13,468	)	$	—		$	2,613		$	—		$	218,558	$	(11,254	)

(1)	Represents certain freestanding and embedded derivatives.
(2)	Represents liabilities related to equity indexed annuities.

27

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the six months ended June 30, 2010, for which the Company has used significant unobservable inputs (Level 3):

																	Total
																	Gains (losses)
																	included in
			Total Realized and Unrealized														Earnings
			Gains (losses)														related to
						Included in			Purchases,								Instruments
						Other			Issuances, and			Transfers in					still held at
	Beginning		Included in			Comprehensive			Settlements			and/or out of			Ending		the Reporting
	Balance		Earnings			Income			(net)			Level 3			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	23	$	4		$	—		$	(6	)	$	—		$	21	$	—
Commercial mortgage-backed securities	844,535		—			38,281			(842,864		)(3)	—			39,952		—
Other asset-backed securities	693,930		5,868			(3,696		)	(89,473		)	(9,338		)	597,291		—
U.S. government-related securities	15,102		—			40			7			—			15,149		—
States, municipals, and political subdivisions	—		—			—			—			—			—		—
Other government-related securities	—		—			—			—			—			—		—
Corporate bonds	86,292		—			3,166			18,732			150			108,340		—
Total fixed maturity securities - available-for-sale	1,639,882		5,872			37,791			(913,604		)	(9,188		)	760,753		—
Fixed maturity securities - trading
Residential mortgage-backed securities	7,244		(1		)	—			(3,855		)	(3,388		)	—		—
Commercial mortgage-backed securities	—		—			—			—			—			—		—
Other asset-backed securities	47,509		(755		)	—			14,383			—			61,137		(985		)
U.S. government-related securities	3,310		255			—			(3		)	—			3,562		255
States, municipals, and political subdivisions	4,994		77			—			—			(5,071		)	—		—
Other government-related securities	41,965		1,058			—			(47		)	(42,976		)	—		—
Corporate bonds	67		322			—			26,787			(27,133		)	43		(1		)
Total fixed maturity securities - trading	105,089		956			—			37,265			(78,568		)	64,742		(731		)
Total fixed maturity securities	1,744,971		6,828			37,791			(876,339		)	(87,756		)	825,495		(731		)
Equity securities	60,203		4			—			2,425			—			62,632		—
Other long-term investments (1)	28,025		(8,494		)	—			—			—			19,531		(8,494		)
Short-term investments	—		—			—			—			—			—		—
Total investments	1,833,199		(1,662		)	37,791			(873,914		)	(87,756		)	907,658		(9,225		)
Total assets measured at fair value on a recurring basis	$	1,833,199	$	(1,662	)	$	37,791		$	(873,914	)	$	(87,756	)	$	907,658	$	(9,225	)
Liabilities:
Annuity account balances (2)	$	149,893	$	(2,841	)	$	—		$	3,294		$	—		$	149,440	$	—
Other liabilities (1)	105,838		(127,359		)	—			—			—			233,197		(127,359		)
Total liabilities measured at fair value on a recurring basis	$	255,731	$	(130,200	)	$	—		$	3,294		$	—		$	382,637	$	(127,359	)

(1)	Represents certain freestanding and embedded derivatives.
(2)	Represents liabilities related to equity indexed annuities.
(3)	Represents mortgage loan held by the trusts that have been consolidated upon the adoption of ASU No. 2009-17. See Note 4, Variable Interest Entities.

For the six months ended June 30, 2010, $0.2 million of securities were transferred into Level 3. This amount was transferred entirely from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous quarters, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of June 30, 2010.

For the six months ended June 30, 2010, $87.9 million of securities were transferred out of Level 3. This amount was transferred entirely to Level 2. These transfers resulted from securities that were previously valued using an internal model that utilized significant unobservable inputs but were valued by independent pricing services or brokers, utilizing no significant unobservable inputs, as of June 30, 2010.

For the six months ended June 30, 2010, there were no transfers between Level 1 and 2.

28

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the six months ended June 30, 2009, for which the Company has used significant unobservable inputs (Level 3):

																	Total
																	Gains (losses)
																	included in
			Total Realized and Unrealized														Earnings
			Gains (losses)														related to
						Included in			Purchases,								Instruments
						Other			Issuances, and			Transfers in					still held at
	Beginning		Included in			Comprehensive			Settlements			and/or out of			Ending		the Reporting
	Balance		Earnings			Income			(net)			Level 3			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	34	$	—		$	—		$	(4	)	$	—		$	30	$	—
Commercial mortgage-backed securities	855,817		—			(22,438		)	(15,794		)	—			817,585		—
Other asset-backed securities	682,710		(31		)	41,972			(465		)	—			724,186		—
U.S. government-related bonds	10,072		—			(700		)	14,865			(9,177		)	15,060		—
States, municipals and political subdivisions	—		—			—			—			—			—		—
Other government-related bonds	—		—			—			—			—			—		—
Corporate bonds	78,599		(8		)	(313		)	(30,340		)	21,444			69,382		—
Total fixed maturity securities - available-for-sale	1,627,232		(39		)	18,521			(31,738		)	12,267			1,626,243		—
Fixed maturity securities - trading	32,645		3,537			—			75,493			(25,320		)	86,355		3,104
Total fixed maturity securities	1,659,877		3,498			18,521			43,755			(13,053		)	1,712,598		3,104
Equity securities	58,933		—			3			142			—			59,078		—
Other long-term investments (1)	264,173		(97,937		)	—			—			—			166,236		(97,937		)
Short-term investments	1,161		—			(286		)	—			(211		)	664		—
Total investments	1,984,144		(94,439		)	18,238			43,897			(13,264		)	1,938,576		(94,833		)
Total assets measured at fair value on a recurring basis	$	1,984,144	$	(94,439	)	$	18,238		$	43,897		$	(13,264	)	$	1,938,576	$	(94,833	)
Liabilities:
Annuity account balances (2)	$	152,762	$	(1,268	)	$	—		$	1,603		$	—		$	152,427	$	—
Other liabilities (1)	113,311		47,180			—			—			—			66,131		47,180
Total liabilities measured at fair value on a recurring basis	$	266,073	$	45,912		$	—		$	1,603		$	—		$	218,558	$	47,180

(1)	Represents certain freestanding and embedded derivatives.
(2)	Represents liabilities related to equity indexed annuities.

Total realized and unrealized gains (losses) on Level 3 assets and liabilities are primarily reported in either realized investment gains (losses) within the consolidated condensed statements of income or other comprehensive income (loss) within shareowners’ equity based, on the appropriate accounting treatment for the item.

Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of equity indexed annuities.

The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. The asset transfers in the table(s) above primarily related to positions moved from Level 3 to Level 2 as the Company determined that certain inputs were observable.

The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of equity indexed annuities.

29

Estimated Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:

	As of
	June 30, 2010				December 31, 2009
	Carrying				Carrying
	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	$	4,897,144	$	5,461,641	$	3,876,890	$	4,123,375
Policy loans	775,105		775,105		794,276		794,276
Liabilities:
Stable value product account balances	$	3,487,963	$	3,686,950	$	3,581,150	$	3,758,422
Annuity account balances	10,309,546		10,207,819		9,911,040		9,655,208
Mortgage loan backed certificates	85,873		88,489		—		—
Non-recourse funding obligations	1,375,000		1,088,804		1,555,000		1,360,759

Except as noted below, fair values were estimated using quoted market prices.

Fair Value Measurements

Mortgage loans on real estate

The Company estimates the fair value of mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current mortgage loan lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to nonperformance and liquidity risks.

Policy loans

The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policy holders in return for a claim on the account value of the policy. The funds provided are limited to a certain percent of the account balance. The nature of policy loans is to have low default risk as the loans are fully collateralized by the value of the policy. The majority of policy loans do not have a stated maturity and the balances and accrued interest are repaid with proceeds from the policy account balance. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the fair value of policy loans approximates carrying value.

Stable value product and Annuity account balances

The Company estimates the fair value of stable value product account balances and annuity account balances using models based on discounted expected cash flows. The discount rates used in the models were based on a current market rate for similar financial instruments.

Non-recourse funding obligations

As of June 30, 2010, the Company estimated the fair value of its non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model were based on a current market yield for similar financial instruments.

30

13.          DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to interest rate risk, inflation risk, currency exchange risk, and equity market risk. These strategies are developed through the asset/liability committee’s analysis of data from financial simulation models and other internal and industry sources, and are then incorporated into the Company’s risk management program.

Derivative instruments expose the Company to credit and market risk and could result in material changes from period to period. The Company minimizes its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. The Company monitors its use of derivatives in connection with its overall asset/liability management programs and strategies.

Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate options, and interest rate swaptions. The Company’s inflation risk management strategy involves the use of swaps that requires the Company to pay a fixed rate and receive a floating rate that is based on changes in the Consumer Price Index (“CPI”). The Company uses foreign currency swaps to manage its exposure to changes in the value of foreign currency denominated stable value contracts. No foreign currency swaps remain outstanding. The Company also uses S&P 500® options to mitigate its exposure to the value of equity indexed annuity contracts.

The Company records its derivative instruments in the consolidated condensed balance sheet in “other long-term investments” and “other liabilities” in accordance with GAAP, which requires that all derivative instruments be recognized in the balance sheet at fair value. The accounting for GAAP changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge related to foreign currency exposure. For derivatives that are designated and qualify as cash flow hedges, the effective portion of the gain or loss realized on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction impacts earnings. The remaining gain or loss on these derivatives is recognized as ineffectiveness in current earnings during the period of the change. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of change in fair values. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis. The Company accounts for changes in fair values of derivatives that are not part of a qualifying hedge relationship through earnings in the period of change. Changes in the fair value of derivatives that are recognized in current earnings are reported in “realized investment gains (losses) - derivative financial instruments”.

Cash-Flow Hedges

·During 2004 and 2005, in connection with the issuance of inflation adjusted funding agreements, the Company entered into swaps to convert the floating CPI-linked interest rate on the contracts to a fixed rate. The Company paid a fixed rate on the swap and received a floating rate equal to the CPI change paid on the funding agreements.

·During 2006 and 2007, the Company entered into interest rate swaps to convert LIBOR based floating rate interest payments on funding agreements to fixed rate interest payments.

Other Derivatives

The Company also uses various other derivative instruments for risk management purposes that either do not qualify for hedge accounting treatment or have not currently been designated by the Company for hedge accounting treatment. Changes in the fair value of these derivatives are recognized in earnings during the period of change.

·The Company uses interest rate futures to mitigate interest rate risk. There were no outstanding positions as of June 30,

31

2010. For the three and six months ended June 30, 2009, the Company recognized pre-tax gains of $4.6 million and $6.9 million, respectively, as a result of changes in value of these future positions.

·The Company uses certain interest rate swaps to mitigate interest rate risk related to floating rate exposures. The Company recognized pre-tax losses of $6.4 million and $8.8 million for the three and six months ended June 30, 2010 and pre-tax gains of $22.2 million and $36.4 million on interest rate swaps for the three and six months ended June 30, 2009, respectively.

·The Company uses other swaps and options to manage risk related to other exposures. The Company recognized pre-tax gains that were immaterial for the three months ended June 30, 2010, and pre-tax gains of $0.8 million for the six months ended June 30, 2010. The Company recognized pre-tax gains of $2.2 million for the three and six months ended June 30, 2009, respectively, for the change in fair value of these derivatives.

·The Company is involved in various modified coinsurance and funds withheld arrangements which contain embedded derivatives that must be reported at fair value. Changes in fair value are recorded in current period earnings. The investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had mark-to-market changes which substantially offset the gains or losses on these embedded derivatives.

·The Company has an interest rate floor agreement and a YRT premium support arrangement with PLC. The Company recognized pre-tax losses of $0.6 million and $1.5 million for three and six months ended June 30, 2010 and pre-tax gains of $2.0 million and $2.7 million for the three and six months ended June 30, 2009, respectively, related to the interest rate floor agreement. There are no YRT premium support arrangement gains or losses for the three and six months ended June 30, 2010.

·The Company markets certain variable annuity products with a GMWB rider. The GMWB component is considered an embedded derivative, not considered to be clearly and closely related to the host contract. The Company recognized pre-tax losses of $49.3 million and $40.2 million for the three and six months ended June 30, 2010 and pre-tax gains of $12.5 million and $32.3 million for the three and six months ended June 30, 2009, respectively, related to these embedded derivatives.

32

The tables below present information about the nature and accounting treatment of the Company’s primary derivative financial instruments and the location in and effect on the consolidated condensed financial statements for the periods presented below:

	As of June 30, 2010				As of December 31, 2009
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Derivatives not designated as hedging instruments:(1)
Interest rate swaps	$	25,000	$	2,234	$	75,000	$	16,174
Interest rate floors/YRT(2) premium support arrangements	675,607		10,000		660,734		11,500
Embedded derivative - Modco reinsurance treaties	29,630		1,802		1,883,109		5,907
Embedded derivative - GMWB	485,442		7,687		429,562		10,579
Other	14,291		1,261		66,250		6,791
	$	1,229,970	$	22,984	$	3,114,655	$	50,951
Other liabilities
Cash flow hedges:
Inflation	$	293,379	$	21,414	$	343,526	$	19,141
Interest rate	175,000		9,985		175,000		11,965
Derivatives not designated as hedging instruments:(1)
Interest rate	110,000		10,475		110,000		7,011
Embedded derivative - Modco reinsurance treaties	2,895,101		171,391		1,077,376		81,339
Embedded derivative GMWB	1,286,425		61,734		660,090		24,423
Other	5,916		73		12,703		2,832
	$	4,765,821	$	275,072	$	2,378,695	$	146,711

(1)	Additional information on derivatives not designated as hedging instruments is referenced under the ASC Derivatives and Hedging Topic.
(2)	YRT - yearly renewable term

Gain (Loss) on Derivatives in Cash Flow Hedging Relationships

	For The Three Months Ended June 30, 2010									For The Six Months Ended June 30, 2010
	Realized			Benefits and			Other			Realized			Benefits and			Other
	investment			settlement			comprehensive			investment			settlement			comprehensive
	gains (losses)			expenses			income (loss)			gains (losses)			expenses			income (loss)
	(Dollars In Thousands)
Gain (loss) recognized in other comprehensive income (effective portion):
Interest rate	$	—		$	—		$	(858	)	$	—		$	—		$	(2,116	)
Inflation	—			—			(9,314		)	—			—			(3,892		)
Gain (loss) reclassified from accumulated other comprehensive income into income (effective portion):
Interest rate	$	—		$	(1,982	)	$	—		$	—		$	(3,973	)	$	—
Inflation	—			(463		)	—			—			(1,084		)	—
Gain (loss) recognized in income (ineffective portion):
Inflation	$	(696	)	$	—		$	—		$	(336	)	$	—		$	—

33

Gain (Loss) on Derivatives in Cash Flow Hedging Relationships

	For The Three Months Ended June 30, 2009								For The Six Months Ended June 30, 2009
	Realized		Benefits and			Other			Realized		Benefits and			Other
	investment		settlement			comprehensive			investment		settlement			comprehensive
	gains (losses)		expenses			income (loss)			gains (losses)		expenses			income (loss)
	(Dollars In Thousands)
Gain (loss) recognized in other comprehensive income (effective portion):
Interest rate	$	—	$	—		$	(8,810	)	$	—	$	—		$	3,864
Inflation	—		—			24,038			—		—			25,036
Gain (loss) reclassified from accumulated other comprehensive income into income (effective portion):
Interest rate	$	—	$	(1,781	)	$	—		$	—	$	(3,897	)	$	—
Inflation	—		(2,623		)	—			—		(4,469		)	—
Gain (loss) recognized in income (ineffective portion):
Inflation	$	247	$	—		$	—		$	954	$	—		$	—

Based on the expected cash flows of the underlying hedged items, the Company expects to reclassify $7.0 million out of accumulated other comprehensive income into earnings during the next twelve months.

Realized investment gains (losses) - derivative financial instruments(1)

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
Interest rate risk
Interest rate futures	$	—		$	4,593		$	—		$	6,889
Interest rate swaps	(6,382		)	22,211			(8,774		)	36,359
Interest rate floors/YRT premium support arrangements	(600		)	2,000			(1,500		)	2,650
Embedded derivative - Modco reinsurance treaties	(63,063		)	(146,420		)	(94,157		)	(85,788		)
Embedded derivative - GMWB	(49,326		)	12,636			(40,202		)	32,381
Other	25			2,102			810			2,175
	$	(119,346	)	$	(102,878	)	$	(143,823	)	$	(5,334	)

(1)  Additional information on derivatives not designated as hedging instruments is referenced under the ASC Derivatives and Hedging Topic.

Realized investment gains (losses) - all other investments

	For The				For The
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(Dollars In Thousands)
Fixed income Modco trading portfolio(1)	$	63,967	$	154,786	$	108,060	$	108,908

(1)  The Company elected to include the use of alternate disclosures for trading activities

34

14.          OPERATING SEGMENTS

The Company has several operating segments each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments, as prescribed in the ASC Segment Reporting Topic, and makes adjustments to its segment reporting as needed. A brief description of each segment follows.

·The Life Marketing segment markets level premium term insurance (“traditional”), universal life, variable universal life, and bank-owned life insurance (“BOLI”) products on a national basis primarily through networks of independent insurance agents and brokers, stockbrokers, and independent marketing organizations.

·The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. In the ordinary course of business, the Acquisitions segment regularly considers acquisitions of blocks of policies or insurance companies. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, and market dynamics. Policies acquired through the Acquisitions segment are “closed” blocks of business (no new policies are being marketed). Therefore, earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.

·The Annuities segment markets and supports fixed and variable annuity products. These products are primarily sold through broker-dealers, financial institutions and independent agents and brokers.

·The Stable Value Products segment sells guaranteed funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans.

·The Asset Protection segment primarily markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product.

·The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on capital) and a trading portfolio that was previously part of a variable interest entity. This segment also includes earnings from several non-strategic lines of business and various investment-related transactions.

The Company uses the same accounting policies and procedures to measure segment operating income (loss) and assets as it uses to measure consolidated net income and assets. Segment operating income (loss) is income before income tax excluding net realized investment gains and losses (net of the related amortization of deferred acquisition costs (“DAC”) and value of business acquired (“VOBA”) and participating income from real estate ventures), and the cumulative effect of change in accounting principle. Periodic settlements of derivatives associated with corporate debt and certain investments and annuity products are included in realized gains and losses but are considered part of operating income because the derivatives are used to mitigate risk in items affecting consolidated and segment operating income (loss). Segment operating income (loss) represents the basis on which the performance of the Company’s business is internally assessed by management. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC/VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.

During the first quarter of 2010, the Company recorded a $7.8 million decrease in reserves related to the final settlement in the runoff Lender’s Indemnity line of business.

There were no significant intersegment transactions during the six months ended June 30, 2010 and 2009.

35

The following tables summarize financial information for the Company’s segments. Asset adjustments represent the inclusion of assets related to discontinued operations:

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
Revenues
Life Marketing	$	275,798		$	247,077		$	564,865		$	509,303
Acquisitions	177,579			201,518			376,296			400,752
Annuities	84,961			134,140			224,952			263,815
Stable Value Products	37,511			57,490			85,467			124,054
Asset Protection	67,897			65,597			134,383			131,837
Corporate and Other	24,901			37,530			41,641			3,413
Total revenues	$	668,647		$	743,352		$	1,427,604		$	1,433,174
Segment Operating Income (Loss)
Life Marketing	$	35,595		$	37,707		$	77,325		$	80,306
Acquisitions	30,190			35,041			61,559			68,662
Annuities	(655		)	20,871			16,163			19,626
Stable Value Products	10,979			16,976			22,006			37,183
Asset Protection	5,112			3,384			15,938			7,526
Corporate and Other	(713		)	9,974			(4,496		)	(543		)
Total segment operating income	80,508			123,953			188,495			212,760
Realized investment (losses) gains - investments(1)	51,632			128,739			89,186			(3,112		)
Realized investment (losses) gains - derivatives(2)	(69,971		)	(117,434		)	(104,039		)	(39,020		)
Income tax expense	(21,555		)	(47,560		)	(56,851		)	(59,051		)
Net income	$	40,614		$	87,698		$	116,791		$	111,577
(1) Realized investment (losses) gains - investments	$	51,960		$	127,797		$	89,728		$	(3,976	)
Less: related amortization of DAC	328			(942		)	542			(864		)
	$	51,632		$	128,739		$	89,186		$	(3,112	)
(2) Realized investment gains (losses) - derivatives	$	(119,346	)	$	(102,878	)	$	(143,823	)	$	(5,334	)
Less: settlements on certain interest rate swaps	42			1,163			84			1,205
Less: derivative activity related to certain annuities	(49,417		)	13,393			(39,868		)	32,481
	$	(69,971	)	$	(117,434	)	$	(104,039	)	$	(39,020	)

36

	Operating Segment Assets
	As of June 30, 2010
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	9,224,801	$	9,097,376	$	11,086,864	$	3,477,711
Deferred policy acquisition costs and value of business acquired	2,340,699		803,487		425,049		10,252
Goodwill	—		43,362		—		—
Total assets	$	11,565,500	$	9,944,225	$	11,511,913	$	3,487,963

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	691,343	$	7,169,282	$	25,056	$	40,772,433
Deferred policy acquisition costs and value of business acquired	55,529		3,876		—		3,638,892
Goodwill	48,157		—		—		91,519
Total assets	$	795,029	$	7,173,158	$	25,056	$	44,502,844

	Operating Segment Assets
	As of December 31, 2009
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	8,753,633	$	9,136,474	$	9,977,456	$	3,569,038
Deferred policy acquisition costs and value of business acquired	2,277,256		839,829		430,704		12,112
Goodwill	—		44,911		—		—
Total assets	$	11,030,889	$	10,021,214	$	10,408,160	$	3,581,150

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	751,313	$	6,296,964	$	26,372	$	38,511,250
Deferred policy acquisition costs and value of business acquired	59,820		5,550		—		3,625,271
Goodwill	48,157		—		—		93,068
Total assets	$	859,290	$	6,302,514	$	26,372	$	42,229,589

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15.          SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to June 30, 2010, and through the date we filed our consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated condensed financial statements.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2009, included in our Annual Report on Form 10-K.

For a more complete understanding of our business and current period results, please read the following MD&A in conjunction with our latest Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (the “SEC”).

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or shareowners’ equity.

FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE

This report reviews our financial condition and results of operations including our liquidity and capital resources. Historical information is presented and discussed and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. For more information about the risks, uncertainties and other factors that could affect our future results, please see Part I, Item II, Risks and Uncertainties and Part II, Item 1A, Risk Factors, of this report, as well as Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

OVERVIEW

Our business

We are a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol “PL”. Founded in 1907, we are the largest operating subsidiary of PLC. We provide financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Insurance Company and our subsidiaries.

We have several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. We periodically evaluate our operating segments, as prescribed in the Accounting Standards Codification (“ASC”) Segment Reporting Topic, and make adjustments to our segment reporting as needed.

Our operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, Asset Protection, and Corporate and Other.

·Life Marketing - We market level premium term insurance (“traditional”), universal life (“UL”), variable universal life, and bank-owned life insurance (“BOLI”) products on a national basis primarily through networks of independent insurance agents and brokers, stockbrokers, and independent marketing organizations.

·Acquisitions - We focus on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to

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individuals. In the ordinary course of business, the Acquisitions segment regularly considers acquisitions of blocks of policies or insurance companies. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, and market dynamics. Policies acquired through the Acquisition segment are “closed” blocks of business (no new policies are being marketed). Therefore, earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.

·Annuities - We market and support fixed and variable annuity products. These products are primarily sold through broker-dealers, financial institutions and independent agents and brokers.

·Stable Value Products - We sell guaranteed funding agreement (“GFAs”) to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans.

·Asset Protection - We primarily market extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product.

·Corporate and Other - This segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on capital) and a trading portfolio that was previously part of a variable interest entity. This segment also includes earnings from several non-strategic lines of business and various investment-related transactions.

EXECUTIVE SUMMARY

We delivered solid financial results in the first half of 2010. Excluding fair value items, our operating segments (excluding Corporate and Other) produced results that were in line with or exceeded our expectations. While we were impacted by negative fair value items in the second quarter of 2010, mortality continued a favorable trend in both the first and second quarters and we were able to take advantage of depressed market valuations and repurchased portions of our outstanding non-recourse funding obligations at a significant discount. In addition, we continued our strategy of growth in the Annuities segment and are encouraged by the results of moving our life sales product mix to a universal life product focus.

As we look to the remainder of the year, we recognize that we will be challenged to find opportunities to invest our excess liquidity at desired yield levels. However, we remain focused on this goal and others, including introducing innovative, differentiated products to our markets, optimizing capital deployment, managing crediting rates and growing our distribution networks.

Significant financial information related to each of our segments is included in “Results of Operations”.

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RISKS AND UNCERTAINTIES

The factors which could affect our future results include, but are not limited to, general economic conditions and the following risks and uncertainties:

General

·exposure to the risks of natural and man-made catastrophes, pandemics, malicious acts, terrorist acts, or climate change could adversely affect our operations and results;

·computer viruses, network security breaches, disasters, or other unanticipated events could affect our data processing systems or those of our business partners and could damage our business and adversely affect our financial condition and results of operations;

·actual experience may differ from management’s assumptions and estimates and negatively affect our results;

·we may not realize our anticipated financial results from our acquisitions strategy;

·we are dependent on the performance of others;

·our risk management policies and procedures could leave us exposed to unidentified or unanticipated risk, which could negatively affect our business or result in losses;

·our strategies for mitigating risks arising from our day-to-day operations may prove ineffective and adversely affect our results of operations and financial condition;

Financial environment

·interest rate fluctuations could negatively affect our interest earnings and spread income or otherwise impact our business;

·our investments are subject to market, credit, legal, and regulatory risks, which could be heightened during periods of extreme volatility or disruption in the financial and credit markets;

·equity market volatility could negatively impact our business;

·credit market volatility or disruption could adversely impact our financial condition or results from operations;

·our ability to grow depends in large part upon the continued availability of capital;

·we could be adversely affected by a ratings downgrade or other negative action by a ratings organization;

·a loss of policyholder confidence in us or our insurance subsidiaries could lead to higher than expected levels of policyholder surrenders and withdrawal of funds;

·we could be forced to sell investments at a loss to cover policyholder withdrawals;

·disruption of the capital and credit markets could negatively affect our ability to meet our liquidity and financing needs;

·difficult conditions in the economy generally could adversely affect our business and results from operations;

·continued deterioration of general economic conditions could result in a severe and extended economic recession, which could materially adversely affect our business and results from operations;

·there can be no assurance that the actions of the United States Government or other governmental and regulatory bodies for the purpose of stabilizing the financial markets will achieve their intended effect;

·we may be required to establish a valuation allowance against our deferred tax assets, which could materially adversely affect our results of operations, financial condition, and capital position;

·we could be adversely affected by an inability to access our credit facility;

·our financial condition or results of operations could be adversely impacted if our assumptions regarding the fair value and future performance of our investments differ from actual experience;

·the amount of statutory capital we have and must hold to maintain our financial strength and credit ratings and meet other requirements can vary significantly from time to time and is sensitive to a number of factors outside of our control;

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Industry

·insurance companies are highly regulated and subject to numerous legal restrictions and regulations;

·changes to tax law or interpretations of existing tax law could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products;

·financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments;

·companies in the financial services industry are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny;

·new accounting rules, changes to existing accounting rules, or the grant of permitted accounting practices to competitors could negatively impact us;

·reinsurance introduces variability in our statements of income;

·our reinsurers could fail to meet assumed obligations, increase rates, or be subject to adverse developments that could affect us;

·policy claims fluctuate from period to period resulting in earnings volatility;

Competition

·we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry and negatively affect profitability;

·our ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business;

·a ratings downgrade could adversely affect our ability to compete; and

·we may not be able to protect our intellectual property and could also be subject to infringement claims.

For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part II, Item 1A of this report and our Annual and Quarterly Reports on Forms 10-K and 10-Q.

CRITICAL ACCOUNTING POLICIES

Our accounting policies inherently require the use of judgments relating to a variety of assumptions and estimates, in particular expectations of current and future mortality, morbidity, persistency, expenses, and interest rates. Because of the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could be materially different from those reported in the consolidated condensed financial statements. For a complete listing of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2009.

RESULTS OF OPERATIONS

In the following discussion, segment operating income (loss) is defined as income before income tax excluding net realized investment gains and losses (net of the related deferred acquisitions costs (“DAC”) and value of business acquired (“VOBA”) and participating income from real estate ventures), and the cumulative effect of change in accounting principle. Periodic settlements of derivatives associated with corporate debt and certain investments and annuity products are included in realized gains and losses but are considered part of segment operating income (loss) because the derivatives are used to mitigate risk in items affecting segment operating income (loss). Management believes that segment operating income (loss) provides relevant and useful information to investors, as it represents the basis on which the performance of our business is internally assessed. Although the items excluded from segment operating income (loss) may be significant components in understanding and assessing our overall financial performance, management believes that segment operating income (loss) enhances an investor’s understanding of our results of operations by highlighting the income usually attributable to the normal, recurring operations of our business. However, segment operating income (loss) should not be viewed as a substitute for accounting principles generally accepted in the United States of America (“GAAP”) net income. In addition, our segment operating income (loss) measures may not be comparable to similarly titled measures reported by other companies.

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The following table presents a summary of results and reconciles segment operating income (loss) to consolidated net income:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
Segment Operating Income (Loss)
Life Marketing	$	35,595		$	37,707		(5.6	)%	$	77,325		$	80,306		(3.7	)%
Acquisitions	30,190			35,041			(13.8	)	61,559			68,662			(10.3	)
Annuities	(655		)	20,871			n/m		16,163			19,626			(17.6	)
Stable Value Products	10,979			16,976			(35.3	)	22,006			37,183			(40.8	)
Asset Protection	5,112			3,384			51.1		15,938			7,526			n/m
Corporate and Other	(713		)	9,974			n/m		(4,496		)	(543		)	n/m
Total segment operating income	80,508			123,953			(35.0	)	188,495			212,760			(11.4	)
Realized investment gains (losses) - investments(1)(3)	51,632			128,739					89,186			(3,112		)
Realized investment gains (losses) - derivatives(2)	(69,971		)	(117,434		)			(104,039		)	(39,020		)
Income tax expense	(21,555		)	(47,560		)			(56,851		)	(59,051		)
Net income	$	40,614		$	87,698		(53.7	)	$	116,791		$	111,577		4.7
(1) Realized investment gains (losses) - investments(3)	$	51,960		$	127,797				$	89,728		$	(3,976	)
Less: related amortization of DAC	328			(942		)			542			(864		)
	$	51,632		$	128,739				$	89,186		$	(3,112	)
(2) Realized investment gains (losses) - derivatives	$	(119,346	)	$	(102,878	)			$	(143,823	)	$	(5,334	)
Less: settlements on certain interest rate swaps	42			1,163					84			1,205
Less: derivative activity related to certain annuities	(49,417		)	13,393					(39,868		)	32,481
	$	(69,971	)	$	(117,434	)			$	(104,039	)	$	(39,020	)

(3) Includes other-than-temporary impairments of $16.7 million and $28.6 million for the three and six months ended June 30, 2010, respectively, and $40.8 million and $130.6 million for the three and six months ended June 30, 2009, respectively.

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Net income for the three months ended June 30, 2010, included a $43.4 million, or 35.0%, decrease in segment operating income. The decrease was primarily related to a $2.1 million decrease in operating income in the Life Marketing segment, a $4.9 million decrease in the Acquisition segment, a $21.5 million decrease in the Annuities segment, a $6.0 million decrease in the Stable Value Products segment, and a $10.7 million decrease in the Corporate and Other segment. These decreases were partially offset by an increase of $1.7 million in operating income in the Asset Protection segment. Changes in fair value related to the Corporate and Other trading portfolio and the Annuities segment decreased operating earnings by $19.1 million in the three months ended June 30, 2010, and fair value changes represented $48.7 million of the overall decrease in segment operating income compared to the same quarter last year.

We experienced net realized losses of $67.4 million for the three months ended June 30, 2010, as compared to net realized gains of $24.9 million for the three months ended June 30, 2009. The losses realized for the three months ended June 30, 2010, were primarily caused by $49.3 million of losses related to guaranteed minimum withdrawal benefits (“GMWB”) embedded derivative valuation changes and $16.7 million of other-than-temporary impairment credit-related losses and mark-to-market losses of $6.4 million on interest rate swaps. Offsetting these losses were $0.9 million of gains related to the net activity related to the modified coinsurance portfolio and derivative activity and $5.9 million of gains related to investment securities sale activity.

·Life Marketing segment operating income was $35.6 million for the three months ended June 30, 2010, representing a decrease of $2.1 million, or 5.6%, from the three months ended June 30, 2009. The decrease was primarily due to lower allocated investment income on the traditional line of business and higher operating expenses.

·Acquisitions segment operating income was $30.2 million for the three months ended June 30, 2010, a decrease of $4.9 million, or 13.8%, as compared to the three months ended June 30, 2009, primarily due to the expected runoff of the blocks of business.

·Annuities segment operating loss was $0.7 million for the three months ended June 30, 2010, as compared to an operating income of $20.9 million for the three months ended June 30, 2009, a decrease of $21.5 million. This change included an unfavorable $20.9 million variance related to fair value changes, made up

43

of a $0.4 million favorable change related to the equity indexed annuity (“EIA”) product and a $21.3 million unfavorable change related to embedded derivatives associated with the variable annuity (“VA”) GMWB rider caused primarily by changes in equity markets and lower interest rates. A $2.9 million increase in earnings was related to wider spreads and average account value growth in fixed and variable annuities.

·Stable Value Products segment operating income was $11.0 million and decreased $6.0 million, or 35.3%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease in operating earnings resulted from a decline in average account values and lower operating spreads. In addition, no income was generated from the early retirement of funding agreements backing medium-term notes for the three months ended June 30, 2010, compared with $0.3 million for the three months ended June 30, 2009. The operating spread decreased 31 basis points to 126 basis points for the three months ended June 30, 2010, as compared to an operating spread of 157 basis points during the three months ended June 30, 2009.

·Asset Protection segment operating income was $5.1 million, representing an increase of $1.7 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Second quarter income was comprised solely from core operations. Credit insurance earnings decreased $0.4 million as compared to the prior year, primarily due to lower investment income. Service contract earnings increased $1.7 million as compared to the prior year primarily due to higher volume partially offset by higher loss ratios and higher expenses in certain product lines. Earnings from other products, including runoff lines, increased $0.4 million, or 34.3%, for the three months ended June 30, 2010, as compared to the prior year. The increase was due to favorable loss experience in the GAP product line, partially offset by the release of excess reserves in the inventory protection product (“IPP”) line in the second quarter of 2009.

·Corporate and Other segment operating loss was $0.7 million for the three months ended June 30, 2010, as compared to income of $10.0 million for the three months ended June 30, 2009. The variance was primarily due to negative mark-to-market adjustments during the second quarter of 2010 on a portfolio of securities designated for trading. The trading portfolio accounted for a negative variance of $27.8 million. Partially offsetting this was growth in other investment income.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Net income for the six months ended June 30, 2010, included a $24.3 million, or 11.4%, decrease in segment operating income. The decrease was primarily related to a $3.0 million decrease in operating income in the Life Marketing segment, a $7.1 million decrease in the Acquisition segment, a $3.5 million decrease in the Annuities segment, a $15.2 million decrease in the Stable Value Products segment, and a $4.0 million decrease in the Corporate and Other segment. These decreases were partially offset by an increase of $8.4 million in operating income in the Asset Protection segment. Changes in fair value related to the Corporate and Other trading portfolio and the Annuities segment decreased operating earnings by $7.5 million in the six months ended June 30, 2010.

We experienced net realized losses of $54.1 million for the six months ended June 30, 2010, as compared to net realized losses of $9.3 million for the six months ended June 30, 2009. The losses realized for the six months ended June 30, 2010, were primarily caused by $40.2 million of losses related to GMWB embedded derivative valuation changes and $28.6 million of other-than-temporary impairment credit-related losses and mark-to-market losses of $8.8 million on interest rate swaps. Offsetting these losses were $13.9 million of gains related to the net activity related to the modified coinsurance portfolio and derivative activity and $14.4 million of gains related to investment securities sale activity.

·Life Marketing segment operating income was $77.3 million for the six months ended June 30, 2010, representing a decrease of $3.0 million, or 3.7%, from the six months ended June 30, 2009. The decrease was primarily due to lower allocated investment income on the traditional line of business and higher operating expenses, partially offset by more favorable mortality results.

·Acquisitions segment operating income was $61.6 million for the six months ended June 30, 2010, a decrease of $7.1 million, or 10.3%, as compared to the six months ended June 30, 2009, primarily due to the expected runoff of the blocks of business.

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·Annuities segment operating income was $16.2 million for the six months ended June 30, 2010, as compared to $19.6 million for the six months ended June 30, 2009, a decrease of $3.5 million. This change included an unfavorable $28.3 million variance related to fair value changes, of which $1.8 million was related to the EIA product and $26.5 million was related to embedded derivatives associated with the VA GMWB rider, caused primarily by changes in equity markets and lower interest rates. The remaining $26.2 million variance in operating income was primarily driven by a $19.3 million unlocking charge recorded within the VA line during the six months ended June 30, 2009. Other items accounted for the remainder of the variance, including a $6.4 million increase in earnings related to wider spreads and average account value growth in fixed and variable annuities.

·Stable Value Products segment operating income was $22.0 million and decreased $15.2 million, or 40.8%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease in operating earnings resulted from a decline in average account values and lower operating spreads. In addition, no income was generated from the early retirement of funding agreements backing medium-term notes for the six months ended June 30, 2010, compared with $1.9 million for the six months ended June 30, 2009. The operating spread decreased 35 basis points to 126 basis points for the six months ended June 30, 2010, as compared to an operating spread of 161 basis points during the six months ended June 30, 2009.

·Asset Protection segment operating income was $15.9 million, representing an increase of $8.4 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Income for the six months ended June 30, 2010 was comprised of $8.3 million of income from core operations and $7.6 million of income from runoff lines. Credit insurance earnings decreased $1.9 million as compared to the prior year, primarily due to unfavorable loss experience and lower investment income. Service contract earnings increased $1.8 million, or 43.0%, as compared to the prior year. Earnings from other products, including runoff lines, increased $8.5 million for the six months ended June 30, 2010, as compared to the prior year. The increase resulted primarily from a $7.8 million excess reserve release in the first quarter of 2010 related to the final settlement in the runoff Lender’s Indemnity line. Favorable loss experience in the GAP product line also contributed to the increase.

·Corporate and Other segment operating loss was $4.5 million for the six months ended June 30, 2010, as compared to a loss of $0.5 million for the six months ended June 30, 2009. This variance was primarily due to a negative variance related to mark-to-market adjustments on a portfolio of securities designated for trading. The trading portfolio accounted for a negative variance of $27.1 million compared to the prior year. Partially offsetting this was growth in other investment income.

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Life Marketing

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	407,900		$	397,195		2.7	%	$	781,290		$	772,853		1.1	%
Reinsurance ceded	(227,543		)	(241,002		)	(5.6	)	(404,295		)	(448,166		)	(9.8	)
Net premiums and policy fees	180,357			156,193			15.5		376,995			324,687			16.1
Net investment income	94,730			90,783			4.3		185,851			184,221			0.9
Other income	711			101			n/m		2,019			395			n/m
Total operating revenues	275,798			247,077			11.6		564,865			509,303			10.9
BENEFITS AND EXPENSES
Benefits and settlement expenses	217,032			189,101			14.8		437,588			384,511			13.8
Amortization of deferred policy acquisition costs	30,892			33,404			(7.5	)	64,970			69,132			(6.0	)
Other operating expenses	(7,721		)	(13,135		)	(41.2	)	(15,018		)	(24,646		)	(39.1	)
Total benefits and expenses	240,203			209,370			14.7		487,540			428,997			13.6
INCOME BEFORE INCOME TAX	35,595			37,707			(5.6	)	77,325			80,306			(3.7	)
OPERATING INCOME	$	35,595		$	37,707		(5.6	)	$	77,325		$	80,306		(3.7	)

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The following table summarizes key data for the Life Marketing segment:

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010		2009		Change		2010		2009		Change
	(Dollars In Thousands)
Sales By Product
Traditional	$	17,627	$	26,102	(32.5	)%	$	38,391	$	49,253	(22.1	)%
Universal life	23,951		12,796		87.2		45,218		25,615		76.5
Variable universal life	1,334		854		56.2		2,270		1,496		51.7
	$	42,912	$	39,752	7.9		$	85,879	$	76,364	12.5
Sales By Distribution Channel
Brokerage general agents	$	26,654	$	25,783	3.4		$	53,005	$	47,247	12.2
Independent agents	6,254		7,084		(11.7	)	12,945		14,364		(9.9	)
Stockbrokers / banks	8,031		6,509		23.4		17,002		13,682		24.3
BOLI / other	1,973		376		n/m		2,927		1,071		n/m
	$	42,912	$	39,752	7.9		$	85,879	$	76,364	12.5
Average Life Insurance In-force(1)
Traditional	$	497,366,086	$	487,972,776	1.9		$	497,143,901	$	485,862,761	2.3
Universal life	54,125,544		53,163,035		1.8		53,884,068		53,067,391		1.5
	$	551,491,630	$	541,135,811	1.9		$	551,027,969	$	538,930,152	2.2
Average Account Values
Universal life	$	5,515,913	$	5,354,527	3.0		$	5,465,071	$	5,353,024	2.1
Variable universal life	319,278		242,168		31.8		317,522		244,311		30.0
	$	5,835,191	$	5,596,695	4.3		$	5,782,593	$	5,597,335	3.3
Traditional Life Mortality Experience(2)	$	8,152	$	8,356			$	21,201	$	8,902
Universal Life Mortality Experience(2)	$	1,521	$	1,504			$	2,957	$	2,991

(1) Amounts are not adjusted for reinsurance ceded.

(2) Represents the estimated pre-tax earnings impact resulting from mortality variances. We periodically review and update as appropriate our key assumptions in calculating mortality. Changes to these assumptions result in adjustments, which may increase or decrease previously reported mortality amounts.

Operating expenses detail

Other operating expenses for the segment were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
First year commissions	$	51,837		$	44,794		15.7	%	$	103,480		$	87,161		18.7	%
Renewal commissions	9,142			9,211			(0.7	)	17,756			18,298			(3.0	)
First year ceding allowances	(2,390		)	(5,093		)	(53.1	)	(4,478		)	(9,402		)	(52.4	)
Renewal ceding allowances	(48,356		)	(57,026		)	(15.2	)	(94,226		)	(108,070		)	(12.8	)
General & administrative	41,681			37,989			9.7		81,515			74,585			9.3
Taxes, licenses, and fees	8,536			7,451			14.6		16,519			14,752			12.0
Other operating expenses incurred	60,450			37,326			62.0		120,566			77,324			55.9
Less: commissions, allowances & expenses capitalized	(68,171		)	(50,461		)	35.1		(135,584		)	(101,970		)	33.0
Other insurance expenses	$	(7,721	)	$	(13,135	)	(41.2	)	$	(15,018	)	$	(24,646	)	(39.1	)

47

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Segment operating income

Operating income was $35.6 million for the three months ended June 30, 2010, representing a decrease of $2.1 million, or 5.6%, from the three months ended June 30, 2009. The decrease was primarily due to lower allocated investment income on the traditional line of business and higher operating expenses.

Operating revenues

Total revenues for the three months ended June 30, 2010, increased $28.7 million, or 11.6%, as compared to the three months ended June 30, 2009. This increase was the result of higher premiums and policy fees in the segment’s traditional and universal life lines and higher investment income in the universal life product line due to increases in net in-force reserves and was partially offset by lower investment income on the Company’s traditional and BOLI product lines.

Net premiums and policy fees

Net premiums and policy fees increased by $24.2 million, or 15.5%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to an increase in retention levels on certain traditional life products and continued growth in universal life in-force business. Our maximum retention level for newly issued traditional life and universal life products is generally $2,000,000.

Net investment income

Net investment income in the segment increased $3.9 million, or 4.3%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Increased retained traditional and universal life reserves led to increased investment income in the second quarter of 2010 compared to the second quarter of 2009. Decreases in BOLI fund value led to lower BOLI investment income in the same period. In addition, the impact of our traditional and universal life capital markets programs on investment income allocated to the segment caused a reduction of $0.2 million between the second quarter of 2009 and the second quarter of 2010.

Other income

Other income in the segment increased $0.6 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009.

Benefits and settlement expenses

Benefits and settlement expenses increased by $27.9 million, or 14.8%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, due to growth in retained life insurance in-force, increased retention levels on certain newly written traditional life products, and higher credited interest on UL products resulting from increases in account values. The estimated mortality impact to earnings related to traditional and universal life products, for the three months ended June 30, 2010, was favorable by $9.7 million and was approximately $0.2 million less favorable than the estimated mortality impact on earnings for the three months ended June 30, 2009.

Amortization of DAC

DAC amortization decreased $2.5 million, or 7.5%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease primarily relates to more favorable unlocking on UL and BOLI business partially offset by growth in retained life insurance in-force as compared to 2009.

Other operating expenses

Other operating expenses increased $5.4 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. This increase reflects higher general administrative expenses, a reduction in reinsurance allowances, and interest expense of $2.9 million associated with Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a newly formed, wholly owned subsidiary of us.

48

Sales

Sales for the segment increased $3.2 million, or 7.9%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, as increased universal life sales more than offset lower traditional sales. Lower sales levels of traditional products were primarily the result of pricing changes implemented on certain of our products resulting in less competitive product positioning and greater focus on the universal life product line. Universal life sales increased $11.2 million, or 87.2%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to our increased focus on the product line.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Segment operating income

Operating income was $77.3 million for the six months ended June 30, 2010, representing a decrease of $3.0 million, or 3.7%, from the six months ended June 30, 2009. The decrease was primarily due to lower allocated investment income on the traditional line of business and higher operating expenses, partially offset by more favorable mortality results.

Operating revenues

Total revenues for the six months ended June 30, 2010, increased $55.6 million, or 10.9%, as compared to the six months ended June 30, 2009. This increase was the result of higher premiums and policy fees in the segment’s traditional and universal life lines and higher investment income in the universal life product line due to increases in net in-force reserves and was partially offset by lower investment income on the Company’s traditional and BOLI product lines.

Net premiums and policy fees

Net premiums and policy fees increased by $52.3 million, or 16.1%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to an increase in retention levels on certain traditional life products and continued growth in universal life in-force business. Our maximum retention level for newly issued traditional life and universal life products is generally $2,000,000.

Net investment income

Net investment income in the segment increased $1.6 million, or 0.9%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Increased retained universal life reserves led to increased investment income for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Decreases in BOLI fund value led to lower BOLI investment income in the same period. Traditional life statutory reserving methodology changes have reduced our statutory reserves, thus reducing the investment income allocated to the segment in the first quarter of 2010 compared to the first quarter of 2009. Growth in retained traditional reserves between the second quarter of 2009 and the second quarter of 2010, caused higher allocated investment income which partially offset the first quarter decrease. In addition, the impact of our traditional and universal life capital markets programs on investment income allocated to the segment caused a reduction of $5.3 million between 2009 and 2010.

Other income

Other income in the segment increased $1.6 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009.

Benefits and settlement expenses

Benefits and settlement expenses increased by $53.1 million, or 13.8%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, due to growth in retained life insurance in-force, increased retention levels on certain newly written traditional life products and higher credited interest on UL products resulting from increases in account values, partially offset by more favorable mortality. The estimated mortality impact to earnings related to traditional and universal life products, for the six months ended June 30, 2010, was favorable by $24.2 million and was approximately $12.3 million more favorable than the estimated mortality impact on earnings for the six months ended June 30, 2009.

Amortization of DAC

DAC amortization decreased $4.2 million, or 6.0%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease primarily relates to more favorable unlocking on universal life and BOLI business partially offset by growth in retained life insurance in-force as compared to 2009.

49

Other operating expenses

Other operating expenses increased $9.6 million, or 39.1%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. This increase reflects higher general administrative expenses, a reduction in reinsurance allowances, and interest expense of $2.9 million associated with Golden Gate III.

Sales

Sales for the segment increased $9.5 million, or 12.5%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, as increased universal life sales more than offset lower traditional sales. Lower sales levels of traditional products were primarily the result of pricing changes implemented on certain of our products resulting in a less competitive product positioning and greater focus on the universal life product line. Universal life sales increased $19.6 million, or 76.5%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to our increased focus on the product line.

Reinsurance

Currently, the Life Marketing segment reinsures significant amounts of its life insurance in-force. Pursuant to the underlying reinsurance contracts, reinsurers pay allowances to the segment as a percentage of both first year and renewal premiums. Reinsurance allowances represent the amount the reinsurer is willing to pay for reimbursement of acquisition costs incurred by the direct writer of the business. A portion of reinsurance allowances received is deferred as part of DAC and a portion is recognized immediately as a reduction of other operating expenses. As the non-deferred portion of allowances reduces operating expenses in the period received, these amounts represent a net increase to operating income during that period.

Reinsurance allowances do not affect the methodology used to amortize DAC or the period over which such DAC is amortized. However, they do affect the amounts recognized as DAC amortization. DAC on universal life-type, limited-payment long duration, and investment contracts business is amortized based on the estimated gross profits of the policies in-force. Reinsurance allowances are considered in the determination of estimated gross profits, and therefore, impact DAC amortization on these lines of business. Deferred reinsurance allowances on level term business as required by the ASC Financial Services-Insurance Topic are recorded as ceded DAC, which is amortized over estimated ceded premiums of the policies in force. Thus, deferred reinsurance allowances on policies as required under the Financial Services-Insurance Topic may impact DAC amortization.

50

Impact of reinsurance

Reinsurance impacted the Life Marketing segment line items as shown in the following table:

Life Marketing Segment

Line Item Impact of Reinsurance

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(227,543	)	$	(241,002	)	$	(404,295	)	$	(448,166	)
BENEFITS AND EXPENSES
Benefit and settlement expenses	(244,737		)	(250,250		)	(438,742		)	(468,889		)
Amortization of deferred policy acquisition costs	(12,117		)	(16,829		)	(19,981		)	(29,221		)
Other operating expenses (1)	(35,661		)	(36,804		)	(66,956		)	(69,015		)
Total benefits and expenses	(292,515		)	(303,883		)	(525,679		)	(567,125		)
NET IMPACT OF REINSURANCE (2)	$	64,972		$	62,881		$	121,384		$	118,959
Allowances received	$	(50,746	)	$	(62,119	)	$	(98,704	)	$	(117,472	)
Less: Amount deferred	15,085			25,315			31,748			48,457
Allowances recognized (ceded other operating expenses) (1)	$	(35,661	)	$	(36,804	)	$	(66,956	)	$	(69,015	)

(1)  Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.

(2)  Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance. The Company estimates that the impact of foregone investment income would reduce the net impact of reinsurance by 90% to 130%.

The table above does not reflect the impact of reinsurance on our net investment income. By ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on the business we cede. The net investment income impact to us and the assuming companies has not been quantified. The impact of including foregone investment income would be to substantially reduce the favorable net impact of reinsurance reflected above. We estimate that the impact of foregone investment income would be to reduce the net impact of reinsurance presented in the table above by 90% to 130%. The Life Marketing segment’s reinsurance programs do not materially impact the “other income” line of our income statement.

As shown above, reinsurance had a favorable impact on the Life Marketing segment’s operating income for the periods presented above. The impact of reinsurance is largely due to our quota share coinsurance program in place prior to mid-2005. Under that program, generally 90% of the segment’s traditional new business was ceded to reinsurers. Since mid-2005, a much smaller percentage of overall term business was ceded due to our change in reinsurance strategy on traditional business discussed previously. As a result of that change, the relative impact of reinsurance on the Life Marketing segment’s overall results is expected to decrease over time. While the significance of reinsurance is expected to decline over time, the overall impact of reinsurance for a given period may fluctuate due to variations in mortality and unlocking of balances under the ASC Financial Services-Insurance Topic.

51

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

The decrease in ceded premiums above for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, was caused primarily by lower ceded traditional life premiums and policy fees of $9.1 million.

Ceded benefits and settlement expenses were lower for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, due to lower increases in ceded reserves and decreased ceded claims. Traditional ceded benefits decreased $13.3 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, due to a lower increase in ceded reserves and lower ceded death benefits. Universal life ceded benefits increased $7.8 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to higher ceded claims. Ceded universal life claims were $7.2 million higher for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009.

Ceded amortization of deferred policy acquisitions costs decreased for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to the differences in unlocking between the two periods.

Total allowances received for the three months ended June 30, 2010, decreased from the three months ended June 30, 2009, due to the change in our traditional life reinsurance strategy, resulting in an increase in our retention level.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

The decrease in ceded premiums above for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, was caused primarily by lower ceded traditional life premiums and policy fees of $37.8 million.

Ceded benefits and settlement expenses were lower for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, due to lower increases in ceded reserves and decreased ceded claims. Traditional ceded benefits decreased $42.2 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, due to a lower increase in ceded reserves and lower ceded death benefits. Universal life ceded benefits increased $13.0 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, as higher ceded claims were partially offset by a lower change in ceded reserves. Ceded universal life claims were $18.4 million higher for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009.

Ceded amortization of deferred policy acquisitions costs decreased for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to the differences in unlocking between the two periods.

Total allowances received for the six months ended June 30, 2010, decreased from the six months ended June 30, 2009, due to the change in our traditional life reinsurance strategy, resulting in an increase in our retention level.

52

Acquisitions

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	178,389		$	184,484		(3.3	)%	$	339,110		$	363,160		(6.6	)%
Reinsurance ceded	(117,492		)	(115,482		)	1.7		(210,626		)	(225,089		)	(6.4	)
Net premiums and policy fees	60,897			69,002			(11.7	)	128,484			138,071			(6.9	)
Net investment income	116,748			119,515			(2.3	)	232,149			243,056			(4.5	)
Other income	1,375			1,592			(13.6	)	2,648			2,995			(11.6	)
Total operating revenues	179,020			190,109			(5.8	)	363,281			384,122			(5.4	)
Realized gains (losses) - investments	61,152			157,871					105,671			105,408
Realized gains (losses) - derivatives	(62,593		)	(146,462		)			(92,656		)	(88,778		)
Total revenues	177,579			201,518					376,296			400,752
BENEFITS AND EXPENSES
Benefits and settlement expenses	127,554			135,773			(6.1	)	261,028			274,504			(4.9	)
Amortization of deferred policy acquisition costs and value of business acquired	15,868			14,832			7.0		29,063			32,395			(10.3	)
Other operating expenses	5,408			4,463			21.2		11,631			8,561			35.9
Operating benefits and expenses	148,830			155,068			(4.0	)	301,722			315,460			(4.4	)
Amortization of DAC / VOBA related to realized gains (losses) - investments	(266		)	(272		)			(123		)	(94		)
Total benefits and expenses	148,564			154,796			(4.0	)	301,599			315,366			(4.4	)
INCOME BEFORE INCOME TAX	29,015			46,722			(37.9	)	74,697			85,386			(12.5	)
Less: realized gains (losses)	(1,441		)	11,409					13,015			16,630
Less: related amortization of DAC	266			272					123			94
OPERATING INCOME	$	30,190		$	35,041		(13.8	)	$	61,559		$	68,662		(10.3	)

53

The following table summarizes key data for the Acquisitions segment:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
Average Life Insurance In-Force(1)
Traditional	$	186,269,289		$	199,231,953		(6.5	)%	$	187,785,103		$	200,921,328		(6.5	)%
Universal life	26,952,745			28,486,526			(5.4	)	27,138,749			28,722,377			(5.5	)
	$	213,222,034		$	227,718,479		(6.4	)	$	214,923,852		$	229,643,705		(6.4	)
Average Account Values
Universal life	$	2,709,681		$	2,834,573		(4.4	)	$	2,732,403		$	2,849,613		(4.1	)
Fixed annuity(2)	3,386,070			3,617,480		(4)	(6.4	)	3,405,837			3,690,322		(4)	(7.7	)
Variable annuity	134,278			124,441			7.9		136,984			125,048			9.5
	$	6,230,029		$	6,576,494		(5.3	)	$	6,275,224		$	6,664,983		(5.8	)
Interest Spread - UL & Fixed Annuities
Net investment income yield(3)	6.01		%	5.89		%			5.95		%	5.96		%
Interest credited to policyholders	4.10			4.17					4.19			4.16
Interest spread	1.91		%	1.72		%			1.76		%	1.80		%

(1) Amounts are not adjusted for reinsurance ceded.

(2) Includes general account balances held within variable annuity products and is net of coinsurance ceded.

(3) Includes available-for-sale and trading portfolios. Available-for-sale portfolio yields were 6.34% for the three and six months ended June 30, 2010 as compared to 6.30% and 6.34%, respectively, for the three and six months ended June 30, 2009.

(4) Certain changes in methodology were made in the current year. Prior years have been adjusted to make amounts comparable to current year.

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Segment operating income

Operating income was $30.2 million for the three months ended June 30, 2010, a decrease of $4.9 million, or 13.8%, as compared to the three months ended June 30, 2009, primarily due to the expected runoff of the blocks of business.

Operating Revenues

Net premiums and policy fees decreased $8.1 million, or 11.7%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to runoff of the in-force business. Net investment income decreased $2.8 million, or 2.3%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, due to runoff of the segment’s in-force business, resulting in a reduction of invested assets and lower investment income.

Benefits and expenses

Total benefits and expenses decreased $6.2 million, or 4.0%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease related primarily to the expected runoff of the in-force business and fluctuations in mortality.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Segment operating income

Operating income was $61.6 million for the six months ended June 30, 2010, a decrease of $7.1 million, or 10.3%, as compared to the six months ended June 30, 2009, primarily due to the expected runoff of the blocks of business.

Operating Revenues

Net premiums and policy fees decreased $9.6 million, or 6.9%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to runoff of the in-force business. Net investment income decreased $10.9 million, or 4.5%, for the six months ended June 30, 2010, as compared to the six months

54

ended June 30, 2009, due to runoff of the segment’s in-force business, resulting in a reduction of invested assets and lower investment income.

Benefits and expenses

Total benefits and expenses decreased $13.8 million, or 4.4%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease related primarily to the expected runoff of the in-force business and fluctuations in mortality.

Reinsurance

The Acquisitions segment currently reinsures portions of both its life and annuity in-force. The cost of reinsurance to the segment is reflected in the chart shown below.

Impact of reinsurance

Reinsurance impacted the Acquisitions segment line items as shown in the following table:

Acquisitions Segment

Line Item Impact of Reinsurance

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(117,492	)	$	(115,482	)	$	(210,626	)	$	(225,089	)
BENEFITS AND EXPENSES
Benefit and settlement expenses	(93,901		)	(97,107		)	(178,970		)	(189,329		)
Amortization of deferred policy acquisition costs	(2,231		)	(3,496		)	(7,653		)	(9,277		)
Other operating expenses	(15,110		)	(15,747		)	(27,895		)	(30,706		)
Total benefits and expenses	(111,242		)	(116,350		)	(214,518		)	(229,312		)
NET IMPACT OF REINSURANCE	$	(6,250	)	$	868		$	3,892		$	4,223

The segment’s reinsurance programs do not materially impact the other income line of the income statement. In addition, net investment income generally has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded to the assuming companies. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business assumed from the Company. For business ceded under modified coinsurance arrangements, the amount of investment income attributable to the assuming company is included as part of the overall change in policy reserves and, as such, is reflected in benefit and settlement expenses. The net investment income impact to us and the assuming companies has not been quantified as it is not fully reflected in our consolidated condensed financial statements.

The net impact of reinsurance was less favorable by $7.1 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, due to increases in ceded premiums and decreases in benefits, amortization of deferred acquisition costs, and expenses.

The net impact of reinsurance decreased $0.3 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, as decreases in ceded premiums more than offset decreases in benefits, amortization of deferred acquisition costs, and expenses.

55

Annuities

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	9,800		$	7,406		32.3	%	$	18,575		$	18,391		1.0	%
Reinsurance ceded	(38		)	(42		)	(9.5	)	(75		)	(84		)	(10.7	)
Net premiums and policy fees	9,762			7,364			32.6		18,500			18,307			1.1
Net investment income	118,719			108,588			9.3		234,916			211,570			11.0
Realized gains (losses) - derivatives	(49,417		)	13,393			n/m		(39,868		)	32,481			n/m
Other income	6,421			3,870			65.9		11,826			6,980			69.4
Total operating revenues	85,485			133,215			(35.8	)	225,374			269,338			(16.3	)
Realized gains (losses) - investments	(524		)	925					(422		)	(5,523		)
Total revenues	84,961			134,140			(36.7	)	224,952			263,815			(14.7	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	114,534			78,759			45.4		208,775			164,567			26.9
Amortization of deferred policy acquisition costs and value of business acquired	(38,143		)	26,568			n/m		(18,543		)	71,753			n/m
Other operating expenses	9,749			6,347			53.6		18,979			12,722			49.2
Operating benefits and expenses	86,140			111,674			(22.9	)	209,211			249,042			(16.0	)
Amortization of DAC / VOBA related to realized gains (losses) - investments	594			—					665			(100		)
Total benefits and expenses	86,734			111,674			(22.3	)	209,876			248,942			(15.7	)
INCOME (LOSS) BEFORE INCOME TAX	(1,773		)	22,466			n/m		15,076			14,873			1.4
Less: realized gains (losses)	(524		)	925					(422		)	(5,523		)
Less: related amortization of DAC	(594		)	670					(665		)	770
OPERATING INCOME (LOSS)	$	(655	)	$	20,871		n/m		$	16,163		$	19,626		(17.6	)

56

The following table summarizes key data for the Annuities segment:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
Sales
Fixed annuity	$	325,299		$	432,373		(24.8	)%	$	543,328		$	730,053		(25.6	)%
Variable annuity	412,789			177,306			n/m		762,725			316,362			n/m
	$	738,088		$	609,679		21.1		$	1,306,053		$	1,046,415		24.8
Average Account Values
Fixed annuity(1)	$	7,820,272		$	6,945,161		12.6		$	7,710,618		$	6,814,015		13.2
Variable annuity	3,212,315			1,999,967			60.6		3,061,036			1,882,160			62.6
	$	11,032,587		$	8,945,128		23.3		$	10,771,654		$	8,696,175		23.9
Interest Spread - Fixed Annuities(2)
Net investment income yield	6.06		%	6.23		%			6.09		%	6.18		%
Interest credited to policyholders	4.61			4.82					4.62			4.87
Interest spread	1.45		%	1.41		%			1.47		%	1.31		%

	As of June 30,
	2010		2009		Change
GMDB - Net amount at risk(3)
GMDB Reserves	$	482,349	$	681,368	(29.2	)%
GMWB Reserves	—		—		n/m
Account value subject to GMWB rider	54,047		1,067		n/m
S&P 500® Index	1,679,153		629,576		n/m
	1,031		919		12.2

(1)Includes general account balances held within variable annuity products.

(2)Interest spread on average general account values.

(3)Guaranteed death benefits in excess of contract holder account balance.

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Segment operating income (loss)

Segment operating loss was $0.7 million for the three months ended June 30, 2010, as compared to an operating income of $20.9 million for the three months ended June 30, 2009, a decrease of $21.5 million. This change included an unfavorable $20.9 million variance related to fair value changes, made up of a $0.4 million favorable change related to the EIA product and a $21.3 million unfavorable change related to embedded derivatives associated with the VA GMWB rider caused primarily by changes in equity markets and lower interest rates. A $2.9 million increase in earnings was related to wider spreads and average account value growth in fixed and variable annuities.

Operating revenues

Segment operating revenues decreased $47.7 million, or 35.8%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to unfavorable fair value changes on the embedded derivatives associated with the VA GMWB rider and economic hedges associated with the EIA product. These losses were partially offset by an increase in net investment income, policy fees, and other income. Average fixed account balances grew 12.6% for the three months ended June 30, 2010, resulting in higher investment income.

Benefits and settlement expenses

Benefits and settlement expenses increased $35.8 million, or 45.4%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. This increase was primarily the result of higher credited interest, higher unearned premium reserve amortization, and fluctuations in death benefit reserves on the VA line. Partially offsetting this increase was a favorable change of $4.1 million in the fair value component of the EIA reserve and lower bonus interest amortization.

57

Amortization of DAC

The decrease in DAC amortization for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, was primarily due to fair value changes on the VA GMWB rider. Fair value changes on the VA GMWB rider caused a decrease in amortization of $52.7 million. Favorable DAC unlocking of $0.9 million was recorded by the segment during the three months ended June 30, 2010, as compared to favorable unlocking of $0.6 million during the three months ended June 30, 2009.

Sales

Total sales increased $128.4 million, or 21.1%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Sales of fixed annuities decreased $107.1 million, or 24.8%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease in fixed annuity sales was driven by reduced sales in the market value adjusted (“MVA”) annuity, single premium deferred annuity (“SPDA”) line, and immediate annuity lines and was primarily attributable to a lower interest rate environment. MVA sales decreased $100.1 million, or 66.7%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Sales of variable annuities increased $235.5 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to better competitive position and more focus on the VA line of business.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Segment operating income

Segment operating income was $16.2 million for the six months ended June 30, 2010, as compared to an operating income of $19.6 million for the six months ended June 30, 2009, a decrease of $3.5 million. This change included an unfavorable $28.3 million variance related to fair value changes, of which $1.8 million was related to the EIA product and $26.5 million was related to embedded derivatives associated with the VA GMWB rider, caused primarily by changes in equity markets and lower interest rates. The remaining $26.2 million variance in operating income was primarily driven by a $19.3 million unlocking charge recorded within the VA line during the six months ended June 30, 2009. Other items accounted for the remainder of the variance, including a $6.4 million increase in earnings related to wider spreads and average account value growth in fixed and variable annuities.

Operating revenues

Segment operating revenues decreased $44.0 million, or 16.3%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to unfavorable fair value changes on the embedded derivatives associated with the VA GMWB rider and economic hedges associated with the EIA product. These losses were partially offset by increases in net investment income, policy fees, and other income. Average fixed account balances grew 13.2% for the six months ended June 30, 2010, resulting in higher investment income.

Benefits and settlement expenses

Benefits and settlement expenses increased $44.2 million, or 26.9%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. This increase was primarily the result of higher credited interest and higher unearned premium reserve amortization. Offsetting this increase was a favorable variance of $2.7 million in EIA fair value changes and a favorable change of $4.9 million in VA death benefit payments for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009.

Amortization of DAC

The decrease in DAC amortization for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, was primarily due to fair value changes on the VA GMWB rider, and a $10.8 million unlocking charge in the VA line during the six months ended June 30, 2009. Fair value changes on the VA GMWB rider caused a decrease in amortization of $60.9 million. Favorable DAC unlocking of $1.6 million was recorded by the segment during the six months ended June 30, 2010.

58

Sales

Total sales increased $259.6 million, or 24.8%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Sales of fixed annuities decreased $186.7 million, or 25.6%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease in fixed annuity sales was driven by reduced sales in the MVA and immediate annuity lines and was primarily attributable to a lower interest rate environment. MVA sales decreased $192.7 million, or 72.0%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. SPDA sales increased by $30.1 million, or 7.3%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to expansion of our distribution channels. Sales of variable annuities increased $446.4 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to better competitive positioning and more focus on the VA line of business.

59

Stable Value Products

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009		Change
	(Dollars In Thousands)
REVENUES
Net investment income	$	45,724		$	57,550		(20.5	)%	$	92,144		$	120,726	(23.7	)%
Other income	—			340			(100.0	)	—			1,866		(100.0	)
Realized gains (losses)	(8,213		)	(400		)	n/m		(6,677		)	1,462		n/m
Total revenues	37,511			57,490			(34.8	)	85,467			124,054		(31.1	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	32,972			39,206			(15.9	)	66,703			81,791		(18.4	)
Amortization of deferred policy acquisition costs	882			844			4.5		1,861			1,771		5.1
Other operating expenses	891			864			3.1		1,574			1,847		(14.8	)
Total benefits and expenses	34,745			40,914			(15.1	)	70,138			85,409		(17.9	)
INCOME BEFORE INCOME TAX	2,766			16,576			(83.3	)	15,329			38,645		(60.3	)
Less: realized gains (losses)	(8,213		)	(400		)			(6,677		)	1,462
OPERATING INCOME	$	10,979		$	16,976		(35.3	)	$	22,006		$	37,183	(40.8	)

The following table summarizes key data for the Stable Value Products segment:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
Sales
GIC	$	6,500		$	—		n/m	%	$	7,500		$	—		n/m	%
GFA - Direct Institutional	250,000			—			n/m		400,000			—			n/m
GFA - Registered Notes - Institutional	—			—			n/m		—			—			n/m
GFA - Registered Notes - Retail	—			—			n/m		—			—			n/m
	$	256,500		$	—		n/m		$	407,500		$	—		n/m
Average Account Values	$	3,497,115		$	4,224,897		(17.2	)	$	3,496,283		$	4,373,484		(20.1	)
Ending Account Values	$	3,488,175		$	4,138,437		(15.7	)	$	3,488,175		$	4,138,437		(15.7	)
Operating Spread
Net investment income yield	5.23		%	5.45		%			5.27		%	5.52		%
Interest credited	3.77			3.71					3.81			3.74
Operating expenses	0.20			0.17					0.20			0.17
Operating spread	1.26		%	1.57		%(1)			1.26		%	1.61		%(1)

(1) Excludes one-time funding agreement retirement gains.

60

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Segment operating income

Operating income was $11.0 million and decreased $6.0 million, or 35.3%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease in operating earnings resulted from a decline in average account values and lower operating spreads. In addition, no income was generated from the early retirement of funding agreements backing medium-term notes for the three months ended June 30, 2010, compared with $0.3 million for the three months ended June 30, 2009. The operating spread decreased 31 basis points to 126 basis points for the three months ended June 30, 2010, as compared to an operating spread of 157 basis points during the three months ended June 30, 2009.

Sales

During the first quarter of 2010, we chose to re-enter the stable value market. Total sales were $256.5 million for the three months ended June 30, 2010.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Segment operating income

Operating income was $22.0 million and decreased $15.2 million, or 40.8%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease in operating earnings resulted from a decline in average account values and lower operating spreads. In addition, no income was generated from the early retirement of funding agreements backing medium-term notes for the six months ended June 30, 2010, compared with $1.9 million for the six months ended June 30, 2009. The operating spread decreased 35 basis points to 126 basis points for the six months ended June 30, 2010, as compared to an operating spread of 161 basis points during the six months ended June 30, 2009.

Sales

During the first quarter of 2010, we chose to re-enter the stable value market. Total sales were $407.5 million for the six months ended June 30, 2010.

61

Asset Protection

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	72,948		$	80,491		(9.4	)%	$	148,526		$	163,847		(9.4	)%
Reinsurance ceded	(27,850		)	(34,194		)	(18.6	)	(57,841		)	(70,880		)	(18.4	)
Net premiums and policy fees	45,098			46,297			(2.6	)	90,685			92,967			(2.5	)
Net investment income	6,105			7,209			(15.3	)	12,435			14,899			(16.5	)
Other income	16,694			12,091			38.1		31,263			23,971			30.4
Total operating revenues	67,897			65,597			3.5		134,383			131,837			1.9
BENEFITS AND EXPENSES
Benefits and settlement expenses	23,640			24,318			(2.8	)	39,399			54,249			(27.4	)
Amortization of deferred policy acquisition costs	7,671			7,025			9.2		14,602			14,352			1.7
Other operating expenses	31,474			30,870			2.0		64,444			55,710			15.7
Total benefits and expenses	62,785			62,213			0.9		118,445			124,311			(4.7	)
INCOME BEFORE INCOME TAX	5,112			3,384			51.1		15,938			7,526			n/m
OPERATING INCOME	$	5,112		$	3,384		51.1		$	15,938		$	7,526		n/m

The following table summarizes key data for the Asset Protection segment:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
Sales
Credit insurance	$	9,693		$	8,721		11.1	%	$	17,385		$	17,204		1.1	%
Service contracts	60,612			53,129			14.1		110,217			98,877			11.5
Other products	13,363			11,115			20.2		24,822			22,882			8.5
	$	83,668		$	72,965		14.7		$	152,424		$	138,963		9.7
Loss Ratios (1)
Credit insurance	29.2		%	34.1		%			36.7		%	33.0		%
Service contracts	57.5			54.4					55.2			52.7
Other products	37.7			62.5					(53.5		)	145.7

(1) Incurred claims as a percentage of earned premiums

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Segment operating income

Operating income was $5.1 million, representing an increase of $1.7 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Second quarter income was comprised solely from core operations. Credit insurance earnings decreased $0.4 million as compared to the prior year, primarily due to lower investment income. Service contract earnings increased $1.7 million as compared to the prior year primarily due to higher volume partially offset by higher loss ratios and higher expenses in certain product lines. Earnings from other products, including runoff lines, increased $0.4 million, or 34.3%, for the three months ended June 30, 2010, as compared to the prior year. The increase was due to favorable loss experience in the GAP product line, partially offset by the release of excess reserves in the IPP line in the second quarter of 2009.

62

Net premiums and policy fees

Net premiums and policy fees decreased $1.2 million, or 2.6%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Credit insurance premiums decreased $0.6 million, or 9.4%, due to the impact of decreasing sales over the past several years and the related impact on earned premium. Service contract premiums decreased $0.3 million, or 0.9%. Within the other product lines, net premiums decreased $0.3 million, or 7.9%, as compared to the prior year. The decrease was due to lower earned premiums in the GAP product line as a result of decreasing sales over the past several years and the related impact on earned premium. The discontinuation of the IPP product line in 2009 also contributed to the decrease.

Other income

Other income increased $4.6 million, or 38.1%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to the impact of taking over the administration of a block of service contract business in the fourth quarter of 2009 and an increase in auto sales in 2010.

Benefits and settlement expenses

Benefits and settlement expenses decreased $0.7 million, or 2.8%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Credit insurance claims for the three months ended June 30, 2010, as compared to the prior year, decreased $0.5 million, or 22.3%, due to improved loss ratios. Service contract claims increased $1.0 million, or 4.9%, due to higher loss ratios in some product lines. Other products claims decreased $1.2 million, or 44.4%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Improved loss ratios in the GAP product line contributed to the decrease.

Amortization of DAC and Other operating expenses

Amortization of DAC increased $0.6 million, or 9.2%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to increases in the dealer credit insurance line. Other operating expenses increased $0.6 million, or 2.0%, for the three months ended June 30, 2010, primarily due to higher retrospective commissions resulting from lower loss ratios in certain service contract lines and the GAP product line.

Sales

Total segment sales increased $10.7 million, or 14.7%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. Credit insurance sales increased $1.0 million, or 11.1%. Service contract sales increased $7.5 million, or 14.1%, as compared to the prior year. Sales from other products increased $2.2 million, or 20.2%. Increases in all lines are attributable to the improvement in auto sales over the prior year.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Segment operating income

Operating income was $15.9 million, representing an increase of $8.4 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Income for the six months ended June 30, 2010 was comprised of $8.3 million of income from core operations and $7.6 million of income from runoff lines. Credit insurance earnings decreased $1.9 million as compared to the prior year, primarily due to unfavorable loss experience and lower investment income. Service contract earnings increased $1.8 million, or 43.0%, as compared to the prior year. Earnings from other products, including runoff lines, increased $8.6 million for the six months ended June 30, 2010, as compared to the prior year. The increase resulted primarily from a $7.8 million excess reserve release in the first quarter of 2010 related to the final settlement in the runoff Lender’s Indemnity line. Favorable loss experience in the GAP product line also contributed to the increase.

Net premiums and policy fees

Net premiums and policy fees decreased $2.3 million, or 2.5%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily in the credit insurance line. The decrease was due the impact of decreasing sales over the past several years and the related impact on earned premiums.

63

Other income

Other income increased $7.3 million, or 30.4%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to the impact of taking over the administration of a block of service contract business in the fourth quarter of 2009 and an increase in sales in 2010.

Benefits and settlement expenses

Benefits and settlement expenses decreased $14.9 million, or 27.4%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Credit insurance claims for the six months ended June 30, 2010, as compared to the prior year, decreased $0.1 million, or 1.4%. Service contract claims increased $1.5 million, or 3.9%, due to higher loss ratios in some product lines. Other products claims decreased $16.3 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease included a $7.8 million decrease in reserves related to the final settlement in the runoff Lender’s Indemnity product line of business. In addition, the first quarter of 2009 included a $6.3 million increase in the runoff Lender’s Indemnity product line’s loss reserve related to the commutation of a reinsurance agreement, which was offset by a reduction in other expenses. Improved loss ratios in the GAP product line also contributed to the decrease.

Amortization of DAC and Other operating expenses

Amortization of DAC was $0.3 million, or 1.7%, higher for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Other operating expenses increased $8.7 million, or 15.7%, for the six months ended June 30, 2010, primarily due to a $6.3 million bad debt recovery in the runoff Lender’s Indemnity product line due to the commutation of a reinsurance agreement in the first quarter of 2009, which was offset by an increase in benefits and settlement expenses. Higher commission expense resulting from an increase in sales and higher retrospective commissions resulting from lower loss ratios in certain service contract lines and the GAP product line also contributed to the increase.

Sales

Total segment sales increased $13.5 million, or 9.7%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. Credit insurance sales increased $0.2 million, or 1.1%. Service contract sales increased $11.3 million, or 11.5%, as compared to the prior year. Sales in the other products increased $1.9 million, or 8.5%, primarily in the GAP product line. Increases in all lines are primarily attributable to the improvement in auto sales over the prior year.

Reinsurance

The majority of the Asset Protection segment’s reinsurance activity relates to the cession of single premium credit life and credit accident and health insurance, credit property, vehicle service contracts, and guaranteed asset protection insurance to producer affiliated reinsurance companies (“PARC’s”). These arrangements are coinsurance contracts ceding the business on a first dollar quota share basis at levels ranging from 50% to 100% to limit our exposure and allow the PARC’s to share in the underwriting income of the product. Reinsurance contracts do not relieve us from our obligations to our policyholders.

64

Reinsurance impacted the Asset Protection segment line items as shown in the following table:

Asset Protection Segment

Line Item Impact of Reinsurance

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(27,850	)	$	(34,194	)	$	(57,841	)	$	(70,880	)
BENEFITS AND EXPENSES
Benefit and settlement expenses	(20,373		)	(24,835		)	(41,089		)	(49,075		)
Amortization of deferred policy acquisition costs	(7,870		)	(11,965		)	(17,298		)	(23,816		)
Other operating expenses	(2,719		)	(1,485		)	(4,524		)	(10,025		)
Total benefits and expenses	(30,962		)	(38,285		)	(62,911		)	(82,916		)
NET IMPACT OF REINSURANCE	$	3,112		$	4,091		$	5,070		$	12,036

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Reinsurance premiums ceded decreased $6.3 million, or 18.6%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease was primarily due to a decline in ceded dealer credit insurance premiums and GAP premiums due to the impact of decreasing sales over the past several years and the related impact on earned premiums. Ceded unearned premium reserves and claim reserves with PARC’s are generally secured by trust accounts, letters of credit, or on a funds withheld basis.

Benefits and settlement expenses ceded decreased $4.5 million, or 18.0%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease was primarily due to lower losses in the service contract and GAP lines.

Amortization of DAC ceded decreased $4.1 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily as the result of the decreases in the ceded dealer credit and GAP product lines. Other operating expenses ceded increased $1.2 million for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009.

Net investment income has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business we cede. The net investment income impact to us and the assuming companies has not been quantified as it is not reflected in our consolidated condensed financial statements.

For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Reinsurance premiums ceded decreased $13.0 million, or 18.4%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease was primarily due to a decline in ceded dealer credit insurance premiums and GAP premiums due to the impact of decreasing sales over the past several years and the related impact on earned premiums. Ceded unearned premium reserves and claim reserves with PARC’s are generally secured by trust accounts, letters of credit, or on a funds withheld basis.

Benefits and settlement expenses ceded decreased $8.0 million, or 16.3%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The decrease was primarily due to lower losses in the service contract and GAP lines.

65

Amortization of DAC ceded decreased $6.5 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily as the result of the decreases in the ceded dealer credit and GAP product lines. Other operating expenses ceded decreased $5.5 million for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009. The fluctuation was primarily attributable to a $6.3 million bad debt recovery in the runoff Lender’s Indemnity product line as a result of the commutation of a reinsurance agreement in the first quarter of 2009.

66

Corporate and Other

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	6,168		$	6,664		(7.4	)%	$	12,539		$	13,562		(7.5	)%
Reinsurance ceded	(2		)	(1		)	n/m		(2		)	(2		)	n/m
Net premiums and policy fees	6,166			6,663			(7.5	)	12,537			13,560			(7.5	)
Net investment income	26,522			31,273			(15.2	)	49,241			44,161			11.5
Realized gains (losses) - derivatives	42			1,163					84			1,205
Other income	4			2			n/m		6			52			(88.5	)
Total operating revenues	32,734			39,101			(16.3	)	61,868			58,978			4.9
Realized gains (losses) - investments	(1,151		)	(30,351		)			(9,180		)	(104,368		)
Realized gains (losses) - derivatives	(6,682		)	28,780					(11,047		)	48,803
Total revenues	24,901			37,530			(33.7	)	41,641			3,413			n/m
BENEFITS AND EXPENSES
Benefits and settlement expenses	6,442			5,946			8.3		12,979			13,661			(5.0	)
Amortization of deferred policy acquisition costs	452			469			(3.6	)	900			953			(5.6	)
Other operating expenses	26,553			22,712			16.9		52,485			44,907			16.9
Total benefits and expenses	33,447			29,127			14.8		66,364			59,521			11.5
INCOME (LOSS) BEFORE INCOME TAX	(8,546		)	8,403			n/m		(24,723		)	(56,108		)	(55.9	)
Less: realized gains (losses) - investments	(1,151		)	(30,351		)			(9,180		)	(104,368		)
Less: realized gains (losses) - derivatives	(6,682		)	28,780					(11,047		)	48,803
OPERATING INCOME (LOSS)	$	(713	)	$	9,974		n/m		$	(4,496	)	$	(543	)	n/m

For The Three Months Ended June 30, 2010 as compared to The Three Months Ended June 30, 2009

Segment operating income (loss)

Corporate and Other segment operating loss was $0.7 million for the three months ended June 30, 2010, as compared to income of $10.0 million for the three months ended June 30, 2009. This variance was primarily due to negative mark-to-market adjustments during the second quarter of 2010 on a portfolio of securities designated for trading. The trading portfolio accounted for a negative variance of $27.8 million. Partially offsetting this was growth in other investment income.

Operating revenues

Net investment income for the segment decreased $4.8 million, or 15.2%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009. The decrease in net investment income was primarily the result of a negative variance related to the trading portfolio of $27.8 million compared to the prior year quarter. Partially offsetting this was growth in other investment income.

Benefits and expenses

Benefits and expenses increased $4.3 million, or 14.8%, for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, primarily due to an increase in interest expense of $4.0 million, as well as an increase in policy benefits on non-core lines of business.

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For The Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Segment operating income (loss)

Corporate and Other segment operating loss was $4.5 million for the six months ended June 30, 2010, as compared to a loss of $0.5 million for the six months ended June 30, 2009. This variance was primarily due to a negative variance related to mark-to-market adjustments on a portfolio of securities designated for trading. The trading portfolio accounted for a negative variance of $27.1 million compared to the prior year. Partially offsetting this was growth in other investment income.

Operating revenues

Net investment income for the segment increased $5.1 million, or 11.5%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, and net premiums and policy fees decreased $1.0 million, or 7.5%. The increase in net investment income was primarily the result of growth in other investment income, offset by a negative variance related to the trading portfolio of $27.1 million.

Benefits and expenses

Benefits and expenses increased $6.8 million, or 11.5%, for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, primarily due to an increase in interest expense of $5.7 million.

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CONSOLIDATED INVESTMENTS

Certain reclassifications have been made in the previously reported financial statements and accompanying tables to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, shareowners’ equity, or the totals reflected in the accompanying tables.

Portfolio Description

As of June 30, 2010, our investment portfolio was approximately $30.8 billion. The types of assets in which we may invest are influenced by various state laws which prescribe qualified investment assets. Within the parameters of these laws, we invest in assets giving consideration to such factors as liquidity and capital needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.

The following table includes the reported values of our invested assets:

	As of
	June 30, 2010				December 31, 2009
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2010 - $18,932,676; 2009 - $18,371,924)	$	19,372,722	63.0	%	$	18,097,314	62.5	%
Privately issued bonds (amortized cost: 2010 - $4,208,202; 2009 - $4,819,025)	4,279,397		13.9		4,697,946		16.2
Fixed maturities	23,652,119		76.9		22,795,260		78.7
Equity securities (cost: 2010 - $288,263; 2009 - $240,764)	271,876		0.9		235,124		0.8
Mortgage loans	4,897,144		15.9		3,870,587		13.4
Investment real estate	7,261		0.0		7,347		0.0
Policy loans	775,105		2.5		794,276		2.7
Other long-term investments	192,042		0.6		216,189		0.7
Short-term investments	967,840		3.2		1,039,947		3.7
Total investments	$	30,763,387	100.0	%	$	28,958,730	100.0	%

Included in the preceding table are $3.1 billion and $2.9 billion of fixed maturities and $130.5 million and $250.8 million of short-term investments classified as trading securities as of June 30, 2010 and December 31, 2009, respectively. The trading portfolio includes invested assets of $2.9 billion and $2.7 billion as of June 30, 2010 and December 31, 2009, respectively, held pursuant to Modco arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers.

Fixed Maturity Investments

As of June 30, 2010, our fixed maturity investment holdings were approximately $23.7 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:

	As of
Rating	June 30, 2010		December 31, 2009
AAA	14.7	%	19.9	%
AA	4.7		4.9
A	21.7		18.7
BBB	45.1		42.9
Below investment grade	13.8		13.6
	100.0	%	100.0	%

The increase in BBB securities reflected in the table above is primarily a result of negative ratings migration on securities owned by the Company and security purchases. During the six months ended June 30, 2010 and the year ended December 31, 2009, we did not actively purchase securities below the BBB level.

We do not have material exposure to financial guarantee insurance companies with respect to our investment portfolio. As of June 30, 2010, based upon amortized cost, $74.2 million of our securities were guaranteed either directly or indirectly by third parties out of a total of $23.0 billion fixed maturity securities held by us (0.3% of total fixed maturity securities).

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Declines in fair value for our available-for-sale portfolio, net of related DAC and VOBA, are charged or credited directly to shareowners’ equity. Declines in fair value that are other-than-temporary are recorded as realized losses in the consolidated condensed statements of income, net of any applicable non-credit component of the loss, which is recorded as an adjustment to other comprehensive income. The increase in BBB and below investment grade assets, as shown in the preceding table, is primarily a result of ratings downgrades related to our corporate credit and residential mortgage-backed securities (“RMBS”).

The distribution of our fixed maturity investments by type is as follows:

	As of
Type	June 30, 2010		December 31, 2009
	(Dollars In Millions)
Residential mortgage-backed securities	$	3,499.9	$	3,904.7
Commercial mortgage-backed securities	295.9		1,123.3
Other asset-backed securities	951.6		1,120.8
U.S. government-related bonds	1,822.0		808.7
Other government-related bonds	368.8		608.5
States, municipals and political subdivisions	783.8		400.1
Corporate bonds	15,930.1		14,829.1
Total fixed income portfolio	$	23,652.1	$	22,795.2

Within our fixed maturity securities, we maintain portfolios classified as “available-for-sale” and “trading”. We purchase our investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our investments to maintain proper matching of assets and liabilities. Accordingly, we classified $20.6 billion or 87.1% of our fixed maturities as “available-for-sale” as of June 30, 2010. These securities are carried at fair value on our consolidated condensed balance sheets.

Trading securities are carried at fair value and changes in fair value are recorded on the income statement as they occur. Our trading portfolio accounts for $3.1 billion, or 12.9%, of our fixed maturities as of June 30, 2010. Of this balance, fixed maturities with a market value of $2.9 billion and short-term investments with a market value of $130.5 million were added as part of the Chase Insurance Group acquisition. Investment results for the Chase Insurance Group portfolios, including gains and losses from sales, are passed to the reinsurers through the contractual terms of the reinsurance arrangements. Partially offsetting these amounts are corresponding changes in the fair value of the embedded derivative associated with the underlying reinsurance arrangement. The total Modco trading portfolio fixed maturities by rating is as follows:

	As of
Rating	June 30, 2010		December 31, 2009
	(Dollars In Thousands)
AAA	$	725,325	$	834,733
AA	133,712		73,210
A	759,756		544,135
BBB	978,207		950,252
Below investment grade	275,842		281,487
Total Modco trading fixed maturities	$	2,872,842	$	2,683,817

A portion of our bond portfolio is invested in RMBS, commercial mortgage-backed securities (“CMBS”), and other asset-backed securities. These holdings as of June 30, 2010, were approximately $4.7 billion. Mortgage-backed securities (“MBS”) are constructed from pools of mortgages and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Excluding limitations on access to lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected to accelerate with decreases in market interest rates and diminish with increases in interest rates. In addition, we have entered into derivative contracts at times to partially offset the volatility in the market value of these securities.

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Residential mortgage-backed securities - The tables below include a breakdown of our RMBS portfolio by type and rating as of June 30, 2010. As of June 30, 2010, these holdings were approximately $3.5 billion. Sequential securities receive payments in order until each class is paid off. Planned amortization class securities (“PACs”) pay down according to a schedule. Pass through securities receive principal as principal of the underlying mortgages is received.

	Percentage of
	Residential
	Mortgage-Backed
Type	Securities
Sequential	64.0	%
PAC	16.3
Pass Through	3.5
Other	16.2
	100.0	%

	Percentage of
	Residential
	Mortgage-Backed
Rating	Securities
AAA	33.9	%
AA	5.4
A	0.7
BBB	7.7
Below investment grade	52.3
	100.0	%

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As of June 30, 2010, we held $421.9 million, or 1.3% of invested assets, of securities supported by collateral classified as Alt-A. As of December 31, 2009, we held securities with a market value of $466.1 million of securities supported by collateral classified as Alt-A.

The following table includes the percentage of our collateral classified as Alt-A grouped by rating category as of June 30, 2010:

	Percentage of
	Alt-A
Rating	Securities
AAA	1.5	%
A	1.0
BBB	0.1
Below investment grade	97.4
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our mortgage-backed securities collateralized by Alt-A mortgage loans by rating as of June 30, 2010:

Alt-A Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2006 and
Rating	Prior		2007		2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	6.0	$	—	$	—	$	—	$	—	$	6.0
A	4.3		—		—		—		—		4.3
BBB	0.6		—		—		—		—		0.6
Below investment grade	231.7		170.3		—		—		—		402.0
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	242.6	$	170.3	$	—	$	—	$	—	$	412.9

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2006 and
Rating	Prior			2007			2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	(0.2	)	$	—		$	—	$	—	$	—	$	(0.2	)
A	0.7			—			—		—		—		0.7
BBB	0.2			—			—		—		—		0.2
Below investment grade	(47.5		)	(24.6		)	—		—		—		(72.1		)
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	(46.8	)	$	(24.6	)	$	—	$	—	$	—	$	(71.4	)

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The following table includes the percentage of our collateral classified as sub-prime grouped by rating category as of June 30, 2010:

	Percentage of
	Sub-prime
Rating	Securities
AAA	0.5	%
AA	0.2
A	5.8
BBB	6.3
Below investment grade	87.2
	100.0	%

As of June 30, 2010, we had RMBS with a total fair value of $37.3 million, or 0.1% of total invested assets, that were supported by collateral classified as sub-prime. As of December 31, 2009, we held securities with a fair market value of $35.2 million of securities supported by collateral classified as sub-prime.

The following tables categorize the estimated fair value and unrealized gain/(loss) of our mortgage-backed securities collateralized by sub-prime mortgage loans by rating as of June 30, 2010:

Sub-prime Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2006 and
Rating	Prior		2007		2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	0.2	$	—	$	—	$	—	$	—	$	0.2
AA	0.1		—		—		—		—		0.1
A	2.2		—		—		—		—		2.2
BBB	2.3		—		—		—		—		2.3
Below investment grade	17.9		14.6		—		—		—		32.5
Total mortgage-backed securities collateralized by sub-prime mortgage loans	$	22.7	$	14.6	$	—	$	—	$	—	$	37.3

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2006 and
Rating	Prior			2007			2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	—		$	—		$	—	$	—	$	—	$	—
AA	—			—			—		—		—		—
A	(0.3		)	—			—		—		—		(0.3		)
BBB	(0.6		)	—			—		—		—		(0.6		)
Below investment grade	(6.9		)	(20.2		)	—		—		—		(27.1		)
Total mortgage-backed securities collateralized by sub-prime mortgage loans	$	(7.8	)	$	(20.2	)	$	—	$	—	$	—	$	(28.0	)

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The following table includes the percentage of our collateral classified as prime grouped by rating category as of June 30, 2010:

	Percentage of
	Prime
Rating	Securities
AAA	38.7	%
AA	6.2
A	0.6
BBB	8.7
Below investment grade	45.8
	100.0	%

As of June 30, 2010, we had RMBS collateralized by prime mortgage loans (including agency mortgages) with a total fair market value of $3.0 billion, or 9.9%, of total invested assets. As of December 31, 2009, we held securities with a fair market value of $3.4 billion of RMBS collateralized by prime mortgage loans (including agency mortgages).

The following tables categorize the estimated fair value and unrealized gain/(loss) of our mortgage-backed securities collateralized by prime mortgage loans (including agency mortgages) by rating as of June 30, 2010:

Prime Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2006 and
Rating	Prior		2007		2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	1,170.8	$	8.1	$	—	$	—	$	—	$	1,178.9
AA	190.3		—		—		—		—		190.3
A	11.2		6.2		—		—		—		17.4
BBB	265.0		—		—		—		—		265.0
Below investment grade	1,138.6		259.5		—		—		—		1,398.1
Total mortgage-backed securities collateralized by prime mortgage loans	$	2,775.9	$	273.8	$	—	$	—	$	—	$	3,049.7

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2006 and
Rating	Prior			2007			2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	58.0		$	0.5		$	—	$	—	$	—	$	58.5
AA	(3.9		)	—			—		—		—		(3.9		)
A	0.4			0.2			—		—		—		0.6
BBB	(16.7		)	—			—		—		—		(16.7		)
Below investment grade	(131.4		)	(40.3		)	—		—		—		(171.7		)
Total mortgage-backed securities collateralized by prime mortgage loans	$	(93.6	)	$	(39.6	)	$	—	$	—	$	—	$	(133.2	)

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Commercial mortgage-backed securities - Our CMBS portfolio consists of commercial CMBS issued in securitization transactions. As of June 30, 2010, the CMBS holdings were approximately $296.0 million.

The following table includes the percentages of our CMBS holdings grouped by rating category as of June 30, 2010:

	Percentage of
	Commercial
	Mortgage-Backed
Rating	Securities
AAA	97.8	%
BBB	2.2
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our CMBS by rating as of June 30, 2010:

Commercial Mortgage-Backed Securities

	Estimated Fair Value of Security by Year of Security Origination
	2006 and
Rating	Prior		2007		2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	203.2	$	—	$	46.3	$	—	$	39.9	$	289.4
BBB	6.6		—		—		—		—		6.6
Total commercial mortgage-backed securities	$	209.8	$	—	$	46.3	$	—	$	39.9	$	296.0

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2006 and
Rating	Prior			2007		2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	9.0		$	—	$	3.1	$	—	$	—	$	12.1
BBB	(0.4		)	—		—		—		—		(0.4		)
Total commercial mortgage-backed securities	$	8.6		$	—	$	3.1	$	—	$	—	$	11.7

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Other asset-backed securities — Other asset-backed securities pay down based on cash flow received from the underlying pool of assets, such as receivables on auto loans, student loans, credit cards, etc. As of June 30, 2010, these holdings were approximately $951.6 million.

The following table includes the percentages of our other asset-backed security holdings grouped by rating category as of June 30, 2010:

	Percentage of
	Other Asset-Backed
Rating	Securities
AAA	93.8	%
AA	3.3
A	0.7
BBB	1.1
Below investment grade	1.1
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our other asset-backed securities by rating as of June 30, 2010:

Other Asset-Backed Securities

	Estimated Fair Value of Security by Year of Security Origination
	2006 and
Rating	Prior		2007		2008		2009		2010		Total
	(Dollars In Millions)
AAA	$	651.4	$	180.5	$	35.8	$	—	$	24.9	$	892.6
AA	31.3		—		—		—		—		31.3
A	6.5		—		—		—		—		6.5
BBB	6.3		3.9		—		—		—		10.2
Below investment grade	0.6		10.4		—		—		—		11.0
Total asset-backed securities	$	696.1	$	194.8	$	35.8	$	—	$	24.9	$	951.6

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2006 and
Rating	Prior			2007			2008		2009		2010			Total
	(Dollars In Millions)
AAA	$	(38.8	)	$	(21.5	)	$	0.3	$	—	$	(0.1	)	$	(60.1	)
AA	2.7			—			—		—		—			2.7
A	0.3			—			—		—		—			0.3
BBB	(1.2		)	—			—		—		—			(1.2		)
Below investment grade	(0.2		)	(11.9		)	—		—		—			(12.1		)
Total asset-backed securities	$	(37.2	)	$	(33.4	)	$	0.3	$	—	$	(0.1	)	$	(70.4	)

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We obtained ratings of our fixed maturities from Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”) and Fitch Ratings (“Fitch”). If a bond is not rated by Moody’s, S&P, or Fitch, we use ratings from the National Association of Insurance Commissioners (“NAIC”), or we rate the bond based upon a comparison of the unrated issue to rated issues of the same issuer or rated issues of other issuers with similar risk characteristics. As of June 30, 2010, over 99.0% of our bonds were rated by Moody’s, S&P, Fitch, and/or the NAIC.

The industry segment composition of our fixed maturity securities is presented in the following table:

	As of June 30, 2010		% Market Value		As of December 31, 2009		% Market Value
	(Dollars In Thousands)
Banking	$	2,024,771	8.6	%	$	1,954,801	8.6	%
Other finance	84,045		0.4		82,694		0.4
Electric	3,030,950		12.8		2,647,171		11.6
Natural gas	1,995,697		8.4		1,784,380		7.8
Insurance	1,592,626		6.7		1,529,027		6.7
Energy	1,323,922		5.6		1,367,288		6.0
Communications	1,172,816		5.0		1,078,797		4.7
Basic industrial	932,434		3.9		934,521		4.1
Consumer noncyclical	1,044,036		4.4		958,416		4.2
Consumer cyclical	444,762		1.9		490,334		2.2
Finance companies	235,372		1.0		230,376		1.0
Capital goods	645,536		2.7		531,477		2.3
Transportation	472,277		2.0		426,265		1.9
Other industrial	126,172		0.5		90,364		0.4
Brokerage	446,781		1.9		375,601		1.6
Technology	285,041		1.2		289,029		1.3
Real estate	46,371		0.2		53,517		0.2
Other utility	26,453		0.1		5,049		0.0
Commercial mortgage-backed securities	295,963		1.3		1,123,321		4.9
Other asset-backed securities	951,604		4.0		1,120,761		4.9
Residential mortgage-backed non-agency securities	2,638,762		11.2		2,987,406		13.1
Residential mortgage-backed agency securities	861,096		3.6		917,312		4.0
U.S. government-related securities	1,821,999		7.7		808,683		3.5
Other government-related securities	368,856		1.6		608,530		2.7
States, municipals, and political divisions	783,777		3.3		400,140		1.9
Total	$	23,652,119	100.0	%	$	22,795,260	100.0	%

Our investments in debt and equity securities are reported at fair value, and investments in mortgage loans are reported at amortized cost. As of June 30, 2010, our fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $23.7 billion, which was 3.0% above amortized cost of $23.0 billion. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

Market values for private, non-traded securities are determined as follows: 1) we obtain estimates from independent pricing services and 2) we estimate market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. We analyze the independent pricing services valuation methodologies and related inputs, including an assessment of the observability of market inputs. Upon obtaining this information related to market value, management makes a determination as to the appropriate valuation amount.

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Mortgage Loans

We invest a portion of our investment portfolio in commercial mortgage loans. As of June 30, 2010, our mortgage loan holdings were approximately $4.9 billion. We have specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. Our underwriting procedures relative to our commercial loan portfolio are based, in our view, on a conservative and disciplined approach. We concentrate on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, professional office buildings, and warehouses). We believe these asset types tend to weather economic downturns better than other commercial asset classes in which we have chosen not to participate. We believe this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout our history.

We record mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that have indicators of potential impairment based on current information and events. As of June 30, 2010 and 2009, our allowance for mortgage loan credit losses was $6.6 million and $2.1 million, respectively. While our mortgage loans do not have quoted market values, as of June 30, 2010, we estimated the fair value of our mortgage loans to be $5.5 billion (using discounted cash flows from the next call date), which was 11.5% greater than the amortized cost, less any related loan loss reserve.

At the time of origination, our mortgage lending criteria targets that the loan-to-value ratio on each mortgage is 75% or less. We target projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) of 70% of the property’s projected operating expenses and debt service. We also offer a commercial loan product under which we will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of June 30, 2010, approximately $877.6 million of our mortgage loans had this participation feature. Exceptions to these loan-to-value measures may be made if we believe the mortgage has an acceptable risk profile.

Many of our mortgage loans have call or interest rate reset provisions between 3 and 10 years. However, if interest rates were to significantly increase, we may be unable to call the loans or increase the interest rates on our existing mortgage loans commensurate with the significantly increased market rates.

As of June 30, 2010, delinquent mortgage loans, foreclosed properties, and restructured loans pursuant to a pooling and servicing agreement were less than 0.2% of invested assets. We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities. Our mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those previously a part of variable interest entity securitizations and thus subject to a contractual pooling and servicing agreement. The loans subject to a pooling and servicing agreement have been included on our consolidated condensed balance sheet (“balance sheet”) beginning in the first quarter of 2010 in accordance with ASU 2009-17. For loans not subject to a pooling and servicing agreement, as of June 30, 2010, $21.0 million of the mortgage loan portfolio was nonperforming. In addition, as of June 30, 2010, $35.7 million of the mortgage loan portfolio that is subject to a pooling and servicing agreement was being restructured under the terms and conditions of the pooling and service agreement.

It is our policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. For loans subject to a pooling and servicing agreement, there are certain additional restrictions and/or requirements related to workout proceedings, and as such, these loans may have different attributes and/or circumstances affecting the status of delinquency or categorization of those in nonperforming status.

Securities Lending

We participate in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned to third parties for short periods of time. We require initial collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored on a daily basis. As of June 30, 2010, securities with a market value of $94.7 million were loaned under this program. As collateral for the loaned securities, we receive short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “other liabilities” to account for our obligation to

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return the collateral. As of June 30, 2010, the fair market value of the collateral related to this program was $93.8 million and we have an obligation to return $97.1 million of collateral to the securities borrowers.

Risk Management and Impairment Review

We monitor the overall credit quality of our portfolio within established guidelines. The following table includes our available-for-sale fixed maturities by credit rating as of June 30, 2010:

			Percent of
S&P or Equivalent Designation	Market Value		Market Value
	(Dollars In Thousands)
AAA	$	2,737,515	13.3	%
AA	960,389		4.7
A	4,349,613		21.1
BBB	9,614,666		46.7
Investment grade	17,662,183		85.8
BB	1,168,361		5.7
B	721,171		3.5
CCC or lower	1,046,133		5.0
Below investment grade	2,935,665		14.2
Total	$	20,597,848	100.0	%

Not included in the table above are $2.7 billion of investment grade and $355.9 million of below investment grade fixed maturities classified as trading securities.

Limiting bond exposure to any creditor group is another way we manage credit risk. The following table includes securities held in our Modco portfolio and summarizes our ten largest fixed maturity exposures to an individual creditor group as of June 30, 2010:

Creditor	Market Value
	(Dollars In Millions)
Federal Home Loan Mortgage Corporation	$	176.0
Wells Fargo & Company	162.9
Berkshire Hathaway Inc.	155.8
Verizon Communications Inc.	147.9
Bank of America Corp	143.4
AT&T Corporation	139.4
PNC Financial Services Group	124.9
Nextera Energy Inc.	119.1
Enterprise Products Partners	118.9
Rio Tinto PLC	118.2

Determining whether a decline in the current fair value of invested assets is an other-than-temporary decline in value is both objective and subjective, and can involve a variety of assumptions and estimates, particularly for investments that are not actively traded in established markets. We review our positions on a monthly basis for possible credit concerns and review our current exposure, credit enhancement, and delinquency experience.

Management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Since it is possible for the impairment of one investment to affect other investments, we engage in ongoing risk management to safeguard against and limit any further risk to our investment portfolio. Special attention is given to correlative risks within specific industries, related parties, and business markets.

For certain securitized financial assets with contractual cash flows, including RMBS, CMBS, and other asset-backed securities (collectively referred to as asset-backed securities “ABS”), GAAP requires us to periodically update our best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the expected cash flows since the last revised estimate, considering both timing and amount, an other-than-temporary impairment charge is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Projections of expected future cash flows may change based upon new

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information regarding the performance of the underlying collateral. In addition, we consider our intent and ability to retain a temporarily depressed security until recovery.

In April of 2009, the FASB issued guidance to amend the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments of debt and equity securities in the financial statements. This guidance addresses the timing of impairment recognition and provides greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. Impairments will continue to be measured at fair value with credit losses recognized in earnings and non-credit losses recognized in other comprehensive income. This guidance also requires increased and more frequent disclosures regarding measurement techniques, credit losses, and an aging of securities with unrealized losses. We elected to early adopt the guidance in the first quarter of 2009. For the three and six months ended June 30, 2010, we recorded total other-than-temporary impairments of approximately $36.5 million and $58.4 million, respectively, with $19.8 million and $29.8 million, respectively, of this amount recorded in other comprehensive income (loss).

Securities in an unrealized loss position are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. We consider a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of the Company’s intent to sell the security (including a more likely than not assessment of whether the Company will be required to sell the security) before recovering the security’s amortized cost, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, along with an analysis regarding the Company’s expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows. Based on our analysis, for the six months ended June 30, 2010, we concluded that approximately $28.6 million of investment securities in an unrealized loss position was other-than-temporarily impaired, due to credit-related factors, resulting in a charge to earnings. Additionally, we recognized $29.8 million of non-credit losses in other comprehensive income for the securities where an other-than-temporary impairment was recorded for the three and six months ended June 30, 2010.

There are certain risks and uncertainties associated with determining whether declines in market values are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud, and legislative actions. We continuously monitor these factors as they relate to the investment portfolio in determining the status of each investment.

We have deposits with certain financial institutions which exceed federally insured limits. We have reviewed the creditworthiness of these financial institutions and believe there is minimum risk of a material loss.

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Realized Gains and Losses

The following table sets forth realized investment gains and losses for the periods shown:

	For The									For The
	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2010			2009			Change			2010			2009			Change
	(Dollars In Thousands)
Fixed maturity gains - sales	$	35,367		$	4,970		$	30,397		$	45,208		$	10,445		$	34,763
Fixed maturity losses - sales	(29,480		)	(905		)	(28,575		)	(30,858		)	(931		)	(29,927		)
Equity gains - sales	13			9,503			(9,490		)	13			9,503			(9,490		)
Equity losses - sales	—			—			—			—			—			—
Impairments on fixed maturity securities	(16,770		)	(40,704		)	23,934			(28,639		)	(111,090		)	82,451
Impairments on equity securities	—			(123		)	123			—			(19,563		)	19,563
Modco trading portfolio trading activity	63,967			154,785			(90,818		)	108,060			108,907			(847		)
Other	(1,137		)	271			(1,408		)	(4,056		)	(1,247		)	(2,809		)
Total realized gains (losses) - investments	$	51,960		$	127,797		$	(75,837	)	$	89,728		$	(3,976	)	$	93,704
Derivatives related to interest rate futures	$	—		$	4,593		$	(4,593	)	$	—		$	6,889		$	(6,889	)
Embedded derivatives related to reinsurance	(63,063		)	(146,420		)	83,357			(94,157		)	(85,788		)	(8,369		)
Other interest rate swaps	(6,382		)	22,211			(28,593		)	(8,774		)	36,359			(45,133		)
Interest rate floors/YRT(1) premium support arrangements	(600		)	2,000			(2,600		)	(1,500		)	2,650			(4,150		)
GMWB embedded derivatives	(49,326		)	12,542			(61,868		)	(40,202		)	32,343			(72,545		)
Other derivatives	25			2,196			(2,171		)	810			2,213			(1,403		)
Total realized gains (losses) - derivatives	$	(119,346	)	$	(102,878	)	$	(16,468	)	$	(143,823	)	$	(5,334	)	$	(138,489	)

(1) YRT - yearly renewable term

Realized gains and losses on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized investment gains (losses), excluding impairments, Modco trading portfolio activity, and related embedded derivatives related to corporate debt, during the three and six months ended June 30, 2010, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment.

Realized losses are comprised of both write-downs on other-than-temporary impairments and actual sales of investments. For the three and six months ended June 30, 2010, we recognized pre-tax other-than-temporary impairments of $36.5 million and $58.4 million, respectively, due to credit-related factors, resulting in a charge to earnings. Additionally, we recognized $19.8 million and $29.8 million, respectively, of non-credit losses in other comprehensive income (loss) for the securities where an other-than-temporary impairment was recorded. Other-than-temporary impairments totaled $40.8 million and $130.6 million for the three and six months ended June 30, 2009, respectively. These other-than-temporary impairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. These other-than-temporary impairments, net of Modco recoveries, are presented in the chart below:

	For The		For The
	Three Months Ended		Six Months Ended
	June 30, 2010		June 30, 2010
	(Dollars In Millions)
Alt-A MBS	$	12.1	$	21.4
Other MBS	2.8		3.9
Other corporate bonds	1.2		2.6
Sub-prime bonds	0.6		0.7
Total	$	16.7	$	28.6

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As previously discussed, management considers several factors when determining other-than-temporary impairments. Although we purchase securities with the intent to hold securities until maturity, we may change our position as a result of a change in circumstances. Any such decision is consistent with our classification of all but a specific portion of our investment portfolio as available-for-sale. For the six months ended June 30, 2010, we sold securities in an unrealized loss position with a market value of $238.8 million. For such securities, the proceeds, realized loss, and total time period that the security had been in an unrealized loss position are presented in the table below:

	Proceeds		% Proceeds		Realized Loss			% Realized Loss
	(Dollars In Thousands)
<= 90 days	$	162,665	68.1	%	$	(14,298	)	46.3	%
>90 days but <= 180 days	22,350		9.4		(2,153		)	7.0
>180 days but <= 270 days	3,050		1.3		(38		)	0.1
>270 days but <= 1 year	233		0.1		(10		)	0.0
>1 year	50,472		21.1		(14,359		)	46.6
Total	$	238,770	100.0	%	$	(30,858	)	100.0	%

For the three and six months ended June 30, 2010, we sold securities in an unrealized loss position with a fair value (proceeds) of $136.1 million and $238.8 million, respectively. The loss realized on the sale of these securities was $29.5 million and $30.9 million, respectively. The $30.9 million loss recognized on available-for-sale securities for the six months ended June 30, 2010, includes $12.2 million of loss on the sale of certain oil industry holdings. We made the decision to exit these holdings pursuant to new circumstances surrounding the oil spill in the Gulf of Mexico. In addition, a $3.8 million loss was recognized on the sale of securities in which the issuer was a European financial institution. Also included in the $30.9 million loss is a $10.4 million loss due to the exchange of certain holdings as the issuer exited bankruptcy proceedings.

For the six months ended June 30, 2010, we sold securities in an unrealized gain position with a fair value of $1.8 billion. The gain realized on the sale of these securities was $45.2 million.

The $4.1 million of other realized losses recognized for the six months ended June 30, 2010, consists of the change in mortgage loan loss reserves of $3.7 million and other losses of $0.4 million.

For the three and six months ended June 30, 2010, net gains of $64.0 million and $108.1 million, respectively, primarily related to mark-to-market changes on our Modco trading portfolios associated with the Chase Insurance Group acquisition were also included in realized gains and losses. Of this amount, approximately $4.9 million and $18.2 million, respectively, of gains were realized through the sale of certain securities, which will be reimbursed to our reinsurance partners over time through the reinsurance settlement process for this block of business. Additional details on our investment performance and evaluation are provided in the sections below.

Realized investment gains and losses related to derivatives represent changes in the fair value of derivative financial instruments and gains (losses) on derivative contracts closed during the period.

We also have in place various modified coinsurance and funds withheld arrangements that contain embedded derivatives. The $63.1 million and $94.2 million of pre-tax losses on these embedded derivatives for the three and six months ended June 30, 2010, respectively, was the result of spread tightening. For the three and six months ended June 30, 2010, the investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had mark-to-market gains that substantially offset the losses on these embedded derivatives.

We use certain interest rate swaps to mitigate the price volatility of assets. These positions resulted in net pre-tax losses of $6.4 million and $8.8 million for the three and six months ended June 30, 2010, respectively. The net losses were primarily the result of $5.3 million and $6.9 million in mark-to-market losses during the period.

Interest rate floor agreements with PLC generated unrealized losses of $0.6 million and $1.5 million for the three and six months ended June 30, 2010, respectively. There are no YRT premium support arrangement realized gains or losses for the three and six months ended June 30, 2010.

The GMWB rider embedded derivatives on certain variable deferred annuities had net unrealized losses of $49.3 million and $40.2 million for the three and six months ended June 30, 2010.

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We also use various swaps and options to mitigate risk related to other exposures. These contracts generated net gains which were immaterial for the three months ended June 30, 2010, and net pre-tax gains of $0.8 million for the six months ended June 30, 2010.

Unrealized Gains and Losses — Available-for-Sale Securities

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after June 30, 2010, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain (loss) position of the portfolio. As of June 30, 2010, we had an overall net unrealized gain of $494.9 million, prior to tax and DAC offsets, as compared to a $401.3 million loss as of December 31, 2009.

Credit and RMBS markets have experienced volatility across numerous asset classes over the past two years, primarily as a result of marketplace uncertainty arising from the failure or near failure of a number of large financial service companies resulting in intervention by the United States Federal Government, downgrades in ratings, interest rate changes, higher defaults in sub-prime and Alt-A residential mortgage loans, and a weakening of the overall economy. In connection with this uncertainty, we believe investors have departed from many investments in other asset-backed securities, including those associated with sub-prime and Alt-A residential mortgage loans, as well as types of debt investments with fewer lender protections or those with reduced transparency and/or complex features which may hinder investor understanding. We believe these factors have contributed to the level of our net unrealized investment losses through declines in market values over the past two years.

For fixed maturity and equity securities held that are in an unrealized loss position as of June 30, 2010, the estimated market value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position are presented in the table below:

	Estimated		% Market		Amortized		% Amortized		Unrealized			% Unrealized
	Market Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
<= 90 days	$	1,409,421	24.6	%	$	1,476,305	23.2	%	$	(66,884	)	10.6	%
>90 days but <= 180 days	411,262		7.2		445,019		7.0		(33,757		)	5.4
>180 days but <= 270 days	67,486		1.2		68,489		1.1		(1,003		)	0.2
>270 days but <= 1 year	56,303		1.0		61,703		1.0		(5,400		)	0.9
>1 year but <= 2 years	319,325		5.6		359,481		5.7		(40,156		)	6.4
>2 years but <= 3 years	2,394,517		41.8		2,721,836		42.8		(327,319		)	51.9
>3 years but <= 4 years	633,999		11.1		736,691		11.6		(102,692		)	16.3
>4 years but <= 5 years	383,923		6.7		431,353		6.8		(47,430		)	7.5
>5 years	52,138		0.8		58,377		0.8		(6,239		)	0.8
Total	$	5,728,374	100.0	%	$	6,359,254	100.0	%	$	(630,880	)	100.0	%

The majority of the unrealized loss as of June 30, 2010, for both investment grade and below investment grade securities, is attributable to a widening in credit and mortgage spreads for certain securities. The negative impact of spread levels for certain securities was partially offset by lower treasury yield levels and their associated positive effect on security prices. Spread levels have improved since December 31, 2009. However, certain types of securities, including tranches of RMBS and ABS continue to be priced at a level which has caused the unrealized losses noted above. We believe spread levels on these RMBS and ABS are largely due to the continued effects of the economic recession and the economic and market uncertainties regarding future performance of the underlying mortgage loans and/or assets. For further discussion concerning our other-than-temporary impairment review process, see the “Risk Management and Impairment Review” section on page 79.

As of June 30, 2010, the Barclays Investment Grade Index was priced at 184 bps versus a 10 year average of 172 bps. Similarly, the Barclays High Yield Index was priced at 743 bps versus a 10 year average of 668 bps. As

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of June 30, 2010, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 1.775%, 2.933%, and 3.889%, as compared to 10 year averages of 3.505%, 4.182%, and 4.756%, respectively.

As of June 30, 2010, 32.7% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we do not consider these unrealized loss positions to be other-than-temporary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset-liability management, and liquidity requirements.

Expectations that investments in mortgage-backed and asset-backed securities will continue to perform in accordance with their contractual terms are based on assumptions a market participant would use in determining the current fair value. It is reasonably possible that the underlying collateral of these investments will perform worse than current market expectations and that such event may lead to adverse changes in the cash flows on our holdings of these types of securities. This could lead to potential future write-downs within our portfolio of mortgage-backed and asset-backed securities. Expectations that our investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize potential future write-downs within our portfolio of corporate securities. It is also possible that such unanticipated events would lead us to dispose of those certain holdings and recognize the effects of any market movements in our financial statements.

As of June 30, 2010, there were estimated gross unrealized losses of $77.9 million and $26.3 million, related to our mortgage-backed securities collateralized by Alt-A mortgage loans and sub-prime mortgage loans, respectively. Gross unrealized losses in our securities collateralized by sub-prime and Alt-A residential mortgage loans as of June 30, 2010, were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in sub-prime and Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by sub-prime and Alt-A residential mortgage loans.

For the three and six months ended June 30, 2010, we recorded $16.7 million and $28.6 million, respectively, of pre-tax other-than-temporary impairments related to estimated credit losses. These other-than-temporary impairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. Excluding the securities on which other-than-temporary impairments were recorded, we expect these investments to continue to perform in accordance with their original contractual terms. We have the ability and intent to hold these investments until maturity or until the fair values of the investments have recovered, which may be at maturity. Additionally, we do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities.

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We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of June 30, 2010, is presented in the following table:

	Estimated		% Market		Amortized		% Amortized		Unrealized			% Unrealized
	Market Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
Banking	$	941,485	16.4	%	$	1,038,490	16.3	%	$	(97,005	)	15.4	%
Other finance	3,674		0.1		3,718		0.1		(44		)	0.0
Electric	188,040		3.3		208,906		3.3		(20,866		)	3.3
Natural gas	262,323		4.6		280,981		4.4		(18,658		)	3.0
Insurance	610,417		10.7		672,518		10.6		(62,101		)	9.8
Energy	46,771		0.8		48,709		0.8		(1,938		)	0.3
Communications	81,901		1.4		94,948		1.5		(13,047		)	2.1
Basic industrial	121,030		2.1		131,025		2.1		(9,995		)	1.6
Consumer noncyclical	36,226		0.6		37,315		0.6		(1,089		)	0.2
Consumer cyclical	137,255		2.4		150,650		2.4		(13,395		)	2.1
Finance companies	125,417		2.2		138,346		2.2		(12,929		)	2.0
Capital goods	38,545		0.7		45,134		0.7		(6,589		)	1.0
Transportation	61,686		1.1		62,829		1.0		(1,143		)	0.2
Other industrial	18,787		0.3		19,562		0.3		(775		)	0.1
Brokerage	50,285		0.9		57,824		0.9		(7,539		)	1.2
Technology	51,907		0.9		57,553		0.9		(5,646		)	0.9
Real estate	369		0.0		490		0.0		(121		)	0.0
Other utility	21		0.0		44		0.0		(23		)	0.0
Commercial mortgage-backed securities	6,604		0.1		7,007		0.1		(403		)	0.1
Other asset-backed securities	690,066		12.0		765,696		12.0		(75,630		)	12.0
Residential mortgage-backed non-agency securities	2,023,345		35.3		2,301,219		36.2		(277,874		)	44.0
Residential mortgage-backed agency securities	69		0.0		70		0.0		(1		)	0.0
U.S. government-related securities	46,539		0.8		48,862		0.8		(2,323		)	0.4
Other government-related securities	89,390		1.6		89,510		1.4		(120		)	0.0
States, municipals, and political divisions	96,222		1.7		97,848		1.4		(1,626		)	0.3
Total	$	5,728,374	100.0	%	$	6,359,254	100.0	%	$	(630,880	)	100.0	%

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The percentage of our unrealized loss positions, segregated by industry segment, is presented in the following table:

	As of
	June 30, 2010		December 31, 2009
Banking	15.4	%	14.1	%
Other finance	0.0		0.0
Electric	3.3		3.9
Natural gas	3.0		2.0
Insurance	9.8		8.2
Energy	0.3		0.4
Communications	2.1		1.9
Basic industrial	1.6		1.6
Consumer noncyclical	0.2		0.8
Consumer cyclical	2.1		1.7
Finance companies	2.0		1.7
Capital goods	1.0		1.2
Transportation	0.2		0.8
Other industrial	0.1		0.4
Brokerage	1.2		1.6
Technology	0.9		0.4
Real estate	0.0		0.1
Other utility	0.0		0.0
Commercial mortgage-backed securities	0.1		8.8
Other asset-backed securities	12.0		8.3
Residential mortgage-backed non-agency securities	44.0		40.6
Residential mortgage-backed agency securities	0.0		0.3
U.S. government-related securities	0.4		0.4
Other government-related securities	0.0		0.1
States, municipals, and political divisions	0.3		0.7
Total	100.0	%	100.0	%

The range of maturity dates for securities in an unrealized loss position as of June 30, 2010, varies, with 25.7% maturing in less than 5 years, 13.4% maturing between 5 and 10 years, and 60.9% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of June 30, 2010:

S&P or Equivalent	Estimated		% Market		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Market Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	1,746,659	30.5	%	$	1,847,085	29.0	%	$	(100,426	)	15.9	%
BBB	1,384,874		24.2		1,490,794		23.4		(105,920		)	16.8
Investment grade	3,131,533		54.7		3,337,879		52.4		(206,346		)	32.7
BB	901,618		15.7		981,186		15.4		(79,568		)	12.6
B	648,998		11.3		754,081		11.9		(105,083		)	16.7
CCC or lower	1,046,225		18.3		1,286,108		20.3		(239,883		)	38.0
Below investment grade	2,596,841		45.3		3,021,375		47.6		(424,534		)	67.3
Total	$	5,728,374	100.0	%	$	6,359,254	100.0	%	$	(630,880	)	100.0	%

As of June 30, 2010, we held 288 positions of below investment grade securities totaling $2.6 billion that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $424.5 million, of which $383.9 million had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 8.4% of invested assets. As of June 30, 2010, securities in an unrealized loss position that were rated as below investment grade represented 45.3% of the total market value and 67.3% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in market value to be temporary. Total unrealized losses for all securities in an unrealized loss position for more than twelve months were

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$523.8 million. A widening of credit spreads is estimated to account for unrealized losses of $901.6 million, with changes in treasury rates offsetting this loss by an estimated $377.8 million.

In addition, market disruptions in the RMBS market negatively affected the market values of our non-agency RMBS securities. The majority of our RMBS holdings as of June 30, 2010, were super senior or senior bonds in the capital structure. Our non-agency portfolio has a weighted-average life of 2.84 years.

The following table includes the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position for all below investment grade securities as of June 30, 2010:

	Estimated		% Market		Amortized		% Amortized		Unrealized			% Unrealized
	Market Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
<= 90 days	$	478,904	18.4	%	$	513,293	17.0	%	$	(34,389	)	8.1	%
>90 days but <= 180 days	8,253		0.3		9,043		0.3		(790		)	0.2
>180 days but <= 270 days	28,513		1.1		28,854		1.0		(341		)	0.1
>270 days but <= 1 year	20,807		0.8		25,962		0.9		(5,155		)	1.2
>1 year but <= 2 years	220,575		8.5		256,939		8.5		(36,364		)	8.6
>2 years but <= 3 years	1,468,127		56.5		1,733,468		57.4		(265,341		)	62.5
>3 years but <= 4 years	191,681		7.4		241,128		8.0		(49,447		)	11.6
>4 years but <= 5 years	146,362		5.6		174,222		5.8		(27,860		)	6.6
>5 years	33,619		1.4		38,466		1.1		(4,847		)	1.1
Total	$	2,596,841	100.0	%	$	3,021,375	100.0	%	$	(424,534	)	100.0	%

LIQUIDITY AND CAPITAL RESOURCES

We are currently carrying an elevated level of cash and short-term liquid assets. Our ability to find acceptable long-term investments has been negatively impacted by spread movements, lack of supply, and overall market yields.  We remain focused on investing such holdings at acceptable yield levels, while maintaining compliance with our established investment guidelines.

Carrying an elevated level of cash and short-term liquid assets, while significantly reducing our liquidity risk, negatively impacts our earnings results as the yield on such assets is much lower than the yields on longer-dated, higher risk assets.

Liquidity

Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We meet our liquidity requirements primarily through positive cash flows from our operating activities. Primary sources of cash are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, and other operating expenses. We believe that we have sufficient liquidity to fund our cash needs under normal operating scenarios.

In the event of significant unanticipated cash requirements beyond our normal liquidity requirements, we have additional sources of liquidity available depending on market conditions and the amount and timing of the liquidity need. These additional sources of liquidity include cash flows from operations, the sale of liquid assets, accessing our credit facility, and other sources described herein.

Our decision to sell investment assets could be impacted by accounting rules, including rules relating to the likelihood of a requirement to sell securities before recovery of our cost basis. Under stressful market and economic conditions, liquidity may broadly deteriorate which could negatively impact our ability to sell investment assets. If we require on short notice significant amounts of cash in excess of normal requirements, we may have difficulty selling investment assets in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.

While we anticipate that the cash flows of our operating subsidiaries will be sufficient to meet our investment commitments and operating cash needs in a normal credit market environment, we recognize that investment commitments scheduled to be funded may, from time to time, exceed the funds then available.

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Therefore, we have established repurchase agreement programs for certain of our insurance subsidiaries to provide liquidity when needed. We expect that the rate received on our investments will equal or exceed our borrowing rate. As of June 30, 2010, we had no outstanding balance related to such borrowings. During the six months ended June 30, 2010, we had a maximum balance outstanding of $300.0 million related to these programs. The average daily balance was $92.8 million, during the six months ended June 30, 2010.

Additionally, we may, from time to time, sell short-duration stable value products to complement our cash management practices. Depending on market conditions, we may also use securitization transactions involving our commercial mortgage loans to increase liquidity for the operating subsidiaries.

Credit Facility

Under a revolving line of credit arrangement, we have the ability to borrow on an unsecured basis up to an aggregate principal amount of $500 million (the “Credit Facility”). We have the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $600 million. Balances outstanding under the Credit Facility accrue interest at a rate equal to (i) either the prime rate or the London Interbank Offered Rate (“LIBOR”), plus (ii) a spread based on the ratings of PLC’s senior unsecured long-term debt. The Credit Agreement provides that we are liable for the full amount of any obligations for borrowings or letters of credit, excluding those of PLC, under the Credit Facility. The maturity date on the Credit Facility is April 16, 2013. We did not have an outstanding balance under the Credit Facility as of June 30, 2010. PLC had an outstanding balance of $115.0 million at an interest rate of LIBOR plus 0.40% under the Credit Facility as of June 30, 2010. As discussed in more detail in “Capital Resources” below, PLC repaid $180.0 million of the outstanding balance of the credit facility that was previously utilized to purchase non-recourse funding obligations issued by a wholly owned special purpose financial captive insurance company. For additional information related to special purpose financial captives, see “Capital Resources”. We are not aware of any non-compliance with the financial debt covenants of the Credit Facility as of June 30, 2010.

Sources and Use of Cash

Our primary sources of funding are from our insurance operations and revenues from investments. The states in which we and our insurance subsidiaries are domiciled impose certain restrictions on the ability to pay dividends. These restrictions are based in part on the prior year’s statutory income and surplus. Generally, these restrictions pose no short-term liquidity concerns. We plan to retain substantial portions of the earnings of our insurance subsidiaries in those companies primarily to support their future growth.

We are a member of the Federal Home Loan Bank (“FHLB”) of Cincinnati. FHLB advances provide an attractive funding source for short-term borrowing and for the sale of funding agreements. Membership in the FHLB requires that we purchase FHLB capital stock based on a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by the following factors: 1) total advance capacity is limited to the lower of 50% of total assets or 100% of mortgage-related assets of Protective Life Insurance Company, our largest insurance subsidiary, 2) ownership of appropriate capital and activity stock to support continued membership in the FHLB and current and future advances, and 3) the availability of adequate eligible mortgage or treasury/agency collateral to back current and future advances.

We held $60.7 million of common stock as of June 30, 2010, which is included in equity securities. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of June 30, 2010, we had $901.0 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

As of June 30, 2010, we reported approximately $597.3 million (fair value) of Auction Rate Securities (“ARS”) in non-Modco portfolios. All of these ARS were rated AAA. While the auction rate market has experienced liquidity constraints, we believe that based on our current liquidity position and our operating cash flows, any lack of liquidity in the ARS market will not have a material impact on our liquidity, financial condition, or cash flows.

All of the auction rate securities held in non-Modco portfolios as of June 30, 2010, were student loan-backed auction rate securities, for which the underlying collateral is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). As there is no current active market for these auction rate securities, we

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believe the best available source for current valuation information is from actively-traded asset-backed securities with comparable underlying assets (i.e. FFELP-backed student loans) and vintage.

We use an internal valuation model to determine the fair value of our student loan-backed auction rate securities held in non-Modco portfolios. The model uses the discount margin and projected average life of a comparable actively-traded FFELP student loan-backed floating-rate asset-backed security, along with a discount related to the current illiquidity of the auction rate securities. This comparable security is selected based on its underlying assets (i.e. FFELP-backed student loans) and vintage.

The auction rate securities held in non-Modco portfolios are classified as a Level 3 valuation. An unrealized loss of $60.1 million was recorded as of June 30, 2010, and an unrealized loss of $26.0 million was recorded as of June 30, 2009, and we have not recorded any other-than-temporary impairment because the underlying collateral for each of the auction rate securities is at least 97% guaranteed by the FFELP and there are subordinate tranches within each of these auction rate security issuances that would support the senior tranches in the event of default. In the event of a complete and total default by all underlying student loans, the principal shortfall, in excess of the 97% FFELP guarantee, would be absorbed by the subordinate tranches. Our non-performance exposure is to the FFELP guarantee, not the underlying student loans. At this time, we have no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary. In addition, we have the ability and intent to hold these securities until their values recover or maturity. Therefore, we believe that no other-than-temporary impairment has been experienced.

Our liquidity requirements primarily relate to the liabilities associated with their various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements.

We have used cash flows from operations and investment activities as a primary source to fund our liquidity requirements. Our primary cash inflows from operating activities are derived from premiums, annuity deposits, stable value contract deposits, and insurance and investment product fees and other income, including cost of insurance and surrender charges, contract underwriting fees, and intercompany dividends or distributions. The principal cash inflows from investment activities result from repayments of principal, investment income and, as necessary, sales of invested assets.

We maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans and redemption obligations without forced sales of investments. In addition, we hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund our expected operating expenses, surrenders, and withdrawals.

Our positive cash flows from operations are used to fund an investment portfolio that provides for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations. As of June 30, 2010, we held cash and short-term investments of $1.1 billion.

The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:

	For The
	Six Months Ended
	June 30,
	2010			2009
	(Dollars In Thousands)
Net cash provided by operating activities	$	545,091		$	592,632
Net cash (used in) provided by investing activities	(696,465		)	7,158
Net cash provided by (used in) financing activities	114,336			(557,201		)
Total	$	(37,038	)	$	42,589

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For the Six Months Ended June 30, 2010 as compared to The Six Months Ended June 30, 2009

Net cash provided by operating activities - Cash flows from operating activities are affected by the timing of premiums received, fees received, investment income, and expenses paid. Principal sources of cash include sales of our products and services. As an insurance business, we typically generate positive cash flows from operating activities, as premiums and deposits collected from our insurance and investment products exceed benefits paid and redemptions, and we invest the excess. Accordingly, in analyzing our cash flows we focus on the change in the amount of cash available and used in investing activities.

Net cash (used in) provided by investing activities- Changes in cash from investing activities primarily related to the activity in our investment portfolio. The change in net cash (used in) provided by investing activities was primarily due to an increase in net purchases of fixed maturity securities, partially offset by an increase of sales of fixed maturity securities. We have been challenged to find opportunities to invest our excess liquidity at desired yield levels. However, as opportunities arise to invest our more liquid holdings in long-term investments, purchase activity can be expected to increase.

Net cash provided by (used in) financing activities - Changes in cash from financing activities primarily relate to the issuance and repayment of borrowings, dividends to our stockholders, and other capital transactions, as well as the issuance of, and redemptions and benefit payments on, investment contracts. The variance for six months ended June 30, 2010 as compared to the six months ended June 30, 2009, was primarily the result of investment product and universal life net withdrawal activity, which was approximately $1.0 billion higher than activity in the six months ended June 30, 2010.

Capital Resources

To give us flexibility in connection with future acquisitions and other funding needs, PLC has debt securities, preferred and common stock, and additional preferred securities of special purpose finance subsidiaries registered under the Securities Act of 1933 on a delayed (or shelf) basis.

We have a $500 million revolving line of credit (the “Credit Facility”), under which we could borrow funds with balances due April 16, 2013. PLC had an outstanding balance of $115.0 million as of June 30, 2010, under the Credit Facility at an interest rate of LIBOR plus 0.40%. During the quarter, Golden Gate Captive Insurance Company (“Golden Gate”), a South Carolina special purpose financial captive and wholly owned subsidiary, redeemed $180 million of its Series B Surplus Notes from PLC. PLC used the proceeds of this redemption to repay $180 million of its outstanding balance under the Credit Facility. As the need arises, PLC may utilize the Credit Facility to fund reserve financing in future periods.

As of June 30, 2010, Golden Gate had an outstanding balance under its surplus notes facility (the “Facility”) of floating rate surplus notes with an aggregate principal amount of $800.0 million. The Notes were issued in order to provide financing for a portion of the statutory reserves associated with a block of life insurance policies. The Company has experienced higher borrowing costs associated with these Notes. PLC holds the entire $800 million outstanding balance of Golden Gate Surplus Notes.

Golden Gate II Captive Insurance Company (“Golden Gate II”), a wholly owned special purpose financial captive insurance company, had $575.0 million of non-recourse funding obligations outstanding as of June 30, 2010. Of this amount, $556.6 million was held by external parties and $18.4 million was held by an affiliate. These non-recourse funding obligations mature in 2052. We do not anticipate having to pursue additional funding related to this block of business; however, we have contingent approval to issue an additional $100 million of obligations if necessary. $275 million of this amount is currently accruing interest at a rate of LIBOR plus 30 basis points. We have experienced higher proportional borrowing costs associated with $300 million of our non-recourse funding obligations supporting the business reinsured to Golden Gate II. These higher costs are the result of a higher spread component interest costs associated with the illiquidity of the current market for auction rate securities, as well as a rating downgrade of our guarantor by certain rating agencies. The current rate associated with these obligations is LIBOR plus 200 basis points, which is the maximum rate we can be required to pay under these obligations.

These non-recourse funding obligations are direct financial obligations of Golden Gate and Golden Gate II, respectively, and are not guaranteed by us or PLC. These non-recourse obligations are represented by surplus notes that were issued to fund a portion of the statutory reserves required by Regulation XXX. Under the terms of the surplus notes, the holders of the surplus notes cannot require repayment from us or any of our subsidiaries, other

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than Golden Gate and Golden Gate II, the direct issuers of the surplus notes, although PLC has agreed to indemnify Golden Gate II for certain costs and obligations (which obligations do not include payment of principal and interest on the surplus notes). In addition, PLC has entered into certain support agreements with Golden Gate and Golden Gate II obligating it to make capital contributions to Golden Gate and Golden Gate II or provide support related to certain of Golden Gate’s and Golden Gate II’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate and Golden Gate II.

During the quarter, we formed a new wholly owned subsidiary, Golden Gate III, which entered into a Reimbursement Agreement with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the Reimbursement Agreement, UBS issued a Letter of Credit (“LOC”) in the initial amount of $505 million to a trust for the benefit of our wholly owned subsidiary, West Coast Life Insurance Company (“WCL”). Subject to certain conditions, the amount of the LOC will be periodically increased up to a maximum of $610 million in 2013. The term of the LOC is expected to be eight years, subject to certain conditions including capital contributions made to Golden Gate III by us or one of our affiliates. The LOC was issued to support certain obligations of Golden Gate III from WCL under an indemnity reinsurance agreement effective April 1, 2010. These policies were originally ceded by WCL to Golden Gate and were recaptured by WCL and ceded to Golden Gate III concurrent with this transaction. The estimated average annual expense of the LOC under GAAP is approximately $11 million, after tax.

Pursuant to the terms of the Reimbursement Agreement, in the event amounts are drawn under the LOC by the trustee on behalf of WCL, Golden Gate III will be obligated, subject to certain conditions, to reimburse UBS for the amount of any draw and any interest thereon. The Reimbursement Agreement is non-recourse to us and WCL. Pursuant to the Reimbursement Agreement, Golden Gate III has collateralized its obligations to UBS by granting UBS a security interest in its assets.

A life insurance company’s statutory capital is computed according to rules prescribed by NAIC, as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of us and our insurance subsidiaries. We and our subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period.  Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile.

A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to the RBC. Under RBC requirements, regulatory compliance is determined by the ratio of a company’s total adjusted capital, as defined by the insurance regulators, to its company action level of RBC (known as the RBC ratio), also as defined by insurance regulators.

We cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations that such reinsurer assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For the three and six months ended June 30, 2010, we ceded premiums to third party reinsurers amounting to $372.9 million and $672.8 million, respectively. In addition, we had receivables from reinsurers amounting to $5.5 billion as of June 30, 2010. We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate.

During 2008, Scottish Re US (“SRUS”) received a statutory accounting permitted practice from the Delaware Department of Insurance (“the Department”) that, in light of decreases in the fair value of the securities in SRUS’s qualifying reserve credit trust accounts on business ceded to certain securitization companies, relieved SRUS of the need to receive additional capital contributions. On January 5, 2009, the Department issued an order of supervision (the “Order of Supervision”) against SRUS, in accordance with Delaware law, which, among other things, requires the Department’s consent to any transaction outside the ordinary course of business, and which, in large part, formalized certain reporting and processes already informally in place between SRUS and the Department. On April 3, 2009, the Department issued an Extended and Amended Order of Supervision against

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SRUS which, among other things, clarified that payments made by SRUS to its ceding insurers in satisfaction of claims or other obligations are not subject to the Department’s approval, but that any amendments to its reinsurance agreements must be disclosed to and approved by the Department. SRUS continues to promptly pay claims and satisfy its other obligations to our insurance subsidiaries. We cannot predict what these or other changes in the status of SRUS’s financial condition may have on our ability to take reserve credit for the business ceded to SRUS. If we were unable to take reserve credit for the business ceded to SRUS, it could have a material adverse impact on both our GAAP and statutory financial condition and results of operations. As of June 30, 2010, we had approximately $198.8 million of GAAP recoverables from SRUS, and $532.9 million of ceded statutory reserves related to SRUS.

Ratings

Various Nationally Recognized Statistical Rating Organizations (“rating organizations”) review the financial performance and condition of insurers, including us and our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in an insurer’s products, its ability to market its products and its competitive position. Rating organizations also publish credit ratings for the issuers of debt securities, including the Company. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important in the debt issuer’s overall ability to access credit markets and other types of liquidity. Ratings are not recommendations to buy our securities. The following table summarizes the ratings of us and our significant member companies from the major independent rating organizations as of June 30, 2010:

			Standard &
Ratings	A.M. Best	Fitch	Poor’s	Moody’s
Insurance companies financial strength ratings:
Protective Life Insurance Company	A+	A	AA-	A2
West Coast Life Insurance Company	A+	A	AA-	A2
Protective Life and Annuity Insurance Company	A+	A	AA-	—
Lyndon Property Insurance Company	A-	—	—	—
Other ratings:
Issuer Credit/Default Rating - Protective Life Ins. Co.	aa-	—	AA-	—

Our ratings are subject to review and change by the rating organizations at any time and without notice. A downgrade or other negative action by a ratings organization with respect to our financial strength ratings or those of our insurance subsidiaries could adversely affect sales, relationships with distributors, the level of policy surrenders and withdrawals, competitive position in the marketplace, and the cost or availability of reinsurance. A downgrade or other negative action by a ratings organization with respect to our credit rating could limit our access to capital markets, increase the cost of issuing debt, and a downgrade of sufficient magnitude, combined with other negative factors, could require us to post collateral.

LIABILITIES

Many of our products contain surrender charges and other features that are designed to reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect us against investment losses if interest rates are higher at the time of surrender than at the time of issue.

As of June 30, 2010, we had policy liabilities and accruals of approximately $18.9 billion. Our interest-sensitive life insurance policies have a weighted-average minimum credited interest rate of approximately 3.70%.

Contractual Obligations

The table below sets forth future maturities of non-recourse funding obligations, stable value products, operating lease obligations, other property lease obligations, mortgage loan commitments, and policyholder obligations.

We enter into various obligations to third parties in the ordinary course of our operations. However, we do not believe that our cash flow requirements can be assessed based upon an analysis of these obligations. The most

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significant factor affecting our future cash flows is our ability to earn and collect cash from our customers. Future cash outflows, whether they are contractual obligations or not, also will vary based upon our future needs. Although some outflows are fixed, others depend on future events. Examples of fixed obligations include our obligations to pay principal and interest on fixed-rate borrowings. Examples of obligations that will vary include obligations to pay interest on variable-rate borrowings and insurance liabilities that depend on future interest rates, market performance, or surrender provisions. Many of our obligations are linked to cash-generating contracts. In addition, our operations involve significant expenditures that are not based upon commitments. These include expenditures for income taxes and payroll.

As of June 30, 2010, we carried a $17.7 million liability for uncertain tax positions, including interest on unrecognized tax benefits. These amounts are not included in the long-term contractual obligations table because of the difficulty in making reasonably reliable estimates of the occurrence or timing of cash settlements with the respective taxing authorities.

			Payments due by period
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years
	(Dollars In Thousands)
Non-recourse funding obligations(1)	$	3,443,005	$	70,846	$	141,694	$	141,694	$	3,088,771
Stable value products(2)	3,951,722		1,293,474		1,259,176		755,304		643,768
Operating leases(3)	31,281		6,917		11,075		8,808		4,481
Home office lease(4)	77,756		782		1,568		75,406		—
Mortgage loan commitments	216,007		216,007		—		—		—
Policyholder obligations(5)	24,430,595		2,331,867		3,408,825		3,077,013		15,612,890
Total	$	32,150,366	$	3,919,893	$	4,822,338	$	4,058,225	$	19,349,910

(1) Non-recourse funding obligations include all principal amounts owed on note agreements and expected interest payments due over the term of the notes.

(2) Anticipated stable value products cash flows including interest.

(3) Includes all lease payments required under operating lease agreements.

(4) The lease payments shown assume we exercise our option to purchase the building at the end of the lease term. Additionally, the payments due by period above were computed based on the terms of the renegotiated lease agreement, which was entered in January 2007.

(5) Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to our historical experience, modified for recent observed trends.  These obligations are based on current balance sheet values and include expected interest crediting, but do not incorporate an expectation of future market growth, or future deposits.  Due to the significance of the assumptions used, the amounts presented could materially differ from actual results.  As variable separate account obligations are legally insulated from general account obligations, the variable separate account obligations will be fully funded by cash flows from variable separate account assets.  We expect to fully fund the general account obligations from cash flows from general account investments.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

On January 1, 2008, we adopted FASB guidance on fair value measurements and disclosures. This guidance defines fair value for GAAP and establishes a framework for measuring fair value as well as a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The term “fair value” in this document is defined in accordance with GAAP. The standard describes three levels of inputs that may be used to measure fair value. For more information, see Note 1, Basis of Presentation and Note 12, Fair Value of Financial Instruments.

Available-for-sale securities and trading account securities are recorded at fair value, which is primarily based on actively-traded markets where prices are based on either direct market quotes or observed transactions. Liquidity is a significant factor in the determination of the fair value for these securities. Market price quotes may not be readily available for some positions or for some positions within a market sector where trading activity has slowed significantly or ceased. These situations are generally triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial position, changes in credit ratings, and cash flows on the investments. As of June 30, 2010, $888.1 million of available-for-sale and trading account assets, excluding other long-term investments, were classified as Level 3 fair value assets.

The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, and other deal specific factors, where appropriate. The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple market inputs including interest rates, prices, and indices to generate continuous yield or pricing curves and volatility factors, which are used to value the position. The predominance of market inputs are actively quoted and can be validated through external sources. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case quantitative based extrapolations of rate, price or index scenarios are used in determining fair values. As of June 30, 2010, the Level 3 fair values of derivative assets and liabilities determined by these quantitative models were $19.5 million and $233.2 million, respectively.

The liabilities of certain of our annuity account balances are calculated at fair value using actuarial valuation models. These models use various observable and unobservable inputs including projected future cash flows, policyholder behavior, our credit rating and other market conditions. As of June 30, 2010, the Level 3 fair value of these liabilities was $149.4 million.

For securities that are priced via non-binding independent broker quotations, we assess whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. We use a market-based cash flow analysis to validate the reasonableness prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if we determine there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly.

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Of our $907.7 million of total assets (measured at fair value on a recurring basis) classified as Level 3 assets, $698.4 million were ABS. Of this amount, $621.8 million were student loan related ABS, $36.6 million were non-student loan related ABS, and $40.0 million were commercial mortgage-backed securitizations. The years of issuance of the ABS are as follows:

Year of Issuance	Amount
	(In Millions)
2002	$	311
2003	109
2004	114
2005	16
2006	26
2007	82
2010	40
Total	$	698

The ABS was rated as follows: $626.4 million were AAA rated, $25.6 million were AA rated, and $46.4 million were A rated. We do not expect any downgrade in the ratings of the securities related to student loans since the underlying collateral of the student loan asset-backed securities is guaranteed by the U.S. Department of Education.

MARKET RISK EXPOSURES AND OFF-BALANCE SHEET ARRANGEMENTS

Our financial position and earnings are subject to various market risks including changes in interest rates, changes in the yield curve, changes in spreads between risk-adjusted and risk-free interest rates, changes in foreign currency rates, changes in used vehicle prices, and equity price risks and issuer defaults. We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, inflation risk, currency exchange risk, and equity market risk.

The primary focus of our asset/liability program is the management of interest rate risk within the insurance operations. This includes monitoring the duration of both investments and insurance liabilities to maintain an appropriate balance between risk and profitability for each product category, and for us as a whole. It is our policy to maintain asset and liability durations within one-half year of one another, although, from time to time, a broader interval may be allowed.

We are exposed to credit risk within our investment portfolio and through derivative counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. We manage credit risk through established investment policies which attempt to address quality of obligors and counterparties, credit concentration limits, diversification requirements and acceptable risk levels under expected and stressed scenarios. Derivative counterparty credit risk is measured as the amount owed to us based upon current market conditions and potential payment obligations between us and our counterparties. We minimize the credit risk in derivative instruments by entering into transactions with high quality counterparties, (A-rated or higher at the time we enter into the contract) and we typically maintain collateral support agreements with those counterparties.

Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate options and interest rate swaptions. Our inflation risk management strategy involves the use of swaps that require us to pay a fixed rate and receive a floating rate that is based on changes in the Consumer Price Index (“CPI”). We use foreign currency swaps to manage our exposure to changes in the value of foreign currency denominated stable value contracts. No foreign currency swaps remain outstanding. We also use S&P 500® options to mitigate our exposure to the value of equity indexed annuity contracts.

Derivative instruments expose us to credit and market risk and could result in material changes from quarter-to-quarter. We minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring

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limits as to the types and degrees of risk that may be undertaken. We monitor our use of derivatives in connection with our overall asset/liability management programs and procedures.

In the ordinary course of our commercial mortgage lending operations, we will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in our financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. As of June 30, 2010, we had outstanding mortgage loan commitments of $216.0 million at an average rate of 6.34%.

We believe our asset/liability management programs and procedures and certain product features provide protection against the effects of changes in interest rates under various scenarios. Additionally, we believe our asset/liability management programs and procedures provide sufficient liquidity to enable us to fulfill our obligation to pay benefits under our various insurance and deposit contracts. However, our asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, spread movements and other factors, and the effectiveness of our asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2, Summary of Significant Accounting Policies, to the consolidated condensed financial statements for information regarding recently issued accounting standards.

RECENT DEVELOPMENTS

In 2009, the NAIC approved regulatory changes that impacted the life insurance industry, including the Company and its subsidiaries. The NAIC approved changes to the measurements used to determine the amount of deferred tax assets (“DTAs”) an insurance company may claim as admitted assets on its statutory financial statements. These changes had the effect of increasing the amount of DTAs an insurance company was permitted to claim as an admitted asset for purposes of insurance company statutory financial statements filed for calendar year 2009 and is expected to have the same effect in 2010. In addition, the NAIC adopted a temporary modification to the Mortgage Experience Adjustment Factor (“MEAF”) for calendar year 2009 that reduced the factor’s volatility. However, the NAIC is currently considering further changes to the MEAF for 2010 that, if approved, will have the effect of increasing the amount of capital that the Company and its insurance subsidiaries must hold for its commercial mortgages.

The NAIC is also considering various initiatives to change and modernize its financial and solvency regulations. It is considering changing to a principles-based reserving method for life insurance and annuity reserves, changes to the accounting and risk-based capital regulations, changes to the governance practices of insurers, and other items. Some of these proposed changes would require the approval of state legislatures. We cannot provide any assurance as to what impact these proposed changes, if they occur, will have on our reserve and capital requirements of the Company and its insurance subsidiaries.

IMPACT OF INFLATION

Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of our investment products.

The higher interest rates that have traditionally accompanied inflation could also affect our operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The market value of our fixed-rate, long-term investments may decrease, we may be unable to implement fully the interest rate reset and call provisions of our mortgage loans, and our ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates.

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Item 3.        Quantitative and Qualitative Disclosures about Market Risk

See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Executive Summary” and “Liquidity and Capital Resources”, and Part II, Item 1A, Risk Factors of this Report for market risk disclosures in light of the current difficult conditions in the financial and credit markets, and the economy generally.

Item 4.        Controls and Procedures

(a)Disclosure controls and procedures

In order to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective. It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.

(b)Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the period ended June 30, 2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.

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PART II

Item 1A. Risk Factors and Cautionary Factors that may Affect Future Results

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and known trends and uncertainties. In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect the Company’s business, financial condition, or future results of operations.

The Company is exposed to the risks of natural and man-made catastrophes, pandemics, malicious acts, terrorist acts, and climate change, which could adversely affect the Company’s operations and results.

While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no predictions of specific scenarios can be made nor can assurance be given that there are not scenarios that could have an adverse effect on the Company. A natural or man-made catastrophe, pandemic, malicious act, terrorist act, or climate change, could adversely affect the mortality, morbidity, or other experience of the Company, its insurance subsidiaries or their reinsurers and have a significant negative impact on the Company. In addition, claims arising from the occurrence of such events or conditions could have a material adverse effect on the Company’s financial condition and results of operations. Such events or conditions could also have an adverse effect on lapses and surrenders of existing policies, as well as sales of new policies.

In addition, such events or conditions could result in a decrease or halt in economic activity in large geographic areas, adversely affecting the marketing or administration of the Company’s business within such geographic areas and/or the general economic climate, which in turn could have an adverse affect on the Company. Such events or conditions could also result in additional regulation or restrictions on the Company in the conduct of its business. The possible macroeconomic effects of such events or conditions could also adversely affect the Company’s asset portfolio, as well as many other variables.

The Company’s strategies for mitigating risks arising from its day-to-day operations may prove ineffective resulting in a material adverse effect on its results of operations and financial condition.

The Company’s performance is highly dependent on its ability to manage risks that arise from a large number of its day-to-day business activities, including insurance underwriting, claims processing, policy administration and servicing, execution of its investment strategy, financial and tax reporting and other activities, many of which are very complex.  The Company also may rely on third parties for such activities. The Company seeks to monitor and control its exposure to risks arising out of or related to these activities through a variety of internal controls, management review processes, and other mechanisms. However, the occurrence of unforeseen or un-contemplated risks, or the occurrence of risks of a greater magnitude than expected, including those arising from a failure in processes, procedures or systems implemented by the Company or a failure on the part of employees or third parties upon which the Company relies in this regard, may have a material adverse effect on the Company’s financial condition or results of operations.

Insurance companies are highly regulated and subject to numerous legal restrictions and regulations.

The Company is subject to government regulation in each of the states in which it conducts business. Such regulation is vested in state agencies having broad administrative and in some instances discretionary power dealing with many aspects of the Company’s business, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers, and capital adequacy, and is concerned primarily with the protection of policyholders and other customers rather than shareowners. In addition, some state insurance departments may enact rules or regulations with extra-territorial application, effectively extending their jurisdiction to areas such as permitted insurance company investments that are normally the province of an insurance company’s domiciliary state regulator. At any given time, a number of financial and/or market conduct examinations of the Company and its subsidiaries may be ongoing. From time to time, regulators raise issues during examinations or audits of the Company that could, if determined adversely, have a material impact on the Company. The Company is

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required to obtain state regulatory approval for rate increases for certain health insurance products, and the Company’s profits may be adversely affected if the requested rate increases are not approved in full by regulators in a timely fashion.

Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company cannot predict the amount or timing of any future assessments.

The purchase of life insurance products is limited by state insurable interest laws, which in most jurisdictions require that the purchaser of life insurance name a beneficiary that has some interest in the sustained life of the insured. To some extent, the insurable interest laws present a barrier to the life settlement, or “stranger-owned” industry, in which a financial entity acquires an interest in life insurance proceeds, and efforts have been made in some states to liberalize the insurable interest laws. To the extent these laws are relaxed, the Company’s lapse assumptions may prove to be incorrect.

Although the Company is subject to state regulation, in many instances the state regulatory models emanate from the National Association of Insurance Commissioners (“NAIC”). State insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, are often made for the benefit of the consumer and at the expense of the insurer and, thus, could have a material adverse effect on the Company’s financial condition and results of operations. The Company is also subject to the risk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. There is an additional risk that any particular regulator’s interpretation of a legal or accounting issue may change over time to the Company’s detriment, or that changes to the overall legal or market environment, even absent any change of interpretation by a particular regulator, may cause the Company to change its views regarding the actions it needs to take from a legal risk management perspective, which could necessitate changes to the Company’s practices that may, in some cases, limit its ability to grow and improve profitability.

Some of the NAIC pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Statutes, regulations, and interpretations may be applied with retroactive impact, particularly in areas such as accounting and reserve requirements. Also, regulatory actions with prospective impact can potentially have a significant impact on currently sold products. As an example of both retroactive and prospective impacts, in late 2005, the NAIC approved an amendment to Actuarial Guideline 38 (“AG38”), commonly known as AXXX, which interprets the reserve requirements for universal life insurance with secondary guarantees. This amendment retroactively increased the reserve requirements for universal life insurance with secondary guarantee products issued after July 1, 2005. This change to AG38 also affected the profitability of universal life products sold after the adoption date. The NAIC is continuing to study reserving methodology and has issued additional changes to AXXX and Regulation XXX, which have had the effect of modestly decreasing the reserves required for certain traditional and universal life policies that were issued on January 1, 2007 and later. In addition, accounting and actuarial groups within the NAIC have studied whether to change the accounting standards that relate to certain reinsurance credits, and if changes were made, whether they should be applied retrospectively, prospectively only, or in a phased-in manner. A requirement to reduce the reserve credits on ceded business, if applied retroactively, would have a negative impact on the statutory capital of the Company. The NAIC continues to work to reform state regulation in various areas, including comprehensive reforms relating to life insurance reserves.

At the federal level, bills are routinely introduced in both chambers of the United States Congress which could affect life insurers. In the past, Congress has considered legislation that would impact insurance companies in numerous ways, such as providing for an optional federal charter. The Company cannot predict whether or in what form reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect the Company or whether any effects will be material. On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act of 2010 (the “Healthcare Act”) into law. The Healthcare Act makes sweeping changes to the regulation of health insurance, imposing various conditions and requirements on PLC and the Company. The Healthcare Act may affect the benefit plans PLC sponsors for employees or retirees and their dependents, PLC’s expense to provide such benefits, the tax liabilities of PLC in connection with the provision of such benefits, the deductibility of certain compensation, and PLC’s ability to attract or retain employees. In addition, the Company and PLC may be subject to regulations, guidance, or determinations emanating from the various regulatory authorities authorized under the Healthcare Act. The Company cannot predict the effect that the

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Healthcare Act, or any regulatory pronouncement made thereunder, will have on its results of operations or financial condition

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was signed into law. The Reform Act makes sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of the Reform Act are or may become applicable to the Company, its competitors or those entities with which the Company does business, including but not limited to: the establishment of federal regulatory authority over derivatives, the establishment of consolidated federal regulation and resolution authority over systemically important financial services firms, changes to the regulation of broker dealers and investment advisors, changes to the regulation of reinsurance, the imposition of additional regulation over credit rating agencies, and the imposition of concentration limits on financial institutions that restrict the amount of credit that may be extended to a single person or entity. The Reform Act also creates the Consumer Financial Protection Bureau (“CFPB”), an independent division of the Department of Treasury with jurisdiction over credit, savings, payment, and other consumer financial products and services, other than investment products already regulated by the United States Securities and Exchange Commission (the “SEC”) or the U.S. Commodity Futures Trading Commission. Certain of the Company’s subsidiaries sell products that could be regulated by the CFPB.  Numerous provisions of the Reform Act require the adoption of implementing rules and/or regulations.  In addition, the Reform Act mandates multiple studies, which could result in additional legislation or regulation applicable to the insurance industry, the Company, its competitors or the entities with which the Company does business. Legislative or regulatory requirements imposed by or promulgated in connection with the Reform Act may place the Company at a competitive disadvantage relative to its competition or other financial services entities, change the competitive landscape of the financial services sector and/or the insurance industry, make it more expensive for the Company to conduct its business or have a material adverse effect on the overall business climate as well as the Company’s financial condition and results of operations.

The Company may also be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (“ERISA”). Severe penalties are imposed for breach of duties under ERISA. In addition, the Company may be subject to regulation by governments of the countries in which it currently, or in the future may, do business, as well as regulation by the U.S. Government with respect to its operations in foreign countries, such as the Foreign Corrupt Practices Act.

Certain policies, contracts, and annuities offered by the Company are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

Other types of regulation that could affect the Company include insurance company investment laws and regulations, state statutory accounting practices, anti-trust laws, minimum solvency requirements, state securities laws, federal privacy laws, insurable interest laws, federal anti-money laundering and anti-terrorism laws, and because the Company owns and operates real property, state, federal, and local environmental laws. The Company cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on the Company if enacted into law.

The Company cannot predict what form any future changes to laws and/or regulations affecting participants in the financial services sector and/or insurance industry, including the Company and its competitors or those entities with which it does business, may take, or what effect, if any, such changes may have.

A ratings downgrade or other negative action by a ratings organization could adversely affect the Company.

Various Nationally Recognized Statistical Rating Organizations (“rating organizations”) review the financial performance and condition of insurers, including the Company and its insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in the Company’s products, its ability to market its products, and its competitive position. A downgrade or other negative action by a ratings organization with respect to the financial strength ratings of the Company or its insurance subsidiaries could adversely affect the Company in many ways, including the following: reducing new sales of insurance and investment products; adversely affecting relationships with distributors and sales agents; increasing the number or amount of policy surrenders and withdrawals of funds; requiring a reduction in prices for the Company’s insurance products and services in order to remain competitive; and adversely affecting the Company’s ability to obtain reinsurance at a

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reasonable price, on reasonable terms or at all. A downgrade of sufficient magnitude could result in the Company, its insurance subsidiaries, or both being required to collateralize reserves, balances or obligations under reinsurance, funding, swap, and securitization agreements. A downgrade of sufficient magnitude could also result in the termination of funding and swap agreements.

Rating organizations also publish credit ratings for the Company. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important to the Company’s overall ability to access certain types of liquidity. Downgrades of the Company’s credit ratings, or an announced potential downgrade, could have a material adverse affect on the Company’s financial conditions and results of operations in many ways, including the following: limiting the Company’s access to capital markets; increasing the cost of debt; impairing its ability to raise capital to refinance maturing debt obligations; limiting its capacity to support growth; requiring it to pay higher amounts in connection with certain existing or future financing arrangements or transactions; and making it more difficult to maintain or improve the current financial strength ratings of it or its insurance subsidiaries. A downgrade of sufficient magnitude, in combination with other factors, could require the Company to post collateral pursuant to certain contractual obligations.

Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company’s control. In addition, rating organizations use various models and formulas to assess the strength of a rated company, and from time to time rating organizations have, in their discretion, altered the models. Changes to the models could impact the rating organizations’ judgment of the rating to be assigned to the rated company. The Company cannot predict what actions the rating organizations may take, or what actions the Company may take in response to the actions of the rating organizations, which could adversely affect the Company.

Item 6.    Exhibits

Exhibit 10	-	Reimbursement Agreement dated as of April 23, 2010 between Golden Gate III Vermont Captive Insurance Company and UBS AG, Stamford Branch.*
Exhibit 12	-	Consolidated Earnings Ratios.
Exhibit 31(a)	-	Certification Pursuant to §302 of the Sarbanes Oxley Act of 2002.
Exhibit 31(b)	-	Certification Pursuant to §302 of the Sarbanes Oxley Act of 2002.
Exhibit 32(a)	-	Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
Exhibit 32(b)	-	Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

* Certain portions of this Exhibit have been omitted pursuant to a request for confidential treatment. The non-public information has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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SIGNATURE

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

	PROTECTIVE LIFE INSURANCE COMPANY
Date:  August 12, 2010	By:	/s/ Steven G. Walker
		Steven G. Walker
		Senior Vice President, Controller
		and Chief Accounting Officer

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EX-10

Exhibit 10

Certain portions of this Exhibit have been omitted pursuant to a request for confidential treatment.  The non-public information has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are indicated by the following: [****].

REIMBURSEMENT AGREEMENT

dated as of

April 23, 2010

between

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY,

as Borrower,

and

UBS AG, STAMFORD BRANCH,

as Issuing Lender

TABLE OF CONTENTS

			Page
ARTICLE I	DEFINITIONS		1
Section 1.01.		Defined Terms	1
Section 1.02.		Terms Generally	17
Section 1.03.		Accounting Terms	17
ARTICLE II	LETTER OF CREDIT FACILITY		18
Section 2.01.		Letter of Credit Facility	18
Section 2.02.		Termination of the Letter of Credit	22
Section 2.03.		Fees	22
Section 2.04.		Yield Protection	23
Section 2.05.		Taxes	25
Section 2.06.		Payments	28
Section 2.07.		Evidence of Indebtedness	28
ARTICLE III	REGULATORY ACCOUNT; SURPLUS ACCOUNT; REINSURANCE TRUST ACCOUNT; PRIORITY OF PAYMENTS		29
Section 3.01.		Regulatory Account	29
Section 3.02.		Surplus Account of the Borrower	29
Section 3.03.		Reinsurance Trust Account	30
Section 3.04.		Procedures for Depositing Cash and Crediting Securities to Surplus Account	30
Section 3.05.		Priority of Payments	30
ARTICLE IV	REPRESENTATIONS AND WARRANTIES		33
Section 4.01.		Borrower Representations and Warranties	33
ARTICLE V	CONDITIONS		36
Section 5.01.		Closing Conditions	36
Section 5.02.		Conditions to Increase the LOC Amount	37
Section 5.03.		Conditions to Extension of the Letter of Credit	38
ARTICLE VI	BORROWER COVENANTS		38
Section 6.01.		Borrower Covenants	38
ARTICLE VII	COLLATERAL AND SECURITY		47
Section 7.01.		Obligations Secured Hereby	47
Section 7.02.		Collateral	48
Section 7.03.		Perfection of Security Interest in Collateral	49
Section 7.04.		Continuing Security Interest, Termination	49
Section 7.05.		Protection of Collateral	49

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Section 7.06.		Performance of Obligations	50
Section 7.07.		Power of Attorney	50
Section 7.08.		No Pledge of Collateral to Others	50
Section 7.09.		No Change in Borrower Name, Structure or Office	51
Section 7.10.		Release of Collateral	51
Section 7.11.		Notice of Exclusive Control	51
ARTICLE VIII	EVENTS OF DEFAULT		51
Section 8.01.		Events of Default	51
ARTICLE IX	MISCELLANEOUS		54
Section 9.01.		Notices	54
Section 9.02.		Waivers; Amendments	56
Section 9.03.		Survival of Representations and Warranties	56
Section 9.04.		Indemnity	56
Section 9.05.		Successors and Assigns; Participations and Assignments	56
Section 9.06.		Counterparts; Integration; Effectiveness	58
Section 9.07.		Governing Law; Jurisdiction	58
Section 9.08.		Right of Setoff	58
Section 9.09.		Collateral Assignment of Rights	59
Section 9.10.		Expenses	59
Section 9.11.		Further Assurances	59
Section 9.12.		Headings	59
Section 9.13.		Confidentiality	59
Section 9.14.		Special Dividend	60
Section 9.15.		Severability	60
Section 9.15.		WAIVER OF JURY TRIAL	60
Section 9.16.		USA Patriot Act	60
Section 9.17.		Usury Savings Clause	61
Section 9.18.		Third Party Beneficiary	61

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SCHEDULES:
SCHEDULE 1	Borrower Reporting Documents
SCHEDULE 2	Dividend Formula
SCHEDULE 3	Utilization Fee Matrix
SCHEDULE 4	Scheduled LOC Facility Amount
SCHEDULE 5	Restricted List
SCHEDULE 6	Financial and Actuarial Projections and Modeling Information
EXHIBITS:
EXHIBIT A	Draw Certification Notice
EXHIBIT B	Investment Guidelines
EXHIBIT C	Reinsurance Agreement
EXHIBIT D	Form of Letter of Credit
EXHIBIT E	Form of Assignment and Acceptance

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This REIMBURSEMENT AGREEMENT (this “Agreement”), dated as of April 23, 2010 by and between Golden Gate III Vermont Captive Insurance Company, a special purpose financial captive insurance company incorporated under the laws of the State of Vermont (the “Borrower”) and UBS AG, Stamford Branch, as the issuing lender (the “Issuing Lender”).

WHEREAS, the Borrower is an Affiliate of the Ceding Company and a direct Subsidiary of PLICO;

WHEREAS, the Borrower and the Ceding Company are parties to the Reinsurance Agreement pursuant to which the Ceding Company cedes, and the Borrower reinsures a certain block of term life insurance policies written by the Ceding Company;

WHEREAS, the Borrower hereby requests that the Issuing Lender establish a Letter of Credit for the benefit of the Reinsurance Trustee; and

WHEREAS, in consideration of the issuance by the Issuing Lender of a Letter of Credit, the Borrower has agreed to reimburse promptly the Issuing Lender for any draws on the Letter of Credit in accordance with the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Borrower and the Issuing Lender agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01.          Defined Terms.  As used in this Agreement, the following terms have the meanings specified below:

“Additional Business” has the meaning assigned to it in Section 6.01(h)(ii).

“Administrative Account” has the meaning assigned to it in Section 3.01(c).

“Administrative Services Agreement” means the Administrative Services Agreement, dated as of April 23, 2010 between the Ceding Company and the Borrower.

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Affiliated Services Agreements” means (i) the Administrative Services Agreement, (ii) the Investment Management Agreement and (iii) the PLC Service Agreements.

“Agreement” has the meaning assigned to it in the preamble.

“Anti-Terrorism Laws” shall mean any applicable law, rule, regulation, executive order, decree, ordinance, rule or regulation related to terrorism financing or money laundering

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including the USA Patriot Act, The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and Executive Order 13224 (effective September 24, 2001).

“Applicable Governmental Authority” has the meaning assigned to it in Section 2.04(a).

“Approval” means the prior approval of the Vermont Commissioner in accordance with the terms of the Licensing Order for the payment by the Borrower of any LOC Reimbursement Obligation payable hereunder, or any amounts payable with respect to Surplus Notes of the Borrower.

“Assignee” has the meaning assigned to it in Section 9.05(b).

“Attributable Indebtedness” means, on any date, in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with SAP.

“Borrower” has the meaning assigned to it in the preamble.

“Borrower Reporting Documents” has the meaning assigned to it in Section 6.01(d).

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York, New York, Montpelier, Vermont or Lincoln, Nebraska are authorized or required by law to remain closed.

“Capital Adequacy” has the meaning assigned to it in Section 2.04(b).

“Cash” means immediately available funds denominated in U.S. Dollars.

“Cash Collateral Account” means an account established by the Issuing Lender and maintained for its benefit upon the occurrence of an Event of Default, which shall be funded by any payments made by the Borrower under item Eighth of the Priority of Payments.

“Cash Equivalents” means commercially reasonable overnight repurchase agreements fully collateralized by the United States Treasury or any agency of the United States Government, the obligations of which are backed by the full faith and credit of the United States Government.

“Ceding Company” means West Coast Life Insurance Company and its successors and assigns.

“Ceding Company Letter Agreement” means that certain letter agreement, dated as of April 23, 2010 by and between the Ceding Company and the Issuing Lender.

“Closing Conditions” has the meaning assigned to it in Section 5.01.

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“Closing Date” means the date hereof.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” has the meaning assigned to it in Section 7.02(a).

“Company Action Level Risk Based Capital” has the meaning assigned to it in Section 8301(12)(A) of Title 8 of the Vermont Statutes Annotated in effect as of December 31, 2009 and calculated using the risk based capital factors and formula prescribed by the National Association of Insurance Commissioners as of December 31, 2009.

“Confidentiality Agreement” has the meaning assigned to it in Section 9.13.

“Constituent Documents” means the constituent documents of an entity, and, when used in relation to the Borrower, shall also include the Plan of Operation, the Licensing Order, its Certificate of General Good and its Certificate of Authority.

“Control,” “Controlled,” or “Controlling” mean, as the context requires, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.

“Default” means any occurrence of any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time or both, would, unless cured or waived, be an Event of Default.

“Dividend Amount” has the meaning assigned to it in Schedule 2.

“Dividend Catch-Up Contribution” has the meaning assigned to it in Schedule 2.

“Dividend Declaration Date” has the meaning assigned to it in Schedule 2.

“Dividend Formula” has the meaning assigned to it in Schedule 2.

“Dividend Test” has the meaning assigned to it in Schedule 2.

“Dividend Year” has the meaning assigned to it in Schedule 2.

“Dollars” or “$” refers to lawful money of the United States of America.

“Draw Certification Notice” means a duly certified notification letter, signed by a Responsible Officer of the Ceding Company in the form attached hereto as Exhibit A.

“Drawn Rate” means LIBOR plus [****] basis points per annum.

“Early Termination Event” means any (a) Optional LOC Reduction (whether in part or in full) or (b) termination of the Letter of Credit by the Borrower at its option pursuant to Section 2.02(b); provided, however, that an Early Termination Event shall not include (and no

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Early Termination Fee shall be payable with respect to) a Regulatory Event or a Regulation XXX Reduction Event.

“Early Termination Fee” means, with respect to any Early Termination Event occurring prior to July 1, 2017, an amount, payable in arrears within forty-five (45) calendar days after such Early Termination Event, equal to the present value of the Utilization Fees (assuming a Utilization Fee Rate of [****] basis points per annum, without giving effect to any increase thereto) from the date of such Early Termination Event through July 1, 2017 that would have accrued pursuant to Section 2.03(b) if such Early Termination Event had not occurred, not including any portion of those payments accrued as of the date of such Early Termination Event; provided, that the LOC Amount used in the calculation of the Early Termination Fee shall be equal to the Early Termination LOC Amount; provided, further, that such present value shall be determined using the discount factor implied by the mid-point between the forward-bid-and-offered side LIBOR curves for fixed-for-floating LIBOR swaps of the relevant tenors.  No Early Termination Fee shall be payable with respect to any Optional LOC Reduction or termination of the Letter of Credit occurring on or after July 1, 2017.

“Early Termination LOC Amount” means the LOC Amount as of the date of the relevant Early Termination Event and as in effect thereafter from time to time, and at any time, for the avoidance of doubt giving effect to any prior reduction in the LOC Amount or prior failure to increase the LOC Amount, and assuming that, with respect to the LOC Amount as of any future date (i) the LOC Amount automatically increases in accordance with Schedule 4 (without regard to the satisfaction of any Increase Conditions) and (ii) the LOC Amount automatically decreases in accordance with the terms of the Letter of Credit; provided, however, that in the event the LOC Amount has not been increased on any prior Scheduled LOC Amendment Date solely to the extent due to a failure of the Increase Conditions set forth in Sections 5.02(a) or 5.02(b) to have been satisfied or waived, such increase in the LOC Amount shall be deemed to have occurred for purposes of determining the LOC Amount unless such failure was with respect to an Event of Default under Sections 8.01(d), (e) or (g), and, with respect only to an Event of Default under Section 8.01(e), such Event of Default did not have a Material Adverse Effect on the applicable Scheduled LOC Amendment Date.

“Economic Reserves” has the meaning assigned to it in the Reinsurance Agreement.

“Eligibility Failure” has the meaning assigned to it in Section 2.03(c).

“Eligible Bank” means a lender which is (a) on the list of banks approved by the NAIC Securities Valuation Office, (b) a “Qualified United States financial institution” as defined in Section 44-416.08 of the Nebraska Insurance Code or any applicable amended or successor statute (or, if the Ceding Company is no longer domiciled in Nebraska, the corresponding statute in its jurisdiction of domicile) and (c) a “qualified U.S. financial institution” as defined in Regulation 97-3 s 11 of the Vermont Insurance Code or any applicable amended or successor statute (or, if the Borrower is no longer domiciled in Vermont, the corresponding statute in its jurisdiction of domicile).

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“Embargoed Person” shall mean any party that (i) is publicly identified on the most current list of “Specially Designated Nationals and Blocked Persons” published by OFAC or resides, is organized or chartered, or has a place of business in a country or territory subject to OFAC sanctions or embargo programs or (ii) is publicly identified as prohibited from doing business with the United States under the International Emergency Economic Powers Act, the Trading With the Enemy Act, or any similar applicable law, rule, regulation, executive order, decree, ordinance, rule or regulation.

“Enhanced Yield Protection Provisions” has the meaning assigned to it in Section 2.04(e).

“Entitlement Holder” means an “entitlement holder” as defined in Section 8-102(a)(7) of the UCC.

“Entitlement Order” means an “entitlement order” as defined in Section 8-102(a)(8) of the UCC.

“Events of Default” has the meaning assigned to it in Section 8.01.

“Excluded Taxes” means, with respect to the Issuing Lender and any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income, franchise or similar taxes, in each case, imposed on (or measured by) its net income by the United States of America, or by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principle of residence, the jurisdiction (or any political subdivision thereof) in which such recipient is so resident, (b) Taxes imposed by reason of such Person having a former or present connection with or being engaged in business in the jurisdiction (or any political subdivision thereof) imposing such Taxes, other than a connection or business arising or deemed to arise as a result of the execution and delivery of this Agreement or the performance of any action provided for or enforcement of any rights hereunder, (c) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (d) any withholding tax that is attributable to the Issuing Lender’s failure to comply with Section 2.05(e).

“Extension Event” has the meaning assigned to it in Section 5.03.

“Facility Maturity Date” means April 1, 2013, unless extended to a later date in accordance with Section 2.01(c).

“Facility Reserves” has the meaning assigned to it in the Reinsurance Agreement.

“Federal Funds Effective Rate” means for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Issuing Lender from three (3) federal funds brokers of recognized standing selected by it.

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“Fees” means, collectively, any LOC Structuring Fee, Utilization Fee, Early Termination Fee and Regulatory Event Fee.

“First Extension Event” has the meaning assigned to it in Section 2.01(c)(i).

“First Remainder Contribution” means, in the event that the First Required Additional Contribution is less than the First Scheduled Additional Contribution, the absolute value of the difference between such First Required Additional Contribution and such First Scheduled Additional Contribution.

“First Required Additional Contribution” means the additional equity contribution, if any, contributed at least thirty-five (35) calendar days prior to the First Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of (i) the First Scheduled Additional Contribution and (ii) the applicable Reduced Contribution.

“First Required Additional Contribution Date” means April 1, 2012.

“First Scheduled Additional Contribution” means $[****].

“Fitch” means Fitch Ratings.

“Funding Costs” means all losses, costs and expenses incurred by the Issuing Lender as a result of the Borrower’s failure to pay any LOC Reimbursement Obligation on or prior to the LOC Reimbursement Date, but only to the extent such losses, costs or expenses relate to the funding of the related LOC Disbursement.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Hedge Counterparty” has the  meaning assigned to it in Section 9.13.

“Increase Conditions” has the meaning assigned to it in Section 5.02.

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with SAP:

(a)           all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b)           all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

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(c)           all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(d)           indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(e)           capital leases of which such Person is the lessee; and

(f)            all guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.  The amount of any capital lease as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.  For the avoidance of doubt, commitments or obligations in connection with any insurance policies, reinsurance agreements, retrocession agreements, guaranteed investment contracts and funding agreements shall not constitute Indebtedness.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitee” has the meaning assigned to it in Section 9.04.

“Independent Actuary” means Milliman USA’s Chicago office.

“Independent Director” means a member of the Board of Directors of the Borrower who (i) shall not have been at the time of such Person’s appointment or at any time during the preceding five (5) years, and shall not be as long as such Person is a director of the Borrower, (a) a director, officer, employee, partner, shareholder, member, manager or Affiliate of the Borrower, (b) a supplier to the Borrower, (c) a Person controlling or under common control with any partner, shareholder, member, manager, Affiliate or supplier of the Borrower or (d) a member of the immediate family of any director, officer, employee, partner, shareholder, member, manager, Affiliate or supplier of the Borrower; (ii) has prior experience as an independent director for a corporation or limited liability company whose charter documents required the unanimous consent of all independent directors thereof before such corporation or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (iii) has at least three (3) years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities.

“Initial LOC Amount” means $505,000,000.

“Instrument” means an “Instrument” as defined in Section 9-102(a)(47) of the UCC.

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“Investment Guidelines” means those certain investment guidelines attached hereto as Exhibit B.

“Investment Management Agreement” means that certain investment management agreement, dated as of April 23, 2010, between PLC and the Borrower.

“Issuing Lender” has the meaning assigned to it in the preamble.

“Lender Counterparty” shall mean a counterparty to a swap or similar hedging transaction with the Issuing Lender related to this Agreement.

“Letter of Credit” has the meaning assigned to it in Section 2.01(a).

“LIBOR” means, for any date, a rate determined in accordance with the following provisions:

(a)           LIBOR for such date shall equal the offered rate for deposits in U.S. dollars having a three-month maturity, as determined by the Issuing Lender, which appears on the LIBOR Reference Page as of approximately 11:00 a.m. (London time) on the applicable LIBOR Determination Date.

(b)           If, on any LIBOR Determination Date, such rate does not appear on the LIBOR Reference Page, then LIBOR shall be determined by the Issuing Lender on the basis of the offered quotations of the Reference Bank to prime banks in the London interbank market for Eurodollar deposits having a three-month maturity, as determined by the Issuing Lender, by reference to quotations as of approximately 11:00 a.m. (London time) on such LIBOR Determination Date.

(c)           If the Issuing Lender is unable to determine LIBOR in accordance with the provisions set forth above, LIBOR with respect to such date shall be deemed to be the Alternate Base Rate plus one and one-half percent (1.50%) for such period.

For purposes of clause (a) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one hundred thousandth of a percentage point and for the purposes of clause (b) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one thirty-second (1/32) of a percentage point.  As used in this definition of LIBOR:

“Alternate Base Rate” means, for any day, a rate per annum (rounded upward, if necessary, to the nearest one one-hundredth (1/100) of a percentage point) equal to the greater of (a) the Base Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus one-half percent (0.50%).  If the Issuing Lender shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Issuing Lender to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist.  Any change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Effective Rate shall be effective on

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the effective date of such change in the Base Rate or the Federal Funds Effective Rate, respectively.

“Base Rate” means, for any day, a rate per annum that is equal to the corporate base rate of interest established generally for its customers by the Issuing Lender from time to time; each change in the Base Rate shall be effective on the date such change is effective.  The corporate base rate is not necessarily the lowest rate charged by the Issuing Lender to its customers.

“LIBOR Determination Date” means, for any date, the second London Banking Day prior to such date.

“LIBOR Reference Page” means Reuters Page LIBOR01 (or such other page as may replace such Reuters Page LIBOR01 for purposes of displaying comparable rates).

“London Banking Day” means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London.

“Reference Bank” means the principal London branch of UBS AG.

“Licensing Order” means the Licensing Order issued by the Vermont Department to the Borrower dated April 15, 2010.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

“LOC Amount” means the aggregate issued and outstanding face amount of the Letter of Credit at any time and from time to time, including any adjustment pursuant to Section 2.01, but excluding, for the avoidance of doubt, any amounts drawn thereon for which such face amount is not reduced.

“LOC Commitment” has the meaning assigned to it in Section 2.01(a)(i).

“LOC Disbursement” means a payment made by the Issuing Lender pursuant to the Letter of Credit.

“LOC Reimbursement Date” has the meaning assigned to it in Section 2.01(f)(i).

“LOC Reimbursement Obligation” has the meaning assigned to it in Section 2.01(f)(i).

“LOC Structuring Fee” has the meaning assigned to it in Section 2.03(a).

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“Market Value” means (i) in the case of Cash and Cash Equivalents, the face amount thereof; and (ii) in the case of any security or other instrument, the fair market value thereof.

“Material Adverse Effect” means a material adverse effect on (i) the business, operations, assets, property or financial condition of the Borrower, (ii) the Reinsured Policies (iii) the ability of the Issuing Lender to enforce its rights and remedies under this Agreement and the other Transaction Document, (iv) the ability of the Borrower to perform any of its obligations under this Agreement or any other Transaction Documents or (v) the binding nature, validity or enforceability of this Agreement or any other Transaction Document other than the PLC Service Agreements.

“Maximum Lawful Amount” has the meaning assigned to it in Section 9.17.

“Modified Total Adjusted Capital” has the meaning assigned to the term “Total Adjusted Capital”  in Section 8301(15) of Title 8 of the Vermont Statutes Annotated in effect as of December 31, 2009; provided that (i) any net positive capital and surplus benefit relating to the deferred tax asset, (ii) any asset valuation reserves and (iii) the treatment of any amount of the Letter of Credit in excess of the Facility Reserves as an admitted asset, shall be excluded from such calculation.

“Moody’s” means Moody’s Investors Service, Inc.

“NAIC” means the National Association of Insurance Commissioners.

“Nebraska Director” means the Director of Insurance in the State of Nebraska or any successor or subsequent domestic insurance regulator of the Ceding Company.

“Nebraska Insurance Code” means the insurance laws and regulations of the State of Nebraska.

“Non-Extension Notice” means a written notice from the Issuing Lender to the Borrower and the Reinsurance Trustee, as beneficiary of the Letter of Credit, in the form of Schedule B to the Letter of Credit.

“OFAC” means the U.S. Treasury Department’s Office of Foreign Assets Control.

“Optional LOC Reduction” has the meaning assigned to it in Section 2.01(d).

“Optional LOC Reduction Amount” has the meaning assigned to it in Section 2.01(d).

“Other Letter of Credit Transaction” means one or more letter of credit transactions arranged by the Issuing Lender whether before or after the Closing Date with an insurance company or reinsurer for the primary purpose of financing statutory reserves established in connection with life insurance policies that exceed the economic reserves required in connection with such life insurance policies.

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“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise in respect to, this Agreement.

“Participant” has the meaning assigned to it in Section 9.05(e).

“Payment Restrictions” has the meaning assigned to it in Section 3.05(g).

“PDF” means, when used in reference to notices via electronic mail attachment, portable document format or a similar electronic file format.

“Permitted Liens” means (i) Liens for Taxes, assessments or governmental charges or claims not delinquent or being contested in good faith and by appropriate proceedings and for which reserves adequate under SAP are being maintained; (ii) deposits or pledges to secure obligations under workers’ compensation, social security or similar laws, or under unemployment insurance; (iii) mechanics’, workers’, materialmen’s, carriers’ or other like Liens arising in the ordinary course of business with respect to obligations that are not due or that are being contested in good faith; (iv) Liens granted under repurchase and reverse repurchase agreements and derivatives entered into in the ordinary course of business as permitted under this Agreement or any other Transaction Document; (v) clearing and settlement Liens on securities and other investment properties incurred in the ordinary course of clearing and settling transactions in such assets and holding them with custodians; (vi) insurance regulatory Liens; (vii) judgment Liens in respect of judgments that are being contested in good faith and by appropriate proceedings and for which reserves adequate under SAP are being maintained; and (viii) Liens contemplated by this Agreement and any other Transaction Document, including the Reinsurance Trust Account.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“PLICO” means Protective Life Insurance Company, a Tennessee stock insurance company, and its successors and assigns.

“PLC” means Protective Life Corporation, a Delaware corporation, and its successors and assigns.

“PLC Guarantee” means that certain letter agreement, dated as of April 23, 2010, between PLC and the Issuing Lender.

“PLC Service Agreements” means collectively (i) the Amendment to the Agreement for Administrative Services, dated as of April 23, 2010, between PLC and the Borrower, (ii) the Agreement for Legal Services, dated as of April 23, 2010, between PLC and the Borrower and (iii) the Agreement for Data Processing Programming Services, dated as of April 23, 2010, between PLC and the Borrower.

“Present Value” has the meaning assigned to it in Schedule 2.

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“Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by UBS AG, Stamford Branch (which is not necessarily the lowest rate charged to any customer), changing when and as such prime rate changes.

“Priority of Payments” has the meaning assigned to it in Section 3.05.

“Reduced Contribution” means, at any date of determination, the excess of [****]  percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital over the Borrower’s Modified Total Adjusted Capital, each, determined as of the end of the most recent calendar quarter.

“Regulation XXX Reduction Event” means any (a) Optional LOC Reduction (whether in part or in full) or (b) termination of the Letter of Credit by the Borrower at its option pursuant to Section 2.02(b), in either case following any change in applicable insurance or tax laws, rules, regulations or statutory accounting principles (including, and in each case, as applicable, interpretations by any Governmental Authority thereof) in each case that results in a decrease in excess of [****] percent ([****]%) in the Statutory Reserves in excess of the Economic Reserves for the Reinsured Policies; provided, that such change is applicable (or would be applicable to any insurer in similar circumstances to the Ceding Company) on a general basis to insurance companies in the relevant jurisdiction and is not solely and specifically applicable to the Ceding Company or, in the case of a permitted practice, such permitted practice is available to or has been or is being utilized by other insurers in the relevant jurisdiction.

“Regulatory Account” has the meaning assigned to it in Section 3.01(a).

“Regulatory Event” means any (a) Optional LOC Reduction (whether in part or in full) or (b) termination of the Letter of Credit by the Borrower at its option pursuant to Section 2.02(b), in either case following (i) any change in applicable insurance or tax laws, rules, regulations or statutory accounting principles (including, and in each case, as applicable, interpretations by any Governmental Authority thereof) in each case that limits or prohibits in any material respect the federal income tax deduction in respect of the Statutory Reserves in excess of Economic Reserves, or (ii) any change in the credit for reinsurance that is permitted to be taken by the Ceding Company in its jurisdiction of domicile or in any other jurisdiction in which it files its statutory financial statements, in each case that results in a decrease in excess of [****] percent ([****]%) in the amount of credit for reinsurance otherwise provided to the Ceding Company in connection with the Reinsurance Agreement; provided, that such change is applicable (or would be applicable to any insurer in similar circumstances to the Ceding Company) on a general basis to insurance companies in the relevant jurisdiction and is not solely and specifically applicable to the Ceding Company or, in the case of a permitted practice, such permitted practice is available to or has been or is being utilized by other insurers in the relevant jurisdiction; provided, further, that a Regulatory Event shall not include a Regulation XXX Reduction Event.

“Regulatory Event Fee” means, with respect to (a) a Regulatory Event (but not including any Regulation XXX Reduction Event) occurring prior to July 1, 2017, an amount, payable in arrears within forty-five (45) calendar days after such Regulatory Event, equal to [****] percent ([****]%) of the then-current Early Termination Fee and (b) a Regulation XXX

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Reduction Event occurring prior to July 1, 2017, an amount, payable in arrears within forty-five (45) calendar days after such Regulation XXX Reduction Event, equal to [****] percent ([****]%) of the then-current Early Termination Fee.  No Regulatory Event Fee shall be payable with respect to any Optional LOC Reduction or termination of the Letter of Credit occurring on or after July 1, 2017.

“Reinsurance Agreement” means that certain reinsurance agreement dated as of the date hereof by and between the Borrower and the Ceding Company attached hereto as Exhibit C.

“Reinsurance Trust Account” means a trust account established and maintained in accordance with the Reinsurance Trust Agreement.

“Reinsurance Trust Agreement” means that certain reinsurance trust agreement, dated as of April 23, 2010, among the Reinsurance Trustee, the Borrower and the Ceding Company.

“Reinsurance Trustee” means The Bank of New York Mellon in its capacity as trustee pursuant to the Reinsurance Trust Agreement, and any successor hereunder.

“Reinsured Policies” has the meaning assigned to it in the Reinsurance Agreement.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“Required Additional Contribution” means any or all of the First Required Additional Contribution, the Second Required Additional Contribution and the Third Required Additional Contribution.

“Required Additional Contribution Date” means, as applicable, the First Required Additional Contribution Date, the Second Required Additional Contribution Date or the Third Required Additional Contribution Date.

“Required Participants” means, at any date of determination, more than fifty percent (50%) of Participants.

“Responsible Officer” of a Person means the chief executive officer, president, chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of such Person.  Any document delivered hereunder that is signed by a Responsible Officer of the Borrower or the Ceding Company shall be conclusively presumed to have been authorized by all necessary corporate, partnership and other action on the part of the Borrower or the Ceding Company, as the case may be, and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Borrower or the Ceding Company, as the case may be.

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“Restricted List” means the list set forth on Schedule 5 (as such Schedule 5 may be amended, modified or supplemented by the Borrower from time to time, and at any time, by written notice to the Issuing Lender).

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.

“SAP” means the accounting procedures and practices prescribed or permitted by the applicable insurance regulatory authority, consistently applied.

“Scheduled LOC Amendment Date” means each Scheduled LOC Amendment Date set forth in Schedule 4.

“Scheduled LOC Facility Amount” means, for each Scheduled LOC Amendment Date, the amount set forth in the applicable column of Schedule 4.

“Scheduled LOC Increase” has the meaning assigned to it in Section 2.01(b).

“Scheduled LOC Increase Amount” means, for the applicable period, each Scheduled LOC Increase Amount set forth in Schedule 4.

“Second Extension Event” has the meaning assigned to it in Section 2.01(c)(ii).

“Second Remainder Contribution” means, in the event that the Second Required Additional Contribution is less than the sum of (i) the Second Scheduled Additional Contribution and (ii) the First Remainder Contribution, the absolute value of the difference between such Second Required Additional Contribution and such sum of (a) the Second Scheduled Additional Contribution and (b) the First Remainder Contribution.

“Second Required Additional Contribution” means the additional equity contribution, if any, contributed at least thirty-five (35) calendar days prior to the Second Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of:

(a)           the sum of (i) the Second Scheduled Additional Contribution and (ii) the First Remainder Contribution, if any, and

(b)           the applicable Reduced Contribution.

“Second Required Additional Contribution Date” means April 1, 2013.

“Second Scheduled Additional Contribution” means $[****].

“Secured Obligations” has the meaning assigned to it in Section 7.01.

“Securities Account” has the meaning assigned to it in Section 8-501 of the UCC.

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“Securities Account Control Agreement” means that certain securities account control agreement, dated as of April 23, 2010, by and among the Borrower, the Issuing Lender and the Securities Intermediary.

“Securities Intermediary” means The Bank of New York Mellon acting as securities intermediary (as defined in Section 8-102(a)(14) of the UCC) with respect to the Surplus Account.

“Solvent” means that (i) the assets of the Borrower are greater than the total amount of liabilities, including contingent liabilities, of the Borrower determined in accordance with SAP as of the Closing Date; (ii) the Borrower does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature; and (iii) the Borrower is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which the Borrower’s property, as applicable, would constitute unreasonably insufficient capital.

“Special Dividend” has the meaning assigned to it in Section 9.14.

“Special Payment” has the meaning assigned to it in Section 9.14.

“Special Tax Allocation Agreement” means the Special Tax Allocation Agreement, dated as of April 23, 2010, by and between the Borrower and PLC.

“Statutory Reserves” has the meaning assigned to it in the Reinsurance Agreement.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.

“Surplus Account” has the meaning assigned to it in Section 3.02(a).

“Surplus Notes” has the meaning assigned to it in Section 6.01(bb).

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority including penalties, interest and additions to tax.

“Tax Sharing Agreement” means that certain Amendment and Clarification of the Tax Allocation Agreement dated January 1, 1988, effective as of January 1, 1988, by and between PLC and its Subsidiaries.

“Third Party Expenses” means expenses relating to (i) services provided by Affiliates of the Borrower, including administrative services, investment management services, data processing services, legal services and any other amounts incurred under any of the

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Affiliated Services Agreements and (ii) third party services including accounting services, actuarial services, legal services, management of the Borrower, custodial or trustee services and wages for, and reimbursable expenses of any, outside director of the Borrower, pursuant to the Reinsurance Agreement, and any other amounts incurred under any Third Party Service Agreement.

“Third Party Service Agreements” means (i) the Captive Management Agreement, dated as of April 23, between the Borrower and Marsh Management Services, Inc., (ii) the Reinsurance Trust Agreement and (iii) the Custody Agreement, dated as of April 23, between the Borrower and The Bank of New York Mellon.

“Third Remainder Contribution” means, in the event that the Third Required Additional Contribution is less than the sum of (i) the Third Scheduled Additional Contribution and (ii) the Second Remainder Contribution, the absolute value of the difference between such Third Required Additional Contribution and such sum of (a) the Third Scheduled Additional Contribution and (b) the Second Remainder Contribution.

“Third Required Additional Contribution” means the additional equity contribution, if any, contributed at least thirty-five (35) calendar days prior to the Third Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of:

(a)           the sum of (i) the Third Scheduled Additional Contribution and (ii) the Second Remainder Contribution, if any, and

(b)           the applicable Reduced Contribution.

“Third Required Additional Contribution Date” means April 1, 2014.

“Third Scheduled Additional Contribution” means $[****].

“Total Adjusted Capital” has the meaning assigned to it in Section 8301(15) of Title 8 of the Vermont Statutes Annotated in effect as of December 31, 2009.

“Transaction Documents” means collectively, this Agreement (including the Investment Guidelines), the Letter of Credit, the Reinsurance Agreement, the Reinsurance Trust Agreement, the Ceding Company Letter Agreement, the Affiliated Services Agreements, the Third Party Service Agreements, the PLC Guarantee, the Aggregate Stop Loss Indemnity Reinsurance Agreement, dated as of April 23, 2010, by and between the Ceding Company and PLICO, the Catastrophic Loss Capital Support Agreement, dated as of April 23, 2010, by and between PLC and the Borrower, the Investment Management Agreement, the Tax Sharing Agreement, Special Tax Allocation Agreement, the Securities Account Control Agreement, the Transaction Expense Support Agreement, and the Constituent Documents of the Borrower, as the same made be amended, modified or supplemented from time to time.

“Transaction Expense Support Agreement” means that certain transaction expense support agreement dated as of April 23, 2010 between the Borrower and PLC.

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“Transactions” means the execution, delivery and performance by the parties to this Agreement and the other Transaction Documents of the Transaction Documents and all certificates and other documents contemplated in connection therewith.

“UCC” means the Uniform Commercial Code as in effect in the State of New York.

“USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56).

“Utilization Fee” means, on any date of determination, an amount equal to the product of (i) the daily weighted average of the LOC Amount during the immediately prior calendar quarter and (ii) the daily weighted average of the applicable Utilization Fee Rate as indicated in the Utilization Fee Matrix during the immediately prior calendar quarter (including the Withdrawn Rating Fee Rate included therein, if applicable), attached hereto as Schedule 3, calculated on the basis of a three hundred sixty (360) day year.

“Vermont Commissioner” means the commissioner of the Vermont Department.

“Vermont Department” means the department of banking, insurance, securities and health care administration in the State of Vermont.

“Vermont Insurance Code” means the insurance laws and regulations of the State of Vermont.

“Withdrawn Rating Fee Rate” has the meaning assigned to it in Schedule 3.

Section 1.02.Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise (i) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (ii) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iii) the word “from” in connection with a time period means “from and including” and the word “until” means “to but not including”, (iv) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v) all references to agreements, documents, guidelines or instruments, laws, rules, regulations or orders shall be to the same as amended, modified or supplemented from time to time, and at any time, except as otherwise provided herein.

Section 1.03.Accounting Terms.  Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with SAP, as in effect from time to time, with respect to entities that prepare SAP financial statements.

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ARTICLE II

LETTER OF CREDIT FACILITY

Section 2.01.Letter of Credit Facility.

(a)Letter of Credit.  The Issuing Lender agrees, on the terms and conditions hereinafter set forth and subject to the prior satisfaction (or waiver by the Issuing Lender) of the Closing Conditions, to issue and deliver to the Reinsurance Trustee on the Closing Date an irrevocable and non-transferable standby letter of credit hereunder, in the form of Exhibit D (the “Letter of Credit”), at the request of the Borrower as applicant therefor, for the benefit of the Reinsurance Trustee as beneficiary thereof, and for deposit in the Reinsurance Trust Account, with a face amount equal to the Initial LOC Amount.

(i)The obligation of the Issuing Lender to (A) issue the Letter of Credit, (B) increase the LOC Amount pursuant to Section 2.01(b) and (C) extend the Facility Maturity Date pursuant to Section 2.01(c), on and subject to the terms and conditions hereof is herein called the “LOC Commitment.”

(ii)Unless previously terminated in accordance with Section 2.02, the LOC Commitment shall terminate on the Facility Maturity Date, as it may be extended from time to time in accordance with Section 2.01(c).  The Letter of Credit shall be denominated in Dollars.

(b)Letter of Credit Increases.  At least five (5) calendar days prior to the Scheduled LOC Amendment Dates occurring on April 1, 2011, April 1, 2012 and April 1, 2013, the Borrower shall request that the Issuing Lender amend the Letter of Credit and increase the LOC Amount by an amount equal to the applicable Scheduled LOC Increase Amount (each, a “Scheduled LOC Increase”).  Upon the Issuing Lender’s receipt of such written request and subject to the prior satisfaction (or waiver by the Issuing Lender) of the Increase Conditions, a Scheduled LOC Increase shall become effective as of the applicable Scheduled LOC Amendment Date.  In connection with any Scheduled LOC Increase, the Issuing Lender shall amend the Letter of Credit to increase the LOC Amount by the applicable Scheduled LOC Increase Amount.  For the avoidance of doubt, if the Increase Conditions have not been satisfied (or waived by the Issuing Lender) on any such Scheduled LOC Amendment Date, the LOC Amount shall not be increased above the then-current LOC Amount.

(c)Facility Maturity Date.  The Facility Maturity Date shall be extended to a later date in accordance with the following terms and conditions:

(i)If (A) at least thirty-five (35) calendar days prior to the First Required Additional Contribution Date, the First Required Additional Contribution has been made and the Borrower has provided notice of such contribution to the Issuing Lender in accordance with Section 6.01(dd) (the “First Extension Event”) and (B) no event that constitutes an Event of Default pursuant to Sections 8.01(l) or (m) shall have occurred and be continuing and the Borrower shall have notified the Issuing Lender in writing to that effect, then the Facility

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Maturity Date shall be extended to April 1, 2015.  Any such extension of the Facility Maturity Date shall automatically become effective on the First Required Additional Contribution Date, unless the Reinsurance Trustee has received a Non-Extension Notice from the Issuing Lender before March 1, 2012, and shall remain effective until the Facility Maturity Date is further extended or the Letter of Credit is terminated pursuant to the terms of this Agreement.  The Issuing Lender agrees not to issue any such Non-Extension Notice if the Extension Conditions have been fully satisfied.

(ii)If (A) the First Extension Event has occurred, (B) at least thirty-five (35) calendar days prior to the Second Required Additional Contribution Date, the Second Required Additional Contribution has been made, (C) at least thirty-five (35) calendar days prior to the Third Required Additional Contribution Date, the Third Required Additional Contribution has been made and the Borrower has provided notice of such Second Required Additional Contribution and Third Required Additional Contribution to the Issuing Lender in accordance with Section 6.01(dd) (the “Second Extension Event”) and (D) no event that constitutes an Event of Default pursuant to Sections Section 8.01(l) or (m) shall have occurred and be continuing and the Borrower shall have notified the Issuing Lender in writing to that effect, then the Facility Maturity Date shall be extended to April 1, 2018.  Any such extension of the Facility Maturity Date shall automatically become effective on the Third Required Additional Contribution Date, unless the Reinsurance Trustee has received a Non-Extension Notice from the Issuing Lender before March 1, 2014, and shall remain effective until the Letter of Credit is terminated pursuant to the terms of this Agreement.  The Issuing Lender agrees not to issue any such Non-Extension Notice if the Extension Conditions have been fully satisfied.

(d)Optional LOC Reductions.  The Borrower shall, subject to the prior written consent of the Ceding Company and the Reinsurance Trustee, have the right at any time to reduce, upon fifteen (15) calendar days prior written notice to the Issuing Lender, the LOC Amount (an “Optional LOC Reduction”).  Upon (A) the Issuing Lender’s receipt of such notice and expiration of such fifteen (15) calendar day notice period and (B) the Borrower’s payment to the Issuing Lender of any applicable Early Termination Fee, then an Optional LOC Reduction shall immediately become effective.  In connection with any Optional LOC Reduction, the Issuing Lender shall immediately amend the Letter of Credit to reduce the LOC Amount to the corresponding amount requested by the Borrower and consented to by the Reinsurance Trustee, (the “Optional LOC Reduction Amount”) and the Borrower shall request that the Reinsurance Trustee countersign such amendment.  Any Optional LOC Reduction shall remain effective until the LOC Amount is further amended in accordance with the terms hereof or the Letter of Credit is terminated pursuant to the terms of this Agreement.

(e)Termination of LOC Commitment.  The LOC Commitment of the Issuing Lender shall terminate upon any termination in full of the Letter of Credit in accordance with Section 2.02(a).

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(f)Reimbursement of LOC Disbursements; Funding Costs.

(i)If the Issuing Lender shall make any LOC Disbursements in respect of the Letter of Credit, the Borrower unconditionally agrees to reimburse the Issuing Lender for the full amount of such LOC Disbursements (each, an “LOC Reimbursement Obligation”), on the Business Day immediately following each date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments and the Payment Restrictions (each such date, an “LOC Reimbursement Date”).  The Borrower agrees to pay to the Issuing Lender all Funding Costs on the LOC Reimbursement Date.

(ii)To the extent that any LOC Reimbursement Obligation is owing at such time as the Borrower’s Total Adjusted Capital is less than [****] percent ([****]%) of its Company Action Level Risk Based Capital, the Borrower shall use its best efforts to obtain an Approval from the Vermont Commissioner for the payment by the Borrower of such LOC Reimbursement Obligation as promptly as practicable following the applicable LOC Disbursement.  In the event any such Approval has not been obtained for such payment on or prior to the date on which such amount is first due, the Borrower shall continue to use its best efforts to obtain such Approval as promptly as practicable thereafter; provided, that the Borrower shall not be required to amend the Transaction Documents in order to obtain such Approval.

(g)Obligations Absolute.  Notwithstanding anything herein to the contrary, the Issuing Lender’s obligation to make payment of any draw on the Letter of Credit in strict compliance with its terms will not be subject to any conditions or qualifications not expressly included and set forth in the Letter of Credit, including any action or failure to act or to make any payment by any Lender Counterparty.  Subject to the Priority of Payments and the Payment Restrictions, the LOC Reimbursement Obligation of the Borrower shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of:

(i)any lack of validity or enforceability of the Letter of Credit or this Agreement, or any term or provision therein;

(ii)any amendment or waiver of or any consent to departure from all or any of the provisions of the Letter of Credit or this Agreement;

(iii)the existence of any claim, setoff, defense or other right that the Borrower or any other Person may at any time have against the Issuing Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or transaction;

(iv)any draft or other document presented under the Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect;

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(v)payment by the Issuing Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

(vi)any other act or omission to act or delay of any kind of the Issuing Lender or any other Person to perform any obligation under the Letter of Credit, or any release of any such obligation, or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.01, constitute a legal or equitable discharge of the obligations of the Borrower hereunder.

Without limiting the rights of the Reinsurance Trustee, as directed by the Borrower, to draw upon the Letter of Credit, neither the Issuing Lender, nor any of its Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of the Letter of Credit or any payment or failure to make any payment thereunder, including any of the circumstances specified in Section 2.01(g)(i) through (vi), as well as any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to the Letter of Credit (including any Draw Certification Notice or any other document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Lender; provided, that the foregoing shall not be construed to excuse the Issuing Lender or any of its Related Parties from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Lender’s failure to exercise the agreed standard of care (as set forth below) in determining whether drafts and other documents presented under the Letter of Credit comply with the terms hereof.  The parties hereto expressly agree that the Issuing Lender shall have exercised the agreed standard of care in the absence of gross negligence or willful misconduct on the part of the Issuing Lender.

(h)LOC Disbursement Procedures; Draw Certification Notice.  The Issuing Lender shall, promptly upon its receipt of a Draw Certification Notice, examine the Draw Certification Notice purporting to represent a demand for payment under the Letter of Credit.  The Issuing Lender shall promptly notify the Borrower by telephone or electronic mail (confirmed by overnight courier service) whether the Issuing Lender has made or will make an LOC Disbursement thereunder (without, for the avoidance of doubt, relieving the Issuing Lender of any obligation to make an LOC Disbursement); provided, that any failure to give or delay in giving such notice shall not relieve the Borrower of its LOC Reimbursement Obligations, if applicable.  Without limiting any other provisions of this Agreement, the parties agree that, with respect to any Draw Certification Notice presented in respect of the Letter of Credit, the Issuing Lender may, in its sole discretion, (i) either make payment upon such Draw Certification Notice without responsibility for further investigation, regardless of any notice or information to the contrary, or (ii) refuse to make payment upon such Draw Certification Notice if such document is not in strict compliance with the terms of the Letter of Credit.  For the avoidance of doubt, delivery of a sight draft and a Draw Certification Notice strictly adhering to the requirements of the Letter of Credit shall be the sole condition to a draw under such Letter of Credit.

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(i)Interest.  Subject to the Priority of Payments, the Borrower unconditionally agrees to pay to the Issuing Lender interest on the amount of each LOC Disbursement, for the period from and including the date of such LOC Disbursement to but excluding the date of payment in full, at the Drawn Rate.  Subject to the Priority of Payments, interest accrued in respect of any LOC Disbursement shall be payable on the relevant LOC Reimbursement Date, and thereafter on demand from time to time by the Issuing Lender and upon payment of any LOC Reimbursement Obligation.

Section 2.02.Termination of the Letter of Credit.

(a)Termination of the Letter of Credit.  The Letter of Credit shall terminate on the earliest to occur of (i) the election of the Borrower to terminate the Letter of Credit in accordance with Section 2.02(b), (ii) the drawing of one hundred percent (100%) of the Letter of Credit and (iii) its stated expiry date, as amended from time to time and at any time.

(b)The Reinsurance Trustee, at the direction of the Borrower, may, subject to the prior written consent of the Ceding Company at any time, by giving at least three (3) Business Days’ prior signed written notice to the Issuing Lender, terminate the Letter of Credit.

(c)Each notice delivered by the Borrower in accordance with this Section 2.02 shall be irrevocable.  Any termination of the Letter of Credit shall be permanent.

Section 2.03.Fees.  The Fees described in this Section 2.03 shall be paid in accordance with, and subject to, the Priority of Payments.

(a)LOC Structuring Fee.  The Borrower agrees to pay to the Issuing Lender, on or prior to the date hereof, a fee (the “LOC Structuring Fee”) in an amount equal to $[****].

(b)Utilization Fee.  The Borrower agrees to pay to the Issuing Lender, from the date hereof until the earlier of the Facility Maturity Date or the full termination of the Letter of Credit, the applicable Utilization Fee with respect to the LOC Amount, as appropriately pro rated to reflect (A) the truncated period from the date hereof to June 30, 2010 or (B) any Optional LOC Reduction or termination of the Letter of Credit, as the case may be, payable quarterly in arrears within forty-five (45) calendar days after the end of each calendar quarter.

(c)Early Termination Fee.  Upon the occurrence of an Early Termination Event prior to July 1, 2017, the Borrower agrees to pay to the Issuing Lender, any applicable Early Termination Fee along with any unpaid Utilization Fees, in respect of the portion of the Letter of Credit being terminated or reduced, accrued to the date of such Early Termination Event; provided, however, that no such Early Termination Fee shall be payable in the event that (i) the Issuing Lender requests or has requested compensation from the Borrower pursuant to Section 2.04, (ii) the Issuing Lender or any Affiliate thereof engages or has engaged in any refinancing transaction with respect to the Letter of Credit, or (iii) the Letter of Credit fails or has failed to be issued or confirmed by an Eligible Bank, unless prior to the earliest of (a) sixty (60) days after such failure, (b) any loss of credit for reinsurance by the Ceding Company or (c) any failure of the Letter of Credit to be treated as an admitted asset of the Borrower, the Issuing Lender replaces the Letter of Credit with other assets acceptable to the Ceding Company, the Borrower and their domestic regulators that are treated as admitted assets of the Borrower for all

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relevant purposes and that provide the Ceding Company with full credit for reinsurance under the Reinsurance Agreement in its jurisdiction of domicile on terms and conditions satisfactory to the Borrower and the Ceding Company (an “Eligibility Failure”).

(d)Regulatory Event Fee.  Upon the occurrence of a Regulatory Event or a Regulation XXX Reduction Event, the Borrower agrees to pay to the Issuing Lender, the applicable Regulatory Event Fee along with any unpaid Utilization Fees, in respect of the portion of the Letter of Credit being terminated or reduced in such Regulatory Event or Regulation XXX Reduction Event, accrued to the date of such Regulatory Event or Regulation XXX Reduction Event; provided, however, that no such Regulatory Event Fee shall be payable in the event (i) the Issuing Lender requests compensation or has requested from the Borrower pursuant to Section 2.04, (ii) the Issuing Lender or any Affiliate thereof engages or has engaged in any refinancing transaction with respect to the Letter of Credit or (iii) of an Eligibility Failure; provided, further, in connection with any Regulation XXX Reduction Event or Regulatory Event involving a permitted practice, that the Borrower shall provide the Issuing Lender with an officer’s certificate of the Ceding Company that, to the knowledge thereof, such permitted practice is available to or is being or has been utilized by one or more insurers in the applicable jurisdiction.

(e)The Borrower agrees to pay all amounts owed in connection with the issuance and maintenance of the Letter of Credit required to be made hereunder to the Issuing Lender.

(f)All Fees shall be paid on the dates due, in immediately available funds, to the Issuing Lender.  Fees paid shall not be refundable under any circumstances.

Section 2.04.Yield Protection.

(a)Increased Costs.  In the event that by reason of any change after the Closing Date in applicable law, rule or regulation of any Swiss Governmental Authority with authority over Swiss banks or any U.S. Governmental Authority with authority over non-U.S. banks with U.S. banking business (each, an “Applicable Governmental Authority”) or in the interpretation thereof by any Applicable Governmental Authority charged with the administration, application or interpretation thereof, or by reason of the adoption or enactment, as of and following the Closing Date, of any requirement, request or directive (whether or not having the force of law) of any such Applicable Governmental Authority with respect to this Agreement that shall impose, modify or deem applicable any reserve, special deposit assessment or insurance fee or similar requirement against assets of, deposits with or for the account of, or credit extended by UBS AG, Stamford Branch, in its capacity as Issuing Lender, or shall subject UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons to any tax, levy, impost, charge, fee, duty, deduction or withholding of any kind whatsoever (other than Excluded Taxes), with respect to the Letter of Credit, this Agreement or any other Transaction Document, or change the basis of taxation of UBS AG, Stamford Branch, in its capacity as Issuing Lender, with respect to any amounts payable under this Agreement or change the basis of taxation which affects the taxation of the total income of UBS AG, Stamford Branch in its capacity as Issuing Lender; and if any of the above-mentioned measures, events or circumstances shall result in an increase in the cost to UBS AG, Stamford Branch, in its capacity as Issuing Lender, of making, issuing, maintaining, amending or funding the Letter of Credit, or taking any

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other action with respect to the Letter of Credit contemplated under this Agreement, or a reduction in the amount of principal or interest or Utilization Fees received or receivable by UBS AG, Stamford Branch, in its capacity as Issuing Lender, in respect thereof, the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing Lender, an amount equal to such additional cost, reduction, other loss or damage or foregone interest or other amount; provided, however, that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall only exercise its rights under this Section 2.04(a) if it exercises such rights under all other similar transactions to which it is a party.

(b)Capital Requirements.  In the event that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall have determined, after the Closing Date, a change in, or any introduction or adoption of, any applicable law, rule or regulation of an Applicable Governmental Authority regarding capital adequacy, capital maintenance, solvency, reserves, weighting, foreign claims of deposits or other similar matters (hereafter “Capital Adequacy”) or any change in the interpretation or administration thereof by any Applicable Governmental Authority, charged with the interpretation or administration thereof, or any request or directive regarding Capital Adequacy (whether or not having the force of law) of any Applicable Governmental Authority, has or would have the effect of reducing the rate of return on capital of UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons as a consequence of the obligations of UBS AG, Stamford Branch, in its capacity as Issuing Lender, under or with respect to this Agreement or the Letter of Credit to a level below that which UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons could have achieved but for such introduction, adoption, change, request or directive (taking into consideration the policies of UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons with respect to Capital Adequacy) (in any case other than with respect to such a change or proposed change regarding Taxes, the consequences of which are addressed in Section 2.04(a), the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing Lender, such additional amount or amounts as will compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons for such reduction; provided, however, that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall only exercise its rights under Section 2.04(b) if it exercises such rights under all other similar transactions to which it is a party.

(c)Requests for Compensation.  UBS AG, Stamford Branch, in its capacity as Issuing Lender, will promptly notify the Borrower of any event of which it has actual knowledge entitling UBS AG, Stamford Branch, in its capacity as Issuing Lender, to compensation and the amount of such compensation as set forth in this Section 2.04 and the Borrower shall compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, within thirty (30) calendar days of such demand being made by UBS AG, Stamford Branch in its capacity as Issuing Lender; provided, that the Borrower shall be responsible for compliance herewith and the payment of increased costs or other amounts under this Section 2.04 only to the extent that any change in law, rule, regulation, interpretation or administration giving rise thereto occurs after the Closing Date.  UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall furnish to the Borrower a certificate setting forth the basis, amount and calculation of each request by such party for compensation under this Section 2.04.  Failure or delay on the part of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to demand compensation pursuant to this Section 2.04 shall not constitute a waiver of the right of UBS AG, Stamford Branch, in its

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capacity as Issuing Lender, to demand such compensation; provided, that the Borrower shall not be required to compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, pursuant to this Section 2.04 for any increased costs incurred or reductions suffered or other loss, damage, forgone interest or amount suffered more than two hundred and seventy (270) calendar days prior to the date that UBS AG, Stamford Branch, in its capacity as Issuing Lender, notifies the Borrower of the change in law, rule, regulation, interpretation or administration giving rise to such increased costs or reductions or other loss, damage, forgone interest or amount suffered and of the intention of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to claim compensation thereof (except that, if the change in law rule, regulation, interpretation or administration giving rise to such increased costs or reductions is retroactive, then the two hundred and seventy (270) calendar day period referred to above shall be extended to include the period of retroactive effect thereof).

(d)UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall use reasonable efforts (consistent with its internal policy applied on a non-discriminatory basis and legal and regulatory restrictions) to designate a different existing office for purposes of this Agreement or to take other appropriate actions if such designations or actions, as the case may be, will avoid the need for or relieve, the amount of, any increased costs of, any amounts payable or otherwise payable under this Section 2.04 and will not, in the reasonable opinion of UBS AG, Stamford Branch, in its capacity as Issuing Lender, be otherwise disadvantageous to UBS AG, Stamford Branch, in its capacity as Issuing Lender.  Reasonable costs and expenses of such mitigation shall be at the expense of Borrower; provided, that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall not incur any such costs and expenses without the prior written approval of the Borrower; provided, further, that, in the absence of such approval, the UBS AG, Stamford Branch, in its capacity as Issuing Lender, will have no obligations under this Section 2.04(d).

(e)If, in connection with an Other Letter of Credit Transaction, UBS AG, Stamford Branch, in its capacity as Issuing Lender, agrees to increased cost or capital requirements provisions (the “Enhanced Yield Protection Provisions”) that are more favorable to the Borrower in such Other Letter of Credit Transaction than the provisions set forth in Sections 2.04(a) or (b), UBS AG, Stamford Branch, in its capacity as Issuing Lender, will promptly notify the Borrower in writing of such Enhanced Yield Protection Provisions (including a copy of such provisions in such notice) and, at the Borrower’s request, will use its commercially reasonable efforts to amend this Agreement to include such Enhanced Yield Protection Provisions.

Section 2.05.Taxes.

(a)Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.05) UBS AG, Stamford Branch, in its capacity as Issuing Lender, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

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(b)In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)The Borrower shall indemnify UBS AG, Stamford Branch, in its capacity as Issuing Lender, within twenty (20) calendar days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by UBS AG, Stamford Branch, in its capacity as Issuing Lender, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.05) and any penalties, interest, additions to tax and reasonable expenses arising therefrom or with respect thereto whether or not correctly or legally imposed; provided, that the Borrower shall not be obligated to make a payment pursuant to this Section 2.05 in respect of penalties, interest and additions to Tax attributable to any Indemnified Taxes or Other Taxes, if (i) such penalties, interest and additions to Tax are attributable to the failure of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to pay amounts paid to UBS AG, Stamford Branch, in its capacity as Issuing Lender, by the Borrower (for Indemnified Taxes or Other Taxes) to the relevant Governmental Authority within thirty (30) calendar days after receipt of such payment from the Borrower or (ii) such penalties, interest and additions to Tax are attributable to the gross negligence or willful misconduct of UBS AG, Stamford Branch, in its capacity as Issuing Lender.  Within ten (10) Business Days after UBS AG, Stamford Branch, in its capacity as Issuing Lender, learns of the imposition of Indemnified Taxes or Other Taxes, UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall give notice to the Borrower of the payment or obligation to pay by UBS AG, Stamford Branch, in its capacity as Issuing Lender, of such Indemnified Taxes or Other Taxes, and of the assertion by any Governmental Authority that such Indemnified Taxes or Other Taxes are due and payable, but the failure to give such notice shall not affect the Borrower’s obligations hereunder to reimburse UBS AG, Stamford Branch, in its capacity as Issuing Lender, for such Indemnified Taxes or Other Taxes, except that the Borrower shall not be liable for penalties, interest and other liabilities accrued or incurred after such ten (10) Business Day period until such time as it receives the notice contemplated above, after which time it shall be liable for penalties, interest and other liabilities accrued or incurred prior to or during such ten (10) Business Day period and accrued or incurred after such receipt.  A certificate as to the amount of such payment or liability delivered to the Borrower by UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall be conclusive absent manifest error.  If so directed by the Borrower, the Issuing Lender shall cooperate in any contest of Indemnified Taxes (or Other Taxes) and any penalties and interest arising with respect thereto in accordance with the reasonable discretion of the Borrower and, at the Borrower’s expense, if (i) the Borrower furnishes to such party an opinion of reputable tax counsel, which counsel shall be acceptable to such party, to the effect that such Indemnified Taxes or Other Taxes and liabilities were wrongfully or illegally imposed and (ii) such party determines in its good faith judgment that it would not be disadvantaged or prejudiced in any manner as a result of such cooperation; provided, that the Borrower shall indemnify the Issuing Lender for such Indemnified Taxes (or Other Taxes) in accordance with this Section 2.05(c) without regard to the pendency of any such contest.  This Section 2.05(c) shall not be construed to require UBS AG, Stamford Branch, in its capacity as Issuing Lender, to disclose to the Borrower its Tax return information or other information it reasonably considers proprietary or confidential.

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(d)As soon as reasonably practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Authority, and in any event within thirty (30) days of such payment being made, the Borrower shall deliver to UBS AG, Stamford Branch, in its capacity as Issuing Lender, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to UBS AG, Stamford Branch, in its capacity as Issuing Lender.

(e)UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall provide the Borrower with two (2) accurate, complete and signed originals of U.S. Internal Revenue Service Form W-8ECI, W-8BEN, W8-IMY or any applicable successor forms, along with necessary supporting documentation, certifications and attachments, if any, indicating that UBS AG, Stamford Branch, in its capacity as Issuing Lender, is, on the date of delivery thereof, entitled to receive payments of interest hereunder free from withholding of United States Federal tax.  To the extent permitted or required by applicable law, from time to time thereafter, UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall deliver renewals or additional copies of such forms (or successor forms) on or before the date that such forms expire or become obsolete or upon the written request of the Borrower; additionally, UBS AG, Stamford Branch, in its capacity as Issuing Lender, agrees to deliver to the Borrower additional copies of such forms (or successor forms) after the occurrence of any event (including a change in its applicable lending office) requiring a change in its most recent forms delivered to the Borrower.  If UBS AG Stamford Branch, in its capacity as Issuing Lender, is a “U.S. branch” of a non-U.S. person and delivers an Internal Revenue Service Form W-8IMY for purposes of this subsection, the Issuing Lender must certify in that form that it is a “U.S. branch” and that the payments the Issuing Lender receives for the account of others are not effectively connected with the conduct of the Issuing Lender’s trade or business in the United States and that it is using such form as evidence of its agreement with the Borrower to be treated as a U.S. person with respect to such payments (and the Borrower and the Issuing Lender agree to so treat the Issuing Lender as a U.S. person with respect to such payments), with the intended effect that the Borrower can make payments to the Issuing Lender without deduction or withholding of any Taxes imposed by the United States.

(f)If UBS AG, Stamford Branch, in its capacity as Issuing Lender, determines, in its good faith judgment, that it has actually received or realized any refund of Tax or any reduction of its Tax liabilities or otherwise recovered any amount that is attributable to any deduction or withholding or payment of Indemnified Taxes or Other Taxes with respect to which the Borrower has paid any additional amount pursuant to this Section 2.05, UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall reimburse the Borrower within sixty (60) calendar days in an amount equal to the net benefit, after Tax, and net of all reasonable out-of-pocket expenses incurred by UBS AG, Stamford Branch, in its capacity as Issuing Lender, in connection with such refund, reduction or recovery; provided, that nothing in this Section 2.05(f) shall require UBS AG, Stamford Branch, in its capacity as Issuing Lender, to make available its Tax returns (or any other information relating to its Taxes which it deems to be confidential).

(g)UBS AG, Stamford Branch may withhold any Taxes required to be deducted and withheld from any payment hereunder with respect to which the Borrower is not required to pay additional amounts under this Section 2.05.

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(h)The agreements of the Borrowers in this Section 2.05 shall survive the payment of all amounts payable hereunder and the termination of this Agreement in accordance with its terms.

Section 2.06.Payments.

(a)Payments Generally.

(i)Unless otherwise specified herein, the Borrower shall be obligated to make each payment required to be made by it hereunder prior to 3:00 p.m., New York time, on the date when due and in immediately available funds, without set off or counterclaim.  Any amounts received after such time on any date may, in the discretion of the Issuing Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon and for determining whether an Event of Default has occurred.  All such payments shall be made by wire transfer to the Issuing Lender to the accounts specified in Section 9.01 or to the accounts otherwise specified by the Issuing Lender in a written notice to the Borrower at least five (5) Business Days prior to payment.  The Issuing Lender shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a calendar day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.

(ii)If at any time insufficient funds are received by and available to the Issuing Lender to pay fully all amounts of principal, unreimbursed LOC Disbursements, interest and fees then due hereunder, such funds shall be applied in accordance with the Priority of Payments and, solely with respect to the unreimbursed LOC Reimbursement Obligations, the Payment Restrictions.

(iii)Except as otherwise provided herein, all interest payable hereunder shall be computed on the basis of (i) if based on the Federal Funds Effective Rate, a year of three hundred sixty (360) days and the actual number of days elapsed, (ii) if based on the Prime Rate, a year of 365/366 days and the actual number of days elapsed and (iii) if based on LIBOR, a year of three hundred sixty (360) calendar days and the actual number of calendar days elapsed.

(b)Late Payments.  All amounts due and payable to the Issuing Lender in connection with this Agreement but not paid as of the due date therefor (without regard to grace periods) (other than LOC Reimbursement Obligations not paid when due, which shall accrue interest at the Drawn Rate) shall accrue interest at a rate equal to LIBOR plus [****] basis points per annum, computed from and including the date payment was due to (but not including) the date of payment in full.

Section 2.07.Evidence of Indebtedness.  The Issuing Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the

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Borrower to the Issuing Lender resulting from the Issuing Lender’s interest in the Letter of Credit, including the amounts of principal and interest payable and paid to the Issuing Lender from time to time hereunder in respect of unreimbursed LOC Reimbursement Obligations.  The Issuing Lender shall maintain an account in which it shall record (i) the amount of each LOC Disbursement made hereunder, (ii) the amount of any LOC Reimbursement Obligations and interest payable from the Borrower to the Issuing Lender hereunder and (iii) the amount of any sum received by the Issuing Lender.  The entries made in the accounts maintained pursuant to this Section 2.07 shall be prima facie evidence of the existence and amounts of the obligations recorded therein absent manifest error; provided, that the failure of the Issuing Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to pay such amounts in accordance with the terms of this Agreement.

ARTICLE III

REGULATORY ACCOUNT; SURPLUS ACCOUNT; REINSURANCE TRUST ACCOUNT; PRIORITY OF PAYMENTS

Section 3.01.Regulatory Account and Administrative Account.

(a)The Borrower shall cause to be established and maintained as provided in Section 3.01(b) a segregated account (the “Regulatory Account”) in its own name, which shall at all times hold Cash or Cash Equivalents with a Market Value at least equal to $250,000.  Except as required by applicable law, no amounts held in the Regulatory Account shall be (i) commingled with the assets of the Surplus Account or (ii) withdrawn prior to the Facility Maturity Date for any reason.

(b)On or prior to the date hereof, the Regulatory Account shall be funded with Cash having an aggregate Market Value equal to $250,000. No additional contributions shall be made to the Regulatory Account other than in accordance with the Priority of Payments.

(c)Notwithstanding anything in this Agreement or any other Transaction Document to the contrary, the Borrower shall be permitted to establish, maintain and utilize a deposit account (the “Administrative Account”) with Regions Bank, N.A., and its successor and assigns or, with the consent of the Issuing Lender, such consent not to be unreasonably withheld, an Eligible Bank designated by Protective, solely for purposes of making payments to, and receiving payments from, its Affiliates in connection with the PLC Service Agreements, Administrative Services Agreement and Investment Management Agreement; provided, that the ending daily account balance of the Administrative Account shall not, at the close of any three consecutive Business Days, exceed $1,000, and the Borrower shall promptly deposit any funds received from its Affiliates in the Administrative Account into the Surplus Account.

Section 3.02.Surplus Account of the Borrower.

(a)The Borrower shall cause to be established and maintained as provided in Section 3.02(b) a segregated account (the “Surplus Account”).  No amounts held in the Surplus Account shall be commingled with the general assets of the Borrower or the assets held in the Regulatory Account.  All funds and assets received by the Borrower pursuant to any Transaction

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Document or otherwise (including any distributions related to the grantor interest in the Reinsurance Trust Account) shall be deposited into and held in the Surplus Account subject to disbursement in accordance with the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions.  All funds held in the Surplus Account (including any products and proceeds of any such funds), including any investments or reinvestments of such proceeds, shall be retained in the Surplus Account subject to disbursement in accordance with the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions and invested and applied in accordance with the Investment Guidelines.  The Borrower hereby agrees that any assets credited to or deposited in the Surplus Account may only be withdrawn or applied as provided in this Agreement.

(b)The parties agree that, for purposes of the UCC, New York law shall be the law of the jurisdiction of The Bank of New York Mellon in its capacity as Securities Intermediary, with respect to the Surplus Account, and that The Bank of New York Mellon has agreed in the Securities Account Control Agreement, in its capacity as Securities Intermediary, to treat all assets credited to the Surplus Account as “financial assets” within the meaning of Section 8-102(a)(9) of the UCC; provided, to the extent that the Surplus Account is not considered a Securities Account, such account shall be deemed to be a “Deposit Account” (as defined in Section 9-102(a)(29) of the UCC), and a security interest is hereby granted by the Borrower to the Issuing Lender and perfected under the UCC in the Surplus Account as a Deposit Account, which The Bank of New York Mellon shall maintain acting not as Securities Intermediary but as a “bank” (within the meaning of Section 9-102(a)(8) of the UCC).

(c)All deposits into the Surplus Account shall be made in accordance with the procedures set forth in Section 3.03.  On or prior to the date hereof, the Surplus Account shall initially be funded with Cash or securities having an aggregate Market Value equal to $[****], after giving effect to the payment of the LOC Structuring Fee, the expenses set forth in Section 6.01(n)(i) and any rating agency fees, legal fees of the Borrower’s Vermont counsel and other formation costs of the Borrower incurred in connection with the Transactions as of the date hereof.  Thereafter, all amounts received by the Borrower shall immediately be deposited into the Surplus Account.

(d)All withdrawals and releases of capital from the Surplus Account shall be made in accordance with the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions.

Section 3.03.Reinsurance Trust Account.  The Reinsurance Trust Account shall be established by the Borrower, as grantor, subject to and in accordance with the terms of the Reinsurance Trust Agreement.

Section 3.04.Procedures for Depositing Cash and Crediting Securities to Surplus Account.  The Borrower may, on any Business Day, transfer, deliver or deposit or cause to be transferred, delivered or deposited, as the case may be, Cash or securities to the Surplus Account.

Section 3.05.Priority of Payments.  Except as otherwise provided for in Section 9.14, the Borrower shall apply all funds held in the Surplus Account on any Business Day

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(except in the case of item Thirteenth), without duplication, in the following order of priority (the “Priority of Payments”):

(a)First, for the payment of any Taxes or provisions for Taxes and other governmental charges due and payable by the Borrower as of such date;

(b)Second, to the extent the Market Value of the assets held in the Regulatory Account is less than $250,000, for the payment of Cash or Cash Equivalents in an amount equal to the excess of $250,000 over such Market Value;

(c)Third, to the extent amounts drawn under any Letter of Credit are not necessary for the payment of amounts payable under the Reinsurance Agreement, for the payment of that portion of the Borrower’s obligations due and payable by the Borrower as of such date consisting of (i) unpaid interest at the Drawn Rate on all LOC Reimbursement Obligations with respect to such amounts drawn, and (ii) after all such unpaid interest has been paid in full, unpaid principal of all LOC Reimbursement Obligations with respect to such amounts drawn;

(d)Fourth, for the payment of any amounts due and payable by the Borrower to the Ceding Company under, and subject to the terms of, the Reinsurance Agreement as of such date (including any deposits to the Reinsurance Trust Account required in accordance with the terms of the Reinsurance Agreement);

(e)Fifth, for the payment of any Third Party Expenses incurred directly by the Borrower that are due and payable on such date;

(f)Sixth, for the payment of Utilization Fees that are due and payable by the Borrower to the Issuing Lender as of such date;

(g)Seventh, to the extent not otherwise contemplated in item Third above, for the payment of that portion of the Borrower’s obligations that are due and payable as of such date under this Agreement consisting of unpaid principal of the LOC Reimbursement Obligations and interest at the Drawn Rate on all LOC Reimbursement Obligations; provided, that payment of such LOC Reimbursement Obligations shall only be made to the extent that (i) the Borrower’s Total Adjusted Capital will equal or exceed [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital after giving effect to such payment, or (ii) an Approval has been received in respect of all or a portion of such payment if the Borrower’s Total Adjusted Capital will not equal or exceed [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital after giving effect to such payment (the “Payment Restrictions”);

(h)Eighth, to the extent not otherwise contemplated in items Third, Sixth or Seventh, for payments due to the Issuing Lender from the Borrower upon the occurrence of an Event of Default, including, without limitation, the posting of collateral or acceleration of any outstanding amounts under the Letter of Credit, which payments shall be made to and held in the Cash Collateral Account, other than, for the avoidance of doubt, any LOC Reimbursement Obligations;

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(i)Ninth, for the payment of any amounts due and payable by the Borrower as of such date under the Tax Sharing Agreement or the Special Tax Allocation Agreement;

(j)Tenth, to the extent not otherwise contemplated in items Third, Sixth, Seventh and Eighth above, for the payment of Fees, indemnities, expenses and other amounts payable to the Issuing Lender by the Borrower that are due and payable as of such date, other than, for the avoidance of doubt, any LOC Reimbursement Obligations;

(k)Eleventh, subject to an Approval, on any interest payment date specified in any Surplus Note of the Borrower, for the payment of any interest due and payable by the Borrower in respect of any such Surplus Note as of such date to the extent that, immediately following payment thereof, the Dividend Test shall be satisfied; provided, however, that no payment of interest may be made under this item Eleventh so long as (y) a Default or Event of Default has occurred and is continuing, or (z) any amounts due and payable by the Borrower to the Issuing Lender shall remain due and unpaid;

(l)Twelfth, subject to an Approval, on any interest payment date specified in any Surplus Note of the Borrower, for the payment of any principal, premium and any other amount due and payable by the Borrower in respect of any such Surplus Note as of such date to the extent that, immediately following payment thereof, the Dividend Test shall be satisfied; provided, however, that no payment of principal may be made under this item Twelfth so long as (x) a Default or Event of Default has occurred and is continuing, (y) any amounts due and payable by the Borrower to the Issuing Lender shall remain due and unpaid for more than five (5) Business Days after notice from the Issuing Lender or (z) the Letter of Credit shall remain outstanding; and

(m)Thirteenth, for the payment of any dividends declared on or subsequent to December 1, 2015, subject to and in accordance with the Dividend Formula; provided, however, that no dividends will be payable under this item Thirteenth if on the date of declaration thereof (w) a Default or Event of Default has occurred and is continuing, (x) any amounts due and payable by the Borrower to the Issuing Lender shall remain due and unpaid, (y) any Dividend Catch-Up Contribution shall remain unpaid or (z) any amounts due and payable in excess of $[****] by PLC to the Borrower pursuant to any Transaction Document to which PLC is a party shall remain due and unpaid and such failure to pay shall have continued for thirty (30) calendar days; provided, further, that any dividend declared on or subsequent to December 1, 2015 in accordance with this Agreement that satisfied the requirements of this item Thirteenth on its date of declaration if it had been paid on such date, shall be payable by the Borrower on any future date, notwithstanding the provisions of this item Thirteenth or any other provisions to the contrary herein.

If any amounts are due and payable under items First through Tenth of the Priority of Payments (other than and excluding amounts due and payable under item Eighth of the Priority of Payments), and insufficient funds are existing in the Surplus Account at such time, then funds held in the Cash Collateral Account (if any) shall be transferred to the Surplus Account to make such payments.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01.Borrower Representations and Warranties.  The Borrower represents and warrants to the Issuing Lender, as of the date hereof, as follows:

(a)Organization; Powers.  The Borrower is duly formed in accordance with its Constituent Documents, validly existing and in good standing under the laws of the State of Vermont, is duly licensed or authorized under the laws of the State of Vermont and has the corporate power and authority to carry on its business as contemplated in the Transaction Documents.

(b)Authorization; Enforceability.  The Transaction Documents to which the Borrower is a party are within the corporate powers of the Borrower and have been duly authorized by all necessary corporate and, if required, stockholder action on the part of the Borrower.  Each of the Transaction Documents to which the Borrower is a party has been duly executed and delivered by the Borrower and, assuming the due execution and delivery of such Transaction Documents by the other parties thereto, constitutes, or will constitute, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights generally, the rights of creditors of insurance companies and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c)Approvals; No Conflicts.  Except as would not reasonably be expected to result in a Material Adverse Effect, the Transaction Documents to which the Borrower is a party (i) are in full force and effect and do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any third party, except such as have been obtained or made, (ii) do not violate any applicable law or regulation or the Constituent Documents of the Borrower, or any order of any Governmental Authority applicable to the Borrower or the Reinsured Policies, (iii) do not violate or result in a default or other conflict under any material agreement or other instrument binding upon the Borrower or any of its assets, or give rise to a right thereunder to require any payment to be made by the Borrower and (iv) will not result in the creation or imposition of any Lien on any asset of the Borrower except for Permitted Liens or as expressly permitted under the terms of such Transaction Documents.

(d)Compliance with Laws and Agreements.  The Borrower is in compliance in all material respects with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its properties, the Transaction Documents and, except as would not result in a Material Adverse Effect, all other agreements and other instruments binding upon it or its property.

(e)Taxes.  The Borrower has timely filed or caused to be filed all material Tax returns and reports required to have been filed and has paid or caused to be paid all material Taxes required to have been paid by it.

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(f)Accuracy of Information.  The annual audited financial statement for the year ending December 31, 2008 and the unaudited quarterly financial statement for the calendar quarter ending September 30, 2009 of the Ceding Company provided to the Issuing Lender by the Borrower were prepared in all material respects in accordance with SAP and, to the extent consistent therewith, fairly present in all material respects the financial condition and result of operations of the Ceding Company as of the respective dates thereof and for the respective periods presented therein, as applicable.  The factual information (not including any projections, estimates, modeling or other non-factual information) contained in the actuarial report dated December 3, 2009 prepared by the Independent Actuary with respect to the Reinsured Policies that the Borrower has furnished or caused to be furnished to the Issuing Lender in connection with its analysis and negotiation of the Transactions or the Transaction Documents, in each case as modified or supplemented by other information so furnished by the Borrower, is true and correct in all material respects as of the date of such report.  To the best of the Borrower’s knowledge, the financial and actuarial projections and modeling contained therein or otherwise furnished to the Issuing Lender by or on behalf of the Borrower and listed on Schedule 6 were prepared in good faith based upon assumptions believed to be reasonable in the circumstances as of their respective dates or when prepared (it being understood that such projections and modeling are subject to significant uncertainties and contingencies, many of which are beyond the Ceding Company’s or the Borrower’s control, and that no assurances can be given that the projections or modeling will be realized).  To the best of the Borrower’s knowledge, no report, certificate or information of a type not otherwise described in this Section 4.01(f) and furnished in writing by or on behalf of the Ceding Company to the Issuing Lender in connection with its analysis and negotiation of this Agreement on or prior to the date hereof, when delivered or as of its respective date, in each case as modified or supplemented by other information furnished by or on behalf of the Ceding Company, contained any material misstatement of fact or omitted to state a material fact.

(g)Representations and Warranties in Other Transaction Documents.  Each of the representations and warranties made by the Borrower in the Transaction Documents to which it is a party, are true, complete and correct in all material respects as of the date given, subject to any qualifications and limitations contained therein; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.

(h)Good Title to Collateral; Absence of Liens.  The Borrower is the owner of any Collateral pledged hereunder free and clear of all Liens other than Permitted Liens.

(i)Litigation Matters.  There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened in writing against the Borrower or against the Ceding Company and affecting the Reinsured Policies (i) that seek to challenge the validity or enforceability of the Transaction Documents or the Transactions or (ii) that would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.

(j)No Material Adverse Effect.  There has been no Material Adverse Effect since December 31, 2008.

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(k)Investment Company.  The Borrower is not required to register as an “investment company” or a company controlled by an “investment company” as defined in the Investment Company Act of 1940.

(l)Anti-Terrorism Laws.

(i)Each of the Borrower and, to the Borrower’s knowledge, each of the Borrower’s Affiliates and each of their respective officers or directors, is in compliance in all material respects with any Anti-Terrorism Law.

(ii)None of the Borrower and, to the Borrower’s knowledge, none of the Borrower’s Affiliates and none of their respective officers or directors who is acting or benefiting in any capacity in connection with the Letter of Credit, is an Embargoed Person.

(m)Debt Obligations.  The Borrower does not have any outstanding Indebtedness in excess of $50,000, except as permitted under or contemplated by the Transaction Documents.

(n)Disclosure.  The Borrower has disclosed in writing to the Issuing Lender all agreements and instruments to which it is subject, the breach or noncompliance with which could, individually or in the aggregate, be expected to result in a Material Adverse Effect.

(o)Subsidiaries.  The Borrower has no Subsidiaries.

(p)Capitalization.  The Borrower has received on or prior to the Closing Date, a capital contribution or contributions with an aggregate Market Value of not less than $[****] in the form of paid-in capital, $[****] of which shall be deposited into the Surplus Account, $[****] of which shall be deposited into the Reinsurance Trust Account and $250,000 of which shall be deposited into the Regulatory Account.

(q)Solvency.  The Borrower is and shall be Solvent both before and immediately after giving effect to the Transactions taking place on the Closing Date.

(r)Statutory Filings.  The Borrower has made all required filings under applicable insurance and reinsurance laws in each jurisdiction where such filings are required, except where the failure to so file would not reasonably be expected to have a Material Adverse Effect.

(s)Borrower Securities.  All capital stock or other equity interests issued by the Borrower (other than any Surplus Notes issued subject to and in accordance with Section 6.01(bb)) are owned by PLICO or any wholly-owned Affiliate of the ultimate Controlling party of the Borrower that is a regulated insurance company.

(t)Non-Consolidation.  From the date of formation of the Borrower to the Closing Date, the Borrower has complied in all material respects with the non-consolidation covenants set forth in Section 6.01(l).

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ARTICLE V

CONDITIONS

Section 5.01.Closing Conditions.  The obligation of the Issuing Lender to issue the Letter of Credit on the Closing Date is subject to the satisfaction or waiver in accordance with Section 9.02 of the following conditions precedent on or prior to the Closing Date (the “Closing Conditions”):

(a)Approvals.  All material governmental and regulatory necessary in connection with the consummation of the Transactions shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any Governmental Authority that would reasonably be expected to have a Material Adverse Effect.

(b)Transaction Documents.  The Borrower and the Ceding Company shall have executed (if applicable) and delivered the Transaction Documents, copies of which shall have been delivered to the Issuing Lender, and all conditions to the effectiveness of the Transaction Documents (other than this Agreement) shall have been satisfied.

(c)Representations and Warranties.  The representations, warranties and covenants of the Borrower and the Ceding Company set forth herein are true, correct and complete in all material respects, as of the date hereof, unless such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.

(d)Payment of Fees.  The Borrower shall have paid any Fees due and owing to the Issuing Lender as of the Closing Date, including but not limited to the LOC Structuring Fee.

(e)Financial Strength Rating.  The Borrower shall have a Counterparty Risk Rating of at least “A” by S&P (or an equivalent rating by Moody’s or Fitch).  The Ceding Company shall have an Insurer Financial Strength Rating of at least “A” by S&P (or an equivalent rating by Moody’s or Fitch).

(f)Closing Documents and Certificates.  The Issuing Lender shall have received certificates signed by Responsible Officers of the Borrower certifying that the Closing Conditions (other than those set forth in Sections 5.01(e), (g) and (h) or those that may have been waived in writing by the Issuing Lender) have been fully satisfied as of the Closing Date.

(g)Legal Opinions and Memorandum.  The Issuing Lender or its counsel shall have received the following favorable written opinions and memorandum (addressed to the Issuing Lender and dated as of the Closing Date):

(i)Opinion of Vermont counsel for the Borrower with respect to general corporate matters under Vermont law;

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(ii)Opinion of counsel for the Borrower with respect to general corporate matters under Delaware law;

(iii)Opinion of outside counsel for the Borrower with respect to general corporate matters and the enforceability of the Transaction Documents under U.S. federal, New York and Nebraska law;

(iv)Opinion of counsel for the Borrower with respect to the creation and perfection under applicable law of the security interests in the Collateral granted under Section 7.02(a)(ii);

(v)Memorandum of counsel for the Borrower with respect to draws on assets under the Reinsurance Agreement and the Reinsurance Trust Account in the context of delinquency proceedings; and

(vi)Opinion of counsel for the Borrower with respect to the enforceability, including in delinquency proceedings, of the off-set and recoupment provision in the Reinsurance Agreement under Nebraska law.

(h)Letter of Credit Request.  The Issuing Lender shall have received a correct and complete request for the issuance of the Letter of Credit.

(i)No Default.  No event that constitutes a Default or an Event of Default hereunder shall have occurred and be continuing.

(j)Initial Capitalization.  The Borrower shall have received one or more capital contributions in an aggregate amount of not less than $[****], (i) $[****] of which shall be deposited into the Surplus Account, (ii) $[****] of which shall be deposited into the Reinsurance Trust Account and (iii) $250,000 of which shall be deposited into the Regulatory Account.

(k)Third Party Excess Reinsurance.  The Ceding Company shall have entered into reinsurance agreements relating to the Reinsured Policies set forth on Exhibit B to the Reinsurance Agreement and such agreements shall be in full force and effect.

Section 5.02.Conditions to Increase the LOC Amount.  The obligation of the Issuing Lender to increase the LOC Amount on any Scheduled LOC Amendment Date pursuant to Section 2.01(b), is subject to the satisfaction (or waiver by the Issuing Lender) of the following conditions precedent on the applicable Scheduled LOC Amendment Date (the “Increase Conditions”):

(a)Contributions.  The First Required Additional Contribution shall have been paid by or on behalf of PLC to the Borrower at least thirty-five (35) calendar days prior to the First Required Additional Contribution Date, the Second Required Additional Contribution shall have been paid by or on behalf of PLC to the Borrower at least thirty-five (35) calendar days prior to the Second Required Additional Contribution Date and the Third Required Additional Contribution shall have been paid by or on behalf of PLC to the Borrower at least thirty-five (35) calendar days prior to the Third Required Additional Contribution Date.

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(b)No Default.  No event that constitutes a Default or an Event of Default hereunder shall have occurred and be continuing.

(c)Accuracy of Representations and Warranties.  The representations and warranties of (i) the Borrower made pursuant to Sections 4.01(a) (Organization; Powers), 4.01(b) (Authorization; Enforceability), 4.01(c) (Approvals; No Conflicts), 4.01(f) (Accuracy of Information) (but solely with respect to the first sentence of such subsection), 4.01(h) (Good Title to Collateral; Absence of Liens), 4.01(i) (Litigation Matters) (but only with respect to clause (i) thereof), 4.01(k) (Investment Company), 4.01(l) (Anti-Terrorism Laws), 4.01(r) (Statutory Filings) and 4.01(s) (Borrower Securities), shall, in each case, be true and correct in all material respects before giving effect to any increase of the LOC Amount as though made on the applicable Scheduled LOC Amendment Date unless any such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date.

(d)Officer’s Certificates.  On the Scheduled LOC Amendment Date, the receipt by the Issuing Lender of an officer’s certificate of the Borrower, dated as of such date stating that the Increase Conditions (other than those that have been waived in writing by the Issuing Lender) have been fully satisfied as of such date.

Section 5.03.Conditions to Extension of the Letter of Credit.  The obligation of the Issuing Lender to extend the Facility Maturity Date pursuant to Section 2.01(c), is subject to the satisfaction (or waiver by the Issuing Lender) of the following conditions precedent (the “Extension Conditions”):

(a)No Event of Default.  No event that constitutes an Event of Default pursuant to Sections 8.01(l) or (m) shall have occurred and be continuing.

(b)First Extension Event.  The First Extension Event shall have occurred.

(c)Second Extension Event.  Solely with respect to an extension of the Facility Maturity Date pursuant to Section 2.01(c)(ii), the Second Extension Event shall have occurred.

ARTICLE VI

BORROWER COVENANTS

Section 6.01.Borrower Covenants.  The Borrower hereby agrees, so long as the LOC Commitment remains in effect, the Letter of Credit remains outstanding or any amount is owing to the Issuing Lender, as follows:

(a)Corporate Existence.  The Borrower shall preserve and maintain its corporate existence and rights (both organizational and statutory) and maintain full corporate right, power, authority and governmental licenses, approvals and certificates, to perform its obligations hereunder and to own and operate its assets and to carry on its business except for such rights, powers, authority, licenses, approvals and certificates, the loss of which would not reasonably be expected to have a Material Adverse Effect.

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(b)Compliance with Laws.  Except as could not reasonably be expected to have a Material Adverse Effect, the Borrower will comply with all applicable laws, rules, regulations, and orders of any Governmental Authority applicable to it, its business or its property.

(c)Notices of Material Events.  The Borrower shall furnish to the Issuing Lender written notice of the following events within the time frames specified below:

(i)the occurrence of any material breach under any Transaction Document to which it is a party within five (5) Business Days after the Borrower has knowledge of any such occurrence;

(ii)any material correspondence from, including all orders of, or to any Governmental Authority relating to this Agreement or the Transactions within twenty (20) Business Days after the actual receipt by the Borrower thereof, except to the extent prohibited by the terms of such correspondence or order;

(iii)the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against the Borrower or against the Ceding Company affecting the Reinsured Policies that would be reasonably expected to result in a Material Adverse Effect with respect to the Borrower, within ten (10) Business Days after the Borrower has knowledge of any such filing or commencement; and

(iv)the occurrence of any Material Adverse Effect with respect to the Borrower or the Reinsured Policies within five (5) Business Days after the Borrower has knowledge of any such occurrence.

Each notice delivered under this Section 6.01(c) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth, in reasonable detail, the event or development requiring such notice and any action taken or proposed to be taken with respect thereto; provided, however, that, to the extent prohibited by applicable laws, rules or regulations of any Governmental Authority, applicable privilege policies or as would jeopardize attorney-client or other applicable privilege, details regarding such breach, correspondence, actions, suits, proceedings, events or developments need not be furnished to the Issuing Lender by the Borrower.

(d)Financial Reports and Other Information.  The Borrower will, to the extent permitted by applicable law, furnish to the Issuing Lender the various reporting documents listed in Schedule 1 attached hereto (the “Borrower Reporting Documents”).  All financial statements delivered pursuant to this Section 6.01(d) shall be complete and correct copies thereof in all material respects and, if prepared by the Borrower, shall be prepared in all material respects in accordance with SAP.

(e)Books and Records; Inspection Rights.  The Borrower shall keep proper books of records and accounts in which entries are made of dealings and transactions in relation to its business and activities.  Such entries shall be true, correct and complete in all material respects.  Subject to restrictions or limitations arising under applicable law and regulations, the

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Borrower shall permit one or more employees of the Issuing Lender and its representatives and advisors upon reasonable prior notice during the Borrower’s normal business hours and as does not unreasonably disrupt the business of the Borrower or its Affiliates to (i) inspect the books and records of the Borrower, (ii) discuss the affairs, finances and accounts of the Borrower with officers of the Borrower and (iii) discuss the affairs, finances and accounts of the Borrower with the Borrower’s independent accountants; provided, that the Issuing Lender shall not exercise such right more than once per calendar year unless an Event of Default shall have occurred and be continuing; provided, further, that the Borrower shall bear the expense of (a) one (1) such audit per calendar year by the Issuing Lender and (b) in the event an Event of Default shall have occurred and be continuing, all such audits conducted by the Issuing Lender; provided, further, that the foregoing shall not require the Borrower to disclose any information that it is prohibited from disclosing under applicable contractual confidentiality obligations to third parties, privacy or other applicable law, regulations or orders or that is subject to attorney-client privilege or attorney work product privilege; provided, further, that the Issuing Lender shall keep this and all such information provided under this Agreement confidential pursuant to Section 9.13.

(f)Indebtedness.  The Borrower shall not create, incur, assume, guarantee, acquire, or, contingently or otherwise, enter into or become responsible for payment of any Indebtedness or other obligations incurred or entered into in excess of $50,000 other than (i) pursuant to, as expressly permitted under, contemplated by or in connection with this Agreement, (ii) Indebtedness or other obligations incurred as permitted under or contemplated by the Transaction Documents or (iii) Surplus Notes.

(g)Conduct of Business.  The Borrower shall not engage in any business (including but not limited to any transactions with Affiliates) other than the business contemplated by the Transaction Documents and its organizational documents or in connection with the financing of its obligations under the Reinsurance Agreement through the issuance of Surplus Notes.

(h)No Amendment, Modification or Waiver; Impairment of Rights.  The Borrower shall obtain the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed):

(i)for any amendment to a Transaction Document (including any such amendment described in Section 6.01(h)(ii)); provided, that the prior written consent of the Issuing Lender shall not be required for (x) any commutation, recapture or termination of the Reinsurance Agreement in accordance with its terms if the provisions thereof relating to such commutation, recapture or termination are complied with in all material respects and (y) any amendment to the definition of “RP Interest Rate” or “RP Discount Rate” in the Reinsurance Agreement that is required or requested by the domestic regulator of the Ceding Company so that such definition refers only to assets of the Borrower deposited in the Reinsurance Trust Account;

(ii)for any amendment, on or subsequent to the date of any Regulatory Event that results in a decrease in excess of [****] percent ([****]%) in the Statutory Reserves in excess of Economic Reserves for the Reinsured Policies, to

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the Reinsurance Agreement to appropriately modify the definition of “XXX Reserves” therein and to cause to be ceded to, and/or reinsured with, the Borrower, additional level premium term life business with an actuarial profile substantially similar to, or more favorable to the Borrower than, the Reinsured Policies (the “Additional Business”), and to make such other amendments, supplements and modifications to the Transaction Documents, and to make such filings with, and to obtain such approvals of, the Nebraska Director and any other jurisdiction in which the Ceding Company files its statutory financial statements, and to take such other actions as may be reasonably necessary in connection with the foregoing; provided, that (A) the aggregate amount of surplus held by the Borrower to support the Reinsured Policies and the Additional Business shall be proportionate to the amount of surplus held by the Borrower (assuming the satisfaction of all contributions contemplated in Section 2.01(c)) to support the Reinsured Policies prior to such amendment and (B) the aggregate amount of Statutory Reserves in excess of Economic Reserves ceded to, and reinsured by, the Borrower shall not increase as a result of such amendment;

(iii)subject to Section 6.01(h)(vii), before entering into any additional contracts or binding agreements other than the Transaction Documents or any required replacement thereof that would create material financial or other obligations of the Borrower other than Surplus Notes;

(iv)for any actions taken pursuant to any Transaction Document other than actions that are (x) ministerial or routine in nature, (y) in the ordinary course of business or (z) expressly provided for thereunder;

(v)prior to using its commercially reasonable efforts to provide statutory reserve credit for the reinsurance ceded under the Reinsurance Agreement in all U.S. jurisdictions, other than the Ceding Company’s state of domicile, in which the Ceding Company is required to file its statutory statements pursuant to applicable statutory accounting principles and credit for reinsurance statutes and regulations of such jurisdictions, other than making or submitting any commercially reasonable applications for accreditation or approval, filing, notice, or submission to jurisdiction or service of process as a reinsurer with any Governmental Authority; provided, that it shall not be unreasonable for the Issuing Lender to withhold its consent if any such efforts of the Borrower would reasonably be expected to have an adverse impact on the economic, risk, or return expectations of the Issuing Lender or any of its Affiliates in any material respect.  For the avoidance of doubt, nothing in this Section 6.01(h)(v) shall require the Issuing Lender to agree to any amendment hereof or of the Letter of Credit;

(vi)before any material term or condition in any Transaction Document is waived by the Borrower; and

(vii)for any other actions of the Borrower not contemplated or permitted by Sections 6.01(h)(i) through (vi), other than actions that are contemplated by or consistent with the Transaction Documents or the

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Transactions, are ministerial or routine, are required by applicable law, regulation, rule, order or any Governmental Authority or as would not adversely affect the rights, remedies and position of the Issuing Lender with respect to the Transactions.

(i)Compliance with and Enforcement of Transaction Documents.  The Borrower shall comply in all material respects with the terms and conditions of, and perform its obligations and exercise and fully enforce in all material respects its rights and remedies available under, each Transaction Document to which it is a party; provided, that if the Borrower fails to use reasonable best efforts to so enforce its rights in all material respects within seven (7) Business Days of notice from the Issuing Lender or upon the occurrence and continuation of an Event of Default, the Issuing Lender, may enforce, in the name of the Borrower, the rights of the Borrower under the Transaction Documents (other than this Agreement) pursuant and to the extent permitted by the collateral assignment of rights set forth in Section 9.09.

(j)Dividends.  Except with respect to any Special Dividend, the Borrower shall not declare or pay any dividends (i) other than in accordance with the terms of the Dividend Payment Formula, (ii) during the period beginning on the Closing Date and ending December 31, 2014, (iii) if any Default or Event of Default shall have occurred and be continuing and (iv) if any amounts in excess of $[****] due and payable by PLC to the Borrower pursuant to any Transaction Document to which PLC is a party shall remain due and unpaid for a period of thirty (30) calendar days.

(k)Non-Petition.  To the extent permitted by applicable law, the Borrower shall not dissolve or liquidate, in whole or in part, or institute insolvency proceedings against itself, or file a petition seeking or consenting to reorganization or relief under any applicable law relating to bankruptcy or insolvency, on or prior to the date that is one (1) year and one (1) calendar day (or, if longer, the preference period then in effect) after payment in full of all amounts payable in respect of its obligations to the Issuing Lender.

(l)Non-Consolidation.

(i)The Borrower shall not have employees.  The Borrower may enter into service agreements with an Affiliate, such that the employees of such entity act on behalf of the Borrower; provided, however, that such employees shall at all times hold themselves out to third parties as representatives of the Borrower while performing duties under such service agreements.

(ii)Any Affiliates shall act as agents of the Borrower solely through express agencies; provided, however, that such Affiliate fully discloses to any third party the agency relationship with the Borrower; provided, further, that such Affiliate receives fair compensation or compensation consistent with regulatory requirements, as appropriate, from the Borrower for the services provided.  The Borrower shall not act as an agent for any Affiliate.

(iii)The Borrower shall not nor shall it allow any Person to acquire any, merge into or consolidate with any Person or entity or, to the fullest extent

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permitted by law, dissolve, terminate or liquidate in whole or in part, transfer, lease or otherwise dispose of any of its assets other than in accordance with the Transaction Documents, or change its legal structure, fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its incorporation or to the fullest extent permitted by law, seek dissolution or winding up in whole, or in part.

(iv)The Borrower shall allocate all overhead expenses (other than expenses allocable to the Borrower’s use of office space made available by an Affiliate) for items shared between the Borrower and such Affiliate, on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use.

(v)The Borrower shall ensure that all actions of the Borrower are duly authorized by its authorized officers, as appropriate.

(vi)The Borrower shall maintain its bank accounts, books and records separately from those of its Affiliates, and use the name “Golden Gate III Vermont Captive Insurance Company” in all correspondence, and use separate invoices and checks.

(vii)The Borrower shall maintain its own records, books, resolutions and agreements, and such books and records shall be adequate and sufficient to identify all of its assets.

(viii)The Borrower shall prepare financial statements for itself that are separate from the financial statements and accounting records of its Affiliates; provided, that the Borrower may permit such financial statements to be part of the consolidated financial statements of another entity which acknowledges that the Borrower is a separate entity.

(ix)The Borrower shall not commingle funds or other assets of the Borrower with those of its Affiliates or any other Person and shall not maintain bank accounts or other depository accounts to which any of its Affiliates are an account party, into which any of its Affiliates makes deposits or from which any of its Affiliates have the authority to make withdrawals, except that any Affiliate of the Borrower may deposit funds and assets owed to the Borrower pursuant to the PLC Service Agreements, Administrative Services Agreement and Investment Management Agreement into, and any Affiliate of the Borrower may withdraw funds and assets owed to such Affiliate pursuant to the PLC Service Agreements, Administrative Services Agreement and Investment Management Agreement from, the Administrative Account.

(x)The Borrower shall hold its assets in its own name.

(xi)The Borrower shall maintain its assets in such a manner that it is not, or will not be, costly or difficult to segregate, identify or ascertain its assets from those of any other Person.

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(xii)The Borrower shall not permit any of its Affiliates to pay any of the Borrower’s operating expenses, unless such operating expenses are paid by such Affiliate pursuant to a Transaction Document or an agreement between such Affiliate and the Borrower providing for the allocation of such expenses.

(xiii)The Borrower shall at all times act solely in its own name and through its duly authorized officers or agents in order for the Borrower to maintain an arm’s-length relationship its Affiliates.  The Borrower shall not enter into any contract with an Affiliate except on terms that are fair and equitable.

(xiv)The Borrower shall conduct its business solely in its own name so as to not mislead third parties as to the identity of the Borrower with which such third parties are conducting business, and shall use all reasonable efforts to avoid the appearance that it is conducting business on behalf any Affiliate or that the assets of the Borrower are directly available to pay the creditors of any Affiliate.

(xv)The Borrower shall not consent to any of its Affiliates granting consensual material Liens on the Borrower’s property or assets.  The Borrower shall maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets.

(xvi)Subject to the Transaction Expense Support Agreement and the PLC Guarantee, the Borrower shall pay its own liabilities and expenses out of its own funds drawn on its own bank account.

(xvii)The Borrower shall not assume, guarantee, become obligated for, pay, hold itself out to be responsible for or pledge its assets in support of, the Indebtedness or obligations of any Affiliate or controlling persons or any other Person and, except as permitted or required pursuant to the Transaction Documents and the transactions contemplated therein, shall not create, incur, assume, guarantee, acquire, or, contingently or otherwise, enter into or become responsible for payment of any Indebtedness or guarantees or consent to any of its Affiliates assuming, granting, becoming obligated for, paying or holding itself out to be responsible for the Indebtedness or obligations of the Borrower.

(xviii)The Borrower shall not acquire obligations or securities of any Affiliates.  The Borrower shall not hold out its credit to any person as available to satisfy the obligation of any other Person or entity.  The Borrower shall not pledge its assets for the benefit of any other entity or make any loans or advances to any Person or entity except as provided in the Transaction Documents.

(xix)The Borrower shall observe strictly all organizational and procedural formalities required by this Agreement, its articles of incorporation and its by-laws, and by applicable law.

(xx)The Borrower shall not hold itself out as or be considered as a department or division of (A) any shareholder, partner, principal, member or Affiliate of the Borrower, (B) any Affiliate of a shareholder, partner, principal,

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member or Affiliate of the Borrower or (C) any other Person or allow any Person to identify the Borrower as a department or division of that Person.

(xxi)The Borrower shall not conceal assets from any creditor, or enter into any transaction with the intent to hinder, delay or defraud creditors of the Borrower or the creditors of any other Person.

(xxii)As of the date hereof, the Borrower shall have adequate capital.

(xxiii)The Borrower shall have at least one Independent Director who is not on the board of directors of its sole shareholder of common stock and shall cause its board of directors to observe all other corporate formalities.

(xxiv)The Borrower shall use all reasonable efforts to cause its agents, service providers and other representatives to act at all times without contravention of the foregoing covenants.

(m)Taxes.  The Borrower shall file any material Tax return that is required to be filed by it in any jurisdiction or pay any material Tax, assessment, charge or fee due and payable with respect to its properties and assets, other than those being contested in good faith in which case it shall take all reasonable steps to defend any action brought by a taxing authority with respect to such Tax, assessment, charge or fee.

(n)Expenses.  The Borrower shall reimburse the Issuing Lender for all reasonable out-of-pocket expenses and other reasonable costs (including any legal fees and actuarial fees) incurred in connection with (i) the negotiation and preparation of the Transaction Documents on or prior to the date hereof, but not to exceed $[****] in aggregate, (ii) in connection with the negotiation and preparation of any amendment to this Agreement, but not to exceed $[****] in aggregate per amendment, in the case of (i) or (ii), without the consent of the Borrower, such consent not to be unreasonably withheld or delayed, and (iii) any Event of Default.

(o)No Future Issuances of Securities.  The Borrower shall not issue or sell any bonds, notes, debentures, or other debt securities of the Borrower, or any other securities of the Borrower, and shall not enter into any subscriptions, options, warrants, conversion or other rights, agreements, commitments, arrangements or understandings of any kind, contingently or otherwise, for the sale of any such securities or any securities convertible into or exchangeable for any such securities, except with respect to, in each case, Surplus Notes.

(p)Maintenance of  Accounts.  The Borrower shall at all times maintain (or in the case of the Reinsurance Trust Account, cause to be maintained) (i) the Regulatory Account in accordance with Section 3.01,(ii) the Surplus Account in accordance with Section 3.02 and (iii) the Reinsurance Trust Account in accordance with the Reinsurance Trust Agreement.

(q)Investments in Regulatory Account.  The Borrower shall not make or permit to be made any investments of assets held in the Regulatory Account other than in Cash and Cash Equivalents.

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(r)Investments in Surplus Account and Reinsurance Trust Account.  The Borrower shall not make or permit to be made any investments of assets (other than the Letter of Credit) held in the Surplus Account and Reinsurance Trust Account other than in accordance in all material respects with the Investment Guidelines and in compliance in all material respects with applicable law, including ensuring that the Investment Guidelines comply in all material respects with applicable insurance laws and regulations.

(s)No New Business.  With respect to the Reinsured Policies, no new insurance or reinsurance treaties shall be reinsured by the Borrower after the Closing Date, other than as expressly permitted under the Reinsurance Agreement or Section 6.01(h)(ii).

(t)Security Interest.  The Borrower shall not grant a security interest in any of the Collateral and shall not otherwise create, incur, assume or permit any liens, mortgages, security interests, pledges, charges, or encumbrances of any kind on any of its property or assets owned on the date hereof or thereafter acquired, or any interest therein or the proceeds thereof, in each case other than Permitted Liens or as expressly permitted in this Agreement or any other Transaction Document.  Subject to the Priority of Payments and its obligations under this Agreement and the other Transaction Documents, the Borrower shall not take any action, or fail to take any action, with respect to the Collateral other than the Transaction Documents or any rights thereunder, if such action or failure to take action would reasonably be expected to interfere with the enforcement of any rights hereunder material to the Issuing Lender.

(u)Change of Control.  The Borrower shall at all times remain an Affiliate of the Ceding Company and a direct Subsidiary of PLICO; provided, that nothing herein or in any of the Transaction Documents shall prevent the Ceding Company or any other Affiliate of the Borrower from consolidating with or merging into any other Affiliate of PLC (other than the Borrower) or require any consent, waiver or approval of or by the Issuing Lender therefor.  The Borrower shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Borrower shall not permit any Person to consolidate with or merge into the Borrower or convey, transfer or lease its properties and assets substantially as an entirety to the Borrower.

(v)Subsidiaries.  The Borrower shall not have any Subsidiaries.

(w)Transaction Documents.  The Borrower shall deliver to the Issuing Lender copies of any executed (or, if execution is inapplicable, otherwise finalized) Transaction Documents.

(x)Regulations T, U and X.  No proceeds of the Letter of Credit will be used in violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

(y)Changes in Accounting Practices.  Except for permitted practices provided for in the Licensing Order, the Borrower shall not seek approval from the Vermont Commissioner in any respect of, and shall not implement, any permitted practice under SAP as permitted by the State of Vermont without the prior written consent of the Issuing Lender, such consent not to be unreasonably withheld.

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(z)Ratings.  In the event that S&P ceases to issue a Counterparty Risk Rating for the Borrower for any reason other than at the request of the Borrower, the Borrower shall seek a substitute rating from Moody’s or Fitch.  The Borrower shall obtain the written consent of the Issuing Lender prior to requesting that S&P cease to issue a Counterparty Risk Rating for the Borrower unless a substitute rating from Moody’s or Fitch has already been obtained.

(aa)Independent Director.  The Borrower shall not replace or appoint any director that is to serve as an Independent Director unless (i) the Borrower provides the Issuing Lender with ten (10) Business Days prior written notice of such replacement or appointment, (ii) a Responsible Officer of the Borrower certifies that the designated Person satisfied the criteria set forth in the definition of “Independent Director” herein and (iii) the Issuing Lender acknowledges, in writing, that in its reasonable judgment the designated Person satisfies the criteria set forth in the definition of “Independent Director” herein or fails to respond to a request for such acknowledgement within ten (10) Business Days of such request.

(bb)Surplus Notes.  During the term of this Agreement, the Borrower may from time to time issue surplus notes (“Surplus Notes”); provided, that any such Surplus Notes of the Borrower (i) shall be subordinate at all times in right of payment of principal, interest or premium and any other amounts with respect thereto to all fees, expenses, LOC Reimbursement Obligations and other amounts due in connection with this Agreement and the Letter of Credit as provided in and pursuant to the terms of the Priority of Payments, (ii) shall bear interest at a rate not to exceed the then-applicable 5-year benchmark Treasury Rate plus [****] bps, (iii) shall not have a maturity date earlier than one year and one day following the later of (A) the Facility Maturity Date and (B) the date on which no obligations due hereunder are outstanding, (iv) shall be issued in a form reasonably acceptable to the Issuing Lender and (v) shall only be issued at times when the difference between the Statutory Reserves and the Economic Reserves is greater than the LOC Amount.  Payments of principal, interest or premium in respect of any Surplus Notes of the Borrower shall only be made in accordance with, and subject to the restrictions set forth in, the Priority of Payments.

(cc)Termination of Letter of Credit.  The Borrower shall, upon a termination of the Letter of Credit pursuant to Section 2.02, within thirty (30) calendar days of the effective date of such termination, (i) deliver written notice of such termination to the Issuing Lender and (ii) return the Letter of Credit to the Issuing Lender for cancellation in full.

(dd)Contribution Notices.  The Borrower shall promptly provide a written notice to the Issuing Lender upon any (i) receipt of the First Required Additional Contribution and (ii) receipt of the Second Required Additional Contribution and the Third Required Additional Contribution, and any such notice shall include the dates on which such contributions were received by the Borrower.

ARTICLE VII

COLLATERAL AND SECURITY

Section 7.01.Obligations Secured Hereby.  This Article VII is made to secure and provide for payment of all amounts due by the Borrower to the Issuing Lender under this

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Agreement (such obligations and liabilities being in this Agreement called the “Secured Obligations”).

Section 7.02.Collateral.

(a)The Borrower, as security for the prompt payment and performance of the Secured Obligations when due, hereby assigns, conveys, transfers, delivers and sets over to the Issuing Lender, and grants to the Issuing Lender a Lien on and a security interest in all assets of the Borrower other than its books and records and its right, title and interest (now existing or hereafter acquired or arising) in, to and under the Regulatory Account and the Administrative Account, including the Borrower’s right, title and interest (now existing or hereafter acquired or arising) in, to and under the following (collectively, the “Collateral”):

(i)the Borrower’s interest, if any, in the Reinsurance Trust Account; provided, that such Lien and security interest is subject in all cases and in every respect to the rights of the Reinsurance Trustee in such interest;

(ii)the Surplus Account, and all Cash, securities, Instruments and other property held in the Surplus Account from time to time, and all certificates and Instruments, if any, from time to time representing the Surplus Account or any property therein. Notwithstanding the status of the Surplus Account and financial assets as Collateral, the Surplus Account and such assets shall remain available to make payments in the priority and to the recipients identified pursuant tothe Priority of Payments. In addition,  the Issuing Lender agrees not to issue any Notice of Exclusive Control (as defined in the Securities Account Control Agreement) unless an Event of Default has occurred and is continuing. The Issuing Lender hereby authorizes any disposition of property from the Surplus Account free of any security interest if, and only to the extent that, such disposition is made, and the proceeds are applied, in accordance with the Priority of Payments;

(iii)all rights, if any, of the Borrower in (A) all Cash, securities, Instruments and other property held or deemed to be held in any express or constructive trust established pursuant to the terms of the Reinsurance Agreement from time to time, and (B) all certificates and Instruments, if any, from time to time representing any such express or constructive trust or any property therein; provided, that such Lien and security interest is subject in all cases and in every respect to the rights of the Ceding Company in such rights;

(iv)any and all of the following, whether now existing or hereafter arising and wheresoever the same may be located: all rights of the Borrower under the Transaction Documents, accounts (other than the Regulatory Account and the Reinsurance Trust Account), chattel paper, deposit accounts, documents, equipment, general intangibles, goods, instruments, inventory, investment property, letters of credit, letter-of-credit rights, payment intangibles, securities accounts and supporting obligations;

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(v)all other property or rights delivered or assigned by the Borrower or on its behalf to the Issuing Lender from time to time under this Agreement or otherwise, to secure or guarantee payment of the Secured Obligations; and

(vi)to the extent not covered above, all products and proceeds of, and all dividends, collections, earnings, accruals, and other payments with respect to, any or all of the foregoing.

Section 7.03.Perfection of Security Interest in Collateral.

(a)Entitlement Holder.  The Borrower agrees that it is the sole Entitlement Holder with respect to each Securities Account established hereunder, and the Issuing Lender will have control (as defined in Section 9-104 of the UCC) over any deposit account established hereunder.

(b)Further Assurances.  The Borrower hereby authorizes the Issuing Lender to file all appropriate UCC filings, including financing or continuation statements, in any jurisdiction and with any filing offices as the Issuing Lender may determine, in its reasonable discretion, are necessary to perfect or otherwise perfect the security interest granted to the Issuing Lender herein.  The Borrower shall promptly prepare, file or record, such additional notices, financing statements or other documents as the Issuing Lender may reasonably request as necessary for the perfection of the security interests granted to the Issuing Lender hereunder, such instruments to be in form and substance reasonably satisfactory to the Issuing Lender.

Section 7.04.Continuing Security Interest, Termination.

(a)This Agreement shall create a continuing security interest in the Collateral in favor of the Issuing Lender and shall remain in full force and effect in accordance with its terms until all of the Secured Obligations are paid or satisfied in full.

(b)The security interest created by this Agreement shall not be considered satisfied by payment or satisfaction of any part of the Secured Obligations to the Issuing Lender hereby secured but shall be a continuing security interest and shall not be discharged, prejudiced or affected in any way by time being given to the Borrower or by any other indulgence or concession to the Borrower granted by the Issuing Lender, by the taking, holding, varying, non-enforcement or release by the Issuing Lender of any other security for all or any of the Secured Obligations, by any other thing done or omitted to be done by the Issuing Lender or any other Person or by any other dealing or thing including any variation of or amendment to any part of the Collateral and any circumstances whatsoever that but for this provision might operate to discharge any of the Secured Obligations or to exonerate or discharge the Borrower from its obligations hereunder or otherwise affect the security interest hereby created.

Section 7.05.Protection of Collateral.

(a)The Borrower shall take any action necessary to:

(i)maintain or preserve any and all Liens created by this Agreement on the Collateral (and the priorities thereof);

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(ii)perfect or protect the validity of the pledge of Collateral and the Liens created by this Agreement;

(iii)enforce, if commercially reasonable, any rights with respect to the Collateral; and

(iv)preserve and defend, if commercially reasonable, title to the Collateral and the rights of the Issuing Lender in such Collateral against the claims of all Persons.

Section 7.06.Performance of Obligations.

(a)The Borrower may contract with other Persons to assist it in performing its duties under this Agreement, and any performance of such duties by a Person identified to the Issuing Lender in an officer’s certificate of the Borrower shall be deemed to be action taken by the Borrower.

(b)The Borrower shall perform and observe all its obligations and agreements contained in this Agreement, including, filing or causing to be filed all documents required to be filed by the terms of this Agreement in accordance with, and within the time periods provided for, in this Agreement and therein.

Section 7.07.Power of Attorney.  The Borrower hereby irrevocably appoints the Issuing Lender and any receiver, officer or agent thereof, with full power of substitution, as its true and lawful attorney-in fact with full power and authority, in each case, to the maximum extent permitted by law, in the name of the Borrower or the name of such attorney-in-fact, from time to time in the Issuing Lender’s reasonable discretion for the purpose of taking such action and executing such agreements, financing statements, continuation statements, instruments and other documents, in the name of the Borrower, as provided in this Agreement and as the Issuing Lender may reasonably deem necessary to perfect, promote and protect and enforce the security interest of the Issuing Lender in the Collateral.  Notwithstanding the foregoing or anything else in this Agreement to the contrary, the Issuing Lender has no responsibility for the validity, perfection, priority or enforceability of any Lien or security interest and shall have no obligation to take any action to procure or maintain such validity, perfection, priority or enforceability.  This power of attorney shall be irrevocable as one coupled with an interest prior to the payment in full of all the obligations secured hereby until all amounts due and payable hereunder have been finally and fully repaid and the Letter of Credit is terminated.

Section 7.08.No Pledge of Collateral to Others.  The Borrower shall not (i) create, incur or suffer to exist, or agree to create, incur or suffer to exist, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of any Lien on the Collateral except for (a) Liens the validity of which are being contested in good faith by appropriate proceedings, (b) Liens for Taxes that are not then due and payable or that can be paid thereafter without penalty, (c) Liens otherwise incurred in connection with borrowings permitted hereunder and made in the ordinary course of business in accordance with the Borrower’s stated investment objectives, policies and restrictions, (d) Liens in favor of the Issuing Lender and (e) other Permitted Liens or (ii) sign or file under the UCC of any

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jurisdiction any financing statement which names the Borrower as a debtor, or sign any security agreement authorizing any secured party thereunder to file such financing statement, except in each case any such Instrument solely securing the rights and preserving the Lien of the Issuing Lender.

Section 7.09.No Change in Borrower Name, Structure or Office.  The Borrower will not change its name or jurisdictions of organization unless it has taken such action in advance of such change or removal, if any, or change its mailing addresses unless it has taken such action within fifteen (15) calendar days of such change, in each case as is necessary to cause the security interests of the Issuing Lender in the Collateral to continue to be perfected without interruption.

Section 7.10.Release of Collateral.  Upon the payment in full of all Secured Obligations or upon the other circumstances specified in this Agreement, all of the Collateral shall be released from the Liens created hereby, the security interest created hereby and all rights of the Issuing Lender in such Collateral shall cease, and any remaining amounts or assets held in the Cash Collateral Account or Surplus Account shall be transferred to, or for the account of, the Borrower, and all rights to the Collateral shall revert to the Borrower or any other Person entitled thereto.  At such time, the Issuing Lender will authorize the filing of appropriate termination statements and other instruments and documents reasonably requested by the Borrower to terminate such security interests.

Section 7.11.Notice of Exclusive Control.  The Issuing Lender shall not deliver a Notice of Exclusive Control (as defined in the Securities Account Control Agreement) under the Securities Account Control Agreement unless an Event of Default shall have occurred and be continuing.

ARTICLE VIII

EVENTS OF DEFAULT

Section 8.01.Events of Default.  If any of the following events (“Events of Default”) shall occur:

(a)the Borrower shall fail to make any payment of an LOC Reimbursement Obligation (including any applicable interest thereon), immediately following the date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments and the Payment Restrictions, to the Issuing Lender under this Agreement or any other Transaction Document to which it is a party and such failure to make payment shall continue for two (2) Business Days; provided, that such failure shall not constitute an Event of Default (A) in the case of any unpaid LOC Reimbursement Obligations, such payment would cause the Borrower’s Total Adjusted Capital following such payment to be less than [****] percent ([****]%) of its Company Action Level Risk Based Capital and no Approval has been given by the Vermont Commissioner in respect of such payment, or (B) if and to the extent the Borrower fails to pay any such amounts when due at a time when the Market Value of the assets (if any) in the Surplus Account equals zero;

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(b)the Borrower shall fail to pay when due any amount payable to the Issuing Lender under this Agreement, or if in excess of $[****], any other Transaction Documents to which it is a party (including the posting of collateral and any applicable interest payments) other than any LOC Reimbursement Obligation or any interest thereon, (i) with respect to the payment of any Fees that are due and payable, immediately following the date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments and, with respect to the payment of any Fees which are due and payable, such failure to make payment shall continue for two (2) Business Days after the date due or, (ii) with respect to any payment subject to this Section 8.01(b) other than the payment of any Fees which are due and payable, immediately following the date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments, and such failure to make payment shall continue for five (5) Business Days after written notice from the Issuing Lender; provided, that in the case of both (i) and (ii), such failure shall not constitute an Event of Default if and to the extent the Borrower fails to pay any such amounts when due at a time when the Market Value of the assets (if any) in the Surplus Account equals zero; provided, further, that in the case of (i), such failure shall not constitute an Event of Default if the failure to pay is a result of the illegality, unlawfulness or conflict with any applicable insurance law, rule or regulation of the Borrower paying any Fee (or portion thereof) hereunder and the amount the Borrower has failed to pay has been paid or satisfied by PLC under the PLC Guarantee when required thereunder;

(c)any representation or warranty made or deemed to be made by the Borrower or the Ceding Company in any Transaction Document to which it is a party shall prove to have been incorrect or untrue in any material respect when made or deemed to be made, as the case may be;

(d)a final non-appealable judgment or judgments for the payment of money in excess of, in the aggregate, $[****] in the case of the Borrower or $[****] in the case of the Ceding Company, to the extent not paid or covered by insurance, is rendered by one or more Governmental Authorities against the Borrower or the Ceding Company, as applicable, and that the same is not discharged, vacated, bonded or stayed within ninety (90) calendar days;

(e)except as otherwise set forth in Sections 8.01(a) or (b), the Borrower shall fail to observe or perform, in any material respect, its obligations pursuant to Article VI, and such failure shall continue for thirty (30) calendar days after written notice from the Issuing Lender; provided, however, that such thirty (30) calendar day grace period will not apply, to the extent notice of such breach is required to be given under any section of Article VI, in the event that the Borrower has provided the Issuing Lender notice of such breach more than sixty (60) calendar days following the first day on which the Borrower has knowledge of such breach;

(f)the Ceding Company shall fail to observe or perform its obligations in any material respect pursuant to Sections 2(d) (Draw Certification Notice), 2(e) (Impermissible Draw) and 2(f) (Compliance) of the Ceding Company Letter Agreement, and such failure shall continue for thirty (30) calendar days after written notice from the Issuing Lender;

(g)(i) any Transaction Document becomes illegal or it becomes unlawful for the Borrower or the Ceding Company to perform their respective obligations under this Agreement or any other Transaction Document in any material respect or (ii) the performance of

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the Borrower’s obligations under this Agreement or any other Transaction Document conflicts with any applicable insurance law, rule or regulation in any material respect, and, in each case, such obligations are not paid or satisfied by PLC under the PLC Guarantee when required thereunder;

(h)any transaction occurs, whether a merger, sale, asset sale or otherwise, as a result of which the Borrower fails to be an Affiliate of the Ceding Company or a direct Subsidiary of PLICO;

(i)the Borrower or the Ceding Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of any proceeding or petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or the Ceding Company or for a substantial part of any of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of authorizing or effecting any of the foregoing;

(j)an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or the Ceding Company, or their respective debts, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or the Ceding Company, and, in any such case, such proceeding or petition shall continue undismissed for thirty (30) calendar days;

(k)The Issuing Lender’s lien on any material portion of the Collateral shall cease to be, subject to the Permitted Liens, a valid first priority perfected security interest;

(l)PLC shall fail to pay (i) any amount in excess of $[****] payable to or explicitly required to be made on behalf of the Borrower under the Tax Sharing Agreement or the Special Tax Allocation Agreement within thirty (30) calendar days from the date on which such payment was due and payable; or

(m)the Tax Sharing Agreement or the Special Tax Allocation Agreement shall be amended, there shall be a termination of the Special Tax Allocation Agreement, or there shall be a termination of the rights of the Borrower with respect to PLC and the obligations of PLC with respect to the Borrower under the Tax Sharing Agreement, in each case without the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld) and such amendment or termination adversely affects, in any material respect, the rights, remedies or obligations of the Borrower under such agreement;

(n)PLC shall fail to pay any amount in excess of $[****] payable to the Borrower under the PLC Guarantee within three (3) Business Days from the date on which such payment was due;

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then, upon the occurrence and during the continuance of any Event of Default (except in the case of item (iii) below which shall only apply with respect to an Event of Default described in either Section 8.01(a) or (b)), subject to any applicable grace period, the Issuing Lender may declare that (i) all LOC Reimbursement Obligations and other amounts outstanding shall, at the option of the Issuing Lender, accelerate and become immediately due and payable by the Borrower from the available funds of the Borrower subject to the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions; (ii) the Borrower will be required to post cash collateral in an amount equal to the undrawn face amount of the Letter of Credit, such collateral to be paid as and when available with respect to the Borrower under item Eighth of the Priority of Payments and to be held in the Cash Collateral Account; (iii) the Issuing Lender may foreclose on the Collateral (but only, for the avoidance of doubt, with respect to an Event of Default described in either Section 8.01(a) or (b); (iv) the Issuing Lender may enforce in the name of the Borrower any rights of the Borrower under the Transaction Documents to the extent permitted under the collateral assignment of such rights set forth in Section 9.09; and (v) the Borrower shall cease to be allowed to declare or pay any dividends (other than any Special Dividend).  Notwithstanding the foregoing, the occurrence and continuation of an Event of Default shall not impair or otherwise affect the Reinsurance Trustee’s right to draw on the Letter of Credit in accordance with its terms (it being understood that any assets of the Borrower pledged as collateral in accordance with clause (ii) and foreclosed upon in accordance with clause (iii), of the immediately preceding sentence shall be deemed to have been used to satisfy amounts due and payable under the Reinsurance Agreement for purposes of satisfying the condition to drawing on the Letter of Credit described in Section 2.01(a)).

So long as the Letter of Credit shall remain outstanding, the Issuing Lender shall hold the Cash Collateral Account, which account and all assets thereof shall be held separate and apart from all its other assets and accounts in the name of and subject to the control and dominion of the Issuing Lender, as cash collateral for the obligations of the Borrower owing to the Issuing Lender hereunder.  Assets of the Cash Collateral Account shall be Cash or Cash Equivalents, except as otherwise agreed by the Borrower.  Upon the termination of the Letter of Credit in full, and the payment in full of all secured obligations, the Issuing Lender shall release all funds and investments held in the Cash Collateral Account to or upon the account of the Borrower.

ARTICLE IX

MISCELLANEOUS

Section 9.01.Notices.  Except as otherwise provided herein and in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing (including by electronic transmission) and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by electronic mail with PDF attachment and confirmed by overnight courier service, as follows:

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Borrower:	Golden Gate III Vermont Captive Insurance Company c/o Marsh Management Services, Inc.
	100 Bank Street
	Burlington, VT 05402
	Fax: (802) 859-3550 with a copy to: Protective Life Insurance Corporation 2801 Highway 280 South Birmingham, AL 35223 Attention: General Counsel Fax: (205) 268-3597
Ceding Company:	West Coast Life Insurance Company
	2801 Highway 280 South
	Birmingham, AL 35223
	Attention: General Counsel
	Fax: (205) 268-3597
Issuing Lender:	UBS AG, Stamford Branch
	677 Washington Boulevard
	Stamford, CT 06901
	Attention: Banking Products Services
	with a copies to
	UBS AG, Stamford Branch
	677 Washington Boulevard
	Stamford, CT 06901
	Attention: Structured Fixed Income
	Fax: (203) 719-2941
	and
	UBS AG, Stamford Branch
	677 Washington Boulevard
	Stamford, CT 06901
	Attention: Fixed Income Legal
	Fax: (203) 719-0680

Any party hereto may change its address (street or email) for notices and other communications hereunder by notice to the other parties hereto.  All notices and other

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communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 9.02.Waivers; Amendments.  Except as otherwise provided herein, neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by each of the Borrower and the Issuing Lender.

Section 9.03.Survival of Representations and Warranties.  All representations and warranties contained herein shall survive the execution and delivery of this Agreement and issuance of the Letter of Credit.  Such representations and warranties have been or may be relied upon by the Issuing Lender regardless of any investigation made at any time by or on behalf of the Issuing Lender.

Section 9.04.Indemnity.  Irrespective of whether the LOC Commitment or the Letter of Credit is terminated, the Borrower agrees to indemnify jointly and severally the Issuing Lender and each Related Party of the Issuing Lender (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable and documented fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee by any third party arising out of, or as a result of any actual claim, litigation, investigation or proceeding relating to (i) the execution or delivery of this Agreement or the performance by the parties hereto of their respective obligations hereunder or (ii) the Letter of Credit or any LOC Disbursement regardless of whether any Indemnitee is a party thereto but excluding in each case any actual or threatened claim, litigation, investigation or proceeding solely among Indemnitees and/or Participants and/or Lender Counterparties; provided, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence, bad faith or willful misconduct of any Indemnitee; provided, further, that such indemnity shall be subject to, and only payable in accordance with, the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions, including, without limitation, as may limit or restrict payment of any LOC Reimbursement Obligation or interest thereon.  It is understood and agreed that, to the extent not precluded by a conflict of interest, each Indemnitee shall endeavor to work cooperatively with the Borrower with a view toward minimizing the legal and other expenses associated with any defense and any potential settlement or judgment.  To the extent reasonably practicable and not disadvantageous to any Indemnitee and in the absence of any conflict of interest, a single counsel selected by the Borrower, and approved by the Indemnitee, may be used.  Settlement of any claim or litigation involving any material indemnified amount will require the approvals of the Borrower (not to be unreasonably withheld) and the relevant Indemnitee (not to be unreasonably withheld or delayed).

Section 9.05.Successors and Assigns; Participations and Assignments.

(a)The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (including, if applicable, any Affiliate of the Issuing Lender), except that (y) the Borrower may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of

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the Issuing Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (z) the Issuing Lender may not assign or otherwise transfer its rights or obligations under this Agreement except in accordance with this Section 9.05.

(b)           Any assignment under this Agreement by the Issuing Lender, any Assignee or any assignees thereof (each, an “Assignee”) to any Person that is not an Affiliate of the Issuing Lender may only be made (i) pursuant to an Assignment and Acceptance Agreement in the form of Exhibit E attached hereto, (ii) to a Person that, at the time of such assignment, is an Eligible Bank that is not on the Restricted List and (iii) with the prior written consent of the Borrower (which consent shall not be unreasonably withheld, delayed or conditioned), and any attempted assignment in violation of this Section 9.05(b) shall be void ab initio.

(c)           Any assignment under this Agreement by the Issuing Lender to any Person that is an Affiliate of the Issuing Lender may only be made pursuant to an Assignment and Acceptance Agreement in the form of Exhibit E attached hereto and to a Person which, at the time of such assignment, (i) is an Eligible Bank that is not on the Restricted List and (ii) has a financial strength rating from S&P (or an equivalent rating by Moody’s or Fitch) which is equivalent to or higher than the financial strength rating of the assigning Issuing Lender from S&P (or an equivalent rating by Moody’s or Fitch), and any attempted assignment in violation of this Section 9.05(c) shall be void ab initio.

(d)           Notwithstanding anything herein to the contrary, in no event shall the Issuing Lender be released from its obligations under the Letter of Credit prior to its termination, nor shall it cease to be a party hereto, nor shall it cease to retain at least [****] percent ([****]%) of all rights, obligations, assignments, participations, commitments and interests of the Issuing Lender under this Agreement.

(e)           The Issuing Lender may, without the consent of the Borrower and subject to Section 9.05(d), sell participations to one or more banks or other entities (a “Participant”) in not more than [****] percent ([****]%) of the Issuing Lender’s rights and obligations under this Agreement (including not more than [****] percent ([****]%) of the LOC Commitment); provided, that (i) the Issuing Lender’s obligations under this Agreement shall remain unchanged, (ii) the Issuing Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower shall continue to deal solely and directly with the Issuing Lender in connection with the Issuing Lender’s rights and obligations under this Agreement.  Any agreement pursuant to which the Issuing Lender sells such a participation shall provide that the Issuing Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided, that such agreement may provide that the Issuing Lender will not, without the consent of the Required Participants, agree to (A) extend the Final Maturity Date of the Letter of Credit (B) reduce the principal amount due with respect to any LOC Reimbursement Obligation or (C) reduce the Drawn Rate.

(f)            The Issuing Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of the Issuing Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 9.05 shall not apply to any such pledge or assignment of a security interest; provided,

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that no such pledge or assignment of a security interest shall release the Issuing Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for the Issuing Lender as a party hereto.

Section 9.06.          Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement constitutes the entire contract among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Subject to Section 5.01, this Agreement shall become effective when it shall have been executed by the parties hereto and when the parties have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy or electronic mail with PDF attachment shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.07.          Governing Law; Jurisdiction.

(a)           This Agreement shall be construed in accordance with and governed by the law of the State of New York.

(b)           Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court.  Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement against any other party or its properties in the courts of any jurisdiction.

Section 9.08.          Right of Setoff.  If any amount shall have become due and payable by the Borrower hereunder, whether due to maturity, acceleration or otherwise, the Issuing Lender is hereby authorized, at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Issuing Lender to or for the credit or the account of the Borrower under this Agreement (other than any amount payable under the Letter of Credit) against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by the Issuing Lender, irrespective of whether or not the Issuing Lender shall have made any demand under this Agreement.  Without limiting or otherwise affecting the provisions of the Letter of Credit, the Issuing Lender shall have no right under any circumstances to set off or apply any amount payable under the Letter of Credit against any obligation of or amount payable by the Borrower, whether or not under this

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Agreement.  The rights of the Issuing Lender under this Section 9.08 are in addition to any other rights and remedies which the Issuing Lender may have.

Section 9.09.          Collateral Assignment of Rights.  The Borrower hereby irrevocably collaterally assigns to the Issuing Lender (a) upon the occurrence and during the continuance of an Event of Default, the right to enforce in the name of the Borrower any right of the Borrower under the Transaction Documents (other than this Agreement) and (b) upon the failure of the Borrower to use its reasonable best efforts enforce its rights to compel performance of required contractual obligations or to pursue remedies available to it under the Transaction Documents to which it is a party (other than this Agreement), in each case within seven (7) Business Days following receipt of written notice from the Issuing Lender requesting such enforcement by the Borrower and identifying the specific breach of the Transaction Document (other than this Agreement), the right to enforce in the name of the Borrower and the right to compel performance of required contractual obligations or remedies available to the Borrower under the applicable Transaction Document (other than this Agreement) with respect to the identified breach, in connection with which the Issuing Lender may pursue in the name of the Borrower (or direct the Borrower to pursue) any such remedy.

Section 9.10.          Expenses.  Subject to Section 6.01(n), each party shall pay its own expenses incurred in connection with the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the Transactions shall be consummated), including any fees, charges and disbursements of any counsel in connection with the enforcement or protection of its rights under this Agreement, including its rights under this Section 9.10.

Section 9.11.          Further Assurances.  The Borrower agrees at its own cost and expense, to do such further acts and things, and to execute and deliver such additional instruments (including, without limitation, notices and agreements), as the Issuing Lender may at any time reasonably request or as may be reasonably necessary at any time in order better to preserve, insure and confirm the rights, powers and remedies of the Issuing Lender hereunder.

Section 9.12.          Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 9.13.          Confidentiality.  Each party to this Agreement agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to such party’s Affiliates’ directors, officers, employees and agents (so long as such Affiliate is not on the Restricted List), including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent requested by any Governmental Authority or self-regulatory authority having or claiming jurisdiction over such party or its representatives, (iii) to the extent required by applicable laws or regulations (including securities laws and regulations) or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) by the Issuing Lender or a Participant to any

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Participant or counterparty to a hedge transaction reasonably related to the transactions contemplated hereby (a “Hedge Counterparty”), or to any prospective Participant or Hedge Counterparty, in each case that is not on the Restricted List, subject to an agreement containing confidentiality provisions that are either no less restrictive than those found in this Section 9.13 or that are satisfactory to the Borrower, in each case expressly inuring to the benefit of PLC and a copy of which is promptly provided thereto and to the Issuing Lender (each such agreement a “Confidentiality Agreement”), (vii) with the consent of the other parties to this Agreement, (viii) to the extent the Information relates to the tax treatment and any facts that may be relevant to the tax structure of the Transactions, (ix) to the extent such Information (a) becomes publicly available other than as a result of a breach of this Section 9.13 or (b) becomes available to the such party or such party has no actual knowledge that the provision of such information is in violation of a confidentiality restriction or (x) to any Lender Counterparty not on the Restricted List, upon the consent of the Borrower (such consent not to be unreasonably withheld or delayed); provided, that such Lender Counterparty enters into a Confidentiality Agreement and further agrees such Information will not be used in a manner adverse to the Borrower.  For the purposes of this Section 9.13, “Information” means all information received in connection with this Agreement or the Transactions from another party to this Agreement, or such party’s representatives or Affiliates, relating to such party or Affiliate or such party’s or its Affiliate’s business, other than any such information that is available on a nonconfidential basis prior to disclosure by such party.

Section 9.14.          Special Dividend.  In the event the Ceding Company makes any payment to the Borrower in excess of that required to be paid under the express terms of the Reinsurance Agreement as a result of, or following, any requirement or request of the Ceding Company’s domestic insurance regulator, whether orally or in writing, therefor (a “Special Payment”), the Borrower shall, notwithstanding anything herein to the contrary and to the maximum extent permitted by law, be permitted to pay a dividend (a “Special Dividend”) in the amount of the proceeds of such payment.

Section 9.15.          Severability.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 9.15.          WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

Section 9.16.          USA Patriot Act.  The Issuing Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that (i) identifies the Borrower, (ii) includes the name and address of the Borrower and (iii) will allow the Issuing Lender to identify the Borrower in accordance with the USA Patriot Act.

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Section 9.17.          Usury Savings Clause.  It is the intention of the parties that all charges under or in connection with this Agreement and the LOC Reimbursement Obligations, however denominated, and including (without limitation) all interest, commitment fees, late charges and loan charges, shall be limited to the maximum lawful interest rate, if any, that at any time and from time to time may be contracted for, charged, or received under the laws applicable to the Issuing Lender, which are presently in effect or, to the extent allowed by law, under such applicable laws which hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow (the “Maximum Lawful Amount”).  Such charges hereunder shall be characterized and all provisions of this Agreement shall be construed as to uphold the validity of charges provided for therein to the fullest possible extent.  Additionally, all charges hereunder shall be spread over the full permitted term of the LOC Reimbursement Obligations for the purpose of determining the effective rate thereof to the fullest possible extent, without regard to prepayment of or the right to prepay the LOC Reimbursement Obligations.  If for any reason whatsoever, however, any charges paid or contracted to be paid in respect of the LOC Reimbursement Obligations shall exceed the Maximum Lawful Amount, then, without any specific action by the Issuing Lender or the Borrower, the obligation to pay such interest and/or other charges shall be reduced to the Maximum Lawful Amount in effect from time to time and any amounts collected by the Issuing Lender or the Borrower that exceed the Maximum Lawful Amount shall be applied to the reduction of the principal balance of the LOC Reimbursement Obligations and/or refunded to the Borrower so that at no time shall the interest or loan charges paid or payable in respect of the LOC Reimbursement Obligations exceed the Maximum Lawful Amount.  This provision shall control every other provision herein and in any and all other agreements and instruments now existing or hereafter arising between the Borrower and the Issuing Lender with respect to the LOC Reimbursement Obligations.

Section 9.18.          Third Party Beneficiary.  The Ceding Company shall be a third party beneficiary of Sections 2.01(d), 2.02(b) and 2.02(c).

[Remainder of page intentionally left blank.  Signature page to follow.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY,
as Borrower
By:	/s/ Richard J. Bielen
Name: Richard J. Bielen
Title: President
UBS AG, STAMFORD BRANCH,
as Issuing Lender
By:	/s/ Irja R. Otsa
Name: Irja R. Otsa
Title: Associate Director
By:	/s/ Mary E. Evans
Name: Mary E. Evans
Title: Associate Director

Signature Page to the Reimbursement Agreement

SCHEDULE 1

BORROWER REPORTING DOCUMENTS

The Borrower Reporting Documents include:

(a)           Not later than sixty (60) calendar days after the end of each fiscal year of the Borrower, a copy of the unaudited annual statutory financial statements prepared in accordance with SAP, and not later than June 1 of each calendar year for the Borrower’s preceding fiscal year, a copy of the audited financial statements prepared in accordance with SAP.

(b)           Not later than April 10 after the end of each fiscal year of the Borrower, an annual cashflow testing report by the Borrower’s Appointed Actuary (as such may be appointed by the Borrower from time to time).

(c)           Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, a report of actual to expected mortality claims and lapses by face amount and by policy count with respect to the Reinsured Policies.

(d)           Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, the applicable reserve amounts (including XXX Reserves, Economic Reserves, Gross Premium Valuation Reserves and Claims Liability (each, as defined in the Reinsurance Agreement) of the Borrower as at the end of such quarter.

(e)           Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, information regarding risks insured with respect to the Reinsured Policies in the same form as the seriatim policy detail outlined in Exhibit D of the Reinsurance Agreement.

(f)            Not later than forty-five (45) calendar days after the end of each of the first three (3) quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet and income statement (without footnotes) of the Borrower as at the end of such quarter, in each case prepared in accordance with SAP.

(g)           Not later than forty-five (45) calendar days after the end of each of the first three (3) quarterly periods of each fiscal year of the Borrower, and not later than sixty (60) calendar days after the end of each fiscal year of the Borrower, information regarding the following items: Total Adjusted Capital, Modified Total Adjusted Capital, deferred tax assets, asset valuation reserves, the Letter of Credit in excess of Facility Reserves, Company Action Level Risk Based Capital, Required Additional Contribution and Reduced Contribution.

(h)           Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, a settlement statement for the Reinsured Policies between the Ceding Company and the Borrower.

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(i)            Not later than twenty-five (25) calendar days after the end of each of the twelve (12) monthly periods of each fiscal year of the Borrower, a listing of the Borrower’s asset portfolio holdings containing details including, without limitation, security name, book value, market value, ratings, weighted average life, modified duration, coupon, interest payment frequency, book yield, market yield and maturity date, to be supplemented by information contained in a final report to be provided not later than sixty (60) calendar days after the end of each of the first, second and third quarterly periods of each fiscal year of the Borrower, and not later than seventy-five (75) calendar days after the end of each of the fourth quarterly periods of each fiscal year of the Borrower.

(j)            Not later than fifteen (15) calendar days after the end of each of the twelve (12) monthly periods of each fiscal year of the Borrower, a listing of the Borrower’s asset portfolio holdings containing details including CUSIP and par amount.

(k)           Within five (5) Business Days of delivery of any report delivered to S&P, Moody’s or Fitch by the Borrower, a copy of such report, to the extent the information has not been previously provided to the Issuing Lender.

(l)            Within five (5) Business Days of delivery or receipt, as applicable, of any material report or notice delivered to any other party or received from any other party under the Transaction Documents, a copy of such report.

(m)          Within five (5) Business Days of receipt of any third party actuarial report, opinion or review of the Borrower, a copy of such report.

(n)           Seven (7) Business Days prior notice of any proposed amendment to the Reinsurance Agreement.

(o)           Within five (5) Business Days of submission or receipt of any material correspondence relating to the Borrower to or from the Nebraska Director or the Vermont Commissioner, a copy of such correspondence.

(p)           Within five (5) Business Days of any material permitted accounting practice of the Borrower or other deviation from SAP that is proposed to be made applicable, a copy of such proposed deviation.

(q)           Written notices for certain material events as identified in Section 6.01(c) within the specified time periods.

(r)            Promptly after any internal underwriting audit of the Borrower related to the Reinsurance Agreement, notice of such audit.

(s)           Not later than sixty (60) calendar days after the end of each of the first, second and third quarterly periods of each fiscal year of the Borrower, and not later than seventy-five (75) calendar days after the end of each of the fourth quarterly periods of each fiscal year of the Borrower, information regarding any payments made by the Borrower pursuant to the Priority of Payments, including amounts paid in accordance with each individual item of the Priority of Payments.

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(t)            Not later than ninety (90) calendar days after September 30 of each fiscal year of the Borrower, information regarding any Dividend Amount payable by the Borrower, including details on Dividend Test and Dividend Threshold calculations.

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SCHEDULE 2

DIVIDEND FORMULA

No dividends can be declared or paid for any calendar year prior to [****]. Thereafter, if the Dividend Test is satisfied, dividends, if any, in an amount not to exceed the Dividend Amount, shall be declared by the Borrower by December 31 (each such date, a “Dividend Declaration Date”) and paid by January 30 of the following year (i.e., the first Dividend Declaration Date would be in [****] and such dividend would be required to be paid by the Borrower by [****].

The annual period for calculation of dividends in any given calendar year, commencing in [****], will start from October 1 of the prior calendar year and end on September 30 of that calendar year (each such period, a “Dividend Year”), with the first Dividend Year commencing [****].  [****]. Unless otherwise specified, the Company Action Level Risk Based Capital and all other amounts will be calculated as of September 30 of that calendar year (which is immediately prior to the Dividend Declaration Date).  [****].

If all of the following conditions are met, an annual dividend in an amount not to exceed the Dividend Amount may be declared and paid, subject to Section 6.01(j) and the Priority of Payments (such conditions, the “Dividend Test”):

[****]

“Dividend Catch-Up Contribution” means, in the event that the Third Remainder Contribution is greater than zero, and if the Borrower’s Modified Total Adjusted Capital is less than [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital, as of [****] or September 30 of each subsequent Dividend Year, an amount equal to the lesser of (y) the excess, if any, of the Third Remainder Contribution over an amount equal to the sum of any prior Dividend Catch-Up Contributions and (z) the excess, if any, of [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital over the Borrower’s Modified Total Adjusted Capital, each as determined as of such September 30.

The “Dividend Threshold” means (i), plus (ii), plus (iii), minus (iv), where:

[****]

[****]

“Present Value” means present value calculations assuming a discount rate equal to the lesser of (a) [****] percent ([****]%) and (b) the annualized realized net yield (net of defaults) of the assets of the Borrower (excluding the Letter of Credit) from the Closing Date, as determined in accordance with applicable statutory accounting principles.

“Dividend Amount” means, in any Dividend Year, the excess, if any, of the lesser of (i) and (ii) minus the Dividend Threshold, where:

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i.Equals the aggregate book value of the Borrower’s assets (excluding the Letter of Credit), as determined in accordance with applicable statutory accounting principles, and

ii.Equals the aggregate market value of the Borrower’s assets (excluding the Letter of Credit),

provided, that, (a) if such calculation results in an amount that is zero or a negative number, then the Dividend Amount will be zero, and (b) [****].

The declaration and payment of a dividend shall be subject to the following additional limitations:

i.The Dividend Amount in any Dividend Year ending prior to September 30, 2017 shall not exceed $[****];

ii.Immediately following the payment of any dividend, the Borrower shall maintain Modified Total Adjusted Capital at least equal to [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital, determined as of September 30 of the Dividend Year in respect of which such dividend is paid, taking into account the payment of such dividend as if paid on such September 30; and

iii.The Dividend Amount shall be reduced by the amount by which the Nominal Expense Cap (as defined in the Transaction Expense Support Agreement) applicable as of September 30 for such Dividend Year exceeds the Base Nominal Expense Cap (as defined in the Transaction Expense Support Agreement) applicable as of September 30 for such Dividend Year, unless the Borrower elects to waive such excess amount for purposes of calculating the applicable Nominal Expense Cap.

The Borrower shall provide the Issuing Lender with supporting information, in reasonable detail, relating to the calculation of the Dividend Amount.

The foregoing provisions of this Schedule 2 shall not apply to any Special Dividend.

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APPENDIX I TO THE DIVIDEND FORMULA

DESCRIPTION OF METHODOLOGIES AND PROCESSES FOR CALCULATING
EXPECTED COVERED BENEFITS AND EXPECTED LAPSE RATES

EXPERIENCE STUDY PROCESS

Overview

Golden Gate III (“GGIII”) Experience Studies reflecting mortality and lapse activity on the Reinsured Policies (as defined in the Indemnity Reinsurance Agreement) will be produced on both quarterly and annual bases to satisfy defined reporting obligations in the Indemnity Reinsurance Agreement and Reimbursement Agreement.  The Experience Studies will also be used for purposes of determining any payments due between West Coast Life and Protective Life Insurance Company (“PLICO”) under the Aggregate Stop Loss Agreement as well as any dividend payments due from GGIII to PLICO.  Actual/Expected calculations will be performed quarterly on a year-to-date basis and on a cumulative basis where required by the Transaction Documents.

·Experience Study exposure periods will be defined in two ways:

·Dividend Year Basis: 10/1/XX — 9/30/XX

·Used for calculation of mortality and lapse A/E ratios for purposes of the Stop Loss and dividend payment calculations

·Any payment due from Protective Life Corporation (“PLC”) to GGIII under the Catastrophic Loss Support Agreement will also be determined on a Dividend Year Basis

·For the initial year of the Transaction, the Dividend Year Basis begins on the Effective Date and ends on 9/30/10

·The quarterly Experience Studies required under Schedule 1, Item (c) of the Reimbursement Agreement will be calculated on a Dividend Year Basis

·Quarterly and Annual experience studies required under Exhibit D of the reinsurance agreement will be provided on a Dividend Year Basis

·All studies will be on a YTD basis within a dividend year

·Calendar Year Basis: 1/1/XX — 12/31/XX

·Used for calculation of quarterly and annual A/E calculations outlined in Exhibit D of the Reinsurance Agreement

·For the initial year of the Transaction, the Calendar Year Basis begins on the Effective Date and ends on 12/31/10

·All studies will be on a YTD basis within a calendar year

·All mortality and lapse studies are performed using PolySystems Measure to calculate the exposure and expected claim information.

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·PolySystems Measure is an industry standard software package used to generate experience studies

·Controlled environment that is auditable at a policy level

·Data sources that feed exposure and expected calculations

·Valuation files:

·Provided to Measure Team by the financial reporting valuation team on a quarterly basis.

·Contain all active and terminated policies for the reported quarter.

·Policy Detail History (“PDH”, which is a compilation of quarterly valuation files) files:

·Contain all history for policies that were in force or terminated since the Effective Date through current date for the policies reinsured to GGIII

·Created by taking the valuation files and appending them to previous quarter’s PDH files.

·Contain policy characteristics such as sex, risk, face amount, termination reason, termination date, issue date, issue age, etc.

·Serve as the input files for PolySystems Measure

·Controls to ensure accuracy

·Valuation files fall under SOX compliance.

·Compliance measures incorporated into quarterly SOX certification as part of PLC’s broader public reporting requirements

·PDH files are reconciled each quarter. The following items are reconciled to extracts from the administrative systems, including the death claim system.

·All terminations and termination dates (deaths, lapses, surrenders, conversions, maturities, expiries, & declined claims)

·Active policies

·Face amounts

·Issue age and issue dates

·Decrement totals (actual claims and lapses) from experience studies are tied back to decrements from the reconciliation.

·Definition of exposure

·Uniform Distribution of Deaths: Exposure starts from the Effective Date of the Transaction

·Actual inforce at the beginning of the respective time period is used as a starting point to capture experience that occurred during the  period

·Exposure is calculated on a policy level basis within PolySystems Measure

·Exposure on policies that do not terminate during the period ends on the exposure end date

·For Mortality:

·Exposure on policies that terminate due to death during the period ends on the next policy anniversary after the incurred date.

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·If date of death is unknown at the time of study, notify date is used until date of death is verified.

·Exposure on policies that terminate for reasons other than death ends on the incurred date of the termination.

·Accounting method

·Exposure end date is defined as the date when the termination was incurred (i.e., death claim reported on 11/30/2010 with a date of death of 6/30/2010 would have an exposure end date of 6/30/2010).

·No Lag

·Approach used for:

·Stop Loss A/E calculations

·Dividend Test (mortality calculations)

·Reimbursement Agreement reporting, Schedule 1, Item (c)

·Reinsurance Agreement Exhibit D: Dividend Year Basis mortality studies

·Actuarial method

·Exposure end date is defined as the date when the termination was incurred (i.e.  Death claim reported on 11/30/2010 with a date of death of 6/30/2010 would have an exposure end date of 6/30/2010)

·All studies using the Actuarial method will have a three month lag.  This accounts for IBNR and lapse reinstatements.

·Approach used for:

·Reinsurance Agreement Exhibit D: Calendar Year Basis mortality studies

·For Lapse:

·Uses the Actuarial method outlined above

·Exposure on policies that terminate due to lapse during the period ends on the next policy anniversary after the incurred date.

·Exposure on policies that terminate for reasons other than lapse ends on the incurred date of the termination

·Lapses are based on premium mode periods.  A policy has to complete one premium period to be included in the study.  Exposure is based on completed modal periods (i.e., monthly premium mode policy will show up in a study after one month of exposure.  An annual mode policy would show up after completing one year of exposure.)

·Approach used for:

·Dividend Test lapse calculations

·Reimbursement Agreement reporting, Schedule 1, Item (c)

·Reinsurance Agreement Exhibit D: Dividend Year and Calendar Year lapse studies

·Source of Actual Claims and IBNR

·Ledger:

·Actual deaths claims in the report come from the ledger.

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·Totals are provided to the Measure Team by PLC’s Accounting Department

·Totals are imported into Access database with Expected totals and reported in an Excel pivot table.

·IBNR:

·Will be included in the actual death claims

·Source will be the ledger

·IBNR estimation process:

·Annually, updated historical claims information is obtained from the claims system.

·Claims are reviewed, including date of death and date of notification, and that information is used to update a claims lag study which identifies level of claims that were incurred but not reported as of historical valuation dates.

·For the same periods of time, expected mortality is obtained from the Measure Team, and the IBNR claims are expressed as a percentage of expected mortality for each period.

·The average of those percentages provides a way to estimate IBNR claims for future periods based on the expected mortality for those periods.

·Therefore during the course of the year, IBNR reserves change in proportion to change in expected mortality.

·The percentage is reset annually based on updated claims experience.

·Annual report (Reinsurance Agreement Exhibit D) death claims will be provided by PolySystems.  These deaths are reconciled back to the death claim administrative system.

·Calculation of Expected Mortality

·Expected mortality calculations use the same assumptions outlined in the Milliman Chicago actuarial report dated December 3, 2009 (“Milliman Report”) and attached under Exhibit A to this report; these rates vary by duration

·Quarterly adjustments to the inforce starting point are made to reflect actual mortality and lapse experience during the period.

·Source of Mortality Rate of Death (“Qx”):  The Qx for the experience studies is coded in PolySystems to mirror the mortality assumptions used in the Milliman Report.  The coding is maintained by the valuation team and is replicated by the Measure Team.

·Qx factors increase on policy anniversary date; this methodology is consistently applied in both the Milliman modeling and PolySystems coding

·Application to exposure:

·Calculated by PolySystems

·Exposure is always based on face amount less YRT reinsurance.

·In the case of policies that end in death, the exposure is defined to continue until the next policy anniversary.

6

·In the case of policies that end in lapse, the exposure ends on the effective date of the lapse.

·In the event of lapse and subsequent reinstatement, the exposure is considered to be continuous.

·Policies that do not terminate during the study get full exposure for the exposure period.

·Face Amount Exposure (“FAE”) is calculated on a policy duration basis; mathematically, FAE equals:

·(Direct Face Amount – YRT Ceded Face Amount) * Policy Exposure

·Where, Policy Exposure = Number of Months in Exposure Period

·Months may be either integers or fractional amounts depending on policy issue date and anniversary date-

·PolySystems Measure assumes 360 day calendar year

·Poly translates annual Qx (“aqx”) to a monthly Qx (“mqx”)

·mqx = 1 – (1-aqx)^(1/12)

·PolySystems Measure calculates exposure according to exposure begin and end date

·Formulaic Calculation of Expected Mortality

·Expected mortality is calculated at a policy level; policy level results are added together to create the aggregate expected mortality result

·Expected Mortality (Policy Level) = mqx * FAE

·Expected Mortality (Aggregate Level) =

·However, if the policy changes from duration “D” to duration “D+1” (i.e., passes an anniversary) during the Experience Year or Partial Experience Year, the Expected Mortality (Aggregate Level) =:

·Calculations are performed on an Experience Year-to-date basis (or Calendar Year-to-date basis, depending on the intended purpose) to account for policies in grace that ultimately lapsed and late reported deaths

·Reporting of total expected

·PolySystems Measure produces output files that contain policy level detail information which includes exposure, expected, claim count, and exposed count.

·These output files are summed together in an Access database and linked to by an Excel pivot table.

·Calculation of Actual Mortality

·Tracked on an incurred basis using the Accounting method outlined above

7

·Actual Mortality = Paid Claims + DIBNR + DPending Liability (includes Pended and Resisted claims)

·Pended claims include reported but not paid claims

·Calculated net of Existing YRT Reinsurance (as defined in the Indemnity Reinsurance Agreement)

·Calculation of Expected Lapse

·Expected lapse calculations use the same assumptions outlined in the Milliman Report and also attached under Exhibit B to this report; these rates vary by duration

·Quarterly adjustments to the inforce starting point are made to reflect actual mortality and lapse experience during the period (i.e. grace policies that lapsed and late reported deaths)

·Source of Lapse Rate:  The lapse rate for the experience studies is coded in PolySystems to mirror the lapse assumptions used in the Milliman Report.  The coding is maintained by the valuation team and is replicated by the Measure Team.

·Application to exposure:

·Calculated by PolySystems

·Exposure is calculated on a policy duration basis; the mathematical FAE calculation is identical to the one outlined above

·PolySystems Measure assumes 360 day calendar year

·PolySystems Measure translates annual lapse rates (La) provided in the Milliman Report to monthly lapse rates (Lm)

·Lm = 1 – (1 - La)^(1/12)

·PolySystems Measure calculates exposure according to exposure begin and end date

·Formulaic Calculation of Expected Lapse

·Expected lapse is calculated at a policy level; policy level results are added together to create the aggregate expected lapse result

·Expected Lapse (Policy Level) = Lm * Exposure

·Expected Lapse (Aggregate Level) =

·However, if the policy changes from duration “D” to duration “D+1” (i.e., passes an anniversary) during the Experience Year or Partial Experience Year, the Expected Lapse (Aggregate Level) =:

·Calculations are performed on an Experience Year-to-date basis (or Calendar Year-to-date basis, depending on the intended purpose)

·Reporting of total expected

8

·PolySystems Measure produces output files that contain policy level detail information which includes exposure, expected, lapse count, and exposed count.

·These output files are summed together in an Access database and linked to by an Excel pivot table.

·Three month lag is used to account for policies in grace that ultimately lapsed and late reported deaths

·Calculation of Actual Lapse

·Actual lapses will come from PolySystems

·All lapse decrements and lapse face amounts are verified against the administrative system

·Do not include any policies that are in the “Grace” period

·Shock lapses will be shown separately from level period lapses

·Three month lag is used to account for policies in grace that ultimately lapsed and late reported deaths

·For example, a lapse report using 9/30/11 inforce data will include actual lapse activity that occurred during the four quarters beginning 7/1/10 through 6/30/11

9

APPENDIX I (continued)
Exhibit A

Mortality Assumptions

On the Effective Date, each party will receive two (2) copies of a CD with identical contents detailing the mortality assumptions.  Each CD will contain three Microsoft Excel Files: [****].

[****]

10

APPENDIX I (continued)

Exhibit B

Lapse Assumptions

(a)Lapse rates expressed in percentage terms

(b)[****]

(c)[****]

(d)[****]

(e)[****]

(f)Risk Classification Key:

SPF = Select Preferred

PF = Preferred

ST = Standard

NT = Non-Tobacco

TB = Tobacco

WCL - -10

		Face < $250K					Face >= $250K
Issue	Policy	SPF	PF	ST	PF	ST	SPF	PF	ST	PF	ST
Age	Year	NT	NT	NT	TB	TB	NT	NT	NT	TB	TB
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]

11

WCL - -15

		Face < $250K					Face >= $250K
Issue	Policy	SPF	PF	ST	PF	ST	SPF	PF	ST	PF	ST
Age	Year	NT	NT	NT	TB	TB	NT	NT	NT	TB	TB
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]

12

WCL-20

		Face < $250K					Face >= $250K
Issue	Policy	SPF	PF	ST	PF	ST	SPF	PF	ST	PF	ST
Age	Year	NT	NT	NT	TB	TB	NT	NT	NT	TB	TB
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]

13

WCL-25 These rates are an average of the WCL 20- and 30-year rates.

		Face < $250K					Face >= $250K
Issue	Policy	SPF	PF	ST	PF	ST	SPF	PF	ST	PF	ST
Age	Year	NT	NT	NT	TB	TB	NT	NT	NT	TB	TB
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]

14

WCL 30

		Face < $250K					Face >= $250K
Issue	Policy	SPF	PF	ST	PF	ST	SPF	PF	ST	PF	ST
Age	Year	NT	NT	NT	TB	TB	NT	NT	NT	TB	TB
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]	[****]

15

[****] CONTENTS OF TABLES BELOW OMITTED

Lapse Rate Beyond Level Premium Period (N)

Lapse at End	Premium Increase (First ART Premium as Multiple of Level Term Premium)(x)
of Year	0 < x £ 2.5	2.5 < x £ 5	5 < x £ 7.5	7.5 < x £ 10	10 < x £ 12.5	12.5 < x £ 15	15 < x £ 20	x> 20
N
N+1
N+2
N+3 and later

Excess Shock Lapse Distribution

Monthly Payment Mode		Quarterly Payment Mode
N+1 Policy Month	Excess Shock Lapse Distribution	N+1 Policy Quarter	Excess Shock Lapse Distribution

16

Shock Lapse Weighting

Premium	Initial Modal	Final Modal
Mode	Premiums	Premiums
Monthly
Quarterly
Semi-Annual
Annual

17

SCHEDULE 3

UTILIZATION FEE MATRIX

Borrower S&P Counterparty Credit Risk Rating (or the equivalent from either of Moody’s or Fitch or another nationally recognized statistical rating organization)	Utilization Fee Rate (basis points per annum)
AA-	[****]
A+ A A-	[****] [****] [****]
BBB+ BBB BBB-	[****] [****] [****]
BB+ BB BB-	[****] [****] [****]
B+ B B-	[****] [****] [****]
CCC to C	[****]

The Utilization Fee Rate will be subject to increase upon the downgrade of the Borrower below AA- by S&P (or the equivalent from either of Moody’s or Fitch or another nationally recognized statistical rating organization) in accordance with the above Utilization Fee Matrix.

In the event that the Counterparty Risk Rating of the Borrower provided by S&P is withdrawn and is not replaced by a rating from Moody’s, Fitch or another nationally recognized statistical rating organization, the Utilization Fee Rate shall be [****] (the “Withdrawn Rating Fee Rate”).

1

SCHEDULE 4

SCHEDULED LOC PROGRAM AMOUNT

Scheduled LOC Amendment Date	Scheduled LOC Facility Amount		Scheduled LOC Increase Amount
April 1, 2011	$	560,000,000	$	55,000,000
April 1, 2012	$	575,000,000	$	15,000,000
April 1, 2013	$	610,000,000	$	35,000,000
April 1, 2014	$	595,000,000	N/A
April 1, 2015	$	595,000,000	N/A
April 1, 2016	$	595,000,000	N/A
April 1, 2017	$	590,000,000	N/A

1

SCHEDULE 5

RESTRICTED LIST

The restricted list includes each of the following companies and their affiliates.

[****]

1

SCHEDULE 6

FINANCIAL AND ACTUARIAL PROJECTIONS AND MODELING INFORMATION

The Actuarial Report, dated December 3, 2009, prepared by Milliman USA’s Chicago office with respect to the Reinsured Policies

Responses to Milliman NY Information Request 10/8/2009

1)Premium rate information [****]

2)YRT premium and pool percentage information [****]

3)Mortality rate factor assumptions [****]

4)Seriatim in-force policy inventory information as of 12/31/2008

5)Historical Mortality and Lapse Studies covering Reinsured Policies

6)Post Level Term Lapse Studies

7)WCL pricing mortality comparison

8)PLC memo dated 10/14/2009 regarding underwriting

9)Third-Party Reinsurer audit reports produced during 2006 – 2009

10)External consultant underwriting audit reports 2006 – 2009

11)PLC  memo dated 10/14/2009 [****]

12)PLC memo dated 10/13/2009 [****]

Responses to Milliman NY Information Request 10/15/2009

1)PLC memo dated 10/27/2009 [****]

2)PLC memo dated 10/16/2009 [****]

Response to Milliman NY Information Request 11/22/2009

1)PLC memo dated 11/23/2009 [****]

Responses to Milliman NY Information Request 11/24/2009

1)PLC memo dated 10/29/2009 [****]

2)PLC memo dated 11/24/2009 [****]

Information submitted to UBS via FTP

1)Information regarding economic reserve calculation methodology

2)Historical mortality and lapse studies using data as of March 31, 2009

3)Historical business mix reports covering the Reinsured Policies

4)Historical Financial Statements of GG, PLICO, and WCL for fiscal years 2006, 2007 and 2008

5)Seriatim inforce policy inventory information as of 12/31/2008 and 9/30/2009

6)Third-Party Reinsurer Audits of WCL

7)Spreadsheet titled “GG3 Inforce Business Mix 2009 12.xlsx” comparing December 31, 2009 inforce policy inventory to Milliman Report projections

Information provided to [****] in association with her December 2009 underwriting audit

1)GG/WCL claims information

2)Seriatim in-force policy inventory information as of 9/30/2009

3)WCL underwriting guidelines

1

4)Third-Party Reinsurer Audits

5)External consultant underwriting audits

6)Retention and Binding Amounts for [****] policies

7)[****]

2

EXHIBIT A

DRAW CERTIFICATION NOTICE

FORM OF DRAW CERTIFICATION NOTICE

To:	UBS AG, Stamford Branch
	299 Park Avenue, 26th Floor
	New York, NY 10170
	Attention: Letter of Credit Services

Re: Reimbursement Agreement, dated as of April 23, 2010, as amended, restated, modified or supplemented from time to time (the “Reimbursement Agreement”), between Golden Gate III Vermont Captive Insurance Company, a special purpose financial captive insurance company incorporated under the laws of the State of Vermont (the “Borrower”) and UBS AG, Stamford Branch, as issuing lender (the “Issuing Lender”).

This Draw Certification Notice (this “Notice”) is delivered by the undersigned West Coast Life Insurance Company or any successor by operation of law thereof, including, without limitation, any liquidator, rehabilitator, receiver or conservator (the “Ceding Company”) under the Issuing Lender’s Letter of Credit No. [·], in connection with a draw requested by the Reinsurance Trustee, as beneficiary under the Letter of Credit (the “Beneficiary”).  Unless otherwise defined herein, terms defined in the Reimbursement Agreement and used herein shall have the meanings given to them in the Reimbursement Agreement.

The Beneficiary is drawing $[·] under the Letter of Credit (the “Requested Amount”) in connection with this Notice.

The undersigned, [Name], as [Title](1) of the Ceding Company hereby certifies to the Issuing Lender that as of the date hereof:

(i)            The Requested Amount is required to be obtained by the Beneficiary for the payment of Covered Benefits or Claims Expenses (each as defined in the Reinsurance Agreement) now due and payable under the Reinsurance Agreement.

(ii)           All assets in the Reinsurance Trust Account and any funds held in any account established pursuant to Section 7.3 of the Reinsurance Agreement have previously been used to satisfy amounts due and payable under the Reinsurance Agreement or released pursuant to Section 7.3(c) of the Reinsurance Agreement or Section 2 of the Reinsurance Trust Agreement.

(iii)          No assets remain in the Surplus Account.

(1)Officer must be a Responsible Officer of the Ceding Company, i.e. the Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer, Assistant Treasurer or Controller.

1

(iv)          Since the date that is one calendar year prior to the date hereof, no assets with a Market Value in excess of $[****] have been transferred from the Surplus Account other than to the extent permitted to be transferred pursuant to the Priority of Payments, unless (A) despite such assets being transferred in the incorrect order of priority, such transfer would have been otherwise permitted pursuant to the Priority of Payments at the time of such transfer or at any subsequent time thereafter or (B) such impermissibly transferred assets have been returned to the Surplus Account or replaced in the Surplus Account with Eligible Assets having a Market Value equal to those that were impermissibly transferred on or prior to the date hereof.

(v)           Since the Closing Date, the Borrower has existed and, as of the date hereof, exists, as a separate entity and has not been substantively consolidated with another entity.

(vi)          As of the date hereof, the Reinsurance Agreement remains in full force and effect.

(vii)         As of the date hereof, there is no continuing failure by PLC to pay any amount in excess of $[****] payable to or explicitly required to be paid on behalf of the Borrower under the Tax Sharing Agreement or the Special Tax Allocation Agreement within thirty (30) calendar days from the date on which such payment was due and payable.

(viii)        Since the Closing Date, there has been no amendment of the Tax Sharing Agreement or the Special Tax Allocation Agreement and there has not been a termination of the Special Tax Allocation Agreement or a termination of the rights of the Borrower with respect to PLC and the obligations of PLC with respect to the Borrower under the Tax Sharing Agreement, in each case, without the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed) if such amendment or termination adversely affects, in any material respect, the rights, remedies or obligations of the Borrower under such agreement.

2

(b)           IN WITNESS WHEREOF, the undersigned has executed and delivered this Notice as of the          day of         ,         .

West Coast Life Insurance Company,

as the Ceding Company

By:

Name:

Title:

3

EXHIBIT B

INVESTMENT GUIDELINES

All assets held in the Regulatory Account shall be invested solely in Cash or Cash Equivalents.

All assets (other than the Letter of Credit) held in the Surplus Account and the Reinsurance Trust Account shall be invested solely in Eligible Assets (as defined below).

“Eligible Assets” means, subject to the limitations set forth below and except as otherwise agreed between the Ceding Company and the Issuing Lender, [****].

Eligible Assets will be subject to the following limitations:

[****]

Where:

(i)            “Maximum Sector Limit” means the ratio of the book value of the relevant Eligible Asset to the book value of all Eligible Assets at the time of the relevant Eligible Asset purchase,

(ii)           “Maximum Tenor Limit” means the relevant date occurring the stated number of years from the Closing Date, and

(iii)          “Maximum Duration Limit” means the maximum target duration of securities in the relevant category.

In a given year, the weighted average modified duration of all assets will be:

Year	Target Modified Duration
2010	[****]
2011	[****]
2012	[****]
2013	[****]
2014	[****]
2015	[****]
2016	[****]
2017	[****]

1

EXHIBIT C

REINSURANCE AGREEMENT

[Provided separately]

1

EXHIBIT D

FORM OF LETTER OF CREDIT

ISSUING LENDER:
UBS AG, STAMFORD BRANCH
299 PARK AVENUE, 26TH FLOOR	FOR INTERNAL IDENTIFICATION
NEW YORK, NY 10170	PURPOSES ONLY
ATTENTION: LETTER OF CREDIT SERVICES
	APPLICANT: Golden Gate III Vermont Captive Insurance Company
BENEFICIARY:
REINSURANCE TRUSTEE
THE BANK OF NEW YORK MELLON 101 BARCLAY STREET MAILSTOP: 101-0850 NEW YORK, NEW YORK 10286 ATTENTION: INSURANCE TRUST & ESCROW GROUP
IRREVOCABLE LETTER OF CREDIT NO. [·]

DEAR SIR OR MADAM:

WE, UBS AG, STAMFORD BRANCH, HEREBY ESTABLISH THIS LETTER OF CREDIT (“LETTER OF CREDIT” OR “CREDIT”), AT THE REQUEST OF GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY (“ACCOUNT PARTY”), IN YOUR FAVOR AS BENEFICIARY FOR DRAWINGS UP TO $505,000,000, (FIVE HUNDRED FIVE MILLION UNITED STATES DOLLARS), EFFECTIVE AT THE ISSUE DATE. THIS LETTER OF CREDIT IS ISSUED BY UBS AG, STAMFORD BRANCH, AND IS PRESENTABLE AND PAYABLE AT OUR OFFICE AT 299 PARK AVENUE, 26TH FLOOR, NEW YORK, NEW YORK 10170, ATTENTION LETTER OF CREDIT SERVICES AND EXPIRES AT OUR CLOSE OF BUSINESS ON APRIL 1, 2013 (THE “EXPIRY DATE”) UNLESS EXTENDED AS HEREINAFTER PROVIDED. THIS CREDIT CANNOT BE REDUCED OR REVOKED WITHOUT THE BENEFICIARY’S CONSENT.  THE AVAILABLE AMOUNT OF THIS LETTER OF CREDIT (THE “LOC AMOUNT”) SHALL BE PERMANENTLY REDUCED BY THE SUM OF ALL PAYMENTS MADE HEREUNDER TO BENEFICIARY.

THE TERM “BENEFICIARY” INCLUDES ANY SUCCESSOR BY OPERATION OF LAW OF THE NAMED BENEFICIARY INCLUDING, WITHOUT LIMITATION, ANY LIQUIDATOR, REHABILITATOR, RECEIVER OR CONSERVATOR.

WE HEREBY UNDERTAKE TO PROMPTLY HONOR YOUR SIGHT DRAFT(S) DRAWN ON US, INDICATING OUR LETTER OF CREDIT NO. [·], FOR ALL OR ANY PART OF THIS CREDIT UPON PRESENTATION OF (A) YOUR SIGHT DRAFT(S) DRAWN ON US AND (B) A DRAW CERTIFICATION NOTICE IN THE FORM OF SCHEDULE A HERETO, DATED THE DATE OF SUCH SIGHT DRAFT, IN EACH CASE AT OUR OFFICE SPECIFIED IN PARAGRAPH ONE ABOVE ON OR BEFORE THE EXPIRY DATE HEREOF OR ANY EXTENDED EXPIRY DATE.  IF THE APPLICABLE EXPIRY DATE IS NOT A BUSINESS DAY, DRAWING MAY BE MADE NOT LATER THAN THE NEXT IMMEDIATELY FOLLOWING BUSINESS DAY.  ONLY THE BENEFICIARY MAY MAKE DRAWINGS UNDER THIS LETTER OF CREDIT AND ALL SIGHT DRAFTS MUST BE MARKED: “DRAWN UNDER UBS AG, STAMFORD BRANCH, LETTER OF CREDIT NO. [·]”.  OTHER THAN YOUR SIGHT DRAFT(S) AND DRAW CERTIFICATION NOTICE(S), NO OTHER DOCUMENT(S) NEED BE PRESENTED.

EXCEPT AS EXPRESSLY STATED HEREIN, THIS UNDERTAKING IS NOT SUBJECT TO ANY AGREEMENT, REQUIREMENT OR QUALIFICATION. THE OBLIGATION OF UBS AG, STAMFORD BRANCH UNDER THIS LETTER OF CREDIT IS THE INDIVIDUAL OBLIGATION OF UBS AG, STAMFORD BRANCH, AND IS IN NO WAY CONTINGENT UPON REIMBURSEMENT WITH RESPECT THERETO OR UPON OUR ABILITY TO PERFECT A LIEN, SECURITY OR ANY OTHER REIMBURSEMENT.

THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING, AND THIS UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED, AMPLIFIED OR LIMITED BY REFERENCE TO ANY DOCUMENT, INSTRUMENT OR AGREEMENT REFERRED TO HEREIN OR IN WHICH THIS LETTER OF CREDIT IS REFERRED TO OR TO WHICH THIS LETTER OF CREDIT RELATES, AND ANY SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT, INSTRUMENT OR AGREEMENT.

THE EXPIRY DATE OF THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED AS OF APRIL 1, 2012, TO APRIL 1, 2015 UNLESS, AT LEAST THIRTY (30) CALENDAR DAYS PRIOR TO SUCH EXTENSION DATE, WE NOTIFY THE BENEFICIARY AND THE ACCOUNT PARTY IN WRITING, IN THE FORM OF SCHEDULE B HERETO, THAT WE DO NOT INTEND TO EXTEND THIS LETTER OF CREDIT BEYOND THE EXPIRY DATE THEN IN EFFECT. ALL NOTICES SHALL BE SENT BY REGISTERED MAIL, REPUTABLE COURIER OR HAND DELIVERY.

THE EXPIRY DATE OF THIS LETTER OF CREDIT SHALL ALSO BE AUTOMATICALLY EXTENDED AS OF APRIL 1, 2014, TO APRIL 1, 2018, UNLESS, AT LEAST THIRTY (30) CALENDAR DAYS PRIOR TO SUCH EXTENSION DATE, WE NOTIFY THE BENEFICIARY AND THE ACCOUNT PARTY IN WRITING, IN THE FORM OF SCHEDULE B HERETO, THAT WE DO NOT INTEND TO EXTEND THIS LETTER OF CREDIT BEYOND THE EXPIRY DATE THEN IN EFFECT. ALL NOTICES SHALL BE SENT BY REGISTERED MAIL, REPUTABLE COURIER OR HAND DELIVERY.

IF, ON APRIL 1, 2014, THE THEN-CURRENT LOC AMOUNT IS GREATER THAN $595,000,000, THEN THE LOC AMOUNT SHALL BE AUTOMATICALLY AND PERMANENTLY REDUCED BY $15,000,000.

IF, ON APRIL 1, 2017, THE THEN-CURRENT LOC AMOUNT IS GREATER THAN $590,000,000, THEN THE LOC AMOUNT SHALL BE AUTOMATICALLY AND PERMANENTLY ADDITIONALLY REDUCED BY $5,000,000.

THIS LETTER OF CREDIT IS SUBJECT TO AND GOVERNED BY THE  UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDIT (2007 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 600 (“UCP”) AS INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE PROVISIONS OF ARTICLE 36 OF THE UCP, IF THIS LETTER OF CREDIT EXPIRES DURING AN INTERRUPTION OF BUSINESS (AS DESCRIBED IN ARTICLE 36 OF THE UCP), UBS AG, STAMFORD BRANCH AGREES TO EFFECT PAYMENT UNDER THIS LETTER OF CREDIT IF A DRAWING WHICH STRICTLY CONFORMS TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT IS MADE WITHIN FIFTEEN (15) DAYS AFTER THE RESUMPTION OF BUSINESS.

WE UNDERTAKE TO HONOR ANY SIGHT DRAFT(S) PRESENTED UNDER THIS LETTER OF CREDIT, PROVIDED SUCH DRAFT(S) AND ACCOMPANYING DRAW CERTIFICATION NOTICE(S) CONFORM TO THE TERMS AND CONDITIONS HEREOF.

VERY TRULY YOURS,
UBS AG, STAMFORD BRANCH
By:
	Name:
	Title:

SCHEDULE A

FORM OF DRAW CERTIFICATION NOTICE

FORM OF DRAW CERTIFICATION NOTICE

To:	UBS AG, Stamford Branch
	299 Park Avenue, 26th Floor
	New York, NY 10170
	Attention: Letter of Credit Services

Re: Reimbursement Agreement, dated as of April 23, 2010, as amended, restated, modified or supplemented from time to time (the “Reimbursement Agreement”), between Golden Gate III Vermont Captive Insurance Company, a special purpose financial captive insurance company incorporated under the laws of the State of Vermont (the “Borrower”) and UBS AG, Stamford Branch, as issuing lender (the “Issuing Lender”).

This Draw Certification Notice (this “Notice”) is delivered by the undersigned West Coast Life Insurance Company or any successor by operation of law thereof, including, without limitation, any liquidator, rehabilitator, receiver or conservator (the “Ceding Company”) under the Issuing Lender’s Letter of Credit No. [·], in connection with a draw requested by the Reinsurance Trustee, as beneficiary under the Letter of Credit (the “Beneficiary”).  Unless otherwise defined herein, terms defined in the Reimbursement Agreement and used herein shall have the meanings given to them in the Reimbursement Agreement.

The Beneficiary is drawing $[·] under the Letter of Credit (the “Requested Amount”) in connection with this Notice.

The undersigned, [Name], as [Title](2) of the Ceding Company hereby certifies to the Issuing Lender that as of the date hereof:

(a)           (i)            The Requested Amount is required to be obtained by the Beneficiary for the payment of Covered Benefits or Claims Expenses (each as defined in the Reinsurance Agreement) now due and payable under the Reinsurance Agreement.

(b)                      (ii) All assets in the Reinsurance Trust Account and any funds held in any account established pursuant to Section 7.3 of the Reinsurance Agreement have previously been used to satisfy amounts due and payable under the Reinsurance Agreement or released pursuant to Section 7.3(c) of the Reinsurance Agreement or Section 2 of the Reinsurance Trust Agreement.

(c)                           (iii)          No assets remain in the Surplus Account.

(2)Officer must be a Responsible Officer of the Ceding Company, i.e. the Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer, Assistant Treasurer or Controller.

1

(d)                           (iv)          Since the date that is one calendar year prior to the date hereof, no assets with a Market Value in excess of $[****] have been transferred from the Surplus Account other than to the extent permitted to be transferred pursuant to the Priority of Payments, unless (A) despite such assets being transferred in the incorrect order of priority, such transfer would have been otherwise permitted pursuant to the Priority of Payments at the time of such transfer or at any subsequent time thereafter or (B) such impermissibly transferred assets have been returned to the Surplus Account or replaced in the Surplus Account with Eligible Assets having a Market Value equal to those that were impermissibly transferred on or prior to the date hereof.

(e)                           (v)           Since the Closing Date, the Borrower has existed and, as of the date hereof, exists, as a separate entity and has not been substantively consolidated with another entity.

(f)                            (vi)          As of the date hereof, the Reinsurance Agreement remains in full force and effect.

(g)                           (vii)         As of the date hereof, there is no continuing failure by PLC to pay any amount in excess of $[****] payable to or explicitly required to be paid on behalf of the Borrower under the Tax Sharing Agreement or the Special Tax Allocation Agreement within thirty (30) calendar days from the date on which such payment was due and payable.

(h)                           (viii)        Since the Closing Date, there has been no amendment of the Tax Sharing Agreement or the Special Tax Allocation Agreement and there has not been a termination of the Special Tax Allocation Agreement or a termination of the rights of the Borrower with respect to PLC and the obligations of PLC with respect to the Borrower under the Tax Sharing Agreement, in each case, without the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed) if such amendment or termination adversely affects, in any material respect, the rights, remedies or obligations of the Borrower under such agreement.

2

(i)            IN WITNESS WHEREOF, the undersigned has executed and delivered this Notice as of the          day of         ,         .

West Coast Life Insurance Company,

as the Ceding Company

By:

Name:

Title:

3

SCHEDULE B

FORM OF NOTIFICATION

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY

c/o Marsh Management Services, Inc.

100 Bank Street

Burlington, VT 05402

Fax: (802) 859-3550

THE BANK OF NEW YORK MELLON

Attention:  Insurance Trust & Escrow Group

The Bank of New York Mellon

101 Barclay Street

Mailstop: 101-0850

New York, New York, 10286

101 BARCLAY STREET
MAILSTOP: 101-0850
NEW YORK, NEW YORK 10286

Dear Sir/Madam

We refer to the Letter of Credit No. [·] dated [·] (the “Letter of Credit”).  Pursuant to the terms of the Letter of Credit, we hereby notify you that the Letter of Credit will not be extended and therefore will expire on its current expiry date of [·].

UBS AG, STAMFORD BRANCH,

as Issuing Lender

By:

Name:

Title:

4

EXHIBIT E

FORM OF ASSIGNMENT AND ACCEPTANCE

Reference is made to the Reimbursement Agreement, dated as of April 23, 2010 (the “Agreement”), by and between Golden Gate III Vermont Captive Insurance Company (the “Borrower”) and UBS AG, Stamford Branch, (the “Issuing Lender”).  Unless otherwise defined herein, terms defined in the Agreement and used herein shall have the meanings given to them in the Agreement.

The Assignor identified on Schedule l hereto (the “Assignor”) and the Assignee identified on Schedule l hereto (the “Assignee”) agree as follows:

1.     The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest in and to the Assignor’s rights and obligations under the Agreement in a principal amount as set forth on Schedule 1 hereto (the “Assigned Interest”).

2.     The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement, any other Transaction Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Affiliates or any other obligor or the performance or observance by the Borrower, any of its Affiliates or any other obligor of any of their respective obligations under the Agreement or any other Transaction Document or any other instrument or document furnished pursuant hereto or thereto.

3.     The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance and (b) confirms that it has received a copy of the Agreement, together with copies of the financial statements delivered pursuant to Section 4.01(f) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor or the Issuing Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement, the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; and (d) agrees that it will be bound by the provisions of the Agreement and will perform in accordance with its terms all the obligations which by the terms of the Agreement are required to be performed by it pursuant to Sections 9.05(b) or (c), as applicable, of the Agreement.

4.     The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the “Effective Date”).  Following the execution of this Assignment and Acceptance, it will be delivered to the Issuing Lender for acceptance and

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recording by it pursuant to the Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Issuing Lender, be earlier than five (5) Business Days after the date of such acceptance and recording by the Issuing Lender).

5.     Upon such acceptance and recording, from and after the Effective Date, the Issuing Lender shall make all payments in respect of the Assigned Interest (including payments of fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date.

6.     From and after the Effective Date, (a) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of the Issuing Lender thereunder and under the other Transaction Documents and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Agreement.

7.     This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof (other than Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York).

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto.

2

Schedule 1
to Assignment and Acceptance with respect to
the Reimbursement Agreement, dated as of April 23, 2010,
between Golden Gate III Vermont Captive Insurance Company (the “Borrower”),

and UBS AG, Stamford Branch, (the “Issuing Lender”)

Name of Assignor:

Name of Assignee:

Effective Date of Assignment:

Principal Amount of Commitment Assigned	Commitment Percentage Assigned
$		%

[Name of Assignee]		[Name of Assignor]
By:		By:
	Title:		Title:
Accepted for Recordation in the Register:		Required Consents (if any):
UBS AG, Stamford Branch, as Issuing Lender		[                      ]
By:		By:
Title:		Title:
		UBS AG, Stamford Branch, as Issuing Lender
		By:
			Title:

3

EX-12

Exhibit 12

Consolidated Earnings Ratios

The following table sets forth, for the years and periods indicated, Protective Life Insurance Company’s (the “Company”) ratios of:

·Consolidated earnings to fixed charges.

·Consolidated earnings to fixed charges before interest credited on investment products.

	For The
	Six Months Ended
	June 30,		For The Year Ended December 31,
	2010	2009	2009	2008(3)		2007	2006	2005
Ratio of Consolidated Earnings to Fixed Charges (1)	1.3	1.3	1.4	0.9		1.4	1.5	1.5
Ratio of Consolidated Earnings (Losses) to Fixed Charges
Before Interest Credited on Investment Products(2)	7.1	9.6	11.3	(0.2	)	6.9	20.1	38.5

(1)       The Company calculates the ratio of “Consolidated Earnings to Fixed Charges” by dividing the sum of income (loss) from continuing operations before income tax (BT), interest expense (which includes an estimate of the interest component of operating lease expense) (I) and interest credited on investment products (IP) by the sum of interest expense (I) and interest credited on investment products (IP). The formula for this ratio is: (BT+I+IP)(I+IP).  The Company continues to sell investment products that credit interest to the contract holder.  Investment products include products such as guaranteed investment contracts, annuities, and variable universal life interest credited insurance policies.  The inclusion of interest credited on investment products results in a negative impact on the ratio of earnings to fixed charges because the effect of increases in interest credited to contract holders more than offsets the effect of the increases in earnings.

(2) The Company calculates the ratio of “Consolidated Earnings (Losses) to Fixed Charges Before Interest Credited on Investment Products” by dividing the sum of income (loss) from continuing operations before income tax (BT) and interest expense (I) by interest expense (I).  The formula for this calculation, therefore, would be: (BT+I)/I.

(3) For the year ended December 31, 2008, additional income required to achieve a 1:1 ratio coverage was $86.4 million.

103

Exhibit 12

(continued)

Computation of Consolidated Earnings Ratios

	For The
	Six Months Ended
	June 30,				For The Year Ended December 31,
	2010		2009		2009		2008(1)			2007		2006		2005
	(Dollars In Thousands, Except Ratio Data)
Computation of Ratio of Consolidated Earnings (Losses) to Fixed Charges
Income (Loss) from Continuing Operations before Income Tax	$	173,642	$	170,628	$	425,034	$	(86,373	)	$	395,956	$	419,748	$	361,215
Add Interest Expense(2)	28,668		19,840		41,411		72,154			66,707		22,012		9,632
Add Interest Credited on Investment Products	494,693		505,417		993,245		1,043,676			1,010,944		891,627		726,301
Earnings before Interest, Interest Credited on Investment Products and Taxes	$	697,003	$	695,885	$	1,459,690	$	1,029,457		$	1,473,607	$	1,333,387	$	1,097,148
Earnings before Interest, Interest Credited on Investment Products and Taxes Divided by Interest expense and Interest Credited on Investment Products	1.3		1.3		1.4		0.9			1.4		1.5		1.5
Computation of Ratio of Consolidated Earnings (Losses) to Fixed Charges Before Interest Credited on Investment Products
Income (Loss) from Continuing Operations before Income Tax	$	173,642	$	170,628	$	425,034	$	(86,373	)	$	395,956	$	419,748	$	361,215
Add Interest Expense(2)	28,668		19,840		41,411		72,154			66,707		22,012		9,632
Earnings (Losses) before Interest and Taxes	$	202,310	$	190,468	$	466,445	$	(14,219	)	$	462,663	$	441,760	$	370,847
Earnings (Losses) before Interest and Taxes Divided by Interest Expense	7.1		9.6		11.3		(0.2		)	6.9		20.1		38.5

(1)  For the year ended December 31, 2008, additional income required to achieve a 1:1 ratio coverage was $86.4 million.

(2)  Interest expense primarily relates to interest on our non-recourse funding obligations.

104

EX-31.(A)

Exhibit 31(a)

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John D. Johns, certify that:

1.I have reviewed the Quarterly Report on Form 10-Q for the period ended June 30, 2010 of Protective Life Insurance Company;

2.Based on my knowledge, this quarterly 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 quarterly 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 registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date:  August 12, 2010

/s/ John D. Johns

Chairman of the Board,

President and Chief Executive Officer

105

EX-31.(B)

Exhibit 31(b)

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard J. Bielen, certify that:

1.I have reviewed the Quarterly Report on Form 10-Q for the period ended June 30, 2010 of Protective Life Insurance Company;

2.Based on my knowledge, this quarterly 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 quarterly 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 registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date:  August 12, 2010

/s/ Richard J. Bielen

Vice Chairman and

Chief Financial Officer

106

EX-32.(A)

Exhibit 32(a)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Protective Life Insurance Company (the “Company”) on Form 10-Q for the period ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Johns, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John D. Johns

Chairman of the Board,

President and Chief Executive Officer

August 12, 2010

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

107

EX-32.(B)

Exhibit 32(b)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Protective Life Insurance Company (the “Company”) on Form 10-Q for the period ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Bielen, Vice Chairman and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Richard J. Bielen

Vice Chairman and

Chief Financial Officer

August 12, 2010

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

108