10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2012

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)

Registrant’s telephone number, including area code   (205) 268-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
6.750% Callable InterNotes® due 2033 of Protective Life Secured Trust 2008-20	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o     No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes o     No x

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 x     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                      x

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

Aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant as of June 30, 2012:  None

Number of shares of Common Stock, $1.00 Par Value, outstanding as of  March 23, 2013:  5,000,000

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) and (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE FORMAT WHERE NOTED HEREIN.

PROTECTIVE LIFE INSURANCE COMPANY

ANNUAL REPORT ON FORM 10-K

FOR FISCAL YEAR ENDED DECEMBER 31, 2012

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors and Cautionary Factors that may Affect Future Results	14
Item 1B.	Unresolved Staff Comments	34
Item 2.	Properties	34
Item 3.	Legal Proceedings	34
Item 4.	Mine Safety Disclosure - Not Applicable	35
	PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	36
Item 6.	Selected Financial Data	37
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	114
Item 8.	Financial Statements and Supplementary Data	114
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	197
Item 9A.	Controls and Procedures	197
Item 9B.	Other Information	198
	PART III
	Part III - Disclosure	199
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	201
	Signatures	205

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PART I

Item 1.   Business

Protective Life Insurance Company (the “Company”), a stock life insurance company, was founded in 1907. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange (symbol: PL). The Company provides financial services primarily in the United States through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, the “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.

The Company operates 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’s operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, and Asset Protection. The Company has an additional segment referred to as Corporate and Other which consists of net investment income not assigned to the segments above (including the impact of carrying liquidity) and expenses not attributable to the segments above. This segment also includes earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations. The Company periodically evaluates operating segments, as prescribed in the Accounting Standard Codification (“ASC” or “Codification”) Segment Reporting Topic, and makes adjustments to its segment reporting as needed.

Additional information concerning the Company’s operating segments may be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 21, Operating Segments to consolidated financial statements included herein.

In the following paragraphs, the Company reports sales and other statistical information. These statistics are used to measure the relative progress of its marketing and acquisition efforts, but may or may not have an immediate impact on reported segment operating income. Sales data for traditional life insurance is based on annualized premiums, while universal life sales are based on annualized planned premiums, or “target” premiums if lesser, plus 6% of amounts received in excess of target premiums and 10% of single premiums. “Target” premiums for universal life are those premiums upon which full first year commissions are paid. Sales of annuities are measured based on the amount of deposits received less surrenders occurring within twelve months of the deposit. Stable value contract sales are measured at the time that the funding commitment is made based on the amount of deposit to be received. Sales within the Asset Protection segment are based on the amount of single premiums and fees received.

These statistics are derived from various sales tracking and administrative systems and are not derived from the Company’s financial reporting systems or financial statements. These statistics attempt to measure only some of the many factors that may affect future profitability, and therefore, are not intended to be predictive of future profitability.

Life Marketing

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

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The following table presents the Life Marketing segment’s sales measured by new premium:

For The
Year Ended
December 31,	Sales
	(Dollars In Millions)
2008	$	158
2009	163
2010	171
2011	133
2012	121

Acquisitions

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. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. The Company expects acquisition opportunities to continue to be available; however, the Company believes it may face increased competition and evolving capital requirements that may affect the environment and the form of future acquisitions.

Most acquisitions closed by the Acquisitions segment have not included the acquisition of an active sales force, thus policies acquired through the segment are typically “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 segment’s revenues and earnings may fluctuate from year to year depending upon the level of acquisition activity. In transactions where some marketing activity was included, the Company may cease future marketing efforts, redirect those efforts to another segment of the Company, or elect to continue marketing new policies as a component of other segments.

The Company believes that its focused and disciplined approach to the acquisition process and its experience in the assimilation, conservation, and servicing of acquired policies provides a significant competitive advantage.

On occasion, the Company’s other operating segments have acquired companies and/or blocks of policies. The results of these acquisitions are included in the respective segment’s financials.

Annuities

The Annuities segment markets fixed and variable annuity (“VA”) products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.

The Company’s fixed annuities include modified guaranteed annuities which guarantee an interest rate for a fixed period. Contract values for these annuities are “market-value adjusted” upon surrender prior to maturity. In certain interest rate environments, these products afford the Company with a measure of protection from the effects of changes in interest rates. The Company’s fixed annuities also include single premium deferred annuities, single premium immediate annuities, and indexed annuities. Equity indexed annuities have not been actively marketed since the second quarter of 2009. The Company’s variable annuities offer the policyholder the opportunity to invest in various investment accounts and offer optional features that guarantee the death and withdrawal benefits of the underlying annuity.

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The demand for annuity products is related to the general level of interest rates, performance of the equity markets, and perceived risk of insurance companies. The following table presents fixed and variable annuity sales:

For The
Year Ended	Fixed		Variable		Total
December 31,	Annuities		Annuities		Annuities
	(Dollars In Millions)
2008	$	2,160	$	452	$	2,612
2009	1,225		796		2,021
2010	930		1,715		2,645
2011	1,032		2,349		3,381
2012	592		2,735		3,327

Stable Value Products

The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. GICs are contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. The demand for GICs is related to the relative attractiveness of the “fixed rate” investment option in a 401(k) plan compared to the equity-based investment options available to plan participants.  Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

The segment’s products complement the Company’s overall asset/liability management in that the terms may be tailored to the needs of the Company as the seller of the contracts, as opposed to solely meeting the needs of the buyer.  The Company’s emphasis is on a consistent and disciplined approach to product pricing and asset/liability management, careful underwriting of early withdrawal risks, and maintaining low distribution and administration costs.  Most GICs and funding agreements written by the Company have maturities of one to ten years.

The following table presents Stable Value Products sales:

For The
Year Ended			Funding
December 31,	GICs		Agreements		Total
	(Dollars In Millions)
2008	$	166	$	1,803	$	1,969
2009	—		—		—
2010	133		625		758
2011	499		300		799
2012	400		222		622

Asset Protection

The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and recreational vehicles (“RV”). In addition, the segment markets a guaranteed asset protection (“GAP”) product. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss. The segment’s products are primarily marketed through a national network of approximately 8,000 automobile and RV dealers. A network of direct employee sales representatives and general agents distribute these products to the dealer market.

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The following table presents the insurance and related product sales measured by new revenue:

For The
Year Ended
December 31,	Sales
	(Dollars In Millions)
2008	$	393
2009	294
2010	326
2011	395
2012	427

In 2012, approximately 95.6% of the segment’s sales were through the automobile and RV dealer distribution channel and approximately 77.1% of the segment’s sales were extended service contracts. A portion of the sales and resulting premiums are reinsured with producer-affiliated reinsurers.

Corporate and Other

The Corporate and Other segment primarily consists of net investment income not assigned to the segments above (including the impact of carrying liquidity) and expenses not attributable to the segments above. This segment includes earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations. The earnings of this segment may fluctuate from year to year.

Investments

As of December 31, 2012, the Company’s investment portfolio was approximately $36.9 billion. The types of assets in which the Company may invest are influenced by various state insurance laws which prescribe qualified investment assets. Within the parameters of these laws, the Company invests 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. For further information regarding the Company’s investments, the maturity of and the concentration of risk among the Company’s invested assets, derivative financial instruments, and liquidity, see Note 2, Summary of Significant Accounting Policies, Note 4, Investment Operations, Note 20, Derivative Financial Instruments to consolidated financial statements, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following table presents the investment results from continuing operations of the Company:

	Cash, Accrued				Percentage		Realized Investment
	Investment				Earned on		Gains (Losses)
For The	Income, and		Net		Average of		Derivative
Year Ended	Investments as of		Investment		Cash and		Financial			All Other
December 31,	December 31,		Income		Investments		Instruments			Investments
(Dollars In Thousands)
2008	$	26,879,222	$	1,618,214	5.6	%	$	116,592		$	(592,246	)
2009	29,402,055		1,603,063		5.7		(176,880		)	123,818
2010	31,837,082		1,624,845		5.2		(144,438		)	117,056
2011	35,375,823		1,753,444		5.1		(155,005		)	200,432
2012	37,480,220		1,789,338		4.8		(227,816		)	174,692

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Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of December 31, 2012, the Company’s mortgage loan holdings were approximately $4.9 billion. The Company has specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in its view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated primarily with the necessities of life (retail, multi-family, professional office buildings, and warehouses). The Company believes these asset types tend to weather economic downturns better than other commercial asset classes in which the Company has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. For more information regarding the Company’s investment in mortgage loans, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5, Mortgage Loans to the consolidated financial statements included herein.

Ratings

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 an insurer’s products, its ability to market its products and its competitive position. The following table summarizes the financial strength ratings of the Company and its significant member companies from the major independent rating organizations as of December 31, 2012:

			Standard &
Ratings	A.M. Best	Fitch	Poor’s	Moody’s
Insurance company financial strength rating:
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-	—	—	—

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. Credit ratings are not recommendations to buy our securities or products.

The Company’s ratings are subject to review and change by the rating organizations at any time and without notice. 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.

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Life Insurance In-Force

The following table presents life insurance sales by face amount and life insurance in-force:

	For The Year Ended December 31,
	2012		2011		2010		2009		2008
	(Dollars In Thousands)
New Business Written
Life Marketing	$	20,488,483	$	19,357,654	$	30,626,739	$	50,621,394	$	57,534,379
Asset Protection	1,013,484		1,093,770		1,191,268		1,376,012		2,077,540
Total	$	21,501,967	$	20,451,424	$	31,818,007	$	51,997,406	$	59,611,919
Business Acquired through Acquisitions	$	—	$	16,233,361	$	13,185,627	$	—	$	—
Insurance In-Force at End of Year (1)
Life Marketing	$	521,829,874	$	541,899,176	$	552,590,776	$	553,799,195	$	544,248,010
Acquisitions	212,812,930		217,216,920		217,101,363		218,271,519		227,708,203
Asset Protection	2,243,597		2,367,047		2,625,886		3,019,142		3,651,779
Total	$	736,886,401	$	761,483,143	$	772,318,025	$	775,089,856	$	775,607,992

 (1)      Reinsurance assumed has been included, reinsurance ceded (2012 - $444,950,866; 2011 - $469,530,487; 2010 - $495,056,077; 2009 - $515,136,471; 2008 - $540,561,213) has not been deducted.

The ratio of voluntary terminations of individual life insurance to mean individual life insurance in-force, which is determined by dividing the amount of insurance terminated due to lapses during the year by the mean of the insurance in-force at the beginning and end of the year, adjusted for the timing of major acquisitions is as follows:

	Ratio of
As of	Voluntary
December 31,	Termination
2008	4.7	%
2009	4.9
2010	4.8
2011	5.0
2012	5.0

Investment Products In-Force

The amount of investment products in-force is measured by account balances. The following table includes the stable value product segment, acquisitions segment, and annuity segment account balances. A majority of the variable annuity account balances are reported in the Company’s financial statements as liabilities related to separate accounts.

	Stable
As of	Value		Fixed		Variable
December 31,	Products		Annuities		Annuities
	(Dollars In Thousands)
2008	$	4,960,405	$	9,155,032	$	2,229,865
2009	3,581,150		9,619,307		3,240,190
2010	3,076,233		10,139,687		5,622,111
2011	2,769,510		10,436,281		7,252,526
2012	2,510,559		10,107,365		10,152,515

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Underwriting

The underwriting policies of the Company and its insurance subsidiaries are established by management. With respect to individual insurance, the Company and its subsidiaries use information from the application and, in some cases, inspection reports, attending physician statements, and/or medical examinations to determine whether a policy should be issued as applied for, other than applied for, or rejected. Medical examinations of applicants are required for individual life insurance in excess of certain prescribed amounts (which vary based on the type of insurance) and for most individual insurance applied for by applicants over age 50. In the case of “simplified issue” policies, which are issued primarily through the Asset Protection segment, coverage is rejected if the responses to certain health questions contained in the application indicate adverse health of the applicant. For other than “simplified issue” policies, medical examinations are requested of any applicant, regardless of age and amount of requested coverage, if an examination is deemed necessary to underwrite the risk. Substandard risks may be referred to reinsurers for evaluation of the substandard risk.

The Company and its insurance subsidiaries generally require blood samples to be drawn with individual insurance applications above certain face amounts based on the applicant’s age, except in the worksite and BOLI markets where limited blood testing is required. Blood samples are tested for a wide range of chemical values and are screened for antibodies to certain viruses. Applications also contain questions permitted by law regarding certain viruses which must be answered by the proposed insureds.

The Company utilizes an advanced underwriting system, TeleLife®, for certain segments of its life business. TeleLife® streamlines the application process through a telephonic interview of the applicant, schedules medical exams, accelerates the underwriting process and the ultimate issuance of a policy mostly through electronic means, and reduces the number of attending physician statements.

The Company’s maximum retention limit is $2,000,000 for any one life on certain of its traditional life and universal life products.

Reinsurance Ceded

The Company and its insurance subsidiaries cede life insurance to other insurance companies. The ceding insurance company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.  The Company has also reinsured guaranteed minimum death benefit (“GMDB”) claims relative to certain of its variable annuity contracts. During 2010, the Company discontinued the use of reinsurance on GMDB claims.

For approximately 10 years prior to mid-2005, the Company entered into reinsurance contracts in which the Company ceded a significant percentage, approximately 90%, of its newly written traditional life insurance business on a first dollar quota share basis under coinsurance contracts. In mid-2005, the Company substantially discontinued coinsuring its newly written traditional life insurance and moved to YRT reinsurance. The amount of insurance retained on any one life on traditional life insurance was $500,000 in years prior to mid-2005. In 2005, this retention was increased to amounts up to $1,000,000 for certain policies, and during 2008, was increased to $2,000,000 for certain policies.

For approximately 15 years prior to 2012, the Company reinsured 90% of the mortality risk on the majority of its newly written universal life insurance on a YRT basis. During 2012, the Company moved to reinsure only amounts in excess of its $2,000,000 retention for the majority of its newly written universal life insurance.

Policy Liabilities and Accruals

The applicable insurance laws under which the Company and its insurance subsidiaries operate require that each insurance company report policy liabilities to meet future obligations on the outstanding policies. These liabilities are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated in accordance with applicable law to be sufficient to meet the various policy and

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contract obligations as they mature. These laws specify that the liabilities shall not be less than liabilities calculated using certain named mortality tables and interest rates.

The policy liabilities and accruals carried in the Company’s financial reports presented on the basis of accounting principles generally accepted in the United States of America (“GAAP”) differ from those specified by the laws of the various states and carried in the insurance subsidiaries’ statutory financial statements (presented on the basis of statutory accounting principles mandated by state insurance regulations). For policy liabilities other than those for universal life policies, annuity contracts, GICs, and funding agreements, these differences arise from the use of mortality and morbidity tables and interest rate assumptions which are deemed to be more appropriate for financial reporting purposes than those required for statutory accounting purposes, from the introduction of lapse assumptions into the calculation, and from the use of the net level premium method on all business. Policy liabilities for universal life policies, annuity contracts, GICs, and funding agreements are generally carried in the Company’s financial reports at the account value of the policy or contract plus accrued interest.

Federal Taxes

Existing laws and regulations affect the taxation of the Company’s products. Income taxes that would otherwise be payable by policyholders on investment income inside certain types of insurance and annuity policies are deferred during these products’ accumulation period. This favorable tax treatment gives certain of the Company’s products a competitive advantage over non-insurance products. If the individual income tax is revised such that there is an elimination or scale-back of the tax-deferred status of certain of the Company’s products, or competing products are granted a tax-deferred status, then the relative attractiveness of the Company’s products may be reduced or eliminated.

Life insurance products are often used to fund estate tax obligations. Since 2001, the estate tax has changed significantly. From 2000 to 2009, its highest marginal rate graded down from 55 percent to 45 percent, and there were significant changes in its key provisions. In 2010, the estate tax was completely eliminated. It was reinstated in 2011, but at lower rates and significantly-changed terms from what existed prior to 2001. In early 2013, The American Tax Relief Act of 2012 was enacted.  It provides that an estate is taxable only if its net value exceeds $5 million. This $5 million floor is indexed for inflation and any unused portion may be transferable. The highest marginal tax rate is 40 percent. Although it is subject to change, as is any existing law, by its terms this new estate tax does not have a schedule of changing rates, significantly-changing terms, or a sunset date. Nevertheless, if this tax is significantly reduced or eliminated again in the future, the demand for certain life insurance products could be adversely affected.

The Company is subject to the corporate income tax. It currently benefits from certain special tax benefits, such as certain deductions relating to its variable products’ separate accounts and its future policy benefits and claims. Due to a number of factors, such as the current large government budget deficits and the resulting proposals to reduce these deficits, tax legislation could be enacted that would cause the Company to lose some or all of these deductions and therefore incur additional income tax expense.

The Company and its insurance subsidiaries are taxed in a manner similar to other companies in its industry. Certain restrictions apply to the consolidation of recently-acquired life insurance companies into the Company’s consolidated income tax return. Additionally, restrictions on the amount of life insurance income that can be offset by non-life-insurance losses can cause the Company’s income tax expense to increase.

There is general uncertainty regarding the taxes to which the Company and its products will be subject to in the future. The Company cannot predict what changes to tax law or interpretations of existing tax law will occur.

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Competition

Life and health insurance is a mature and highly competitive industry. In recent years, the industry has experienced reduced growth in life insurance sales, though the aging population has increased the demand for retirement savings products. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company and which may have a greater market share, offer a broader range of products, services or features, assume a greater level of risk, have lower operating or financing costs, or have lower profitability expectations. The Company also faces competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

The Company’s move away from reliance on reinsurance for newly written traditional life products results in a net reduction of current taxes, but an increase in deferred taxes. The Company allocates the benefits of reduced current taxes to the Life Marketing and Acquisition segments and the profitability and competitive position of certain products is dependent on the continuation of existing tax rules and interpretations and the Company’s ability to generate future taxable income.

The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distributors to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of adequate ratings from rating agencies.

As technology evolves, comparison of a particular product of any company for a particular customer with competing products for that customer is more readily available, which could lead to increased competition as well as agent or customer behavior, including persistency, which differs from past behavior.

Risk Management

Risk management is a critical part of the Company’s business, and the Company has adopted risk management processes in multiple aspects of its operations, including product development and management, business acquisitions, underwriting, investment management, asset-liability management, and technology development projects. The Company’s risk management office, under the direction of the Chief Risk Officer, along with other departments, management groups and committees, have responsibilities for managing different risks throughout the Company. Risk management includes the assessment of risk, a decision process to determine which risks are acceptable and the ongoing monitoring and management of identified risks. The primary objective of these risk management processes is to determine the acceptable level of variations the Company experiences from its expected results and to implement strategies designed to limit such variations to these levels.

Regulation

The Company is subject to government regulation in each of the states in which it conducts business. In many instances, the regulatory models emanate from the National Association of Insurance Commissioners (“NAIC”). 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, insurer use of captive reinsurance companies, acquisitions, mergers, capital adequacy, claims practices and the remittance of unclaimed property. 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, market conduct or other examinations of the Company and its subsidiaries may be ongoing. From time to time, regulators raise issues during examinations or audits of the Company or its subsidiaries that could, if determined adversely, have a material impact on the Company. The Company and its insurance subsidiaries are required to file detailed annual reports with the supervisory agencies in each of the jurisdictions in which they do business, and their business and accounts are subject to examination by such agencies at

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any time. Under the rules of the NAIC, insurance companies are examined periodically (generally every three to five years) by one or more of the supervisory agencies on behalf of the states in which they do business. At any given time, a number of financial and/or market conduct examinations of the Company’s subsidiaries may be ongoing. To date, no such insurance department examinations have produced any significant adverse findings regarding the Company or its insurance subsidiaries.

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. From time to time, companies may be asked to contribute amounts beyond prescribed limits. Although the Company cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.

In addition, many states, including the states in which the Company and its insurance subsidiaries are domiciled, have enacted legislation or adopted regulations regarding insurance holding company systems. These laws require registration of and periodic reporting by insurance companies domiciled within the jurisdiction which control or are controlled by other corporations or persons so as to constitute an insurance holding company system. These laws also affect the acquisition of control of insurance companies as well as transactions between insurance companies and companies controlling them. Most states, including Tennessee, where the Company is domiciled, require administrative approval of the acquisition of control of an insurance company domiciled in the state or the acquisition of control of an insurance holding company whose insurance subsidiary is incorporated in the state. In Tennessee, the acquisition of 10% of the voting securities of an entity is deemed to be the acquisition of control for the purpose of the insurance holding company statute and requires not only the filing of detailed information concerning the acquiring parties and the plan of acquisition, but also administrative approval prior to the acquisition. Recently, Nebraska, where one of the Company’s insurance subsidiaries is domiciled, adopted new holding company legislation. If additional state legislatures in states in which the Company’s insurance subsidiaries are domiciled adopt new regulations, the subsidiaries will be subject to increased reporting requirements.

The states in which the Company’s insurance subsidiaries are domiciled also impose certain restrictions on the subsidiaries’ ability to pay dividends to the Company. These restrictions are based in part on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts are subject to approval by the insurance commissioner of the state of domicile. No assurance can be given that more stringent restrictions will not be adopted from time to time by states in which the Company’s insurance subsidiaries are domiciled; such restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to the Company by such subsidiaries without affirmative prior approval by state regulatory authorities.

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 may lead to additional expense for the insurer. The NAIC may also be influenced by the initiatives or regulatory structures or schemes of international regulatory bodies, and those initiatives or regulatory structures or schemes may not translate readily into the regulatory structures or schemes or the legal system (including the interpretation or application of standards by juries) under which U.S. insurers must operate. Changes in laws and regulations, or in interpretations thereof, as well as initiatives or regulatory structures or schemes of international regulatory bodies, applicable to the Company could have a significant adverse impact on the Company. Some NAIC pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Also, regulatory actions with prospective impact can potentially have a significant adverse impact on currently sold products.

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 or a federal presence for insurance, pre-empting state law in certain respects to the regulation of reinsurance, increasing federal oversight in areas such as consumer protection and solvency regulation, and other matters. The Company cannot predict whether or in what form legislation will be enacted and, if so, the impact of such legislation on the Company.

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The Company is also subject to various conditions and requirements of the Patient Protection and Affordable Care Act of 2010 (“the Healthcare Act”). The Healthcare Act makes significant changes to the regulation of health insurance and may affect the Company in various ways. The Healthcare Act may affect the small blocks of business the Company has offered or acquired over the years that are, or are deemed to be, health insurance. The Healthcare Act may also affect the benefit plans the Company sponsors for employees or retirees and their dependents, the Company’s expense to provide such benefits, the tax liabilities of the Company in connection with the provision of such benefits, and the Company’s ability to attract or retain employees. In addition, the Company may be subject to regulations, guidance or determinations emanating from the various regulatory authorities authorized under the Healthcare Act. The Healthcare Act, or any regulatory pronouncement made thereunder, could have a significant impact on the Company.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) makes sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of Dodd-Frank are or may become applicable to the Company, its competitors or those entities with which the Company does business. Such provisions include, but are not limited to, the following: the establishment of consolidated federal regulation and resolution authority over systemically important financial services firms, the establishment of the Federal Insurance Office, changes to the regulation and standards applicable to broker dealers and investment advisors, changes to the regulation of reinsurance, changes to regulations affecting the rights of shareholders, 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.

Dodd-Frank also created 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 SEC or the U.S. Commodity Futures Trading Commission. Certain of the Company’s subsidiaries sell products that may be regulated by the CFPB. In addition, Dodd-Frank includes a new framework of regulation of over-the-counter (“OTC”) derivatives markets which will require clearing of certain types of transactions currently traded OTC by the Company. The Company uses derivatives to mitigate a wide range of risks in connection with its business, including those arising from its variable annuity products with guaranteed benefit features. The derivative clearing requirements of Dodd-Frank could have an impact on the Company.

Numerous provisions of Dodd-Frank require the adoption of implementing rules and/or regulations. The process of adopting such implementing rules and/or regulations has been delayed beyond the timeframes imposed by Dodd-Frank. Until the various final regulations are promulgated pursuant to Dodd-Frank, the full impact of the regulations on the Company will remain unclear. In addition, Dodd-Frank 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 Dodd-Frank may have a significant impact on the Company.

The Company may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans and individual investors that are governed by the Employee Retirement Income Security Act (“ERISA”). The Department of Labor is currently in the process of re-proposing a rule that would change the circumstances under which one who works with employee benefit plans and Individual Retirement Accounts would be considered a fiduciary under ERISA. Severe penalties are imposed for breach of duties under ERISA and the Company cannot predict the impact that the Department of Labor’s re-proposed rule may have on its operations.

Certain equity and debt securities, policies, contracts, and annuities offered by the Company are subject to regulation under the federal securities laws administered by the SEC. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions. From time to time, the SEC and the Financial Industry Regulatory Authority (“FINRA”) examine or investigate the activities of broker dealers and investment advisors, including the Company’s affiliated broker dealers and investment advisors. These examinations often focus on the activities of the registered representatives and registered investment advisors doing business through such entities.

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,

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federal privacy laws, insurable interest laws, federal anti-money laundering and anti-terrorism laws, employment and immigration laws, and because the Company owns and operates real property, state, federal, and local environmental laws.

Additional issues related to regulation of the Company are discussed in Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included herein.

Employees

As of December 31, 2012, PLC and the Company had approximately 2,284 employees, of which 2,270 were full-time and 14 were part-time employees. Included in the total were approximately 1,329 employees in Birmingham, Alabama, of which 1,322 were full-time and 7 were part-time employees. The Company believes its relations with its employees are satisfactory. Most employees are covered by contributory major medical, dental, vision, group life, and long-term disability insurance plans. The cost of these benefits to PLC in 2012 was approximately $11.9 million. In addition, substantially all of the employees are covered by a defined benefit pension plan and 401(k) Plan. The Company matches employee contributions to its 401(k) Plan. See Note 13, Stock-Based Compensation and Note 14, Employee Benefit Plans to consolidated financial statements for additional information.

Available Information

The Company files reports with the SEC, including Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports as required. The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer and the SEC maintains an internet site at www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically by the Company.

The Company makes available free of charge through its website, www.protective.com, the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. The information found on our website is not part of this or any other report filed with or furnished to the SEC.

The Company also has available copies of PLC’s Proxy Statement and the 2012 Annual Report to Shareowners which will be furnished to anyone who requests such documents from PLC. Requests for copies should be directed to: Shareowner Relations, Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 268-3573, Fax (205) 268-5547.

The Company has adopted a Code of Business Conduct, which applies to all directors, officers and employees of the Company and its wholly owned subsidiaries. The Code of Business Conduct incorporates a code of ethics that applies to the principal executive officer and all financial officers (including the Chief Financial Officer and Chief Accounting Officer) of the Company and its subsidiaries. The Code of Conduct is available on the Company’s website, www.protective.com.

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 the known trends and uncertainties which are discussed more fully below.

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,

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pandemic, malicious act, terrorist act, or the occurrence of climate change, could adversely affect the mortality, morbidity, or other experience of the Company or its 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. The Company’s risk management efforts and other precautionary plans and activities may not adequately predict the impact on the Company from such events.

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 effect 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 aspects of the Company’s business, financial condition, and results of operations.

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 underwriting, claims processing, policy administration and servicing, execution of its investment and hedging 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.

The Company operates in a mature, highly competitive industry, which could limit its ability to gain or maintain its position in the industry and negatively affect profitability.

The insurance industry is a mature and highly competitive industry. In recent years, the industry has experienced reduced growth in life insurance sales. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources and higher ratings than the Company and which may have a greater market share, offer a broader range of products, services or features, assume a greater level of risk, have lower operating or financing costs, or have different profitability expectations than the Company. The Company also faces competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products. Consolidation and expansion among banks, insurance companies, distributors, and other financial service companies with which the Company does business could also have an adverse effect on the Company’s financial condition and results of operations if such companies require more favorable terms than previously offered to the Company or if such companies elect not to continue to do business with the Company following consolidation or expansion.

The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of adequate ratings from rating agencies.

As technology evolves, comparison of a particular product of any company for a particular customer with competing products for that customer is more readily available, which could lead to increased competition as well as agent or customer behavior, including persistency that differs from past behavior.

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The Company’s policy claims fluctuate from period to period resulting in earnings volatility.

The Company’s results may fluctuate from period to period due to fluctuations in the amount of policy claims received. In addition, certain of the Company’s lines of business may experience higher claims if the economy is growing slowly or in recession, or if equity markets decline. Also, insofar as the Company continues to retain a larger percentage of the risk of newly written life insurance products than it has in the past, its financial results may have greater variability due to fluctuations in mortality results.

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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. While financial strength ratings are not a recommendation to buy the Company’s products, these ratings are important to maintaining public confidence in the Company, its 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 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 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 certain funding and swap agreements.

Rating organizations also publish credit ratings for 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 to the Company’s overall ability to access credit markets and other types of liquidity. Credit ratings are not recommendations to buy the Company’s securities or products. Downgrades of the Company’s credit ratings, or an announced potential downgrade or other negative action, could have a material adverse effect on the Company’s financial conditions and results of operations in many ways, including, but not limited to, 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 the growth of its insurance subsidiaries; 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 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.

The Company’s results and financial condition may be negatively affected should actual experience differ from management’s assumptions and estimates.

In the conduct of business, the Company makes certain assumptions regarding mortality, morbidity, persistency, expenses, interest rates, equity market volatility, tax liability, business mix, frequency and severity of claims, contingent liabilities, investment performance, and other factors appropriate to the type of business it expects to experience in future periods. These assumptions are also used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, future earnings, and various components of the Company’s balance sheet. These assumptions are used in the operation of the Company’s business in making decisions crucial to the success of the Company, including the pricing of products and expense structures relating to products. The Company’s actual experience, as well as changes in estimates, is used to prepare the Company’s financial statements. To the extent the Company’s actual experience and changes in estimates differ from original estimates, the Company’s financial condition may be affected.

Mortality, morbidity, and casualty expectations incorporate assumptions about many factors, including for example, how a product is distributed, for what purpose the product is purchased, the mix of customers purchasing the products, persistency and lapses, future progress in the fields of health and medicine, and the projected level of used vehicle values. Actual mortality, morbidity, and/or casualty experience may differ from expectations. In addition,

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continued activity in the viatical, stranger-owned, and/or life settlement industry could cause the Company’s level of lapses to differ from its assumptions about persistency and lapses, which could negatively impact the Company’s performance.

The calculations the Company uses to estimate various components of its balance sheet and statements of income are necessarily complex and involve analyzing and interpreting large quantities of data. The Company currently employs various techniques for such calculations. From time to time it develops and implements more sophisticated administrative systems and procedures capable of facilitating the calculation of more precise estimates.

Assumptions and estimates involve judgment, and by their nature are imprecise and subject to changes and revisions over time. Accordingly, the Company’s results may be affected, positively or negatively, from time to time, by actual results differing from assumptions, by changes in estimates, and by changes resulting from implementing more sophisticated administrative systems and procedures that facilitate the calculation of more precise estimates.

The Company’s financial condition or results of operations could be adversely impacted if the Company’s assumptions regarding the fair value and future performance of its investments differ from actual experience.

The Company makes assumptions regarding the fair value and expected future performance of its investments. Expectations that the Company’s 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 and consider the performance of the underlying assets. It is reasonably possible that the underlying collateral of these investments will perform worse than current market expectations and that such reduced performance may lead to adverse changes in the cash flows on the Company’s holdings of these types of securities. This could lead to potential future write-downs within the Company’s portfolio of mortgage-backed and asset-backed securities. In addition, expectations that the Company’s investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual terms are based on evidence gathered through its normal credit surveillance process. It is possible that issuers of the Company’s investments in corporate securities and/or debt obligations will perform worse than current expectations. Such events may lead the Company to recognize potential future write-downs within its portfolio of corporate securities and/or debt obligations. It is also possible that such unanticipated events would lead the Company to dispose of such investments and recognize the effects of any market movements in its financial statements.

The Company also makes certain assumptions when utilizing internal models to value certain of its investments. It is possible that actual results will differ from the Company’s assumptions. Such events could result in a material change in the value of the Company’s investments.

The use of reinsurance introduces variability in the Company’s statements of income.

The timing of premium payments to and receipt of expense allowances from reinsurers differs from the Company’s receipt of customer premium payments and incurrence of expenses. These timing differences introduce variability in certain components of the Company’s statements of income and may also introduce variability in the Company’s quarterly financial results.

The Company could be forced to sell investments at a loss to cover policyholder withdrawals.

Many of the products offered by the Company allow policyholders and contract holders to withdraw their funds under defined circumstances. The Company manages its liabilities and configures its investment portfolios so as to provide and maintain sufficient liquidity to support expected withdrawal demands and contract benefits and maturities. While the Company owns a significant amount of liquid assets, a certain portion of its assets are relatively illiquid. If the Company experiences unexpected withdrawal or surrender activity, it could exhaust its liquid assets and be forced to liquidate other assets, perhaps at a loss or on other unfavorable terms. If the Company is forced to dispose of assets at a loss or on unfavorable terms, it could have an adverse effect on the Company’s financial condition. The degree of the adverse effect could vary in relation to the magnitude of the unexpected surrender or withdrawal activity.

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Interest rate fluctuations and sustained periods of low interest rates could negatively affect the Company’s interest earnings and spread income, or otherwise impact its business.

Significant changes in interest rates expose the Company to the risk of not earning anticipated interest on products without significant account balances, or not realizing anticipated spreads between the interest rate earned on investments and the credited interest rates paid on in-force policies and contracts that have significant account balances. Both rising and declining interest rates as well as sustained periods of low interest rates can negatively affect the Company’s interest earnings and spread income.

Lower interest rates may also result in lower sales of certain of the Company’s life insurance and annuity products. Additionally, during periods of declining or low interest rates, certain previously issued life insurance and annuity products may be relatively more attractive investments to consumers, resulting in increased premium payments on products with flexible premium features, repayment of policy loans and increased persistency, or a higher percentage of insurance policies remaining in force from year to year during a period when the Company’s investments earn lower returns. Certain of the Company’s life insurance and annuity products guarantee a minimum credited interest rate, and the Company could become unable to earn its spread income or may earn less interest on its investments than it is required to credit to policy holders should interest rates decrease significantly and/or remain low for sustained periods. Additionally, the profitability of certain of the Company’s life insurance products that do not have significant account balances could be reduced should interest rates decrease significantly and/or remain low for sustained periods.

The Company’s expectation for future interest earnings and spreads is an important component in amortization of deferred acquisition costs (“DAC”) and value of business acquired (“VOBA”) and significantly lower interest earnings or spreads may cause it to accelerate amortization, thereby reducing net income in the affected reporting period.  Sustained periods of low interest rates could also result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with the Company’s products.

Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income the Company receives in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates would also adversely affect the market value of fixed income securities within the Company’s investment portfolio. Higher interest rates may also increase the cost of debt and other obligations of the Company having floating rate or rate reset provisions and may result in fluctuations in sales of annuity products. During periods of increasing market interest rates, the Company may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed annuities, and it may increase crediting rates on in-force products to keep these products competitive. In addition, rapidly rising interest rates may cause increased policy surrenders, withdrawals from life insurance policies and annuity contracts, and requests for policy loans as policyholders and contract holders shift assets into higher yielding investments. Increases in crediting rates, as well as surrenders and withdrawals, could have an adverse effect on the Company’s financial condition and results of operations.

Additionally, the Company’s 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) and relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions. In general, the Company’s results are improved when the yield curve is positively sloped (i.e., when long-term interest rates are higher than short-term interest rates), and will be adversely affected by a flat or negatively sloped curve.

Equity market volatility could negatively impact the Company’s business.

Volatility in equity markets may discourage prospective purchasers of variable separate account products, such as variable annuities, that have returns linked to the performance of equity markets and may cause some existing customers to withdraw cash values or reduce investments in those products. The amount of policy fees received from variable products is affected by the performance of the equity markets, increasing or decreasing as markets rise or fall.

Equity market volatility can also affect the profitability of variable products in other ways, in particular as a result of death benefit and withdrawal benefit guarantees in these products. The estimated cost of providing guaranteed minimum death benefits (“GMDB”) and guaranteed minimum withdrawal benefits (“GMWB”) incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and

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sustained downturns in equity markets or increased equity market volatility could result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with such products, resulting in a reduction to net income and an adverse impact to the statutory capital and risk-based capital ratios of the Company’s insurance subsidiaries.

The amortization of DAC relating to variable products and the estimated cost of providing GMDB and GMWB incorporate various assumptions about the overall performance of equity markets over certain time periods. The rate of amortization of DAC and the cost of providing GMDB and GMWB could increase if equity market performance is worse than assumed.

The Company’s use of derivative financial instruments within its risk management strategy may not be effective or sufficient.

The Company uses derivative financial instruments within its risk management strategy to mitigate risks to which it is exposed, including the adverse effects of domestic and/or international credit and/or equity market and/or interest rate levels or volatility on its variable annuity products with guaranteed benefit features. These derivative financial instruments may not effectively offset the changes in the carrying value of the guarantees due to, among other things, the time lag between changes in the value of such guarantees and the changes in the value of the derivative financial instruments purchased by the Company, extreme credit and/or equity market and/or interest rate levels or volatility, contract holder behavior that differs from the Company’s expectations, and divergence between the performance of the underlying funds of such variable annuity products with guaranteed benefit features and the indices utilized by the Company in estimating its exposure to such guarantees.

The Company may also use derivative financial instruments within its risk management strategy to mitigate risks arising from its exposure to individual issuers or sectors of issuers and to mitigate the adverse effects of distressed domestic and/or international credit and/or equity markets and/or interest rate levels or volatility on its overall financial condition or results of operations.

The use of derivative financial instruments by the Company may have an adverse impact on the level of statutory capital and the risk based capital ratios of the Company’s insurance subsidiaries. The Company employs strategies in the use of derivative financial instruments that are intended to mitigate such adverse impacts, but the Company’s strategies may not be effective.

The Company may also choose not to hedge, in whole or in part, these or other risks that it has identified, due to, for example, the availability and/or cost of a suitable derivative financial instrument or, in reaction to extreme credit, equity market and/or interest rate levels or volatility. Additionally, the Company’s estimates and assumptions made in connection with its use of any derivative financial instrument may fail to reflect or correspond to its actual long-term exposure in respect to identified risks. Derivative financial instruments held or purchased by the Company may also otherwise be insufficient to hedge the risks in relation to the Company’s obligations. In addition, the Company may fail to identify risks, or the magnitude thereof, to which it is exposed. The Company is also exposed to the risk that its use of derivative financial instruments within its risk management strategy may not be properly designed and/or may not be properly implemented as designed.

The Company is also subject to the risk that its derivative counterparties may fail or refuse to meet their obligations to the Company under derivative financial instruments. If the Company’s derivative counterparties fail or refuse to meet their obligations to the Company in this regard, the Company’s efforts to mitigate risks to which it is subject through the use of such derivative financial instruments may prove to be ineffective or inefficient.

The above factors, either alone or in combination, may have a material adverse effect on the Company’s financial condition and results of operations.

The Company is highly regulated, is subject to numerous legal restrictions and regulations and is subject to audits, examinations and actions by regulators and law enforcement agencies.

The Company is subject to government regulation in each of the states in which it conducts business. In many instances, the regulatory models emanate from the National Association of Insurance Commissioners (“NAIC”). Such

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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, insurer use of captive reinsurance companies, acquisitions, mergers, capital adequacy, claims practices and the remittance of unclaimed property. 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, market conduct, or other examinations or audits of the Company or its subsidiaries may be ongoing. It is possible that any examination or audit may result in payments of fines and penalties, payments to customers, or both, as well as changes in systems or procedures, any of which could have a material adverse effect on the Company’s financial condition or results of operations.

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

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 may lead to additional expense for the insurer and, thus, could have a material adverse effect on the Company’s financial condition and results of operations. The NAIC may also be influenced by the initiatives and regulatory structures or schemes of international regulatory bodies, and those initiatives or regulatory structures or schemes may not translate readily into the regulatory structures or schemes or the legal system (including the interpretation or application of standards by juries) under which U.S. insurers must operate. Application of such initiatives or regulatory structures or schemes to the Company could have a material adverse effect on the Company’s financial condition and results of operations.

Although some NAIC pronouncements, particularly as they affect accounting and reserving issues, may take effect automatically without affirmative action taken by the states, the NAIC is not a governmental entity and its processes and procedures do not comport with those to which governmental entities typically adhere. Therefore, it is possible that actions could be taken by the NAIC that become effective without the procedural safeguards that would be present if governmental action was required. In addition, with respect to some financial regulations and guidelines, states sometimes defer to the interpretation of the insurance department of a non-domiciliary state. Neither the action of the domiciliary state nor the action of the NAIC is binding on a state. Accordingly, a state could choose to follow a different interpretation. The Company is also subject to the risk that compliance with any particular regulator’s interpretation of a legal, accounting or actuarial 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, accounting or actuarial issue may change over time to the Company’s detriment, or that changes to the overall legal or market environment may cause the Company to change its practices in ways that may, in some cases, limit its growth or profitability. 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.

The NAIC has announced more focused inquiries on certain matters that could have an impact on the Company’s financial condition and results of operations.  Such inquiries concern, for example, examination of statutory accounting disclosures for separate accounts, insurer use of captive reinsurance companies, certain aspects of insurance holding company reporting and disclosure, reserving for universal life products with secondary guarantees, and reinsurance. In addition, the NAIC continues to consider various initiatives to change and modernize its financial and solvency regulations. It is considering changing to, or has considered and passed, 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, including implementing a principles-based reserving methodology, would require the approval of state legislatures. The Company cannot provide any estimate as to what impact these more focused inquiries or proposed changes, if they occur, will have on its product mix, product profitability, reserve and capital requirements, financial condition or results of operations.

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With respect to reserving requirements for universal life policies with secondary guarantees (“ULSG”), in 2012 the NAIC adopted revisions to Actuarial Guideline XXXVIII (“AG38”) addressing those requirements. Some of the regulatory participants in the AG38 revision process appeared to believe that one of the purposes of the revisions was to calculate reserves for ULSG similarly to reserves for guaranteed level term life insurance contracts with the same guarantee period. The effect of the revisions was to increase the level of reserves that must be held by insurers on ULSG with certain product designs that are issued on and after January 1, 2013, and to cause insurers to test the adequacy of reserves, and possibly increase the reserves, on ULSG with certain product designs that were issued before January 1, 2013. The increased reserves on ULSG issued on and after January 1, 2013 may make certain products, including those sold by the Company before January 1, 2013, unprofitable to the Company unless prices are increased. The Company has developed and introduced an alternative product for sales in 2013. The Company cannot predict the market place reaction to its alternative product, nor can it predict future regulatory actions that could negatively impact the Company’s ability to market its alternative product. Such regulatory reactions could include, for example, withdrawal of state approvals of the alternative product, adoption of further changes to AG38 or other adverse action including retroactive regulatory action that could negatively impact the Company’s alternative product. A disruption of the Company’s ability to sell financially viable life insurance products or an increase in reserves on ULSG policies issued either before or after January 1, 2013, could have a material adverse impact on the Company’s financial condition or results of operations.

The Company currently uses, and expects to be able to continue using, affiliated captive reinsurance companies in various structures relating to term life insurance and universal life insurance with secondary guarantees, and certain guaranteed benefits relating to variable annuities. The NAIC has established a subgroup to study the use of captives and special purpose vehicles to transfer insurance risk in relation to existing state laws and regulations. Any action by state regulators that adversely affects the Company’s use or increases the Company’s cost of using affiliated captive reinsurers, either retroactively or prospectively, could have a material adverse impact on the Company’s financial condition or results of operations.

Recently, new laws and regulations have been adopted that require life insurers to search for unreported deaths. The New York Insurance Department issued a letter and adopted a regulation requiring life insurers doing business in New York, which includes certain of the Company’s subsidiaries, to use data available on the U.S. Social Security Administration’s Death Master File or a similar database (a “Death Database”) to identify instances where amounts under life insurance policies, annuities, and retained asset accounts would be payable if notice of the death and/or a claim for benefits had been submitted to the insurer, to locate and pay beneficiaries under such contracts, and to report the results. Life insurance industry associations and regulatory associations are also considering the matters. The National Conference of Insurance Legislators (“NCOIL”) has adopted the Model Unclaimed Life Insurance Benefits Act (the “Unclaimed Benefits Act”) and legislation has been enacted in several states that is similar to the Unclaimed Benefits Act, although each state’s version differs in some respects. The Unclaimed Benefits Act would impose new requirements on insurers to periodically compare their in-force life insurance and annuity contracts and retained asset accounts against a Death Database, investigate any potential matches to confirm the death and determine whether benefits are due, and to attempt to locate the beneficiaries of any benefits that are due or, if no beneficiary can be located, escheat the benefit to the state as unclaimed property. Other states in which the Company and its insurance subsidiaries do business may also consider adopting legislation similar to the Unclaimed Benefits Act. The Company cannot predict whether such legislation will be proposed or enacted in additional states.

A number of state treasury departments have audited life insurance companies for compliance with unclaimed property laws. The focus of the audits has been to determine whether there have been maturities of policies or contracts, or policies that have exceeded limiting age with respect to which death benefits or other payments under the policies should be treated as unclaimed property that should be escheated to the state. In addition, the audits have sought to identify unreported deaths of insureds. There is no clear basis in previously existing law for treating an unreported death as giving rise to a policy benefit that would be subject to unclaimed property procedures. A number of life insurers, however, have entered into resolution agreements with state treasury departments under which the life insurers agreed to procedures for comparing their previously issued life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, and escheating the benefits and interest to the state if the beneficiary could not be found. The amounts publicly reported to have been paid to beneficiaries or escheated to the states have been substantial.

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The NAIC has established an Investigations of Life/Annuity Claims Settlement Practices (D) Task Force to coordinate targeted multi-state examinations of life insurance companies on claims settlement practices. The state insurance regulators on the Task Force have initiated targeted multi-state examinations of life insurance companies with respect to the companies’ claims paying practices and use of a death database to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement systems and procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, and escheating the benefits and interest to the state if the beneficiary could not be found.  It has been publicly reported that the life insurers have paid substantial administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements.

The Company and certain of the its insurance subsidiaries as well as certain other insurance companies from whom the Company has co-insured blocks of life insurance and annuity policies are subject to state treasury department audits and/or targeted multistate examinations by insurance regulators similar to those described above. It is possible that the audits, examinations and/or the enactment of state laws similar to the Unclaimed Benefits Act could result in additional payments to beneficiaries, additional escheatment of funds deemed abandoned under state laws, payment of administrative penalties and/or examination fees to state authorities, and changes to the Company’s procedures for identifying unreported deaths and escheatment of abandoned property. It is possible any such additional payments and any costs related to changes in Company procedures could materially impact the Company’s financial results from operations. It is also possible that life insurers, including the Company, may be subject to claims, regulatory actions, law enforcement actions, and civil litigation arising from their prior business practices. Any resulting liabilities, payments or costs, including initial and ongoing costs of changes to the Company’s procedures or systems, could be significant and could have a material adverse effect on the Company’s financial condition or results of operations.

During December 2012, the West Virginia Treasurer filed actions against the Company and its subsidiary West Coast Life Insurance Company in West Virginia state court (State of West Virginia ex rel. John D. Perdue vs. Protective Life Insurance Company, State of West Virginia ex rel. John D. Perdue vs. West Coast Life Insurance Company). The actions, which also name numerous other life insurance companies, allege that the companies violated the West Virginia Uniform Unclaimed Property Act, seek to compel compliance with the Act, and seek payment of unclaimed property, interest, and penalties. While the legal theory or theories that may give rise to liability in the West Virginia Treasurer litigation are uncertain, it is possible that other jurisdictions may pursue similar actions. The Company does not currently believe that losses, if any, arising from the West Virginia Treasurer litigation will be material. The Company cannot, however, predict whether other jurisdictions will pursue similar actions or, if they do, whether such actions will have a material impact on the Company’s financial results from operations.

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. From time to time, companies may be asked to contribute amounts beyond prescribed limits. 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.

At the federal level, bills are routinely introduced in both chambers of the United States Congress (“Congress”) that 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 or a federal presence for insurance, preempting state law in certain respects regarding the regulation of reinsurance, increasing federal oversight in areas such as consumer protection and other matters. The Company cannot predict whether or in what form legislation will be

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enacted and, if so, whether the enacted legislation will positively or negatively affect the Company or whether any effects will be material.

The Company is subject to various conditions and requirements of the Patient Protection and Affordable Care Act of 2010 (“the Healthcare Act”). The Healthcare Act makes significant changes to the regulation of health insurance and may affect the Company in various ways. The Healthcare Act may affect the small blocks of business the Company has offered or acquired over the years that is, or is deemed to be, health insurance. The Healthcare Act may also affect the benefit plans the Company sponsors for employees or retirees and their dependents, the Company’s expense to provide such benefits, the tax liabilities of the Company in connection with the provision of such benefits, and the Company’s ability to attract or retain employees. In addition, the Company 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 Healthcare Act, or any regulatory pronouncement made thereunder, will have on its results of operations or financial condition.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) makes sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of Dodd-Frank are or may become applicable to the Company, its competitors or those entities with which the Company does business. Such provisions include, but are not limited to the following: the establishment of the Federal Insurance Office, changes to the regulation and standards applicable to broker dealers and investment advisors, changes to the regulation of reinsurance, changes to regulations affecting the rights of shareholders, and the imposition of additional regulation over credit rating agencies.

Dodd-Frank also created the Financial Stability Oversight Council (the “FSOC”), which has issued a final rule and interpretive guidance setting forth the methodology by which it will determine whether a non-bank financial company is systemically important. A non-bank financial company, such as the Company, that is designated as systemically important by the FSOC will become subject to supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Company is not currently supervised by the Federal Reserve. Such supervision could impact the Company’s requirements relating to capital, liquidity, stress testing, limits on counterparty credit exposure, compliance and governance, early remediation in the event of financial weakness and other prudential matters. FSOC-designated non-bank financial companies will also be required to prepare resolution plans, so-called “living wills,” that set out how they could most efficiently be liquidated if they endangered the U.S. financial system or the broader economy. The Company is not able at this time to predict whether it will be designated by the FSOC as systemically important nor is it able to predict the impact of being supervised by the Federal Reserve Board were it to be so designated by the FSOC.

Additionally, Dodd-Frank created 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 may be regulated by the CFPB.

In addition, Dodd-Frank includes a new framework of regulation of over-the-counter (“OTC”) derivatives markets which will require clearing of certain types of transactions currently traded OTC by the Company. The new framework could potentially impose additional costs, including reporting and margin requirements and additional regulation on the Company. Increased margin requirements on the Company’s part, combined with restrictions on securities that will qualify as eligible collateral, could reduce its liquidity and require an increase in its holdings of cash and government securities with lower yields causing a reduction in income. The Company uses derivative financial instruments to mitigate a wide range of risks in connection with its businesses, including those arising from its variable annuity products with guaranteed benefit features. The derivative clearing requirements of Dodd-Frank could increase the cost of the Company’s risk mitigation and expose it to the risk of a default by a clearinghouse with respect to the Company’s cleared derivative transactions.

Numerous provisions of Dodd-Frank require the adoption of implementing rules and/or regulations. The process of adopting such implementing rules and/or regulations have in some instances been delayed beyond the timeframes imposed by Dodd-Frank. Until the various final regulations are promulgated pursuant to Dodd-Frank, the full impact of the regulations on the Company will remain unclear. In addition, Dodd-Frank mandates multiple studies,

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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 Dodd-Frank may impact the Company in many ways, including but not limited to the following: placing the Company at a competitive disadvantage relative to its competition or other financial services entities, changing the competitive landscape of the financial services sector and/or the insurance industry, making it more expensive for the Company to conduct its business, requiring the reallocation of significant company resources to government affairs, legal and compliance-related activities, causing historical market behavior or statistics utilized by the Company in connection with its efforts to manage risk and exposure to no longer be predictive of future risk and exposure or otherwise 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 be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans and individual investors that are governed by the Employee Retirement Income Security Act (“ERISA”). The Department of Labor is currently in the process of re-proposing a rule that would change the circumstances under which one who works with employee benefit plans and Individual Retirement Accounts would be considered a fiduciary under ERISA. Severe penalties are imposed for breach of duties under ERISA and the Company cannot predict the impact that the Department of Labor’s re-proposed rule may have on its operations.

Certain equity and debt securities policies, contracts, and annuities offered by the Company and its insurance subsidiaries are subject to regulation under the federal securities laws administered by the SEC. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions. From time to time, the SEC and the Financial Industry Regulatory Authority (“FINRA”) examine or investigate the activities of broker dealers and investment advisors, including the Company’s affiliated broker dealers and investment advisors. These examinations or investigations often focus on the activities of the registered representatives and registered investment advisors doing business through such entities and the entities’ supervision of those persons. It is possible that any examination or investigation could lead to enforcement action by the regulator and/or may result in payments of fines and penalties, payments to customers, or both, as well as changes in systems or procedures of such entities, any of which could have a material adverse effect on the Company’s financial condition or results of operations.

The Company may also be subject to regulation by governments of the countries in which it currently, or may in the future, 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.  Penalties for violating the various laws governing the Company’s business in other countries can include fines and imprisonment, both within the U.S. and abroad.  U.S. enforcement of anti-corruption laws continues to increase in magnitude, and penalties may be substantial.

Other types of regulation that could affect the Company and its subsidiaries include insurance company investment laws and regulations, state statutory accounting and reserving practices, anti-trust laws, minimum solvency requirements, state securities laws, federal privacy laws, insurable interest laws, federal anti-money laundering and anti-terrorism laws, employment and immigration laws (including a recently enacted statute in Alabama where over 50% of the Company’s employees are located), and because the Company owns and operates real property, state, federal, and local environmental laws. Under some circumstances, severe penalties may be imposed for breach of these laws.

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.

Changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products.

Under the Internal Revenue Code of 1986, as amended (the “Code”), income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company’s products a competitive advantage over other non-insurance products. To the extent that the Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon

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grandfathering provisions, would be affected by the surrenders of existing annuity contracts and life insurance policies. For example, changes in laws or regulations could restrict or eliminate the advantages of certain corporate or bank-owned life insurance products, which could result in the surrender of those products. Changes in tax law, which have reduced the federal income tax rates on corporate dividends in certain circumstances, could make the tax advantages of investing in certain life insurance or annuity products less attractive. Additionally, changes in tax law based on proposals to establish new tax advantaged retirement and life savings plans, if enacted, could reduce the tax advantage of investing in certain life insurance or annuity products.

Additionally, the Company is subject to the federal corporate income tax, but currently benefits from certain tax benefits, including but not limited to, dividends-received deductions and insurance reserve deductions. Due to a number of factors, including the recent financial crisis and ongoing proposals from the U.S. Department of the Treasury, there is a risk that federal tax legislation could be enacted that would result in higher taxes to which the Company is subject. Whether such legislation will be enacted, and if so, the substance of such legislation is uncertain. However, if such legislation is enacted, it could include lessening or eliminating some or all of the tax advantages currently benefiting the Company, including those listed above.

The Company’s mid-2005 move away from relying on reinsurance for newly written traditional life products results in a net reduction of current taxes (but an increase in deferred taxes). The resulting benefit of reduced current taxes is attributed to the applicable life products and is an important component of the profitability of these products. The profitability and competitive position of these products is dependent on the continuation of current tax law and the ability to generate taxable income.

There is general uncertainty regarding the taxes to which the Company and its products will be subject in the future. The Company cannot predict what changes to tax law or interpretations of existing tax law may ultimately be enacted or adopted, or whether such changes will adversely affect the Company.

The Company may be required to establish a valuation allowance against its deferred tax assets, which could materially adversely affect the Company’s results of operations, financial condition, and capital position.

Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets in essence represent future savings of taxes that would otherwise be paid in cash. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income, including capital gains. If it is determined that the deferred tax assets cannot be realized, a deferred tax valuation allowance must be established, with a corresponding charge to net income.

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 material deferred tax assets. If future events differ from the Company’s current forecasts, a valuation allowance may need to be established, which could have a material adverse effect on the Company’s results of operations, financial condition, and capital position.

Financial services companies are frequently the targets of legal proceedings, including class action litigation, which could result in substantial judgments.

A number of judgments have been returned against insurers, broker-dealers, and other providers of financial services involving, among other things, sales, underwriting practices, product design, product disclosure, product administration, denial or delay of benefits, charging excessive or impermissible fees, recommending unsuitable products to customers, breaching fiduciary or other duties to customers, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the company does business, payment of sales or other contingent commissions, and other matters. Often these legal proceedings have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given legal proceeding. Arbitration awards are subject to very limited appellate review. In addition, in some legal proceedings, companies have made material

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settlement payments. In some instances, substantial judgments may be the result of a party’s perceived ability to satisfy such judgments as opposed to the facts and circumstances regarding the claims.

Group health coverage issued through associations and credit insurance coverages have received some negative publicity in the media as well as increased regulatory consideration and review and litigation. The Company has a small closed block of group health insurance coverage that was issued to members of an association; a purported class action lawsuit is currently pending against the Company in connection with this business.

A number of lawsuits and investigations regarding the method of paying claims have been initiated against life insurers. The Company offers payment methods that may be similar to those that have been the subject of such lawsuits and investigations.

The Company, like other financial services companies in the ordinary course of business, is involved in legal proceedings and regulatory actions. The occurrence of such matters may become more frequent and/or severe when general economic conditions have deteriorated. The Company may be unable to predict the outcome of such matters and may be unable to provide a reasonable range of potential losses. Given the inherent difficulty in predicting the outcome of such matters, it is possible that an adverse outcome in certain such matters could be material to the Company’s results for any particular reporting period.

Companies in the financial services industry in particular are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny.

Companies in the financial services and insurance industries in particular are sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or other actions resulting from such investigations. Resulting publicity about one company may generate inquiries into or litigation against other companies and/or financial service providers, even those who do not engage in the business lines or practices at issue in the original action. It is impossible to predict the outcome of such investigations or actions, whether they will expand into other areas not yet contemplated, whether they will result in changes in regulation, whether activities currently thought to be lawful will be characterized as unlawful, or the impact, if any, of such scrutiny on the financial services and insurance industry or the Company. From time to time, the Company receives subpoenas, requests, or other inquires and responds to them in the ordinary course of business.

The Company’s ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business.

The Company’s ability to maintain competitive unit costs is dependent upon a number of factors, such as the level of new sales, persistency of existing business, and expense management. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

Additionally, a decrease in persistency of existing business may result in higher or more rapid amortization of deferred policy acquisition costs and thus higher unit costs and lower reported earnings. Although many of the Company’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered. Some of the Company’s products do not contain surrender charge features and such products can be surrendered or exchanged without penalty. A decrease in persistency may also result in higher claims.

The Company’s investments are subject to market and credit risks. These risks could be heightened during periods of extreme volatility or disruption in financial and credit markets.

The Company’s invested assets and derivative financial instruments are subject to risks of credit defaults and changes in market values. These risks could be heightened during periods of extreme volatility or disruption in the financial and credit markets. A widening of credit spreads will increase the unrealized losses in the Company’s investment portfolio. The factors affecting the financial and credit markets could lead to other-than-temporary impairments of assets in the Company’s investment portfolio.

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The value of the Company’s commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties that the Company has financed. The value of the Company’s investment portfolio, including its portfolio of government debt obligations, debt obligations of those entities with an express or implied governmental guarantee and debt obligations of other issuers holding a large amount of such obligations, depends in part on the ability of the issuers or guarantors of such debt to maintain their credit ratings and meet their contractual obligations. Factors that may affect the overall default rate on, and market value of, the Company’s invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the individual tenants, borrowers, issuers and guarantors.

Significant continued financial and credit market volatility, changes in interest rates and credit spreads, credit defaults, real estate values, market illiquidity, declines in equity prices, acts of corporate malfeasance, ratings downgrades of the issuers or guarantors of these investments, and declines in general economic conditions, either alone or in combination, could have a material adverse impact on the Company’s results of operations, financial condition, or cash flows through realized losses, impairments, changes in unrealized loss positions, and increased demands on capital, including obligations to post additional capital and collateral. In addition, market volatility can make it difficult for the Company to value certain of its assets, especially if trading becomes less frequent. Valuations may include assumptions or estimates that may have significant period-to-period changes that could have an adverse impact on the Company’s results of operations or financial condition.

The Company may not realize its anticipated financial results from its acquisitions strategy.

The Company’s acquisitions of companies and acquisitions or coinsurance of blocks of insurance business have increased its earnings in part by allowing the Company to position itself to realize certain operating efficiencies. However, there can be no assurance that the Company will have future suitable opportunities for, or sufficient capital available to fund, such transactions. In addition, there can be no assurance that the Company will realize the anticipated financial results from such transactions.

The Company may be unable to complete an acquisition transaction. Completion of an acquisition transaction may be more costly or take longer than expected, or may have a different or more costly financing structure than initially contemplated. In addition, the Company may not be able to complete or manage multiple acquisition transactions at the same time, or the completion of such transactions may be delayed or be more costly than initially contemplated. The Company or other parties to the transaction may be unable to obtain regulatory approvals required to complete an acquisition transaction. There may also be unforeseen liabilities that arise in connection with businesses or blocks of insurance business that the Company acquires.

Additionally, in connection with its acquisition transactions that involve reinsurance, the Company assumes, or otherwise becomes responsible for, the obligations of policies and other liabilities of other insurers. Any regulatory, legal, financial, or other adverse development affecting the other insurer could also have an adverse effect on the Company.

The Company is dependent on the performance of others.

The Company’s results may be affected by the performance of others because the Company has entered into various arrangements involving other parties. For example, most of the Company’s products are sold through independent distribution channels, variable annuity deposits are invested in funds managed by third parties, and certain modified coinsurance assets are managed by third parties. Also, the Company may rely upon third parties to administer certain portions of its business. Additionally, the Company’s operations are dependent on various technologies, some of which are provided and/or maintained by other parties. Any of the other parties upon which the Company depends may default on their obligations to the Company due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud, or other reasons. Such defaults could have a material adverse effect on the Company’s financial condition and results of operations.

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Certain of these other parties may act on behalf of the Company or represent the Company in various capacities. Consequently, the Company may be held responsible for obligations that arise from the acts or omissions of these other parties.

As with all financial services companies, the Company’s ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors and financial difficulties of other companies in the industry could undermine consumer confidence and adversely affect retention of existing business and future sales of the Company’s insurance and investment products.

The Company’s reinsurers could fail to meet assumed obligations, increase rates, or be subject to adverse developments that could affect the Company.

The Company and its insurance subsidiaries cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets or other issues, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the assumed obligations. Therefore, the failure, insolvency, or inability or unwillingness to pay under the terms of the reinsurance agreement with the Company of one or more of the Company’s reinsurers could negatively impact the Company’s earnings and financial position.

The Company’s results and its ability to compete are affected by the availability and cost of reinsurance. Premium rates charged by the Company are based, in part, on the assumption that reinsurance will be available at a certain cost. Under certain reinsurance agreements, a reinsurer may increase the rate it charges the Company for the reinsurance, including rates for new policies the Company is issuing and rates related to policies that the Company has already issued. The Company may not be able to increase the premium rates it charges for policies it has already issued, and for competitive reasons it may not be able to raise the premium rates it charges for new policies to offset the increase in rates charged by reinsurers. If the cost of reinsurance were to increase, if reinsurance were to become unavailable, if alternatives to reinsurance were not available to the Company, or if a reinsurer should fail to meet its obligations, the Company could be adversely affected.

Recently, access to reinsurance has become more costly for the Company as well as the insurance industry in general. This could have a negative effect on the Company’s ability to compete. In recent years, the number of life reinsurers has decreased as the reinsurance industry has consolidated. The decreased number of participants in the life reinsurance market results in increased concentration of risk for insurers, including the Company. If the reinsurance market further contracts, the Company’s ability to continue to offer its products on terms favorable to it could be adversely impacted.

In addition, reinsurers are facing many challenges regarding illiquid credit and/or capital markets, investment downgrades, rating agency downgrades, deterioration of general economic conditions, and other factors negatively impacting the financial services industry. Concerns over the potential default on the sovereign debt of several European Union member states, and its impact on the European financial sector have increased liquidity concerns, particularly for those reinsurers with significant exposure to European capital and/or credit markets. If such events cause a reinsurer to fail to meet its obligations, the Company would be adversely impacted.

The Company has implemented a reinsurance program through the use of captive reinsurers. Under these arrangements, an insurer owned by the Company serves as the reinsurer, and the consolidated books and tax returns of the Company reflects a liability consisting of the full reserve amount attributable to the reinsured business. The success of the Company’s captive reinsurance program is dependent on a number of factors outside the control of the Company, including continued access to financial solutions, a favorable regulatory environment, and the overall tax position of the Company. If the captive reinsurance program is not successful, the Company could be adversely impacted.

The occurrence of computer viruses, information security breaches, disasters, or unanticipated events could affect the data processing systems of the Company, its business partners or service providers and could damage the Company’s business and adversely affect its financial condition and results of operations.

A computer virus, information security breach, cyber-attack such as a distributed denial of service attack, disaster or unanticipated event could affect the data storage and processing systems of the Company, its business

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partners or service providers, destroying or compromising valuable data or making it difficult to conduct business. In addition, despite the implementation of information security measures, the data systems of the Company, its business partners or service providers could be subject to physical and electronic break-ins and similar disruptions from unauthorized access or tampering.

The Company retains confidential information in its computer systems and relies on sophisticated commercial technologies to maintain the security of those systems. The Company also relies upon sophisticated commercial technologies to maintain the security of its transmission of such information to third parties, including its customers, business partners and service providers. Anyone who is able to circumvent the Company’s security measures could access, view, misappropriate, alter, or delete any information in the systems, including personally identifiable customer information, customer financial information, and proprietary business information. In addition, an increasing number of states require that customers be notified of unauthorized access, use, or disclosure of their information.

Any compromise of the security of the Company’s information that results in inappropriate access, use, or disclosure of personally identifiable customer information, customer financial information or proprietary business information could damage the Company’s reputation in the marketplace, deter people from purchasing the Company’s products, subject the Company to significant civil and criminal liability, and require the Company to incur significant technical, legal, and other expenses.

In the event of a disaster such as a natural catastrophe, an industrial accident, a blackout, a terrorist attack or war, or a cyber-attack, the Company’s computer systems may be inaccessible to its employees, customers, business partners or service providers for an extended period of time. Even if the Company’s employees are able to report to work, they may be unable to perform their duties for an extended period of time if the Company’s data or systems are disabled or destroyed. The Company could be adversely impacted by any disruption of its ability to conduct its business.

The Company’s ability to grow depends in large part upon the continued availability of capital.

The Company deploys significant amounts of capital to support its sales and acquisitions efforts.  Although the Company believes it has sufficient capital to fund its immediate capital needs, the amount of capital available can vary significantly from period to period due to a variety of circumstances, some of which are not predictable, foreseeable, or within the Company’s control. A lack of sufficient capital could have a material adverse impact on the Company’s financial condition and results of operations.

New accounting rules, changes to existing accounting rules, or the grant of permitted accounting practices to competitors could negatively impact the Company.

The Company is required to comply with accounting principles generally accepted in the United States (“GAAP”). A number of organizations are instrumental in the development and interpretation of GAAP such as the SEC, the Financial Accounting Standards Board (“FASB”), and the American Institute of Certified Public Accountants (“AICPA”). GAAP is subject to constant review by these organizations and others in an effort to address emerging accounting rules and issue interpretative accounting guidance on a continual basis. The Company can give no assurance that future changes to GAAP will not have a negative impact on the Company. GAAP includes the requirement to carry certain investments and insurance liabilities at fair value. These fair values are sensitive to various factors including, but not limited to, interest rate movements, credit spreads, and various other factors. Because of this, changes in these fair values may cause increased levels of volatility in the Company’s financial statements.

The FASB is working on several projects with the International Accounting Standards Board, which could result in significant changes as GAAP and International Financial Reporting Standards (“IFRS”) attempt to converge. Furthermore, the SEC is considering whether and how to incorporate IFRS into the U.S. financial reporting system. The changes to GAAP and potential incorporation of IFRS into the U.S. financial reporting system will impose special demands on issuers in the areas of governance, employee training, internal controls, contract fulfillment and disclosure and will likely affect how we manage our business, as it will likely affect other business processes such as design of compensation plans, product design, etc. The Company is unable to predict whether, and if so, when these projects and ultimately convergence with IFRS will be adopted and/or implemented.

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In addition, the Company and its insurance subsidiaries are required to comply with statutory accounting principles (“SAP”). SAP and various components of SAP (such as actuarial reserving methodology) are subject to constant review by the NAIC and its task forces and committees as well as state insurance departments in an effort to address emerging issues and otherwise improve or alter financial reporting. Various proposals either are currently or have previously been pending before committees and task forces of the NAIC, some of which, if enacted, would negatively affect the Company. The NAIC is also currently working to reform model regulation in various areas, including comprehensive reforms relating to life insurance reserves and the accounting for such reserves. The Company cannot predict whether or in what form reforms will be enacted by state legislatures and, if so, whether the enacted reforms will positively or negatively affect the Company. In addition, the NAIC Accounting Practices and Procedures manual provides that state insurance departments may permit insurance companies domiciled therein to depart from SAP by granting them permitted accounting practices. The Company cannot predict whether or when the insurance departments of the states of domicile of its competitors may permit them to utilize advantageous accounting practices that depart from SAP, the use of which is not permitted by the insurance departments of the states of domicile of the Company’s insurance subsidiaries. With respect to regulations and guidelines, states sometimes defer to the interpretation of the insurance department of the state of domicile. Neither the action of the domiciliary state nor action of the NAIC is binding on a state. Accordingly, a state could choose to follow a different interpretation. The Company can give no assurance that future changes to SAP or components of SAP or the grant of permitted accounting practices to its competitors will not have a negative impact on the Company.  For additional information regarding pending NAIC reforms, please see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company’s risk management policies, practices, and procedures could leave it exposed to unidentified or unanticipated risks, which could negatively affect its business or result in losses.

The Company has developed risk management policies and procedures and expects to continue to enhance these in the future. Nonetheless, the Company’s policies and procedures to identify, monitor, and manage both internal and external risks may not predict future exposures, which could be different or significantly greater than expected.

These identified risks may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company, or that it currently deems to be immaterial, may adversely affect its business, financial condition and/or operating results.

Credit market volatility or disruption could adversely impact the Company’s financial condition or results from operations.

Significant volatility or disruption in credit markets could have an adverse impact in several ways on either the Company’s financial condition or results from operations. Changes in interest rates and credit spreads could cause market price and cash flow variability in the fixed income instruments in the Company’s investment portfolio.  Significant volatility and lack of liquidity in the credit markets could cause issuers of the fixed-income securities in the Company’s investment portfolio to default on either principal or interest payments on these securities. Additionally, market price valuations may not accurately reflect the underlying expected cash flows of securities within the Company’s investment portfolio.

The Company’s statutory surplus is also impacted by widening credit spreads as a result of the accounting for the assets and liabilities on its fixed market value adjusted (“MVA”) annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, the Company is required to use current crediting rates based on U.S. Treasuries. In many capital market scenarios, current crediting rates based on U.S. Treasuries are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value losses. Credit spreads are not consistently fully reflected in crediting rates based on U.S. Treasuries, and the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in reductions in statutory surplus. This situation would result in the need to devote significant additional capital to support fixed MVA annuity products.

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Volatility or disruption in the credit markets could also impact the Company’s ability to efficiently access financial solutions for purposes of issuing long-term debt for financing purposes, its ability to obtain financial solutions for purposes of supporting certain traditional and universal life insurance products for capital management purposes, or result in an increase in the cost of existing securitization structures.

The ability of the Company to implement financing solutions designed to fund a portion of statutory reserves on both the traditional and universal life blocks of business is dependent upon factors such as the ratings of the Company, the size of the blocks of business affected, the mortality experience of the Company, the credit markets, and other factors. The Company cannot predict the continued availability of such solutions or the form that the market may dictate. To the extent that such financing solutions were desired but are not available, the Company’s financial position could be adversely affected through impacts including, but not limited to, higher borrowing costs, surplus strain, lower sales capacity, and possible reduced earnings expectations.

Disruption of the capital and credit markets could negatively affect the Company’s ability to meet its liquidity and financing needs.

The Company needs liquidity to meet its obligations to its policyholders and its debt holders, and to pay its operating expenses. The Company’s sources of liquidity include insurance premiums, annuity considerations, deposit funds, cash flow from investments and assets, and other income from its operations. In normal credit and capital market conditions, the Company’s sources of liquidity also include a variety of short and long-term borrowing arrangements, including issuing debt securities, as well as raising capital by issuing a variety of equity securities.

The Company’s business is dependent on the capital and credit markets, including confidence in such markets. When the credit and capital markets are disrupted and confidence is eroded the Company may not be able to borrow or raise equity capital, or the cost of borrowing or raising equity capital may be prohibitively high. If the Company’s internal sources of liquidity are inadequate during such periods, the Company could suffer negative effects from not being able to borrow or raise capital, or from having to do so on unfavorable terms. The negative effects could include being forced to sell assets at a loss, a lowering of the Company’s credit ratings and the financial strength ratings of its insurance subsidiaries, and the possibility that customers, lenders, shareholders, ratings agencies, or regulators develop a negative perception of the Company’s financial prospects, which could lead to further adverse effects on the Company.

Difficult general economic conditions could materially adversely affect the Company’s business and results of operations.

The Company’s business and results of operations could be materially affected by difficult general economic conditions. Stressed economic conditions and volatility and disruptions in capital markets, particular markets or financial asset classes can have an adverse effect on the Company due to the size of the Company’s investment portfolio and the sensitive nature of insurance liabilities to changing market factors.  Disruptions in one market or asset class can also spread to other markets or asset classes.  Volatility in financial markets can also affect the Company’s business by adversely impacting general levels of economic activity, employment and customer behavior.

Like other financial institutions, and particularly life insurers, the Company may be adversely affected by these conditions. The presence of these conditions could have an adverse impact on the Company by, among other things, exerting downward pressure on the price of the Company’s stock, decreasing demand for its insurance and investment products, and increasing the level of lapses and surrenders of its policies. The Company and its subsidiaries could also experience additional ratings downgrades from ratings agencies, unrealized losses, significant realized losses, impairments in its investment portfolio, and charges incurred as a result of mark-to-market and fair value accounting principles. If general economic conditions become more difficult, the Company’s ability to access sources of capital and liquidity may be limited.

Economic trends may worsen in 2013, thus contributing to increased volatility and diminished expectations for the economy, markets, and financial asset classes. The Company cannot predict the occurrence of economic trends or the likelihood or timing of improvement in such trends.

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The Company may not be able to protect its intellectual property and may be subject to infringement claims.

The Company relies on a combination of contractual rights and copyright, trademark, patent, and trade secret laws to establish and protect its intellectual property. Although the Company uses a broad range of measures to protect its intellectual property rights, third parties may infringe or misappropriate its intellectual property. The Company may have to litigate to enforce and protect its copyrights, trademarks, patents, trade secrets, and know-how or to determine their scope, validity, or enforceability, which represents a diversion of resources that may be significant in amount and may not prove successful. The loss of intellectual property protection or the inability to secure or enforce the protection of the Company’s intellectual property assets could have a material adverse effect on its business and ability to compete.

The Company also may be subject to costly litigation in the event that another party alleges its operations or activities infringe upon that party’s intellectual property rights. Third parties may have, or may eventually be issued, patents that could be infringed by the Company’s products, methods, processes, or services. Any party that holds such a patent could make a claim of infringement against the Company. The Company may also be subject to claims by third parties for breach of copyright, trademark, trade secret, or license usage rights. Any such claims and any resulting litigation could result in significant liability for damages. If the Company were found to have infringed third party patent or other intellectual property rights, it could incur substantial liability, and in some circumstances could be enjoined from providing certain products or services to its customers or utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets, or licenses, or alternatively could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on the Company’s business, results of operations, and financial condition.

The Company could be adversely affected by an inability to access its credit facility.

The Company relies on its credit facility as a potential source of liquidity. The availability of these funds could be critical to the Company’s credit and financial strength ratings and its ability to meet obligations, particularly when alternative sources of credit are either difficult to access or costly. The availability of the Company’s credit facility is dependent in part on the ability of the lenders to provide funds under the facility. The Company’s credit facility contains various affirmative and negative covenants and events of default, including covenants requiring the Company to maintain a specified minimum consolidated net worth. The Company’s right to make borrowings under the facility is subject to the fulfillment of certain conditions, including its compliance with all covenants. The Company’s failure to comply with the covenants in the credit facility could restrict its ability to access this credit facility when needed. The Company’s inability to access some or all of the line of credit under the credit facility could have a material adverse effect on its financial condition and results of operations.

The Company could be adversely affected by an inability to access FHLB lending.

During the fourth quarter of 2010, the Federal Housing Finance Agency issued an Announced Notice of Proposed Rulemaking (“ANPR”). The purpose of the ANPR is to seek comment on several possible changes to the requirements applicable to members of the FHLB. Any changes to such requirements that eliminate the Company’s eligibility for continued FHLB membership or limit the Company’s borrowing capacity pursuant to its FHLB membership could have a material adverse effect on the Company. The Company can give no assurance as to the outcome of the ANPR. The FHFA also recently released an advisory bulletin on the particular risks associated with lending to insurance companies as opposed to federally-backed banks, which includes standards for evaluating an FHLB’s lending to an insurance company member. These standards are broad and raise concerns about the insurance regulatory framework and of FHLB creditor status in the event of insurer insolvency.  The recommended standards could result in stricter regulation of, or a reduced incidence of FHLB-insurer lending. Any event that adversely affects FHLB lending to the Company could have a material adverse effect on the Company.

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The amount of statutory capital that the Company has and the amount of statutory capital that it must hold to maintain its 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 the Company’s control.

Insurance regulators have established regulations that provide minimum capitalization requirements based on risk-based capital (“RBC”) formulas for life and property and casualty companies. The RBC formula for life insurance companies establishes capital requirements relating to insurance, business, asset, interest rate, and certain other risks.

In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors including the following: the amount of statutory income or losses generated by the Company’s insurance subsidiaries (which itself is sensitive to equity market and credit market conditions); the amount of additional capital its insurance subsidiaries must hold to support business growth; changes in the Company’s reserve requirements; the Company’s ability to secure capital market solutions to provide reserve relief; changes in equity market levels; the value of certain fixed-income and equity securities in its investment portfolio; the credit ratings of investments held in its portfolio, including those issued by, or explicitly or implicitly guaranteed by, a government; the value of certain derivative instruments; changes in interest rates and foreign currency exchange rates; credit market volatility; changes in consumer behavior; and changes to the NAIC RBC formula. Most of these factors are outside of the Company’s control. The Company’s financial strength and credit ratings are significantly influenced by the statutory surplus amounts and RBC ratios of its insurance company subsidiaries. Rating agencies may implement changes to their internal models that have the effect of increasing or decreasing the amount of statutory capital the Company must hold in order to maintain its current ratings. In addition, rating agencies may downgrade the investments held in the Company’s portfolio, which could result in a reduction of the Company’s capital and surplus and/or its RBC ratio.

In scenarios of equity market declines, the amount of additional statutory reserves the Company is required to hold for its variable product guarantees may increase at a rate greater than the rate of change of the markets. Increases in reserves could result in a reduction to the Company’s capital, surplus, and/or RBC ratio. Also, in environments where there is not a correlative relationship between interest rates and spreads, the Company’s market value adjusted annuity product can have a material adverse effect on the Company’s statutory surplus position.

Item 1B.  Unresolved Staff Comments

None.

Item 2.Properties

The Company’s home office is located at 2801 Highway 280 South, Birmingham, Alabama. The Company owns two buildings consisting of 310,000 square feet constructed in two phases. The first building was constructed in 1974 and the second building was constructed in 1982. Additionally, the Company leases a third 310,000 square-foot building constructed in 2004. Parking is provided for approximately 2,594 vehicles.

The Company leases administrative and marketing office space in 20 cities, including 24,090 square feet in Birmingham (excluding the home office building), with most leases being for periods of three to ten years. The aggregate annualized rent is approximately $6.9 million.

The Company believes its properties are adequate and suitable for the Company’s business as currently conducted and are adequately maintained. The above properties do not include properties the Company owns for investment only.

Item 3.Legal Proceedings

To the knowledge and in the opinion of management, there are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company, to which the Company or any of its subsidiaries is a party or of which any of our properties is the subject. For additional information regarding legal

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proceedings see Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results and Note 11, Commitments and Contingencies of the Notes to the Consolidated Financial Statements, each included herein.

Item 4.Mine Safety Disclosure — Not Applicable

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PART II

Item 5.Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”) which also owns all of the preferred stock issued by the Company’s subsidiary, Protective Life and Annuity Insurance Company (“PL&A”). Therefore, neither the Company’s common stock nor PL&A’s preferred stock is publicly traded.

As of December 31, 2012, approximately $633 million of the Company’s consolidated shareowner’s equity excluding net unrealized gains and losses on investments represented net assets of the Company’s insurance subsidiaries that cannot be transferred to Protective Life Insurance Company in the form of dividends, loans, or advances.

Insurers are subject to various state statutory and regulatory restrictions on the insurers’ ability to pay dividends. In general, dividends up to specific 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. The maximum amount that would qualify as ordinary dividends to PLC by the Company and its insurance subsidiaries in 2013 is estimated to be $469.3 million.

PL&A paid no dividends on its preferred stock in 2012 or 2011. The Company and its subsidiaries may pay cash dividends in the future, subject to their earnings and financial condition and other relevant factors.

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Item 6.  Selected Financial Data

	For The Year Ended December 31,
	2012			2011 (1)			2010 (1)			2009 (1)			2008 (1)
	(Dollars In Thousands)
INCOME STATEMENT DATA
Premiums and policy fees	$	2,799,390		$	2,784,134		$	2,609,357		$	2,674,680		$	2,679,449
Reinsurance ceded	(1,310,097		)	(1,363,914		)	(1,380,712		)	(1,509,036		)	(1,568,770		)
Net of reinsurance ceded	1,489,293			1,420,220			1,228,645			1,165,644			1,110,679
Net investment income	1,789,338			1,753,444			1,624,845			1,603,063			1,618,214
Realized investment gains (losses):
Derivative financial instruments	(227,816		)	(155,005		)	(144,438		)	(176,880		)	116,592
All other investments	232,836			247,753			158,420			303,709			(280,667		)
Other-than-temporary impairment losses	(67,130		)	(62,210		)	(74,970		)	(227,587		)	(311,579		)
Portion recognized in other comprehensive income (before taxes)	8,986			14,889			33,606			47,696			—
Net impairment losses recognized in earnings	(58,144		)	(47,321		)	(41,364		)	(179,891		)	(311,579		)
Other income	230,553			189,494			110,876			212,443			85,092
Total revenues	3,456,060			3,408,585			2,936,984			2,928,088			2,338,331
Total benefits and expenses	2,996,481			2,933,310			2,603,808			2,537,647			2,492,901
Income tax expense (benefit)	151,043			151,519			109,865			135,321			(56,381		)
Net income (loss)	$	308,536		$	323,756		$	223,311		$	255,120		$	(98,189	)

	As of December 31,
	2012		2011 (1)		2010 (1)		2009 (1)		2008 (1)
	(Dollars In Thousands)
BALANCE SHEET DATA
Total assets	$	57,157,583	$	52,003,183	$	46,717,138	$	41,501,553	$	38,772,548
Total stable value products and annuity account balances	13,169,022		13,716,358		13,667,838		13,492,190		14,317,832
Non-recourse funding obligations	1,446,900		1,248,600		1,360,800		1,555,000		1,505,000
Shareowner’s equity	5,687,213		4,877,350		4,072,113		3,207,898		1,450,792

(1)Recast from previously reported information

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Item 7.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 audited financial statements and related notes included herein.

Certain reclassifications and revisions 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 and revisions had no effect on previously reported net income or shareowner’s equity.

In January of 2012, we adopted Accounting Standard Update (“ASU” or “Update”) No. 2010-26 — Financial Services — Insurance — Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts which changed certain previously reported items within our financial statements and accompanying notes and the MD&A. The changes affected previously reported amounts in Note 3, Significant Acquisitions, Note 6, Deferred Acquisition Costs and Value of Business Acquired, Note 15, Income Taxes, Note 21, Operating Segments, Note 22, Consolidated Quarterly Results—Unaudited, and within our Life Marketing, Annuities, and Asset Protection segments.

In January of 2012, we also adopted ASU No. 2011-05 — Comprehensive Income — Presentation of Comprehensive Income which resulted in the inclusion of consolidated statements of comprehensive income within our consolidated financial statements and the presentation of statements of comprehensive income within our condensed financial information of registrant.

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 refer to Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results included herein.

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.

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

·Life Marketing - We market universal life (“UL”), variable universal life, bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) 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 individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisition segment are typically “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 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 fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans.

·Asset Protection - We 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. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

·Corporate and Other - This segment primarily consists of net investment income not assigned to the segments above (including the impact of carrying liquidity) and expenses not attributable to the segments above. This segment includes earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations.

Reinsurance Ceded

For approximately 10 years prior to mid-2005, we entered into reinsurance contracts in which we ceded a significant percentage, generally 90%, of our newly written life insurance business on a first dollar quota share basis. Our traditional life insurance was ceded under coinsurance contracts and universal life insurance was ceded under yearly renewable term (“YRT”) contracts. During this time, we obtained coinsurance on our traditional life business, while reducing the amount of capital deployed and increasing overall returns. In mid-2005, we substantially discontinued coinsuring our newly written traditional life insurance and moved to YRT reinsurance as discussed below. Through 2012, we reinsured 90% of the mortality risk on the majority of our newly written universal life insurance. During 2012, we moved to reinsure only amounts in excess of our $2,000,000 retention for the majority of our newly written universal life insurance.

We currently enter into reinsurance contracts with reinsurers under YRT contracts to provide coverage for insurance issued in excess of the amount it retains on any one life. The amount of insurance retained on any one life was $500,000 in years prior to mid-2005. In 2005, this retention was increased to amounts up to $1,000,000 for certain policies, and during 2008, was increased to $2,000,000 for certain policies.

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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 and climate change, which could adversely affect our operations and results;

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

·our results and financial condition may be negatively affected should actual experience differ from management’s assumptions and estimates;

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

·we are dependent on the performance of others;

·our risk management policies, practices, and procedures could leave us exposed to unidentified or unanticipated risks, 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 resulting in a material adverse effect on our results of operations and financial condition;

Financial environment

·interest rate fluctuations or significant and sustained periods of low interest rates could negatively affect our interest earnings and spread income, or otherwise impact our business;

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

·equity market volatility could negatively impact our business;

·our use of derivative financial instruments within our risk management strategy may not be effective or sufficient;

·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;

·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 general economic conditions could materially adversely affect our business and results of operations;

·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;

·we could be adversely affected by an inability to access FHLB lending;

·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 that we have and the amount of statutory capital that we 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

·we are highly regulated, are subject to numerous legal restrictions and regulations and are subject to audits, examinations and actions by regulators and law enforcement agencies;

·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 legal proceedings, including class action litigation, which could result in substantial judgments;

·publicly held companies in general and the financial services industry in particular 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;

·use of 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;

·our 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; and

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

For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part I, Item 1A of this report.

CRITICAL ACCOUNTING POLICIES

Our accounting policies require the use of judgments relating to a variety of assumptions and estimates, including, but not limited to expectations of current and future mortality, morbidity, persistency, expenses, and interest rates, as well as expectations around the valuations of securities. 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 financial statements. A discussion of our various critical accounting policies is presented below.

Evaluation of Other-Than-Temporary Impairments - One of the significant estimates related to available-for-sale and held-to-maturity securities is the evaluation of investments for other-than-temporary impairments. If a decline in the fair value of an available-for-sale or held-to-maturity security is judged to be other-than-temporary, the security’s basis is adjusted and an other-than-temporary impairment is recognized through a charge in the statement of income. The portion of this other-than-temporary impairment related to credit losses on a security is recognized in earnings, while the non-credit portion, representing the difference between fair value and the discounted expected future cash flows of the security, is recognized within other comprehensive income (loss). The fair value of the other-than-temporarily impaired investment becomes its new cost basis. For fixed maturities, we accrete the new cost basis to par or to the estimated future value over the expected remaining life of the security by adjusting the security’s future yields, assuming that future expected cash flows on the securities can be properly estimated.

Determining whether a decline in the current fair value of invested assets is other-than-temporary 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. For example, assessing the value of certain investments requires that we perform an analysis of expected future cash flows including rates of prepayments. Other investments, such as collateralized mortgage or bond obligations, represent selected tranches of a structured transaction, supported in the aggregate by underlying investments in a wide variety of issuers. 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. Although it is possible for the impairment of one

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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 other asset-backed securities, the ASC Investments-Other Topic 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 estimated 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 information regarding the performance of the underlying collateral. In addition, we consider our intent and ability to retain a temporarily depressed security until recovery.

Each quarter we review investments with unrealized losses and test for other-than-temporary impairments. We analyze 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 our intent to sell the security (including a more likely than not assessment of whether we 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 our 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 we do not intend to sell and do 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 (collectively referred to as asset-backed securities or “ABS”), we consider all known market data related to cash flows to estimate future cash flows. When calculating the post impairment cost for corporate debt securities, we consider 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 we intend to sell or expect to be required to sell before recovery are written down to fair value with the change recognized in earnings.

During the years ended December 31, 2012, 2011, and 2010, we recorded pre-tax other-than-temporary impairments of investments of $67.1 million, $62.2 million, and $75.0 million, respectively. Of the $67.1 million of impairments for the year ended December 31, 2012, $58.1 million was recorded in earnings and $9.0 million was recorded in other comprehensive income. Of the $62.2 million of impairments for the year ended December 31, 2011, $47.3 million was recorded in earnings and $14.9 million was recorded in other comprehensive income. Of the $75.0 million of impairments for the year ended December 31, 2010, $41.4 million was recorded in earnings and $33.6 million was recorded in other comprehensive income.

For the year ended December 31, 2012 and 2011, there were no other-than-temporary impairments related to equity securities. For the year ended December 31, 2010, there were $2.5 million of other-than-temporary impairments related to equity securities. For the years ended December 31, 2012, 2011, and 2010, there were $67.1 million, $62.2 million, and $72.5 million of other-than-temporary impairments related to debt securities, respectively.

For the year ended December 31, 2012, there were no other-than-temporary impairments related to debt securities or equity securities that we intend to sell or expect to be required to sell. For the year ended December 31, 2011, other-than-temporary impairments related to debt securities that we do not intend to sell and do not expect to be required to sell were $52.7 million, with $37.8 million of credit losses recorded on debt securities in earnings and $14.9

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million of non-credit losses recorded in other comprehensive income. During the same period, other-than-temporary impairments related to debt securities that we intend to sell or expect to be required to sell were $9.5 million and were recorded in earnings. For the year ended December 31, 2010, there were no other-than-temporary impairments related to debt securities or equity securities that we intend to sell or expect to be required to sell.

Our specific accounting policies related to our invested assets are discussed in Note 2, Summary of Significant Accounting Policies, and Note 4, Investment Operations, to the consolidated financial statements. As of December 31, 2012, we held $27.1 billion of available-for-sale investments, including $2.4 billion in investments with a gross unrealized loss of $140.7 million, and $300 million of held-to-maturity investments, none of which were in an unrealized loss position.

Derivatives - We utilize a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to interest rate risk, inflation risk, currency exchange risk, volatility risk, foreign exchange, and equity market risk. Assessing the effectiveness of the hedging programs and evaluating the carrying values of the related derivatives often involve a variety of assumptions and estimates. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. The fair values of most of our derivatives are determined using exchange prices or independent broker quotes, but certain derivatives are valued based upon industry standard models which calculate the present-value of the projected cash flows of the derivatives using current and implied future market conditions. These models include market-observable estimates of volatility and interest rates in the determination of fair value. The use of different assumptions may have a material effect on the estimated fair value amounts, as well as the amount of reported net income. In addition, measurements of ineffectiveness of hedging relationships are subject to interpretations and estimations, and any differences may result in material changes to our results of operations. As of December 31, 2012, the fair value of derivatives reported on our balance sheet in “other long-term investments” and “other liabilities” was $130.4 million and $657.9 million, respectively.

Reinsurance - For each of our reinsurance contracts, we must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. We must review all contractual features, particularly those that may limit the amount of insurance risk to which we are subject or features that delay the timely reimbursement of claims. If we determine that the possibility of a significant loss from insurance risk will occur only under remote circumstances, we record the contract under a deposit method of accounting with the net amount payable/receivable reflected in other reinsurance assets or liabilities on our consolidated balance sheets. Fees earned on the contracts are reflected as other revenues, as opposed to premiums, in our consolidated statements of income.

Our reinsurance is ceded to a diverse group of reinsurers. The collectability of reinsurance is largely a function of the solvency of the individual reinsurers. We perform periodic credit reviews on our reinsurers, focusing on, among other things, financial capacity, stability, trends, and commitment to the reinsurance business. We also require assets in trust, letters of credit, or other acceptable collateral to support balances due from reinsurers not authorized to transact business in the applicable jurisdictions. Despite these measures, a reinsurer’s insolvency, inability, or unwillingness to make payments under the terms of a reinsurance contract could have a material adverse effect on our results of operations and financial condition. As of December 31, 2012, our third party reinsurance receivables amounted to $5.7 billion. These amounts include ceded reserve balances and ceded benefit payments.

We account for reinsurance as required by Financial Accounting Standards Board (“FASB”) guidance under the ASC Financial Services Topic as applicable. In accordance with this guidance, costs for reinsurance are amortized as a level percentage of premiums for traditional life products and a level percentage of estimated gross profits for universal life products. Accordingly, ceded reserve and deferred acquisition cost balances are established using methodologies consistent with those used in establishing direct policyholder reserves and deferred acquisition costs. Establishing these balances requires the use of various assumptions including investment returns, mortality, persistency, and expenses. The assumptions made for establishing ceded reserves and ceded deferred acquisition costs are consistent with those used for establishing direct policyholder reserves and deferred acquisition costs.

Assumptions are also made regarding future reinsurance premium rates and allowance rates. Assumptions made for mortality, persistency, and expenses are consistent with those used for establishing direct policyholder reserves and deferred acquisition costs. Assumptions made for future reinsurance premium and allowance rates are

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consistent with rates provided for in our various reinsurance agreements. For certain of our reinsurance agreements, premium and allowance rates may be changed by reinsurers on a prospective basis, assuming certain contractual conditions are met (primarily that rates are changed for all companies with which the reinsurer has similar agreements).  We do not anticipate any changes to these rates and, therefore, have assumed continuation of these non-guaranteed rates. To the extent that future rates are modified, these assumptions would be revised and both current and future results would be affected. For traditional life products, assumptions are not changed unless projected future revenues are expected to be less than future expenses. For universal life products, assumptions are periodically updated whenever actual experience and/or expectations for the future differ from that assumed. When assumptions are updated, changes are reflected in the income statement as part of an “unlocking” process. For the year ended December 31, 2012, there were no significant changes to reinsurance premium and allowance rates that would require an update of assumptions and subsequent unlocking of balances.

Deferred acquisition costs and value of business acquired - We incur significant costs in connection with acquiring new insurance business. Portions of these costs, which are determined to be incremental direct costs associated with successfully acquired policies and coinsurance of blocks of policies, are deferred and amortized over future periods. The recovery of such costs is dependent on the future profitability of the related policies. The amount of future profit is dependent principally on investment returns, mortality, morbidity, persistency, and expenses to administer the business and certain economic variables, such as inflation. These costs are amortized over the expected lives of the contracts, based on the level and timing of either gross profits or gross premiums, depending on the type of contract. Revisions to estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future profits are less than the unamortized deferred amounts. As of December 31, 2012, we had deferred acquisition costs (“DAC”)/value of business acquired (“VOBA”) of $3.2 billion.

We periodically review and update as appropriate our key assumptions on certain life and annuity products including future mortality, expenses, lapses, premium persistency, investment yields, and interest spreads. Changes to these assumptions result in adjustments which increase or decrease DAC amortization and/or benefits and expenses. When we refer to DAC amortization or unlocking, we are referring to changes in balance sheet components amortized over estimated gross profits.

In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is allocated to the right to receive future gross profits from the acquired insurance policies or investment contracts. This intangible asset, called VOBA, represents the actuarially estimated present value of future cash flows from the acquired policies. The estimated present value of future cash flows is based on certain assumptions, including mortality, persistency, expenses, and interest rates that the Company expects to experience in future years. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. We amortize VOBA in proportion to gross premiums for traditional life products and in proportion to expected gross profits (“EGPs”) for interest sensitive products, including accrued interest credited to account balances of up to approximately 8.75%. VOBA is subject to annual recoverability testing.

Goodwill - 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 first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares 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 certain of its operating segments (which are each 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, which consider a market participant view of fair value, are subject to change given the inherent uncertainty in predicting future

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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, 2012, we performed our annual evaluation of goodwill and determined that no adjustment to impair goodwill was necessary. As of December 31, 2012, we had goodwill of $83.8 million.

While continued deterioration of or adverse market conditions for certain businesses may have a significant impact on the fair value of our reporting units, in our view, the key assumptions used in our estimates of fair value of our reporting units continue to be adequate, and PLC’s market capitalization being below book value did not result in a triggering or impairment event.

Insurance liabilities and reserves - Establishing an adequate liability for our obligations to policyholders requires the use of assumptions. Estimating liabilities for future policy benefits on life and health insurance products requires the use of assumptions relative to future investment yields, mortality, morbidity, persistency, and other assumptions based on our historical experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Determining liabilities for our property and casualty insurance products also requires the use of assumptions, including the frequency and severity of claims, and the effectiveness of internal processes designed to reduce the level of claims. Our results depend significantly upon the extent to which our actual claims experience is consistent with the assumptions we used in determining our reserves and pricing our products. Our reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. We cannot determine with precision the ultimate amounts that we will pay for actual claims or the timing of those payments. In addition, we fair value the liability related to our equity indexed annuity product at each balance sheet date, with changes in the fair value recorded through earnings. Changes in this liability may be significantly affected by interest rate fluctuations. As of December 31, 2012, we had total policy liabilities and accruals of $23.0 billion.

Guaranteed minimum death benefits - We establish liabilities for guaranteed minimum death benefits (“GMDB”) on our variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality and the performance of equity markets. We assume age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Future declines in the equity market would increase our GMDB liability. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. Our GMDB as of December 31, 2012, is subject to a dollar-for-dollar reduction upon withdrawal of related annuity deposits on contracts issued prior to January 1, 2003. As of December 31, 2012, the GMDB liability was $19.6 million.

Guaranteed minimum withdrawal benefits - We establish liabilities for guaranteed minimum withdrawal benefits (“GMWB”) on our variable annuity products. The GMWB is carried at fair value and is impacted by current implied volatilities for the equity indices. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. We assume age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, our net GMWB liability held was $169.0 million.

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Pension and Other Postretirement Benefits - Determining PLC’s obligations to employees under its pension plans and other postretirement benefit plans requires the use of assumptions. The calculation of the liability and expense related to PLC’s benefit plans incorporates the following significant assumptions:

·appropriate weighted average discount rate;

·estimated rate of increase in the compensation of employees;

·expected long-term rate of return on the plan’s assets.

See Note 14, Employee Benefit Plans, to the consolidated financial statements for further information on this plan.

Stock-Based Payments - Accounting for stock-based compensation plans may require the use of option pricing models to estimate PLC’s obligations. Assumptions used in such models relate to equity market movements and volatility, the risk-free interest rate at the date of grant, expected dividend rates, and expected exercise dates. See Note 13, Stock-Based Compensation, to the consolidated financial statements for further information.

Deferred taxes and uncertain tax positions - Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the marking to market value of investment assets, the deferral of policy acquisition costs, and the provision for future policy benefits and expenses. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when such differences reverse. We test the value of deferred tax assets for impairment on a quarterly basis at the taxpaying- component level within each tax jurisdiction. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized as future reductions of current taxes. In determining the need for a valuation allowance we consider carryback capacity, reversal of existing temporary differences, future taxable income, and tax planning strategies. The determination of any valuation allowance requires management to make certain judgments and assumptions regarding future operations that are based on our historical experience and our expectations of future performance.

The ASC Income Taxes Topic prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an expected or actual uncertain income tax return position and provides guidance on disclosure. Additionally, in order for us to recognize a benefit in our financial statements from such a position, there must be a greater than 50 percent chance of success with the relevant taxing authority with regard to that position. In making this analysis, we assume that the taxing authority is fully informed of all of the facts regarding any issue. Our judgments and assumptions regarding uncertain tax positions are subject to change over time due to the enactment of new legislation, the issuance of revised or new regulations by the various tax authorities, and the issuance of new rulings by the courts.

Contingent liabilities - The assessment of potential obligations for tax, regulatory, and litigation matters inherently involves a variety of estimates of potential future outcomes. We make such estimates after consultation with our advisors and a review of available facts. However, there can be no assurance that future outcomes will not differ from management’s assessments.

RESULTS OF OPERATIONS

We use the same accounting policies and procedures to measure segment operating income (loss) and assets as we use to measure consolidated net income and assets. Segment operating income (loss) is income before income tax, excluding net realized investment gains and losses (excluding periodic settlements of derivatives associated with debt and certain investments) net of the related amortization of DAC and VOBA. Operating earnings exclude changes in the GMWB embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

In the first quarter of 2012, management revised the definition of operating income (loss) as it relates to certain features of our variable annuity contracts and related hedging activities, to better reflect the basis on which the

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performance of our business is internally assessed. Under the revised definition, the following items have been excluded from operating income for the historical periods presented within the document:

·Changes in GMWB embedded derivatives related to this rider feature of certain variable annuity products (excluding the portion attributed to economic costs). Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.).

·Changes in value of certain derivative instruments used to mitigate the risk related to variable annuity contracts.

·That portion of the change in balance sheet components amortized over estimated gross profit that is attributed to the embedded GMWB derivative and related economic hedges (e.g. DAC amortization).

Prior periods have been revised to conform to the current period presentation for these changes.

Segment operating income (loss) represents the basis on which the performance of our 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 net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.

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.

We periodically review and update as appropriate our key assumptions on products using the ASC Financial Services-Insurance Topic, including future mortality, expenses, lapses, premium persistency, investment yields, interest spreads, and equity market returns. Changes to these assumptions result in adjustments which increase or decrease DAC amortization and/or benefits and expenses. The periodic review and updating of assumptions is referred to as “unlocking”. When referring to DAC amortization or unlocking on products covered under the ASC Financial Services-Insurance Topic, the reference is to changes in all balance sheet components amortized over estimated gross profits.

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

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Segment Operating Income (Loss)
Life Marketing	$	102,114		$	96,110		$	123,495		6.2	%	(22.2	)%
Acquisitions	171,060			157,393			111,143			8.7		41.6
Annuities	117,778			79,373			48,109			48.4		65.0
Stable Value Products	60,329			56,780			39,207			6.3		44.8
Asset Protection	9,765			16,892			24,267			(42.2	)	(30.4	)
Corporate and Other	1,119			6,985			(13,458		)	(84.0	)	n/m
Total segment operating income	462,165			413,533			332,763			11.8		24.3
Realized investment gains (losses) - investments(1)	188,729			194,866			134,559
Realized investment gains (losses) - derivatives	(191,315		)	(133,124		)	(134,146		)
Income tax expense	(151,043		)	(151,519		)	(109,865		)
Net Income	$	308,536		$	323,756		$	223,311		(4.7	)	45.0
Investment gains (losses)(2)	$	174,692		$	200,432		$	117,056
Less: related amortization of DAC/VOBA	(14,037		)	5,566			(17,503		)
Realized investment gains (losses) - investments	$	188,729		$	194,866		$	134,559
Derivative gains (losses) (3)	$	(227,816	)	$	(155,005	)	$	(144,438	)
Less: settlements on certain interest rate swaps	—			—			168
Less: VA GMWB economic cost	(36,501		)	(21,881		)	(10,460		)
Realized investment gains (losses) - derivatives	$	(191,315	)	$	(133,124	)	$	(134,146	)

(1)Includes credit related other-than-temporary impairments of $58.1 million, $47.3 million, and $41.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

(2)Includes realized investment gains (losses) before related amortization

(3)Includes realized gains (losses) on derivatives before settlements on interest rate swaps and the VA GMWB economic cost

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Net income for the year ended December 31, 2012, included a $48.6 million, or 11.8%, increase in segment operating income. The increase was primarily related to a $6.0 million increase in the Life Marketing segment, a $13.7 million increase in the Acquisitions segment, a $38.4 million increase in the Annuities segment, and a $3.5 million increase in the Stable Value Products segment. These increases were partially offset by a $7.1 million decrease in the Asset Protection segment and a $5.9 million decrease in the Corporate and Other segment.

We experienced net realized losses of $53.1 million for the year ended December 31, 2012, as compared to net realized gains of $45.4 million for the year ended December 31, 2011. The losses realized for the year ended December 31, 2012, were primarily related to $58.1 million for other-than-temporary impairment credit-related losses, net losses of $102.8 million of derivatives related to variable annuity contracts, a $2.8 million loss on interest rate caps and swaps, and a $2.2 million loss related to other investment and derivative activity.  Partially offsetting these losses were gains of $67.6 million of gains related to investment securities sale activity and $45.2 million of gains related to the net activity of the modified coinsurance portfolio.

·Life Marketing segment operating income was $102.1 million for the year ended December 31, 2012, representing an increase of $6.0 million, or 6.2%, from the year ended December 31, 2011. The increase was primarily due to higher investment income, more favorable traditional life claims, and a less unfavorable change in unlocking. These increases were partially offset by unfavorable universal life and BOLI claims, an increase in reserves resulting from changes in universal life interest rate assumptions, and higher operating expenses.

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·Acquisitions segment operating income was $171.1 million for the year ended December 31, 2012, an increase of $13.7 million, or 8.7%, as compared to the year ended December 31, 2011, primarily due to the Liberty Life Insurance Company (“Liberty Life”) coinsurance transaction. The Liberty Life transaction added $50.2 million to segment operating income for the year ended December 31, 2012, an increase of $15.1 million as compared to the year ended December 31, 2011. The Liberty Life transaction was effective April 30, 2011, therefore, the 2012 results include twelve months of Liberty Life activity as compared to eight months included in the 2011 results. This was partly offset by the expected runoff in the older acquired blocks.

·Annuities segment operating income was $117.8 million for the year ended December 31, 2012, as compared to $79.4 million for the year ended December 31, 2011, an increase of $38.4 million. This variance included a favorable change of $41.2 million in operating revenue driven by higher policy fees and other income in the VA line and lower benefits and settlement expenses. Partially offsetting these favorable changes was an unfavorable change of $14.7 million in unlocking and an increase in DAC amortization and non-deferred expenses.

·Stable Value Products segment operating income was $60.3 million and increased $3.5 million, or 6.3%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase in operating earnings resulted from higher operating spreads and lower expenses offset by a decline in average account values. We also called certain retail notes, which accelerated DAC amortization of $3.4 million for the year ended December 31, 2011. We did not accelerate DAC amortization during the year ended December 31, 2012 as no contracts were called. The operating spread increased 17 basis points to 231 basis points for the year ended December 31, 2012, as compared to an operating spread of 214 basis points for the year ended December 31, 2011. The adjusted operating spread, which excludes participating income, increased by 29 basis points for the year ended December 31, 2012 over the prior year.

·Asset Protection segment operating income was $9.8 million, representing a decrease of $7.1 million, or 42.2%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Service contract earnings decreased $3.2 million, or 61.6%, primarily due to $4.1 million of expense to impair and dispose of previously capitalized costs associated with developing internal-use software.  Credit insurance earnings decreased $4.1 million primarily due to $3.1 million in legal settlement and related costs.  Earnings from the GAP product line increased $0.2 million, or 1.8%.

·Corporate and Other segment operating income was $1.1 million for the year ended December 31, 2012, as compared to an operating income of $7.0 million for the year ended December 31, 2011. The decrease was primarily due to $8.5 million of pre-tax earnings recorded during 2011 relating to the settlement of a dispute with respect to certain investments and a $3.5 million unfavorable variance related to gains on the repurchase of non-recourse funding obligations. For the year ended December 31, 2012, $32.0 million of pre-tax gains were generated by repurchases as compared to $35.5 million of pre-tax gains generated during the year ended December 31, 2011.  Partially offsetting this variance was an $8.6 million favorable variance related to mortgage loan prepayment fee income as compared to the year ended December 31, 2011.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Net income for the year ended December 31, 2012, included a $80.8 million, or 24.3%, increase in segment operating income. The increase was primarily related to a $46.3 million increase in the Acquisitions segment, a $31.3 million increase in the Annuities segment, a $17.6 million increase in the Stable Value Products segment, and a $20.4 increase in the Corporate and Other segment. These increases were partially offset by a $27.4 million decrease in the Life Marketing segment and a $7.4 million decrease in the Asset Protection segment.

We experienced net realized gains of $45.4 million for the year ended December 31, 2011, as compared to net realized losses of $27.4 million for the year ended December 31, 2010. The gains realized for the year ended December 31, 2011, were primarily related to $89.2 million of gains related to investment securities sale activity and $29.9 million of gains related to the net activity of the modified coinsurance portfolio. Partially offsetting these gains were losses of $47.3 million for other-than-temporary impairment credit-related losses, a $14.1 million loss on interest rate caps and

49

swaps, net losses of $5.8 million of derivatives related to variable annuity contracts, and a $6.4 million loss related to other investment and derivative activity.

·Life Marketing segment operating income was $96.1 million for the year ended December 31, 2011, representing a decrease of $27.4 million, or 22.2%, from the year ended December 31, 2010. The decrease was primarily due to a negative change in unlocking of $18.3 million and higher operating expenses, including interest expense associated with programs designed to fund traditional life statutory reserves. These decreases were partially offset by higher investment income associated with growth in reserve balances.

·Acquisitions segment operating income was $157.4 million for the year ended December 31, 2011, an increase of $46.3 million, or 41.6%, as compared to the year ended December 31, 2010, primarily due to the addition of the United Investors Life Insurance Company (“United Investors”) acquisition and the Liberty Life coinsurance transaction. The United Investors and Liberty Life transactions added $24.0 million and $35.1 million, respectively, to segment operating income. This was partly offset by less favorable mortality and the expected runoff in the older acquired blocks.

·Annuities segment operating income was $79.4 million for the year ended December 31, 2011, as compared to $48.1 million for the year ended December 31, 2010, an increase of $31.3 million. This variance included favorable changes in operating revenue and benefit and settlement expenses. Partially offsetting these favorable changes were increases in DAC amortization and other operating expenses.

·Stable Value Products segment operating income was $56.8 million and increased $17.6 million, or 44.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase in operating earnings resulted from higher operating spreads and lower expenses offset by a decline in average account values. We also called certain retail notes, which has accelerated DAC amortization of $3.4 million on those called contracts for the year ended December 31, 2011 as compared to $2.7 million for the year ended December 31, 2010. The operating spread increased 97 basis points to 214 basis points during the year ended December 31, 2011, as compared to an operating spread of 117 basis points for the year ended December 31, 2010.

·Asset Protection segment operating income was $16.9 million, representing a decrease of $7.4 million, or 30.4%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Service contract earnings decreased $6.9 million primarily related to higher commissions and reduced investment income due to lower balances and yields. Earnings from other products, including the GAP product and non-core lines, decreased $3.5 million primarily due to a $7.8 million excess reserve release in the first quarter of 2010 related to the runoff Lender’s Indemnity line of business partially offset by an increase in GAP earnings resulting from higher volume and favorable loss experience. Credit insurance earnings increased $3.0 million primarily due to lower loss ratios and lower expenses.

·Corporate and Other segment operating income was $7.0 million for the year ended December 31, 2011, as compared to an operating loss of $13.5 million for the year ended December 31, 2010. The increase was primarily due to a $30.1 million favorable variance related to gains on the repurchase of non-recourse funding obligations. For the year ended December 31, 2011, $35.5 million of pre-tax gains were generated by repurchases as compared to $5.4 million of pre-tax gains generated during the year ended December 31, 2010. In addition, during 2011, we recorded $8.5 million of pre-tax earnings in the segment relating to the settlement of a dispute with respect to certain investments. Partially offsetting these favorable variances was a $9.2 million increase in interest expense related to non-recourse funding obligations.

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Life Marketing

Segment results of operations

Segment results were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	1,575,074		$	1,591,581		$	1,575,764		(1.0	)%	1.0	%
Reinsurance ceded	(831,713		)	(846,762		)	(839,512		)	1.8		(0.9	)
Net premiums and policy fees	743,361			744,819			736,252			(0.2	)	1.2
Net investment income	486,374			446,014			387,953			9.0		15.0
Other income	3,919			3,094			3,719			26.7		(16.8	)
Total operating revenues	1,233,654			1,193,927			1,127,924			3.3		5.9
BENEFITS AND EXPENSES
Benefits and settlement expenses	1,054,645			978,098			921,765			7.8		6.1
Amortization of deferred policy acquisition costs	45,079			87,461			47,809			(48.5	)	82.9
Other operating expenses	31,816			32,258			34,855			(1.4	)	(7.5	)
Total benefits and expenses	1,131,540			1,097,817			1,004,429			3.1		9.3
INCOME BEFORE INCOME TAX	102,114			96,110			123,495			6.2		(22.2	)
OPERATING INCOME	$	102,114		$	96,110		$	123,495		6.2		(22.2	)

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

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Sales By Product
Traditional	$	1,115		$	3,846		$	50,101		(71.0	)%	(92.3	)%
Universal life	117,099			117,947			113,168			(0.7	)	4.2
BOLI	3,253			11,363			8,098			(71.4	)	40.3
	$	121,467		$	133,156		$	171,367		(8.8	)	(22.3	)
Sales By Distribution Channel
Independent agents	$	73,692		$	89,398		$	126,426		(17.6	)	(29.3	)
Stockbrokers / banks	42,973			31,677			36,633			35.7		(13.5	)
BOLI / other	4,802			12,081			8,308			(60.3	)	45.4
	$	121,467		$	133,156		$	171,367		(8.8	)	(22.3	)
Average Life Insurance In-force(1)
Traditional	$	449,462,487		$	476,813,161		$	494,700,220		(5.7	)	(3.6	)
Universal life	80,331,839			67,823,606			55,831,192			18.4		21.5
	$	529,794,326		$	544,636,767		$	550,531,412		(2.7	)	(1.1	)
Average Account Values
Universal life	$	6,501,025		$	6,037,896		$	5,563,162		7.7		8.5
Variable universal life	387,424			364,803			331,183			6.2		10.2
	$	6,888,449		$	6,402,699		$	5,894,345		7.6		8.6
Traditional Life Mortality Experience(2)	85		%	91		%	89		%

(1)  Amounts are not adjusted for reinsurance ceded.

(2) Represents the incurred claims as a percentage of original pricing expected.

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Operating expenses detail

Other operating expenses for the segment were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
First year commissions	$	124,030		$	159,430		$	207,899		(22.2	)%	(23.3	)%
Renewal commissions	35,231			35,898			36,509			(1.9	)	(1.7	)
First year ceding allowances	(4,538		)	(8,294		)	(9,418		)	45.3		11.9
Renewal ceding allowances	(166,445		)	(172,493		)	(188,956		)	3.5		8.7
General & administrative	147,582			155,282			162,442			(5.0	)	(4.4	)
Taxes, licenses, and fees	35,439			35,480			34,218			(0.1	)	3.7
Other operating expenses incurred	171,299			205,303			242,694			(16.6	)	(15.4	)
Less: commissions, allowances & expenses capitalized	(139,483		)	(173,045		)	(207,839		)	19.4		16.7
Other operating expenses	$	31,816		$	32,258		$	34,855		(1.4	)	(7.5	)

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Segment operating income

Operating income was $102.1 million for the year ended December 31, 2012, representing an increase of $6.0 million, or 6.2%, from the year ended December 31, 2011. The increase was primarily due to higher investment income, more favorable traditional life claims, and a less unfavorable change in unlocking. These increases were partially offset by unfavorable universal life and BOLI claims, an increase in reserves resulting from changes in universal life interest rate assumptions, and higher operating expenses.

Operating revenues

Total revenues for the year ended December 31, 2012, increased $39.7 million, or 3.3%, as compared to the year ended December 31, 2011. This increase was driven by higher investment income due to increases in net in-force reserves, partially offset by lower premiums and policy fees.

Net premiums and policy fees

Net premiums and policy fees decreased by $1.5 million, or 0.2%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to decreases in traditional life premiums, largely offset by continued growth in universal life in-force business policy fees.

Net investment income

Net investment income in the segment increased $40.4 million, or 9.0%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Increased retained universal life reserves more than offset the loss of investment income due to the securitization of excess reserves leading to increased investment income of $20.8 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Increases in BOLI reserves led to higher BOLI investment income of $2.3 million in the same period. Traditional life investment income increased $17.4 million caused by growth in retained reserves and lower reserve financing costs.

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Other income

Other income increased $0.8 million, or 26.7%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase relates primarily to fees on variable universal life funds.

Benefits and settlement expenses

Benefits and settlement expenses increased by $76.5 million, or 7.8%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, due to growth in retained universal life insurance in-force, an increase in reserves resulting from changes in universal life interest rate assumptions, higher credited interest on universal life products resulting from increases in account values, and higher claims from growth in the universal life block and continued maturing of the traditional life block. In 2012, universal life and BOLI unlocking was largely driven by assumption changes regarding lapses, investment yield and credited interest on fund value. The impact of these changes increased benefits and settlement expenses $51.0 million. In 2011, universal life and BOLI unlocking increased benefit expenses $25.2 million.

Amortization of DAC

DAC amortization decreased $42.4 million, or 48.5%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to differing impacts of unlocking. In 2012, universal life and BOLI unlocking decreased amortization $39.3 million, as compared to a decrease of $7.0 million in 2011.

Other operating expenses

Other operating expenses decreased $0.4 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011. This decrease reflects lower commissions and general administrative expenses, partly offset by a reduction in reinsurance allowances and a $0.6 million increase in interest expense associated with the securitization of excess universal life reserves.

Sales

Sales for the segment decreased $11.7 million, or 8.8%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Traditional life sales decreased $2.7 million, or 71.0%, as we focused sales efforts on other lines. Universal life sales decreased $0.8 million, or 0.7%, due to price increases on certain products. BOLI sales, which tend to be subject to large variations, decreased by $8.1 million, or 71.4%.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Segment operating income

Operating income was $96.1 million for the year ended December 31, 2011, representing a decrease of $27.4 million, or 22.2%, from the year ended December 31, 2010. The decrease was primarily due to a negative change in unlocking of $18.3 million and higher operating expenses, including interest expense associated with programs designed to fund traditional life statutory reserves. These decreases were partially offset by higher investment income associated with growth in reserve balances.

Operating revenues

Total revenues for the year ended December 31, 2011, increased $66.0 million, or 5.9%, as compared to the year ended December 31, 2010. This increase was the result of higher premiums and policy fees and higher investment income due to increases in net in-force reserves.

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Net premiums and policy fees

Net premiums and policy fees increased by $8.6 million, or 1.2%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to continued growth in universal life in-force business policy fees, offset by decreases in traditional life premium.

Net investment income

Net investment income in the segment increased $58.1 million, or 15.0%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Increased retained universal life reserves led to increased investment income of $31.0 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Increases in BOLI reserves led to higher BOLI investment income of $4.8 million in the same period. Traditional life investment income increased $21.3 million caused by growth in retained reserves and more favorable yields.

Other income

Other income decreased $0.6 million, or 16.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The decrease relates primarily to fees on variable universal life funds.

Benefits and settlement expenses

Benefits and settlement expenses increased by $56.3 million, or 6.1%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, due to growth in retained universal life insurance in-force, higher credited interest on universal life and BOLI products resulting from increases in account values, and higher claims from growth in the universal life block and continued maturing of the traditional life block. In 2011, universal life and BOLI unlocking was largely driven by assumption changes regarding lapses, mortality, expenses, investment yield, credited interest on fund value, and other items. The impact of these changes increased benefits and settlement expenses $25.2 million. In 2010, universal life and BOLI unlocking increased benefit expenses $27.5 million.

Amortization of DAC

DAC amortization increased $39.7 million, or 82.9%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to differing impacts of unlocking. In 2011, universal life and BOLI unlocking decreased amortization $7.0 million, as compared to a decrease of $31.2 million in 2010. The net increase to amortization for 2011 as compared to 2010 was $24.2 million.

Other operating expenses

Other operating expenses decreased $2.6 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010. This decrease reflects lower commissions and general administrative expenses partly offset by a reduction in reinsurance allowances and a $10.3 million increase in interest expense associated with a letter of credit facility designed to fund traditional life statutory reserves.

Sales

Sales for the segment decreased $38.2 million, or 22.3%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Traditional life sales decreased $46.3 million, or 92.3%, as we focused sales efforts on other lines. A new universal life product was introduced in 2010 which has substantially replaced traditional life sales for new products. Universal life sales increased $4.8 million, or 4.2%, due to increased focus on the product line, including the introduction of new products.

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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 are recorded as ceded DAC, which is amortized over estimated ceded premiums of the policies in-force. Thus, deferred reinsurance allowances may impact DAC amortization. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our consolidated financial statements.

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 Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(831,713	)	$	(846,762	)	$	(839,512	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(823,510		)	(757,225		)	(825,951		)
Amortization of deferred policy acquisition costs	(41,734		)	(51,219		)	(121,266		)
Other operating expenses (1)	(142,169		)	(142,905		)	(142,700		)
Total benefits and expenses	(1,007,413		)	(951,349		)	(1,089,917		)
NET IMPACT OF REINSURANCE (2)	$	175,700		$	104,587		$	250,405
Allowances received	$	(170,982	)	$	(180,787	)	$	(198,374	)
Less: Amount deferred	28,813			37,882			55,674
Allowances recognized (ceded other operating expenses) (1)	$	(142,169	)	$	(142,905	)	$	(142,700	)

(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 160%.

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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 160%. 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 has been ceded due to a change in reinsurance strategy on traditional business. 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.

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

The decrease in ceded premiums for 2012 as compared to 2011 was caused primarily by lower ceded traditional life premiums of $38.4 million, partially offset by higher ceded universal life premiums of $23.4 million.

Ceded benefits and settlement expenses were higher for the year ended December 31, 2012, as compared to the year ended December 31, 2011, due to higher increases in ceded reserves and higher ceded claims. Traditional ceded benefits decreased $44.0 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011, due to a decrease in ceded reserves and slightly lower ceded death benefits. Universal life ceded benefits increased $110.0 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011, due to an increase in ceded reserves primarily due to unlocking, new business, and higher ceded claims. Ceded universal life claims were $26.7 million higher for the year ended December 31, 2012, as compared to the year ended December 31, 2011.

Ceded amortization of deferred policy acquisitions costs decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to the differences in unlocking between the two periods.

Total allowances recognized for the year ended December 31, 2012, decreased slightly from the year ended December 31, 2011, as the impact of the continued reduction in our traditional life reinsurance allowances more than offset the impact of growth in the universal life product line.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

The increase in ceded premiums for 2011 as compared to 2010 was caused primarily by higher ceded universal life premiums of $9.4 million. This more than offset lower ceded traditional life premiums of $3.2 million.

Ceded benefits and settlement expenses were lower for the year ended December 31, 2011, as compared to the year ended December 31, 2010, due to lower increases in ceded reserves partially offset by higher ceded claims. Traditional ceded benefits decreased $16.2 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010, due to a lower increase in ceded reserves and lower ceded death benefits. Universal life ceded benefits decreased $52.4 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010, due to a lower change in ceded reserves more than offsetting higher ceded claims. Ceded universal life claims were $20.9 million higher for the year ended December 31, 2011, as compared to the year ended December 31, 2010.

Ceded amortization of deferred policy acquisitions costs decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to the differences in unlocking between the two periods.

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Total allowances recognized for the year ended December 31, 2011, increased slightly from the year ended December 31, 2010, as the impact of growth in universal life sales more than offset the impact of the continued reduction in our traditional life reinsurance allowances.

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Acquisitions

Segment results of operations

Segment results were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	847,080		$	834,499		$	676,849		1.5	%	23.3	%
Reinsurance ceded	(387,245		)	(419,676		)	(430,151		)	7.7		2.4
Net premiums and policy fees	459,835			414,823			246,698			10.9		68.2
Net investment income	550,334			529,261			458,703			4.0		15.4
Other income	6,003			5,561			5,886			7.9		(5.5	)
Total operating revenues	1,016,172			949,645			711,287			7.0		33.5
Realized gains (losses) - investments	178,941			167,107			116,044
Realized gains (losses) - derivatives	(130,818		)	(133,931		)	(65,987		)
Total revenues	1,064,295			982,821			761,344
BENEFITS AND EXPENSES
Benefits and settlement expenses	716,893			662,293			512,433			8.2		29.2
Amortization of value of business acquired	76,505			74,167			62,152			3.2		19.3
Other operating expenses	51,714			55,792			25,559			(7.3	)	n/m
Operating benefits and expenses	845,112			792,252			600,144			6.7		32.0
Amortization of VOBA related to realized gains (losses) - investments	746			874			2,258
Total benefits and expenses	845,858			793,126			602,402			6.6		31.7
INCOME BEFORE INCOME TAX	218,437			189,695			158,942			15.2		19.3
Less: realized gains (losses)	48,123			33,176			50,057
Less: related amortization of VOBA	(746		)	(874		)	(2,258		)
OPERATING INCOME	$	171,060		$	157,393		$	111,143		8.7		41.6

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The following table summarizes key data for the Acquisitions segment:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Average Life Insurance In-Force(1)
Traditional	$	179,586,818		$	188,439,000		$	186,005,583		(4.7	)%	1.3	%
Universal life	30,351,626			30,670,689			27,033,770			(1.0	)	13.5
	$	209,938,444		$	219,109,689		$	213,039,353		(4.2	)	2.8
Average Account Values
Universal life	$	3,418,753		$	3,304,966		$	2,764,614		3.4		19.5
Fixed annuity(2)	3,187,616			3,329,680			3,378,176			(4.3	)	(1.4	)
Variable annuity	597,467			665,742			209,034			(10.3	)	n/m
	$	7,203,836		$	7,300,388		$	6,351,824		(1.3	)	14.9
Interest Spread - UL & Fixed Annuities
Net investment income yield(3)	5.83		%	5.86		%	6.01		%
Interest credited to policyholders	3.99			3.98			3.97
Interest spread	1.84		%	1.88		%	2.04		%

(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)Earned rates exclude portfolios supporting modified coinsurance and crediting rates exclude 100% cessions.

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Segment operating income

Operating income was $171.1 million for the year ended December 31, 2012, an increase of $13.7 million, or 8.7%, as compared to the year ended December 31, 2011, primarily due to the Liberty Life coinsurance transaction. The Liberty Life transaction added $50.2 million to segment operating income for the year ended December 31, 2012, an increase of $15.1 million as compared to the year ended December 31, 2011. The Liberty Life transaction was effective April 30, 2011, therefore, the 2012 results include twelve months of Liberty Life activity as compared to eight months included in the 2011 results. This was partly offset by the expected runoff in the older acquired blocks.

Operating revenues

Net premiums and policy fees increased $45.0 million, or 10.9%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to the additional months of the Liberty Life blocks of business and the impact of a reinsurance recapture more than offsetting expected runoff related to other blocks of business. Net investment income increased $21.1 million, or 4.0%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, due to the additional months associated with the Liberty Life blocks of business. This was offset by expected runoff related to other blocks of business.

Total benefits and expenses

Total benefits and expenses increased $52.7 million, or 6.6%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase was due to the additional months associated with the Liberty Life blocks, the impact of a reinsurance recapture and less favorable mortality, which was partly offset by the expected runoff of the in-force business.

59

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Segment operating income

Operating income was $157.4 million for the year ended December 31, 2011, an increase of $46.3 million, or 41.6%, as compared to the year ended December 31, 2010, primarily due to the addition of the United Investors acquisition and the Liberty Life coinsurance transaction. The United Investors and Liberty Life transactions added $24.0 million and $35.1 million, respectively, to segment operating income. This was partly offset by less favorable mortality and the expected runoff in the older acquired blocks.

Operating revenues

Net premiums and policy fees increased $168.1 million, or 68.2%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to the addition of the United Investors and Liberty Life blocks of business more than offsetting expected runoff related to other blocks of business. Net investment income increased $70.6 million, or 15.4%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, due to the addition of the United Investors and Liberty Life blocks of business. This was offset by expected runoff related to other blocks of business.

Total benefits and expenses

Total benefits and expenses increased $190.7 million, or 31.7%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase was due to the addition of the United Investors and Liberty Life blocks and was partly offset by the expected runoff of the in-force business.

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. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our consolidated financial statements.

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 Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(387,245	)	$	(419,676	)	$	(430,151	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(320,662		)	(383,439		)	(368,647		)
Amortization of deferred policy acquisition costs	(11,766		)	(19,062		)	(19,216		)
Other operating expenses	(54,595		)	(54,894		)	(56,487		)
Total benefits and expenses	(387,023		)	(457,395		)	(444,350		)
NET IMPACT OF REINSURANCE (1)	$	(222	)	$	37,719		$	14,199

(1)Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.

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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 financial statements.

The net impact of reinsurance decreased $37.9 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a larger decrease in ceded benefits and settlement expenses in relation to the decrease in ceded premiums.

The net impact of reinsurance increased $23.5 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in ceded premiums and an increase in ceded benefits and settlement expenses primarily due to an increase in ceded death claims.

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Annuities

Segment results of operations

Segment results were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	97,928		$	68,385		$	42,786		43.2	%	59.8	%
Reinsurance ceded	(26		)	(66		)	(136		)	60.6		51.5
Net premiums and policy fees	97,902			68,319			42,650			43.3		60.2
Net investment income	504,342			507,229			482,264			(0.6	)	5.2
Realized gains (losses) - derivatives	(36,501		)	(21,881		)	(10,460		)	(66.8	)	n/m
Other income	82,607			53,999			29,053			53.0		85.9
Total operating revenues	648,350			607,666			543,507			6.7		11.8
Realized gains (losses) - investments	28,470			9,461			10,175
Realized gains (losses) - derivatives, net of economic cost	(66,331		)	16,058			(52,985		)
Total revenues	610,489			633,185			500,697			(3.6	)	26.5
BENEFITS AND EXPENSES
Benefits and settlement expenses	369,692			391,880			399,014			(5.7	)	(1.8	)
Amortization of deferred policy acquisition costs and value of business acquired	60,032			51,417			28,278			16.8		81.8
Other operating expenses	100,848			84,996			68,106			18.7		24.8
Operating benefits and expenses	530,572			528,293			495,398			0.4		6.6
Amortization related to benefits and settlement expenses	(70		)	(1,092		)	8,441
Amortization of DAC related to realized gains (losses) - investments	(14,713		)	5,784			(28,202		)
Total benefits and expenses	515,789			532,985			475,637			(3.2	)	12.1
INCOME BEFORE INCOME TAX	94,700			100,200			25,060			(5.5	)	n/m
Less: realized gains (losses) - investments	28,470			9,461			10,175
Less: realized gains (losses) - derivatives, net of economic cost	(66,331		)	16,058			(52,985		)
Less: amortization related to benefits and settlement expenses	70			1,092			(8,441		)
Less: related amortization of DAC	14,713			(5,784		)	28,202
OPERATING INCOME	$	117,778		$	79,373		$	48,109		48.4		65.0

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The following table summarizes key data for the Annuities segment:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Sales
Fixed annuity	$	591,711		$	1,032,582		$	930,294		(42.7	)%	11.0	%
Variable annuity	2,734,985			2,348,599			1,714,753			16.5		37.0
	$	3,326,696		$	3,381,181		$	2,645,047		(1.6	)	27.8
Average Account Values
Fixed annuity(1)	$	8,559,562		$	8,538,007		$	7,920,539		0.3		7.8
Variable annuity	7,550,714			5,397,720			3,409,506			39.9		58.3
	$	16,110,276		$	13,935,727		$	11,330,045		15.6		23.0
Interest Spread - Fixed Annuities(2)
Net investment income yield	5.80		%	5.93		%	6.04		%
Interest credited to policyholders	3.85			4.33			4.55
Interest spread	1.95		%	1.60		%	1.49		%

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

(2)Interest spread on average general account values.

	For The Year Ended December 31,									Change
	2012			2011			2010			2012			2011
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	21,138		$	164,221		$	(11,778	)	$	(143,083	)	$	175,999
Equity futures - VA	(50,797		)	(30,061		)	(42,258		)	(20,736		)	12,197
Currency futures - VA	(2,763		)	2,977			—			(5,740		)	2,977
Volatility futures - VA	(132		)	—			—			(132		)	—
Volatility swaps - VA	(11,792		)	(239		)	(2,433		)	(11,553		)	2,194
Equity options - VA	(37,370		)	(15,051		)	(1,824		)	(22,319		)	(13,227		)
Interest rate swaptions - VA	(2,260		)	—			—			(2,260		)	—
Interest rate swaps - VA	3,264			7,718			—			(4,454		)	7,718
Credit default swaps - VA	—			(7,851		)	—			7,851			(7,851		)
Embedded derivative - GMWB(1)	(22,120		)	(127,537		)	(5,728		)	105,417			(121,809		)
Total derivatives related to variable annuity contracts	$	(102,832	)	$	(5,823	)	$	(64,021	)	$	(97,009	)	$	58,198
Economic cost(2)	36,501			21,881			11,036			14,620			10,845
Realized gains (losses) - derivatives, net of economic cost	$	(66,331	)	$	16,058		$	(52,985	)	$	(82,389	)	$	69,043

(1)Includes impact of nonperformance risk of $(70.4) million for the year ended December 31, 2012.

(2)Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.).

	As of December 31,
	2012		2011		Change
	(Dollars In Thousands)
GMDB - Net amount at risk(1)	$	129,309	$	317,671	(59.3	)%
GMDB Reserves	19,316		9,498		n/m
GMWB and GMAB Reserves(1)	169,269		147,148		15.0
Account value subject to GMWB rider	7,165,375		4,406,041		62.6
GMWB Benefit Base	6,888,471		4,562,515		51.0
S&P 500® Index	1,426		1,258		13.4

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

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For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Segment operating income

Segment operating income was $117.8 million for the year ended December 31, 2012, as compared to $79.4 million for the year ended December 31, 2011, an increase of $38.4 million. This variance included a favorable change of $41.2 million in operating revenue driven by higher policy fees and other income in the VA line and lower benefits and settlement expenses. Partially offsetting these favorable changes was an unfavorable change of $14.7 million in unlocking and an increase in DAC amortization and non-deferred expenses.

Operating revenues

Segment operating revenues increased $40.7 million, or 6.7%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to increases in policy fees and other income from the VA line of business. Those increases were partially offset by lower investment income and increased GMWB economic cost from the VA line of business. Average fixed account balances grew 0.3% and average variable account balances grew 39.9% for the year ended December 31, 2012, as compared to the year ended December 31, 2011.

Benefits and settlement expenses

Benefits and settlement expenses decreased $22.2 million, or 5.7%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. This decrease was primarily the result of lower credited interest, a $9.0 million favorable change in SPIA mortality results and other favorable reserve changes. These favorable changes were partially offset by higher realized losses in the market value adjusted line, a $4.0 million unfavorable change in the EIA fair value adjustments, and an unfavorable change in unlocking. Unfavorable unlocking of $13.8 million was recorded in the year ended December 31, 2012, as compared to $3.1 million of favorable unlocking during the year ended December 31, 2011.

Amortization of DAC

The increase in DAC amortization for the year ended December 31, 2012, as compared to the year ended December 31, 2011, was primarily due to growth in the VA line of business. The segment recorded unfavorable DAC unlocking of $11.4 million for the year ended December 31, 2012, as compared to unfavorable unlocking of $13.6 million for the year ended December 31, 2011.

Other operating expenses

Other operating expenses increased $15.9 million, or 18.7%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase is due to higher commissions, maintenance, and acquisition expenses driven by the growth of the business.

Sales

Total sales decreased $54.5 million, or 1.6%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Sales of variable annuities increased $386.4 million, or 16.5% for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Sales of fixed annuities decreased by $440.9 million, or 42.7% for the year ended December 31, 2012, as compared to the year ended December 31, 2011, driven by a decrease in single premium deferred annuity and market value adjusted annuity sales.

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For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Segment operating income

Segment operating income was $79.4 million for the year ended December 31, 2011, as compared to $48.1 million for the year ended December 31, 2010, an increase of $31.3 million. This variance included favorable changes in operating revenue and benefits and settlement expenses. Partially offsetting these favorable changes were increases in DAC amortization and other operating expenses.

Operating revenues

Segment operating revenues increased $64.2 million, or 11.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to increases in net investment income, policy fees, and other income. Average fixed account balances grew 7.8% and average variable account balances grew 58.3% for the year ended December 31, 2011, as compared to the year ended December 31, 2010.

Benefits and settlement expenses

Benefits and settlement expenses decreased $7.1 million, or 1.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. This decrease was primarily the result a $6.9 million favorable change in SPIA mortality results and a $2.5 million favorable change in VA guaranteed benefit reserves. These favorable changes were partially offset by a $1.2 million unfavorable change in the EIA fair value adjustments, higher credited interest, and higher bonus interest amortization. Favorable unlocking of $3.1 million was recorded in the year ended December 31, 2011, as compared to $5.8 million during the year ended December 31, 2010.

Amortization of DAC

The increase in DAC amortization for the year ended December 31, 2011, as compared to the year ended December 31, 2010, was primarily due to unfavorable DAC unlocking. There was unfavorable DAC unlocking of $23.5 million for the year ended December 31, 2011, as compared to favorable unlocking of $2.5 million for the year ended December 31, 2010.

Other operating expenses

Other operating expenses increased $16.9 million, or 24.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase is due to higher commissions, maintenance, and acquisition expenses driven by the growth of the business.

Sales

Total sales increased $736.1 million, or 27.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Sales of variable annuities increased $633.8 million, or 37.0% for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to product positioning and more focus on the VA line of business. Sales of fixed annuities increased by $102.3 million, or 11.0% for the year ended December 31, 2011, as compared to the year ended December 31, 2010, driven by an increase in SPDA sales.

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Stable Value Products

Segment results of operations

Segment results were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
REVENUES
Net investment income	$	128,239		$	145,150		$	171,327		(11.7	)%	(15.3	)%
Other income	1			(1		)	—			n/m		n/m
Total operating revenues	128,240			145,149			171,327			(11.6	)	(15.3	)
Realized gains (losses)	(4,966		)	25,306			(3,200		)	n/m		n/m
Total revenues	123,274			170,455			168,127			(27.7	)	1.4
BENEFITS AND EXPENSES
Benefits and settlement expenses	64,790			81,256			123,365			(20.3	)	(34.1	)
Amortization of deferred policy acquisition costs	947			4,556			5,430			(79.2	)	(16.1	)
Other operating expenses	2,174			2,557			3,325			(15.0	)	(23.1	)
Total benefits and expenses	67,911			88,369			132,120			(23.2	)	(33.1	)
INCOME BEFORE INCOME TAX	55,363			82,086			36,007			(32.6	)	n/m
Less: realized gains (losses)	(4,966		)	25,306			(3,200		)
OPERATING INCOME	$	60,329		$	56,780		$	39,207		6.3		44.8

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

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Sales
GIC	$	400,104		$	498,695		$	132,612		(19.8	)%	n/m	%
GFA - Direct Institutional	221,500			300,000			625,000			(26.2	)	(52.0	)
	$	621,604		$	798,695		$	757,612		(22.2	)	5.4
Average Account Values	$	2,637,549		$	2,685,194		$	3,329,510		(1.8	)%	(19.4	)%
Ending Account Values	$	2,510,559		$	2,769,510		$	3,076,233		(9.4	)%	(10.0	)%
Operating Spread
Net investment income yield	4.87		%	5.43		%	5.13		%
Interest credited	2.44			3.03			3.69
Operating expenses	0.12			0.26			0.27
Operating spread	2.31		%	2.14		%	1.17		%
Adjusted operating spread(1)	2.09		%	1.80		%	1.11		%

(1)Excludes participating mortgage loan income and bank loan fee income.

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For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Segment operating income

Operating income was $60.3 million and increased $3.5 million, or 6.3%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase in operating earnings resulted from higher operating spreads and lower expenses offset by a decline in average account values. We also called certain retail notes, which accelerated DAC amortization of $3.4 million for the year ended December 31, 2011. We did not accelerate DAC amortization during the year ended December 31, 2012 as no contracts were called. The operating spread increased 17 basis points to 231 basis points for the year ended December 31, 2012, as compared to an operating spread of 214 basis points for the year ended December 31, 2011. The adjusted operating spread, which excludes participating income, increased by 29 basis points for the year ended December 31, 2012 over the prior year.

Sales

Total sales were $621.6 million for the year ended December 31, 2012.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Segment operating income

Operating income was $56.8 million and increased $17.6 million, or 44.8%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase in operating earnings resulted from higher operating spreads and lower expenses offset by a decline in average account values. We also called certain retail notes, which has accelerated DAC amortization of $3.4 million on those called contracts for the year ended December 31, 2011 as compared to $2.7 million for the year ended December 31, 2010. The operating spread increased 97 basis points to 214 basis points for the year ended December 31, 2011, as compared to an operating spread of 117 basis points for the year ended December 31, 2010.

Sales

Total sales were $798.7 million for the year ended December 31, 2011.

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Asset Protection

Segment results of operations

Segment results were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	259,741		$	268,200		$	289,794		(3.2	)%	(7.5	)%
Reinsurance ceded	(91,085		)	(97,302		)	(110,911		)	6.4		12.3
Net premiums and policy fees	168,656			170,898			178,883			(1.3	)	(4.5	)
Net investment income	19,698			21,650			23,959			(9.0	)	(9.6	)
Other income	105,792			90,039			66,755			17.5		34.9
Total operating revenues	294,146			282,587			269,597			4.1		4.8
BENEFITS AND EXPENSES
Benefits and settlement expenses	91,778			88,257			86,799			4.0		1.7
Amortization of deferred policy acquisition costs	22,569			22,607			25,077			(0.2	)	(9.8	)
Other operating expenses	170,034			154,831			133,454			9.8		16.0
Total benefits and expenses	284,381			265,695			245,330			7.0		8.3
INCOME BEFORE INCOME TAX	9,765			16,892			24,267			(42.2	)	(30.4	)
OPERATING INCOME	$	9,765		$	16,892		$	24,267		(42.2	)	(30.4	)

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

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Sales
Credit insurance	$	35,336		$	35,767		$	36,216		(1.2	)%	(1.2	)%
Service contracts	328,931			286,485			235,585			14.8		21.6
GAP and Other products	62,342			72,908			54,489			(14.5	)	33.8
	$	426,609		$	395,160		$	326,290		8.0		21.1
Loss Ratios(1)
Credit insurance	37.7		%	33.8		%	37.8		%
Service contracts	58.7			56.5			56.7
GAP and Other products	41.3			33.8			(11.3		)

(1)Incurred claims as a percentage of earned premiums

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Segment operating income

Operating income was $9.8 million, representing a decrease of $7.1 million, or 42.2%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Service contract earnings decreased $3.2 million, or 61.6%, primarily due to $4.1 million of expense to impair and dispose of previously capitalized costs associated with developing internal-use software. Credit insurance earnings decreased $4.1 million primarily due to $3.1 million in legal settlement and related costs.  Earnings from the GAP product line increased $0.2 million, or 1.8%.

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Net premiums and policy fees

Net premiums and policy fees decreased $2.2 million, or 1.3%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Service contract premiums decreased $3.7 million, or 2.8% and credit insurance premiums decreased $2.1 million, or 11.6%. The decrease was primarily the result of decreasing sales in prior years and the related impact on earned premiums. The decrease was partially offset by an increase of $3.6 million, or 20.5%, in the GAP product line.

Other income

Other income increased $15.8 million, or 17.5%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in 2012 sales reflecting improvement in the U.S. automobile market and increased market share.

Benefits and settlement expenses

Benefits and settlement expenses increased $3.5 million, or 4.0%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. GAP claims increased $2.5 million, or 39.7%, due to an increase in earned premiums and higher loss ratios.  Service contract claims increased $1.1 million, or 1.4%.  Credit insurance claims decreased $0.1 million, or 1.3%.

Amortization of DAC and Other operating expenses

Amortization of DAC remained consistent for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Other operating expenses increased $15.2 million, or 9.8%, for the year ended December 31, 2012, partly due to the $4.1 million impairment and disposal of capitalized costs associated with developing internal-use software and $2.0 million legal settlement and related costs.  Expenses related to higher sales and expenses related to new initiatives also contributed to the increase.

Sales

Total segment sales increased $31.4 million, or 8.0%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Service contract sales increased $42.4 million, or 14.8%. The increase is attributable to the improvement in auto sales over the prior year and increased market share.  Sales in the GAP product line decreased $10.6 million, or 14.5%, primarily due to a change in mix of GAP business.  Credit insurance sales decreased $0.4 million, or 1.2%, as compared to the prior year.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Segment operating income

Operating income was $16.9 million, representing a decrease of $7.4 million, or 30.4%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Service contract earnings decreased $6.9 million primarily related to higher commissions and reduced investment income due to lower balances and yields. Earnings from other products, including the GAP product and non-core lines, decreased $3.5 million primarily due to a $7.8 million excess reserve release in the first quarter of 2010 related to the runoff Lender’s Indemnity line of business partially offset by an increase in GAP earnings resulting from higher volume and favorable loss experience. Credit insurance earnings increased $3.0 million primarily due to lower loss ratios and lower expenses.

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Net premiums and policy fees

Net premiums and policy fees decreased $8.0 million, or 4.5%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Service contract premiums decreased $8.1 million, or 5.7%. Credit insurance premiums decreased $2.1 million, or 10.0%. The decrease was primarily the result of decreasing sales in prior years and the related impact on earned premiums. Within the other product lines, primarily GAP, net premiums increased $2.2 million, or 13.7%.

Other income

Other income increased $23.3 million, or 34.9%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to an increase in 2011 sales reflecting improvement in the U.S. automobile market and increased market share.

Benefits and settlement expenses

Benefits and settlement expenses increased $1.5 million, or 1.7%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Service contract claims decreased $4.8 million, or 6.0%, and credit insurance claims decreased $1.5 million, or 19.6%, as compared to the year ended December 31, 2010. Other products claims increased $7.8 million due to a $7.8 million excess reserve release related to the final settlement in the runoff Lender’s Indemnity line of business that was recorded in the first quarter of 2010.

Amortization of DAC and Other operating expenses

Amortization of DAC was $2.5 million, or 9.8%, lower for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to lower earned premiums in the GAP product line and reduced amortization in the credit insurance product line. Other operating expenses increased $21.4 million, or 16.0%, for the year ended December 31, 2011, primarily due to higher commission expense resulting from an increase in sales.

Sales

Total segment sales increased $68.9 million, or 21.1%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Service contract sales increased $50.9 million, or 21.6%. Sales in other products increased $18.4 million, or 33.8%, primarily in the GAP product line. Increases in the service contract and GAP lines are attributable to the improvement in auto sales over the prior year and increased market share. Credit insurance sales decreased $0.4 million, or 1.2%, as compared to 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. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our consolidated financial statements.

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

Asset Protection Segment

Line Item Impact of Reinsurance

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(91,086	)	$	(97,302	)	$	(110,911	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(56,958		)	(63,406		)	(77,188		)
Amortization of deferred policy acquisition costs	(18,869		)	(24,614		)	(31,970		)
Other operating expenses	(9,353		)	(11,759		)	(11,046		)
Total benefits and expenses	(85,180		)	(99,779		)	(120,204		)
NET IMPACT OF REINSURANCE (1)	$	(5,906	)	$	2,477		$	9,293

(1)Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Reinsurance premiums ceded decreased $6.2 million, or 6.4%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The decrease was primarily due to a decline in ceded dealer credit insurance premiums due to lower sales in prior years and a decrease in ceded GAP premiums primarily due to a change in mix of GAP business, somewhat offset by an increase in service contract premiums.

Benefits and settlement expenses ceded decreased $6.4 million, or 10.2%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The decrease was primarily due to lower losses in the service contract line.

Amortization of DAC ceded decreased $5.7 million, or 23.3%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily as the result of the decreases in the ceded dealer credit and GAP product lines. Other operating expenses ceded decreased $2.4 million, or 20.5%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily as a result of decreases in the dealer credit and GAP product lines.

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 financial statements.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Reinsurance premiums ceded decreased $13.6 million, or 12.3%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The decrease was primarily due to a decline in ceded dealer credit insurance premiums and GAP premiums due to lower sales in prior years.

Benefits and settlement expenses ceded decreased $13.8 million, or 17.9%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The decrease was primarily due to lower losses in the service contract and GAP lines.

Amortization of DAC ceded decreased $7.4 million, or 23.0%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily as the result of the decreases in the ceded dealer credit and GAP product lines. Other operating expenses ceded increased $0.7 million, or 6.5%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily as a result of increases in the GAP product line.

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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 financial statements.

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Corporate and Other

Segment results of operations

Segment results were as follows:

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	19,567		$	21,469		$	24,164		(8.9	)%	(11.2	)%
Reinsurance ceded	(28		)	(108		)	(2		)	74.1		n/m
Net premiums and policy fees	19,539			21,361			24,162			(8.5	)	(11.6	)
Net investment income	100,351			104,140			100,639			(3.6	)	3.5
Realized gains (losses) - derivatives	—			—			168
Other income	32,231			36,802			5,463			(12.4	)	n/m
Total operating revenues	152,121			162,303			130,432			(6.3	)	24.4
Realized gains (losses) - investments	(27,930		)	(1,801		)	(5,846		)
Realized gains (losses) - derivatives	6,011			(14,892		)	(15,291		)
Total revenues	130,202			145,610			109,295			(10.6	)	33.2
BENEFITS AND EXPENSES
Benefits and settlement expenses	19,393			21,528			24,575			(9.9	)	(12.4	)
Amortization of deferred policy acquisition costs	1,018			2,654			1,694			(61.6	)	56.7
Other operating expenses	130,591			131,136			117,621			(0.4	)	11.5
Total benefits and expenses	151,002			155,318			143,890			(2.8	)	7.9
INCOME (LOSS) BEFORE INCOME TAX	(20,800		)	(9,708		)	(34,595		)	n/m		71.9
Less: realized gains (losses) - investments	(27,930		)	(1,801		)	(5,846		)
Less: realized gains (losses) - derivatives	6,011			(14,892		)	(15,291		)
OPERATING INCOME (LOSS)	$	1,119		$	6,985		$	(13,458	)	(84.0	)	n/m

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

Segment operating income (loss)

Corporate and Other segment operating income was $1.1 million for the year ended December 31, 2012, as compared to an operating income of $7.0 million for the year ended December 31, 2011. The decrease was primarily due to $8.5 million of pre-tax earnings recorded during 2011 relating to the settlement of a dispute with respect to certain investments and a $3.5 million unfavorable variance related to gains on the repurchase of non-recourse funding obligations. For the year ended December 31, 2012, $32.0 million of pre-tax gains were generated by repurchases as compared to $35.5 million of pre-tax gains generated during the year ended December 31, 2011.  Partially offsetting this variance was an $8.6 million favorable variance related to mortgage loan prepayment fee income as compared to the year ended December 31, 2011.

Operating revenues

Net investment income for the segment decreased $3.8 million, or 3.6%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, and net premiums and policy fees decreased $1.8 million, or 8.5%. The decrease in net investment income was primarily the result of $8.5 million of pre-tax earnings recorded in 2011 relating to the settlement of a dispute with respect to certain investments.  In addition, the segment experienced a decrease in investment income related to the lower interest rate environment as compared to the year ended December 31, 2011.  Partially offsetting this variance was an $8.6 million increase in mortgage loan prepayment fee income as compared to the year ended December 31, 2011.  Other income decreased $4.6 million for the year ended December 31,

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2012 as compared to the year ended December 31, 2011, primarily due to a $3.5 million unfavorable variance related to gains generated on the repurchase of non-recourse funding obligations.

Total benefits and expenses

Total benefits and expenses decreased $4.3 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011.  This decrease was primarily due to a $2.1 million decrease in benefits and settlement expenses from a reduction in policy benefits on non-core lines of business.

For The Year Ended December 31, 2011 as compared to The Year Ended December 31, 2010

Segment operating income (loss)

Corporate and Other segment operating income was $7.0 million for the year ended December 31, 2011, as compared to an operating loss of $13.5 million for the year ended December 31, 2010. The increase was primarily due to a $30.1 million favorable variance related to gains on the repurchase of non-recourse funding obligations. For the year ended December 31, 2011, $35.5 million of pre-tax gains were generated by repurchases as compared to $5.4 million of pre-tax gains generated during the year ended December 31, 2010. In addition, during 2011, we recorded $8.5 million of pre-tax earnings in the segment relating to the settlement of a dispute with respect to certain investments. Partially offsetting these favorable variances was a $9.2 million increase in interest expense related to non-recourse funding obligations.

Operating revenues

Net investment income for the segment increased $3.5 million, or 3.5%, for the year ended December 31, 2011, as compared to the year ended December 31, 2010, and net premiums and policy fees decreased $2.8 million, or 11.6%. The increase in net investment income was primarily the result of $8.5 million of pre-tax earnings relating to the settlement of a dispute with respect to certain investments and growth in core investment income. Partially offsetting this variance was a decrease of $12.4 million related to a portfolio of securities designated for trading compared to the year ended December 31, 2010. Other income increased $31.3 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010, primarily due to a $30.1 million favorable variance related to gains generated on the repurchase of non-recourse funding obligations.

Total benefits and expenses

Total benefits and expenses increased $11.4 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to an increase in other operating expenses of $13.5 million which includes a $9.2 million increase in interest expense related to non-recourse funding obligations. This increase was partially offset by a $3.0 million decrease in policy benefits on non-core lines of business.

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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, shareowner’s equity, or the totals reflected in the accompanying tables.

Portfolio Description

As of December 31, 2012, our investment portfolio was approximately $36.9 billion. The types of assets in which we may invest are influenced by various state insurance 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 presents the reported values of our invested assets:

	As of December 31,
	2012				2011
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2012 - $21,228,463; 2011 - $21,172,568)	$	23,808,542	64.6	%	$	22,829,335	65.5	%
Privately issued bonds (amortized cost: 2012 - $5,732,847; 2011 - $4,936,563)	6,261,436		17.0		5,128,230		14.7
Fixed maturities	30,069,978		81.6		27,957,565		80.2
Equity securities (cost: 2012 - $371,827; 2011 - $303,578)	373,715		1.0		292,413		0.8
Mortgage loans	4,948,625		13.4		5,351,902		15.4
Investment real estate	6,517		—		10,991		—
Policy loans	865,391		2.3		879,819		2.5
Other long-term investments	378,821		1.0		264,031		0.8
Short-term investments	216,787		0.7		101,470		0.3
Total investments	$	36,859,834	100.0	%	$	34,858,191	100.0	%

Included in the preceding table are $3.0 billion and $3.0 billion of fixed maturities and $118.9 million and $85.8 million of short-term investments classified as trading securities as of December 31, 2012 and 2011, respectively. The trading portfolio includes invested assets of $3.0 billion and $2.9 billion as of December 31, 2012 and 2011, respectively, held pursuant to modified coinsurance (“Modco”) arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers. Also included above, are $300.0 million of securities classified as held-to-maturity as of December 31, 2012. The Company held no held-to-maturity securities as of December 31, 2011.

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Fixed Maturity Investments

As of December 31, 2012, our fixed maturity investment holdings were approximately $30.1 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:

	As of December 31,
Rating	2012		2011
AAA	14.7	%	16.5	%
AA	7.2		8.0
A	30.8		27.6
BBB	39.7		41.0
Below investment grade	6.6		6.9
Not rated	1.0		—
	100.0	%	100.0	%

We use various Nationally Recognized Statistical Rating Organizations’ (“NRSRO”) ratings when classifying securities by quality ratings. When the various NRSRO ratings are not consistent for a security, we use the second-highest convention in assigning the rating. When there are no such published ratings, we assign a rating based on the statutory accounting rating system.  Some bonds are not rated.

We do not have material exposure to financial guarantee insurance companies with respect to our investment portfolio. As of December 31, 2012, based upon amortized cost, $38.0 million of our securities were guaranteed either directly or indirectly by third parties out of a total of $26.5 billion fixed maturity securities held by us (0.1% of total fixed maturity securities).

Changes in fair value for our available-for-sale portfolio, net of related DAC and VOBA, are charged or credited directly to shareowner’s equity, net of tax. Declines in fair value that are other-than-temporary are recorded as realized losses in the consolidated statements of income, net of any applicable non-credit component of the loss, which is recorded as an adjustment to other comprehensive income (loss).

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

	As of December 31,
Type	2012		2011
	(Dollars In Millions)
Corporate bonds	$	22,037.9	$	20,128.7
Residential mortgage-backed securities	2,197.1		2,651.0
Commercial mortgage-backed securities	1,040.9		740.8
Other asset-backed securities	1,133.0		971.0
U.S. government-related securities	1,474.3		1,771.5
Other government-related securities	164.2		137.9
States, municipals, and political subdivisions	1,722.6		1,556.7
Other	300.0		—
Total fixed income portfolio	$	30,070.0	$	27,957.6

Within our fixed maturity investments, we maintain portfolios classified as “available-for-sale”, “trading” and “held-to-maturity”.  We purchase our available for sale investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our available-for-sale and trading investments to maintain proper matching of assets and liabilities. Accordingly, we classified $26.8 billion, or 89.0%, of our fixed maturities as “available-for-sale” as of December 31, 2012. These securities are carried at fair value on our consolidated balance sheets.

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Fixed maturities that we have both the positive intent and ability to hold to maturity are classified as “held-to-maturity”. We classified $300.0 million, or 1.0% of our fixed maturities as “held-to-maturity” as of December 31, 2012. These securities are carried at amortized cost on our consolidated 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 $3.0 billion, or 10.0%, of our fixed maturities and $118.9 million of short-term investments as of December 31, 2012. Changes in fair value on the trading portfolio, 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 December 31,
Rating	2012		2011
	(Dollars In Thousands)
AAA	$	559,374	$	845,498
AA	239,834		267,450
A	801,562		702,889
BBB	1,038,873		909,296
Below investment grade	353,089		211,672
Total Modco trading fixed maturities	$	2,992,732	$	2,936,805

A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of December 31, 2012, were approximately $4.4 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.

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Residential mortgage-backed securities - As of December 31, 2012, our RMBS portfolio was approximately $2.2 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.

The tables below include a breakdown of these holdings by type and rating as of December 31, 2012.

	Percentage of
	Residential
	Mortgage- Backed
Type	Securities
Sequential	23.7	%
PAC	42.4
Pass Through	7.0
Other	26.9
	100.0	%

	Percentage of
	Residential
	Mortgage-Backed
Rating	Securities
AAA	55.8	%
AA	0.6
A	1.5
BBB	1.3
Below investment grade	40.8
	100.0	%

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Alt-A Collateralized Holdings

As of December 31, 2012, we held securities with a fair value of $443.6 million, or 1.2% of invested assets, supported by collateral classified as Alt-A. As of December 31, 2011, we held securities with a fair value of $354.4 million supported by collateral classified as Alt-A. We included in this classification certain whole loan securities where such securities had underlying mortgages with a high level of limited loan documentation. As of December 31, 2012, these securities had a fair value of $140.3 million and an unrealized gain of $20.1 million.

The following table includes the percentage of our collateral classified as Alt-A, grouped by rating category, as of December 31, 2012:

	Percentage of
	Alt-A
Rating	Securities
A	0.2	%
Below investment grade	99.8
	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 December 31, 2012:

Alt-A Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
A	$	0.9	$	—	$	—	$	—	$	—	$	0.9
Below investment grade	442.7		—		—		—		—		442.7
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	443.6	$	—	$	—	$	—	$	—	$	443.6

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
A	$	—	$	—	$	—	$	—	$	—	$	—
Below investment grade	18.3		—		—		—		—		18.3
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	18.3	$	—	$	—	$	—	$	—	$	18.3

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Sub-prime Collateralized Holdings

As of December 31, 2012, we held securities with a total fair value of $2.7 million that were supported by collateral classified as sub-prime. As of December 31, 2011, we held securities with a fair value of $0.1 million that were supported by collateral classified as sub-prime.

Prime Collateralized Holdings

As of December 31, 2012, we had RMBS collateralized by prime mortgage loans (including agency mortgages) with a total fair value of $1.8 billion, or 4.8%, of total invested assets. As of December 31, 2011, we held securities with a fair value of $2.3 billion of RMBS collateralized by prime mortgage loans (including agency mortgages).

The following table includes the percentage of our collateral classified as prime, grouped by rating category, as of December 31, 2012:

	Percentage of
	Prime
Rating	Securities
AAA	70.0	%
AA	0.7
A	1.8
BBB	1.6
Below investment grade	25.9
	100.0	%

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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 December 31, 2012:

Prime Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
AAA	$	428.0	$	83.4	$	356.7	$	358.3	$	—	$	1,226.4
AA	12.5		—		—		—		—		12.5
A	32.4		—		—		—		—		32.4
BBB	28.7		—		—		—		—		28.7
Below investment grade	450.9		—		—		—		—		450.9
Total mortgage-backed securities collateralized by prime mortgage loans	$	952.5	$	83.4	$	356.7	$	358.3	$	—	$	1,750.9

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
AAA	$	26.3	$	9.1	$	23.5	$	26.3	$	—	$	85.2
AA	—		—		—		—		—		—
A	0.9		—		—		—		—		0.9
BBB	1.3		—		—		—		—		1.3
Below investment grade		12.5	—		—		—		—		12.5
Total mortgage-backed securities collateralized by prime mortgage loans	$	41.0	$	9.1	$	23.5	$	26.3	$	—	$	99.9

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Commercial mortgage-backed securities - Our CMBS portfolio consists of commercial mortgage-backed securities issued in securitization transactions. As of December 31, 2012, the CMBS holdings were approximately $1.0 billion. As of December 31, 2011, the CMBS holdings were approximately $740.8 million.

The following table includes the percentages of our CMBS holdings, grouped by rating category, as of December 31, 2012:

	Percentage of
	Commercial
	Mortgage-Backed
Rating	Securities
AAA	68.9	%
AA	11.4
A	18.1
BBB	1.6
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our CMBS as of December 31, 2012:

Commercial Mortgage-Backed Securities

	Estimated Fair Value of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
AAA	$	113.8	$	—	$	86.5	$	244.1	$	272.8	$	717.2
AA	—		—		34.2		39.4		44.5		118.1
A	47.2		2.2		35.5		88.2		14.9		188.0
BBB	17.6		—		—		—		—		17.6
Total commercial mortgage- backed securities	$	178.6	$	2.2	$	156.2	$	371.7	$	332.2	$	1,040.9

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
AAA	$	3.5	$	—	$	10.9	$	32.1	$	13.4	$	59.9
AA	—		—		3.0		4.4		0.4		7.8
A	2.8		—		2.9		4.7		0.5		10.9
BBB	0.7		—		—		—		—		0.7
Total commercial mortgage- backed securities	$	7.0	$	—	$	16.8	$	41.2	$	14.3	$	79.3

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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 December 31, 2012, these holdings were approximately $1.1 billion. As of December 31, 2011, these holdings were approximately $971.0 million.

The following table includes the percentages of our other asset-backed holdings, grouped by rating category, as of December 31, 2012:

	Percentage of
	Other Asset-
	Backed
Rating	Securities
AAA	57.6	%
AA	15.2
A	15.8
BBB	0.2
Below investment grade	11.2
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our asset-backed securities as of December 31, 2012:

Other Asset-Backed Securities

	Estimated Fair Value of Security by Year of Security Origination
	2008 and
Rating	Prior		2009		2010		2011		2012		Total
	(Dollars In Millions)
AAA	$	554.6	$	4.6	$	32.1	$	26.3	$	35.1	$	652.7
AA	165.5		—		—		—		6.7		172.2
A	31.6		—		—		75.5		71.7		178.8
BBB	2.4		—		—		—		—		2.4
Below investment grade	126.9		—		—		—		—		126.9
Total other asset-backed securities	$	881.0	$	4.6	$	32.1	$	101.8	$	113.5	$	1,133.0

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2008 and
Rating	Prior			2009		2010		2011		2012		Total
	(Dollars In Millions)
AAA	$	(24.4	)	$	—	$	0.1	$	0.4	$	0.6	$	(23.3	)
AA	(14.3		)	—		—		—		0.3		(14.0		)
A	1.5			—		—		6.5		1.4		9.4
BBB	—			—		—		—		—		—
Below investment grade	1.0			—		—		—		—		1.0
Total other asset-backed securities	$	(36.2	)	$	—	$	0.1	$	6.9	$	2.3	$	(26.9	)

We obtained ratings of our fixed maturities from Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”), and/or Fitch Ratings (“Fitch”). If a fixed maturity 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 fixed maturity 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 December 31, 2012, over 98.0% of our fixed maturities were rated by Moody’s, S&P, Fitch, and/or the NAIC.

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

	As of		% Fair		As of		% Fair
	December 31, 2012		Value		December 31, 2011		Value
	(Dollars In Thousands)
Banking	$	2,314,924	7.7	%	$	2,282,096	8.2	%
Other finance	346,029		1.2		247,963		0.9
Electric	3,782,241		12.6		3,726,291		13.3
Natural gas	2,199,265		7.3		2,261,519		8.1
Insurance	2,539,394		8.4		2,127,963		7.6
Energy	1,820,275		6.1		1,722,926		6.2
Communications	1,260,773		4.2		1,239,770		4.4
Basic industrial	1,293,037		4.3		1,196,626		4.3
Consumer noncyclical	1,738,686		5.8		1,324,561		4.7
Consumer cyclical	941,057		3.1		737,424		2.6
Finance companies	244,107		0.8		218,699		0.8
Capital goods	1,065,864		3.5		934,137		3.3
Transportation	670,477		2.2		622,729		2.2
Other industrial	235,642		0.8		175,063		0.6
Brokerage	588,307		2.0		520,892		1.9
Technology	844,036		2.8		677,844		2.4
Real estate	119,021		0.4		83,208		0.3
Other utility	34,779		0.1		28,973		0.1
Commercial mortgage-backed securities	1,040,896		3.5		740,775		2.6
Other asset-backed securities	1,132,943		3.8		970,957		3.5
Residential mortgage-backed non-agency securities	987,035		3.3		1,215,872		4.3
Residential mortgage-backed agency securities	1,210,098		4.0		1,435,135		5.1
U.S. government-related securities	1,474,319		4.9		1,771,535		6.3
Other government-related securities	164,222		0.5		137,862		0.5
State, municipals, and political divisions	1,722,551		5.7		1,556,745		5.8
Other	300,000		1.0		—		—
Total	$	30,069,978	100.0	%	$	27,957,565	100.0	%

Our investments classified as available-for-sale and trading in debt and equity securities are reported at fair value. Our investments classified as held-to-maturity are reported at amortized cost. As of December 31, 2012, our fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $30.1 billion, which was 13.6% above amortized cost of $26.5 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 December 31, 2012, our mortgage loan holdings were approximately $4.9 billion. We have specialized in making loans on credit-oriented commercial properties, 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.

Our commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income.

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 December 31, 2012 and 2011, our allowance for mortgage loan credit losses was $2.9 million and $5.0 million, respectively. While our mortgage loans do not have quoted market values, as of December 31, 2012, we estimated the fair value of our mortgage loans to be $5.7 billion (using discounted cash flows from the next call date), which was approximately 16% 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 type of commercial mortgage loan 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 December 31, 2012 and 2011, approximately $817.3 million and $876.8 million, respectively, of our mortgage loans had this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. Exceptions to these loan-to-value measures may be made if we believe the mortgage has an acceptable risk profile.

Certain of our mortgage loans have call options or interest rate reset options between 3 and 10 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options or increase the interest rates on our existing mortgage loans commensurate with the significantly increased market rates. Assuming the loans are called at their next call dates, approximately $224.8 million will be due in 2013, $1.3 billion in 2014 through 2018, $599.0 million in 2019 through 2023, and $179.6 million thereafter.

As of December 31, 2012, approximately $17.9 million or 0.05%, or, of invested assets consisted of nonperforming, restructured or mortgage loans that were foreclosed and were converted to real estate properties. We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities. During the year ended December 31, 2012, certain mortgage loan transactions occurred that were accounted for as troubled debt restructurings under Topic 310 of the FASB ASC. These transactions generally included acceptance of assets in satisfaction of principal or foreclosure on collateral property, and were the result of agreements between the creditor and the debtor or imposition of law.  For all mortgage loans, the impact of troubled debt restructurings is reflected in our investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the year ended December 31, 2012 resulted in a reduction of $7.8 million in our investment in mortgage loans, net of existing allowances for mortgage loan losses.  None of these loans remained on our balance sheets as of December 31, 2012. Our mortgage loan portfolio consists of two categories of loans: (1) those not subject to a pooling and servicing agreement and (2) those subject to a contractual pooling and servicing agreement.

As of December 31, 2012, $11.0 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during year ended December 31, 2012.

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As of December 31, 2012, $6.9 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the year ended December 31, 2012.

We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities.

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

In prior periods, we participated in securities lending, primarily as an enhancement to our investment yield. During the second quarter of 2011, we discontinued this program. Certain collateral assets, which we previously intended to dispose of and on which we recorded an other-than-temporary impairment of $1.3 million, were instead retained by us and are included in our fixed maturities as of December 31, 2012, with a balance of $3.7 million. We currently do not have any intent to sell these securities, and do not anticipate being required to sell them.

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 December 31, 2012:

			Percent of
Rating	Fair Value		Fair Value
	(Dollars In Thousands)
AAA	$	3,846,005	14.4	%
AA	1,912,080		7.1
A	8,455,930		31.6
BBB	10,894,207		40.7
Investment grade	25,108,222		93.8
BB	759,323		2.8
B	136,368		0.5
CCC or lower	758,757		2.9
Below investment grade	1,654,448		6.2
Total	$	26,762,670	100.0	%

Not included in the table above are $2.6 billion of investment grade and $367.1 million of below investment grade fixed maturities classified as trading securities and $300.0 million of not rated fixed maturities classified as held-to-maturity.

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Limiting bond exposure to any creditor group is another way we manage credit risk. We held no credit default swaps on the positions listed below as of December 31, 2012. The following table includes securities held in our Modco portfolio and summarizes our ten largest maturity exposures to an individual creditor group as of December 31, 2012:

	Fair Value of
	Funded		Unfunded		Total
Creditor	Securities		Exposures		Fair Value
	(Dollars In Millions)
Duke Energy Corp	$	213.5	$	—	$	213.5
Comcast Corp.	194.8		—		194.8
Nextera Energy Inc.	182.4		—		182.4
Exelon Corp.	179.7		—		179.7
Berkshire Hathaway Inc.	173.3		—		173.3
General Electric	164.8		—		164.8
Verizon Communications Inc.	160.2		—		160.2
JP Morgan Chase	144.2		14.0		158.2
Rio Tinto PLC	158.0		—		158.0
Morgan Stanley	150.9		0.6		151.5

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

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 our intent to sell the security (including a more likely than not assessment of whether we 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 our expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows. Based on our analysis, for the year ended December 31, 2012, we concluded that approximately $58.1 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 a $9.0 million reduction of non-credit losses in other comprehensive income for the

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securities where an other-than-temporary impairment was recorded for the year ended December 31, 2012, respectively. The reduction in non-credit losses was caused by recognizing, in the current quarter, credit losses in earnings that had previously been recognized as non-credit losses in other comprehensive income.

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 minimal risk of a material loss.

Certain European countries have experienced varying degrees of financial stress. Risks from the continued debt crisis in Europe could continue to disrupt the financial markets which could have a detrimental impact on global economic conditions and on sovereign and non-sovereign obligations. There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets.

The chart shown below includes our non-sovereign fair value exposures in these countries as of December 31, 2012. As December 31, 2012, we had no unfunded exposure and had no direct sovereign fair value exposure.

					Total Gross
	Non-sovereign Debt				Funded
Financial Instrument and Country	Financial		Non-financial		Exposure
	(Dollars In Millions)
Securities:
United Kingdom	$	385.7	$	402.5	$	788.2
Switzerland	154.9		207.8		362.7
France	69.7		100.0		169.7
Sweden	152.2		5.0		157.2
Netherlands	162.6		89.5		252.1
Spain	38.3		97.8		136.1
Belgium	—		90.9		90.9
Germany	26.9		58.3		85.2
Ireland	6.0		85.0		91.0
Luxembourg	—		53.9		53.9
Italy	—		48.5		48.5
Norway	—		14.3		14.3
Total securities	996.3		1,253.5		2,249.8
Derivatives:
Germany	22.2		—		22.2
Switzerland	3.5		—		3.5
Total derivatives	25.7		—		25.7
Total securities	$	1,022.0	$	1,253.5	$	2,275.5

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Realized Gains and Losses

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

	For The Year Ended December 31,									Change
	2012			2011			2010			2012		2011
	(Dollars In Thousands)
Fixed maturity gains - sales	$	73,017		$	95,384		$	93,310		(22,367	)	2,074
Fixed maturity losses - sales	(5,348		)	(15,340		)	(41,494		)	9,992		26,154
Equity gains - sales	206			9,136			6,492			(8,930	)	2,644
Equity losses - sales	(251		)	—			(3		)	(251	)	3
Impairments on fixed maturity securities	(58,144		)	(47,321		)	(39,550		)	(10,823	)	(7,771	)
Impairments on equity securities	—			—			(1,815		)	—		1,815
Modco trading portfolio	177,986			164,224			109,399			13,762		54,825
Other	(12,774		)	(5,651		)	(9,283		)	(7,123	)	3,632
Total realized gains (losses) - investments	$	174,692		$	200,432		$	117,056		(25,740	)	83,376
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	21,138		$	164,221		$	(11,778	)	(143,083	)	175,999
Equity futures - VA	(50,797		)	(30,061		)	(42,258		)	(20,736	)	12,197
Currency futures - VA	(2,763		)	2,977			—			(5,740	)	2,977
Volatility futures - VA	(132		)	—			—			(132	)	—
Volatility swaps - VA	(11,792		)	(239		)	(2,433		)	(11,553	)	2,194
Equity options - VA	(37,370		)	(15,051		)	(1,824		)	(22,319	)	(13,227	)
Interest rate swaptions - VA	(2,260		)	—			—			(2,260	)	—
Interest rate swaps - VA	3,264			7,718			—			(4,454	)	7,718
Credit default swaps - VA	—			(7,851		)	—			7,851		(7,851	)
Embedded derivative - GMWB	(22,120		)	(127,537		)	(5,728		)	105,417		(121,809	)
Total derivatives related to variable annuity contracts	(102,832		)	(5,823		)	(64,021		)	(97,009	)	58,198
Embedded derivative - Modco reinsurance treaties	(132,816		)	(134,340		)	(67,989		)	1,524		(66,351	)
Interest rate swaps	(87		)	(11,264		)	(8,427		)	11,177		(2,837	)
Interest rate caps	(2,666		)	(2,801		)	—			135		(2,801	)
Derivatives with PLC(1)	10,664			(300		)	(4,800		)	10,964		4,500
Other derivatives	(79		)	(477		)	799			398		(1,276	)
Total realized gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)	(72,811	)	(10,567	)

(1)These derivatives include the Interest, YRT premium support,and portfolio maintenance agreements between certain of the Company’ssubsidiaries and PLC.

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 and Modco trading portfolio activity during the year ended December 31, 2012, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment, as well as tax planning strategies designed to utilize capital loss carryforwards.

From time to time, we are required to post and obligated to return collateral related to derivative transactions. As of December 31, 2012, we had posted cash and securities (at fair value) as collateral of approximately $34.8 million and $54.9 million, respectively. As of December 31, 2012, we received $11.6 million of cash as collateral. We do not net the collateral posted or received with the fair value of the derivative financial instruments for reporting purposes.

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Realized losses are comprised of both write-downs of other-than-temporary impairments and actual sales of investments. For the year ended December 31, 2012, we recognized pre-tax other-than-temporary impairments of $58.1 million due to credit-related factors, resulting in a charge to earnings. Additionally, we recognized $9.0 million of non-credit losses in other comprehensive income for the securities where an other-than-temporary impairment was recorded. For the year ended December 31, 2011, we recognized pre-tax other-than-temporary impairments of $47.3 million. 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 Year Ended December 31,
	2012		2011
	(Dollars In Millions)
Alt-A MBS	$	9.1	$	17.9
Other MBS	17.0		15.0
Corporate bonds	32.0		12.4
Sub-prime bonds	—		2.0
Total	$	58.1	$	47.3

As previously discussed, management considers several factors when determining other-than-temporary impairments. Although we purchase securities with the intent to hold them 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 year ended December 31, 2012, we sold securities in an unrealized loss position with a fair value of $38.0 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	$	23,002	60.6	%	$	(1,713	)	30.6	%
>90 days but <= 180 days	4,230		11.1		(852		)	15.2
>180 days but <= 270 days	820		2.2		(153		)	2.7
>270 days but <= 1 year	906		2.4		(167		)	3.0
>1 year	8,992		23.7		(2,714		)	48.5
Total	$	37,950	100.0	%	$	(5,599	)	100.0	%

For the year ended December 31, 2012, we sold securities in an unrealized loss position with a fair value (proceeds) of $38.0 million. The loss realized on the sale of these securities was $5.6 million. The $5.6 million loss recognized on available-for-sale securities for the year ended December 31, 2012, includes an $1.9 million loss on the sale of BNP Paribas and $1.1 million loss on the sale of Credit Suisse. We made the decision to exit these holdings in order to reduce our European financial exposure.

For the year ended December 31, 2012, we sold securities in an unrealized gain position with a fair value of $1.6 billion. The gain realized on the sale of these securities was $73.2 million.

The $12.8 million of other realized losses recognized for the year ended December 31, 2012, consists of the decrease in the mortgage loan reserves of $2.1 million, mortgage loan losses of $15.4 million, real estate gains of $0.5 million, fixed asset losses of $0.1 million, and partnership gains of $0.1 million.

For the year ended December 31, 2012, net gains of $178.0 million primarily related to changes in fair value on our Modco trading portfolios were included in realized gains and losses. Of this amount, approximately $32.3 million 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. The Modco embedded derivative associated with the trading portfolios had realized pre-tax losses of $132.8 million during the year ended

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December 31, 2012. These losses were primarily the result of credit spreads tightening and a continued decline in treasury yields.

Realized investment gains and losses related to derivatives represent changes in their fair value during the period and termination gains/(losses) on those derivatives that were closed during the period.

We use equity, interest rate, currency, and volatility futures to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. In general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility. The equity futures resulted in net pre-tax losses of $50.8 million, interest rate futures resulted in pre-tax gains of $21.1 million, currency futures resulted in net pre-tax losses of $2.8 million, and volatility futures resulted in net pre-tax losses of $0.1 million for the year ended December 31, 2012, respectively.

We also use equity options and volatility swaps to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. In general, the cost of such benefits varies with the level of equity markets and overall volatility. The equity options resulted in net pre-tax losses of $37.4 million and the volatility swaps resulted in a net pre-tax loss of $11.8 million, respectively, for year ended December 31, 2012.

We use interest rate swaps and interest rate swaptions to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. The interest rate swaps resulted in net pre-tax gains of $3.3 million and interest rate swaptions resulted in a net pre-tax loss of $2.3 million for year ended December 31, 2012.

The GMWB rider embedded derivative on variable deferred annuities, with the GMWB rider, had net realized losses of $22.1 million for the year ended December 31, 2012.

We use certain interest rate swaps to mitigate the price volatility of fixed maturities. These positions resulted in net pre-tax losses of $0.1 million for the year ended December 31, 2012. The net pre-tax losses were primarily the result of $0.7 million in realized losses due to interest settlements and $0.6 million in unrealized gains during the year ended December 31, 2012.

We purchased interest rate caps during 2011, to mitigate our credit risk with respect to our LIBOR exposure and the potential impact of European financial market distress. These caps resulted in net pre-tax losses of $2.7 million for the year ended December 31, 2012.

We have certain derivatives with PLC. These derivatives consist of an interest support agreement, a YRT premium support agreement, and two portfolio maintenance agreements with PLC. We recognized a pre-tax gain of $9.6 million for the year ended December 31, 2012 related to the interest support agreement. We recognized a pre-tax gain of $0.6 million for the year ended December 31, 2012 related to the YRT premium support agreement. We entered into two separate portfolio maintenance agreements in October 2012.  We recognized pre-tax gains of $0.5 million for the year ended December 31, 2012 related to our portfolio maintenance agreements.

We also use various swaps and other types of derivatives to mitigate risk related to other exposures. These contracts generated net pre-tax losses of $0.1 million for the year ended December 31, 2012.

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 December 31, 2012, 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

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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. We had an overall net unrealized gain of $3.1 billion, prior to tax and DAC offsets, as of December 31, 2012, and an overall net unrealized gain of $1.8 billion as of December 31, 2011.

For fixed maturity and equity securities held that are in an unrealized loss position as of December 31, 2012, the fair 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:

	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
<= 90 days	$	1,027,068	43.4	%	$	1,058,766	42.2	%	$	(31,698	)	22.5	%
>90 days but <= 180 days	77,608		3.3		85,729		3.4		(8,121		)	5.8
>180 days but <= 270 days	26,518		1.1		27,454		1.1		(936		)	0.7
>270 days but <= 1 year	442,887		18.7		470,166		18.7		(27,279		)	19.4
>1 year but <= 2 years	158,120		6.7		169,129		6.7		(11,009		)	7.8
>2 years but <= 3 years	57,579		2.4		61,809		2.5		(4,230		)	3.0
>3 years but <= 4 years	5,473		0.2		6,939		0.3		(1,466		)	1.0
>4 years but <= 5 years	164,753		7.0		178,110		7.1		(13,357		)	9.5
>5 years	407,514		17.2		450,075		18.0		(42,561		)	30.3
Total	$	2,367,520	100.0	%	$	2,508,177	100.0	%	$	(140,657	)	100.0	%

The majority of the unrealized loss as of December 31, 2012 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 the associated positive effect on security prices. Spread levels have improved since December 31, 2011. 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 uncertainties regarding future performance of the underlying mortgage loans and/or assets.

As of December 31, 2012, the Barclays Investment Grade Index was priced at 128.5 bps versus a 10 year average of 164.8 bps. Similarly, the Barclays High Yield Index was priced at 539.2 bps versus a 10 year average of 617.3 bps. As of December 31, 2012, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 0.724%, 1.758%, and 2.950%, as compared to 10 year averages of 2.871%, 3.659%, and 5.562%, respectively.

As of December 31, 2012, 48.3% 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 an 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

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lead us to dispose of those certain holdings and recognize the effects of any such market movements in our financial statements.

As of December 31, 2012, there were estimated gross unrealized losses of $16.5 million related to our mortgage-backed securities collateralized by Alt-A mortgage loans. Gross unrealized losses in our securities collateralized by Alt-A residential mortgage loans as of December 31, 2012, were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans.

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 December 31, 2012, is presented in the following table:

												%
	Fair		% Fair		Amortized		% Amortized		Unrealized			Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
Banking	$	244,025	10.3	%	$	258,343	10.3	%	$	(14,318	)	10.2	%
Other finance	4,272		0.2		4,946		0.2		(674		)	0.5
Electric	137,060		5.8		146,297		5.8		(9,237		)	6.6
Natural gas	87,171		3.7		92,974		3.7		(5,803		)	4.1
Insurance	52,032		2.2		62,289		2.5		(10,257		)	7.3
Energy	19,465		0.8		19,937		0.8		(472		)	0.3
Communications	34,334		1.5		34,928		1.4		(594		)	0.4
Basic industrial	106,419		4.5		110,895		4.4		(4,476		)	3.2
Consumer noncyclical	188,249		8.0		191,990		7.7		(3,741		)	2.7
Consumer cyclical	73,183		3.1		74,379		3.0		(1,196		)	0.9
Finance companies	38,027		1.6		40,488		1.6		(2,461		)	1.7
Capital goods	35,040		1.5		37,831		1.5		(2,791		)	2.0
Transportation	—		—		—		—		—			—
Other industrial	34,617		1.5		34,951		1.4		(334		)	0.2
Brokerage	9,500		0.4		10,034		0.4		(534		)	0.4
Technology	131,127		5.5		132,595		5.3		(1,468		)	1.0
Real estate	1,013		—		1,045		—		(32		)	—
Other utility	—		—		—		—		—			—
Commercial mortgage-backed securities	50,506		2.1		51,104		2.0		(598		)	0.4
Other asset-backed securities	721,781		30.5		783,205		31.2		(61,424		)	43.8
Residential mortgage-backed non-agency securities	262,024		11.1		281,349		11.2		(19,325		)	13.7
Residential mortgage-backed agency securities	4,388		0.2		4,410		0.2		(22		)	—
U.S. government-related securities	106,806		4.5		107,397		4.3		(591		)	0.4
Other government-related securities	14,955		0.6		15,000		0.6		(45		)	—
States, municipals, and political divisions	11,526		0.4		11,790		0.5		(264		)	0.2
Total	$	2,367,520	100.0	%	$	2,508,177	100.0	%	$	(140,657	)	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 December 31,
	2012		2011
Banking	10.2	%	28.3	%
Other finance	0.5		0.6
Electric	6.6		6.0
Natural gas	4.1		1.6
Insurance	7.3		7.8
Energy	0.3		1.1
Communications	0.4		2.0
Basic industrial	3.2		2.0
Consumer noncyclical	2.7		0.1
Consumer cyclical	0.9		1.8
Finance companies	1.7		1.9
Capital goods	2.0		2.0
Transportation	—		—
Other industrial	0.2		0.6
Brokerage	0.4		3.0
Technology	1.0		0.7
Real estate	—		—
Other utility	—		—
Commercial mortgage-backed securities	0.4		0.9
Other asset-backed securities	43.8		20.3
Residential mortgage-backed non-agency securities	13.7		19.2
Residential mortgage-backed agency securities	—		0.1
U.S. government-related securities	0.4		—
Other government-related securities	—		—
States, municipals, and political divisions	0.2		—
Total	100.0	%	100.0	%

The range of maturity dates for securities in an unrealized loss position as of December 31, 2012, varies, with 10.1% maturing in less than 5 years, 17.8% maturing between 5 and 10 years, and 72.1% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of December 31, 2012:

S&P or Equivalent	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	1,214,544	51.3	%	$	1,271,545	50.7	%	$	(57,001	)	40.5	%
BBB	448,069		18.9		459,016		18.3		(10,947		)	7.8
Investment grade	1,662,613		70.2		1,730,561		69.0		(67,948		)	48.3
BB	224,960		9.5		241,691		9.6		(16,731		)	11.9
B	77,477		3.3		79,549		3.2		(2,072		)	1.5
CCC or lower	402,470		17.0		456,376		18.2		(53,906		)	38.3
Below investment grade	704,907		29.8		777,616		31.0		(72,709		)	51.7
Total	$	2,367,520	100.0	%	$	2,508,177	100.0	%	$	(140,657	)	100.0	%

As of December 31, 2012, we held a total of 254 positions that were in an unrealized loss position. Included in that amount were 122 positions of below investment grade securities with a fair value of $704.9 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $72.7 million, of

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which $45.8 million had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 1.9% of invested assets.

As of December 31, 2012, securities in an unrealized loss position that were rated as below investment grade represented 29.8% of the total fair value and 51.7% 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. As of December 31, 2012, total unrealized losses for all securities in an unrealized loss position for more than twelve months were $72.6 million. A widening of credit spreads is estimated to account for unrealized losses of $264.9 million, with changes in treasury rates offsetting this loss by an estimated $192.3 million.

The majority of our RMBS holdings as of December 31, 2012, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 3.04 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of December 31, 2012:

Non-agency portfolio	Weighted-Average Life
Prime	2.19
Alt-A	4.63
Sub-prime	3.18

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 December 31, 2012:

	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
<= 90 days	$	175,525	24.9	%	$	191,244	24.6	%	$	(15,719	)	21.6	%
>90 days but <= 180 days	11,236		1.6		17,352		2.2		(6,116		)	8.4
>180 days but <= 270 days	17,433		2.5		18,064		2.3		(631		)	0.9
>270 days but <= 1 year	36,839		5.2		41,245		5.3		(4,406		)	6.1
>1 year but <= 2 years	77,720		11.0		85,181		11.0		(7,461		)	10.3
>2 years but <= 3 years	21,754		3.1		23,251		3.0		(1,497		)	2.1
>3 years but <= 4 years	5,445		0.8		6,866		0.9		(1,421		)	2.0
>4 years but <= 5 years	83,920		11.9		90,655		11.7		(6,735		)	9.3
>5 years	275,035		39.0		303,758		39.0		(28,723		)	39.3
Total	$	704,907	100.0	%	$	777,616	100.0	%	$	(72,709	)	100.0	%

LIQUIDITY AND CAPITAL RESOURCES

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 needs, 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.

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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 our operating cash flows 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. Therefore, we have established repurchase agreement programs to provide liquidity when needed. We expect that the rate received on our investments will equal or exceed our borrowing rate. Under this program, we may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities. As of December 31, 2012, the fair value of securities pledged under the repurchase program was $168.1 million and the repurchase obligation of $150.0 million was included in our consolidated balance sheets (at an average borrowing rate of 15 basis points). During 2012, the maximum balance outstanding at any one point in time related to these programs was $425.0 million. The average daily balance was $266.3 million (at an average borrowing rate of 14 basis points) during the year ended December 31, 2012. As of December 31, 2011, we had no outstanding balance related to such borrowings. During 2011, the maximum balance outstanding at any one point in time related to these programs was $348.2 million. The average daily balance was $147.7 million (at an average borrowing rate of 13 basis points) during the year ended December 31, 2011.

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 that was in effect until July 17, 2012 (the “Credit Facility”), we had the ability to borrow on an unsecured basis up to an aggregate principal amount of $500 million. We had 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 accrued 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 our senior unsecured long-term debt. The Credit Agreement provides that we were 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 was April 16, 2013. The Company did not have an outstanding balance under the Credit Facility as of July 17, 2012. PLC had an outstanding balance of $160.0 million at an interest rate of LIBOR plus 0.40% under the Credit Facility as of July 17, 2012.

On July 17, 2012 we replaced the Credit Facility with a new credit facility (“2012 Credit Facility”). Under the 2012 Credit Facility, we and PLC have the ability to borrow on an unsecured basis up to an aggregate principal amount of $750 million. We have the right in certain circumstances to request that the commitment under the 2012 Credit Facility be increased up to a maximum principal amount of $1.0 billion. Balances outstanding under the 2012 Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of our senior unsecured long-term debt (“Senior Debt”), or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of our Senior Debt. The 2012 Credit Facility also provides for a facility fee at a rate, currently 0.175%, that varies with the ratings of our Senior Debt and that is calculated on the aggregate amount of commitments under the 2012 Credit Facility, whether used or unused. The maturity date on the 2012 Credit Facility is July 17, 2017. We were not aware of any non-compliance with the financial debt covenants of the 2012 Credit Facility as of December 31, 2012. The Company did not have an outstanding balance under the Credit Facility as of December 31, 2012. PLC had an outstanding balance of $50.0 million at an interest rate of LIBOR plus 1.20% under the 2012 Credit Facility as of December 31, 2012.

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Sources and Use of Cash

Our primary sources of funding are from our insurance operations and revenues from investments.  These sources of cash support our operations and are used to pay dividends to PLC.  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/or surplus.

We are a member of the 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, 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 $64.6 million of FHLB common stock as of December 31, 2012, 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 December 31, 2012, we had $921.8 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

As of December 31, 2012, we reported approximately $644.6 million (fair value) of Auction Rate Securities (“ARS”) in non-Modco portfolios. As of December 31, 2012, 100% of these ARS were rated Aaa/AA+. 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, on a consolidated basis, in non-Modco portfolios as of December 31, 2012, 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 active market for these auction rate securities, we use a valuation model, which incorporates, among other inputs, the contractual terms of each indenture and current valuation information from actively-traded asset-backed securities with comparable underlying assets (i.e. FFELP-backed student loans) and vintage.

We use an income approach valuation model to determine the fair value of our student loan-backed auction rate securities. Specifically, a discounted cash flow method is used. The expected yield on the auction rate securities is estimated for each coupon date, based on the contractual terms on each indenture. The estimated market yield is based on comparable securities with observable yields and an additional yield spread for illiquidity of auction rate securities in the current market.

The auction rate securities held in non-Modco portfolios are classified as a Level 2 or Level 3 valuation. An unrealized loss of $44.0 million and $42.7 million was recorded as of December 31, 2012 and December 31, 2011, respectively, 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 credit 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 do not intend to sell or expect to be required to sell the securities before recovering our amortized cost of these securities. Therefore, we believe that no other-than-temporary impairment has been experienced.

Our liquidity requirements primarily relate to the liabilities associated with our 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.

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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. We were committed as of December 31, 2012, to fund mortgage loans in the amount of $182.6 million.

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 December 31, 2012, we held cash and short-term investments of $486.4 million.

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

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Net cash provided by operating activities	$	696,632		$	632,399		$	689,508
Net cash used in investing activities	(585,833		)	(787,744		)	(599,791		)
Net cash (used in) provided by financing activites	(10,992		)	88,122			(15,577		)
Total	$	99,807		$	(67,223	)	$	74,140

For The Year Ended December 31, 2012 as compared to The Year Ended December 31, 2011

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. We typically generate positive cash flows from operating activities, as premiums and deposits collected from our insurance and investment products exceed benefit payments 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 investing activities- Changes in cash from investing activities primarily related to the activity in our investment portfolio.

Net cash (used in) provided by financing activities- Changes in cash from financing activities included $150.0 million inflows from repurchase program borrowings as compared to no borrowings for the year ended December 31, 2011 and $102.3 million outflows of investment product and universal life net activity, as compared to $439.4 million of inflows in the prior year. Net issuances of non-recourse funding obligations equaled $198.3 million during the year ended December 31, 2012, as compared to repurchases of $112.2 million during 2011.

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. Additionally, the Company has access to the 2012 Credit Facility.

Golden Gate Captive Insurance Company (“Golden Gate”), a South Carolina special purpose financial captive insurance company and wholly owned subsidiary, had three series of Surplus Notes with a total outstanding balance of $800 million as of December 31, 2012. PLC holds the entire outstanding balance of Surplus Notes. The Series A1 Surplus Notes have a balance of $400 million and accrue interest at 7.375%, the Series A2 Surplus Notes have a balance of $100 million and accrue interest at 8%, and the Series A3 Surplus Notes have a balance of $300 million and accrue interest at 8.45%.

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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 December 31, 2012. These outstanding non-recourse funding obligations were issued to special purpose trusts, which in turn issued securities to third parties. Certain of our affiliates own a portion of these securities. As a result of these purchases, as of December 31, 2012, securities related to $286.0 million of the outstanding balance of the non-recourse funding obligations were held by external parties, securities related to $60.9 million of the non-recourse funding obligations were held by nonconsolidated affiliates, and securities related to $228.1 million were held by consolidated subsidiaries of the Company. These non-recourse funding obligations mature in 2052. $275 million of this amount is currently accruing interest at a rate of LIBOR plus 30 basis points. We have experienced higher borrowing costs than were originally expected 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 higher spread component of interest expense 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. We have contingent approval to issue an additional $100 million of obligations. Under the terms of the non-recourse funding obligations, the holders of the non-recourse funding obligations cannot require repayment from PLC, us, or any of our subsidiaries, other than Golden Gate II, the direct issuers of the non-recourse funding obligations, 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 non-recourse funding obligations). In addition, PLC has entered into certain support agreements with Golden Gate II obligating it to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate II.

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a wholly owned Vermont special purpose financial captive insurance company, is party to a Reimbursement Agreement (the “Reimbursement Agreement”) with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the original Reimbursement Agreement, dated April 23, 2010, UBS issued a letter of credit (the “LOC”) in the initial amount of $505 million to a trust for the benefit of West Coast Life Insurance Company (“WCL”). The LOC balance increased during 2012 in accordance with the terms of the Reimbursement Agreement. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011, to replace the existing LOC with one or more letters of credit from UBS, and to extend the maturity date from April 1, 2018, to April 1, 2022. The LOC balance was $580 million as of December 31, 2012. 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 12 years, subject to certain conditions including capital contributions made to Golden Gate III by one of its affiliates. The LOC was issued to support certain obligations of Golden Gate III to WCL under an indemnity reinsurance agreement. In addition, we have entered into certain support agreements with Golden Gate III obligating us to make capital contributions or provide support related to certain of Golden Gate III’s expenses and in certain circumstances, to collateralize certain of our obligations to Golden Gate III.

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a wholly owned Vermont special purpose financial captive insurance company, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL.  The LOC balance has increased, in accordance with the terms of the Reimbursement Agreement, each quarter of 2012 and was $625 million as of December 31, 2012. Subject to certain conditions, the amount of the LOC will be periodically increased up to a maximum of $790 million in 2016. The term of the LOC is expected to be 12 years.  The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement. In addition, we have entered into certain support agreements with Golden Gate IV obligating us to make capital contributions or provide support related to certain of Golden Gate IV’s expenses and in certain circumstances, to collateralize certain of our obligations to Golden Gate IV.

On October 10, 2012, Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) and Red Mountain, LLC (“Red Mountain”), wholly owned subsidiaries of the Company, entered into a 20-year transaction to finance up to $945 million of “AXXX” reserves related to a block of universal life insurance policies with secondary guarantees issued by the Company and its subsidiary, WCL. Golden Gate V issued non-recourse funding obligations to Red Mountain, and Red Mountain issued a note with an initial principal amount of $275 million, increasing to a maximum of $945 million in 2027, to Golden Gate V for deposit to a reinsurance trust supporting Golden Gate V’s obligations under a reinsurance agreement with WCL, pursuant to which WCL cedes liabilities relating to the policies

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of WCL and retrocedes liabilities relating to the policies of the Company. Through the structure, Hannover Life Reassurance Company of America (“Hannover Re”), the ultimate risk taker in the transaction, provides credit enhancement to the Red Mountain note for the 20-year term in exchange for a fee. The transaction is “non-recourse” to Golden Gate V, Red Mountain, WCL, PLC and the Company, meaning that none of these companies are liable for the reimbursement of any credit enhancement payments required to be made. As of December 31, 2012, the principal balance of the Red Mountain note was $300 million. In connection with the transaction, PLC has entered into certain support agreements under which we guarantee or otherwise support certain obligations of Golden Gate V and Red Mountain.

A life insurance company’s statutory capital is computed according to rules prescribed by the 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 our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our 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. The maximum amount that would qualify as an ordinary dividend from our insurance subsidiaries in 2013 is estimated to be $95 million.

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. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators. As of December 31, 2012, our total adjusted capital and company action level RBC was $3.3 billion and $644 million, respectively providing an RBC of approximately 510%.

During 2012, PLC entered into an intercompany capital support agreement with Shades Creek Captive Insurance Company (“Shades Creek”), a direct wholly owned insurance subsidiary. The agreement provides through a guarantee that PLC will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. As of December 31, 2012, Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.

Statutory reserves established for variable annuity contracts are sensitive to changes in the equity markets and are affected by the level of account values relative to the level of any guarantees and product design. As a result, the relationship between reserve changes and equity market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to their impact on the valuation of reserves and derivative investments mitigating the risk in these reserves. For example, if the level of the S&P 500 had been 10% lower as of December 31, 2012, we estimate that our RBC ratio would have declined by approximately 15 to 20 points. Likewise, if the level of the S&P 500 had been 10% higher as of December 31, 2012, we estimate that our RBC ratio would have increased by an insignificant amount. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can vary at a non-linear rate.

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In an effort to mitigate the equity market risks discussed above relative to our RBC ratio, in the fourth quarter of 2012, the Company established Shades Creek to which we have reinsured GMWB and GMDB riders related to our variable annuity contracts. The purpose of Shades Creek is to reduce the volatility in RBC due to non-economic variables included within the RBC calculation.

Our statutory surplus is impacted by credit spreads as a result of accounting for the assets and liabilities on our fixed MVA annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates based on U.S. Treasuries. In many capital market scenarios, current crediting rates based on U.S. Treasuries are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus. The result of this mismatch had a positive impact to our statutory surplus of approximately $20 million on a pre-tax basis for the year ended December 31, 2012, as compared to an immaterial impact to our statutory surplus for the year ended December 31, 2011.

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 it assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For the year ended December 31, 2012, we ceded premiums to third party reinsurers amounting to $1.3 billion. In addition, we had receivables from reinsurers amounting to $5.7 billion as of December 31, 2012. We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate. For additional information related to our reinsurance exposure, see Note 9, Reinsurance.

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. The following table summarizes the financial strength ratings of our significant member companies from the major independent rating organizations as of December 31, 2012:

			Standard &
Ratings	A.M. Best	Fitch	Poor’s	Moody’s
Insurance company financial strength rating:
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-	—	—	—

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.

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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 December 31, 2012, we had policy liabilities and accruals of approximately $23.0 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.56%.

Contractual 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 solely based upon an analysis of these obligations. The most significant factors affecting our future cash flows are our ability to earn and collect cash from our customers, and the cash flows arising from our investment program. Future cash outflows, whether they are contractual obligations or not, will also 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 contractual obligations. These include expenditures for income taxes and payroll.

As of December 31, 2012, we carried a $74.3 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.

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The table below sets forth future maturities of our contractual obligations.

			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)	$	2,404,303	$	24,709	$	62,250	$	78,808	$	2,238,536
Stable value products(2)	2,597,626		531,621		1,376,678		621,856		67,471
Operating leases(3)	20,278		6,948		9,691		3,404		235
Home office lease(4)	75,744		679		75,065		—		—
Mortgage loan and investment commitments	191,023		191,023		—		—		—
Repurchase program borrowings(5)	150,005		150,005		—		—		—
Policyholder obligations(6)	28,647,869		2,427,757		3,667,659		3,060,176		19,492,277
Total	$	34,086,848	$	3,332,742	$	5,191,343	$	3,764,244	$	21,798,519

(1)  Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes.  Of the total undiscounted cash flows, $1.9 billion relates to the Golden Gate V transaction.  These cash out flows are matched and predominantly offset by the cash in flows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. The remaining amounts are associated with the Golden Gate and Golden Gate II notes outstanding.

(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 the periods above were computed based on the terms of the renegotiated lease agreement, which was entered in January 2007.

(5)  Represents secured borrowings as part of our repurchase program as well as related interest.

(6)  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.

Employee Benefit Plans

PLC sponsors a defined benefit pension plan covering substantially all of its employees. In addition, PLC sponsors an unfunded excess benefit plan and provides other postretirement benefits to eligible employees.

PLC reports the net funded status of its pension and other postretirement plans in the consolidated balance sheet. The net funded status represents the differences between the fair value of plan assets and the projected benefit obligation.

PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”) plus such additional amounts as it may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. PLC may also make additional contributions in future periods to maintain an adjusted funding target attainment percentage (“AFTAP”) of at least 80%.

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In July of 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), which includes pension funding stabilization provisions, was signed into law. These provisions establish an interest rate corridor which is designed to stabilize the segment rates used to determine funding requirements from the effects of interest rate volatility. The funding stabilization provisions of MAP-21 will reduce PLC’s minimum required defined benefit plan contributions for the 2012 and 2013 plan years. PLC is evaluating the impact this change will have on funding requirements in future years.  Since the funding stabilization provisions of MAP-21 do not apply for Pension Benefit Guaranty Corporation (“PBGC”) reporting purposes, PLC may also make additional contributions in future periods to maintain an 80% funded status for PBGC reporting purposes.

PLC has not yet determined the total amount it will fund during 2013, but it estimates that the amount will be between $6 million and $15 million.

For a complete discussion of PLC’s benefit plans, additional information related to the funded status of its benefit plans, and its funding policy, see Note 14, Employee Benefit Plans.

FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB 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 2, Summary of Significant Accounting Policies and Note 19, 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 December 31, 2012, $924.5 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. The predominance of market inputs are actively quoted and can be validated through external sources. Estimation risk is greater for derivative financial instruments 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 December 31, 2012, the Level 3 fair values of derivative assets and liabilities determined by these quantitative models were $48.7 million and $611.4 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 December 31, 2012, the Level 3 fair value of these liabilities was $129.5 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 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 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 $973.2 million, or 3.2% of total assets (measured at fair value on a recurring basis) classified as Level 3 assets, $666.7 million were ABS. Of this amount, $618.9 million were student loan related ABS and $47.8 million were non-student loan related ABS. The years of issuance of the ABS are as follows:

Year of Issuance	Amount
	(In Millions)
2002	$	283.6
2003	118.5
2004	114.0
2005	7.1
2006	22.7
2007	114.2
2012	6.6
Total	$	666.7

The ABS was rated as follows: $523.3 million were AAA rated, $119.1 million were AA rated, $23.5 million were A rated, $0.1 million were BBB rated, and $0.7 million were less than investment grade. We do not expect any credit losses on these securities related to student loans since the majority of 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, the yield curve, spreads between risk-adjusted and risk-free interest rates, foreign currency rates, 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, credit and market 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, volatility risk, and equity market risk. See Note 20, Derivative Financial Instruments for additional information on our financial instruments.

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, net of collateral held, based upon current market conditions and potential payment obligations between us and our counterparties. We minimize the credit risk in derivative financial instruments by entering into transactions with high quality counterparties, (A-rated or higher at the time we enter into the contract) and we maintain collateral support agreements with certain of those counterparties.

We utilize a risk management strategy that includes the use of derivative financial instruments. Derivative instruments expose us to credit market and basis risk. Such instruments can change materially in value from period-to-period. We minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market and basis risks by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

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We monitor our use of derivatives in connection with our overall asset/liability management programs and procedures. In addition, all derivative programs are monitored by our risk management department.

Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps and interest rate options. 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 may use the following types of derivative contracts to mitigate our exposure to certain guaranteed benefits related to variable annuity contracts:

·Foreign Currency Futures

·Variance Swaps

·Interest Rate Futures

·Equity Options

·Equity Futures

·Credit Derivatives

·Interest Rate Swaps

·Interest Rate Swaptions

·Volatility Futures

Other Derivatives

We have certain derivatives with PLC. These derivatives consist of an interest support agreement, a YRT premium support arrangement, and portfolio maintenance agreements with PLC.

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, implied volatility, policyholder behavior, 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.

The following table sets forth the estimated market values of our fixed maturity investments and mortgage loans resulting from a hypothetical immediate 100 basis point increase in interest rates from levels prevailing as of December 31, 2012, and the percent change in fair value the following estimated fair values would represent:

			Percent
As of December 31,	Amount		Change
	(Dollars In Millions)
2012
Fixed maturities	$	27,811.7	7.5	%
Mortgage loans	5,463.2		4.6
2011
Fixed maturities	$	25,975.4	(7.1	)%
Mortgage loans	5,973.7		(4.4	)

Estimated fair values were derived from the durations of our fixed maturities and mortgage loans.  Duration measures the change in fair value resulting from a change in interest rates. While these estimated fair values provide an indication of how sensitive the fair values of our fixed maturities and mortgage loans are to changes in interest rates, they do not represent management’s view of future fair value changes or the potential impact of fluctuations in credit spreads. Actual results may differ from these estimates.

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In the ordinary course of our commercial mortgage lending operations, we may 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 December 31, 2012 and 2011, we had outstanding mortgage loan commitments of $182.6 million at an average rate of 5.1% and $182.4 million at an average rate of 5.58%, respectively, with estimated fair values of $210.5 million and $211.9 million, respectively (using discounted cash flows from the first call date). The following table sets forth the estimated fair value of our mortgage loan commitments resulting from a hypothetical immediate 100 basis point increase in interest rate levels prevailing as of December 31, 2012, and the percent change in fair value the following estimated fair values would represent:

			Percent
As of December 31,	Amount		Change
	(Dollars In Millions)
2012	$	200.8	(4.6	)%
2011	202.4		(4.5	)

The estimated fair values were derived from the durations of our outstanding mortgage loan commitments.  While these estimated fair values provide an indication of how sensitive the fair value of our outstanding commitments are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

As previously discussed, we utilize a risk management strategy that involves the use of derivative financial instruments. Derivative instruments expose us to credit and market risk and could result in material changes from period to period. We minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market risk by establishing and monitoring 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.

As of December 31, 2012, total derivative contracts with a notional amount of $17.2 billion were in a $637.4 million net loss position. Included in the $17.2 billion, is a notional amount of $2.7 billion in a $410.6 million net loss position that relates to our Modco trading portfolio. Also included in the total, is $6.9 billion in a $169.3 million net loss position that relates to our GMWB derivatives. As of December 31, 2011, total derivative contracts with a notional amount of $13.3 billion were in a $435.5 million net loss position. We recognized losses of $227.8 million, $155.0 million, and $144.4 million related to derivative financial instruments for the years ended December 31, 2012, 2011, and 2010, respectively.

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The following table sets forth the notional amount and fair value of our freestanding interest rate risk related derivative financial instruments and the estimated fair value resulting from a hypothetical immediate plus and minus 100 basis points change in interest rates from levels prevailing as of December 31:

						Fair Value Resulting From an
						Immediate +/- 100 bps Change
			Fair Value			in the Underlying Reference
	Notional		as of			Interest Rates
	Amount		December 31,			+100 bps			-100 bps
	(Dollars In Millions)
2012
Futures(1)	$	893.5	$	(14.0	)	$	(118.3	)	$	109.8
Caps	3,000.0		—			2.6			—
Interest Rate Swaptions	400.0		11.4			4.3			36.0
Floating to fixed Swaps(2)	308.0		(8.3		)	0.9			(19.0		)
Fixed to floating Swaps(2)	630.0		(0.2		)	(67.8		)	83.6
Total	$	5,231.5	$	(11.1	)	$	(178.3	)	$	210.4
2011
Futures	$	885.5	$	5.2		$	(35.1	)	$	52.7
Caps	3,000.0		2.7			31.3			—
Floating to fixed Swaps(2)	476.5		(10.3		)	(10.8		)	(10.6		)
Total	$	4,362.0	$	(2.4	)	$	(14.6	)	$	42.1

(1) Interest rate change scenario subject to floor, based on treasury rates as of December 31, 2012.

(2) Includes an effect for inflation.

The following table sets forth the notional amount and fair value of our equity futures and options and the estimated fair value resulting from a hypothetical immediate plus and minus ten percentage point change in equity level from levels prevailing as of December 31:

						Fair Value Resulting From an
						Immediate +/- 10% Change
			Fair Value			in the Underlying Reference
	Notional		as of			Index Equity Level
	Amount		December 31,			+10%			-10%
	(Dollars In Millions)
2012
Futures	$	299.9	$	(2.7	)	$	(33.0	)	$	27.6
Options	573.7		62.1			69.4			59.2
Total	$	873.6	$	59.4		$	36.4		$	86.8
2011
Futures	$	239.4	$	(0.6	)	$	(24.5	)	$	23.3
Options	440.2		19.6			11.1			34.2
Total	$	679.6	$	19.0		$	(13.4	)	$	57.5

108

The following table sets forth the notional amount and fair value of our currency futures and the estimated fair value resulting from a hypothetical immediate plus and minus ten percentage point change in currency level from levels prevailing as of December 31:

						Fair Value Resulting From an
						Immediate +/- 10% Change
			Fair Value			in the Underlying Reference
	Notional		as of			in Currency Level
	Amount		December 31,			+10%			-10%
	(Dollars In Millions)
2012
Currency futures	$	147.9	$	(1.1	)	$	(16.0	)	$	13.8
2011
Currency futures	$	72.3	$	0.8		$	(6.3	)	$	8.0

The following table sets forth the notional amount and fair value of our variance swap and the estimated fair value resulting from a hypothetical immediate plus and minus ten percentage point change in volatility level from levels prevailing as of December 31:

						Fair Value Resulting From an
						Immediate +/- 10% Change
			Fair Value			in the Underlying Reference
	Notional		as of			in Volatility Level
	Amount		December 31,			+10%		-10%
	(Dollars In Millions)
2012
Variance swap	$	3.2	$	(11.8	)	$	17.7	$	31.5
2011
Variance swap	$	—	$	—		$	—	$	—

Estimated gains and losses were derived using pricing models specific to derivative financial instruments.  While these estimated gains and losses provide an indication of how sensitive our derivative financial instruments are to changes in interest rates, volatility, equity levels, and credit spreads, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

Our stable value contract and annuity products tend to be more sensitive to market risks than our other products. As such, many of these products contain surrender charges and other features that 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. Additionally, approximately $1.4 billion of our stable value contracts have no early termination rights.

As of December 31, 2012, we had $2.5 billion of stable value product account balances with an estimated fair value of $2.5 billion (using discounted cash flows) and $10.7 billion of annuity account balances with an estimated fair value of $10.5 billion (using discounted cash flows). As of December 31, 2011, we had $2.8 billion of stable value product account balances with an estimated fair value of $2.9 billion (using discounted cash flows) and $10.9 billion of annuity account balances with an estimated fair value of $10.8 billion (using discounted cash flows).

109

The following table sets forth the estimated fair values of our stable value and annuity account balances resulting from a hypothetical immediate 100 basis point decrease in interest rates from levels prevailing and the percent change in fair value that the following estimated fair values would represent:

			Percent
As of December 31,	Amount		Change
	(Dollars In Millions)
2012
Stable value product account balances	$	2,549.0	1.5	%
Annuity account balances	10,633.5		1.0
2011
Stable value product account balances	$	2,791.8	1.3	%
Annuity account balances	10,879.4		1.0

Estimated fair values were derived from the durations of our stable value and annuity account balances. While these estimated fair values provide an indication of how sensitive the fair values of our stable value and annuity account balances are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

Certain of our liabilities relate to products whose profitability could be significantly affected by changes in interest rates. In addition to traditional whole life and term insurance, many universal life policies with secondary guarantees that insurance coverage will remain in force (subject to the payment of specified premiums) have such characteristics. These products do not allow us to adjust policyholder premiums after a policy is issued, and most of these products do not have significant account values upon which we credit interest. If interest rates fall, these products could have both decreased interest earnings and increased amortization of deferred acquisition costs, and the converse could occur if interest rates rise.

Impact of continued low interest rate environment

Significant changes in interest rates expose us to the risk of not realizing anticipated spreads between the interest rate earned on investments and the interest rate credited to in-force policies and contracts. In addition, certain of our insurance and investment products guarantee a minimum credited interest rate (“MGIR”). In periods of prolonged low interest rates, the interest spread earned may be negatively impacted to the extent our ability to reduce policyholder crediting rates is limited by the guaranteed minimum credited interest rates. Additionally, those policies without account values may exhibit lower profitability in periods of prolonged low interest rates due to reduced investment income.

110

The table below presents account values by range of current minimum guaranteed interest rates and current crediting rates for our universal life and deferred fixed annuity products:

Credited Rate Summary

As of December 31, 2012
				1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total
	(In Millions)
Universal Life Insurance
>2% - 3%	$	36		$	1		$	911		$	948
>3% - 4%	1,402			649			1,137			3,188
>4% - 5%	2,058			3,069			385			5,512
>5% - 6%	223			—			—			223
Subtotal	3,719			3,719			2,433			9,871
Fixed Annuities
1%	$	—		$	—		$	856		$	856
>1% - 2%	195			—			1,323			1,518
>2% - 3%	1,166			6			1,617			2,789
>3% - 4%	347			—			—			347
>4% - 5%	240			—			—			240
Subtotal	1,948			6			3,796			5,750
Total	$	5,667		$	3,725		$	6,229		$	15,621
Percentage of Total	36		%	24		%	40		%	100		%

We are active in mitigating the impact of a continued low interest rate environment through product design, as well as adjusting crediting rates on current in-force policies and contracts. We also manage interest rate and reinvestment risks through our asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations; cash flow testing under various interest rate scenarios; and the regular rebalancing of assets and liabilities with respect to yield, credit and market 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, volatility risk, and equity market risk.

Employee Benefit Plans

Pursuant to the accounting guidance related to PLC’s obligations to employees under its pension plan and other postretirement benefit plans, PLC is required to make a number of assumptions to estimate related liabilities and expenses. PLC’s most significant assumptions are those for the discount rate and expected long-term rate of return.

Discount Rate Assumption

The assumed discount rates used to determine the benefit obligations were based on an analysis of future benefits expected to be paid under the plans. The assumed discount rate reflects the interest rate at which an amount that is invested in a portfolio of high-quality debt instruments on the measurement date would provide the future cash flows necessary to pay benefits when they come due.

111

The following presents PLC’s estimates of the hypothetical impact to the December 31, 2012 benefit obligation and to the 2012 benefit cost, associated with sensitivities related to the discount rate assumption:

				Other
	Defined Benefit			Postretirement
	Pension Plan			Benefit Plans(1)
	(Dollars in Thousands)
Increase (Decrease) in Benefit Obligation:
100 basis point increase	$	(24,022.0	)	$	(4,453.0	)
100 basis point decrease	29,739.0			5,318.0
Increase (Decrease) in Benefit Cost:
100 basis point increase	$	(3,455.0	)	$	(283.0	)
100 basis point decrease	4,302.0			327.0

(1) Includes excess pension plan, retiree medical plan, and postretirement life insurance plan.

Long-term Rate of Return Assumption

In assessing the reasonableness of PLC’s long-term rate of return assumption for its defined benefit pension plan, PLC obtained 25 year annualized returns for each of the represented asset classes. In addition, PLC received evaluations of market performance based on its asset allocation as provided by external consultants. A combination of these statistical analytics provided results that PLC utilized to determine an appropriate long-term rate of return assumption. In assessing the reasonableness of PLC’s long-term rate of return assumption for its postretirement life insurance plan, PLC utilized a 20 year annualized return and a 20 year average return on Barclay’s short treasury index. PLC’s long-term rate of return assumption was determined based on analytics related to these 20 year return results.

The following presents PLC’s estimates of the hypothetical impact to the 2012 benefit cost, associated with sensitivities related to the long-term rate of return assumption:

				Other
	Defined Benefit			Postretirement
	Pension Plan			Benefit Plans(1)
	(Dollars in Thousands)
Increase (Decrease) in Benefit Cost:
100 basis point increase	$	(1,408.0	)	$	(62.0	)
100 basis point decrease	1,408.0			62.0

(1) Includes excess pension plan, retiree medical plan, and postretirement life insurance plan.

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.

112

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for information regarding recently issued accounting standards. Included below, is accounting pronouncement ASU No. 2010-26 that we adopted as of January 1, 2012.

ASU No. 2010-26—Financial Services—Insurance—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.  The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts. This Update was effective for us on January 1, 2012. We retrospectively adopted this Update, which resulted in a reduction in our deferred acquisition cost asset as well as a decrease in the amortization associated with those previously deferred costs. There was also a reduction in the level of costs deferred. For additional information on the effect this Update had on our statements, see Note 6, Deferred Acquisition Costs and Value of Business Acquired.

ASU No. 2011-05—Comprehensive Income—Presentation of Comprehensive Income. In this Update, a company has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in 1) a single continuous statement of comprehensive income, or 2) in two separate but consecutive statements. In both choices, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in this Update do not change the items that must be reported in other comprehensive income, or the timing of its subsequent reclassification to net income. This Update was effective January 1, 2012. The Company has implemented the two-page report format beginning in the first quarter of 2012.

113

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data.

Item 8.       Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

The following financial statements are located in this report on the pages indicated.

	Page
Consolidated Statements of Income For The Year Ended December 31, 2012, 2011, and 2010	115
Consolidated Statements of Comprehensive Income For The Year Ended December 31, 2012, 2011, and 2010	116
Consolidated Balance Sheets as of December 31, 2012 and 2011	117
Consolidated Statements of Shareowner’s Equity For The Year Ended December 31, 2012, 2011, and 2010	119
Consolidated Statements of Cash Flows For The Year Ended December 31, 2012, 2011, and 2010	120
Notes to Consolidated Financial Statements	121
Report of Independent Registered Public Accounting Firm	196

For supplemental quarterly financial information, please see Note 22, Consolidated Quarterly Results-Unaudited of the notes to consolidated financial statements included herein.

114

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

	For The Year Ended December 31,
	2012			2011 (1)			2010 (1)
	(Dollars In Thousands)
Revenues
Premiums and policy fees	$	2,799,390		$	2,784,134		$	2,609,357
Reinsurance ceded	(1,310,097		)	(1,363,914		)	(1,380,712		)
Net of reinsurance ceded	1,489,293			1,420,220			1,228,645
Net investment income	1,789,338			1,753,444			1,624,845
Realized investment gains (losses):
Derivative financial instruments	(227,816		)	(155,005		)	(144,438		)
All other investments	232,836			247,753			158,420
Other-than-temporary impairment losses	(67,130		)	(62,210		)	(74,970		)
Portion recognized in other comprehensive income (before taxes)	8,986			14,889			33,606
Net impairment losses recognized in earnings	(58,144		)	(47,321		)	(41,364		)
Other income	230,553			189,494			110,876
Total revenues	3,456,060			3,408,585			2,936,984
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (2012 - $1,228,897; 2011 - $1,231,405; 2010 - $1,283,054)	2,317,121			2,222,220			2,076,392
Amortization of deferred policy acquisition costs and value of business acquired	192,183			249,520			144,496
Other operating expenses, net of reinsurance ceded: (2012 - $200,442; 2011 - $203,868; 2010 - $205,299)	487,177			461,570			382,920
Total benefits and expenses	2,996,481			2,933,310			2,603,808
Income before income tax	459,579			475,275			333,176
Income tax (benefit) expense
Current	81,006			(4,576		)	6,544
Deferred	70,037			156,095			103,321
Total income tax expense	151,043			151,519			109,865
Net income	$	308,536		$	323,756		$	223,311

(1) Recast from previously reported information

See Notes to Consolidated Financial Statements

115

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For The Year Ended December 31,
	2012			2011 (1)			2010 (1)
	(Dollars In Thousands)
Net income	$	308,536		$	323,756		$	223,311
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (2012 - $392,372; 2011 - $400,626; 2010 - $328,597)	728,692			744,032			609,694
Reclassification adjustment for investment amounts included in net income, net of income tax: (2012 - $(3,317); 2011 - $(14,646); 2010 - $(5,951))	(6,163		)	(27,213		)	(10,989		)
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: (2012 - $16,227; 2011 - $(13,195); 2010 - $11,515)	30,136			(24,506		)	21,384
Change in accumulated (loss) gain - derivatives, net of income tax: (2012 - $2,609; 2011 - $2,382; 2010 - $4,441)	4,846			4,424			7,630
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2012 - $(381); 2011 - $(138); 2010 - $(614))	(708		)	(256		)	(1,105		)
Total other comprehensive income	756,803			696,481			626,614
Total comprehensive income	$	1,065,339		$	1,020,237		$	849,925

(1)    Recast from previously reported information

See Notes to Consolidated Financial Statements

116

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2012		2011 (1)
	(Dollars In Thousands)
Assets
Fixed maturities, at fair value (amortized cost: 2012 - $26,661,310; 2011 - $26,109,131)	$	29,769,978	$	27,957,565
Fixed maturities, at amortized cost (fair value: 2012 - $319,163)	300,000		—
Equity securities, at fair value (cost: 2012 - $371,827; 2011 - $303,578)	373,715		292,413
Mortgage loans (2012 and 2011 includes: $765,520 and $858,139 related to securitizations)	4,948,625		5,351,902
Investment real estate, net of accumulated depreciation (2012 - $771; 2011 - $993)	6,517		10,991
Policy loans	865,391		879,819
Other long-term investments	378,821		264,031
Short-term investments	216,787		101,470
Total investments	36,859,834		34,858,191
Cash	269,582		169,775
Accrued investment income	350,804		347,857
Accounts and premiums receivable, net of allowance for uncollectible amounts (2012 - $4,191; 2011 - $3,864)	67,891		68,641
Reinsurance receivables	5,682,841		5,542,417
Deferred policy acquisition costs and value of business acquired	3,225,356		3,223,220
Goodwill	83,773		86,871
Property and equipment, net of accumulated depreciation (2012 - $103,625; 2011 - $132,579)	47,391		47,997
Other assets	343,925		351,327
Income tax receivable	61,952		62,311
Assets related to separate accounts
Variable annuity	9,601,417		6,741,959
Variable universal life	562,817		502,617
Total assets	$	57,157,583	$	52,003,183

(1) Recast from previously reported information

See Notes to Consolidated Financial Statements

117

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(continued)

	As of December 31,
	2012			2011(1)
	(Dollars In Thousands)
Liabilities
Future policy benefits and claims	$	21,626,065		$	20,867,727
Unearned premiums	1,352,872			1,218,258
Total policy liabilities and accruals	22,978,937			22,085,985
Stable value product account balances	2,510,559			2,769,510
Annuity account balances	10,658,463			10,946,848
Other policyholders’ funds	566,985			546,516
Other liabilities	1,210,579			970,047
Mortgage loan backed certificates	—			19,755
Deferred income taxes	1,783,713			1,293,996
Non-recourse funding obligations	1,446,900			1,248,600
Repurchase program borrowings	150,000			—
Liabilities related to separate accounts
Variable annuity	9,601,417			6,741,959
Variable universal life	562,817			502,617
Total liabilities	51,470,370			47,125,833
Commitments and contingencies - Note 11
Shareowner’s 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: 2012 and 2011 - 5,000,000	5,000			5,000
Additional paid-in-capital	1,363,258			1,361,734
Retained earnings	2,507,829			2,456,293
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2012 - $979,251; 2011 - $590,196)	1,818,608			1,096,079
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2012 - $(2,147); 2011 - $(18,374))	(3,988		)	(34,124		)
Accumulated loss - derivatives, net of income tax: (2012 - $(1,883); 2011 - $(4,111))	(3,496		)	(7,634		)
Total shareowner’s equity	5,687,213			4,877,350
Total liabilities and shareowner’s equity	$	57,157,583		$	52,003,183

(1) Recast from previously reported information

See Notes to Consolidated Financial Statements

118

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHAREOWNER’S EQUITY

										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-in		Retained			Comprehensive			Shareowner’s
	Stock		Stock		Capital		Earnings(1)			Income (Loss)			Equity(1)
	(Dollars In Thousands)
Balance before cumulative effect adjustments, December 31, 2009	$	2	$	5,000	$	1,361,734	$	2,579,504		$	(268,450	)	$	3,677,790
Cumulative effect adjustments							(455,278		)	(324		)	(455,602		)
Balance, December 31, 2009	$	2	$	5,000	$	1,361,734	$	2,124,226		$	(268,774	)	$	3,222,188
Net income for 2010							223,311						223,311
Other comprehensive income										626,614			626,614
Comprehensive income for 2010													849,925
Balance, December 31, 2010	$	2	$	5,000	$	1,361,734	$	2,347,537		$	357,840		$	4,072,113
Net income for 2011							323,756						323,756
Other comprehensive income										696,481			696,481
Comprehensive income for 2011													1,020,237
Dividends paid to the parent company							(215,000		)				(215,000		)
Balance, December 31, 2011	$	2	$	5,000	$	1,361,734	$	2,456,293		$	1,054,321		$	4,877,350
Net income for 2012							308,536						308,536
Other comprehensive income										756,803			756,803
Comprehensive income for 2012													1,065,339
Capital contributions					1,524								1,524
Dividends paid to the parent company							(257,000		)				(257,000		)
	$	2	$	5,000	$	1,363,258	$	2,507,829		$	1,811,124		$	5,687,213

(1)Recast from previously reported information

See Notes to Consolidated Financial Statements

119

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For The Year Ended December 31,
	2012			2011 (1)			2010 (1)
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	308,536		$	323,756		$	223,311
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment losses (gains)	53,124			(45,427		)	27,382
Amortization of deferred policy acquisition costs and value of business acquired	192,183			249,520			144,496
Capitalization of deferred policy acquisition costs	(311,960		)	(355,033		)	(348,730		)
Depreciation expense	7,378			8,616			8,931
Deferred income tax	70,037			107,265			66,682
Accrued income tax	359			(24,683		)	84,580
Interest credited to universal life and investment products	962,678			993,574			972,806
Policy fees assessed on universal life and investment products	(794,825		)	(712,038		)	(611,917		)
Change in reinsurance receivables	(140,424		)	(28,615		)	(223,843		)
Change in accrued investment income and other receivables	580			(35,436		)	(22,567		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	300,523			15,307			341,104
Trading securities:
Maturities and principal reductions of investments	276,659			283,239			355,831
Sale of investments	454,150			860,474			730,385
Cost of investments acquired	(585,618		)	(950,051		)	(963,403		)
Other net change in trading securities	(56,615		)	7,933			(25,520		)
Change in other liabilities	(22,009		)	(148,801		)	(17,981		)
Other income - gains on repurchase of non-recourse funding obligations	(32,044		)	(35,512		)	(5,377		)
Other, net	13,920			118,311			(46,662		)
Net cash provided by operating activities	696,632			632,399			689,508
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	1,169,563			1,396,105			2,053,359
Sale of investments, available-for-sale	2,535,708			2,957,589			3,421,590
Cost of investments acquired, available-for-sale	(4,228,755		)	(5,155,155		)	(6,384,981		)
Change in investments, held-to-maturity	(300,000		)	—			—
Mortgage loans:
New lendings	(346,435		)	(484,483		)	(338,598		)
Repayments	739,402			446,794			351,891
Change in investment real estate, net	4,927			(4,266		)	151
Change in policy loans, net	14,428			14,190			31,663
Change in other long-term investments, net	(123,401		)	77,079			(71,148		)
Change in short-term investments, net	(82,282		)	122,665			695,506
Net unsettled security transactions	37,169			68,810			(340		)
Purchase of property and equipment	(6,157		)	(17,463		)	(10,636		)
Sales of property and equipment	—			—			40
Payments for business acquisitions	—			(209,609		)	(348,288		)
Net cash used in investing activities	(585,833		)	(787,744		)	(599,791		)
Cash flows from financing activities
Issuance (repayment) of non-recourse funding obligations	198,300			(112,200		)	(194,200		)
Repurchase program borrowings	150,000			—			—
Dividends paid to the parent company	(257,000		)	(215,000		)	—
Investment product deposits and change in universal life deposits	3,716,553			4,216,738			3,635,447
Investment product withdrawals	(3,818,845		)	(3,777,365		)	(3,477,430		)
Other financing activities, net	—			(24,051		)	20,606
Net cash (used in) provided by financing activities	(10,992		)	88,122			(15,577		)
Change in cash	99,807			(67,223		)	74,140
Cash at beginning of period	169,775			236,998			162,858
Cash at end of period	$	269,582		$	169,775		$	236,998

(1) Recast from previously reported information

See Notes to Consolidated Financial Statements

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PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION

Basis of Presentation

Protective Life Insurance Company (the “Company”), a stock life insurance company, was founded in 1907. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange “PL”. The Company provides financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate division devoted to the acquisition of insurance policies from other companies.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities (see also Note 18, Statutory Reporting Practices and Other Regulatory Matters).

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 and Accounting Changes

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 shareowner’s equity.

On January 1, 2012, the Company adopted Accounting Standard Update (“ASU” or “Update”) No. 2010-26 — Financial Services — Insurance — Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts which changed certain previously reported items within the Company’s financial statements and accompanying notes. The previously reported amounts included in the Company’s financial statements and accompanying notes have been updated to reflect the retrospective adoption of ASU No. 2010-26, where applicable.

Current and prior period operating income results within the Annuities segment have been updated to reflect the revised definition of operating income (loss) as it relates to embedded derivatives on our variable annuity contracts and the related hedging activities. This change did not impact its comparable GAAP measure income before income tax. See Note 21, Operating Segments for additional information.

Also on January 1, 2012, the Company adopted ASU No. 2011-05, which requires the presentation of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The requirements of ASU No. 2011-05 do not change the items that must be reported in other comprehensive income, or the timing of its subsequent reclassification to net income. The retrospective adoption of ASU No. 2011-05 resulted in the inclusion of consolidated statements of comprehensive income within the Company’s consolidated financial statements.

Out of Period Adjustment

During 2012 the Company recorded an adjustment to correct an error in the prior period valuation of our interest support agreement with PLC. The adjustment was $1.9 million related to the year ended December 31, 2011.  This adjustment resulted in an increase to “Other Long-Term Investments” and an increase to “Realized Investments Gains (Losses): Derivative Financial Instruments”. The adjustment was not material to any one prior period and, as a result, we have not restated the prior period amount.

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Entities Included

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

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs (“DAC”) and amortization periods, goodwill recoverability, value of business acquired (“VOBA”), investment fair values and other-than-temporary impairments, future policy benefits, pension and other postretirement benefits, provision for income taxes, reserves for contingent liabilities, reinsurance risk transfer assessments, and reserves for losses in connection with unresolved legal matters.

Significant Accounting Policies

Valuation of investment securities

The Company determines the appropriate classification of investment securities at the time of purchase and periodically re-evaluates such designations. Investment securities are classified as either trading, available-for-sale, or held-to-maturity securities. Investment securities classified as trading are recorded at fair value with changes in fair value recorded in realized gains (losses). Investment securities purchased for long term investment purposes are classified as available for sale and are recorded at fair value with changes in unrealized gains and losses, net of taxes, reported as a component of other comprehensive income (loss). Investment securities are classified as held to maturity when the Company has the intent and ability to hold the securities to maturity and are reported at amortized cost. Interest income on available-for-sale and held-to-maturity securities includes the amortization of premiums and accretion of discounts and are recorded in investment income.

The fair value for fixed maturity, short term, and equity securities, is determined by management after considering and evaluating one of three primary sources of information: third party pricing services, 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, any remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flows and rates of prepayments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third party pricing services will normally derive the security prices through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as 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. Included in the pricing of other asset-backed securities, collateralized mortgage obligations (“CMOs”), and mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and rates of prepayments previously experienced at the interest rate levels projected for the underlying collateral. The basis for the cost of securities sold was determined at the Committee on Uniform Securities Identification Procedures (“CUSIP”) level. The committee supplies a unique nine-character identification, called a CUSIP number, for each class of security approved for trading in the U.S., to facilitate clearing and settlement. These numbers are used when any buy and sell orders are recorded.

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)

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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 (collectively referred to as asset-backed securities or “ABS”), the Company considers all known market data related to cash flows to estimate 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 year ended December 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $67.1 million. Of the $67.1 million of impairments for the year ended December 31, 2012, $58.1 million was recorded in earnings and $9.0 million was recorded in other comprehensive income (loss). For more information on impairments, refer to Note 4, Investment Operations.

Cash

Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. As a result of the Company’s cash management system, checks issued from a particular bank but not yet presented for payment may create negative book cash balances with the bank. Such negative balances are included in other liabilities and were $96.6 million and $0.9 million as of December 31, 2012 and 2011, respectively. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the creditworthiness of these financial institutions and believes there is minimal risk of a material loss.

Deferred Policy Acquisition Costs

In the first quarter of 2012, the Company adopted ASU No. 2010-26 — Financial Services — Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts.

The incremental direct costs associated with successfully acquired insurance policies, are deferred to the extent such costs are deemed recoverable from future profits. Such costs include commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products. Deferred acquisition costs (“DAC”) is subject to recoverability testing at the end of each accounting period. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and

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investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization.

Based on the Accounting Standards Codification (“ASC” or “Codification”) Financial Services-Insurance Topic, the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates (equal to the rate used to compute liabilities for future policy benefits, currently 1.0% to 7.95%) the Company expects to experience in future periods. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, using guidance from ASC Investments-Debt and Equity Securities Topic, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with our universal life and investment products had been realized. Acquisition costs for stable value contracts are amortized over the term of the contracts using the effective yield method.

Value of Businesses Acquired

In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is allocated to the right to receive future gross profits from the acquired insurance policies or investment contracts. This intangible asset, called VOBA, represents the actuarially estimated present value of future cash flows from the acquired policies. The estimated present value of future cash flows is based on certain assumptions, including mortality, persistency, expenses, and interest rates that the Company expects to experience in future years. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. The Company amortizes VOBA in proportion to gross premiums for traditional life products and in proportion to expected gross profits (“EGPs”) for interest sensitive products, including accrued interest credited to account balances of up to approximately 8.75%. VOBA is subject to annual recoverability testing.

Property and Equipment

The Company reports land, buildings, improvements, and equipment at cost, including interest capitalized during any acquisition or development period, less accumulated depreciation. The Company depreciates its assets using the straight-line method over the estimated useful lives of the assets. The Company’s home office building is depreciated over a thirty-nine year useful life, furniture is depreciated over a ten year useful life, office equipment and machines are depreciated over a five year useful life, and software and computers are depreciated over a three year useful life. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.

Property and equipment consisted of the following:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Home office building	$	72,587		$	72,148
Data processing equipment	29,209			56,928
Other, principally furniture and equipment	49,220			51,500
	151,016			180,576
Accumulated depreciation	(103,625		)	(132,579		)
Total property and equipment	$	47,391		$	47,997

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Separate Accounts

The separate account assets represent funds for which the Company does not bear the investment risk. These assets are carried at fair value and are equal to the separate account liabilities, which represent the policyholder’s equity in those assets. The investment income and investment gains and losses on the separate account assets accrue directly to the policyholder. These amounts are reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements. Amounts assessed against policy account balances for the costs of insurance, policy administration, and other services are included in premiums and policy fees in the accompanying consolidated statements of income.

Stable Value Product Account Balances

The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. GICs are contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

The segment’s products complement the Company’s overall asset/liability management in that the terms may be tailored to the needs of PLICO as the seller of the contracts, as opposed to solely meeting the needs of the buyer.  Stable value product account balances include GICs and funding agreements the Company has issued. As of December 31, 2012 and 2011, the Company had $0.3 billion and $0.8 billion, respectively, of stable value product account balances marketed through structured programs. Most GICs and funding agreements the Company has written have maturities of one to ten years.

As of December 31, 2012, future maturities of stable value products were as follows:

Year of Maturity	Amount
	(Dollars In Millions)
2013	$	432.6
2014-2015	1,231.9
2016-2017	785.7
Thereafter	60.3

Derivative Financial Instruments

The Company records its derivative financial instruments in the consolidated 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 change in the fair value of derivative financial instruments is reported either in the statement of income or in the other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists. For cash flow hedges, the effective portion of their gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis. The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship in earnings. Changes in the fair value of derivatives that are recognized in current earnings are reported in “Realized investment gains (losses) - Derivative financial instruments”. For additional information, see Note 20, Derivative Financial Instruments.

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Insurance liabilities and reserves

Establishing an adequate liability for the Company’s obligations to policyholders requires the use of certain assumptions. Estimating liabilities for future policy benefits on life and health insurance products requires the use of assumptions relative to future investment yields, mortality, morbidity, persistency, and other assumptions based on the Company’s historical experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Determining liabilities for the Company’s property and casualty insurance products also requires the use of assumptions, including the projected levels of used vehicle prices, the frequency and severity of claims, and the effectiveness of internal processes designed to reduce the level of claims. The Company’s results depend significantly upon the extent to which its actual claims experience is consistent with the assumptions the Company used in determining its reserves and pricing its products. The Company’s reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. The Company cannot determine with precision the ultimate amounts that it will pay for actual claims or the timing of those payments.

Guaranteed minimum withdrawal benefits

The Company also establishes liabilities for guaranteed minimum withdrawal benefits (“GMWB”) on its variable annuity products. The GMWB is valued in accordance with FASB guidance under the ASC Derivatives and Hedging Topic which utilizes the valuation technique prescribed by the ASC Fair Value Measurements and Disclosures Topic, which requires the liability to be recorded at fair value using current implied volatilities for the equity indices. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, our net GMWB liability held was $169.0 million.

Goodwill

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 first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares 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 certain of its operating segments (which are each 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, which consider a market participant view of fair value, 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, 2012, the Company performed its annual evaluation of goodwill and determined that no adjustment to impair goodwill was necessary. As of December 31, 2012, we had goodwill of $83.8 million.

While continued deterioration of or adverse market conditions for certain businesses may have a significant impact on the fair value of the Company’s reporting units, in the Company’s view, the key assumptions used in its estimates of fair value of its reporting units continue to be adequate, and PLC’s market capitalization being below book value did not result in a triggering or impairment event.

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Income Taxes

The results of operations of the Company are included in the consolidated federal and certain state income tax returns of PLC.  The Company utilizes the asset and liability method in accordance with the Accounting Standards Codification (“ASC”) Income Taxes Topic.  The method of allocation of current income taxes between the affiliates is subject to a written agreement under which the Company incurs a liability to PLC to the extent that a separate return calculation indicates that the Company has a federal income tax liability.  If the Company has an income tax benefit, the benefit is recorded currently to the extent it can be carried back against prior years’ separate company income tax expense.  Any amount not carried back is carried forward on a separate company basis (generally without a time limit), and the tax benefit is reflected in future periods when the Company generates taxable income.  Income taxes recoverable (payable) are recorded in other assets and other liabilities, respectively, and are settled periodically, per the tax sharing agreement. In general, income tax provisions are based on the income reported for financial statement purposes. Deferred income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the recorded change in fair value of investment assets, the deferral of policy acquisition costs, and the provision for future policy benefits and expenses.

The Company analyzes whether it needs to establish a valuation allowance on each of its deferred tax assets. In performing this analysis, the Company first considers the need for a valuation allowance on each separate deferred tax asset. Ultimately, it analyzes this need in the aggregate in order to prevent the double-counting of expected future taxable income in each of the foregoing separate analyses.

The Company’s tax returns are included in PLC’s consolidated U.S. income tax return.

Variable Interest Entities

In 2010, the Company adopted guidance issued by the FASB related to variable interest entities (“VIE”) and transfers of financial assets. This adoption resulted in the consolidation of certain qualifying special purpose entities used for mortgage loan securitizations. As part of this adoption, the Company recorded a cumulative effect adjustment  of $14.3 million as of January 1, 2010.

The Company’s VIE 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. For more information on the Company’s investment in unconsolidated a VIE refer to Note 4, Investment Operations, to the consolidated financial statements.

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Policyholder Liabilities, Revenues, and Benefits Expense

Traditional Life, Health, and Credit Insurance Products

Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and they include whole life insurance policies, term and term-like life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies. Traditional life insurance premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts.  This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of DAC and VOBA. Gross premiums in excess of net premiums related to immediate annuities are deferred and recognized over the life of the policy.

Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions on December 31, 2012, range from approximately 2.0% to 8.75%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.

Activity in the liability for unpaid claims for life and health insurance is summarized as follows:

	As of December 31,
	2012		2011		2010
	(Dollars In Thousands)
Balance beginning of year	$	312,799	$	299,971	$	299,396
Less: reinsurance	161,450		156,932		148,479
Net balance beginning of year	151,349		143,039		150,917
Incurred related to:
Current year	702,555		653,525		471,039
Prior year	62,926		65,269		35,555
Total incurred	765,481		718,794		506,594
Paid related to:
Current year	664,744		639,118		457,511
Prior year	80,794		76,424		56,961
Total paid	745,538		715,542		514,472
Other changes:
Acquisition and reserve transfers	—		5,058		—
Net balance end of year	171,292		151,349		143,039
Add: reinsurance	155,341		161,450		156,932
Balance end of year	$	326,633	$	312,799	$	299,971

Universal Life and Investment Products

Universal life and investment products include universal life insurance, guaranteed investment contracts, guaranteed funding agreements, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Such fees are recognized when assessed and earned. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest rates credited to universal life products ranged from 2.0% to 8.75% and investment products ranged from 1.5% to 4.55% in 2012.

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The Company’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at fair value and reported as components of assets and liabilities related to separate accounts.

The Company establishes liabilities for guaranteed minimum death benefits (“GMDB”) on its variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality and the performance of equity markets. The Company assumes mortality of 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Future declines in the equity market would increase the Company’s GMDB liability. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. Our GMDB as of December 31, 2012, are subject to a dollar-for-dollar reduction upon withdrawal of related annuity deposits on contracts issued prior to January 1, 2003. As of December 31, 2012, the GMDB was $19.6 million.

The Company also establishes liabilities for GMWB on its variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, the net GMWB liability balance was $169.0 million.

Property and Casualty Insurance Products

Property and casualty insurance products include service contract business, surety bonds, guaranteed asset protection (“GAP”), and credit-related coverages. Premiums for service contracts and GAP products are recognized based on expected claim patterns. For all other products, premiums are generally recognized over the terms of the contract on a pro-rata basis. Fee income from providing administrative services is recognized as earned when the related services are performed. Unearned premium reserves are maintained for the portion of the premiums that is related to the unexpired period of the policy. Benefit reserves are recorded when insured events occur. Benefit reserves include case basis reserves for known but unpaid claims as of the balance sheet date as well as incurred but not reported (“IBNR”) reserves for claims where the insured event has occurred but has not been reported to the Company as of the balance sheet date. The case basis reserves and IBNR are calculated based on historical experience and on assumptions relating to claim severity and frequency, the level of used vehicle prices, and other factors. These assumptions are modified as necessary to reflect anticipated trends.

Reinsurance

The Company uses reinsurance extensively in certain of its segments and accounts for reinsurance and the recognition of the impact of reinsurance costs in accordance with the ASC Financial Services — Insurance Topic. The following summarizes some of the key aspects of the Company’s accounting policies for reinsurance.

Reinsurance Accounting Methodology — Ceded premiums of the Company’s traditional life insurance products are treated as an offset to direct premium and policy fee revenue and are recognized when due to the assuming company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable financial reporting period. Expense allowances paid by the assuming companies are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances is treated as an offset to direct amortization of DAC or VOBA. Amortization of deferred expense allowances is calculated as a level percentage of expected premiums in all durations given expected future lapses and mortality and accretion due to interest.

The Company utilizes reinsurance on certain short duration insurance contracts (primarily issued through the Asset Protection segment). As part of these reinsurance transactions the Company receives reinsurance allowances which reimburse the Company for acquisition costs such as commissions and premium taxes. A ceding fee is also collected to cover other administrative costs and profits for the Company. Reinsurance allowances received are

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capitalized and charged to expense in proportion to premiums earned. Ceded unamortized acquisition costs are netted with direct unamortized acquisition costs in the balance sheet.

Ceded premiums and policy fees on the Company’s universal life (“UL”), variable universal life, bank-owned life insurance (“BOLI”), and annuity products reduce premiums and policy fees recognized by the Company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable valuation period. Commission and expense allowances paid by the assuming companies are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances are amortized based on future expected gross profits. Assumptions regarding mortality, lapses, and interest rates are continuously reviewed and may be periodically changed. These changes will result in “unlocking” that changes the balance in the ceded deferred acquisition cost and can affect the amortization of DAC and VOBA. Ceded unearned revenue liabilities are also amortized based on expected gross profits. Assumptions are based on the best current estimate of expected mortality, lapses and interest spread.

Reinsurance Allowances - The amount and timing of reinsurance allowances (both first year and renewal allowances) are contractually determined by the applicable reinsurance contract and may or may not bear a relationship to the amount and incidence of expenses actually paid by the ceding company. Many of the Company’s reinsurance treaties do, in fact, have ultimate renewal allowances that exceed the direct ultimate expenses. Additionally, allowances are intended to reimburse the ceding company for some portion of the ceding company’s commissions, expenses, and taxes. As a result, first year expenses paid by the Company may be higher than first year allowances paid by the reinsurer, and reinsurance allowances may be higher in later years than renewal expenses paid by the Company.

The Company recognizes allowances according to the prescribed schedules in the reinsurance contracts, which may or may not bear a relationship to actual expenses incurred by the Company. A portion of these allowances is deferred while the non-deferrable allowances are recognized immediately as a reduction of other operating expenses. The Company’s practice is to defer reinsurance allowances in excess of the ultimate allowance. This practice is consistent with the Company’s practice of capitalizing direct expenses. While the recognition of reinsurance allowances is consistent with GAAP, in some cases non-deferred reinsurance allowances may exceed non-deferred direct costs, which may cause net other operating expenses to be negative.

Ultimate reinsurance allowances are defined as the lowest allowance percentage paid by the reinsurer in any policy duration over the lifetime of a universal life policy (or through the end of the level term period for a traditional life policy). Ultimate reinsurance allowances are determined by the reinsurer and set by the individual contract of each treaty during the initial negotiation of each such contract. Ultimate reinsurance allowances and other treaty provisions are listed within each treaty and will differ between agreements since each reinsurance contract is separately negotiated. The Company uses the ultimate reinsurance allowances set by the reinsurers and contained within each treaty agreement to complete its accounting responsibilities.

Amortization of Reinsurance Allowances - Reinsurance allowances do not affect the methodology used to amortize DAC and VOBA, or the period over which such DAC and VOBA are amortized. Reinsurance allowances offset the direct expenses capitalized, reducing the net amount that is capitalized. The amortization pattern varies with changes in estimated gross profits arising from the allowances. DAC and VOBA on traditional life policies are amortized based on the pattern of estimated gross premiums of the policies in force. Reinsurance allowances do not affect the gross premiums, so therefore they do not impact traditional life amortization patterns. DAC and VOBA on universal life products are amortized based on the pattern of estimated gross profits of the policies in force.  Reinsurance allowances are considered in the determination of estimated gross profits, and therefore do impact amortization patterns.

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Reinsurance Liabilities - Claim liabilities and policy benefits are calculated consistently for all policies in accordance with GAAP, regardless of whether or not the policy is reinsured. Once the claim liabilities and policy benefits for the underlying policies are estimated, the amounts recoverable from the reinsurers are estimated based on a number of factors including the terms of the reinsurance contracts, historical payment patterns of reinsurance partners, and the financial strength and credit worthiness of reinsurance partners. Liabilities for unpaid reinsurance claims are produced from claims and reinsurance system records, which contain the relevant terms of the individual reinsurance contracts. The Company monitors claims due from reinsurers to ensure that balances are settled on a timely basis. Incurred but not reported claims are reviewed by the Company’s actuarial staff to ensure that appropriate amounts are ceded.

The Company analyzes and monitors the credit worthiness of each of its reinsurance partners to minimize collection issues. For newly executed reinsurance contracts with reinsurance companies that do not meet predetermined standards, the Company requires collateral such as assets held in trusts or letters of credit.

Components of Reinsurance Cost - The following income statement lines are affected by reinsurance cost:

Premiums and policy fees (“reinsurance ceded” on the Company’s financial statements) represent consideration paid to the assuming company for accepting the ceding company’s risks. Ceded premiums and policy fees increase reinsurance cost.

Benefits and settlement expenses include incurred claim amounts ceded and changes in ceded policy reserves. Ceded benefits and settlement expenses decrease reinsurance cost.

Amortization of deferred policy acquisition cost and VOBA reflects the amortization of capitalized reinsurance allowances. Ceded amortization decreases reinsurance cost.

Other expenses include reinsurance allowances paid by assuming companies to the Company less amounts capitalized. Non-deferred reinsurance allowances decrease reinsurance cost.

The Company’s reinsurance programs do not materially impact the other income line of the Company’s income statement. In addition, net investment income generally has no direct impact on the Company’s reinsurance cost. However, it should be noted that by ceding business to the assuming companies, the Company forgoes 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.

Accounting Pronouncements Recently Adopted

ASU No. 2010-26 — Financial Services — Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts. This Update was effective for the Company on January 1, 2012. The Company retrospectively adopted this Update, which resulted in a reduction in its deferred acquisition cost asset as well as a decrease in the amortization associated with those previously deferred costs. There was also a reduction in the level of costs the Company defers. For additional information on the effect this Update had on the Company, see Note 6, Deferred Policy Acquisition Costs and Value of Business Acquired.

ASU No. 2011-03 — Transfers and Servicing - Reconsideration of Effective Control for Repurchase Agreements. This Update amends the assessment of effective control for repurchase agreements to remove 1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and 2) the collateral maintenance implementation guidance

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related to the criterion. The Board determined that these criterion should not be a determining factor of effective control. This Update was effective for the first interim or annual period beginning on or after December 15, 2011. For the Company, the Update was applied to all repurchase agreements beginning January 1, 2012. The Company has modified its policies and procedures to ensure compliance with the updated guidance. There was no impact to the Company’s results of operations or financial position as a result of this adoption.

ASU No. 2011-04 — Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRSs”). The intent of this Update was not to change the application of the requirements in Topic 820. Some of the amendments clarify the intent regarding the application of existing fair value measurement requirements. The Update expanded requirements for disclosing information about fair value measurements. These changes were effective for interim and annual periods beginning after December 15, 2011. The Company has included the required additional disclosures in Note 19, Fair Value of Financial Instruments, and has modified its policies and processes to ensure compliance with the updated guidance.

ASU No. 2011-05 — Comprehensive Income — Presentation of Comprehensive Income. In this Update, a company has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in 1) a single continuous statement of comprehensive income, or 2) in two separate but consecutive statements. In both choices, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The Company has implemented the two-statement report format outlined in ASU No. 2011-05 beginning in the first quarter of 2012. The amendments in this Update do not change the items that must be reported in other comprehensive income, or the timing of its subsequent reclassification to net income. This Update was effective January 1, 2012.

Commensurate with the effective date of ASU No. 2011-05, the requirement to present reclassifications from other comprehensive income on the face of the income statement, was deferred by ASU No. 2011-12 — Comprehensive Income — Deferral of the Effective for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.

ASU No. 2012-04 — Technical Corrections and Improvements. This Update contains changes intended to clarify the Codification or to correct unintended application of guidance, and which are not expected to have a significant effect on current accounting practice. In addition, this Update includes more substantive, limited-scope improvements to the Codification. These are items that represent narrow and incremental improvements to U.S. GAAP and are not purely technical corrections. This Update was effective upon issuance on October 1, 2012, and will not have an impact on the Company’s results of operations or financial position.

Accounting Pronouncements Not Yet Adopted

ASU No. 2011-11 — Balance Sheet — Disclosures about Offsetting Assets and Liabilities. This Update contains new disclosure requirements regarding the nature of an entity’s rights of offset and related arrangements associated with its financial and derivative instruments. The new disclosures are designed to make financial statements that are prepared under GAAP more comparable to those prepared under IFRSs. Generally, it is more difficult to qualify for offsetting under IFRSs than it is under GAAP. As a result, entities with significant financial instrument and derivative portfolios that report under IFRSs typically present positions on their balance sheets that are significantly larger than those of entities with similarly sized portfolios whose financial statements are prepared in accordance with GAAP. To facilitate comparison between financial statements prepared under GAAP and IFRSs, the new disclosures will give financial statement users information about both gross and net exposures. In January 2013, the FASB issued ASU No. 2013-01, which clarifies that application of ASU No. 2011-11 is limited to certain derivatives, repurchase and reverse repurchase agreements, and securities borrowing and securities lending transactions. Both Updates are effective January 1, 2013. However, the Company expects that neither Update will have an impact on the Company’s results of operations or financial position.

ASU No. 2012-02 — Intangibles-Goodwill and Other — Testing Indefinite-Lived Intangible Assets for Impairment. This Update is intended to reduce the complexity and cost of performing an impairment test for

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indefinite-lived intangible assets by allowing an entity the option to make a qualitative evaluation about the likelihood of impairment prior to the quantitative calculation required by current guidance. Under the amendments to Topic 350, an entity has the option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. If an entity determines it is not more likely than not that impairment exists, quantitative impairment testing is not required. However, if an entity concludes otherwise, the impairment test outlined in current guidance is required to be completed. The Update does not change the current requirement that indefinite-lived intangible assets be reviewed for impairment at least annually.

ASU No. 2013-02 — Comprehensive Income — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update supersede the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05, Comprehensive Income - Presentation of Comprehensive Income, and ASU No. 2011-12, Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, for all entities. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  The Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. This Update will not have an impact on the Company’s results of operations or financial position.

3.             SIGNIFICANT ACQUISITIONS

On December 31, 2010, the Company completed the acquisition of all of the outstanding stock of United Investors Life Insurance Company (“United Investors”), pursuant to a Stock Purchase Agreement, between the Company, Torchmark Corporation (“Torchmark”) and its wholly owned subsidiaries, Liberty National Life Insurance Company (“Liberty National”) and United Investors.  The Company accounted for this transaction under the acquisition method of accounting as required by FASB guidance under the ASC Business Combinations topic. This guidance requires that assets acquired and liabilities assumed are generally recorded at their fair values.  The aggregate purchase price for United Investors was $363.3 million.

On April 29, 2011, the Company closed a previously announced reinsurance transaction with Liberty Life Insurance Company (“Liberty Life”) under the terms of which the Company reinsured substantially all of the life and health business of Liberty Life. The transaction closed in conjunction with Athene Holding Ltd’s acquisition of Liberty Life from an affiliate of Royal Bank of Canada. The capital invested by the Company in the transaction at closing was $321 million, including a $225 million ceding commission. In conjunction with the closing, the Company invested $40 million in a surplus note issued by Athene Life Re. The Company accounted for this transaction under the ASC Financial Services-Insurance topic in a manner similar to the acquisition method of accounting as required by the Financial Accounting Standards Board (“FASB”) guidance under ASC Business Combinations topic.

The following (unaudited) pro forma condensed consolidated results of operations assumes that the aforementioned transactions with Liberty Life and United Investors was completed as of January 1, 2010:

	Unaudited
	For The Year Ended December 31,
	2011		2010
	(Dollars In Thousands)
Revenue	$	3,491,414	$	3,321,743
Net income	$	324,793	$	270,433

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4.INVESTMENT OPERATIONS

Major categories of net investment income are summarized as follows:

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Fixed maturities	$	1,453,018	$	1,414,965	$	1,301,047
Equity securities	20,740		20,595		17,836
Mortgage loans	349,845		336,541		310,988
Investment real estate	3,289		3,458		3,180
Short-term investments	62,887		72,137		77,185
	1,889,779		1,847,696		1,710,236
Other investment expenses	100,441		94,252		85,391
Net investment income	$	1,789,338	$	1,753,444	$	1,624,845

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

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Fixed maturities	$	67,669		$	80,044		$	51,816
Equity securities	(45		)	9,136			6,489
Impairments on fixed maturity securities	(58,144		)	(47,321		)	(39,550		)
Impairments on equity securities	—			—			(1,815		)
Modco trading portfolio	177,986			164,224			109,399
Other investments	(12,774		)	(5,651		)	(9,283		)
Total realized gains (losses) - investments	$	174,692		$	200,432		$	117,056

For the year ended December 31, 2012, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $73.2 million and gross realized losses were $60.3 million, including $54.7 million of impairment losses. For the year ended December 31, 2011, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $104.5 million and gross realized losses were $62.0 million, including $46.6 million of impairment losses. For the year ended December 31, 2010, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $99.8 million and gross realized losses were $82.6 million, including $41.1 million of impairment losses.

For the year ended December 31, 2012, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $1.6 billion. The gain realized on the sale of these securities was $73.2 million. For the year ended December 31, 2011, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $2.2 billion. The gain realized on the sale of these securities was $104.5 million. For the year ended December 31, 2010, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $2.9 billion. The gain realized on the sale of these securities was $99.8 million.

For the year ended December 31, 2012, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $38.0 million. The loss realized on the sale of these securities was $5.6 million. The Company made the decision to exit these holdings in order to reduce its European financial exposure.

For the year ended December 31, 2011, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $263.1 million. The loss realized on the sale of these securities was $15.3 million. The Company made the decision to exit these holdings in order to reduce its European financial exposure.

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For the year ended December 31, 2010, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $709.6 million. The loss realized on the sale of these securities was $41.5 million. The Company made the decision to exit these holdings to reduce exposure to the 2010 oil spill in the Gulf of Mexico, to certain issuers with credit deterioration, and European financial institutions.

Certain European countries have experienced varying degrees of financial stress. Risks from the continued debt crisis in Europe could continue to disrupt the financial markets which could have a detrimental impact on global economic conditions and on sovereign and non-sovereign obligations. There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets.

The amortized cost and fair value of the Company’s investments classified as available-for-sale as of December 31, are as follows:

			Gross		Gross					Total OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains		Losses			Value		in OCI(1)
	(Dollars In Thousands)
2012
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,766,260	$	92,417	$	(19,347	)	$	1,839,330	$	(406	)
Commercial mortgage-backed securities	797,844		72,577		(598		)	869,823		—
Other asset-backed securities	1,023,649		12,788		(61,424		)	975,013		(241		)
U.S. government-related securities	1,097,501		71,536		(591		)	1,168,446		—
Other government-related securities	93,565		7,258		(45		)	100,778		—
States, municipals, and political subdivisions	1,188,019		255,898		(264		)	1,443,653		—
Corporate bonds	17,687,164		2,726,858		(48,395		)	20,365,627		(5,488		)
	23,654,002		3,239,332		(130,664		)	26,762,670		(6,135		)
Equity securities	352,272		11,881		(9,993		)	354,160		—
Short-term investments	97,852		—		—			97,852		—
	$	24,104,126	$	3,251,213	$	(140,657	)	$	27,214,682	$	(6,135	)
2011
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	2,340,172	$	82,574	$	(85,702	)	$	2,337,044	$	(47,652	)
Commercial mortgage-backed securities	530,283		24,473		(4,229		)	550,527		—
Other asset-backed securities	997,398		6,529		(90,898		)	913,029		(6,559		)
U.S. government-related securities	1,150,525		65,212		(58		)	1,215,679		—
Other government-related securities	88,058		4,959		—			93,017		—
States, municipals, and political subdivisions	1,154,307		173,406		—			1,327,713		—
Corporate bonds	16,888,423		1,922,038		(249,870		)	18,560,591		1,787
	23,149,166		2,279,191		(430,757		)	24,997,600		(52,424		)
Equity securities	286,537		5,430		(16,595		)	275,372		(74		)
Short-term investments	15,629		—		—			15,629		—
	$	23,451,332	$	2,284,621	$	(447,352	)	$	25,288,601	$	(52,498	)

(1)These amounts are included in the gross unrealized gains and gross unrealized losses columns above.

The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of December 31, are as follows:

			Gross		Gross				Total OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in OCI
2012
Fixed maturities:
Other	$	300,000	$	19,163	$	—	$	319,163	$	—
	$	300,000	$	19,163	$	—	$	319,163	$	—

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As of December 31, 2012 and 2011, the Company had an additional $3.0 billion and $3.0 billion of fixed maturities, $19.6 million and $17.0 million of equity securities, and $118.9 million and $85.8 million of short-term investments classified as trading securities, respectively.

The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of December 31, 2012, 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.

	Available-for-sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars In Thousands)				(Dollars In Thousands)
Due in one year or less	$	452,876	$	459,845	$	—	$	—
Due after one year through five years	4,568,417		4,996,310		—		—
Due after five years through ten years	6,283,158		6,967,782		—		—
Due after ten years	12,349,551		14,338,733		300,000		319,163
	$	23,654,002	$	26,762,670	$	300,000	$	319,163

During the year ended December 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $67.1 million all of which were related to debt securities. Of the $67.1 million of impairments for the year ended December 31, 2012, $58.1 million was recorded in earnings and $9.0 million was recorded in other comprehensive income (loss). There were no impairments related to equity securities. For the year ended December 31, 2012, there were no other-than-temporary impairments related to debt securities or equity securities that the Company intended to sell or expected to be required to sell.

During the year ended December 31, 2011, the Company recorded pre-tax other-than-temporary impairments of investments of $62.2 million all of which were related to debt securities. Of the $62.2 million of impairments for the year ended December 31, 2011, $47.3 million was recorded in earnings and $14.9 million was recorded in other comprehensive income (loss). For the year ended December 31, 2011, there were no impairments related to equity securities. For the year ended December 31, 2011, pre-tax 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 were $52.7 million, with $37.8 million of credit losses recorded on debt securities in earnings and $14.9 million of non-credit losses recorded in other comprehensive income (loss). During the same period, other-than-temporary impairments related to debt securities that the Company intends to sell or expects to be required to sell were $9.5 million and were recorded in earnings.

During the year ended December 31, 2010, the Company recorded other-than-temporary impairments of investments of $75.0 million. Of the $75.0 million of impairments for the year ended December 31, 2010, $41.4 million was recorded in earnings and $33.6 million was recorded in other comprehensive income (loss). For the year ended December 31, 2010, there was $2.5 million of other-than-temporary impairments related to equity securities. For the year ended December 31, 2010, there was $72.5 million of other-than-temporary impairments related to debt securities. During this period, there was no other-than-temporary impairments related to debt securities or equity 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 available-for-sale 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 Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Beginning balance	$	69,476	$	39,275		$	25,066
Additions for newly impaired securities	26,544		12,699			26,893
Additions for previously impaired securities	25,217		20,591			4,964
Reductions for previously impaired securities due to a change in expected cash flows	—		—			—
Reductions for previously impaired securities that were sold in the current period	—		(3,089		)	(17,648		)
Other	—		—			—
Ending balance	$	121,237	$	69,476		$	39,275

The following table includes the gross unrealized losses and fair value of the Company’s investments 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 December 31, 2012:

	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	$	100,412	$	(9,578	)	$	166,000	$	(9,769	)	$	266,412	$	(19,347	)
Commercial mortgage-backed securities	50,506		(598		)	—		—			50,506		(598		)
Other asset-backed securities	479,223		(28,179		)	242,558		(33,245		)	721,781		(61,424		)
U.S. government-related securities	106,806		(591		)	—		—			106,806		(591		)
Other government-related securities	14,955		(45		)	—		—			14,955		(45		)
States, municipalities, and political subdivisions	11,526		(264		)	—		—			11,526		(264		)
Corporate bonds	775,593		(23,630		)	363,128		(24,765		)	1,138,721		(48,395		)
Equities	35,059		(5,150		)	21,754		(4,843		)	56,813		(9,993		)
	$	1,574,080	$	(68,035	)	$	793,440	$	(72,622	)	$	2,367,520	$	(140,657	)

RMBS have a gross unrealized loss greater than twelve months of $9.8 million as of December 31, 2012. The non-agency RMBS market experienced improvements during the year, but these losses represent securities where credit concerns are more pronounced. 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 these investments.

The other asset-backed securities have a gross unrealized loss greater than twelve months of $33.2 million as of December 31, 2012. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). These unrealized losses have occurred within the Company’s auction rate securities (“ARS”) portfolio since the market collapse during 2008. At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

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The corporate bonds category has gross unrealized losses greater than twelve months of $24.8 million as of December 31, 2012. 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.

The equities category has a gross unrealized loss greater than twelve months of $4.8 million as of December 31, 2012. These losses primarily relate to a widening in credit spreads on perpetual preferred stock holdings. The aggregate decline in market value of these securities was deemed temporary due to factors supporting the recoverability of the respective investments. Positive factors include credit ratings, the financial health of the issuer, the continued access of the issuer to the capital markets, and other pertinent information.

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.

The following table includes the gross unrealized losses and fair value of the Company’s investments 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 December 31, 2011:

	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	$	276,216	$	(15,308	)	$	524,251	$	(70,394	)	$	800,467	$	(85,702	)
Commercial mortgage-backed securities	78,893		(4,229		)	—		—			78,893		(4,229		)
Other asset-backed securities	531,653		(32,074		)	190,639		(58,824		)	722,292		(90,898		)
U.S. government-related securities	21,311		(58		)	—		—			21,311		(58		)
Corporate bonds	1,870,256		(131,953		)	523,913		(117,917		)	2,394,169		(249,870		)
Equities	50,638		(8,436		)	22,095		(8,159		)	72,733		(16,595		)
	$	2,828,967	$	(192,058	)	$	1,260,898	$	(255,294	)	$	4,089,865	$	(447,352	)

RMBS have a gross unrealized loss greater than twelve months of $70.4 million as of December 31, 2011. The losses relate to a widening in spreads and defaults as a result of continued weakness in the residential housing market which have reduced the fair value of the RMBS holdings. 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 these investments.

The other asset-backed securities have a gross unrealized loss greater than twelve months of $58.8 million as of December 31, 2011. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). These unrealized losses have occurred within the Company’s auction rate securities (“ARS”) portfolio since the market collapse during 2008. At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The corporate bonds category has gross unrealized losses greater than twelve months of $117.9 million as of December 31, 2011. 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.

The equities category has a gross unrealized loss greater than twelve months of $8.2 million as of December 31, 2011. These losses primarily relate to a widening in credit spreads on perpetual preferred stock holdings. The aggregate decline in market value of these securities was deemed temporary due to factors supporting the recoverability

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of the respective investments. Positive factors include credit ratings, the financial health of the issuer, the continued access of the issuer to the capital markets, and other pertinent information.

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 December 31, 2012, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.7 billion and had an amortized cost of $1.7 billion. In addition, included in the Company’s trading portfolio, the Company held $367.1 million of securities which were rated below investment grade. Approximately $415.1million of the below investment grade securities were not publicly traded.

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 Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Fixed maturities	$	819,152	$	761,738		$	696,942
Equity securities	8,484		(13,292		)	9,701

The Company held $12.2 million of non-income producing investments, consisting of fixed maturities, equities, and investment real estate for the year ended December 31, 2012.

Included in the Company’s invested assets are $865.4 million of policy loans as of December 31, 2012. The interest rates on standard policy loans range from 3.0% to 8.0%. The collateral loans on life insurance policies have an interest rate of 13.64%.

Securities Lending

In prior periods, the Company participated in securities lending, primarily as an enhancement to its investment yield. During the second quarter of 2011, the Company discontinued this program. Certain collateral assets, which the Company previously intended to dispose of and on which it recorded an other-than-temporary impairment of $1.3 million, were instead retained by the Company and are included in its fixed maturities as of December 31, 2012 with a balance of $3.7 million. The Company currently does not have any intent to sell these securities, nor does the Company anticipate being required to sell them.

Variable Interest Entities

The Company holds certain investments in entities in which its ownership interests could possibly considered variable interests under Topic 810 of the FASB ASC (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a Variable Interest Entity (“VIE”).  If the entity is determined to be a VIE, the Company then performs a detailed review 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 is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) 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 an interest in one wholly owned subsidiary, Red Mountain, LLC (“Red Mountain”), that was determined to be a VIE as of December 31, 2012. The activity most significant to Red Mountain is the issuance of a note in connection with a financing transaction involving Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) and the Company in which Golden Gate V issued non-recourse funding

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obligations to Red Mountain and Red Mountain issued the note to Golden Gate V. Credit enhancement on the Red Mountain Note is provided by an unrelated third party. For details of this transaction, see Note 10, Debt and Other Obligations. The Company had the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, the holding company (“PLC”) has guaranteed the VIE’s credit enhancement fee obligation to the unrelated third party provider.

5.MORTGAGE LOANS

Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of December 31, 2012, the Company’s mortgage loan holdings were approximately $4.9 billion. The Company has specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, professional office buildings, and warehouses). The Company believes these asset types tend to weather economic downturns better than other commercial asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history.

The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income.

The following table includes a breakdown of the Company’s commercial mortgage loan portfolio by property type as of December 31, 2012:

	Percentage of
	Mortgage Loans
Type	on Real Estate
Retail	67.4	%
Office Buildings	13.7
Apartments	9.4
Warehouses	7.4
Other	2.1
	100.0	%

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The Company specializes in originating mortgage loans on either credit-oriented or credit-anchored commercial properties. No single tenant’s exposure represents more than 2.0% of mortgage loans. Approximately 65.5% of the mortgage loans are on properties located in the following states:

	Percentage of
	Mortgage Loans
State	on Real Estate
Texas	11.6	%
Georgia	8.9
Alabama	7.6
Tennessee	7.3
Florida	7.0
Ohio	5.4
North Carolina	5.2
South Carolina	4.9
Utah	4.5
California	3.1
	65.5	%

During 2012, the Company funded approximately $309.3 million of new loans, with an average loan size of $3.8 million. The average size mortgage loan in the portfolio as of December 31, 2012, was $2.5 million, and the weighted-average interest rate was 6.11%. The largest single mortgage loan was $40.2 million.

Certain of the mortgage loans have call options or interest rate reset options between 3 and 10 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options or increase the interest rates on our existing mortgage loans commensurate with the significantly increased market rates. Assuming the loans are called at their next call dates, approximately $224.8 million would become due in 2013, $1.3 billion in 2014 through 2018, $599.0 million in 2019 through 2023, and $179.6 million thereafter.

The Company offers a type of commercial mortgage loan under which the Company 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 December 31, 2012 and December 31, 2011, approximately $817.3 million and $876.8 million, respectively, of the Company’s mortgage loans have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income.

As of December 31, 2012, approximately $17.9 million, or 0.05%, of invested assets consisted of nonperforming, restructured or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the year ended December 31, 2012, certain mortgage loan transactions occurred that    were accounted for as troubled debt restructurings under Topic 310 of the FASB ASC. These transactions generally included acceptance of assets in satisfaction of principal or foreclosure on collateral property, and were the result of agreements between the creditor and the debtor or imposition of law. For all mortgage loans, the impact of troubled debt restructurings is reflected in the Company’s investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the year ended December 31, 2012 resulted in a reduction of $7.8 million in the Company’s investment in mortgage loans, net of existing allowances for mortgage loan losses. None of these loans remained on the Company’s balance sheets as of December 31, 2012.  The Company’s mortgage loan portfolio consists of two categories of loans: (1) those not subject to a pooling and servicing agreement and (2) those subject to a contractual pooling and servicing agreement.

As of December 31, 2012, $11.0 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the year ending 2012.

As of December 31, 2012, $6.9 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the year ending December 31, 2012.

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As of December 31, 2012 and December 31, 2011, the Company had an allowance for mortgage loan credit losses of $2.9 million and $5.0 million, respectively. Due to the Company’s loss experience and nature of the loan portfolio, the Company believes that a collectively evaluated allowance would be inappropriate. The Company believes an allowance calculated through an analysis of specific loans that are believed to have a higher risk of credit impairment provides a more accurate presentation of expected losses in the portfolio and is consistent with the applicable guidance for loan impairments in ASC Subtopic 310. Since the Company uses the specific identification method for calculating the allowance, it is necessary to review the economic situation of each borrower to determine those that have higher risk of credit impairment. The Company has a team of professionals that monitors borrower conditions such as payment practices, borrower credit, operating performance, and property conditions, as well as ensuring the timely payment of property taxes and insurance. Through this monitoring process, the Company assesses the risk of each loan. When issues are identified, the severity of the issues are assessed and reviewed for possible credit impairment. If a loss is probable, an expected loss calculation is performed and an allowance is established for that loan based on the expected loss. The expected loss is calculated as the excess carrying value of a loan over either the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the current estimated fair value of the loan’s underlying collateral. A loan may be subsequently charged off at such point that the Company no longer expects to receive cash payments, the present value of future expected payments of the renegotiated loan is less than the current principal balance, or at such time that the Company is party to foreclosure or bankruptcy proceedings associated with the borrower and does not expect to recover the principal balance of the loan.

A charge off is recorded by eliminating the allowance against the mortgage loan and recording the renegotiated loan or the collateral property related to the loan as investment real estate on the balance sheet, which is carried at the lower of the appraised fair value of the property or the unpaid principal balance of the loan, less estimated selling costs associated with the property:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Beginning balance	$	4,975		$		11,650
Charge offs	(8,340		)	(16,278			)
Recoveries	(628		)	(2,471			)
Provision	6,868			12,074
Ending balance	$	2,875		$	4,975

It is the Company’s 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 the Company’s 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. An analysis of the delinquent loans is shown in the following chart as of December 31, 2012.

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	12,149	$	2,270	$	—	$	14,419
Number of delinquent commercial mortgage loans	7		1		—		8

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The Company’s commercial mortgage loan portfolio consists of mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is based upon a consideration of the estimated fair value of the real estate. The Company limits accrued interest income on impaired loans to ninety days of interest. Once accrued interest on the impaired loan is received, interest income is recognized on a cash basis. For information regarding impaired loans, please refer to the following chart as of December 31:

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)
2012
Commercial mortgage loans:
With no related allowance recorded	$	13,044	$	14,419	$	—	$	2,609	$	53	$	69
With an allowance recorded	13,927		13,927		2,875		3,482		154		154
2011
Commercial mortgage loans:
With no related allowance recorded	$	6,338	$	9,346	$	—	$	2,113	$	34	$	34
With an allowance recorded	14,021		14,021		4,975		7,010		117		181

6.DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

On January 1, 2012, the Company adopted ASU No. 2010-26—Financial Services—Insurance—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. For more information on how this Updated impacted our accounting policies related to deferred acquisition costs, refer to the Accounting Pronouncements Recently Adopted section of Note 2, Summary of Significant Accounting Policies. The Company retrospectively adopted this Update, which resulted in several adjustments to the Company’s balance sheet on the date of adoption and income statements for periods prior to January 1, 2012. The Update primarily resulted in a reduction in its deferred acquisition cost asset as well as a decrease in the amortization associated with those deferred costs. There was also a reduction in the level of costs the Company defers. As part of the Company’s retrospective adoption of this Update, a cumulative effect adjustment was recorded as of January 1, 2010 which was the earliest period presented. The cumulative effect adjustment resulted in a decrease of $469.6 million in retained earnings, a decrease of $0.3 million in accumulated other comprehensive income, and an overall decrease of $469.9 million in total shareowner’s equity.

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The chart shown below summarizes the effect of the adjustments on the Company’s 2011 consolidated balance sheet (only balances impacted by the Update are presented):

	As of December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Assets:
Deferred policy acquisition costs and value of business acquired	$	4,011,936	$	3,223,220	$	(788,716	)
Total assets	$	52,791,899	$	52,003,183	$	(788,716	)
Liabilities:
Deferred income taxes	$	1,573,764	$	1,293,996	$	(279,768	)
Total liabilities	$	47,405,601	$	47,125,833	$	(279,768	)
Equity:
Retained earnings	$	2,984,466	$	2,456,293	$	(528,173	)
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax	1,076,854		1,096,079		19,225
Total equity	$	5,386,298	$	4,877,350	$	(508,948	)
Total liabilities and shareowner’s equity	$	52,791,899	$	52,003,183	$	(788,716	)

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The charts shown below summarize the effect of the adjustments on the Company’s income statement for the years ended December 31, 2011 and 2010 (only balances impacted by the Update are presented).

	For The Year Ended December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	300,450	$	249,520	$	(50,930	)
Other operating expenses	373,964		461,570		87,606
Total benefits and expenses	2,896,634		2,933,310		36,676
Income before income tax	511,951		475,275		(36,676		)
Income tax (benefit) expense	164,517		151,519		(12,998		)
Net income	$	347,434	$	323,756	$	(23,678	)

	For The Year Ended December 31, 2010
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	189,255	$	144,496	$	(44,759	)
Other operating expenses	284,070		382,920		98,850
Total benefits and expenses	2,549,717		2,603,808		54,091
Income before income tax	387,267		333,176		(54,091		)
Income tax (benefit) expense	129,029		109,865		(19,164		)
Net income	$	258,238	$	223,311	$	(34,927	)

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The charts shown below summarize the effect of the adjustments on the Company’s cash flow statement for the years ended December 31, 2011 and 2010 (only balances impacted by the Update are presented).

	For The Year Ended December 31, 2011
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	347,434		$	323,756		$	(23,678	)
Amortization of deferred policy acquisition costs and value of business acquired	300,450			249,520			(50,930		)
Capitalization of deferred policy acquisition costs	(442,638		)	(355,033		)	87,605
Deferred income tax	120,262			107,265			(12,997		)
Change to net cash (used in) provided by operating activities	$	325,508		$	325,508		$	—

	For The Year Ended December 31, 2010
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	258,238		$	223,311		$	(34,927	)
Amortization of deferred policy acquisition costs and value of business acquired	189,255			144,496			(44,759		)
Capitalization of deferred policy acquisition costs	(446,560		)	(348,730		)	97,830
Deferred income tax	85,483			66,682			(18,801		)
Other, net	(47,319		)	(46,662		)	657
Change to net cash (used in) provided by operating activities	$	39,097		$	39,097		$	—

Deferred policy acquisition costs

The balances and changes in DAC are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	2,291,613		$	2,182,085
Capitalization of commissions, sales, and issue expenses	311,959			355,033
Amortization	(105,447		)	(159,329		)
Change in unrealized investment gains and losses	(90,599		)	(86,176		)
Balance, end of period	$	2,407,526		$	2,291,613

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Value of business acquired

The balances and changes in VOBA are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	931,607		$	881,324
Acquisitions	—			137,418
Amortization	(86,736		)	(90,192		)
Change in unrealized gains and losses	(27,041		)	3,057
Balance, end of period	$	817,830		$	931,607

The expected amortization of VOBA for the next five years is as follows:

	Expected
Years	Amortization
	(Dollars In Thousands)
2013	$	71,285
2014	63,386
2015	55,618
2016	50,957
2017	43,753

7.GOODWILL

The changes in the carrying amount of goodwill by segment are as follows:

				Asset		Total
	Acquisitions			Protection		Consolidated
	(Dollars In Thousands)
Balance as of December 31, 2010	$	41,812		$	48,158	$	89,970
Tax benefit of excess tax goodwill	(3,099		)	—		(3,099		)
Balance as of December 31, 2011	38,713			48,158		86,871
Tax benefit of excess tax goodwill	(3,098		)	—		(3,098		)
Balance as of December 31, 2012	$	35,615		$	48,158	$	83,773

During the year ended December 31, 2012 and 2011, the Company decreased its goodwill balance by approximately $3.1 million and $3.1 million, respectively. The decreases were due to an adjustment in the Acquisitions segment related to tax benefits realized during 2012 and 2011 on the portion of tax goodwill in excess of GAAP basis goodwill.

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8.CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

The Company issues variable universal life and variable annuity products through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. The Company also offers, for our variable annuity products, various account value guarantees upon death. The most significant of these guarantees involve 1) return of the highest anniversary date account value, or 2) return of the greater of the highest anniversary date account value or the last anniversary date account value compounded at 5% interest or 3) return of premium. The GMWB rider is classified as an embedded derivative and is carried at fair value on the Company’s balance sheet. The variable annuity separate account balances subject to GMWB were $7.2 billion as of December 31, 2012.  For more information regarding the valuation of and income impact of GMWB please refer to Note 2, Summary of Significant Accounting Policies, Note 19, Fair Value of Financial Instruments, and Note 20, Derivative Financial Instruments.

The GMDB reserve is calculated by applying a benefit ratio, equal to the present value of total expected GMDB claims divided by the present value of total expected contract assessments, to cumulative contract assessments. This amount is then adjusted by the amount of cumulative GMDB claims paid and accrued interest. Assumptions used in the calculation of the GMDB reserve were as follows: mean investment performance of 6.54%, age-based mortality consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table, lapse rates ranging from 0.8% - 38.7% (depending on product type and duration), and an average discount rate of 6.2%. Changes in the GMDB reserve are included in benefits and settlement expenses in the accompanying consolidated statements of income.

The variable annuity separate account balances subject to GMDB were $9.6 billion as of December 31, 2012. The total GMDB amount payable based on variable annuity account balances as of December 31, 2012, was $149.8 million (including $129.3 million in the Annuities segment and $20.5 million in the Acquisitions segment) with a GMDB reserve of $19.3 million and $0.3 million in the Annuities and Acquisitions segment, respectively. The average attained age of contract holders as of December 31, 2012 for the Company was 67.

These amounts exclude the variable annuity business of the Chase Insurance Group, which consisted of five insurance companies that manufactured and administered traditional life insurance and annuity products and four non-insurance companies (which collectively are referred to as the “Chase Insurance Group”) which has been 100% reinsured to Commonwealth Annuity and Life Insurance Company (formerly known as Allmerica Financial Life Insurance and Annuity Company) (“CALIC”), under a Modco agreement. The guaranteed amount payable associated with the annuities reinsured to CALIC was $20.9 million and is included in the Acquisitions segment. The average attained age of contract holders as of December 31, 2012, was 64.

Activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement) is as follows:

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Beginning balance	$	9,798	$	6,412	$	342
Incurred guarantee benefits	14,087		7,171		11,799
Less: Paid guarantee benefits	4,279		3,785		5,729
Ending balance	$	19,606	$	9,798	$	6,412

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Account balances of variable annuities with guarantees invested in variable annuity separate accounts are as follows:

	As of December 31,
	2012		2011
	(Dollars In Thousands)
Equity mutual funds	$	6,171,196	$	3,972,729
Fixed income mutual funds	3,381,581		2,185,654
Total	$	9,552,777	$	6,158,383

Certain of the Company’s fixed annuities and universal life products have a sales inducement in the form of a retroactive interest credit (“RIC”). In addition, certain annuity contracts provide a sales inducement in the form of a bonus interest credit. The Company maintains a reserve for all interest credits earned to date. The Company defers the expense associated with the RIC and bonus interest credits each period and amortizes these costs in a manner similar to that used for DAC.

Activity in the Company’s deferred sales inducement asset was as follows:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Deferred asset, beginning of period	$	125,527		$	112,147		$	116,298
Amounts deferred	23,362			29,472			25,587
Amortization	(4,940		)	(16,092		)	(29,738		)
Deferred asset, end of period	$	143,949		$	125,527		$	112,147

9.REINSURANCE

The Company reinsures certain of its risks with (cedes), and assumes risks from, other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, the Company reinsures only the mortality risk, while under coinsurance the Company reinsures a proportionate share of all risks arising under the reinsured policy. Under coinsurance, the reinsurer receives a proportionate share of the premiums less commissions and is liable for a corresponding share of all benefit payments. Modified coinsurance is accounted for similar to coinsurance except that the liability for future policy benefits is held by the ceding company, and settlements are made on a net basis between the companies.

Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to us under the terms of the reinsurance agreements. The Company continues to monitor the consolidation of reinsurers and the concentration of credit risk the Company has with any reinsurer, as well as the financial condition of its reinsurers. As of December 31, 2012, the Company had reinsured approximately 60% of the face value of its life insurance in-force. The Company has reinsured approximately 26% of the face value of its life insurance in-force with the following three reinsurers:

·Security Life of Denver Insurance Co. (currently administered by Hanover Re)

·Swiss Re Life & Health America Inc.

·Lincoln National Life Insurance Co. (currently administered by Swiss Re Life & Health America Inc.)

The Company has not experienced any credit losses for the years ended December 31, 2012, 2011, or 2010 related to these reinsurers. The Company has set limits on the amount of insurance retained on the life of any one person. In 2005, the Company increased its retention for certain newly issued traditional life products from $500,000 to $1,000,000 on any one life. During 2008, the Company increased its retention limit to $2,000,000 on certain of its traditional and universal life products.

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Reinsurance premiums, commissions, expense reimbursements, benefits, and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the underlying contracts. The cost of reinsurance related to short-duration contracts is accounted for over the reinsurance contract period. Amounts recoverable from reinsurers, for both short-and long-duration reinsurance arrangements, are estimated in a manner consistent with the claim liabilities and policy benefits associated with reinsured policies.

The following table presents the net life insurance in-force:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Millions)
Direct life insurance in-force	$	706,416		$	728,670		$	753,519
Amounts assumed from other companies	30,470			32,813			18,799
Amounts ceded to other companies	(444,951		)	(469,530		)	(495,056		)
Net life insurance in-force	$	291,935		$	291,953		$	277,262
Percentage of amount assumed to net	10		%	11		%	7		%

The following table reflects the effect of reinsurance on life insurance premiums written and earned:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Millions)
Direct premiums	$	2,227		$	2,245		$	2,153
Reinsurance assumed	282			248			167
Reinsurance ceded	(1,229		)	(1,278		)	(1,284		)
Net premiums(1)	$	1,280		$	1,215		$	1,036
Percentage of amount assumed to net	22		%	20		%	16		%

(1)Includes annuity policy fees of $103.8 million, $74.9 million, and $43.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

The Company has also reinsured accident and health risks representing $12.1 million, $14.4 million, and $17.3 million of premium income, while the Company has assumed accident and health risks representing $29.4 million, $21.7 million, and $0.1 million of premium income for 2012, 2011, and 2010, respectively. In addition, the Company reinsured property and casualty risks representing $69.6 million, $71.2 million, and $78.9 million of premium income, while the Company assumed property and casualty risks representing $6.8 million, $6.2 million, and $7.1 million of premium income for 2012, 2011, and 2010, respectively.

As of December 31, 2012 and 2011, policy and claim reserves relating to insurance ceded of $5.6 million and $5.5 million, respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, the Company would be obligated to pay such claims. As of December 31, 2012 and 2011, the Company had paid $105.0 million and $127.1 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, as of December 31, 2012 and 2011, the Company had receivables of $66.1 million and $64.9 million, respectively, related to insurance assumed.

During 2006, the Company recorded $27.1 million of bad debt charges related to its Lender’s Indemnity product line. These bad debt charges followed the bankruptcy filing related to CENTRIX Financial LLC (“CENTRIX”), the originator and servicer of the business, and are the result of the Company’s assessment, based in part on facts discovered by an audit after the bankruptcy filing, of the inability of CENTRIX and an affiliated reinsurer to meet their obligations under the program. The Company ceased offering the Lender’s Indemnity product in 2003 with the last policy expiring in 2009. During 2010, the Company successfully settled its last claim and as a result of this final settlement, $7.8 million in excess reserves were released in the first quarter of 2010.

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The Company’s third party reinsurance receivables amounted to $5.7 billion and $5.5 billion as of December 31, 2012 and 2011, respectively. These amounts include ceded reserve balances and ceded benefit payments. The ceded benefit payments are recoverable from reinsurers. The following table sets forth the receivables attributable to our more significant reinsurance partners:

	As of December 31,
	2012			2011
	Reinsurance		A.M. Best	Reinsurance		A.M. Best
	Receivable		Rating	Receivable		Rating
	(Dollars In Millions)
Security Life of Denver Insurance Co.	$	649.1	A	$	626.4	A
Swiss Re Life & Health America, Inc.	625.9		A+	624.4		A+
Lincoln National Life Insurance Co.	472.3		A+	479.4		A+
Transamerica Life Insurance Co.	425.5		A+	392.9		A+
American United Life Insurance Co.	321.3		A+	325.1		A+
Employers Reassurance Corp.	257.7		A-	290.2		A-
The Canada Life Assurance Company	219.8		A+	219.1		A+
RGA Reinsurance Co.	215.4		A+	228.2		A+
Scottish Re (U.S.), Inc.	180.5		NR(1)	179.9		NR(1)
XL Life Ltd.	179.6		A-	183.0		A-

(1)Scottish Re (U.S.), Inc. is not rated as of December 31, 2012 and 2011.

The Company’s reinsurance contracts typically do not have a fixed term. In general, the reinsurers’ ability to terminate coverage for existing cessions is limited to such circumstances as material breach of contract or non-payment of premiums by the ceding company. The reinsurance contracts generally contain provisions intended to provide the ceding company with the ability to cede future business on a basis consistent with historical terms. However, either party may terminate any of the contracts with respect to future business upon appropriate notice to the other party.

Generally, the reinsurance contracts do not limit the overall amount of the loss that can be incurred by the reinsurer. The amount of liabilities ceded under contracts that provide for the payment of experience refunds is immaterial.

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10.DEBT AND OTHER OBLIGATIONS

Under a revolving line of credit arrangement that was in effect as of July 17, 2012 (the “Credit Facility”), the Company had the ability to borrow on an unsecured basis up to an aggregate principal amount of $500 million. The Company had 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 accrued 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 our senior unsecured long-term debt. The Credit Agreement provides that the Company is 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 was April 16, 2013. The Company did not have an outstanding balance under the Credit Facility as of December 31, 2012. PLC had an outstanding balance of $160.0 million at an interest rate of LIBOR plus 0.40% under the Credit Facility as of July 17, 2012.

On July 17, 2012 the Company replaced the Credit Facility with a new credit facility (“2012 Credit Facility”). Under the 2012 Credit Facility, the Company and PLC has the ability to borrow on an unsecured basis up to an aggregate principal amount of $750 million. The Company has the right in certain circumstances to request that the commitment under the 2012 Credit Facility be increased up to a maximum principal amount of $1.0 billion. Balances outstanding under the 2012 Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i)  LIBOR plus a spread based on the ratings of PLC’s senior unsecured long-term debt (“Senior Debt”), or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of PLC’s Senior Debt. The 2012 Credit Facility also provides for a facility fee at a rate that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the 2012 Credit Facility, whether used or unused. The maturity date on the 2012 Credit Facility is July 17, 2017. The Company is not aware of any non-compliance with the financial debt covenants of the 2012 Credit Facility as of December 31, 2012. The Company did not have an outstanding balance under the Credit Facility as of December 31, 2012. PLC had an outstanding balance of $50.0 million at an interest rate of LIBOR plus 1.20% under the 2012 Credit Facility as of December 31, 2012.

Non-Recourse Funding Obligations

Golden Gate Captive Insurance Company

Golden Gate Captive Insurance Company (“Golden Gate”), a South Carolina special purpose financial captive insurance company and wholly owned subsidiary, had three series of Surplus Notes with a total outstanding balance of $800 million as of December 31, 2012. PLC holds the entire outstanding balance of Surplus Notes. The Series A1 Surplus Notes have a balance of $400 million and accrue interest at 7.375%, the Series A2 Surplus Notes have a balance of $100 million and accrue interest at 8%, and the Series A3 Surplus Notes have a balance of $300 million and accrue interest at 8.45%.

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Golden Gate II Captive Insurance Company

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 December 31, 2012. These outstanding non-recourse funding obligations were issued to special purpose trusts, which in turn issued securities to third parties. Certain of our affiliates purchased a portion of these securities during 2011 and 2012. As a result of these purchases, as of December 31, 2012, securities related to $286.0 million of the outstanding balance of the non-recourse funding obligations was held by external parties, securities related to $60.9 million of the non-recourse funding obligations was held by nonconsolidated affiliates, and $228.1 million was held by consolidated subsidiaries of the Company. These non-recourse funding obligations mature in 2052. $275 million of this amount is currently accruing interest at a rate of LIBOR plus 30 basis points. We have experienced higher borrowing costs than were originally expected 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 higher spread component of interest expense 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. We have contingent approval to issue an additional $100 million of obligations. Under the terms of the non-recourse funding obligations, the holders of the non-recourse funding obligations cannot require repayment from PLC, us, or any of our subsidiaries, other than Golden Gate II, the direct issuers of the non-recourse funding obligations, 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 non-recourse funding obligations). In addition, PLC has entered into certain support agreements with Golden Gate II obligating it to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate II.

Golden Gate V Vermont Captive Insurance Company

On October 10, 2012, Golden Gate V and Red Mountain, wholly owned subsidiaries of the Company, entered into a 20-year transaction to finance up to $945 million of “AXXX” reserves related to a block of universal life insurance policies with secondary guarantees issued by the Company and its subsidiary, West Coat Life Insurance Company (“WCL”). Golden Gate V issued non-recourse funding obligations to Red Mountain, and Red Mountain issued a note with an initial principal amount of $275 million, increasing to a maximum of $945 million in 2027, to Golden Gate V for deposit to a reinsurance trust supporting Golden Gate V’s obligations under a reinsurance agreement with WCL, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. Through the structure, Hannover Life Reassurance Company of America (“Hannover Re”), the ultimate risk taker in the transaction, provides credit enhancement to the Red Mountain note for the 20-year term in exchange for a fee. The transaction is “non-recourse” to Golden Gate V, Red Mountain, WCL, PLC and the Company, meaning that none of these companies are liable for the reimbursement of any credit enhancement payments required to be made. As of December 31, 2012, the principal balance of the Red Mountain note was $300 million. In connection with the transaction, PLC has entered into certain support agreements under which we guarantee or otherwise support certain obligations of Golden Gate V or Red Mountain.

In connection with the transaction outlined above, Golden Gate V had a $300 million outstanding non-recourse funding obligation as of December 31, 2012. This non-recourse funding obligation matures in 2037, has scheduled increases in principal to a maximum of $945 million, and accrues interest at a fixed annual rate of 6.25%.

Non-recourse funding obligations outstanding as of December 31, 2012, on a consolidated basis, are shown in the following table:

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.86	%
Golden Gate II Captive Insurance Company	346,900		2052	1.22
Golden Gate V Vermont Captive Insurance Company	300,000		2037	6.25
Total	$	1,446,900

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Non-recourse funding obligations outstanding as of December 31, 2011, on a consolidated basis, are shown in the following table:

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.88	%
Golden Gate II Captive Insurance Company	448,600		2052	1.37
Total	$	1,248,600

During 2012, the Company repurchased $101.7 million of its outstanding non-recourse funding obligations, at a discount. These repurchases resulted in a $32.0 million pre-tax gain for the Company.

Letters of Credit

Golden Gate III Vermont Captive Insurance Company

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement (the “Reimbursement Agreement”) with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the original Reimbursement Agreement, dated April 23, 2010, UBS issued a letter of credit (the “LOC”) in the initial amount of $505 million to a trust for the benefit of our wholly owned subsidiary, WCL. The LOC balance increased during 2011 in accordance with the terms of the Reimbursement Agreement. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011, to replace the existing LOC with one or more letters of credit from UBS, and to extend the maturity date from April 1, 2018, to April 1, 2022. The LOC balance was $580 million as of December 31, 2012. 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 12 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 to WCL under an indemnity reinsurance agreement.

Golden Gate IV Vermont Captive Insurance Company

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. The LOC balance has increased, in accordance with the terms of the Reimbursement Agreement, each quarter of 2012 and was $625 million as of December 31, 2012. Subject to certain conditions, the amount of the LOC will be periodically increased up to a maximum of $790 million in 2016. The term of the LOC is expected to be 12 years. The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement effective October 1, 2010, which was subsequently amended and restated as of July 1, 2011.

Repurchase Program Borrowings

While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities. As of December 31, 2012, the fair value of securities pledged under the repurchase program was $168.1 million and the repurchase obligation of $150.0 million was included in the Company’s consolidated balance sheets (at an average borrowing rate of 15 basis points). During 2012, the

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maximum balance outstanding at any one point in time related to these programs was $425.0 million. The average daily balance was $266.3 million (at an average borrowing rate of 14 basis points) during the year ended December 31, 2012. As of December 31, 2011, the Company had no outstanding balance related to such borrowings. These borrowings are for a term less than thirty days. During 2011, the maximum balance outstanding at any one point in time related to these programs was $348.2 million. The average daily balance was $147.7 million (at an average borrowing rate of 13 basis points) during the year ended December 31, 2011.

Other obligations

The Company routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another’s behalf. Receivables and payables among affiliates are generally settled monthly.

Interest Expense

Interest expense on non-recourse funding obligations, letters of credit, and other temporary borrowings was $92.9 million, $90.8 million, and $71.4 million in 2012, 2011, and 2010, respectively. The $2.1 million variance was primarily due to an increase in interest expense on the Golden Gate V non-recourse funding obligation which was offset by reductions in interest expense as a result of the Company’s repurchase of non-recourse funding obligations during the year.

11.COMMITMENTS AND CONTINGENCIES

The Company leases administrative and marketing office space in approximately 20 cities including 24,090 square feet in Birmingham (excluding the home office building), with most leases being for periods of three to ten years. The Company had rental expense of $11.2 million, $10.8 million, and $10.8 million for the years ended December 31, 2012, 2011, and 2010, respectively. The aggregate annualized rent was approximately $6.9 million for the year ended December 31, 2012. The following is a schedule by year of future minimum rental payments required under these leases:

Year	Amount
	(Dollars In Thousands)
2013	$	6,948
2014	5,462
2015	4,229
2016	2,664
2017	740
Thereafter	235

Additionally, the Company leases a building contiguous to its home office. The lease extends to January 2014. At the end of the lease term the Company may purchase the building for approximately $75 million. The following is a schedule by year of future minimum rental payments required under this lease:

Year	Amount
	(Dollars In Thousands)
2013	$	679
2014	75,065

As of December 31, 2012 and 2011, the Company had outstanding mortgage loan commitments of $182.6 million at an average rate of 5.10% and $182.4 million at an average rate of 5.58%, respectively.

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. In addition, from time to time, companies may be asked to contribute amounts beyond prescribed limits. Most insurance guaranty fund laws provide that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength. The Company

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does not believe its insurance guaranty fund assessments will be materially different from amounts already provided for in the financial statements.

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. Companies in the financial services and insurance industries are also sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or regulatory actions or other actions resulting from such investigations. The Company, in the ordinary course of business, is involved in such matters.

The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established. For such matters, the Company may provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis and updates its established liabilities, disclosures and estimates of reasonably possible losses or range of loss based on such reviews.

Although the Company cannot predict the outcome of any litigation or regulatory action, the Company does not believe that any such outcome will have an impact, either individually or in the aggregate, on its financial condition or results of operations that differs materially from the Company’s established liabilities. Given the inherent difficulty in predicting the outcome of such matters, however, it is possible that an adverse outcome in certain such matters could be material to the Company’s financial condition or results of operations for any particular reporting period.

In the IRS audit that concluded during this quarter, the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and is seeking resolution at the IRS’ Appeals Division. Although it cannot be certain, the Company believes that the Appeals process will conclude within the next 12 months. If the IRS prevails on every issue that it identified in this audit, and the Company does not litigate these issues, then the Company will make an income tax payment of approximately $24.3 million. However, this payment, if it was to occur, would not materially impact the Company or its effective tax rate.

The Company has received notice from two third party auditors that the Company, as well as certain of its insurance affiliates and certain other insurance companies for which the Company has co-insured blocks of life insurance and annuity products, will be audited for compliance with the unclaimed property laws of a number of states. The audits are being conducted on behalf of the treasury departments in such states. The focus of the audits is on whether there have been unreported deaths, maturities, or policies that have exceeded limiting age with respect to which death benefits or other payments under life insurance or annuity policies should be treated as unclaimed property that should be escheated to the state. The Company has recorded a reserve with respect to life insurance policies and certain co-insured blocks of life insurance policies issued by other companies in connection with these pending audits. The Company does not consider the amount of this reserve to be material to the Company’s financial condition or results of operations. With respect to one block of life insurance policies that is co-insured by the Company, the Company is presently unable to estimate the reasonably possible loss or range of loss due to a number of factors, including uncertainty as to the legal theory or theories that may give rise to liability, uncertainty as to whether the Company or other companies are responsible for the liabilities, if any, arising in connection with such policies, the distinct characteristics of this co-insured block of policies which differentiate it from the blocks of life insurance policies for which the Company has recorded a reserve, and the early stages of the audits being conducted. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with this block of co-insured policies probable or reasonably estimable.

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The Company has received notice that it and its affiliated life insurance companies are subject to a targeted multi-state examination with respect to their claims paying practices and their use of the U.S. Social Security Administration’s Death Master File or similar databases (a “Death Database”) to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed, and substantial legal authority exists to support the position that the prevailing industry practice was lawful. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, and escheating the benefits and interest as well as penalties to the state if the beneficiary could not be found.  It has been publicly reported that the life insurers have paid substantial administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements. The Company believes it is reasonably possible that insurance regulators could demand from the Company administrative and/or examination fees relating to the targeted multi-state examination. Based on publicly reported payments by other life insurers, the Company estimates the range of such fees to be from $0 to $3.5 million.

12.SHAREOWNER’S EQUITY

PLC owns all of the 2,000 shares of preferred stock issued by the Company’s subsidiary, Protective Life and Annuity Insurance Company (“PL&A”). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A’s statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2012, 2011, and 2010, PL&A paid no dividends to PLC on its preferred stock.

13.STOCK-BASED COMPENSATION

Since 1973, PLC has had stock-based incentive plans to motivate management to focus on its long-range performance through the awarding of stock-based compensation. Under plans approved by shareowners in 1997, 2003, 2008, and 2012, up to 9,500,000 PLC shares may be issued in payment of awards.

The criteria for payment of the 2012 performance awards is based on PLC’s average operating return on average equity (“ROE”) over a three-year period. If PLC’s ROE is below 10.0%, no award is earned. If PLC’s ROE is at or above 11.2%, the award maximum is earned. The criteria for payment of the 2011 performance awards is based on PLC’s ROE (excluding certain accounting and operating income definition changes) over a three-year period. If PLC’s ROE is below 9%, no award is earned. If PLC’s ROE is at or above 10.0%, the award maximum is earned. Awards are paid in shares of PLC’s common stock. Performance shares are equivalent in value to one share of our common stock times the award earned percentage payout. Performance share awards of 306,100 were issued during the year ended December 31, 2012 and 191,000 performance share awards were issued during the year ended December 31, 2011.

Performance share awards in 2012 and 2011 and the estimated fair value of the awards at grant date are as follows:

Year	Performance	Estimated
Awarded	Shares	Fair Value
		(Dollars In Thousands)
2012	306,100	$	8,608
2011	191,100	5,433
2010	—	—

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Stock appreciation rights (“SARs”) of PLC have been granted to certain officers 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 at December 31, 2009	$	22.28	2,469,202
SARs granted	18.34		344,400
SARs exercised / forfeited	20.98		(488,765	)
Balance at December 31, 2010	$	21.97	2,324,837
SARs exercised / forfeited	8.31		(50,608	)
Balance at December 31, 2011	$	22.27	2,274,229
SARs exercised / forfeited / expired	22.60		(633,062	)
Balance at December 31, 2012	$	22.15	1,641,167

The following table provides information as of December 31, 2012, about equity compensation plans under which PLC’s common stock is authorized for issuance:

Securities Authorized for Issuance under Equity Compensation Plans

						Number of securities
						remaining available
						for future issuance
	Number of securities					under equity
	to be issued upon		Weighted-average			compensation plans
	exercise of		exercise price of			(excluding securities
	outstanding options,		outstanding options,			reflected in
	warrants and rights as		warrants and rights as			column (a)) as of
Plan category	of December 31, 2012 (a)		of December 31, 2012 (b)			of December 31, 2012 (c)
Equity compensation plans approved by shareowners	2,702,768	(1)	$	22.15	(3)	4,530,673	(4)
Equity compensation plans not approved by shareowners	318,421	(2)	Not applicable			Not applicable	(5)
Total	3,021,189		$	22.15		4,530,673

(1)Includes the following number of shares:  (a) 1,066,759 shares issuable with respect to outstanding SARs (assuming for this purpose that one share of PLC common stock will be payable with respect to each outstanding SAR); (b) 602,160 shares issuable with respect to outstanding performance share awards (assuming for this purpose that the awards are payable based on estimated performance under the awards as of September 30, 2012); (c) 646,632 shares issuable with respect to outstanding restricted stock units (assuming for this purpose that shares will be payable with respect to all outstanding restricted stock units); (d) 319,555 shares issuable with respect to stock equivalents representing previously earned awards under the LTIP that the recipient deferred under PLC’s Deferred Compensation Plan for Officers; and (e) 67,662 shares issuable with respect to stock equivalents representing previous awards under PLC’s Stock Plan for Non-Employee Directors that the recipient deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC.

(2)Includes the following number of PLC’s shares of common stock: (a) 216,103 shares issuable with respect to stock equivalents representing (i) stock awards to PLC’s Directors before June 1, 2004 that the recipient deferred pursuant to PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of the Company and (ii) cash retainers and fees that PLC’s Directors deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC, and (b) 102,318 shares issuable with respect to stock equivalents pursuant to PLC’s Deferred Compensation Plan for Officers.

(3)Based on exercise prices of outstanding SARs.

(4)Represents shares of PLC’s common stock available for future issuance under the LTIP and the Company’s Stock Plan for Non-Employee Directors.

(5)The plans listed in Note (2) do not currently have limits on the number of PLC’s shares of common stock issuable under such plans. The total number of PLC’s shares of common stock that may be issuable under such plans will depend upon, among other factors, the deferral elections made by the plans’ participants.

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The outstanding SARs as of December 31, 2012, were at the following base prices:

		SARs	Remaining Life	Currently
Base Price		Outstanding	in Years	Exercisable
$	26.49	50,000	1	50,000
$	41.05	106,700	3	106,700
$	48.60	38,400	4	38,400
$	45.70	35,070	4	35,070
$	43.46	181,550	5	181,550
$	48.05	3,000	5	3,000
$	41.12	2,500	5	2,500
$	38.59	303,100	6	303,100
$	3.50	629,608	7	629,608
$	17.48	8,000	8	5,333
$	18.36	283,239	8	181,888

There were no SARs issued for the years ended December 31, 2012 and 2011. The SARs issued for the year ended December 31, 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.

Restricted stock units are awarded to participants and include certain restrictions relating to vesting periods. PLC issued 190,800 restricted stock units for the year ended December 31, 2012 and 175,500 restricted stock units for the year ended December 31, 2011. These awards had a total fair value at grant date of $5.4 million and $5.0 million, respectively. Approximately half of these restricted stock units vest after three years from grant date and the remainder vest after four years.

PLC recognizes all stock-based compensation expense over the related service period of the award, or earlier for retirement eligible employees. The expense recorded by PLC for its stock-based compensation plans was $10.3 million, $10.2 million, and $10.2 million in 2012, 2011, and 2010, respectively.  The Company recognized expense associated with PLC’s stock-based compensation plans for compensations awarded to its employees of $3.9 million, $2.7 million, and $3.0 million in 2012, 2011, and 2010, respectively. PLC’s obligations of its stock-based compensation plans that are expected to be settled in shares of PLC’s common stock are reported as a component of shareowners’ equity, net of deferred taxes.

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14.EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan and Unfunded Excess Benefit Plan

PLC sponsors a defined benefit pension plan covering substantially all of its employees. Benefits are based on years of service and the employee’s compensation.

Effective January 1, 2008, PLC made the following changes to its defined benefit pension plan. These changes have been reflected in the computations within this note.

·Employees hired after December 31, 2007, will receive benefits under a cash balance plan.

·Employees active on December 31, 2007, with age plus vesting service less than 55 years will receive a final pay-based pension benefit for service through December 31, 2007, plus a cash balance benefit for service after December 31, 2007.

·Employees active on December 31, 2007, with age plus vesting service equaling or exceeding 55 years, will receive a final pay-based pension benefit for service both before and after December 31, 2007, with a modest reduction in the formula for benefits earned after December 31, 2007.

·All participants terminating employment on or after December of 2007 may elect to receive a lump sum benefit.

PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”) plus such additional amounts as PLC may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

Under the Pension Protection Act of 2006 (“PPA”), a plan could be subject to certain benefit restrictions if the plan’s adjusted funding target attainment percentage (“AFTAP”) drops below 80%. Therefore, PLC may make additional contributions in future periods to maintain an AFTAP of at least 80%. In general, the AFTAP is a measure of how well the plan is funded and is obtained by dividing the plan’s assets by the plan’s funding liabilities. AFTAP is based on participant data, plan provisions, plan methods and assumptions, funding credit balances, and plan assets as of the plan valuation date.  Some of the assumptions and methods used to determine the plan’s AFTAP may be different from the assumptions and methods used to measure the plan’s funded status on a GAAP basis.

In July of 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), which includes pension funding stabilization provisions, was signed into law. These provisions establish an interest rate corridor which is designed to stabilize the segment rates used to determine funding requirements from the effects of interest rate volatility. The funding stabilization provisions of MAP-21 will reduce PLC’s minimum required defined benefit plan contributions for the 2012 and 2013 plan years. We are evaluating the impact this change will have on funding requirements in future years.  Since the funding stabilization provisions of MAP-21 do not apply for Pension Benefit Guaranty Corporation (“PBGC”) reporting purposes, PLC may also make additional contributions in future periods to maintain an 80% funded status for PBGC reporting purposes.

During the twelve months ended December 31, 2012, PLC contributed $11.6 million to its defined benefit pension plan for the 2011 plan year and $9.6 million to its defined benefit pension plan for the 2012 plan year. PLC has not yet determined what amount it will fund during 2013, but estimates that the amount will be between $6 million and $15 million.

PLC also sponsors an unfunded excess benefit plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed on qualified plans by federal tax law.

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PLC uses a December 31 measurement date for all of its plans. The following table presents the benefit obligation, fair value of plan assets, and the funded status of PLC’s defined benefit pension plan and unfunded excess benefit plan as of December 31. This table also includes the amounts not yet recognized as components of net periodic pension costs as of December 31:

	Defined Benefit						Unfunded Excess
	Pension Plan						Benefit Plan
	2012			2011			2012			2011
	(Dollars In Thousands)
Accumulated benefit obligation, end of year	$	210,319		$	186,300		$	39,828		$	33,675
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	199,162		$	165,704		$	36,256		$	31,592
Service cost	9,145			8,682			867			679
Interest cost	8,977			8,938			1,473			1,506
Amendments	—			94			—			3
Actuarial (gain) or loss	15,286			23,859			6,946			4,187
Special termination benefits	—			—			—			—
Benefits paid	(9,251		)	(8,115		)	(2,571		)	(1,711		)
Projected benefit obligation at end of year	223,319			199,162			42,971			36,256
Change in plan assets:
Fair value of plan assets at beginning of year	125,058			117,856			—			—
Actual return on plan assets	15,202			2,874			—			—
Employer contributions(1)	21,178			12,443			2,571			1,711
Benefits paid	(9,251		)	(8,115		)	(2,571		)	(1,711		)
Fair value of plan assets at end of year	152,187			125,058			—			—
After reflecting FASB guidance:
Funded status	(71,132		)	(74,104		)	(42,971		)	(36,256		)
Amounts recognized in the balance sheet:
Other liabilities	(71,132		)	(74,104		)	(42,971		)	(36,256		)
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	95,055			91,804			17,571			11,924
Prior service cost/(credit)	(1,816		)	(2,208		)	48			60
Total	$	93,239		$	89,596		$	17,619		$	11,984

(1)  Employer contributions disclosed are based on PLC’s fiscal filing year

Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:

	Defined Benefit Pension				Unfunded Excess
	Plan				Benefit Plan
	2012		2011		2012		2011
Discount rate	4.07	%	4.62	%	3.37	%	4.07	%
Rate of compensation increase	3.0		2.5 - 3.0		4.0		3.5 - 4.0
Expected long-term return on plan assets	7.5		7.75		N/A		N/A

The assumed discount rates used to determine the benefit obligations were based on an analysis of future benefits expected to be paid under the plans. The assumed discount rate reflects the interest rate at which an amount that is invested in a portfolio of high-quality debt instruments on the measurement date would provide the future cash flows necessary to pay benefits when they come due.

In assessing the reasonableness of its long-term rate of return assumption, PLC obtained 25 year annualized returns for each of the represented asset classes. In addition, PLC received evaluations of market performance based on PLC’s asset allocation as provided by external consultants. A combination of these statistical analytics provided results that PLC utilized to determine an appropriate long-term rate of return assumption.

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Weighted-average assumptions used to determine the net periodic benefit cost for the year ended December 31 are as follows:

	Defined Benefit Pension Plan						Unfunded Excess Benefit Plan
	2012		2011		2010		2012		2011		2010
Discount rate	4.62	%	5.30	%	5.57	%	4.07	%	4.79	%	5.4	%
Rates of compensation increase	2.5 - 3.0		2.5 - 3.0		0 - 3.75		3.5 - 4.0		3.5 - 4.0		0 - 4.75
Expected long-term return on plan assets	7.75		7.75		8.00		N/A		N/A		N/A

Components of the net periodic benefit cost for the year ended December 31 are as follows:

	Defined Benefit Pension Plan									Unfunded Excess Benefit Plan
	2012			2011			2010			2012		2011		2010
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	9,145		$	8,682		$	7,423		$	867	$	679	$	584
Interest cost on projected benefit obligation	8,977			8,938			8,091			1,473		1,506		1,545
Expected return on plan assets	(10,916		)	(10,021		)	(9,349		)	—		—		—
Amortization of prior service cost/(credit)	(392		)	(392		)	(403		)	12		12		12
Amortization of actuarial losses(1)	7,749			5,625			3,905			1,300		881		653
Total benefit cost	$	14,563		$	12,832		$	9,667		$	3,652	$	3,078	$	2,794

(1) 2012 average remaining service period used is 8.14 years and 7.51 years for the defined benefit pension plan and unfunded excess benefit plan, respectively.

The estimated net actuarial loss, prior service cost/(credit), and transition obligation for these plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2013 is as follows:

	Defined Benefit			Unfunded Excess
	Pension Plan			Benefit Plan
	(Dollars In Thousands)
Net actuarial loss	$	9,150		$	1,767
Prior service cost/(credit)	(392		)	12
Transition obligation	—			—

The amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the Plan.

Allocation of plan assets of the defined benefit pension plan by category as of December 31 are as follows:

	Target
	Allocation for
Asset Category	2013		2012		2011
Cash and cash equivalents	2.0	%	4.0	%	1.0	%
Equity securities	60.0		60.0		61.0
Fixed income	38.0		36.0		38.0
Total	100.0	%	100.0	%	100.0	%

PLC’s target asset allocation is designed to provide an acceptable level of risk and balance between equity assets and fixed income assets. The weighting towards equity securities is designed to help provide for an increased level of asset growth potential and liquidity.

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Prior to July 1999, upon an employee’s retirement, a distribution from pension plan assets was used to purchase a single premium annuity from PLC in the retiree’s name. Therefore, amounts shown above as plan assets exclude assets relating to such retirees. Since July 1999, retiree obligations have been fulfilled from pension plan assets. The defined benefit pension plan has a target asset allocation of 60% domestic equities, 38% fixed income, and 2% cash. When calculating asset allocation, PLC includes reserves for pre-July 1999 retirees.

PLC’s investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants. The investment guidelines consider a broad range of economic conditions. Central to the policy are target allocation ranges (shown above) by major asset categories. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies.

The plan’s equity assets are in a Russell 3000 index fund that invests in a domestic equity index collective trust managed by Northern Trust Corporation and in a Spartan 500 index fund managed by Fidelity. The plan’s cash is invested in a collective trust managed by Northern Trust Corporation. The plan’s fixed income assets are invested in a group deposit administration annuity contract with PLC.

Plan assets of the defined benefit pension plan by category as of December 31, are as follows:

	As of December 31,
Asset Category	2012		2011
	(Dollars In Thousands)
Cash	$	6,222	$	1,004
Equity securities:
Collective Russell 3000 Equity Index Fund	61,451		52,792
Fidelity Spartan U.S. Equity Index Fund	34,482		29,735
Fixed income	50,032		41,527
Total investments	152,187		125,058
Employer contribution receivable	—		2,270
Total	$	152,187	$	127,328

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The valuation methodologies used to determine the fair values reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. The Plan’s group deposit administration annuity contract with the Company is recorded at contract value, which, by utilizing a long-term view, the Company believes approximates fair value. Contract value represents contributions made under the contract, plus interest at the contract rate, less funds used to purchase annuities. Units in collective short-term and collective investment funds are valued at the unit value, which approximates fair value, as reported by the trustee of the collective short-term and collective investment funds on each valuation date. These methods of valuation may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Collective short-term investment fund	$	—	$	6,222	$	—	$	6,222
Collective investment funds	—		95,933		—		95,933
Group deposit administration annuity contract	—		—		50,032		50,032
Total investments	$	—	$	102,155	$	50,032	$	152,187

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Collective short-term investment fund	$	—	$	1,004	$	—	$	1,004
Collective investment funds	—		82,527		—		82,527
Group deposit administration annuity contract	—		—		41,527		41,527
Total investments	$	—	$	83,531	$	41,527	$	125,058

For the year ended December 31, 2012, $6.0 million was transferred into Level 3 from Level 2. This transfer was made to maintain an acceptable asset allocation as set by PLC’s investment policy.

For the year ended December 31, 2012, there were no transfers between Level 1 and Level 2.

For the year ended December 31, 2011, there were no transfers between levels.

A reconciliation of the beginning and ending balances for the fair value measurements for which significant unobservable inputs (Level 3) have been used is as follows:

	As of December 31,
	2012		2011
	(Dollars In Thousands)
Balance, beginning of year	$	41,527	$	39,403
Interest income	2,505		2,124
Transfers from collective short-term investments fund	6,000		—
Transfers to collective short-term investments fund	—		—
Balance, end of year	$	50,032	$	41,527

Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of

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investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect the amounts reported.

Estimated future benefit payments under the defined benefit pension plan are as follows:

	Defined Benefit		Unfunded Excess
Years	Pension Plan		Benefit Plan
	(Dollars In Thousands)
2013	$	13,088	$	3,614
2014	12,516		3,742
2015	12,949		3,843
2016	13,603		3,838
2017	15,250		4,001
2018-2022	81,524		17,486

Other Postretirement Benefits

In addition to pension benefits, PLC provides limited healthcare benefits to eligible retired employees until age 65. This postretirement benefit is provided by an unfunded plan. As of December 31, 2012 and 2011, the accumulated postretirement benefit obligation associated with these benefits was $0.8 million and $0.9 million, respectively.

The change in the benefit obligation for the retiree medical plan is as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	949		$	1,309
Service cost	6			9
Interest cost	17			28
Amendments	—			(29		)
Actuarial (gain) or loss	(144		)	(297		)
Plan participant contributions	293			255
Benefits paid	(333		)	(326		)
Special termination benefits	—			—
Benefit obligation, end of year	$	788		$	949

For the retiree medical plan, PLC’s discount rate assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2012, is 1.09% and 1.97%, respectively.

For a closed group of retirees over age 65, PLC provides a prescription drug benefit. As of December 31, 2012 and 2011, PLC’s liability related to this benefit was less than $0.1 million. PLC’s obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.

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PLC also offers life insurance benefits for retirees from $10,000 up to a maximum of $75,000 which are provided through the payment of premiums under a group life insurance policy. This plan is partially funded at a maximum of $50,000 face amount of insurance. The accumulated postretirement benefit obligation associated with these benefits is as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	8,951		$	7,955
Service cost	123			118
Interest cost	412			416
Amendments	—			—
Actuarial (gain) or loss	895			816
Plan participant contributions	—			—
Benefits paid	(311		)	(354		)
Special termination benefits	—			—
Benefit obligation, end of year	$	10,070		$	8,951

For the postretirement life insurance plan, PLC’s discount rate assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2012, is 4.10% and 4.62%, respectively.

PLC’s expected long-term rate of return assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2012, is 3.26% and 3.45%, respectively. In assessing the reasonableness of its long-term rate of return assumption, PLC utilized a 20 year annualized return and a 20 year average return on Barclay’s short treasury index. PLC’s long-term rate of return assumption was determined based on analytics related to these 20 year return results.

Investments of PLC’s group life insurance plan are held by Wells Fargo Bank, N.A. Plan assets held by the Custodian are invested in a money market fund.

The fair value of each major category of plan assets for PLC’s postretirement life insurance plan is as follows:

	For The Year Ended December 31,
Category of Investment	2012		2011		2010
	(Dollars In Thousands)
Money Market Fund	$	6,174	$	6,193	$	6,217

Investments are stated at fair value and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The money market funds are valued based on historical cost, which represents fair value, at year end. This method of valuation may produce a fair value calculation that may not be reflective of future fair values. Furthermore, while PLC believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.

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The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money Market Fund	$	6,174	$	—	$	—	$	6,174

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of  December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money Market Fund	$	6,193	$	—	$	—	$	6,193

For the year ended December 31, 2012 and 2011, there were no transfers between levels.

Investments are exposed to various risks, such as interest rate and credit risks. Due to the level of risk associated with investments and the level of uncertainty related to credit risks, it is at least reasonably possible that changes in risk in the near term could materially affect the amounts reported.

401(k) Plan

PLC sponsors a 401(k) Plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code or as after-tax “Roth” contributions. Employees may contribute up to 25% of their eligible annual compensation to the 401(k) Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service ($17,000 for 2012). The Plan also provides a “catch-up” contribution provision which permits eligible participants (age 50 or over at the end of the calendar year), to make additional contributions that exceed the regular annual contribution limits up to a limit periodically set by the Internal Revenue Service ($5,500 for 2012). PLC matches the sum of all employee contributions dollar for dollar up to a maximum of 4% of an employee’s pay per year per person. All matching contributions vest immediately.

Prior to 2009, employee contributions to PLC’s 401(k) Plan were matched through use of an ESOP established by PLC. Beginning in 2009, PLC adopted a cash match for employee contributions to the 401(k) plan. For the year ended December 31, 2012, and 2011, PLC recorded an expense of $5.9 million and $5.6 million, respectively.

Effective as of January 1, 2005, PLC adopted a supplemental matching contribution program, which is a nonqualified plan that provides supplemental matching contributions in excess of the limits imposed on qualified defined contribution plans by federal tax law. The first allocations under this program were made in early 2006, with respect to the 2005 plan year. The expense recorded by PLC for this employee benefit was $0.4 million, $0.4 million, and $0.2 million, respectively, in 2012, 2011, and 2010.

Deferred Compensation Plan

PLC has established deferred compensation plans for directors, officers, and others. Compensation deferred is credited to the participants in cash, mutual funds, common stock equivalents, or a combination thereof. PLC may, from time to time, reissue treasury shares or buy in the open market shares of common stock to fulfill its obligation under the plans. As of December 31, 2012, the plans had 932,801 common stock equivalents credited to participants. PLC’s obligations related to its deferred compensation plans are reported in other liabilities, unless they are to be settled in shares of its common stock, in which case they are reported as a component of shareowners’ equity.

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15.INCOME TAXES

The Company’s effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows:

	For The Year Ended December 31,
	2012		2011		2010
Statutory federal income tax rate applied to pre-tax income	35.0	%	35.0	%	35.0	%
State income taxes	0.4		0.4		0.5
Investment income not subject to tax	(3.1	)	(2.0	)	(1.4	)
Uncertain tax positions	0.2		(0.1	)	(0.9	)
Other	0.4		(1.2	)	0.1
	32.9	%	32.1	%	33.3	%

The annual provision for federal income tax in these financial statements differs from the annual amounts of income tax expense reported in the respective income tax returns. Certain significant revenues and expenses are appropriately reported in different years with respect to the financial statements and the tax returns.

The components of the Company’s income tax are as follows:

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Income tax expense per the income tax returns:
Federal	$	78,510	$	(4,609	)	$	3,600
State	2,496		33			2,944
Total current	$	81,006	$	(4,576	)	$	6,544
Deferred income tax expense:
Federal	$	66,375	$	153,412		$	104,608
State	3,662		2,683			(1,287		)
Total deferred	$	70,037	$	156,095		$	103,321

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The components of the Company’s net deferred income tax liability are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Deferred income tax assets:
Premium receivables and policy liabilities	$	51,276		$	35,267
Intercompany losses	45,079			42,685
Invested assets (other than unrealized gains)	—			68,530
Deferred compensation	3,750			3,059
State tax valuation allowance	(2,552		)	(2,440		)
Other	26,604			454
	124,157			147,555
Deferred income tax liabilities:
Deferred policy acquisition costs and value of business acquired	911,858			873,979
Invested assets (other than realized gains)	20,936			—
Unrealized gain on investments	975,076			567,572
	1,907,870			1,441,551
Net deferred income tax (liability) asset	$	(1,783,713	)	$	(1,293,996	)

The Company’s income tax returns are included in PLC’s consolidated U.S. income tax returns.

In management’s judgment, the gross deferred income tax asset as of December 31, 2012, will more likely than not be fully realized. With regard to state tax loss carryforwards, the Company has recognized a valuation allowance of $2.6 million and $2.4 million as of December 31, 2012 and 2011, respectively, related to operating loss carryforwards that it has determined are more likely than not to expire unutilized. As of December 31, 2012 and 2011, no valuation allowances were established with regard to deferred tax assets relating to impairments on fixed maturities, capital loss carryforwards, and unrealized losses on investments. As of December 31, 2012 and 2011, the Company relied upon certain prudent and feasible tax-planning strategies and its ability and intent to hold to recovery its fixed maturities that were reported at an unrealized loss. The Company has the ability and the intent to either hold any unrealized loss bond to maturity, thereby avoiding a realized loss, or to generate a realized gain from unrealized gain bonds if such unrealized loss bond is sold at a loss prior to maturity. As of December 31, 2012, the Company recorded a net unrealized gain on its fixed maturities.

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

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	4,318		$	12,659
Additions for tax positions of the current year	9,465			—
Additions for tax positions of prior years	64,050			106
Reductions of tax positions of prior years:
Changes in judgment	(3,498		)	(8,447		)
Settlements during the period	—			—
Lapses of applicable statute of limitations	—			—
Balance, end of period	$	74,335		$	4,318

Included in the balance above, as of December 31, 2012 and 2011, are approximately $67.5 million and $2.0 million of unrecognized tax benefits, respectively, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductions. Other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective income tax rate but would accelerate to an earlier period the payment of cash to the taxing authority. The total amount of unrecognized tax benefits, if recognized, that

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would affect the effective income tax rate is approximately $6.8 million and $2.3 million as of December 31, 2012 and as of December 31, 2011, respectively.

Any accrued interest and penalties related to the unrecognized tax benefits have been included in income tax expense. There were no amounts included in 2012, a $1.4 million benefit in 2011, and a $2.9 million expense in 2010. The Company has no accrued interest associated with unrecognized tax benefits as of December 31, 2012, and approximately $1.4 million of accrued interest associated with unrecognized tax benefits as of December 31, 2011 (before taking into consideration the related income tax benefit that is associated with such an expense).

During 2012, an IRS audit concluded in which the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and is seeking resolution at the IRS’ Appeals Divisions. Although it cannot be certain, the Company believes the Appeals process may conclude within the next 12 months. If this is the case, approximately $16.1 million of the unrecognized tax benefits on the above chart will be reduced. This reduction could occur because of the Company’s successful negotiation of certain issues at Appeals coupled with its unsuccessful negotiations on other issues. This possible scenario includes an assumption that the Company would pay the IRS-asserted deficiencies on issues that it loses at Appeals rather than litigating such issues. If the IRS prevails at Appeals and the Company does not litigate these issues, the tax payments that would occur as a result would not materially impact the Company or its effective tax rate.

During the 12 months ended December 31, 2012 and 2011, the Company’s uncertain tax position liability decreased in the amount of $3.5 million and $8.4 million, respectively, as a result of new technical guidance and other developments which led the Company to conclude that the full amount of the associated tax benefit was more than 50% likely to be realized.

In general, the Company is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for tax years that began before 2003.

16.SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information:

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Cash paid / (received) during the year:
Interest expense	$	92,175	$	89,657		$	57,544
Income taxes	77,665		25,129			(79,281		)
Noncash investing and financing activities:
Decrease in collateral for securities lending transactions	—		(96,653		)	(10,630		)

17.RELATED PARTY TRANSACTIONS

The Company leases furnished office space and computers to affiliates. Lease revenues were $4.7 million, $4.6 million, and $3.4 million for the years ended December 31, 2012, 2011, and 2010, respectively. The Company purchases data processing, legal, investment, and management services from affiliates. The costs of such services were $154.7 million, $143.0 million, and $135.9 million for the years ended December 31, 2012, 2011, and 2010, respectively.  In addition, the Company has an intercompany payable with affiliates as of December 31, 2012 and 2011 of $10.3 million and $26.8 million, respectively and an intercompany receivable with affiliates of $6.0 million and $34.0 million as of December 31, 2012 and 2011, respectively.

Certain corporations with which PLC’s directors were affiliated paid us premiums and policy fees or other amounts for various types of insurance and investment products, interest on bonds we own and commissions on securities underwritings in which our affiliates participated. Such amounts totaled $59.1 million, $51.0 million, and $13.1 million for the years ended December 31, 2012, 2011, and 2010, respectively. In addition, in 2010, PLC also received a $5 million deposit from Regions Bank Stable Principal Fund related to a Guaranteed Investment Contract

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sold by PLC. The Company and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $13.0 million, $4.6 million, and $7.2 million for the years ended December 31, 2012, 2011, and 2010, respectively.

PLC has guaranteed the Company’s obligations for borrowings or letters of credit under the revolving line of credit arrangement to which PLC is also a party. PLC has also issued guarantees, entered into support agreements and/or assumed a duty to indemnify its indirect wholly owned captive insurance companies in certain respects. In addition, as of December 31, 2012, PLC is the sole holder of the $800 million balance of outstanding surplus notes issued by one such wholly owned captive insurance company, Golden Gate.

As of February 1, 2000, PLC guaranteed the obligations of the Company under a synthetic lease entered into by the Company, as lessee, with a non-affiliated third party, as lessor. Under the terms of the synthetic lease, financing of $75 million was available to the Company for construction of a new office building and parking deck. The synthetic lease was amended and restated as of January 11, 2007, wherein as of December 31, 2012, PLC continues to guarantee the obligations of the Company thereunder.

The Company has agreements with certain of its subsidiaries under which it provides administrative services for a fee.  These services include but are not limited to accounting, financial reporting, compliance, policy administration, reserve computations, and projections. In addition, the Company and its subsidiaries pay PLC for investment, legal and data processing services.

The Company and/or certain of its affiliates have reinsurance agreements in place with companies owned by PLC. These agreements relate to certain portions of our service contract business which is included within the Asset Protection segment. These transactions are eliminated at the PLC consolidated level.

The Company has also entered into intercompany reinsurance agreements that provide for a more balanced mix of business at various insurance entities. These transactions were eliminated in consolidation.

During 2012, PLC entered into an intercompany capital support agreement with Shades Creek Captive Insurance Company (“Shades Creek”), a direct wholly-owned insurance subsidiary. The agreement provides through a guarantee that PLC will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. As of December 31, 2012, Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.

18.STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS

The Company and its insurance subsidiaries prepare statutory financial statements for regulatory purposes in accordance with accounting practices prescribed by the NAIC and the applicable state insurance department laws and regulations. These financial statements vary materially from GAAP. Statutory accounting practices include publications of the NAIC, state laws, regulations, general administrative rules as well as certain permitted accounting practices granted by the respective state insurance department. Generally, the most significant differences are that statutory financial statements do not reflect 1) deferred acquisition costs, 2) benefit liabilities that are calculated using realistic estimates of expected mortality, interest, and withdrawals, 3) deferred income taxes that are not subject to statutory limits, 4) similar treatment of realized gains and losses on the sale of securities, and 5) fixed maturities recorded at fair values, but instead at amortized cost.

Statutory net income for PLICO was $376.3 million, $259.2 million, and $303.6 million for the year ended December 31, 2012, 2011 and 2010, respectively. Statutory capital and surplus for PLICO was $3.0 billion and $2.6 billion as of December 31, 2012 and 2011, respectively.

As of December 31, 2012, approximately $633 million of consolidated shareowner’s equity, excluding net unrealized gains on investments, represented net assets of the Company’s insurance subsidiaries that cannot be transferred to the Protective Life Insurance Company in the form of dividends, loans, or advances. In addition, the

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Company’s insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. 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. In addition, the Company can receive approximately $95.0 million of ordinary dividends from its insurance subsidiaries in 2013.

State insurance regulators and the National Association of Insurance Commissioners (“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. As of December 31, 2012, the Company’s total adjusted capital and company action level RBC was $3.3 billion and $644 million, respectively, providing an RBC ratio of approximately 510%.

As of December 31, 2012, the Company and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $48.7 million.

The states of domicile of the Company and its insurance subsidiaries have adopted prescribed accounting practices that differ from the required accounting outlined in NAIC Statutory Accounting Principles (“SAP”). The insurance subsidiaries also have certain accounting practices permitted by the states of domicile that differ from those found in NAIC SAP.

Certain prescribed and permitted practices impact the statutory surplus of the Company. These practices include the non-admission of goodwill as an asset for statutory reporting, the reporting of Bank Owned Life Insurance (“BOLI”) separate account amounts at book value rather than at fair value, and a reserve difference related to a captive insurance company.

The favorable (unfavorable) effects of the Company’s statutory surplus, compared to NAIC statutory surplus, from the use of these prescribed and permitted practices were as follows:

	As of December 31,
	2012			2011
	(Dollars In Millions)
Non-admission of goodwill	$	—		$	(159	)
Report BOLI Separate Accounts at Book Value	(1		)	(7		)
Reserving difference related to a captive insurance company	(49		)	—
Total (net)	$	(50	)	$	(166	)

The Company also has certain prescribed and permitted practices which are applied at the subsidiary level and do not have a direct impact on the statutory surplus of the Company. These practices include permission to follow the actuarial guidelines of the domiciliary state of the ceding insurer for certain captive reinsurers, and accounting for the face amount of all issued and outstanding letters of credit as an asset in the statutory financial statements of certain wholly owned subsidiaries that are considered “Special Purpose Financial Captives”.

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The favorable (unfavorable) effects on the statutory surplus of the Company’s insurance subsidiaries, compared to NAIC statutory surplus, from the use of these prescribed and permitted practices were as follows:

	As of December 31,
	2012		2011
	(Dollars In Millions)
Accounting for Letters of Credit as admitted assets	$	1,205	$	1,015
Accounting for Red Mountain Note as admitted asset	$	300	$	—
Reserving based on state specific actuarial practices	$	95	$	84

19.FAIR VALUE OF FINANCIAL INSTRUMENTS

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. The Company has 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.

In the first quarter of 2012, the Company adopted ASU No. 2011-04 — Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and IFRSs. The amendments in this Update resulted in modification of certain disclosures regarding fair value measurements, but did not result in a material change to the Company’s fair value methodology or measurements and had no impact to the Company’s financial position or results of operations.

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 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 December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,839,326	$	4	$	1,839,330
Commercial mortgage-backed securities	—		869,823		—		869,823
Other asset-backed securities	—		378,870		596,143		975,013
U.S. government-related securities	909,988		258,458		—		1,168,446
State, municipalities, and political subdivisions	—		1,439,378		4,275		1,443,653
Other government-related securities	—		80,767		20,011		100,778
Corporate bonds	207		20,197,528		167,892		20,365,627
Total fixed maturity securities - available-for-sale	910,195		25,064,150		788,325		26,762,670
Fixed maturity securities - trading
Residential mortgage-backed securities	—		357,803		—		357,803
Commercial mortgage-backed securities	—		171,073		—		171,073
Other asset-backed securities	—		87,395		70,535		157,930
U.S. government-related securities	304,704		1,169		—		305,873
State, municipalities, and political subdivisions	—		278,898		—		278,898
Other government-related securities	—		63,444		—		63,444
Corporate bonds	—		1,672,172		115		1,672,287
Total fixed maturity securities - trading	304,704		2,631,954		70,650		3,007,308
Total fixed maturity securities	1,214,899		27,696,104		858,975		29,769,978
Equity securities	273,072		35,116		65,527		373,715
Other long-term investments (1)	23,639		58,134		48,655		130,428
Short-term investments	214,295		2,492		—		216,787
Total investments	1,725,905		27,791,846		973,157		30,490,908
Cash	269,582		—		—		269,582
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	9,601,417		—		—		9,601,417
Variable universal life	562,817		—		—		562,817
Total assets measured at fair value on a recurring basis	$	12,159,721	$	27,791,846	$	973,157	$	40,924,724
Liabilities:
Annuity account balances(2)	$	—	$	—	$	129,468	$	129,468
Other liabilities (1)	19,187		27,250		611,437		657,874
Total liabilities measured at fair value on a recurring basis	$	19,187	$	27,250	$	740,905	$	787,342

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

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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 December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,337,037	$	7	$	2,337,044
Commercial mortgage-backed securities	—		550,527		—		550,527
Other asset-backed securities	—		298,216		614,813		913,029
U.S. government-related securities	664,506		536,173		15,000		1,215,679
State, municipalities, and political subdivisions	—		1,327,713		—		1,327,713
Other government-related securities	—		93,017		—		93,017
Corporate bonds	204		18,440,822		119,565		18,560,591
Total fixed maturity securities - available-for-sale	664,710		23,583,505		749,385		24,997,600
Fixed maturity securities - trading
Residential mortgage-backed securities	—		313,963		—		313,963
Commercial mortgage-backed securities	—		190,247		—		190,247
Other asset-backed securities	—		29,585		28,343		57,928
U.S. government-related securities	555,601		255		—		555,856
State, municipalities, and political subdivisions	—		229,032		—		229,032
Other government-related securities	—		44,845		—		44,845
Corporate bonds	—		1,568,094		—		1,568,094
Total fixed maturity securities - trading	555,601		2,376,021		28,343		2,959,965
Total fixed maturity securities	1,220,311		25,959,526		777,728		27,957,565
Equity securities	211,023		11,310		70,080		292,413
Other long-term investments (1)	27,757		7,785		19,103		54,645
Short-term investments	101,470		—		—		101,470
Total investments	1,560,561		25,978,621		866,911		28,406,093
Cash	169,775		—		—		169,775
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	6,741,959		—		—		6,741,959
Variable universal life	502,617		—		—		502,617
Total assets measured at fair value on a recurring basis	$	8,974,912	$	25,978,621	$	866,911	$	35,820,444
Liabilities:
Annuity account balances (2)	$	—	$	—	$	136,462	$	136,462
Other liabilities (1)	2,727		15,370		437,613		455,710
Total liabilities measured at fair value on a recurring basis	$	2,727	$	15,370	$	574,075	$	592,172

(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.

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

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price over 90% of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading 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 year ended December 31, 2012.

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 residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of December 31, 2012, the Company held $3.7 billion of ABS classified as Level 2. These securities are priced from information provided by 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 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 December 31, 2012, the Company held $666.7 million of Level 3 ABS, which included $70.5 million of other asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. As a result of the ARS market collapse during 2008, the Company prices its ARS using an income approach valuation model. 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, 7) credit ratings of the securities,8) liquidity premium, and 9) paydown rate.

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Corporate bonds, U.S. Government-related securities, States, municipals, and political subdivisions, and Other government related securities

As of December 31, 2012, the Company classified approximately $24.0 billion of corporate bonds, U.S. government-related securities, states, municipals, and political subdivisions, 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 utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize 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 December 31, 2012, the Company classified approximately $192.3 million of bonds and securities as Level 3 valuations. 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 rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

Equities

As of December 31, 2012, the Company held approximately $100.6 million of equity securities classified as Level 2 and Level 3. Of this total, $64.6 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value. The remainder of these equity securities is primarily made up of holdings we have obtained through bankruptcy proceedings or debt restructurings.

Other long-term investments and Other liabilities

Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 20, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of December 31, 2012, 79.3% 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 rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.

Derivative instruments classified as Level 1 generally include futures, credit default swaps, and puts, which are traded on active exchange markets.

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

Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable 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 benefits (“GMWB”) embedded derivative is carried at fair value in “other long-term investments” and “other liabilities” on the Company’s consolidated balance sheet. The changes in fair value are recorded in earnings as “Realized investment gains (losses) — Derivative financial instruments”. Refer to Note 20, Derivative Financial Instruments for more

177

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 multiple risk neutral stochastic 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 a blend of historical volatility and near-term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. The present value of the cash flows is determined using the discount rate curve, which is based upon 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.

The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in earnings. The fair value of the embedded derivative is the difference between the policy liabilities (net of policy loans) of $2.6 billion and the fair value of the trading securities of $3.1 billion. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.

Certain of the Company’s subsidiaries have entered into interest support, YRT premium support and portfolio maintenance agreements with PLC.  These agreements meet the definition of a derivative and are accounted for at fair value and are considered Level 3 valuations.  The fair value of these derivatives as of December 31, 2012 was $17.1 million and is included in “Other long-term investments”. For information regarding realized gains on these derivatives please refer to 20, Derivative Financial Instruments.

The Interest Support Agreement provides that PLC will make payments to Golden Gate II if actual investment income on certain of Golden Gate II’s asset portfolios falls below a calculated investment income amount as defined in the Interest Support Agreement. The calculated investment income amount is a level of investment income deemed to be sufficient to support certain of Golden Gate II’s obligations under a reinsurance agreement with the Company, dated July 1, 2007. The derivative is valued using an internal valuation model that assumes a conservative projection of investment income under an adverse interest rate scenario and the probability that the expectation falls below the calculated investment income amount. The fair value of this derivative as of December 31, 2012 was $15.0 million. The assessment of required payments from PLC under the Interest Support Agreement occurs annually. As of December 31, 2012, no payments have been triggered under this agreement.

The YRT Premium support agreement provides that PLC will make payments to Golden Gate II in the event that YRT premium rates increase. The derivative is valued using an internal valuation model. The valuation model is a probability weighted discounted cash flow model. The value is primarily a function of the likelihood and severity of future YRT premium increases. The fair value of this derivative as of December 31, 2012 was $1.6 million. As of December 31, 2012, no payments have been triggered under this agreement.

The portfolio maintenance agreements provide that PLC will make payments to Golden Gate V and West Coast Life in the event of other-than-temporary impairments on investments that exceed defined thresholds.  The derivatives are valued using an internal discounted cash flow model.  The significant unobservable inputs are the projected probability and severity of credit losses used to project future cash flows on the investment portfolios.  The fair value of the portfolio maintenance agreements as of December 31, 2012, was approximately $0.5 million.

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Annuity account balances

The Company records its equity indexed annuities (“EIA”) at fair value. The fair value is considered a Level 3 valuation. The EIA valuation 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 using multiple risk neutral stochastic 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 at least annually as a part of the formal unlocking process. If an event were to occur within a quarter that would make the assumptions unreasonable, the assumptions would be reviewed within the quarter.

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 December 31, 2012, ranged from a one month rate of 0.30%, a 5 year rate of 1.96%, and a 30 year rate of 4.14%. A credit spread component is also included in the calculation to accommodate non-performance risk.

Separate Accounts

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

179

Valuation of Level 3 Financial Instruments

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:

	Fair Value
	As of		Valuation	Unobservable	Range
	December 31, 2012		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	596,143	Discounted cash flow	Liquidity premium Paydown rate	0.72% - 1.68% (1.29%) 8.51% - 18.10% (11.40%)
Other government-related securities	20,011		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	168,007		Discounted cash flow	Spread over treasury	0.92% - 7.75% (3.34%)
Liabilities:
Embedded derivatives - GMWB(1)	$	169,041	Actuarial cash flow model	Mortality Lapse	57% of 1994 GMDB table 0% - 24%, depending on product/duration/funded
					status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.09% - 1.34%
Annuity account balances(2)	129,468		Actuarial cash flow model	Asset earned rate Expenses	5.81% $88 - $108 per policy
				Withdrawal rate	2.20%
				Mortality	57% of 1994 GMDB table
				Lapse	2.2% - 45.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.09% - 1.34%

(1)The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.

(2)Represents liabilities related to equity indexed annuities.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and those which book value approximates fair value.

The valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company which resulted in $70.5 million of financial instruments, all asset backed securities, being classified as Level 3 as of December 31, 2012.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2012, the Company held $69.8 million of financial instruments where book value approximates fair value.  Of the $69.8 million, $65.5 million represents equity securities, which are predominantly FHLB stock, and $4.3 million of other fixed maturity securities.

The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’ fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities.

The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease, and increase when spreads decrease.

180

The GMWB liability is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the liability and conversely, if there is a decrease in the assumptions the liability would increase. The liability is also dependent on the assumed policyholder utilization of the GMWB where an increase in assumed utilization would result in an increase in the liability and conversely, if there is a decrease in the assumption, the liability would decrease.

The fair value of the EIA account balance liability is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the EIA account balance liability is sensitive to the asset earned rate and required return on assets. The value of the liability increases with an increase in required return on assets and decreases with an increase in the asset earned rate and conversely, the value of the liability decreases with a decrease in required return on assets and an increase in the asset earned rate.

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The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2012, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	7	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	614,813		339		21,780		—			(22,587		)	—		(19,050		)	—		—		771		77			596,143		—
U.S. government-related securities	15,000		—		—		—			(2		)	—		(15,000		)	—		—		—		2			—		—
States, municipals, and political subdivisions	—		—		—		—			4,275			—		—			—		—		—		4,275			—
Other government-related securities	—		—		29		—			(27		)	20,024		—			—		—		—		(15		)	20,011		—
Corporate bonds	119,565		470		8,052		(4		)	(2,723		)	11,960		(9,854		)	—		—		40,060		366			167,892		—
Total fixed maturity securities - available-for-sale	749,385		809		29,861		(4		)	(25,339		)	36,259		(43,907		)	—		—		40,831		430			788,325		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		4,086		—		(2,306		)	—			48,255		(9,896		)	—		—		—		2,053			70,535		1,780
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		2		—		—			—			1		—			—		—		112		—			115		10
Total fixed maturity securities - trading	28,343		4,088		—		(2,306		)	—			48,256		(9,896		)	—		—		112		2,053			70,650		1,790
Total fixed maturity securities	777,728		4,897		29,861		(2,310		)	(25,339		)	84,515		(53,803		)	—		—		40,943		2,483			858,975		1,790
Equity securities	70,080		8		827		—			(1,097		)	4		(4,295		)	—		—		—		—			65,527		—
Other long-term investments(1)	19,103		—		—		29,552			—			—		—			—		—		—		—			48,655		29,552
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		4,905		30,688		27,242			(26,436		)	84,519		(58,098		)	—		—		40,943		2,483			973,157		31,342
Total assets measured at fair value on a recurring basis	$	866,911	$	4,905	$	30,688	$	27,242		$	(26,436	)	$	84,519	$	(58,098	)	$	—	$	—	$	40,943	$	2,483		$	973,157	$	31,342
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	12,293		$	—		$	—	$	—		$	860	$	20,147	$	—	$	—		$	129,468	$	—
Other liabilities(1	437,613		86,523		—		(260,347		)	—			—		—			—		—		—		—			611,437		(173,824		)
Total liabilities measured at fair value on a recurring basis	$	574,075	$	86,523	$	—	$	(248,054	)	$	—		$	—	$	—		$	860	$	20,147	$	—	$	—		$	740,905	$	(173,824	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

For the year ended December 31, 2012, $67.7 million of securities were transferred into Level 3. This amount was transferred from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of December 31, 2012.

For the year ended December 31, 2012, $26.8 million of securities were transferred out of Level 3. This amount was transferred to Level 2. These transfers resulted from securities that were previously valued using an internal model that utilized significant unobservable inputs but were valued internally or by independent pricing services or brokers, utilizing no significant unobservable inputs. All transfers are recognized as of the end of the reporting period.

For the year ended December 31, 2012, there were no transfers from Level 2 to Level 1.

For the year ended December 31, 2012, there were no transfers from Level 1 to Level 2.

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The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2011, for which the Company has used significant unobservable inputs (Level 3):

																														Total
																														Gains (losses)
			Total				Total																							included in
			Realized and Unrealized				Realized and Unrealized																							Earnings
			Gains				Losses																							related to
					Included in					Included in																				Instruments
					Other					Other												Transfers								still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of						Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3			Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	20	$	—	$	12	$	(4	)	$	—		$	—	$	(12	)	$	—	$	—	$	(9	)	$	—		$	7	$	—
Commercial mortgage-backed securities	19,901		—		147		—			(719		)	—		(103		)	—		—		(19,224		)	(2		)	—		—
Other asset-backed securities	641,129		4,527		28,873		(8,661		)	(50,941		)	—		—			—		—		—			(114		)	614,813		—
U.S. government-related securities	15,109		—		—		—			(122		)	—		—			—		—		—			13			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	64,996		—		5,216		—			(1,689		)	40,000		(3,543		)	—		—		14,585			—			119,565		—
Total fixed maturity securities - available-for-sale	741,155		4,527		34,248		(8,665		)	(53,471		)	40,000		(3,658		)	—		—		(4,648		)	(103		)	749,385		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	59,925		1,213		—		(2,689		)	—			3,792		(40,292		)	—		—		4,002			2,392			28,343		(937		)
U.S. government-related securities	3,442		387		—		(476		)	—			—		(3,347		)	—		—		—			(6		)	—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	—		611		—		(1,453		)	—			—		(37,292		)	—		—		38,039			95			—		—
Total fixed maturity securities - trading	63,367		2,211		—		(4,618		)	—			3,792		(80,931		)	—		—		42,041			2,481			28,343		(937		)
Total fixed maturity securities	804,522		6,738		34,248		(13,283		)	(53,471		)	43,792		(84,589		)	—		—		37,393			2,378			777,728		(937		)
Equity securities	66,592		49		555		—			(1,050		)	3,962		(49		)	—		—		21			—			70,080		—
Other long-term investments(1)	31,765		—		—		(12,662		)	—			—		—			—		—		—			—			19,103		(12,662		)
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	902,879		6,787		34,803		(25,945		)	(54,521		)	47,754		(84,638		)	—		—		37,414			2,378			866,911		(13,599		)
Total assets measured at fair value on a recurring basis	$	902,879	$	6,787	$	34,803	$	(25,945	)	$	(54,521	)	$	47,754	$	(84,638	)	$	—	$	—	$	37,414		$	2,378		$	866,911	$	(13,599	)
Liabilities:
Annuity account balances(2)	$	143,264	$	—	$	—	$	(5,850	)	$	—		$	—	$	—		$	654	$	13,306	$	—		$	—		$	136,462	$	—
Other liabilities(1)	190,529		—		—		(249,757		)	—			—		(2,673		)	—		—		—			—			437,613		(249,757		)
Total liabilities measured at fair value on a recurring basis	$	333,793	$	—	$	—	$	(255,607	)	$	—		$	—	$	(2,673	)	$	654	$	13,306	$	—		$	—		$	574,075	$	(249,757	)

(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 statements of income (loss) 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.

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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.

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 December 31,
		2012				2011
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,948,625	$	5,723,579	$	5,351,902	$	6,251,902
Policy loans	3	865,391		865,391		879,819		879,819
Fixed maturities, held-to-maturity(1)	3	300,000		319,163		—		—
Liabilities:
Stable value product account balances	3	$	2,510,559	$	2,534,094	$	2,769,510	$	2,855,614
Annuity account balances	3	10,658,463		10,525,702		10,946,848		10,767,892
Mortgage loan backed certificates	3	—		—		19,755		19,893
Debt:
Non-recourse funding obligations(2)	3	$	1,446,900	$	1,357,290	$	1,248,600	$	1,060,275

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

(1) Security purchased from unconsolidated subsidiary, Red Mountain LLC.

(2) Of this carrying amount $300 million, fair value of $297.6 million, relates to non-recourse funding obligations issued by Golden Gate V.

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 credit 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 policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. 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.

Fixed maturities, held-to-maturity

The Company estimates the fair value of its fixed maturity, held-to-maturity using internal discounted cash flow models.  The discount rates used in the model were based on a current market yield for similar financial instruments.

184

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

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.

20.          DERIVATIVE FINANCIAL INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through the Company’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 attempts to minimize its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk 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 risk management strategies. In addition, all derivative programs are monitored by our risk management department.

Derivatives Related to Interest Rate Risk Management

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 caps, 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”).

Derivatives Related to Risk Mitigation of Variable Annuity Contracts

The Company may use the following types of derivative contracts to mitigate its exposure to certain guaranteed benefits related to variable annuity contracts:

·Foreign Currency Futures

·Variance Swaps

·Interest Rate Futures

·Equity Options

·Equity Futures

·Credit Derivatives

·Interest Rate Swaps

·Interest Rate Swaptions

·Volatility Futures

The Company has in certain periods, sold credit protection under single name credit default swaps and credit default swap indices for which it receives a premium to insure credit risk. Such credit derivatives are a part of the Company’s program to mitigate risks related to certain minimum guaranteed benefits of variable annuity contracts and are designed to offset some portion of the Company’s nonperformance risk. The Company will only make a payment in the event there is a credit event. A credit event payment will typically be equal to the notional value of the swap

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contract less an auction-determined recovery rate, to the percentage extent described. A credit event is generally defined to include material default, bankruptcy, or debt restructuring. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, would equal the notional value of the credit default swaps. As of December 31, 2012 and 2011, the Company did not have any open credit default swaps.

Other Derivatives

The Company has certain derivatives with PLC. These derivatives consist of an interest support agreement, a YRT premium support arrangement, and portfolio maintenance agreements with PLC.

Accounting for Derivative Instruments

The Company records its derivative financial instruments in the consolidated 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 change in the fair value of derivative financial instruments is reported either in the statement of income or in other comprehensive income (loss), depending upon whether it qualified  for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.

For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.

The Company reports 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”.

Derivative Instruments Designated and Qualifying as Hedging Instruments

Cash-Flow Hedges

·In connection with the issuance of inflation-adjusted funding agreements, the Company has entered into swaps to essentially convert the floating CPI-linked interest rate on these agreements to a fixed rate. The Company pays a fixed rate on the swap and receives a floating rate primarily determined by the period’s change in the CPI. The amounts that are received on the swaps are almost equal to the amounts that are paid on the agreements.

·The Company has entered into an interest rate swap to convert LIBOR-based floating rate interest payments on a certain funding agreement to fixed rate interest payments. This structure is basically the same as that described regarding the CPI-based agreements and swaps.  As of December 31, 2012, the Company no longer held these positions.

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments

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

Derivatives related to variable annuity contracts

·The Company uses equity, interest rate, currency and volatility futures to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. In

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general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility. The equity futures resulted in net pre-tax losses of $50.8 million and $30.1 million and interest rate futures resulted in pre-tax gains of $21.1 million and $164.2 million for the year ended December 31, 2012 and 2011, respectively. Currency futures resulted in net pre-tax losses of $2.8 million and net pre-tax gains of $3.0 million for the year ended December 31, 2012 and  2011, respectively.  Volatility futures resulted in pre-tax losses of $0.1 million for the year ended December 31, 2012.  Such positions were not held during the year ended December 31, 2011.

·The Company uses equity options and volatility swaps to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. In general, the cost of such benefits varies with the level of equity markets and overall volatility. The equity options resulted in net pre-tax losses of $37.4 million and $15.1 million and the volatility swaps resulted in net pre-tax losses of $11.8 million and $0.2 million for the year ended December 31, 2012 and 2011, respectively.

·The Company uses interest rate swaps and interest rate swaptions to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within its variable annuity products. The interest rate swaps resulted in net pre-tax gains of $3.3 million and $7.7 million for the year ended December 31, 2012 and 2011, respectively. The interest rate swaptions resulted in net pre-tax losses of $2.3 million for the year ended December 31, 2012. Such positions were not held during the year ended December 31, 2011.

·The Company entered into credit default swaps to partially mitigate the Company’s non-performance risk related to certain guaranteed minimum withdrawal benefits within our variable annuity products. The Company reported net pre-tax losses of $7.9 million for the year ended December 31, 2011. Net settlements received were $2.5 million, offset by termination losses of $10.4 million. As of December 31, 2011, the Company did not hold any remaining credit default swaps.  Such positions were not held during the year ended December 31, 2012.

·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 $22.1 million and $127.5 million for the year ended December 31, 2012 and 2011, respectively, related to these embedded derivatives.

Other Derivatives

·The Company uses certain interest rate swaps to mitigate the price volatility of fixed maturities. The Company recognized pre-tax losses of $0.1 million and $11.3 million on interest rate swaps for the year ended December 31, 2012 and 2011, respectively.

·The Company purchased interest rate caps during 2011 to mitigate risk associated with the Company’s LIBOR exposure and the potential impact of European financial market distress. These caps resulted in net pre-tax losses of $2.7 million and $2.8 million for the year ended December 31, 2012 and 2011, respectively.

·The Company has an interest support agreement, a yearly renewable term (“YRT”) premium support arrangement, and two portfolio maintenance agreements with PLC. The Company recognized pre-tax gains of $9.6 million and pre-tax losses of $0.3 million for the years ended December 31, 2012 and 2011, respectively, related to the interest support agreement. The Company recognized a pre-tax gain of $0.6 million for the year ended December 31, 2012 related to the YRT premium support arrangement.  There were no gains or losses for the year ended December 31, 2011 related to the YRT premium support arrangement.  The Company entered into two separate portfolio maintenance agreements in October 2012.  The Company recognized pre-tax gains of $0.5 million for the year ended December 31, 2012 related to its portfolio maintenance agreements.

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·The Company uses various swaps and other types of derivatives to manage risk related to other exposures. The Company recognized pre-tax losses of $0.1 million and $0.5 million for the year ended December 31, 2012 and 2011, respectively.

·The Company is involved in various modified coinsurance and funds withheld arrangements which contain embedded derivatives. Changes in their fair value are recorded in current period earnings. The investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had fair value changes which substantially offset the gains or losses on these embedded derivatives. The Company recognized pre-tax losses of $132.8 million and $134.3 million for the year ended December 31, 2012 and 2011, respectively.

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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 financial statements for the periods presented below:

	As of December 31,
	2012				2011
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	—	$	—	$	7,068	$	1
Derivatives not designated as hedging instruments:
Interest rate swaps	355,000		6,532		125,000		5,118
Volatility swaps	500		406		—		—
Derivatives with PLC(1)	1,404,750		17,064		796,713		6,400
Embedded derivative - Modco reinsurance treaties	30,244		1,330		30,001		2,038
Embedded derivative - GMWB	1,640,075		30,261		826,790		10,665
Interest rate futures	—		—		615,445		6,393
Equity futures	147,581		595		49,631		837
Currency futures	15,944		784		57,912		976
Interest rate caps	3,000,000		—		3,000,000		2,666
Equity options	573,493		61,833		440,000		19,396
Interest rate swaptions	400,000		11,370		—		—
Other	224		253		224		155
	$	7,567,811	$	130,428	$	5,948,784	$	54,645
Other liabilities
Cash flow hedges:
Inflation	$	182,965	$	5,027	$	244,399	$	8,863
Interest rate	—		—		75,000		3,443
Derivatives not designated as hedging instruments:
Interest rate swaps	400,000		10,025		25,000		3,064
Volatility swaps	2,675		12,198		—		—
Embedded derivative - Modco reinsurance treaties	2,655,134		411,907		2,761,686		279,799
Embedded derivative - GMWB	5,253,961		199,530		3,741,688		157,813
Interest rate futures	893,476		13,970		270,019		1,148
Equity futures	152,364		3,316		189,765		1,454
Currency futures	131,979		1,901		14,348		126
	$	9,672,554	$	657,874	$	7,321,905	$	455,710

(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

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Gain (Loss) on Derivatives in Cash Flow Relationship

	For The Year Ended December 31, 2012									For The Year Ended December 31, 2011
	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 (loss) (effective portion):
Interest rate	$	—		$	—		$	(77	)	$	—		$	—		$	(272	)
Inflation	—			—			3,067			—			—			2,468
Gain (loss) reclassified from accumulated other comprehensive income (loss) into income (effective portion):
Interest rate	$	—		$	(2,261	)	$	—		$	—		$	(3,581	)	$	—
Inflation	—			(938		)	—			—			(276		)	—
Gain (loss) recognized in income (ineffective portion):
Inflation	$	(177	)	$	—		$	—		$	(359	)	$	—		$	—

Based on the expected cash flows of the underlying hedged items, the Company expects to reclassify $1.7 million out of accumulated other comprehensive income (loss) into earnings during the next twelve months.

Realized investment gains (losses) - derivative financial instruments

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	21,138		$	164,221		$	(11,778	)
Equity futures - VA	(50,797		)	(30,061		)	(42,258		)
Currency futures - VA	(2,763		)	2,977			—
Volatility futures - VA	(132		)	—			—
Volatility swaps - VA	(11,792		)	(239		)	(2,433		)
Equity options - VA	(37,370		)	(15,051		)	(1,824		)
Interest rate swaptions - VA	(2,260		)	—			—
Interest rate swaps - VA	3,264			7,718			—
Credit default swaps - VA	—			(7,851		)	—
Embedded derivative - GMWB	(22,120		)	(127,537		)	(5,728		)
Total derivatives related to variable annuity contracts	(102,832		)	(5,823		)	(64,021		)
Embedded derivative - Modco reinsurance treaties	(132,816		)	(134,340		)	(67,989		)
Interest rate swaps	(87		)	(11,264		)	(8,427		)
Interest rate caps	(2,666		)	(2,801		)	—
Derivatives with PLC(1)	10,664			(300		)	(4,800		)
Other derivatives	(79		)	(477		)	799
Total realized gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)

(1)These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

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From time to time, the Company is required to post and obligated to return collateral related to derivative transactions. As of December 31, 2012, the Company had posted cash and securities (at fair value) as collateral of approximately $34.8 million and $54.9 million, respectively. As of December 31, 2012, the Company received $11.6 million of cash as collateral. The Company does not net the collateral posted or received with the fair value of the derivative financial instruments for reporting purposes.

Realized investment gains (losses) - all other investments

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Modco trading portfolio(1)	$	177,986	$	164,224	$	109,399

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

21.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 UL, variable universal life, bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) 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. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically “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 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 fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans.  Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

·The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles, watercraft, and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

·The Corporate and Other segment primarily consists of net investment income not attributable to the segments above (including the impact of carrying liquidity), expenses not attributable to the segments above, and a trading portfolio that was previously part of a variable interest entity. This segment includes earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations.

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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 (excluding periodic settlements of derivatives associated with debt and certain investments) net of the related amortization of DAC and VOBA. Operating earnings exclude changes in the GMWB embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

In the first quarter of 2012, management revised the definition of operating income (loss) as it relates to certain features of our variable annuity contracts and related hedging activities, to better reflect the basis on which the performance of its business is internally assessed. Under the revised definition, the following items have been excluded from operating income for the historical periods presented within the document:

·Changes in GMWB embedded derivatives related to this rider feature of certain variable annuity products (excluding the portion attributed to economic costs). Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.). These features are considered embedded derivatives under ASC 815.

·Changes in value of certain derivative instruments used to mitigate the risk related to variable annuity contracts.

·That portion of the change in balance sheet components amortized over estimated gross profit that is attributed to the embedded GMWB derivative and related economic hedges (e.g. DAC amortization).

Prior periods have been revised to conform to the current period presentation for these changes.

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 net of associated statutory policy assets, 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 within the Asset Protection Division.

During the first quarter of 2011, the Company recorded $8.5 million of pre-tax earnings in the Corporate and Other business segment relating to the settlement of a dispute with respect to certain investments.

There were no significant intersegment transactions during the year ended December 31, 2012, 2011, and 2010.

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The following tables summarize financial information for the Company’s segments:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Revenues
Life Marketing	$	1,233,654		$	1,193,927		$	1,127,924
Acquisitions	1,064,295			982,821			761,344
Annuities	610,489			633,185			500,697
Stable Value Products	123,274			170,455			168,127
Asset Protection	294,146			282,587			269,597
Corporate and Other	130,202			145,610			109,295
Total revenues	$	3,456,060		$	3,408,585		$	2,936,984
Segment Operating Income (Loss)
Life Marketing	$	102,114		$	96,110		$	123,495
Acquisitions	171,060			157,393			111,143
Annuities	117,778			79,373			48,109
Stable Value Products	60,329			56,780			39,207
Asset Protection	9,765			16,892			24,267
Corporate and Other	1,119			6,985			(13,458		)
Total segment operating income	462,165			413,533			332,763
Realized investment (losses) gains - investments(1)(3)	188,729			194,866			134,559
Realized investment (losses) gains - derivatives(2)	(191,315		)	(133,124		)	(134,146		)
Income tax expense	(151,043		)	(151,519		)	(109,865		)
Net Income	$	308,536		$	323,756		$	223,311
(1) Realized investment (losses) gains - investments	$	174,692		$	200,432		$	117,056
Less: related amortization of DAC/VOBA	(14,037		)	5,566			(17,503		)
	$	188,729		$	194,866		$	134,559
(2) Realized investment gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)
Less: settlements on certain interest rate swaps	—			—			168
Less: derivative activity related to certain annuities	(36,501		)	(21,881		)	(10,460		)
	$	(191,315	)	$	(133,124	)	$	(134,146	)
Net investment income
Life Marketing	$	486,374		$	446,014		$	387,953
Acquisitions	550,334			529,261			458,703
Annuities	504,342			507,229			482,264
Stable Value Products	128,239			145,150			171,327
Asset Protection	19,698			21,650			23,959
Corporate and Other	100,351			104,140			100,639
Total net investment income	$	1,789,338		$	1,753,444		$	1,624,845
Amortization of DAC and VOBA
Life Marketing	$	45,079		$	87,461		$	47,809
Acquisitions	77,251			75,041			64,410
Annuities	45,319			57,201			76
Stable Value Products	947			4,556			5,430
Asset Protection	22,569			22,607			25,077
Corporate and Other	1,018			2,654			1,694
Total amortization of DAC and VOBA	$	192,183		$	249,520		$	144,496

(3) Includes credit related other-than-temporary impairments of $58.1 million, $47.3 million, and $41.4 millionfor the year ended December 31, 2012, 2011, and 2010, respectively.

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	Operating Segment Assets
	As of December 31, 2012
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,171,384	$	11,312,550	$	17,649,488	$	2,509,160
Deferred policy acquisition costs and value of business acquired	2,001,708		679,746		491,184		1,399
Goodwill	—		35,615		—		—
Total assets	$	14,173,092	$	12,027,911	$	18,140,672	$	2,510,559

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	740,153	$	9,446,057	$	19,662	$	53,848,454
Deferred policy acquisition costs and value of business acquired	50,253		1,066		—		3,225,356
Goodwill	48,158		—		—		83,773
Total assets	$	838,564	$	9,447,123	$	19,662	$	57,157,583

	Operating Segment Assets
	As of December 31, 2011
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	10,885,785	$	11,471,856	$	14,945,002	$	2,767,163
Deferred policy acquisition costs and value of business acquired	1,912,916		824,277		435,462		2,347
Goodwill	—		38,713		—		—
Total assets	$	12,798,701	$	12,334,846	$	15,380,464	$	2,769,510

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	707,181	$	7,894,614	$	21,491	$	48,693,092
Deferred policy acquisition costs and value of business acquired	46,606		1,612		—		3,223,220
Goodwill	48,158		—		—		86,871
Total assets	$	801,945	$	7,896,226	$	21,491	$	52,003,183

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22.CONSOLIDATED QUARTERLY RESULTS — UNAUDITED

The Company’s unaudited consolidated quarterly operating data for the year ended December 31, 2012 and 2011 is presented below. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair statement of quarterly results have been reflected in the following data. It is also management’s opinion, however, that quarterly operating data for insurance enterprises are not necessarily indicative of results that may be expected in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in shareowner’s equity, and cash flows for a period of several quarters.

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(Dollars In Thousands, Except Per Share Amounts)
2012
Premiums and policy fees	$	692,398		$	707,720		$	681,324		$	717,948
Reinsurance ceded	(296,295		)	(336,119		)	(311,862		)	(365,821		)
Net of reinsurance ceded	396,103			371,601			369,462			352,127
Net investment income	443,532			438,648			446,374			460,784
Realized investment gains (losses)	(13,022		)	6,669			(2,686		)	(44,085		)
Other income	75,142			50,121			51,046			54,244
Total revenues	901,755			867,039			864,196			823,070
Total benefits and expenses	760,687			749,974			757,507			728,313
Income before income tax	141,068			117,065			106,689			94,757
Income tax expense	45,212			35,438			35,778			34,615
Net income	$	95,856		$	81,627		$	70,911		$	60,142
2011
Premiums and policy fees	$	662,256		$	712,472		$	693,161		$	716,245
Reinsurance ceded	(324,417		)	(356,603		)	(319,732		)	(363,162		)
Net of reinsurance ceded	337,839			355,869			373,429			353,083
Net investment income	427,311			434,425			445,928			445,780
Realized investment gains (losses)	(7,986		)	19,974			31,880			1,559
Other income	43,863			56,107			47,262			42,262
Total revenues	801,027			866,375			898,499			842,684
Total benefits and expenses	705,685			726,214			775,941			725,470
Income before income tax	95,342			140,161			122,558			117,214
Income tax expense	33,223			48,557			39,579			30,160
Net income	$	62,119		$	91,604		$	82,979		$	87,054

23.          SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to December 31, 2012, and through the date we filed our consolidated financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated financial statements.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareowner of

Protective Life Insurance Company:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Protective Life Insurance Company and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index appearing under Item 15(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s Report on Internal Controls Over Financial Reporting” appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 and Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for costs associated with acquiring or renewing insurance contracts and the presentation of its comprehensive income.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Birmingham, Alabama

March 28, 2013

196

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A.    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”)), except as otherwise noted below. Based on their evaluation as of the end of the period covered by this Form 10-K, 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.

The Company acquired United Investors Life Insurance Company (“United Investors”) and completed an unrelated reinsurance transaction with Liberty Life Insurance Company (“Liberty Life”) effective December 31, 2010 and April 29, 2011, respectively. The Company performed due diligence on these businesses before completing the acquisitions and developed a reasonable level of assurance that the disclosure controls and procedures relating to the administrative system and processes of these businesses were effective. During 2012, the Company has integrated United Investors and Liberty Life into its own control structure.

(b)           Management’s report on internal controls over financial reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:

·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

197

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

Based on the Company’s assessment of internal control over financial reporting, management has concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2012, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in Item 8.

March 28, 2013

(c)           Changes in internal control over financial reporting

During the year ended December 31, 2012, the Company completed the conversion of administrative processing and integration into its internal controls over financial reporting for the United Investors block of business. Additionally, during the year ended December 31, 2012, the Company has integrated Liberty Life into its own control structure.

Other than the integration of the United Investors and Liberty Life, there have been no changes in the Company’s internal control over financial reporting during the period ended December 31, 2012, 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.

Item 9B.    Other Information

None

198

PART III

Item 10.     Directors and Executive Officers and Corporate Governance

Information omitted in accordance with General Instruction I (2)(c).

Item 11.     Executive Compensation

Information omitted in accordance with General Instruction I (2)(c).

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information omitted in accordance with General Instruction I (2)(c).

Item 13.     Certain Relationships and Related Transactions and Director Independence

Information omitted in accordance with General Instruction I (2)(c).

Item 14.     Principal Accountant Fees and Services

The following table shows the aggregate fees billed by PricewaterhouseCoopers LLP for 2012 and 2011with respect to various services provided to PLC and its subsidiaries.

	For The Year Ended December 31,
	2012		2011
	(Dollars in Millions)
Audit Fees	$	5.2	$	5.1
Audit Related Fees	0.7		0.7
Tax Fees	0.5		0.3
All Other Fees	—		—
Total	$	6.4	$	6.1

Audit Fees were for professional services rendered for the audits of PLC, including integrated audits of PLC’s consolidated financial statements and the effectiveness of internal controls over financial reporting, audits (GAAP and statutory basis) of certain of PLC’s subsidiaries, issuance of comfort letters and consents, assistance with review of documents filed with the SEC and other regulatory authorities, and expenses related to the above services.

Audit-Related Fees were for assurance and related services related to employee benefit plan audits, due diligence and accounting consultations in connection with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

Tax Fee were for services related to tax compliance, including the preparation and review of tax returns and claims for refund, and tax planning and tax advice, including assistance with tax audits and appeals, advice related to acquisitions, tax services for employee benefit plans, and requests for rulings or technical advice from tax authorities.

All Other Fees include fees that are appropriately not included in the Audit, Audit-Related, and Tax categories.

On February 25, 2013, the Audit Committee approved the engagement of PricewaterhouseCoopers LLP to render audit and non-audit services for PLC and its subsidiaries, including the Company, for the period ended February 2014. Its policy is to pre-approve, generally for a 12-month period, the audit, audit-related, tax and other services

199

provided by the independent accountants to PLC and its subsidiaries. Under the pre-approval process, the Committee reviews and approves specific services and categories of services and the maximum aggregate fee for each service or service category. Performance of any additional services or categories of services, or of services that would result in fees in excess of the established maximum, requires the separate pre-approval of the Audit Committee or one of its members who has been delegated pre-approval authority. The Committee or its Chairman pre-approved all Audit, Audit-Related, Tax and Other services performed for PLC and its subsidiaries by PricewaterhouseCoopers LLP with respect to fiscal year 2013.

200

PART IV

Item 15.     Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

1.Financial Statements (See Item 8, Financial Statements and Supplementary Data)

2.Financial Statement Schedules:

The Report of Independent Registered Public Accounting Firm which covers the financial statement schedules appears on page 196 of this report. The following schedules are located in this report on the pages indicated.

	Page
Schedule III - Supplementary Insurance Information	206
Schedule IV - Reinsurance	207
Schedule V - Valuation and Qualifying Accounts	208

All other schedules to the consolidated financial statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.

3.Exhibits:

The items listed below are included as exhibits. The Company will furnish a copy of any of the exhibits listed upon the payment of $5.00 per exhibit to cover the cost of furnishing the exhibit.

201

Item
Number		Document
†	2(a)	Stock Purchase Agreement Among Protective Life Insurance Company, United Investors Life Insurance Company, Liberty National Life Insurance Company and Torchmark Corporation, dated as of September 13, 2010, filed as Exhibit 2.01 to the Company’s Current Report on Form 8-K filed September 17, 2010. (No. 001-31901)
†	3(a)	2011 Amended and Restated Charter of Protective Life Insurance Company dated as of June 27, 2011, filed as exhibit 3(a) to Protective Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (No. 001-31901)
†	3(b)	2011 Amended and Restated By-Laws of Protective Life Insurance Company dated as of June 27, 2011, filed as exhibit 3(a) to Protective Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (No. 001-31901)
**	4(a)	Group Modified Guaranteed Annuity Contract
***	4(b)	Individual Certificate
**	4(c)	Tax-Sheltered Annuity Endorsement
**	4(d)	Qualified Retirement Plan Endorsement
**	4(e)	Individual Retirement Annuity Endorsement
**	4(f)	Section 457 Deferred Compensation Plan Endorsement
*	4(g)	Qualified Plan Endorsement
**	4(h)	Application for Individual Certificate
**	4(i)	Adoption Agreement for Participation in Group Modified Guaranteed Annuity
***	4(j)	Individual Modified Guaranteed Annuity Contract
**	4(k)	Application for Individual Modified Guaranteed Annuity Contract
****	4(l)	Endorsement - Group Policy
****	4(m)	Endorsement - Certificate
****	4(n)	Endorsement - Individual Contracts
****	4(o)	Endorsement (Annuity Deposits) - Group Policy
****	4(p)	Endorsement (Annuity Deposits) - Certificate
****	4(q)	Endorsement (Annuity Deposits) - Individual Contracts
*****	4(r)	Endorsement - Individual
*****	4(s)	Endorsement - Group Contract/Certificate
†	4(t)	Endorsement - Individual, incorporated by reference as Exhibit 4(EE) to Protective Life Insurance Company’s Registration Statement on Form S-1 filed April 4, 1996. (No. 333-02249)
†	4(u)	Endorsement - Group Contract, incorporated by reference as Exhibit 4(FF) to Protective Life Insurance Company’s Registration Statement on Form S-1 filed April 4, 1996. (No. 333-02249)
†	4(v)	Endorsement - Group Certificate, incorporated by reference as Exhibit 4(GG) to Protective Life Insurance Company’s Registration Statement on Form S-1 filed April 4, 1996. (No. 333-02249)
†	4(w)	Individual Modified Guaranteed Annuity Contract, incorporated by reference as Exhibit 4 (HH) to Protective Life Insurance Company’s Registration Statement on Form S-1 filed April 4, 1996. (No. 333-02249)
†	4(x)	Cancellation Endorsement, included as an exhibit to item 4(w) above.
†††	4(y)	Group Modified Guaranteed Annuity Contract
†††	4(z)	Individual Modified Guaranteed Annuity Contract
†††	4(aa)	Group Certificate
†††	4(bb)	Application for Modified Guaranteed Annuity
†††	4(cc)	Endorsement - Free Look
†††	4(dd)	Endorsement - Settlement Option
†††	4(ee)	Endorsement - Automatic Renewal
†††	4(ff)	Endorsement - Traditional IRA
†††	4(gg)	Endorsement - Roth IRA
†††	4(hh)	Endorsement - Qualified Retirement Plan
†††	4(ii)	Endorsement - Section 457 Deferred Compensation Plan
††	4(jj)	Application for Modified Guaranteed Annuity

202

*	10(a)	Bond Purchase Agreement
*	10(b)	Escrow Agreement
†	10(c)	Credit Agreement dated as of July 17, 2012 among Protective Life Corporation and Protective Life Insurance Company as borrowers, the several lenders from time to time a party thereto, Regions Bank, as Administrative Agent, and Wells Fargo, National Association, as Syndication Agent, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 23, 2012.  (No. 001-11339)
†	10(d)	Amended and Restated Lease Agreement dated as of January 11, 2007, between Wachovia Development  Corporation (an assignee of Wachovia Capital Investments, Inc.) and Protective Life Insurance Company filed as Exhibit 10(G)(4) to the Company’s Form S-1 filed April 23, 2007. (No. 333-142293)
†	10(e)	Amended and Restated Investment and Participation Agreement dated as of January 11, 2007, between Protective Life Insurance Company and Wachovia Development Corporation (an assignee of Wachovia Capital Investments, Inc.) filed as Exhibit 10(G)(5) to the Company’s Form S-1 filed April 23, 2007. (No. 333-142293)
†	10(f)	Amendment and Clarification of the Tax Allocation Agreement dated January 1, 1988 by and among Protective Life Corporation and its subsidiaries. Filed as Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
†	10(g)	Amended and Restated Reimbursement Agreement dated as of November 21, 2011 between Golden Gate III Vermont Captive Insurance Company and UBS AG, Stamford Branch filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q filed August 12, 2010. ±
†	10(h)	Stock Purchase Agreement by and among RBC Insurance Holdings (USA), Inc., Athene Holding Ltd., the Company and RBC USA Holdco Corporation filed as Exhibit 10.01 to the Company’s current report on Form 8-K filed October 28, 2010. (No. 001-31901)
†	10(i)	Reimbursement Agreement dated as of December 10, 2010 between Golden Gate IV Vermont Captive Insurance Company and UBS AG, Stamford Branch filed as Exhibit 10(J) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. (No. 001-31901) ±
†	10(j)	Form of Coinsurance Agreement by and between Liberty Life Insurance Company and Protective Life Insurance Company filed as Exhibit 10.02 to the Company’s Current Report on Form 8-K filed October 28, 2010. (No. 001-31901)
	12	Consolidated Earnings Ratio
	14	Code of Business Conduct for Protective Life Corporation and all of its subsidiaries, revised May 12, 2012, filed herewith.
†	14(a)	Supplemental Policy on Conflict of Interest, Revised August 30, 2010 for Protective Life Corporation and all of its subsidiaries, filed as Exhibit 14(a) to Protective Life Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010. (No. 001-11339)
	23	Consent of Independent Registered Public Accounting Firm
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32(a)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101	Financial statements from the annual report on Form 10-K of Protective Life Insurance Company for the year ended December 31, 2012, filed on March 28, 2013, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Shareowner’s Equity, (iv) the Consolidated Statement of Cash Flow, and (v) the Notes to Consolidated Financial Statements.

*	Previously filed or incorporated by reference in Form S-1 Registration Statement, Registration No. 33-31940.
**	Previously filed or incorporated by reference in Amendment No. 1 to Form S-1 Registration

203

	Statement, Registration No. 33-31940.
***	Previously filed or incorporated by reference from Amendment No. 2 to Form S-1 Registration Statement, Registration No. 33-31940.
****	Previously filed or incorporated by reference from Amendment No. 2 to Form S-1 Registration Statement, Registration No. 33-57052.
*****	Previously filed or incorporated by reference from Amendment No. 3 to Form S-1 Registration Statement, Registration No. 33-57052.
†	Incorporated by reference.
††	Previously filed as Exhibit 4(bb) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (No. 001-31901).
†††	Previously filed or incorporated by reference in Form S-1 Registration Statement, Registration No. 333-156285.
±	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 and Exchange Act of 1934, as amended.

204

SIGNATURES

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

PROTECTIVE LIFE INSURANCE COMPANY
By:	/s/ Steven G. Walker
	Steven G. Walker
	Senior Vice President, Controller
	and Chief Accounting Officer
	March 28, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature	Capacity in Which Signed	Date
/s/ John D. Johns	Chairman of the Board, President	March 28, 2013
JOHN D. JOHNS	and Chief Excecutive Officer
	(Principal Executive Officer)
	and Director
/s/ Richard J. Bielen	Vice Chairman and	March 28, 2013
RICH BIELEN	Chief Financial Officer
	(Principal Executive Officer)
/s/ Carolyn Johnson	Executive Vice President	March 28, 2013
CAROLYN JOHNSON	Chief Operating Officer
	and a Director

205

SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

															Amortization
	Deferred						Stable Value								of Deferred
	Policy						Products,								Policy
	Acquisition						Annuity								Acquisitions
	Costs and						Contracts and		Net				Benefits		Costs and
	Value of		Future Policy				Other		Premiums		Net		and		Value of		Other
	Businesses		Benefits and		Unearned		Policyholders’		and Policy		Investment		Settlement		Businesses		Operating		Premiums
Segment	Acquired		Claims		Premiums		Funds		Fees		Income(1)		Expenses		Acquired		Expenses(1)		Written(2)
	(Dollars In Thousands)
For The Year Ended December 31, 2012:
Life Marketing	$	2,001,708	$	12,733,602	$	698,862	$	277,919	$	743,361	$	486,374	$	1,054,645	$	45,079	$	31,816	$	161
Acquisitions	679,746		7,666,423		8,367		3,514,838		459,835		550,334		716,893		77,251		51,714		29,874
Annuities	491,184		1,102,577		103,316		7,372,471		97,902		504,342		369,622		45,319		100,848		—
Stable Value Products	1,399		—		—		2,510,559		—		128,239		64,790		947		2,174		—
Asset Protection	50,253		51,279		540,766		1,790		168,656		19,698		91,778		22,569		170,034		159,927
Corporate and Other	1,066		72,184		1,561		58,430		19,539		100,351		19,393		1,018		130,591		19,456
Total	$	3,225,356	$	21,626,065	$	1,352,872	$	13,736,007	$	1,489,293	$	1,789,338	$	2,317,121	$	192,183	$	487,177	$	209,418
For The Year Ended December 31, 2011:
Life Marketing	$	1,912,916	$	11,755,841	$	589,027	$	274,870	$	744,819	$	446,014	$	978,098	$	87,461	$	32,258	$	196
Acquisitions	824,277		7,804,207		6,792		3,669,366		414,823		529,261		662,293		75,041		55,792		22,386
Annuities	435,462		1,175,690		103,314		7,497,370		68,319		507,229		390,788		57,201		84,996		—
Stable Value Products	2,347		—		—		2,769,510		—		145,150		81,256		4,556		2,557		—
Asset Protection	46,606		53,987		517,274		1,645		170,898		21,650		88,257		22,607		154,831		161,387
Corporate and Other	1,612		78,002		1,851		50,113		21,361		104,140		21,528		2,654		131,136		21,107
Total	$	3,223,220	$	20,867,727	$	1,218,258	$	14,262,874	$	1,420,220	$	1,753,444	$	2,222,220	$	249,520	$	461,570	$	205,076
For The Year Ended December 31, 2010:
Life Marketing	$	1,826,001	$	10,910,433	$	520,589	$	275,325	$	736,252	$	387,953	$	921,765	$	47,809	$	34,855	$	246
Acquisitions	810,681		6,241,033		16,329		3,857,946		246,698		458,703		512,433		64,410		25,559		766
Annuities	368,279		1,231,374		93,609		6,985,784		42,650		482,264		407,455		76		68,106		—
Stable Value Products	6,903		—		—		3,076,233		—		171,327		123,365		5,430		3,325		—
Asset Protection	48,048		63,357		509,273		2,258		178,883		23,959		86,799		25,077		133,454		168,762
Corporate and Other	3,497		84,068		2,125		48,216		24,162		100,639		24,575		1,694		117,621		23,961
Total	$	3,063,409	$	18,530,265	$	1,141,925	$	14,245,762	$	1,228,645	$	1,624,845	$	2,076,392	$	144,496	$	382,920	$	193,735

(1)Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied.

(2) Excludes Life Insurance

206

SCHEDULE IV - REINSURANCE

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

					Assumed					Percentage of
			Ceded to		from					Amount
	Gross		Other		Other		Net			Assumed to
	Amount		Companies		Companies		Amount			Net
	(Dollars In Thousands)
For The Year Ended December 31, 2012:
Life insurance in-force	$	706,415,969	$	444,950,866	$	30,470,432	$	291,935,535		10.4	%
Premiums and policy fees:
Life insurance	2,226,614		1,228,444		281,711		1,279,881		(1)	22.0
Accident/health insurance	38,873		12,065		29,413		56,221			52.3
Property and liability insurance	216,014		69,589		6,765		153,190			4.4
Total	$	2,481,501	$	1,310,098	$	317,889	$	1,489,292
For The Year Ended December 31, 2011:
Life insurance in-force	$	728,670,260	$	469,530,487	$	32,812,882	$	291,952,655		11.2	%
Premiums and policy fees:
Life insurance	2,245,359		1,278,273		248,467		1,215,553		(1)	20.4
Accident/health insurance	43,161		14,415		21,719		50,465			43.0
Property and liability insurance	219,267		71,225		6,160		154,202			4.0
Total	$	2,507,787	$	1,363,913	$	276,346	$	1,420,220
For The Year Ended December 31, 2010:
Life insurance in-force	$	753,518,782	$	495,056,077	$	18,799,243	$	277,261,948		6.8	%
Premiums and policy fees:
Life insurance	2,153,318		1,284,504		166,606		1,035,420		(1)	16.1
Accident/health insurance	49,520		17,323		63		32,260			0.2
Property and liability insurance	232,744		78,885		7,106		160,965			4.4
Total	$	2,435,582	$	1,380,712	$	173,775	$	1,228,645

(1)Includes annuity policy fees of $103.8 million, $74.9 million, and $43.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

207

SCHEDULE V — VALUATION AND QUALIFYING ACCOUNTS

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

			Additions
	Balance		Charged to		Charges					Balance
	at beginning		costs and		to other					at end of
Description	of period		expenses		accounts		Deductions			period
	(Dollars In Thousands)
2012
Allowance for losses on commercial mortgage loans	$	4,975	$	6,240	$	—	$	(8,340	)	$	2,875
2011
Allowance for losses on commercial mortgage loans	$	11,650	$	9,603	$	—	$	(16,278	)	$	4,975
2010
Allowance for losses on commercial mortgage loans	$	1,725	$	11,071	$	—	$	(1,146	)	$	11,650

208

EX-12

Exhibit 12

CONSOLIDATED EARNINGS RATIOS

The following table sets forth, for the years and periods ended, 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 Year Ended December 31,
	2012	2011	2010	2009	2008  (3)
Ratio of Consolidated Earnings to Fixed Charges (1)	1.4	1.4	1.3	1.4	0.9
Ratio of Consolidated Earnings (Losses) to Fixed ChargesBefore Interest Credited on Investment Products (2)	5.8	6.1	5.5	10.4	(1.1	)

(1)Protective Life 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).  Protective Life 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 increase in earnings.

(2)Protective Life 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 $154.6 million.

Computation of Consolidated Earnings Ratios

	For The Year Ended December 31,
	2012		2011		2010		2009		2008  (1)
	(Dollars In Thousands, Except Ratio Data)
Computation of Ratio of Consolidated Earnings (Losses) to Fixed Charges
Income (Loss) from Continuing Operations before Income Tax	$	459,579	$	475,275	$	333,176	$	390,441	$	(154,570	)
Add Interest Expense (2)	95,759		93,797		73,841		41,411		72,154
Add Interest Credited on Investment Products	962,678		993,574		972,806		993,245		1,043,676
Earnings before Interest, Interest Credited on Investment Products and Taxes	$	1,518,016	$	1,562,646	$	1,379,823	$	1,425,097	$	961,260
Earnings before Interest, Interest Credited on Investment Products and Taxes Divided by Interest expense and Interest Credited on Investment Products	1.4		1.4		1.3		1.4		0.9
Computation of Ratio of Consolidated Earnings (Losses) to Fixed Charges Before Interest Credited on Investment Products
Income (Loss) from Continuing Operations before Income Tax	$	459,579	$	475,275	$	333,176	$	390,441	$	(154,570	)
Add Interest Expense (2)	95,759		93,797		73,841		41,411		72,154
Earnings (Losses) before Interest and Taxes	$	555,338	$	569,072	$	407,017	$	431,852	$	(82,416	)
Earnings (Losses) before Interest and Taxes Divided by Interest Expense	5.8		6.1		5.5		10.4		(1.1		)

(1)For the year ended December 31, 2008, additional income required to achieve a 1:1 ratio coverage was $154.6 million.

(2)Interest expense primarily relates to interest on our non-recourse funding obligations.

EX-14

Exhibit 14

Code of Business Conduct

for

Protective Life Corporation

and all of its subsidiaries, including

Protective Life Insurance Company
West Coast Life Insurance Company
Protective Life & Annuity Insurance Company
Protective Life Insurance Company of New York

Lyndon Property Insurance Company

ProEquities, Inc.
First Protective Insurance Group

Revised May 21, 2012

You have a responsibility to report any suspected violations of this Code. A suspected violation could be a situation that you observe or a situation that is brought to your attention by someone else.

Suspected violations must be reported promptly to at least one of the following:

·The Human Resources Compliance Officer, Melanie McNary (in the Human Resources Department) at (205) 268-6136 or melanie.mcnary@protective.com

·The Chief Compliance Officer, Steve Callaway (in the Legal Department) at (205) 268- 3804 or steve.callaway@protective.com

·The General Counsel, Debbie Long (in the Legal Department) at (205) 268-3700 or debbie.long@protective.com

·The Chief Human Resources Officer, Scott Adams (in the Human Resources Department) at (205) 268-4452 or scott.adams@protective.com

·The Code of Business Conduct telephone hotline at (205) 268-CODE (2633) or (800) 421-3564 (You may communicate to the telephone hotlines anonymously.)

·The Code of Business Conduct email hotline at hotline@protective.com (You may communicate to the email hotline anonymously.)

TABLE OF CONTENTS

Our Values	1
A Statement of Our Ethical Principles	1
A Statement of Our Principles of Ethical Market Conduct	1
Obtaining Guidance about Ethical Concerns	2
Exceptions	2
Compliance and Reporting	2
Compliance with the Code	2
Individual Judgment (and questions to ask yourself)	2
Reporting Suspected Violations	3
Penalty for Violations	3
Waivers of the Code of Business Conduct	3
Conducting the Company’s Business	4
Business Relationships	4
Dealing with Each Other	4
Dealing with Customers	4
Dealing with Producers and Agents	5
Dealing with Suppliers	5
Dealing with Regulators	5
Dealing with Government Officials and Employees	5
Doing Business with Any Government	5
Interaction with Government Officials and Employees	6
Political Contributions, Political Fundraising and Political Activity at Work	6
Dealing with Auditors	7
Dealing with Media, Investors or the Public	7
Dealing with Adverse Parties	7
Avoiding Conflicts of Interest	7
Your Private Interests	7
Gifts, Meals and Entertainment	8
Corporate Opportunity	8
Disparagement	8
Industrial Espionage	9
Prevention of Fraud	9
Safeguarding Company Property	9
Keeping Information Confidential	9
Use of Software	10
Use of Company Systems and Devices	10
Accurate Records, Reporting and Disclosure	11
Accounting Complaints	11
Consultants	12
Complying with Laws	12
In General	12
Antitrust Laws	12
Securities Laws: Insider Trading and Transactions in Company Securities	13
Prohibitions on Employment in the Insurance Industry	13
Charitable Contributions	14

Our Values

Throughout our Company’s history, our mission has remained boldly alive in our name.  We are Protective.  We are committed to tearing down the barriers that prevent so many people from enjoying the peace of mind and satisfaction that come from taking care of their future financial needs and the needs of those who depend on them.  This is our purpose.  This will be our legacy.

Four core values guide us in all that we do:  Do the Right Thing, Serve People, Build Trust, and Simplify Everything.  We serve with integrity and honesty, treating each of our customers the way we would like to be treated.

Each of us is responsible for the integrity of the Company, and each of us must be willing to raise ethical concerns. People in management positions have a special responsibility to demonstrate high ethical standards and to create an environment that requires ethical behavior.

This Code is intended to assist us in making the right choices. These same rules apply to everyone in the Company: employees, senior management and our Board of Directors.

However, these guidelines do not cover every situation. You should be guided by the spirit of the guidelines as well as the language, and you should get help whenever you are in doubt.

Remember, the accomplishment of the Company’s mission and the fulfillment of the Company’s commitment to all those we serve are dependent on each of us applying high ethical standards to whatever we do for the Company.

A Statement of Our Ethical Principles

·We will deal fairly and honestly with all people and treat each as we would expect each to treat us if the situation were reversed.

·We will trust and respect each other and maintain an environment where people may question a Company practice without fear.

·We will respect the dignity of each individual.

·We will not pursue any business opportunity in violation of the law or these principles.

·We will undertake only those business activities that will withstand public ethical scrutiny and our own standards of integrity.

·We will disclose any conflict of interest we may have regarding our responsibilities to the Company and remove the conflict where required.

A Statement of Our Principles of Ethical Market Conduct

In addition to the Company’s ethical principles, we fully support the following principles of ethical market conduct:

·We will conduct business according to high standards of honesty and fairness and will render that service to our customers which, in the same circumstances, we would apply to or demand for ourselves.

·We will provide competent and customer-focused sales and service.

·We will engage in active and fair competition.

·We will provide advertising and sales materials that are clear as to purpose and honest and fair as to content.

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·We will provide for fair and expeditious handling of customer complaints and disputes.

·We will maintain a system of supervision and review that is reasonably designed to achieve compliance with these principles of ethical market conduct.

Obtaining Guidance about Ethical Concerns

We all share a responsibility for the Company’s integrity and reputation. It may take courage to raise an ethical issue; however, our Company expects this of you, considers it an important responsibility of yours, and our management will support you in carrying out your responsibility.

The best course of action when you have an ethical concern is to discuss it with someone. You should consult your manager or any other appropriate individual in the Company when you need assistance. The doors of the Legal Department and the Human Resources Department are always open to you.

Exceptions

No set of guidelines, including this Code, can cover all the situations you will encounter, and guidelines have exceptions. If you encounter a situation where the application of a rule or principle contained in this Code seems inappropriate, talk to your manager about it. Your manager can consult with the appropriate approval authority to determine if an exception is in order. In case of doubt as to approval authority, the Legal Department should be consulted.

Compliance and Reporting

Compliance with the Code

Compliance with this Code is essential to being true to our Company’s vision and values. The Company will insist on compliance. You are responsible for understanding and complying with these requirements. Your manager is responsible for assisting you.

Individual Judgment (and questions to ask yourself)

Even though this Code provides you with general guidance and your manager and the Legal Department are available to help you, you ultimately must depend on your own individual judgment in deciding on the correct course of action. As you consider a particular situation, ask yourself these questions:

·Is my action consistent with approved Company practices?

·Is my action consistent with the Company’s preeminent values?

·Does my action avoid any appearance of impropriety?

·Can my actions withstand the light of day?

·Can I in good conscience defend my action to my supervisor, to other employees, and to the general public?

·Does my action meet my personal code of behavior?

·Does my action conform to the spirit of these guidelines?

·Is my action the “right thing” to do?

If the answer to any of these questions is “no,” you should reconsider your course of action or seek guidance from your manager, the Legal Department or the Human Resources Department before you act.

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Be careful about substituting collective judgment for your individual judgment. Ask yourself: “What specifically am I being asked to do? Does it seem unethical or improper?” Use your good judgment and common sense. If something would seem unethical or improper to a reasonable person, it probably is.

Reporting Suspected Violations

You have a responsibility to report any suspected violations of this Code. A suspected violation could be a situation that you observe or a situation that is brought to your attention by someone else.

Suspected violations must be reported promptly to at least one of the following:

·The Human Resources Compliance Officer, Melanie McNary (in the Human Resources Department) at (205) 268-6136 or melanie.mcnary@protective.com

·The Chief Compliance Officer, Steve Callaway (in the Legal Department) at (205) 268- 3804 or steve.callaway@protective.com

·The General Counsel, Debbie Long (in the Legal Department) at (205) 268-3700 or debbie.long@protective.com

·The Chief Human Resources Officer, Scott Adams (in the Human Resources Department) at (205) 268-4452 or scott.adams@protective.com

·The Code of Business Conduct telephone hotline at (205) 268-CODE (2633) or (800) 421-3564 (You may communicate to the telephone hotlines anonymously.)

·The Code of Business Conduct email hotline at hotline@protective.com (You may communicate to the email hotline anonymously.)

No employee will suffer any adverse action, retribution or career disadvantage for questioning a Company practice or for making a good faith report of a suspected violation of this Code or other irregularity. The Company will investigate possible violations. In doing so, we will respect the interest of all parties concerned. If requested, the identity of employees reporting suspected violations will be kept confidential unless we are required to reveal it to conduct an adequate investigation, to enforce these guidelines or to comply with applicable law or judicial process.

After reporting a suspected violation, an employee is expected to cooperate with the persons investigating the situation (the “Investigative Team” or “Team”). In most cases, that means that the reporting employee will respond promptly to requests of the Investigative Team, if the Team has any requests. In most cases, an employee’s role in relation to the suspected violation will have been fulfilled by reporting it and responding to the Team’s requests.

The reporting employee should not expect or consider himself or herself to be a part of the Investigative Team. The Team will determine the appropriate method for carrying out the investigation, and the appropriate communications about the investigation, including any communications with the employee who reported the suspected violation.

Penalty for Violations

Those who violate the standards in this Code will be subject to disciplinary action up to and including termination of employment.

Waivers of the Code of Business Conduct

Any waiver of the Code for executive officers or directors may be made only by the Company’s Board of Directors or a committee of the Board and will be promptly disclosed as required by law or stock exchange regulation.

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Conducting the Company’s Business

Business Relationships

In conducting the Company’s business, we deal with a variety of people and organizations, including other employees, customers, suppliers, competitors, community representatives and the investment community.

·Our relationships are business relationships and should be based on our Company’s long-term business interests. While we may develop friendships or other relationships with those with whom we deal, our dealings with others should reflect our Company’s best interest.

·All of our business relationships should be based on honesty and fairness.

·We want long-term, mutually beneficial business relationships, and trustworthiness is essential to establish and keep them.

·We will be truthful. If there is a mistake or misunderstanding, we will correct it immediately.

From time to time, we may enter into relationships with other businesses to pursue opportunities. It is imperative that we have confidence that the businesses with whom we work will conduct their activities ethically and in compliance with all applicable legal and regulatory requirements.

Dealing with Each Other

Basic to our relationship with each other is the recognition of the value and worth of each individual and the necessity to provide a working climate that is protective and supportive of the well-being of all employees.

·We are committed to providing opportunity to our employees; we will employ and promote those employees who are best qualified for the job. See the Equal Employment Opportunity Policy in the Employee Handbook.

·We will listen carefully and value the opinions and experience of employees and respect their diverse backgrounds, cultures, religions, experiences and beliefs.

·We will provide protection to all employees or applicants for employment against sexual or other harassment. The full text of the Company’s Harassment Prevention Policy is included in the Employee Handbook.

·Applicants for employment and employees will be evaluated for employment and promotion on a non-discriminatory basis.

Dealing with Customers

Serving customers is the focal point of our business. Satisfying customers is the only way to ensure business success.

·We must work with customers to understand and anticipate their needs and to identify and remove obstacles customers may see in doing business with us.

·We must accurately represent our products and services in our marketing, advertising and sales efforts.

·We need to respond promptly and courteously to our customers and investigate and resolve customer complaints.

·We seek to provide high quality products and services. We should evaluate customer satisfaction and continuously improve our quality.

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Dealing with Producers and Agents

Our producers and agents are an essential link in providing quality products and services to our customers.

·We must select agents that share our values and our commitment to quality.

·We desire to form lasting relationships with our agents — relationships based not just on production, but also on compatible philosophies and attitudes.

Dealing with Suppliers

Prospective suppliers will have a chance to compete fairly for our business.

·We will select suppliers based on high quality product, service and low cost.

·We want long-term relationships with our suppliers.

Dealing with Regulators

Our business is highly regulated. Our regulators have a responsibility to the public; to the extent our regulators perform their jobs well, we and other good companies benefit.

·We will always respond to and cooperate with regulatory authorities. If a regulator contacts you and you are not the designated employee responsible for dealing with that regulator, you should courteously assist the regulator in reaching the appropriate employee.

·To avoid confusion, only certain employees are designated to represent the Company when communicating with regulators. If you are not a designated employee, you should refer any inquiry from a regulator to one of the employees in your division that is so designated. If you have questions about who is so designated, you should call the Legal Department about the types of communication you engage in with regulators.

·Regulators are government officials. All of the rules regarding our interactions with government officials apply to regulators.

Dealing with Government Officials and Employees

Federal, state, local and foreign governments have varying and complicated laws dealing with prohibitions and restrictions on interaction with officials and employees, fundraising activities and gifts to officials and employees.  There are even more restrictive rules for certain people — brokers, dealers, investment advisers and anyone who “lobbies.”  Because of the complexity of these laws, and the fact that they frequently change, the following sections will inform you about several situations you may face:

Doing Business with Any Government

To protect the public interest, the federal and some state and local governments have enacted laws and regulations that must be met by private contractors. These laws and regulations are often harsh and impose strict requirements on contractors that are significantly different and more extensive than those we encounter in our commercial contracts. In many instances, violation can result in criminal sanctions, meaning the employee can be individually liable.

Since these laws involve the public trust and their violation often involves criminal sanctions, it is essential that there be strict compliance with all laws and regulations — in both spirit and letter — in transacting business with the government.

In conducting government business, it is essential that the terms of the contract with the government be strictly complied with and no deviations or substitutions be made without the written approval of the contracting officer or other authorized representative.

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Additionally, there are laws and regulations governing ethics and campaign contributions for some individuals who conduct regular business with government entities—for example, brokers, dealers and investment advisers.  These people also must comply with any ethics rules which apply to these interactions.

Interaction with Government Officials and Employees

Federal, state, local and foreign governments have varying and complicated laws governing interaction with government officials and employees, some of which prohibit or severely restrict you from providing any meals, gratuities or entertainment to its employees.  Federal, state and foreign governments have ethics codes strictly regulating what is permitted in gifts, meals and entertainment. If you are dealing with a governmental entity, you must learn and comply with the policy of that governmental entity. You should not provide any gifts, meals, entertainment or other amenities to any government employee or an employee of a government-related entity without first reviewing the matter with our Legal Department.  A gift can include anything, unless it is of no value. You also should not try to influence official action on behalf of the Company unless your activity has been pre-cleared by the Legal Department. These laws frequently change, so you should periodically update the advice you have received on a previous occasion.  In many instances, violators of these laws are subject to criminal penalties

If you anticipate doing business with a government, government-related entity (including regulators) or lobbyist, it is your responsibility to learn the applicable law. If you have questions, you should call the Legal Department.

You should not directly or indirectly offer, make, or solicit inappropriate payments or contributions to try to influence any government official or other official person to take action, fail to take action, or give an advantage over another person or business.  This includes domestic or foreign officials, political parties, party officials, candidates, legislators or regulators.

It is important to be aware that certain activity is defined by the federal and state governments as “lobbying.”  If you are lobbying, or you are a lobbyist, there are many requirements and restrictions which apply to both you and the Company.  Definitions vary among jurisdictions, but “lobbying” generally is the practice of promoting, opposing, or influencing legislation, regulation, or official action at any level of government.  It is the policy of the Company that only certain people, working through the Legal Department, may engage in this activity on behalf of the Company.  If you are concerned that your activity might be lobbying, please contact the Legal Department.

Violations of ethics and lobbying laws are criminal actions which can carry with them fines and jail time.  If you have questions, please contact the Legal Department.

For more information, please review the Government Affairs Guidelines located on PRISM.

Political Contributions, Political Fundraising and Political Activity at Work

The employees and directors of the Company may participate in the Protective Life Corporation Federal Political Action Committee and/or the Protective Life Corporation State Political Action Committee. Except in cases reviewed by the Legal Department and approved by the Chief Executive Officer, Company resources shall not be used to support political parties, political causes or candidates.

·Individual employees are encouraged to support their own parties, political causes and candidates, but they must do so on their own time and not use Company resources

·If a planned contribution, whether traditional or in-kind, could in any way be looked upon as involving Company funds, property or services, the Legal Department should be consulted.

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·If you work in an area (e.g. brokers, dealers and investment advisers) that has restrictions on political contributions, make sure you understand your department rules for contributions, and call the Legal Department if you have any questions.

Employees of the Company are welcome to run for office or be appointed as a government official.  To ensure there are no conflicts or potential violations of the ethics laws, you should contact the Legal Department to review any potential appointment or candidacy.

For more information, please review the Government Affairs Guidelines located on PRISM.

Dealing with Auditors

Our business is heavily dependent on the accuracy of our financial and accounting information. The public relies on the role of our independent public accountants in auditing this information. You may not take any action to influence, coerce or manipulate the Company or its subsidiaries’ independent public accountants for the purpose of rendering the financial statements of the Company misleading.

Dealing with Media, Investors or the Public

Contact with the media and the investment community and any public discussion of Company business and products should only be made through the Company’s authorized spokesperson.

If you are questioned by news reporters or investment analysts you should refer them to the appropriate Company representative. In most cases, this will be one of the senior officers of the Company. If you do not know who the appropriate person is, ask the secretary/administrative assistant to the Chief Executive Officer. Failure to observe this policy can cause tremendous harm to the Company and spread misinformation. We must exercise particular care when considering release of information of a sensitive or material nature, the disclosure of which could influence the judgment of investors to buy, sell or hold Company securities.

Dealing with Adverse Parties

We are committed to conducting our business with honesty and integrity. That commitment also extends to situations in which we find ourselves in an adversarial relationship with another party, such as a lawsuit or other dispute. It is important that communications in these situations be handled by the appropriate people who are authorized to communicate on behalf of the Company. For example, if an attorney who does not represent the Company contacts you about something other than an ordinary, non-adversarial matter, you should immediately — before communicating with that attorney — contact the Company’s Legal Department for instructions.

Avoiding Conflicts of Interest

Your Private Interests

You are expected to avoid situations where your private interests or the private interests of your loved ones conflict with the Company’s interests.

·You must disclose any potential conflict of interest to your manager so it can be resolved. “Potential conflicts of interest” include business or personal relationships with customers, suppliers, agents, employees or competitors or any other person or entity with whom the Company does business.

·You should not have any business or financial relationship with customers, suppliers or competitors that could influence or appear to influence you in carrying out your responsibilities. This would include the ownership of stock in these companies. However, ownership of a nominal amount of stock in a publicly owned company would not be considered a conflict unless the amount was large enough to influence you.

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·You may not market products or services that compete with ours. Nor may you work for a competitor, customer or supplier as an employee, consultant or member of its board of directors without written approval of the Chief Executive Officer or the Board of Directors.

·“Suppliers” include any person or entity which furnishes goods or services to the Company. For example, “suppliers” would include re-insurers, printers, bankers, law firms, marketers, lobbying firms and entities from or through which the Company purchases advertising.

·If you are not sure if your situation or relationship with another organization might conflict with your job performance or our Company’s interests, you should discuss it with your manager. Most potential conflict situations are readily resolved and it is always best for you to raise your concern.

Gifts, Meals and Entertainment

Except when dealing with representatives of a government or government-related entity (see “Dealing with Government Officials and Employees”), you may receive or give customary business amenities such as meals, provided they are associated with a business purpose, reasonable in cost, appropriate as to time and place and are such as not to give the appearance of improperly influencing the recipient. Excessive gifts and entertainment (given or received) are inherently compromising and do not belong in our business relationships.

You may not give or receive gifts, meals or entertainment to or from anyone in relation to Company business unless:

·They are of limited value, do not influence or give the appearance of influencing the recipient and cannot be viewed as a bribe, kickback or payoff.

·They do not violate any law or generally accepted ethical standards including the standards of the recipient’s organization.

·They can withstand public ethical review.

Under no circumstances may you give money to, or receive money from, a customer or a supplier. You are to courteously decline or return any kind of gift, favor or offer of excessive entertainment which violates these guidelines and inform the person making the offer of our policy.

Corporate Opportunity

You are prohibited from taking for yourself personally opportunities that are discovered through the use of Company property, information or position without the consent of the Chief Executive Officer or the Board of Directors. You may not use Company property, information or position for improper personal gain, and you may not compete with the Company directly or indirectly. You owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. Your work product belongs solely to the Company.

Disparagement

No one should ever make false, misleading or disparaging remarks about individuals or organizations or their products and services.

·Do not disparage our competitors or their products or employees. We should sell our products and services on their merits.

·If you make comparisons between our products and those of a competitor, they should be relevant, accurate, factual and up-to-date.

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Industrial Espionage

You may not engage in industrial espionage or acquire information about other companies through improper means. You have a responsibility not to steal or misuse the intellectual property of any supplier, customer, business partner or competitor.

We regularly acquire information about other companies in conducting our business. This is acceptable when this information is properly acquired. Proper sources would include information that is published or in the public domain or that is lawfully received from the owner or an authorized third party.

Examples of improper means of acquiring information are:

·Receiving from a third party information that was illegally or improperly acquired by the third party.

·Receiving confidential information of a company from present or former employees who are unauthorized to disclose it.

If you are offered proprietary information under suspicious circumstances, you should immediately consult our Legal Department. If you come into possession of information from another company that is marked confidential, or that you believe is confidential, you should consult our Legal Department if you have any questions regarding the proper authorization of your possession.

Prevention of Fraud

Every employee has an obligation to act to detect, deter and prevent fraud. If you discover facts that may indicate fraudulent activity, you must report the discovery immediately. For example, if you discover a document that appears to be a fake, you should report it immediately.

Safeguarding Company Property

Each of us is responsible for protecting Company property. The Company’s property includes your work product, the Company’s trade secrets, technology and proprietary information as well as physical property. The property and services of the Company are to be used solely for the benefit of the Company and should be used only as authorized by the Company. Managers are responsible for setting up and keeping good controls to protect the Company from loss or unauthorized or unlawful use of its property or services. Each of us is responsible for assisting in preventing waste and theft and assuring the integrity of the controls.

Keeping Information Confidential

The Company regularly develops private or proprietary information that is very valuable to the Company. Examples of this type of information are the Company’s customer lists, materials developed for in-house use, administrative and product development processes, business plans, pricing strategies and any formulas, devices and compilations of information that give the Company a competitive advantage. The Company also regularly receives non-public information from those with whom we do business. Examples of these types of information are the information we receive from our customers, agents, administrators, suppliers and business partners.

Any of this information may be considered the Company’s property, which we have a duty to protect. We may also be subject to laws and regulations that require us to safeguard this information, such as the laws and regulations that require us to protect customer information.

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Additionally, we may have agreements that spell out our obligations for using and protecting the information, such as our customers’ authorizations for medical information or confidentiality agreements we have with our agents and suppliers.

In connection with your activities on behalf of the Company, you may have access to and become knowledgeable about information that is confidential, private or proprietary. You must protect the confidentiality and privacy of that information.

·You may only use or disclose confidential, private or proprietary information for Company purposes; you may not use or disclose it for personal benefit or for the benefit of competing interests.

·To preserve confidentiality, you should only disclose confidential information to those who have a need to know. If you share confidential information with an employee, you should tell the employee that the information is confidential.

·You must limit your use of confidential, private or proprietary information to what is authorized by any agreement relating to the information or, if there is no express agreement, to what is impliedly authorized.

Your responsibility to keep information confidential continues after you leave employment with the Company.

Use of Software

One form of intellectual property we acquire is computer software. In addition to being copyrighted, computer software programs are usually subject to license agreements. These agreements restrict the Company’s use (and, therefore, your use) of the software. For example, a license may prohibit copying of the programs and restrict its use to a specified computer.

·You should understand the limitations on the use and copying of any software. If you have questions, you should contact the Information Security Officer (Tim Searcy, ext. 5289).

·You should not copy software, use it on a different computer or give it to a third party unless you have confirmed that the license agreement permits such copying or use.

·Any authorized copies shall contain the proper copyright and other required notices of the vendor.

·To protect the integrity of our computer systems, you should not access or execute any downloaded software unless you have confirmed that the appropriate licenses have been obtained and the software has been scanned for viruses.

Use of Company Systems and Devices (use is not private)

The Company’s systems and devices such as telephones, voice mail, email, Blackberry devices, Intranet and Internet access (both wired and wireless), desktop and laptop computers are intended to be used for the Company’s business. The Company recognizes that it is sometimes acceptable for employees to use these systems or devices for lawful personal purposes. You should, however, keep such use to a minimum and remember that such use is not private.

We will respect the privacy of each of our employees. Our work on behalf of the Company, however, is not private; it belongs to the Company. The Company reserves the right to access communications within its systems or on its devices. The Company may monitor, intercept or record communications such as telephone calls, electronic communications including email, instant messages and Intranet or Internet access as it deems necessary or appropriate to ensure

10

customer satisfaction, to improve quality, to guard against inappropriate uses and, in rare cases, to guard against unlawful uses.

An employee should not attempt to access another employee’s communications without the other employee’s permission or other appropriate authorization. The Legal Department should be consulted for guidance on the appropriate authorization for accessing employee communications. If communications are monitored, steps should be taken to discontinue monitoring if the communications are determined to be personal, lawful and appropriate under this Code.

Accurate Records, Reporting and Disclosure

Company records must reflect an accurate and verifiable record of all transactions and disposition of assets. We have internal accounting controls, including controls to limit transactions to those which are properly authorized and to promote both accountability for assets and reporting accuracy.

It is our responsibility to ensure that documents filed with or submitted to the Securities and Exchange Commission and other regulators or other public communications by the Company and its subsidiaries contain full, fair, accurate, timely and understandable disclosure.

·Information that you record and submit to another party, whether inside or outside our Company, must be accurate, timely and complete. It should honestly reflect the transaction or material.

·Like all Company employees, financial officers and employees must understand and apply the rules and regulations applicable to their job duties. In case of financial employees, this includes all laws, rules, regulations and accounting principles involved in accounting for transactions of the Company.

Accounting Complaints

The integrity of our financial reports is essential, and we intend to comply with all financial reporting and accounting regulations applicable to the Company. If you have concerns or complaints regarding questionable accounting or auditing matters of the Company, you must submit those concerns or complaints to the General Counsel. The term “questionable accounting or auditing matters” includes:

·fraud or deliberate error in the preparation, evaluation, review or audit of Company financial statements;

·fraud or deliberate error in the recording and maintenance of the Company’s financial records;

·deficiencies in or noncompliance with the Company’s internal accounting controls;

·misrepresentation or false statement to or by a senior officer or accountant regarding a matter contained in the Company’s financial records, financial reports or audit reports; or

·deviation from full and fair reporting of the Company’s financial condition.

If a report of suspected violation of the Code relates to accounting, internal accounting controls or auditing matters, the report will be transmitted to the Chairman of the Audit Committee by the General Counsel. You may elect to remain anonymous by making your concerns known via the Code of Business Conduct Hotline (205-268-2633 or 800-421-3564) or electronically at hotline@protective.com. If you choose to make an anonymous submission, you are encouraged to give as much detail as possible so that we will have the information necessary to carry out an investigation. We will treat any non-anonymous complaint received confidentially in

11

accordance with our policies for reporting other violations under the Code. In the event that, as a manager, you receive a report of a concern regarding questionable accounting or auditing matters, it is your responsibility to submit that concern to the General Counsel.

Consultants

Consultants and agents retained by our Company are expected to adhere to this Code and other Company policies in the course of their work on behalf of the Company.

·In retaining a consultant, you should ensure that no conflict of interest exists, that the consultant is genuinely qualified in the business for which retained, that the compensation is reasonable for the services being performed, and that there is a written agreement outlining the statement of work and requiring the consultant to comply with all applicable laws and appropriate Company policies.

·Consultants and agents may not be retained to do anything illegal or improper. You may not do anything indirectly that you may not do directly, and you may not do through a third party what you may not do yourself.

Complying with Laws

In General

The Company intends to conduct its business in a way that not only conforms to the letter of the law, but also promotes the spirit of fairness and honesty behind the laws.

·Every employee has the responsibility to become familiar with and comply with the laws and regulations that govern his or her area of responsibility. Ignorance of applicable laws is not acceptable.

·If you have questions about the meaning or application of any law or regulation, you should consult with and be guided by the advice of the Legal Department. Decisions regarding the application of the various laws should not be made without that advice.

·You may not take any action that you know or that our Legal Department has advised would violate any law or regulation.

Antitrust Laws

The antitrust laws are intended to preserve competition by prohibiting actions that could unreasonably restrain the functioning of a free and competitive marketplace.

·Any agreement that could limit competition in a specific market may be a violation of these laws and must be reviewed by the Legal Department.

·Because verbal exchanges can be viewed as an agreement, you need to exercise caution whenever you meet with competitors.

·Keep your discussions to the business purpose of the meeting.

·Avoid discussions with competitors related to market share, projected sales for any specific product or service, revenues and expenses, production schedules, inventories, unannounced products and services, pricing strategies, marketing and, of course, any confidential, private or proprietary Company information.

·You should not discuss with a competitor whether the Company or the competitor intends to enter or withdraw from a specific market.

These guidelines also apply to informal contacts you may have with competitors, including those at trade shows or meetings of professional organizations.

12

Each of the following may be a violation of the antitrust laws. In many instances, violators are subject to criminal penalties. Before engaging in any discussions with a competitor concerning the following, you must review the matter with the Legal Department:

·Prices or rates

·Allocation of markets or customers

·Limitations on production or quality

·Boycott of suppliers

·Intentions or motivations concerning entering or withdrawing from a market.

The Company has an Antitrust Compliance Manual that provides more comprehensive information and guidance about the Antitrust laws than this Code. You should make sure that you understand and comply with the Antitrust Compliance Manual.

Securities Laws: Insider Trading and Transactions in Company Securities

Federal Law prohibits buying or selling securities based on “inside information,” which is information not publicly available that could affect the price of the securities. Violators are subject to criminal penalties. Further, employees should never speculate in Company securities or purchase them except for long-term investments.

·You may not buy or sell, or advise others to buy or sell, Company securities at a time when you have inside information of a material nature. Note that this would include “giving tips” to friends or family.

·Inside information that might be material includes dividend changes, earnings estimates, significant business developments, expansion or curtailment of operations, sale or purchase of substantial assets or any other activity of significance.

·Buying or selling options relating to Company securities is prohibited for all employees.

·In addition, if you are an officer of the Company or one of its affiliates, you may not buy or sell Company securities or exercise stock appreciation rights during standard black-out periods unless specific authorization is received from the Chief Executive Officer, or unless the purchase, sale or SAR exercise is conducted on your behalf by a third party pursuant to a “Company-approved” 10b5-1 program. The standard black-out periods begin on March 10, June 10, September 10 and December 10, and end one (1) full business day after the next press release of quarterly earnings.

·In the event of some material unannounced developments, the Company may announce special “black-out” periods during which all employees will generally be prohibited from trading in Company securities until one (1) full business day after a press release concerning such development has been issued or as otherwise directed by the Company.

·You have an obligation to protect any confidential or material non-public information you obtain from the Company or its subsidiaries.

In addition, certain officers of the Company are subject to the Company’s Stock Ownership Guidelines. Under these Guidelines, unless specific authorization is received from the Chief Executive Officer, you may not sell Company securities unless, both before and after the sale, you hold Company securities valued at a certain minimum multiple of your salary (with such multiple based on the office you hold). Officers subject to these Guidelines will be notified of these requirements.

Prohibitions on Employment in the Insurance Industry

It is a federal crime for a person who has ever been convicted of a felony involving dishonesty or breach of trust to work in the business of insurance unless that person obtains the consent of the appropriate state department of insurance, and it is a federal crime for a person who works in the business of insurance to willfully permit a person who has been convicted of a felony involving

13

dishonesty or breach of trust to work in the business of insurance. If you have ever been convicted of a felony and have not obtained the required consent, or if you know that a fellow employee, consultant or agent has been convicted of a felony, you must immediately report the situation to the Legal Department.

Charitable Contributions

All of the Company’s charitable contributions, including in-kind contributions, are coordinated through the Protective Life Foundation. You may not use Company monies to make charitable contributions. In addition, any purchase of goods or services from a charitable organization for a marketing purpose must be coordinated through the Protective Life Foundation’s Executive Director. All other purchases of goods or services from a charitable organization must be done on an arm’s-length basis. For example, purchases of tickets to the symphony or advertising through a charitable organization must be coordinated through the Protective Life Foundation’s Executive Director, but purchases of flu vaccine through a non-profit hospital, if done on an arm’s-length basis for fair value, may be done through the Company. All requests for charitable contributions are to be submitted to the Executive Director of the Protective Life Foundation.

* * * * *

By faithfully adhering to the Code, we assure those who share an interest in our Company — notably our customers, shareowners and employees — that Protective is committed to the vision and values that serve as our foundation. This will help to ensure the Company’s continued success, growth and viability. Since its inception, Protective has consistently required those who act on its behalf to do so with integrity. Our commitment to this fundamental principle remains central in all that we do.

You have a responsibility to report any suspected violations of this Code. A suspected violation could be a situation that you observe or a situation that is brought to your attention by someone else.

Suspected violations must be reported promptly to at least one of the following:

·The Human Resources Compliance Officer, Melanie McNary (in the Human Resources Department) at (205) 268-6136 or melanie.mcnary@protective.com

·The Chief Compliance Officer, Steve Callaway (in the Legal Department) at (205) 268- 3804 or steve.callaway@protective.com

·The General Counsel, Debbie Long (in the Legal Department) at (205) 268-3700 or debbie.long@protective.com

·The Chief Human Resources Officer, Scott Adams (in the Human Resources Department) at (205) 268-4452 or scott.adams@protective.com

·The Code of Business Conduct telephone hotline at (205) 268-CODE (2633) or (800) 421-3564 (You may communicate to the telephone hotlines anonymously.)

·The Code of Business Conduct email hotline at hotline@protective.com (You may communicate to the email hotline anonymously.)

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EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-155707) of Protective Life Insurance Company and its subsidiaries of our report dated March 28, 2013 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Birmingham, Alabama

March 28, 2013

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 Annual Report on Form 10-K for the year ended December 31, 2012, of Protective Life Insurance Company;

2.Based on my knowledge, this annual 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 annual 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: March 28, 2013
	/s/ John D. Johns
	Chairman of the Board,
	President and Chief Executive Officer

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 Annual Report on Form 10-K for the year ended December 31, 2012, of Protective Life Insurance Company;

2.Based on my knowledge, this annual 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 annual 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: March 28, 2013
	/s/ Richard J. Bielen
	Vice Chairman and
	Chief Financial Officer

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 Annual Report of Protective Life Insurance Company (the “Company”) on Form 10-K for the year ended December 31, 2012, 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

March 28, 2013

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.

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 Annual Report of Protective Life Insurance Company (the “Company”) on Form 10-K for the year ended December 31, 2012, 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

March 28, 2013

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.

XML

INVESTMENT OPERATIONS (Tables)

12 Months Ended

Dec. 31, 2012

INVESTMENT OPERATIONS

Summary of major categories of net investment income

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Fixed maturities	$	1,453,018	$	1,414,965	$	1,301,047
Equity securities	20,740		20,595		17,836
Mortgage loans	349,845		336,541		310,988
Investment real estate	3,289		3,458		3,180
Short-term investments	62,887		72,137		77,185
	1,889,779		1,847,696		1,710,236
Other investment expenses	100,441		94,252		85,391
Net investment income	$	1,789,338	$	1,753,444	$	1,624,845

Summary of net realized investment gains (losses) for invested assets

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Fixed maturities	$	67,669		$	80,044		$	51,816
Equity securities	(45		)	9,136			6,489
Impairments on fixed maturity securities	(58,144		)	(47,321		)	(39,550		)
Impairments on equity securities	—			—			(1,815		)
Modco trading portfolio	177,986			164,224			109,399
Other investments	(12,774		)	(5,651		)	(9,283		)
Total realized gains (losses) - investments	$	174,692		$	200,432		$	117,056

Schedule of amortized cost and fair value of the Company's investments classified as available-for-sale

The amortized cost and fair value of the Company’s investments classified as available-for-sale as of December 31, are as follows:

			Gross		Gross					Total OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains		Losses			Value		in OCI(1)
	(Dollars In Thousands)
2012
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,766,260	$	92,417	$	(19,347	)	$	1,839,330	$	(406	)
Commercial mortgage-backed securities	797,844		72,577		(598		)	869,823		—
Other asset-backed securities	1,023,649		12,788		(61,424		)	975,013		(241		)
U.S. government-related securities	1,097,501		71,536		(591		)	1,168,446		—
Other government-related securities	93,565		7,258		(45		)	100,778		—
States, municipals, and political subdivisions	1,188,019		255,898		(264		)	1,443,653		—
Corporate bonds	17,687,164		2,726,858		(48,395		)	20,365,627		(5,488		)
	23,654,002		3,239,332		(130,664		)	26,762,670		(6,135		)
Equity securities	352,272		11,881		(9,993		)	354,160		—
Short-term investments	97,852		—		—			97,852		—
	$	24,104,126	$	3,251,213	$	(140,657	)	$	27,214,682	$	(6,135	)
2011
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	2,340,172	$	82,574	$	(85,702	)	$	2,337,044	$	(47,652	)
Commercial mortgage-backed securities	530,283		24,473		(4,229		)	550,527		—
Other asset-backed securities	997,398		6,529		(90,898		)	913,029		(6,559		)
U.S. government-related securities	1,150,525		65,212		(58		)	1,215,679		—
Other government-related securities	88,058		4,959		—			93,017		—
States, municipals, and political subdivisions	1,154,307		173,406		—			1,327,713		—
Corporate bonds	16,888,423		1,922,038		(249,870		)	18,560,591		1,787
	23,149,166		2,279,191		(430,757		)	24,997,600		(52,424		)
Equity securities	286,537		5,430		(16,595		)	275,372		(74		)
Short-term investments	15,629		—		—			15,629		—
	$	23,451,332	$	2,284,621	$	(447,352	)	$	25,288,601	$	(52,498	)

(1)These amounts are included in the gross unrealized gains and gross unrealized losses columns above.

Schedule of amortized cost and fair value of the Company's investments classified as held-to-maturity

The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of December 31, are as follows:

			Gross		Gross				Total OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in OCI
2012
Fixed maturities:
Other	$	300,000	$	19,163	$	—	$	319,163	$	—
	$	300,000	$	19,163	$	—	$	319,163	$	—

Schedule of amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities, by expected maturity

The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of December 31, 2012, 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.

	Available-for-sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars In Thousands)				(Dollars In Thousands)
Due in one year or less	$	452,876	$	459,845	$	—	$	—
Due after one year through five years	4,568,417		4,996,310		—		—
Due after five years through ten years	6,283,158		6,967,782		—		—
Due after ten years	12,349,551		14,338,733		300,000		319,163
	$	23,654,002	$	26,762,670	$	300,000	$	319,163

Schedule 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 Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Beginning balance	$	69,476	$	39,275		$	25,066
Additions for newly impaired securities	26,544		12,699			26,893
Additions for previously impaired securities	25,217		20,591			4,964
Reductions for previously impaired securities due to a change in expected cash flows	—		—			—
Reductions for previously impaired securities that were sold in the current period	—		(3,089		)	(17,648		)
Other	—		—			—
Ending balance	$	121,237	$	69,476		$	39,275

Schedule of investments' gross unrealized losses and fair value of the Company's investments 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

The following table includes the gross unrealized losses and fair value of the Company’s investments 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 December 31, 2012:

	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	$	100,412	$	(9,578	)	$	166,000	$	(9,769	)	$	266,412	$	(19,347	)
Commercial mortgage-backed securities	50,506		(598		)	—		—			50,506		(598		)
Other asset-backed securities	479,223		(28,179		)	242,558		(33,245		)	721,781		(61,424		)
U.S. government-related securities	106,806		(591		)	—		—			106,806		(591		)
Other government-related securities	14,955		(45		)	—		—			14,955		(45		)
States, municipalities, and political subdivisions	11,526		(264		)	—		—			11,526		(264		)
Corporate bonds	775,593		(23,630		)	363,128		(24,765		)	1,138,721		(48,395		)
Equities	35,059		(5,150		)	21,754		(4,843		)	56,813		(9,993		)
	$	1,574,080	$	(68,035	)	$	793,440	$	(72,622	)	$	2,367,520	$	(140,657	)

The following table includes the gross unrealized losses and fair value of the Company’s investments 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 December 31, 2011:

	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	$	276,216	$	(15,308	)	$	524,251	$	(70,394	)	$	800,467	$	(85,702	)
Commercial mortgage-backed securities	78,893		(4,229		)	—		—			78,893		(4,229		)
Other asset-backed securities	531,653		(32,074		)	190,639		(58,824		)	722,292		(90,898		)
U.S. government-related securities	21,311		(58		)	—		—			21,311		(58		)
Corporate bonds	1,870,256		(131,953		)	523,913		(117,917		)	2,394,169		(249,870		)
Equities	50,638		(8,436		)	22,095		(8,159		)	72,733		(16,595		)
	$	2,828,967	$	(192,058	)	$	1,260,898	$	(255,294	)	$	4,089,865	$	(447,352	)

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

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Fixed maturities	$	819,152	$	761,738		$	696,942
Equity securities	8,484		(13,292		)	9,701

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SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended									12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011		Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	$ 3,225,356				$ 3,223,220	[1]				$ 3,225,356	$ 3,223,220	[1]	$ 3,063,409
Future Policy Benefits and Claims	21,626,065				20,867,727					21,626,065	20,867,727		18,530,265
Unearned Premiums	1,352,872				1,218,258					1,352,872	1,218,258		1,141,925
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	13,736,007				14,262,874					13,736,007	14,262,874		14,245,762
Net Premiums and Policy Fees	352,127	369,462	371,601	396,103	353,083		373,429	355,869	337,839	1,489,293	1,420,220	[1]	1,228,645	[1]
Net Investment Income										1,789,338	1,753,444		1,624,845
Benefits and Settlement Expenses										2,317,121	2,222,220		2,076,392
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										192,183	249,520	[1]	144,496	[1]
Other Operating Expenses										487,177	461,570		382,920
Premiums Written										209,418	205,076		193,735
Life Marketing
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	2,001,708				1,912,916					2,001,708	1,912,916		1,826,001
Future Policy Benefits and Claims	12,733,602				11,755,841					12,733,602	11,755,841		10,910,433
Unearned Premiums	698,862				589,027					698,862	589,027		520,589
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	277,919				274,870					277,919	274,870		275,325
Net Premiums and Policy Fees										743,361	744,819		736,252
Net Investment Income										486,374	446,014		387,953
Benefits and Settlement Expenses										1,054,645	978,098		921,765
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										45,079	87,461		47,809
Other Operating Expenses										31,816	32,258		34,855
Premiums Written										161	196		246
Acquisitions
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	679,746				824,277					679,746	824,277		810,681
Future Policy Benefits and Claims	7,666,423				7,804,207					7,666,423	7,804,207		6,241,033
Unearned Premiums	8,367				6,792					8,367	6,792		16,329
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	3,514,838				3,669,366					3,514,838	3,669,366		3,857,946
Net Premiums and Policy Fees										459,835	414,823		246,698
Net Investment Income										550,334	529,261		458,703
Benefits and Settlement Expenses										716,893	662,293		512,433
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										77,251	75,041		64,410
Other Operating Expenses										51,714	55,792		25,559
Premiums Written										29,874	22,386		766
Annuities
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	491,184				435,462					491,184	435,462		368,279
Future Policy Benefits and Claims	1,102,577				1,175,690					1,102,577	1,175,690		1,231,374
Unearned Premiums	103,316				103,314					103,316	103,314		93,609
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	7,372,471				7,497,370					7,372,471	7,497,370		6,985,784
Net Premiums and Policy Fees										97,902	68,319		42,650
Net Investment Income										504,342	507,229		482,264
Benefits and Settlement Expenses										369,622	390,788		407,455
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										45,319	57,201		76
Other Operating Expenses										100,848	84,996		68,106
Stable Value Products
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	1,399				2,347					1,399	2,347		6,903
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	2,510,559				2,769,510					2,510,559	2,769,510		3,076,233
Net Investment Income										128,239	145,150		171,327
Benefits and Settlement Expenses										64,790	81,256		123,365
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										947	4,556		5,430
Other Operating Expenses										2,174	2,557		3,325
Asset Protection
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	50,253				46,606					50,253	46,606		48,048
Future Policy Benefits and Claims	51,279				53,987					51,279	53,987		63,357
Unearned Premiums	540,766				517,274					540,766	517,274		509,273
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	1,790				1,645					1,790	1,645		2,258
Net Premiums and Policy Fees										168,656	170,898		178,883
Net Investment Income										19,698	21,650		23,959
Benefits and Settlement Expenses										91,778	88,257		86,799
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										22,569	22,607		25,077
Other Operating Expenses										170,034	154,831		133,454
Premiums Written										159,927	161,387		168,762
Corporate and Other
Supplementary insurance information
Deferred Policy Acquisition Costs and Value of Businesses Acquired	1,066				1,612					1,066	1,612		3,497
Future Policy Benefits and Claims	72,184				78,002					72,184	78,002		84,068
Unearned Premiums	1,561				1,851					1,561	1,851		2,125
Stable Value Products, Annuity Contracts and Other Policyholders' Funds	58,430				50,113					58,430	50,113		48,216
Net Premiums and Policy Fees										19,539	21,361		24,162
Net Investment Income										100,351	104,140		100,639
Benefits and Settlement Expenses										19,393	21,528		24,575
Amortization of Deferred Policy Acquisitions Costs and Value of Businesses Acquired										1,018	2,654		1,694
Other Operating Expenses										130,591	131,136		117,621
Premiums Written										$ 19,456	$ 21,107		$ 23,961

[1] Recast from previously reported information

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OPERATING SEGMENTS (Tables)

12 Months Ended

Dec. 31, 2012

OPERATING SEGMENTS

Summary of financial information for the Company's segments

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Revenues
Life Marketing	$	1,233,654		$	1,193,927		$	1,127,924
Acquisitions	1,064,295			982,821			761,344
Annuities	610,489			633,185			500,697
Stable Value Products	123,274			170,455			168,127
Asset Protection	294,146			282,587			269,597
Corporate and Other	130,202			145,610			109,295
Total revenues	$	3,456,060		$	3,408,585		$	2,936,984
Segment Operating Income (Loss)
Life Marketing	$	102,114		$	96,110		$	123,495
Acquisitions	171,060			157,393			111,143
Annuities	117,778			79,373			48,109
Stable Value Products	60,329			56,780			39,207
Asset Protection	9,765			16,892			24,267
Corporate and Other	1,119			6,985			(13,458		)
Total segment operating income	462,165			413,533			332,763
Realized investment (losses) gains - investments(1)(3)	188,729			194,866			134,559
Realized investment (losses) gains - derivatives(2)	(191,315		)	(133,124		)	(134,146		)
Income tax expense	(151,043		)	(151,519		)	(109,865		)
Net Income	$	308,536		$	323,756		$	223,311
(1) Realized investment (losses) gains - investments	$	174,692		$	200,432		$	117,056
Less: related amortization of DAC/VOBA	(14,037		)	5,566			(17,503		)
	$	188,729		$	194,866		$	134,559
(2) Realized investment gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)
Less: settlements on certain interest rate swaps	—			—			168
Less: derivative activity related to certain annuities	(36,501		)	(21,881		)	(10,460		)
	$	(191,315	)	$	(133,124	)	$	(134,146	)
Net investment income
Life Marketing	$	486,374		$	446,014		$	387,953
Acquisitions	550,334			529,261			458,703
Annuities	504,342			507,229			482,264
Stable Value Products	128,239			145,150			171,327
Asset Protection	19,698			21,650			23,959
Corporate and Other	100,351			104,140			100,639
Total net investment income	$	1,789,338		$	1,753,444		$	1,624,845
Amortization of DAC and VOBA
Life Marketing	$	45,079		$	87,461		$	47,809
Acquisitions	77,251			75,041			64,410
Annuities	45,319			57,201			76
Stable Value Products	947			4,556			5,430
Asset Protection	22,569			22,607			25,077
Corporate and Other	1,018			2,654			1,694
Total amortization of DAC and VOBA	$	192,183		$	249,520		$	144,496

(3) Includes credit related other-than-temporary impairments of $58.1 million, $47.3 million, and $41.4 million for the year ended December 31, 2012, 2011, and 2010, respectively.

	Operating Segment Assets
	As of December 31, 2012
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,171,384	$	11,312,550	$	17,649,488	$	2,509,160
Deferred policy acquisition costs and value of business acquired	2,001,708		679,746		491,184		1,399
Goodwill	—		35,615		—		—
Total assets	$	14,173,092	$	12,027,911	$	18,140,672	$	2,510,559

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	740,153	$	9,446,057	$	19,662	$	53,848,454
Deferred policy acquisition costs and value of business acquired	50,253		1,066		—		3,225,356
Goodwill	48,158		—		—		83,773
Total assets	$	838,564	$	9,447,123	$	19,662	$	57,157,583

	Operating Segment Assets
	As of December 31, 2011
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	10,885,785	$	11,471,856	$	14,945,002	$	2,767,163
Deferred policy acquisition costs and value of business acquired	1,912,916		824,277		435,462		2,347
Goodwill	—		38,713		—		—
Total assets	$	12,798,701	$	12,334,846	$	15,380,464	$	2,769,510

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	707,181	$	7,894,614	$	21,491	$	48,693,092
Deferred policy acquisition costs and value of business acquired	46,606		1,612		—		3,223,220
Goodwill	48,158		—		—		86,871
Total assets	$	801,945	$	7,896,226	$	21,491	$	52,003,183

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EMPLOYEE BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2012

Defined Benefit Pension Plan

EMPLOYEE BENEFIT PLANS

Schedule of benefit obligation, fair value of plan assets and the funded status of the Company's defined benefit pension plan and unfunded excess benefit plan

	Defined Benefit						Unfunded Excess
	Pension Plan						Benefit Plan
	2012			2011			2012			2011
	(Dollars In Thousands)
Accumulated benefit obligation, end of year	$	210,319		$	186,300		$	39,828		$	33,675
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	199,162		$	165,704		$	36,256		$	31,592
Service cost	9,145			8,682			867			679
Interest cost	8,977			8,938			1,473			1,506
Amendments	—			94			—			3
Actuarial (gain) or loss	15,286			23,859			6,946			4,187
Special termination benefits	—			—			—			—
Benefits paid	(9,251		)	(8,115		)	(2,571		)	(1,711		)
Projected benefit obligation at end of year	223,319			199,162			42,971			36,256
Change in plan assets:
Fair value of plan assets at beginning of year	125,058			117,856			—			—
Actual return on plan assets	15,202			2,874			—			—
Employer contributions(1)	21,178			12,443			2,571			1,711
Benefits paid	(9,251		)	(8,115		)	(2,571		)	(1,711		)
Fair value of plan assets at end of year	152,187			125,058			—			—
After reflecting FASB guidance:
Funded status	(71,132		)	(74,104		)	(42,971		)	(36,256		)
Amounts recognized in the balance sheet:
Other liabilities	(71,132		)	(74,104		)	(42,971		)	(36,256		)
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	95,055			91,804			17,571			11,924
Prior service cost/(credit)	(1,816		)	(2,208		)	48			60
Total	$	93,239		$	89,596		$	17,619		$	11,984

(1)  Employer contributions disclosed are based on PLC’s fiscal filing year

Schedule of weighted-average assumptions used to determine benefit obligations

	Defined Benefit Pension				Unfunded Excess
	Plan				Benefit Plan
	2012		2011		2012		2011
Discount rate	4.07	%	4.62	%	3.37	%	4.07	%
Rate of compensation increase	3.0		2.5 - 3.0		4.0		3.5 - 4.0
Expected long-term return on plan assets	7.5		7.75		N/A		N/A

Schedule of weighted-average assumptions used to determine the net periodic benefit cost

	Defined Benefit Pension Plan						Unfunded Excess Benefit Plan
	2012		2011		2010		2012		2011		2010
Discount rate	4.62	%	5.30	%	5.57	%	4.07	%	4.79	%	5.4	%
Rates of compensation increase	2.5 - 3.0		2.5 - 3.0		0 - 3.75		3.5 - 4.0		3.5 - 4.0		0 - 4.75
Expected long-term return on plan assets	7.75		7.75		8.00		N/A		N/A		N/A

Components of the net periodic benefit cost of PLC's defined benefit pension plan and unfunded excess benefit plan

	Defined Benefit Pension Plan									Unfunded Excess Benefit Plan
	2012			2011			2010			2012		2011		2010
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	9,145		$	8,682		$	7,423		$	867	$	679	$	584
Interest cost on projected benefit obligation	8,977			8,938			8,091			1,473		1,506		1,545
Expected return on plan assets	(10,916		)	(10,021		)	(9,349		)	—		—		—
Amortization of prior service cost/(credit)	(392		)	(392		)	(403		)	12		12		12
Amortization of actuarial losses(1)	7,749			5,625			3,905			1,300		881		653
Total benefit cost	$	14,563		$	12,832		$	9,667		$	3,652	$	3,078	$	2,794

(1) 2012 average remaining service period used is 8.14 years and 7.51 years for the defined benefit pension plan and unfunded excess benefit plan, respectively.

Schedule of estimated net actuarial loss, prior service cost/(credit) and transition obligation that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the next fiscal year

The estimated net actuarial loss, prior service cost/(credit), and transition obligation for these plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2013 is as follows:

	Defined Benefit			Unfunded Excess
	Pension Plan			Benefit Plan
	(Dollars In Thousands)
Net actuarial loss	$	9,150		$	1,767
Prior service cost/(credit)	(392		)	12
Transition obligation	—			—

Schedule of allocation of plan assets by category

Allocation of plan assets of the defined benefit pension plan by category as of December 31 are as follows:

	Target
	Allocation for
Asset Category	2013		2012		2011
Cash and cash equivalents	2.0	%	4.0	%	1.0	%
Equity securities	60.0		60.0		61.0
Fixed income	38.0		36.0		38.0
Total	100.0	%	100.0	%	100.0	%

Schedule of fair value of plan assets by category

	As of December 31,
Asset Category	2012		2011
	(Dollars In Thousands)
Cash	$	6,222	$	1,004
Equity securities:
Collective Russell 3000 Equity Index Fund	61,451		52,792
Fidelity Spartan U.S. Equity Index Fund	34,482		29,735
Fixed income	50,032		41,527
Total investments	152,187		125,058
Employer contribution receivable	—		2,270
Total	$	152,187	$	127,328

Schedule of fair value of plan assets, set forth by level, within the fair value hierarchy

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Collective short-term investment fund	$	—	$	6,222	$	—	$	6,222
Collective investment funds	—		95,933		—		95,933
Group deposit administration annuity contract	—		—		50,032		50,032
Total investments	$	—	$	102,155	$	50,032	$	152,187

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Collective short-term investment fund	$	—	$	1,004	$	—	$	1,004
Collective investment funds	—		82,527		—		82,527
Group deposit administration annuity contract	—		—		41,527		41,527
Total investments	$	—	$	83,531	$	41,527	$	125,058

Reconciliation of the beginning and ending balances for fair value measurements for which significant unobservable inputs (level 3) have been used

	As of December 31,
	2012		2011
	(Dollars In Thousands)
Balance, beginning of year	$	41,527	$	39,403
Interest income	2,505		2,124
Transfers from collective short-term investments fund	6,000		—
Transfers to collective short-term investments fund	—		—
Balance, end of year	$	50,032	$	41,527

Schedule of estimated future benefit payments under defined benefit pension plan

	Defined Benefit		Unfunded Excess
Years	Pension Plan		Benefit Plan
	(Dollars In Thousands)
2013	$	13,088	$	3,614
2014	12,516		3,742
2015	12,949		3,843
2016	13,603		3,838
2017	15,250		4,001
2018-2022	81,524		17,486

Retiree medical plan

EMPLOYEE BENEFIT PLANS

Schedule of accumulated postretirement benefit obligation

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	949		$	1,309
Service cost	6			9
Interest cost	17			28
Amendments	—			(29		)
Actuarial (gain) or loss	(144		)	(297		)
Plan participant contributions	293			255
Benefits paid	(333		)	(326		)
Special termination benefits	—			—
Benefit obligation, end of year	$	788		$	949

Group life insurance plan

EMPLOYEE BENEFIT PLANS

Schedule of fair value of plan assets by category

	For The Year Ended December 31,
Category of Investment	2012		2011		2010
	(Dollars In Thousands)
Money Market Fund	$	6,174	$	6,193	$	6,217

Schedule of fair value of plan assets, set forth by level, within the fair value hierarchy

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money Market Fund	$	6,174	$	—	$	—	$	6,174

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of  December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money Market Fund	$	6,193	$	—	$	—	$	6,193

Schedule of accumulated postretirement benefit obligation

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	8,951		$	7,955
Service cost	123			118
Interest cost	412			416
Amendments	—			—
Actuarial (gain) or loss	895			816
Plan participant contributions	—			—
Benefits paid	(311		)	(354		)
Special termination benefits	—			—
Benefit obligation, end of year	$	10,070		$	8,951

XML

MORTGAGE LOANS (Details 2) (Commercial mortgage loans, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 item
Commercial mortgage loans
Delinquent loans
Past due period at which to cease carrying accrued interest on delinquent loans	90 days
Past due period at which to initiate foreclosure proceedings	90 days
30-59 Days Delinquent	$ 12,149
60-89 Days Delinquent	2,270
Total Delinquent	$ 14,419
Number of loans, 30-59 Days Delinquent	7
Number of loans, 60-89 Days Delinquent	1
Number of loans, Total Delinquent	8

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CONSOLIDATED QUARTERLY RESULTS - UNAUDITED (Tables)

12 Months Ended

Dec. 31, 2012

CONSOLIDATED QUARTERLY RESULTS - UNAUDITED

Schedule of unaudited consolidated quarterly operating data

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(Dollars In Thousands, Except Per Share Amounts)
2012
Premiums and policy fees	$	692,398		$	707,720		$	681,324		$	717,948
Reinsurance ceded	(296,295		)	(336,119		)	(311,862		)	(365,821		)
Net of reinsurance ceded	396,103			371,601			369,462			352,127
Net investment income	443,532			438,648			446,374			460,784
Realized investment gains (losses)	(13,022		)	6,669			(2,686		)	(44,085		)
Other income	75,142			50,121			51,046			54,244
Total revenues	901,755			867,039			864,196			823,070
Total benefits and expenses	760,687			749,974			757,507			728,313
Income before income tax	141,068			117,065			106,689			94,757
Income tax expense	45,212			35,438			35,778			34,615
Net income	$	95,856		$	81,627		$	70,911		$	60,142
2011
Premiums and policy fees	$	662,256		$	712,472		$	693,161		$	716,245
Reinsurance ceded	(324,417		)	(356,603		)	(319,732		)	(363,162		)
Net of reinsurance ceded	337,839			355,869			373,429			353,083
Net investment income	427,311			434,425			445,928			445,780
Realized investment gains (losses)	(7,986		)	19,974			31,880			1,559
Other income	43,863			56,107			47,262			42,262
Total revenues	801,027			866,375			898,499			842,684
Total benefits and expenses	705,685			726,214			775,941			725,470
Income before income tax	95,342			140,161			122,558			117,214
Income tax expense	33,223			48,557			39,579			30,160
Net income	$	62,119		$	91,604		$	82,979		$	87,054

XML

REINSURANCE (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Reinsurance
Reinsurance Receivable	$ 5,682,841	$ 5,542,417	[1]
Security Life of Denver Insurance Co.
Reinsurance
Reinsurance Receivable	649,100	626,400
Swiss Re Life & Health America, Inc.
Reinsurance
Reinsurance Receivable	625,900	624,400
Lincoln National Life Insurance Co.
Reinsurance
Reinsurance Receivable	472,300	479,400
Transamerica Life Insurance Co.
Reinsurance
Reinsurance Receivable	425,500	392,900
American United Life Insurance Co.
Reinsurance
Reinsurance Receivable	321,300	325,100
Employers Reassurance Corp.
Reinsurance
Reinsurance Receivable	257,700	290,200
The Canada Life Assurance Company
Reinsurance
Reinsurance Receivable	219,800	219,100
RGA Reinsurance Co.
Reinsurance
Reinsurance Receivable	215,400	228,200
Scottish Re (U.S.), Inc.
Reinsurance
Reinsurance Receivable	180,500	179,900
XL Life Ltd.
Reinsurance
Reinsurance Receivable	$ 179,600	$ 183,000

[1] Recast from previously reported information

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) (USD $)	12 Months Ended
	Dec. 31, 2012
Unobservable Input
Fixed maturities, held-to-maturity	300,000,000
Level 3
Unobservable Input
Financial instruments with book value approximating to fair value	69,800,000
Fixed maturities, held-to-maturity	4,300,000
Level 3 | Equity securities
Unobservable Input
FHLB stock	65,500,000
Level 3 | Embedded derivatives - GMWB
Valuation of Level 3 Financial Instruments
Fair Value of Assets	169,041,000
Level 3 | Embedded derivatives - GMWB | Actuarial cash flow model | Low end of range
Unobservable Input
Lapse (as a percent)	0.00%
Utilization (as a percent)	93.00%
Nonperformance risk (as a percent)	0.09%
Level 3 | Embedded derivatives - GMWB | Actuarial cash flow model | High end of range
Unobservable Input
Lapse (as a percent)	24.00%
Utilization (as a percent)	100.00%
Nonperformance risk (as a percent)	1.34%
Level 3 | Embedded derivatives - GMWB | Actuarial cash flow model | Weighted Average
Unobservable Input
Mortality (as a percent)	57.00%
Level 3 | Annuity account balances
Valuation of Level 3 Financial Instruments
Fair Value of Assets	129,468,000
Level 3 | Annuity account balances | Actuarial cash flow model | Low end of range
Unobservable Input
Lapse (as a percent)	2.20%
Nonperformance risk (as a percent)	0.09%
Expenses per policy	88,000
Return on assets (as a percent)	1.50%
Level 3 | Annuity account balances | Actuarial cash flow model | High end of range
Unobservable Input
Lapse (as a percent)	45.00%
Nonperformance risk (as a percent)	1.34%
Expenses per policy	108,000
Return on assets (as a percent)	1.85%
Level 3 | Annuity account balances | Actuarial cash flow model | Weighted Average
Unobservable Input
Mortality (as a percent)	57.00%
Asset earned rate (as a percent)	5.81%
Withdrawal rate (as a percent)	2.20%
Level 3 | Other asset-backed securities
Valuation of Level 3 Financial Instruments
Fair Value of Assets	596,143,000
Unobservable Input
Financial instruments that are valued using broker quotes	70,500,000
Level 3 | Other asset-backed securities | Discounted cash flow | Low end of range
Unobservable Input
Liquidity premium (as a percent)	0.72%
Paydown rate (as a percent)	8.51%
Level 3 | Other asset-backed securities | Discounted cash flow | High end of range
Unobservable Input
Liquidity premium (as a percent)	1.68%
Paydown rate (as a percent)	18.10%
Level 3 | Other asset-backed securities | Discounted cash flow | Weighted Average
Unobservable Input
Liquidity premium (as a percent)	1.29%
Paydown rate (as a percent)	11.40%
Level 3 | Other government-related securities
Valuation of Level 3 Financial Instruments
Fair Value of Assets	20,011,000
Level 3 | Other government-related securities | Discounted cash flow | Weighted Average
Unobservable Input
Spread over treasury (as a percent)	0.30%
Level 3 | Corporate bonds
Valuation of Level 3 Financial Instruments
Fair Value of Assets	168,007,000
Level 3 | Corporate bonds | Discounted cash flow | Low end of range
Unobservable Input
Spread over treasury (as a percent)	0.92%
Level 3 | Corporate bonds | Discounted cash flow | High end of range
Unobservable Input
Spread over treasury (as a percent)	7.75%
Level 3 | Corporate bonds | Discounted cash flow | Weighted Average
Unobservable Input
Spread over treasury (as a percent)	3.34%

XML

COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2012

Administrative and marketing office space

COMMITMENTS AND CONTINGENCIES

Schedule of future minimum rental payments required under operating leases

Year	Amount
	(Dollars In Thousands)
2013	$	6,948
2014	5,462
2015	4,229
2016	2,664
2017	740
Thereafter	235

Building contiguous to home office

COMMITMENTS AND CONTINGENCIES

Schedule of future minimum rental payments required under operating leases

Year	Amount
	(Dollars In Thousands)
2013	$	679
2014	75,065

XML

SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

12 Months Ended

Dec. 31, 2012

SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

															Amortization
	Deferred						Stable Value								of Deferred
	Policy						Products,								Policy
	Acquisition						Annuity								Acquisitions
	Costs and						Contracts and		Net				Benefits		Costs and
	Value of		Future Policy				Other		Premiums		Net		and		Value of		Other
	Businesses		Benefits and		Unearned		Policyholders’		and Policy		Investment		Settlement		Businesses		Operating		Premiums
Segment	Acquired		Claims		Premiums		Funds		Fees		Income(1)		Expenses		Acquired		Expenses(1)		Written(2)
	(Dollars In Thousands)
For The Year Ended December 31, 2012:
Life Marketing	$	2,001,708	$	12,733,602	$	698,862	$	277,919	$	743,361	$	486,374	$	1,054,645	$	45,079	$	31,816	$	161
Acquisitions	679,746		7,666,423		8,367		3,514,838		459,835		550,334		716,893		77,251		51,714		29,874
Annuities	491,184		1,102,577		103,316		7,372,471		97,902		504,342		369,622		45,319		100,848		—
Stable Value Products	1,399		—		—		2,510,559		—		128,239		64,790		947		2,174		—
Asset Protection	50,253		51,279		540,766		1,790		168,656		19,698		91,778		22,569		170,034		159,927
Corporate and Other	1,066		72,184		1,561		58,430		19,539		100,351		19,393		1,018		130,591		19,456
Total	$	3,225,356	$	21,626,065	$	1,352,872	$	13,736,007	$	1,489,293	$	1,789,338	$	2,317,121	$	192,183	$	487,177	$	209,418
For The Year Ended December 31, 2011:
Life Marketing	$	1,912,916	$	11,755,841	$	589,027	$	274,870	$	744,819	$	446,014	$	978,098	$	87,461	$	32,258	$	196
Acquisitions	824,277		7,804,207		6,792		3,669,366		414,823		529,261		662,293		75,041		55,792		22,386
Annuities	435,462		1,175,690		103,314		7,497,370		68,319		507,229		390,788		57,201		84,996		—
Stable Value Products	2,347		—		—		2,769,510		—		145,150		81,256		4,556		2,557		—
Asset Protection	46,606		53,987		517,274		1,645		170,898		21,650		88,257		22,607		154,831		161,387
Corporate and Other	1,612		78,002		1,851		50,113		21,361		104,140		21,528		2,654		131,136		21,107
Total	$	3,223,220	$	20,867,727	$	1,218,258	$	14,262,874	$	1,420,220	$	1,753,444	$	2,222,220	$	249,520	$	461,570	$	205,076
For The Year Ended December 31, 2010:
Life Marketing	$	1,826,001	$	10,910,433	$	520,589	$	275,325	$	736,252	$	387,953	$	921,765	$	47,809	$	34,855	$	246
Acquisitions	810,681		6,241,033		16,329		3,857,946		246,698		458,703		512,433		64,410		25,559		766
Annuities	368,279		1,231,374		93,609		6,985,784		42,650		482,264		407,455		76		68,106		—
Stable Value Products	6,903		—		—		3,076,233		—		171,327		123,365		5,430		3,325		—
Asset Protection	48,048		63,357		509,273		2,258		178,883		23,959		86,799		25,077		133,454		168,762
Corporate and Other	3,497		84,068		2,125		48,216		24,162		100,639		24,575		1,694		117,621		23,961
Total	$	3,063,409	$	18,530,265	$	1,141,925	$	14,245,762	$	1,228,645	$	1,624,845	$	2,076,392	$	144,496	$	382,920	$	193,735

(1)Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied.

(2) Excludes Life Insurance

XML

DEBT AND OTHER OBLIGATIONS (Details) (USD $)	12 Months Ended						0 Months Ended				12 Months Ended						12 Months Ended									12 Months Ended			12 Months Ended			0 Months Ended		12 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011		Dec. 31, 2012 Maximum	Dec. 31, 2012 Credit facility	Jul. 17, 2012 2012 Credit Facility	Jul. 17, 2012 2012 Credit Facility Administrative agent's prime rate	Jul. 17, 2012 2012 Credit Facility Federal funds rate	Jul. 17, 2012 2012 Credit Facility LIBOR	Jul. 17, 2012 2012 Credit Facility LIBOR One-Month Rate	Dec. 31, 2012 Non-recourse funding obligations letters of credit, and other temporary borrowings	Dec. 31, 2011 Non-recourse funding obligations letters of credit, and other temporary borrowings	Dec. 31, 2010 Non-recourse funding obligations letters of credit, and other temporary borrowings	Dec. 31, 2012 Golden Gate Captive Insurance Company (Golden Gate)	Dec. 31, 2011 Golden Gate Captive Insurance Company (Golden Gate)	Dec. 31, 2012 Golden Gate Captive Insurance Company (Golden Gate) Surplus Notes item	Dec. 31, 2012 Golden Gate Captive Insurance Company (Golden Gate) Series A1 Surplus Notes	Dec. 31, 2012 Golden Gate Captive Insurance Company (Golden Gate) Series A2 Surplus Notes	Dec. 31, 2012 Golden Gate Captive Insurance Company (Golden Gate) Series A3 Surplus Notes	Dec. 31, 2012 Golden Gate II Captive Insurance Company (Golden Gate II)	Dec. 31, 2011 Golden Gate II Captive Insurance Company (Golden Gate II)	Dec. 31, 2012 Golden Gate II Captive Insurance Company (Golden Gate II) Non Recourse funding obligations accruing interest at a rate of LIBOR plus 30 basis points	Dec. 31, 2012 Golden Gate II Captive Insurance Company (Golden Gate II) Non Recourse funding obligations accruing interest at a rate of LIBOR plus 200 basis points	Dec. 31, 2012 PLC Credit facility	Jul. 17, 2012 PLC Credit facility	Dec. 31, 2012 PLC 2012 Credit Facility	Dec. 31, 2012 Golden Gate III Vermont Captive Insurance Company (Golden Gate III)	Apr. 23, 2010 Golden Gate III Vermont Captive Insurance Company (Golden Gate III)	Dec. 31, 2012 Golden Gate IV Vermont Captive Insurance Company (Golden Gate IV)	Dec. 31, 2011 Golden Gate IV Vermont Captive Insurance Company (Golden Gate IV)	Dec. 10, 2010 Golden Gate IV Vermont Captive Insurance Company (Golden Gate IV)	Oct. 10, 2012 Golden Gate V and Red Mountain	Oct. 10, 2012 Red Mountain	Dec. 31, 2012 Golden Gate V
DEBT AND OTHER OBLIGATIONS
Line of credit, maximum borrowing capacity					$ 500,000,000	$ 750,000,000
Line of credit, current borrowing capacity					600,000,000
Line of credit, amount outstanding																									160,000,000	50,000,000
Base of floating rate interest payments							Administrative Agent's prime rate	Federal Funds rate	LIBOR	one-month LIBOR												LIBOR	LIBOR	LIBOR		LIBOR
Interest rate added to the base rate (as a percent)								0.50%		1.00%												0.30%	2.00%	0.40%		1.20%
Maximum principal amount up to which commitment under the Credit Facility can be increased						1,000,000,000
Number of series of Surplus Notes																3
Outstanding Surplus Notes																800,000,000	400,000,000	100,000,000	300,000,000
Interest rate on Surplus Notes (as a percent)																	7.375%	8.00%	8.45%
Outstanding non-recourse funding obligations																				575,000,000		275,000,000	300,000,000
Non-recourse funding obligations held by external parties																				286,000,000
Non-recourse funding obligations held by nonconsolidated affiliates																				60,900,000
Non-recourse funding obligations held by consolidated subsidiaries of the Company																				228,100,000
Additional amount of obligations which can be issued under contingent approval																				100,000,000
Transaction period of financing for reserves related to a block of universal life insurance policies with secondary guarantees																																20 years
Maximum amount to be financed for reserves related to a block of universal life insurance policies with secondary guarantees																																945,000,000
Initial principal amount of note for deposit to a reinsurance trust																																	275,000,000
Maximum principal amount of note for deposit to a reinsurance trust																																	945,000,000
Credit enhancement period for Red Mountain note																																	20 years
Number of companies liable for the reimbursement of any credit enhancement payments required to be made	0
Principal balance of note																																	300,000,000
Maximum principal amount of non-recourse funding obligation																																		945,000,000
Non-recourse funding obligations	1,446,900,000	1,248,600,000	[1]											800,000,000	800,000,000					346,900,000	448,600,000													300,000,000
Year-to-date weighted-average interest rate of non-recourse funding obligations (as a percent)														7.86%	7.88%					1.22%	1.37%													6.25%
Repurchase of outstanding non-recourse funding obligations	101,700,000
Pre-tax gain on repurchase of debt	32,000,000
Maximum borrowing capacity																											580,000,000	505,000,000	625,000,000		270,000,000
Maximum amount up to which LOC will be periodically increased																											610,000,000			790,000,000
Letter of credit term																											12 years		12 years
Repurchase Program Borrowings
Fair value of securities pledged under the repurchase program	168,100,000
Repurchase obligation	150,000,000
Maximum outstanding balance	425,000,000	348,200,000
Average daily balance	266,300,000	147,700,000
Average borrowing rate (as a percent)	0.15%
Outstanding balance related to repurchase program borrowings		0
Average daily borrowing rate (as a percent)	0.14%	0.13%
Term of repurchase borrowings				30 days
Interest expense											92,900,000	90,800,000	71,400,000
Increase (decrease) in interest expense											$ 2,100,000

[1] Recast from previously reported information

XML

DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended									12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011		Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Assets:
Deferred policy acquisition costs and value of business acquired	$ 3,225,356				$ 3,223,220	[1]				$ 3,225,356		$ 3,223,220	[1]	$ 3,063,409
Total Assets	57,157,583				52,003,183	[1]				57,157,583		52,003,183	[1]
Liabilities:
Deferred income taxes	1,783,713				1,293,996	[1]				1,783,713		1,293,996	[1]
Total liabilities	51,470,370				47,125,833	[1]				51,470,370		47,125,833	[1]
Equity:
Retained earnings	2,507,829				2,456,293	[1]				2,507,829		2,456,293	[1]
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax	1,818,608				1,096,079	[1]				1,818,608		1,096,079	[1]
Total Equity					4,877,350							4,877,350
Total liabilities and shareowner's equity	57,157,583				52,003,183	[1]				57,157,583		52,003,183	[1]
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired										192,183		249,520	[1]	144,496	[1]
Other operating expenses										487,177		461,570	[1]	382,920	[1]
Total benefits and expenses	728,313	757,507	749,974	760,687	725,470		775,941	726,214	705,685	2,996,481		2,933,310	[1]	2,603,808	[1]
Income before income tax	94,757	106,689	117,065	141,068	117,214		122,558	140,161	95,342	459,579		475,275	[1]	333,176	[1]
Income tax (benefit) expense	34,615	35,778	35,438	45,212	30,160		39,579	48,557	33,223	151,043		151,519	[1]	109,865	[1]
Net income	60,142	70,911	81,627	95,856	87,054		82,979	91,604	62,119	308,536	[1]	323,756	[1]	223,311	[1]
Cash flows from operating activities
Net income	60,142	70,911	81,627	95,856	87,054		82,979	91,604	62,119	308,536	[1]	323,756	[1]	223,311	[1]
Amortization of deferred policy acquisition costs and value of business acquired										192,183		249,520	[1]	144,496	[1]
Capitalization of deferred policy acquisition costs										(311,960)		(355,033)	[1]	(348,730)	[1]
Deferred income tax										70,037		107,265	[1]	66,682	[1]
Other, net										13,920		118,311	[1]	(46,662)	[1]
Change to net cash (used in) provided by operating activities												325,508		39,097
Balances and changes in DAC
Balance, beginning of period				2,291,613					2,182,085	2,291,613		2,182,085
Capitalization of commissions, sales and issue expenses										311,959		355,033
Amortization										(105,447)		(159,329)
Change in unrealized investment gains and losses										(90,599)		(86,176)
Balance, end of period	2,407,526				2,291,613					2,407,526		2,291,613		2,182,085
Balances and changes in VOBA
Balance, beginning of period				931,607					881,324	931,607		881,324
Acquisitions												137,418
Amortization										(86,736)		(90,192)
Change in unrealized gains and losses										(27,041)		3,057
Balance, end of period	817,830				931,607					817,830		931,607		881,324
Expected amortization of VOBA for the next five years
2013										71,285
2014										63,386
2015										55,618
2016										50,957
2017										43,753
As originally reported
Assets:
Deferred policy acquisition costs and value of business acquired					4,011,936							4,011,936
Total Assets					52,791,899							52,791,899
Liabilities:
Deferred income taxes					1,573,764							1,573,764
Total liabilities					47,405,601							47,405,601
Equity:
Retained earnings					2,984,466							2,984,466
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax					1,076,854							1,076,854
Total Equity					5,386,298							5,386,298
Total liabilities and shareowner's equity					52,791,899							52,791,899
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired												300,450		189,255
Other operating expenses												373,964		284,070
Total benefits and expenses												2,896,634		2,549,717
Income before income tax												511,951		387,267
Income tax (benefit) expense												164,517		129,029
Net income												347,434		258,238
Cash flows from operating activities
Net income												347,434		258,238
Amortization of deferred policy acquisition costs and value of business acquired												300,450		189,255
Capitalization of deferred policy acquisition costs												(442,638)		(446,560)
Deferred income tax												120,262		85,483
Other, net														(47,319)
Change to net cash (used in) provided by operating activities												325,508		39,097
ASU No. 2010-26 | Effect of Change
Assets:
Deferred policy acquisition costs and value of business acquired					(788,716)							(788,716)
Total Assets					(788,716)							(788,716)
Liabilities:
Deferred income taxes					(279,768)							(279,768)
Total liabilities					(279,768)							(279,768)
Equity:
Retained earnings					(528,173)							(528,173)
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax					19,225							19,225
Total Equity					(508,948)							(508,948)
Total liabilities and shareowner's equity					(788,716)							(788,716)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired												(50,930)		(44,759)
Other operating expenses												87,606		98,850
Total benefits and expenses												36,676		54,091
Income before income tax												(36,676)		(54,091)
Income tax (benefit) expense												(12,998)		(19,164)
Net income												(23,678)		(34,927)
Cash flows from operating activities
Net income												(23,678)		(34,927)
Amortization of deferred policy acquisition costs and value of business acquired												(50,930)		(44,759)
Capitalization of deferred policy acquisition costs												87,605		97,830
Deferred income tax												(12,997)		(18,801)
Other, net														$ 657

[1] Recast from previously reported information

XML

EMPLOYEE BENEFIT PLANS (Details 4) (PLC, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Pension Plan
EMPLOYEE BENEFIT PLANS
Service cost - benefits earned during the period	$ 9,145	$ 8,682	$ 7,423
Interest cost on projected benefit obligation	8,977	8,938	8,091
Expected return on plan assets	(10,916)	(10,021)	(9,349)
Amortization of prior service cost/(credit)	(392)	(392)	(403)
Amortization of actuarial losses	7,749	5,625	3,905
Total benefit cost	14,563	12,832	9,667
Average remaining service period used	8 years 1 month 20 days
Estimated net actuarial loss, prior service cost, and transition obligation for these plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2013
Net actuarial loss	9,150
Prior service cost/(credit)	(392)
Unfunded Excess Benefits Plan
EMPLOYEE BENEFIT PLANS
Service cost - benefits earned during the period	867	679	584
Interest cost on projected benefit obligation	1,473	1,506	1,545
Amortization of prior service cost/(credit)	12	12	12
Amortization of actuarial losses	1,300	881	653
Total benefit cost	3,652	3,078	2,794
Average remaining service period used	7 years 6 months 4 days
Estimated net actuarial loss, prior service cost, and transition obligation for these plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2013
Net actuarial loss	1,767
Prior service cost/(credit)	$ 12

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011		Dec. 31, 2010
Valuation of investment securities
Number of primary sources of information used for determining fair value	1
Total number of primary sources of information available for determining fair value	3
Other-than-temporary impairments of investments recorded	$ 67,130,000	$ 62,210,000	[1]	$ 74,970,000	[1]
Other-than-temporary impairments of investments recorded in earnings	(58,144,000)	(47,321,000)	[1]	(41,364,000)	[1]
Other-than-temporary impairments of investments recorded in other comprehensive income (loss)	(8,986,000)	(14,889,000)	[1]	(33,606,000)	[1]
Cash
Negative balances due to outstanding checks and drafts	$ 96,600,000	$ 900,000
Deferred policy acquisition costs
Interest rate assumptions to compute liabilities for future policy benefits, low end of the range (as a percent)	1.00%
Interest rate assumptions to compute liabilities for future policy benefits, high end of the range (as a percent)	7.95%
Value of business acquired
Maximum percentage of accrued interest credited to account balances in case of interest sensitive products	8.75%

[1] Recast from previously reported information

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DERIVATIVE FINANCIAL INSTRUMENTS (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Realized investment gains (losses) - all other investments
Modco trading portfolio	$ 177,986	$ 164,224	$ 109,399

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CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Activity in the Company's deferred sales inducement asset
Deferred asset, beginning of period	$ 125,527	$ 112,147	$ 116,298
Amounts deferred	23,362	29,472	25,587
Amortization	(4,940)	(16,092)	(29,738)
Deferred asset, end of period	143,949	125,527	112,147
Annuity account balances
Certain Nontraditional Long-duration Contracts
Account balances of variable annuities with guarantees invested in variable annuity separate accounts	9,552,777	6,158,383
Equity mutual funds | Annuity account balances
Certain Nontraditional Long-duration Contracts
Account balances of variable annuities with guarantees invested in variable annuity separate accounts	6,171,196	3,972,729
Fixed income mutual funds | Annuity account balances
Certain Nontraditional Long-duration Contracts
Account balances of variable annuities with guarantees invested in variable annuity separate accounts	$ 3,381,581	$ 2,185,654

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EMPLOYEE BENEFIT PLANS (Details) (PLC, USD $)	12 Months Ended
	Dec. 31, 2012
EMPLOYEE BENEFIT PLANS
Threshold age plus vesting period of active employees to determine type of benefit eligibility	55 years
Adjusted funding target percentage to be maintained, minimum	80.00%
Percentage of funded status to be maintained for PBGC reporting purposes	80.00%
Minimum
EMPLOYEE BENEFIT PLANS
Estimated contribution by employer	6,000,000
Maximum
EMPLOYEE BENEFIT PLANS
Estimated contribution by employer	15,000,000
2012 plan year
EMPLOYEE BENEFIT PLANS
Contribution made by the company to its defined benefit pension plan	9,600,000
2011 plan year
EMPLOYEE BENEFIT PLANS
Contribution made by the company to its defined benefit pension plan	11,600,000

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COMMITMENTS AND CONTINGENCIES (Details 2) (Targeted multi-state examination, USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Minimum
Commitment and contingency
Administrative and/or examination fees	$ 0
Maximum
Commitment and contingency
Administrative and/or examination fees	$ 3.5

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EMPLOYEE BENEFIT PLANS (Details 2) (PLC, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Pension Plan
EMPLOYEE BENEFIT PLANS
Accumulated benefit obligation, end of year	$ 210,319	$ 186,300
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	199,162	165,704
Service cost	9,145	8,682	7,423
Interest cost	8,977	8,938	8,091
Amendments		94
Actuarial (gain) or loss	15,286	23,859
Benefits paid	(9,251)	(8,115)
Projected benefit obligation at end of year	223,319	199,162	165,704
Change in plan assets:
Fair value of plan assets at beginning of year	125,058	117,856
Actual return on plan assets	15,202	2,874
Employer contributions	21,178	12,443
Benefits paid	(9,251)	(8,115)
Fair value of plan assets at end of year	152,187	125,058	117,856
After reflecting FASB guidance:
Funded status	(71,132)	(74,104)
Amounts recognized in the balance sheet:
Other liabilities	(71,132)	(74,104)
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	95,055	91,804
Prior service cost/(credit)	(1,816)	(2,208)
Net transition asset	93,239	89,596
Unfunded Excess Benefits Plan
EMPLOYEE BENEFIT PLANS
Accumulated benefit obligation, end of year	39,828	33,675
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	36,256	31,592
Service cost	867	679	584
Interest cost	1,473	1,506	1,545
Amendments		3
Actuarial (gain) or loss	6,946	4,187
Benefits paid	(2,571)	(1,711)
Projected benefit obligation at end of year	42,971	36,256	31,592
Change in plan assets:
Employer contributions	2,571	1,711
Benefits paid	(2,571)	(1,711)
After reflecting FASB guidance:
Funded status	(42,971)	(36,256)
Amounts recognized in the balance sheet:
Other liabilities	(42,971)	(36,256)
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	17,571	11,924
Prior service cost/(credit)	48	60
Net transition asset	17,619	11,984
Other Postretirement Benefits
EMPLOYEE BENEFIT PLANS
Accumulated benefit obligation, end of year	800	900
Retiree medical plan
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	949	1,309
Service cost	6	9
Interest cost	17	28
Amendments		(29)
Actuarial (gain) or loss	(144)	(297)
Benefits paid	(333)	(326)
Plan participant contributions	293	255
Projected benefit obligation at end of year	788	949
Change in plan assets:
Benefits paid	(333)	(326)
Group life insurance plan
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	8,951	7,955
Service cost	123	118
Interest cost	412	416
Actuarial (gain) or loss	895	816
Benefits paid	(311)	(354)
Projected benefit obligation at end of year	10,070	8,951
Change in plan assets:
Benefits paid	$ (311)	$ (354)

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REINSURANCE (Details) (USD $)	12 Months Ended					3 Months Ended	12 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2008	Dec. 31, 2005	Mar. 31, 2010 Lender's Indemnity line of business	Dec. 31, 2006 Lender's Indemnity line of business	Dec. 31, 2012 Life insurance in-force	Dec. 31, 2011 Life insurance in-force	Dec. 31, 2010 Life insurance in-force	Dec. 31, 2012 Life insurance	Dec. 31, 2011 Life insurance	Dec. 31, 2010 Life insurance	Dec. 31, 2012 Accident/health insurance	Dec. 31, 2011 Accident/health insurance	Dec. 31, 2010 Accident/health insurance	Dec. 31, 2012 Property and liability insurance	Dec. 31, 2011 Property and liability insurance	Dec. 31, 2010 Property and liability insurance
REINSURANCE
Percentage of the face value of life insurance in-force reinsured	60.00%
Percentage of the face value of life insurance in-force reinsured with concentration of reinsurers	26.00%
Life insurance in-force reinsured, concentrated number of reinsurers	3
Amount of insurance retained on the life of any one person before revision					$ 500,000
Amount of insurance retained on the life of any one person				2,000,000	1,000,000
Effect of reinsurance on premiums written and earned
Direct premiums	2,481,501,000	2,507,787,000	2,435,582,000					706,415,969,000	728,670,260,000	753,518,782,000	2,226,614,000	2,245,359,000	2,153,318,000	38,873,000	43,161,000	49,520,000	216,014,000	219,267,000	232,744,000
Reinsurance assumed	317,889,000	276,346,000	173,775,000					30,470,432,000	32,812,882,000	18,799,243,000	281,711,000	248,467,000	166,606,000	29,413,000	21,719,000	63,000	6,765,000	6,160,000	7,106,000
Reinsurance ceded	(1,310,098,000)	(1,363,913,000)	(1,380,712,000)					(444,950,866,000)	(469,530,487,000)	(495,056,077,000)	(1,228,444,000)	(1,278,273,000)	(1,284,504,000)	(12,065,000)	(14,415,000)	(17,323,000)	(69,589,000)	(71,225,000)	(78,885,000)
Net premiums	1,489,292,000	1,420,220,000	1,228,645,000					291,935,535,000	291,952,655,000	277,261,948,000	1,279,881,000	1,215,553,000	1,035,420,000	56,221,000	50,465,000	32,260,000	153,190,000	154,202,000	160,965,000
Percentage of amount assumed to net								10.40%	11.20%	6.80%	22.00%	20.40%	16.10%	52.30%	43.00%	0.20%	4.40%	4.00%	4.40%
Annuity policy fees											103,800,000	74,900,000	43,400,000
Reinsurance receivables	5,600,000	5,500,000
Ceded benefits which are recoverable from reinsurers	105,000,000	127,100,000
Receivables related to insurance assumed	66,100,000	64,900,000
Bad debt charges							27,100,000
Decrease in reserves related to final settlement in runoff line of business						$ 7,800,000

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MORTGAGE LOANS (Details 3) (Commercial mortgage loans, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Commercial mortgage loans
With no related allowance recorded
Recorded Investment	$ 13,044	$ 6,338
Unpaid Principal Balance	14,419	9,346
Average Recorded Investment	2,609	2,113
Interest Income Recognized	53	34
Cash Basis Interest Income	69	34
With an allowance recorded
Recorded Investment	13,927	14,021
Unpaid Principal Balance	13,927	14,021
Related Allowance	2,875	4,975
Average Recorded Investment	3,482	7,010
Interest Income Recognized	154	117
Cash Basis Interest Income	$ 154	$ 181

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SUPPLEMENTAL CASH FLOW INFORMATION

12 Months Ended

Dec. 31, 2012

SUPPLEMENTAL CASH FLOW INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION

16. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information:

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Cash paid / (received) during the year:
Interest expense	$	92,175	$	89,657		$	57,544
Income taxes	77,665		25,129			(79,281		)
Noncash investing and financing activities:
Decrease in collateral for securities lending transactions	—		(96,653		)	(10,630		)

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SUPPLEMENTAL CASH FLOW INFORMATION (Tables)

12 Months Ended

Dec. 31, 2012

SUPPLEMENTAL CASH FLOW INFORMATION

Schedule of supplemental cash flow information

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Cash paid / (received) during the year:
Interest expense	$	92,175	$	89,657		$	57,544
Income taxes	77,665		25,129			(79,281		)
Noncash investing and financing activities:
Decrease in collateral for securities lending transactions	—		(96,653		)	(10,630		)

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GOODWILL (Tables)

12 Months Ended

Dec. 31, 2012

GOODWILL

Schedule of changes in the carrying amount of goodwill by segment

				Asset		Total
	Acquisitions			Protection		Consolidated
	(Dollars In Thousands)
Balance as of December 31, 2010	$	41,812		$	48,158	$	89,970
Tax benefit of excess tax goodwill	(3,099		)	—		(3,099		)
Balance as of December 31, 2011	38,713			48,158		86,871
Tax benefit of excess tax goodwill	(3,098		)	—		(3,098		)
Balance as of December 31, 2012	$	35,615		$	48,158	$	83,773

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CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Separate account balances	$ 9,601,417,000	$ 6,741,959,000	[1]
Acquisitions | CALIC
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Guaranteed amount payable	20,900,000
Annuity account balances
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Balances subject to GMWB	7,200,000,000
Annuity account balances | CALIC
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Number of insurance companies that manufactured and administered traditional life insurance and annuity products	5
Number of non-insurance companies	4
Average attained age of contract holders	64 years
Percentage of variable annuity business of Chase Insurance Group reinsured	100.00%
Annuity account balances | Guaranteed minimum death benefits (GMDB)
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Interest rate at which last anniversary date account value is compounded (as a percent)	5.00%
Mean investment performance (as a percent)	6.54%
Mortality rate assumed (as a percent)	57.00%
Lapse, low end of range (as a percent)	0.80%
Lapse, high end of range (as a percent)	38.70%
Average discount rate (as a percent)	6.20%
Separate account balances	9,600,000,000
Guaranteed amount payable	149,800,000
Average attained age of contract holders	67 years
Activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement)
Balance at the beginning of the period	9,798,000	6,412,000		342,000
Incurred guarantee benefits	14,087,000	7,171,000		11,799,000
Less: Paid guarantee benefits	4,279,000	3,785,000		5,729,000
Balance at the end of the period	19,606,000	9,798,000		6,412,000
Annuity account balances | Guaranteed minimum death benefits (GMDB) | Annuities
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Guaranteed amount payable	129,300,000
Activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement)
Balance at the end of the period	19,300,000
Annuity account balances | Guaranteed minimum death benefits (GMDB) | Acquisitions
CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
Guaranteed amount payable	20,500,000
Activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement)
Balance at the end of the period	$ 300,000

[1] Recast from previously reported information

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INCOME TAXES (Details 2) (USD $)	3 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reconciliation of the beginning and ending amount of unrecognized tax benefits
Balance, beginning of period		$ 4,318,000	$ 12,659,000
Additions for tax positions of the current year		9,465,000
Additions for tax positions of prior years		64,050,000	106,000
Reductions of tax positions of prior years:
Changes in judgment		(3,498,000)	(8,447,000)
Balance, end of period	74,335,000	74,335,000	4,318,000	12,659,000
Unrecognized tax benefits with high certainty of deductibility but with uncertainty about the timing of deductions	67,500,000	67,500,000	2,000,000
Amount of unrecognized tax benefits that would affect the effective income tax rate if recognized	6,800,000	6,800,000	2,300,000
Accrued interest and penalties related to the unrecognized tax benefits included in income tax expense		0	1,400,000	2,900,000
Accrued interest associated with unrecognized tax benefits	0	0	1,400,000
Estimated period to conclude appeals process for protesting certain unfavorable adjustments in IRS audit	12 months
Decrease in total unrecognized tax benefits due to unfavorable adjustments to the entity's 2003 through 2007 reported taxable incomes	16,100,000
Decrease in total unrecognized tax benefits		$ 3,500,000	$ 8,400,000
Minimum probability of realization of tax benefit for amount to be recognized (as a percent)	50.00%	50.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of property and equipment

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Home office building	$	72,587		$	72,148
Data processing equipment	29,209			56,928
Other, principally furniture and equipment	49,220			51,500
	151,016			180,576
Accumulated depreciation	(103,625		)	(132,579		)
Total property and equipment	$	47,391		$	47,997

Schedule of future maturities of stable value products

Year of Maturity	Amount
	(Dollars In Millions)
2013	$	432.6
2014-2015	1,231.9
2016-2017	785.7
Thereafter	60.3

Summary of activity in the liability for unpaid claims for life and health insurance

	As of December 31,
	2012		2011		2010
	(Dollars In Thousands)
Balance beginning of year	$	312,799	$	299,971	$	299,396
Less: reinsurance	161,450		156,932		148,479
Net balance beginning of year	151,349		143,039		150,917
Incurred related to:
Current year	702,555		653,525		471,039
Prior year	62,926		65,269		35,555
Total incurred	765,481		718,794		506,594
Paid related to:
Current year	664,744		639,118		457,511
Prior year	80,794		76,424		56,961
Total paid	745,538		715,542		514,472
Other changes:
Acquisition and reserve transfers	—		5,058		—
Net balance end of year	171,292		151,349		143,039
Add: reinsurance	155,341		161,450		156,932
Balance end of year	$	326,633	$	312,799	$	299,971

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS

Schedule of assets and liabilities measured at fair value on a recurring basis

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, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,839,326	$	4	$	1,839,330
Commercial mortgage-backed securities	—		869,823		—		869,823
Other asset-backed securities	—		378,870		596,143		975,013
U.S. government-related securities	909,988		258,458		—		1,168,446
State, municipalities, and political subdivisions	—		1,439,378		4,275		1,443,653
Other government-related securities	—		80,767		20,011		100,778
Corporate bonds	207		20,197,528		167,892		20,365,627
Total fixed maturity securities - available-for-sale	910,195		25,064,150		788,325		26,762,670
Fixed maturity securities - trading
Residential mortgage-backed securities	—		357,803		—		357,803
Commercial mortgage-backed securities	—		171,073		—		171,073
Other asset-backed securities	—		87,395		70,535		157,930
U.S. government-related securities	304,704		1,169		—		305,873
State, municipalities, and political subdivisions	—		278,898		—		278,898
Other government-related securities	—		63,444		—		63,444
Corporate bonds	—		1,672,172		115		1,672,287
Total fixed maturity securities - trading	304,704		2,631,954		70,650		3,007,308
Total fixed maturity securities	1,214,899		27,696,104		858,975		29,769,978
Equity securities	273,072		35,116		65,527		373,715
Other long-term investments (1)	23,639		58,134		48,655		130,428
Short-term investments	214,295		2,492		—		216,787
Total investments	1,725,905		27,791,846		973,157		30,490,908
Cash	269,582		—		—		269,582
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	9,601,417		—		—		9,601,417
Variable universal life	562,817		—		—		562,817
Total assets measured at fair value on a recurring basis	$	12,159,721	$	27,791,846	$	973,157	$	40,924,724
Liabilities:
Annuity account balances(2)	$	—	$	—	$	129,468	$	129,468
Other liabilities (1)	19,187		27,250		611,437		657,874
Total liabilities measured at fair value on a recurring basis	$	19,187	$	27,250	$	740,905	$	787,342

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

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, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,337,037	$	7	$	2,337,044
Commercial mortgage-backed securities	—		550,527		—		550,527
Other asset-backed securities	—		298,216		614,813		913,029
U.S. government-related securities	664,506		536,173		15,000		1,215,679
State, municipalities, and political subdivisions	—		1,327,713		—		1,327,713
Other government-related securities	—		93,017		—		93,017
Corporate bonds	204		18,440,822		119,565		18,560,591
Total fixed maturity securities - available-for-sale	664,710		23,583,505		749,385		24,997,600
Fixed maturity securities - trading
Residential mortgage-backed securities	—		313,963		—		313,963
Commercial mortgage-backed securities	—		190,247		—		190,247
Other asset-backed securities	—		29,585		28,343		57,928
U.S. government-related securities	555,601		255		—		555,856
State, municipalities, and political subdivisions	—		229,032		—		229,032
Other government-related securities	—		44,845		—		44,845
Corporate bonds	—		1,568,094		—		1,568,094
Total fixed maturity securities - trading	555,601		2,376,021		28,343		2,959,965
Total fixed maturity securities	1,220,311		25,959,526		777,728		27,957,565
Equity securities	211,023		11,310		70,080		292,413
Other long-term investments (1)	27,757		7,785		19,103		54,645
Short-term investments	101,470		—		—		101,470
Total investments	1,560,561		25,978,621		866,911		28,406,093
Cash	169,775		—		—		169,775
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	6,741,959		—		—		6,741,959
Variable universal life	502,617		—		—		502,617
Total assets measured at fair value on a recurring basis	$	8,974,912	$	25,978,621	$	866,911	$	35,820,444
Liabilities:
Annuity account balances (2)	$	—	$	—	$	136,462	$	136,462
Other liabilities (1)	2,727		15,370		437,613		455,710
Total liabilities measured at fair value on a recurring basis	$	2,727	$	15,370	$	574,075	$	592,172

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

Schedule of valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments

	Fair Value
	As of		Valuation	Unobservable	Range
	December 31, 2012		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	596,143	Discounted cash flow	Liquidity premium Paydown rate	0.72% - 1.68% (1.29%) 8.51% - 18.10% (11.40%)
Other government-related securities	20,011		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	168,007		Discounted cash flow	Spread over treasury	0.92% - 7.75% (3.34%)
Liabilities:
Embedded derivatives - GMWB(1)	$	169,041	Actuarial cash flow model	Mortality Lapse	57% of 1994 GMDB table 0% - 24%, depending on product/duration/funded
					status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.09% - 1.34%
Annuity account balances(2)	129,468		Actuarial cash flow model	Asset earned rate Expenses	5.81% $88 - $108 per policy
				Withdrawal rate	2.20%
				Mortality	57% of 1994 GMDB table
				Lapse	2.2% - 45.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.09% - 1.34%

(1)The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.

(2)Represents liabilities related to equity indexed annuities.

Schedule of reconciliation of the beginning and ending balances for fair value measurements, for which the Company has used significant unobservable inputs (Level 3)

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2012, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	7	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	614,813		339		21,780		—			(22,587		)	—		(19,050		)	—		—		771		77			596,143		—
U.S. government-related securities	15,000		—		—		—			(2		)	—		(15,000		)	—		—		—		2			—		—
States, municipals, and political subdivisions	—		—		—		—			4,275			—		—			—		—		—		4,275			—
Other government-related securities	—		—		29		—			(27		)	20,024		—			—		—		—		(15		)	20,011		—
Corporate bonds	119,565		470		8,052		(4		)	(2,723		)	11,960		(9,854		)	—		—		40,060		366			167,892		—
Total fixed maturity securities - available-for-sale	749,385		809		29,861		(4		)	(25,339		)	36,259		(43,907		)	—		—		40,831		430			788,325		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		4,086		—		(2,306		)	—			48,255		(9,896		)	—		—		—		2,053			70,535		1,780
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		2		—		—			—			1		—			—		—		112		—			115		10
Total fixed maturity securities - trading	28,343		4,088		—		(2,306		)	—			48,256		(9,896		)	—		—		112		2,053			70,650		1,790
Total fixed maturity securities	777,728		4,897		29,861		(2,310		)	(25,339		)	84,515		(53,803		)	—		—		40,943		2,483			858,975		1,790
Equity securities	70,080		8		827		—			(1,097		)	4		(4,295		)	—		—		—		—			65,527		—
Other long-term investments(1)	19,103		—		—		29,552			—			—		—			—		—		—		—			48,655		29,552
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		4,905		30,688		27,242			(26,436		)	84,519		(58,098		)	—		—		40,943		2,483			973,157		31,342
Total assets measured at fair value on a recurring basis	$	866,911	$	4,905	$	30,688	$	27,242		$	(26,436	)	$	84,519	$	(58,098	)	$	—	$	—	$	40,943	$	2,483		$	973,157	$	31,342
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	12,293		$	—		$	—	$	—		$	860	$	20,147	$	—	$	—		$	129,468	$	—
Other liabilities(1	437,613		86,523		—		(260,347		)	—			—		—			—		—		—		—			611,437		(173,824		)
Total liabilities measured at fair value on a recurring basis	$	574,075	$	86,523	$	—	$	(248,054	)	$	—		$	—	$	—		$	860	$	20,147	$	—	$	—		$	740,905	$	(173,824	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2011, for which the Company has used significant unobservable inputs (Level 3):

																														Total
																														Gains (losses)
			Total				Total																							included in
			Realized and Unrealized				Realized and Unrealized																							Earnings
			Gains				Losses																							related to
					Included in					Included in																				Instruments
					Other					Other												Transfers								still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of						Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3			Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	20	$	—	$	12	$	(4	)	$	—		$	—	$	(12	)	$	—	$	—	$	(9	)	$	—		$	7	$	—
Commercial mortgage-backed securities	19,901		—		147		—			(719		)	—		(103		)	—		—		(19,224		)	(2		)	—		—
Other asset-backed securities	641,129		4,527		28,873		(8,661		)	(50,941		)	—		—			—		—		—			(114		)	614,813		—
U.S. government-related securities	15,109		—		—		—			(122		)	—		—			—		—		—			13			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	64,996		—		5,216		—			(1,689		)	40,000		(3,543		)	—		—		14,585			—			119,565		—
Total fixed maturity securities - available-for-sale	741,155		4,527		34,248		(8,665		)	(53,471		)	40,000		(3,658		)	—		—		(4,648		)	(103		)	749,385		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	59,925		1,213		—		(2,689		)	—			3,792		(40,292		)	—		—		4,002			2,392			28,343		(937		)
U.S. government-related securities	3,442		387		—		(476		)	—			—		(3,347		)	—		—		—			(6		)	—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	—		611		—		(1,453		)	—			—		(37,292		)	—		—		38,039			95			—		—
Total fixed maturity securities - trading	63,367		2,211		—		(4,618		)	—			3,792		(80,931		)	—		—		42,041			2,481			28,343		(937		)
Total fixed maturity securities	804,522		6,738		34,248		(13,283		)	(53,471		)	43,792		(84,589		)	—		—		37,393			2,378			777,728		(937		)
Equity securities	66,592		49		555		—			(1,050		)	3,962		(49		)	—		—		21			—			70,080		—
Other long-term investments(1)	31,765		—		—		(12,662		)	—			—		—			—		—		—			—			19,103		(12,662		)
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	902,879		6,787		34,803		(25,945		)	(54,521		)	47,754		(84,638		)	—		—		37,414			2,378			866,911		(13,599		)
Total assets measured at fair value on a recurring basis	$	902,879	$	6,787	$	34,803	$	(25,945	)	$	(54,521	)	$	47,754	$	(84,638	)	$	—	$	—	$	37,414		$	2,378		$	866,911	$	(13,599	)
Liabilities:
Annuity account balances(2)	$	143,264	$	—	$	—	$	(5,850	)	$	—		$	—	$	—		$	654	$	13,306	$	—		$	—		$	136,462	$	—
Other liabilities(1)	190,529		—		—		(249,757		)	—			—		(2,673		)	—		—		—			—			437,613		(249,757		)
Total liabilities measured at fair value on a recurring basis	$	333,793	$	—	$	—	$	(255,607	)	$	—		$	—	$	(2,673	)	$	654	$	13,306	$	—		$	—		$	574,075	$	(249,757	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

Schedule of the carrying amounts and estimated fair value of the Company's financial instruments

		As of December 31,
		2012				2011
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,948,625	$	5,723,579	$	5,351,902	$	6,251,902
Policy loans	3	865,391		865,391		879,819		879,819
Fixed maturities, held-to-maturity(1)	3	300,000		319,163		—		—
Liabilities:
Stable value product account balances	3	$	2,510,559	$	2,534,094	$	2,769,510	$	2,855,614
Annuity account balances	3	10,658,463		10,525,702		10,946,848		10,767,892
Mortgage loan backed certificates	3	—		—		19,755		19,893
Debt:
Non-recourse funding obligations(2)	3	$	1,446,900	$	1,357,290	$	1,248,600	$	1,060,275

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

(1) Security purchased from unconsolidated subsidiary, Red Mountain LLC.

(2) Of this carrying amount $300 million, fair value of $297.6 million, relates to non-recourse funding obligations issued by Golden Gate V.

XML

INVESTMENT OPERATIONS (Details 4) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
Fair Value
Less Than 12 Months	$ 1,574,080,000	$ 2,828,967,000
12 Months or More	793,440,000	1,260,898,000
Total	2,367,520,000	4,089,865,000
Unrealized Loss
Less Than 12 Months	(68,035,000)	(192,058,000)
12 Months or More	(72,622,000)	(255,294,000)
Total	(140,657,000)	(447,352,000)
Available-for-sale securities, fair value	27,214,682,000	25,288,601,000
Available-for-sale securities, amortized cost	24,104,126,000	23,451,332,000
Non-income producing investments	12,200,000
Policy loans	865,391,000	879,819,000	[1]
Interest rate on collateral loans on life insurance policies (as a percent)	13.64%
Securities Lending
Other-than-temporary impairment recognized on certain collateral assets	1,300,000
Balance of collateral assets	3,700,000
Minimum
Unrealized Loss
Interest rate on standard policy loans (as a percent)	3.00%
Maximum
Unrealized Loss
Interest rate on standard policy loans (as a percent)	8.00%
Below investment grade
Unrealized Loss
Available-for-sale securities, fair value	1,700,000,000
Available-for-sale securities, amortized cost	1,700,000,000
Securities in trading portfolio	367,100,000
Securities not publicly traded	415,100,000
Fixed maturities
Unrealized Loss
Available-for-sale securities, fair value	26,762,670,000	24,997,600,000
Available-for-sale securities, amortized cost	23,654,002,000	23,149,166,000
Securities in trading portfolio	3,000,000,000	3,000,000,000
Change in unrealized gains (losses), net of income tax	819,152,000	761,738,000		696,942,000
Residential mortgage-backed securities
Fair Value
Less Than 12 Months	100,412,000	276,216,000
12 Months or More	166,000,000	524,251,000
Total	266,412,000	800,467,000
Unrealized Loss
Less Than 12 Months	(9,578,000)	(15,308,000)
12 Months or More	(9,769,000)	(70,394,000)
Total	(19,347,000)	(85,702,000)
Available-for-sale securities, fair value	1,839,330,000	2,337,044,000
Available-for-sale securities, amortized cost	1,766,260,000	2,340,172,000
Commercial mortgage-backed securities
Fair Value
Less Than 12 Months	50,506,000	78,893,000
Total	50,506,000	78,893,000
Unrealized Loss
Less Than 12 Months	(598,000)	(4,229,000)
Total	(598,000)	(4,229,000)
Available-for-sale securities, fair value	869,823,000	550,527,000
Available-for-sale securities, amortized cost	797,844,000	530,283,000
Other asset-backed securities
Fair Value
Less Than 12 Months	479,223,000	531,653,000
12 Months or More	242,558,000	190,639,000
Total	721,781,000	722,292,000
Unrealized Loss
Less Than 12 Months	(28,179,000)	(32,074,000)
12 Months or More	(33,245,000)	(58,824,000)
Total	(61,424,000)	(90,898,000)
Percentage of underlying collateral including student-loan backed auction rate securities guaranteed by the Federal Family Education Loan Program ("FFELP"), minimum	97.00%	97.00%
Available-for-sale securities, fair value	975,013,000	913,029,000
Available-for-sale securities, amortized cost	1,023,649,000	997,398,000
U.S. government-related securities
Fair Value
Less Than 12 Months	106,806,000	21,311,000
Total	106,806,000	21,311,000
Unrealized Loss
Less Than 12 Months	(591,000)	(58,000)
Total	(591,000)	(58,000)
Available-for-sale securities, fair value	1,168,446,000	1,215,679,000
Available-for-sale securities, amortized cost	1,097,501,000	1,150,525,000
Other government-related securities
Fair Value
Less Than 12 Months	14,955,000
Total	14,955,000
Unrealized Loss
Less Than 12 Months	(45,000)
Total	(45,000)
Available-for-sale securities, fair value	100,778,000	93,017,000
Available-for-sale securities, amortized cost	93,565,000	88,058,000
States, municipals, and political subdivisions
Fair Value
Less Than 12 Months	11,526,000
Total	11,526,000
Unrealized Loss
Less Than 12 Months	(264,000)
Total	(264,000)
Available-for-sale securities, fair value	1,443,653,000	1,327,713,000
Available-for-sale securities, amortized cost	1,188,019,000	1,154,307,000
Corporate bonds
Fair Value
Less Than 12 Months	775,593,000	1,870,256,000
12 Months or More	363,128,000	523,913,000
Total	1,138,721,000	2,394,169,000
Unrealized Loss
Less Than 12 Months	(23,630,000)	(131,953,000)
12 Months or More	(24,765,000)	(117,917,000)
Total	(48,395,000)	(249,870,000)
Available-for-sale securities, fair value	20,365,627,000	18,560,591,000
Available-for-sale securities, amortized cost	17,687,164,000	16,888,423,000
Equity securities
Fair Value
Less Than 12 Months	35,059,000	50,638,000
12 Months or More	21,754,000	22,095,000
Total	56,813,000	72,733,000
Unrealized Loss
Less Than 12 Months	(5,150,000)	(8,436,000)
12 Months or More	(4,843,000)	(8,159,000)
Total	(9,993,000)	(16,595,000)
Available-for-sale securities, fair value	354,160,000	275,372,000
Available-for-sale securities, amortized cost	352,272,000	286,537,000
Securities in trading portfolio	19,600,000	17,000,000
Change in unrealized gains (losses), net of income tax	$ 8,484,000	$ (13,292,000)		$ 9,701,000

[1] Recast from previously reported information

XML

CONSOLIDATED QUARTERLY RESULTS - UNAUDITED (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
CONSOLIDATED QUARTERLY RESULTS - UNAUDITED
Premiums and policy fees	$ 717,948	$ 681,324	$ 707,720	$ 692,398	$ 716,245	$ 693,161	$ 712,472	$ 662,256	$ 2,799,390		$ 2,784,134	[1]	$ 2,609,357	[1]
Reinsurance ceded	(365,821)	(311,862)	(336,119)	(296,295)	(363,162)	(319,732)	(356,603)	(324,417)	(1,310,097)		(1,363,914)	[1]	(1,380,712)	[1]
Net of reinsurance ceded	352,127	369,462	371,601	396,103	353,083	373,429	355,869	337,839	1,489,293		1,420,220	[1]	1,228,645	[1]
Net investment income	460,784	446,374	438,648	443,532	445,780	445,928	434,425	427,311	1,789,338		1,753,444	[1]	1,624,845	[1]
Realized investment gains (losses)	(44,085)	(2,686)	6,669	(13,022)	1,559	31,880	19,974	(7,986)	(53,124)		45,427	[1]	(27,382)	[1]
Other income	54,244	51,046	50,121	75,142	42,262	47,262	56,107	43,863	230,553		189,494	[1]	110,876	[1]
Total revenues	823,070	864,196	867,039	901,755	842,684	898,499	866,375	801,027	3,456,060		3,408,585	[1]	2,936,984	[1]
Total benefits and expenses	728,313	757,507	749,974	760,687	725,470	775,941	726,214	705,685	2,996,481		2,933,310	[1]	2,603,808	[1]
Income before income tax	94,757	106,689	117,065	141,068	117,214	122,558	140,161	95,342	459,579		475,275	[1]	333,176	[1]
Income tax expense	34,615	35,778	35,438	45,212	30,160	39,579	48,557	33,223	151,043		151,519	[1]	109,865	[1]
Net income	$ 60,142	$ 70,911	$ 81,627	$ 95,856	$ 87,054	$ 82,979	$ 91,604	$ 62,119	$ 308,536	[1]	$ 323,756	[1]	$ 223,311	[1]

[1] Recast from previously reported information

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
Other changes:
Add: reinsurance	$ 5,682,841	$ 5,542,417	[1]
Life and health insurance
Activity in the liability for unpaid claims for life and health insurance
Balance beginning of year	312,799	299,971		299,396
Less: reinsurance	161,450	156,932		148,479
Net balance beginning of year	151,349	143,039		150,917
Incurred related to:
Current year	702,555	653,525		471,039
Prior year	62,926	65,269		35,555
Total incurred	765,481	718,794		506,594
Paid related to:
Current year	664,744	639,118		457,511
Prior year	80,794	76,424		56,961
Total paid	745,538	715,542		514,472
Other changes:
Acquisition and reserve transfers		5,058
Net balance end of year	171,292	151,349		143,039
Add: reinsurance	155,341	161,450		156,932
Balance end of year	$ 326,633	$ 312,799		$ 299,971

[1] Recast from previously reported information

XML

STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2012

STOCK-BASED COMPENSATION

Schedule of performance shares awarded and estimated fair value of the awards at grant date

Year	Performance	Estimated
Awarded	Shares	Fair Value
		(Dollars In Thousands)
2012	306,100	$	8,608
2011	191,100	5,433
2010	—	—

Schedule of the SARs activity as well as weighted-average base price

	Weighted-Average
	Base Price per share		No. of SARs
Balance at December 31, 2009	$	22.28	2,469,202
SARs granted	18.34		344,400
SARs exercised / forfeited	20.98		(488,765	)
Balance at December 31, 2010	$	21.97	2,324,837
SARs exercised / forfeited	8.31		(50,608	)
Balance at December 31, 2011	$	22.27	2,274,229
SARs exercised / forfeited / expired	22.60		(633,062	)
Balance at December 31, 2012	$	22.15	1,641,167

Schedule of equity compensation plans

						Number of securities
						remaining available
						for future issuance
	Number of securities					under equity
	to be issued upon		Weighted-average			compensation plans
	exercise of		exercise price of			(excluding securities
	outstanding options,		outstanding options,			reflected in
	warrants and rights as		warrants and rights as			column (a)) as of
Plan category	of December 31, 2012 (a)		of December 31, 2012 (b)			of December 31, 2012 (c)
Equity compensation plans approved by shareowners	2,702,768	(1)	$	22.15	(3)	4,530,673	(4)
Equity compensation plans not approved by shareowners	318,421	(2)	Not applicable			Not applicable	(5)
Total	3,021,189		$	22.15		4,530,673

(1) Includes the following number of shares:  (a) 1,066,759 shares issuable with respect to outstanding SARs (assuming for this purpose that one share of PLC common stock will be payable with respect to each outstanding SAR); (b) 602,160 shares issuable with respect to outstanding performance share awards (assuming for this purpose that the awards are payable based on estimated performance under the awards as of September 30, 2012); (c) 646,632 shares issuable with respect to outstanding restricted stock units (assuming for this purpose that shares will be payable with respect to all outstanding restricted stock units); (d) 319,555 shares issuable with respect to stock equivalents representing previously earned awards under the LTIP that the recipient deferred under PLC’s Deferred Compensation Plan for Officers; and (e) 67,662 shares issuable with respect to stock equivalents representing previous awards under PLC’s Stock Plan for Non-Employee Directors that the recipient deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC.

(2) Includes the following number of PLC’s shares of common stock: (a) 216,103 shares issuable with respect to stock equivalents representing (i) stock awards to PLC’s Directors before June 1, 2004 that the recipient deferred pursuant to PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of the Company and (ii) cash retainers and fees that PLC’s Directors deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC, and (b) 102,318 shares issuable with respect to stock equivalents pursuant to PLC’s Deferred Compensation Plan for Officers.

(3) Based on exercise prices of outstanding SARs.

(4) Represents shares of PLC’s common stock available for future issuance under the LTIP and the Company’s Stock Plan for Non-Employee Directors.

(5) The plans listed in Note (2) do not currently have limits on the number of PLC’s shares of common stock issuable under such plans. The total number of PLC’s shares of common stock that may be issuable under such plans will depend upon, among other factors, the deferral elections made by the plans’ participants.

Schedule of outstanding SARs by base prices

The outstanding SARs as of December 31, 2012, were at the following base prices:

		SARs	Remaining Life	Currently
Base Price		Outstanding	in Years	Exercisable
$	26.49	50,000	1	50,000
$	41.05	106,700	3	106,700
$	48.60	38,400	4	38,400
$	45.70	35,070	4	35,070
$	43.46	181,550	5	181,550
$	48.05	3,000	5	3,000
$	41.12	2,500	5	2,500
$	38.59	303,100	6	303,100
$	3.50	629,608	7	629,608
$	17.48	8,000	8	5,333
$	18.36	283,239	8	181,888

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Cash flows from operating activities
Net income	$ 308,536	[1]	$ 323,756	[1]	$ 223,311	[1]
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment losses (gains)	53,124		(45,427)	[1]	27,382	[1]
Amortization of deferred policy acquisition costs and value of business acquired	192,183		249,520	[1]	144,496	[1]
Capitalization of deferred policy acquisition costs	(311,960)		(355,033)	[1]	(348,730)	[1]
Depreciation expense	7,378		8,616	[1]	8,931	[1]
Deferred income tax	70,037		107,265	[1]	66,682	[1]
Accrued income tax	359		(24,683)	[1]	84,580	[1]
Interest credited to universal life and investment products	962,678		993,574	[1]	972,806	[1]
Policy fees assessed on universal life and investment products	(794,825)		(712,038)	[1]	(611,917)	[1]
Change in reinsurance receivables	(140,424)		(28,615)	[1]	(223,843)	[1]
Change in accrued investment income and other receivables	580		(35,436)	[1]	(22,567)	[1]
Change in policy liabilities and other policyholders' funds of traditional life and health products	300,523		15,307	[1]	341,104	[1]
Trading securities:
Maturities and principal reductions of investments	276,659		283,239	[1]	355,831	[1]
Sale of investments	454,150		860,474	[1]	730,385	[1]
Cost of investments acquired	(585,618)		(950,051)	[1]	(963,403)	[1]
Other net change in trading securities	(56,615)		7,933	[1]	(25,520)	[1]
Change in other liabilities	(22,009)		(148,801)	[1]	(17,981)	[1]
Other income - gains on repurchase of non-recourse funding obligations	(32,044)		(35,512)	[1]	(5,377)	[1]
Other, net	13,920		118,311	[1]	(46,662)	[1]
Net cash provided by operating activities	696,632		632,399	[1]	689,508	[1]
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	1,169,563		1,396,105	[1]	2,053,359	[1]
Sale of investments, available-for-sale	2,535,708		2,957,589	[1]	3,421,590	[1]
Cost of investments acquired, available-for-sale	(4,228,755)		(5,155,155)	[1]	(6,384,981)	[1]
Change in investments, held-to-maturity	(300,000)
Mortgage loans:
New lendings	(346,435)		(484,483)	[1]	(338,598)	[1]
Repayments	739,402		446,794	[1]	351,891	[1]
Change in investment real estate, net	4,927		(4,266)	[1]	151	[1]
Change in policy loans, net	14,428		14,190	[1]	31,663	[1]
Change in other long-term investments, net	(123,401)		77,079	[1]	(71,148)	[1]
Change in short-term investments, net	(82,282)		122,665	[1]	695,506	[1]
Net unsettled security transactions	37,169		68,810	[1]	(340)	[1]
Purchase of property and equipment	(6,157)		(17,463)	[1]	(10,636)	[1]
Sales of property and equipment					40	[1]
Payments for business acquisitions			(209,609)	[1]	(348,288)	[1]
Net cash used in investing activities	(585,833)		(787,744)	[1]	(599,791)	[1]
Cash flows from financing activities
Issuance (repayment) of non-recourse funding obligations	198,300		(112,200)	[1]	(194,200)	[1]
Repurchase program borrowings	150,000
Dividends paid to the parent company	(257,000)		(215,000)	[1]
Investment product deposits and change in universal life deposits	3,716,553		4,216,738	[1]	3,635,447	[1]
Investment product withdrawals	(3,818,845)		(3,777,365)	[1]	(3,477,430)	[1]
Other financing activities, net			(24,051)	[1]	20,606	[1]
Net cash (used in) provided by financing activities	(10,992)		88,122	[1]	(15,577)	[1]
Change in cash	99,807		(67,223)	[1]	74,140	[1]
Cash at beginning of period	169,775	[1]	236,998		162,858
Cash at end of period	$ 269,582		$ 169,775	[1]	$ 236,998

[1] Recast from previously reported information

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 6) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012 ASU No. 2011-03	Dec. 31, 2012 Minimum	Dec. 31, 2012 Maximum	Dec. 31, 2012 Annuity account balances Guaranteed minimum death benefits (GMDB)	Dec. 31, 2011 Annuity account balances Guaranteed minimum death benefits (GMDB)	Dec. 31, 2010 Annuity account balances Guaranteed minimum death benefits (GMDB)	Dec. 31, 2009 Annuity account balances Guaranteed minimum death benefits (GMDB)	Dec. 31, 2012 Annuity account balances Guaranteed minimum withdrawal benefits (GMWB)
Policyholder liabilities, revenues, and benefits expense
Interest rate credited to policy account balances for universal life, low end of range (as a percent)	2.00%
Interest rate credited to policy account balances for universal life, high end of range (as a percent)	8.75%
Interest rate credited to policy account balances for investment products (as a percent)			1.50%	4.55%
Mortality rate (as a percent)					57.00%				57.00%
Guaranteed benefit liability					$ 19,606,000	$ 9,798,000	$ 6,412,000	$ 342,000
Guaranteed benefit liability, net									169,000,000
Direct impact of net investment income on reinsurance cost	0
Impact to the entity's results of operations or financial position as a result of adoption		$ 0

XML

CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (Tables)

12 Months Ended

Dec. 31, 2012

CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

Schedule of activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement)

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Beginning balance	$	9,798	$	6,412	$	342
Incurred guarantee benefits	14,087		7,171		11,799
Less: Paid guarantee benefits	4,279		3,785		5,729
Ending balance	$	19,606	$	9,798	$	6,412

Schedule of account balances of variable annuities with guarantees invested in variable annuity separate accounts

	As of December 31,
	2012		2011
	(Dollars In Thousands)
Equity mutual funds	$	6,171,196	$	3,972,729
Fixed income mutual funds	3,381,581		2,185,654
Total	$	9,552,777	$	6,158,383

Schedule of activity in the Company's deferred sales inducement asset

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Deferred asset, beginning of period	$	125,527		$	112,147		$	116,298
Amounts deferred	23,362			29,472			25,587
Amortization	(4,940		)	(16,092		)	(29,738		)
Deferred asset, end of period	$	143,949		$	125,527		$	112,147

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DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

20.          DERIVATIVE FINANCIAL INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through the Company’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 attempts to minimize its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk 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 risk management strategies. In addition, all derivative programs are monitored by our risk management department.

Derivatives Related to Interest Rate Risk Management

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 caps, 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”).

Derivatives Related to Risk Mitigation of Variable Annuity Contracts

The Company may use the following types of derivative contracts to mitigate its exposure to certain guaranteed benefits related to variable annuity contracts:

· Foreign Currency Futures

· Variance Swaps

· Interest Rate Futures

· Equity Options

· Equity Futures

· Credit Derivatives

· Interest Rate Swaps

· Interest Rate Swaptions

· Volatility Futures

The Company has in certain periods, sold credit protection under single name credit default swaps and credit default swap indices for which it receives a premium to insure credit risk. Such credit derivatives are a part of the Company’s program to mitigate risks related to certain minimum guaranteed benefits of variable annuity contracts and are designed to offset some portion of the Company’s nonperformance risk. The Company will only make a payment in the event there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less an auction-determined recovery rate, to the percentage extent described. A credit event is generally defined to include material default, bankruptcy, or debt restructuring. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, would equal the notional value of the credit default swaps. As of December 31, 2012 and 2011, the Company did not have any open credit default swaps.

Other Derivatives

The Company has certain derivatives with PLC. These derivatives consist of an interest support agreement, a YRT premium support arrangement, and portfolio maintenance agreements with PLC.

Accounting for Derivative Instruments

The Company records its derivative financial instruments in the consolidated 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 change in the fair value of derivative financial instruments is reported either in the statement of income or in other comprehensive income (loss), depending upon whether it qualified  for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.

For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.

The Company reports 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”.

Derivative Instruments Designated and Qualifying as Hedging Instruments

Cash-Flow Hedges

· In connection with the issuance of inflation-adjusted funding agreements, the Company has entered into swaps to essentially convert the floating CPI-linked interest rate on these agreements to a fixed rate. The Company pays a fixed rate on the swap and receives a floating rate primarily determined by the period’s change in the CPI. The amounts that are received on the swaps are almost equal to the amounts that are paid on the agreements.

· The Company has entered into an interest rate swap to convert LIBOR-based floating rate interest payments on a certain funding agreement to fixed rate interest payments. This structure is basically the same as that described regarding the CPI-based agreements and swaps.  As of December 31, 2012, the Company no longer held these positions.

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments

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

Derivatives related to variable annuity contracts

· The Company uses equity, interest rate, currency and volatility futures to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. In general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility. The equity futures resulted in net pre-tax losses of $50.8 million and $30.1 million and interest rate futures resulted in pre-tax gains of $21.1 million and $164.2 million for the year ended December 31, 2012 and 2011, respectively. Currency futures resulted in net pre-tax losses of $2.8 million and net pre-tax gains of $3.0 million for the year ended December 31, 2012 and  2011, respectively.  Volatility futures resulted in pre-tax losses of $0.1 million for the year ended December 31, 2012.  Such positions were not held during the year ended December 31, 2011.

· The Company uses equity options and volatility swaps to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within our variable annuity products. In general, the cost of such benefits varies with the level of equity markets and overall volatility. The equity options resulted in net pre-tax losses of $37.4 million and $15.1 million and the volatility swaps resulted in net pre-tax losses of $11.8 million and $0.2 million for the year ended December 31, 2012 and 2011, respectively.

· The Company uses interest rate swaps and interest rate swaptions to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within its variable annuity products. The interest rate swaps resulted in net pre-tax gains of $3.3 million and $7.7 million for the year ended December 31, 2012 and 2011, respectively. The interest rate swaptions resulted in net pre-tax losses of $2.3 million for the year ended December 31, 2012. Such positions were not held during the year ended December 31, 2011.

· The Company entered into credit default swaps to partially mitigate the Company’s non-performance risk related to certain guaranteed minimum withdrawal benefits within our variable annuity products. The Company reported net pre-tax losses of $7.9 million for the year ended December 31, 2011. Net settlements received were $2.5 million, offset by termination losses of $10.4 million. As of December 31, 2011, the Company did not hold any remaining credit default swaps.  Such positions were not held during the year ended December 31, 2012.

· 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 $22.1 million and $127.5 million for the year ended December 31, 2012 and 2011, respectively, related to these embedded derivatives.

Other Derivatives

· The Company uses certain interest rate swaps to mitigate the price volatility of fixed maturities. The Company recognized pre-tax losses of $0.1 million and $11.3 million on interest rate swaps for the year ended December 31, 2012 and 2011, respectively.

· The Company purchased interest rate caps during 2011 to mitigate risk associated with the Company’s LIBOR exposure and the potential impact of European financial market distress. These caps resulted in net pre-tax losses of $2.7 million and $2.8 million for the year ended December 31, 2012 and 2011, respectively.

· The Company has an interest support agreement, a yearly renewable term (“YRT”) premium support arrangement, and two portfolio maintenance agreements with PLC. The Company recognized pre-tax gains of $9.6 million and pre-tax losses of $0.3 million for the years ended December 31, 2012 and 2011, respectively, related to the interest support agreement. The Company recognized a pre-tax gain of $0.6 million for the year ended December 31, 2012 related to the YRT premium support arrangement.  There were no gains or losses for the year ended December 31, 2011 related to the YRT premium support arrangement.  The Company entered into two separate portfolio maintenance agreements in October 2012.  The Company recognized pre-tax gains of $0.5 million for the year ended December 31, 2012 related to its portfolio maintenance agreements.

· The Company uses various swaps and other types of derivatives to manage risk related to other exposures. The Company recognized pre-tax losses of $0.1 million and $0.5 million for the year ended December 31, 2012 and 2011, respectively.

· The Company is involved in various modified coinsurance and funds withheld arrangements which contain embedded derivatives. Changes in their fair value are recorded in current period earnings. The investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had fair value changes which substantially offset the gains or losses on these embedded derivatives. The Company recognized pre-tax losses of $132.8 million and $134.3 million for the year ended December 31, 2012 and 2011, respectively.

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 financial statements for the periods presented below:

	As of December 31,
	2012				2011
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	—	$	—	$	7,068	$	1
Derivatives not designated as hedging instruments:
Interest rate swaps	355,000		6,532		125,000		5,118
Volatility swaps	500		406		—		—
Derivatives with PLC(1)	1,404,750		17,064		796,713		6,400
Embedded derivative - Modco reinsurance treaties	30,244		1,330		30,001		2,038
Embedded derivative - GMWB	1,640,075		30,261		826,790		10,665
Interest rate futures	—		—		615,445		6,393
Equity futures	147,581		595		49,631		837
Currency futures	15,944		784		57,912		976
Interest rate caps	3,000,000		—		3,000,000		2,666
Equity options	573,493		61,833		440,000		19,396
Interest rate swaptions	400,000		11,370		—		—
Other	224		253		224		155
	$	7,567,811	$	130,428	$	5,948,784	$	54,645
Other liabilities
Cash flow hedges:
Inflation	$	182,965	$	5,027	$	244,399	$	8,863
Interest rate	—		—		75,000		3,443
Derivatives not designated as hedging instruments:
Interest rate swaps	400,000		10,025		25,000		3,064
Volatility swaps	2,675		12,198		—		—
Embedded derivative - Modco reinsurance treaties	2,655,134		411,907		2,761,686		279,799
Embedded derivative - GMWB	5,253,961		199,530		3,741,688		157,813
Interest rate futures	893,476		13,970		270,019		1,148
Equity futures	152,364		3,316		189,765		1,454
Currency futures	131,979		1,901		14,348		126
	$	9,672,554	$	657,874	$	7,321,905	$	455,710

(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

Gain (Loss) on Derivatives in Cash Flow Relationship

	For The Year Ended December 31, 2012									For The Year Ended December 31, 2011
	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 (loss) (effective portion):
Interest rate	$	—		$	—		$	(77	)	$	—		$	—		$	(272	)
Inflation	—			—			3,067			—			—			2,468
Gain (loss) reclassified from accumulated other comprehensive income (loss) into income (effective portion):
Interest rate	$	—		$	(2,261	)	$	—		$	—		$	(3,581	)	$	—
Inflation	—			(938		)	—			—			(276		)	—
Gain (loss) recognized in income (ineffective portion):
Inflation	$	(177	)	$	—		$	—		$	(359	)	$	—		$	—

Based on the expected cash flows of the underlying hedged items, the Company expects to reclassify $1.7 million out of accumulated other comprehensive income (loss) into earnings during the next twelve months.

Realized investment gains (losses) - derivative financial instruments

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	21,138		$	164,221		$	(11,778	)
Equity futures - VA	(50,797		)	(30,061		)	(42,258		)
Currency futures - VA	(2,763		)	2,977			—
Volatility futures - VA	(132		)	—			—
Volatility swaps - VA	(11,792		)	(239		)	(2,433		)
Equity options - VA	(37,370		)	(15,051		)	(1,824		)
Interest rate swaptions - VA	(2,260		)	—			—
Interest rate swaps - VA	3,264			7,718			—
Credit default swaps - VA	—			(7,851		)	—
Embedded derivative - GMWB	(22,120		)	(127,537		)	(5,728		)
Total derivatives related to variable annuity contracts	(102,832		)	(5,823		)	(64,021		)
Embedded derivative - Modco reinsurance treaties	(132,816		)	(134,340		)	(67,989		)
Interest rate swaps	(87		)	(11,264		)	(8,427		)
Interest rate caps	(2,666		)	(2,801		)	—
Derivatives with PLC(1)	10,664			(300		)	(4,800		)
Other derivatives	(79		)	(477		)	799
Total realized gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)

(1)These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

From time to time, the Company is required to post and obligated to return collateral related to derivative transactions. As of December 31, 2012, the Company had posted cash and securities (at fair value) as collateral of approximately $34.8 million and $54.9 million, respectively. As of December 31, 2012, the Company received $11.6 million of cash as collateral. The Company does not net the collateral posted or received with the fair value of the derivative financial instruments for reporting purposes.

Realized investment gains (losses) - all other investments

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Modco trading portfolio(1)	$	177,986	$	164,224	$	109,399

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

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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

19. FAIR VALUE OF FINANCIAL INSTRUMENTS

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. The Company has 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.

In the first quarter of 2012, the Company adopted ASU No. 2011-04 — Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and IFRSs. The amendments in this Update resulted in modification of certain disclosures regarding fair value measurements, but did not result in a material change to the Company’s fair value methodology or measurements and had no impact to the Company’s financial position or results of operations.

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 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.

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, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,839,326	$	4	$	1,839,330
Commercial mortgage-backed securities	—		869,823		—		869,823
Other asset-backed securities	—		378,870		596,143		975,013
U.S. government-related securities	909,988		258,458		—		1,168,446
State, municipalities, and political subdivisions	—		1,439,378		4,275		1,443,653
Other government-related securities	—		80,767		20,011		100,778
Corporate bonds	207		20,197,528		167,892		20,365,627
Total fixed maturity securities - available-for-sale	910,195		25,064,150		788,325		26,762,670
Fixed maturity securities - trading
Residential mortgage-backed securities	—		357,803		—		357,803
Commercial mortgage-backed securities	—		171,073		—		171,073
Other asset-backed securities	—		87,395		70,535		157,930
U.S. government-related securities	304,704		1,169		—		305,873
State, municipalities, and political subdivisions	—		278,898		—		278,898
Other government-related securities	—		63,444		—		63,444
Corporate bonds	—		1,672,172		115		1,672,287
Total fixed maturity securities - trading	304,704		2,631,954		70,650		3,007,308
Total fixed maturity securities	1,214,899		27,696,104		858,975		29,769,978
Equity securities	273,072		35,116		65,527		373,715
Other long-term investments (1)	23,639		58,134		48,655		130,428
Short-term investments	214,295		2,492		—		216,787
Total investments	1,725,905		27,791,846		973,157		30,490,908
Cash	269,582		—		—		269,582
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	9,601,417		—		—		9,601,417
Variable universal life	562,817		—		—		562,817
Total assets measured at fair value on a recurring basis	$	12,159,721	$	27,791,846	$	973,157	$	40,924,724
Liabilities:
Annuity account balances(2)	$	—	$	—	$	129,468	$	129,468
Other liabilities (1)	19,187		27,250		611,437		657,874
Total liabilities measured at fair value on a recurring basis	$	19,187	$	27,250	$	740,905	$	787,342

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

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, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,337,037	$	7	$	2,337,044
Commercial mortgage-backed securities	—		550,527		—		550,527
Other asset-backed securities	—		298,216		614,813		913,029
U.S. government-related securities	664,506		536,173		15,000		1,215,679
State, municipalities, and political subdivisions	—		1,327,713		—		1,327,713
Other government-related securities	—		93,017		—		93,017
Corporate bonds	204		18,440,822		119,565		18,560,591
Total fixed maturity securities - available-for-sale	664,710		23,583,505		749,385		24,997,600
Fixed maturity securities - trading
Residential mortgage-backed securities	—		313,963		—		313,963
Commercial mortgage-backed securities	—		190,247		—		190,247
Other asset-backed securities	—		29,585		28,343		57,928
U.S. government-related securities	555,601		255		—		555,856
State, municipalities, and political subdivisions	—		229,032		—		229,032
Other government-related securities	—		44,845		—		44,845
Corporate bonds	—		1,568,094		—		1,568,094
Total fixed maturity securities - trading	555,601		2,376,021		28,343		2,959,965
Total fixed maturity securities	1,220,311		25,959,526		777,728		27,957,565
Equity securities	211,023		11,310		70,080		292,413
Other long-term investments (1)	27,757		7,785		19,103		54,645
Short-term investments	101,470		—		—		101,470
Total investments	1,560,561		25,978,621		866,911		28,406,093
Cash	169,775		—		—		169,775
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	6,741,959		—		—		6,741,959
Variable universal life	502,617		—		—		502,617
Total assets measured at fair value on a recurring basis	$	8,974,912	$	25,978,621	$	866,911	$	35,820,444
Liabilities:
Annuity account balances (2)	$	—	$	—	$	136,462	$	136,462
Other liabilities (1)	2,727		15,370		437,613		455,710
Total liabilities measured at fair value on a recurring basis	$	2,727	$	15,370	$	574,075	$	592,172

(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.

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 available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading 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 year ended December 31, 2012.

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 residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of December 31, 2012, the Company held $3.7 billion of ABS classified as Level 2. These securities are priced from information provided by 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 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 December 31, 2012, the Company held $666.7 million of Level 3 ABS, which included $70.5 million of other asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. As a result of the ARS market collapse during 2008, the Company prices its ARS using an income approach valuation model. 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, 7) credit ratings of the securities,8) liquidity premium, and 9) paydown rate.

Corporate bonds, U.S. Government-related securities, States, municipals, and political subdivisions, and Other government related securities

As of December 31, 2012, the Company classified approximately $24.0 billion of corporate bonds, U.S. government-related securities, states, municipals, and political subdivisions, 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 utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize 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 December 31, 2012, the Company classified approximately $192.3 million of bonds and securities as Level 3 valuations. 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 rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

Equities

As of December 31, 2012, the Company held approximately $100.6 million of equity securities classified as Level 2 and Level 3. Of this total, $64.6 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value. The remainder of these equity securities is primarily made up of holdings we have obtained through bankruptcy proceedings or debt restructurings.

Other long-term investments and Other liabilities

Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 20, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of December 31, 2012, 79.3% 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 rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.

Derivative instruments classified as Level 1 generally include futures, credit default swaps, and puts, which are traded on active exchange markets.

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

Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable 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 benefits (“GMWB”) embedded derivative is carried at fair value in “other long-term investments” and “other liabilities” on the Company’s consolidated balance sheet. The changes in fair value are recorded in earnings as “Realized investment gains (losses) — Derivative financial instruments”. Refer to Note 20, 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 multiple risk neutral stochastic 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 a blend of historical volatility and near-term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. The present value of the cash flows is determined using the discount rate curve, which is based upon 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.

The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in earnings. The fair value of the embedded derivative is the difference between the policy liabilities (net of policy loans) of $2.6 billion and the fair value of the trading securities of $3.1 billion. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.

Certain of the Company’s subsidiaries have entered into interest support, YRT premium support and portfolio maintenance agreements with PLC.  These agreements meet the definition of a derivative and are accounted for at fair value and are considered Level 3 valuations.  The fair value of these derivatives as of December 31, 2012 was $17.1 million and is included in “Other long-term investments”. For information regarding realized gains on these derivatives please refer to 20, Derivative Financial Instruments.

The Interest Support Agreement provides that PLC will make payments to Golden Gate II if actual investment income on certain of Golden Gate II’s asset portfolios falls below a calculated investment income amount as defined in the Interest Support Agreement. The calculated investment income amount is a level of investment income deemed to be sufficient to support certain of Golden Gate II’s obligations under a reinsurance agreement with the Company, dated July 1, 2007. The derivative is valued using an internal valuation model that assumes a conservative projection of investment income under an adverse interest rate scenario and the probability that the expectation falls below the calculated investment income amount. The fair value of this derivative as of December 31, 2012 was $15.0 million. The assessment of required payments from PLC under the Interest Support Agreement occurs annually. As of December 31, 2012, no payments have been triggered under this agreement.

The YRT Premium support agreement provides that PLC will make payments to Golden Gate II in the event that YRT premium rates increase. The derivative is valued using an internal valuation model. The valuation model is a probability weighted discounted cash flow model. The value is primarily a function of the likelihood and severity of future YRT premium increases. The fair value of this derivative as of December 31, 2012 was $1.6 million. As of December 31, 2012, no payments have been triggered under this agreement.

The portfolio maintenance agreements provide that PLC will make payments to Golden Gate V and West Coast Life in the event of other-than-temporary impairments on investments that exceed defined thresholds.  The derivatives are valued using an internal discounted cash flow model.  The significant unobservable inputs are the projected probability and severity of credit losses used to project future cash flows on the investment portfolios.  The fair value of the portfolio maintenance agreements as of December 31, 2012, was approximately $0.5 million.

Annuity account balances

The Company records its equity indexed annuities (“EIA”) at fair value. The fair value is considered a Level 3 valuation. The EIA valuation 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 using multiple risk neutral stochastic 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 at least annually as a part of the formal unlocking process. If an event were to occur within a quarter that would make the assumptions unreasonable, the assumptions would be reviewed within the quarter.

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 December 31, 2012, ranged from a one month rate of 0.30%, a 5 year rate of 1.96%, and a 30 year rate of 4.14%. A credit spread component is also included in the calculation to accommodate non-performance risk.

Separate Accounts

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

Valuation of Level 3 Financial Instruments

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:

	Fair Value
	As of		Valuation	Unobservable	Range
	December 31, 2012		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	596,143	Discounted cash flow	Liquidity premium Paydown rate	0.72% - 1.68% (1.29%) 8.51% - 18.10% (11.40%)
Other government-related securities	20,011		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	168,007		Discounted cash flow	Spread over treasury	0.92% - 7.75% (3.34%)
Liabilities:
Embedded derivatives - GMWB(1)	$	169,041	Actuarial cash flow model	Mortality Lapse	57% of 1994 GMDB table 0% - 24%, depending on product/duration/funded
					status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.09% - 1.34%
Annuity account balances(2)	129,468		Actuarial cash flow model	Asset earned rate Expenses	5.81% $88 - $108 per policy
				Withdrawal rate	2.20%
				Mortality	57% of 1994 GMDB table
				Lapse	2.2% - 45.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.09% - 1.34%

(1)The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.

(2)Represents liabilities related to equity indexed annuities.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and those which book value approximates fair value.

The valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company which resulted in $70.5 million of financial instruments, all asset backed securities, being classified as Level 3 as of December 31, 2012.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2012, the Company held $69.8 million of financial instruments where book value approximates fair value.  Of the $69.8 million, $65.5 million represents equity securities, which are predominantly FHLB stock, and $4.3 million of other fixed maturity securities.

The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’ fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities.

The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease, and increase when spreads decrease.

The GMWB liability is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the liability and conversely, if there is a decrease in the assumptions the liability would increase. The liability is also dependent on the assumed policyholder utilization of the GMWB where an increase in assumed utilization would result in an increase in the liability and conversely, if there is a decrease in the assumption, the liability would decrease.

The fair value of the EIA account balance liability is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the EIA account balance liability is sensitive to the asset earned rate and required return on assets. The value of the liability increases with an increase in required return on assets and decreases with an increase in the asset earned rate and conversely, the value of the liability decreases with a decrease in required return on assets and an increase in the asset earned rate.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2012, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	7	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	614,813		339		21,780		—			(22,587		)	—		(19,050		)	—		—		771		77			596,143		—
U.S. government-related securities	15,000		—		—		—			(2		)	—		(15,000		)	—		—		—		2			—		—
States, municipals, and political subdivisions	—		—		—		—			4,275			—		—			—		—		—		4,275			—
Other government-related securities	—		—		29		—			(27		)	20,024		—			—		—		—		(15		)	20,011		—
Corporate bonds	119,565		470		8,052		(4		)	(2,723		)	11,960		(9,854		)	—		—		40,060		366			167,892		—
Total fixed maturity securities - available-for-sale	749,385		809		29,861		(4		)	(25,339		)	36,259		(43,907		)	—		—		40,831		430			788,325		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		4,086		—		(2,306		)	—			48,255		(9,896		)	—		—		—		2,053			70,535		1,780
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		2		—		—			—			1		—			—		—		112		—			115		10
Total fixed maturity securities - trading	28,343		4,088		—		(2,306		)	—			48,256		(9,896		)	—		—		112		2,053			70,650		1,790
Total fixed maturity securities	777,728		4,897		29,861		(2,310		)	(25,339		)	84,515		(53,803		)	—		—		40,943		2,483			858,975		1,790
Equity securities	70,080		8		827		—			(1,097		)	4		(4,295		)	—		—		—		—			65,527		—
Other long-term investments(1)	19,103		—		—		29,552			—			—		—			—		—		—		—			48,655		29,552
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		4,905		30,688		27,242			(26,436		)	84,519		(58,098		)	—		—		40,943		2,483			973,157		31,342
Total assets measured at fair value on a recurring basis	$	866,911	$	4,905	$	30,688	$	27,242		$	(26,436	)	$	84,519	$	(58,098	)	$	—	$	—	$	40,943	$	2,483		$	973,157	$	31,342
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	12,293		$	—		$	—	$	—		$	860	$	20,147	$	—	$	—		$	129,468	$	—
Other liabilities(1	437,613		86,523		—		(260,347		)	—			—		—			—		—		—		—			611,437		(173,824		)
Total liabilities measured at fair value on a recurring basis	$	574,075	$	86,523	$	—	$	(248,054	)	$	—		$	—	$	—		$	860	$	20,147	$	—	$	—		$	740,905	$	(173,824	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

For the year ended December 31, 2012, $67.7 million of securities were transferred into Level 3. This amount was transferred from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of December 31, 2012.

For the year ended December 31, 2012, $26.8 million of securities were transferred out of Level 3. This amount was transferred to Level 2. These transfers resulted from securities that were previously valued using an internal model that utilized significant unobservable inputs but were valued internally or by independent pricing services or brokers, utilizing no significant unobservable inputs. All transfers are recognized as of the end of the reporting period.

For the year ended December 31, 2012, there were no transfers from Level 2 to Level 1.

For the year ended December 31, 2012, there were no transfers from Level 1 to Level 2.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2011, for which the Company has used significant unobservable inputs (Level 3):

																														Total
																														Gains (losses)
			Total				Total																							included in
			Realized and Unrealized				Realized and Unrealized																							Earnings
			Gains				Losses																							related to
					Included in					Included in																				Instruments
					Other					Other												Transfers								still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of						Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3			Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	20	$	—	$	12	$	(4	)	$	—		$	—	$	(12	)	$	—	$	—	$	(9	)	$	—		$	7	$	—
Commercial mortgage-backed securities	19,901		—		147		—			(719		)	—		(103		)	—		—		(19,224		)	(2		)	—		—
Other asset-backed securities	641,129		4,527		28,873		(8,661		)	(50,941		)	—		—			—		—		—			(114		)	614,813		—
U.S. government-related securities	15,109		—		—		—			(122		)	—		—			—		—		—			13			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	64,996		—		5,216		—			(1,689		)	40,000		(3,543		)	—		—		14,585			—			119,565		—
Total fixed maturity securities - available-for-sale	741,155		4,527		34,248		(8,665		)	(53,471		)	40,000		(3,658		)	—		—		(4,648		)	(103		)	749,385		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	59,925		1,213		—		(2,689		)	—			3,792		(40,292		)	—		—		4,002			2,392			28,343		(937		)
U.S. government-related securities	3,442		387		—		(476		)	—			—		(3,347		)	—		—		—			(6		)	—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	—		611		—		(1,453		)	—			—		(37,292		)	—		—		38,039			95			—		—
Total fixed maturity securities - trading	63,367		2,211		—		(4,618		)	—			3,792		(80,931		)	—		—		42,041			2,481			28,343		(937		)
Total fixed maturity securities	804,522		6,738		34,248		(13,283		)	(53,471		)	43,792		(84,589		)	—		—		37,393			2,378			777,728		(937		)
Equity securities	66,592		49		555		—			(1,050		)	3,962		(49		)	—		—		21			—			70,080		—
Other long-term investments(1)	31,765		—		—		(12,662		)	—			—		—			—		—		—			—			19,103		(12,662		)
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	902,879		6,787		34,803		(25,945		)	(54,521		)	47,754		(84,638		)	—		—		37,414			2,378			866,911		(13,599		)
Total assets measured at fair value on a recurring basis	$	902,879	$	6,787	$	34,803	$	(25,945	)	$	(54,521	)	$	47,754	$	(84,638	)	$	—	$	—	$	37,414		$	2,378		$	866,911	$	(13,599	)
Liabilities:
Annuity account balances(2)	$	143,264	$	—	$	—	$	(5,850	)	$	—		$	—	$	—		$	654	$	13,306	$	—		$	—		$	136,462	$	—
Other liabilities(1)	190,529		—		—		(249,757		)	—			—		(2,673		)	—		—		—			—			437,613		(249,757		)
Total liabilities measured at fair value on a recurring basis	$	333,793	$	—	$	—	$	(255,607	)	$	—		$	—	$	(2,673	)	$	654	$	13,306	$	—		$	—		$	574,075	$	(249,757	)

(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 statements of income (loss) 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.

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 December 31,
		2012				2011
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,948,625	$	5,723,579	$	5,351,902	$	6,251,902
Policy loans	3	865,391		865,391		879,819		879,819
Fixed maturities, held-to-maturity(1)	3	300,000		319,163		—		—
Liabilities:
Stable value product account balances	3	$	2,510,559	$	2,534,094	$	2,769,510	$	2,855,614
Annuity account balances	3	10,658,463		10,525,702		10,946,848		10,767,892
Mortgage loan backed certificates	3	—		—		19,755		19,893
Debt:
Non-recourse funding obligations(2)	3	$	1,446,900	$	1,357,290	$	1,248,600	$	1,060,275

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

(1) Security purchased from unconsolidated subsidiary, Red Mountain LLC.

(2) Of this carrying amount $300 million, fair value of $297.6 million, relates to non-recourse funding obligations issued by Golden Gate V.

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 credit 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 policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. 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.

Fixed maturities, held-to-maturity

The Company estimates the fair value of its fixed maturity, held-to-maturity using internal discounted cash flow models.  The discount rates used in the model were based on a current market yield for similar financial instruments.

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

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.

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STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Statutory net income	$ 376,300,000	$ 259,200,000	$ 303,600,000
Statutory capital and surplus	3,000,000,000	2,600,000,000
Shareowners' equity, excluding net unrealized gains on investments	633,000,000
Period for which dividend can be paid after written notice to the insurance commissioner	30 days
Dividends receivable from subsidiaries	95,000,000
Total adjusted capital	3,300,000,000
Action level RBC	644,000,000
RBC ratio (as a percent)	510.00%
Market value of fixed maturity and short-term investments of the company's subsidiaries deposited with regulatory authorities	$ 48,700,000

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BASIS OF PRESENTATION (Details) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2012 Reclassifications
Out of Period Adjustment
Portion of prior period adjustment to correct valuation of interest support agreement related to the period	$ 1,900,000
Basis of Presentation
Impact of reclassifications on previously reported net income		0
Impact of reclassifications on previously reported shareowner equity		$ 0

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REINSURANCE (Tables)

12 Months Ended

Dec. 31, 2012

REINSURANCE

Schedule of net life insurance in-force

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Millions)
Direct life insurance in-force	$	706,416		$	728,670		$	753,519
Amounts assumed from other companies	30,470			32,813			18,799
Amounts ceded to other companies	(444,951		)	(469,530		)	(495,056		)
Net life insurance in-force	$	291,935		$	291,953		$	277,262
Percentage of amount assumed to net	10		%	11		%	7		%

Schedule of effect of reinsurance on life insurance premiums written and earned

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Millions)
Direct premiums	$	2,227		$	2,245		$	2,153
Reinsurance assumed	282			248			167
Reinsurance ceded	(1,229		)	(1,278		)	(1,284		)
Net premiums(1)	$	1,280		$	1,215		$	1,036
Percentage of amount assumed to net	22		%	20		%	16		%

(1)Includes annuity policy fees of $103.8 million, $74.9 million, and $43.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Schedule of receivables attributable to more significant reinsurance partners

	As of December 31,
	2012			2011
	Reinsurance		A.M. Best	Reinsurance		A.M. Best
	Receivable		Rating	Receivable		Rating
	(Dollars In Millions)
Security Life of Denver Insurance Co.	$	649.1	A	$	626.4	A
Swiss Re Life & Health America, Inc.	625.9		A+	624.4		A+
Lincoln National Life Insurance Co.	472.3		A+	479.4		A+
Transamerica Life Insurance Co.	425.5		A+	392.9		A+
American United Life Insurance Co.	321.3		A+	325.1		A+
Employers Reassurance Corp.	257.7		A-	290.2		A-
The Canada Life Assurance Company	219.8		A+	219.1		A+
RGA Reinsurance Co.	215.4		A+	228.2		A+
Scottish Re (U.S.), Inc.	180.5		NR(1)	179.9		NR(1)
XL Life Ltd.	179.6		A-	183.0		A-

(1)Scottish Re (U.S.), Inc. is not rated as of December 31, 2012 and 2011.

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OPERATING SEGMENTS

12 Months Ended

Dec. 31, 2012

OPERATING SEGMENTS

OPERATING SEGMENTS

21. 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 UL, variable universal life, bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) 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. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically “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 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 fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans.  Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

· The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles, watercraft, and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

· The Corporate and Other segment primarily consists of net investment income not attributable to the segments above (including the impact of carrying liquidity), expenses not attributable to the segments above, and a trading portfolio that was previously part of a variable interest entity. This segment includes earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations.

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 (excluding periodic settlements of derivatives associated with debt and certain investments) net of the related amortization of DAC and VOBA. Operating earnings exclude changes in the GMWB embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

In the first quarter of 2012, management revised the definition of operating income (loss) as it relates to certain features of our variable annuity contracts and related hedging activities, to better reflect the basis on which the performance of its business is internally assessed. Under the revised definition, the following items have been excluded from operating income for the historical periods presented within the document:

· Changes in GMWB embedded derivatives related to this rider feature of certain variable annuity products (excluding the portion attributed to economic costs). Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.). These features are considered embedded derivatives under ASC 815.

· Changes in value of certain derivative instruments used to mitigate the risk related to variable annuity contracts.

· That portion of the change in balance sheet components amortized over estimated gross profit that is attributed to the embedded GMWB derivative and related economic hedges (e.g. DAC amortization).

Prior periods have been revised to conform to the current period presentation for these changes.

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 net of associated statutory policy assets, 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 within the Asset Protection Division.

During the first quarter of 2011, the Company recorded $8.5 million of pre-tax earnings in the Corporate and Other business segment relating to the settlement of a dispute with respect to certain investments.

There were no significant intersegment transactions during the year ended December 31, 2012, 2011, and 2010.

The following tables summarize financial information for the Company’s segments:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Revenues
Life Marketing	$	1,233,654		$	1,193,927		$	1,127,924
Acquisitions	1,064,295			982,821			761,344
Annuities	610,489			633,185			500,697
Stable Value Products	123,274			170,455			168,127
Asset Protection	294,146			282,587			269,597
Corporate and Other	130,202			145,610			109,295
Total revenues	$	3,456,060		$	3,408,585		$	2,936,984
Segment Operating Income (Loss)
Life Marketing	$	102,114		$	96,110		$	123,495
Acquisitions	171,060			157,393			111,143
Annuities	117,778			79,373			48,109
Stable Value Products	60,329			56,780			39,207
Asset Protection	9,765			16,892			24,267
Corporate and Other	1,119			6,985			(13,458		)
Total segment operating income	462,165			413,533			332,763
Realized investment (losses) gains - investments(1)(3)	188,729			194,866			134,559
Realized investment (losses) gains - derivatives(2)	(191,315		)	(133,124		)	(134,146		)
Income tax expense	(151,043		)	(151,519		)	(109,865		)
Net Income	$	308,536		$	323,756		$	223,311
(1) Realized investment (losses) gains - investments	$	174,692		$	200,432		$	117,056
Less: related amortization of DAC/VOBA	(14,037		)	5,566			(17,503		)
	$	188,729		$	194,866		$	134,559
(2) Realized investment gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)
Less: settlements on certain interest rate swaps	—			—			168
Less: derivative activity related to certain annuities	(36,501		)	(21,881		)	(10,460		)
	$	(191,315	)	$	(133,124	)	$	(134,146	)
Net investment income
Life Marketing	$	486,374		$	446,014		$	387,953
Acquisitions	550,334			529,261			458,703
Annuities	504,342			507,229			482,264
Stable Value Products	128,239			145,150			171,327
Asset Protection	19,698			21,650			23,959
Corporate and Other	100,351			104,140			100,639
Total net investment income	$	1,789,338		$	1,753,444		$	1,624,845
Amortization of DAC and VOBA
Life Marketing	$	45,079		$	87,461		$	47,809
Acquisitions	77,251			75,041			64,410
Annuities	45,319			57,201			76
Stable Value Products	947			4,556			5,430
Asset Protection	22,569			22,607			25,077
Corporate and Other	1,018			2,654			1,694
Total amortization of DAC and VOBA	$	192,183		$	249,520		$	144,496

(3) Includes credit related other-than-temporary impairments of $58.1 million, $47.3 million, and $41.4 million for the year ended December 31, 2012, 2011, and 2010, respectively.

	Operating Segment Assets
	As of December 31, 2012
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,171,384	$	11,312,550	$	17,649,488	$	2,509,160
Deferred policy acquisition costs and value of business acquired	2,001,708		679,746		491,184		1,399
Goodwill	—		35,615		—		—
Total assets	$	14,173,092	$	12,027,911	$	18,140,672	$	2,510,559

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	740,153	$	9,446,057	$	19,662	$	53,848,454
Deferred policy acquisition costs and value of business acquired	50,253		1,066		—		3,225,356
Goodwill	48,158		—		—		83,773
Total assets	$	838,564	$	9,447,123	$	19,662	$	57,157,583

	Operating Segment Assets
	As of December 31, 2011
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	10,885,785	$	11,471,856	$	14,945,002	$	2,767,163
Deferred policy acquisition costs and value of business acquired	1,912,916		824,277		435,462		2,347
Goodwill	—		38,713		—		—
Total assets	$	12,798,701	$	12,334,846	$	15,380,464	$	2,769,510

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	707,181	$	7,894,614	$	21,491	$	48,693,092
Deferred policy acquisition costs and value of business acquired	46,606		1,612		—		3,223,220
Goodwill	48,158		—		—		86,871
Total assets	$	801,945	$	7,896,226	$	21,491	$	52,003,183

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CONSOLIDATED QUARTERLY RESULTS - UNAUDITED

12 Months Ended

Dec. 31, 2012

CONSOLIDATED QUARTERLY RESULTS - UNAUDITED

CONSOLIDATED QUARTERLY RESULTS - UNAUDITED

22. CONSOLIDATED QUARTERLY RESULTS — UNAUDITED

The Company’s unaudited consolidated quarterly operating data for the year ended December 31, 2012 and 2011 is presented below. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair statement of quarterly results have been reflected in the following data. It is also management’s opinion, however, that quarterly operating data for insurance enterprises are not necessarily indicative of results that may be expected in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in shareowner’s equity, and cash flows for a period of several quarters.

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(Dollars In Thousands, Except Per Share Amounts)
2012
Premiums and policy fees	$	692,398		$	707,720		$	681,324		$	717,948
Reinsurance ceded	(296,295		)	(336,119		)	(311,862		)	(365,821		)
Net of reinsurance ceded	396,103			371,601			369,462			352,127
Net investment income	443,532			438,648			446,374			460,784
Realized investment gains (losses)	(13,022		)	6,669			(2,686		)	(44,085		)
Other income	75,142			50,121			51,046			54,244
Total revenues	901,755			867,039			864,196			823,070
Total benefits and expenses	760,687			749,974			757,507			728,313
Income before income tax	141,068			117,065			106,689			94,757
Income tax expense	45,212			35,438			35,778			34,615
Net income	$	95,856		$	81,627		$	70,911		$	60,142
2011
Premiums and policy fees	$	662,256		$	712,472		$	693,161		$	716,245
Reinsurance ceded	(324,417		)	(356,603		)	(319,732		)	(363,162		)
Net of reinsurance ceded	337,839			355,869			373,429			353,083
Net investment income	427,311			434,425			445,928			445,780
Realized investment gains (losses)	(7,986		)	19,974			31,880			1,559
Other income	43,863			56,107			47,262			42,262
Total revenues	801,027			866,375			898,499			842,684
Total benefits and expenses	705,685			726,214			775,941			725,470
Income before income tax	95,342			140,161			122,558			117,214
Income tax expense	33,223			48,557			39,579			30,160
Net income	$	62,119		$	91,604		$	82,979		$	87,054

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CONSOLIDATED STATEMENTS OF SHAREOWNER'S EQUITY (USD $) In Thousands, unless otherwise specified		Total		Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss)	Comprehensive Income (Loss)
Balance at Dec. 31, 2008
Increase (decrease) in shareowner's equity
Cumulative effect adjustments		$ (455,602)	[1]				$ (455,278)	[1]	$ (324)
Balance at Dec. 31, 2009 (Balance, before cumulative effect adjustments)		3,677,790	[1]	2	5,000	1,361,734	2,579,504	[1]	(268,450)
Balance at Dec. 31, 2009		3,222,188	[1]	2	5,000	1,361,734	2,124,226	[1]	(268,774)
Increase (decrease) in shareowner's equity
Net income for the period	[1]	223,311					223,311			223,311
Net income for the period at Jan. 01, 2010 (Balance, before cumulative effect adjustments)		258,238
Other comprehensive income		626,614	[1]						626,614	626,614	[1]
Total comprehensive income	[1]	849,925								849,925
Balance at Dec. 31, 2010		4,072,113	[1]	2	5,000	1,361,734	2,347,537	[1]	357,840
Increase (decrease) in shareowner's equity
Net income for the period	[1]	323,756					323,756			323,756
Net income for the period at Jan. 01, 2011 (Balance, before cumulative effect adjustments)		347,434
Other comprehensive income		696,481	[1]						696,481	696,481	[1]
Total comprehensive income	[1]	1,020,237								1,020,237
Dividends paid to the parent company	[1]	(215,000)					(215,000)
Balance at Dec. 31, 2011		4,877,350	[1]	2	5,000	1,361,734	2,456,293	[1]	1,054,321
Increase (decrease) in shareowner's equity
Net income for the period	[1]	308,536					308,536			308,536
Other comprehensive income		756,803	[1]						756,803	756,803	[1]
Total comprehensive income	[1]	1,065,339								1,065,339
Capital contributions		1,524	[1]			1,524
Dividends paid to the parent company	[1]	(257,000)					(257,000)
Balance at Dec. 31, 2012		$ 5,687,213	[1]	$ 2	$ 5,000	$ 1,363,258	$ 2,507,829	[1]	$ 1,811,124

[1] Recast from previously reported information

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2012

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

23.          SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to December 31, 2012, and through the date we filed our consolidated financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated financial statements.

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STOCK-BASED COMPENSATION (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Performance awards
Stock-based compensation
Performance shares award issued	306,100	191,000
Restricted stock units
Stock-based compensation
Exercisable period of grants from grant date		3 years
PLC
Stock-based compensation
Number of shares that may be issued under plans approved by shareowners	9,500,000
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	3,021,189
Weighted-average exercise price of outstanding options, warrants and rights (in dollars per share)	$ 22.15
Number of securities remaining available for future issuance under equity compensation plans, excluding securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	4,530,673
PLC | Equity compensation plans approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	2,702,768
Weighted-average exercise price of outstanding options, warrants and rights (in dollars per share)	$ 22.15
Number of securities remaining available for future issuance under equity compensation plans, excluding securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	4,530,673
PLC | Equity compensation plans not approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	318,421
PLC | Performance awards
Stock-based compensation
Period over which ROE is calculated	3 years	3 years
Minimum percentage of Company's ROE to earn awards under 2012 performance awards	10.00%	9.00%
Minimum percentage of Company's ROE to earn maximum awards under 2012 performance awards	11.20%	10.00%
Number of awards earned if Company's ROE is below specified percentage (in shares)	0	0
Performance shares award issued	306,100	191,100
Estimated fair value of performance shares issued	$ 8,608	$ 5,433
PLC | Performance awards | Equity compensation plans approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	602,160
PLC | SARs
Stock-based compensation
Performance shares award issued	0	0
Estimated fair value of performance shares issued			3,300
Expiration period from date of grant	10 years
Exercisable period of grants from grant date	5 years
Beginning of annual installments from date of grant	1 year
Weighted-Average Base Price per share
Balance at the beginning of the period (in dollars per share)	$ 22.27	$ 21.97	$ 22.28
SARs granted (in dollars per share)			$ 18.34
SARs exercised/forfeited/expired (in dollars per share)	$ 22.60	$ 8.31	$ 20.98
Balance at the end of the period (in dollars per share)	$ 22.15	$ 22.27	$ 21.97
No. of SARs
Balance at the beginning of the period (in shares)	2,274,229	2,324,837	2,469,202
SARs granted (in shares)			344,400
SARs exercised/forfeited/expired (in shares)	(633,062)	(50,608)	(488,765)
Balance at the end of the period (in shares)	1,641,167	2,274,229	2,324,837
PLC | SARs | Minimum
Stock-based compensation
Number of annual installments to exercise stock appreciation rights	3
PLC | SARs | Maximum
Stock-based compensation
Number of annual installments to exercise stock appreciation rights	4
PLC | SARs | Equity compensation plans approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	1,066,759
Number of shares of common stock assumed to be payable with respect to each outstanding award	1
PLC | Restricted stock units
Stock-based compensation
Performance shares award issued	190,800	175,500
Estimated fair value of performance shares issued	$ 5,400	$ 5,000
PLC | Restricted stock units | Equity compensation plans approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	646,632
PLC | Deferred Compensation Plan for Officers | Equity compensation plans approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	319,555
PLC | Deferred Compensation Plan for Officers | Equity compensation plans not approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	102,318
PLC | Deferred Compensation Plan for Directors Who Are Not Employees of the Company | Equity compensation plans approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	67,662
PLC | Deferred Compensation Plan for Directors Who Are Not Employees of the Company | Equity compensation plans not approved by shareowners
Additional equity compensation plan information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (in shares)	216,103

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SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS (Details) (Allowance for losses on commercial mortgage loans, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Allowance for losses on commercial mortgage loans
Changes in valuation and qualifying accounts
Balance beginning of period	$ 4,975	$ 11,650	$ 1,725
Additions, Charged to costs and expenses	6,240	9,603	11,071
Deductions	(8,340)	(16,278)	(1,146)
Balance at end of period	$ 2,875	$ 4,975	$ 11,650

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MORTGAGE LOANS (Tables)

12 Months Ended

Dec. 31, 2012

MORTGAGE LOANS

Schedule of the breakdown of the commercial mortgage loan portfolio by property type

The following table includes a breakdown of the Company’s commercial mortgage loan portfolio by property type as of December 31, 2012:

	Percentage of
	Mortgage Loans
Type	on Real Estate
Retail	67.4	%
Office Buildings	13.7
Apartments	9.4
Warehouses	7.4
Other	2.1
	100.0	%

Schedule of mortgage loans by location of properties

	Percentage of
	Mortgage Loans
State	on Real Estate
Texas	11.6	%
Georgia	8.9
Alabama	7.6
Tennessee	7.3
Florida	7.0
Ohio	5.4
North Carolina	5.2
South Carolina	4.9
Utah	4.5
California	3.1
	65.5	%

Schedule of changes in the allowance for mortgage loan credit losses

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Beginning balance	$	4,975		$		11,650
Charge offs	(8,340		)	(16,278			)
Recoveries	(628		)	(2,471			)
Provision	6,868			12,074
Ending balance	$	2,875		$	4,975

Schedule of an analysis of the delinquent loans

An analysis of the delinquent loans is shown in the following chart as of December 31, 2012.

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	12,149	$	2,270	$	—	$	14,419
Number of delinquent commercial mortgage loans	7		1		—		8

Schedule of information regarding impaired loans

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)
2012
Commercial mortgage loans:
With no related allowance recorded	$	13,044	$	14,419	$	—	$	2,609	$	53	$	69
With an allowance recorded	13,927		13,927		2,875		3,482		154		154
2011
Commercial mortgage loans:
With no related allowance recorded	$	6,338	$	9,346	$	—	$	2,113	$	34	$	34
With an allowance recorded	14,021		14,021		4,975		7,010		117		181

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

Notional amounts and fair values of derivative financial instruments

	As of December 31,
	2012				2011
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	—	$	—	$	7,068	$	1
Derivatives not designated as hedging instruments:
Interest rate swaps	355,000		6,532		125,000		5,118
Volatility swaps	500		406		—		—
Derivatives with PLC(1)	1,404,750		17,064		796,713		6,400
Embedded derivative - Modco reinsurance treaties	30,244		1,330		30,001		2,038
Embedded derivative - GMWB	1,640,075		30,261		826,790		10,665
Interest rate futures	—		—		615,445		6,393
Equity futures	147,581		595		49,631		837
Currency futures	15,944		784		57,912		976
Interest rate caps	3,000,000		—		3,000,000		2,666
Equity options	573,493		61,833		440,000		19,396
Interest rate swaptions	400,000		11,370		—		—
Other	224		253		224		155
	$	7,567,811	$	130,428	$	5,948,784	$	54,645
Other liabilities
Cash flow hedges:
Inflation	$	182,965	$	5,027	$	244,399	$	8,863
Interest rate	—		—		75,000		3,443
Derivatives not designated as hedging instruments:
Interest rate swaps	400,000		10,025		25,000		3,064
Volatility swaps	2,675		12,198		—		—
Embedded derivative - Modco reinsurance treaties	2,655,134		411,907		2,761,686		279,799
Embedded derivative - GMWB	5,253,961		199,530		3,741,688		157,813
Interest rate futures	893,476		13,970		270,019		1,148
Equity futures	152,364		3,316		189,765		1,454
Currency futures	131,979		1,901		14,348		126
	$	9,672,554	$	657,874	$	7,321,905	$	455,710

(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

Schedule of gain (loss) on derivatives in cash flow hedging relationship

	For The Year Ended December 31, 2012									For The Year Ended December 31, 2011
	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 (loss) (effective portion):
Interest rate	$	—		$	—		$	(77	)	$	—		$	—		$	(272	)
Inflation	—			—			3,067			—			—			2,468
Gain (loss) reclassified from accumulated other comprehensive income (loss) into income (effective portion):
Interest rate	$	—		$	(2,261	)	$	—		$	—		$	(3,581	)	$	—
Inflation	—			(938		)	—			—			(276		)	—
Gain (loss) recognized in income (ineffective portion):
Inflation	$	(177	)	$	—		$	—		$	(359	)	$	—		$	—

Schedule of realized investment gains (losses) - derivative financial instruments

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	21,138		$	164,221		$	(11,778	)
Equity futures - VA	(50,797		)	(30,061		)	(42,258		)
Currency futures - VA	(2,763		)	2,977			—
Volatility futures - VA	(132		)	—			—
Volatility swaps - VA	(11,792		)	(239		)	(2,433		)
Equity options - VA	(37,370		)	(15,051		)	(1,824		)
Interest rate swaptions - VA	(2,260		)	—			—
Interest rate swaps - VA	3,264			7,718			—
Credit default swaps - VA	—			(7,851		)	—
Embedded derivative - GMWB	(22,120		)	(127,537		)	(5,728		)
Total derivatives related to variable annuity contracts	(102,832		)	(5,823		)	(64,021		)
Embedded derivative - Modco reinsurance treaties	(132,816		)	(134,340		)	(67,989		)
Interest rate swaps	(87		)	(11,264		)	(8,427		)
Interest rate caps	(2,666		)	(2,801		)	—
Derivatives with PLC(1)	10,664			(300		)	(4,800		)
Other derivatives	(79		)	(477		)	799
Total realized gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)

(1)These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

Schedule of realized investment gains (losses) - all other investments

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Modco trading portfolio(1)	$	177,986	$	164,224	$	109,399

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

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DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED (Details) (ASU No. 2010-26, USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Retrospective adoption of ASU No. 2010-26
Cumulative effect of adjustment recorded to reflect new guidance	$ (469.9)
Retained earnings
Retrospective adoption of ASU No. 2010-26
Cumulative effect of adjustment recorded to reflect new guidance	(469.6)
Accumulated other comprehensive income (loss)
Retrospective adoption of ASU No. 2010-26
Cumulative effect of adjustment recorded to reflect new guidance	$ (0.3)

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Revenues
Premiums and policy fees	$ 2,799,390		$ 2,784,134	[1]	$ 2,609,357	[1]
Reinsurance ceded	(1,310,097)		(1,363,914)	[1]	(1,380,712)	[1]
Net of reinsurance ceded	1,489,293		1,420,220	[1]	1,228,645	[1]
Net investment income	1,789,338		1,753,444	[1]	1,624,845	[1]
Realized investment gains (losses):
Derivative financial instruments	(227,816)		(155,005)	[1]	(144,438)	[1]
All other investments	232,836		247,753	[1]	158,420	[1]
Other-than-temporary impairment losses	(67,130)		(62,210)	[1]	(74,970)	[1]
Portion recognized in other comprehensive income (before taxes)	8,986		14,889	[1]	33,606	[1]
Net impairment losses recognized in earnings	(58,144)		(47,321)	[1]	(41,364)	[1]
Other income	230,553		189,494	[1]	110,876	[1]
Total revenues	3,456,060		3,408,585	[1]	2,936,984	[1]
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (2012 - $1,228,897; 2011 - $1,231,405; 2010 - $1,283,054)	2,317,121		2,222,220	[1]	2,076,392	[1]
Amortization of deferred policy acquisition costs and value of business acquired	192,183		249,520	[1]	144,496	[1]
Other operating expenses, net of reinsurance ceded: (2012 - $200,442; 2011 - $203,868; 2010 - $205,299)	487,177		461,570	[1]	382,920	[1]
Total benefits and expenses	2,996,481		2,933,310	[1]	2,603,808	[1]
Income before income tax	459,579		475,275	[1]	333,176	[1]
Income tax (benefit) expense
Current	81,006		(4,576)	[1]	6,544	[1]
Deferred	70,037		156,095	[1]	103,321	[1]
Total income tax expense	151,043		151,519	[1]	109,865	[1]
Net income	$ 308,536	[1]	$ 323,756	[1]	$ 223,311	[1]

[1] Recast from previously reported information

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DEBT AND OTHER OBLIGATIONS (Tables)

12 Months Ended

Dec. 31, 2012

DEBT AND OTHER OBLIGATIONS

Non-recourse funding obligations outstanding

Non-recourse funding obligations outstanding as of December 31, 2012, on a consolidated basis, are shown in the following table:

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.86	%
Golden Gate II Captive Insurance Company	346,900		2052	1.22
Golden Gate V Vermont Captive Insurance Company	300,000		2037	6.25
Total	$	1,446,900

Non-recourse funding obligations outstanding as of December 31, 2011, on a consolidated basis, are shown in the following table:

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.88	%
Golden Gate II Captive Insurance Company	448,600		2052	1.37
Total	$	1,248,600

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INCOME TAXES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
Effective income tax rate related to continuing operations
Statutory federal income tax rate applied to pre-tax income (as a percent)	35.00%	35.00%		35.00%
State income taxes (as a percent)	0.40%	0.40%		0.50%
Investment income not subject to tax (as a percent)	(3.10%)	(2.00%)		(1.40%)
Uncertain tax positions (as a percent)	0.20%	(0.10%)		(0.90%)
Other (as a percent)	0.40%	(1.20%)		0.10%
Effective income tax rate (as a percent)	32.90%	32.10%		33.30%
Income tax expense per the income tax returns:
Federal	$ 78,510,000	$ (4,609,000)		$ 3,600,000
State	2,496,000	33,000		2,944,000
Total current	81,006,000	(4,576,000)	[1]	6,544,000	[1]
Deferred income tax expense:
Federal	66,375,000	153,412,000		104,608,000
State	3,662,000	2,683,000		(1,287,000)
Total deferred	70,037,000	156,095,000	[1]	103,321,000	[1]
Deferred income tax assets:
Premium receivables and policy liabilities	51,276,000	35,267,000
Intercompany losses	45,079,000	42,685,000
Invested assets (other than unrealized gains)		68,530,000
Deferred compensation	3,750,000	3,059,000
State tax valuation allowance	(2,552,000)	(2,440,000)
Other	26,604,000	454,000
Deferred income tax assets	124,157,000	147,555,000
Deferred income tax liabilities:
Deferred policy acquisition costs and value of business acquired	911,858,000	873,979,000
Invested assets (other than realized gains)	20,936,000
Unrealized gain on investments	975,076,000	567,572,000
Deferred income tax liabilities	1,907,870,000	1,441,551,000
Net deferred income tax (liability) asset	(1,783,713,000)	(1,293,996,000)
State operating loss carryforwards, valuation allowance	2,600,000	2,400,000
Amount of valuation allowance established for deferred tax assets relating to impairments on fixed maturities, capital loss carryforwards, and unrealized losses on investments	$ 0	$ 0

[1] Recast from previously reported information

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SCHEDULE IV - REINSURANCE (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reinsurance
Gross Amount	$ 2,481,501,000	$ 2,507,787,000	$ 2,435,582,000
Ceded to Other Companies	1,310,098,000	1,363,913,000	1,380,712,000
Assumed from Other Companies	317,889,000	276,346,000	173,775,000
Net premiums	1,489,292,000	1,420,220,000	1,228,645,000
Life insurance in-force
Reinsurance
Gross Amount	706,415,969,000	728,670,260,000	753,518,782,000
Ceded to Other Companies	444,950,866,000	469,530,487,000	495,056,077,000
Assumed from Other Companies	30,470,432,000	32,812,882,000	18,799,243,000
Net premiums	291,935,535,000	291,952,655,000	277,261,948,000
Percentage of Amount Assumed to Net	10.40%	11.20%	6.80%
Life insurance
Reinsurance
Gross Amount	2,226,614,000	2,245,359,000	2,153,318,000
Ceded to Other Companies	1,228,444,000	1,278,273,000	1,284,504,000
Assumed from Other Companies	281,711,000	248,467,000	166,606,000
Net premiums	1,279,881,000	1,215,553,000	1,035,420,000
Percentage of Amount Assumed to Net	22.00%	20.40%	16.10%
Annuity policy fees	103,800,000	74,900,000	43,400,000
Accident/health insurance
Reinsurance
Gross Amount	38,873,000	43,161,000	49,520,000
Ceded to Other Companies	12,065,000	14,415,000	17,323,000
Assumed from Other Companies	29,413,000	21,719,000	63,000
Net premiums	56,221,000	50,465,000	32,260,000
Percentage of Amount Assumed to Net	52.30%	43.00%	0.20%
Property and liability insurance
Reinsurance
Gross Amount	216,014,000	219,267,000	232,744,000
Ceded to Other Companies	69,589,000	71,225,000	78,885,000
Assumed from Other Companies	6,765,000	6,160,000	7,106,000
Net premiums	$ 153,190,000	$ 154,202,000	$ 160,965,000
Percentage of Amount Assumed to Net	4.40%	4.00%	4.40%

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Assets
Fixed maturities, at fair value (amortized cost: 2012 - $26,661,310; 2011 - $26,109,131)	$ 29,769,978		$ 27,957,565	[1]
Fixed maturities, at amortized cost (fair value: 2012 - $319,163)	300,000
Equity securities, at fair value (cost: 2012 - $371,827; 2011 - $303,578)	373,715		292,413	[1]
Mortgage loans (2012 and 2011 includes: $765,520 and $858,139 related to securitizations)	4,948,625		5,351,902	[1]
Investment real estate, net of accumulated depreciation (2012 - $771; 2011 - $993)	6,517		10,991	[1]
Policy loans	865,391		879,819	[1]
Other long-term investments	378,821		264,031	[1]
Short-term investments	216,787		101,470	[1]
Total investments	36,859,834		34,858,191	[1]
Cash	269,582		169,775	[1]
Accrued investment income	350,804		347,857	[1]
Accounts and premiums receivable, net of allowance for uncollectible amounts (2012 - $4,191; 2011 - $3,864)	67,891		68,641	[1]
Reinsurance receivables	5,682,841		5,542,417	[1]
Deferred policy acquisition costs and value of business acquired	3,225,356		3,223,220	[1]
Goodwill	83,773		86,871	[1]
Property and equipment, net of accumulated depreciation (2012 - $103,625; 2011 - $132,579)	47,391		47,997	[1]
Other assets	343,925		351,327	[1]
Income tax receivable	61,952		62,311	[1]
Assets related to separate accounts
Variable annuity	9,601,417		6,741,959	[1]
Variable universal life	562,817		502,617	[1]
Total assets	57,157,583		52,003,183	[1]
Liabilities
Future policy benefits and claims	21,626,065		20,867,727	[1]
Unearned premiums	1,352,872		1,218,258	[1]
Total policy liabilities and accruals	22,978,937		22,085,985	[1]
Stable value product account balances	2,510,559		2,769,510	[1]
Annuity account balances	10,658,463		10,946,848	[1]
Other policyholders' funds	566,985		546,516	[1]
Other liabilities	1,210,579		970,047	[1]
Mortgage loan backed certificates			19,755	[1]
Deferred income taxes	1,783,713		1,293,996	[1]
Non-recourse funding obligations	1,446,900		1,248,600	[1]
Repurchase program borrowings	150,000
Liabilities related to separate accounts
Variable annuity	9,601,417		6,741,959	[1]
Variable universal life	562,817		502,617	[1]
Total liabilities	51,470,370		47,125,833	[1]
Commitments and contingencies - Note 11
Shareowner's equity
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,000	2		2	[1]
Common Stock, $1 par value, shares authorized and issued: 2012 and 2011 - 5,000,000	5,000		5,000	[1]
Additional paid-in-capital	1,363,258		1,361,734	[1]
Retained earnings	2,507,829		2,456,293	[1]
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2012 - $979,251; 2011 - $590,196)	1,818,608		1,096,079	[1]
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2012 - $(2,147); 2011 - $(18,374))	(3,988)		(34,124)	[1]
Accumulated loss - derivatives, net of income tax: (2012 - $(1,883); 2011 - $(4,111))	(3,496)		(7,634)	[1]
Total shareowner's equity	5,687,213	[1]	4,877,350	[1]
Total liabilities and shareowner's equity	$ 57,157,583		$ 52,003,183	[1]

[1] Recast from previously reported information

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EMPLOYEE BENEFIT PLANS (Details 9) (PLC, USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Other Postretirement Benefits
EMPLOYEE BENEFIT PLANS
Accumulated benefit obligation, end of year	$ 800,000	$ 900,000
Other Postretirement Benefits | Maximum
EMPLOYEE BENEFIT PLANS
Age of eligibility for limited healthcare benefits	65 years
Retiree medical plan | Minimum
EMPLOYEE BENEFIT PLANS
Age of eligibility for prescription drug benefit	65 years
Retiree medical plan | Maximum
EMPLOYEE BENEFIT PLANS
Liability related to prescription drug benefit provided to employees	100,000	100,000
Group life insurance plan | Minimum
EMPLOYEE BENEFIT PLANS
Life insurance benefits	10,000
Group life insurance plan | Maximum
EMPLOYEE BENEFIT PLANS
Life insurance benefits	75,000
Face amount of life insurance benefits funded	$ 50,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $)			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Minimum	Dec. 31, 2012 Maximum
Summarized financial information for the company's segments
Stable value product account balances marketed through structured programs	$ 300,000,000	$ 800,000,000
Maturities of GICs and funding agreements			1 year	10 years
Future maturities of stable value products
2013	432,600,000
2014-2015	1,231,900,000
2016-2017	785,700,000
Thereafter	$ 60,300,000

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RELATED PARTY TRANSACTIONS (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Affiliates
Related party transactions
Lease revenues	$ 4.7	$ 4.6	$ 3.4
Cost of services	154.7	143.0	135.9
Intercompany payables	10.3	26.8
Intercompany receivables	6.0	34.0
Golden Gate | PLC
Related party transactions
Outstanding surplus notes	800
PLC
Related party transactions
Guarantee of synthetic lease financing	75
Certain corporations with which the parent's directors were affiliated
Related party transactions
Premiums and policy fees or other amounts for insurance and investment products, interest on bonds and commissions on securities underwriting	59.1	51.0	13.1
Certain corporations with which the parent's directors were affiliated | PLC
Related party transactions
Commission, interest on debt and investment products and fees	13.0	4.6	7.2
Regions Bank Stable Principal Fund | PLC
Related party transactions
Deposits received	$ 5

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SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS

12 Months Ended

Dec. 31, 2012

SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE V — VALUATION AND QUALIFYING ACCOUNTS

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

			Additions
	Balance		Charged to		Charges					Balance
	at beginning		costs and		to other					at end of
Description	of period		expenses		accounts		Deductions			period
	(Dollars In Thousands)
2012
Allowance for losses on commercial mortgage loans	$	4,975	$	6,240	$	—	$	(8,340	)	$	2,875
2011
Allowance for losses on commercial mortgage loans	$	11,650	$	9,603	$	—	$	(16,278	)	$	4,975
2010
Allowance for losses on commercial mortgage loans	$	1,725	$	11,071	$	—	$	(1,146	)	$	11,650

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INVESTMENT OPERATIONS (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	$ 24,104,126,000	$ 23,451,332,000
Gross Unrealized Gains	3,251,213,000	2,284,621,000
Gross Unrealized Losses	(140,657,000)	(447,352,000)
Fair Value	27,214,682,000	25,288,601,000
Total OTTI Recognized in OCI	(6,135,000)	(52,498,000)
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Fair Value	319,163,000
Amortized Cost
Due in one year or less	452,876,000
Due after one year through five years	4,568,417,000
Due after five years through ten years	6,283,158,000
Due after ten years	12,349,551,000
Total	23,654,002,000
Fair Value
Due in one year or less	459,845,000
Due after one year through five years	4,996,310,000
Due after five years through ten years	6,967,782,000
Due after ten years	14,338,733,000
Total	26,762,670,000
Amortized Cost
Due after ten years	300,000,000
Total	300,000,000
Fair Value
Due after ten years	319,163,000
Total	319,163,000
Fixed maturities:
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	23,654,002,000	23,149,166,000
Gross Unrealized Gains	3,239,332,000	2,279,191,000
Gross Unrealized Losses	(130,664,000)	(430,757,000)
Fair Value	26,762,670,000	24,997,600,000
Total OTTI Recognized in OCI	(6,135,000)	(52,424,000)
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Amortized Cost	300,000,000
Gross Unrealized Gains	19,163,000
Fair Value	319,163,000
Trading securities	3,000,000,000	3,000,000,000
Residential mortgage-backed securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,766,260,000	2,340,172,000
Gross Unrealized Gains	92,417,000	82,574,000
Gross Unrealized Losses	(19,347,000)	(85,702,000)
Fair Value	1,839,330,000	2,337,044,000
Total OTTI Recognized in OCI	(406,000)	(47,652,000)
Commercial mortgage-backed securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	797,844,000	530,283,000
Gross Unrealized Gains	72,577,000	24,473,000
Gross Unrealized Losses	(598,000)	(4,229,000)
Fair Value	869,823,000	550,527,000
Other asset-backed securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,023,649,000	997,398,000
Gross Unrealized Gains	12,788,000	6,529,000
Gross Unrealized Losses	(61,424,000)	(90,898,000)
Fair Value	975,013,000	913,029,000
Total OTTI Recognized in OCI	(241,000)	(6,559,000)
U.S. government-related securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,097,501,000	1,150,525,000
Gross Unrealized Gains	71,536,000	65,212,000
Gross Unrealized Losses	(591,000)	(58,000)
Fair Value	1,168,446,000	1,215,679,000
Other government-related securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	93,565,000	88,058,000
Gross Unrealized Gains	7,258,000	4,959,000
Gross Unrealized Losses	(45,000)
Fair Value	100,778,000	93,017,000
States, municipals, and political subdivisions
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,188,019,000	1,154,307,000
Gross Unrealized Gains	255,898,000	173,406,000
Gross Unrealized Losses	(264,000)
Fair Value	1,443,653,000	1,327,713,000
Corporate bonds
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	17,687,164,000	16,888,423,000
Gross Unrealized Gains	2,726,858,000	1,922,038,000
Gross Unrealized Losses	(48,395,000)	(249,870,000)
Fair Value	20,365,627,000	18,560,591,000
Total OTTI Recognized in OCI	(5,488,000)	1,787,000
Other
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Amortized Cost	300,000,000
Gross Unrealized Gains	19,163,000
Fair Value	319,163,000
Equity securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	352,272,000	286,537,000
Gross Unrealized Gains	11,881,000	5,430,000
Gross Unrealized Losses	(9,993,000)	(16,595,000)
Fair Value	354,160,000	275,372,000
Total OTTI Recognized in OCI		(74,000)
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Trading securities	19,600,000	17,000,000
Short-term investments
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	97,852,000	15,629,000
Fair Value	97,852,000	15,629,000
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Trading securities	$ 118,900,000	$ 85,800,000

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STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2012

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

13. STOCK-BASED COMPENSATION

Since 1973, PLC has had stock-based incentive plans to motivate management to focus on its long-range performance through the awarding of stock-based compensation. Under plans approved by shareowners in 1997, 2003, 2008, and 2012, up to 9,500,000 PLC shares may be issued in payment of awards.

The criteria for payment of the 2012 performance awards is based on PLC’s average operating return on average equity (“ROE”) over a three-year period. If PLC’s ROE is below 10.0%, no award is earned. If PLC’s ROE is at or above 11.2%, the award maximum is earned. The criteria for payment of the 2011 performance awards is based on PLC’s ROE (excluding certain accounting and operating income definition changes) over a three-year period. If PLC’s ROE is below 9%, no award is earned. If PLC’s ROE is at or above 10.0%, the award maximum is earned. Awards are paid in shares of PLC’s common stock. Performance shares are equivalent in value to one share of our common stock times the award earned percentage payout. Performance share awards of 306,100 were issued during the year ended December 31, 2012 and 191,000 performance share awards were issued during the year ended December 31, 2011.

Performance share awards in 2012 and 2011 and the estimated fair value of the awards at grant date are as follows:

Year	Performance	Estimated
Awarded	Shares	Fair Value
		(Dollars In Thousands)
2012	306,100	$	8,608
2011	191,100	5,433
2010	—	—

Stock appreciation rights (“SARs”) of PLC have been granted to certain officers 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 at December 31, 2009	$	22.28	2,469,202
SARs granted	18.34		344,400
SARs exercised / forfeited	20.98		(488,765	)
Balance at December 31, 2010	$	21.97	2,324,837
SARs exercised / forfeited	8.31		(50,608	)
Balance at December 31, 2011	$	22.27	2,274,229
SARs exercised / forfeited / expired	22.60		(633,062	)
Balance at December 31, 2012	$	22.15	1,641,167

The following table provides information as of December 31, 2012, about equity compensation plans under which PLC’s common stock is authorized for issuance:

Securities Authorized for Issuance under Equity Compensation Plans

						Number of securities
						remaining available
						for future issuance
	Number of securities					under equity
	to be issued upon		Weighted-average			compensation plans
	exercise of		exercise price of			(excluding securities
	outstanding options,		outstanding options,			reflected in
	warrants and rights as		warrants and rights as			column (a)) as of
Plan category	of December 31, 2012 (a)		of December 31, 2012 (b)			of December 31, 2012 (c)
Equity compensation plans approved by shareowners	2,702,768	(1)	$	22.15	(3)	4,530,673	(4)
Equity compensation plans not approved by shareowners	318,421	(2)	Not applicable			Not applicable	(5)
Total	3,021,189		$	22.15		4,530,673

(1) Includes the following number of shares:  (a) 1,066,759 shares issuable with respect to outstanding SARs (assuming for this purpose that one share of PLC common stock will be payable with respect to each outstanding SAR); (b) 602,160 shares issuable with respect to outstanding performance share awards (assuming for this purpose that the awards are payable based on estimated performance under the awards as of September 30, 2012); (c) 646,632 shares issuable with respect to outstanding restricted stock units (assuming for this purpose that shares will be payable with respect to all outstanding restricted stock units); (d) 319,555 shares issuable with respect to stock equivalents representing previously earned awards under the LTIP that the recipient deferred under PLC’s Deferred Compensation Plan for Officers; and (e) 67,662 shares issuable with respect to stock equivalents representing previous awards under PLC’s Stock Plan for Non-Employee Directors that the recipient deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC.

(2) Includes the following number of PLC’s shares of common stock: (a) 216,103 shares issuable with respect to stock equivalents representing (i) stock awards to PLC’s Directors before June 1, 2004 that the recipient deferred pursuant to PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of the Company and (ii) cash retainers and fees that PLC’s Directors deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC, and (b) 102,318 shares issuable with respect to stock equivalents pursuant to PLC’s Deferred Compensation Plan for Officers.

(3) Based on exercise prices of outstanding SARs.

(4) Represents shares of PLC’s common stock available for future issuance under the LTIP and the Company’s Stock Plan for Non-Employee Directors.

(5) The plans listed in Note (2) do not currently have limits on the number of PLC’s shares of common stock issuable under such plans. The total number of PLC’s shares of common stock that may be issuable under such plans will depend upon, among other factors, the deferral elections made by the plans’ participants.

The outstanding SARs as of December 31, 2012, were at the following base prices:

		SARs	Remaining Life	Currently
Base Price		Outstanding	in Years	Exercisable
$	26.49	50,000	1	50,000
$	41.05	106,700	3	106,700
$	48.60	38,400	4	38,400
$	45.70	35,070	4	35,070
$	43.46	181,550	5	181,550
$	48.05	3,000	5	3,000
$	41.12	2,500	5	2,500
$	38.59	303,100	6	303,100
$	3.50	629,608	7	629,608
$	17.48	8,000	8	5,333
$	18.36	283,239	8	181,888

There were no SARs issued for the years ended December 31, 2012 and 2011. The SARs issued for the year ended December 31, 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.

Restricted stock units are awarded to participants and include certain restrictions relating to vesting periods. PLC issued 190,800 restricted stock units for the year ended December 31, 2012 and 175,500 restricted stock units for the year ended December 31, 2011. These awards had a total fair value at grant date of $5.4 million and $5.0 million, respectively. Approximately half of these restricted stock units vest after three years from grant date and the remainder vest after four years.

PLC recognizes all stock-based compensation expense over the related service period of the award, or earlier for retirement eligible employees. The expense recorded by PLC for its stock-based compensation plans was $10.3 million, $10.2 million, and $10.2 million in 2012, 2011, and 2010, respectively.  The Company recognized expense associated with PLC’s stock-based compensation plans for compensations awarded to its employees of $3.9 million, $2.7 million, and $3.0 million in 2012, 2011, and 2010, respectively. PLC’s obligations of its stock-based compensation plans that are expected to be settled in shares of PLC’s common stock are reported as a component of shareowners’ equity, net of deferred taxes.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs (“DAC”) and amortization periods, goodwill recoverability, value of business acquired (“VOBA”), investment fair values and other-than-temporary impairments, future policy benefits, pension and other postretirement benefits, provision for income taxes, reserves for contingent liabilities, reinsurance risk transfer assessments, and reserves for losses in connection with unresolved legal matters.

Valuation of investment securities

Valuation of investment securities

The Company determines the appropriate classification of investment securities at the time of purchase and periodically re-evaluates such designations. Investment securities are classified as either trading, available-for-sale, or held-to-maturity securities. Investment securities classified as trading are recorded at fair value with changes in fair value recorded in realized gains (losses). Investment securities purchased for long term investment purposes are classified as available for sale and are recorded at fair value with changes in unrealized gains and losses, net of taxes, reported as a component of other comprehensive income (loss). Investment securities are classified as held to maturity when the Company has the intent and ability to hold the securities to maturity and are reported at amortized cost. Interest income on available-for-sale and held-to-maturity securities includes the amortization of premiums and accretion of discounts and are recorded in investment income.

The fair value for fixed maturity, short term, and equity securities, is determined by management after considering and evaluating one of three primary sources of information: third party pricing services, 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, any remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flows and rates of prepayments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third party pricing services will normally derive the security prices through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as 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. Included in the pricing of other asset-backed securities, collateralized mortgage obligations (“CMOs”), and mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and rates of prepayments previously experienced at the interest rate levels projected for the underlying collateral. The basis for the cost of securities sold was determined at the Committee on Uniform Securities Identification Procedures (“CUSIP”) level. The committee supplies a unique nine-character identification, called a CUSIP number, for each class of security approved for trading in the U.S., to facilitate clearing and settlement. These numbers are used when any buy and sell orders are recorded.

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 (collectively referred to as asset-backed securities or “ABS”), the Company considers all known market data related to cash flows to estimate 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 year ended December 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $67.1 million. Of the $67.1 million of impairments for the year ended December 31, 2012, $58.1 million was recorded in earnings and $9.0 million was recorded in other comprehensive income (loss). For more information on impairments, refer to Note 4, Investment Operations.

Cash

Cash

Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. As a result of the Company’s cash management system, checks issued from a particular bank but not yet presented for payment may create negative book cash balances with the bank. Such negative balances are included in other liabilities and were $96.6 million and $0.9 million as of December 31, 2012 and 2011, respectively. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the creditworthiness of these financial institutions and believes there is minimal risk of a material loss.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs

In the first quarter of 2012, the Company adopted ASU No. 2010-26 — Financial Services — Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts.

The incremental direct costs associated with successfully acquired insurance policies, are deferred to the extent such costs are deemed recoverable from future profits. Such costs include commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products. Deferred acquisition costs (“DAC”) is subject to recoverability testing at the end of each accounting period. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization.

Based on the Accounting Standards Codification (“ASC” or “Codification”) Financial Services-Insurance Topic, the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates (equal to the rate used to compute liabilities for future policy benefits, currently 1.0% to 7.95%) the Company expects to experience in future periods. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, using guidance from ASC Investments-Debt and Equity Securities Topic, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with our universal life and investment products had been realized. Acquisition costs for stable value contracts are amortized over the term of the contracts using the effective yield method.

Value of Businesses Acquired

Value of Businesses Acquired

In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is allocated to the right to receive future gross profits from the acquired insurance policies or investment contracts. This intangible asset, called VOBA, represents the actuarially estimated present value of future cash flows from the acquired policies. The estimated present value of future cash flows is based on certain assumptions, including mortality, persistency, expenses, and interest rates that the Company expects to experience in future years. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. The Company amortizes VOBA in proportion to gross premiums for traditional life products and in proportion to expected gross profits (“EGPs”) for interest sensitive products, including accrued interest credited to account balances of up to approximately 8.75%. VOBA is subject to annual recoverability testing.

Property and Equipment

Property and Equipment

The Company reports land, buildings, improvements, and equipment at cost, including interest capitalized during any acquisition or development period, less accumulated depreciation. The Company depreciates its assets using the straight-line method over the estimated useful lives of the assets. The Company’s home office building is depreciated over a thirty-nine year useful life, furniture is depreciated over a ten year useful life, office equipment and machines are depreciated over a five year useful life, and software and computers are depreciated over a three year useful life. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.

Property and equipment consisted of the following:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Home office building	$	72,587		$	72,148
Data processing equipment	29,209			56,928
Other, principally furniture and equipment	49,220			51,500
	151,016			180,576
Accumulated depreciation	(103,625		)	(132,579		)
Total property and equipment	$	47,391		$	47,997

Separate Accounts

Separate Accounts

The separate account assets represent funds for which the Company does not bear the investment risk. These assets are carried at fair value and are equal to the separate account liabilities, which represent the policyholder’s equity in those assets. The investment income and investment gains and losses on the separate account assets accrue directly to the policyholder. These amounts are reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements. Amounts assessed against policy account balances for the costs of insurance, policy administration, and other services are included in premiums and policy fees in the accompanying consolidated statements of income.

Stable Value Product Account Balances

Stable Value Product Account Balances

The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. GICs are contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

The segment’s products complement the Company’s overall asset/liability management in that the terms may be tailored to the needs of PLICO as the seller of the contracts, as opposed to solely meeting the needs of the buyer.  Stable value product account balances include GICs and funding agreements the Company has issued. As of December 31, 2012 and 2011, the Company had $0.3 billion and $0.8 billion, respectively, of stable value product account balances marketed through structured programs. Most GICs and funding agreements the Company has written have maturities of one to ten years.

As of December 31, 2012, future maturities of stable value products were as follows:

Year of Maturity	Amount
	(Dollars In Millions)
2013	$	432.6
2014-2015	1,231.9
2016-2017	785.7
Thereafter	60.3

Derivative Financial Instruments

Derivative Financial Instruments

The Company records its derivative financial instruments in the consolidated 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 change in the fair value of derivative financial instruments is reported either in the statement of income or in the other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists. For cash flow hedges, the effective portion of their gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis. The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship in earnings. Changes in the fair value of derivatives that are recognized in current earnings are reported in “Realized investment gains (losses) - Derivative financial instruments”. For additional information, see Note 20, Derivative Financial Instruments.

Insurance liabilities and reserves

Insurance liabilities and reserves

Establishing an adequate liability for the Company’s obligations to policyholders requires the use of certain assumptions. Estimating liabilities for future policy benefits on life and health insurance products requires the use of assumptions relative to future investment yields, mortality, morbidity, persistency, and other assumptions based on the Company’s historical experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Determining liabilities for the Company’s property and casualty insurance products also requires the use of assumptions, including the projected levels of used vehicle prices, the frequency and severity of claims, and the effectiveness of internal processes designed to reduce the level of claims. The Company’s results depend significantly upon the extent to which its actual claims experience is consistent with the assumptions the Company used in determining its reserves and pricing its products. The Company’s reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. The Company cannot determine with precision the ultimate amounts that it will pay for actual claims or the timing of those payments.

Guaranteed minimum withdrawal benefits

Guaranteed minimum withdrawal benefits

The Company also establishes liabilities for guaranteed minimum withdrawal benefits (“GMWB”) on its variable annuity products. The GMWB is valued in accordance with FASB guidance under the ASC Derivatives and Hedging Topic which utilizes the valuation technique prescribed by the ASC Fair Value Measurements and Disclosures Topic, which requires the liability to be recorded at fair value using current implied volatilities for the equity indices. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, our net GMWB liability held was $169.0 million.

Goodwill

Goodwill

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 first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares 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 certain of its operating segments (which are each 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, which consider a market participant view of fair value, 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, 2012, the Company performed its annual evaluation of goodwill and determined that no adjustment to impair goodwill was necessary. As of December 31, 2012, we had goodwill of $83.8 million.

While continued deterioration of or adverse market conditions for certain businesses may have a significant impact on the fair value of the Company’s reporting units, in the Company’s view, the key assumptions used in its estimates of fair value of its reporting units continue to be adequate, and PLC’s market capitalization being below book value did not result in a triggering or impairment event.

Income Taxes

Income Taxes

The results of operations of the Company are included in the consolidated federal and certain state income tax returns of PLC.  The Company utilizes the asset and liability method in accordance with the Accounting Standards Codification (“ASC”) Income Taxes Topic.  The method of allocation of current income taxes between the affiliates is subject to a written agreement under which the Company incurs a liability to PLC to the extent that a separate return calculation indicates that the Company has a federal income tax liability.  If the Company has an income tax benefit, the benefit is recorded currently to the extent it can be carried back against prior years’ separate company income tax expense.  Any amount not carried back is carried forward on a separate company basis (generally without a time limit), and the tax benefit is reflected in future periods when the Company generates taxable income.  Income taxes recoverable (payable) are recorded in other assets and other liabilities, respectively, and are settled periodically, per the tax sharing agreement. In general, income tax provisions are based on the income reported for financial statement purposes. Deferred income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the recorded change in fair value of investment assets, the deferral of policy acquisition costs, and the provision for future policy benefits and expenses.

The Company analyzes whether it needs to establish a valuation allowance on each of its deferred tax assets. In performing this analysis, the Company first considers the need for a valuation allowance on each separate deferred tax asset. Ultimately, it analyzes this need in the aggregate in order to prevent the double-counting of expected future taxable income in each of the foregoing separate analyses.

The Company’s tax returns are included in PLC’s consolidated U.S. income tax return.

Variable Interest Entities

Variable Interest Entities

In 2010, the Company adopted guidance issued by the FASB related to variable interest entities (“VIE”) and transfers of financial assets. This adoption resulted in the consolidation of certain qualifying special purpose entities used for mortgage loan securitizations. As part of this adoption, the Company recorded a cumulative effect adjustment  of $14.3 million as of January 1, 2010.

The Company’s VIE 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. For more information on the Company’s investment in unconsolidated a VIE refer to Note 4, Investment Operations, to the consolidated financial statements.

Policyholder Liabilities, Revenues and Benefits Expense

Policyholder Liabilities, Revenues, and Benefits Expense

Traditional Life, Health, and Credit Insurance Products

Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and they include whole life insurance policies, term and term-like life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies. Traditional life insurance premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts.  This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of DAC and VOBA. Gross premiums in excess of net premiums related to immediate annuities are deferred and recognized over the life of the policy.

Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions on December 31, 2012, range from approximately 2.0% to 8.75%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.

Activity in the liability for unpaid claims for life and health insurance is summarized as follows:

	As of December 31,
	2012		2011		2010
	(Dollars In Thousands)
Balance beginning of year	$	312,799	$	299,971	$	299,396
Less: reinsurance	161,450		156,932		148,479
Net balance beginning of year	151,349		143,039		150,917
Incurred related to:
Current year	702,555		653,525		471,039
Prior year	62,926		65,269		35,555
Total incurred	765,481		718,794		506,594
Paid related to:
Current year	664,744		639,118		457,511
Prior year	80,794		76,424		56,961
Total paid	745,538		715,542		514,472
Other changes:
Acquisition and reserve transfers	—		5,058		—
Net balance end of year	171,292		151,349		143,039
Add: reinsurance	155,341		161,450		156,932
Balance end of year	$	326,633	$	312,799	$	299,971

Universal Life and Investment Products

Universal life and investment products include universal life insurance, guaranteed investment contracts, guaranteed funding agreements, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Such fees are recognized when assessed and earned. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest rates credited to universal life products ranged from 2.0% to 8.75% and investment products ranged from 1.5% to 4.55% in 2012.

The Company’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at fair value and reported as components of assets and liabilities related to separate accounts.

The Company establishes liabilities for guaranteed minimum death benefits (“GMDB”) on its variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality and the performance of equity markets. The Company assumes mortality of 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Future declines in the equity market would increase the Company’s GMDB liability. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. Our GMDB as of December 31, 2012, are subject to a dollar-for-dollar reduction upon withdrawal of related annuity deposits on contracts issued prior to January 1, 2003. As of December 31, 2012, the GMDB was $19.6 million.

The Company also establishes liabilities for GMWB on its variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, the net GMWB liability balance was $169.0 million.

Property and Casualty Insurance Products

Property and casualty insurance products include service contract business, surety bonds, guaranteed asset protection (“GAP”), and credit-related coverages. Premiums for service contracts and GAP products are recognized based on expected claim patterns. For all other products, premiums are generally recognized over the terms of the contract on a pro-rata basis. Fee income from providing administrative services is recognized as earned when the related services are performed. Unearned premium reserves are maintained for the portion of the premiums that is related to the unexpired period of the policy. Benefit reserves are recorded when insured events occur. Benefit reserves include case basis reserves for known but unpaid claims as of the balance sheet date as well as incurred but not reported (“IBNR”) reserves for claims where the insured event has occurred but has not been reported to the Company as of the balance sheet date. The case basis reserves and IBNR are calculated based on historical experience and on assumptions relating to claim severity and frequency, the level of used vehicle prices, and other factors. These assumptions are modified as necessary to reflect anticipated trends.

Reinsurance

Reinsurance

The Company uses reinsurance extensively in certain of its segments and accounts for reinsurance and the recognition of the impact of reinsurance costs in accordance with the ASC Financial Services — Insurance Topic. The following summarizes some of the key aspects of the Company’s accounting policies for reinsurance.

Reinsurance Accounting Methodology — Ceded premiums of the Company’s traditional life insurance products are treated as an offset to direct premium and policy fee revenue and are recognized when due to the assuming company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable financial reporting period. Expense allowances paid by the assuming companies are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances is treated as an offset to direct amortization of DAC or VOBA. Amortization of deferred expense allowances is calculated as a level percentage of expected premiums in all durations given expected future lapses and mortality and accretion due to interest.

The Company utilizes reinsurance on certain short duration insurance contracts (primarily issued through the Asset Protection segment). As part of these reinsurance transactions the Company receives reinsurance allowances which reimburse the Company for acquisition costs such as commissions and premium taxes. A ceding fee is also collected to cover other administrative costs and profits for the Company. Reinsurance allowances received are capitalized and charged to expense in proportion to premiums earned. Ceded unamortized acquisition costs are netted with direct unamortized acquisition costs in the balance sheet.

Ceded premiums and policy fees on the Company’s universal life (“UL”), variable universal life, bank-owned life insurance (“BOLI”), and annuity products reduce premiums and policy fees recognized by the Company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable valuation period. Commission and expense allowances paid by the assuming companies are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances are amortized based on future expected gross profits. Assumptions regarding mortality, lapses, and interest rates are continuously reviewed and may be periodically changed. These changes will result in “unlocking” that changes the balance in the ceded deferred acquisition cost and can affect the amortization of DAC and VOBA. Ceded unearned revenue liabilities are also amortized based on expected gross profits. Assumptions are based on the best current estimate of expected mortality, lapses and interest spread.

Reinsurance Allowances - The amount and timing of reinsurance allowances (both first year and renewal allowances) are contractually determined by the applicable reinsurance contract and may or may not bear a relationship to the amount and incidence of expenses actually paid by the ceding company. Many of the Company’s reinsurance treaties do, in fact, have ultimate renewal allowances that exceed the direct ultimate expenses. Additionally, allowances are intended to reimburse the ceding company for some portion of the ceding company’s commissions, expenses, and taxes. As a result, first year expenses paid by the Company may be higher than first year allowances paid by the reinsurer, and reinsurance allowances may be higher in later years than renewal expenses paid by the Company.

The Company recognizes allowances according to the prescribed schedules in the reinsurance contracts, which may or may not bear a relationship to actual expenses incurred by the Company. A portion of these allowances is deferred while the non-deferrable allowances are recognized immediately as a reduction of other operating expenses. The Company’s practice is to defer reinsurance allowances in excess of the ultimate allowance. This practice is consistent with the Company’s practice of capitalizing direct expenses. While the recognition of reinsurance allowances is consistent with GAAP, in some cases non-deferred reinsurance allowances may exceed non-deferred direct costs, which may cause net other operating expenses to be negative.

Ultimate reinsurance allowances are defined as the lowest allowance percentage paid by the reinsurer in any policy duration over the lifetime of a universal life policy (or through the end of the level term period for a traditional life policy). Ultimate reinsurance allowances are determined by the reinsurer and set by the individual contract of each treaty during the initial negotiation of each such contract. Ultimate reinsurance allowances and other treaty provisions are listed within each treaty and will differ between agreements since each reinsurance contract is separately negotiated. The Company uses the ultimate reinsurance allowances set by the reinsurers and contained within each treaty agreement to complete its accounting responsibilities.

Amortization of Reinsurance Allowances - Reinsurance allowances do not affect the methodology used to amortize DAC and VOBA, or the period over which such DAC and VOBA are amortized. Reinsurance allowances offset the direct expenses capitalized, reducing the net amount that is capitalized. The amortization pattern varies with changes in estimated gross profits arising from the allowances. DAC and VOBA on traditional life policies are amortized based on the pattern of estimated gross premiums of the policies in force. Reinsurance allowances do not affect the gross premiums, so therefore they do not impact traditional life amortization patterns. DAC and VOBA on universal life products are amortized based on the pattern of estimated gross profits of the policies in force.  Reinsurance allowances are considered in the determination of estimated gross profits, and therefore do impact amortization patterns.

Reinsurance Liabilities - Claim liabilities and policy benefits are calculated consistently for all policies in accordance with GAAP, regardless of whether or not the policy is reinsured. Once the claim liabilities and policy benefits for the underlying policies are estimated, the amounts recoverable from the reinsurers are estimated based on a number of factors including the terms of the reinsurance contracts, historical payment patterns of reinsurance partners, and the financial strength and credit worthiness of reinsurance partners. Liabilities for unpaid reinsurance claims are produced from claims and reinsurance system records, which contain the relevant terms of the individual reinsurance contracts. The Company monitors claims due from reinsurers to ensure that balances are settled on a timely basis. Incurred but not reported claims are reviewed by the Company’s actuarial staff to ensure that appropriate amounts are ceded.

The Company analyzes and monitors the credit worthiness of each of its reinsurance partners to minimize collection issues. For newly executed reinsurance contracts with reinsurance companies that do not meet predetermined standards, the Company requires collateral such as assets held in trusts or letters of credit.

Components of Reinsurance Cost - The following income statement lines are affected by reinsurance cost:

Premiums and policy fees (“reinsurance ceded” on the Company’s financial statements) represent consideration paid to the assuming company for accepting the ceding company’s risks. Ceded premiums and policy fees increase reinsurance cost.

Benefits and settlement expenses include incurred claim amounts ceded and changes in ceded policy reserves. Ceded benefits and settlement expenses decrease reinsurance cost.

Amortization of deferred policy acquisition cost and VOBA reflects the amortization of capitalized reinsurance allowances. Ceded amortization decreases reinsurance cost.

Other expenses include reinsurance allowances paid by assuming companies to the Company less amounts capitalized. Non-deferred reinsurance allowances decrease reinsurance cost.

The Company’s reinsurance programs do not materially impact the other income line of the Company’s income statement. In addition, net investment income generally has no direct impact on the Company’s reinsurance cost. However, it should be noted that by ceding business to the assuming companies, the Company forgoes 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.

Accounting Pronouncements Recently Adopted

Accounting Pronouncements Recently Adopted

ASU No. 2010-26 — Financial Services — Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts. This Update was effective for the Company on January 1, 2012. The Company retrospectively adopted this Update, which resulted in a reduction in its deferred acquisition cost asset as well as a decrease in the amortization associated with those previously deferred costs. There was also a reduction in the level of costs the Company defers. For additional information on the effect this Update had on the Company, see Note 6, Deferred Policy Acquisition Costs and Value of Business Acquired.

ASU No. 2011-03 — Transfers and Servicing - Reconsideration of Effective Control for Repurchase Agreements. This Update amends the assessment of effective control for repurchase agreements to remove 1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and 2) the collateral maintenance implementation guidance related to the criterion. The Board determined that these criterion should not be a determining factor of effective control. This Update was effective for the first interim or annual period beginning on or after December 15, 2011. For the Company, the Update was applied to all repurchase agreements beginning January 1, 2012. The Company has modified its policies and procedures to ensure compliance with the updated guidance. There was no impact to the Company’s results of operations or financial position as a result of this adoption.

ASU No. 2011-04 — Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRSs”). The intent of this Update was not to change the application of the requirements in Topic 820. Some of the amendments clarify the intent regarding the application of existing fair value measurement requirements. The Update expanded requirements for disclosing information about fair value measurements. These changes were effective for interim and annual periods beginning after December 15, 2011. The Company has included the required additional disclosures in Note 19, Fair Value of Financial Instruments, and has modified its policies and processes to ensure compliance with the updated guidance.

ASU No. 2011-05 — Comprehensive Income — Presentation of Comprehensive Income. In this Update, a company has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in 1) a single continuous statement of comprehensive income, or 2) in two separate but consecutive statements. In both choices, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The Company has implemented the two-statement report format outlined in ASU No. 2011-05 beginning in the first quarter of 2012. The amendments in this Update do not change the items that must be reported in other comprehensive income, or the timing of its subsequent reclassification to net income. This Update was effective January 1, 2012.

Commensurate with the effective date of ASU No. 2011-05, the requirement to present reclassifications from other comprehensive income on the face of the income statement, was deferred by ASU No. 2011-12 — Comprehensive Income — Deferral of the Effective for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.

ASU No. 2012-04 — Technical Corrections and Improvements. This Update contains changes intended to clarify the Codification or to correct unintended application of guidance, and which are not expected to have a significant effect on current accounting practice. In addition, this Update includes more substantive, limited-scope improvements to the Codification. These are items that represent narrow and incremental improvements to U.S. GAAP and are not purely technical corrections. This Update was effective upon issuance on October 1, 2012, and will not have an impact on the Company’s results of operations or financial position.

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SUPPLEMENTAL CASH FLOW INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash paid / (received) during the year:
Interest expenses	$ 92,175	$ 89,657	$ 57,544
Income taxes	77,665	25,129	(79,281)
Noncash investing and financing activities:
Decrease in collateral for securities lending transactions		$ (96,653)	$ (10,630)

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INCOME TAXES

12 Months Ended

Dec. 31, 2012

INCOME TAXES

INCOME TAXES

15. INCOME TAXES

The Company’s effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows:

	For The Year Ended December 31,
	2012		2011		2010
Statutory federal income tax rate applied to pre-tax income	35.0	%	35.0	%	35.0	%
State income taxes	0.4		0.4		0.5
Investment income not subject to tax	(3.1	)	(2.0	)	(1.4	)
Uncertain tax positions	0.2		(0.1	)	(0.9	)
Other	0.4		(1.2	)	0.1
	32.9	%	32.1	%	33.3	%

The annual provision for federal income tax in these financial statements differs from the annual amounts of income tax expense reported in the respective income tax returns. Certain significant revenues and expenses are appropriately reported in different years with respect to the financial statements and the tax returns.

The components of the Company’s income tax are as follows:

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Income tax expense per the income tax returns:
Federal	$	78,510	$	(4,609	)	$	3,600
State	2,496		33			2,944
Total current	$	81,006	$	(4,576	)	$	6,544
Deferred income tax expense:
Federal	$	66,375	$	153,412		$	104,608
State	3,662		2,683			(1,287		)
Total deferred	$	70,037	$	156,095		$	103,321

The components of the Company’s net deferred income tax liability are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Deferred income tax assets:
Premium receivables and policy liabilities	$	51,276		$	35,267
Intercompany losses	45,079			42,685
Invested assets (other than unrealized gains)	—			68,530
Deferred compensation	3,750			3,059
State tax valuation allowance	(2,552		)	(2,440		)
Other	26,604			454
	124,157			147,555
Deferred income tax liabilities:
Deferred policy acquisition costs and value of business acquired	911,858			873,979
Invested assets (other than realized gains)	20,936			—
Unrealized gain on investments	975,076			567,572
	1,907,870			1,441,551
Net deferred income tax (liability) asset	$	(1,783,713	)	$	(1,293,996	)

The Company’s income tax returns are included in PLC’s consolidated U.S. income tax returns.

In management’s judgment, the gross deferred income tax asset as of December 31, 2012, will more likely than not be fully realized. With regard to state tax loss carryforwards, the Company has recognized a valuation allowance of $2.6 million and $2.4 million as of December 31, 2012 and 2011, respectively, related to operating loss carryforwards that it has determined are more likely than not to expire unutilized. As of December 31, 2012 and 2011, no valuation allowances were established with regard to deferred tax assets relating to impairments on fixed maturities, capital loss carryforwards, and unrealized losses on investments. As of December 31, 2012 and 2011, the Company relied upon certain prudent and feasible tax-planning strategies and its ability and intent to hold to recovery its fixed maturities that were reported at an unrealized loss. The Company has the ability and the intent to either hold any unrealized loss bond to maturity, thereby avoiding a realized loss, or to generate a realized gain from unrealized gain bonds if such unrealized loss bond is sold at a loss prior to maturity. As of December 31, 2012, the Company recorded a net unrealized gain on its fixed maturities.

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

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	4,318		$	12,659
Additions for tax positions of the current year	9,465			—
Additions for tax positions of prior years	64,050			106
Reductions of tax positions of prior years:
Changes in judgment	(3,498		)	(8,447		)
Settlements during the period	—			—
Lapses of applicable statute of limitations	—			—
Balance, end of period	$	74,335		$	4,318

Included in the balance above, as of December 31, 2012 and 2011, are approximately $67.5 million and $2.0 million of unrecognized tax benefits, respectively, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductions. Other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective income tax rate but would accelerate to an earlier period the payment of cash to the taxing authority. The total amount of unrecognized tax benefits, if recognized, that would affect the effective income tax rate is approximately $6.8 million and $2.3 million as of December 31, 2012 and as of December 31, 2011, respectively.

Any accrued interest and penalties related to the unrecognized tax benefits have been included in income tax expense. There were no amounts included in 2012, a $1.4 million benefit in 2011, and a $2.9 million expense in 2010. The Company has no accrued interest associated with unrecognized tax benefits as of December 31, 2012, and approximately $1.4 million of accrued interest associated with unrecognized tax benefits as of December 31, 2011 (before taking into consideration the related income tax benefit that is associated with such an expense).

During 2012, an IRS audit concluded in which the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and is seeking resolution at the IRS’ Appeals Divisions. Although it cannot be certain, the Company believes the Appeals process may conclude within the next 12 months. If this is the case, approximately $16.1 million of the unrecognized tax benefits on the above chart will be reduced. This reduction could occur because of the Company’s successful negotiation of certain issues at Appeals coupled with its unsuccessful negotiations on other issues. This possible scenario includes an assumption that the Company would pay the IRS-asserted deficiencies on issues that it loses at Appeals rather than litigating such issues. If the IRS prevails at Appeals and the Company does not litigate these issues, the tax payments that would occur as a result would not materially impact the Company or its effective tax rate.

During the 12 months ended December 31, 2012 and 2011, the Company’s uncertain tax position liability decreased in the amount of $3.5 million and $8.4 million, respectively, as a result of new technical guidance and other developments which led the Company to conclude that the full amount of the associated tax benefit was more than 50% likely to be realized.

In general, the Company is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for tax years that began before 2003.

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INVESTMENT OPERATIONS (Details 5) (Red Mountain, USD $)	12 Months Ended
	Dec. 31, 2012
Red Mountain
Variable Interest Entities
Ownership interest through an affiliate (as a percent)	100.00%
Investment to which risk of loss related to the VIE is limited	$ 10,000

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DERIVATIVE FINANCIAL INSTRUMENTS (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Cash posted as collateral related to derivative transactions	$ 34,800,000
Securities posted as collateral related to derivative transactions	54,900,000
Cash received as collateral related to derivative transactions	11,600,000
Cash flow hedges
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Expected reclassification out of accumulated other comprehensive income (loss) into earnings during the next twelve months	1,700,000
Cash flow hedges | Interest rate
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Gain (loss) recognized in other comprehensive income (effective portion)	(77,000)	(272,000)
Gain (loss) reclassified from accumulated other comprehensive income into income (effective portion)	(2,261,000)	(3,581,000)
Cash flow hedges | Inflation
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Gain (loss) recognized in other comprehensive income (effective portion)	3,067,000	2,468,000
Gain (loss) reclassified from accumulated other comprehensive income into income (effective portion)	(938,000)	(276,000)
Gain (loss) recognized in income (ineffective portion)	$ (177,000)	$ (359,000)

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED BALANCE SHEETS
Fixed maturities, amortized cost	$ 26,661,310	$ 26,109,131	[1]
Fixed maturities, fair value	319,163
Equity securities, cost	371,827	303,578	[1]
Mortgage loans, securitizations	765,520	858,139	[1]
Investment real estate, accumulated depreciation	771	993	[1]
Accounts and premiums receivable, allowance for uncollectible amounts	4,191	3,864	[1]
Property and equipment, accumulated depreciation	103,625	132,579	[1]
Preferred Stock, par value (in dollars per share)	$ 1	$ 1	[1]
Preferred Stock, shares authorized (in shares)	2,000	2,000	[1]
Preferred Stock, Liquidation preference	2,000	2,000	[1]
Common Stock, par value (in dollars per share)	$ 1	$ 1	[1]
Common Stock, shares authorized (in shares)	5,000,000	5,000,000	[1]
Common Stock, shares issued (in shares)	5,000,000	5,000,000	[1]
Net unrealized gains (losses) on investments, income tax	979,251	590,196	[1]
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, income tax	(2,147)	(18,374)	[1]
Accumulated loss - derivatives, income tax	$ (1,883)	$ (4,111)	[1]

[1] Recast from previously reported information

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CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
CONSOLIDATED STATEMENTS OF INCOME
Benefits and settlement expenses, reinsurance ceded	$ 1,228,897	$ 1,231,405	[1]	$ 1,283,054	[1]
Other operating expenses, reinsurance ceded	$ 200,442	$ 203,868	[1]	$ 205,299	[1]

[1] Recast from previously reported information

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CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

12 Months Ended

Dec. 31, 2012

CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

The Company issues variable universal life and variable annuity products through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. The Company also offers, for our variable annuity products, various account value guarantees upon death. The most significant of these guarantees involve 1) return of the highest anniversary date account value, or 2) return of the greater of the highest anniversary date account value or the last anniversary date account value compounded at 5% interest or 3) return of premium. The GMWB rider is classified as an embedded derivative and is carried at fair value on the Company’s balance sheet. The variable annuity separate account balances subject to GMWB were $7.2 billion as of December 31, 2012.  For more information regarding the valuation of and income impact of GMWB please refer to Note 2, Summary of Significant Accounting Policies, Note 19, Fair Value of Financial Instruments, and Note 20, Derivative Financial Instruments.

The GMDB reserve is calculated by applying a benefit ratio, equal to the present value of total expected GMDB claims divided by the present value of total expected contract assessments, to cumulative contract assessments. This amount is then adjusted by the amount of cumulative GMDB claims paid and accrued interest. Assumptions used in the calculation of the GMDB reserve were as follows: mean investment performance of 6.54%, age-based mortality consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table, lapse rates ranging from 0.8% - 38.7% (depending on product type and duration), and an average discount rate of 6.2%. Changes in the GMDB reserve are included in benefits and settlement expenses in the accompanying consolidated statements of income.

The variable annuity separate account balances subject to GMDB were $9.6 billion as of December 31, 2012. The total GMDB amount payable based on variable annuity account balances as of December 31, 2012, was $149.8 million (including $129.3 million in the Annuities segment and $20.5 million in the Acquisitions segment) with a GMDB reserve of $19.3 million and $0.3 million in the Annuities and Acquisitions segment, respectively. The average attained age of contract holders as of December 31, 2012 for the Company was 67.

These amounts exclude the variable annuity business of the Chase Insurance Group, which consisted of five insurance companies that manufactured and administered traditional life insurance and annuity products and four non-insurance companies (which collectively are referred to as the “Chase Insurance Group”) which has been 100% reinsured to Commonwealth Annuity and Life Insurance Company (formerly known as Allmerica Financial Life Insurance and Annuity Company) (“CALIC”), under a Modco agreement. The guaranteed amount payable associated with the annuities reinsured to CALIC was $20.9 million and is included in the Acquisitions segment. The average attained age of contract holders as of December 31, 2012, was 64.

Activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement) is as follows:

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Beginning balance	$	9,798	$	6,412	$	342
Incurred guarantee benefits	14,087		7,171		11,799
Less: Paid guarantee benefits	4,279		3,785		5,729
Ending balance	$	19,606	$	9,798	$	6,412

Account balances of variable annuities with guarantees invested in variable annuity separate accounts are as follows:

	As of December 31,
	2012		2011
	(Dollars In Thousands)
Equity mutual funds	$	6,171,196	$	3,972,729
Fixed income mutual funds	3,381,581		2,185,654
Total	$	9,552,777	$	6,158,383

Certain of the Company’s fixed annuities and universal life products have a sales inducement in the form of a retroactive interest credit (“RIC”). In addition, certain annuity contracts provide a sales inducement in the form of a bonus interest credit. The Company maintains a reserve for all interest credits earned to date. The Company defers the expense associated with the RIC and bonus interest credits each period and amortizes these costs in a manner similar to that used for DAC.

Activity in the Company’s deferred sales inducement asset was as follows:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Deferred asset, beginning of period	$	125,527		$	112,147		$	116,298
Amounts deferred	23,362			29,472			25,587
Amortization	(4,940		)	(16,092		)	(29,738		)
Deferred asset, end of period	$	143,949		$	125,527		$	112,147

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Determination of fair values
Number of primary sources of information used for determining fair value	1
Total number of primary sources of information available for determining fair value	3
Minimum percentage of the Company's fixed maturity securities priced by third party pricing services	90.00%
Number of independent non-binding broker quotes obtained per security	1
Percentage of derivatives excluding embedded derivatives that were priced using exchange prices or independent broker quotations	79.30%
Policy liabilities (net of policy loans)	2,600,000,000
Fair value of the trading securities	3,100,000,000
Other long-term investments	130,428,000	54,645,000
Annuity account balances
Equity indexed annuities, discount rate for one month (as a percent)	0.30%
Equity indexed annuities, discount rate for five years (as a percent)	1.96%
Equity indexed annuities, discount rate for thirty years (as a percent)	4.14%
Interest support, YRT premium support and portfolio maintenance agreement
Determination of fair values
Other long-term investments	17,100,000
Golden Gate II Captive Insurance Company (Golden Gate II) | Interest Support Agreement
Determination of fair values
Other long-term investments	15,000,000
Payments Triggered Under Agreement	0
Golden Gate II Captive Insurance Company (Golden Gate II) | YRT Premium support agreement
Determination of fair values
Other long-term investments	1,600,000
Payments Triggered Under Agreement	0
Golden Gate V and West Coast Life | Portfolio maintenance agreements
Determination of fair values
Other long-term investments	500,000
Level 3 | Trading Securities
Determination of fair values
Carrying amount	70,500,000
Percentage of underlying collateral of student-loan backed auction rate securities guaranteed by the Federal Family Education Loan Program ("FFELP"), minimum	97.00%
Asset-Backed Securities | Level 2
Determination of fair values
Carrying amount	3,700,000,000
Asset-Backed Securities | Level 3
Determination of fair values
Carrying amount	666,700,000
Other asset-backed securities
Determination of fair values
Percentage of underlying collateral of student-loan backed auction rate securities guaranteed by the Federal Family Education Loan Program ("FFELP"), minimum	97.00%	97.00%
Corporate bonds, U.S. Government-related securities, States, municipals, and political subdivisions, and Other government related securities | Level 2
Determination of fair values
Carrying amount	24,000,000,000
Corporate bonds, U.S. Government-related securities, States, municipals, and political subdivisions, and Other government related securities | Level 3
Determination of fair values
Carrying amount	192,300,000
Equity securities | Level 2 and Level 3
Determination of fair values
Carrying amount	100,600,000
FHLB stock	64,600,000
Equity securities | Level 3
Determination of fair values
FHLB stock	65,500,000
Embedded derivative - GMWB
Determination of fair values
Mortality (as a percent)	57.00%

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EMPLOYEE BENEFIT PLANS (Details 8) (PLC, USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Defined Benefit Pension Plan
Estimated future benefit payments under defined benefit pension plan
2013	$ 13,088
2014	12,516
2015	12,949
2016	13,603
2017	15,250
2018-2022	81,524
Unfunded Excess Benefits Plan
Estimated future benefit payments under defined benefit pension plan
2013	3,614
2014	3,742
2015	3,843
2016	3,838
2017	4,001
2018-2022	$ 17,486

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EMPLOYEE BENEFIT PLANS (Details 6) (PLC, Defined Benefit Pension Plan, USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
EMPLOYEE BENEFIT PLANS
Total investments	$ 152,187	$ 125,058	$ 117,856
Employer contribution receivable		2,270
Total	152,187	127,328
Cash
EMPLOYEE BENEFIT PLANS
Total investments	6,222	1,004
Equity securities: Collective Russell 3000 Equity Index Fund
EMPLOYEE BENEFIT PLANS
Total investments	61,451	52,792
Equity securities, Fidelity Spartan U.S. Equity Index Fund
EMPLOYEE BENEFIT PLANS
Total investments	34,482	29,735
Fixed Income
EMPLOYEE BENEFIT PLANS
Total investments	$ 50,032	$ 41,527

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 23, 2013	Jun. 30, 2012
Document and Entity Information
Entity Registrant Name	PROTECTIVE LIFE INSURANCE CO
Entity Central Index Key	0000310826
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Public Float			$ 0
Entity Common Stock, Shares Outstanding		5,000,000
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY

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REINSURANCE

12 Months Ended

Dec. 31, 2012

REINSURANCE

REINSURANCE

9. REINSURANCE

The Company reinsures certain of its risks with (cedes), and assumes risks from, other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, the Company reinsures only the mortality risk, while under coinsurance the Company reinsures a proportionate share of all risks arising under the reinsured policy. Under coinsurance, the reinsurer receives a proportionate share of the premiums less commissions and is liable for a corresponding share of all benefit payments. Modified coinsurance is accounted for similar to coinsurance except that the liability for future policy benefits is held by the ceding company, and settlements are made on a net basis between the companies.

Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to us under the terms of the reinsurance agreements. The Company continues to monitor the consolidation of reinsurers and the concentration of credit risk the Company has with any reinsurer, as well as the financial condition of its reinsurers. As of December 31, 2012, the Company had reinsured approximately 60% of the face value of its life insurance in-force. The Company has reinsured approximately 26% of the face value of its life insurance in-force with the following three reinsurers:

· Security Life of Denver Insurance Co. (currently administered by Hanover Re)

· Swiss Re Life & Health America Inc.

· Lincoln National Life Insurance Co. (currently administered by Swiss Re Life & Health America Inc.)

The Company has not experienced any credit losses for the years ended December 31, 2012, 2011, or 2010 related to these reinsurers. The Company has set limits on the amount of insurance retained on the life of any one person. In 2005, the Company increased its retention for certain newly issued traditional life products from $500,000 to $1,000,000 on any one life. During 2008, the Company increased its retention limit to $2,000,000 on certain of its traditional and universal life products.

Reinsurance premiums, commissions, expense reimbursements, benefits, and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the underlying contracts. The cost of reinsurance related to short-duration contracts is accounted for over the reinsurance contract period. Amounts recoverable from reinsurers, for both short-and long-duration reinsurance arrangements, are estimated in a manner consistent with the claim liabilities and policy benefits associated with reinsured policies.

The following table presents the net life insurance in-force:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Millions)
Direct life insurance in-force	$	706,416		$	728,670		$	753,519
Amounts assumed from other companies	30,470			32,813			18,799
Amounts ceded to other companies	(444,951		)	(469,530		)	(495,056		)
Net life insurance in-force	$	291,935		$	291,953		$	277,262
Percentage of amount assumed to net	10		%	11		%	7		%

The following table reflects the effect of reinsurance on life insurance premiums written and earned:

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Millions)
Direct premiums	$	2,227		$	2,245		$	2,153
Reinsurance assumed	282			248			167
Reinsurance ceded	(1,229		)	(1,278		)	(1,284		)
Net premiums(1)	$	1,280		$	1,215		$	1,036
Percentage of amount assumed to net	22		%	20		%	16		%

(1)Includes annuity policy fees of $103.8 million, $74.9 million, and $43.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

The Company has also reinsured accident and health risks representing $12.1 million, $14.4 million, and $17.3 million of premium income, while the Company has assumed accident and health risks representing $29.4 million, $21.7 million, and $0.1 million of premium income for 2012, 2011, and 2010, respectively. In addition, the Company reinsured property and casualty risks representing $69.6 million, $71.2 million, and $78.9 million of premium income, while the Company assumed property and casualty risks representing $6.8 million, $6.2 million, and $7.1 million of premium income for 2012, 2011, and 2010, respectively.

As of December 31, 2012 and 2011, policy and claim reserves relating to insurance ceded of $5.6 million and $5.5 million, respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, the Company would be obligated to pay such claims. As of December 31, 2012 and 2011, the Company had paid $105.0 million and $127.1 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, as of December 31, 2012 and 2011, the Company had receivables of $66.1 million and $64.9 million, respectively, related to insurance assumed.

During 2006, the Company recorded $27.1 million of bad debt charges related to its Lender’s Indemnity product line. These bad debt charges followed the bankruptcy filing related to CENTRIX Financial LLC (“CENTRIX”), the originator and servicer of the business, and are the result of the Company’s assessment, based in part on facts discovered by an audit after the bankruptcy filing, of the inability of CENTRIX and an affiliated reinsurer to meet their obligations under the program. The Company ceased offering the Lender’s Indemnity product in 2003 with the last policy expiring in 2009. During 2010, the Company successfully settled its last claim and as a result of this final settlement, $7.8 million in excess reserves were released in the first quarter of 2010.

The Company’s third party reinsurance receivables amounted to $5.7 billion and $5.5 billion as of December 31, 2012 and 2011, respectively. These amounts include ceded reserve balances and ceded benefit payments. The ceded benefit payments are recoverable from reinsurers. The following table sets forth the receivables attributable to our more significant reinsurance partners:

	As of December 31,
	2012			2011
	Reinsurance		A.M. Best	Reinsurance		A.M. Best
	Receivable		Rating	Receivable		Rating
	(Dollars In Millions)
Security Life of Denver Insurance Co.	$	649.1	A	$	626.4	A
Swiss Re Life & Health America, Inc.	625.9		A+	624.4		A+
Lincoln National Life Insurance Co.	472.3		A+	479.4		A+
Transamerica Life Insurance Co.	425.5		A+	392.9		A+
American United Life Insurance Co.	321.3		A+	325.1		A+
Employers Reassurance Corp.	257.7		A-	290.2		A-
The Canada Life Assurance Company	219.8		A+	219.1		A+
RGA Reinsurance Co.	215.4		A+	228.2		A+
Scottish Re (U.S.), Inc.	180.5		NR(1)	179.9		NR(1)
XL Life Ltd.	179.6		A-	183.0		A-

(1)Scottish Re (U.S.), Inc. is not rated as of December 31, 2012 and 2011.

The Company’s reinsurance contracts typically do not have a fixed term. In general, the reinsurers’ ability to terminate coverage for existing cessions is limited to such circumstances as material breach of contract or non-payment of premiums by the ceding company. The reinsurance contracts generally contain provisions intended to provide the ceding company with the ability to cede future business on a basis consistent with historical terms. However, either party may terminate any of the contracts with respect to future business upon appropriate notice to the other party.

Generally, the reinsurance contracts do not limit the overall amount of the loss that can be incurred by the reinsurer. The amount of liabilities ceded under contracts that provide for the payment of experience refunds is immaterial.

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COMMITMENTS AND CONTINGENCIES (Details) (USD $)	3 Months Ended	12 Months Ended		12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012 item	Dec. 31, 2011	Dec. 31, 2012 Administrative and marketing office space item	Dec. 31, 2011 Administrative and marketing office space	Dec. 31, 2010 Administrative and marketing office space	Dec. 31, 2012 Administrative and marketing office space Minimum	Dec. 31, 2012 Administrative and marketing office space Maximum	Dec. 31, 2012 Administrative and Marketing Office Space Birmingham excluding Home Office sqft	Dec. 31, 2012 Building contiguous to home office
Operating leased assets
Number of cities in which the company leases properties				20
Area leased in Birmingham (in square feet)									24,090
Lease period							3 years	10 years
Rental expense				$ 11,200,000	$ 10,800,000	$ 10,800,000
Aggregate annualized rent				6,900,000
Future minimum rental payments required under operating leases
2013				6,948,000						679,000
2014				5,462,000						75,065,000
2015				4,229,000
2016				2,664,000
2017				740,000
Thereafter				235,000
Approximate price for which the company may purchase building at the end of lease term										75,000,000
Outstanding mortgage loan commitments	182,600,000	182,600,000	182,400,000
Average rate (as a percent)	5.10%	5.10%	5.58%
Estimated period to conclude appeals process for protesting certain unfavorable adjustments in IRS audit	12 months
Estimated income tax payment if IRS prevails on every issue identified in audit	$ 24,300,000	$ 24,300,000
Number of auditors from whom notice has been received		2
Number of blocks of life insurance policies		1

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EMPLOYEE BENEFIT PLANS (Details 5) (PLC, Defined Benefit Pension Plan)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Allocation of plan assets of defined benefit pension plan by category
Total allocation (as a percent)	100.00%	100.00%
Target Allocation for 2013 of plan assets of defined benefit pension plan by category
Target allocation for 2013 (as a percent)	100.00%
Cash and cash equivalents
Allocation of plan assets of defined benefit pension plan by category
Total allocation (as a percent)	4.00%	1.00%
Target Allocation for 2013 of plan assets of defined benefit pension plan by category
Target allocation for 2013 (as a percent)	2.00%
Equity securities
Allocation of plan assets of defined benefit pension plan by category
Total allocation (as a percent)	60.00%	61.00%
Target Allocation for 2013 of plan assets of defined benefit pension plan by category
Target allocation for 2013 (as a percent)	60.00%
Fixed income mutual funds
Allocation of plan assets of defined benefit pension plan by category
Total allocation (as a percent)	36.00%	38.00%
Target Allocation for 2013 of plan assets of defined benefit pension plan by category
Target allocation for 2013 (as a percent)	38.00%

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 308,536	[1]	$ 323,756	[1]	$ 223,311	[1]
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (2012 - $392,372; 2011 - $400,626; 2010 - $328,597)	728,692		744,032	[1]	609,694	[1]
Reclassification adjustment for investment amounts included in net income, net of income tax: (2012 - $(3,317); 2011 - $(14,646); 2010 - $(5,951))	(6,163)		(27,213)	[1]	(10,989)	[1]
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: (2012 - $16,227; 2011 - $(13,195); 2010 - $11,515)	30,136		(24,506)	[1]	21,384	[1]
Change in accumulated (loss) gain - derivatives, net of income tax: (2012 - $2,609; 2011 - $2,382; 2010 - $4,441)	4,846		4,424	[1]	7,630	[1]
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2012 - $(381); 2011 - $(138); 2010 - $(614))	(708)		(256)	[1]	(1,105)	[1]
Total other comprehensive income	756,803	[1]	696,481	[1]	626,614	[1]
Total comprehensive income	$ 1,065,339	[1]	$ 1,020,237	[1]	$ 849,925	[1]

[1] Recast from previously reported information

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SIGNIFICANT ACQUISITIONS

12 Months Ended

Dec. 31, 2012

SIGNIFICANT ACQUISITIONS

SIGNIFICANT ACQUISITIONS

3.             SIGNIFICANT ACQUISITIONS

On December 31, 2010, the Company completed the acquisition of all of the outstanding stock of United Investors Life Insurance Company (“United Investors”), pursuant to a Stock Purchase Agreement, between the Company, Torchmark Corporation (“Torchmark”) and its wholly owned subsidiaries, Liberty National Life Insurance Company (“Liberty National”) and United Investors.  The Company accounted for this transaction under the acquisition method of accounting as required by FASB guidance under the ASC Business Combinations topic. This guidance requires that assets acquired and liabilities assumed are generally recorded at their fair values.  The aggregate purchase price for United Investors was $363.3 million.

On April 29, 2011, the Company closed a previously announced reinsurance transaction with Liberty Life Insurance Company (“Liberty Life”) under the terms of which the Company reinsured substantially all of the life and health business of Liberty Life. The transaction closed in conjunction with Athene Holding Ltd’s acquisition of Liberty Life from an affiliate of Royal Bank of Canada. The capital invested by the Company in the transaction at closing was $321 million, including a $225 million ceding commission. In conjunction with the closing, the Company invested $40 million in a surplus note issued by Athene Life Re. The Company accounted for this transaction under the ASC Financial Services-Insurance topic in a manner similar to the acquisition method of accounting as required by the Financial Accounting Standards Board (“FASB”) guidance under ASC Business Combinations topic.

The following (unaudited) pro forma condensed consolidated results of operations assumes that the aforementioned transactions with Liberty Life and United Investors was completed as of January 1, 2010:

	Unaudited
	For The Year Ended December 31,
	2011		2010
	(Dollars In Thousands)
Revenue	$	3,491,414	$	3,321,743
Net income	$	324,793	$	270,433

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs (“DAC”) and amortization periods, goodwill recoverability, value of business acquired (“VOBA”), investment fair values and other-than-temporary impairments, future policy benefits, pension and other postretirement benefits, provision for income taxes, reserves for contingent liabilities, reinsurance risk transfer assessments, and reserves for losses in connection with unresolved legal matters.

Significant Accounting Policies

Valuation of investment securities

The Company determines the appropriate classification of investment securities at the time of purchase and periodically re-evaluates such designations. Investment securities are classified as either trading, available-for-sale, or held-to-maturity securities. Investment securities classified as trading are recorded at fair value with changes in fair value recorded in realized gains (losses). Investment securities purchased for long term investment purposes are classified as available for sale and are recorded at fair value with changes in unrealized gains and losses, net of taxes, reported as a component of other comprehensive income (loss). Investment securities are classified as held to maturity when the Company has the intent and ability to hold the securities to maturity and are reported at amortized cost. Interest income on available-for-sale and held-to-maturity securities includes the amortization of premiums and accretion of discounts and are recorded in investment income.

The fair value for fixed maturity, short term, and equity securities, is determined by management after considering and evaluating one of three primary sources of information: third party pricing services, 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, any remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flows and rates of prepayments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third party pricing services will normally derive the security prices through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as 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. Included in the pricing of other asset-backed securities, collateralized mortgage obligations (“CMOs”), and mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and rates of prepayments previously experienced at the interest rate levels projected for the underlying collateral. The basis for the cost of securities sold was determined at the Committee on Uniform Securities Identification Procedures (“CUSIP”) level. The committee supplies a unique nine-character identification, called a CUSIP number, for each class of security approved for trading in the U.S., to facilitate clearing and settlement. These numbers are used when any buy and sell orders are recorded.

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 (collectively referred to as asset-backed securities or “ABS”), the Company considers all known market data related to cash flows to estimate 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 year ended December 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $67.1 million. Of the $67.1 million of impairments for the year ended December 31, 2012, $58.1 million was recorded in earnings and $9.0 million was recorded in other comprehensive income (loss). For more information on impairments, refer to Note 4, Investment Operations.

Cash

Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. As a result of the Company’s cash management system, checks issued from a particular bank but not yet presented for payment may create negative book cash balances with the bank. Such negative balances are included in other liabilities and were $96.6 million and $0.9 million as of December 31, 2012 and 2011, respectively. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the creditworthiness of these financial institutions and believes there is minimal risk of a material loss.

Deferred Policy Acquisition Costs

In the first quarter of 2012, the Company adopted ASU No. 2010-26 — Financial Services — Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts.

The incremental direct costs associated with successfully acquired insurance policies, are deferred to the extent such costs are deemed recoverable from future profits. Such costs include commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products. Deferred acquisition costs (“DAC”) is subject to recoverability testing at the end of each accounting period. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization.

Based on the Accounting Standards Codification (“ASC” or “Codification”) Financial Services-Insurance Topic, the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates (equal to the rate used to compute liabilities for future policy benefits, currently 1.0% to 7.95%) the Company expects to experience in future periods. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, using guidance from ASC Investments-Debt and Equity Securities Topic, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with our universal life and investment products had been realized. Acquisition costs for stable value contracts are amortized over the term of the contracts using the effective yield method.

Value of Businesses Acquired

In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is allocated to the right to receive future gross profits from the acquired insurance policies or investment contracts. This intangible asset, called VOBA, represents the actuarially estimated present value of future cash flows from the acquired policies. The estimated present value of future cash flows is based on certain assumptions, including mortality, persistency, expenses, and interest rates that the Company expects to experience in future years. These assumptions are to be best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. The Company amortizes VOBA in proportion to gross premiums for traditional life products and in proportion to expected gross profits (“EGPs”) for interest sensitive products, including accrued interest credited to account balances of up to approximately 8.75%. VOBA is subject to annual recoverability testing.

Property and Equipment

The Company reports land, buildings, improvements, and equipment at cost, including interest capitalized during any acquisition or development period, less accumulated depreciation. The Company depreciates its assets using the straight-line method over the estimated useful lives of the assets. The Company’s home office building is depreciated over a thirty-nine year useful life, furniture is depreciated over a ten year useful life, office equipment and machines are depreciated over a five year useful life, and software and computers are depreciated over a three year useful life. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.

Property and equipment consisted of the following:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Home office building	$	72,587		$	72,148
Data processing equipment	29,209			56,928
Other, principally furniture and equipment	49,220			51,500
	151,016			180,576
Accumulated depreciation	(103,625		)	(132,579		)
Total property and equipment	$	47,391		$	47,997

Separate Accounts

The separate account assets represent funds for which the Company does not bear the investment risk. These assets are carried at fair value and are equal to the separate account liabilities, which represent the policyholder’s equity in those assets. The investment income and investment gains and losses on the separate account assets accrue directly to the policyholder. These amounts are reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements. Amounts assessed against policy account balances for the costs of insurance, policy administration, and other services are included in premiums and policy fees in the accompanying consolidated statements of income.

Stable Value Product Account Balances

The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. GICs are contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

The segment’s products complement the Company’s overall asset/liability management in that the terms may be tailored to the needs of PLICO as the seller of the contracts, as opposed to solely meeting the needs of the buyer.  Stable value product account balances include GICs and funding agreements the Company has issued. As of December 31, 2012 and 2011, the Company had $0.3 billion and $0.8 billion, respectively, of stable value product account balances marketed through structured programs. Most GICs and funding agreements the Company has written have maturities of one to ten years.

As of December 31, 2012, future maturities of stable value products were as follows:

Year of Maturity	Amount
	(Dollars In Millions)
2013	$	432.6
2014-2015	1,231.9
2016-2017	785.7
Thereafter	60.3

Derivative Financial Instruments

The Company records its derivative financial instruments in the consolidated 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 change in the fair value of derivative financial instruments is reported either in the statement of income or in the other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists. For cash flow hedges, the effective portion of their gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis. The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship in earnings. Changes in the fair value of derivatives that are recognized in current earnings are reported in “Realized investment gains (losses) - Derivative financial instruments”. For additional information, see Note 20, Derivative Financial Instruments.

Insurance liabilities and reserves

Establishing an adequate liability for the Company’s obligations to policyholders requires the use of certain assumptions. Estimating liabilities for future policy benefits on life and health insurance products requires the use of assumptions relative to future investment yields, mortality, morbidity, persistency, and other assumptions based on the Company’s historical experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Determining liabilities for the Company’s property and casualty insurance products also requires the use of assumptions, including the projected levels of used vehicle prices, the frequency and severity of claims, and the effectiveness of internal processes designed to reduce the level of claims. The Company’s results depend significantly upon the extent to which its actual claims experience is consistent with the assumptions the Company used in determining its reserves and pricing its products. The Company’s reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. The Company cannot determine with precision the ultimate amounts that it will pay for actual claims or the timing of those payments.

Guaranteed minimum withdrawal benefits

The Company also establishes liabilities for guaranteed minimum withdrawal benefits (“GMWB”) on its variable annuity products. The GMWB is valued in accordance with FASB guidance under the ASC Derivatives and Hedging Topic which utilizes the valuation technique prescribed by the ASC Fair Value Measurements and Disclosures Topic, which requires the liability to be recorded at fair value using current implied volatilities for the equity indices. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, our net GMWB liability held was $169.0 million.

Goodwill

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 first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares 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 certain of its operating segments (which are each 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, which consider a market participant view of fair value, 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, 2012, the Company performed its annual evaluation of goodwill and determined that no adjustment to impair goodwill was necessary. As of December 31, 2012, we had goodwill of $83.8 million.

While continued deterioration of or adverse market conditions for certain businesses may have a significant impact on the fair value of the Company’s reporting units, in the Company’s view, the key assumptions used in its estimates of fair value of its reporting units continue to be adequate, and PLC’s market capitalization being below book value did not result in a triggering or impairment event.

Income Taxes

The results of operations of the Company are included in the consolidated federal and certain state income tax returns of PLC.  The Company utilizes the asset and liability method in accordance with the Accounting Standards Codification (“ASC”) Income Taxes Topic.  The method of allocation of current income taxes between the affiliates is subject to a written agreement under which the Company incurs a liability to PLC to the extent that a separate return calculation indicates that the Company has a federal income tax liability.  If the Company has an income tax benefit, the benefit is recorded currently to the extent it can be carried back against prior years’ separate company income tax expense.  Any amount not carried back is carried forward on a separate company basis (generally without a time limit), and the tax benefit is reflected in future periods when the Company generates taxable income.  Income taxes recoverable (payable) are recorded in other assets and other liabilities, respectively, and are settled periodically, per the tax sharing agreement. In general, income tax provisions are based on the income reported for financial statement purposes. Deferred income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the recorded change in fair value of investment assets, the deferral of policy acquisition costs, and the provision for future policy benefits and expenses.

The Company analyzes whether it needs to establish a valuation allowance on each of its deferred tax assets. In performing this analysis, the Company first considers the need for a valuation allowance on each separate deferred tax asset. Ultimately, it analyzes this need in the aggregate in order to prevent the double-counting of expected future taxable income in each of the foregoing separate analyses.

The Company’s tax returns are included in PLC’s consolidated U.S. income tax return.

Variable Interest Entities

In 2010, the Company adopted guidance issued by the FASB related to variable interest entities (“VIE”) and transfers of financial assets. This adoption resulted in the consolidation of certain qualifying special purpose entities used for mortgage loan securitizations. As part of this adoption, the Company recorded a cumulative effect adjustment  of $14.3 million as of January 1, 2010.

The Company’s VIE 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. For more information on the Company’s investment in unconsolidated a VIE refer to Note 4, Investment Operations, to the consolidated financial statements.

Policyholder Liabilities, Revenues, and Benefits Expense

Traditional Life, Health, and Credit Insurance Products

Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and they include whole life insurance policies, term and term-like life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies. Traditional life insurance premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts.  This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of DAC and VOBA. Gross premiums in excess of net premiums related to immediate annuities are deferred and recognized over the life of the policy.

Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions on December 31, 2012, range from approximately 2.0% to 8.75%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.

Activity in the liability for unpaid claims for life and health insurance is summarized as follows:

	As of December 31,
	2012		2011		2010
	(Dollars In Thousands)
Balance beginning of year	$	312,799	$	299,971	$	299,396
Less: reinsurance	161,450		156,932		148,479
Net balance beginning of year	151,349		143,039		150,917
Incurred related to:
Current year	702,555		653,525		471,039
Prior year	62,926		65,269		35,555
Total incurred	765,481		718,794		506,594
Paid related to:
Current year	664,744		639,118		457,511
Prior year	80,794		76,424		56,961
Total paid	745,538		715,542		514,472
Other changes:
Acquisition and reserve transfers	—		5,058		—
Net balance end of year	171,292		151,349		143,039
Add: reinsurance	155,341		161,450		156,932
Balance end of year	$	326,633	$	312,799	$	299,971

Universal Life and Investment Products

Universal life and investment products include universal life insurance, guaranteed investment contracts, guaranteed funding agreements, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Such fees are recognized when assessed and earned. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest rates credited to universal life products ranged from 2.0% to 8.75% and investment products ranged from 1.5% to 4.55% in 2012.

The Company’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at fair value and reported as components of assets and liabilities related to separate accounts.

The Company establishes liabilities for guaranteed minimum death benefits (“GMDB”) on its variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality and the performance of equity markets. The Company assumes mortality of 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Future declines in the equity market would increase the Company’s GMDB liability. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. Our GMDB as of December 31, 2012, are subject to a dollar-for-dollar reduction upon withdrawal of related annuity deposits on contracts issued prior to January 1, 2003. As of December 31, 2012, the GMDB was $19.6 million.

The Company also establishes liabilities for GMWB on its variable annuity products. The methods used to estimate the liabilities employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality that is consistent with 57% of the National Association of Insurance Commissioners 1994 Variable Annuity GMDB Mortality Table. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. As of December 31, 2012, the net GMWB liability balance was $169.0 million.

Property and Casualty Insurance Products

Property and casualty insurance products include service contract business, surety bonds, guaranteed asset protection (“GAP”), and credit-related coverages. Premiums for service contracts and GAP products are recognized based on expected claim patterns. For all other products, premiums are generally recognized over the terms of the contract on a pro-rata basis. Fee income from providing administrative services is recognized as earned when the related services are performed. Unearned premium reserves are maintained for the portion of the premiums that is related to the unexpired period of the policy. Benefit reserves are recorded when insured events occur. Benefit reserves include case basis reserves for known but unpaid claims as of the balance sheet date as well as incurred but not reported (“IBNR”) reserves for claims where the insured event has occurred but has not been reported to the Company as of the balance sheet date. The case basis reserves and IBNR are calculated based on historical experience and on assumptions relating to claim severity and frequency, the level of used vehicle prices, and other factors. These assumptions are modified as necessary to reflect anticipated trends.

Reinsurance

The Company uses reinsurance extensively in certain of its segments and accounts for reinsurance and the recognition of the impact of reinsurance costs in accordance with the ASC Financial Services — Insurance Topic. The following summarizes some of the key aspects of the Company’s accounting policies for reinsurance.

Reinsurance Accounting Methodology — Ceded premiums of the Company’s traditional life insurance products are treated as an offset to direct premium and policy fee revenue and are recognized when due to the assuming company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable financial reporting period. Expense allowances paid by the assuming companies are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances is treated as an offset to direct amortization of DAC or VOBA. Amortization of deferred expense allowances is calculated as a level percentage of expected premiums in all durations given expected future lapses and mortality and accretion due to interest.

The Company utilizes reinsurance on certain short duration insurance contracts (primarily issued through the Asset Protection segment). As part of these reinsurance transactions the Company receives reinsurance allowances which reimburse the Company for acquisition costs such as commissions and premium taxes. A ceding fee is also collected to cover other administrative costs and profits for the Company. Reinsurance allowances received are capitalized and charged to expense in proportion to premiums earned. Ceded unamortized acquisition costs are netted with direct unamortized acquisition costs in the balance sheet.

Ceded premiums and policy fees on the Company’s universal life (“UL”), variable universal life, bank-owned life insurance (“BOLI”), and annuity products reduce premiums and policy fees recognized by the Company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable valuation period. Commission and expense allowances paid by the assuming companies are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances are amortized based on future expected gross profits. Assumptions regarding mortality, lapses, and interest rates are continuously reviewed and may be periodically changed. These changes will result in “unlocking” that changes the balance in the ceded deferred acquisition cost and can affect the amortization of DAC and VOBA. Ceded unearned revenue liabilities are also amortized based on expected gross profits. Assumptions are based on the best current estimate of expected mortality, lapses and interest spread.

Reinsurance Allowances - The amount and timing of reinsurance allowances (both first year and renewal allowances) are contractually determined by the applicable reinsurance contract and may or may not bear a relationship to the amount and incidence of expenses actually paid by the ceding company. Many of the Company’s reinsurance treaties do, in fact, have ultimate renewal allowances that exceed the direct ultimate expenses. Additionally, allowances are intended to reimburse the ceding company for some portion of the ceding company’s commissions, expenses, and taxes. As a result, first year expenses paid by the Company may be higher than first year allowances paid by the reinsurer, and reinsurance allowances may be higher in later years than renewal expenses paid by the Company.

The Company recognizes allowances according to the prescribed schedules in the reinsurance contracts, which may or may not bear a relationship to actual expenses incurred by the Company. A portion of these allowances is deferred while the non-deferrable allowances are recognized immediately as a reduction of other operating expenses. The Company’s practice is to defer reinsurance allowances in excess of the ultimate allowance. This practice is consistent with the Company’s practice of capitalizing direct expenses. While the recognition of reinsurance allowances is consistent with GAAP, in some cases non-deferred reinsurance allowances may exceed non-deferred direct costs, which may cause net other operating expenses to be negative.

Ultimate reinsurance allowances are defined as the lowest allowance percentage paid by the reinsurer in any policy duration over the lifetime of a universal life policy (or through the end of the level term period for a traditional life policy). Ultimate reinsurance allowances are determined by the reinsurer and set by the individual contract of each treaty during the initial negotiation of each such contract. Ultimate reinsurance allowances and other treaty provisions are listed within each treaty and will differ between agreements since each reinsurance contract is separately negotiated. The Company uses the ultimate reinsurance allowances set by the reinsurers and contained within each treaty agreement to complete its accounting responsibilities.

Amortization of Reinsurance Allowances - Reinsurance allowances do not affect the methodology used to amortize DAC and VOBA, or the period over which such DAC and VOBA are amortized. Reinsurance allowances offset the direct expenses capitalized, reducing the net amount that is capitalized. The amortization pattern varies with changes in estimated gross profits arising from the allowances. DAC and VOBA on traditional life policies are amortized based on the pattern of estimated gross premiums of the policies in force. Reinsurance allowances do not affect the gross premiums, so therefore they do not impact traditional life amortization patterns. DAC and VOBA on universal life products are amortized based on the pattern of estimated gross profits of the policies in force.  Reinsurance allowances are considered in the determination of estimated gross profits, and therefore do impact amortization patterns.

Reinsurance Liabilities - Claim liabilities and policy benefits are calculated consistently for all policies in accordance with GAAP, regardless of whether or not the policy is reinsured. Once the claim liabilities and policy benefits for the underlying policies are estimated, the amounts recoverable from the reinsurers are estimated based on a number of factors including the terms of the reinsurance contracts, historical payment patterns of reinsurance partners, and the financial strength and credit worthiness of reinsurance partners. Liabilities for unpaid reinsurance claims are produced from claims and reinsurance system records, which contain the relevant terms of the individual reinsurance contracts. The Company monitors claims due from reinsurers to ensure that balances are settled on a timely basis. Incurred but not reported claims are reviewed by the Company’s actuarial staff to ensure that appropriate amounts are ceded.

The Company analyzes and monitors the credit worthiness of each of its reinsurance partners to minimize collection issues. For newly executed reinsurance contracts with reinsurance companies that do not meet predetermined standards, the Company requires collateral such as assets held in trusts or letters of credit.

Components of Reinsurance Cost - The following income statement lines are affected by reinsurance cost:

Premiums and policy fees (“reinsurance ceded” on the Company’s financial statements) represent consideration paid to the assuming company for accepting the ceding company’s risks. Ceded premiums and policy fees increase reinsurance cost.

Benefits and settlement expenses include incurred claim amounts ceded and changes in ceded policy reserves. Ceded benefits and settlement expenses decrease reinsurance cost.

Amortization of deferred policy acquisition cost and VOBA reflects the amortization of capitalized reinsurance allowances. Ceded amortization decreases reinsurance cost.

Other expenses include reinsurance allowances paid by assuming companies to the Company less amounts capitalized. Non-deferred reinsurance allowances decrease reinsurance cost.

The Company’s reinsurance programs do not materially impact the other income line of the Company’s income statement. In addition, net investment income generally has no direct impact on the Company’s reinsurance cost. However, it should be noted that by ceding business to the assuming companies, the Company forgoes 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.

Accounting Pronouncements Recently Adopted

ASU No. 2010-26 — Financial Services — Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of this Update is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts. This Update was effective for the Company on January 1, 2012. The Company retrospectively adopted this Update, which resulted in a reduction in its deferred acquisition cost asset as well as a decrease in the amortization associated with those previously deferred costs. There was also a reduction in the level of costs the Company defers. For additional information on the effect this Update had on the Company, see Note 6, Deferred Policy Acquisition Costs and Value of Business Acquired.

ASU No. 2011-03 — Transfers and Servicing - Reconsideration of Effective Control for Repurchase Agreements. This Update amends the assessment of effective control for repurchase agreements to remove 1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and 2) the collateral maintenance implementation guidance related to the criterion. The Board determined that these criterion should not be a determining factor of effective control. This Update was effective for the first interim or annual period beginning on or after December 15, 2011. For the Company, the Update was applied to all repurchase agreements beginning January 1, 2012. The Company has modified its policies and procedures to ensure compliance with the updated guidance. There was no impact to the Company’s results of operations or financial position as a result of this adoption.

ASU No. 2011-04 — Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRSs”). The intent of this Update was not to change the application of the requirements in Topic 820. Some of the amendments clarify the intent regarding the application of existing fair value measurement requirements. The Update expanded requirements for disclosing information about fair value measurements. These changes were effective for interim and annual periods beginning after December 15, 2011. The Company has included the required additional disclosures in Note 19, Fair Value of Financial Instruments, and has modified its policies and processes to ensure compliance with the updated guidance.

ASU No. 2011-05 — Comprehensive Income — Presentation of Comprehensive Income. In this Update, a company has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in 1) a single continuous statement of comprehensive income, or 2) in two separate but consecutive statements. In both choices, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The Company has implemented the two-statement report format outlined in ASU No. 2011-05 beginning in the first quarter of 2012. The amendments in this Update do not change the items that must be reported in other comprehensive income, or the timing of its subsequent reclassification to net income. This Update was effective January 1, 2012.

Commensurate with the effective date of ASU No. 2011-05, the requirement to present reclassifications from other comprehensive income on the face of the income statement, was deferred by ASU No. 2011-12 — Comprehensive Income — Deferral of the Effective for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.

ASU No. 2012-04 — Technical Corrections and Improvements. This Update contains changes intended to clarify the Codification or to correct unintended application of guidance, and which are not expected to have a significant effect on current accounting practice. In addition, this Update includes more substantive, limited-scope improvements to the Codification. These are items that represent narrow and incremental improvements to U.S. GAAP and are not purely technical corrections. This Update was effective upon issuance on October 1, 2012, and will not have an impact on the Company’s results of operations or financial position.

Accounting Pronouncements Not Yet Adopted

ASU No. 2011-11 — Balance Sheet — Disclosures about Offsetting Assets and Liabilities. This Update contains new disclosure requirements regarding the nature of an entity’s rights of offset and related arrangements associated with its financial and derivative instruments. The new disclosures are designed to make financial statements that are prepared under GAAP more comparable to those prepared under IFRSs. Generally, it is more difficult to qualify for offsetting under IFRSs than it is under GAAP. As a result, entities with significant financial instrument and derivative portfolios that report under IFRSs typically present positions on their balance sheets that are significantly larger than those of entities with similarly sized portfolios whose financial statements are prepared in accordance with GAAP. To facilitate comparison between financial statements prepared under GAAP and IFRSs, the new disclosures will give financial statement users information about both gross and net exposures. In January 2013, the FASB issued ASU No. 2013-01, which clarifies that application of ASU No. 2011-11 is limited to certain derivatives, repurchase and reverse repurchase agreements, and securities borrowing and securities lending transactions. Both Updates are effective January 1, 2013. However, the Company expects that neither Update will have an impact on the Company’s results of operations or financial position.

ASU No. 2012-02 — Intangibles-Goodwill and Other — Testing Indefinite-Lived Intangible Assets for Impairment. This Update is intended to reduce the complexity and cost of performing an impairment test for indefinite-lived intangible assets by allowing an entity the option to make a qualitative evaluation about the likelihood of impairment prior to the quantitative calculation required by current guidance. Under the amendments to Topic 350, an entity has the option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. If an entity determines it is not more likely than not that impairment exists, quantitative impairment testing is not required. However, if an entity concludes otherwise, the impairment test outlined in current guidance is required to be completed. The Update does not change the current requirement that indefinite-lived intangible assets be reviewed for impairment at least annually.

ASU No. 2013-02 — Comprehensive Income — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update supersede the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05, Comprehensive Income - Presentation of Comprehensive Income, and ASU No. 2011-12, Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, for all entities. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  The Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. This Update will not have an impact on the Company’s results of operations or financial position.

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EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2012

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS

14. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan and Unfunded Excess Benefit Plan

PLC sponsors a defined benefit pension plan covering substantially all of its employees. Benefits are based on years of service and the employee’s compensation.

Effective January 1, 2008, PLC made the following changes to its defined benefit pension plan. These changes have been reflected in the computations within this note.

· Employees hired after December 31, 2007, will receive benefits under a cash balance plan.

· Employees active on December 31, 2007, with age plus vesting service less than 55 years will receive a final pay-based pension benefit for service through December 31, 2007, plus a cash balance benefit for service after December 31, 2007.

· Employees active on December 31, 2007, with age plus vesting service equaling or exceeding 55 years, will receive a final pay-based pension benefit for service both before and after December 31, 2007, with a modest reduction in the formula for benefits earned after December 31, 2007.

· All participants terminating employment on or after December of 2007 may elect to receive a lump sum benefit.

PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”) plus such additional amounts as PLC may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

Under the Pension Protection Act of 2006 (“PPA”), a plan could be subject to certain benefit restrictions if the plan’s adjusted funding target attainment percentage (“AFTAP”) drops below 80%. Therefore, PLC may make additional contributions in future periods to maintain an AFTAP of at least 80%. In general, the AFTAP is a measure of how well the plan is funded and is obtained by dividing the plan’s assets by the plan’s funding liabilities. AFTAP is based on participant data, plan provisions, plan methods and assumptions, funding credit balances, and plan assets as of the plan valuation date.  Some of the assumptions and methods used to determine the plan’s AFTAP may be different from the assumptions and methods used to measure the plan’s funded status on a GAAP basis.

In July of 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), which includes pension funding stabilization provisions, was signed into law. These provisions establish an interest rate corridor which is designed to stabilize the segment rates used to determine funding requirements from the effects of interest rate volatility. The funding stabilization provisions of MAP-21 will reduce PLC’s minimum required defined benefit plan contributions for the 2012 and 2013 plan years. We are evaluating the impact this change will have on funding requirements in future years.  Since the funding stabilization provisions of MAP-21 do not apply for Pension Benefit Guaranty Corporation (“PBGC”) reporting purposes, PLC may also make additional contributions in future periods to maintain an 80% funded status for PBGC reporting purposes.

During the twelve months ended December 31, 2012, PLC contributed $11.6 million to its defined benefit pension plan for the 2011 plan year and $9.6 million to its defined benefit pension plan for the 2012 plan year. PLC has not yet determined what amount it will fund during 2013, but estimates that the amount will be between $6 million and $15 million.

PLC also sponsors an unfunded excess benefit plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed on qualified plans by federal tax law.

PLC uses a December 31 measurement date for all of its plans. The following table presents the benefit obligation, fair value of plan assets, and the funded status of PLC’s defined benefit pension plan and unfunded excess benefit plan as of December 31. This table also includes the amounts not yet recognized as components of net periodic pension costs as of December 31:

	Defined Benefit						Unfunded Excess
	Pension Plan						Benefit Plan
	2012			2011			2012			2011
	(Dollars In Thousands)
Accumulated benefit obligation, end of year	$	210,319		$	186,300		$	39,828		$	33,675
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	199,162		$	165,704		$	36,256		$	31,592
Service cost	9,145			8,682			867			679
Interest cost	8,977			8,938			1,473			1,506
Amendments	—			94			—			3
Actuarial (gain) or loss	15,286			23,859			6,946			4,187
Special termination benefits	—			—			—			—
Benefits paid	(9,251		)	(8,115		)	(2,571		)	(1,711		)
Projected benefit obligation at end of year	223,319			199,162			42,971			36,256
Change in plan assets:
Fair value of plan assets at beginning of year	125,058			117,856			—			—
Actual return on plan assets	15,202			2,874			—			—
Employer contributions(1)	21,178			12,443			2,571			1,711
Benefits paid	(9,251		)	(8,115		)	(2,571		)	(1,711		)
Fair value of plan assets at end of year	152,187			125,058			—			—
After reflecting FASB guidance:
Funded status	(71,132		)	(74,104		)	(42,971		)	(36,256		)
Amounts recognized in the balance sheet:
Other liabilities	(71,132		)	(74,104		)	(42,971		)	(36,256		)
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	95,055			91,804			17,571			11,924
Prior service cost/(credit)	(1,816		)	(2,208		)	48			60
Total	$	93,239		$	89,596		$	17,619		$	11,984

(1)  Employer contributions disclosed are based on PLC’s fiscal filing year

Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:

	Defined Benefit Pension				Unfunded Excess
	Plan				Benefit Plan
	2012		2011		2012		2011
Discount rate	4.07	%	4.62	%	3.37	%	4.07	%
Rate of compensation increase	3.0		2.5 - 3.0		4.0		3.5 - 4.0
Expected long-term return on plan assets	7.5		7.75		N/A		N/A

The assumed discount rates used to determine the benefit obligations were based on an analysis of future benefits expected to be paid under the plans. The assumed discount rate reflects the interest rate at which an amount that is invested in a portfolio of high-quality debt instruments on the measurement date would provide the future cash flows necessary to pay benefits when they come due.

In assessing the reasonableness of its long-term rate of return assumption, PLC obtained 25 year annualized returns for each of the represented asset classes. In addition, PLC received evaluations of market performance based on PLC’s asset allocation as provided by external consultants. A combination of these statistical analytics provided results that PLC utilized to determine an appropriate long-term rate of return assumption.

Weighted-average assumptions used to determine the net periodic benefit cost for the year ended December 31 are as follows:

	Defined Benefit Pension Plan						Unfunded Excess Benefit Plan
	2012		2011		2010		2012		2011		2010
Discount rate	4.62	%	5.30	%	5.57	%	4.07	%	4.79	%	5.4	%
Rates of compensation increase	2.5 - 3.0		2.5 - 3.0		0 - 3.75		3.5 - 4.0		3.5 - 4.0		0 - 4.75
Expected long-term return on plan assets	7.75		7.75		8.00		N/A		N/A		N/A

Components of the net periodic benefit cost for the year ended December 31 are as follows:

	Defined Benefit Pension Plan									Unfunded Excess Benefit Plan
	2012			2011			2010			2012		2011		2010
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	9,145		$	8,682		$	7,423		$	867	$	679	$	584
Interest cost on projected benefit obligation	8,977			8,938			8,091			1,473		1,506		1,545
Expected return on plan assets	(10,916		)	(10,021		)	(9,349		)	—		—		—
Amortization of prior service cost/(credit)	(392		)	(392		)	(403		)	12		12		12
Amortization of actuarial losses(1)	7,749			5,625			3,905			1,300		881		653
Total benefit cost	$	14,563		$	12,832		$	9,667		$	3,652	$	3,078	$	2,794

(1) 2012 average remaining service period used is 8.14 years and 7.51 years for the defined benefit pension plan and unfunded excess benefit plan, respectively.

The estimated net actuarial loss, prior service cost/(credit), and transition obligation for these plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2013 is as follows:

	Defined Benefit			Unfunded Excess
	Pension Plan			Benefit Plan
	(Dollars In Thousands)
Net actuarial loss	$	9,150		$	1,767
Prior service cost/(credit)	(392		)	12
Transition obligation	—			—

The amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the Plan.

Allocation of plan assets of the defined benefit pension plan by category as of December 31 are as follows:

	Target
	Allocation for
Asset Category	2013		2012		2011
Cash and cash equivalents	2.0	%	4.0	%	1.0	%
Equity securities	60.0		60.0		61.0
Fixed income	38.0		36.0		38.0
Total	100.0	%	100.0	%	100.0	%

PLC’s target asset allocation is designed to provide an acceptable level of risk and balance between equity assets and fixed income assets. The weighting towards equity securities is designed to help provide for an increased level of asset growth potential and liquidity.

Prior to July 1999, upon an employee’s retirement, a distribution from pension plan assets was used to purchase a single premium annuity from PLC in the retiree’s name. Therefore, amounts shown above as plan assets exclude assets relating to such retirees. Since July 1999, retiree obligations have been fulfilled from pension plan assets. The defined benefit pension plan has a target asset allocation of 60% domestic equities, 38% fixed income, and 2% cash. When calculating asset allocation, PLC includes reserves for pre-July 1999 retirees.

PLC’s investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants. The investment guidelines consider a broad range of economic conditions. Central to the policy are target allocation ranges (shown above) by major asset categories. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies.

The plan’s equity assets are in a Russell 3000 index fund that invests in a domestic equity index collective trust managed by Northern Trust Corporation and in a Spartan 500 index fund managed by Fidelity. The plan’s cash is invested in a collective trust managed by Northern Trust Corporation. The plan’s fixed income assets are invested in a group deposit administration annuity contract with PLC.

Plan assets of the defined benefit pension plan by category as of December 31, are as follows:

	As of December 31,
Asset Category	2012		2011
	(Dollars In Thousands)
Cash	$	6,222	$	1,004
Equity securities:
Collective Russell 3000 Equity Index Fund	61,451		52,792
Fidelity Spartan U.S. Equity Index Fund	34,482		29,735
Fixed income	50,032		41,527
Total investments	152,187		125,058
Employer contribution receivable	—		2,270
Total	$	152,187	$	127,328

The valuation methodologies used to determine the fair values reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. The Plan’s group deposit administration annuity contract with the Company is recorded at contract value, which, by utilizing a long-term view, the Company believes approximates fair value. Contract value represents contributions made under the contract, plus interest at the contract rate, less funds used to purchase annuities. Units in collective short-term and collective investment funds are valued at the unit value, which approximates fair value, as reported by the trustee of the collective short-term and collective investment funds on each valuation date. These methods of valuation may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Collective short-term investment fund	$	—	$	6,222	$	—	$	6,222
Collective investment funds	—		95,933		—		95,933
Group deposit administration annuity contract	—		—		50,032		50,032
Total investments	$	—	$	102,155	$	50,032	$	152,187

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Collective short-term investment fund	$	—	$	1,004	$	—	$	1,004
Collective investment funds	—		82,527		—		82,527
Group deposit administration annuity contract	—		—		41,527		41,527
Total investments	$	—	$	83,531	$	41,527	$	125,058

For the year ended December 31, 2012, $6.0 million was transferred into Level 3 from Level 2. This transfer was made to maintain an acceptable asset allocation as set by PLC’s investment policy.

For the year ended December 31, 2012, there were no transfers between Level 1 and Level 2.

For the year ended December 31, 2011, there were no transfers between levels.

A reconciliation of the beginning and ending balances for the fair value measurements for which significant unobservable inputs (Level 3) have been used is as follows:

	As of December 31,
	2012		2011
	(Dollars In Thousands)
Balance, beginning of year	$	41,527	$	39,403
Interest income	2,505		2,124
Transfers from collective short-term investments fund	6,000		—
Transfers to collective short-term investments fund	—		—
Balance, end of year	$	50,032	$	41,527

Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect the amounts reported.

Estimated future benefit payments under the defined benefit pension plan are as follows:

	Defined Benefit		Unfunded Excess
Years	Pension Plan		Benefit Plan
	(Dollars In Thousands)
2013	$	13,088	$	3,614
2014	12,516		3,742
2015	12,949		3,843
2016	13,603		3,838
2017	15,250		4,001
2018-2022	81,524		17,486

Other Postretirement Benefits

In addition to pension benefits, PLC provides limited healthcare benefits to eligible retired employees until age 65. This postretirement benefit is provided by an unfunded plan. As of December 31, 2012 and 2011, the accumulated postretirement benefit obligation associated with these benefits was $0.8 million and $0.9 million, respectively.

The change in the benefit obligation for the retiree medical plan is as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	949		$	1,309
Service cost	6			9
Interest cost	17			28
Amendments	—			(29		)
Actuarial (gain) or loss	(144		)	(297		)
Plan participant contributions	293			255
Benefits paid	(333		)	(326		)
Special termination benefits	—			—
Benefit obligation, end of year	$	788		$	949

For the retiree medical plan, PLC’s discount rate assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2012, is 1.09% and 1.97%, respectively.

For a closed group of retirees over age 65, PLC provides a prescription drug benefit. As of December 31, 2012 and 2011, PLC’s liability related to this benefit was less than $0.1 million. PLC’s obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.

PLC also offers life insurance benefits for retirees from $10,000 up to a maximum of $75,000 which are provided through the payment of premiums under a group life insurance policy. This plan is partially funded at a maximum of $50,000 face amount of insurance. The accumulated postretirement benefit obligation associated with these benefits is as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	8,951		$	7,955
Service cost	123			118
Interest cost	412			416
Amendments	—			—
Actuarial (gain) or loss	895			816
Plan participant contributions	—			—
Benefits paid	(311		)	(354		)
Special termination benefits	—			—
Benefit obligation, end of year	$	10,070		$	8,951

For the postretirement life insurance plan, PLC’s discount rate assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2012, is 4.10% and 4.62%, respectively.

PLC’s expected long-term rate of return assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2012, is 3.26% and 3.45%, respectively. In assessing the reasonableness of its long-term rate of return assumption, PLC utilized a 20 year annualized return and a 20 year average return on Barclay’s short treasury index. PLC’s long-term rate of return assumption was determined based on analytics related to these 20 year return results.

Investments of PLC’s group life insurance plan are held by Wells Fargo Bank, N.A. Plan assets held by the Custodian are invested in a money market fund.

The fair value of each major category of plan assets for PLC’s postretirement life insurance plan is as follows:

	For The Year Ended December 31,
Category of Investment	2012		2011		2010
	(Dollars In Thousands)
Money Market Fund	$	6,174	$	6,193	$	6,217

Investments are stated at fair value and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The money market funds are valued based on historical cost, which represents fair value, at year end. This method of valuation may produce a fair value calculation that may not be reflective of future fair values. Furthermore, while PLC believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money Market Fund	$	6,174	$	—	$	—	$	6,174

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of  December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money Market Fund	$	6,193	$	—	$	—	$	6,193

For the year ended December 31, 2012 and 2011, there were no transfers between levels.

Investments are exposed to various risks, such as interest rate and credit risks. Due to the level of risk associated with investments and the level of uncertainty related to credit risks, it is at least reasonably possible that changes in risk in the near term could materially affect the amounts reported.

401(k) Plan

PLC sponsors a 401(k) Plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code or as after-tax “Roth” contributions. Employees may contribute up to 25% of their eligible annual compensation to the 401(k) Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service ($17,000 for 2012). The Plan also provides a “catch-up” contribution provision which permits eligible participants (age 50 or over at the end of the calendar year), to make additional contributions that exceed the regular annual contribution limits up to a limit periodically set by the Internal Revenue Service ($5,500 for 2012). PLC matches the sum of all employee contributions dollar for dollar up to a maximum of 4% of an employee’s pay per year per person. All matching contributions vest immediately.

Prior to 2009, employee contributions to PLC’s 401(k) Plan were matched through use of an ESOP established by PLC. Beginning in 2009, PLC adopted a cash match for employee contributions to the 401(k) plan. For the year ended December 31, 2012, and 2011, PLC recorded an expense of $5.9 million and $5.6 million, respectively.

Effective as of January 1, 2005, PLC adopted a supplemental matching contribution program, which is a nonqualified plan that provides supplemental matching contributions in excess of the limits imposed on qualified defined contribution plans by federal tax law. The first allocations under this program were made in early 2006, with respect to the 2005 plan year. The expense recorded by PLC for this employee benefit was $0.4 million, $0.4 million, and $0.2 million, respectively, in 2012, 2011, and 2010.

Deferred Compensation Plan

PLC has established deferred compensation plans for directors, officers, and others. Compensation deferred is credited to the participants in cash, mutual funds, common stock equivalents, or a combination thereof. PLC may, from time to time, reissue treasury shares or buy in the open market shares of common stock to fulfill its obligation under the plans. As of December 31, 2012, the plans had 932,801 common stock equivalents credited to participants. PLC’s obligations related to its deferred compensation plans are reported in other liabilities, unless they are to be settled in shares of its common stock, in which case they are reported as a component of shareowners’ equity.

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DEBT AND OTHER OBLIGATIONS

12 Months Ended

Dec. 31, 2012

DEBT AND OTHER OBLIGATIONS

DEBT AND OTHER OBLIGATIONS

10. DEBT AND OTHER OBLIGATIONS

Under a revolving line of credit arrangement that was in effect as of July 17, 2012 (the “Credit Facility”), the Company had the ability to borrow on an unsecured basis up to an aggregate principal amount of $500 million. The Company had 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 accrued 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 our senior unsecured long-term debt. The Credit Agreement provides that the Company is 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 was April 16, 2013. The Company did not have an outstanding balance under the Credit Facility as of December 31, 2012. PLC had an outstanding balance of $160.0 million at an interest rate of LIBOR plus 0.40% under the Credit Facility as of July 17, 2012.

On July 17, 2012 the Company replaced the Credit Facility with a new credit facility (“2012 Credit Facility”). Under the 2012 Credit Facility, the Company and PLC has the ability to borrow on an unsecured basis up to an aggregate principal amount of $750 million. The Company has the right in certain circumstances to request that the commitment under the 2012 Credit Facility be increased up to a maximum principal amount of $1.0 billion. Balances outstanding under the 2012 Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i)  LIBOR plus a spread based on the ratings of PLC’s senior unsecured long-term debt (“Senior Debt”), or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of PLC’s Senior Debt. The 2012 Credit Facility also provides for a facility fee at a rate that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the 2012 Credit Facility, whether used or unused. The maturity date on the 2012 Credit Facility is July 17, 2017. The Company is not aware of any non-compliance with the financial debt covenants of the 2012 Credit Facility as of December 31, 2012. The Company did not have an outstanding balance under the Credit Facility as of December 31, 2012. PLC had an outstanding balance of $50.0 million at an interest rate of LIBOR plus 1.20% under the 2012 Credit Facility as of December 31, 2012.

Non-Recourse Funding Obligations

Golden Gate Captive Insurance Company

Golden Gate Captive Insurance Company (“Golden Gate”), a South Carolina special purpose financial captive insurance company and wholly owned subsidiary, had three series of Surplus Notes with a total outstanding balance of $800 million as of December 31, 2012. PLC holds the entire outstanding balance of Surplus Notes. The Series A1 Surplus Notes have a balance of $400 million and accrue interest at 7.375%, the Series A2 Surplus Notes have a balance of $100 million and accrue interest at 8%, and the Series A3 Surplus Notes have a balance of $300 million and accrue interest at 8.45%.

Golden Gate II Captive Insurance Company

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 December 31, 2012. These outstanding non-recourse funding obligations were issued to special purpose trusts, which in turn issued securities to third parties. Certain of our affiliates purchased a portion of these securities during 2011 and 2012. As a result of these purchases, as of December 31, 2012, securities related to $286.0 million of the outstanding balance of the non-recourse funding obligations was held by external parties, securities related to $60.9 million of the non-recourse funding obligations was held by nonconsolidated affiliates, and $228.1 million was held by consolidated subsidiaries of the Company. These non-recourse funding obligations mature in 2052. $275 million of this amount is currently accruing interest at a rate of LIBOR plus 30 basis points. We have experienced higher borrowing costs than were originally expected 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 higher spread component of interest expense 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. We have contingent approval to issue an additional $100 million of obligations. Under the terms of the non-recourse funding obligations, the holders of the non-recourse funding obligations cannot require repayment from PLC, us, or any of our subsidiaries, other than Golden Gate II, the direct issuers of the non-recourse funding obligations, 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 non-recourse funding obligations). In addition, PLC has entered into certain support agreements with Golden Gate II obligating it to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate II.

Golden Gate V Vermont Captive Insurance Company

On October 10, 2012, Golden Gate V and Red Mountain, wholly owned subsidiaries of the Company, entered into a 20-year transaction to finance up to $945 million of “AXXX” reserves related to a block of universal life insurance policies with secondary guarantees issued by the Company and its subsidiary, West Coat Life Insurance Company (“WCL”). Golden Gate V issued non-recourse funding obligations to Red Mountain, and Red Mountain issued a note with an initial principal amount of $275 million, increasing to a maximum of $945 million in 2027, to Golden Gate V for deposit to a reinsurance trust supporting Golden Gate V’s obligations under a reinsurance agreement with WCL, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. Through the structure, Hannover Life Reassurance Company of America (“Hannover Re”), the ultimate risk taker in the transaction, provides credit enhancement to the Red Mountain note for the 20-year term in exchange for a fee. The transaction is “non-recourse” to Golden Gate V, Red Mountain, WCL, PLC and the Company, meaning that none of these companies are liable for the reimbursement of any credit enhancement payments required to be made. As of December 31, 2012, the principal balance of the Red Mountain note was $300 million. In connection with the transaction, PLC has entered into certain support agreements under which we guarantee or otherwise support certain obligations of Golden Gate V or Red Mountain.

In connection with the transaction outlined above, Golden Gate V had a $300 million outstanding non-recourse funding obligation as of December 31, 2012. This non-recourse funding obligation matures in 2037, has scheduled increases in principal to a maximum of $945 million, and accrues interest at a fixed annual rate of 6.25%.

Non-recourse funding obligations outstanding as of December 31, 2012, on a consolidated basis, are shown in the following table:

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.86	%
Golden Gate II Captive Insurance Company	346,900		2052	1.22
Golden Gate V Vermont Captive Insurance Company	300,000		2037	6.25
Total	$	1,446,900

Non-recourse funding obligations outstanding as of December 31, 2011, on a consolidated basis, are shown in the following table:

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.88	%
Golden Gate II Captive Insurance Company	448,600		2052	1.37
Total	$	1,248,600

During 2012, the Company repurchased $101.7 million of its outstanding non-recourse funding obligations, at a discount. These repurchases resulted in a $32.0 million pre-tax gain for the Company.

Letters of Credit

Golden Gate III Vermont Captive Insurance Company

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement (the “Reimbursement Agreement”) with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the original Reimbursement Agreement, dated April 23, 2010, UBS issued a letter of credit (the “LOC”) in the initial amount of $505 million to a trust for the benefit of our wholly owned subsidiary, WCL. The LOC balance increased during 2011 in accordance with the terms of the Reimbursement Agreement. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011, to replace the existing LOC with one or more letters of credit from UBS, and to extend the maturity date from April 1, 2018, to April 1, 2022. The LOC balance was $580 million as of December 31, 2012. 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 12 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 to WCL under an indemnity reinsurance agreement.

Golden Gate IV Vermont Captive Insurance Company

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. The LOC balance has increased, in accordance with the terms of the Reimbursement Agreement, each quarter of 2012 and was $625 million as of December 31, 2012. Subject to certain conditions, the amount of the LOC will be periodically increased up to a maximum of $790 million in 2016. The term of the LOC is expected to be 12 years. The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement effective October 1, 2010, which was subsequently amended and restated as of July 1, 2011.

Repurchase Program Borrowings

While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities. As of December 31, 2012, the fair value of securities pledged under the repurchase program was $168.1 million and the repurchase obligation of $150.0 million was included in the Company’s consolidated balance sheets (at an average borrowing rate of 15 basis points). During 2012, the maximum balance outstanding at any one point in time related to these programs was $425.0 million. The average daily balance was $266.3 million (at an average borrowing rate of 14 basis points) during the year ended December 31, 2012. As of December 31, 2011, the Company had no outstanding balance related to such borrowings. These borrowings are for a term less than thirty days. During 2011, the maximum balance outstanding at any one point in time related to these programs was $348.2 million. The average daily balance was $147.7 million (at an average borrowing rate of 13 basis points) during the year ended December 31, 2011.

Other obligations

The Company routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another’s behalf. Receivables and payables among affiliates are generally settled monthly.

Interest Expense

Interest expense on non-recourse funding obligations, letters of credit, and other temporary borrowings was $92.9 million, $90.8 million, and $71.4 million in 2012, 2011, and 2010, respectively. The $2.1 million variance was primarily due to an increase in interest expense on the Golden Gate V non-recourse funding obligation which was offset by reductions in interest expense as a result of the Company’s repurchase of non-recourse funding obligations during the year.

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STOCK-BASED COMPENSATION (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012
Base Price - $26.49
Stock-based compensation
Base Price (in dollars per share)	$ 26.49
SARs Outstanding (in shares)	50,000
Remaining Life	1 year
Currently Exercisable (in shares)	50,000
Base Price - $41.05
Stock-based compensation
Base Price (in dollars per share)	$ 41.05
SARs Outstanding (in shares)	106,700
Remaining Life	3 years
Currently Exercisable (in shares)	106,700
Base Price - $48.60
Stock-based compensation
Base Price (in dollars per share)	$ 48.60
SARs Outstanding (in shares)	38,400
Remaining Life	4 years
Currently Exercisable (in shares)	38,400
Base Price - $45.70
Stock-based compensation
Base Price (in dollars per share)	$ 45.70
SARs Outstanding (in shares)	35,070
Remaining Life	4 years
Currently Exercisable (in shares)	35,070
Base Price - $ 43.46
Stock-based compensation
Base Price (in dollars per share)	$ 43.46
SARs Outstanding (in shares)	181,550
Remaining Life	5 years
Currently Exercisable (in shares)	181,550
Base Price - $48.05
Stock-based compensation
Base Price (in dollars per share)	$ 48.05
SARs Outstanding (in shares)	3,000
Remaining Life	5 years
Currently Exercisable (in shares)	3,000
Base Price - $41.12
Stock-based compensation
Base Price (in dollars per share)	$ 41.12
SARs Outstanding (in shares)	2,500
Remaining Life	5 years
Currently Exercisable (in shares)	2,500
Base Price - $38.59
Stock-based compensation
Base Price (in dollars per share)	$ 38.59
SARs Outstanding (in shares)	303,100
Remaining Life	6 years
Currently Exercisable (in shares)	303,100
Base Price - $3.50
Stock-based compensation
Base Price (in dollars per share)	$ 3.50
SARs Outstanding (in shares)	629,608
Remaining Life	7 years
Currently Exercisable (in shares)	629,608
Base Price - $17.48
Stock-based compensation
Base Price (in dollars per share)	$ 17.48
SARs Outstanding (in shares)	8,000
Remaining Life	8 years
Currently Exercisable (in shares)	5,333
Base Price - $18.36
Stock-based compensation
Base Price (in dollars per share)	$ 18.36
SARs Outstanding (in shares)	283,239
Remaining Life	8 years
Currently Exercisable (in shares)	181,888

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DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

12 Months Ended

Dec. 31, 2012

DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

6. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

On January 1, 2012, the Company adopted ASU No. 2010-26—Financial Services—Insurance—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. For more information on how this Updated impacted our accounting policies related to deferred acquisition costs, refer to the Accounting Pronouncements Recently Adopted section of Note 2, Summary of Significant Accounting Policies. The Company retrospectively adopted this Update, which resulted in several adjustments to the Company’s balance sheet on the date of adoption and income statements for periods prior to January 1, 2012. The Update primarily resulted in a reduction in its deferred acquisition cost asset as well as a decrease in the amortization associated with those deferred costs. There was also a reduction in the level of costs the Company defers. As part of the Company’s retrospective adoption of this Update, a cumulative effect adjustment was recorded as of January 1, 2010 which was the earliest period presented. The cumulative effect adjustment resulted in a decrease of $469.6 million in retained earnings, a decrease of $0.3 million in accumulated other comprehensive income, and an overall decrease of $469.9 million in total shareowner’s equity.

The chart shown below summarizes the effect of the adjustments on the Company’s 2011 consolidated balance sheet (only balances impacted by the Update are presented):

	As of December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Assets:
Deferred policy acquisition costs and value of business acquired	$	4,011,936	$	3,223,220	$	(788,716	)
Total assets	$	52,791,899	$	52,003,183	$	(788,716	)
Liabilities:
Deferred income taxes	$	1,573,764	$	1,293,996	$	(279,768	)
Total liabilities	$	47,405,601	$	47,125,833	$	(279,768	)
Equity:
Retained earnings	$	2,984,466	$	2,456,293	$	(528,173	)
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax	1,076,854		1,096,079		19,225
Total equity	$	5,386,298	$	4,877,350	$	(508,948	)
Total liabilities and shareowner’s equity	$	52,791,899	$	52,003,183	$	(788,716	)

The charts shown below summarize the effect of the adjustments on the Company’s income statement for the years ended December 31, 2011 and 2010 (only balances impacted by the Update are presented).

	For The Year Ended December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	300,450	$	249,520	$	(50,930	)
Other operating expenses	373,964		461,570		87,606
Total benefits and expenses	2,896,634		2,933,310		36,676
Income before income tax	511,951		475,275		(36,676		)
Income tax (benefit) expense	164,517		151,519		(12,998		)
Net income	$	347,434	$	323,756	$	(23,678	)

	For The Year Ended December 31, 2010
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	189,255	$	144,496	$	(44,759	)
Other operating expenses	284,070		382,920		98,850
Total benefits and expenses	2,549,717		2,603,808		54,091
Income before income tax	387,267		333,176		(54,091		)
Income tax (benefit) expense	129,029		109,865		(19,164		)
Net income	$	258,238	$	223,311	$	(34,927	)

The charts shown below summarize the effect of the adjustments on the Company’s cash flow statement for the years ended December 31, 2011 and 2010 (only balances impacted by the Update are presented).

	For The Year Ended December 31, 2011
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	347,434		$	323,756		$	(23,678	)
Amortization of deferred policy acquisition costs and value of business acquired	300,450			249,520			(50,930		)
Capitalization of deferred policy acquisition costs	(442,638		)	(355,033		)	87,605
Deferred income tax	120,262			107,265			(12,997		)
Change to net cash (used in) provided by operating activities	$	325,508		$	325,508		$	—

	For The Year Ended December 31, 2010
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	258,238		$	223,311		$	(34,927	)
Amortization of deferred policy acquisition costs and value of business acquired	189,255			144,496			(44,759		)
Capitalization of deferred policy acquisition costs	(446,560		)	(348,730		)	97,830
Deferred income tax	85,483			66,682			(18,801		)
Other, net	(47,319		)	(46,662		)	657
Change to net cash (used in) provided by operating activities	$	39,097		$	39,097		$	—

Deferred policy acquisition costs

The balances and changes in DAC are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	2,291,613		$	2,182,085
Capitalization of commissions, sales, and issue expenses	311,959			355,033
Amortization	(105,447		)	(159,329		)
Change in unrealized investment gains and losses	(90,599		)	(86,176		)
Balance, end of period	$	2,407,526		$	2,291,613

Value of business acquired

The balances and changes in VOBA are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	931,607		$	881,324
Acquisitions	—			137,418
Amortization	(86,736		)	(90,192		)
Change in unrealized gains and losses	(27,041		)	3,057
Balance, end of period	$	817,830		$	931,607

The expected amortization of VOBA for the next five years is as follows:

	Expected
Years	Amortization
	(Dollars In Thousands)
2013	$	71,285
2014	63,386
2015	55,618
2016	50,957
2017	43,753

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) (USD $)	0 Months Ended	12 Months Ended
	Jan. 02, 2010	Dec. 31, 2012	Dec. 31, 2009		Dec. 31, 2011		Dec. 31, 2010
Goodwill
Adjustment to impair goodwill		$ 0
Goodwill		83,773,000			86,871,000	[1]	89,970,000
Variable Interest Entities
Cumulative effect adjustment resulting from adoption of guidance related to VIE	14,300,000		(455,602,000)	[1]
Maximum percentage of ownership interest held in entities by the entity to cover them in VIE analysis		100.00%
Policyholder Liabilities, Revenues and Benefits Expense
Reserve investment yield assumptions, high end of the range (as a percent)		2.00%
Reserve investment yield assumptions, low end of the range (as a percent)		8.75%
Guaranteed minimum withdrawal benefits (GMWB) | Annuity account balances
Guaranteed minimum withdrawal benefits
Mortality rate assumed (as a percent)		57.00%
Guaranteed benefit liability, net		$ 169,000,000

[1] Recast from previously reported information

XML

OPERATING SEGMENTS (Details) (USD $)	3 Months Ended									12 Months Ended																		3 Months Ended	12 Months Ended			3 Months Ended	12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011		Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010		Dec. 31, 2012 Life Marketing	Dec. 31, 2011 Life Marketing	Dec. 31, 2010 Life Marketing	Dec. 31, 2012 Acquisitions	Dec. 31, 2011 Acquisitions	Dec. 31, 2010 Acquisitions	Dec. 31, 2012 Annuities	Dec. 31, 2011 Annuities	Dec. 31, 2010 Annuities	Dec. 31, 2012 Stable Value Products	Dec. 31, 2011 Stable Value Products	Dec. 31, 2010 Stable Value Products	Mar. 31, 2010 Asset Protection	Dec. 31, 2012 Asset Protection	Dec. 31, 2011 Asset Protection	Dec. 31, 2010 Asset Protection	Mar. 31, 2011 Corporate and Other	Dec. 31, 2012 Corporate and Other	Dec. 31, 2011 Corporate and Other	Dec. 31, 2010 Corporate and Other	Dec. 31, 2012 Adjustments	Dec. 31, 2011 Adjustments
Summarized financial information for the company's segments
Decrease in reserves related to final settlement in runoff line of business																												$ 7,800,000
Pre-tax earnings relating to settlement of a dispute																																8,500,000
Intersegment transactions amount										0		0		0
Revenues	823,070,000	864,196,000	867,039,000	901,755,000	842,684,000		898,499,000	866,375,000	801,027,000	3,456,060,000		3,408,585,000	[1]	2,936,984,000	[1]	1,233,654,000	1,193,927,000	1,127,924,000	1,064,295,000	982,821,000	761,344,000	610,489,000	633,185,000	500,697,000	123,274,000	170,455,000	168,127,000		294,146,000	282,587,000	269,597,000		130,202,000	145,610,000	109,295,000
Segment Operating Income (Loss)										462,165,000		413,533,000		332,763,000		102,114,000	96,110,000	123,495,000	171,060,000	157,393,000	111,143,000	117,778,000	79,373,000	48,109,000	60,329,000	56,780,000	39,207,000		9,765,000	16,892,000	24,267,000		1,119,000	6,985,000	(13,458,000)
Realized investment (losses) gains - investments										188,729,000		194,866,000		134,559,000
Realized investment (losses) gains - derivatives										(191,315,000)		(133,124,000)		(134,146,000)
Income tax expense	(34,615,000)	(35,778,000)	(35,438,000)	(45,212,000)	(30,160,000)		(39,579,000)	(48,557,000)	(33,223,000)	(151,043,000)		(151,519,000)	[1]	(109,865,000)	[1]
Net income	60,142,000	70,911,000	81,627,000	95,856,000	87,054,000		82,979,000	91,604,000	62,119,000	308,536,000	[1]	323,756,000	[1]	223,311,000	[1]
Realized gain (losses) on investments
Realized investment (losses) gains - investments, gross										174,692,000		200,432,000		117,056,000
Less: related amortization of DAC/VOBA										(14,037,000)		5,566,000		(17,503,000)
Realized investment (losses) gains - investments										188,729,000		194,866,000		134,559,000
Realized gain (losses) on derivatives
Realized investment gains (losses) - derivatives, gross										(227,816,000)		(155,005,000)	[1]	(144,438,000)	[1]
Less: settlements on certain interest rate swaps														168,000
Less: derivative activity related to certain annuities										(36,501,000)		(21,881,000)		(10,460,000)
Realized investment gains (losses) - derivatives										(191,315,000)		(133,124,000)		(134,146,000)
Net investment income	460,784,000	446,374,000	438,648,000	443,532,000	445,780,000		445,928,000	434,425,000	427,311,000	1,789,338,000		1,753,444,000	[1]	1,624,845,000	[1]	486,374,000	446,014,000	387,953,000	550,334,000	529,261,000	458,703,000	504,342,000	507,229,000	482,264,000	128,239,000	145,150,000	171,327,000		19,698,000	21,650,000	23,959,000		100,351,000	104,140,000	100,639,000
Amortization of deferred policy acquisition costs and value of business acquired										192,183,000		249,520,000	[1]	144,496,000	[1]	45,079,000	87,461,000	47,809,000	77,251,000	75,041,000	64,410,000	45,319,000	57,201,000	76,000	947,000	4,556,000	5,430,000		22,569,000	22,607,000	25,077,000		1,018,000	2,654,000	1,694,000
Other-than-temporary impairments										58,144,000		47,321,000	[1]	41,364,000	[1]
Operating Segment Assets
Investments and other assets	53,848,454,000				48,693,092,000					53,848,454,000		48,693,092,000				12,171,384,000	10,885,785,000		11,312,550,000	11,471,856,000		17,649,488,000	14,945,002,000		2,509,160,000	2,767,163,000			740,153,000	707,181,000			9,446,057,000	7,894,614,000		19,662,000	21,491,000
Deferred policy acquisition costs and value of business acquired	3,225,356,000				3,223,220,000	[1]				3,225,356,000		3,223,220,000	[1]	3,063,409,000		2,001,708,000	1,912,916,000	1,826,001,000	679,746,000	824,277,000	810,681,000	491,184,000	435,462,000	368,279,000	1,399,000	2,347,000	6,903,000		50,253,000	46,606,000	48,048,000		1,066,000	1,612,000	3,497,000
Goodwill	83,773,000				86,871,000	[1]				83,773,000		86,871,000	[1]	89,970,000					35,615,000	38,713,000	41,812,000								48,158,000	48,158,000	48,158,000
Total assets	$ 57,157,583,000				$ 52,003,183,000	[1]				$ 57,157,583,000		$ 52,003,183,000	[1]			$ 14,173,092,000	$ 12,798,701,000		$ 12,027,911,000	$ 12,334,846,000		$ 18,140,672,000	$ 15,380,464,000		$ 2,510,559,000	$ 2,769,510,000			$ 838,564,000	$ 801,945,000			$ 9,447,123,000	$ 7,896,226,000		$ 19,662,000	$ 21,491,000

[1] Recast from previously reported information

XML

INVESTMENT OPERATIONS

12 Months Ended

Dec. 31, 2012

INVESTMENT OPERATIONS

INVESTMENT OPERATIONS

4. INVESTMENT OPERATIONS

Major categories of net investment income are summarized as follows:

	For The Year Ended December 31,
	2012		2011		2010
	(Dollars In Thousands)
Fixed maturities	$	1,453,018	$	1,414,965	$	1,301,047
Equity securities	20,740		20,595		17,836
Mortgage loans	349,845		336,541		310,988
Investment real estate	3,289		3,458		3,180
Short-term investments	62,887		72,137		77,185
	1,889,779		1,847,696		1,710,236
Other investment expenses	100,441		94,252		85,391
Net investment income	$	1,789,338	$	1,753,444	$	1,624,845

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

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Fixed maturities	$	67,669		$	80,044		$	51,816
Equity securities	(45		)	9,136			6,489
Impairments on fixed maturity securities	(58,144		)	(47,321		)	(39,550		)
Impairments on equity securities	—			—			(1,815		)
Modco trading portfolio	177,986			164,224			109,399
Other investments	(12,774		)	(5,651		)	(9,283		)
Total realized gains (losses) - investments	$	174,692		$	200,432		$	117,056

For the year ended December 31, 2012, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $73.2 million and gross realized losses were $60.3 million, including $54.7 million of impairment losses. For the year ended December 31, 2011, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $104.5 million and gross realized losses were $62.0 million, including $46.6 million of impairment losses. For the year ended December 31, 2010, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $99.8 million and gross realized losses were $82.6 million, including $41.1 million of impairment losses.

For the year ended December 31, 2012, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $1.6 billion. The gain realized on the sale of these securities was $73.2 million. For the year ended December 31, 2011, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $2.2 billion. The gain realized on the sale of these securities was $104.5 million. For the year ended December 31, 2010, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $2.9 billion. The gain realized on the sale of these securities was $99.8 million.

For the year ended December 31, 2012, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $38.0 million. The loss realized on the sale of these securities was $5.6 million. The Company made the decision to exit these holdings in order to reduce its European financial exposure.

For the year ended December 31, 2011, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $263.1 million. The loss realized on the sale of these securities was $15.3 million. The Company made the decision to exit these holdings in order to reduce its European financial exposure.

For the year ended December 31, 2010, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $709.6 million. The loss realized on the sale of these securities was $41.5 million. The Company made the decision to exit these holdings to reduce exposure to the 2010 oil spill in the Gulf of Mexico, to certain issuers with credit deterioration, and European financial institutions.

Certain European countries have experienced varying degrees of financial stress. Risks from the continued debt crisis in Europe could continue to disrupt the financial markets which could have a detrimental impact on global economic conditions and on sovereign and non-sovereign obligations. There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets.

The amortized cost and fair value of the Company’s investments classified as available-for-sale as of December 31, are as follows:

			Gross		Gross					Total OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains		Losses			Value		in OCI(1)
	(Dollars In Thousands)
2012
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,766,260	$	92,417	$	(19,347	)	$	1,839,330	$	(406	)
Commercial mortgage-backed securities	797,844		72,577		(598		)	869,823		—
Other asset-backed securities	1,023,649		12,788		(61,424		)	975,013		(241		)
U.S. government-related securities	1,097,501		71,536		(591		)	1,168,446		—
Other government-related securities	93,565		7,258		(45		)	100,778		—
States, municipals, and political subdivisions	1,188,019		255,898		(264		)	1,443,653		—
Corporate bonds	17,687,164		2,726,858		(48,395		)	20,365,627		(5,488		)
	23,654,002		3,239,332		(130,664		)	26,762,670		(6,135		)
Equity securities	352,272		11,881		(9,993		)	354,160		—
Short-term investments	97,852		—		—			97,852		—
	$	24,104,126	$	3,251,213	$	(140,657	)	$	27,214,682	$	(6,135	)
2011
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	2,340,172	$	82,574	$	(85,702	)	$	2,337,044	$	(47,652	)
Commercial mortgage-backed securities	530,283		24,473		(4,229		)	550,527		—
Other asset-backed securities	997,398		6,529		(90,898		)	913,029		(6,559		)
U.S. government-related securities	1,150,525		65,212		(58		)	1,215,679		—
Other government-related securities	88,058		4,959		—			93,017		—
States, municipals, and political subdivisions	1,154,307		173,406		—			1,327,713		—
Corporate bonds	16,888,423		1,922,038		(249,870		)	18,560,591		1,787
	23,149,166		2,279,191		(430,757		)	24,997,600		(52,424		)
Equity securities	286,537		5,430		(16,595		)	275,372		(74		)
Short-term investments	15,629		—		—			15,629		—
	$	23,451,332	$	2,284,621	$	(447,352	)	$	25,288,601	$	(52,498	)

(1)These amounts are included in the gross unrealized gains and gross unrealized losses columns above.

The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of December 31, are as follows:

			Gross		Gross				Total OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in OCI
2012
Fixed maturities:
Other	$	300,000	$	19,163	$	—	$	319,163	$	—
	$	300,000	$	19,163	$	—	$	319,163	$	—

As of December 31, 2012 and 2011, the Company had an additional $3.0 billion and $3.0 billion of fixed maturities, $19.6 million and $17.0 million of equity securities, and $118.9 million and $85.8 million of short-term investments classified as trading securities, respectively.

The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of December 31, 2012, 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.

	Available-for-sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars In Thousands)				(Dollars In Thousands)
Due in one year or less	$	452,876	$	459,845	$	—	$	—
Due after one year through five years	4,568,417		4,996,310		—		—
Due after five years through ten years	6,283,158		6,967,782		—		—
Due after ten years	12,349,551		14,338,733		300,000		319,163
	$	23,654,002	$	26,762,670	$	300,000	$	319,163

During the year ended December 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $67.1 million all of which were related to debt securities. Of the $67.1 million of impairments for the year ended December 31, 2012, $58.1 million was recorded in earnings and $9.0 million was recorded in other comprehensive income (loss). There were no impairments related to equity securities. For the year ended December 31, 2012, there were no other-than-temporary impairments related to debt securities or equity securities that the Company intended to sell or expected to be required to sell.

During the year ended December 31, 2011, the Company recorded pre-tax other-than-temporary impairments of investments of $62.2 million all of which were related to debt securities. Of the $62.2 million of impairments for the year ended December 31, 2011, $47.3 million was recorded in earnings and $14.9 million was recorded in other comprehensive income (loss). For the year ended December 31, 2011, there were no impairments related to equity securities. For the year ended December 31, 2011, pre-tax 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 were $52.7 million, with $37.8 million of credit losses recorded on debt securities in earnings and $14.9 million of non-credit losses recorded in other comprehensive income (loss). During the same period, other-than-temporary impairments related to debt securities that the Company intends to sell or expects to be required to sell were $9.5 million and were recorded in earnings.

During the year ended December 31, 2010, the Company recorded other-than-temporary impairments of investments of $75.0 million. Of the $75.0 million of impairments for the year ended December 31, 2010, $41.4 million was recorded in earnings and $33.6 million was recorded in other comprehensive income (loss). For the year ended December 31, 2010, there was $2.5 million of other-than-temporary impairments related to equity securities. For the year ended December 31, 2010, there was $72.5 million of other-than-temporary impairments related to debt securities. During this period, there was no other-than-temporary impairments related to debt securities or equity securities that the Company intends to sell or expects to be required to sell.

The following chart is a rollforward of available-for-sale 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 Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Beginning balance	$	69,476	$	39,275		$	25,066
Additions for newly impaired securities	26,544		12,699			26,893
Additions for previously impaired securities	25,217		20,591			4,964
Reductions for previously impaired securities due to a change in expected cash flows	—		—			—
Reductions for previously impaired securities that were sold in the current period	—		(3,089		)	(17,648		)
Other	—		—			—
Ending balance	$	121,237	$	69,476		$	39,275

The following table includes the gross unrealized losses and fair value of the Company’s investments 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 December 31, 2012:

	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	$	100,412	$	(9,578	)	$	166,000	$	(9,769	)	$	266,412	$	(19,347	)
Commercial mortgage-backed securities	50,506		(598		)	—		—			50,506		(598		)
Other asset-backed securities	479,223		(28,179		)	242,558		(33,245		)	721,781		(61,424		)
U.S. government-related securities	106,806		(591		)	—		—			106,806		(591		)
Other government-related securities	14,955		(45		)	—		—			14,955		(45		)
States, municipalities, and political subdivisions	11,526		(264		)	—		—			11,526		(264		)
Corporate bonds	775,593		(23,630		)	363,128		(24,765		)	1,138,721		(48,395		)
Equities	35,059		(5,150		)	21,754		(4,843		)	56,813		(9,993		)
	$	1,574,080	$	(68,035	)	$	793,440	$	(72,622	)	$	2,367,520	$	(140,657	)

RMBS have a gross unrealized loss greater than twelve months of $9.8 million as of December 31, 2012. The non-agency RMBS market experienced improvements during the year, but these losses represent securities where credit concerns are more pronounced. 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 these investments.

The other asset-backed securities have a gross unrealized loss greater than twelve months of $33.2 million as of December 31, 2012. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). These unrealized losses have occurred within the Company’s auction rate securities (“ARS”) portfolio since the market collapse during 2008. At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The corporate bonds category has gross unrealized losses greater than twelve months of $24.8 million as of December 31, 2012. 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.

The equities category has a gross unrealized loss greater than twelve months of $4.8 million as of December 31, 2012. These losses primarily relate to a widening in credit spreads on perpetual preferred stock holdings. The aggregate decline in market value of these securities was deemed temporary due to factors supporting the recoverability of the respective investments. Positive factors include credit ratings, the financial health of the issuer, the continued access of the issuer to the capital markets, and other pertinent information.

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.

The following table includes the gross unrealized losses and fair value of the Company’s investments 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 December 31, 2011:

	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	$	276,216	$	(15,308	)	$	524,251	$	(70,394	)	$	800,467	$	(85,702	)
Commercial mortgage-backed securities	78,893		(4,229		)	—		—			78,893		(4,229		)
Other asset-backed securities	531,653		(32,074		)	190,639		(58,824		)	722,292		(90,898		)
U.S. government-related securities	21,311		(58		)	—		—			21,311		(58		)
Corporate bonds	1,870,256		(131,953		)	523,913		(117,917		)	2,394,169		(249,870		)
Equities	50,638		(8,436		)	22,095		(8,159		)	72,733		(16,595		)
	$	2,828,967	$	(192,058	)	$	1,260,898	$	(255,294	)	$	4,089,865	$	(447,352	)

RMBS have a gross unrealized loss greater than twelve months of $70.4 million as of December 31, 2011. The losses relate to a widening in spreads and defaults as a result of continued weakness in the residential housing market which have reduced the fair value of the RMBS holdings. 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 these investments.

The other asset-backed securities have a gross unrealized loss greater than twelve months of $58.8 million as of December 31, 2011. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). These unrealized losses have occurred within the Company’s auction rate securities (“ARS”) portfolio since the market collapse during 2008. At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The corporate bonds category has gross unrealized losses greater than twelve months of $117.9 million as of December 31, 2011. 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.

The equities category has a gross unrealized loss greater than twelve months of $8.2 million as of December 31, 2011. These losses primarily relate to a widening in credit spreads on perpetual preferred stock holdings. The aggregate decline in market value of these securities was deemed temporary due to factors supporting the recoverability of the respective investments. Positive factors include credit ratings, the financial health of the issuer, the continued access of the issuer to the capital markets, and other pertinent information.

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 December 31, 2012, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.7 billion and had an amortized cost of $1.7 billion. In addition, included in the Company’s trading portfolio, the Company held $367.1 million of securities which were rated below investment grade. Approximately $415.1million of the below investment grade securities were not publicly traded.

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 Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Fixed maturities	$	819,152	$	761,738		$	696,942
Equity securities	8,484		(13,292		)	9,701

The Company held $12.2 million of non-income producing investments, consisting of fixed maturities, equities, and investment real estate for the year ended December 31, 2012.

Included in the Company’s invested assets are $865.4 million of policy loans as of December 31, 2012. The interest rates on standard policy loans range from 3.0% to 8.0%. The collateral loans on life insurance policies have an interest rate of 13.64%.

Securities Lending

In prior periods, the Company participated in securities lending, primarily as an enhancement to its investment yield. During the second quarter of 2011, the Company discontinued this program. Certain collateral assets, which the Company previously intended to dispose of and on which it recorded an other-than-temporary impairment of $1.3 million, were instead retained by the Company and are included in its fixed maturities as of December 31, 2012 with a balance of $3.7 million. The Company currently does not have any intent to sell these securities, nor does the Company anticipate being required to sell them.

Variable Interest Entities

The Company holds certain investments in entities in which its ownership interests could possibly considered variable interests under Topic 810 of the FASB ASC (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a Variable Interest Entity (“VIE”).  If the entity is determined to be a VIE, the Company then performs a detailed review 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 is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) 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 an interest in one wholly owned subsidiary, Red Mountain, LLC (“Red Mountain”), that was determined to be a VIE as of December 31, 2012. The activity most significant to Red Mountain is the issuance of a note in connection with a financing transaction involving Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) and the Company in which Golden Gate V issued non-recourse funding obligations to Red Mountain and Red Mountain issued the note to Golden Gate V. Credit enhancement on the Red Mountain Note is provided by an unrelated third party. For details of this transaction, see Note 10, Debt and Other Obligations. The Company had the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, the holding company (“PLC”) has guaranteed the VIE’s credit enhancement fee obligation to the unrelated third party provider.

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MORTGAGE LOANS

12 Months Ended

Dec. 31, 2012

MORTGAGE LOANS

MORTGAGE LOANS

5. MORTGAGE LOANS

Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of December 31, 2012, the Company’s mortgage loan holdings were approximately $4.9 billion. The Company has specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, professional office buildings, and warehouses). The Company believes these asset types tend to weather economic downturns better than other commercial asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history.

The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income.

The following table includes a breakdown of the Company’s commercial mortgage loan portfolio by property type as of December 31, 2012:

	Percentage of
	Mortgage Loans
Type	on Real Estate
Retail	67.4	%
Office Buildings	13.7
Apartments	9.4
Warehouses	7.4
Other	2.1
	100.0	%

The Company specializes in originating mortgage loans on either credit-oriented or credit-anchored commercial properties. No single tenant’s exposure represents more than 2.0% of mortgage loans. Approximately 65.5% of the mortgage loans are on properties located in the following states:

	Percentage of
	Mortgage Loans
State	on Real Estate
Texas	11.6	%
Georgia	8.9
Alabama	7.6
Tennessee	7.3
Florida	7.0
Ohio	5.4
North Carolina	5.2
South Carolina	4.9
Utah	4.5
California	3.1
	65.5	%

During 2012, the Company funded approximately $309.3 million of new loans, with an average loan size of $3.8 million. The average size mortgage loan in the portfolio as of December 31, 2012, was $2.5 million, and the weighted-average interest rate was 6.11%. The largest single mortgage loan was $40.2 million.

Certain of the mortgage loans have call options or interest rate reset options between 3 and 10 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options or increase the interest rates on our existing mortgage loans commensurate with the significantly increased market rates. Assuming the loans are called at their next call dates, approximately $224.8 million would become due in 2013, $1.3 billion in 2014 through 2018, $599.0 million in 2019 through 2023, and $179.6 million thereafter.

The Company offers a type of commercial mortgage loan under which the Company 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 December 31, 2012 and December 31, 2011, approximately $817.3 million and $876.8 million, respectively, of the Company’s mortgage loans have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income.

As of December 31, 2012, approximately $17.9 million, or 0.05%, of invested assets consisted of nonperforming, restructured or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the year ended December 31, 2012, certain mortgage loan transactions occurred that    were accounted for as troubled debt restructurings under Topic 310 of the FASB ASC. These transactions generally included acceptance of assets in satisfaction of principal or foreclosure on collateral property, and were the result of agreements between the creditor and the debtor or imposition of law. For all mortgage loans, the impact of troubled debt restructurings is reflected in the Company’s investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the year ended December 31, 2012 resulted in a reduction of $7.8 million in the Company’s investment in mortgage loans, net of existing allowances for mortgage loan losses. None of these loans remained on the Company’s balance sheets as of December 31, 2012.  The Company’s mortgage loan portfolio consists of two categories of loans: (1) those not subject to a pooling and servicing agreement and (2) those subject to a contractual pooling and servicing agreement.

As of December 31, 2012, $11.0 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the year ending 2012.

As of December 31, 2012, $6.9 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the year ending December 31, 2012.

As of December 31, 2012 and December 31, 2011, the Company had an allowance for mortgage loan credit losses of $2.9 million and $5.0 million, respectively. Due to the Company’s loss experience and nature of the loan portfolio, the Company believes that a collectively evaluated allowance would be inappropriate. The Company believes an allowance calculated through an analysis of specific loans that are believed to have a higher risk of credit impairment provides a more accurate presentation of expected losses in the portfolio and is consistent with the applicable guidance for loan impairments in ASC Subtopic 310. Since the Company uses the specific identification method for calculating the allowance, it is necessary to review the economic situation of each borrower to determine those that have higher risk of credit impairment. The Company has a team of professionals that monitors borrower conditions such as payment practices, borrower credit, operating performance, and property conditions, as well as ensuring the timely payment of property taxes and insurance. Through this monitoring process, the Company assesses the risk of each loan. When issues are identified, the severity of the issues are assessed and reviewed for possible credit impairment. If a loss is probable, an expected loss calculation is performed and an allowance is established for that loan based on the expected loss. The expected loss is calculated as the excess carrying value of a loan over either the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the current estimated fair value of the loan’s underlying collateral. A loan may be subsequently charged off at such point that the Company no longer expects to receive cash payments, the present value of future expected payments of the renegotiated loan is less than the current principal balance, or at such time that the Company is party to foreclosure or bankruptcy proceedings associated with the borrower and does not expect to recover the principal balance of the loan.

A charge off is recorded by eliminating the allowance against the mortgage loan and recording the renegotiated loan or the collateral property related to the loan as investment real estate on the balance sheet, which is carried at the lower of the appraised fair value of the property or the unpaid principal balance of the loan, less estimated selling costs associated with the property:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Beginning balance	$	4,975		$		11,650
Charge offs	(8,340		)	(16,278			)
Recoveries	(628		)	(2,471			)
Provision	6,868			12,074
Ending balance	$	2,875		$	4,975

It is the Company’s 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 the Company’s 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. An analysis of the delinquent loans is shown in the following chart as of December 31, 2012.

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	12,149	$	2,270	$	—	$	14,419
Number of delinquent commercial mortgage loans	7		1		—		8

The Company’s commercial mortgage loan portfolio consists of mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is based upon a consideration of the estimated fair value of the real estate. The Company limits accrued interest income on impaired loans to ninety days of interest. Once accrued interest on the impaired loan is received, interest income is recognized on a cash basis. For information regarding impaired loans, please refer to the following chart as of December 31:

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)
2012
Commercial mortgage loans:
With no related allowance recorded	$	13,044	$	14,419	$	—	$	2,609	$	53	$	69
With an allowance recorded	13,927		13,927		2,875		3,482		154		154
2011
Commercial mortgage loans:
With no related allowance recorded	$	6,338	$	9,346	$	—	$	2,113	$	34	$	34
With an allowance recorded	14,021		14,021		4,975		7,010		117		181

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GOODWILL

12 Months Ended

Dec. 31, 2012

GOODWILL

GOODWILL

7. GOODWILL

The changes in the carrying amount of goodwill by segment are as follows:

				Asset		Total
	Acquisitions			Protection		Consolidated
	(Dollars In Thousands)
Balance as of December 31, 2010	$	41,812		$	48,158	$	89,970
Tax benefit of excess tax goodwill	(3,099		)	—		(3,099		)
Balance as of December 31, 2011	38,713			48,158		86,871
Tax benefit of excess tax goodwill	(3,098		)	—		(3,098		)
Balance as of December 31, 2012	$	35,615		$	48,158	$	83,773

During the year ended December 31, 2012 and 2011, the Company decreased its goodwill balance by approximately $3.1 million and $3.1 million, respectively. The decreases were due to an adjustment in the Acquisitions segment related to tax benefits realized during 2012 and 2011 on the portion of tax goodwill in excess of GAAP basis goodwill.

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INVESTMENT OPERATIONS (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
Major categories of net investment income
Fixed maturities									$ 1,453,018,000	$ 1,414,965,000		$ 1,301,047,000
Equity securities									20,740,000	20,595,000		17,836,000
Mortgage loans									349,845,000	336,541,000		310,988,000
Investment real estate									3,289,000	3,458,000		3,180,000
Short-term investments									62,887,000	72,137,000		77,185,000
Investment income before other investment expenses									1,889,779,000	1,847,696,000		1,710,236,000
Other investment expenses									100,441,000	94,252,000		85,391,000
Net investment income	460,784,000	446,374,000	438,648,000	443,532,000	445,780,000	445,928,000	434,425,000	427,311,000	1,789,338,000	1,753,444,000	[1]	1,624,845,000	[1]
Net realized investment gains (losses) for all other investments
Fixed maturities									67,669,000	80,044,000		51,816,000
Equity securities									(45,000)	9,136,000		6,489,000
Impairments on fixed maturity securities									(58,144,000)	(47,321,000)		(39,550,000)
Impairments on equity securities												(1,815,000)
Modco trading portfolio									177,986,000	164,224,000		109,399,000
Other investments									(12,774,000)	(5,651,000)		(9,283,000)
Total realized gains (losses) - investments									174,692,000	200,432,000		117,056,000
Gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments)									73,200,000	104,500,000		99,800,000
Gross realized losses									60,300,000	62,000,000		82,600,000
Impairment losses on investments available-for-sale									54,700,000	46,600,000		41,100,000
Fair value (proceeds) of securities in an unrealized gain position sold									1,600,000,000	2,200,000,000		2,900,000,000
Gain realized on the sale of securities in an unrealized gain position									73,200,000	104,500,000		99,800,000
Fair value (proceeds) of securities sold in an unrealized loss position									38,000,000	263,100,000		709,600,000
Loss realized on the sale of securities in an unrealized loss position									$ 5,600,000	$ 15,300,000		$ 41,500,000

[1] Recast from previously reported information

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STOCK-BASED COMPENSATION (Details 3) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Assumptions used in the model for SARs granted
Expenses recorded for stock-based compensation plans	$ 3,900,000	$ 2,700,000	$ 3,000,000
PLC
Assumptions used in the model for SARs granted
Expenses recorded for stock-based compensation plans	10,300,000	10,200,000	10,200,000
SARs
Assumptions used in the model for SARs granted
Expected volatility (as a percent)	69.40%
Expected risk-free interest rate (as a percent)	2.60%
Expected dividend rate (as a percent)	2.40%
Expected forfeiture rate (as a percent)	0.00%
SARs | PLC
Grant date fair values
Awards issued	0	0
Estimated fair values of awards at grant date			3,300,000
Assumptions used in the model for SARs granted
Vesting period from grant date of half of restricted stock units	5 years
Restricted stock units
Assumptions used in the model for SARs granted
Vesting period from grant date of half of restricted stock units		3 years
Vesting period from grant date of remaining restricted stock units		4 years
Restricted stock units | PLC
Grant date fair values
Awards issued	190,800	175,500
Estimated fair values of awards at grant date	$ 5,400,000	$ 5,000,000

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INVESTMENT OPERATIONS (Details 3) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
INVESTMENT OPERATIONS
Other-than-temporary impairments of investments recorded	$ 67,130,000	$ 62,210,000	[1]	$ 74,970,000	[1]
Other-than-temporary impairments of investments recorded in earnings	58,144,000	47,321,000	[1]	41,364,000	[1]
Other-than-temporary impairments of investments recorded in other comprehensive income (loss)	8,986,000	14,889,000	[1]	33,606,000	[1]
Other-than-temporary impairments related to debt or equity securities that the entity intended to sell or expected to be required to sell	0			0
Debt securities
INVESTMENT OPERATIONS
Other-than-temporary impairments of investments recorded	67,100,000	62,200,000		72,500,000
Other-than-temporary impairments of investments recorded in earnings	58,100,000	47,300,000
Other-than-temporary impairments of investments recorded in other comprehensive income (loss)	9,000,000	14,900,000
Pre-tax other-than-temporary impairments related to debt securities that the entity does not intend to sell and does not expect to be required to sell		52,700,000
Pre-tax other-than-temporary impairments credit losses related to debt securities that the entity does not intend to sell and does not expect to be required to sell recorded in earnings		37,800,000
Pre-tax other-than-temporary impairments credit losses related to debt securities that the entity does not intend to sell and does not expect to be required to sell recorded in other comprehensive income (loss)		14,900,000
Other-than-temporary impairments related to debt or equity securities that the entity intended to sell or expected to be required to sell		9,500,000
Credit losses on debt securities
Beginning balance	69,476,000	39,275,000		25,066,000
Additions for newly impaired securities	26,544,000	12,699,000		26,893,000
Additions for previously impaired securities	25,217,000	20,591,000		4,964,000
Reductions for previously impaired securities that were sold in the current period		(3,089,000)		(17,648,000)
Ending balance	121,237,000	69,476,000		39,275,000
Equity securities
INVESTMENT OPERATIONS
Other-than-temporary impairments of investments recorded	$ 0	$ 0		$ 2,500,000

[1] Recast from previously reported information

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets:
Available-for-sale securities	$ 27,214,682	$ 25,288,601
Trading securities	3,100,000
Total fixed maturity securities	29,769,978	27,957,565	[1]
Equity securities	373,715	292,413	[1]
Other long-term investments	130,428	54,645
Short-term investments	216,787	101,470	[1]
Assets related to separate accounts
Variable annuity	9,601,417	6,741,959	[1]
Variable universal life	562,817	502,617	[1]
Liabilities:
Other liabilities	657,874	455,710
Fixed maturities
Assets:
Available-for-sale securities	26,762,670	24,997,600
Residential mortgage-backed securities
Assets:
Available-for-sale securities	1,839,330	2,337,044
Commercial mortgage-backed securities
Assets:
Available-for-sale securities	869,823	550,527
Other asset-backed securities
Assets:
Available-for-sale securities	975,013	913,029
U.S. government-related securities
Assets:
Available-for-sale securities	1,168,446	1,215,679
States, municipals, and political subdivisions
Assets:
Available-for-sale securities	1,443,653	1,327,713
Other government-related securities
Assets:
Available-for-sale securities	100,778	93,017
Corporate bonds
Assets:
Available-for-sale securities	20,365,627	18,560,591
Measured at fair value on a recurring basis | Level 1
Assets:
Total fixed maturity securities	1,214,899	1,220,311
Equity securities	273,072	211,023
Other long-term investments	23,639	27,757
Short-term investments	214,295	101,470
Total investments	1,725,905	1,560,561
Cash	269,582	169,775
Assets related to separate accounts
Variable annuity	9,601,417	6,741,959
Variable universal life	562,817	502,617
Total assets	12,159,721	8,974,912
Liabilities:
Other liabilities	19,187	2,727
Total liabilities	19,187	2,727
Measured at fair value on a recurring basis | Level 1 | Fixed maturities
Assets:
Available-for-sale securities	910,195	664,710
Trading securities	304,704	555,601
Measured at fair value on a recurring basis | Level 1 | U.S. government-related securities
Assets:
Available-for-sale securities	909,988	664,506
Trading securities	304,704	555,601
Measured at fair value on a recurring basis | Level 1 | Corporate bonds
Assets:
Available-for-sale securities	207	204
Measured at fair value on a recurring basis | Level 2
Assets:
Total fixed maturity securities	27,696,104	25,959,526
Equity securities	35,116	11,310
Other long-term investments	58,134	7,785
Short-term investments	2,492
Total investments	27,791,846	25,978,621
Assets related to separate accounts
Total assets	27,791,846	25,978,621
Liabilities:
Other liabilities	27,250	15,370
Total liabilities	27,250	15,370
Measured at fair value on a recurring basis | Level 2 | Fixed maturities
Assets:
Available-for-sale securities	25,064,150	23,583,505
Trading securities	2,631,954	2,376,021
Measured at fair value on a recurring basis | Level 2 | Residential mortgage-backed securities
Assets:
Available-for-sale securities	1,839,326	2,337,037
Trading securities	357,803	313,963
Measured at fair value on a recurring basis | Level 2 | Commercial mortgage-backed securities
Assets:
Available-for-sale securities	869,823	550,527
Trading securities	171,073	190,247
Measured at fair value on a recurring basis | Level 2 | Other asset-backed securities
Assets:
Available-for-sale securities	378,870	298,216
Trading securities	87,395	29,585
Measured at fair value on a recurring basis | Level 2 | U.S. government-related securities
Assets:
Available-for-sale securities	258,458	536,173
Trading securities	1,169	255
Measured at fair value on a recurring basis | Level 2 | States, municipals, and political subdivisions
Assets:
Available-for-sale securities	1,439,378	1,327,713
Trading securities	278,898	229,032
Measured at fair value on a recurring basis | Level 2 | Other government-related securities
Assets:
Available-for-sale securities	80,767	93,017
Trading securities	63,444	44,845
Measured at fair value on a recurring basis | Level 2 | Corporate bonds
Assets:
Available-for-sale securities	20,197,528	18,440,822
Trading securities	1,672,172	1,568,094
Measured at fair value on a recurring basis | Level 3
Assets:
Total fixed maturity securities	858,975	777,728
Equity securities	65,527	70,080
Other long-term investments	48,655	19,103
Total investments	973,157	866,911
Assets related to separate accounts
Total assets	973,157	866,911
Liabilities:
Annuity account balances	129,468	136,462
Other liabilities	611,437	437,613
Total liabilities	740,905	574,075
Measured at fair value on a recurring basis | Level 3 | Fixed maturities
Assets:
Available-for-sale securities	788,325	749,385
Trading securities	70,650	28,343
Measured at fair value on a recurring basis | Level 3 | Residential mortgage-backed securities
Assets:
Available-for-sale securities	4	7
Measured at fair value on a recurring basis | Level 3 | Other asset-backed securities
Assets:
Available-for-sale securities	596,143	614,813
Trading securities	70,535	28,343
Measured at fair value on a recurring basis | Level 3 | U.S. government-related securities
Assets:
Available-for-sale securities		15,000
Measured at fair value on a recurring basis | Level 3 | States, municipals, and political subdivisions
Assets:
Available-for-sale securities	4,275
Measured at fair value on a recurring basis | Level 3 | Other government-related securities
Assets:
Available-for-sale securities	20,011
Measured at fair value on a recurring basis | Level 3 | Corporate bonds
Assets:
Available-for-sale securities	167,892	119,565
Trading securities	115
Measured at fair value on a recurring basis | Total
Assets:
Total fixed maturity securities	29,769,978	27,957,565
Equity securities	373,715	292,413
Other long-term investments	130,428	54,645
Short-term investments	216,787	101,470
Total investments	30,490,908	28,406,093
Cash	269,582	169,775
Assets related to separate accounts
Variable annuity	9,601,417	6,741,959
Variable universal life	562,817	502,617
Total assets	40,924,724	35,820,444
Liabilities:
Annuity account balances	129,468	136,462
Other liabilities	657,874	455,710
Total liabilities	787,342	592,172
Measured at fair value on a recurring basis | Total | Fixed maturities
Assets:
Available-for-sale securities	26,762,670	24,997,600
Trading securities	3,007,308	2,959,965
Measured at fair value on a recurring basis | Total | Residential mortgage-backed securities
Assets:
Available-for-sale securities	1,839,330	2,337,044
Trading securities	357,803	313,963
Measured at fair value on a recurring basis | Total | Commercial mortgage-backed securities
Assets:
Available-for-sale securities	869,823	550,527
Trading securities	171,073	190,247
Measured at fair value on a recurring basis | Total | Other asset-backed securities
Assets:
Available-for-sale securities	975,013	913,029
Trading securities	157,930	57,928
Measured at fair value on a recurring basis | Total | U.S. government-related securities
Assets:
Available-for-sale securities	1,168,446	1,215,679
Trading securities	305,873	555,856
Measured at fair value on a recurring basis | Total | States, municipals, and political subdivisions
Assets:
Available-for-sale securities	1,443,653	1,327,713
Trading securities	278,898	229,032
Measured at fair value on a recurring basis | Total | Other government-related securities
Assets:
Available-for-sale securities	100,778	93,017
Trading securities	63,444	44,845
Measured at fair value on a recurring basis | Total | Corporate bonds
Assets:
Available-for-sale securities	20,365,627	18,560,591
Trading securities	$ 1,672,287	$ 1,568,094

[1] Recast from previously reported information

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SIGNIFICANT ACQUISITIONS (Details) (USD $)	12 Months Ended			1 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Apr. 29, 2011 Liberty Life	Apr. 30, 2011 Liberty Life Athene Life Re	Dec. 31, 2010 United Investors
SIGNIFICANT ACQUISITIONS
Aggregate purchase price			$ 225,000,000		$ 363,300,000
Capital invested			321,000,000
Investment in surplus note issued by Athene Life Re				40,000,000
Pro forma condensed consolidated results of operations
Revenue	3,491,414,000	3,321,743,000
Net income	$ 324,793,000	$ 270,433,000

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EMPLOYEE BENEFIT PLANS (Details 7) (PLC, USD $)				12 Months Ended														12 Months Ended								12 Months Ended
	Dec. 31, 2012 Money Market Fund	Dec. 31, 2011 Money Market Fund	Dec. 31, 2010 Money Market Fund	Dec. 31, 2012 Defined Benefit Pension Plan	Dec. 31, 2011 Defined Benefit Pension Plan	Dec. 31, 2012 Defined Benefit Pension Plan Collective short-term investment fund	Dec. 31, 2011 Defined Benefit Pension Plan Collective short-term investment fund	Dec. 31, 2012 Defined Benefit Pension Plan Collective investment funds	Dec. 31, 2011 Defined Benefit Pension Plan Collective investment funds	Dec. 31, 2012 Defined Benefit Pension Plan Group deposit administration annuity contract	Dec. 31, 2011 Defined Benefit Pension Plan Group deposit administration annuity contract	Dec. 31, 2012 Defined Benefit Pension Plan Level 2	Dec. 31, 2011 Defined Benefit Pension Plan Level 2	Dec. 31, 2012 Defined Benefit Pension Plan Level 2 Collective short-term investment fund	Dec. 31, 2011 Defined Benefit Pension Plan Level 2 Collective short-term investment fund	Dec. 31, 2012 Defined Benefit Pension Plan Level 2 Collective investment funds	Dec. 31, 2011 Defined Benefit Pension Plan Level 2 Collective investment funds	Dec. 31, 2012 Defined Benefit Pension Plan Level 3	Dec. 31, 2011 Defined Benefit Pension Plan Level 3	Dec. 31, 2012 Defined Benefit Pension Plan Level 3 Group deposit administration annuity contract	Dec. 31, 2011 Defined Benefit Pension Plan Level 3 Group deposit administration annuity contract	Dec. 31, 2012 Group life insurance plan Money Market Fund	Dec. 31, 2011 Group life insurance plan Money Market Fund	Dec. 31, 2012 Group life insurance plan Level 1 Money Market Fund	Dec. 31, 2011 Group life insurance plan Level 1 Money Market Fund	Dec. 31, 2012 Other Postretirement Benefits	Dec. 31, 2011 Other Postretirement Benefits
Fair value hierarchy of Plan's assets
Total investments	$ 6,174,000	$ 6,193,000	$ 6,217,000	$ 152,187,000	$ 125,058,000	$ 6,222,000	$ 1,004,000	$ 95,933,000	$ 82,527,000	$ 50,032,000	$ 41,527,000	$ 102,155,000	$ 83,531,000	$ 6,222,000	$ 1,004,000	$ 95,933,000	$ 82,527,000	$ 50,032,000	$ 41,527,000	$ 50,032,000	$ 41,527,000	$ 6,174,000	$ 6,193,000	$ 6,174,000	$ 6,193,000
Amount transferred into Level 3 from Level 2				6,000,000
Amount of transfers between Level 1 and Level 2				0
Amount of transfers between levels					0																					0	0
Reconciliation of beginning and ending balances for fair value measurements for which significant unobservable inputs (level 3) are used
Fair value of plan assets at beginning of year	6,174,000	6,193,000	6,217,000	125,058,000	117,856,000	6,222,000	1,004,000	95,933,000	82,527,000	50,032,000	41,527,000	102,155,000	83,531,000	6,222,000	1,004,000	95,933,000	82,527,000	41,527,000	39,403,000	50,032,000	41,527,000	6,174,000	6,193,000	6,174,000	6,193,000
Interest income																		2,505,000	2,124,000
Transfers from collective short-term investments fund																		6,000,000
Fair value of plan assets at end of year	$ 6,174,000	$ 6,193,000	$ 6,217,000	$ 152,187,000	$ 125,058,000	$ 6,222,000	$ 1,004,000	$ 95,933,000	$ 82,527,000	$ 50,032,000	$ 41,527,000	$ 102,155,000	$ 83,531,000	$ 6,222,000	$ 1,004,000	$ 95,933,000	$ 82,527,000	$ 50,032,000	$ 41,527,000	$ 50,032,000	$ 41,527,000	$ 6,174,000	$ 6,193,000	$ 6,174,000	$ 6,193,000

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SCHEDULE IV - REINSURANCE

12 Months Ended

Dec. 31, 2012

SCHEDULE IV - REINSURANCE

SCHEDULE IV - REINSURANCE

SCHEDULE IV - REINSURANCE

PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES

					Assumed					Percentage of
			Ceded to		from					Amount
	Gross		Other		Other		Net			Assumed to
	Amount		Companies		Companies		Amount			Net
	(Dollars In Thousands)
For The Year Ended December 31, 2012:
Life insurance in-force	$	706,415,969	$	444,950,866	$	30,470,432	$	291,935,535		10.4	%
Premiums and policy fees:
Life insurance	2,226,614		1,228,444		281,711		1,279,881		(1)	22.0
Accident/health insurance	38,873		12,065		29,413		56,221			52.3
Property and liability insurance	216,014		69,589		6,765		153,190			4.4
Total	$	2,481,501	$	1,310,098	$	317,889	$	1,489,292
For The Year Ended December 31, 2011:
Life insurance in-force	$	728,670,260	$	469,530,487	$	32,812,882	$	291,952,655		11.2	%
Premiums and policy fees:
Life insurance	2,245,359		1,278,273		248,467		1,215,553		(1)	20.4
Accident/health insurance	43,161		14,415		21,719		50,465			43.0
Property and liability insurance	219,267		71,225		6,160		154,202			4.0
Total	$	2,507,787	$	1,363,913	$	276,346	$	1,420,220
For The Year Ended December 31, 2010:
Life insurance in-force	$	753,518,782	$	495,056,077	$	18,799,243	$	277,261,948		6.8	%
Premiums and policy fees:
Life insurance	2,153,318		1,284,504		166,606		1,035,420		(1)	16.1
Accident/health insurance	49,520		17,323		63		32,260			0.2
Property and liability insurance	232,744		78,885		7,106		160,965			4.4
Total	$	2,435,582	$	1,380,712	$	173,775	$	1,228,645

(1)Includes annuity policy fees of $103.8 million, $74.9 million, and $43.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

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STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2012

STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS

Schedule of favorable (unfavorable) effects of the Company's statutory surplus, compared to NAIC statutory surplus

	As of December 31,
	2012			2011
	(Dollars In Millions)
Non-admission of goodwill	$	—		$	(159	)
Report BOLI Separate Accounts at Book Value	(1		)	(7		)
Reserving difference related to a captive insurance company	(49		)	—
Total (net)	$	(50	)	$	(166	)

Schedule of favorable (unfavorable) effects on the statutory surplus of the Company's insurance subsidiaries, compared to NAIC statutory surplus

	As of December 31,
	2012		2011
	(Dollars In Millions)
Accounting for Letters of Credit as admitted assets	$	1,205	$	1,015
Accounting for Red Mountain Note as admitted asset	$	300	$	—
Reserving based on state specific actuarial practices	$	95	$	84

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SHAREOWNER'S EQUITY

12 Months Ended

Dec. 31, 2012

SHAREOWNER'S EQUITY

SHAREOWNER'S EQUITY

12. SHAREOWNER’S EQUITY

PLC owns all of the 2,000 shares of preferred stock issued by the Company’s subsidiary, Protective Life and Annuity Insurance Company (“PL&A”). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A’s statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2012, 2011, and 2010, PL&A paid no dividends to PLC on its preferred stock.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2012

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

17. RELATED PARTY TRANSACTIONS

The Company leases furnished office space and computers to affiliates. Lease revenues were $4.7 million, $4.6 million, and $3.4 million for the years ended December 31, 2012, 2011, and 2010, respectively. The Company purchases data processing, legal, investment, and management services from affiliates. The costs of such services were $154.7 million, $143.0 million, and $135.9 million for the years ended December 31, 2012, 2011, and 2010, respectively.  In addition, the Company has an intercompany payable with affiliates as of December 31, 2012 and 2011 of $10.3 million and $26.8 million, respectively and an intercompany receivable with affiliates of $6.0 million and $34.0 million as of December 31, 2012 and 2011, respectively.

Certain corporations with which PLC’s directors were affiliated paid us premiums and policy fees or other amounts for various types of insurance and investment products, interest on bonds we own and commissions on securities underwritings in which our affiliates participated. Such amounts totaled $59.1 million, $51.0 million, and $13.1 million for the years ended December 31, 2012, 2011, and 2010, respectively. In addition, in 2010, PLC also received a $5 million deposit from Regions Bank Stable Principal Fund related to a Guaranteed Investment Contract sold by PLC. The Company and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $13.0 million, $4.6 million, and $7.2 million for the years ended December 31, 2012, 2011, and 2010, respectively.

PLC has guaranteed the Company’s obligations for borrowings or letters of credit under the revolving line of credit arrangement to which PLC is also a party. PLC has also issued guarantees, entered into support agreements and/or assumed a duty to indemnify its indirect wholly owned captive insurance companies in certain respects. In addition, as of December 31, 2012, PLC is the sole holder of the $800 million balance of outstanding surplus notes issued by one such wholly owned captive insurance company, Golden Gate.

As of February 1, 2000, PLC guaranteed the obligations of the Company under a synthetic lease entered into by the Company, as lessee, with a non-affiliated third party, as lessor. Under the terms of the synthetic lease, financing of $75 million was available to the Company for construction of a new office building and parking deck. The synthetic lease was amended and restated as of January 11, 2007, wherein as of December 31, 2012, PLC continues to guarantee the obligations of the Company thereunder.

The Company has agreements with certain of its subsidiaries under which it provides administrative services for a fee.  These services include but are not limited to accounting, financial reporting, compliance, policy administration, reserve computations, and projections. In addition, the Company and its subsidiaries pay PLC for investment, legal and data processing services.

The Company and/or certain of its affiliates have reinsurance agreements in place with companies owned by PLC. These agreements relate to certain portions of our service contract business which is included within the Asset Protection segment. These transactions are eliminated at the PLC consolidated level.

The Company has also entered into intercompany reinsurance agreements that provide for a more balanced mix of business at various insurance entities. These transactions were eliminated in consolidation.

During 2012, PLC entered into an intercompany capital support agreement with Shades Creek Captive Insurance Company (“Shades Creek”), a direct wholly-owned insurance subsidiary. The agreement provides through a guarantee that PLC will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. As of December 31, 2012, Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.

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EMPLOYEE BENEFIT PLANS (Details 10) (PLC, USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
PLC
EMPLOYEE BENEFIT PLANS
Percentage change in healthcare cost trend assumptions which has no material effect on liability related to prescription drug benefit provided to employees	1.00%
Period for which the annualized return on Barclay's short treasury index is considered for assessment of reasonableness of long term rate of return assumption	20 years
Period for which the average return on Barclay's short treasury index is considered for assessment of reasonableness of long term rate of return assumption	20 years
401 (k) Plan
Employee contribution, maximum percentage of eligible annual compensation	25.00%
Maximum annual contribution by employee	$ 17,000
Minimum age required to be eligible to make catch-up contribution	50 years
Maximum additional contribution over and above regular annual contribution limits	5,500
Maximum employer matching contribution (as a percent)	4.00%
Expenses recorded due to adopting a cash match for employee contributions to the 401(k) plan	5,900,000	5,600,000
Amount of expenses recorded under a plan that provides supplemental matching contributions in excess of limits imposed	$ 400,000	$ 400,000	$ 200,000
Deferred Compensation Plan
Common stock equivalents credited to participants (in shares)	932,801

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

INCOME TAXES

Schedule of reconciliation of effective income tax rate related to continuing operations

	For The Year Ended December 31,
	2012		2011		2010
Statutory federal income tax rate applied to pre-tax income	35.0	%	35.0	%	35.0	%
State income taxes	0.4		0.4		0.5
Investment income not subject to tax	(3.1	)	(2.0	)	(1.4	)
Uncertain tax positions	0.2		(0.1	)	(0.9	)
Other	0.4		(1.2	)	0.1
	32.9	%	32.1	%	33.3	%

Schedule of components of income tax

	For The Year Ended December 31,
	2012		2011			2010
	(Dollars In Thousands)
Income tax expense per the income tax returns:
Federal	$	78,510	$	(4,609	)	$	3,600
State	2,496		33			2,944
Total current	$	81,006	$	(4,576	)	$	6,544
Deferred income tax expense:
Federal	$	66,375	$	153,412		$	104,608
State	3,662		2,683			(1,287		)
Total deferred	$	70,037	$	156,095		$	103,321

Schedule of components of the Company's net deferred income tax liability

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Deferred income tax assets:
Premium receivables and policy liabilities	$	51,276		$	35,267
Intercompany losses	45,079			42,685
Invested assets (other than unrealized gains)	—			68,530
Deferred compensation	3,750			3,059
State tax valuation allowance	(2,552		)	(2,440		)
Other	26,604			454
	124,157			147,555
Deferred income tax liabilities:
Deferred policy acquisition costs and value of business acquired	911,858			873,979
Invested assets (other than realized gains)	20,936			—
Unrealized gain on investments	975,076			567,572
	1,907,870			1,441,551
Net deferred income tax (liability) asset	$	(1,783,713	)	$	(1,293,996	)

Schedule of reconciliation of the beginning and ending amount of unrecognized tax benefits

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	4,318		$	12,659
Additions for tax positions of the current year	9,465			—
Additions for tax positions of prior years	64,050			106
Reductions of tax positions of prior years:
Changes in judgment	(3,498		)	(8,447		)
Settlements during the period	—			—
Lapses of applicable statute of limitations	—			—
Balance, end of period	$	74,335		$	4,318

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 4) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Assets:
Beginning Balance	$ 866,911,000	$ 902,879,000
Total Realized and Unrealized Gains Included in Earnings	4,905,000	6,787,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	30,688,000	34,803,000
Total Realized and Unrealized Losses Included in Earnings	27,242,000	(25,945,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(26,436,000)	(54,521,000)
Purchases	84,519,000	47,754,000
Sales	(58,098,000)	(84,638,000)
Transfers in and/or out of Level 3	40,943,000	37,414,000
Other	2,483,000	2,378,000
Ending Balance	973,157,000	866,911,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	31,342,000	(13,599,000)
Liabilities:
Beginning Balance	574,075,000	333,793,000
Total Realized and Unrealized Gains Included in Earnings	86,523,000
Total Realized and Unrealized Losses Included in Earnings	(248,054,000)	(255,607,000)
Sales		(2,673,000)
Issuances	860,000	654,000
Settlements	20,147,000	13,306,000
Ending Balance	740,905,000	574,075,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	(173,824,000)	(249,757,000)
Transfers
Securities transferred into Level 3	67,700,000
Securities transferred out of Level 3	26,800,000
Securities transferred from Level 1 to Level 2	0
Securities transferred from Level 2 to Level 1	0
Total investments
Assets:
Beginning Balance	866,911,000	902,879,000
Total Realized and Unrealized Gains Included in Earnings	4,905,000	6,787,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	30,688,000	34,803,000
Total Realized and Unrealized Losses Included in Earnings	27,242,000	(25,945,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(26,436,000)	(54,521,000)
Purchases	84,519,000	47,754,000
Sales	(58,098,000)	(84,638,000)
Transfers in and/or out of Level 3	40,943,000	37,414,000
Other	2,483,000	2,378,000
Ending Balance	973,157,000	866,911,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	31,342,000	(13,599,000)
Total fixed maturity securities
Assets:
Beginning Balance	777,728,000	804,522,000
Total Realized and Unrealized Gains Included in Earnings	4,897,000	6,738,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	29,861,000	34,248,000
Total Realized and Unrealized Losses Included in Earnings	(2,310,000)	(13,283,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(25,339,000)	(53,471,000)
Purchases	84,515,000	43,792,000
Sales	(53,803,000)	(84,589,000)
Transfers in and/or out of Level 3	40,943,000	37,393,000
Other	2,483,000	2,378,000
Ending Balance	858,975,000	777,728,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	1,790,000	(937,000)
Total fixed maturity securities | Available-for-sale securities
Assets:
Beginning Balance	749,385,000	741,155,000
Total Realized and Unrealized Gains Included in Earnings	809,000	4,527,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	29,861,000	34,248,000
Total Realized and Unrealized Losses Included in Earnings	(4,000)	(8,665,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(25,339,000)	(53,471,000)
Purchases	36,259,000	40,000,000
Sales	(43,907,000)	(3,658,000)
Transfers in and/or out of Level 3	40,831,000	(4,648,000)
Other	430,000	(103,000)
Ending Balance	788,325,000	749,385,000
Total fixed maturity securities | Trading Securities
Assets:
Beginning Balance	28,343,000	63,367,000
Total Realized and Unrealized Gains Included in Earnings	4,088,000	2,211,000
Total Realized and Unrealized Losses Included in Earnings	(2,306,000)	(4,618,000)
Purchases	48,256,000	3,792,000
Sales	(9,896,000)	(80,931,000)
Transfers in and/or out of Level 3	112,000	42,041,000
Other	2,053,000	2,481,000
Ending Balance	70,650,000	28,343,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	1,790,000	(937,000)
Residential mortgage-backed securities | Available-for-sale securities
Assets:
Beginning Balance	7,000	20,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income		12,000
Total Realized and Unrealized Losses Included in Earnings		(4,000)
Sales	(3,000)	(12,000)
Transfers in and/or out of Level 3		(9,000)
Ending Balance	4,000	7,000
Commercial mortgage-backed securities | Available-for-sale securities
Assets:
Beginning Balance		19,901,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income		147,000
Total Realized and Unrealized Losses Included in Other Comprehensive Income		(719,000)
Sales		(103,000)
Transfers in and/or out of Level 3		(19,224,000)
Other		(2,000)
Other asset-backed securities | Available-for-sale securities
Assets:
Beginning Balance	614,813,000	641,129,000
Total Realized and Unrealized Gains Included in Earnings	339,000	4,527,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	21,780,000	28,873,000
Total Realized and Unrealized Losses Included in Earnings		(8,661,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(22,587,000)	(50,941,000)
Sales	(19,050,000)
Transfers in and/or out of Level 3	771,000
Other	77,000	(114,000)
Ending Balance	596,143,000	614,813,000
Other asset-backed securities | Trading Securities
Assets:
Beginning Balance	28,343,000	59,925,000
Total Realized and Unrealized Gains Included in Earnings	4,086,000	1,213,000
Total Realized and Unrealized Losses Included in Earnings	(2,306,000)	(2,689,000)
Purchases	48,255,000	3,792,000
Sales	(9,896,000)	(40,292,000)
Transfers in and/or out of Level 3		4,002,000
Other	2,053,000	2,392,000
Ending Balance	70,535,000	28,343,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	1,780,000	(937,000)
U.S. government-related securities | Available-for-sale securities
Assets:
Beginning Balance	15,000,000	15,109,000
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(2,000)	(122,000)
Sales	(15,000,000)
Other	2,000	13,000
Ending Balance		15,000,000
U.S. government-related securities | Trading Securities
Assets:
Beginning Balance		3,442,000
Total Realized and Unrealized Gains Included in Earnings		387,000
Total Realized and Unrealized Losses Included in Earnings		(476,000)
Sales		(3,347,000)
Other		(6,000)
States, municipals, and political subdivisions | Available-for-sale securities
Assets:
Purchases	4,275,000
Ending Balance	4,275,000
Other government-related securities | Available-for-sale securities
Assets:
Total Realized and Unrealized Gains Included in Other Comprehensive Income	29,000
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(27,000)
Purchases	20,024,000
Other	(15,000)
Ending Balance	20,011,000
Corporate bonds | Available-for-sale securities
Assets:
Beginning Balance	119,565,000	64,996,000
Total Realized and Unrealized Gains Included in Earnings	470,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	8,052,000	5,216,000
Total Realized and Unrealized Losses Included in Earnings	(4,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(2,723,000)	(1,689,000)
Purchases	11,960,000	40,000,000
Sales	(9,854,000)	(3,543,000)
Transfers in and/or out of Level 3	40,060,000	14,585,000
Other	366,000
Ending Balance	167,892,000	119,565,000
Corporate bonds | Trading Securities
Assets:
Total Realized and Unrealized Gains Included in Earnings	2,000	611,000
Total Realized and Unrealized Losses Included in Earnings		(1,453,000)
Purchases	1,000
Sales		(37,292,000)
Transfers in and/or out of Level 3	112,000	38,039,000
Other		95,000
Ending Balance	115,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	10,000
Equity securities
Assets:
Beginning Balance	70,080,000	66,592,000
Total Realized and Unrealized Gains Included in Earnings	8,000	49,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	827,000	555,000
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(1,097,000)	(1,050,000)
Purchases	4,000	3,962,000
Sales	(4,295,000)	(49,000)
Transfers in and/or out of Level 3		21,000
Ending Balance	65,527,000	70,080,000
Other long-term investments
Assets:
Beginning Balance	19,103,000	31,765,000
Total Realized and Unrealized Losses Included in Earnings	29,552,000	(12,662,000)
Ending Balance	48,655,000	19,103,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	29,552,000	(12,662,000)
Annuity account balances
Liabilities:
Beginning Balance	136,462,000	143,264,000
Total Realized and Unrealized Losses Included in Earnings	12,293,000	(5,850,000)
Issuances	860,000	654,000
Settlements	20,147,000	13,306,000
Ending Balance	129,468,000	136,462,000
Other liabilities
Liabilities:
Beginning Balance	437,613,000	190,529,000
Total Realized and Unrealized Gains Included in Earnings	86,523,000
Total Realized and Unrealized Losses Included in Earnings	(260,347,000)	(249,757,000)
Sales		(2,673,000)
Ending Balance	611,437,000	437,613,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	$ (173,824,000)	$ (249,757,000)

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DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED (Tables)

12 Months Ended

Dec. 31, 2012

DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

Schedule of the effect of the adjustments on the Company's balance sheet due to adoption of ASU No. 2010-26

	As of December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Assets:
Deferred policy acquisition costs and value of business acquired	$	4,011,936	$	3,223,220	$	(788,716	)
Total assets	$	52,791,899	$	52,003,183	$	(788,716	)
Liabilities:
Deferred income taxes	$	1,573,764	$	1,293,996	$	(279,768	)
Total liabilities	$	47,405,601	$	47,125,833	$	(279,768	)
Equity:
Retained earnings	$	2,984,466	$	2,456,293	$	(528,173	)
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax	1,076,854		1,096,079		19,225
Total equity	$	5,386,298	$	4,877,350	$	(508,948	)
Total liabilities and shareowner’s equity	$	52,791,899	$	52,003,183	$	(788,716	)

Schedule of the effect of the adjustments on the Company's income statement due to adoption of ASU No. 2010-26

	For The Year Ended December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	300,450	$	249,520	$	(50,930	)
Other operating expenses	373,964		461,570		87,606
Total benefits and expenses	2,896,634		2,933,310		36,676
Income before income tax	511,951		475,275		(36,676		)
Income tax (benefit) expense	164,517		151,519		(12,998		)
Net income	$	347,434	$	323,756	$	(23,678	)

	For The Year Ended December 31, 2010
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	189,255	$	144,496	$	(44,759	)
Other operating expenses	284,070		382,920		98,850
Total benefits and expenses	2,549,717		2,603,808		54,091
Income before income tax	387,267		333,176		(54,091		)
Income tax (benefit) expense	129,029		109,865		(19,164		)
Net income	$	258,238	$	223,311	$	(34,927	)

Schedule of the effect of the adjustments on the Company's cash flow statement due to adoption of ASU No. 2010-26

	For The Year Ended December 31, 2011
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	347,434		$	323,756		$	(23,678	)
Amortization of deferred policy acquisition costs and value of business acquired	300,450			249,520			(50,930		)
Capitalization of deferred policy acquisition costs	(442,638		)	(355,033		)	87,605
Deferred income tax	120,262			107,265			(12,997		)
Change to net cash (used in) provided by operating activities	$	325,508		$	325,508		$	—

	For The Year Ended December 31, 2010
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	258,238		$	223,311		$	(34,927	)
Amortization of deferred policy acquisition costs and value of business acquired	189,255			144,496			(44,759		)
Capitalization of deferred policy acquisition costs	(446,560		)	(348,730		)	97,830
Deferred income tax	85,483			66,682			(18,801		)
Other, net	(47,319		)	(46,662		)	657
Change to net cash (used in) provided by operating activities	$	39,097		$	39,097		$	—

Schedule of balances and changes in DAC

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	2,291,613		$	2,182,085
Capitalization of commissions, sales, and issue expenses	311,959			355,033
Amortization	(105,447		)	(159,329		)
Change in unrealized investment gains and losses	(90,599		)	(86,176		)
Balance, end of period	$	2,407,526		$	2,291,613

Schedule of balances and changes in VOBA

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	931,607		$	881,324
Acquisitions	—			137,418
Amortization	(86,736		)	(90,192		)
Change in unrealized gains and losses	(27,041		)	3,057
Balance, end of period	$	817,830		$	931,607

Schedule of expected amortization of VOBA for the next five years

	Expected
Years	Amortization
	(Dollars In Thousands)
2013	$	71,285
2014	63,386
2015	55,618
2016	50,957
2017	43,753

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DERIVATIVE FINANCIAL INSTRUMENTS (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
Notional amount and fair value of the entity's derivative financial instruments
Credit obligations	$ 0
Realized investment gains (losses) - derivatives, gross	(227,816,000)	(155,005,000)	[1]	(144,438,000)	[1]
Notional Amount, Other long-term investments	7,567,811,000	5,948,784,000
Fair Value, Other long-term investments	130,428,000	54,645,000
Notional Amount, Other liabilities	9,672,554,000	7,321,905,000
Fair Value, Other liabilities	657,874,000	455,710,000
PLC
Notional amount and fair value of the entity's derivative financial instruments
Number of portfolio maintenance agreements	2
Derivatives not designated as hedging instruments
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(102,832,000)	(5,823,000)		(64,021,000)
Realized investment gains (losses) - derivatives, gross	(227,816,000)	(155,005,000)		(144,438,000)
Derivatives not designated as hedging instruments | PLC
Notional amount and fair value of the entity's derivative financial instruments
Notional Amount, Other long-term investments	1,404,750,000	796,713,000
Fair Value, Other long-term investments	17,064,000	6,400,000
Derivatives not designated as hedging instruments | Interest rate futures
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	21,138,000	164,221,000		(11,778,000)
Notional Amount, Other long-term investments		615,445,000
Fair Value, Other long-term investments		6,393,000
Notional Amount, Other liabilities	893,476,000	270,019,000
Fair Value, Other liabilities	13,970,000	1,148,000
Derivatives not designated as hedging instruments | Equity futures
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(50,797,000)	(30,061,000)		(42,258,000)
Notional Amount, Other long-term investments	147,581,000	49,631,000
Fair Value, Other long-term investments	595,000	837,000
Notional Amount, Other liabilities	152,364,000	189,765,000
Fair Value, Other liabilities	3,316,000	1,454,000
Derivatives not designated as hedging instruments | Currency future
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(2,763,000)	2,977,000
Notional Amount, Other long-term investments	15,944,000	57,912,000
Fair Value, Other long-term investments	784,000	976,000
Notional Amount, Other liabilities	131,979,000	14,348,000
Fair Value, Other liabilities	1,901,000	126,000
Derivatives not designated as hedging instruments | Volatility futures
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(132,000)
Derivatives not designated as hedging instruments | Volatility swaps
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(11,792,000)	(239,000)		(2,433,000)
Notional Amount, Other long-term investments	500,000
Fair Value, Other long-term investments	406,000
Notional Amount, Other liabilities	2,675,000
Fair Value, Other liabilities	12,198,000
Derivatives not designated as hedging instruments | Equity options
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(37,370,000)	(15,051,000)		(1,824,000)
Notional Amount, Other long-term investments	573,493,000	440,000,000
Fair Value, Other long-term investments	61,833,000	19,396,000
Derivatives not designated as hedging instruments | Interest rate swaptions
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(2,260,000)
Notional Amount, Other long-term investments	400,000,000
Fair Value, Other long-term investments	11,370,000
Derivatives not designated as hedging instruments | Interest rate swaps
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	3,264,000	7,718,000
Realized investment gains (losses) - derivatives, gross	(87,000)	(11,264,000)		(8,427,000)
Notional Amount, Other long-term investments	355,000,000	125,000,000
Fair Value, Other long-term investments	6,532,000	5,118,000
Notional Amount, Other liabilities	400,000,000	25,000,000
Fair Value, Other liabilities	10,025,000	3,064,000
Derivatives not designated as hedging instruments | Credit default swaps
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross		(7,851,000)
Net settlements received		2,500,000
Realized loss on terminated contracts		10,400,000
Derivatives not designated as hedging instruments | Embedded derivative - Modco reinsurance treaties
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	(132,816,000)	(134,340,000)		(67,989,000)
Notional Amount, Other long-term investments	30,244,000	30,001,000
Fair Value, Other long-term investments	1,330,000	2,038,000
Notional Amount, Other liabilities	2,655,134,000	2,761,686,000
Fair Value, Other liabilities	411,907,000	279,799,000
Derivatives not designated as hedging instruments | Embedded derivative - GMWB
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives related to variable annuity contracts, gross	(22,120,000)	(127,537,000)		(5,728,000)
Notional Amount, Other long-term investments	1,640,075,000	826,790,000
Fair Value, Other long-term investments	30,261,000	10,665,000
Notional Amount, Other liabilities	5,253,961,000	3,741,688,000
Fair Value, Other liabilities	199,530,000	157,813,000
Derivatives not designated as hedging instruments | Interest rate caps
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	(2,666,000)	(2,801,000)
Notional Amount, Other long-term investments	3,000,000,000	3,000,000,000
Fair Value, Other long-term investments		2,666,000
Derivatives not designated as hedging instruments | Other
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	(79,000)	(477,000)		799,000
Notional Amount, Other long-term investments	224,000	224,000
Fair Value, Other long-term investments	253,000	155,000
Derivatives not designated as hedging instruments | Portfolio maintenance agreements
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	500,000
Derivatives not designated as hedging instruments | Derivatives with PLC
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	10,664,000	(300,000)		(4,800,000)
Derivatives not designated as hedging instruments | YRT premium support arrangement
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	600,000	0
Derivatives not designated as hedging instruments | Interest Support Agreement
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	9,600,000	(300,000)
Cash flow hedges | Inflation
Notional amount and fair value of the entity's derivative financial instruments
Notional Amount, Other long-term investments		7,068,000
Fair Value, Other long-term investments		1,000
Notional Amount, Other liabilities	182,965,000	244,399,000
Fair Value, Other liabilities	5,027,000	8,863,000
Cash flow hedges | Interest rate swaps
Notional amount and fair value of the entity's derivative financial instruments
Notional Amount, Other liabilities		75,000,000
Fair Value, Other liabilities		$ 3,443,000

[1] Recast from previously reported information

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2010
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Change in net unrealized gains (losses) on investments, income tax	$ 392,372	$ 400,626	[1]	$ 328,597	[1]
Reclassification adjustment for investment amounts included in net income, income tax	(3,317)	(14,646)	[1]	(5,951)	[1]
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, income tax	16,227	(13,195)	[1]	11,515	[1]
Change in accumulated gain - derivatives, income tax	2,609	2,382	[1]	4,441	[1]
Reclassification adjustment for derivative amounts included in net income, income tax	$ (381)	$ (138)	[1]	$ (614)	[1]

[1] Recast from previously reported information

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EMPLOYEE BENEFIT PLANS (Details 3) (PLC)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Pension Plan
Weighted-average assumptions used to determine benefit obligations
Discount rate (as a percent)	4.07%	4.62%
Rate of compensation increase (as a percent)	3.00%
Expected long-term return on plan assets (as a percent)	7.50%	7.75%
Period for which annualized returns are obtained for each asset class	25 years
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	4.62%	5.30%	5.57%
Expected long-term return on plan assets (as a percent)	7.75%	7.75%	8.00%
Defined Benefit Pension Plan | Minimum
Weighted-average assumptions used to determine benefit obligations
Rate of compensation increase (as a percent)		2.50%
Weighted-average assumptions used to determine net periodic benefit cost
Rate of compensation increase (as a percent)	2.50%	2.50%	0.00%
Defined Benefit Pension Plan | Maximum
Weighted-average assumptions used to determine benefit obligations
Rate of compensation increase (as a percent)		3.00%
Weighted-average assumptions used to determine net periodic benefit cost
Rate of compensation increase (as a percent)	3.00%	3.00%	3.75%
Unfunded Excess Benefits Plan
Weighted-average assumptions used to determine benefit obligations
Discount rate (as a percent)	3.37%	4.07%
Rate of compensation increase (as a percent)	4.00%
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	4.07%	4.79%	5.40%
Unfunded Excess Benefits Plan | Minimum
Weighted-average assumptions used to determine benefit obligations
Rate of compensation increase (as a percent)		3.50%
Weighted-average assumptions used to determine net periodic benefit cost
Rate of compensation increase (as a percent)	3.50%	3.50%	0.00%
Unfunded Excess Benefits Plan | Maximum
Weighted-average assumptions used to determine benefit obligations
Rate of compensation increase (as a percent)		4.00%
Weighted-average assumptions used to determine net periodic benefit cost
Rate of compensation increase (as a percent)	4.00%	4.00%	4.75%
Retiree medical plan
Weighted-average assumptions used to determine benefit obligations
Discount rate (as a percent)	1.09%
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	1.97%
Group life insurance plan
Weighted-average assumptions used to determine benefit obligations
Discount rate (as a percent)	4.10%
Expected long-term return on plan assets (as a percent)	3.26%
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate (as a percent)	4.62%
Expected long-term return on plan assets (as a percent)	3.45%

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BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2012

BASIS OF PRESENTATION

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

Basis of Presentation

Protective Life Insurance Company (the “Company”), a stock life insurance company, was founded in 1907. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange “PL”. The Company provides financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate division devoted to the acquisition of insurance policies from other companies.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities (see also Note 18, Statutory Reporting Practices and Other Regulatory Matters).

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 and Accounting Changes

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 shareowner’s equity.

On January 1, 2012, the Company adopted Accounting Standard Update (“ASU” or “Update”) No. 2010-26 — Financial Services — Insurance — Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts which changed certain previously reported items within the Company’s financial statements and accompanying notes. The previously reported amounts included in the Company’s financial statements and accompanying notes have been updated to reflect the retrospective adoption of ASU No. 2010-26, where applicable.

Current and prior period operating income results within the Annuities segment have been updated to reflect the revised definition of operating income (loss) as it relates to embedded derivatives on our variable annuity contracts and the related hedging activities. This change did not impact its comparable GAAP measure income before income tax. See Note 21, Operating Segments for additional information.

Also on January 1, 2012, the Company adopted ASU No. 2011-05, which requires the presentation of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The requirements of ASU No. 2011-05 do not change the items that must be reported in other comprehensive income, or the timing of its subsequent reclassification to net income. The retrospective adoption of ASU No. 2011-05 resulted in the inclusion of consolidated statements of comprehensive income within the Company’s consolidated financial statements.

Out of Period Adjustment

During 2012 the Company recorded an adjustment to correct an error in the prior period valuation of our interest support agreement with PLC. The adjustment was $1.9 million related to the year ended December 31, 2011.  This adjustment resulted in an increase to “Other Long-Term Investments” and an increase to “Realized Investments Gains (Losses): Derivative Financial Instruments”. The adjustment was not material to any one prior period and, as a result, we have not restated the prior period amount.

Entities Included

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property and Equipment
Total property and equipment, gross	$ 151,016	$ 180,576
Accumulated depreciation	(103,625)	(132,579)	[1]
Total property and equipment	47,391	47,997	[1]
Home office building
Property and Equipment
Useful life	39 years
Total property and equipment, gross	72,587	72,148
Furniture
Property and Equipment
Useful life	10 years
Office equipment and machines
Property and Equipment
Useful life	5 years
Software and computers
Property and Equipment
Useful life	3 years
Data processing equipment
Property and Equipment
Total property and equipment, gross	29,209	56,928
Other, principally furniture and equipment
Property and Equipment
Total property and equipment, gross	$ 49,220	$ 51,500

[1] Recast from previously reported information

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SHAREOWNER'S EQUITY (Details) (PLC, USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
PLC
SHAREOWNER'S EQUITY
Number of shares of preferred stock owned in the subsidiary, PL&A	2,000
Amount of PL&A statutory earnings in immediately the preceding fiscal year, which must be exceeded for preferred stock to pay noncumulative participating dividends	$ 1,000,000
Dividends received by PLC on preferred stock holdings in PL & A	$ 0	$ 0	$ 0

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 5) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets:
Mortgage loans on real estate	$ 4,948,625	$ 5,351,902	[1]
Policy loans	865,391	879,819	[1]
Fixed maturities, held-to-maturity	300,000
Liabilities:
Stable value product account balances	2,510,559	2,769,510	[1]
Annuity account balances	10,658,463	10,946,848	[1]
Mortgage loan backed certificates		19,755	[1]
Debt
Non-recourse funding obligations	1,446,900	1,248,600	[1]
Golden Gate V
Debt
Non-recourse funding obligations	300,000
Level 3
Assets:
Fixed maturities, held-to-maturity	4,300
Carrying Amounts
Assets:
Mortgage loans on real estate	4,948,625	5,351,902
Policy loans	865,391	879,819
Fixed maturities, held-to-maturity	300,000
Liabilities:
Stable value product account balances	2,510,559	2,769,510
Annuity account balances	10,658,463	10,946,848
Mortgage loan backed certificates		19,755
Debt
Non-recourse funding obligations	1,446,900	1,248,600
Carrying Amounts | Golden Gate V
Debt
Non-recourse funding obligations	300,000
Fair Values | Golden Gate V
Debt
Non-recourse funding obligations	297,600
Fair Values | Level 3
Assets:
Mortgage loans on real estate	5,723,579	6,251,902
Policy loans	865,391	879,819
Fixed maturities, held-to-maturity	319,163
Liabilities:
Stable value product account balances	2,534,094	2,855,614
Annuity account balances	10,525,702	10,767,892
Mortgage loan backed certificates		19,893
Debt
Non-recourse funding obligations	$ 1,357,290	$ 1,060,275

[1] Recast from previously reported information

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MORTGAGE LOANS (Details) (USD $)	12 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011
MORTGAGE LOANS
Mortgage loan holdings	$ 4,948,625,000	$ 5,351,902,000	[1]
Mortgage loans
Percentage of Mortgage Loans on Real Estate	100.00%
Number of single tenants whose exposure represents more than 2.0% of mortgage loans	0
Amount of new loans funded	309,300,000
Average loan size of new loans funded	3,800,000
Average loan size of portfolio	2,500,000
Weighted-average interest rate on mortgage loans (as a percent)	6.11%
Largest single mortgage loan	40,200,000
Amount that would become due in 2013, if loans are called at their next call dates	224,800,000
Amount that would become due in 2014 through 2018, if loans are called at their next call dates	1,300,000,000
Amount that would become due in 2019 through 2023, if loans are called at their next call dates	599,000,000
Amount that would become due after 2023, if loans are called at their next call dates	179,600,000
Allowance for loan and credit losses	2,900,000
Change in the allowance for credit losses
Beginning balance	5,000,000
Ending balance	2,900,000
Retail
Mortgage loans
Percentage of Mortgage Loans on Real Estate	67.40%
Office buildings
Mortgage loans
Percentage of Mortgage Loans on Real Estate	13.70%
Apartments
Mortgage loans
Percentage of Mortgage Loans on Real Estate	9.40%
Warehouses
Mortgage loans
Percentage of Mortgage Loans on Real Estate	7.40%
Other
Mortgage loans
Percentage of Mortgage Loans on Real Estate	2.10%
All identified states
Mortgage loans
Percentage of Mortgage Loans on Real Estate	65.50%
Texas
Mortgage loans
Percentage of Mortgage Loans on Real Estate	11.60%
Georgia
Mortgage loans
Percentage of Mortgage Loans on Real Estate	8.90%
Alabama
Mortgage loans
Percentage of Mortgage Loans on Real Estate	7.60%
Tennessee
Mortgage loans
Percentage of Mortgage Loans on Real Estate	7.30%
Florida
Mortgage loans
Percentage of Mortgage Loans on Real Estate	7.00%
Ohio
Mortgage loans
Percentage of Mortgage Loans on Real Estate	5.40%
North Carolina
Mortgage loans
Percentage of Mortgage Loans on Real Estate	5.20%
South Carolina
Mortgage loans
Percentage of Mortgage Loans on Real Estate	4.90%
Utah
Mortgage loans
Percentage of Mortgage Loans on Real Estate	4.50%
California
Mortgage loans
Percentage of Mortgage Loans on Real Estate	3.10%
Maximum
Mortgage loans
Single tenant's exposure as a percentage of mortgage loans	2.00%
Commercial mortgage loans
Mortgage loans
Allowance for loan and credit losses	2,875,000	4,975,000
Mortgage loans having participation feature	817,300,000	876,800,000
Maximum nonperforming mortgage loans, foreclosed properties and restructured loans to invested assets (as a percent)	0.05%
Delinquent mortgage loans, foreclosed properties and restructured loans pursuant to pooling and servicing agreement	17,900,000
Reduction in investment in mortgage loans due to troubled debt restructurings	7,800,000
Represents the number of troubled debt restructuring loans remaining on the balance sheet	0
Number of loan categories	2
Nonperforming loans not subject to a pooling and servicing agreement	11,000,000
Number of nonperforming loans not subject to a pooling and servicing agreement	0
Number of nonperforming loans subject to a pooling and servicing agreement which have been restructured	0
Loans subject to a pooling and servicing agreement which are nonperforming	6,900,000
Change in the allowance for credit losses
Beginning balance	4,975,000	11,650,000
Charge offs	(8,340,000)	(16,278,000)
Recoveries	(628,000)	(2,471,000)
Provision	6,868,000	12,074,000
Ending balance	$ 2,875,000	$ 4,975,000
Commercial mortgage loans | Minimum
Mortgage loans
Period for exercise of call options or interest rate reset options	3 years
Commercial mortgage loans | Maximum
Mortgage loans
Period for exercise of call options or interest rate reset options	10 years
Loan-to-value ratio with participating interest (as a percent)	85.00%

[1] Recast from previously reported information

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STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS

12 Months Ended

Dec. 31, 2012

STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS

STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS

18. STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS

The Company and its insurance subsidiaries prepare statutory financial statements for regulatory purposes in accordance with accounting practices prescribed by the NAIC and the applicable state insurance department laws and regulations. These financial statements vary materially from GAAP. Statutory accounting practices include publications of the NAIC, state laws, regulations, general administrative rules as well as certain permitted accounting practices granted by the respective state insurance department. Generally, the most significant differences are that statutory financial statements do not reflect 1) deferred acquisition costs, 2) benefit liabilities that are calculated using realistic estimates of expected mortality, interest, and withdrawals, 3) deferred income taxes that are not subject to statutory limits, 4) similar treatment of realized gains and losses on the sale of securities, and 5) fixed maturities recorded at fair values, but instead at amortized cost.

Statutory net income for PLICO was $376.3 million, $259.2 million, and $303.6 million for the year ended December 31, 2012, 2011 and 2010, respectively. Statutory capital and surplus for PLICO was $3.0 billion and $2.6 billion as of December 31, 2012 and 2011, respectively.

As of December 31, 2012, approximately $633 million of consolidated shareowner’s equity, excluding net unrealized gains on investments, represented net assets of the Company’s insurance subsidiaries that cannot be transferred to the Protective Life Insurance Company in the form of dividends, loans, or advances. In addition, the Company’s insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. 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. In addition, the Company can receive approximately $95.0 million of ordinary dividends from its insurance subsidiaries in 2013.

State insurance regulators and the National Association of Insurance Commissioners (“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. As of December 31, 2012, the Company’s total adjusted capital and company action level RBC was $3.3 billion and $644 million, respectively, providing an RBC ratio of approximately 510%.

As of December 31, 2012, the Company and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $48.7 million.

The states of domicile of the Company and its insurance subsidiaries have adopted prescribed accounting practices that differ from the required accounting outlined in NAIC Statutory Accounting Principles (“SAP”). The insurance subsidiaries also have certain accounting practices permitted by the states of domicile that differ from those found in NAIC SAP.

Certain prescribed and permitted practices impact the statutory surplus of the Company. These practices include the non-admission of goodwill as an asset for statutory reporting, the reporting of Bank Owned Life Insurance (“BOLI”) separate account amounts at book value rather than at fair value, and a reserve difference related to a captive insurance company.

The favorable (unfavorable) effects of the Company’s statutory surplus, compared to NAIC statutory surplus, from the use of these prescribed and permitted practices were as follows:

	As of December 31,
	2012			2011
	(Dollars In Millions)
Non-admission of goodwill	$	—		$	(159	)
Report BOLI Separate Accounts at Book Value	(1		)	(7		)
Reserving difference related to a captive insurance company	(49		)	—
Total (net)	$	(50	)	$	(166	)

The Company also has certain prescribed and permitted practices which are applied at the subsidiary level and do not have a direct impact on the statutory surplus of the Company. These practices include permission to follow the actuarial guidelines of the domiciliary state of the ceding insurer for certain captive reinsurers, and accounting for the face amount of all issued and outstanding letters of credit as an asset in the statutory financial statements of certain wholly owned subsidiaries that are considered “Special Purpose Financial Captives”.

The favorable (unfavorable) effects on the statutory surplus of the Company’s insurance subsidiaries, compared to NAIC statutory surplus, from the use of these prescribed and permitted practices were as follows:

	As of December 31,
	2012		2011
	(Dollars In Millions)
Accounting for Letters of Credit as admitted assets	$	1,205	$	1,015
Accounting for Red Mountain Note as admitted asset	$	300	$	—
Reserving based on state specific actuarial practices	$	95	$	84

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GOODWILL (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2012 Acquisitions	Dec. 31, 2011 Acquisitions	Dec. 31, 2012 Asset Protection	Dec. 31, 2011 Asset Protection	Dec. 31, 2010 Asset Protection
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 86,871	[1]	$ 89,970		$ 38,713	$ 41,812	$ 48,158	$ 48,158	$ 48,158
Tax benefit of excess tax goodwill	(3,098)		(3,099)		(3,098)	(3,099)
Balance at the end of the period	83,773		86,871	[1]	35,615	38,713	48,158	48,158	48,158
Decrease in goodwill balance	$ 3,098		$ 3,099		$ 3,098	$ 3,099

[1] Recast from previously reported information

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SIGNIFICANT ACQUISITIONS (Tables)

12 Months Ended

Dec. 31, 2012

SIGNIFICANT ACQUISITIONS

Schedule of pro forma condensed consolidated results of operations

	Unaudited
	For The Year Ended December 31,
	2011		2010
	(Dollars In Thousands)
Revenue	$	3,491,414	$	3,321,743
Net income	$	324,793	$	270,433

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

The Company leases administrative and marketing office space in approximately 20 cities including 24,090 square feet in Birmingham (excluding the home office building), with most leases being for periods of three to ten years. The Company had rental expense of $11.2 million, $10.8 million, and $10.8 million for the years ended December 31, 2012, 2011, and 2010, respectively. The aggregate annualized rent was approximately $6.9 million for the year ended December 31, 2012. The following is a schedule by year of future minimum rental payments required under these leases:

Year	Amount
	(Dollars In Thousands)
2013	$	6,948
2014	5,462
2015	4,229
2016	2,664
2017	740
Thereafter	235

Additionally, the Company leases a building contiguous to its home office. The lease extends to January 2014. At the end of the lease term the Company may purchase the building for approximately $75 million. The following is a schedule by year of future minimum rental payments required under this lease:

Year	Amount
	(Dollars In Thousands)
2013	$	679
2014	75,065

As of December 31, 2012 and 2011, the Company had outstanding mortgage loan commitments of $182.6 million at an average rate of 5.10% and $182.4 million at an average rate of 5.58%, respectively.

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. In addition, from time to time, companies may be asked to contribute amounts beyond prescribed limits. Most insurance guaranty fund laws provide that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength. The Company does not believe its insurance guaranty fund assessments will be materially different from amounts already provided for in the financial statements.

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. Companies in the financial services and insurance industries are also sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or regulatory actions or other actions resulting from such investigations. The Company, in the ordinary course of business, is involved in such matters.

The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established. For such matters, the Company may provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis and updates its established liabilities, disclosures and estimates of reasonably possible losses or range of loss based on such reviews.

Although the Company cannot predict the outcome of any litigation or regulatory action, the Company does not believe that any such outcome will have an impact, either individually or in the aggregate, on its financial condition or results of operations that differs materially from the Company’s established liabilities. Given the inherent difficulty in predicting the outcome of such matters, however, it is possible that an adverse outcome in certain such matters could be material to the Company’s financial condition or results of operations for any particular reporting period.

In the IRS audit that concluded during this quarter, the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and is seeking resolution at the IRS’ Appeals Division. Although it cannot be certain, the Company believes that the Appeals process will conclude within the next 12 months. If the IRS prevails on every issue that it identified in this audit, and the Company does not litigate these issues, then the Company will make an income tax payment of approximately $24.3 million. However, this payment, if it was to occur, would not materially impact the Company or its effective tax rate.

The Company has received notice from two third party auditors that the Company, as well as certain of its insurance affiliates and certain other insurance companies for which the Company has co-insured blocks of life insurance and annuity products, will be audited for compliance with the unclaimed property laws of a number of states. The audits are being conducted on behalf of the treasury departments in such states. The focus of the audits is on whether there have been unreported deaths, maturities, or policies that have exceeded limiting age with respect to which death benefits or other payments under life insurance or annuity policies should be treated as unclaimed property that should be escheated to the state. The Company has recorded a reserve with respect to life insurance policies and certain co-insured blocks of life insurance policies issued by other companies in connection with these pending audits. The Company does not consider the amount of this reserve to be material to the Company’s financial condition or results of operations. With respect to one block of life insurance policies that is co-insured by the Company, the Company is presently unable to estimate the reasonably possible loss or range of loss due to a number of factors, including uncertainty as to the legal theory or theories that may give rise to liability, uncertainty as to whether the Company or other companies are responsible for the liabilities, if any, arising in connection with such policies, the distinct characteristics of this co-insured block of policies which differentiate it from the blocks of life insurance policies for which the Company has recorded a reserve, and the early stages of the audits being conducted. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with this block of co-insured policies probable or reasonably estimable.

The Company has received notice that it and its affiliated life insurance companies are subject to a targeted multi-state examination with respect to their claims paying practices and their use of the U.S. Social Security Administration’s Death Master File or similar databases (a “Death Database”) to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed, and substantial legal authority exists to support the position that the prevailing industry practice was lawful. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, and escheating the benefits and interest as well as penalties to the state if the beneficiary could not be found.  It has been publicly reported that the life insurers have paid substantial administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements. The Company believes it is reasonably possible that insurance regulators could demand from the Company administrative and/or examination fees relating to the targeted multi-state examination. Based on publicly reported payments by other life insurers, the Company estimates the range of such fees to be from $0 to $3.5 million.

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STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS (Details 2) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus	$ (50.0)	$ (166.0)
Non-admission of goodwill
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus		(159.0)
Report BOLI Separate Accounts at Book Value
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus	(1.0)	(7.0)
Reserving difference related to a captive insurance company
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus	(49.0)
Accounting for Letters of Credit as admitted assets
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus	1,205.0	1,015.0
Accounting for Red Mountain Note as admitted asset
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus	300.0
Reserving based on state specific actuarial practices
STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
Total (net) effect of statutory surplus	$ 95.0	$ 84.0